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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended AUGUST 29, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____ to ____
Commission file number 0-10843
CSP INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2441294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 LINNELL CIRCLE, BILLERICA, MASSACHUSETTS 01821
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978)663-7598
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing selling price as reported on NASDAQ on November
14, 1997, was $20,874,465.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, was 2,681,370 at November 14, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part II, Items 5, 6, 7 and 8 is incorporated by
reference to the Registrant's 1997 Annual Report to Stockholders. The
information required by Part III, Items 10,11,12 and 13 is incorporated by
reference to the Registrant's Proxy Statement dated November 28, 1997 filed with
respect to the Special Meeting in lieu of Annual Meeting of Stockholders of the
Registrant to be held on January 8, 1998.
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CSP Inc.
Form 10-K
Year Ended August 29, 1997
Item Number
in Form 10-K Table of Contents Page
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Part I
1 Business........................................ 4
2 Properties...................................... 19
3 Legal Proceedings............................... 20
4 Submission of Matters to a Vote
of Security Holders............................ 20
4A Executive Officers of the Registrant............. 20
Part II
5 Market for Registrant's Common Equity
and Related Stockholder Matters................ 22
6 Selected Financial Data......................... 22
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 22
8 Financial Statements and Supplementary Data..... 22
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 22
Part III
10 Directors and Executive Officers of the
Registrant...................................... 22
11 Executive Compensation........................... 23
12 Security Ownership of Certain Beneficial Owners
and Management.................................. 23
13 Certain Relationships and Related Transactions... 23
Part IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 23
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Part I
Item 1. BUSINESS
GENERAL
CSP Inc. (the "Company" or "CSPI") was founded in 1968 and is located
in Billerica, Massachusetts, just off Route 128 in the Boston computer
corridor. CSPI develops, manufactures, markets, installs and supports a range
of standard high performance multi-computer products and systems with specific
strengths in digital signal processing for real time applications in defense
and commercial markets. The Company also commercializes technology developed by
United Parcel Service (UPS) to automate parcel sortation capabilities. In 1994
a separate product group was established, Vision Systems product group, but in
March 1997, it was consolidated with the computer product group. The Company,
in 1988, established Scanalytics product group to develop and market imaging
systems for molecular and cell biology. In June 1997, this product group was
consolidated with the assets acquired from Signal Analytics Corp. and was set
up as a wholly-owned subsidiary called Scanalytics Inc. In June 1997, CSPI
acquired the assets of Modcomp/Cerplex L.P. CSPI sells all products through its
own direct sales force in the U.S. and MODCOMP sells direct in Germany, France
and United Kingdom. The two companies sell via a world-wide organization of
distributors in the rest of the world. Scanalytics sells through a network of
distributors and resellers.
RECENT PRODUCT LINE ACQUISITIONS:
Effective July 1, 1997, the Company acquired Modcomp/Cerplex L.P. (MODCOMP), a
wholly-owned subsidiary of The Cerplex Group Inc. MODCOMP sells legacy-to-web
integration solutions and real-time computer systems software and service. CSPI
purchased MODCOMP for $8,709,000 in cash. This transaction was accounted for as
a purchase.
In June 1997, the Company acquired Signal Analytics Corp., (Signal) a software
company that provides products for scientific imaging to the life science field.
CSPI purchased Signal for $2,159,000 in cash. This transaction was accounted for
as a purchase.
CURRENT PRODUCTS
MULTICOMPUTER PRODUCTS
CSPI's MultiComputer Group's business is helping its customers solve
high-performance computing problems by supplying multiprocessing systems with
powerful real-time I/O capabilities that require minimum physical space or
power. CSPI's unique commitment to open system designs, seamless upgradibility
of software, and superior scaleable multiprocessing architectures provides the
unparalleled price performance products that are needed to solve complex
real-time problems.
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With decades of application experience, CSPI understands the needs of
high-performance computing and real-time I/O applications. Applications
expertise, product innovation, technical support, and dedication to customer
support makes CSPI one of the industry's leading providers of high-performance
computing systems.
The MultiComputer Group has introduced the 2000 Series of systems, marking the
transition to a new generation of products designed specifically for
high-performance computing applications. The 2000 Series Systems offer
application developers the most comprehensive high-performance system in the
industry. The Company differentiates itself from its major competitors by its
use of standard interfaces and the interoperability this affords its OEM
customers.
The 2000 Series High-performance MultiComputer Systems use the best of open
systems technologies. The 2000 Series products are implemented using Myrinet
networking technology, Message Passing Interface (MPI) software for
interprocessor communications, and the VxWorks real-time operating system.
Computational nodes based on PowerPCs and SHARCs provide a heterogeneous
processor architecture.
The incorporation of open, proven, and established technologies in the 2000
Series MultiComputer Systems ensures that customers receive systems using the
latest technology while reducing the risks associated with proprietary
technology. The new products have been shipped in a variety of configurations,
including multiple-chassis systems. These systems are being used for several
different applications including radar, sonar, and surveillance signal
processing.
The entry level price for a 2000 Series High-Performance MultiComputer System is
$70,300. Volume discounts are available.
The MultiComputer group continues to market and sell the 1300 series of VME
board level products. These products, the 1310 and 1311 boards, are designed
around Analog Devices / 21060 DSP chip and the PowerPC RISC processor from
Motorola. The 1310/11 (single VME slot) delivers 1 Gigaflops of DSP power with 8
x 21060's on a daughterboard and a VME and PowerPC 603 RISC processor. The
PowerPC uses VxWorks ( Wind River Systems ) Real Time Kernel while Analog
Devices C Compiler and CSPI's Standard Signal Processing Library are used for
the 21060 DSP chip operation. The 1310/11 supports third party PMC(PCI) modules
offering a large set of standard I/O options. The 1310/11 is priced from $6,000
to $30,000, depending upon the model and quantity purchased.
Providing additional computation power for specific signal processing
application problems has been CSPI's core technology
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since its inception. The Company's products consist of both hardware and
software, each optimized for the other. A typical OEM/volume end user will
employ one or more units in an embedded system for defense, medical imaging,
advanced vision and seismic applications.
The majority of products sold are VME-based boards (called SuperCards) which are
incorporated into customized signal processing systems by OEM customers. Now in
its fourth generation, the SuperCard family is a product line of embedded signal
processors that employ multiple Intel i860 RISC microprocessors. The latest
version, the SuperCard-4SLX, employs eight 40MHz i860's and provides 640 MFLOPS
of computational power with 64MB of high speed memory and a high bandwidth
interconnection scheme based upon National Semiconductor's QuickRing.
SuperCard-3 utilizes one or two of the 50MHz version of the i860 and is
available for VME, S-Bus and Turbochannel. The earlier Supercard-2 and 1 are
still supplied to a limited number of existing customers.
All SuperCards are supported by a rich software development environment,
real-time software for multiple board installations and an extensive library of
five hundred commonly employed micro-coded mathematical subroutines. New
products currently in development are to be similarly supported. Third party
software support includes VxWorks (Wind River Systems), Unison (Multiprocessor
Toolsmith), FORTRAN (Lahey Computer Systems) and "C" (Metaware Corp) compilers.
The Company has placed great emphasis on its ability to migrate customer
application code to new generations of its hardware.
SuperCard products are priced from $5,000 to $45,000 (depending upon model and
quantity).
The Vision Systems product group has been integrated with the Multicomputer
Group. The Lightning family of over-the-belt industrial barcode readers
commercialize technology developed by United Parcel Service (UPS) to automate
UPS's parcel sortation capabilities. The next generation of readers is currently
in production and includes upgraded technology to address more applications.
SCANALYTICS, INCORPORATED
Signal Analytics and our former Scanalytics division merged in June, 1997 to
form a wholly-owned subsidiary, Scanalytics, Incorporated. Scanalytics
specializes in the development and marketing of highly sophisticated image
analysis software products used in the scientific research community. By
integrating these
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software products with a diverse group of image capture devices, Scanalytics is
able to solve application-specific problems in a variety of scientific
disciplines. Applications range from astronomy to microscopy, and include
specialized modules for the analysis of images in fluorescence, emission and
electron microscopy, bio-medical and 3D imaging, laser beam analysis, and remote
sensing.
In the biotechnology and bio-medical research markets, Scanalytics offers a
complete line of image analysis software packages used primarily in quantifying
DNA, RNA, and protein. Investigators involved in DNA fingerprinting, forensic
analysis, paternity testing, genetic linkage analysis, and identification of
pathogenic and environmental micro-organisms utilize Scanalytics analytical
systems in their laboratories. Scanalytics software modules are used by hundreds
of university, pharmaceutical and government labs, worldwide. In the field of
cell biology, Scanalytics' 3D, high resolution, fluorescence microscopy software
is being used to image and analyze microscopic cellular structures, in living
cells, that were previously impossible to visualize by any other technique.
Scanalytics software products are available in Macintosh and PC versions, and
are compatible with a wide variety of image capture devices, including
wide-field fluorescence microscopes, confocal microscopes, CCD cameras, storage
phosphor imaging devices, scanners and densitometers.
Never before has Scanalytics had such an array of product options to offer the
researcher. The combined resources of this newly-merged company have produced an
aggressive plan to develop several new products which are sold primarily through
a network of resellers that include many of the largest scientific
instrumentation companies in the world. Future product releases will include new
software and hardware options for the gel electrophoresis market; more platforms
for the microscopy market; and a web-based image processing product. The
combined expertise of the two former organizations provide the critical mass to
pursue new technology partnerships and explore new markets.
CELLSCAN AND EPR, 3D DECONVOLUTION
Based upon technology developed by the University of Massachusetts Medical
Center in over ten years of research, CELLscan is a system designed to allow
extremely high-resolution imaging of cellular and subcellular structures with
minimal damage to the specimen. The Company offers the deconvolution software,
EPR, in two options; a "stand-alone" version which runs on a desktop Pentium PC;
or a server option which allows multiple users in an institution to submit jobs
to a SuperCard-based server for high-speed processing. The stand-alone software
is priced at $15,000 and the server options begins at $46,600 with additional
SuperCard pricing available. The
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Company also sells complete image acquisitions and analysis systems ($60,000 to
$100,000 exclusive of the microscope) to individual researchers in academia and
biopharmaceutical companies. These turnkey system use third-party, off-the-shelf
components such as z-axis positioners, light shutters, and filter wheels.
ELECTROPHORESIS PRODUCTS
Electrophoresis is the most widely used technique for the separation of proteins
and nucleic acids in the life sciences. Active components are separated by
charge and molecular weight in thin gels and capillaries and then detected using
inherent properties or reporter molecules. These reporter molecules can be
radioactive labels, colored stains or chemiluminescent and fluorescent dyes.
Images derived by the scanning of these gels and capillaries are then analyzed
for pertinent data using software packages. Significant methodologies using this
data include large-scale DNA sequencing, DNA fragment analysis for microbial
identification, population genetics, and forensics, and routine QC/QA of protein
and nucleic acids in the biopharmaceutical industry.
The Scanalytics product group markets several software packages for
electrophoresis analysis that sell from $1,500 to $6,500. These packages were
developed in cooperation with various university and research institute
collaborators. GELLAB II+, a product for the analysis of 2-D electrophoresis was
developed as a direct result of a Cooperative Research and Development agreement
with the National Cancer Institute. These packages are sold directly to
individual researchers and via a number of distributors and OEM suppliers of
scanner and capillary electrophoresis instruments.
IPLAB
IPLab is a more general purpose image processing package used in biotechnology,
astronomy, laser beam analysis, and material science. The software is offered in
modules with upgrades available for multi-probe fluorescence microscopy,
calcium-ratio imaging, 3-D microscopy, time-lapse studies, and microscope
automation. There is also a separate package available for gel analysis. IPLab
scripts allow end-users to write customized functions for their individual
application. The IPlab foundation product was introduced in 1991 for the
Macintosh and is now available on Windows. The base product is priced at $1,800
on both platforms, and modules range in price from $500 to $3,000. The software
is sold through a network of international and domestics dealers, OEMs and VARs.
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MODCOMP, INC.
COMPUTER SYSTEMS
In recent years, MODCOMP's product offering has shifted away from the sales of
MODCOMP produced (proprietary and open architecture) hardware toward integration
solutions including hardware, software, special engineering, and third party
hardware and software. MODCOMP's value proposition is integrating these
components together into a complete computer system and installing that system
at the customer site.
MODCOMP continues to sell MODCOMP produced systems and components, especially as
it relates to servicing current customers with replacement and/or upgraded
systems. MODCOMP's computer systems generally can be expanded without major
redesign as customer requirements change.
The purchase prices of MODCOMP's computers and computer systems vary in
accordance with the requirements of the customer. Typically their computer
systems are priced from $6,000 to $250,000, although it has delivered
multi-system networks with sales prices exceeding $1,000,000 depending on
configuration and peripheral equipment.
MODCOMP's computer systems are generally utilized in industrial plants, research
laboratories and data processing applications. Their systems operate in
real-time.
COMPUTER HARDWARE
In 1988, MODCOMP began selling RealStar family of computers, based on open
systems VME and Motorola 68 and 88k processor technology. This was a direct
result of faster processing technology and customer demand. MODCOMP provides
migration paths for CLASSIC proprietary customers with these systems. Prices
range from $15,000 to $100,000.
In July 1997, MODCOMP began the launch of its RealStar II line of computer
systems. This is a line of third party hardware based on Pentium processor
technology. This hardware is specially configured for optimum performance with
MODCOMP's REAL/IX PX operating system. MODCOMP adds additional components and
software to these systems such as RAID subsystems, interface cards, disks, video
displays, to optimize them for real-time, process control market place. Prices
range from $6,000 to $25,000.
MODCOMP also continues to offer its proprietary CLASSIC and MODACS systems,
parts and services, which it manufactures in its Fort Lauderdale headquarters.
The CLASSIC systems are mini and superminicomputers designed specifically to
support real-time applications. The MODACS and MODACSX products are data
acquisition and control systems. Prices range from $15,000 to $250,000.
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COMPUTER SOFTWARE AND COMPUTER PROGRAMMING
MODCOMP's computers are supported by high-level operating software, referred to
as MAX, REAL/IX and REAL/IX PX. This software is designed specifically for
optimum real-time performance. MODCOMP's software enables customers to write
their own real-time application software. These applications, when combined with
MODCOMP computers or third party computers, creates systems which simultaneously
perform different control functions, program tests and a batch processing
operation with response and interrupt times that are competitive in the
marketplace. Prices range from $3,000 to $35,000 and up.
The Company also offers specialized programming and software engineering
services to supply customers with customized solutions.
LEGACY-WEB INTEGRATION SOLUTIONS
In fiscal year 1997, MODCOMP launched ViewMax in the United States. This product
(named ViewMax 2000 in the U.K.) is a combination of third party hardware,
software, third party software, and integration or special engineering services.
The product integrates legacy systems (such as mainframes, midranges and other
host systems) using Internet technology. This product can be used to enable
companies to provide data to a wider audience of users over their corporate
intranet, extranet or the Internet.
Although the product has much wider potential, current sales have been for the
purpose of electronic-commerce and increased corporate efficiency to British
consumer electronic manufacturing companies. In the US, companies from a wide
spectrum of industries have expressed interest, including insurance, financial,
health services, governmental, and manufacturing/distribution. Prices range from
$40,000 to $200,000.
REALITYX
In 1996, MODCOMP started selling and servicing the upgrade path to businesses
using the Reality or Pick operating system from Novadyne. MODCOMP sells third
party hardware and software to Value Added Resellers who subsequently do the
implementation. This effort is concentrated out of our California sales office.
Prices range from $10,000 to $75,000.
MARKETS, MARKETING AND DEPENDENCE ON CERTAIN CUSTOMERS
Applications for Multicomputing products include primarily sonar and radar
systems and simulators. It also services other areas such as medical imaging,
seismic data processing, package sortation, mathematical biology and image
processing. The Company is able
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to address these widely diverse markets as an OEM supplier to system integrators
primarily in the military and defense area and other high volume end-users. In
the case of Scanalytics, MODCOMP and over-the-belt products, the Company has
decided to offer a complete applications solution to individual end-users. The
following table sets forth the amount (in thousands of dollars) and percentage
of sales revenues attributable to OEM-volume and individual end-users during
fiscal years 1997, 1996 and 1995.
Year Ended August
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1997 1996 1995
OEM-volume sales $ 8,662 44% $13,338 81% $13,344 72%
End-user sales 10,878 56% 3,182 19% 5,182 28%
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$19,540 100% $16,520 100% $18,526 100%
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The shift in business from OEM volume sales to the end-user was due primarily to
the two months of business from MODCOMP in 1997, which was all end-user sales
and presented 34% of total sales and approximately 62% of end-user sales.
While military markets may be shrinking overall, CSPI has continued to work with
prime contractors that are encouraged to seek commercial design solutions rather
than build in-house, custom products. This effort is in response to government
pressure to reduce defense expenditures, from the various procurement agencies
around the world. These agencies have embraced the concept of
Commercial-Off-The-Shelf (COTS) based systems as a method to reduce the cost.
Prime contractors are being directed to employ relatively inexpensive commercial
components whenever possible, replacing custom, fully militarized designs. This
also adds another benefit in that commercial products are estimated to be
several years ahead of militarized equivalents. The Company continues to ship
products for several COTS based programs. The new Multicomputer series 2000
product has been shipped to a number of customers evaluating its use in future
COTS programs in the radar, sonar and night vision applications, among others.
The evaluation periods vary based on the program, but it takes six to eighteen
months for many of the programs to complete their evaluation and beginning
deployment.
The most productive, currently deployed programs have been utilizing SuperCards
within the U.S. Navy's sonar computers, which are used to co-ordinate
information from sensor arrays in both ship-based and shore-based installations.
These programs have continued, but their deployment is nearing completion.
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Medical imaging has grown and the variety of non-invasive technologies (e.g.
MRI, PET, Ultrasound, Biomagnetics) employed is still increasing. SuperCards are
sold to several medical imaging equipment suppliers on an OEM basis. The
Multicomputing 2000 series system is being reviewed by some current customers,
but it is more powerful than the requirements for their products and other
standard board level computer products and some integrated circuits can meet
their needs.
Instrumentation for biotechnology is used for both basic research and the
production of bio-pharmaceuticals. Funding for molecular and cell biology
research is a priority for most industrial nations and has increased.
Biotechnology techniques are now commonplace in all bio-pharmaceutical companies
and are extensively employed in the manufacturing of bio-engineered drugs.
Scanalytics instruments are used for both basic life sciences research and the
quality control of bio-pharmaceutical production. No single customer represents
a significant percentage of the total Scanalytics sales volume.
Barcodes are familiar to anyone shopping at the local supermarket. Designed
simply for product identification or zip code encryption, these one-dimensional
codes have limited information storage capacity. The trend is towards
high-density, two-dimensional, machine codes capable of carrying sufficient
information for decisions to be made locally. Typical of these modern codes is
MaxiCode, which is designed specifically for high speed sortation tasks.
However, until recently, the widespread use of two-dimensional machine codes has
been limited by the lack of an accurate over-the-belt reader, an essential
element in any automation scheme. The machine-code reader developed by UPS, and
manufactured and marketed by the Company, addresses the need for an accurate,
affordable unit capable of unattended operation which can read both bar codes
and the latest two-dimensional codes.
CSPI has had limited success in its sales efforts of this product to other
companies besides UPS, but it continues to market the product through the CSPI
distribution channel. However, UPS is still the primary customer for the
product. The ANSI and the Department of Defense have recommended MaxiCode to be
used for sortation and tracking applications. This may offer some opportunities
for the sale of bar code readers in the future.
Sales to individual customers constituting 10% or more of total sales consisted
of sales to Hughes Aircraft of $2,370,000 (12%)in 1997 and $3,394,000 (21%) in
1996. The other significant customer was UPS with sales of $2,114,000 (11%) in
1997 and $3,948,000 (21%) in 1995. The Company anticipates that, for the
foreseeable future, a significant percentage of its sales will be dependent upon
a relatively small number of customers.
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The Company markets its products through sales offices in Billerica,
Massachusetts, Laurel, Maryland, and San Diego, California. Elsewhere in the
U.S. and throughout the remainder of the world, these offices coordinate the
activities of independent distributors and manufacturers representatives who
represent other company's product lines not competitive with CSPI and are either
paid a commission on units sold or are permitted to buy units at a discount for
subsequent resale.
MODCOMP designs, manufactures, services and markets worldwide, high-speed
mini-computers and mini-computer systems principally for use in demanding
real-time applications. These computer systems are used in operations involving
process measurement and control, power production and distribution,
manufacturing test and inspection, scientific data collection and monitoring, as
well as financing and other communications networks. MODCOMP has been expanding
their product line by including third-party equipment to their sales and
servicing efforts. Their new focus is as a total solutions company that can meet
the needs of customers with a variety of products including internally produced
and those of third-party manufacturers.
Geographically, North America accounts for approximately 68% of total sales. The
significant increase in European sales was due to the two months of MODCOMP
business. Historically, approximately 50% of MODCOMP's revenue is generated
internationally. A significant volume of sales in the two month period were from
customers in Germany and France. Accordingly, changes in market conditions on
these countries may significantly affect MODCOMP's performance.
The following table sets forth the amounts (in thousands of dollars) and
percentage of sales by geographical area during fiscal years 1997, 1996 and
1995.
Year Ended August
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1997 1996 1995
North America $13,324 68% $14,474 88% $15,992 86%
Far East 1,034 5% 1,407 8% 953 5%
Europe 5,090 26% 574 3% 1,207 7%
Other 87 1% 65 1% 374 2%
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$19,540 100% $16,520 100% $18,526 100%
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COMPETITION
The MultiComputer, bar-code reader and bio-instrumentation markets are very
competitive. The Company believes its products to be among the leaders in
performance and price. All the markets are characterized by rapid technological
change, and the introduction of new products with superior capabilities or lower
pricing could adversely affect the Company's business.
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The Company's principal direct competitors in the MultiComputer systems market
are Mercury Computer Inc. and Sky Computers, Inc. In the specialized DSP market
direct competitors are DY4 Inc., Mizar, Pentek, Ariel, and Alacron. New
companies enter the field periodically, and larger companies with greater
technical resources and marketing organizations could decide to compete in the
future.
The future growth of the MultiComputer systems market depends upon providing
high density and scalability, in a compact, low power, and inexpensive package
that can be easily integrated into an OEM customer's design for high performance
computation for a specific range of signal processing and computer server
systems. Other companies may offer computer systems designed for particular
applications not addressed by the Company or for attachment to computers
incompatible with the Company's products. Since the majority of sales are to
OEM-volume users, the principal barrier to competition is the reluctance of
established users to redesign their product once it is in production and the
strength of the Company's relationship with its customers.
Competitors to Scanalytics products include; Applied Precision Instruments,
Inc., Vaytek Inc., Nikon, Leica, Zeiss, BioRad and NORAN in the fluorescence
microscopy market. The following compete in the gel analysis software markets;
BioImage Corp., Media Cybernetics, Inc., Molecular Dynamics Inc., Phoretix, and
BioRad. These competitors range from small, single product companies to large
multi-national instrument and microscope companies. Other companies offering
image processing software in this market are Innovision, Universal imaging,
Media Cybernetics, and Compix. Scanalytics maintains its competitive advantage
by the internal development of sophisticated software applications and the use
of the SuperCard 4 based embedded computers to offer a low-cost alternative in
the 3-D fluorescence microscopy market.
Direct competitors to the Company's machine code reader are Accu-Sort Systems,
Inc., which has also licensed the relevant technology from UPS, and Intermec,
which has developed their own CCD based reader. Machine code readers of
conventional laser design, which have some of the same performance
characteristics, are available from Computer Identics, PSC Automation, and
Datalogic. The Company's competitive advantage stems from the use of its
SuperCards in the reader, its superior signal processing expertise and its
proven capability as a quality supplier.
MODCOMP's competition is primarily in three products:
A. Proprietary Systems (Legacy)
B. Open Systems
C. Software (Operating Systems)
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In proprietary technologies, MODCOMP has very little competition for the supply
of new systems (CLASSIC) and Software Operating Systems (MAX). Many customers
with extensive applications continue to upgrade with the current CLASSIC
products.
Over the past 15 years, certain companies have been formed to compete in the
add-on hardware and software markets as well as on-site hardware maintenance.
These competitors for hardware and software are Accurate Computer Systems,
Electronics Visions, Logical Data Systems an Queue Systems. The maintenance
competitors are Concept III and Protostar, Inc.
MODCOMP also sells products offered by these third party sources. In addition, a
number of these are Value Added Resellers for our products who obtain a discount
from MODCOMP. Therefore, they are both competitors and partners.
In Open Systems, MODCOMP faces competition from a variety of credible computer
vendors. Two companies that define hard real-time computing as their specialty
are Concurrent Computers, Inc. and Encore, Inc. Other competitors in soft
real-time include DEC, Silicon Graphics and Hewlett Packard.
In certain process control areas where Distributed Control competes with Central
Control, MODCOMP's competitors are Bailey Systems, Foxboro, MODICON, Kaiser
Systems, Honeywell and Fisher. In certain cases, MODCOMP partners with these
companies in joint integration projects. For turn-key projects of which MODCOMP
is a minor player in the process control market, competitors include ABB,
Cegelec, Seimens, Honeywell and Westinghouse.
MODCOMP's software competitors for operating systems are QNX, Solaris, SCO, Lynx
and HPUX. MODCOMP's REAL/IX and REAL/IX PX are the only true UNIX open operating
systems providing hard real-time performance. It should be noted that this
comprises a small portion of the operating system (Process Control) market.
MODCOMP competes with these products on an equal basis when soft real-time is
required by the customer.
The computer industry is also characterized by rapid technological advances
which generally result in new products being introduced by MODCOMP, it's
competitors, and new start-up companies on a continual basis. MODCOMP would be
adversely affected if its competitors introduced technologically superior
products or offered their products at prices significantly lower than their
products. Management believes that the industry will continue to make
significant technological advances and that the competition
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<PAGE> 16
will continue to be intense. In recent years, competition from a multitude of
powerful microcomputer products has impacted the low-end of the product range
for minicomputer manufacturers, including MODCOMP. In addition, there has been a
recent trend towards the development of joint marketing arrangements and
strategic alliances within the computer industry. MODCOMP may seek to acquire
certain complementary products through such means in order to market to its
customers.
MANUFACTURING, ASSEMBLY AND TESTING
All of the Company's Multicomputing Systems manufacturing is performed at its
plant in Billerica, Massachusetts. The primary manufacturing process is the
assembly and test of printed circuit boards and systems, designed by the Company
and fabricated by other vendors. The Company endeavors to build for inventory
and supplies, its products in a variety of standard formats. A small percentage
of sales reflect products customized to a particular customer's specification,
and even these products are easily reconfigurable should the customer cancel the
order for any reason.
Upon receipt of material by the Company from outside suppliers, products and
components are inspected by the Company's QC/QA technicians. During manufacture
and assembly, both subassemblies and completed systems are subjected to
extensive testing, including burn-in and vibration procedures designed to
minimize equipment failure. The Company also uses diagnostic programs to detect
and isolate potential component failures. A comprehensive log is maintained of
all past failures to monitor quality procedures and improve design standards.
