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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 23, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to ________________
COMMISSION FILE NUMBER 0-10558
ALPHA MICROSYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3108178
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2722 SO. FAIRVIEW STREET, SANTA ANA, CA 92704
(address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 957-8500
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price of its common stock on May 19, 1997
on the NASDAQ National Market, a date within 60 days prior to the date of
filing, was $17,247,398.
As of May 19, 1997, there were 10,821,897 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be filed no later than 120 days after the close of the
registrant's fiscal year ended February 23, 1997, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
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PART I
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements include (i) the market
acceptance of the Company's hardware and software products and services,
including its AlphaCONNECT Internet/intranet product, (ii) the continued
development of the Company's technical, manufacturing, sales, marketing and
management capabilities, and (iii) anticipated competition.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. The Company's future success
will be highly dependent upon its ability to develop, produce, and market
products and services that incorporate new technology, are priced competitively,
and achieve significant market acceptance. There can be no assurance that the
Company's products and services will be commercially successful or technically
advanced due to the rapid improvements in computer technology and resulting
product obsolescence. There is also no assurance that the Company will be able
to deliver commercial quantities of new products in a timely manner. The success
of new product and service introductions is dependent on a number of factors,
including market acceptance, the Company's ability to manage risks associated
with product and services transitions, and the Company's ability to manage its
expenses in proportion to its revenues. There can be no assurance that such new
product and service introductions will occur without adversely affecting the
Company's revenues, cash flow, results of operations and financial condition.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. In addition, the business and operations of the
Company are subject to substantial risks which increase the uncertainty inherent
in the forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
ITEM 1. BUSINESS
Alpha Microsystems (the "Company" or "Alpha Micro") is a California corporation
with its principal offices located at 2722 S. Fairview Street, Santa Ana, CA
92704 (telephone number 714/957-8500). The Company provides information
technology products (including products for the Internet/intranet market) and
services (including consulting, maintenance, support and networking) to a
variety of market segments. The Company provides these services through its more
than 40 locations throughout North America.
This Annual Report on Form 10-K refers to various trademarks of the Company and
certain trademarks of other companies.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated under California law on March 17, 1977. During the
last five years, the Company completed several acquisitions and dispositions
including both product lines and subsidiaries. Certain of these acquisitions
included service and software operations. While these acquisitions enabled it to
generate additional service revenues, there was significant attrition in
acquired customer bases.
In fiscal 1996, the Company sold CV Systems to Veterinary Centers of America
("VCA"), a major user of the product. The sale resulted from market pressures
from veterinary industry consolidation and the Company's belief that it could
apply its resources toward areas with greater growth potential. Also in 1996,
the Company refocused its marketing strategy for PANDA, its food service
software product, and evaluated additional development of Alpha2000, its dental
office software product, in an effort to economically enhance its market
acceptance. These efforts were unsuccessful and management began evaluating
these
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operations for potential disposition. In 1996, the Company also finalized
the sale of Alpha Microsystems Belgium, S.A. to a member of its Belgian
management. Subsequent to this sale, the Company continued to conduct its
European operations directly through Alpha Microsystems Great Britain Limited
("AMGB").
In fiscal 1997, the Company sold its remaining European operation, Alpha
Microsystems Great Britain Limited ("AMGB"), including Sabre Business Systems
Limited, and its remaining vertical software operations, PANDA and
AlphaHealthCare. These dispositions were consistent with the Company's strategy
to concentrate its resources on the service business and to develop and launch
the AlphaCONNECT Internet/intranet software products. (See Transition Plan.)
DESCRIPTION OF BUSINESS
The Company is a supplier of information technology products and services. The
Company historically had two principal lines of business: (1) the sale of
computer and networking hardware and software products, and (2) the service of
its own and third-party hardware and software products as well as installation,
training, and consulting services. In recognition of the intensely competitive
nature of the computer hardware industry and the migration towards open system
environments and away from proprietary systems such as those primarily sold by
the Company, the Company has in the last several years as part of a transition
plan focused its efforts on vertical niche markets, the expansion of its service
business and the development and marketing of AlphaCONNECT, an Internet/intranet
software product (See Transition Plan). The movement into vertical niche markets
did provide additional service revenues. However, the products were not
sufficiently successful to warrant additional capital commitments. Accordingly,
the Company sold its remaining vertical niche software businesses in fiscal 1997
but continues to provide service to the customer bases of these businesses.
In fiscal 1997, service revenues accounted for 63.0% of total revenues and
product sales accounted for 37.0% of total revenues, as compared to fiscal 1992,
when service revenues accounted for 33.3% of total revenues and product sales
accounted for 66.7% of total revenues.
The following table sets forth the percentage contribution to total company
revenues of each of these principal lines of business for the periods indicated:
PERCENTAGE OF REVENUES
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FISCAL YEAR ENDED
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FEBRUARY 23, FEBRUARY 25, FEBRUARY 26,
1997 1996 1995
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Product Revenues 37.0% 44.2% 48.5%
Service Revenues 63.0% 55.8% 51.5%
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TRANSITION PLAN
During the mid-1990s through fiscal 1997, the Company implemented a transition
plan to realign its hardware business and focus on its software and services
businesses. At the same time, the Company redeployed certain assets, closed
certain facilities, downsized its employment, initiated asset management
programs and adjusted its intangibles to more accurately reflect current market
values.
The Company closed its Italian operation in fiscal 1994 and transferred customer
service responsibilities for Italian customers to its United Kingdom subsidiary,
AMGB. The Company also closed its French subsidiary and disposed of its Belgian
subsidiary by selling it to one of the Belgian employees in 1996. In fiscal 1997
AMGB and Sabre were sold to Sanderson Electronics PLC.
In fiscal 1996, the Company wrote down certain intangibles to more accurately
reflect the current market value of such intangibles. A write-down was taken at
the end of fiscal 1996 and aggregated $1,995,000; this write-down was associated
with certain vertical software products and goodwill related to its PANDA and
AlphaHealthCare operations. In fiscal 1997, the Company sold these two
operations. Each was sold for a base price,
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consisting of cash and notes which approximated the Company's net book value,
and a contingent or "Earnout" amount which depends on the future performance of
the businesses sold. Contingent or earnout amounts realized in the future will
be included in the Company's results of operations when earned.
The Company has also taken steps that have reduced operating expenses and has
developed improved asset management techniques. In fiscal 1996, the Company
moved its corporate, software development, engineering, servicing operations and
its hardware manufacturing operation into a smaller facility in Santa Ana,
California. The Company also instituted asset management techniques to maximize
available working capital while funding software development. As a result of
these efforts the Company's working capital requirements were substantially
reduced by the end of fiscal 1996. The Company also reduced its personnel
worldwide from 392 at the end of fiscal 1995 to 191 at the end of fiscal 1997.
Additionally, the Company significantly reduced the expenses associated with the
hardware business to bring these expenses in line with the associated revenues.
Steps taken have included a substantial reduction in the Company's hardware
workforce and sales force, the outsourcing of subassemblies and certain product
lines, the reduction of floor space allocated to hardware integration and a
substantial reduction in hardware engineering expense. The Company also
reorganized its hardware business as a division within Alpha Microsystems
Services Organization ("AMSO"), resulting in a reduction of personnel expenses
associated with hardware products.
During this period the Company redirected some of its available resources and
assets toward the development and sale of software and information technology
services. The Company's investment in the development and introduction of new
products contributed to its losses during each of the fiscal years 1995, 1996
and 1997. In late 1996 and for the year 1997, a major portion of these resources
were committed to the development and launching of the AlphaCONNECT family of
Internet/intranet products.
PRODUCTS
ALPHACONNECT
In fiscal 1997, the Company announced the introduction of its
AlphaCONNECT technology and software products for use in Internet/intranet
applications. The patent pending AlphaCONNECT technology, which is highly
customizable, allows for smart data harvesting, conversion and delivery. Based
on user-specified criteria and under the control of a built-in timer,
AlphaCONNECT technology controls the entire data harvesting and updating cycle.
The technology can be set up to establish connections with legacy applications
or Web sites, collect the desired data, launch the appropriate Windows
application or Web page updating routines, filter the incoming source data, map
the output to the specified destination and shut down the application when all
processes are completed. When delivering data to Windows applications,
AlphaCONNECT can create new documents or spreadsheets, or update existing ones
containing user-defined formulas, formats and attributes. AlphaCONNECT also
facilitates the development and maintenance of dynamically self-updating Web
pages.
AlphaCONNECT is the underlying technology found in several applications
developed and announced by the Company. The Company has released AlphaCONNECT
Pro for harvesting Internet data and delivering it to user applications such as
Microsoft Excel, Microsoft Access, Microsoft Word, Quattro Pro, WordPerfect,
Borland Paradox and others, and Web browsers including Netscape and Microsoft
Internet Explorer. Also released is AlphaCONNECT StockVue, an agent application
ready-tailored for OEMs or for use by end-users to monitor their investment
portfolios, which provides custom delivery of financial data such as stock and
mutual fund quotes, news, charts and filings. The Company has announced the
future release of AlphaCONNECT BusinessVue which provides end users with a feed
of filtered, corporate and business information from the Internet. The Company
also is testing the prototype of its AlphaCONNECT Pro 2.0 software. An upgrade
to the previously released Pro product, version 2.0, features Open Data Base
Compliancy and multi-media capabilities, as well as other enhancements. The
Company expects Pro 2.0 to be released for sale in fiscal 1998. In addition, the
Company has released its AlphaCONNECT Messenger technology for e-mail
applications; this technology is currently embedded in all AlphaCONNECT
products.
The AlphaCONNECT technology provides the necessary components for additional
client applications and can be integrated with other software products and
environments. The
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Company plans to continue to research and develop additional Internet/intranet
strategies to keep pace with this fast changing market. Some of these strategies
are anticipated to expand the integration of the AlphaCONNECT technology with
third-party products and/or services currently being developed or marketed
today. No assurance can be given that any of these strategies will be
successfully implemented.
HARDWARE
The Company supports its customers with personal computer products
through its AlphaDirect program, through which the Company markets third-party
PC and peripheral products, and with its proprietary family of AM Series
computer systems, based primarily on the Motorola 680XX family of
microprocessors.
The AM Series consists primarily of the Eagle family of small business computer
systems. The Eagle family was first introduced by the Company in 1994 with the
latest member being the Super Eagle, which commenced delivery in late fiscal
1996. The AM Series also includes the AM-4000 as well as the recently announced
AM-6000 which is presently undergoing customer field testing and is anticipated
to be available for sale in the second quarter of fiscal 1998.
The primary operating system licensed with the Company's products is AMOS, the
Company's proprietary operating system. The Company also incorporates Novell
NetWare, SCO UNIX, MS-DOS, and Microsoft Windows, among others, into certain of
its products. In addition to operating systems software, the Company markets and
distributes a variety of software products for its hardware systems including
language compilers, development and conversion tools, networking products,
application programs, and utility programs.
SERVICES OPERATION
The Company maintains service operations that employ approximately 123 service
personnel in North America to provide service and technical support to the
Company's customers and certain dealers. The Alpha Microsystems Services
Operation ("AMSO") provides multi-vendor hardware and software maintenance and
repair services throughout the United States and Canada via a network of 41
field offices linked to a national dispatch and advisory center. Through the
Alpha Micro Technical Assistance Center, the Company responds to questions from
dealers and end users around the world by electronic and telephone
communications channels. The Company intends to expand the service segment of
its business through new service contracts, expansion of time and material
servicing, and alliances with third-party firms, although no assurances can be
given that the Company will be successful in expanding its services operation
above current levels.
While the Company's service revenues have decreased, AMSO's contribution to the
Company's operations has increased over the past years due to the decline in
product revenues. On a worldwide basis, revenues from service operations
represented 63.0%, 55.8% and 51.8% of total revenues for fiscal 1997, 1996 and
1995, respectively. AMSO continues to develop opportunities to service selected
products manufactured by third parties in an effort to more fully exploit the
Company's service capabilities. AMSO's services also include the design and
installation of computer networks. Other professional services offered by AMSO
include consulting services related to site preparation work, electrical power
and cabling analysis, air conditioning, humidity and static electricity
problems, and lightning protection for computer systems.
DISTRIBUTION AND MARKETING
The Company currently markets its hardware products through a network of
approximately 186 dealers and distributors located in North America, Europe,
Latin America, Australia and the Asia Pacific area. The Company's distribution
to its dealers and distributors is supported by sales and marketing personnel
located at the Company's headquarters as well as in various metropolitan
locations throughout the United States. In addition, the Company engages in
direct marketing of hardware in its service operations.
Sales of the Company's hardware are dependent upon several large customers,
however none of the Company's customers represents more than 10% of the
consolidated revenues. The loss of one or more of the Company's large hardware
customers could have a material adverse effect on the Company's results of
operations.
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The distribution strategy for AlphaCONNECT is focused on several methods of
distribution which include: (i) establishing OEM relationships with hardware and
software developers and suppliers; (ii) forming alliances with computer products
distributors; (iii) creating relationships with mass merchandisers and software
retailers; (iv) direct marketing to corporate environments; (v) developing
associations with shareware providers; and (vi) selling via the electronic
marketplace of the Internet. The Company has committed significant resources to
developing these channels and creating market awareness. In fiscal 1997,
approximately $1,200,000 was committed to these programs. Using one or more of
these distribution channels, the Company intends to derive revenues from the
sale of product, licensing of technology, or revenue sharing relationships. In
the first quarter of fiscal 1998, the Company is distributing StockVue 2.0 at
nominal or no cost, both to promote name recognition and to facilitate use of
StockVue in arrangements which may in the future generate advertising revenue
income. However, direct revenue advertising on the Internet is in the early
stages, revenues expected from such advertising have not yet materialized, the
revenues available through the Company's present alliances are uncertain, and
there is no assurance that substantial revenues will be realized through such
advertising revenues.
During fiscal 1996 and 1997, AMSO developed a national field sales and marketing
group with a view toward expanding the service business through a more
aggressive direct sales process. AMSO's sales efforts are concentrated on
securing contracts for service of open systems such as IBM RS6000s and Microsoft
and Novell networks.
During fiscal 1997, 1996 and 1995, approximately 20%, 30% and 30% of the
Company's total net sales were made to foreign dealers and users. From its
headquarters in the United States, the Company sells its products directly to
distributors and independent dealers in Europe, Mexico, Latin America,
Australia, the Asia Pacific area and other international markets.
INTEGRATION AND SUPPLIES
The Company's hardware manufacturing process consists primarily of assembling,
integrating, and testing a wide variety of purchased electronic and
electromechanical components and subassemblies. Most components and
subassemblies are available from a number of alternative sources and certain
suppliers have provided the Company with favorable consignment arrangements.
However, some components and subassemblies used by the Company are available
from a limited number of outside suppliers and may periodically be in short
supply. The Company maintains a supply of such limited source components which
it believes is sufficient to enable it to continue operations until a
replacement supplier could be qualified and any necessary redesign could be
completed with the exception of a line of Motorola microprocessors. The
inability of the Company to obtain the components and subassemblies necessary to
enable it to fill its then-existing orders for any reason, including, but not
limited to, shortages, product delays or work stoppages experienced by the
Company's suppliers, could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's backlog is not significant because lead-time is typically less
than one week from receipt of order to shipment. The Company buys materials
pursuant to short-term forecasts and builds inventory to a semi-finished goods
state. The finished products are then integrated based upon individual customer
orders.
FOREIGN OPERATIONS
The Company's foreign sales to dealers and users comprise a substantial part of
the Company's total net sales (20%, 30% and 30% in fiscal 1997, 1996 and 1995,
respectively). (See Note 11 to the Company's Notes to Consolidated Financial
Statements contained elsewhere in this Annual Report on Form 10-K for financial
information concerning the Company's foreign operations.)
The Company believes that its gross profit margins with respect to foreign
product sales are not materially different from gross profit margins with
respect to domestic sales. A significant portion of international receivables
and payables are in currencies other than U.S. dollars, the value of which
fluctuates in relation to U.S. currency. Currency
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fluctuations can have a material adverse affect on the Company's foreign
revenue, profitability and cash flow in terms of U.S. dollars. Foreign currency
exchange gains included in the determination of income (loss) from operations
before taxes were ($42,000), $76,000 and $93,000 for the 1997, 1996 and 1995
fiscal years, respectively. To minimize the extent to which the Company may be
affected by changes in the value of foreign currencies in relation to the U.S.
dollar, from time to time the Company hedges some of its foreign currency
transactions by short-term forward foreign exchange contracts. The Company's
operations outside the United States are subject to the usual risks and
limitations attendant upon investments in foreign countries, such as
fluctuations in currency values, exchange control regulations, wage and price
controls, employment regulations, effects of foreign investment laws,
governmental instability (including expropriation or confiscation of assets),
and other potentially detrimental domestic and foreign governmental policies
affecting U.S. companies doing business abroad.
WARRANTY
The Company provides a one-year parts and labor return to factory or ninety-day
on-site warranty with an option for on-site or extended warranties on most
products, other than software. Software licensed by the Company is not warranted
by the Company and is licensed "as is." Applications software and hardware
provided by third parties is covered by the warranties of the third-party
suppliers. The Company has not had significant warranty problems and believes
its warranty reserves are adequate based on the Company's historical experience.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company intends to continue investing in engineering, research and
development for both the AlphaCONNECT line of products and the AM Series of
hardware products. Annually, management determines the amount of such investment
after considering the Company's profitability levels and technological standing
within the industry. Engineering support and services and research and
development expenses totaled $1,500,000, $2,093,000 and $2,239,000, or 17.3%,
14.5% and 11.9% of the Company's product revenue, respectively, in fiscal years
1997, 1996 and 1995. In accordance with Statement of Financial Accounting
Standards No. 86, the Company capitalizes certain engineering costs related to
software development after technological feasibility has been established and
amortizes these costs as the respective products are sold. (See Note 1 to the
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K.)
The Company has, in the past, utilized independent software developers where
appropriate and entered into agreements with such developers to design, enhance,
and/or support products to be marketed by the Company. Some agreements provide
for an initial amount to be paid as a development fee and a royalty structure
based on future revenues received from the developed product and some provided
for compensation on an hourly rate basis.Currently, the Company develops its
software internally. However, such contracts may be utilized in the future as
appropriate.
COMPETITION
The computer industry is characterized by rapid technological changes and
product obsolescence and the Company, in particular, faces severe competitive
pressures as many competitors have aggressively targeted the broad range of
market segments in which the Company's products and services compete. The
Company's competition includes a large number of hardware manufacturers, service
providers and software developers and resellers, many of which have longer
operating histories, greater name recognition, larger installed customer bases
and databases and significantly greater financial, technical and marketing
resources than the Company. Such competitors may be able to undertake more
extensive marketing campaigns and make more attractive offers to potential
employees, distribution partners, advertisers and content providers. As a result
of their greater resources, they may also be better able than the Company to
modify and enhance their products to meet changing market demands.
