<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1999
Registration No. *_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________
VMIC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 63-0917261
(State or other jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
____________
12090 S. MEMORIAL PARKWAY HUNTSVILLE ALABAMA 35803-3308
(Address of Principal Executive Offices, Including Zip Code)
(256) 880-0444
(Registrant's Telephone Number, Including Area Code)
____________
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of Each Class to be so Registered
COMMON STOCK, $0.10 PAR VALUE PER SHARE
<PAGE>
TABLE OF CONTENTS
Registration Statement Summary..........................................3
Risk Factors............................................................6
Capitalization..........................................................11
Dividends...............................................................11
Selected Financial Data.................................................12
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................12
Business................................................................18
Management..............................................................29
Certain Transactions....................................................33
Principal Stockholders..................................................34
Description of Capital Stock............................................34
Legal Matters...........................................................35
Independent Accountants.................................................35
Additional Information..................................................35
Index to Financial Statements...........................................36
2
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REGISTRATION STATEMENT SUMMARY
This summary highlights information contained elsewhere in this Registration
Statement. It is not complete and may not contain all of the information that
should be considered before investing in the Common Stock. Please carefully
consider and evaluate all of the information provided in this Registration
Statement, including the risk factors listed and described under "RISK
FACTORS," and the financial statements and the notes to those statements. In
addition to historical information, this Registration Statement includes
forward-looking statements and information that are based on our beliefs,
plans, expectations and assumptions and on information currently available to
us. The words "may," "should," "expect," "anticipate," "intend," "plan,"
"continue," "believe," "seek," "estimate," and similar expressions used in this
Registration Statement that do not relate to historical facts are intended to
identify forward-looking statements. The forward-looking statements in this
Registration Statement are not guarantees of future performance and involve
certain risks, uncertainties and assumptions, including but not limited to the
risk factors described under "RISK FACTORS." The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "RISK FACTORS." Many of such factors are beyond
the Company's ability to control or predict. As a result, VMIC's future
actions, financial condition, results of operations and stock price could
differ materially from those expressed in any forward-looking statements made
by the Company. You should not put undue reliance on forward-looking
statements. We do not intend to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. As used in
this Registration Statement the "Company", "we," "us," "our" or "VMIC" means
VMIC, Inc. VMIC, Inc. was formally known as VME Microsystems International
Corporation. Trade names and trademarks of other companies appearing in this
Registration Statement are the property of their respective holders.
QUESTIONS AND ANSWERS CONCERNING
THE REGISTRATION OF VMIC, INC. COMMON SHARES
Q: Why must VMIC become a reporting Company and register its Common Stock
under the Securities Exchange Act of 1934?
A: As of September 30, 1998 VMIC has over 500 Common Stock shareholders and
is valued at over $10 million, therefore it must register these shares
with the Securities Exchange Commission and become a reporting company.
Q: Will the value of the Company's Common Stock be affected?
A: The Company believes that the registration of VMIC's Common Stock will not
materially affect the value of VMIC's Common Stock.
Q: How does this registration process benefit owners of the Company's Common
Stock?
A: As a reporting company, VMIC will make regular public disclosures to the
SEC about its financial condition and business activities. Owners of the
Company's Common Stock will be able to use this information to evaluate
their investment.
Q: Will the Company's Common Stock be listed on a stock exchange?
A: Initially the Company's Common Stock will not be listed on a stock
exchange.
WHO CAN HELP ANSWER YOUR QUESTIONS
Faye Robinson, Director of Human Resources
12090 S. Memorial Parkway
Huntsville Alabama 35803-3308
256-880 0444
3
<PAGE>
THE COMPANY
VMIC, INC.
VMIC is a leading independent designer and manufacturer of embedded computer
solutions based upon a wide variety of open standard bus designs such as VME,
CPCI, PCI, PMC, Multibus, ISA, and special custom buses. The Company's
products are used by original equipment manufacturers ("OEMs"), systems
integrators and end-users in various industries; including manufacturing
automation, Telecommunications, Simulation and Training, environmental
monitoring, and Test and Measurement. Unlike general purpose computers,
embedded computer solutions are i) incorporated into systems and equipment to
provide a single or a limited number of critical system control functions; ii)
generally integrated into larger automated systems; and iii) often have
extended product life cycles. The Company's embedded computers are based upon
the Intel x86 and Pentium architecture and are typically capable of running
personal computer ("PC") compatible operating systems and application software.
Recently the Company introduced its IOWorks suite of PC-based control
software modules that run on standard PC platforms using the Windows NT
operating system. IOWorks modules provide a comprehensive set of tools used to
create data acquisition and control systems and to interconnect the large
number of legacy control products commonly found in industrial plants. The
Company's IOWorks software is designed for compliance with open industry
standards, and the software modules can be mixed and matched to provide
solutions for a variety of industrial applications. The Data Acquisition and
control market represents the largest market for VMIC's products.
The Company is also involved in networking systems of dissimilar buses
using adapters, high-performance networks, and synergistic software. The
Company's family of networking products is based on a technology known in the
computer industry as "Reflective Memory." VMIC's connectivity products allow
low maintenance, high-speed communication between PC computers, workstations,
computer mainframes and embedded computers manufactured by a wide variety of
companies.
The Company markets and sells more than 200 different products worldwide,
including application-specific embedded computer subsystems, board-level
modules, control and driver software, and network products. In addition to
offering standard commercial products, the Company is involved in the
development of custom products for high-volume applications.