The Company is solely dependent upon Myricom Inc., Arcadia, CA for the
networking technology integrated circuit chip on the Multicomputing System
Series 2000 and 1300 products, and Intel Corp. for the I860 micro-processor used
in its SuperCard products. The Company has sufficient quantities of these
components on hand to satisfy anticipated demand and has been assured by Myricom
and Intel that supplies will continue to be available in any quantities
reasonably necessary.
The Company does not consider the risk of interruption of supply to be
significant to meet its projected revenue requirements for the immediate future.
The Company provides a warranty covering defects arising from products sold and
service performed, which varies from 90 days to one year depending upon the
particular unit. However, warranties of substantially greater scope have been
extended to certain major customers for financial and other considerations. The
Company
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<PAGE> 17
maintains a reserve for warranty repairs equal approximately to 2% of product
sales for the last 90 days.
The Company was approved for registration to ANSI/ASQC-Q9001 under RAB and RvC
accreditation. The ISO9001 category is the most comprehensive, and incorporates
every aspect of business from design, through sales, to manufacturing and
customer support.
MODCOMP's computer system production starts with the procurement of raw
materials, components, pcb's, cables, and prefabricated sheet metal. System
configurations can include a wide selection of peripheral subsystems built or
purchased under the original equipment manufacturer agreements. MODCOMP's
manufacturing facility is located in Fort Lauderdale, Florida. The process is
controlled by various quality steps throughout the manufacturing phases. The
production cycle of an individual system generally takes between 30 and 45 days,
depending on its complexity.
MODCOMP's manufacturing operations requires a wide variety of mechanical and
electronic components, raw materials and other supplies. MODCOMP has more than
one commercial source of supply for most of the components and raw materials
which it uses, but is dependent on certain single-source suppliers for a certain
number of items. The supply situation is cyclical and shortages or extended lead
times for delivery have developed from time to time. Although to date the
Company has had no significant problems in procuring its material requirements
as needed, MODCOMP's operations could be seriously affected should shortages
become acute.
CUSTOMER SUPPORT
The Company supports its customers in a number of ways: telephone assistance,
on-site service, installation of systems(primarily in the Scanalytics product
group), training and education. Customers are able to call a support unit and
report problems which are reviewed by an analyst. The analyst will research the
problem and will assist the customer, most commonly via telephone, in an effort
to correct the problem. Service of this kind is available during the warranty
period, and is also available to report "bugs" in the software. Customers may
purchase software and hardware maintenance and on-site service contracts after
the warranty period.
The Company offers training courses at either corporate headquarters or the
customer site, should the customer request it. Field and customer service
support is provided through Billerica, Massachusetts, San Diego, California, and
Laurel, Maryland, and Scanalytics through its Fairfax, Virginia site.
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<PAGE> 18
MODCOMP supports its customers in a number of ways; telephone assistance,
on-site service, installation of systems, training and education. Service and
parts warranty, generally of 90 days duration, is provided on all products. In
addition, MODCOMP sells maintenance service contracts to customers. MODCOMP also
conducts customer training classes of one to three weeks duration on a fee basis
either at their site or the customer's location.
MODCOMP offers training courses at corporate headquarters. Field and customer
service support is provided through offices strategically located throughout the
world.
ENGINEERING AND DEVELOPMENT
During fiscal 1996, the Company's expenses (including depreciation) for
engineering and development were approximately $3,360,000 (17% of sales)
compared to approximately $3,325,000 (20% of sales) and $3,099,000 (17% of
sales) in fiscal years 1996 and 1995, respectively. Expenditures for engineering
and development are expensed as they are incurred. The Company expects to
continue substantial expenditures, both in additional applications software
development and development of hardware and software for embedded computer and
machine code systems. Scanalytics Inc. will continue to expand its product
offering in software with its various products in gel and cell analysis for life
sciences and complete new releases of the PC version of the IP Lab software
product. The Company's products and development currently in process are
intended to extend the usefulness and marketability of existing products and
introduce new products into existing market segments.
Of the Company's and Scanalytics 71 employees, 16 professional and staff
employees were engaged in software and hardware engineering and development
activities as of August 29, 1997.
The Company does not have any patents that are material to its business.
MODCOMP's Engineering and Development staff has developed various computers,
computer peripherals and software since 1970, which it continues to maintain and
enhance.
MODCOMP's principal products are the CLASSIC hardware and software line, REAL/IX
PX and special one-of-a-kind products requested by customers.
The CLASSIC hardware and software line is a proprietary line of computers and
related software especially designed for the hard real-time market and has been
in existence since 1970.
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<PAGE> 19
'
REAL/IX PX is a modified version of the AT&T System V UNIX. It has been modified
to add determinism, fast interrupt handling, and fast context switching required
by the hard real-time market. REAL/IX PX runs on he Intel 486 and Pentium line
of computers.
Engineering works directly with customers to develop special one-of-a-kind
products such as the MODCOMP-VME-II, which moves the design of one of the early
CLASSIC systems onto a VME board to go into a VME chassis.
MODCOMP's has 192 employees, 22 professional and staff employees that are
engaged in software and hardware engineering and development.
BACKLOG
The Company's backlog of customer orders and contracts was approximately
$9,550,000 at August 29, 1997 of which approximately 90% relates to MODCOMP as
compared to $3,190,284 at August 30, 1996. The backlog of the Company has
fluctuated greatly over the last three years at fiscal year end. Orders for
SuperCard products (board-level product) have increased recently and the Company
is able to ship to customers in a shorter period of time. Moreover, OEM
purchasers are not committing themselves to orders of the same magnitude as has
been the case in the past.
EMPLOYEES
On August 29, 1997, the Company had 263 full time employees. None of the
Company's employees is represented by a labor union and the Company had no work
stoppages. The Company considers relations with its employees to be good.
Item 2. PROPERTIES
The Company owns the land and building at 40 Linnell Circle, Billerica,
Massachusetts.
The Company owns approximately 2.8 acres of land adjacent to the Company's
current facility. The Company believes space at its current location, combined
with space that will be available if the Company proceeds to build on the new
land, will be sufficient for future growth.
MODCOMP's corporate headquarters, manufacturing operations and training facility
in Fort Lauderdale, Florida are located in a leased building, totaling
approximately 77,483 square feet. In addition, they lease the following office
spaces in the United
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<PAGE> 20
States, Canada and foreign countries; Cincinnati - 1,958 sq. feet, Atlanta - 787
sq. feet, Houston - 1,450 sq. feet, Ontario, France - 11,066 sq. feet, Hamburg,
Germany - 29 sq. feet, Hannover, Germany - 748 sq. feet, Cologne, Germany -
6,048 sq. feet and Karlsruhe, Germany - 1,782 sq. feet.
Item 3. LEGAL PROCEEDINGS
MODCOMP is currently defendant in certain lawsuits which arose in the ordinary
course of business. Based in part on the opinion of legal counsel representing
the Company in these lawsuits, management is of the opinion that the outcome of
such litigation will not have a material adverse effect on the Company's
financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Approval of the CSP Inc. 1997 Stock Option Plan
b. Approval of the CSP Inc. Employee Stock Purchase Plan
c. Approval of Amendment to the CSP Inc. Articles of
Organization as described in the Proxy Statement.
d. Approval of Amendment to the By-Laws of CSP Inc. as
described in the Proxy Statement.
Item 4A. EXECUTIVE OFFICERS
Information about the executive officers of the Company is set forth below.
NAME AND AGE BUSINESS AFFILIATIONS
Alexander R. Lupinetti(52) Director, Chief Executive Officer and President of
CSPI since October 1996; President and Chief
Executive Officer of each of the TCAM Systems
Inc., Shared Systems Corporation and SoftCom
Systems, Inc. subsidiaries of Stratus Computer
Inc. from November 1987 to September 1996;
Northeastern General Manager for the Engineering
and Scientific Division of International Business
Machines, Inc. from 1984 to 1987.
Michael M. Stern(60) Director of CSPI from 1968 to January 1984; Vice
President of Operations and Treasurer of CSPI
since 1968.
Gary W. Levine(49) Vice President of Finance and Chief Financial
Officer of CSPI since September
page 20 of
<PAGE> 21
1983; Controller of CSPI from May 1983 to
September 1983.
James A. Waggett(60) Director of CSPI from 1968 to January 1984; Vice
President of Market Development for MultiComputer
Group from October 1996 to present; Vice President
of Advanced Development from 1974 to September
1996; Business Element Manager of the Embedded
Computing Product Group from August 1995 to
October 1996; Clerk from 1971 to March 1983;
Assistant Clerk from March 1983 to December 1996.
Michael Mort(46) President of Scanalytics June, 1997; President and
owner of Signal Analytics Corp. June, 1997-1987,
John P. Clary(60) President of MODCOMP Inc. and Vice President of
CSPI from August 1997 to present, Modcomp/Cerplex
L.P. President and Chief Executive Officer
December 1994 to August 1997, Vice President of
Customer Support, Manufacturing and Facilities,
Modular Computer Systems Inc., January 1991 to
December 1994
Manfred Appel(56) Vice President, Chief Financial Officer and
Treasurer of MODCOMP Inc., and Vice President of
CSP Inc., August 1995 to present; Vice President
and Chief Financial Officer of Modcomp/Cerplex
L.P., December 1994 to August 1997; Modular
Computer Systems Inc. Vice President and Chief
Financial Officer, January 1991 to December 1994.
Bekedley E. Stramp (45) Vice President of Sales and Support for Multi
Computer Group from October 1996 to present;
General Manager of Vision System Product Group
May 1994 to September 1996; Director of Customer
Support September 1988 to May 1994.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference from "Common
Stock Data" on page of the Company's 1997 Annual Report to Stockholders.
American Stock Transfer Company is the Transfer Agent and Registrar for the
Company's Common Stock. There were approximately 146 Stockholders of record as
of November 14, 1997. The Company believes the number beneficial owners of
shares (including shares held in street name) at that date were approximately
1,000.
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<PAGE> 22
Item 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from
"Selected Financial Data" on page 12 of the Company's 1997 Annual Report to
Stockholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 13-17 of the Company's 1997 Annual Report to Stockholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference from pages 18
to 32 and from "Independent Auditor's Report" on page 33 of the Company's 1997
Annual Report to Stockholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for Directors required by this Item is incorporated by reference
from the Company's Proxy Statement dated November 28, 1997 filed with respect to
the Special Meeting in lieu of Annual Meeting of Stockholders of the Company on
January 8, 1998.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement.
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<PAGE> 23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
A) The following are filed as part of this report:
1) Financial Statements (See item 8):
The following financial statements of the Company are included in Part II
of this report through incorporation by reference from the Company's 1997
Annual Report to Stockholders.
Annual Report
Page
Independent Auditors' Report.........................................32
Consolidated Balance Sheets at August 29, 1997 and
August 30, 1996......................................................18
Consolidated Statements of Operations for years ended
August 29, 1997, August 30, 1996 and August 25, 1995.................19
Consolidated Statements of Shareholders' Equity for
years ended August 29, 1997, August 30, 1996 and
August 25, 1995......................................................20
Consolidated Statements of Cash Flows for years ended
August 29, 1997, August 30, 1996 and August 25, 1995.................21
Notes to Consolidated Financial Statements........................23-31
2) Consolidated Financial Statement Schedules
None
3) Exhibits
Certain of the Exhibits listed hereunder have previously been filed with the
Commission and are hereby incorporated by reference pursuant to Rule 12b-32
under the Securities Exchange Act of 1934 and Rule 24 of the Commission's Rules
of Practice. The location of each document so incorporated by reference is noted
parenthetically.
3.1 Articles of Organization and amendments thereto, of the Company as of
the end of Fiscal 1986 (Exhibit 3.1 to the Form 10-K for the year ended
August 31, 1990)
3.2 By-Laws of the Company, as amended through March 21,1995
page 23 of
<PAGE> 24
10.1 1981 Incentive Stock Option Plan as amended (Exhibit 10.3 to the Form
S-8, File No. 2-79414, 1987 Registration Statement)
10.2 Mr. Ochlis' Employment and Deferred Compensation Agreement dated January
5, 1987 (Exhibit 10.5 to the Form S-8, File No. 2-79414, 1987
Registration Statement)
10.3 Form of Invention Agreement between the Company and certain of its
employees
10.4 CSPI Supplemental Retirement Income Plan (Exhibit 10.13 to Form 8
amendment 2 to Form 10-K for year ended August 31, 1986, dated February
23, 1987)
10.5 Trust Agreement (between CSP Inc. and Bank of Boston) dated January 5,
1987 as amended (Exhibit 10.11 to Form 10-K for year ended August 31,
1990)
10.6 Amendment to Mr. Ochlis' Employment and Deferred Compensation Agreement
dated March 20, 1989 (Exhibit 10.9 to Form 10-K for year ended August
31, 1991)
10.7 1991 Incentive Stock Option Plan (the Plan is included in the Company's
Proxy Statement dated November 10, 1991 with respect to the Annual
Meeting of Stockholders of the Company on December 10, 1991)
10.8 Retirement Agreement for Edmund U. Cohler (Exhibit 10.9 to Form 10-K for
the year ended August 26, 1994)
10.9 Symbology Reader License Agreement between UPS and CSPI (Exhibit 10.9 to
Form 10-K for the year ended August 26, 1994)
10.10 Software License Agreement between UPS and CSPI (Exhibit 10.12 to Form
10-K for the year ended August 26, 1994)
10.11 Patent Agreement between UPS and CSPI (Exhibit 10.13 to Form 10-K for
the year ended August 26, 1994)
10.12 Amendment to Mr. Ochlis' Employment Deferred Compensation Agreement
dated February 6, 1995
10.13 Employment Agreement between CSP Inc. and Mr. Lupinetti dated September
12, 1996
10.14 Signal Analytics Purchase Agreement
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<PAGE> 25
10.15 Modcomp/Cerplex L.P. Purchase Agreement
11.0 Computation of Earnings (loss) Per Share for the years ended August 29,
1997, August 30, 1996, and August 25, 1995
13.1 1997 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.0 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
page 25 of
<PAGE> 26
EXHIBIT INDEX
Exhibit Form 10-K
Number Exhibit Page
- ------ ------- ---------
10.14 Employment Agreement between CSP Inc. and Mr.
Lupinetti dated September 12, 1996
11.0 Computation of Earnings (loss) Per Share for the
years ended August 29, 1997, August 30, 1996, and
August 25, 1995 36
13.1 1997 Annual Report to Stockholders 37-64
23.0 Consent of Independent Certified Public Accountants 65
27.1 Financial Data Schedule 66-67
page 26 of
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CSP INC.
- ------------
(Registrant)
Alexander R. Lupinetti November 26, 1997
- ---------------------- -----------------
Alexander R. Lupinetti Date
Chief Executive Officer
and President
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 date indicated.
NAME TITLE DATE
Alexander R. Lupinetti Chief Executive Officer, November 26, 1997
- --------------------------- President
Alexander R. Lupinetti
Samuel Ochlis Chairman of the Board, November 26, 1997
- --------------------------- Director
Samuel Ochlis
Gary W. Levine Vice President of Finance, November 26, 1997
- --------------------------- Chief Financial Officer
Gary W. Levine
Boruch B. Frusztajer Director November 26, 1997
- ---------------------------
Boruch B. Frusztajer
J. David Lyons Director November 26, 1997
- ---------------------------
J. David Lyons
Shelton James Director November 26, 1997
- ---------------------------
Shelton James
Sandford Smith Director November 26, 1997
- ---------------------------
Sandford Smith
John Ingram Director November 26, 1997
- ---------------------------
John Ingram
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made as of June 13, 1997 by and between CSP
EUROPE, INC. ("CSPI"), a Delaware corporation ("BUYER"), and SIGNAL ANALYTICS
CORPORATION ("SA"), a Virginia corporation ("SELLER").
WITNESSETH:
WHEREAS, SELLER is in the business ("Business") of manufacturing,
producing, marketing, distributing, and selling software ("Software") and
providing services related thereto; and
WHEREAS, SELLER desires to sell, and BUYER desires to buy certain assets of
SELLER associated with the Software and the Business;
NOW, THEREFORE, in consideration of the mutual covenants, representations
and warranties hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.1 PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, SELLER shall sell, convey, transfer, assign and deliver to BUYER at
the Closing (as defined in Section 6.1), and BUYER shall purchase from SELLER,
substantially all of the assets, properties, rights and interests of SELLER
relating to the Business described on EXHIBIT A hereto ("Purchased Assets"), in
each case free and clear of all liens, charges, security interests and other
encumbrances. SA's cash shall not be included in Purchased Assets.
1.2 ACCOUNTS RECEIVABLE. For purposes hereof, "Accounts Receivable" shall
be the accounts receivable of SELLER related to the Business as of the close of
business on the Closing date and set forth in EXHIBIT B. At the Closing, SELLER,
shall provide BUYER with a certificate of its President, substantially in the
form of EXHIBIT B, showing the value of the Accounts Receivable.
1.3 PURCHASE PRICE. The purchase price for the Purchased Assets (the
"Purchase Price") shall be $2,140,000, plus the value of SA's accounts
receivable shown on EXHIBIT B.
1.4 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid in cash, by
wire transfer of immediately available funds in each case as follows:
<PAGE> 2
(a) An amount equal of $2,140,000 plus the value of Accounts
Receivable as shown on EXHIBIT B, less $25,000, shall be paid by BUYER to SELLER
at the Closing.
(b) An amount, if any, by which $25,000 exceeds the value of Accounts
Receivable as shown on EXHIBIT B that are not collected by BUYER within 90 days
after the Closing shall be paid by BUYER to SELLER within 95 days after the
Closing. In the event that less than $25,000 is paid to SELLER pursuant to this
subparagraph 1.4 (b), BUYER shall transfer to SELLER the Accounts Receivable
that BUYER did not collect within 90 days after the Closing.
1.5 NO ASSUMPTION OF LIABILITIES. BUYER is assuming no liabilities or
obligations of SELLER in connection with this transaction. Without limiting the
generality of the foregoing, except as specifically provided in this Agreement,
SELLER shall be solely responsible for payment of all amounts at any time owing
by SELLER with respect to the business of SELLER, both before and after the
Closing Date, whether accrued or contingent, known or unknown, other than
liabilities or obligations arising as a result of BUYER's ownership of the
Purchased Assets and conduct of the Business after the Closing.
1.6 ALLOCATION OF PURCHASE PRICE. The total amount of the Purchase Price,
including the Assumed Liabilities, shall be allocated among the Purchased Assets
in the manner set forth in EXHIBIT C. It is acknowledged by the parties that
such allocation was arrived at by arm's-length negotiation, appropriately
reflects the fair market value of the Purchased Assets, will be binding on the
parties for federal and state income tax purposes in connection with the
purchase and sale of the Purchased Assets, and will be consistently reflected by
the parties in their respective tax returns. BUYER and SELLER shall each file a
Form 8594 (Asset Acquisition Statement) with the Internal Revenue Service
consistent with such allocation.
1.7 INSTRUMENTS OF TRANSFER. The transfer of the Purchased Assets to be
transferred to BUYER at the Closing shall be effected by bills of sale,
assignments, licenses and such other instruments of transfer as shall transfer
to BUYER full title to the Purchased Assets free and clear of all liens,
charges, security interests and other encumbrances. All of such documents shall
contain appropriate and customary warranties and covenants of title and shall be
in form and substance acceptable to BUYER and its counsel.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
SELLER represents, warrants and covenants to BUYER that as of the Closing:
2
<PAGE> 3
2.1 ORGANIZATION, STANDING AND POWER. SELLER is a corporation duly
organized, validly existing and in good standing under the laws of Virginia and
has full corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. SELLER has duly obtained
all permits, licenses and other qualifications under all applicable laws,
regulations, and ordinances or orders of public authorities, or otherwise, that
are necessary to the current conduct of the Business, except for such permits,
licenses and qualifications which if not obtained would not have a material
adverse effect on the Business or the Purchased Assets. SELLER has no
subsidiaries.
2.2 AUTHORITY AND BINDING OBLIGATION. This Agreement has been duly
authorized, executed and delivered by SELLER, and SELLER has the corporate power
and authority to enter into and perform the obligations to be performed by it
hereunder. This Agreement and the Bill of Sale and other instruments of transfer
referred to in Section 6.3 (b) constitute the valid and binding obligations of
SELLER, enforceable against it in accordance with their respective terms, except
that such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditor's rights
generally and is subject to general principles of equity.
2.3 STOCKHOLDER APPROVAL. The transaction has been approved by the
stockholder of SA who represents that he owns all of the common shares and/or
common share equivalents amounting to not less than 100% of the outstanding
shares of SA. The parties will cooperate to provide such information as may be
required in connection with any required filings with the Securities and
Exchange Commission or any applicable state securities commission.
2.4 NO BREACH. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate any
provision of the charter or by-laws of SELLER or any material law, regulation,
ordinance, judgment or decree applicable to SELLER or its properties or assets;
(b) violate, conflict with or result in the breach or termination of, or
otherwise give any other contracting party the right to terminate, or constitute
(or with notice or lapse of time, or both, would constitute) a default under the
terms of any material written contract, licenses, mortgage, lease, bond,
indenture, agreement, franchise or other instrument or obligation relating to
the Business; or (c) result in the creation of any lien, claim or encumbrance
(collectively, "Liens") upon the Purchased Assets.
2.5 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.
(a) The unaudited interim financial statements of the Business for the
period ended May 31, 1997, including a statement of income for and a balance
sheet as of such period. copies of which are attached as EXHIBIT D, fairly
present, subject to the notes included therein, the financial position of the
Business as of such dates and the results of operations for such periods.
3
<PAGE> 4
(b) Since January 1, 1997, the Business has been operated only in the
ordinary course and in a manner consistent with past practices and there has
been no material adverse change in the condition (financial or otherwise),
assets, liabilities, obligations (whether absolute, accrued, contingent or
otherwise and whether due or to become due), earnings, financial position or
results of operations of the Business or in the relationship of SELLER with
providers to or customers of the Business.
2.6 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) SELLER has or will have at the Closing the full right to sell,
transfer, and assign all of the purchased Assets to BUYER, and has good and
marketable title hereto. Following the Closing, BUYER will be the lawful owner
of, and have good and marketable title to, the Purchased Assets, free and clear
of the liens, charges, security interests and other encumbrances whatsoever. The
Purchased Assets include all for the assets and properties (except for
inventory) utilized by the SELLER for the development, manufacture and sale of
the software substantially as SELLER has conducted its business in the past.
Each of the Purchased Assets is in the possession of the SELLER at 440 Maple
Avenue East, Suite 201 Vienna, Virginia or in the possession of sales personnel
or customers as expressly specified in EXHIBIT A.
(b) SELLER has good and marketable title to each item of equipment,
machinery, structure, fixture or other tangible personal property included in
the Purchased Assets, a complete list of which is attached as EXHIBIT A, free
and clear of all Liens. All leases, conditional sale contracts, franchises or
licenses the rights to which are included in the Purchased Assets are valid and
effective, and there is not under any of such instruments any existing default
or event of default or event which, with notice or lapse of time or both, would
constitute a default which would materially adversely affect the Business or the
Purchased Assets. The tangible personal properties included in the Purchased
Assets are in good operating condition and repair, ordinary wear and tear
excepted.
2.7 LITIGATION: COMPLIANCE. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of SELLER, threatened against SELLER
or any of its properties, at law or in equity, before any court or governmental
agency. Neither SELLER nor any of its properties is subject to any order, writ,
injunction, decree or judgment or any court or governmental agency.
2.8 SCHEDULE OF WARRANTY AND PRODUCT LIABILITY CLAIMS. BUYER has been
provided access to true and complete copies of SELLER's customer service records
that record (a) all products related to the Business returned to SELLER because
of warranty or other problems and all credits and allowances made with respect
hereto and (b) all repairs performed by SELLER or any other person or entity
with respect to goods related to the business and sold by SELLER because of
warranty or other claims concerning defects in such goods. There have been no
product liability claims made
4
<PAGE> 5
against SELLER with respect to products related to the Business. SELLER has
never been a defendant in any product liability litigation relating to any
product manufactured, fabricated, produced or sold by SELLER as part of the
Business, and no such litigation has ever been threatened.
2.9 TAXES. SELLER
(a) has duly and timely filed all federal, state and other tax returns
and reports required to be filed by the laws of any jurisdiction to which it or
any of its assets is or has been subject,
(b) has paid in full to the proper governmental agencies all federal,
state and other taxes (including, without limitation, all sales, use,
withholding and payroll taxes), interest, assessments, fees, and other
governmental charges dues or claimed to be due on account of its assets,
properties, income or operations, and
(c) has withheld, collected and paid to the proper governmental
agencies all amounts that it has been required by law to withhold or collect and
pay.
2.10 EMPLOYMENT MATTERS. SELLER has paid or otherwise made provisions for
payment of all amounts due to all of its present or former employees and has
paid over to the appropriate governmental agencies or other appropriate persons
or entities all withheld taxes, social security and other payments due and
payable through the Closing Date.
2.11 LEGAL COMPLIANCE. (a) SELLER has obtained all governmental or other
consents, licenses, permits or approvals (federal, state, foreign or local)
required for the lawful sale of the Software and all such consents, license,
permits and approvals are in full force and effect. No violations have been
asserted in respect to any such consent, license, permit or approval, and no
proceeding relating to the revocation or limitation of any such consent,
license, permit or approval is pending or threatened. All such consents,
licenses, permits and approvals are transferable to BUYER and are being
transferred to BUYER and will remain in full force and effect for the benefit of
the BUYER after the Closing Date. (b) SELLER has duly complied in all material
respects with all applicable laws and regulations of federal, state and local
governments relating to the manufacture, distribution or sale of the Software.
2.12 DISTRIBUTORS AND CUSTOMERS. EXHIBIT E hereto sets forth a list of all
customers who have purchase software.
2.13 SUPPLIERS. EXHIBIT F hereto sets forth a list of all vendors or other
suppliers from or through whom SELLER has purchased goods or services related to
the Business during the period from January 1993 to present, other than
utilities and vendors of standard business suppliers.
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2.14 PATENTS, TRADEMARKS AND OTHER INTANGIBLE PERSONAL PROPERTY.
(a) SELLER has no patents or pending patent applications. The trade
names, trademarks (and goodwill associated therewith) and applications therefor,
trade dress, specifications, processes, know-how, blueprints, drawings, service
marks, designs, patterns, works protected by copyright, copyrights, Software,
algorithms, inventions, technology, trade secrets, proprietary information other
information and documents listed or described in EXHIBIT G or compromising or
embodied in the items of tangible or intangible property listed or described in
such Exhibit (collectively, "Intellectual Property") constitute all of the
intellectual property rights owned by or licensed to SELLER and related to the
Business.
(b) SELLER is not a party to, nor is SELLER aware of any written or
oral agreement relating to the ownership of or any rights in the Intellectual
Property. In particular, and without limitation, SELLER is neither a party to or
aware of any agreement placing any restriction upon the exercise or exploitation
of the Intellectual Property, or any written or oral agreement which obligates
or may obligate BUYER to pay royalties, licensee fees, maintenance fees, or
transfer fees under any circumstances.
(c) SELLER, pursuant to this Agreement, will assign and transfer to
Buyer all Intellectual Property including all Intellectual Property relating to
the Software, including, without limitation, all rights relating to the design,
development, manufacture, licensing, distribution and use of the Software and
any derivative works based upon the Software. At BUYER'S reasonable request, and
BUYER'S expense, SELLER will provide BUYER all cooperation necessary to allow
BUYER to establish, perfect, and defend the Intellectual Property, including,
without limitation, the execution of separate releases, assignments, recordings,
affidavits, or documents that are or may become necessary to or useful to
BUYER'S efforts to establish perfect, and defend the Intellectual Property.