Due to the declining popularity of proprietary systems in favor of open systems
such as Microsoft Windows, there is an ever declining number of distributors,
dealers and developers of software and related products for use with the
Company's proprietary systems,
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which continues to have an adverse effect upon the Company's competitive
position, generally, impacting both its proprietary product sales and
corresponding service business. The Company believes that its 41 Company service
locations enable it to compete effectively against comparably-sized service
providers in the open systems service market, where it is attempting to increase
market penetration. However, there are larger service providers than the
Company, and there can be no assurance that competition from existing
competitors will not substantially increase, that established or new companies
will not enter the market in direct competition with the Company or that the
Company will be able to compete successfully with such existing or new
competitors.
With respect to the Company's AlphaCONNECT technology, the market for Internet
services and products is intensely competitive. Since there are no substantial
barriers to entry for Internet services and products, the Company expects
competition in these markets to persist. The Company believes that the principal
competitive factors in these markets are name recognition, performance, ease of
use, functionality, content and price. Competitors include online service and
content providers, Web site operators, providers of Web browser software (such
as Netscape and Microsoft) and other Internet services and products that
incorporate data retrieval, conversion and delivery or "push" technology.
The Company's future success will depend in significant part on its ability to
adapt to rapidly changing technologies, keep its products competitively priced,
maintain and enhance its market position, adapt its services and products to
evolving industry standards, and continually improve the performance, features
and reliability of its services and products in response to both evolving
demands of the marketplace and competitive service and product offerings. There
can be no assurance that the Company will have the resources to respond to this
rapidly evolving market.
GOVERNMENTAL REGULATION
The Company's operations are subject to a number of federal, state and local
laws relating to environmental, health, safety and labor matters applicable to
business generally. The Company believes its business is operated in substantial
compliance with all material applicable government regulations. However, there
can be no assurances that future regulations will not require the Company to
modify its products, business or operations to meet environmental, health,
safety, or labor requirements, or that the Company will be able, for financial
or other reasons, to comply with such future requirements. Failure to comply
with future governmental regulations could subject the Company to fines or
injunctions, which could result in a material adverse effect on the Company's
business, results of operations and financial condition. Although the Company is
not aware of any claim involving violation of environmental, health, safety or
labor laws or regulations, there can be no assurance that such claim may not
arise in the future, which may have a material adverse effect on the Company's
business, results of operations, and financial conditions.
The currently marketed versions of the Company's multi-user systems (including
the recently announced AM-6000) have been successfully tested by an independent
testing agency for compliance with Federal Communications Commission
requirements for electromagnetic interference in commercial environments.
PATENTS, TRADEMARKS AND LICENSES
In addition to claiming standard copyright protection, the Company has submitted
three provisional patent applications and one regular patent application to the
United States Patent and Trademark Office with respect to certain aspects of its
AlphaCONNECT technology. There can be no assurance that any patent will be
issued with respect to any aspect of AlphaCONNECT. The Company may decide to
abandon prosecution prior to issuance of a patent. In addition, there can be no
assurance that the provisional patent applications will provide priority for the
later filed regular patent application. If any patent issues, there can be no
assurance that any claims allowed will be sufficiently broad to protect the
Company's technology, to deter competitors or to prevent third parties from
developing equivalent technology that does not infringe such claims, or that the
patent will not otherwise be circumvented. In addition, there can be no
assurance that any patents that may be issued will not be challenged,
invalidated or held unenforceable, or that any rights granted thereunder would
provide proprietary protection to the Company and its investment
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in AlphaCONNECT. Failure of any patents to provide protection of the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent to or superior to the Company's technology.
"AlphaWRITE" (stylized)," "AlphaACCOUNTING," "AlphaACCOUNTING (stylized),"
"AlphaBASIC," "AlphaCALC," "AlphaFORTRAN 77," "AlphaLAN," "AlphaPASCAL,"
"AlphaPASCAL Programming System," "AlphaRJE," "AlphaSERV," "AlphaWRITE
(stylized)," "AMOS," "AMSO," "insight/AM," "NODESTAR," "Videotrax," "Videotrax
and Design," and the slogan "Right. From The Start." Several of these marks have
also been registered in certain foreign countries. The Company claims the
trademark "OmniBasic" in certain foreign countries. The Company has also
registered the trademark "Alpha Micro" in selected states and various foreign
countries. In addition, the Company has pending applications for the marks
"AlphaStockVue," "StockVue," "AlphaCONNECT," "AlphaCONNECT Messenger," and the
slogan "AlphaCONNECT. Where the Internet gets down to business." The Company
claims common law rights for the following marks: "AlphaCONNECT Pro,"
"AlphaCONNECT SportsVue," "SportsVue," "AlphaCONNECT BusinessVue,"
"BusinessVue," "AlphaCONNECT Power Package," "AlphaCONNECT EdgarVue," and
"EdgarVue."
The Company markets a variety of software programs that it has either developed
internally, acquired ownership rights to, or is marketing through license
agreements with third-party vendors. Internally developed software, as well as
software in which all ownership rights, title and interest have been acquired
from any third-party vendor, is distributed to dealers and users through a
licensing system primarily in object code format. Source code to these software
programs is not licensed for distribution and the Company claims such
intellectual property protection as may be available for such source code. The
Company's proprietary AMOS operating system is marketed and maintained in this
manner. Software acquired from third-party vendors pursuant to master licenses
is distributed to the Company's dealers and users for their use pursuant to a
structure of sub-licenses consistent with such master licenses.
The Company licenses the AlphaLAN network software product from U.A. Systems,
Inc. pursuant to a nonexclusive, worldwide (except India) license that was
renewed for a three-year term ending December 31, 1998, with successive one-year
renewals. Either party may terminate such agreement upon giving notice to the
other party at least 60 days prior to the end of any one-year renewal period.
The Company licenses the AcuCOBOL AMOS-based compiler from AcuCOBOL, Inc.
pursuant to a ten-year, exclusive worldwide license commencing October 29, 1992,
and terminable by AcuCOBOL, Inc. upon default by the Company, including the
Company's failure to meet certain minimum royalty requirements. Although no
assurances can be given, the Company believes it will be able to renew its
material licenses on terms that will be acceptable.
To protect its intellectual property, the Company also relies in part on
agreements with strategic employees and consultants which typically include
provisions concerning confidentiality and ownership of work product. Despite
these precautions, there can be no assurance that such agreements will provide
the Company with meaningful remedies in the event of an improper use or
disclosure of proprietary information. In addition, there can be no assurance
that third parties will not assert infringement claims against the Company in
the future or that the Company will be able to resolve such claims or disputes
on terms acceptable to the Company.
While patent, copyright and trade secret rights provide certain protection to
the Company, the Company believes that its success is less dependent on those
ownership rights than on its innovative skills, technical competence and
marketing abilities.
EMPLOYEES
On February 23, 1997, the Company and its subsidiaries employed approximately
191 persons. The Company's ability to attract and retain qualified personnel is
a significant factor in its future success. The Company has never experienced a
work stoppage and at present no employees are represented by a labor
organization. The Company considers its employee relations to be good.
9
<PAGE> 10
ITEM 2. PROPERTIES
The Company occupies 48,643 square feet of a 66,200 square foot facility located
in Santa Ana, California. The lease, which began on July 1, 1995, is for a term
of 66 months with an average annual rent of $285,000. The Company is
depreciating tenant improvements of $923,000 over the life of the lease. In
fiscal 1997, the Company subleased a portion of the 66,200 square foot facility
for approximately $95,000 annually.
ITEM 3. LEGAL PROCEEDINGS
Carlos Garralda and Andre Warnier, employees of the Company's former subsidiary,
Alpha Microsystems Belgium, S.A. ("AMB"), filed an action in November 1995
against AMB and the Company in Orange County Superior Court alleging that AMB is
in breach of its obligations under Belgium employment law to pay salaries for a
notice period of up to two years following termination of employment. The
Plaintiffs allege, among other things, that the Company has alter ego liability
for these obligations. The plaintiffs are claiming compensatory damages in
excess of $780,000 and unspecified punitive damages. A settlement of the case
between AMB and Andre Warnier in the Belgium action was effected on October 18,
1996. Five hundred thousand dollars ($500,000) of the compensatory damages in
the Orange County lawsuit are related to the claims by Mr. Warnier. This
settlement should result in a dismissal of the Warnier portion of the Orange
County lawsuit. The Court has continued its temporary stay of this lawsuit in
its entirety until July 1997 in order to await the outcome of virtually
identical litigation instituted by the plaintiffs against AMB in Belgium.
Although no assurances as to the outcome of the litigation can be given,
management believes that its defenses to the litigation are meritorious.
In December 1995, Phoenix Marketing, Inc. d.b.a. Electronic Business Systems,
Inc., in response to the Company's collection efforts for a past due account,
filed an amended cross-complaint alleging damages of $3,200,000 for defective
merchandise, loss of business reputation and loss of future business. The Iowa
court has referred this case to arbitration, which arbitration must be completed
on or before October 31, 1997. Although no assurances as to the outcome of the
litigation can be given, management believes that the plaintiff's claims are
without merit.
The Company is currently involved in certain other claims and litigation. The
Company does not consider any of these other claims or litigation to be
material. Management has made provisions in the Company's financial statements
for the settlement of lawsuits for which unfavorable outcomes are both probable
and estimable. In the opinion of management, results of known existing claims
and litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
10
<PAGE> 11
OFFICERS OF THE REGISTRANT
--------------------------
Certain information regarding the officers of the Company is set forth in the
following:
CLARKE E. REYNOLDS, 76, has served as Chairman of the Board of Directors of the
Company since May, 1991 and has been a director of the Company since 1989. Mr.
Reynolds served as Chief Executive Officer of the Company from January 1991 to
August 1991, as President from November 1990 to May 1991, as Vice Chairman of
the Board from October 1990 to May 1991, and as Chief Operating Officer of the
Company from November 1990 to May 1991. Mr. Reynolds provided independent
consulting services to the Company from 1984 through 1990, was an employee of
the Company from November 1990 through May 1993, and presently provides
independent consulting services to the Company. Mr. Reynolds was previously
employed by NCR Corporation for over 47 years, during which time Mr. Reynolds
held a variety of sales and marketing and general management positions including
Vice President Pacific Region, Managing Director and Chairman of the Board NCR
United Kingdom, Vice President NCR Europe and Vice President Executive Office.
Mr. Reynolds serves as a Director of Sparta, Inc., which provides a wide range
of scientific, engineering and technical assistance services, primarily for the
U.S. military services and the Department of Defense.
DOUGLAS J. TULLIO, 54, has served as President, Chief Executive Officer and a
Director of the Company since 1991. Mr. Tullio also served as Chief Operating
Officer from May 1991 to March 1994. Mr. Tullio joined the Company in January
1990 and served as Executive Vice President of the Company and President of the
Company's subsidiaries, Rexon Business Machines and AMS Computers. (In April
1990, these subsidiaries were merged into the Company.) From 1984 to 1989, he
worked for General Automation, Inc., in the positions of President and member of
the Board of Directors, Executive Vice President, Vice President, General
Manager and Vice President of Sales and Marketing.
JAMES A. SORENSEN, 56, has served as Vice President and Chief Financial Officer
of the Company since November 1996. Prior to joining the Company, Mr. Sorensen
was a financial consultant. From 1993 to 1995, he was the Chief Financial
Officer for Interfilm, a public company in the entertainment and computer
industry. From 1986 to 1993, he was the Chief Financial Officer for Showscan
Corporation, and from 1976 to 1985, was the Chief Financial Officer of Plitt
Theaters, a national theater chain. Prior to 1976 he held various accounting and
financial positions, including several years with Ernst & Young.
JOHN F. GLADE, 54, was appointed a Director in May 1996 and has served as
Secretary of the Company since January 1987 and Vice President, Engineering and
Manufacturing since May 1988. Mr. Glade joined the Company as Director of
Engineering in September 1978, served as Vice President, Engineering from
February 1979 until June 1985 and served as Vice President, Advanced Products
Development from June 1985 until May 1988. He also served as Secretary of the
Company from February 1983 to August 1985 and a Director of the Company from
1979 through 1994.
DENNIS E. MICHAEL, 39, was named Vice President of Marketing in May 1996 and
previously held the position of Director of Marketing for the Company. He served
in various marketing management capacities at the Company between 1983 and 1990
and with AST from 1990 to 1995.
RANDALL S. PARKS, 36, has served as Vice President of Services for the Company
since 1995. Prior to his position as Vice President of Services, Mr. Parks
served as Director of Service Operations, Eastern Regional Manager and Branch
Field Engineering Manager for the Company. His previous experience was as field
service engineer with several companies, including Uni Dynamics, Mettler
Instruments and Consultant Field Engineering.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is included on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market under the symbol ALMI.
The following table sets forth the range of high and low sales prices for the
Company's common stock (ALMI) for the fiscal quarters indicated, as quoted on
the NASDAQ National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED FEBRUARY 23, 1997
- -----------------------------------
First Quarter $5 25/32 $ 1/2
Second Quarter 4 3/4 1 1/4
Third Quarter 2 5/8 1 15/32
Fourth Quarter 2 15/32 1 3/16
FISCAL YEAR ENDED FEBRUARY 25, 1996
- -----------------------------------
First Quarter $1 3/32 $ 25/32
Second Quarter 1 7/16 29/32
Third Quarter 1 7/16 15/16
Fourth Quarter 1 1/4 9/16
</TABLE>
On May 19, 1997, the high was $1 11/16, the low was $1 19/32, and the
approximate number of record holders of the Company's common stock was 515.
The Company has not paid dividends on its common stock, and it anticipates that
for the foreseeable future it will not pay dividends. Should the Company desire
to pay dividends, any such dividends would be subject to the prior written
consent of the Company's lender and to any preferential rights to receive
dividend payments contained in any securities subsequently issued by the
Company.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------------------------------
FEB. 23, FEB. 25, FEB. 26, FEB. 27, FEB. 28,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product sales $ 8,692 $ 14,466 $ 18,823 $ 20,582 $ 28,261
Service revenues 14,820 18,297 19,962 18,747 16,781
----------- ----------- ----------- ----------- -----------
Net sales 23,512 32,763 38,785 39,329 45,042
Cost of sales 16,165 22,967 27,385 23,876 28,440
----------- ----------- ----------- ----------- -----------
Gross margin 7,347 9,796 11,400 15,453 16,602
Income (loss) before taxes (2,742)(4) (3,555)(3) (6,247)(2) 223 (3,819)(1)
Net income (loss) (2,770)(4) (3,575)(3) (6,247)(2) 336 (3,732)(1)
Net income (loss) per share $ (0.28) $ (0.54) $ (0.95) $ 0.08 $ (1.25)
=========== =========== =========== =========== ===========
Number of shares used in the
computation of per share
amounts 9,727,432 6,564,882 6,580,470 4,025,090 2,993,878
BALANCE SHEET DATA:
Current assets $ 12,976 $ 7,199 $ 10,914 $ 15,252 $ 15,193
Current liabilities 3,648 6,377 7,726 6,936 8,985
----------- ----------- ----------- ----------- -----------
Working capital 9,328 822 3,188 8,316 6,208
Inventories 305 943 1,948 2,593 4,102
Total assets 17,195 13,061 17,902 23,100 20,775
Long-term obligations 34 201 140 154 50
Shareholders' equity $ 13,513 $ 6,483 $ 10,036 $ 16,010 $ 11,740
</TABLE>
- ------------------------
(1) Includes a charge of $2,676,000 for the restructuring of the Company's
operations including the closure of its operations in France and Italy.
(2) Includes charges of $972,000 for the sale of Alpha Microsystems Belgium,
S.A., $783,000 for the write-down of customer lists, $649,000 for the
software associated with the Company's hardware business, $507,000
associated with the write-down of slow moving service spares, $279,000
severance, $694,000 in slow moving inventory associated with the
Company's hardware business, and $304,000 in anticipation of the sale of
the imaging and VSO product lines.
(3) Includes charges of $1,995,000 for the write-off of intangible assets
primarily associated with the Company's AlphaHealthCare subsidiary and
PANDA division.
(4) Includes $1,162,000 of expenses attributable to the launch and marketing
expenses for the AlphaCONNECT software products.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
SUMMARY
The following table sets forth operational data as a percentage of net sales for
the periods indicated:
<TABLE>
<CAPTION>
RELATIONSHIP TO NET SALES
----------------------------------------------
FISCAL YEAR ENDED
----------------------------------------------
FEB. 23, FEB. 25, FEB. 26,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales:
Product sales 37.0 % 44.2 % 48.5 %
Service revenues 63.0 55.8 51.5
----- ----- -----
Total net sales 100.0 % 100.0 % 100.0 %
Cost of sales 68.8 70.1 70.6
----- ----- -----
Gross margin 31.2 % 29.9 % 29.4 %
Selling, general and administrative expense 38.3 36.2 40.1
Engineering, research and development expense 6.4 6.4 5.8
Interest (income) expense, net (1.0) (0.2) (0.4)
Other (income) expense (0.8) (1.6) --
----- ----- -----
Income (loss) before taxes (11.7) (10.9) (16.1)
Net income (loss) (11.8)% (10.9)% (16.1)%
</TABLE>
GENERAL
The Company, which was originally a designer and vendor of computer hardware and
related systems software, has transitioned its business to focus on areas the
Company believes offer higher growth potential. During this transition period,
the Company incurred substantial operating losses in certain operations, took
significant write-offs against non-performing assets and sold businesses that
did not fit the Company's long-term strategy of developing a technology and
service organization that was more focused on the changing marketplace.
As part of this transition strategy, costs were reduced in line with decreasing
revenues in the hardware business, resources were invested in its service
business and research and development focused on the development of software
products for the PC, Web and Internet markets. In 1996, the first of the new
products, AlphaCONNECT, was developed and announced.
During fiscal 1997, the Company continued to reduce expenses in the hardware
related businesses, sold its remaining non-performing assets and European
operations and developed a family of AlphaCONNECT software products for
introduction to the marketplace. The Company's net loss for the year was
$2,770,000. Included in the 1997 results are costs of approximately $1,162,000
related to the marketing and launching of the AlphaCONNECT product line.
During fiscal 1997, the Company's cash and liquidity position improved
substantially as a result of a warrant call and sale of its European subsidiary.
These sources of cash amounted to approximately $11,574,000 and provided the
resources needed to market and develop the AlphaCONNECT software line while
continuing to invest in the service business.
The Company operates on a 52/53-week fiscal year ending on the last Sunday in
the month of February. Fiscal years 1997, 1996 and 1995 ended on February 23,
1997, February 25, 1996 and February 26, 1995, respectively.
The discussion herein is qualified by reference to the Introductory Note set
forth in the beginning of this Annual Report on Form 10-K.
14
<PAGE> 15
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales in fiscal 1997 decreased $9,251,000, or 28.2 percent, to $23,512,000,
compared to $32,763,000 for fiscal 1996. This decrease includes $7,218,000,
approximately 78.0 percent, relating to product lines and subsidiaries sold
during 1997.