(d) There is no violation or infringement by any third party of
SELLER's Intellectual Property rights, and no claim (and no basis for a claim)
by any third party to the effect that SELLER is violating or infringing any
third party's intellectual property rights.
(e) All of the following will be delivered by SELLER to BUYER on the
Closing Date as part of the Purchased Assets: (I) all code relating to the
Software including, without limitation, source code, object code, design or
architectural specifications, and code commentary prepared by prior programmers;
(ii) all documentation relating to the Software, including, without limitation,
all manuals, instruction sets, end-user and other licenses, and performance
specifications; (iii) all technical data maintained by SELLER relating to the
Software, including, without limitation the results of all testing and
information regarding any required interoperability, such as information
regarding each platform or environment within which the Software is intended to
operate; and (iv) all other information necessary or
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useful to any effort by BUYER to develop, create derivative works based upon,
manufacture, license, distribute or otherwise exploit the Software.
2.15 PRODUCT LIABILITY INSURANCE. SELLER has previously made available to
BUYER true and complete copies of all its product liability insurance policies.
2.16 BOOKS, RECORDS, ETC. SELLER's books of account fairly, accurately and
completely set forth all its items of income and expense and its assets,
liabilities, capital and accruals. There has been no financial transaction with
respect to the Business that is customary to record in the financial records
that is not fully described in such books of account.
2.17 SOLVENCY. Immediately following the Closing, the SELLER's financial
condition will permit it to pay its obligations to creditors as of the Closing
Date as they become due.
2.18 NO SOLICITATION OF EMPLOYEES. SELLER and Michael Mort, PhD agree that
until the expiration of two (2) years from the date of the Agreement, neither
Michael Mort, PhD nor SELLER shall, whether acting alone or with its affiliates
or any nonaffiliated persons or corporations without the prior approval of the
BUYER, hire or attempt to hire any employee of CSPI or its affiliates, nor shall
SELLER encourage any such employee to terminate his or her relationship with
CSPI or its affiliates.
2.19 EXPORT COMPLIANCE. SELLER has compiled with all export regulations in
all their foreign shipments.
2.20 CHANGE AND USE OF NAME. Within one business day after the Closing,
SELLER shall file a charter amendment with the Virginia State Corporation
Commission changing its corporate name so that BUYER may use the name "SIGNAL
ANALYTICS CORPORATION" or any derivative thereof that BUYER may elect, and
SELLER shall make no further use of any of such name.
2.21 LIQUIDATION. SELLER shall liquidate within 6 months of the Closing, or
if later, prior to January 1, 1998.
2.22 PAYMENT OF TAXES. SELLER shall pay, promptly and when due, whether at
the original time fixed therefor or pursuant to any extension of time to pay or
any agreement with tax authorities, all taxes, fees, charges, penalties or
interest accrued on account of the operation and conduct of SELLER's business on
or before the Closing Date or on account of any of the transactions contemplated
by this Agreement, unless otherwise agreed to by the parties, provided, however,
that SELLER shall not be required to pay any such tax, fee, charge, penalty or
interest if it is contesting the validity or amount thereof through proper
proceedings, in good faith and with reasonable diligence if such contest does
not, and will not, have any averse impact on BUYER.
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2.23 PAYMENT OF CREDITORS. After the Closing, the SELLER shall promptly
apply the proceeds from the sale of the Purchased Assets and Accounts Receivable
to the unsecured trade creditors of the SELLER on the Closing Date.
2.24 NON-DISCLOSURE. SELLER and Michael Mort, PhD shall keep confidential,
and shall not disclose to any third party or use, any confidential or
proprietary information or trade secret relating to the Software, including, by
way of example and without limitation, vendor lists that relate to the Software,
customer lists, know-how and trade secrets, except to the extent such
information is published by, or with the written consent of, BUYER or by a third
party having no obligation of confidentiality to BUYER.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
BUYER represents and warrants to SELLER that as of the Closing:
3.1 DUE ORGANIZATION. BUYER is a corporation duly organized, validity
existing and in good standing under the laws of the state of Delaware.
3.2 AUTHORITY AND BINDING OBLIGATION. This Agreement has been duly
authorized, executed and delivered by BUYER, and BUYER has the corporate power
and authority to enter into and perform the obligations to be performed by it
hereunder. This Agreement constitutes the valid and binding obligations of
BUYER, enforceable against it in accordance with their respective terms.
3.3 CONSENTS AND APPROVALS. All consents and approvals of and notifications
to any governmental authority or other person not a party hereto required in
connection with the execution and delivery of this Agreement by BUYER or the
performance by BUYER of its obligations hereunder have been obtained or made.
3.4 NO BREACH. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate any
provision of the charter or by-laws of BUYER or any material law, regulation,
ordinance, judgment or decree applicable to BUYER or its properties or assets;
or (b) violate or conflict with any agreement to which BUYER is a party.
ARTICLE IV
COVENANTS OF SELLER AND BUYER
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4.1 USE OF REASONABLE EFFORTS. Without limitation of any other covenants
set forth in this agreement, each of the parties agrees to use commercially
reasonable efforts to effectuate the transactions contemplated hereby.
4.2 DEFENSE OF CLAIMS AND LITIGATION. At all times from and after the
Closing Date, and without charge except for reimbursement of out-of-pocket
expenses, each party shall consult, confer and cooperate in good faith on a
reasonable basis with the other party (including, without limitation, the making
available of witnesses and cooperation in discovery proceedings) in the conduct
or defense of any claim, litigation or proceeding against said other party by
any third party that relates to any of the Purchased Assets or any matter that,
directly or indirectly, arises therefrom, whether known at the Closing Date or
arising thereafter. The foregoing notwithstanding, to the extent the
indemnification provisions of this Agreement or of any other document delivered
in connection with the transactions contemplated hereby apply to any such
conduct or defense, they shall control as to the payment of costs and expenses.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of
each party to be performed at the Closing shall be subject to the satisfaction
prior to the Closing of the following conditions:
(a) LEGAL ACTION. No temporary restraining order, injunction or other
order preventing the consummation of the transactions contemplated hereby shall
have been issued by any governmental entity or instrumentality ("Governmental
Entity") and remain in effect, and no litigation seeking the issuance of such an
order, or seeking the imposition against SELLER or BUYER of material damages if
the transactions contemplated hereby are consummated, shall be pending which, in
the good faith judgment of SELLER's or BUYER's Board of Directors (acting with
advice of outside counsel) has a reasonable probability of resulting in such an
order.
(b) STATUTES. No action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to the transactions contemplated hereby by any Governmental Entity
which would (i) make the consummation of such transactions illegal, (ii)
prohibit BUYER's ownership or operation of all or a material portion of the
Business or the Purchased Assets, or compel BUYER to dispose of or hold separate
all or a material portion of the Business or the Purchased Assets, or (iii)
render SELLER and BUYER unable to consummate such transactions.
5.2 CONDITIONS OF OBLIGATIONS OF BUYER. The obligations of BUYER to be
performed at the Closing are subject to the satisfaction of the following
conditions:
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(a) REPRESENTATIONS AND WARRANTIES OF SELLER. The representations and
warranties of SELLER set forth in this Agreement shall be correct and complete
in all material respects (except for such representations and warranties which
are qualified by a reference to materiality, which representations and
warranties as so qualified shall be correct and complete in all respects) as of
the date of this Agreement and as of the Closing Date, as though made on and as
of each such date, except as otherwise contemplated by this Agreement.
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Business or the Purchased Assets on or before the Closing
Date.
(c) PERFORMANCE OF OBLIGATION OF SELLER. SELLER shall have performed in
all material respects all obligations and covenants required to be performed by
it under this Agreement prior to the Closing.
5.3 CONDITIONS OF OBLIGATIONS OF SELLER. The obligations of SELLER to be
performed at the Closing are subject to the satisfaction of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and
warranties of BUYER set forth in this Agreement shall be correct and complete in
all material respects as of the date of this Agreement and as of the Closing
Date, as though made on and as of each such date, except as otherwise
contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER. BUYER shall have performed in
all material respects all obligations and covenants required to be performed by
it under this Agreement prior to the Closing.
ARTICLE VI
THE CLOSING
6.1 THE CLOSING DATE AND PLACE. The consummation of the transactions
contemplated hereby (the "Closing") shall take place at 10:00 a.m. EDT on
Friday, June 13, 1997, at 40 Linnell Circle, Billerica, Massachusetts 01821, or
as soon thereafter as all the conditions set forth in Article V have been
satisfied or waived, and shall be effective immediately after the close of
business on such date, or at such other time and place as to which the parties
may agree in writing (the "Closing Date").
6.2 DELIVERIES AT CLOSING BY BUYER. At the Closing, provided SELLER has
fully performed all of its obligations hereunder and the conditions set forth in
Sections 5.1 and 5.2 have been satisfied, BUYER shall deliver or cause to be
delivered to SELLER the following:
(a) The consideration specified in Section 1.4(a);
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(b) a Guarantee substantially in the form of EXHIBIT H duly executed by
CSPI;
(c) a certificate of the Vice President of BUYER to the effect of
Section 5.3(a) and (b).
6.3 DELIVERIES AT CLOSING BY SELLER. At the Closing, provided BUYER has
fully performed all of its obligations hereunder and the conditions set forth in
Sections 5.1 and 5.3 have been satisfied, SELLER shall deliver or cause to be
delivered to BUYER the following:
(a) the certificate of the President of SELLER required by Section 1.2;
(b) a Bill of Sale substantially in the form of EXHIBIT I, and such
other instruments of transfer for the Purchased Assets, including assignments of
all of SELLER's intellectual property rights, in form and substance reasonably
satisfactory to BUYER and its counsel and sufficient to convey to BUYER all of
SELLER's right, title and interest in and to the Purchased Assets;
(c) a Guarantee substantially in the form of EXHIBIT J, duly executed
by Michael Mort, PhD;
(d) a certificate of the President of SELLER to the effect of Sections
5.2(a), (b) and (c).
(e) an employment letter substantially in the form of EXHIBIT K duly
executed by Michael Mort, PhD.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION OF BUYER.
(a) Subject to the limitations set forth in subparagraph (b), SELLER
and Michael Mort, PhD jointly and severally agree to defend, indemnify and hold
BUYER harmless from and against any loss, liability, damage or expense suffered,
incurred or paid by BUYER, including, without limitation, reasonable attorneys
fees:
(i) that would not have been suffered, incurred or paid if all the
representations, warranties, covenants and agreements of SELLER in this
Agreement or in any other instrument or document furnished to BUYER in
connection with the transactions contemplated hereby had been (with respect to
representations and
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warranties) true, complete and correct and had been (with respect to covenants
and agreements) fully performed and fulfilled;
(ii) as a result of any claim, action or proceeding asserted or
brought against BUYER or any of its assets (including, without limitation, the
Purchased Assets) that arises, in whole or in part, out of or in connection with
SELLER's conduct of its business before or after the Closing Date, including,
without limitation, any breach of warranty or any other product liability in
connection with the sale of any Software prior to the Closing Date;
(iii) as a result of any claim, action or proceeding asserted
against BUYER or any of its assets with respect to any liability or alleged
liability of SELLER not specifically assumed by BUYER under this Agreement;
(iv) as a result of any claim, action or proceeding asserted or
brought against BUYER or any of its assets that arises out of, or in connection
with, SELLER's failure to pay, promptly and when due, any amount owing, in whole
or in part, whether before or after the Closing, with respect to SELLER's
conduct of business, whether due or to become due, accrued or contingent, known
or unknown; and
(v) as a result of any claim, action or proceeding asserted or
brought against BUYER or any of its assets that arises out of or in connection
with SELLER's failure to pay, promptly and when due, any tax, fee or other
charge that shall become due or shall have accrued (a) on account of SELLER's
use, acquisition, ownership or sale of any of the Purchased Assets or (b) on
account of the transactions contemplated hereby.
(b) Notwithstanding anything in this Agreement to the contrary, with
the exception of items listed in Section (c), the indemnification obligation set
forth in Section (a) shall not apply with respect to:
(i) the first $5,000 of loss, liability, damage or expense suffered,
incurred or paid by BUYER;
(ii) any loss, liability, damage or expense suffered, incurred or
paid by BUYER in excess of $140,000; or
(iii) any claim for loss, liability, damage or expense raised 12
months or more after Closing.
(c) The items that shall not be limited by Section (b) are the
obligations set forth in Sections 2.6, 2.10, and 7.1 (a) (v) of this Agreement.
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7.2 INDEMNIFICATION OF SELLER. BUYER agrees to defend, indemnify and hold
SELLER harmless from and against any loss, liability, damage or expense
suffered, incurred or paid by SELLER, including, without limitation, reasonable
attorneys fees:
(i) That would not have been suffered incurred or paid if all the
representations, warranties, covenants and agreements of BUYER in this Agreement
or in any other instrument or document furnished to SELLER in connection with
the transactions contemplated hereby had been (with respect to representations
and warranties) true, complete and correct and had been (with respect to
covenants and agreements) fully performed and fulfilled;
(ii) as a result of any claim, action or proceeding asserted or
brought against SELLER or any of its assets that arises in whole or in part, out
of or in connection with, BUYER's conduct of its Business, after the Closing
Date;
(iii) as a result of any claim, action or proceeding asserted or
brought against SELLER or any of its assets that arises out of or in connection
with BUYER's failure to pay, promptly and when due, any tax, fee or other charge
that shall become due or shall have accrued (a) on account of BUYER's use,
acquisition, ownership of any of the Purchased Assets of (b) on account of the
transactions contemplated hereby.
(b) Notwithstanding anything in this Agreement to the contrary, the
indemnification obligation set forth in Section (a) shall not apply with respect
to:
(i) the first $5,000 of loss, liability, damage or expense suffered,
incurred or paid by SELLER;
(ii) any loss, liability, damage or expense suffered, incurred or
paid by SELLER in excess of $140,000; or
(iii) any claim for loss, liability, damage or expense raised 12
months or more after Closing.
7.3 PROCEDURE AND RIGHT TO CONTEST. In connection with any claim to
indemnification under Section 7.1 or 7.2 involving third parties, the party
seeking indemnification (the "Indemnified Party") shall promptly notify in
writing the party from whom indemnification is sought (the "Indemnifying Party")
of such claim to indemnification. No indemnification under this Agreement shall
be available to any party who shall fail to give notice as provided herein if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice. Before being required to make any payment pursuant to Section 7.1 or
7.2, the Indemnifying Party may, at its own expense, elect to contest or to
assume the defense of any claim, liability, or action in respect thereof
involving third parties or to prosecute such contest or action to conclusion or
settlement, in each case with counsel reasonably satisfactory to the Indemnified
Party. In any such
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proceeding which the Indemnifying Party shall have elected to contest, the
Indemnified Party shall have the right to retain its own counsel at its own
expense. The Indemnified Party shall cooperate fully with the Indemnifying Party
in the conduct of any such contest or action which the Indemnifying Party shall
have elected to contest. The Indemnifying Party shall not be liable for any
settlement of any such claim or proceeding without its prior written consent,
which consent shall not be unreasonably withheld; but if settled with such
consent or if there shall be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
any investigation conducted before or after the Closing, and notwithstanding any
knowledge or notice of any fact or circumstance that either BUYER or SELLER may
have as the result of such investigation or otherwise (except as set forth
below), BUYER and SELLER shall each be entitled to rely upon the
representations, warranties and covenants of the other in this Agreement unless
BUYER or SELLER shall have actual knowledge prior to the Closing of any such
misrepresentation or breach of any warranty or covenant. Each of the
Representations, warranties and covenants contained in this Agreement, made in
any document delivered hereunder or otherwise made in connection with the
Closing hereunder shall survive the Closing and shall remain in full force and
effect until the first anniversary of the date of this Agreement, whereupon such
representations, warranties and covenants shall expire, except that those set
forth in Sections 2.6, 2.10, 2.18, 2.24, 7.1(a) (v) and 7.2 (iii) hereof shall
not expire and shall survive for as long as the applicable statute of
limitations provides.
7.5 RIGHT TO PERFORM. If SELLER shall fail to pay or perform any of its
obligations hereunder within 15 business days after receipt of written notice
that payment or performance is due but has not been paid or satisfied, BUYER
shall be entitled to pay or perform such obligation for SELLER, provided,
however, that SELLER shall have the right to contest the validity or amount of
any such obligation through proper proceedings, in good faith and with
reasonable diligence if such contest does not, and will not, have any material
adverse impact on the Business taken as a whole as conducted by the BUYER. In
such event, SELLER shall pay to BUYER on demand the amount of such payment or
the cost of such performance, as the case may be, together with interest thereon
at the rate of eight (8) percent annum.
ARTICLE VIII
MISCELLANEOUS
8.1 BROKERAGE. SELLER represents to BUYER, and BUYER represents to SELLER,
that there has been no intermediary or broker in negotiations or discussions
incident to the execution of this Agreement of any of the transactions
contemplated hereby and that no intermediary or broker is or shall be entitled
to any commission or other compensation with respect to any of such
transactions.
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8.2 WAIVERS AND AMENDMENTS.
(a) This Agreement may be amended, modified or supplemented only by a
written instrument executed by the parties hereto.
(b) No waiver of any provision of this Agreement, or consent to any
departure from the terms hereof, shall be effective unless the same shall be in
writing and signed by the party waiving or consenting thereto. No failure on the
part of any party to exercise, and no delay in exercising, any right or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or remedy by such party preclude any other or further
exercise thereof or the exercise of any other right or remedy. The waiver by any
party hereto of a breach of any provision of this Agreement shall not operate as
a waiver of any subsequent breach. All rights and remedies hereunder are
cumulative and are in addition to and not exclusive of any other rights and
remedies provided by law.
8.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Purchased Assets as set forth in Section 1.6 of this Agreement. All
parties hereto agree to abide by such allocation in preparation of federal and
state income tax returns on which the transactions contemplated by this
Agreement are reported or on which the basis of any of the Assets is disclosed,
reported, or claimed.
8.4 NOTICES. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid.
(a) if to SELLER, Signal Analytics Corporation, 440 Maple Avenue, East,
Suite 201, Vienna, VA 22180, Attn: Michael Mort, PhD.
(b) if to BUYER, to CSPI, 40 Linnell Circle, Billerica, MA 01821, Attn:
Alex Lupinetti or to such other address as SELLER or BUYER shall have specified
by such notice in writing to the other.
8.5 EXPENSES. Each party hereto shall pay its own expenses in connection
with the transactions contemplated hereby, whether or not they are completed. In
the event of any conflict between this provision and the indemnification
provisions of this Agreement, the indemnification provisions shall control.
8.6 MISCELLANEOUS.
(a) This Agreement and any agreements contemplated hereby constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof
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and supersede all prior agreements and understandings, whether written or oral,
among the parties, or any of them, in connection with such subject matter.
(b) This Agreement shall inure to the benefit of, and be binding upon,
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns. Without the consent of BUYER, SELLER shall not assign any
or all of its rights hereunder, whether as security or otherwise, to any entity.
(c) This Agreement shall be governed by, and construed and enforced in
accordance with, the substantive laws of The Commonwealth of Massachusetts.
(d) Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. In the event that any provision of this Agreement
shall be determined to be unenforceable by reason of its extension for too great
a period of time or over too large a geographic area or over too great a range
of activities, it shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it may be enforceable.
(e) All Exhibits mentioned in this Agreement shall be attached to this
Agreement, and shall form an integral part hereof. All capitalized terms defined
in this Agreement which are used in any Exhibit shall, unless the context
otherwise requires, have the same meaning therein as given herein.
(f) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement on the Date first above written.
ATTEST: SIGNAL ANALYTICS CORPORATION
By________________________________ By__________________________________
Michael Mort, PhD
President
ATTEST: CSP Europe, Inc.
By________________________________ By__________________________________
Gary W. Levine
Vice President
WITNESS:
__________________________________ By__________________________________
As to Michael Mort, PhD Michael Mort, PhD
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EXHIBIT 10.15
ASSET PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. GENERAL ............................................................ 1
1.1 Definitions ................................................. 1
1.2 Schedules and Exhibits ...................................... 6
1.3 U.S. Dollars ................................................ 6
2. PURCHASE AND SALE OF THE ASSETS .................................... 6
2.1 Purchase and Sale of the Assets ............................. 6
2.2 Consideration for Assets .................................... 6
2.3 Delivery of Assets .......................................... 7
2.4 Closing ..................................................... 7
2.5 Closing Balance Sheet ....................................... 7
2.6 Liabilities Assumed ......................................... 7
2.7 Liabilities Not Assumed ..................................... 7
2.8 Allocation of Purchase Price ................................ 8
2.9 Instruments of Transfer ..................................... 8
3. REPRESENTATIONS AND WARRANTIES BY SELLING ENTITIES ................. 8
3.1 Organization, Good Standing and Qualification ............... 9
3.2 Capital Stock and Ownership of Subsidiaries ................. 9
3.3 Authority ................................................... 10
3.4 No Conflict; No Consents or Approvals ....................... 10
3.5 Undisclosed Liabilities ..................................... 11
3.6 No Termination of Relationships ............................. 11
3.7 Financial Statements ........................................ 11
3.8 Tax Matters ................................................. 12
3.9 Real Property ............................................... 12
3.10 Equipment Leases ............................................ 12
3.11 Accounts Receivable ......................................... 13
3.12 Intellectual Property ....................................... 13
3.13 Insurance Policies .......................................... 14
3.14 Contracts ................................................... 14
3.15 Litigation .................................................. 15
3.16 Compliance with Law ......................................... 15
3.17 No Material Adverse Change .................................. 16
3.18 Labor Matters ............................................... 16
3.19 U.S. Employee Benefit Plans ................................. 16
3.20 Foreign Employee Benefit Plans .............................. 17
3.21 Indebtedness and Guaranties ................................. 18
3.22 Environmental Matters ....................................... 18
3.23 Permits ..................................................... 19
3.24 Certain Business Relationships .............................. 19
</TABLE>
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<TABLE>
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3.25 Books and Records ........................................... 19
3.26 Bank Accounts ............................................... 19
3.27 Personal Property ........................................... 19
3.28 Officers and Directors ...................................... 19
3.29 Disclosure .................................................. 19
3.30 Value ....................................................... 20
4. REPRESENTATIONS AND WARRANTIES OF BUYER ............................ 20
4.1 Due Incorporation ........................................... 20
4.2 Authority ................................................... 20
4.3 No Conflict; No Consents or Approvals ....................... 20
5. COVENANTS OF THE SELLING ENTITIES .................................. 21
5.1 Conduct of Business ......................................... 21
5.2 Absence of Material Changes ................................. 21
5.3 Taxes ....................................................... 23
5.4 Compliance with Laws ........................................ 23
5.5 Continued Truth of Representations and Warranties of ........ 23
5.6 Continuing Obligation to Inform ............................. 23
5.7 Exclusive Dealing ........................................... 23
5.8 Consents and Best Efforts ................................... 23
5.9 Access to Financial, Operating and Other Information ........ 24
5.10 Relinquishment of Intellectual Property ..................... 24
6. Covenants of Buyer .......................................... 24
6.1 Continued Truth of Representations and Warranties of Buyer .. 24
6.2 Continuing Obligation to Inform ............................. 24
6.3 Consents and Best Efforts ................................... 24
6.4 Taxes and Other Obligations ................................. 24
6.5 Employees ................................................... 25
6.6 Assignment Fees ............................................. 25
7. CLOSING CONDITIONS AND DOCUMENTS ................................... 25
7.1 Conditions to Obligations of Buyer .......................... 25
7.2 Conditions to Obligations of the Selling Entities ........... 26
8. INDEMNIFICATION .................................................... 27
8.1 Indemnification of Buyer .................................... 27
8.2 Limitations on Indemnification .............................. 27
8.3 Third-Party Claims .......................................... 29
8.4 Indemnification of Selling Entities ......................... 30
8.5 Exclusive Remedy ............................................ 30
9. TERMINATION AND CERTAIN WAIVERS AND DAMAGE ......................... 30
10. GENERAL PROVISIONS ................................................. 31
10.1 Survival of Representations, Etc ............................ 31
10.2 Benefit of Counsel .......................................... 31
</TABLE>
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<TABLE>
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10.3 Further Assurances .......................................... 31
10.4 Construction of Agreement ................................... 31
10.5 Each Party to Bear Own Costs ................................ 31
10.6 Brokers and Finders ......................................... 31
10.7 Headings .................................................... 31
10.8 Entire Agreement; Waivers ................................... 31
10.9 Third Parties ............................................... 32
10.10 Successors and Assigns ...................................... 32
10.11 Notices ..................................................... 32
10.12 Attorneys' Fees ............................................. 33
10.13 Governing Law ............................................... 33
10.14 Counterparts ................................................ 33
10.15 Severability ................................................ 33
10.16 Publicity ................................................... 33
10.17 No Third-Party Beneficiaries ................................ 33
</TABLE>
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EXHIBITS
A Escrow Agreement
B. Allocation of Purchase Price
C. Bill of Sale
D. Assignment and Assumption Agreement
E. Form of Certificate of Modcomp Officers
SCHEDULES
2.1 Assets
3 Selling Entities' Officers and Employees
3.1 Jurisdictions Authorized to Do Business
3.2 Capital Stock and Ownership of Subsidiaries
3.2.5 Financing Statements
3.4 No Conflict; No Consent or Approvals
3.7 Financial Statements
3.8 Tax Matters
3.9 Real Property
3.10 Equipment Leases
3.12 Intellectual Property
3.12.3 Infringement
3.12.4 Exceptions
3.13 Insurance Policies
3.14 Contracts
3.15 Litigation
3.16 Compliance with Law
3.17 No Material Adverse Change
3.18 Labor Matters
3.19 U.S. Employee Benefit Plans
3.20 Foreign Employee Benefit Plans
3.21 Indebtedness and Guaranties
3.22 Environmental Matters
3.23 Permits
3.24 Certain Business Relationships
3.26 Bank Accounts
3.28 Officers
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT") is entered into as of
August 6, 1997, by and among The Cerplex Group, Inc., a Delaware corporation
("CERPLEX"), Cerplex Subsidiary, Inc., a Delaware corporation ("CERPLEX SUB"),
Modcomp Joint Venture, Inc., a Delaware corporation ("MJVI"), Modcomp/Cerplex,
L.P., a Delaware limited partnership ("MODCOMP"; Cerplex, Cerplex Sub, MJVI and
Modcomp are hereinafter referred to collectively as the "SELLING ENTITIES"), and
CSP Inc., a Massachusetts corporation ("BUYER").
RECITALS
WHEREAS, Cerplex owns all of the issued and outstanding shares of capital
stock of Cerplex Sub and MJVI. Cerplex Sub and MJVI are the sole general and
limited partners of Modcomp; and
WHEREAS, Modcomp desires to sell to Buyer, and Buyer desires to purchase
from Modcomp, all of the assets of Modcomp (including all of the capital stock
of the Subsidiaries which is owned by Modcomp) on the terms and conditions set
forth herein.
WHEREAS, the parties desire that 12:01 a.m. June 30, 1997 (the "Effective
Date") be the date as of which the Purchase Price (as defined herein) will be
determined and the Business (as defined herein) will be run for the benefit of
Buyer from and after such date;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth and other good and valuable consideration, the parties
hereto, on the basis of, and in reliance upon, the representations, warranties,
covenants, obligations and agreements set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, hereby agree as follows:
1. GENERAL
1.1 DEFINITIONS. The terms defined in this Section 1.1, whenever used
in this Agreement, shall have the following meanings for all purposes of this
Agreement:
1.1.1 "AGREEMENT" shall have the meaning given such term in the
Recitals.
1.1.2 "ASSETS" shall have the meaning given such term in
Section 2.1.
<PAGE> 7
1.1.3 "ASSUMED LIABILITIES" shall mean (a) all liabilities of
the Subsidiaries other than any contract, commitment or agreement to which a
Subsidiary is a party and is not listed in SCHEDULE 3.14 but otherwise falls
within the definition of "Contract" in Section 3.14; provided, however, such
contract, commitment or agreement shall be an Assumed Liability hereunder if
after the Closing, Buyer or a Subsidiary assumes any related assets or elects to
receive, retain or use related benefits arising therefrom; (b) all liabilities
reflected in the Closing Balance Sheet; (c) all obligations from and after the
Effective Date under the Contracts or, subject to Section 2.7.5, any other
contract, commitment or agreement to which Modcomp is a party; and (d) all other
liabilities and obligations arising from the conduct of the Business from and
after the Effective Date which have not arisen as a result of a breach of a
covenant set forth in either Section 5.1 or 5.2, except for Excluded
Liabilities.
1.1.4 "BUSINESS" means the business carried on by Modcomp and
the Subsidiaries on the date of this Agreement.
1.1.5 "BUYER" shall have the meaning given such term in the
Recitals.
1.1.6 "CERCLA" shall have the meaning given such term in
Section 3.22.1.
1.1.7 "CERPLEX" shall have the meaning given such term in the
Recitals.
1.1.8 "CERPLEX SUB" shall have the meaning given such term in
the Recitals.
1.1.9 "CLOSING" shall have the meaning given such term in
Section 2.4.
1.1.10 "CLOSING BALANCE SHEET" shall have the meaning given
such term in Section 2.5.
1.1.11 "CLOSING BALANCE SHEET DATE" shall mean June 27, 1997.
1.1.12 "CLOSING DATE" shall mean the date set forth in
Section 2.4.
1.1.13 "CODE" means the U.S. Internal Revenue Code of 1986, as
amended.
1.1.14 "CONTRACTS" shall have the meaning given such term in
Section 3.14.
1.1.15 "DEADLINE" shall have the meaning given such term in
Section 9.1.
1.1.16 "DEPOSIT" shall have the meaning given such term in
Section 2.2.1.
1.1.17 "DISCLOSURE SCHEDULE" means all the Schedules delivered
by Cerplex pursuant to Section 3 of this Agreement and made a part hereof.
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1.1.18 "EFFECTIVE DATE" shall have the meaning given such term
in the third Recital of this Agreement.
1.1.19 "ENCUMBRANCES" means liens, pledges, charges,
encumbrances, and any other security interests whatsoever.
1.1.20 "ENVIRONMENTAL LAW" shall have the meaning given such
term in Section 3.22.1.
1.1.21 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.1.22 "ERISA AFFILIATE" means any entity which is or was a
member of (i) a controlled group of corporations (as defined in Section 414(b)
of the Code), (ii) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (iii) an affiliated service group (as
defined in Section 414(m) of the Code or the regulations under Section 414(0) of
the Code).
1.1.23 "EXCLUDED LIABILITIES" shall have the meaning given
such term in Section 2.7.
1.1.24 "FINANCIAL STATEMENTS" means (i) the Closing Balance
Sheet, (ii) the audited consolidated balance sheet of Modcomp and the
Subsidiaries as of December 29, 1996, and the audited consolidated statements of
operations and cash flows of Modcomp and the Subsidiaries for the twelve (12)
months ended December 29, 1996, and (iii) the unaudited consolidated income
statement of Modcomp and the Subsidiaries for the six (6) month period ended
June 27, 1997, prepared by Cerplex and attached as SCHEDULE 3.7.
1.1.25 "FOREIGN PLANS" shall have the meaning given such term
in Section 3.20.2.
1.1.26 "FOREIGN SUBSIDIARY" and "FOREIGN SUBSIDIARIES" mean,
respectively, each of, and all of, the following wholly-owned subsidiaries of
Modcomp: Modcomp Canada, Ltd., a Canada corporation; Modular Computer Systems
GmbH, a Germany corporation; Modcomp France S.A., a France corporation; and
Modcomp C.A., a Venezuela corporation.
1.1.27 "FOREIGN RETIREMENT PLAN" shall have the meaning given
such term in Section 3.20.1.
1.1.28 "FOREIGN WELFARE PLAN" shall have the meaning given
such term in Section 3.20.2.
1.1.29 "FTC" means Federal Trade Commission.
1.1.30 "GAAP" shall have the meaning given such term in
Section 3.5.
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1.1.31 "GOVERNMENTAL BODY" shall have the meaning given such
term in Section 3.15.
1.1.32 "HSR ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
1.1.33 "INDEMNIFIABLE CLAIMS" shall have the meaning given
such term in Section 8.2.1.
1.1.34 "INTELLECTUAL PROPERTY" shall have the meaning given
such term in Section 3.12.2.
1.1.35 "IRS" means the U.S. Internal Revenue Service.
1.1.36 "LAWS AND REGULATIONS" shall have the meaning given
such term in Section 3.16.1.
1.1.37 "LEASED REAL ESTATE" shall mean the real property
listed on SCHEDULE 3.9.
1.1.38 "LOSSES" shall have the meaning given such term in
Section 8.1.
1.1.39 "MATERIAL ADVERSE EFFECT" shall mean any fact, event or
occurrence, the existence of which would have a material adverse effect on the
business, assets, properties, financial condition or results of operations of
the Business taken as a whole and, in the case of contracts, where a termination
thereof or a default thereunder would result in loss, damage, costs, fines and
penalties of more than $50,000.
1.1.40 "MATERIALS OF ENVIRONMENTAL CONCERN" shall have the
meaning given such term in Section 3.22.2.
1.1.41 "MJVI" shall have the meaning given such term in the
Recitals.
1.1.42 "MODCOMP" shall have the meaning given such term in the
Recitals.
1.1.43 "MODCOMP FLORIDA" shall mean Modular Computer Services,
Inc., a Florida corporation and a wholly-owned subsidiary of Modcomp.
1.1.44 "PERMITS" means all material permits, licenses,
registrations, certificates, orders, approvals, franchises, variances and
similar rights issued by or obtained from any Governmental Body.
1.1.45 "PERMITTED ENCUMBRANCE" means any lien, pledge, charge,
encumbrance, or any other security interest which (i) arises from current taxes
or assessments not yet due and payable or the validity of which is being
contested in good faith by appropriate
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proceedings and which have been properly reflected in the Closing Balance Sheet,
or (ii) whichis a purchase money security interest arising in the ordinary
course of business.
1.1.46 "PERSON" means an individual, firm, corporation,
division, partnership, joint venture, unincorporated association, government
agency or political subdivision thereof, or other entity.
1.1.47 "PLANS" shall have the meaning given it in
Section 3.19.1.
1.1.48 "PREVAILING PARTY" shall have the meaning given such
term in Section 10.11.
1.1.49 "PROPRIETARY RIGHTS" means all (i) patents, patent
applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, re-examination, utility, model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (ii) trademarks, service marks, logos, trade
names and corporate names and registrations and applications for registration
thereof and the goodwill associated therewith, (iii) copyrights and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data and documentation, (vi) trade secrets and confidential business
information, whether patentable or nonpatentable, and know how, manufacturing
and product processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vii) other proprietary rights relating to any of the foregoing
(including without limitation remedies against infringements thereof and rights
of protection of interest therein under the laws of all jurisdictions) and
(viii) copies and tangible embodiments thereof.
1.1.50 "PURCHASE PRICE" shall have the meaning given such term
in Section 2.2.
1.1.51 "RETIREMENT PLANS" shall have the meaning given such
term in Section 3.19.1.
1.1.52 "SELLERS' KNOWLEDGE" shall have the meaning given such
term in Section 3.
1.1.53 "SHARES" means all of the issued and outstanding shares
of capital stock owned by Modcomp in each of the Subsidiaries.
1.1.54 "SUBSIDIARY" or "SUBSIDIARIES" means any or all of the
Foreign Subsidiaries of Modcomp and Modcomp Florida.
1.1.55 "TAXES" means any and all federal, state, local and
foreign income, profits, franchise, sales, value added, use, stamp duty,
employment, payroll, transfer,
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<PAGE> 11
occupation, real property, personal property, severance, production, excise,
gross receipts, license, stamp, premium, customs, duties, capital stock,
windfall profit, environmental, withholding, social security (or similar),
unemployment, disability, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including any interest, additions to tax and penalties with respect to any such
tax), including without limitation all sales, value added, use, transfer and
other non-income taxes, fees and duties (including any interest, additions to
tax and penalties with respect thereto) imposed in connection with the
consummation of the transactions contemplated hereunder.
1.1.56 "TAX RETURNS" means all reports, returns, declarations,
statements or other information required to be supplied to a Governmental Body
or taxing authority in connection with Taxes.
1.1.57 "THIRD-PARTY CLAIM" shall have the meaning given such
term in Section 8.4.1.
1.2 SCHEDULES AND EXHIBITS. A "Schedule" which is identified in this
Agreement means part of the Disclosure Schedule prepared by the Selling Entities
and delivered to Buyer pursuant to this Agreement. An "Exhibit" is an agreement
or other document attached hereto and made a part hereof.
1.3 U.S. DOLLARS. Unless otherwise indicated herein or on the
Schedules, all references to amounts in dollars ($) shall mean dollars of the
United States of America.
2. PURCHASE AND SALE OF THE ASSETS
2.1 PURCHASE AND SALE OF THE ASSETS. At the Closing of the transactions
contemplated by this Agreement, Modcomp shall exchange, sell, transfer and
deliver to Buyer, and Buyer shall purchase from Modcomp, the Assets, free from
any Encumbrance other than Permitted Encumbrances. The Assets consist of the
Shares and all other assets (including, without limitation, cash, cash
equivalents and accounts receivable), properties and rights, tangible or
intangible, used in the Business and owned by Modcomp or a Subsidiary. The
Assets (other than the Shares) are listed on SCHEDULE 2.1 hereto.
2.2 CONSIDERATION FOR ASSETS. The aggregate purchase price (the
"PURCHASE PRICE") for the exchange, sale, transfer and delivery of the Assets
(including the Shares) shall be an amount equal to (i) Eight Million five
hundred and forty thousand dollars ($8,540,000) MINUS (ii) the amount of the
French Tax Liability (as defined hereinafter), if any, and shall be paid as
follows:
2.2.1 One Million Dollars ($1,000,000) (the "DEPOSIT") by wire
transfer of immediately available funds which Buyer will deposit with State
Street Bank and Trust Company (the "ESCROW AGENT") concurrently with the
execution of this Agreement as an earnest money deposit. The Escrow Agent shall
hold and dispose of the Deposit and any income earned thereon pursuant to the
provisions of an Escrow Agreement of even date herewith among the Escrow Agent,
Cerplex and Buyer in form and substance as set forth in EXHIBIT A hereto (the
6
<PAGE> 12
"ESCROW AGREEMENT"). The parties agree that, subject to Sections 9.1 and 9.2,
they will deliver joint escrow instructions to the Escrow Agent instructing the
Escrow Agent to deliver at the Closing by wire transfer of immediately available
funds the Deposit and any income earned thereon to one or more accounts
designated by Cerplex and approved by Wells Fargo Bank, National Association;
and
2.2.2 At the Closing, Buyer shall pay to Cerplex, by wire
transfer of immediately available funds to one or more accounts designated by
Cerplex and approved by Wells Fargo Bank, National Association, an amount equal
to (i) Seven Million Five Hundred and Forty Thousand Dollars ($7,540,000) MINUS
(ii) the amount of accrued tax liability (the "French Tax Liability"), if any,
of Modcomp France, S.A. that was not accrued in accordance with generally
accepted accounting principles, as of the Effective Date. The parties agree that
the amount of the French Tax Liability shall be finally and conclusively
determined by the Paris affiliate of KPMG Peat Marwick, whose written statement
as to the amount thereof shall be delivered to Cerplex and to Buyer at least two
business days before the Closing Date.
2.3 DELIVERY OF ASSETS. At the Closing, Cerplex shall deliver to Buyer,
in addition to those items set forth in Section 5, stock certificates (if
applicable for Foreign Subsidiaries) representing all of the Shares, duly
endorsed in favor of Buyer or accompanied by stock powers duly executed in favor
of and in a form reasonably acceptable to Buyer and its counsel, free from any
Encumbrance (other than Permitted Encumbrances), together with a bill of sale
representing the transfer of the Assets and any other assignments, licenses and
instruments of transfer provided for in Section 2.9.
2.4 CLOSING. The closing of the transactions contemplated hereby (the
"CLOSING") shall take place at 11:00 a.m. at the offices of Brobeck, Phleger &
Harrison LLP, in Newport Beach, California (unless the parties agree in writing
to a different time and location) on August 22, 1997 (the "CLOSING DATE").
2.5 CLOSING BALANCE SHEET. The parties hereby acknowledge and agree
that the balance sheet prepared by Cerplex as of the Effective Date and attached
hereto in SCHEDULE 3.7 (the "CLOSING BALANCE SHEET") is true and correct in all
material respects and shall be final and binding upon, the parties hereto.
2.6 LIABILITIES ASSUMED. On the Closing Date, subject to the terms and
conditions set forth herein, the Selling Entities shall assign or cause to be
assigned to Buyer, and the Buyer shall assume, perform and in due course
discharge, the Assumed Liabilities. At the Closing, the assumption of the
Assumed Liabilities by Buyer shall be evidenced by the execution and delivery of
the parties of an Assignment and Assumption Agreement substantially in the form
attached hereto as EXHIBIT D.
2.7 LIABILITIES NOT ASSUMED. Any liability of Modcomp which is not an
Assumed Liability (other than liabilities specifically assumed by Buyer
hereunder) shall be referred to as an "Excluded Liability". Modcomp shall remain
solely responsible for payment of or performance of all Excluded Liabilities,
whether accrued or contingent, known or unknown. The Buyer shall not assume any
Excluded Liability, including, without limitation, any of the following:
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<PAGE> 13
2.7.1 Any liability of Modcomp associated with the conduct of
the Business prior to the Effective Date which has not been reflected on or
reserved against in the Closing Balance Sheet other than Assumed Liabilities
which are not required to be included in the Closing Balance Sheet in accordance
with generally accepted accounting principles;
2.7.2 Any and all taxes of Modcomp attributable to any period
prior to the Effective Date to the extent not reflected on or reserved against
on the Closing Balance Sheet;
2.7.3 Any claims against or liabilities or obligations of any
pension or employee benefit plan, program, or policy of Modcomp not specifically
assumed by Buyer pursuant to this Agreement and any claims for compensation or
benefits of any nature whatsoever, severance pay, termination pay or pay in lieu
of notice made by any employees of Modcomp with respect to services performed or
terminations occurring prior to the Effective Date (other than payments required
in connection with a breach of Buyer's obligations pursuant to Section 6.5);
2.7.4 Any obligation of Modcomp under the Limited Partnership
Agreement of Modcomp/Cerplex, L.P., effective December 1, 1994, as amended to
date, including, without limitation, any obligation to pay Cerplex management
fees thereunder; and
2.7.5 Any contract, commitment or agreement to which Modcomp is
a party which is not listed in Schedule 3.14 but otherwise falls within the
definition of "Contract" in Section 3.14; provided, however, such contract,
commitment or agreement shall be an Assumed Liability hereunder if Buyer assumes
any related assets or elects to receive, retain or use related benefits arising
therefrom.
2.8 ALLOCATION OF PURCHASE PRICE. The total amount of the Purchase
Price shall be allocated among the Assets (including the Shares) in the manner
set forth in EXHIBIT B. It is acknowledged by the parties that such allocation
was arrived at by arm's length negotiation, appropriately reflects the fair
market value of the Assets (including the Shares), will be binding on the
parties for federal and state income tax purposes in connection with the
purchase and sale of the Assets (including the Shares), and will be consistently
reflected by the parties in their respective tax returns. Cerplex, Modcomp and
Buyer shall each file a Form 8594 (Asset Acquisition Statement) with the
Internal Revenue Service consistent with such allocation.
2.9 INSTRUMENTS OF TRANSFER. The transfer of the Assets (including the
Shares) to be transferred to Buyer at the Closing shall be effected by bills of
sale, assignments, licenses and such other instruments of transfer as shall be
required to transfer to Buyer full title to the Assets (including the Shares),
free and clear of Encumbrances other than Permitted Encumbrances. All of such
documents shall be in form and substance reasonably acceptable to Buyer and its
counsel.
3. REPRESENTATIONS AND WARRANTIES BY SELLING ENTITIES
The Selling Entities hereby, jointly and severally, make the following
representations and warranties to Buyer, except as set forth in the Disclosure
Schedule. All references herein to
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"SELLERS' KNOWLEDGE" shall mean solely to the knowledge of the officers or
employees of the Selling Entities, identified in SCHEDULE 3 of the Disclosure
Schedule or to matters as to which any Cerplex officer reasonably should have
been expected to have knowledge of in the course of preparing the Disclosure
Schedule; provided, however, as to any Modcomp officer or employee listed in
Schedule 3, the Selling Entities shall be entitled to rely upon written
representations delivered to the Selling Entities and Buyer from such officer or
employee as to their knowledge. Such representations shall be in form and
substance substantially similar to those set forth in EXHIBIT E.
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Selling
Entities and the Subsidiaries is a corporation or partnership duly incorporated
or otherwise duly organized, validly existing and in good standing (in such
jurisdictions where such concept is applicable) under the laws of its respective
jurisdiction of incorporation or organization as set forth on SCHEDULE 3.1. Each
of the Selling Entities and each of the Subsidiaries has all requisite corporate
power and authority to own or lease its properties and carry on its business as
presently conducted. Except as set forth in SCHEDULE 3.1, each Subsidiary is
licensed or qualified to transact business in the jurisdictions listed therein.
The jurisdictions listed on SCHEDULE 3.1 are the only jurisdictions in which the
nature of the properties owned or leased by Modcomp or the Subsidiaries or the
business transacted by them requires them to be so licensed or qualified.
3.2 CAPITAL STOCK AND OWNERSHIP OF SUBSIDIARIES.
3.2.1 The total number of shares of capital stock, and the classes
and par values thereof, which each Subsidiary is authorized to issue, the number
of such shares which are issued and outstanding and the number of such
outstanding shares owned, directly or indirectly, legally or beneficially by
Cerplex or any Subsidiary, the number of shares of each Subsidiary owned by
other stockholders and the identities of such other stockholders, are set forth
in SCHEDULE 3.2. The ownership of the general and limited partnership interests
of Modcomp is as set forth in SCHEDULE 3.2.
3.2.2 Except as set forth in SCHEDULE 3.2, there are not
outstanding any (i) securities of any Subsidiary convertible into or
exchangeable for any shares of capital stock, partnership interests or other
securities of any such Subsidiary; (ii) subscriptions, options, warrants or
other rights, contingent or otherwise, obligating any Subsidiary to issue or
purchase or entitling any third party to acquire from any Subsidiary any shares
of capital stock, partnership interests or other securities of any such
Subsidiary; or (iii) other than this Agreement, any agreements or understandings
with respect to the voting, sale, transfer or other contractual restriction on
shares of capital stock or partnership interests of any Subsidiary.
3.2.3 The outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid, non-assessable and
free of preemptive rights.
3.2.4 The shares of capital stock of each Subsidiary will, as of
the Closing, be free and clear of all Encumbrances. The transfer of the Shares
to Buyer pursuant to this
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Agreement will vest in Buyer good title to the Shares, free and clear of all
Encumbrances, except for those created by Buyer.
3.2.5 Modcomp has, or at the Closing will have, valid title to the
Assets, free and clear of all Encumbrances other than Permitted Encumbrances.
Except as set forth on SCHEDULE 3.2.5, no financing statement under the Uniform
Commercial Code or similar law naming any Selling Entity or Subsidiary as a
debtor has been filed in any jurisdiction, and no Selling Entity or Subsidiary
is bound under any agreement or arrangement authorizing the filing of such
financing statements.
3.3 AUTHORITY.
3.3.1 The Selling Entities have all requisite right, power,
capacity and authority to enter into, deliver and perform this Agreement and any
other agreement or document contemplated hereby. The Selling Entities have all
requisite right, power, capacity and authority to consummate the transactions
contemplated hereby, and this Agreement has been duly and validly executed and
delivered by each of the Selling Entities.
3.3.2 Assuming due authorization, execution and delivery by Buyer,
this Agreement is legal, valid and binding upon and enforceable against each of
the Selling Entities in accordance with its terms.
3.4 NO CONFLICT; NO CONSENTS OR APPROVALS.
3.4.1 Neither the execution and delivery by the Selling Entities
of this Agreement or any agreement, instrument or document contemplated hereby,
nor the consummation of the transactions contemplated herein or therein by the
Selling Entities will (i) conflict with, result in a violation or breach of or
constitute a default under (or would result in a violation, breach or default
with the giving of notice or the passage of time or both) (A) the certificate of
incorporation or bylaws (or other similar charter or governing documents) of any
of the Selling Entities, (B) any contract, commitment or agreement described in
SCHEDULE 3.14, or (C) assuming compliance with the HSR Act (to the extent
applicable) and any other similar applicable law in a foreign jurisdiction, any
law, statute, ordinance, writ, injunction, decree, rule, regulation or court or
administrative order by which any of the Selling Entities or any Subsidiary (or
any of the properties or assets of the respective businesses of the
Subsidiaries) is subject or bound, except, in the case of (B) and (C), such
violations, breaches or defaults which would not, in the aggregate, have a
Material Adverse Effect; (ii) except as set forth in SCHEDULE 3.4, result in the
creation or imposition of, or give any party other than Buyer the right to
create or impose, any Encumbrance on the Assets (including the Shares) or (iii)
terminate, modify or cancel, or give any other party the right to terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
commitment or agreement described in SCHEDULE 3.14, except for such
terminations, modifications or cancellations (or rights of termination,
modification or cancellation) or such requirements of notice, consent or waiver
as to which requisite consents or waivers have been obtained or which would not,
in the aggregate, have a Material Adverse Effect.
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3.4.2 Except for requirements of the HSR Act (to the extent
applicable) and any other similar applicable law in a foreign jurisdiction and
except as disclosed on SCHEDULE 3.4, none of the Selling Entities or
Subsidiaries is required to submit any notice, report or other filing with or to
any Governmental Body in connection with the execution, delivery or performance
of this Agreement by the Selling Entities and the consummation of the
transactions contemplated hereby by the Selling Entities or any Subsidiary.
3.4.3 No litigation, claim, administrative proceeding or other
proceeding or governmental investigation is pending or, to the Sellers'
Knowledge, threatened which would prevent or delay the execution, delivery or
performance of this Agreement or any agreement, instrument or document
contemplated hereby to be executed and delivered by the Selling Entities or the
consummation by the Selling Entities of the transactions contemplated hereby or
thereby.
3.5 UNDISCLOSED LIABILITIES. Except as disclosed in this Agreement or
the Disclosure Schedule, to the Sellers' Knowledge, the Subsidiaries have no
material liability or obligation, whether known or unknown, fixed, contingent or
otherwise, liquidated or unliquidated and whether due or to become due, of a
nature required by U.S. generally accepted accounting principles ("GAAP") to be
reflected in a corporate balance sheet or disclosed in the notes thereto or
which is otherwise a "loss contingency" as defined in Statement of Financial
Accounting Standards No. 5 of the Financial Accounting Standards Board, except
for:
3.5.1 liabilities and obligations set forth or adequately provided
for in the Closing Balance Sheet; and
3.5.2 liabilities and obligations incurred in the ordinary course
of business since the Effective Date that have not been discharged.
3.6 NO TERMINATION OF RELATIONSHIPS. As of the date hereof, to the
Sellers' Knowledge no Selling Entity or Subsidiary has received any written or
oral notice, or has knowledge of any facts which would lead it to conclude that
any relationship between a Subsidiary and any material distributor, customer or
supplier to such Subsidiary is likely to be terminated or materially adversely
affected as a result of the execution of this Agreement or the consummation of
the transactions contemplated hereby.
3.7 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 3.7 are the
Financial Statements. The Closing Balance Sheet presents fairly the financial
condition of the Business as of the date thereof and the statements at December
29, 1996 and for the twelve (12) months then ended, and at the Closing Balance
Sheet Date and for the six (6) month period then ended, included in the
Financial Statements (including any notes thereto) present fairly the results of
operations and cash flows of the Business as of the dates and for the periods
indicated therein. The Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis, except that unaudited statements do not
contain notes thereto and are subject to normal year-end adjustments.
3.8 TAX MATTERS. Except as set forth in SCHEDULE 3.8: all material Tax
Returns relating to, or including items attributable to, the Business that were
required to be filed by
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Modcomp and the Subsidiaries (taking into account all extensions) on or before
the date hereof have been filed and are accurate and correct in all material
respects, and all Taxes shown to be due on such Tax Returns have been paid. No
deficiencies for Taxes with respect to the Business (or for which any Subsidiary
may be liable) have been proposed or assessed by any taxing authority or other
Governmental Body against any of the Subsidiaries or any current or prior
affiliates thereof. The unpaid Taxes of the Subsidiaries relating to the
Business for taxable periods through the Closing Balance Sheet Date do not
exceed the aggregate amount of the reserves and accruals for Taxes set forth on
the Closing Balance Sheet. All Taxes relating to the Business which are or were
required by law to be withheld or collected have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body.
3.9 REAL PROPERTY. Neither Modcomp nor the Subsidiaries own or hold
title to any real property. SCHEDULE 3.9 lists and describes briefly all real
property leased or subleased as of the date hereof to Modcomp or a Subsidiary
and lists the term of such lease. The Selling Entities have delivered to, or
made available for inspection by Buyer correct and complete copies of the leases
and subleases (as amended to date) listed in SCHEDULE 3.9. Except as set forth
on SCHEDULE 3.9, with respect to each such lease and sublease, to the Sellers'
Knowledge:
3.9.1 the lease or sublease is legal, valid, binding, enforceable
in accordance with its terms and in full force and effect with respect to
Modcomp or one of the Subsidiaries;
3.9.2 consummation of the transactions contemplated herein will
not conflict with, result in violation or breach of, or constitute a default
under or would result in a violation, breach or default (with the giving of
notice or the passage of time or both), any lease or sublease listed on SCHEDULE
3.9; and
3.9.3 neither Modcomp nor any Subsidiary nor any other party is in
breach or default under any such lease or sublease, and no event has occurred
which, with notice and/or lapse of time, would constitute such a breach or
default.