Total product revenue declined $5,774,000, or 39.9 percent, to $8,692,000 from
approximately $14,446,000 for the comparable period in 1996. Approximately 57.9
percent of the decline in product revenues was attributable to the European
market (including $2,682,000 attributable to the absence of the UK subsidiary
sold on August 19, 1996). The remaining decline was due to a decrease in the
Company's domestic traditional product revenues and the product revenues at its
AlphaHealthCare subsidiary.
Total service revenue for fiscal 1997 declined $3,477,000, or 19.0 percent, to
$14,820,000 from $18,297,000 for the prior year. Approximately 62.5 percent of
this decline was due to the European market (including $1,863,000 attributable
to the absence of the Company's UK subsidiary). The remaining decline was due
primarily to a decrease in the Company's traditional Alpha Micro Operating
System ("AMOS") based service contracts, and a decrease in support revenues from
the Company's AlphaHealthCare subsidiary. The Company has expanded its base of
support services, including field maintenance and networking, and intends to
invest additional resources in this area. In addition, the Company is expanding
its domestic service sales and marketing efforts to capitalize on its current
base and further expand revenues from the open systems generation market.
Total gross margin for the Company for fiscal 1997 increased to 31.2 percent,
compared to 29.9 percent during the prior year, due to an increase in product
gross margin offset by declines in the service gross margin. Product gross
margin for fiscal 1997 increased to 44.2 percent, compared to 29.3 percent for
1996. The increase in product gross margin was primarily due to a relatively
greater proportion of higher margin AMOS products sold both in the domestic and
European markets. Fiscal 1996 also included write-offs of $1,389,000 in
capitalized software associated with the PANDA and Alpha2000 product lines. In
addition, the sublease of a portion of the corporate headquarters facility, a
reduction in the headcount in the manufacturing area, and a continued effort to
control costs, also contributed to the improvement in product gross margin.
Service business gross margin declined to 23.7 percent during fiscal 1997 from
30.4 percent during 1996. The decline in gross margin was primarily due to a
significant increase in the service sales force and the sale of the Company's UK
subsidiary that generated higher service margins than the domestic service
organization. Additionally, the AlphaHealthCare subsidiary that was sold in
January 1997 and the third-party service contracts contributed lower margins
than on the traditional AMOS-based service contracts. To improve revenues, the
service organization is focusing on obtaining new contracts for its networking
support services, supporting vertical markets with services, and increasing
third-party services. Revenue from these new areas of focus generally produce
lower margins than the Company's traditional service business. The Company
continues to evaluate potential service acquisitions which meet its financial
and market criteria.
Selling, general and administrative expenses decreased $2,857,000 to $8,998,000
in fiscal 1997 from $11,855,000 in 1996. The absence of the UK subsidiary during
the last seven months of the current year resulted in a decrease in selling,
general and administrative expenses of approximately $1,997,000. Additionally, a
reduction in headcount and a more vigilant approach to expense control in areas
relating to the traditional business resulted in the balance of the reduction.
Research and development expenses (which include engineering support and
services) were $593,000 lower in fiscal 1997 than in fiscal 1996. Additionally,
approximately $971,000 of new software development expenses have been
capitalized in the current fiscal year, as compared to $976,000 in the prior
fiscal year. Research and development expenses as a percentage of product sales
increased to 17.3 percent from 14.5 percent during fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues in fiscal 1996 of $32,763,000 decreased $6,022,000, or 15.5 percent,
compared to
15
<PAGE> 16
$38,785,000 for fiscal 1995 revenues. The largest portion of this decrease was
in product revenues, which decreased $4,357,000, or 23.1 percent, to $14,466,000
from $18,823,000 in fiscal 1995. This decrease was attributable in part to
actions taken by management during the year, such as the sale of the Company's
Pick 64, VSO (veterinary software) and imaging software, along with the loss of
sales for related hardware. In addition, product revenue decreased due to the
Company selling its Belgian subsidiary to local management during the first
quarter of fiscal 1996. These actions accounted for $2,394,000, or 54.9 percent,
of the decrease in product revenues during the year. In addition, the Company's
traditional hardware business continued to decline by approximately $1,773,000,
or 19.3 percent, to $7,400,000. During fiscal 1996, European hardware revenues
decreased $1,128,000, or 18.7 percent, to $4,891,000 from $6,019,000 in fiscal
1995.
Service revenues in fiscal 1996 decreased by $1,665,000, or 8.3 percent, to
$18,297,000 from $19,962,000 in fiscal 1995. The decrease was primarily
associated with the Company's United States operations and was mainly
attributable to a reduction in service revenue from prior acquisitions (Alpha
Computer Service, Inc. and MGI Group, International, Inc.). In addition,
revenues from the traditional proprietary service contracts declined. However,
the Company was able to stabilize its service business during fiscal 1996,
generating approximately $3,400,000 in domestic revenues during each of the four
quarters of the year with no material drop off in business during the last half
of the year. This was primarily accomplished by additional investment in service
sales and marketing personnel, increased marketing and advertising, and
expanding and enhancing its base of support services such as field maintenance,
networking, and open and mixed system operating environment support, including
AIX and IBM RS6000 support.
The gross margin decrease of $1,604,000 to $9,796,000 in fiscal 1996, compared
to $11,400,000 for fiscal 1995 was primarily associated with lower revenues. The
gross margin percentage increase of 0.5 percentage points to 29.9 percent in
fiscal 1996, compared to 29.4 percent in fiscal 1995, was primarily associated
with the Company's write-offs to cost of goods sold of approximately $2,777,000
in the fourth quarter of fiscal 1995, compared to write-offs in the fourth
quarter of fiscal 1996 of $1,389,000, in capitalized software associated with
the PANDA and Alpha2000 product lines.
Product gross margins in fiscal 1996 decreased by $1,213,000 to $4,238,000 from
$5,451,000 in fiscal 1995 due to the decrease in product sales in fiscal 1996,
when compared to fiscal 1995. The gross margin was negatively impacted in fiscal
1995 by the write-offs taken in the fourth quarter, which was primarily
responsible for the comparative increase in fiscal 1996. Product gross margin as
a percentage of product sales for fiscal 1996 increased by 0.3 percentage points
to 29.3 percent, compared to 29.0 percent in fiscal 1995, primarily due to lower
amount of write-offs taken in fiscal 1996 when compared to fiscal 1995.
Service gross margins in fiscal 1996 decreased by $391,000 to $5,558,000 from
$5,949,000 in fiscal 1995. The decrease in gross margin during fiscal 1996 was
associated with lower volume and a larger portion of the service revenues being
derived from lower margin open system contract revenues. The service gross
margin percentage for fiscal 1996 increased by 0.6 percentage points to 30.4
percent, compared to 29.8 percent in fiscal 1995. The comparable higher gross
margin percentage in fiscal 1996 was primarily associated with write-offs taken
in fiscal 1995.
Selling, general and administrative expense in fiscal 1996 decreased by
$3,698,000, or 23.8 percent, to $11,855,000 from $15,553,000 in fiscal 1995.
This was primarily due to the Company's continuing cost reduction program,
which, in fiscal 1996, included consolidating its European operations,
relocating its Santa Ana operations to a lower-cost facility, and reducing
headcount to 321 at February 25, 1996, from 392 at February 26, 1995. In
addition, the Company took a bad debt charge associated with selling its Belgian
operations and incurred severance expenses during fiscal 1995 of $237,000.
Research and development expense in fiscal 1996 was $146,000 lower than fiscal
1995. The Company continued to develop PANDA and Alpha2000 as well as its
AMOS-based family of products.
The Company reported other income in fiscal 1996 of $597,000, which was
primarily associated with the sale of the Pick 64 product line during the first
quarter and interest income earned during the year.
16
<PAGE> 17
The Company reported a net loss of $3,575,000, or $0.54 per share, compared to a
net loss of $6,247,000, or $0.95 per share, for fiscal 1995. The loss is
attributable to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During fiscal 1997, the Company's working capital increased by $8,506,000 to
$9,328,000 from $822,000 at February 25, 1996. Net cash and short-term
investments in U.S. treasury bills increased during this period by $8,075,000 to
$8,580,000, primarily due to the redemption of warrants and the sale of the
Company's European subsidiary. Net cash used in operating activities during
fiscal 1997 was $1,882,000, compared to $293,000 during fiscal 1996, primarily
due to the Company's increased investment in Internet and intranet products.
On October 11, 1996, the Company and its bank signed an amendment to the
Company's existing loan agreement extending its credit line to October 10, 1997.
Pursuant to the terms of the amendment, the Company has a revolving line of
credit up to a maximum of $2,000,000, based upon fifty percent (50%) of the
eligible accounts receivable and under which letters of credit and the foreign
exchange portion shall not exceed in the aggregate at any one time $500,000.
Borrowings under the line of credit bear interest at prime plus two and one half
percent (2.5%). In addition, the Company issued 25,000 warrants to the lender.
The line of credit is secured by substantially all of the Company's assets.
Effective December 1, 1996, the loan agreement was further amended such that its
availability is subject to financial covenants requiring the Company to maintain
a quick ratio not less than 2.50 to 1, a liquidity ratio of not less than 1.50
to 1, and a ratio of total liabilities to tangible net worth no more than 0.50
to 1. At February 23, 1997, the Company had no outstanding bank borrowings.
The Company believes that it has sufficient working capital to finance its
requirements for the next twelve months. The Company's capital requirements
depend on a variety of factors, including, but not limited to, the rate of
decline in the traditional business; the success, timing, and amount of
investment required to penetrate the Internet/intranet markets; service revenue
growth or decline; and potential acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data of the Company are listed and
included under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 18
PART III
The information required to be set forth herein, Item 10, "Directors and
Executive Officers of the Registrant," Item 11, "Executive Compensation," Item
12, "Security Ownership of Certain Beneficial Owners and Management," and Item
13, "Certain Relationships and Related Transactions," except for a list of
Executive Officers which is set forth in Part I of this report, is included in
the Company's definitive Proxy Statement pursuant to Regulation 14A, which is
incorporated herein by reference, filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year ended
February 23, 1997.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are referenced in Part II Item 8
and submitted herewith:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Report of Independent Auditors 25
Consolidated Balance Sheets at February 23, 1997 and February 25, 1996 26
Consolidated Statements of Operations for the years ended February 23, 1997,
February 25, 1996 and February 26, 1995 27
Consolidated Statements of Shareholders' Equity for the years ended February 23,
1997, February 25, 1996 and February 26, 1995 28
Consolidated Statements of Cash Flows for the years ended February 23, 1997,
February 25, 1996 and February 26, 1995 29
</TABLE>
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for the fiscal years 1995,
1996, and 1997 is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is presented in the financial statements or notes
thereto.
(3) The list of exhibits contained in the Index to Exhibits is submitted
herewith.
(b) Form 8-K filed on February 18, 1997, reporting the sale of its
PANDA operation to Pacific Triangle Software, Inc. and the
sale of AlphaHealthCare, Inc. to GLR Systems, Inc., including
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
November 24, 1996, Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the Year Ended February 25, 1996,
and Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended November 24, 1996
(c) 1. The Index of Exhibits is as follows:
2. Exhibits:
2.1 Agreement of Purchase and Sale by and between Registrant and Alpha
Computer Services, Inc., dated February 24, 1994 (incorporated herein
by reference to Exhibit 2.9 to the Quarterly Report on Form 10-Q for
the quarter ended May 29, 1994)
2.2 Agreement to transfer shares by and between Registrant and Alpha
Microsystems Great Britain, Mr. Patrick Bolle, and Alpha Microsystems
Belgium dated February 28, 1995 (incorporated herein by reference to
Exhibit 2.10 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 26, 1995 (the "1995 10-K")
2.3 Agreement of Purchase and Sale by and between Registrant and Sanderson
Electronics PLC, dated August 10, 1996 (incorporated herein by
reference to Exhibit 2 to the Form 8-K filed August 23, 1996)
19
<PAGE> 20
2.4 Agreement of Purchase and Sale by and between Registrant and Pacific
Triangle Software, Inc., dated January 13, 1997 (incorporated herein by
reference to Exhibit 2.1 to the Form 8-K filed February 18, 1997)
2.5 Agreement of Purchase and Sale between AlphaHealthCare, Inc. and GLR
Systems, Inc., dated January 27, 1997 (incorporated herein by reference
to Exhibit 2.2 to the Form 8-K filed February 18, 1997)
3.1 Articles of Incorporation of Registrant dated as of March 16, 1997
(incorporated herein by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 (Registration No. 2-72222) of Registrant)
3.2 Certificate of Amendment of Articles of Incorporation of Registrant
dated as of September 29, 1988
3.3 Certificate of Amendment of the Articles of Incorporation of
Registrant dated June 25, 1992 (incorporated herein by reference to
Exhibit 10.71 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended May 31, 1992)
3.4 Restated Bylaws of Registrant (incorporated herein by reference to
Exhibit 3.1 to the Form S-8 filed January 31, 1997)
4.1 Registration Rights Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.141 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended May 28, 1995)
4.2 Antidilution Agreement by and between Registrant and Silicon Valley
Bank dated July 10, 1995 (incorporated herein by reference to Exhibit
10.142 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended May 28, 1995)
4.3 Warrant to Purchase Stock issued to Silicon Valley Bank on November 22,
1996(incorporated herein by reference to Exhibit 10.74 to the Quarterly
Report on Form 10-Q of Registrant for the Quarter Ended November
24,1996)
4.4 Registration Rights Agreement by and between Registrant and Silicon
Valley Bank dated November 22, 1996 (incorporated herein by reference
to Exhibit 10.75 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 24,1996)
4.5 Antidilution Agreement by and between Registrant and Silicon Valley
Bank dated November 22, 1996 (incorporated herein by reference to
Exhibit 10.76 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 24,1996)
4.6 Warrant to Purchase Common Stock issued to Dominick & Dominick dated
October 15, 1996
*10.2 Form of Incentive Stock Option Agreement (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 1 of the Form S-2
Registration Statement filed with the Securities and Exchange
Commission on September 30, 1993)
*10.3 Form of Amended and Restated Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit 10.51 to the Amendment No.
2 of the Form S-2 Registration Statement filed with the Securities
Exchange Commission on October 15, 1993)
*10.5 Stock Incentive Award Plan of Registrant (incorporated herein by
reference to Exhibit 10.21 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
*10.6 Non-Qualified Stock Option Plan of Registrant (incorporated herein by
reference to Exhibit 10.22 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 26, 1984)
20
<PAGE> 21
*10.8 Form of Non-Qualified Stock Option Agreement for use in connection with
Non-Qualified Stock Option Plan (incorporated herein by reference to
Exhibit 4.8 to the Post-Effective Amendment No. 1 to the Registration
Statement on Form 8 of the Registrant (Registration Statement No.
29252) filed on August 23, 1984)
*10.9 Form of Stock Incentive Award and Escrow Agreement for use in
connection with the Stock Incentive Award Plan (incorporated herein by
reference to Exhibit 4.9 to the Post-Effective Amendment No. 1 to the
Registration Statement on Form 8 of the Registrant (Registration
Statement No. 2-9252) filed on August 23, 1984)
*10.10 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein by
reference to Exhibit 10.30 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
*10.11 Form of Contingent Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein by
reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 23, 1986)
*10.12 Alpha Microsystems Profit Sharing Trust Agreement between Alpha
Microsystems and Bank of America NT & S.A. as Trustee dated May 24,
1985 (incorporated herein by reference to Exhibit 10.32 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 23, 1986)
*10.13 Alpha Microsystems Profit Sharing Plan (as amended and restated) dated
May 15, 1986 (incorporated herein by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of Registrant for the Year Ended February
23, 1986)
*10.14 Acceptance of Trust by Trustee dated September 30, 1986 pursuant to
Registrant's Profit Sharing Plan (incorporated herein by reference to
Exhibit 10.29 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 22, 1987)
*10.15 First Amendment dated March 1, 1987 to the Registrant's Profit Sharing
Plan (incorporated herein by reference to Exhibit 10.30 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 22, 1987)
*10.16 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Non-Qualified Stock Option Plan (incorporated herein by
reference to Exhibit 10.31 to the Annual Report on Form 10-K of
Registrant for the Year Ended February 22, 1987)
*10.17 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and John F. Glade (incorporated herein by reference to
Exhibit 10.34 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 22, 1987)
*10.18 Indemnification Agreement dated October 23, 1987 by and between Alpha
Microsystems and Rockell N. Hankin (incorporated herein by reference to
Exhibit 10.36 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 22, 1987)
*10.20 Second Amendment to Alpha Microsystems Profit Sharing Plan dated
January 22, 1988 (incorporated herein by reference to Exhibit 10.31 to
the Annual Report on Form 10-K of Registrant for the Year Ended
February 28, 1988)
*10.21 Alpha Microsystems Profit Sharing Plan Amendments Under IRS Notice
88-131 dated May 24, 1989 (incorporated herein by reference to Exhibit
10.38 to the Quarterly Report on Form 10-Q of Registrant for the
Quarter Ended May 28, 1989)
21
<PAGE> 22
*10.22 Alpha Microsystems Profit Sharing Plan Amendment dated December 15,
1989 (incorporated herein by reference to Exhibit 10.45 to the
Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
November 26, 1989)
*10.23 Employment Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.49 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.24 Indemnification Agreement by and between the Registrant and Douglas J.
Tullio dated January 8, 1990 (incorporated herein by reference to
Exhibit 10.50 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended November 26, 1989)
*10.26 Addendum to Employment Agreement by and between the Registrant and
Douglas J. Tullio dated May 21, 1990 (incorporated herein by reference
to Exhibit 10.54 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 25, 1990)
*10.27 Revised Form of Non-Qualified Stock Option Agreement for use in
connection with Registrant's Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 10.59 to the Quarterly
Report on Form 10-Q of Registrant for the Quarter Ended August 26,
1990)
*10.28 Indemnification Agreement by and between Registrant and Clarke E.
Reynolds dated June 16, 1989 (incorporated herein by reference to
Exhibit 10.67 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.29 Consulting Agreement by and between the Registrant and Clarke E.