3.10 EQUIPMENT LEASES. SCHEDULE 3.10 contains a list of all equipment
leases of Modcomp or the Subsidiaries involving an annual expense per lease in
excess of $100,000 to which Modcomp or a Subsidiary is a lessee. Except as set
forth on SCHEDULE 3.10, with respect to each equipment lease listed therein, to
the Sellers' Knowledge:
3.10.1 the lease is legal, valid, binding, enforceable in
accordance with its terms and in full force and effect with respect to Modcomp
or the Subsidiary which is a party thereto and, with respect to every other
party thereto;
3.10.2 the consummation of the transactions contemplated herein
will not conflict with, result in a violation or breach of or constitute a
default under (or would result in a violation, breach or default with the giving
of notice or the passage of time or both) any lease listed on SCHEDULE 3.10; and
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3.10.3 no Subsidiary is in breach or default under any such
lease, and no event has occurred which, with notice and/or lapse of time, would
constitute such a breach or default by such Subsidiary.
3.11 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the
Closing Balance Sheet are valid receivables, arose in the ordinary course of
business and are subject to no setoffs or counterclaims. All accounts receivable
reflected in the financial or accounting records of the Business that have
arisen since the Closing Balance Sheet Date are valid receivables, arose in the
ordinary course of business and are subject to no setoffs or counterclaims.
3.12 INTELLECTUAL PROPERTY.
3.12.1 SCHEDULE 3.12 contains a list of all of the following to the
extent owned by or licensed to Modcomp or any Subsidiary and used in the
Business (other than non-custom third-party software which is commercially
available and not material to the Business): (i) patents and patent
applications; (ii) trademarks, tradenames and service marks and registrations
thereof and applications therefor; (iii) registered copyrights and applications
for copyright registration; and (iv) licenses relating to any of the foregoing.
SCHEDULE 3.12 identifies the owner of each item listed thereon and, in the case
of registrations and applications, the application or registration number.
SCHEDULE 3.12(v) contains a non-exhaustive list of proprietary systems developed
by Modcomp.
3.12.2 To the Sellers' Knowledge, Modcomp or one or more of the
Subsidiaries owns or has the right to use, subject to the provisions of the
license agreements set forth in SCHEDULE 3.12, all Proprietary Rights used or
held for use in connection with the operation of the Business including, but not
limited to, the Proprietary Rights identified in Schedule 3.12 (collectively,
the "INTELLECTUAL PROPERTY"). To the Sellers' Knowledge, on the Closing Date,
Buyer or one of the Subsidiaries will own or have the right to use, subject to
the provisions of the license agreements set forth in SCHEDULE 3.12(iv), the
Intellectual Property (other than items of Intellectual Property disposed of
prior to the Closing in the ordinary course of business), and except for such
Intellectual Property the absence or inability to use of which would not have a
Material Adverse Effect.
3.12.3 Except as set forth in SCHEDULE 3.12.3, to the Sellers'
Knowledge none of the activities or business presently conducted by Modcomp or
the Subsidiaries or conducted by the Subsidiaries at any time since January 1,
1996 infringes or violates, or constitutes a misappropriation of, any
Proprietary Rights of any other person or entity, except for such infringements,
violations or misappropriation which would not, in the aggregate, have a
Material Adverse Effect. Except as set forth in SCHEDULE 3.12.3, to the Sellers'
Knowledge neither Modcomp nor any Subsidiary has received any complaint, claim
or notice alleging any such infringement, violation or misappropriation.
3.12.4 The Selling Entities have supplied to, or made available for
inspection by, Buyer correct and complete copies of all licenses, sublicenses or
other agreements (as amended to date) pursuant to which Modcomp or any
Subsidiary uses the Intellectual Property, all of which are listed on SCHEDULE
3.12(iv). Except as set forth in SCHEDULE 3.12.4, with respect to
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each such item of Intellectual Property: (i) the license, sublicense or other
agreement covering such item is legal, valid and binding with respect to one of
the Subsidiaries and, to the Sellers' Knowledge, with respect to every other
party thereto; and (ii) neither Modcomp nor any Subsidiary nor, to the Sellers'
Knowledge, any other party is in material breach or default under any such
license, sublicense or other agreement, and no event has occurred which, with
notice and/or lapse of time, would constitute such a material breach or default
or permit termination, modification or acceleration thereunder, except such
breaches, defaults, terminations, modifications or accelerations which would
not, in the aggregate, have a Material Adverse Effect.
3.13 INSURANCE POLICIES.
3.13.1 SCHEDULE 3.13 sets forth a list of all material policies of
fire, theft, casualty, liability, burglary, fidelity, workers compensation,
business interruption, environmental, product liability, automobile and other
forms of insurance which are in effect with respect to the Business as of the
date hereof. Except as set forth in SCHEDULE 3.13, no Selling Entity or
Subsidiary has received any notice from the insurer under any such policy
disclaiming coverage, reserving material rights with respect to a particular
claim or such policy in general, or canceling or materially amending any such
policy.
3.13.2 All premiums due and payable for such insurance policies
have been duly paid, and such policies or extensions or renewals thereof in such
amounts will be outstanding and duly in full force without interruption until
the Closing Date.
3.14 CONTRACTS. To the Sellers' Knowledge, SCHEDULE 3.14 contains a
complete and accurate list of the following contracts, commitments and
agreements to which Modcomp or a Subsidiary is a party (the "CONTRACTS"):
3.14.1 all contracts, leases, or commitments, whether entered into
in the ordinary course of business or not involving an obligation to purchase,
lease or deliver goods or services of an amount or value in excess of $100,000
each;
3.14.2 all forms of employment contracts with employees and each
employment contract, and each other contract, agreement or commitment to or with
individual employees, agents, representatives or consultants other than
contracts which may be terminated without notice or penalty;
3.14.3 any arrangement under which any Subsidiary has created,
incurred, assumed or guaranteed indebtedness (including capitalized lease
obligations) which will be in effect as of the Closing involving more than
$100,000;
3.14.4 each sales representative, distributorship or other
agreement providing for the distribution or marketing of products under which
revenue to any Subsidiary during 1996 exceeded $100,000; and
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3.14.5 any other arrangement under which the consequences of a
default or termination would have a Material Adverse Effect, or which gives or
could give any other party thereto the right to cause the transactions
contemplated by this Agreement to be rescinded following consummation, or which
involves more than $100,000.
The Selling Entities have delivered to Buyer a correct and complete copy
of each Contract to which Modcomp is a party. Buyer acknowledges that the
Selling Entities have made available to Buyer a correct and complete copy of
each Contract to which one or more of the Subsidiaries is a party. The parties
agree and acknowledge that the Limited Partnership Agreement of Modcomp/Cerplex,
L.P., effective December 1, 1994, as amended to date, shall not be deemed a
Contract hereunder and Buyer shall not have any liability relating to any
obligations arising thereunder. With respect to each Contract: (i) the Contract
is legal, valid, binding and enforceable in accordance with its terms and in
full force and effect with respect to the Subsidiary which is a party thereto;
(ii) except as set forth on SCHEDULE 3.14, each Contract to which Modcomp is a
party is assignable to Buyer without the consent or approval of or any payment
to any party except such written arrangements in respect of which such consents
or approvals have been obtained; and (iii) to the Sellers' Knowledge, neither
Modcomp nor any Subsidiary is in breach or default, and no event has occurred
which, with notice and/or lapse of time, would constitute such a breach or
default by Modcomp or a Subsidiary or permit termination, modification or
acceleration, under any Contract by the other party thereto, except such
breaches, defaults, terminations modifications or accelerations which would not,
in the aggregate, have a Material Adverse Effect.
3.15 LITIGATION. SCHEDULE 3.15 describes all suits, actions,
proceedings, investigations, claims, complaints and accusations pending (and
which notice thereof has been served) or, to the Sellers' Knowledge, threatened
or pending (and which notice thereof has not been served) against Modcomp or any
of the Subsidiaries, their properties or assets, the Shares, or the officers or
directors of any of the Subsidiaries, and to which any Subsidiary is or would be
a party in any court or before any industrial tribunal or arbitration panel of
any kind or before or by any federal, provincial, state, local, foreign,
regulatory or other government, governmental agency, department, commission,
board, bureau, instrumentality, authority or body ("GOVERNMENTAL BODY"). There
is no outstanding order, writ, injunction, decree, judgment or award by any
court, arbitration panel, industrial tribunal or Governmental Body against
Modcomp or any of the Subsidiaries.
3.16 COMPLIANCE WITH LAW. To the Sellers' Knowledge, except as set forth
in SCHEDULE 3.16:
3.16.1 Modcomp and each Subsidiary have, in all material respects,
complied and are in compliance, in all material respects, with all U.S. and
foreign laws, rules, decrees, regulations, ordinances and orders ("LAWS AND
REGULATIONS") which affect or relate to this Agreement, the transactions
contemplated hereby or the conduct of the Business or the Assets;
3.16.2 Modcomp and each Subsidiary have filed with the proper
authorities all material statements and reports required to be filed by all
applicable Laws and Regulations relating to the Business or Assets; and
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3.16.3 Neither Modcomp nor any Subsidiary has received written
notice alleging any violation of any material Laws and Regulations relating to
the Business or the Assets.
3.17 NO MATERIAL ADVERSE CHANGE. Except as set forth in SCHEDULE 3.17
and except as otherwise contemplated by this Agreement, since the Closing
Balance Sheet Date there has not been any change in the business, assets,
properties, financial condition or results of operations of each of the
Subsidiaries which would have a Material Adverse Effect.
3.18 LABOR MATTERS.
3.18.1 Except as set forth in SCHEDULE 3.18, (i) no Subsidiary is a
party to any collective bargaining agreement or national labor union agreement,
(ii) no Subsidiary has experienced any strikes, material grievances, material
claims of unfair labor practices or other material collective bargaining
disputes, with respect to the Business in 1996; and (iii) there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to any employees of any Subsidiary.
3.18.2 With respect to the Business, there are not in existence and
there are not threatened any: (i) work stoppages or strikes involving the
employees of each of the Subsidiaries; (ii) material grievance, arbitration
proceedings or proceedings before any governmental industrial tribunal arising
out of collective bargaining agreements or national labor union agreements; or
(iii) material unfair labor practice complaints filed against any of the
Subsidiaries.
3.18.3 To the Sellers' Knowledge, neither Modcomp nor any
Subsidiary has received written or oral notification alleging violation of any
federal, state, foreign and municipal laws respecting employment and employment
practices, terms and conditions of employment, or wages and hours related to the
Business.
3.19 U.S. EMPLOYEE BENEFIT PLANS.
3.19.1 SCHEDULE 3.19 lists all employee benefit plans and all
material written plans, agreements or arrangements relating to the Business and
involving direct compensation, including without limitation insurance coverage,
disability benefits, bonus, deferred compensation, incentive compensation,
severance or termination pay, post-retirement compensation, change in control
compensation, death benefit, stock purchase, phantom stock, stock appreciation
and stock option plans or arrangements maintained or contributed to by or on
behalf of the Subsidiaries or any of their respective affiliates applicable to
the employees of the Subsidiaries employed in the U.S. (the "PLANS"). Each of
the Plans that is an "employee pension benefit plan" as such term is defined in
Section 3(2) of ERISA (collectively, the "RETIREMENT PLANS") and any
corresponding trust intended to qualify under Sections 401(a) and 301(a) of the
Code do so qualify. Each of the Plans has been administered, in all material
respects, in compliance with its terms and the requirements of all applicable
Laws and Regulations, including without limitation ERISA and the Code, and all
material required contributions to each Plan have been made.
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3.19.2 To the Sellers' Knowledge, neither any Subsidiary, any ERISA
Affiliate nor any trustee or administrator of any Plan, has engaged in a
"prohibited transaction," as defined in Section 4975 of the Code, or a
transaction prohibited by Section 406 of ERISA, that would give rise to any
material tax or penalty under such Section 4975 to any Subsidiary.
3.19.3 To the Sellers' Knowledge, neither any Subsidiary nor any
ERISA Affiliate of any Subsidiary has ever maintained an employee benefit plan
subject to Section 412 of the Code or Title IV of ERISA that would subject any
Subsidiary to any material liability resulting from an accumulated funding
deficiency (as defined for purposes of Section 412 of the Code) or termination
respecting such employee benefit plan.
3.19.4 To the Sellers' Knowledge, neither any Subsidiary nor any
ERISA Affiliate contributes to or has an obligation to contribute to a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA on behalf of
Employees. No complete withdrawal or partial withdrawal (as defined for purposes
of Sections 4203 and 4203 of ERISA, respectively) has occurred with respect to a
multiemployer plan that would subject any Subsidiary to liability from such
complete withdrawal or partial withdrawal.
3.19.5 Except as set forth in SCHEDULE 3.19, to the Sellers'
Knowledge there are no material unfunded obligations under any Plan providing
benefits after termination of employment to any employee or former employee of
any Subsidiary (or to any beneficiary of any such employee or former employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code and insurance conversion privileges under state law.
3.19.6 Except as set forth in SCHEDULE 3.19, to the Sellers'
Knowledge no act or omission has occurred and no condition exists with respect
to any employee benefit plan or program that would reasonably be expected to
subject any Subsidiary to any material fine, penalty, tax or liability of any
kind.
3.20 FOREIGN EMPLOYEE BENEFIT PLANS. SCHEDULE 3.20 lists:
3.20.1 each material non-governmental retirement plan maintained or
contributed to by or on behalf of the Subsidiaries (or any of their respective
affiliates) applicable to employees of the Business located outside of the U.S.
(a "FOREIGN RETIREMENT PLAN") and
3.20.2 each non-governmental, non-industry welfare benefit plan
maintained or contributed to by or on behalf of the Subsidiaries (or any of
their respective affiliates) applicable to employees of the Business located
outside of the U.S. and which, in the case of this clause 3.20.2, obligates or
may reasonably be expected to obligate the Business to pay more than $100,000
annually (a "FOREIGN WELFARE PLAN"). Except as set forth in SCHEDULE 3.20, each
such Foreign Retirement Plan and Foreign Welfare Plan (collectively, the
"FOREIGN PLANS") has been administered, in all material respects, in compliance
with its terms and the requirements of all applicable Laws and Regulations, and
all required contributions to each Foreign Plan have been made. Except as set
forth in SCHEDULE 3.20, to the Sellers' Knowledge, there are no inquiries or
investigations by any foreign Governmental Body, and no termination proceedings
against any
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Foreign Plan (or any Subsidiary, with respect thereto) or the assets thereof
that would have a Material Adverse Effect. Except as set forth in SCHEDULE 3.20,
there are no actions, suits or claims (other than claims for benefits) pending
(and which notice thereof has been served) or, to the Sellers' Knowledge,
threatened or pending (and which notice thereof has not been served), against
any Foreign Plan (or any Subsidiary, with respect thereto) or the assets thereof
that would have a Material Adverse Effect. Except as set forth in SCHEDULE 3.20,
to the Sellers' Knowledge there are no material unfunded obligations under any
Foreign Plan providing benefits after termination of employment to any employee
or former employee of the Business.
3.21 INDEBTEDNESS AND GUARANTIES. SCHEDULE 3.21 sets forth a true and
complete list, including the names of the parties thereto, of all material debt
instruments, loan agreements, indentures, guaranties or other written
obligations to which one or more of the Subsidiaries is a party and will remain
a party following the Closing and which relates to the Business or Assets and
involves: (i) indebtedness for borrowed money; (ii) money loaned to others; or
(iii) the performance of any obligation relating to the Business.
3.22 ENVIRONMENTAL MATTERS.
3.22.1 Except as set forth in SCHEDULE 3.22, to the Sellers'
Knowledge each Subsidiary has complied in all material respects with all
Environmental Laws relating to the Business. Except as set forth in SCHEDULE
3.15, to the Sellers' Knowledge there is no pending or threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding or investigation, inquiry or information request by any Governmental
Body relating to any Environmental Law involving or relating to the respective
businesses of the Subsidiaries. For purposes of this Agreement, "ENVIRONMENTAL
LAW" means any applicable federal, state, foreign or local law, statute, rule or
regulation or the common law relating to the environment, including without
limitation any statute, regulation or order pertaining to (i) treatment,
storage, disposal, generation or transportation of hazardous substances or
solid, or hazardous waste; (ii) air, water and noise pollution; (iii)
groundwater and soil contamination; (iv) the release or threatened release into
the environment of hazardous substances, or solid or hazardous waste, including
without limitation emissions, discharges, injections, spills, escapes or dumping
of pollutants, contaminants or chemicals; (v) the protection of wildlife, marine
sanctuaries and wetlands, including without limitation all endangered and
threatened species; (vi) above ground or underground storage tanks, vessels and
containers; (vii) abandoned, disposed or discarded barrels, tanks, vessels,
containers and other closed receptacles; and (viii) manufacture, processing,
use, distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used herein, the
terms "release" and "environment" shall have the meaning set forth in the U.S.
federal Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA").
3.22.2 Except as set forth in SCHEDULE 3.22, to the Sellers'
Knowledge there have been no releases of any Materials of Environmental Concern
in a quantity reportable under Environmental Laws into the environment at any
parcel of real property or any facility currently owned or operated by any
Subsidiary. With respect to any such releases in a reportable quantity of
Materials of Environmental Concern, to the Sellers' Knowledge each Subsidiary
has given
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all required notices to Governmental Bodies. Except as set forth in SCHEDULE
3.22, to the Sellers' Knowledge there have been no releases of Materials of
Environmental Concern at parcels of real property or facilities owned, operated
or controlled by any Subsidiary that would reasonably be expected to have a
Material Adverse Effect. For purposes of this Agreement, "MATERIALS OF
ENVIRONMENTAL CONCERN" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the U.S. Federal Resources
Conservation and Recovery Act), radioactive materials, toxic materials, oil or
petroleum and petroleum products.
3.23 PERMITS. SCHEDULE 3.23 sets forth a list of all material Permits
(including without limitation Permits issued or required under Environmental
Laws and Permits relating to the occupancy or use of owned or leased real
property) issued to or held by any Subsidiary relating to the Business. Each
such listed Permit is in full force and effect and no suspension or cancellation
of such listed Permit is threatened.
3.24 CERTAIN BUSINESS RELATIONSHIPS. Except as disclosed in SCHEDULE
3.24, neither Cerplex nor any affiliate of Cerplex (i) owns any property or
right, tangible or intangible, which is used in the Business; (ii) has any claim
or cause of action against any Subsidiary or the assets of Modcomp or any
Subsidiary; or (iii) except in the ordinary course of business in conjunction
with product sales, owes any money to any Subsidiary. SCHEDULE 3.24 describes
all contracts, commitments and agreements among or between Cerplex, any
affiliate of Cerplex, and/or any Subsidiary relating to the Business which will
be in effect following the Closing.
3.25 BOOKS AND RECORDS. The books, records, accounts, ledgers and files
with respect to each Subsidiary are accurate and complete in all material
respects and have been maintained in accordance with good business and
bookkeeping practices in all material respects. The books and records of each
Subsidiary, including without limitation its books of account, stock certificate
books, stock ledgers and/or share registers, are complete and correct in all
material respects.
3.26 BANK ACCOUNTS. SCHEDULE 3.26 sets forth a complete list of all
bank accounts or other accounts with depository institutions, brokerage firms or
other financial service companies maintained by each of the Subsidiaries and
includes a description or listing of the cash or assets contained in such
account and the names of each person authorized to effect withdrawals therefrom
or direct the transfer or investment of any such cash or assets.
3.27 PERSONAL PROPERTY. Except as set forth in SCHEDULE 3.9, each
material item of tangible personal property included in the Assets or owned by
the Subsidiaries is in good operating condition and repair in light of its age,
ordinary wear and tear excepted, and is suitable for the purpose for which it is
being used in the Business as currently operated.
3.28 OFFICERS AND DIRECTORS. Schedule 3.28 sets forth all of the
executive officers and directors of the Subsidiaries.
3.29 DISCLOSURE. To the Selling Entities' knowledge, no representation
or warranty made by the Selling Entities in this Agreement, or any Schedule or
Exhibit hereto, or made in
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any certificate furnished by the Selling Entities to Buyer pursuant hereto,
contains any misstatement of a material fact or omits to state any material fact
necessary to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading.
3.30 VALUE. The Purchase Price is at least reasonably equivalent to the
value of the Assets transferred to the Buyer hereunder.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Selling Entities that the statements
contained in this Section 4 are true and correct.
4.1 DUE INCORPORATION. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
organization. Buyer has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Buyer.
4.2 AUTHORITY.
4.2.1 Buyer has all requisite corporate right, power, capacity and
authority to enter into, deliver and perform this Agreement and any other
agreement or document necessary to perform this Agreement. Buyer has all
requisite corporate right, power, capacity and authority to consummate the
transactions contemplated hereby, and this Agreement has been duly and validly
executed and delivered pursuant to all necessary corporate action on the part of
Buyer.
4.2.2 Assuming due authorization, execution and delivery by each
of the Selling Entities, this Agreement is legal, valid and binding upon and
enforceable against Buyer in accordance with its terms.
4.3 NO CONFLICT; NO CONSENTS OR APPROVALS.
4.3.1 Neither the execution and delivery by Buyer of this
Agreement or any agreement, instrument or document contemplated hereby, nor the
consummation of the transactions contemplated herein or therein by Buyer nor
compliance by Buyer with any of the provisions hereof will conflict with, result
in a violation or breach of, or constitute a default under (or would result in a
violation, breach or default with the giving of notice or the passage of time or
both) (i) the certificate of incorporation or bylaws of Buyer, (ii) any material
contract, agreement, indenture, note, license or other instrument or obligation
of Buyer or (iii) any law, statute, ordinance, writ, injunction, decree, rule,
regulation or court or administrative order by which Buyer (or any of the
properties or assets of Buyer) is subject or bound.
4.3.2 Buyer is not required to submit any notice, report or other
filing with or to any Governmental Body in connection with the execution,
delivery or performance of this Agreement or any agreement, instrument or
document contemplated hereby to be executed and
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delivered by Buyer and the consummation of the transactions contemplated hereby
or thereby by Buyer.
4.3.3 No litigation, claim, administrative proceeding or other
proceeding or governmental investigation is pending or, to Buyer's knowledge,
threatened which would prevent or delay the execution, delivery or performance
of this Agreement or any agreement, instrument or document contemplated hereby
to be executed and delivered by Buyer or the consummation by Buyer of the
transactions contemplated hereby.
5. COVENANTS OF THE SELLING ENTITIES
5.1 CONDUCT OF BUSINESS. Prior to the Closing Date, each Subsidiary
shall carry on its Business diligently and substantially in the same manner as
heretofore, including compliance with all governmental rules and regulations and
maintenance and renewal of all material governmental licenses and permits, and
shall not make or institute any unusual or new methods of purchase, sale,
shipment or delivery, lease management, accounting or operation, except as
agreed to in writing by Buyer. All of the property of each Subsidiary shall be
used, operated, repaired and maintained in a normal business manner consistent
with past practice.
5.2 ABSENCE OF MATERIAL CHANGES. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, except as expressly contemplated by this
Agreement, the Selling Entities shall not allow, cause or permit Modcomp or any
of its Subsidiaries to do, cause or permit any of the following, without the
prior written consent of Buyer.
5.2.1 MATERIAL CONTRACTS. Enter into any contract or commitment,
or violate, amend or otherwise modify or waive any of the terms of any of its
Contracts, other than in the ordinary course of business consistent with past
practice and in no event shall such contract, commitment, amendment,
modification or waiver be in excess of $25,000;
5.2.2 ISSUANCE OF SECURITIES. Issue, deliver or sell or authorize
the issuance, delivery or sale of, or purchase any shares of its capital stock
or securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities.
5.2.3 INTELLECTUAL PROPERTY. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
5.2.4 EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
5.2.5 DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets except in the ordinary course of
business consistent with past practice;
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5.2.6 INDEBTEDNESS. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others except for any such indebtedness of a
Subsidiary to another Subsidiary;
5.2.7 LEASES. Enter into any operating lease;
5.2.8 PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) (i) arising other than in the ordinary course of business, (ii)
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Financial Statements or (iii) except in connection with
the consummation of the transactions contemplated herein;
5.2.9 CAPITAL EXPENDITURES. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice;
5.2.10 INSURANCE. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
5.2.11 EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
employee (except that it may hire a replacement for any current employee if it
first provides Buyer advance notice regarding such hiring decision), pay any
special bonus or special remuneration to any employee or director, or increase
the salaries or wage rates of its employees;
5.2.12 SEVERANCE ARRANGEMENTS. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except (A)
payments made pursuant to standard written agreements outstanding on the date
hereof and included in the Disclosure Schedules or (B) grants which are made in
the ordinary course of business in accordance with its standard past practice;
5.2.13 LAWSUITS. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Buyer prior to the filing
of such a suit, or (iii) for a breach of this Agreement;
5.2.14 ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business or acquire or agree to acquire any equity securities
of any corporation, partnership, association or business organization, or enter
into any negotiations or discussions regarding any of the foregoing;
5.2.15 DISTRIBUTIONS. Pay any dividend or make any distribution to
any of the Selling Entities other than Modcomp.
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5.2.16 OTHER. Take or agree in writing or otherwise to take, any of the
actions described in Sections 5.2.1 through 5.2.15 above, or any action which
would make any of the Selling Entities' representations or warranties contained
in this Agreement untrue or incorrect or prevent any of the Selling Entities
from performing or cause any of the Selling Entities not to perform their
respective covenants hereunder.
5.3 TAXES. From and after the date hereof and until the Closing Date,
each Selling Entity and Subsidiary shall, on a timely basis, file all Tax
Returns and pay any and all Taxes which shall become due or shall have accrued
on account of the operation of the Business on or prior to the Closing Date.
5.4 COMPLIANCE WITH LAWS. From and after the date hereof and until the
Closing Date, each Selling Entity and Subsidiary shall comply in all material
respects with all Laws and Regulations which are applicable to it or to the
conduct of the Business and will perform and comply in all material respects
with the Contracts.
5.5 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF SELLING
ENTITIES. No Selling Entity or Subsidiary will take any action which would
result in any of the representations, warranties, covenants and agreements set
forth in this Agreement becoming untrue, incorrect or unsatisfied in any
material respect until the Closing Date. At the Closing, the Selling Entities
shall update and deliver to Buyer the Disclosure Schedule (updated from the
execution date through the Closing Date) set forth herein to be delivered by
such party; provided, however, no such update shall affect the liability of the
Selling Entities with respect to the representations and warranties given in
Section 3.
5.6 CONTINUING OBLIGATION TO INFORM. From time to time prior to
Closing, the Selling Entities shall promptly deliver or cause to be delivered to
Buyer supplemental information concerning events subsequent to the date hereof
which would render any statement, representation or warranty in this Agreement
or any information contained in any Schedule hereto inaccurate or incomplete in
any material respect at any time after the date hereof until the Closing Date.
5.7 EXCLUSIVE DEALING. From and after the date hereof and until the
Closing Date, no Selling Entity will, directly or indirectly, through any
officer, director, stockholder, employee, agent, subsidiary or otherwise (a)
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or a material portion of the
assets of any of the Subsidiaries, or any equity interest in a Subsidiary or any
equity investment, merger, consolidation or business combination with a
Subsidiary, or (b) participate, or authorize, directly or indirectly, any other
person to participate, in any negotiations with third parties regarding any of
the foregoing.
5.8 CONSENTS AND BEST EFFORTS. From and after the date hereof, the
Selling Entities will take and complete all reasonable actions required
hereunder, and the Selling Entities will cooperate with Buyer as is necessary,
to obtain all applicable consents, approvals and agreements of, and to give all
notices and make all filings with, any third parties as may be necessary to
authorize, approve or permit the full and complete sale, conveyance, assignment
or transfer of
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the Assets. In addition, subject to the terms and conditions herein provided,
the Selling Entities covenant and agree to use their reasonable best efforts to
take or cause to be taken all things necessary, proper or advisable under
applicable Laws and Regulations to consummate and make effective the
transactions contemplated hereby.
5.9 ACCESS TO FINANCIAL, OPERATING AND OTHER INFORMATION. From and
after the date hereof and until the Closing Date, the Selling Entities will give
Buyer, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of the Subsidiaries and Modcomp. To the extent not
previously provided, the Selling Entities will furnish to Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and all other information related to the Business as such
persons may reasonably request and will instruct the Selling Entities'
employees, counsel and financial advisors to cooperate with Buyer in its
investigation of the Business; provided that no investigation pursuant to this
section shall affect any representation or warranty given by the Selling
Entities.
5.10 RELINQUISHMENT OF INTELLECTUAL PROPERTY. From and after the Closing
Date, the Selling Entities shall cease all use, dissemination and exploitation
of the Intellectual Property. Within one month after the Closing Date, Modcomp
will either dissolve or change its name so that it no longer includes the word
"Modcomp".
6. COVENANTS OF BUYER
6.1 CONTINUED TRUTH OF REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer
will not take any action which would result in any of the representations,
warranties, covenants and agreements set forth in this Agreement to be untrue or
incorrect in any material respect at any time.
6.2 CONTINUING OBLIGATION TO INFORM. From time to time prior to
Closing, Buyer shall promptly deliver or cause to be delivered to Cerplex
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement
inaccurate or incomplete in any material respect at any time after the date
hereof until the Closing Date.
6.3 CONSENTS AND BEST EFFORTS. As soon as practicable, Buyer will take
and complete all reasonable action required hereunder, and Buyer will cooperate
with the Selling Entities as is necessary, to obtain all applicable consents,
approvals and agreements of, and to give all notices and make all filings with,
any third parties as may be necessary to authorize, approve or permit the full
and complete sale, conveyance, assignment or transfer of the Shares. In
addition, subject to the terms and conditions herein provided, Buyer covenants
and agrees to use its reasonable best efforts to take or cause to be taken all
things necessary, proper or advisable under applicable Laws and Regulations to
consummate and make effective the transactions contemplated hereby.
6.4 TAXES AND OTHER OBLIGATIONS. Buyer agrees to be responsible for,
and to timely pay, any and all stamp, duty, transfer and other taxes arising out
of this Agreement or the
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transactions contemplated hereby. Buyer agrees that, from and after the time of
the Closing, Buyer and the Subsidiaries shall be responsible for, and shall
discharge as they become due, any and all Assumed Liabilities, whether occurring
on, prior to, or subsequent to the Closing.
6.5 EMPLOYEES. At the Closing, the Buyer shall make an offer of
employment to all Modcomp employees who are listed on Schedule 3.14.2 (as such
Schedule exists as of Effective Date) under the heading, "Commitments to U.S.A.
Individual Employees" and any additional employees hired pursuant to Section
5.2.11. The terms of said offers of Buyer to each such employee shall include
the payment of compensation and benefits which are substantially equivalent in
the aggregate to the compensation and benefits being provided to such employee
immediately prior to the Closing Date.
6.6 ASSIGNMENT FEES. Buyer shall pay all fees, costs and expenses
(including attorney fees) incurred in connection with the transfer and
assignment of any trademarks from Modcomp to Buyer as contemplated by this Asset
Purchase Agreement.
7. CLOSING CONDITIONS AND DOCUMENTS
7.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer under
this Agreement are subject to the conditions that, on or before the Closing
Date:
7.1.1 All of the terms, covenants and conditions of this Agreement
to be complied with and performed by the Selling Entities on or before the
Closing Date shall have been duly complied with and performed in all material
respects and the covenants of the Selling Entities set forth in Sections 5.2.11
and 5.2.15 have been duly complied with and performed in all respects;
7.1.2 All of the representations and warranties of the Selling
Entities contained in Section 3 hereof shall be true and correct in all material
respects as though given on the Closing Date;
7.1.3 Cerplex shall have delivered to Buyer a certificate executed
by an executive officer of Cerplex, dated as of the Closing Date, to the effect
that the conditions set forth in subsections 7.1.1 and 7.1.2 have been
satisfied;
7.1.4 Modcomp shall have delivered to Buyer certificates for the
Shares which shall constitute all of the issued and outstanding capital stock
owned by Modcomp with respect to the Subsidiaries;
7.1.5 Modcomp shall have delivered to Buyer a Bill of Sale in the
form attached hereto as EXHIBIT C and such other instruments as Buyer may
reasonably request to effect the assignment and transfer of the Assets
(including the Shares) to Buyer;
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7.1.6 Modcomp shall have delivered to Buyer an Assignment and
Assumption Agreement in the form attached hereto as EXHIBIT D and such other
instruments as Buyer may reasonably request to effect the assignment of
Modcomp's contract rights to Buyer;
7.1.7 Cerplex shall have delivered to Buyer an opinion of counsel
dated as of the Closing Date in form and substance reasonably acceptable to
Buyer;
7.1.8 Cerplex shall have delivered to Buyer opinions of foreign
counsel dated as of the Closing Date in form and substance reasonably acceptable
to Buyer;
7.1.9 Cerplex shall have delivered a certificate of the Secretary
of each of the Selling Entities certifying as to the incumbency of officers and
corporate resolutions to effect the transactions contemplated herein;
7.1.10 Buyer shall have received evidence reasonably satisfactory
to it, of the termination of all loan agreements and security agreements
relating to the Assets of Modcomp (including the Shares), of the termination and
release of all liens and security interests in the Assets (including the Shares)
and of the termination of any UCC financing statements with respect to the
Assets (including the Shares) sufficient to permit Buyer to acquire the Assets
(including the Shares) free and clear of any and all Encumbrances other than
Permitted Encumbrances;
7.1.11 Modcomp shall have received the consent of Penn Florida
Realty, L.P. regarding the assignment and assumption by the Buyer of those
certain Leases for approximately 35,314 (Building 1) square feet of space at
1650 W. McNab Road, Fort Lauderdale, Florida and approximately 42,169 (Building
1A) square feet of space at 1650 W. McNab Road, Fort Lauderdale, Florida; and
7.1.12 All of the agreements and documents necessary to effect and
perfect the Selling Entities' ownership of, or license to, all of their right,
title, and interest in and to the Intellectual Property, including without
limitation the Intellectual Property listed in Schedule 3.12, and to transfer
such rights therein to Buyer, shall be duly and legally executed and either
recorded in all relevant jurisdictions (if applicable) or delivered to Buyer,
unless Buyer agrees in writing, to receive any such documents or agreements
after the Closing Date.
7.1.13 All consents, approvals, notices or waivers required to
transfer and assign the Contracts, the leases set forth in SCHEDULE 3.9 and the
licenses set forth in SCHEDULE 3.12(IV) to Buyer shall be obtained unless Buyer
agrees to waive the Selling Entities' obligations under this Section 7.1.13.
7.2 CONDITIONS TO OBLIGATIONS OF THE SELLING ENTITIES. The obligations
of the Selling Entities under this Agreement are subject to the conditions that,
on or before the Closing Date:
7.2.1 All of the terms, covenants and conditions of this Agreement
to be complied with and performed by Buyer on or before the Closing Date shall
have been duly complied with and performed in all material respects;
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7.2.2 Buyer shall have delivered to Cerplex a certificate executed
by an executive officer of Buyer, dated as of the Closing Date, to the effect
that the conditions set forth in Section 7.2.1 have been satisfied;
7.2.3 Buyer shall have delivered to Cerplex an opinion of counsel,
dated as of the Closing Date, in form and substance reasonably acceptable to the
Selling Entities;
7.2.4 Buyer shall have delivered the Purchase Price to Cerplex
pursuant to the provisions of Section 2.2.2 hereof and the Escrow Agent shall
have delivered the undisputed portion of the Deposit pursuant to the provisions
of Section 2.2 hereof;
7.2.5 Buyer shall have delivered a certificate of the Secretary of
Buyer certifying as to the incumbency of officers and corporate resolutions to
effect the transactions contemplated herein;
7.2.6 If required, the filing of the notice required by, and
expiration of the applicable waiting period under, the HSR Act shall have
occurred, and the parties shall not have received any notice from the FTC or any
other Governmental Body, of an intent to contest consummation of any of the
transactions of intent contemplated herein; and
7.2.7 Buyer shall have executed and delivered to Cerplex an
Assignment and Assumption Agreement in the form attached hereto as EXHIBIT D and
such other instruments as the Selling Entities may reasonably request to effect
the assumption by Buyer of the Assumed Liabilities.
8. INDEMNIFICATION
8.1 INDEMNIFICATION OF BUYER. The Selling Entities, jointly and
severally, shall indemnify, and hold Buyer harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, reasonable fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) ("LOSSES") incurred or suffered by Buyer or the Subsidiaries
resulting from, relating to or constituting any misrepresentation or breach of
warranty or breach of any covenant or agreement of any of the Selling Entities
contained in this Agreement.
8.2 LIMITATIONS ON INDEMNIFICATION.
8.2.1 The obligation of the Selling Entities to indemnify Buyer
for Losses arising under Section 8.1 shall be limited as to amount, as follows:
(a) Cerplex shall not be required to indemnify Buyer for
any claim hereunder which is not an Indemnifiable Claim. An "Indemnifiable
Claim" with respect to
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either Buyer or the Selling Entities shall mean any Loss arising from any single
circumstance which exceeds $5,000;
(b) To the extent that the aggregate amount of Losses from
Indemnifiable Claims exceeds $250,000, Cerplex shall indemnify Buyer for such
Losses in excess of such $250,000. It is understood that such indemnity will
include the first $5,000 (or portion thereof) of an Indemnifiable Claim if such
$5,000 (or portion thereof) is not required to meet such $250,000 deductible.
8.2.2 Notwithstanding any other provision to the contrary, Cerplex
shall not be liable for total aggregate Losses in excess of $2,000,000.
8.2.3 The Selling Entities shall not be required to indemnify
Buyer for any indemnifiable liability or reimbursement under this Section 8 to
the extent Buyer has actually been reimbursed by a third-party insurer in
respect of the underlying loss; provided, however, that the limitation set forth
in this subsection 8.2.3 shall in no way affect any claim, by way of subrogation
or otherwise, that any such third-party insurer may have against the Selling
Entities. In any case in which Buyer has a reasonable claim under third-party
insurance for all or a portion of an indemnifiable liability or reimbursement
from the Selling Entities hereunder, Buyer agrees to file a claim for recovery
of such liability or reimbursement (or portion thereof) and to take any and all
other reasonable actions with respect thereto. To the extent that such claim (or
any portion thereof) is not paid by such third-party insurer within 60 days of
the date of filing of such claim, then, with respect to such claim (or portion
thereof), the obligation of the Selling Entities to indemnify Buyer shall be the
same as if Buyer had no such insurance; provided, however, that if Buyer is
ultimately paid for such claim and the Selling Entities previously reimbursed
Buyer for such indemnifiable liability or reimbursement, then Buyer shall
immediately remit to the Selling Entities the amount of insurance proceeds
received pursuant to such claim to the extent Buyer was reimbursed by the
Selling Entities therefor.
8.2.4 Buyer shall not be entitled to make any claim for
indemnification arising under Section 8.1 after the date which is twelve (12)
months after the Closing Date (the "CUT-OFF DATE") and the representations and
warranties of Cerplex contained herein or in any certificates, schedules or
other documents delivered prior to or at the Closing shall expire with, and be
terminated and extinguished on, the Cut-off Date; provided, however, that
indemnification claims may be made with respect to (a) any breach of a
representation or warranty contained in Section 3.22 or 3.24 at any time prior
to the third anniversary of the Closing, (b) any breach of a representation or
warranty contained in Section 3.8 at any time prior to the expiration of the
applicable statute of limitations (as the same may be extended from time to
time), and (c) any breach of a representation contained in Section 3.2 at any
time, and each such representation and warranty shall survive the Closing until
such time as indemnification claims can no longer be validly made with respect
thereto. If a claim for indemnification is asserted in good faith prior to the
Cut-off Date (or such later date as provided in this Section 8.2.3), then
(notwithstanding the expiration of such time period) such claim and, if such
claim is based on the alleged breach of a representation or warranty, such
representation or warranty shall survive until the resolution of such claim.
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8.3 THIRD-PARTY CLAIMS.
8.3.1 In the event that any legal proceedings shall be instituted
or any claim or demand shall be asserted by any Person in respect of which
indemnification may be sought by Buyer from the Selling Entities under the
provisions of this Section 8 (a "THIRD-PARTY CLAIM") Buyer shall cause written
notice of the assertion of any Third-Party Claim of which it has knowledge that
is covered by this indemnity to be forwarded promptly to Cerplex; provided that
the failure of Buyer to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the Selling Entities have
been damaged by such failure. Cerplex shall have the right, at its option and at
its own expense, to be represented by counsel of its choice and to participate
in the defense, negotiation and/or settlement of any Third-Party Claim.
8.3.2 In connection with any Third-Party Claim, Cerplex, at the
sole cost and expense of Cerplex, may, upon written notice to Buyer, assume the
defense of any such Third-Party Claim if (i) Cerplex acknowledges in writing the
obligation of Cerplex to indemnify in accordance with the terms of this
Agreement Buyer with respect to such Third-Party Claim, (ii) the Third-Party
Claim seeks monetary damages solely and (iii) an adverse resolution of the
Third-Party Claim would not have a Material Adverse Effect on the goodwill or
reputation of the Business, on the future conduct of the Business by Buyer (or
on Buyer) or on the Tax or accounting policies or positions of Buyer or the
Subsidiaries; PROVIDED, HOWEVER, that Buyer may participate in any such
proceeding with counsel of its choice and at its own expenses; and PROVIDED
FURTHER, HOWEVER, that if Cerplex assumes control of such defense and Buyer
reasonably concludes that Cerplex and Buyer have conflicting interests or
different defenses available with respect to such action, suit or proceeding,
the reasonable fees and expenses of counsel to Buyer shall be considered
"Losses" for purposes of this Agreement. The party controlling the defense shall
keep the other party advised of the status of such action, suit or proceeding
and the defense thereof and shall consider in good faith recommendations made by
the other party with respect thereto. If Cerplex assumes control of any Third
Party Claim as provided herein, Buyer shall make available to Cerplex all
records and other materials in its possession pertaining to the defense of such
Third Party Claim.
8.3.3 Buyer shall not agree to any settlement of such action, suit
or proceeding without the prior written consent of Cerplex, which shall not be
unreasonably withheld, unless Buyer waives any right to indemnity therefor by
Cerplex.
8.3.4 The parties hereto agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any Third-Party
Claim.
8.3.5 After final judgment or award shall have been rendered by a
court, arbitration board or administrative agency of competent jurisdiction and
the expiration of the time in which to appeal therefrom, or a settlement shall
have been consummated, or Buyer and Cerplex shall have arrived at a mutually
binding agreement with respect to each separate matter indemnified by Cerplex,
Buyer shall forward to Cerplex notice of any sums due and owing by Cerplex with
respect to such matter and Cerplex shall pay all of the sums so owing to Buyer
by check within 10 days after the date of such notice.
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8.4 INDEMNIFICATION OF SELLING ENTITIES. The Buyer shall indemnify and
hold the Selling Entities harmless against any and all LOSSES incurred or
suffered by the Selling Entities resulting from any misrepresentation or breach
of any covenant or agreement by Buyer or failure by Buyer to pay or otherwise
discharge any Assumed Liability or to cause the payment by the Subsidiaries of
their respective liabilities which are expressly assumed by the Buyer pursuant
to this Agreement.
8.5 EXCLUSIVE REMEDY. The sole and exclusive remedy of any party with
respect to any monetary Loss suffered or incurred by such party shall be to seek
indemnity pursuant to the provisions of this Section 8.
9. TERMINATION AND CERTAIN WAIVERS AND DAMAGE
9.1 If the Closing fails to occur on or by August 29, 1997 (the
"DEADLINE") due to the breach or default of Buyer, then the Deposit shall be
deemed liquidated damages to Cerplex, the Escrow Agent shall deliver the Deposit
(and any income thereon) to Cerplex (subject to the terms and conditions of the
Escrow Agreement) and neither party shall have any further rights or obligations
hereunder. If the Closing fails to occur on or prior to the Deadline due to the
breach or default of the Selling Entities, then Buyer, in its sole discretion,
may terminate this Agreement and all of each party's respective obligations and
duties hereunder at any time during the ten (10) days following the Deadline by
delivering written notice thereof to the Selling Entities and, upon such
termination, the Escrow Agent shall refund the Deposit (and any income thereon)
to Buyer (subject to the terms and conditions of the Escrow Agreement);
provided, however, such termination by Buyer shall in no event affect any other
rights Buyer may have to seek monetary damages for breach of contract. If the
Closing under this Agreement fails to occur on or before the Deadline due to no
breach or default of Buyer or the Selling Entities under this Agreement, then
any party hereto may terminate this Agreement and all of each parties'
respective obligations and duties hereunder by delivering written notice thereof
to the other parties, and upon such termination, the Escrow Agent shall refund
the Deposit (including any income thereon) to Buyer (subject to the terms and
conditions of the Escrow Agreement). The parties agree that the liquidated
damages provision set forth above is reasonable, considering all of the
circumstances existing as of the date of this Agreement and the anticipation
that proof of actual damages would be extremely difficult and costly.
9.2 Notwithstanding anything to the contrary in this Agreement, if
prior to the Closing, any one or more of the Selling Entities or Subsidiaries
makes an assignment for the benefit of creditors or files a petition for
bankruptcy or reorganization under any federal or state law, or is the subject
of such a petition filed by a third party, and whether such filing is voluntary
or involuntary (any such event being referred to as a "Bankruptcy Event"), then
this Agreement shall automatically terminate, and the Deposit (and any income
thereon) shall be delivered to Buyer upon notice by Buyer to the Escrow Agent.
The Selling Entities acknowledge and agree that in case of a Bankruptcy Event,
the Deposit (and any income thereon) is and shall be the property of the Buyer
and shall not constitute any part of the estate of any Selling Entity.
30
<PAGE> 36
10. GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties contained herein or in any certificate or instrument delivered
pursuant to this Agreement or the transactions contemplated hereby shall survive
for a period of twelve (12) months following the Closing, except that (i)
representations and warranties in Sections 3.22 and 3.24 shall survive for three
(3) years from the Closing, (ii) representations and warranties in Section 3.8
shall survive until the execution of the applicable statute of limitations (as
the same may be extended from time to time) and (iii) representations and
warranties in Section 3.2 shall survive without any time limitation. All
statements contained in the Schedules hereto or in any certificate delivered
pursuant to the transactions contemplated hereby shall be deemed to be
representations and warranties of the Selling Entities or Buyer contained
herein.
10.2 BENEFIT OF COUNSEL. Each of the parties hereto has obtained the
advice of legal counsel prior to entering into this Agreement. Each of the
parties hereto executes this Agreement with full knowledge of its significance
and with the express intention of effecting its legal consequences.
10.3 FURTHER ASSURANCES. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the transactions contemplated hereby.
10.4 CONSTRUCTION OF AGREEMENT. This Agreement is the product of
negotiation and preparation by and among each party and their respective
attorneys. Therefore, the parties acknowledge and agree that this Agreement
shall not be deemed prepared or drafted by one party or another and should be
construed accordingly.
10.5 EACH PARTY TO BEAR OWN COSTS. Buyer and the Selling Entities shall
each pay all of their own respective costs and expenses incurred or to be
incurred in negotiating and preparing this Agreement and in carrying out the
transactions contemplated by this Agreement.
10.6 BROKERS AND FINDERS. Each of the parties hereto shall pay, and
shall hold the other party harmless from, any and all fees, costs and expenses
incurred, or to be incurred, by such party with respect to such party's use of
or dealings with a broker or finder (including, without limitation, any
commissions or finder's fees) in connection with the transactions contemplated
by this Agreement.
10.7 HEADINGS. The subject headings of the Sections of this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
10.8 ENTIRE AGREEMENT; WAIVERS. This Agreement and the Exhibits and
Schedules hereto, which are incorporated herein by reference, constitute the
entire agreement between the parties pertaining to the contemporaneous
agreements, representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement shall be binding
31
<PAGE> 37
unless executed in writing by all parties. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
10.9 THIRD PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
10.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and
shall inure to the benefit of, the parties to it and their respective heirs,
legal representatives, successors, and assigns, although the parties'
obligations to pay or receive funds hereunder are not assignable. Subject to the
above sentence, Buyer shall be entitled to assign its rights, but not its
obligations, hereunder to any wholly-owned subsidiary of Buyer.
10.11 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
To Buyer: CSP, Inc.
40 Linnell Circle
Billerica, MA 01821
Attn: President
With a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attn: Dean Hanley, Esq.
To the Selling Entities at: The Cerplex Group, Inc.
1382 Bell Avenue
Tustin, CA 92780
Attn: Chief Financial Officer
With a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court
Suite 1000
Newport Beach, CA 92660
Attn: Frederic A. Randall, Jr.
32
<PAGE> 38
Any party may change its address for purposes of this paragraph by giving notice
of the new address to each of the other parties in the manner set forth above.
10.12 ATTORNEYS' FEES. If any party to this Agreement shall bring any
action (whether in a court of law or through any alternate dispute resolution),
counterclaim or appeal for any relief against the other, declaratory or
otherwise, to enforce the terms hereof or to declare rights hereunder (including
any dispute arising over the Escrow Agreement), the Prevailing Party shall be
entitled to recover its reasonable attorneys' fees and costs, including any fees
and costs incurred in bringing and prosecuting such an action, counterclaim or
appeal and/or enforcing any order, judgment, ruling or award granted as part of
such action. The "PREVAILING PARTY" shall be determined by the court, arbitrator
or other person deciding such action, counterclaim or appeal, and such court,
arbitrator or other person shall either designate one or none of the parties as
the Prevailing Party. For purposes of this Section 10.12, the Selling Entities
shall be collectively referred to as a "party". If neither party is deemed the
Prevailing Party hereunder, then each party shall bear its own costs and
expenses in connection with such action, counterclaim or appeal.
10.13 GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of California without reference to the choice of law
principles thereof.
10.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10.15 SEVERABILITY. All provisions contained herein are severable and in
the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
possible extent the parties' expressed intent; and in every case the remainder
of this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
10.16 PUBLICITY. Except for any public disclosure which Cerplex or Buyer
in good faith believes is required by law or applicable stock exchange rules, no
party shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without the prior written approval of the
other party, which shall not be unreasonably withheld; provided, however that if
public disclosure is required by such law or applicable stock exchange rule, the
party subject to such law or rule shall use its best efforts to inform the other
party or parties prior to the issuance of any such press release or public
statement. The parties hereto shall issue a mutually acceptable press release as
soon as practicable after the execution of this Agreement and as soon as
practicable after the Closing.
10.17 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the parties hereto and their
respective successors and permitted assigns.
[Signature Page to Follow]
33
<PAGE> 39
SIGNATURE PAGE FOR ASSET PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement as of the date first above written.
CSP INC.
By: ___________________________________________________
Name: Alexander B. Lupinetti
Its: President and Chief Executive Officer
THE CERPLEX GROUP, INC.
By: ___________________________________________________
Name: Stephen J. Hopkins
Its: Chief Executive Officer
CERPLEX SUBSIDIARY, INC.
By: ___________________________________________________
Name: Robert W. Hughes
Its: Chief Financial Officer
MODCOMP JOINT VENTURE, INC.
By: ___________________________________________________
Name: John P. Clary
Its: President
MODCOMP/CERPLEX, L.P.
By: ___________________________________________________
Name: John P. Clary
Its: President of Modcomp Joint Venture, Inc.,
as general partner of Modcomp/Cerplex, L.P.
By: ___________________________________________________
Name: Robert W. Hughes
Its: Chief Financial Officer of Cerplex Subsidiary, Inc.,
as general partner of Modcomp/Cerplex, L.P.
34
<PAGE> 40
EXHIBIT A
ESCROW AGREEMENT
35
<PAGE> 41
EXHIBIT B
ALLOCATION OF PURCHASE PRICE
36
<PAGE> 42
EXHIBIT C
BILL OF SALE
i
<PAGE> 43
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
ii
<PAGE> 44
EXHIBIT E
FORM OF CERTIFICATE OF MODCOMP OFFICERS
I _____________, hereby certify, on behalf of Modcomp/Cerplex L.P.
("Modcomp"), a Delaware limited partnership, in connection with the execution of
that certain Asset Purchase Agreement dated as of August 5, 1997 (the "Purchase
Agreement") by and among The Cerplex Group, Inc., a Delaware corporation,
Cerplex Subsidiary, Inc., a Delaware corporation, Modcomp Joint Venture, Inc., a
Delaware corporation, Modcomp and CSP Inc., a Massachusetts corporation, that:
(a) I am the duly appointed __________ of Modcomp;
(b) To my knowledge, each of the representations and warranties
(including the Schedules referenced therein) made by the Selling Entities (as
defined in the Asset Purchase Agreement) in Section 3 of the Asset Purchase
Agreement are true, complete and correct.
(c) I am aware that the Selling Entities are relying on this Certificate
in making the representations and warranties set forth in Section 3 of the
Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this __ day of July, 1997.
___________________________
Name: ____________________
Title: ____________________
i
<PAGE> 1
EXHIBIT 11
CSP, INC. AND SUBSIDIARIES
EXHIBIT 11.0 - COMPUTATION OF PER SHARE EARNINGS S
For the years ended August 29, 1997, August 30, 1996, and August 25, 1995
( in thousands except for per share amounts )
<TABLE>
<CAPTION>
1997 1996 1995
------ -----------------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE - ( PRIMARY )
Net Income (loss) ($721) $108 $385
====== =================
Average common shares outstanding 2,680 2,681 2,747
Add: Net additional common shares upon
exercise of stock options 0 0 48
------ -----------------
Adjusted average common shares outstanding 2,680 2,681 2,795
====== =================
Net income(loss) per common share - (primary) ($0.27) $0.04 $0.14
====== =================
NET INCOME (LOSS) PER COMMON SHARE - (FULL DILUTION)
Net Income (loss) ($721) $108 $385
====== =================
Average common shares outstanding 2,680 2,681 2,747
Add: Net additional common shares upon
exercise of stock options 0 0 48
------ -----------------
Adjusted average common shares outstanding 2,680 2,681 2,795
====== =================
Net income per common share - (Full Dilution) ($0.27) $0.04 $0.14
====== =================
</TABLE>
<PAGE> 1
CSP, INC. 1997 ANNUAL REPORT
CHARTING A NEW COURSE
[CSP NAVIGATION GRAPHIC]
OMITTED
<PAGE> 2
CONTENTS
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . 1
A LETTER FROM THE PRESIDENT . . . . . . . . . . . . . . . . . . 2-3
CSPI MULTICOMPUTER GROUP . . . . . . . . . . . . . . . . . . . 4-5
SCANALYTICS, INC. . . . . . . . . . . . . . . . . . . . . . . . 6-7
MODCOMP, INC. . . . . . . . . . . . . . . . . . . . . . . . . . 8-9
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 11-32
[BACKGROUND MAP GRAPHIC]
OMITTED
<PAGE> 3
SAMUEL OCHLIS
OVER 20 YEARS OF SERVICE TO CSPI
After over twenty years of outstanding service to CSP, Inc., Samuel Ochlis
has announced that he will retire on December 9, 1997, upon the completion of
his current term. The Board of Directors has elected Alexander R. Lupinetti to
succeed Sam to serve as Chairman of the Board. Alex has been a Director and
President and CEO since October 1996. They will work together until completion
of Sam's term in December to ensure a smooth transition.