Reynolds dated June 1, 1993 (incorporated herein by reference to
Exhibit 10.87 to Amendment No. 1 to Form S-2)
*10.30 Alpha Microsystems 1993 Employee Stock Option Plan (incorporated herein
by reference to Exhibit 10.109 to the Quarterly Report on Form 10-Q for
the Quarter Ended May 29, 1994)
10.31 Alpha Microsystems 1993 Directors' Stock Option Plan (incorporated
herein by reference to Exhibit 10.110 to the Quarterly Report on Form
10-Q for the Quarter Ended May 29, 1994)
10.32 Industrial Lease between Fairview Investors Ltd. and Registrant dated
October 28, 1994 (incorporated herein by reference to Exhibit 10.113 to
the Quarterly Report on Form 10-Q for the Quarter Ended November 27,
1994)
*10.33 First Amended and Restated Non-Qualified Stock Option Plan of
Registrant dated August 18, 1989 (incorporated herein by reference to
Exhibit 19.14 to the Quarterly Report on Form 10-Q of Registrant for
the Quarter Ended August 27, 1989)
*10.34 First Amendment to Stock Incentive Award Plan of Registrant dated
August 15, 1990 (incorporated herein by reference to Exhibit 19.16 to
the Quarterly Report on Form 10-Q of Registrant for the Quarter Ended
August 26, 1990)
*10.35 First Amendment to Employment Agreement by and between Registrant and
John F. Glade dated May 3, 1991 (incorporated herein by reference to
Exhibit 19.8 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 23, 1992)
*10.36 First Amendment to Employment Agreement by and between Registrant and
Douglas J. Tullio dated May 3, 1991 (incorporated herein by reference
to Exhibit 19.10 to the Annual Report on Form 10-K of Registrant for
the Year Ended February 23, 1992)
22
<PAGE> 23
*10.37 Second Amendment and Restatement to the Non-Qualified Stock Option Plan
of Alpha Microsystems dated June 24, 1992 (incorporated herein by
reference to Exhibit 10.70 to the Quarterly Report on Form 10-Q for the
Quarter Ended May 31, 1992)
*10.38 Second Amendment and Restatement of the Alpha Microsystems Profit
Sharing Plan dated July 1, 1992 (incorporated herein by reference to
Exhibit 10.72 to the Quarterly Report on Form 10-Q for the Quarter
Ended May 31, 1992)
10.39 Memorandum to Lease by and between Registrant and Fairview Investors,
Ltd. dated January 24, 1995 (incorporated herein by reference to
Exhibit 10.136 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 26, 1995)
10.40 Letter to Michael J. Lowell from Silicon Valley Bank dated May 3, 1995
re: new credit line (incorporated herein by reference to Exhibit 10.138
to the Annual Report on Form 10-K of Registrant for the Year Ended
February 26, 1995)
10.41 Loan and Security Agreement by and between Registrant and Silicon
Valley Bank dated July 10, 1995 (incorporated herein by reference to
Exhibit 10.139 to the Quarterly Report on Form 10-Q for the Quarter
Ended May 28, 1995)
10.42 Collateral Assignment, Patent Mortgage and Security Agreement by and
between Registrant and Silicon Valley Bank dated July 10, 1995
(incorporated herein by reference to Exhibit 10.143 to the Quarterly
Report on Form 10-Q for the Quarter Ended May 28, 1995)
10.43 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated November 30, 1995 (incorporated herein by reference
to Exhibit 10.150 to the Quarterly Report on Form 10-Q for the Quarter
Ended November 26, 1995)
10.44 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated February 7, 1996 (incorporated herein by reference to
Exhibit 10.70 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 25, 1996)
10.45 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated March 7, 1996 (incorporated herein by reference to
Exhibit 10.71 to the Annual Report on Form 10-K of Registrant for the
Year Ended February 25, 1996)
10.46 Engagement Letter between Registrant and Sutro & Co., Inc. dated May 2,
1996 (incorporated herein by reference to Exhibit 10.72 to the Annual
Report on Form 10-K of Registrant for the Year Ended February 25, 1996)
10.47 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated October 11, 1996 (incorporated herein by reference to
Exhibit 10.73 to the Quarterly Report on Form 10-Q for the Quarter
Ended November 24, 1996)
10.48 First Amendment to Alpha Microsystems 1993 Employee Stock Option Plan
(incorporated herein by reference to Exhibit 4.6 to the Form S-8 filed
January 31, 1997)
10.49 Second Amendment to Alpha Microsystems 1993 Employee Stock Option Plan
(incorporated herein by reference to Exhibit 4.7 to the Form S-8 filed
January 31, 1997)
10.50 Alpha Microsystems 1996 Nonemployee Director Stock Compensation Plan
(incorporated herein by reference to Exhibit 4.8 to the Form S-8 filed
January 31, 1997)
10.51 First Amendment to Alpha Microsystems 1996 Nonemployee Director
Compensation Plan (incorporated herein by reference to Exhibit 4.9 to
the Form S-8 filed January 31, 1997)
23
<PAGE> 24
10.52 Alpha Microsystems Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 4.10 to the Form S-8 filed January 31, 1997)
10.53 Letter Agreement between Registrant and Dominick & Dominick, Inc. dated
October 15, 1996
10.54 Amendment to Loan Agreement by and between Registrant and Silicon
Valley Bank dated March 3, 1997
*10.55 Indemnification Agreement by and between Registrant and James A.
Sorensen dated January 16, 1997
*10.56 Indemnification Agreement by and between Registrant and Jeffrey A.
Martin dated January 10, 1997
*10.57 Indemnification Agreement by and between Registrant and Dennis E.
Michael dated January 17, 1997
*10.58 Indemnification Agreement by and between Registrant and Randall S.
Parks dated January 17, 1997
*10.59 Indemnification Agreement by and between Registrant and Margaret Denson
dated January 17, 1997
*10.60 Employment Agreement by and between Registrant and James A. Sorensen
dated November 7, 1996 (incorporated herein by reference to Exhibit
10.77 to the Quarterly Report on Form 10-Q for the Quarter ended
November 24, 1996)
21 Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney (included on signature pages of this Annual Report)
27 Financial Data Schedule
- ---------------
(* Denotes Management Contract or Compensation Plan)
24
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Alpha Microsystems
We have audited the accompanying consolidated balance sheets of Alpha
Microsystems as of February 23, 1997 and February 25, 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended February 23, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Alpha
Microsystems at February 23, 1997 and February 25, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
February 23, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
April 11, 1997
25
<PAGE> 26
ALPHA MICROSYSTEMS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 23, FEBRUARY 25,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,768 $ 505
Short-term investments in U.S. treasury bills 6,812 -
Accounts receivable, net of allowance for
doubtful accounts of $139 and $927 in
1997 and 1996, respectively 3,028 5,241
Inventories 305 943
Notes receivable 830 159
Prepaid expenses and other current assets 233 351
-------- --------
Total current assets 12,976 7,199
Property and equipment, net 2,932 4,275
Service contracts, net 364 793
Software costs, net 815 535
Other assets, net 108 259
-------- --------
$ 17,195 $ 13,061
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ - $ 500
Accounts payable 1,201 1,694
Deferred revenue 1,686 2,678
Accrued compensation 345 476
Other accrued liabilities 381 837
Current portion of long-term debt 35 192
-------- --------
Total current liabilities 3,648 6,377
Long-term debt 34 201
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; none issued - -
Common stock, no par value; 20,000,000
shares authorized; 10,821,897 and
6,595,453 shares issued and outstanding
at February 23, 1997 and February 25,
1996, respectively 30,919 21,242
Accumulated deficit (17,464) (14,694)
Unamortized restricted stock plan expense (13) (18)
Foreign currency translation adjustment 71 (47)
-------- --------
Total shareholders' equity 13,513 6,483
-------- --------
$ 17,195 $ 13,061
======== ========
</TABLE>
See accompanying notes.
26
<PAGE> 27
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 23, FEBRUARY 25, FEBRUARY 26,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales:
Product $ 8,692 $ 14,466 $ 18,823
Service 14,820 18,297 19,962
----------- ----------- -----------
Total net sales 23,512 32,763 38,785
----------- ----------- -----------
Cost of sales:
Product 4,851 10,228 13,372
Service 11,314 12,739 14,013
----------- ----------- -----------
Total cost of sales 16,165 22,967 27,385
----------- ----------- -----------
Gross Margin 7,347 9,796 11,400
Selling, general and
administrative expense 8,998 11,855 15,553
Engineering, research and
development expense 1,500 2,093 2,239
----------- ----------- -----------
Total operating expenses 10,498 13,948 17,792
----------- ----------- -----------
Loss from operations (3,151) (4,152) (6,392)
Interest income (266) (93) (150)
Interest expense 31 38 17
Other (income) expense, net (216) (466) 81
Foreign exchange (gain) loss 42 (76) (93)
----------- ----------- -----------
Total other income (409) (597) (145)
----------- ----------- -----------
Loss before taxes (2,742) (3,555) (6,247)
Income tax expense 28 20 -
----------- ----------- -----------
Net loss $ (2,770) $ (3,575) $ (6,247)
=========== =========== ===========
Net loss per share $ (0.28) $ (0.54) $ (0.95)
=========== =========== ===========
Number of shares used in the
computation of per share amounts 9,727,432 6,564,882 6,580,470
=========== =========== ===========
</TABLE>
See accompanying notes.
27
<PAGE> 28
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED FEBRUARY 23, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unamortized Foreign
Common Stock Restricted Currency
---------------------- Accumulated Stock Plan Translation
Shares Amount Deficit Expenses Adjustment Total
---------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 27, 1994 6,559,208 $ 21,186 $ (4,872) $ (34) $ (270) $16,010
Net loss - - (6,247) - - (6,247)
Foreign currency translation - - - - 220 220
Exercise of stock options
($1.00 to $2.00 per share) 13,745 38 - - - 38
Amortization - - - 15 - 15
---------- -------- --------- ------ ------ -------
Balance at February 26, 1995 6,572,953 21,224 (11,119) (19) (50) 10,036
Net loss - - (3,575) - - (3,575)
Foreign currency translation - - - - 3 3
Restricted stock award 22,500 18 - (18) - -
Amortization-current year
award - - - 19 - 19
---------- -------- --------- ------ ------ -------
Balance at February 25, 1996 6,595,453 21,242 (14,694) (18) (47) 6,483
Net loss - - (2,770) - - (2,770)
Foreign currency translation - - - - 118 118
Issuance of stock and
redeemable warrants 4,103,719 9,486 - - - 9,486
Exercise of stock options
($1.00 to $2.00 per share) 62,770 101 - - - 101
Non-emp Directors Comp Plan 59,955 90 - - - 90
Amortization - - - 5 - 5
---------- -------- --------- ------ ----- -------
Balance at February 23, 1997 10,821,897 $ 30,919 $ (17,464) $ (13) $ 71 $13,513
========== ======== ========= ====== ===== =======
</TABLE>
See accompanying notes.
28
<PAGE> 29
ALPHA MICROSYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
FEBRUARY 23, FEBRUARY 25, FEBRUARY 26,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,770) $ (3,575) $ (6,247)
Adjustments to reconcile net loss
to cash provided by operating activities:
(Gain)/loss from sale of subsidiary/product lines (12) -- 972
Intangible asset write-down -- 1,995 1,431
Depreciation and amortization 2,067 2,325 3,388
Gain on sale of fixed assets -- (282) --
Provision for losses on accounts receivable 64 (21) 467
Provision for slow-moving inventory (59) 196 694
Restricted stock plan expense amortization 5 19 15
Other changes in operating assets and liabilities:
Accounts receivable 28 (376) (132)
Inventories (71) 811 (109)
Notes receivable (671) -- --
Prepaid expenses and current assets (65) 412 (494)
Accrued compensation (18) (359) 79
Accounts payable and accrued liabilities 130 (1,256) 847
Deferred revenue (383) (133) (142)
Other, net (127) (49) (26)
-------- -------- --------
Net cash provided by (used in) operating activities (1,882) (293) 743
-------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments (19,697) -- --
Proceeds from sale of short-term investments 12,885 -- --
Proceeds from sale of fixed assets 11 440 --
Acquisition of business -- (149) (84)
Acquisition of service assets -- (94) (511)
Purchases of equipment (427) (1,730) (984)
Capitalization of software costs (971) (976) (977)
Proceeds from sale of product lines 250 -- (357)
Proceeds from sale of stock investments 2,088 -- --
Other, net -- -- (30)
-------- -------- --------
Net cash used in investing activities (5,861) (2,509) (2,943)
-------- -------- --------
Cash flows from financing activities:
Line of credit, net (500) 500 --
Issuance of common stock 9,677 -- 38
Principal debt repayments (167) (463) (915)
-------- -------- --------
Net cash provided by (used in) financing activities 9,010 37 (877)
-------- -------- --------
Effect of exchange rate changes on cash (4) (19) 115
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,263 (2,784) (2,962)
Cash and cash equivalents at beginning of period 505 3,289 6,251
-------- -------- --------
Cash and cash equivalents at end of period $ 1,768 $ 505 $ 3,289
======== ======== ========
Supplemental information:
Cash paid for:
Interest $ 31 $ 38 $ 21
Income tax payments (refunds), net $ 16 $ (64) $ (139)
</TABLE>
See accompanying notes.
29
<PAGE> 30
ALPHA MICROSYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 23, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
THE BUSINESS
Alpha Microsystems provides information technology products (including products
for the Internet/intranet market)and services (including consulting,
maintenance, support and networking) to a variety of market segments.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Alpha
Microsystems and its subsidiaries (the "Company"). Significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to the fiscal 1997 presentation.
FISCAL YEAR
The Company operates on a 52/53-week fiscal year ending on the last Sunday in
the month of February. Fiscal years 1997, 1996 and 1995 ended on February 23,
1997, February 25, 1996 and February 26, 1995, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
For purposes of the Statement of Cash Flows, the Company recorded the following
non-cash transactions: common stock of $2,088,000 in exchange for the net assets
of AMGB of $2,051,000, and cash of $250,000 and notes receivable of $600,000 in
exchange for the net assets of AlphaHealthCare and PANDA totalling $875,000.
SHORT-TERM INVESTMENTS
The Company's short-term investments at February 23, 1997 are composed of U.S.
treasury bills. These investments are classified as available-for-sale and are
carried at fair value, which approximates cost, with the net unrealized gains or
losses reported as a separate component of shareholders' equity, net of their
related tax effects. Realized gains and losses, and declines in value judged to
be other-than-temporary, as well as interest and dividends on available-for-sale
securities, are included in investment income. Realized and unrealized gains and
losses in fiscal 1997 were not material.
30
<PAGE> 31
PROPERTY AND EQUIPMENT
The straight-line method of depreciation is used for the following classes of
assets for financial statement purposes and is based on the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Machinery and equipment 3 to 5
Leasehold improvements 1 to 6
Service parts 5
</TABLE>
INTANGIBLE ASSETS
Intangible assets include acquired service contracts, capitalized computer
software costs and goodwill. The book value of goodwill and service contracts is
associated with the acquisition of companies or assets. Capitalized software
costs are the accumulation of software development costs or the assigned value
of software associated with an acquisition.
The straight-line amortization period for intangible assets is dependent on
their expected economic life. The amortization period for the major classes of
intangible assets is as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Service contracts 5
Capitalized software costs 3 to 5
Goodwill 5 to 10
</TABLE>
In fiscal 1996, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets over the asset's life are less
than the carrying value. In accordance with SFAS 121 the Company wrote off
$481,000 in goodwill and service contracts related to AlphaHealthCare, during
the fourth quarter of fiscal 1996.
In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased, or Otherwise Marketed," the Company capitalizes certain
engineering costs related to software development after technological
feasibility has been established and amortizes these costs as the respective
products are sold. However, in no event is the amortization less than that which
would be achieved by amortizing such costs on a five-year straight-line basis
from the date of product release. Capitalized software costs, net of accumulated
amortization of $1,420,000 and $3,256,000, were $815,000 and $535,000 at
February 23, 1997 and February 25, 1996, respectively. Total amortization
expense charged to cost of product sales for the fiscal years 1997, 1996 and
1995 was approximately $99,000, $186,000 and $689,000, respectively.
In addition, management routinely evaluates events or conditions that might
diminish the carrying value of intangible assets pursuant to SFAS No. 86. During
the fourth quarter of fiscal 1996, management reforecast revenues and cash flow
for each capitalized software asset's anticipated service life and as a result
of this analysis, the Company wrote down accumulated capitalized software
development costs of $373,000 for its PANDA product line and $1,016,000 for its
AlphaHealthCare product line to their respective revised net realizable value.
No additional write-downs were required in 1997.
WARRANTIES
The Company accrues estimated costs of product warranties as revenues from sales
are recognized, or if some event necessitates a change in the level of reserves
for potential warranties. Products are typically warranted for twelve months.
31
<PAGE> 32
DEFERRED REVENUE
Deferred revenue is revenue billed in advance for service contracts and is
recognized ratably over the contract period or as the services are performed.
REVENUE RECOGNITION
The Company recognizes revenue on its hardware and software sales on delivery,
and recognizes revenue on its service sales and post contract customer support
on a straight-line basis over the contract period. When significant obligations
remain after a software product has been delivered, revenue is not recognized
until obligations have been completed or are no longer significant. The costs of
any insignificant obligations are accrued when the related revenue is
recognized. Revenue is recognized only when collection of the resulting
receivable is probable.
In the normal course of business, the Company provides credit to its customers
who are principally distributors of its products and original equipment
manufacturers who incorporate the Company's products into equipment which they
resell to end users. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses which have been
within management's expectations. As of February 23, 1997, the Company had no
significant concentrations of credit risk.
ADVERTISING EXPENSES
The Company recognizes expenses related to advertising costs in the period in
which these costs are incurred. Total advertising expenses in 1997, 1996 and
1995 were $795,000, $66,000 and $82,000, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. Substantially all
research and development expenses are related to developing new products and
designing significant improvements to existing products.
INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," which requires an
asset and liability approach to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method of
accounting, deferred tax assets and liabilities are determined based upon the
differences between the financial reporting basis and the income tax basis of
the Company's assets and liabilities at the enacted income tax rates expected to
apply when such differences are expected to reverse.
PER SHARE DATA
Earnings (loss) per share is calculated using the weighted average number of
common shares outstanding during the period. Common stock equivalents were
anti-dilutive in all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted in the fourth quarter
of fiscal 1998. The Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact of the adoption is not expected to
materially impact basic earnings per share. The Company has not yet determined
what the impact of Statement No. 128 will be on the calculation of fully diluted
earnings per share.
32
<PAGE> 33
FOREIGN CURRENCIES
The Company's foreign entities use the local currency as the functional
currency. The Company translates all foreign entity assets and liabilities at
year-end exchange rates, all income and expense accounts at average rates, and
records adjustments resulting from translation as a separate component of
shareholders' equity.
Foreign currency exchange gains (losses) included in the determination of loss
from operations before taxes were $(42,000), $76,000 and $93,000 for fiscal
1997, 1996 and 1995, respectively. The Company had no forward exchange contracts
outstanding at February 23, 1997.
2. ACQUISITIONS AND DISPOSALS
On September 15, 1995, the Company acquired the ongoing service contracts and
certain related assets of Instant Data Systems Incorporated ("IDS") for a
purchase price of $300,000, plus a contingent payment of $50,000. The purchase
price was reduced by $110,000 in fiscal 1997 based upon the deterioration of the
revenues of the contracts purchased. On June 1, 1995, the Company acquired the
assets of Alpha Technology for $161,000.
On April 3, 1995, the Company sold its subsidiary, Alpha Microsystems Belgium,
S.A., to a member of its Belgium local management resulting in a loss of
$972,000.
In fiscal 1995, the Company acquired certain assets of various service
companies, including service contracts, service parts and accounts receivable.
The cost of these acquisitions was $1,918,000 in fiscal 1995, of which the
non-cash portion was $1,407,000. In fiscal 1995, the most significant
acquisition was that of the service contracts and related assets of Alpha
Computer Services, Inc. ("ACS"), completed in March 1994. ACS was purchased for
$1,520,000, of which $238,000 was paid in cash, $1,156,000 in notes payable over
a period of twenty-two months, and the Company assumed $126,000 in liabilities.