Sam was elected a Director of CSP, Inc. in July, 1973 and joined the staff
as an Executive Vice President in January, 1974. He was elected President in
August, 1978, and later became Chief Executive Officer until he retired that
post to become Chairman of the Board in 1994. Sam will now have the title of
CHAIRMAN EMERITUS.
During Sam's tenure at CSP, Inc. the company grew considerably through his
vision and personal contributions. It was under Sam's leadership that CSP, Inc.
became a public company in 1982, and achieved profitability every year through
1996.
Sam oversaw development of three generations of CSP Inc.'s multicomputer
system products. He also developed several new markets, highlighted by the
tremendous success we enjoyed in the seismic industry. Under his leadership the
company also diversified with the development of the Scanalytics and Vision
Systems product groups.
Prior to joining CSP, Inc., Sam was President of GRI Computer Corporation
and GRI Microcircuits Corporation. He also co-founded and held the post as
President of Rotek Instrument Corporation which was acquired by Weston
Instrument Corporation, a subsidiary of Schlumberger Corporation. At Weston he
conceived and was responsible for the introduction and development of the
Digital PanelMeter for the industrial market.
Sam's accomplishments in his management career at CSP, Inc. have provided
the foundation for our current strategic direction. His presence in the company
will be missed, but his legacy of strong leadership and innovation will
continue.
[PHOTOGRAPH, SAMUEL OCHLIS OMITTED]
SAMUEL OCHLIS,
CSP, INC.
iv
<PAGE> 4
FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMD PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
August 29 August 30
OPERATING STATEMENTS DATA: 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Sales $ 19,540 $ 16,520
Net Income (loss) (721) 108
Number of primary shares 2,680 2,681
Earnings per share ($ 0.27) $ 0.04
BALANCE SHEET DATA:
Working capital $ 18,840 $ 18,759
Total assets 34,999 34,999
Total liabilities 9,978 9,978
Shareholders' equity $ 25,021 $ 25,804
</TABLE>
COMMON STOCK DATA:
The Common Stock of the Company is traded in the over-the-counter market and is
quoted on the NASDAQ System under the symbol "CSPI". The following tables set
forth the range of closing high and low selling prices for the Common Stock as
reported by NASDAQ.
<TABLE>
<CAPTION>
FISCAL YEAR: 1997 1996
High Low High Low
<S> <C> <C> <C> <C>
1st quarter $8 3/4 $6 7/8 $ 9 1/2 $8 1/4
2nd quarter 8 1/2 6 5/8 10 1/8 8 3/4
3rd quarter 7 3/8 6 1/8 10 1/4 9
4th quarter 9 1/8 6 1/4 9 5/8 7 3/8
</TABLE>
The Company has never paid cash dividends on its Common Stock. It is the policy
of the Company to retain any earning to finance and expand operations and the
Company does not currently anticipate any changes in this policy.
ANNUAL SALES
($ in millions)
18.01 19.46 18.53 16.52 19.54
93 94 95 96 97
[CHART GRAPHIC OMITED]
EARNINGS (LOSS)PER SHARE
(Dollars)
0.70 0.61 0.14 0.04 (0.27)
93 94 95 96 97
[CHART GRAPHIC OMITED]
NET INCOME (LOSS)
($ in thousands)
1957 1719 385 108 (721)
93 94 95 96 97
[CHART GRAPHIC OMITED]
1
<PAGE> 5
DEAR FELLOW SHAREHOLDERS,
"IN THE 1997 FISCAL YEAR, CSP, INC. HAS ADOPTED A
NEW AND BROADER STRATEGY THAT INCLUDES AN
AGGRESSIVE ACQUISITION PLAN TO ACCELERATE GROWTH."
ANNUAL PERFORMANCE
Sales of the company for the fourth quarter of the 1997 fiscal year were
$9.620 million compared to $4.128 million last year, or an 133% increase. This
brought the total sales for the 1997 fiscal year to $19.540 million compared to
$16.520 million for the prior year, or an 18% increase. These increases were
primarily due to the two months of revenue from the Signal Analytics, Inc. and
MODCOMP Inc. acquisitions.
After tax net loss for the year was $721,000, which included one-time
charges of $550,000 for in-process research and development related to the
Signal Analytics acquisition and a $530,000 write-off of obsolete inventory and
software licenses. Without these one-time charges, the net loss before taxes
would have been $83,000. Increased operating expenses are a result of the
addition of the two new entities and the gross margins reflect the new portfolio
of products and services with the acquisitions.
A CHANGE OF COURSE
In the 1997 fiscal year, CSP, Inc. adopted a new and broader strategy that
includes an aggressive acquisition plan to accelerate growth. In the last year
we acquired Signal Analytics of Vienna, Virginia and MODCOMP of Fort Lauderdale,
Florida.
Signal Analytics and our former Scanalytics division merged to form a
wholly-owned subsidiary, Scanalytics, Incorporated. Since the merger,
Scanalytics has been profitable and is on track with a comprehensive product
development plan. The current product line includes software and hardware
packages for DNA, cell, laser beam, astronomical, and general image analysis.
This broad product set allows us to pursue several new markets.
Our second acquisition, MODCOMP, will also operate as a wholly-owned
subsidiary of CSP, Inc. MODCOMP sells high-performance, real-time computer
systems, application software and services for mission-critical applications in
government, aerospace, telecommunications
2
<PAGE> 6
and industrial automation. MODCOMP systems operate in exceptionally critical and
demanding applications, where reliability and real-time performance are
essential. MODCOMP also offers Electronic Commerce solutions designed to
integrate proprietary and legacy systems to web-based technology, enabling
companies to access their transaction-based systems over the Internet or a
corporate Intranet. MODCOMP's worldwide distribution channel, and extensive
integration services will help us further penetrate the worldwide market for
high-performance computing solutions.
The CSPI multi-computer business is also experiencing rapid change and
growth. We introduced the 2640 MultiComputer, a new high-performance,
high-density multi-processor for our highly scaleable multicomputing product
line. The 2640 combines Myrinet networking technology with the IBM/Motorola
PowerPC to provide unparalleled price performance for high performance computing
solutions. In our fourth quarter we shipped over $600,000 of these products to
several new customers. The Lightening line of over-the-belt industrial bar code
readers has also been upgraded with advanced technology that can now address
more applications. This product line has been integrated with the multi-computer
business.
The new MultiComputer product line along with the MODCOMP and Scanalytics
subsidiaries give us the critical mass we need to achieve more aggressive
revenue and profit goals for the next several years. I hope that you join me and
our employees in the enthusiasm we have with these new ventures. In the history
of CSP, Inc. there has never been such an exciting time for growth and change.
We have the opportunity to grow with our traditional customers and develop new
markets for the future.
Sincerely,
/s/ Alexander R. Lupinetti
Alexander R. Lupinetti
[PICTURE OF ALEXANDER R. LUPINETTI OMITTED]
ALEXANDER R. LUPINETTI
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CSP, INC.
3
<PAGE> 7
HIGH-PERFORMANCE SYSTEMS BASED ON OPEN TECHNOLOGY
[PICTURE OF CHASSIS OMITTED]
A network-ready chassis containing
sixteen 2640 boards.
[PICTURE OF SHIP OMITTED]
Applications include our traditional
defense market. PHOTO COURTESY OF
HUGHES, SURTASS GROUP.
[PICTURE OF COMPUTER PRODUCT OMITTED]
CSPI's newest Multi-computer
Product, the 2640.
<PAGE> 8
CSPI MULTICOMPUTER SYSTEMS
HIGH-PERFORMANCE SYSTEMS BASED ON OPEN TECHNOLOGY
In June, 1997 CSPI started shipping the 2000 Series High-Performance
MultiComputer Systems. Introduction of the 2000 Series Systems marks the
transition to a new generation of products designed specifically for
high-performance computing applications. The new systems offer application
developers the most comprehensive high-performance system in the industry with
unparalleled price performance. The newly installed systems are being used for
several different applications including radar, sonar, and surveillance signal
processing.
The MultiComputer Group's business is helping its customers solve
high-performance computing problems by supplying multiprocessing systems with
powerful real-time I/O capabilities that require minimum physical space or
power. CSPI's unique commitment to open system designs, seamless upgradability
of software, and superior scalable multiprocessing architectures provides the
high-performance computations that are needed to solve complex real-time
problems.
The incorporation of open, proven, and established technologies in the 2000
Series MultiComputer Systems ensures that CSPI customers have systems with the
latest technology while reducing the risks associated with proprietary
technology. By providing customers with open technology and a comprehensive
development environment, they are able to meet development schedules and protect
their application investment. With decades of application experience, CSPI
understands the needs of high-performance computing and real-time I/O
applications. Application expertise, product innovation, technical support, and
proven dedication to customer support, make CSPI the industry's premier provider
of high-performance computing systems.
"INTRODUCTION OF THE 2000 SERIES
SYSTEMS MARKS THE TRANSITION TO
A NEW GENERATION OF PRODUCTS
DESIGNED SPECIFICALLY FOR
HIGH-PERFORMANCE COMPUTING
APPLICATIONS."
5
<PAGE> 9
TOTAL IMAGING SOLUTIONS
Image of multi-node laser. Image Courtesy of
Richard Jones, NIST, Boulder, CO.
[MULTI-NODE LASERGRAPHIC OMITTED]
[PARASITE GRAPHIC OMITTED]
Parasites as imaged by EPR. IMAGE
courtesy of Dr. Renato Mortara, Escola
Paulista de Medicina, UNIFESP, Sao
Paulo, Brazil.
[SATURN GRAPHIC OMITTED]
16-bit ground-based image of
Saturn, imported into IPLab
Spectrum. Image courtesy of NASA
Goddard Space Flight Center.
[ZEBRAFISH GRAPHIC OMITTED]
Reflected light microscopy image [DNA GRAPHIC OMITTED]
of zebrafish scales. Sample The DNA and gel analysis
provided by Dr. Randall Morrison of continue to be key markets
Hood College, Frederick, MD. for Scanalytics.
6
<PAGE> 10
SCANALYTICS, INCORPORATED
A WHOLLY-OWNED SUBSIDIARY OF CSPI
Signal Analytics and our former Scanalytics division merged in June, 1997
to form a wholly-owned subsidiary, Scanalytics, Incorporated. Scanalytics
specializes in the development and marketing of highly sophisticated image
analysis software products used in the scientific research community. By
integrating these software products with a diverse group of image capture
devices, Scanalytics is able to solve application-specific problems in a variety
of scientific disciplines. Applications range from astronomy to microscopy, and
include specialized modules for the analysis of images in fluorescence, emission
and electron microscopy, bio-medical and 3D imaging, laser beam analysis, and
remote sensing.
In the biotechnology and bio-medical research markets, Scanalytics offers a
complete line of image analysis software packages used primarily in quantifying
DNA, RNA, and protein. Investigators involved in DNA fingerprinting, forensic
analysis, paternity testing, genetic linkage analysis, and identification of
pathogenic and environmental microorganisms utilize Scanalytics' analytical
systems in their laboratories. Scanalytics' software modules are used by
hundreds of university, pharmaceutical and government labs, worldwide. In the
field of cell biology, Scanalytics' 3D, high resolution, fluorescence microscopy
software is being used to image and analyze microscopic cellular structures, in
living cells, that were previously impossible to visualize by any other
technique.
Scanalytics' software products are available in Macintosh and PC versions,
and are compatible with a wide variety of image capture devices, including
wide-field fluorescence microscopes, confocal microscopes, CCD cameras, storage
phosphor imaging devices, scanners and densitometers.
Never before has Scanalytics had such an array of product options to offer
the researcher. The combined resources of this newly-merged company have
produced an aggressive plan to develop several new products which are sold
primarily through a network of resellers that include many of the largest
scientific instrumentation companies in the world. Future product releases will
include new software and hardware options for the gel electrophoresis market;
more platforms for the microscopy market; and a web-ba sed image processing
product. The combined expertise of the two former organizations provide the
critical mass to pursue new technology partnerships and explore new markets.
[PHOTO OF MICHAEL MORT]
MICHAEL MORT, PHD.
PRESIDENT,
SCANALYTICS, INCORPORATED
7
<PAGE> 11
THE IDEA INTEGRATION COMPANY
[SPACE SHATTLE GRAPHIC OMITTED]
MODCOMP computers have been
used at the Kennedy Space
Center since the first Space
Shuttle launch.
[7101 COMPUTER GRAPHIC OMITTED]
The 7101 series Single Board
Computer.
[RELIX/IX GRAPHIC OMITTED]
The REAL/IX real-time
operating system.
[MODCOMP GRAPHIC OMITTED]
Boston Edison utilizes MODCOMP
computers for energy management.
8
<PAGE> 12
MODCOMP, INCORPORATED
A WHOLLY-OWNED SUBSIDIARY OF CSPI
Founded in 1970, MODCOMP established itself as a premier provider of
real-time computer systems. This leadership evolved over the last twenty-seven
years by providing process control, data acquisition, and system integration
solutions for markets as diverse as retail, financial, government/aerospace,
energy, utilities, factory automation, broadcast and communications. MODCOMP is
a multi-national company with a world class reputation for providing quality
solutions to its customers.
MODCOMP's newest product, ViewMax, is a legacy-to-web software bridge which
allows organizations to use Internet technology to integrate disparate systems
for intranet, extranet or Internet purposes. In 1980, MODCOMP systems created
the backbone of the CERNET, the first international extension of the Internet.
Over the last two decades, MODCOMP has provided data communications solutions to
front-end mainframes in order to preserve customers' legacy systems. This
expertise was instrumental in developing the ViewMax product which is used by
commercial and government organizations around the world for their most critical
network applications.
MODCOMP provides system integrated solutions by working closely with
partners like Sun Microsystems, DEC and Hewlett-Packard. As a leader in
real-time technology, MODCOMP continues to build on a history of technological
and systems innovation. Beginning with its proprietary CLASSIC computers and
continuing with its newest systems, the REAL/STAR an industrial grade PC server
based system, MODCOMP has a complete line of products to meet the challenges of
virtually all real-time applications. To meet its customers' evolving
application requirements, MODCOMP has continued to invest in research and
development. With this customer focus, MODCOMP is positioned to meet the
ever-increasing demand for more powerful and flexible solutions in their
traditional markets as well as emerging markets like the Internet.
[JOHN CLARY PHOTO]
JOHN CLARY, PRESIDENT,
MODCOMP, INCORPORATED
9
<PAGE> 13
[MAP GRAPH OMITTED]
<PAGE> 14
1997 FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
INDEPENDENT AUDITORS' REPORT
CORPORATE INFORMATION
[DIRECTION LOGO]
<PAGE> 15
CSP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fiscal year ended August
1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENTS DATA:
- ---------------------------------------------------------------------------------------------------------------
Sales $19,540 $16,520 $18,526 $19,460 $18,015
Costs and expenses 21,590 17,169 18,725 17,425 15,544
-----------------------------------------------------------------
Operating income (loss) (2,050) (649) (199) 2,035 2,471
Other Income 885 886 821 478 426
-----------------------------------------------------------------
Income (loss) before income taxes (1,165) 237 622 2,513 2,897
Income tax expense (benefit) (444) 129 237 794 940
Net income (loss) ($ 721) $ 108 $ 385 $ 1,719 $ 1,957
=================================================================
EARNINGS (LOSS) PER SHARE: ($ 0.27) $ 0.04 $ 0.14 $ 0.61 $ 0.70
=================================================================
Weighted average number of common shares 2,680 2,681 2,795 2,823 2,789
BALANCE SHEET DATA:
Working capital $18,840 $22,800 $22,862 $23,085 $21,873
Total assets 34,999 29,536 29,279 29,936 27,853
Long term obligations 2,240 2,093 1,943 1,804 1,746
Total liabilities 9,978 3,732 3,554 3,695 3,539
Retained earnings 16,676 17,397 17,224 16,839 15,120
Shareholders' equity 25,021 25,804 25,725 26,241 24,314
</TABLE>
- 12 -
<PAGE> 16
MANAGEMENT 'S DISCUSSION AND ANALYSIS OF
- --------------------------------------------------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations:
The following table sets forth certain information which is based on
Operating Statements Data:
<TABLE>
<CAPTION>
Period to period
Percentage of sales dollar changes
fiscal year ended August (in thousands)
---------------------------------------------------------------
1997 1996 1995 1997 1996
Compared to Compared to
1996 1995
<S> <C> <C> <C> <C> <C>
Sales: 100.0% 100.0% 100.0% $ 3,020 ($2,006)
Costs and expenses:
Cost of sales 54.0% 40.3% 44.1% 3,887 (1,502)
Engineering and development 17.2% 20.1% 16.7% 35 226
In process research and development 2.8% -- -- 550 --
Marketing and sales 25.5% 32.0% 27.0% (301) 291
General and administrative 10.0% 11.5% 11.1% 57 (155)
Restructuring 1.0% -- 2.2% 193 (416)
-------------------------------------------------------------
Total costs and expenses 110.5% 103.9% 101.1% 4,421 (1,556)
-------------------------------------------------------------
Operating loss (10.5%) (3.9%) (1.1%) (1,401) (450)
Other income 4.5% 5.4% 4.5% (1) 65
-------------------------------------------------------------
Income (loss) before taxes (6.0%) 1.5% 3.4% (1,402) (385)
Provision(benefit) for income taxes (2.3%) 0.8% 1.3% (573) (108)
-------------------------------------------------------------
Net income (loss) (3.7%) 0.7% 2.1% ($ 829) ($ 277)
=============================================================
</TABLE>
- 13 -
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- --------------------------------------------------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements relating
to, among other things, estimates of economic and industry conditions, sales
trends, expense levels and business plans. Actual results may vary from those
contained in such forward-looking statements.
ACQUISITIONS:
During June 1997, the Company added new product lines to accelerate growth
by acquiring the assets and subsidiaries of MODCOMP/Cerplex L.P. (MODCOMP),
which sells legacy-to-web integration solutions and real-time computer systems
software and services, and Signal Analytics Corp. (Signal), a software company
that provides products for scientific imaging to the life science fields. The
Company purchased assets of both Companies for cash of $8,709,000 for MODCOMP
and $2,159,000 for Signal. The Company recorded a non-recurring charge of
$550,000 for in process research and development expense for a new software
product under development at Signal. The Company recorded Goodwill of $1,673,000
from the purchases of Signal and MODCOMP. Excluding the one time charge for in
process research and development, the Company's fiscal 1997 net loss would have
been $391,000, or $.15 per share.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996:
Sales increased by approximately 18% to $19,540,000 in fiscal 1997 from
$16,520,000 in fiscal 1996. This was the highest sales achieved in the history
of the Company. This was primarily due to the inclusion of two months of revenue
from the acquisition of MODCOMP, in 1997 which represented approximately 34% of
total revenue in 1997. The Company also realized additional revenue from Signal
which accounted for approximately 2% of the sales for the fiscal year. CSP's
Multicomputing products, formerly called Embedded computer, array or vector
processor product group, and now includes the Vision Systems or machine bar code
readers, accounted for 51% of total revenue during fiscal year 1997. The
SuperCard family of products continues to represent the major source of revenue,
accounting for approximately 62% of total sales for the Multicomputing products
which decreased 48% over the prior fiscal year. This decrease in sales was due
in part to reduced procurement of SuperCards by the various COTS
(commercial-off-the-shelf) programs and fewer shipments to new customers. This
was a result of changing technology and lower demand for the discontinued Intel
860 processor, the primary integrated circuit of the SuperCard product family.
In the fourth quarter of fiscal 1997, the CSP Multicomputing group had initial
shipments of its newest product, the 2000 series high-performance Multicomputer
system. These systems are based on the Power PC from IBM/Motorola and Myrinet
networking technology from Myricom Inc. During the fourth quarter of fiscal
1997, shipments of these systems represented approximately 3.5% of total sales
for the year and have been purchased for use in radar, sonar and surveillance
signal processing. Sales of machine code readers for United Parcel Service (UPS)
represented 11% of total sales for the year. This was a significant increase of
240% in shipments from the prior year. UPS continues to purchase machine code
readers for use in their system but future quantities and deployment of units
are still under review by UPS. Sales of older products such as SC-1, RTS-860,
MAP-4000 and
- 14 -
<PAGE> 18
- --------------------------------------------------------------------------------
MiniMAP represented approximately 5% of total sales. These products are sold
primarily to existing OEM and volume end-users.
Scanalytics product group (Biotechnology products) was consolidated with
Signal and established as a wholly-owned subsidiary, Scanalytics Inc. Sales for
the new Company (existing Scanalytics product group and Signal) represented
approximately 15% of total revenues. This was a 10% increase over the prior
fiscal year. The increased sales volume was due to added shipments of software
products from bookings from the former companies prior to the acquisition and
increased CELLscan shipments in the first half of the fiscal year.
North American sales represent 68% of total sales. This was a 8% decrease
from the prior year. The decrease was due in part to the decline in CSP
Multicomputing product procurements to the U.S. military and OEM customers.
International sales increased by $4.5 million due to the sales generated by
MODCOMP's European subsidiaries. The increased sales were primarily in Germany
and France. Historically, approximately 50% of MODCOMP's revenues have come from
the international market. Sales of CSP Multicomputer products and Scanalytics
products to Japan (the largest international markets for their products)
decreased by 47% from the prior fiscal year. In other geographic areas, sales
have decreased due to the decline in military procurement and slow economic
conditions in the foreign markets.
Cost of sales as a percentage of sales increased to 54%. The increased cost
of sales was due to the system and service sales of MODCOMP. These products are
sold at lower gross margins than the CSP Multicomputing and Scanalytics software
products. In addition, management reviewed product demand for certain CSP
Multicomputing specialty software and Ambis products and thus wrote off
approximately $530,000, in the fourth quarter.
In addition, the continuing competitive pressures in the CSP Multicomputer
processor business from our direct competitors required larger discounts to
secure the successful award of some business with new and existing customers.
The Company will continue to take steps to lower manufacturing overhead and
improve the overall operating efficiency to lower cost of goods sold. The future
cost of sales as a percentage of sales, most probably, will increase from the
levels we have historically experienced if MODCOMP's sales remain as a large
percentage of the consolidated revenue.
Engineering and development expenditures increased approximately 1% over
the prior fiscal year. Major engineering and development expenses were expended
to complete the new 2000 series High Performance Multicomputer Systems which
includes both software and hardware. Expenses for the improvement of the machine
code reader product doubled to increase the performance requirements. This was
only approximately 13% of the total engineering and development expense.
Scanalytics expenses were down by 18% as compared to the prior year due to staff
reductions.
Sales and marketing expenses decreased by 6% from the previous fiscal year.
The CSP Multicomputing groups expenses dropped by approximately one third with
reduction in staff, promotion and commissions expenses. The Scanalytics sales
and marketing expenses decreased by approximately 40% due to the reduction in
staff and promotional activity. The large declines in expenses by CSP and
Scanalytics were offset by MODCOMP expenses which represented 29% of the total
expenses for the year.
- 15 -
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
General and administrative expenses increased 3% compared to the prior
fiscal year. This was due to expenses relating to the acquisition of MODCOMP and
Signal. The CSP general and administrative expenses dropped by 12% from the
prior fiscal year due to reduction in costs related to the termination of the
former CEO.
In March 1997, CSP instituted measures to reduce costs in manufacturing and
operations and consolidated Vision Systems with the Multicomputing group. This
restructuring eliminated thirteen positions at a cost of approximately $125,000
in severance and benefits. The restructuring saved approximately $1 million in
annual operating expenses of which approximately $415,000 was realized in 1997.
MODCOMP incurred a restructure charge of $68,000 for the elimination of two
positions.
Other income was consistent with the prior year. The Company continued to
invest a larger percentage of its cash in taxable instruments.
The Company realized a tax benefit for both federal and state taxes due to
the net loss for the year.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995:
Sales decreased by approximately 11% to $16,520,000 from $18,526,000. The
SuperCard family of products continues to represent the major source of revenue,
accounting for approximately 71% of total sales. This was an increase of 19%
over the prior fiscal year. The increase in sales of computer products of 33%
was due in part to the increase in revenue from the COTS programs.
Sales of the machine code reader for United Parcel Service (UPS)
represented 6% of total sales for 1996. This was a significant reduction of
approximately $3,000,0000 in shipments from the prior year. UPS continues to
order machine code readers for use in the system.
Scanalytics Division (Bio-technology instrument division) sales represented
approximately 16% of total revenues. This was a 22% increase over the prior
fiscal year. The increase in sales was due to the increase in shipment of
CELLscan and software package products. Sales of application specific software
modules (DNAscan, RFLPscan, and Gel analysis) increased by 48% over the prior
year. CELLscan product sales were approximately 121% higher than the prior year.
North American sales represent 88% of total sales; a 2% increase over the
prior year. Sales of embedded computer and Scanalytics products to Japan
increased by 48% over the prior fiscal year. Sales to other geographic areas
decreased due to the decline in military procurement and slow economic
conditions in foreign markets.
Cost of sales as a percentage of sales decreased to 40%; a decline of 4%
from the prior fiscal year. The decline was due primarily to change in product
mix with increased revenue from embedded and Scanalytics business which have
lower per unit costs of goods sold compared to machine code readers.
Engineering and development expenditures increased by approximately 7% from
the prior fiscal year. The major portion of the increase was for outside
services and purchase of equipment for the development for the next generation
of products. Expenses for the improvement of machine reader product for the
Vision Systems represented 8% of the total expense. Scanalytics Division
expenses were approximately the same amount as the prior year.
- 16 -
<PAGE> 20
- --------------------------------------------------------------------------------
Sales and marketing expenses increased by 6% from the previous fiscal year.
Scanalytics and Vision systems products were the primary reason for the
increase. These expenses increased 20% and 24%, respectively, over the prior
year. Embedded Computer products expenses decreased approximately 4% from the
prior year. The reduced expenses were due to cuts in staff and lower commission
due to reduced sales volume.
General and administrative expenses were reduced by 8% compared to the
prior fiscal year. There were a number of one-time expenses relating to the
termination of the prior CEO and President and costs incurred to hire the new
President and CEO. These costs represented about 15% of the total general and
administrative expenses.
Other income increased by 8% over the prior year due primarily to an
increase in interest income. The Company continued to invest a larger percentage
of its cash in taxable instruments which have a higher rate of return on a
pre-tax basis than in prior years.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY:
The Company, despite the purchase of the two new subsidiaries for net cash
of $10,868,000 still retains a solid financial position at August 29, 1997. The
Company's working capital of $18.9 million at August 29, 1997 represents a
decrease of $4.0 million from the prior fiscal year. The acquisitions were the
reason for the reduced working capital. The Company's accounts receivable
increased by $4,437,000 to $8,584,000 due principally to the inclusion of
MODCOMP receivables at August 29, 1997. The Company's inventory increased to
$6.2 million from $2.4 million in 1996 which was also due to MODCOMP which
represented 63% of the total.