In May 1994, the Company acquired certain assets and ongoing service contracts
from MTS, Inc. ("MTSI") for a purchase price of approximately $195,000.
In March 1994, the Company acquired the remaining shares of Sabre Business
Systems, Belfast, Ireland, for approximately $84,000, bringing the Company's
ownership to 100%. In addition, in December 1995, the Company acquired the
remaining shares of Sabre Business Systems, Dublin, Ireland for approximately
$149,000, bringing the Company's ownership to 100%. In May 1994, Alpha
Microsystems Great Britain (UK) Limited acquired certain assets and liabilities
of Kathy Parker Training Centers, UK, for approximately $137,000.
All acquisitions have been accounted for as purchases and the acquired
operations have been included in the consolidated statements of operations from
the dates of acquisition.
On August 19, 1996, the Company sold its UK subsidiary, Alpha Microsystems Great
Britain ("AMGB"), to Sanderson Electronics PLC ("Sanderson"), for 907,792
ordinary shares of Sanderson. In connection with the sale, the Company and
Sanderson signed a three-year hardware distribution agreement allowing Sanderson
to sell Alpha Microsystems hardware products in the United Kingdom and Eire. The
Company recognized a gain of approximately $37,000 from this sale. On September
17, 1996, the Company sold the Sanderson shares for approximately $2,088,000.
In January 1997, the Company sold its PANDA and AlphaHealthCare operations. Each
was sold for a base price, consisting of cash and notes which approximated the
Company's net book value, and a contingent or "Earnout" amount which depends on
the future performance of the businesses sold. Contingent or earnout amounts
realized in the future would be included in the Company's earnings at that time.
33
<PAGE> 34
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on the
first-in, first-out method. Inventories, net of reserves for excess and obsolete
inventories of $41,000 and $1,726,000 at February 23, 1997 and February 25,
1996, respectively, are comprised of the following:
<TABLE>
<CAPTION>
FEB. 23, FEB. 25,
(IN THOUSANDS) 1997 1996
---- ----
<S> <C> <C>
Raw materials $ 263 $ 116
Work-in-process 9 --
Finished goods 33 827
---- ----
$ 305 $ 943
===== =====
</TABLE>
4. NOTES RECEIVABLE
In April 1995, as part of the consideration for selling the Belgian subsidiary
to a member of local management, the Company received a note for 15,000,000
Belgian francs, payable over a two-year period from the date of the note, of
which 7,000,000 Belgian francs has been paid.
In January 1997, as part of the proceeds from the sale of the PANDA product
line, the Company received an agreement specifying annual payments totalling
$300,000. These payments are scheduled to begin in January 1998 with the final
payment due in January 2002.
As part of the consideration for the sale of AlphaHealthCare in January 1997,
the Company received a note for $300,000 bearing interest at six percent
compounded annually, with annual payments of $60,000 due over a five-year period
from the date of the note.
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
FEB. 23, FEB. 25,
1997 1996
---- ----
<S> <C> <C>
Machinery and equipment $ 6,467 $ 7,577
Leasehold improvements 1,395 1,364
Service parts 8,171 7,769
------- -------
16,033 16,710
Less accumulated depreciation
and amortization 13,101 12,435
------- -------
Property and equipment, net $ 2,932 $ 4,275
======= =======
</TABLE>
Depreciation expense was $1,547,000, $1,405,000 and $1,933,000 for fiscal years
1997, 1996 and 1995, respectively.
6. DEBT
On October 11, 1996, the Company amended its existing loan agreement extending
its credit line to October 10, 1997. Pursuant to the terms of the amendment, the
Company has a revolving line of credit up to a maximum limit of $2,000,000.
Borrowings under the line of credit bear interest at prime plus two and one half
percent (2.5%). In addition, the Company issued 25,000 warrants to the bank (See
Note 7).
The line of credit is secured by substantially all of the Company's assets and
contains certain financial covenants. At February 23, 1997, there were no
outstanding borrowings.
7. SHAREHOLDERS' EQUITY
On May 14, 1996, the Company filed a Registration Statement to register
4,442,069 shares of Common Stock issuable upon the exercise of warrants issued
by the Company, of which 4,082,069 were issued in connection with its November
29, 1993 Shareholder Rights Offering
34
<PAGE> 35
and subsequent Public Offering, and the remainder were issued in consideration
of services rendered to the Company.
On July 10, 1995, in exchange for a new line of credit and 40,000 warrants
previously issued, the Company issued 50,000 new warrants with an exercise price
of $1.21875 to its bank. In fiscal 1994, the Company agreed to sell to its
financial advisor a redeemable warrant to purchase 300,000 shares of common
stock exercisable at $2.50 per share. Both the Company's bank and its financial
advisor exercised these warrants in the first quarter of fiscal 1997. Pursuant
to the terms of an amendment to the loan agreement signed in October 1996, the
Company agreed to issue an additional 25,000 warrants to the bank which are
exercisable for five years at $1.81 per share. Also in October 1996, the Company
agreed to sell a redeemable warrant to purchase 300,000 shares of common stock
exercisable for five years at $3.00 per share to its financial advisor.
The Company redeemed its Redeemable Public Warrants on June 17, 1996, pursuant
to its notice of redemption issued on May 14, 1996. Total shares issued from the
exercise of all warrants were 4,103,719, resulting in total gross proceeds of
approximately $10,102,000. The proceeds from the exercise of all warrants, net
of expenses, were $9,486,000.
Under the terms of the Company's Stock Incentive Award Plan, the Board of
Directors is authorized to award up to 150,000 restricted shares of common
stock. These shares are issued subject to certain transfer restrictions,
including the passage of time, ranging from one to ten years. The Company has
granted 131,050 restricted shares of common stock to certain employees, without
cost. The shares are subject to forfeiture under certain circumstances, and 25%
of such shares will vest each year, beginning on the date of grant. As of
February 23, 1997, 125,425 of these restricted shares had vested. Unearned
compensation was recognized for the market value of the restricted shares on the
date of grant and is amortized ratably over the vesting period. The unamortized
unearned compensation value is recorded as a reduction of shareholders' equity
in the accompanying financial statements.
The Company has a non-qualified stock option plan (the "1984 Plan") which
provides for the grant, from time to time, of options to purchase up to 465,000
shares of Common Stock to eligible employees. In June 1996, the Board terminated
the 1984 Plan and no further options may be granted. Outstanding options will
remain exercisable.
As of February 23, 1997, the Company's 1993 Employee Stock Option Plan provides
for the Board to award up to 925,000 shares of common stock to employees of the
Company.
The Company's 1993 Director Stock Plan provides to nonemployee directors
automatic grants of non-statutory stock options at exercise prices at fair
market value of common stock on the date of grant, up to an aggregate of 100,000
shares of common stock.
The Company's 1996 Nonemployee Director Stock Compensation Plan provides to
nonemployee directors the opportunity to receive shares of common stock in lieu
of cash compensation paid for services as a director, in an amount equal to the
value of cash compensation otherwise paid for service as a director. The total
number of shares reserved and available is 100,000 shares.
35
<PAGE> 36
The following table contains a summary of transactions related to Incentive and
Non-Qualified Stock Options for the fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK OPTIONS INCENTIVE STOCK OPTIONS
------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES PRICE PER SHARE SHARES PRICE PER SHARE
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at
February 27, 1994 336,728 $1.78 328,702 $1.88
Expired/canceled (15,330) $1.73 -
Exercised (13,745) $1.73 -
------- --------
Outstanding at
February 26, 1995 307,653 $1.79 328,702 $1.88
Granted - 122,500 $1.47
Expired/canceled (110,568) $1.63 (136,763) $1.88
-------- --------
Outstanding at
February 25, 1996 197,085 $1.87 314,439 $1.72
Granted - 621,000 $2.62
Expired/canceled (39,315) $2.84 (222,500) $2.50
Exercised (37,770) $1.73 (25,000) $1.63
------- -------
Outstanding at
February 23, 1997 120,000 $1.61 687,939 $2.28
======= =======
Exercisable at
February 26, 1995 231,653 $1.81 253,189 $1.88
February 25, 1996 178,085 $1.86 253,189 $1.78
February 23, 1997 120,000 $1.61 313,439 $2.07
Available for grant:
February 26, 1995 61,410 221,298
February 25, 1996 171,978 235,561
February 23, 1997 0 212,061
</TABLE>
Options outstanding at February 23, 1997 under the non-qualified stock option
plan are exercisable at prices ranging as follows: 40,000 shares at $0.93 and
80,000 shares at $1.94. The weighted average remaining life of these options as
of year-end is approximately 0.9 years.
Options outstanding at February 23, 1997 under the incentive stock option plan
have exercise prices and weighted average remaining lives as follows: 22,500
shares at $0.78 with a remaining life of 3.2 years, 359,439 shares at $1.56 to
$1.88 with a remaining life of 2.9 years, and 306,000 shares at $3.00 per share
with a remaining life of 4.5 years.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations in accounting
for its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"), requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing method with the following weighted average assumptions: risk-free
interest rate of 6% for 1996 and 1997; volatility factors of the expected market
price of the Company's common stock of 0.6 for both years; and a
weighted-average expected life of the options of five (5) years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions
36
<PAGE> 37
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE INFORMATION) 1997 1996
---- ----
<S> <C> <C>
Pro forma net income $(2,873) $(3,575)
Pro forma earnings per share:
Primary $ (0.30) $ (0.54)
</TABLE>
The per share weighted average fair value of options granted during 1997 and
1996 were $1.48 and $0.66, respectively. The effect of applying Statement 123
for providing pro forma disclosures is not likely to be representative of the
effects on reported net income for future years.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $-- $-- $--
Deferred -- -- --
Foreign:
Current 25 20 --
Deferred -- -- --
State:
Current 3 -- --
Deferred -- -- --
--- --- ---
$28 $20 $--
=== === ===
</TABLE>
Deferred tax assets and liabilities reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting purposes, such
amounts measured by tax laws and the expected future tax consequences of net
operating loss carryforwards. Temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and liabilities recognized
in the balance sheet are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,629 $ 6,520
Accrued tax credits 899 899
Accruals not currently deductible for
tax purposes 454 353
Depreciation 31 --
Translation adjustment 96 67
Other 10 3
Valuation allowance (9,082) (7,365)
------- -------
Total deferred tax asset 37 477
------- -------
Deferred tax liabilities:
Depreciation -- (338)
Capitalized software (37) (139)
------- -------
Total deferred tax liability (37) (477)
------- -------
Net deferred tax asset $ -- $ --
======= =======
</TABLE>
37
<PAGE> 38
The change in the valuation allowance was a net increase of $1,717,000 and
$259,000 for fiscal years ended February 23, 1997 and February 25, 1996,
respectively. The valuation allowance was increased since the realization of
deferred tax assets is uncertain.
The Company has federal net operating loss carryforwards totaling approximately
$20,900,000 at February 23, 1997, which begin to expire in 2006, if not
utilized. As a result of the exercise of the Redeemable Public Warrants, the
Company experienced a change of ownership as defined in the Internal Revenue
Code. As a result of the ownership change, utilization of the net operating loss
carryforwards is limited to approximately $1,500,000 per year.
A reconciliation of income tax expense (benefit) to the statutory U.S. federal
income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal
income tax rate (benefit) (34.0)% (34.0)% (34.0)%
Changes in taxes resulting from:
Foreign losses & excess rates 1.2 1.4 6.0
Domestic losses with no
tax benefit 32.7 28.0 28.0
Other items, net 1.1 5.2 -.-
---- ---- -----
Effective tax rate 1.0 % 0.6 % -.- %
==== ==== =====
</TABLE>
United States and foreign income (loss) before taxes are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $(2,933) $(3,714) $(4,912)
Foreign 191 159 (1,335)
------- ------- -------
$(2,742) $(3,555) $(6,247)
======= ======= =======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing and office facilities and certain equipment
under operating leases that expire on various dates through 2001. Rent expense
during fiscal years 1997, 1996 and 1995 was $1,318,000, $1,966,000 and
$2,255,000, respectively. The Company's annual minimum lease commitments under
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998 $ 903
1999 475
2000 432
2001 334
------
$2,144
======
</TABLE>
The Company's current involvement with litigation is as follows:
Carlos Garralda and Andre Warnier, employees of the Company's former subsidiary,
Alpha Microsystems Belgium, S.A. ("AMB"), filed an action in November 1995
against AMB and the Company in Orange County Superior Court alleging that AMB is
in breach of its obligations under Belgium employment law to pay salaries for a
notice period of up to two years following termination of employment. The
Plaintiffs allege, among other things, that the Company has alter ego liability
for these obligations. The plaintiffs are claiming compensatory damages in
excess of $780,000 and unspecified punitive damages. A settlement
38
<PAGE> 39
of the case between AMB and Andre Warnier in the Belgium action was effected on
October 18, 1996. Five hundred thousand dollars ($500,000) of the compensatory
damages in the Orange County lawsuit are related to the claims by Mr. Warnier.
This settlement should result in a dismissal of the Warnier portion of the
Orange County lawsuit. The Court has continued its temporary stay of this
lawsuit in its entirety until July 1997 in order to await the outcome of
virtually identical litigation instituted by the plaintiffs against AMB in
Belgium. Although no assurances as to the outcome of the litigation can be
given, management believes that its defenses to the litigation are meritorious.
In December 1995, Phoenix Marketing, Inc. d.b.a. Electronic Business Systems,
Inc., in response to the Company's collection efforts for a past due account,
filed an amended cross-complaint alleging damages of $3,200,000 for defective
merchandise, loss of business reputation and loss of future business. The Iowa
court has referred this case to arbitration, which arbitration must be completed
on or before October 31, 1997. Although no assurances as to the outcome of the
litigation can be given, management believes that the plaintiff's claims are
without merit.
The Company is currently involved in certain other claims and litigation. The
Company does not consider any of these other claims or litigation to be
material. Management has made provisions in the Company's financial statements
for the settlement of lawsuits for which unfavorable outcomes are both probable
and estimable. In the opinion of management, results of known existing claims
and litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
10. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit sharing plan covering
substantially all of its full-time employees. Contributions to the plan are at
the sole discretion of the Company's Board of Directors and cannot exceed the
maximum allowable deduction for federal income tax purposes. There were no
discretionary Company contributions for fiscal 1997, 1996 and 1995.
During fiscal 1991, the Company implemented a program whereby the voluntary
contributions of the employees are matched at a rate of 50% of employee
contributions up to a total of 5.0% of the employee's salary. During the first
quarter of fiscal 1994, the employer match portion of the employee contribution
was reduced from 50% to 20% up to a total of 5.0% of an employee's salary.
During fiscal 1997, 1996 and 1995, the employer matched 60% of the employee
contribution for participants with an annual income of less than $29,999.
Matching contributions were $29,000, $32,000 and $42,000 for fiscal 1997, 1996
and 1995, respectively.
In fiscal 1997, the Company adopted a new Employee Stock Purchase Plan, that
enables employees to acquire shares of the Company's stock at 85% of the lower
of (i) the fair market value of a share on the first trading day of the date of
grant or (ii) the fair market value of a share on the date of exercise, up to an
aggregate of 350,000 shares of common stock.
39
<PAGE> 40
11. INDUSTRY SEGMENT INFORMATION
The Company operates in two business segments: the manufacture and sale of
computer systems, software and related products, and the servicing of computer
systems and related products.
Operations by business segment are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) PRODUCT SERVICE CORPORATE CONSOLIDATED
------- ------- --------- ------------
<S> <C> <C> <C> <C>
1997
Net sales $ 8,692 $14,820 $ -- $23,512
Operating income (loss) (2,908) 1,108 (1,351) (3,151)
Identifiable assets 4,893 2,991 9,311 17,195
Depreciation and
amortization expense 637 1,096 334 2,067
Capital expenditures 26 370 31 427
1996
Net sales $14,466 $18,297 $ -- $32,763
Operating income (loss) (4,985) 2,849 (2,016) (4,152)
Identifiable assets 7,431 4,651 979 13,061
Depreciation and
amortization expense 773 1,230 322 2,325
Capital expenditures 427 496 901 1,824
1995
Net sales $18,823 $19,962 $ -- $38,785
Operating income (loss) (7,349) 2,690 (1,733) (6,392)
Identifiable assets 8,134 5,020 4,748 17,902
Depreciation and
amortization expense 1,322 1,880 186 3,388
Capital expenditures 578 845 72 1,495
</TABLE>
Identifiable assets by industry segment include both assets directly identified
with operations and an allocated share of jointly used assets. Corporate assets
consist primarily of cash and other assets. Depreciation and amortization
expense excludes intangible asset write-downs. Capital expenditures include
purchases of equipment and acquisitions of service assets. The effect of
capitalizing software costs is included in the product sales segment.
Intersegment transfers are recorded at cost.
The Company operates in the United States and in Europe through distributors
and, until August 1996, through foreign subsidiaries. Total consolidated foreign
sales (including export sales of $1,314,000, $906,000 and $1,596,000 in fiscal
1997, 1996 and 1995, respectively) were $4,681,000, $9,776,000 and $11,639,000
for fiscal 1997, 1996 and 1995, respectively.
40
<PAGE> 41
OPERATIONS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED EUROPE & &
(IN THOUSANDS) STATES CANADA AUSTRALIA ELIMINATIONS CONSOLIDATED
------ ------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated
customers $ 20,145 $639 $ 2,728 $ -- $ 23,512
Transfers between
geographic areas 473 -- -- (473) --
-------- ---- ------- ------- --------
Net sales $ 20,618 $639 $ 2,728 $ (473) $ 23,512
======== ==== ======= ======= ========
Net income (loss) $ (2,945) $175 $ -- $ -- $ (2,770)
Identifiable assets $ 20,385 $329 $ -- $(3,519) $ 17,195
1996
Sales to unaffiliated
customers $ 23,893 $621 $ 8,249 $ -- $ 32,763
Transfers between
geographic areas 1,147 -- -- (1,147) --
-------- ---- ------- ------- --------
Net sales $ 25,040 $621 $ 8,249 $(1,147) $ 32,763
======== ==== ======= ======= ========
Net income (loss) $ (3,723) $221 $ (82) $ 9 $ (3,575)
Identifiable assets $ 15,351 $160 $ 5,070 $(7,520) $ 13,061
1995
Sales to unaffiliated
customers $ 28,743 $609 $ 9,433 $ -- $ 38,785
Transfers between
geographic areas 1,518 -- -- (1,518) --
-------- ---- ------- ------- --------
Net sales $ 30,261 $609 $ 9,433 $(1,518) $ 38,785
======== ==== ======= ======= ========
Net income (loss) $ (5,005) $166 $(1,397) $ (11) $ (6,247)
Identifiable assets $ 19,827 $277 $ 5,947 $(8,149) $ 17,902
</TABLE>
No single customer or other foreign geographic area accounted for 10% or more of
the Company's sales.