The Company spent $1,111,000, $1,144,000, and $988,000, on capital
improvements during the fiscal years 1997, 1996, and 1995.
Management believes that the Company's current and foreseeable needs can be
met through working capital generated by operations and investments.
INFLATION AND CHANGING PRICES:
Management does not believe that inflation and changing prices had a
significant impact on revenues or income (loss) from operations during fiscal
1997, 1996 and 1995. There is no assurance, however, that the Company's business
will not be materially and adversely affected by inflation and changing prices
in the future.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE:
This document contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The factors that
could cause actual results to differ materially include the following: general
economic conditions and growth rates in the peripherals and computer products,
biological imaging software and instruments and machine code readers industries;
competitive factors and pricing pressures; changes in product mix; the timely
development and acceptance of new products; inventory risks due to shifts in
market demand; and component constraints and shortages.
Management has reviewed the Company's systems relating to the year 2000
concerns and believes that the costs for compliance will not be material to the
Company.
- 17 -
<PAGE> 21
CSP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
August 29,1997 and August 30,1996
(Dollars in thousands, except for par value)
<TABLE>
<CAPTION>
August 29, August 30,
1997 1996
------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,344 $10,928
Marketable securities 5,581 6,127
Accounts receivable, net 8,584 4,147
Income tax receivable 37 --
Inventories 6,227 2,405
Deferred income taxes 504 481
Prepaid expenses 1,301 351
------------------------
Total current assets 26,578 24,439
------------------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET 3,856 3,607
------------------------
OTHER ASSETS:
Land held for future development 163 163
Deferred income taxes 880 409
Goodwill, net 1,562 --
Other assets 1,960 918
------------------------
Total other assets 4,565 1,490
------------------------
Total assets $34,999 $29,536
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 7,738 1,425
Income taxes payable -- 214
------------------------
Total current liabilities 7,738 1,639
Deferred compensation and retirement plans 2,240 2,093
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par, authorized 7,500,000
shares: issued 2,987,684 and 2,957,284 shares 30 29
Additional paid-in capital 10,593 10,411
Retained earnings 16,676 17,397
Equity adjustment from foreign currency translation (211) --
------------------------
27,088 27,837
Less treasury stock, at cost, 306,314 and 301,314 shares 2,067 2,033
------------------------
Total shareholders' equity 25,021 25,804
------------------------
Total liabilities and shareholders' equity $34,999 $29,536
========================
</TABLE>
See accompanying notes to consolidated financial statements.
- 18 -
<PAGE> 22
CSP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 29, 1997, AUGUST 30, 1996 AND AUGUST 25, 1995
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
SALES
Systems $12,448 $15,207 $17,284
Software 1,050 618 418
Service 6,042 695 824
--------------------------------------
TOTAL SALES 19,540 16,520 18,526
--------------------------------------
COST OF SALES:
Systems 6,111 6,613 7,956
Software 210 41 26
Service 4,221 1 175
--------------------------------------
Total Cost of sales 10,542 6,655 8,157
--------------------------------------
GROSS PROFIT 8,998 9,865 10,369
--------------------------------------
OPERATING EXPENSES:
Engineering and development 3,360 3,325 3,099
In process research and development 550 -- --
Marketing and sales 4,983 5,284 4,993
General and administrative 1,962 1,905 2,060
Restructuring 193 -- 416
--------------------------------------
Total operating expenses 11,048 10,514 10,568
--------------------------------------
OPERATING LOSS (2,050) (649) (199)
--------------------------------------
OTHER INCOME (EXPENSE):
Dividend income 94 23 13
Interest income 783 869 804
Interest expense (89) (24) (50)
Other 97 18 54
--------------------------------------
Total other income, net 885 886 821
--------------------------------------
Income (loss) before income taxes (1,165) 237 622
--------------------------------------
PROVISION (BENEFIT) FOR INCOME TAXES (444) 129 237
--------------------------------------
Net income (loss) ($ 721) $ 108 $ 385
======================================
EARNINGS (LOSS) PER SHARE ($ 0.27) $ 0.04 $ 0.14
======================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,680 2,681 2,795
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 19 -
<PAGE> 23
CSP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 29, 1997, AUGUST 30, 1996 AND AUGUST 25, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Equity
Adjustment
Common Stock Additional from foreign Total
-------------------- Paid-in Retained currency Treasury shareholders'
Shares Amount Capital earnings translation stock equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 26, 1994 2,912,409 $29 $10,136 $16,904 -- $ (828) $26,241
Net income -- -- -- 385 -- -- 385
Exercise of stock options 9,625 -- 51 -- -- -- 51
Purchase of treasury stock -- -- -- -- -- (952) (952)
----------------------------------------------------------------------------------------
Balance, August 25, 1995 2,922,034 29 10,187 17,289 -- (1,780) 25,725
Net income -- -- -- 108 -- -- 108
Exercise of stock options 35,250 -- 224 -- -- -- 224
Purchase of treasury stock -- -- -- -- -- (253) (253)
----------------------------------------------------------------------------------------
Balance, August 30, 1996 2,957,284 29 10,411 17,397 -- (2,033) 25,804
Net loss -- -- -- (721) -- -- (721)
Exercise of stock options 30,400 1 182 -- -- -- 183
Foreign currency
translation adjustment -- -- -- -- (211) -- (211)
Purchase of treasury stock -- -- -- -- -- (34) (34)
----------------------------------------------------------------------------------------
Balance, August 29, 1997 2,987,684 $30 $10,593 $16,676 $(211) $(2,067) $25,021
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 20 -
<PAGE> 24
CSP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 29, 1997, AUGUST 30, 1996 AND AUGUST 25, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (721) $ 108 $ 385
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 1,680 983 792
In process research and development 550 -- --
Deferred compensation and retirement plans 147 150 139
Deferred income taxes (494) (167) (19)
Other (414) 24 --
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable, net 2,007 (214) 1,151
Increase in income tax receivable (37)
(Increase) decrease in inventories (192) (255) 1,042
Decrease in prepaid expenses 187 120 237
Decrease in accounts payable and accrued expenses (549) (36) (228)
Increase (decrease) in income taxes payable (214) 64 (52)
------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,950 777 3,447
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (198,789) (188,892) (159,099)
Sales of marketable securities 199,335 189,247 159,674
Acquisition of businesses less cash acquired (8,011) -- --
Property, equipment and improvements (1,111) (1,144) (988)
Other -- (100) 380
------------------------------------------
Net cash used in investing activities (8,576) (889) (33)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options 183 224 51
Purchase of treasury stock (34) (253) (952)
------------------------------------------
Net cash provided by (used in) financing activities 149 (29) (901)
------------------------------------------
Effects of exchange rate changes on cash
(107) -- --
Net increase (decrease) in cash and cash equivalents (6,584) (141) 2,513
Cash and cash equivalents, beginning of year 10,928 11,069 8,556
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,344 $ 10,928 $ 11,069
==========================================
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid for income taxes, net $ 75 $ 183 $ 323
==========================================
Cash paid for interest $ 89 $ 24 $ 50
==========================================
Fair value of assets acquired $ 17,913 -- --
Less liabilities assumed (7,045) -- --
------------------------------------------
Cash paid $ 10,868 -- --
Less: Cash acquired (2,857) -- --
------------------------------------------
NET CASH PAID $ 8,011 -- --
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 21 -
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For years ended August 29, 1997, August 30, 1996 and August 25, 1995
ORGANIZATION AND BUSINESS
The Company designs, manufactures and markets high performance multiprocessing
systems for real-time applications, which are small, low-power special-purpose
computers to enhance a system's ability to perform high-speed arithmetic. The
Company also sells legacy-to-web integration solutions and real-time computer
systems, software and services. The Company also develops and markets turnkey
image analysis workstations and software which is targeted toward the biological
sciences and industrial bar-code readers.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The Company's fiscal year end is on the last Friday in August.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of the Company's foreign operations are translated into
US dollars at the exchange rate in effect at the balance sheet date and revenue
and expenses are translated at average rates in effect during the period. The
resultant translation adjustment is reflected as a separate component of
shareholders' equity on the consolidated balance sheets.
MARKETABLE SECURITIES:
Investments consist primarily of corporate bonds and notes, government agency
bonds, and money market funds. Most investments mature within a two year period.
The Company classifies its marketable securities as held-to-maturity based on
its ability and intent to hold these securities until maturity. Held-to-maturity
securities are recorded at amortized cost, which approximates market value.
Interest income is accrued as earned. Dividend income is recognized as income on
the date the stock trades "ex-dividend". The cost of marketable securities sold
is determined on the specific identification method and realized gains or losses
are reflected in income.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS:
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
the Company assesses the need to record impairment losses on long-lived assets
when indicators of impairment are present. On an on-going basis, management
reviews the value and period of amortization or depreciation of long-lived
assets. During this review, the Company reevaluates the significant assumptions
used in determining the original cost of long-lived assets, including costs in
excess of net assets of businesses acquired. Although the assumptions may vary
from transaction to transaction, they generally include revenue growth,
operating results, cash flows and other indicators of value. Management then
determines whether there has been a permanent impairment of the value of
long-lived assets based upon events or circumstances which have occurred since
acquisition.
The costs in excess of net assets of subsidiaries acquired (goodwill) are
principally being amortized over fifteen years.
- 22 -
<PAGE> 26
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES:
Inventories are stated at the lower of cost or market; cost being determined
principally by use of the average-cost method, which approximates the first-in,
first-out method.
PROPERTY, EQUIPMENT AND IMPROVEMENTS:
The components of property, equipment and improvements are stated at cost. The
Company provides for depreciation by use of the straight-line method over the
estimated useful lives of the related assets.
PRODUCT WARRANTY:
The Company ordinarily provides a one year warranty. In addition, certain major
customers are granted extended warranties. The Company accrues estimated
warranty costs at the time of sale.
REVENUE RECOGNITION:
Revenues from product sales are recognized at the time of shipment.
ENGINEERING AND DEVELOPMENT EXPENSES:
Engineering and development expenditures for company-sponsored projects are
charged to expenses as incurred.
INCOME TAXES:
The Company accounts for income taxes under the asset and liability method.
Under this method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
EARNINGS PER SHARE OF COMMON STOCK:
Earnings per share are based on the weighted average number of shares
outstanding during the period. The effect of outstanding stock options is
excluded from the computation because the dilutive effect is not material.
In February 1997 the Financial Accounting Standards Boards issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128
establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. The impact on diluted net
income per share is not expected to be material.
The Company plans to adopt SFAS 128 in its fiscal quarter ending February 27,
1998 and at that time all historical net income per share data will be restated
to conform to the provisions of SFAS No. 128.
USE OF ESTIMATES:
The preparation of consolidated 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 period. Actual results may differ from those estimates.
- 23 -
<PAGE> 27
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT:
In fiscal year 1997, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). As
permitted by SFAS 123, the Company measures compensation cost in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". The adoption of SFAS 123 was not material to the Company's financial
condition or results of operations; however, the proforma impact on net income
and earnings per share has been disclosed in the Notes to Consolidated Financial
Statements as required by SFAS 123.
RECLASSIFICATIONS:
Certain reclassifications were made to the 1996 and 1995 financial statements to
conform to the 1997 presentation.
2. BUSINESS COMBINATION:
For acquisitions accounted for as purchases, CSP, Inc. consolidated results of
operations include the operating results of the acquired companies from the
acquisition dates. The acquired assets were recorded at their estimated fair
market value at the acquisition date and the aggregate purchase price plus costs
directly attributable to the completion of the acquisitions have been allocated
to the assets acquired.
On June 13, 1997 the Company acquired the assets of Signal Analytics Corp., a
privately held software developer of imaging software targeted for the
biological science field. The total purchase price was $2,159,000 which was paid
in cash and included a charge of $550,000 for in process research and
development. The transaction resulted in $1,200,000 in goodwill.
Effective June 27, 1997 the Company completed the acquisition of MODCOMP/
Cerplex, L.P., a wholly owned subsidiary of The Cerplex Group Inc., which sells
legacy-to-web integration solutions for real-time computer systems. The total
purchase price for the assets of MODCOMP was $8,709,000 which was paid in cash
and resulted in goodwill of $473,000.
- 24 -
<PAGE> 28
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma financial information is not necessarily
indicative of results of operations that would have occurred had the transaction
taken place at the beginning of periods presented or of the future results of
the combined companies.
<TABLE>
<CAPTION>
UNAUDITED
--------------------
YEAR ENDED AUGUST
--------------------
(in thousands, except per share data) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUE $47,311 $59,860
=======================
OPERATING INCOME (LOSS) ($ 493) $ 6,108
=======================
NET INCOME (LOSS) ($ 233) $ 3,062
=======================
EARNINGS (LOSS) PER SHARE ($ .09) $ 1.14
=======================
</TABLE>
3. MARKETABLE SECURITIES
At August 29, 1997 and August 30, 1996, marketable securities consisted of
the following:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Marketable equity securities, at cost $ 274 $ 262
Less: valuation allowance 7 2
----------------------
Marketable equity securities, at market 267 260
Bonds and municipal revenue notes, at cost 5,000 5,612
Money market funds and commercial paper 42 59
U.S. treasury bills 272 196
----------------------
TOTAL $5,581 $6,127
======================
</TABLE>
Assets of $660,000 and $635,000 at August 29, 1997 and August 30, 1996,
respectively, are held in a rabbi trust and generally are available only to pay
certain retirement benefits of a key employee.
- 25 -
<PAGE> 29
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Raw materials $3,922 $1,083
Work-in-process 918 739
Finished goods 1,387 583
-----------------------
TOTAL $6,227 $2,405
=======================
</TABLE>
5. INCOME TAXES:
Reconciliations of expected income tax expense (benefit) to actual income tax
expense (benefit) are as follows:
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense(benefit) ($396) (34.0) $ 81 34.0% $211 34.0%
Increases(reductions) in
taxes resulting from:
Dividend exclusion (22) (1.9) (6) (2.5) (42) (6.8)
Tax exempt interest (72) (6.2) (64) (27.0) (74) (11.9)
Research and experimentation
and investment tax credits -- -- -- -- (37) (5.9)
State income taxes, net of
federal tax benefit (107) (9.2) (7) (2.9) 47 7.6
Non-taxable FSC earnings -- -- -- -- (26) (4.2)
Foreign tax provision 123 10.6 72 30.4 165 26.4
Change in valuation allowance 35 3.0 25 10.6 32 5.2
Other items (5) (0.4) 28 11.9 (39) (6.3)
-------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT) ($444) (38.1%) $129 54.5% $237 38.1%
=======================================================
</TABLE>
- 26 -
<PAGE> 30
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At August 29, 1997 and August 30, 1996, temporary differences which give rise to
deferred tax assets(liabilities) are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Deferred compensation $ 962 $ 893
Other accruals 77 195
Bad debt reserves 41 41
Inventory capitalization and reserves 451 210
Research and development credits 69 --
Unrealized loss on securities -- 42
Accumulated depreciation and amortization 156 (149)
Other 5 --
-------------------
Gross deferred income tax assets $1,761 $1,232
Less: valuation allowance (377) (342)
-------------------
NET DEFERRED INCOME TAX ASSET $1,384 $ 890
===================
</TABLE>
The valuation allowance was $377,000 and $342,000 at August 29, 1997
and August 30, 1996. The valuation allowance was established due to the
long-term nature of certain deferred compensation and retirement obligations for
which the tax benefit will be realized over an extended period of time. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at August 29, 1997.
The provisions for income tax expense (benefit) are comprised of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ($ 45) $267 $232
State (28) 28 24
Foreign 123 -- --
-------------------------
$ 50 $295 $256
Deferred:
Federal (360) (128) (15)
State (134) (38) (4)
-------------------------
(494) (166) (19)
-------------------------
($444) $129 $237
=========================
</TABLE>
- 27 -
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET
Property, equipment and improvements, net consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 587 $ 587
Building and improvements 1,356 1,356
Equipment 11,503 10,499
Automotive equipment 48 17
-------------------
13,494 12,459
Less accumulated depreciation and amortization 9,638 8,852
-------------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET $ 3,856 $ 3,607
===================
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $2,325 $ 402
Commissions 367 99
Compensation and fringe benefits 2,629 616
Customer advances 534 134
Professional fees and shareholders' reporting services 546 93
Taxes, other than income 869 11
Other, individually less than 5% of current liabilities 468 70
------------------
$7,738 $1,425
==================
</TABLE>
- 28 -
<PAGE> 32
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS
In 1991, the Company adopted the 1991 Stock Option Plan covering 250,000 shares
of common stock. Under the Plan, both incentive stock options and non-qualified
stock options may be granted to officers, key employees and other persons
providing services to the Company. The stock option plan provides for issuance
of options at their fair market value on the date of grant. These options vest
over a period of five years with no vesting in the first year and expire ten
years from the date of grant. In addition, up to 20,000 shares are allocated for
annual non-discretionary grants of 1,000 shares each to non-employee directors
of the Company who are serving on the last business day of January in each year.
The 1991 Plan supersedes three earlier plans, each of which was terminated in
1991. The following is a summary of common stock option activity for the three
years ended August 29, 1997:
<TABLE>
<CAPTION>
Weighted average Number of Shares
exercise price of 1991 1987 1981
shares under plans Plan Plan Plan TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding August 26, 1994 $7.59 107,025 6,000 116,125 229,150
Granted $8.07 49,000 -- -- 49,000
Exercised $5.20 -- -- (9,625) (9,625)
Expired & terminated $7.75 (17,975) (6,000) (2,375) (26,350)
Outstanding August 25, 1995 $7.07 138,050 -- 104,125 242,175
Granted $8.38 6,000 -- -- 6,000
Exercised $6.38 -- -- (35,250) (35,250)
Expired & terminated $7.26 (59,150) -- (625) (59,775)
Outstanding August 30, 1996 $7.25 84,900 -- 68,250 153,150
Granted $7.27 116,250 -- -- 116,250
Exercised $5.64 -- -- (30,400) (30,400)
Expired & terminated $7.67 (29,850) -- (23,275) (53,125)
Outstanding August 29, 1997 $7.50 171,300 -- 14,575 185,875
Available for future grants 78,700 -- -- 78,700
Exercisable $6.05 54,075 -- 14,575 68,650
</TABLE>
- 29 -
<PAGE> 33
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option plans; accordingly no compensation expense has been recognized in
the consolidated financial statements for such plans. Had compensation costs for
the Company's stock option plans been determined based on the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS 123, "Accounting for Stock based Compensation," the
Company's net income (loss) and earnings(loss) per share would have been
adjusted to the proforma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands except share data) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (loss) As reported ($ 721) $108
Pro forma ($ 723) $108
Earnings (loss) per share As reported ($ .27) $.04
Pro forma ($ .27) $.04
</TABLE>
The following assumptions were used in the calculation of these values for
fiscal years 1997 and 1996: risk free interest rate of 6.19% and expected life
of 5 years.
The effects of applying SFAS 123 as shown in the above proforma disclosure is
not representative of the proforma effect on net income (loss) in future years
because it does not take into consideration proforma compensation expense
related to grants made prior to fiscal 1996.
9. DEFERRED COMPENSATION AND RETIREMENT PLANS
The Company has a 401(k) Retirement Plan under which the Company matches a
portion of the employee's salary reduction contributions and may make
discretionary contributions to the plan. All employees with one year of
continuous service are eligible for the plan. All Company contributions are
fully vested. Contributions by the Company were $94,000, $145,000 and $122,000
for 1997, 1996 and 1995, respectively.
The Company has a Supplemental Retirement Plan for certain employees that
provides for payments (generally over 15 years) upon retirement, death or
disability. The annual benefit is based upon a percentage of salary at the
inception of the plan, plus an annual percentage increase, plus interest. In
addition, the Company adopted deferred compensation plans for key executives
that provide for payments, over a ten-year period, upon retirement, death or
disability based upon a percentage of salary at that time.
The charge to expense for the plans for fiscal 1997, 1996 and 1995 amounted to
$302,000, $277,000 and $207,000, respectively.
- 30 -
<PAGE> 34
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
LEASES:
The Company occupies office space under lease agreements expiring at various
dates during the next five years. The leases are classified as operating leases
and provide for the payment of real estate taxes, insurance, utilities and
maintenance.
At August 29, 1997, the Company was obligated under noncancelable operating
leases as follows:
<TABLE>
<CAPTION>
(in thousands) FISCAL YEAR ENDING AUGUST: AMOUNTS
- ---------------------------------------------------------
<S> <C> <C>
1998 $1,143
1999 $1,039
2000 $882
2001 $841
2002 $830
Thereafter $1,993
</TABLE>
Occupancy costs under the operating leases approximated $221,000 in 1997,
$52,000 in 1996, and $76,000 in 1995.
STOCK REPURCHASE:
On October 9, 1986 the Board of Directors authorized the Company to repurchase
up to 282,723 of its outstanding stock at market prices. On September 28, 1995,
the Board of Directors authorized the Company to repurchase up to 150,000
additional shares of the outstanding stock at market prices. The timing of stock
purchases are made at the discretion of management. At August 29, 1997, the
Company has repurchased 306,314 or 71% of the total stock authorized to be
repurchased.
- 31 -
<PAGE> 35
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SALES BY MAJOR CUSTOMERS AND GEOGRAPHIC AREAS
Sales to individual customers constituting 10% or more of total sales were as
follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Customer A: $2,370 12% $3,394 21% -- --
Customer B: $2,114 11% -- -- $3,948 21%
</TABLE>
The Company anticipates that, for the foreseeable future, a significant
percentage of its sales will be dependent upon a relatively small number of
customers.
The Company's sales by geographic area are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
North America $13,324 $14,474 $15,992
Far East 1,039 1,407 953
Europe 5,090 574 1,207
Other 87 65 374
--------------------------------------------
TOTALS $19,540 $16,520 $18,526
============================================
</TABLE>
12. RESTRUCTURING EXPENSES
In March 1997, the Company reduced its workforce by thirteen positions primarily
in manufacturing operations and Vision Systems. The expenses related to this
reduction were approximately $125,000 for severance cost, and the entire amount
was disbursed in 1997.
In November 1994, the Company consolidated its manufacturing operations and
reduced its workforce. Actual costs incurred were approximately $416,000 and
consisted of severance costs of $288,000, and $128,000 for closing the San Diego
manufacturing operation.
- 32 -
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS AND SHAREHOLDERS OF CSP, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of CSP, Inc. and
subsidiaries as of August 29, 1997 and August 30, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended August 29, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSP, Inc. and
subsidiaries as of August 29, 1997 and August 30, 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 29, 1997, in conformity with generally accepted accounting
principles.
October 9, 1997
Boston, Massachusetts
- 33 -
<PAGE> 37
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIRECTORS OFFICERS CORPORATE OFFICES
<S> <C> <C>
Samuel Ochlis Samuel Ochlis CSP, Inc.
Chairman of the Board, Chairman of the Board, 40 Linnell Circle
CSP, Inc. CSP, Inc. Billerica, MA 01821
Tel: (978) 663-7598
Alexander R. Lupinetti Alexander R. Lupinetti Fax: (978) 663-0150
President and President and www.cspi.com
Chief Executive Officer, Chief Executive Officer,
CSP, Inc. CSP, Inc. Scanalytics, Inc. Headquarters
8550 Lee Highway, Suite 400
Boruch B. Frustajer Manfred R. Appel Fairfax, VA 22031-1515
President, Vice President of Finance and Tel: (703)208-2230
BBF Corporation Chief Financial Officer, Fax: (703)208-1960
MODCOMP, Inc. www.scanalytics.com
John Ingram, PhD.
Research Fellow, John P. Clary MODCOMP, Inc. Headquarters
Schlumberger Ltd. President, 1650 West McNab Rd.
MODCOMP, Inc. Ft. Lauderdale, FL 33309
C. Shelton James Tel:(954)974-1380
President, Gary W. Levine Fax: (954)977-1900
Fundamental Management Corp. Vice President of Finance and www.modcomp.com
Chief Financial Officer,
J. David Lyons CSP, Inc. GENERAL INFORMATION
Managing Director,
Aubin International Inc. Michael Mort, PhD. General Counsel
President, Foley, Hoag & Elliot
Sandford Smith Scanalytics, Inc. Boston, MA
President, Specialty Therapeutics
Genzyme, Corp. Bradley E. Stamp Transfer Agent
Vice President of Sales and Support, American Stock Transfer Company
MultiComputer Group, New York, NY
CSP, Inc.
Auditors
Michael M. Stern KPMG Peat Marwick LLP
Vice President of Operations, Boston, MA
MultiComputer Group,
and Treasurer, Stock Information
FORM 10-K CSP, Inc. Stock Traded Over the Counter
A copy of the Company's Annual NASDAQ symbol: CSPI
Report on Form 10-K for fiscal year James A. Waggett
1997 as filed with the Securities and Vice President of Market Development,
Exchange Commission will be furnished MultiComputer Group,
without charge to any stockholder CSP, Inc.
upon written request to the Vice
President of Finance, CSP, Inc.,
40 Linnell Circle, Billerica, MA 01821.
</TABLE>
- 34 -
<PAGE> 38
CSP , INC.
40 Linnell Circle
Billerica, MA 01821
Tel: (978) 663-7598
Fax: (978) 663-0150
www.cspi.com
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF CSP INC.
CSP Securities Ltd.
Scanalytics
Modcomp, Inc. (Florida)
MODCOMP Canada Ltd. (Canada)
MODCOMP France S.A. (France)
Modular Computer Systems GmbH (Germany)
Modular Computer Services, Inc./
MODCOMP U.K. (United Kingdom)
MODCOMP C.A. (Venezuela)
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CSP Inc.
We consent to incorporation by reference in the registration statements (Nos.
2-79414 and 33-11815) on Forms S-8 of CSP Inc. of our report dated October 9,
1997, relating to the consolidated balance sheets of CSP Inc. and subsidiaries
as of August 29, 1997 and August 30, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended August 29, 1997, which reports appear or
are incorporated by reference in the August 29, 1997 annual report on Form 10-K
of CSP Inc.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
November 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> AUG-29-1997 AUG-30-1996
<PERIOD-START> AUG-31-1996 AUG-30-1995
<PERIOD-END> AUG-29-1997 AUG-30-1996
<CASH> 4344 10928
<SECURITIES> 5581 6127
<RECEIVABLES> 8621 4147
<ALLOWANCES> 0 0
<INVENTORY> 6227 2405
<CURRENT-ASSETS> 26578 24439
<PP&E> 13494 12459
<DEPRECIATION> (9638) (8852)
<TOTAL-ASSETS> 34999 29536
<CURRENT-LIABILITIES> 7738 1639
<BONDS> 0 0
0 0
0 0
<COMMON> 30 29
<OTHER-SE> 24991 25775
<TOTAL-LIABILITY-AND-EQUITY> 34999 34999
<SALES> 19540 16520
<TOTAL-REVENUES> 19540 16520
<CGS> 10542 6655
<TOTAL-COSTS> 11048 10514
<OTHER-EXPENSES> 974 910
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89 24
<INCOME-PRETAX> (1165) 237
<INCOME-TAX> 444 129
<INCOME-CONTINUING> (721) 108
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (721) 108
<EPS-PRIMARY> $(.27) $ .04
<EPS-DILUTED> (27) 04
</TABLE>