41
<PAGE> 42
ALPHA MICROSYSTEMS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE DEDUCTIONS END OF YEAR
------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
February 23, 1997 $ 927 $ 64 $ 852(1) $ 139
February 25, 1996 1,004 (21) 56 927
February 26, 1995 1,728 467 1,191 1,004
Reserve for inventories:
February 23, 1997 $1,726 $(59) $1,626(2) $ 41
February 25, 1996 1,723 196 193 1,726
February 26, 1995 1,430 694 401 1,723
</TABLE>
- ----------------------
(1) Deduction is primarily the result of the sale of AMGB, AlphaHealthCare
and PANDA and the disposition of a fully reserved individual account of
approximately $362,000.
(2) Deduction is primarily the result of the sale of AMGB, AlphaHealthCare
and PANDA.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 pr 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.
ALPHA MICROSYSTEMS
Date: May 23, 1997 By: /s/ DOUGLAS J. TULLIO
----------------------------------
Douglas J. Tullio
President, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Clarke E. Reynolds,
Douglas J. Tullio and John F. Glade, and each and any of them, as
attorneys-in-fact and agents with full powers of substitution to sign on his
behalf, individually and in the capacity stated below, and to file any
amendments to this Annual Report on Form 10-K with the Securities and Exchange
Commission, granting to said attorneys-in-fact and agents full power and
authority to perform any other act on behalf of the undersigned required to be
done in the premises.
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 and
in the capacities and on the dates indicated.
Date: May 23, 1997 By: /s/ CLARKE E. REYNOLDS
--------------------------------------
Clarke E. Reynolds
Chairman of the Board
Date: May 23, 1997 By: /s/ DOUGLAS J. TULLIO
--------------------------------------
Douglas J. Tullio
President, Chief Executive Officer,
Director
Date: May 23, 1997 By: /s/ JOHN F. GLADE
--------------------------------------
John F. Glade
Vice President, Engineering and
Manufacturing, Secretary and Director
Date: May 23, 1997 By: /s/ JAMES A. SORENSEN
--------------------------------------
James A. Sorensen
Vice President
Chief Financial Officer
Date: May 23, 1997 By: /s/ ROCKELL N. HANKIN
--------------------------------------
Rockell N. Hankin
Director
Date: May 23, 1997 By: /s/ RICHARD E. MAHMARIAN
--------------------------------------
Richard E. Mahmarian
Director
43
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
JOHN S. CAIN and JOHN F. GLADE certify that:
1. They are the President and Secretary, respectively, of ALPHA
MICROSYSTEMS, a California corporation.
2. The Articles of Incorporation of this corporation are hereby
amended to add a new Article V as follows:
"ARTICLE V
A. The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law as currently or hereafter in effect.
B. The Corporation may indemnify each of its agents (as defined in
Section 317 of the California Corporations Code of California) whether by
bylaw, agreement, or otherwise, in excess of that expressly permitted by
Section 317, subject to the applicable limitations set forth in Section 204
of the California Corporations Code with respect to actions for breach of
duty to the Corporation and its shareholders.
C. Any repeal or modification of this Article V by the shareholders of
the Corporation shall not adversely affect any right or protection of a
director, officer, employee, or agent of the corporation existing at the
time of such repeal or modification.
D. This Article V shall be deemed to be amended by any modification of
the California Corporations Code increasing the scope of indemnification
rights which a corporation may authorize in its articles of incorporation".
3. The foregoing Amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing Amendment to the Articles of Incorporation has been
duly approved by the required vote of Shareholders in accordance with Section
902 of the California Corporations Code. The total number of outstanding shares
of the corporation entitled to vote with respect to the Amendment was
3,172,900, the favorable vote of a majority of such shares is required to
approve the Amendment, and the number of such shares voting in favor of the
Amendment exceeded the required vote.
/s/ JOHN S. CAIN
------------------------
JOHN S. CAIN, President
/s/ JOHN F. GLADE
------------------------
JOHN F. GLADE, Secretary
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing Certificate are true of their own knowledge.
Executed at Santa Ana, California on September 29, 1988.
/s/ JOHN S. CAIN
------------------------
JOHN S. CAIN, President
/s/ JOHN F. GLADE
------------------------
JOHN F. GLADE, Secretary
<PAGE> 1
WARRANT TO PURCHASE COMMON STOCK
GRANT DATE: Effective as of October 15, 1996 300,000 Shares
ALPHA MICROSYSTEMS
------------------
In consideration of Two Hundred Dollars ($200.00) and other value
received, ALPHA MICROSYSTEMS, a California corporation (the "Company"), grants
to DOMINICK & DOMINICK INCORPORATED or permitted transferees or assigns (the
"Holder") the right, subject to the terms of this Warrant, to purchase at any
time and from time to time during the period commencing immediately upon the
approval of the Letter Agreement between Company and Dominick & Dominick dated
October 15, 1996 by the Company's Board of Directors, and ending on 5:00 p.m.
New York City Time on August 15, 2001, unless extended or terminated as provided
herein (the "Expiration Date"), up to 300,000 shares of Common Stock (the
"Shares") at $3.00 per share (the "Basic Exercise Price). The Basic Exercise
Price and the number of shares of Common Stock that may be purchased are subject
to adjustment under the terms of this Warrant.
SECTION 1
---------
DEFINITIONS
-----------
As used in this Warrant, unless the context otherwise requires:
1.1 "Basic Exercise Price" means the price at which each share of
Common Stock may be purchased upon exercise of this Warrant as stated in the
first sentence of this Warrant.
1.2 "Blue Sky Application" means an application or other document
filed pursuant to a Blue Sky Law to register, qualify or obtain an exemption for
any offer or sale by or for the account of the Holder of all or part of this
Warrant or any of the Shares.
1.3 "Blue Sky Law" means the laws and regulations of any state or
other jurisdiction applicable to any sale by or for the account of the Holder of
all or part of this Warrant or any of the Shares.
1.4 "Common Stock" means the Common Stock (no par value) of the
Company existing on the Grant Date and for purposes of Sections 7.1(a) through
(e) also has the meaning set forth in Section 7.1(g).
1.5 "Exercise Date" means any date when this Warrant is exercised, in
whole or in part, in the manner indicated in Sections 2.1 and 2.2.
Exhibit 4.6
<PAGE> 2
1.6 "Exercise Price" means the Basic Exercise Price; provided,
however, that if an adjustment is required under Section 7 of this Warrant, then
the "Exercise Price" means, after each such adjustment, the price at which each
Share may be purchased upon exercise of this Warrant immediately after the last
such adjustment.
1.7 "Expiration Date" means the Expiration Date indicated on the first
page of this Warrant.
1.8 "Grant Date" means the date this Warrant was first granted as
stated at the beginning of this Warrant.
1.9 "Prospectus" means a preliminary prospectus or final prospectus
(including any supplement) or any offering circular or similar offering
document, included in a Registration Statement.
1.10 "Registrable Securities" means Shares of Common Stock issued upon
the exercise of the Warrant.
1.11 "Registration Statement" means a Registration or Offering
Statement, a pre-effective or post-effective amendment to a Registration
Statement or other document proposed for filing or filed by the Company under
the Securities Act which is or would be available under applicable laws, rules
and regulations to register for a public offering or sale any shares of Common
Stock. The term "Registration Statement" shall not apply to any registration
statement relating to the sale of securities to participants in a Company stock
or option plan or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities (as defined
in Section 1.10 above).
1.11 "Securities Act" means the Securities Act of 1933, as amended
from time to time, and all rules and regulations promulgated thereunder, or any
act, rules or regulations which replace the Securities Act or any such rules and
regulations.
1.12 "Warrant" means this Warrant.
SECTION 2
---------
DURATION AND EXERCISE OF WARRANT
--------------------------------
2.1 Exercise Period. The Warrants may be exercised at any time after
the Grant Date and on or before the Expiration Date. After the Expiration Date
this Warrant shall become void, and all rights to purchase Shares hereunder
shall thereupon cease.
2.2 Method of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by (i) surrendering this Warrant to the Company, and (ii)
tendering to the Company payment of the Exercise Price for the Shares for which
exercise is made. Upon proper exercise, the Holder shall be deemed to be the
holder of record of the Shares for which exercise is
Exhibit 4.6
-2-
<PAGE> 3
made, even though the transfer or register books of the Company may then be
closed or certificates representing such Shares may not then be actually
delivered to the Holder.
2.3 Certificates. Within a reasonable time but no more than twenty
(20) days after exercise, certificates for the shares of Common Stock comprising
such Shares shall be delivered to the Holder and, unless this Warrant has
expired, a Related Warrant representing the number of Shares, if any, with
respect to which this Warrant shall not have been exercised shall be issued to
the Holder.
2.4 Taxes. The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in connection with the
issuance of this Warrant, or the issuance of any Shares upon the exercise of
this Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any subsequent transfer of this Warrant or of the
Shares.
SECTION 3
---------
VALIDITY AND RESERVATIONS OF SHARES
-----------------------------------
The Company covenants that this Warrant and all Shares of Common Stock
issued upon exercise of this Warrant will be validly issued, fully paid,
nonassessable and free of pre-emptive rights.
SECTION 4
---------
FRACTIONAL SHARES
-----------------
No fractional Shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a Share otherwise issuable upon any
such exercise, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the Exercise Price.
SECTION 5
---------
LIMITED RIGHTS OF THE WARRANT HOLDER
------------------------------------
The Holder shall not, solely by virtue of being the Holder of this
Warrant, have any of the rights of a holder of Common Stock of the Company,
either at law or equity, until such Warrant shall have been exercised and the
Holder shall be deemed to be the holder of record of Shares as provided in this
Warrant.
SECTION 6
---------
EXCHANGE, TRANSFER OR LOSS OF WARRANT
-------------------------------------
6.1 Exchange. This Warrant is exchangeable, without expense to the
Holder and upon surrender hereof to the Company, for Warrants of different
denominations entitling the
Exhibit 4.6
-3-
<PAGE> 4
Holder to purchase Shares equal in total number and identical in type to the
Shares covered by this Warrant.
6.2 Transfer. Subject to the provisions of Section 10, upon surrender
of this Warrant to the Company with assignment duly executed and the tender of
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new Warrant to the assignee named in such Assignment Form,
and this Warrant shall be canceled concurrent with such issuance.
6.3 Loss, Theft, Destruction or Mutilation. Upon receipt by the
Company of satisfactory evidence of the loss, theft, destruction or mutilation
of this Warrant and either (in the case of loss, theft or destruction)
reasonable indemnification or (in the case of mutilation) the surrender of this
Warrant for cancellation, the Company will execute and deliver to the Holder,
without charge, a new Warrant of like denomination. Any such new Warrant
executed and delivered shall constitute an additional obligation of the Company,
whether or not this Warrant, reportedly lost, stolen, destroyed or mutilated,
shall be at any time enforceable by anyone.
SECTION 7
---------
ANTI-DILUTION ADJUSTMENT OF NUMBER OF SHARES AND EXERCISE PRICE
---------------------------------------------------------------
7.1 Adjustment of Exercise Price. If any of the following events shall
occur at any time or from time to time prior to the exercise in full or
expiration of this Warrant, the following adjustments shall be made in the
Exercise Price, with the exception hereinafter provided:
(a) Recapitalization. In case the Company effects a subdivision,
combination, reclassification or other recapitalization of its outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock, the Exercise Price in effect immediately after such subdivision,
combination, reclassification or other recapitalization shall be proportionately
decreased or increased, as the case may be.
(b) Dividend Other Than in Cash. If the Company shall declare a
dividend on its Common Stock payable in stock or other securities of the Company
or of any other corporation, or in property or otherwise than in cash, or the
functional equivalent thereof, to the holders of its Common Stock, the Holder
shall, without additional cost, be entitled to receive upon the exercise of this
Warrant, in addition to the Shares to which such Holder is otherwise entitled
upon such exercise, the number of shares of stock or other securities or
property which such Holder would have been entitled to receive if such Holder
had been a holder, on the record date for such dividend, of the number of shares
of Common Stock so purchased under this Warrant.
(c) Merger or Consolidation - No Change in Control. In case of
any merger, consolidation or reorganization of the Company with or into one or
more corporations which results in holders of the Company's Common Stock
immediately prior to such event owning a majority of the voting securities of
the surviving corporation immediately following such
Exhibit 4.6
-4-
<PAGE> 5
event, and as a result of which holders of the Company's Common Stock receive
other stock, securities or property in lieu of or in addition to, but on account
of, their Common Stock, the Holder, upon the exercise of this Warrant after the
record date for determination of shareholders entitled thereto, shall receive,
in lieu of or in addition to the Shares, the proportionate shares of all stock,
or other securities (appropriately adjusted for any subsequent events of the
issuer of such stock or securities which are of the kind which would cause
adjustment of the Exercise Price hereunder) or other property issued, paid or
delivered for or on all of the Common Stock of the Company as would have been
allowable to the Shares so purchased under this Warrant had this Warrant been
exercised immediately prior to said record date.
(d) Merger of Consolidation - Change in Control. In case of any
merger, consolidation or reorganization of the Company with or into one or more
other corporations, which results in the holders of the Company's Common Stock
immediately prior to such event owning less than a majority interest of the
voting securities of the surviving corporation immediately following such event,
or in the case of any sale, lease, transfer or conveyance to another corporation
of all or substantially all the assets of the Company or proposed liquidation of
the Company, then in either such event the Holder shall be given notice of such
proposed action at approximately the same time and in substantially the same
manner as the holders of the Company's Common Stock. The Holder may attend the
meeting of the Company's shareholders at which such action is considered and
voted upon. If the proposed action is approved according to applicable law by
the shareholders of all corporations or other entities which are parties to the
proposed action, the Holder shall be so notified in writing by the Company by
registered or certified mail, and thereupon, notwithstanding the period of
exercisability stated on the face of this Warrant, this Warrant shall
automatically become immediately exercisable and become forever null and void to
the extent not exercised on or before 5:00 P.M., California time, on the tenth
(10th) business day following the delivery of such notice.
(e) Minimum Adjustment Not Required. Anything in this Section 7.1
to the contrary notwithstanding, the Company shall not be required, except as
hereinafter provided, to make any adjustment of the Exercise Price in any case
in which the amount by which such Exercise Price would be increased or reduced,
in accordance with the foregoing provisions, would be less than $.05, but in
such a case, such adjustment shall be carried forward and when such adjustment,
together with any and all such other adjustments so carried forward, shall
amount to not less than $.10 the Exercise Price shall be adjusted; provided,
however, that adjustments of less than $.05 in the Exercise Price shall be
required and made in accordance with the provisions of this Section 7.1 (other
than this subparagraph) not later than such time as may be required in order to
preserve the tax-free nature of any distribution (within the meaning of Section
305 of the United States Internal Revenue Code of 1986, as amended) to the
Holder or the holders of Common Stock. In the event of any subdivisions,
combination, reclassification or other recapitalization of shares of Common
Stock, said amount (as theretofore decreased or increased) shall be
proportionately decreased or increased.
(f) Other Adjustments. The Company, by action of its Board of
Directors, shall make such other equitable adjustments to the Exercise Price as
may be necessary to protect the Holder against dilution of this Warrant, with or
without a request of a Holder,
Exhibit 4.6
-5-
<PAGE> 6
where such an adjustment is appropriate in light of the occurrence of an event
or the existence of circumstances similar to those otherwise contemplated by
this Section 7.1.
(g) Term "Common Stock." Whenever reference is made in Sections
7.1(a) through (e) above to Common Stock, the term "Common Stock" shall include
any stock of any class of the Company, other than preferred stock with a fixed
limit on dividends, with no rights of conversion into "Common Stock" and with a
fixed amount payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company.
7.2 Number of Shares Adjusted. After any adjustment of the Exercise
Price pursuant to Section 7.1, the number of Shares issuable at the new Exercise
Price shall be adjusted to the number obtained by (i) multiplying the number of
Shares issuable upon exercise of this Warrant immediately before such adjustment
by the Exercise Price in effect immediately before such adjustment and (ii)
dividing the product so obtained by the new Exercise Price.
7.3 Notice of Adjustment. Whenever events occur requiring the Exercise
Price to be adjusted, the Company shall promptly file with its Secretary or an
Assistant Secretary at its principal office and with its stock transfer agent,
if any, a certificate of its chief financial officer showing the adjusted
Exercise Price, setting forth in reasonable detail the facts requiring such
adjustment, and stating such other facts as shall be necessary to show the
manner and figures used to compute such adjustments. Such chief financial
officers certificate shall be made available at all reasonable times for
inspection by the Holder. Promptly after each such adjustment, the Company shall
mail a copy of such certificate by certified mail to the Holder together with
information relating to the adjustment under Section 7.2. The Company shall
endorse on any Warrant executed and delivered by the Company a description of
each adjustment, if any, under this Section as the result of events occurring
before the execution and delivery of the Warrant, and the Warrant so issued
shall reflect the number of Shares issuable on exercise, as adjusted to reflect
such charges.
If, within forty-five (45) days of the mailing of such certificate,
Holders holding in the aggregate not less than 25% of the Warrants notify the
Company in writing of their disagreements with the adjusted Exercise Price
contained in the Company certificate, then the Company will promptly obtain a
certificate of a firm of independent certified public accountants of recognized
standing selected by the Company's Board of Directors (who shall not be the
regular auditors of the Company) certifying the same items required by the
Company certificate or making such adjustments as are appropriate. The Company
will promptly mail a copy of the firm of independent public accountants'
certificate to the Holder of the this Warrant. Under the circumstances described
in this paragraph, the Holders of the Warrants giving notice shall be obligated
to reimburse the Company for half of the charges imposed by the independent
certified accountants if their certificate confirms the Company's prior
calculations.
Exhibit 4.6
-6-
<PAGE> 7
SECTION 8
---------
NOTICE TO HOLDER
----------------
So long as this Warrant is outstanding, whenever the Company shall
expect to (i) pay any dividend or distribution upon Common Stock, (ii) offer to
the holders of Common Stock any right to subscribe for or to purchase any other
securities of the Company, (iii) effect any recapitalization, merger,
consolidation, reorganization, transfer, sale, lease or conveyance as referred
to in Section 7, or (iv) be involved in any voluntary or involuntary
dissolution, liquidation or winding up of the Company, at least twenty-one (21)
days before the proposed action or any applicable record date, the Company, by
certified mail, shall give the Holder written notice describing the proposed
action and stating the date on which (x) a record date is to be fixed for the
purposes of such dividend, distribution or rights or (y) such recapitalization,
merger, consolidation, reorganization, transfer, sale, lease, conveyance,
dissolution, liquidation or winding up is to take place and when, if any date is
to be fixed, the record holders of Common Stock shall be entitled to exchange
the shares of Common Stock for securities or other property deliverable upon
such recapitalization, merger, consolidation, reorganization, transfer, sale,
lease, conveyance, dissolution, liquidation or winding up.
SECTION 9
---------
REGISTRATION OF THE SHARES
--------------------------
9.1 Registration Rights.
--------------------
(a) Piggy-back Registration. The Company shall advise each Holder
of Registrable Securities by written notice at least five days prior to the
filing of any Registration Statement pertaining to securities to be offered to
the public solely for cash, and will, upon the request of any such Holders, and
without any charge to them, include in any such Registration Statement such
information as may be required to permit a public offering of their Registrable
Securities. If any such Registration Statement or notification is being filed by
the Company in connection with an underwritten public offering of securities of
the Company, the Company shall have the right to require such Holders (provided
that Rule 415 applies to the sale of the Registrable Securities) to postpone the
offering of their securities for a period of ninety (90) days following the
effective date of such Registration Statement or notification. If any such
Registration Statement or notification is being filed by the Company solely for
the benefit of selling security holders, the Company will permit such Holders of
the Registrable Securities to include for sale with such shareholders in such
Registration Statement or notification at least a pro rata portion (based upon
the ratio of the number of shares of Common Stock which such selling security
holders desire to sell to the number of Registrable Securities which such
Holders of the Registrable Securities desire to sell) of the total Registrable
Securities being registered, and the offering of the balance of the Registrable
Securities owned by holders of the Registrable Securities may then be postponed
by the Company for a period of ninety (90) days following effectiveness of the
Registration Statement or notification.
Exhibit 4.6
-7-
<PAGE> 8
(b) General Provisions. The following provisions shall also be
applicable to any such Registration:
(i) The Holders whose Registrable Securities are to be
included therein (the "Sellers") shall furnish the Company with such appropriate
information (relating to the intentions of such Holders) in connection therewith
as the Company shall reasonably request in writing. Following the effective date
of such Registration Statement or notification, the Company shall, upon the
request of the Seller, forthwith supply such number of Prospectuses or offering
circulars meeting the requirements of the Securities Act as shall be reasonably
requested by such Seller to permit such Seller to make a public offering of all
such securities of such Seller included therein. The Company shall file such
Blue Sky Applications and use its best efforts to qualify such securities
included therein for sale in such states as the Sellers shall reasonably
designate.
(ii) The Company shall bear the cost and expense directly
relating to any registration securities pursuant to this Section 9.1. The
Company shall not be required to pay any selling commissions, but shall pay all
applicable listing fees.
(iii) The Company shall indemnify and hold harmless each
Seller who may purchase from or sell for any Seller any Registrable Securities
from and against any and all losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any Prospectus included therein, required to be
filed or furnished by reason of this Section 9.1, or caused by any omission or
alleged omissions to state therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
which was based upon information furnished or required to be furnished in
writing to the Company by and about such Seller expressly for use therein, which
indemnification shall include each person, if any, who controls any such Seller
within the meaning of the Securities Act; provided, however, that the Company
shall not be obliged so to indemnify any such Seller or controlling persons
unless such Seller shall at the same time indemnify the Company, its directors,
each officer signing a Registration Statement or notification and each person,
if any who controls the Company within the meaning of the Securities Act from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or notification or any Prospectus or offering circular
required to be filed or furnished by reason of this Section 9.1, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading, insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission or alleged omission which was based upon
information furnished in writing to the Company by and about such Seller
expressly for use therein.
(iv) Notwithstanding anything herein, the Company shall not
be required to keep the Registration Statement or notification effective, or to
prepare and file
Exhibit 4.6
-8-
<PAGE> 9
amendments or supplements, later than nine months after the date on which the
Registration Statement or notification becomes effective under the Securities
Act.
(v) The Company shall, in case of a registration or
notification, furnish to the Holders of the Registrable Securities for whom such
Registrable Securities are registered or are to be registered or are filed for
notification, at the time such Registration Statement becomes effective, an
opinion of counsel, dated such date, for the Company reasonably acceptable to
the Holders to the effect that a Registration Statement or notification covering
the Registrable Securities has been filed with the commission under the
Securities Act and has become effective, that a prospectus or offering circular
complying in form with the requirements of the Securities Act is available for
delivery, that to the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of the Registration
Statement or suspending the availability of the offering exemption and that, to
the best of the counsel's knowledge, no proceedings for the issuance of a stop
order are threatened or contemplated, and that the Registrable Securities have
been registered or qualified under the securities or Blue Sky Laws of each state
in which the Company is required, pursuant to subsection (b)(i) of this Section
9.1 to register or qualify the Registrable Securities.
(vi) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 9.1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
reasonably required to effect the Registration of such Holder's Registrable
Securities.
9.2 Exchange Listing. In connection with the issuance of any Shares
upon the exercise of this Warrant, the Company shall secure the listing of the
underlying shares of Common Stock upon any securities exchange upon which shares
of the Company's Common Stock are listed.
9.3 No Obligations to Sell. Neither the giving of any notice nor the
making of any request hereunder shall impose any obligation on the selling
Holder to sell any Registrable Securities.
9.4 Registration Rights Survive Exercise. The Company's obligations
under this Section 9 shall continue in effect, regardless of the exercise or
surrender of this Warrant. The Company's obligations under this Section 9 shall
expire, however, with respect to a Warrant or Shares which have been sold by a
broker or dealer or in a public offering registered under the Securities Act or
a public offering exempt from such registration.
Exhibit 4.6
-9-
<PAGE> 10
SECTION 10
----------
SECURITIES LAW COMPLIANCE
-------------------------
Except pursuant to the requirements of Rule 144 of the Securities Act,
this Warrant and the Shares may not be sold, transferred, assigned or otherwise
disposed of except as follows:
(a) to a person who, in the opinion of counsel reasonably
satisfactory to the Company, is a person to whom this Warrants or the Shares may
legally be transferred without registration and without the delivery of a
current prospectus or offering circular with respect thereto; or
(b) to any person upon delivery of a prospectus or offering
circular then meeting the requirements of the Securities Act relating to such
securities (as to which a Registration Statement or notification under the
Securities Act shall then be in effect) and the offering thereof for such sale
or disposition.
SECTION 11
----------
MISCELLANEOUS
-------------
11.1 Successors and Assigns. All the covenants and provisions of
this Warrant which are by or for the benefit of the Company or the Holder shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
11.2 Notice. Notice or demand pursuant to this Warrant to be
given or made by the Holder to or on the Company shall be sufficiently given or
made if sent by registered mail, postage prepaid, receipt requested, addressed,
until another address is designated in writing by the Company, as follows:
Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
Any notice or demand authorized by this Warrant to be given or made by the
Company to or on the Holder shall be given to the Holder by registered mail,
postage prepaid, receipt requested, addressed at his last known address as it
shall appear on the books of the Company, until another address is designated in
writing by like mail.
11.3 Applicable Law. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of California.
Exhibit 4.6
-10-
<PAGE> 11
11.4 Headings. The Article headings herein are for convenience only
and are not part of this Warrant and shall not affect the interpretation
thereof.
Dated as of October 15, 1996 ALPHA MICROSYSTEMS
By: /s/ Douglas J. Tullio
----------------------------
Douglas J. Tullio, President
Attest: /s/ John Glade
--------------
Secretary
Exhibit 4.6
-11-
<PAGE> 12
EXERCISE FORM
-------------
(To be Executed by the Warrant Holder if He, or She
Desires to Exercise the Warrant in Whole or in Part)
To: Alpha Microsystems
The undersigned ( )
------------------------------------------------------
Please insert name and Social Security or number
E.I.N. of Holder
hereby irrevocably elects to exercise the rights of purchase represented by the
within Warrant for, and to purchase thereunder, ___________ Shares provided for
therein and tenders payment herewith to the order of Alpha Microsystems in the
amount of $________.
The undersigned requests that certificates for such Shares be issued as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Deliver to:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------------
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant for the balance remaining of the Shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below.
Address:
------------------------------------------------------------------------
Dated:________________,19_____
Signature:
-----------------------------------
Note: Signature must
correspond with the name as
written upon the face of
this Warrant in every
particular, without
alteration or enlargement
or any change whatsoever.
Exhibit 4.6
-12-
<PAGE> 13
FORM OF ASSIGNMENT
------------------
(To be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________ the right to purchase _______ Shares evidenced by the within
Warrant, and appoints ____________________ to transfer the same on the books of
Alpha Microsystems with the full power of substitution in the premises.
Dated:________________,19_____
Signature:
-----------------------------------
Note: Signature must
correspond with the name as
written upon the face of
this Warrant in every
particular, without
alteration or enlargement
or any change whatsoever,
and the signature must be
guaranteed in the usual
manner.
Signature Guaranteed:
- -------------------------------
Exhibit 4.6
-13-
<PAGE> 1
EXHIBIT 10.53
[TYPED ON DOMINICK & DOMINICK LETTERHEAD]
October 15, 1996
Mr. Douglas J. Tullio
President & Chief Executive Officer
Alpha Microsystems
2722 South Fairview Street
Santa Ana, CA 92704
Dear Mr. Tullio:
You have requested that Dominick & Dominick, Incorporated ("Dominick") act as a
financial adviser for Alpha Microsystems ("ALMI"), on an on-going, non-exclusive
basis. We have had certain discussions concerning our role as ALMI's financial
advisor and, in this regard, we are pleased to confirm the following:
1. Dominick will act as a non-exclusive financial adviser for ALMI.
2. In its capacity as financial adviser, Dominick will be available to
advise ALMI on investment banking and other matters such as mergers,
acquisitions, potential public and private financings, bank borrowings,
licensing and other business arrangements.
3. As part of its on-going financial advisory relationship, Dominick will
be available to provide merger and acquisition advisory services for
ALMI. In the event ALMI uses Dominick's advisory services or sources
and (a) acquires substantial stock or assets of another entity
introduced by Dominick, or (b) another entity introduced by Dominick
acquires substantial stock or assets of ALMI, Dominick shall be
entitled to its normal merger and acquisition fee on such transaction.
That fee shall be 2.5% of the total value of the transaction.
Dominick's fee shall be payable in cash at the time of the consummation
of any such transaction.
4. As part of its financial advisory relationship, Dominick will seek, at
appropriate times, to introduce ALMI to sources that will consider
providing financing to ALMI. Should ALMI use those financing sources,
Dominick shall be entitled to its normal cash replacement fee on such
funds. Typical fees for obtaining bank financing are 1% of the fair
market value of consideration raised; for public or private debt
financing 5%; and for equity offerings 8%. Payments of financing
<PAGE> 2
fees are to be made in cash at closing. Specific financing fees will be
covered in a separate agreement.
5. Fees described in paragraphs three and four herein shall be payable to
Dominick for any transactions described therein with any party or
entity introduced by Dominick to ALMI and with whom discussions were
held during the term of this engagement and which transaction is
consummated during the first six month period following the termination
of this engagement.
6. Dominick will receive reimbursement for all of its reasonable
out-of-pocket expenses incurred as a result of its activities for and
on behalf of ALMI, to be reimbursed within 30 days of invoice.
7. Dominick and/or its assigns will purchase for $200.00 a redeemable
warrant to purchase 300,000 common shares of ALMI immediately upon the
ALMI Board of Directors' approval of this agreement. The warrants are
exercisable at $3.00 per share, at any time, at the holder's option, in
whole or in part, prior to expiration. The expiration date for the
warrants is August 15, 2001. The warrants are subject to customary
anti-dilution provisions and holders of the warrant or any shares
received upon exercise of the warrant will have typical "piggy-back"
registration rights at any time ALMI files a registration statement.
8. ALMI will pay Dominick for its financial advisory services, over and
above any transaction consummation fees, a quarterly retainer fee of
$12,500, payable at the start of each quarterly period commencing on
January 1, 1997.
9. ALMI shall not issue any press release, statement, notice, document or
other instrument referring to or mentioning Dominick without Dominick's
prior written approval, except as required by law.
10. As Dominick will be acting on ALMI's behalf, ALMI agrees to indemnify
and hold harmless Dominick (including any affiliated companies and
respective officers, directors, employees and controlling persons) from
and against all claims, liabilities, losses, damages and expenses
(including reasonable expenses of counsel) as they are incurred in
connection with any proceeding, whether or not Dominick is a party,
relating to or arising out of such engagement or Dominick's role in
connection therewith. ALMI will not, however, be responsible for any
such claims, liabilities, losses, damages or expenses to the extent
that they result primarily from actions taken or omitted to be taken by
Dominick in bad faith or from its or their gross negligence. The
foregoing indemnification is effective immediately in respect of all
events occurring or omitted prior to or after the date hereof.
11. This agreement shall be governed by the laws of the State of New York.
<PAGE> 3
12. This agreement supersedes the December 17, 1993 agreement between
Dominick and ALMI.
13. This agreement, excluding the warrant described in paragraph 7, may be
canceled by either ALMI or Dominick at any time by notification of
termination in writing.
We look forward to a long and mutually rewarding relationship and we are
confident that we can assist ALMI in various aspects of its business and its
intended growth.
Very truly yours,
DOMINICK & DOMINICK, INCORPORATED
By: /s/ JOHN F. DOSS
-------------------------------
Managing Director
The foregoing is agreed to and accepted:
ALPHA MICROSYSTEMS
By: /s/ MR. DOUGLAS J. TULLIO
--------------------------------------
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.54
[SILICON VALLEY LOGO] SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: ALPHA MICROSYSTEMS
ADDRESS: 2722 SOUTH FAIRVIEW STREET
SANTA ANA, CALIFORNIA 92704
DATED: MARCH 3, 1997
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them
(the "Loan Agreement") dated July 10, 1995, as amended from time to time,
effective as of the date hereof. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)
1. MODIFICATION TO FINANCIAL COVENANTS. The section of the Schedule to
the Loan Agreement entitled "Financial Covenants (Section 4.1)" is hereby
amended in its entirety to read as follows, effective as of December 1, 1996:
"FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of
the following covenants. Compliance
shall be determined as of the end of
each month, except as otherwise
specifically provided below:
QUICK ASSET RATIO: Borrower shall maintain a ratio of
"Quick Assets" to current liabilities of
not less than 2.50 to 1.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total
liabilities to tangible net worth of
not more than .50 to 1.
LIQUIDITY RATIO Borrower shall maintain a ratio of
cash on hand (and cash equivalents) plus
50% of accounts receivable, less any
accounts receivable loan balances,
divided by the amount of Obligations of
not less than 1.50 to 1.
DEFINITIONS: "Current assets," and "current
liabilities" shall have the meanings
ascribed to them in accordance with
generally accepted accounting
principles.
"Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles,
excluding however all assets which would
be
<PAGE> 2
- --------------------------------------------------------------------------------
classified as intangible assets under
generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks,
trade names, copyrights, capitalized
software and organizational costs,
licences and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper
rated "A-1" by Standard & Poor's
Corporation (or a similar rating by a
similar rating organization),
certificates of deposit and banker's
acceptances, and accounts receivable
(net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset
ratio, deferred revenues shall not be
counted as current liabilities. For
purposes of the above debt to tangible
net worth ratio, deferred revenues shall
not be counted in determining total
liabilities but shall be counted in
determining tangible net worth for
purposes of such ratio. For all other
purposes deferred revenues shall be
counted as liabilities in accordance
with generally accepted accounting
principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the
foregoing covenants do not include
indebtedness which is subordinated to
the indebtedness to Silicon under a
subordination agreement in form
specified by Silicon or by language in
the instrument evidencing the
indebtedness which is acceptable to
Silicon."
2. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
3. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
ALPHA MICROSYSTEMS SILICON VALLEY BANK
BY_______________________________ BY_________________________________
PRESIDENT OR VICE PRESIDENT TITLE____________________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 3
- --------------------------------------------------------------------------------
GUARANTOR'S CONSENT
The undersigned guarantor acknowledges that its consent to the
foregoing Amendment is not required, but the undersigned nevertheless does
hereby consent to the foregoing Amendment and to the documents and agreements
referred to therein and to all future modifications and amendments thereto, and
to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of the Continuing Guaranty executed by the undersigned in
favor of Silicon, which is hereby ratified and affirmed and shall continue in
full force and effect.
ALPHAHEALTHCARE, INC.
By: _________________________________
Title:_______________________________
-3-
<PAGE> 1
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this 16th
day of January, 1997, by and between ALPHA MICROSYSTEMS, a California
corporation (the "Company"), and James A. Sorensen ("Indemnitee"), a director
and/or officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to serve as officers and directors
without adequate protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
I.
INDEMNIFICATION
---------------
1.01 Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company) by reason of the fact that Indemnitee is or was a director
and/or officer of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director and/or officer or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expense,
liability and loss (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe Indemnitee's conduct
was unlawful.
EXHIBIT 10.55
<PAGE> 2
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in the best
interests of the Company, and with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
1.02 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of fact that Indemnitee is or was a director and/or officer
of the Company or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while a director and/or officer or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
(including attorneys' fees) and amounts paid in settlement (if such settlement
is court-approved) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and its shareholders. No indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duties
to the Company and its shareholders, unless and only to the extent that the
Court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
1.03 Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1.01 or 1.02 or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
II.
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
2.01 Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1.01 or 1.02 hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advance to be made hereunder shall be paid by the Company to
Indemnitee within thirty (30) days following delivery of a written request
therefor by Indemnitee to the Company.
2.02 Determination of Conduct. Any indemnification (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination
-2-
<PAGE> 3
that indemnification of Indemnitee is proper under the circumstances because
Indemnitee has met the applicable standard of conduct set forth in Section 1.01
or 1.02 of this Agreement. Such determination shall be made by any of the
following: (1) the Board of Directors (or by an executive committee thereof) by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, (3) by the shareholders, with the shares
owned by Indemnitee not being entitled to vote thereon, or (4) the court in
which such proceeding is or was pending upon application made by the Company or
Indemnitee or the attorney or other person rendering service in connection with
the defense, whether or not such application by Indemnitee, the attorney or the
other person is opposed by the Company.
2.03 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Alpha Microsystems, 2722
South Fairview Street, Santa Ana, California 92704, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed
received on the third business day after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
2.04 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.03 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable actions to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
2.05 Selection of Counsel. In the event the Company shall be obligated
under Section 2.01 hereof to pay the expenses of any proceeding against
Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (a) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense; and (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-3-
<PAGE> 4
III.
ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY
--------------------------------------------------
3.01 Application. The provisions of this Agreement shall be deemed
applicable to all actual or alleged actions or omissions by Indemnitee during
any and all periods of time that Indemnitee was, is, or shall be serving as a
director and/or officer of the Company.
3.02 Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law (except as set forth in Article VIII hereof),
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expands the right
of a California corporation to indemnify a member of its board of directors or
an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute, or rule which narrows the
right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
3.03 Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for an action taken or not taken while serving in an indemnified
capacity even though he or she may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding.
IV.
PARTIAL INDEMNIFICATION
-----------------------
4.01 If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
-4-
<PAGE> 5
V.
MUTUAL ACKNOWLEDGMENT
---------------------
5.01 Both the Company and Indemnitee acknowledge that in certain
instances, federal law or public policy may override applicable state law and
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
VI.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
6.01 The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or subsidiary of the Company.
VII.
SEVERABILITY
------------
7.01 Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Article VII. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify
-5-
<PAGE> 6
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
VIII.
EXCEPTIONS
----------
8.01 Any other provision to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement for the
following:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, unless said
proceedings or claims were authorized by the board of directors of the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee derived an improper
personal benefit, including, but not limited to, self-dealing or usurpation of a
corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other
final adjudication adverse to Indemnitee established that Indemnitee committed
acts of active and deliberate dishonesty, with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
IX.
MISCELLANEOUS
-------------
9.01 Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger so that if Indemnitee is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
-6-
<PAGE> 7
or other enterprise, Indemnitee shall stand in the same position
under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which impose duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "reasonably believed to be in the best interests of the
Company and its shareholders" as referred to in this Agreement.
9.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall insure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
9.03 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked:
If to Indemnitee: James A. Sorensen
---------------------------
---------------------------
If to Company: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
or to such other address as may be furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be.
9.04 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
9.05 Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-7-
<PAGE> 8
9.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
"Company" ALPHA MICROSYSTEMS,
a California corporation
By:
------------------------------
Its:
------------------------
"Indemnitee"
------------------------------
James A. Sorensen
-8-
<PAGE> 1
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this 10th
day of January, 1997, by and between ALPHA MICROSYSTEMS, a California
corporation (the "Company"), and Jeffrey Martin ("Indemnitee"), a director
and/or officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to serve as officers and directors
without adequate protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
I.
INDEMNIFICATION
---------------
1.01 Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company) by reason of the fact that Indemnitee is or was a director
and/or officer of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director and/or officer or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expense,
liability and loss (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe Indemnitee's conduct
was unlawful.
EXHIBIT 10.56
<PAGE> 2
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in the best
interests of the Company, and with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
1.02 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of fact that Indemnitee is or was a director and/or officer
of the Company or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while a director and/or officer or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
(including attorneys' fees) and amounts paid in settlement (if such settlement
is court-approved) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and its shareholders. No indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duties
to the Company and its shareholders, unless and only to the extent that the
Court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
1.03 Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1.01 or 1.02 or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
II.
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
2.01 Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1.01 or 1.02 hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advance to be made hereunder shall be paid by the Company to
Indemnitee within thirty (30) days following delivery of a written request
therefor by Indemnitee to the Company.
2.02 Determination of Conduct. Any indemnification (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination
-10-
<PAGE> 3
that indemnification of Indemnitee is proper under the circumstances because
Indemnitee has met the applicable standard of conduct set forth in Section 1.01
or 1.02 of this Agreement. Such determination shall be made by any of the
following: (1) the Board of Directors (or by an executive committee thereof) by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, (3) by the shareholders, with the shares
owned by Indemnitee not being entitled to vote thereon, or (4) the court in
which such proceeding is or was pending upon application made by the Company or
Indemnitee or the attorney or other person rendering service in connection with
the defense, whether or not such application by Indemnitee, the attorney or the
other person is opposed by the Company.
2.03 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Alpha Microsystems, 2722
South Fairview Street, Santa Ana, California 92704, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed
received on the third business day after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
2.04 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.03 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable actions to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
2.05 Selection of Counsel. In the event the Company shall be obligated
under Section 2.01 hereof to pay the expenses of any proceeding against
Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (a) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense; and (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-11-
<PAGE> 4
III.
ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY
--------------------------------------------------
3.01 Application. The provisions of this Agreement shall be deemed
applicable to all actual or alleged actions or omissions by Indemnitee during
any and all periods of time that Indemnitee was, is, or shall be serving as a
director and/or officer of the Company.
3.02 Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law (except as set forth in Article VIII hereof),
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expands the right
of a California corporation to indemnify a member of its board of directors or
an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute, or rule which narrows the
right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
3.03 Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for an action taken or not taken while serving in an indemnified
capacity even though he or she may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding.
IV.
PARTIAL INDEMNIFICATION
-----------------------
4.01 If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
-12-
<PAGE> 5
V.
MUTUAL ACKNOWLEDGMENT
---------------------
5.01 Both the Company and Indemnitee acknowledge that in certain
instances, federal law or public policy may override applicable state law and
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
VI.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
6.01 The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or subsidiary of the Company.
VII.
SEVERABILITY
------------
7.01 Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Article VII. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify
-13-
<PAGE> 6
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
VIII.
EXCEPTIONS
----------
8.01 Any other provision to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement for the
following:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, unless said
proceedings or claims were authorized by the board of directors of the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee derived an improper
personal benefit, including, but not limited to, self-dealing or usurpation of a
corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other
final adjudication adverse to Indemnitee established that Indemnitee committed
acts of active and deliberate dishonesty, with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
IX.
MISCELLANEOUS
-------------
9.01 Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger so that if Indemnitee is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
-14-
<PAGE> 7
or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which impose duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "reasonably believed to be in the best interests of the
Company and its shareholders" as referred to in this Agreement.
9.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall insure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
9.03 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked:
If to Indemnitee: Jeffrey Martin
---------------------------
---------------------------
If to Company: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
or to such other address as may be furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be.
9.04 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
9.05 Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-15-
<PAGE> 8
9.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
"Company" ALPHA MICROSYSTEMS,
a California corporation
By:
------------------------------
Its:
------------------------
"Indemnitee"
------------------------------
Jeffrey Martin
-16-
<PAGE> 1
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this 17th
day of January, 1997, by and between ALPHA MICROSYSTEMS, a California
corporation (the "Company"), and DENNY MICHAEL ("Indemnitee"), a director and/or
officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company does not currently have any directors' and
officers' liability insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to serve as officers and directors
without adequate protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
I.
INDEMNIFICATION
---------------
1.01 Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company) by reason of the fact that Indemnitee is or was a director
and/or officer of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director and/or officer or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expense,
liability and loss (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably
EXHIBIT 10.57
<PAGE> 2
believed to be in the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in the best
interests of the Company, and with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
1.02 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of fact that Indemnitee is or was a director and/or officer
of the Company or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while a director and/or officer or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
(including attorneys' fees) and amounts paid in settlement (if such settlement
is court-approved) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and its shareholders. No indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duties
to the Company and its shareholders, unless and only to the extent that the
Court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
1.03 Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1.01 or 1.02 or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
II.
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
2.01 Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1.01 or 1.02 hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advance to be made hereunder shall be paid by the Company to
Indemnitee within thirty (30) days following delivery of a written request
therefor by Indemnitee to the Company.
-18-
<PAGE> 3
2.02 Determination of Conduct. Any indemnification (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of Indemnitee is proper under the
circumstances because Indemnitee has met the applicable standard of conduct set
forth in Section 1.01 or 1.02 of this Agreement. Such determination shall be
made by any of the following: (1) the Board of Directors (or by an executive
committee thereof) by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, (3) by the
shareholders, with the shares owned by Indemnitee not being entitled to vote
thereon, or (4) the court in which such proceeding is or was pending upon
application made by the Company or Indemnitee or the attorney or other person
rendering service in connection with the defense, whether or not such
application by Indemnitee, the attorney or the other person is opposed by the
Company.
2.03 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Alpha Microsystems, 2722
South Fairview Street, Santa Ana, California 92704, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed
received on the third business day after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
2.04 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.03 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable actions to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
2.05 Selection of Counsel. In the event the Company shall be obligated
under Section 2.01 hereof to pay the expenses of any proceeding against
Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (a) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense; and (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-19-
<PAGE> 4
III.
ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY
--------------------------------------------------
3.01 Application. The provisions of this Agreement shall be deemed
applicable to all actual or alleged actions or omissions by Indemnitee during
any and all periods of time that Indemnitee was, is, or shall be serving as a
director and/or officer of the Company.
3.02 Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law (except as set forth in Article VIII hereof),
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expands the right
of a California corporation to indemnify a member of its board of directors or
an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute, or rule which narrows the
right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
3.03 Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for an action taken or not taken while serving in an indemnified
capacity even though he or she may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding.
IV.
PARTIAL INDEMNIFICATION
-----------------------
4.01 If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
-20-
<PAGE> 5
V.
MUTUAL ACKNOWLEDGMENT
---------------------
5.01 Both the Company and Indemnitee acknowledge that in certain
instances, federal law or public policy may override applicable state law and
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
VI.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
6.01 The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or subsidiary of the Company.
VII.
SEVERABILITY
------------
7.01 Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Article VII. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify
-21-
<PAGE> 6
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
VIII.
EXCEPTIONS
----------
8.01 Any other provision to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement for the
following:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, unless said
proceedings or claims were authorized by the board of directors of the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee derived an improper
personal benefit, including, but not limited to, self-dealing or usurpation of a
corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other
final adjudication adverse to Indemnitee established that Indemnitee committed
acts of active and deliberate dishonesty, with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
IX.
MISCELLANEOUS
-------------
9.01 Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger so that if Indemnitee is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
-22-
<PAGE> 7
or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which impose duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "reasonably believed to be in the best interests of the
Company and its shareholders" as referred to in this Agreement.
9.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall insure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
9.03 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked:
If to Indemnitee: Denny Michael
---------------------------
---------------------------
If to Company: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
or to such other address as may be furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be.
9.04 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
9.05 Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-23-
<PAGE> 8
9.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
"Company" ALPHA MICROSYSTEMS,
a California corporation
By:
------------------------------
Its:
------------------------
"Indemnitee"
------------------------------
Denny Michael
-24-
<PAGE> 1
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made effective as of
the 17th day of January, 1997, by and between ALPHA MICROSYSTEMS, a California
corporation (the "Company"), and RANDY S. PARKS ("Indemnitee"), a director
and/or officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company does not currently have any directors' and
officers' liability insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to serve as officers and directors
without adequate protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
I.
INDEMNIFICATION
---------------
1.01 Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company) by reason of the fact that Indemnitee is or was a director
and/or officer of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director and/or officer or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expense,
liability and loss (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably
EXHIBIT 10.58
<PAGE> 2
believed to be in the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in the best
interests of the Company, and with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
1.02 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of fact that Indemnitee is or was a director and/or officer
of the Company or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while a director and/or officer or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
(including attorneys' fees) and amounts paid in settlement (if such settlement
is court-approved) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and its shareholders. No indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duties
to the Company and its shareholders, unless and only to the extent that the
Court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
1.03 Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1.01 or 1.02 or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
II.
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
2.01 Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1.01 or 1.02 hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advance to be made hereunder shall be paid by the Company to
Indemnitee within thirty (30) days following delivery of a written request
therefor by Indemnitee to the Company.
-26-
<PAGE> 3
2.02 Determination of Conduct. Any indemnification (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of Indemnitee is proper under the
circumstances because Indemnitee has met the applicable standard of conduct set
forth in Section 1.01 or 1.02 of this Agreement. Such determination shall be
made by any of the following: (1) the Board of Directors (or by an executive
committee thereof) by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, (3) by the
shareholders, with the shares owned by Indemnitee not being entitled to vote
thereon, or (4) the court in which such proceeding is or was pending upon
application made by the Company or Indemnitee or the attorney or other person
rendering service in connection with the defense, whether or not such
application by Indemnitee, the attorney or the other person is opposed by the
Company.
2.03 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Alpha Microsystems, 2722
South Fairview Street, Santa Ana, California 92704, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed
received on the third business day after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
2.04 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.03 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable actions to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
2.05 Selection of Counsel. In the event the Company shall be obligated
under Section 2.01 hereof to pay the expenses of any proceeding against
Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (a) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense; and (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-27-
<PAGE> 4
III.
ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY
--------------------------------------------------
3.01 Application. The provisions of this Agreement shall be deemed
applicable to all actual or alleged actions or omissions by Indemnitee during
any and all periods of time that Indemnitee was, is, or shall be serving as a
director and/or officer of the Company.
3.02 Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law (except as set forth in Article VIII hereof),
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expands the right
of a California corporation to indemnify a member of its board of directors or
an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute, or rule which narrows the
right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
3.03 Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for an action taken or not taken while serving in an indemnified
capacity even though he or she may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding.
IV.
PARTIAL INDEMNIFICATION
-----------------------
4.01 If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
-28-
<PAGE> 5
V.
MUTUAL ACKNOWLEDGMENT
---------------------
5.01 Both the Company and Indemnitee acknowledge that in certain
instances, federal law or public policy may override applicable state law and
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
VI.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
6.01 The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or subsidiary of the Company.
VII.
SEVERABILITY
------------
7.01 Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Article VII. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify
-29-
<PAGE> 6
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
VIII.
EXCEPTIONS
----------
8.01 Any other provision to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement for the
following:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, unless said
proceedings or claims were authorized by the board of directors of the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee derived an improper
personal benefit, including, but not limited to, self-dealing or usurpation of a
corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other
final adjudication adverse to Indemnitee established that Indemnitee committed
acts of active and deliberate dishonesty, with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
IX.
MISCELLANEOUS
-------------
9.01 Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger so that if Indemnitee is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
-30-
<PAGE> 7
or other enterprise, Indemnitee shall stand in the same position
under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which impose duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "reasonably believed to be in the best interests of the
Company and its shareholders" as referred to in this Agreement.
9.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall insure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
9.03 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked:
If to Indemnitee: Randy S. Parks
---------------------------
---------------------------
If to Company: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
or to such other address as may be furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be.
9.04 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
9.05 Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-31-
<PAGE> 8
9.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
"Company" ALPHA MICROSYSTEMS,
a California corporation
By:
------------------------------
Its:
------------------------
"Indemnitee"
------------------------------
Randy S. Parks
-32-
<PAGE> 1
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this 17th
day of January, 1997, by and between ALPHA MICROSYSTEMS, a California
corporation (the "Company"), and MARGARET E. DENSON ("Indemnitee"), a director
and/or officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company does not currently have any directors' and
officers' liability insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to serve as officers and directors
without adequate protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
I.
INDEMNIFICATION
---------------
1.01 Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than action by or in the right
of the Company) by reason of the fact that Indemnitee is or was a director
and/or officer of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director and/or officer or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expense,
liability and loss (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably
EXHIBIT 10.59
<PAGE> 2
believed to be in the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in the best
interests of the Company, and with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
1.02 Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of fact that Indemnitee is or was a director and/or officer
of the Company or any subsidiary of the Company, by reason of any action or
inaction on the part of Indemnitee while a director and/or officer or by reason
of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
(including attorneys' fees) and amounts paid in settlement (if such settlement
is court-approved) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and its shareholders. No indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duties
to the Company and its shareholders, unless and only to the extent that the
Court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
1.03 Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1.01 or 1.02 or the defense of any claim,
issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
II.
EXPENSES; INDEMNIFICATION PROCEDURE
-----------------------------------
2.01 Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1.01 or 1.02 hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advance to be made hereunder shall be paid by the Company to
Indemnitee within thirty (30) days following delivery of a written request
therefor by Indemnitee to the Company.
-34-
<PAGE> 3
2.02 Determination of Conduct. Any indemnification (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of Indemnitee is proper under the
circumstances because Indemnitee has met the applicable standard of conduct set
forth in Section 1.01 or 1.02 of this Agreement. Such determination shall be
made by any of the following: (1) the Board of Directors (or by an executive
committee thereof) by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, (3) by the
shareholders, with the shares owned by Indemnitee not being entitled to vote
thereon, or (4) the court in which such proceeding is or was pending upon
application made by the Company or Indemnitee or the attorney or other person
rendering service in connection with the defense, whether or not such
application by Indemnitee, the attorney or the other person is opposed by the
Company.
2.03 Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Alpha Microsystems, 2722
South Fairview Street, Santa Ana, California 92704, or such other address as the
Company shall designate in writing to Indemnitee. Notice shall be deemed
received on the third business day after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
2.04 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.03 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable actions to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
2.05 Selection of Counsel. In the event the Company shall be obligated
under Section 2.01 hereof to pay the expenses of any proceeding against
Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (a) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense; and (b) if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-35-
<PAGE> 4
III.
ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY
--------------------------------------------------
3.01 Application. The provisions of this Agreement shall be deemed
applicable to all actual or alleged actions or omissions by Indemnitee during
any and all periods of time that Indemnitee was, is, or shall be serving as a
director and/or officer of the Company.
3.02 Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law (except as set forth in Article VIII hereof),
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expands the right
of a California corporation to indemnify a member of its board of directors or
an officer, such changes shall be, ipso facto, within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. In the
event of any change in any applicable law, statute, or rule which narrows the
right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
3.03 Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for an action taken or not taken while serving in an indemnified
capacity even though he or she may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding.
IV.
PARTIAL INDEMNIFICATION
-----------------------
4.01 If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
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<PAGE> 5
V.
MUTUAL ACKNOWLEDGMENT
---------------------
5.01 Both the Company and Indemnitee acknowledge that in certain
instances, federal law or public policy may override applicable state law and
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the Securities and Exchange Commission (the "SEC") has taken the position that
indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain
ERISA violations. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
VI.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
--------------------------------------------
6.01 The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors and officers with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer. Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain such insurance if the Company determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a parent or subsidiary of the Company.
VII.
SEVERABILITY
------------
7.01 Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Article VII. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify
-37-
<PAGE> 6
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
VIII.
EXCEPTIONS
----------
8.01 Any other provision to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement for the
following:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, unless said
proceedings or claims were authorized by the board of directors of the Company.
(b) Improper Personal Benefit. To indemnify Indemnitee against
liability for any transactions from which Indemnitee derived an improper
personal benefit, including, but not limited to, self-dealing or usurpation of a
corporate opportunity.
(c) Dishonesty. To indemnify Indemnitee if a judgment or other
final adjudication adverse to Indemnitee established that Indemnitee committed
acts of active and deliberate dishonesty, with actual dishonest purpose and
intent, which acts were material to the cause of action so adjudicated.
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
IX.
MISCELLANEOUS
-------------
9.01 Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger so that if Indemnitee is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
-38-
<PAGE> 7
or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which impose duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "reasonably believed to be in the best interests of the
Company and its shareholders" as referred to in this Agreement.
9.02 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall insure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
9.03 Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked:
If to Indemnitee: Margaret E. Denson
---------------------------
---------------------------
If to Company: Alpha Microsystems
2722 South Fairview Street
Santa Ana, California 92704
or to such other address as may be furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be.
9.04 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
9.05 Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-39-
<PAGE> 8
9.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above written.
"Company" ALPHA MICROSYSTEMS,
a California corporation
By:
------------------------------
Its:
------------------------
"Indemnitee"
------------------------------
MARGARET E. DENSON
-40-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
AMDP, Incorporated
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-20771) pertaining to the Alpha Microsystems 1993 Employee Stock
Option Plan, as amended, the 1996 Nonemployee Director Stock Compensation Plan
and the Employee Stock Purchase Plan and in the Registration Statement (Form S-8
No. 2-9252) pertaining to the Third Amended and Restated Incentive Stock Option
Plan, the Non-Qualified Stock Option Plan and the Stock Incentive Award Plan,
and in the Registration Statement (Form S-8 No. 33-62411) pertaining to the 1993
Employee Stock Option Plan and 1993 Directors' Stock Option Plan of Alpha
Microsystems of our report dated April 11, 1997, with respect to the
consolidated financial statements and schedule of Alpha Microsystems included in
the Annual Report (Form 10-K) for the year ended February 23, 1997.
ERNST & YOUNG LLP
Orange County, California
May 22, 1997
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