VMIC continues to invest heavily in new and enhanced technology, includ-
ing software, and has focused its attention on highly vertical markets
to support faster growth, more consistent profitability, and enhanced share-
shareholder value. The Company's business strategy consists of these key
elements:
Maintain the Company's leadership position in its core board-level
products and systems markets.
Further develop markets for new PC based control software such as
IOWorks.
Maintain the Company's philosophy and reputation as a company
dedicated to customer support and relations.
Apply the Company's technology and industry knowledge to create
new solutions for existing and new customers.
Focus on PC single-board computers and related software for mult-
iple markets.
Focus on the communications industry with the Company's Reflective
Memory product line and PC single board computer product line.
Expand the Company's new business of offering software and compli-
mentary hardware products for the Industrial Automation and Test
and Measurement markets.
4
<PAGE>
WE ARE PROVIDING THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE
COMPANY TO HIGHLIGHT SELECTED FINANCIAL INFORMATION FOR YOUR BENEFIT. WE
DERIVED THIS INFORMATION FROM THE AUDITED FINANCIAL STATEMENTS OF THE
COMPANY FOR EACH OF THE FISCAL YEARS SHOWN. THE FOLLOWING INFORMATION IS
ONLY A SUMMARY AND YOU SHOULD READ IT IN CONJUNCTION WITH VMIC'S FINANCIAL
STATEMENTS AND NOTES THERETO (BEGINNING ON PAGE F-1 IN THE LATTER PORTION
OF THIS DOCUMENT). FOR A MORE DETAILED NARRATIVE EXPLANATION OF THE
FOLLOWING RESULTS AND CONDITIONS, SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION> VMIC, INC.
YEARS ENDED SEPTEMBER 30
--------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 18,745 $ 23,104 $ 23,791 $ 27,901 $ 31,049
Gross profit 12,275 15,546 15,495 18,108 20,290
Selling, general and administrative expenses 7,175 8,328 9,661 10,995 13,302
Research and development 3,684 5,105 5,335 5,307 6,231
Income from operations 1,416 2,113 499 1,806 757
Net income $ 791 $ 1,455 $ 41 $ 934 $ 205
PER SHARE DATA:
Diluted earnings per share $ 0.21 $ 0.37 $ 0.01 $ 0.22 $ 0.04
Weighted average common share outstanding 3,802,194 3,901,278 4,047,989 4,189,113 4,554,448
BALANCE SHEET DATA:
Working capital $ 2,906 3,463 2,544 4,693 4,724
Total assets 10,173 13,511 16,410 19,707 25,162
Long-term debt 2,784 3,507 5,078 5,395 5,713
Total stockholders' net investment 4,674 6,365 6,693 9,397 11,747
</TABLE>
5
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RISK FACTORS
THE COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN ITS CURRENT OR FUTURE
MARKETS.
The standard bus embedded computer industry is highly competitive and
fragmented, and the Company faces significant competition in each of its
product markets. The Company's competitors differ depending on product type,
geographic market, and application type. Several of VMIC's competitors are well
established and have greater assets and financial resources than the Company,
and have larger marketing and research and development budgets. Several of the
Company's competitors also have larger service organizations.
Competition in the Company's business areas is influenced by technical
capacity, customer support, product longevity, supplier stability, breadth of
product offerings, reliability, performance, and price. Accordingly, even small
competitors who develop technologically similar or advanced products could
successfully compete with the Company. Other competitors have established
relationships with customers or potential customers that afford them a
competitive advantage. There can be no assurance that the Company will be able
to compete effectively in its current or future markets or whether the
Company's technology and designs will be viable in the marketplace in the
future.
THE COMPANY HAS DIVERTED RESEARCH AND DEVELOPMENT RESOURCES FROM CORE PRODUCTS
TO NEW TECHNOLOGIES.
The Company has recently undertaken substantial research and development
efforts outside of its core business with the intent of increasing its revenue
base and growth potential. This is reflected in the Company's strategy of
offering IOWorks, embedded PC board products, and Reflective Memory products to
the Industrial Automation and Telecommunications markets and other more
vertically integrated markets. In order to implement this strategy, the Company
reduced its research and development investments in its core business while
significantly increasing its investment in the new products designed to address
these more vertical markets. If the Company is unsuccessful in these new
markets, it will be dependent on its core business to maintain historical
operating results. VMIC may not be able to maintain its historical operating
results, however, because it has substantially reduced its research and
development investments in its core business.
SALES OF THE COMPANY'S NEW PRODUCTS MAY NOT MEET THE GROWTH OBJECTIVES OF THE
COMPANY.
Some of the Company's new hardware products will be sold at lower profit
margins, and the Company requires significant market acceptance of these
products to meet the growth objectives of the Company. While there has been
significant customer interest in these new products, and Reflective Memory and
PC based products generated over 32% of the Company's revenues in 1998, there
can be no assurance that these new products will be successful to the extent
necessary to meet VMIC's growth objectives. If these new products are not
successful, the Company's operating results and financial condition could be
materially adversely affected.
THE COMPANY HAS LIMITED SOFTWARE BUSINESS EXPERIENCE.
The Company has made significant investments in PC based control software,
software such as IOWorks, with the intention of marketing software-only
products, systems involving such software, and board-level products involv-
ing such software. The Company's software-only products may not be received
well in the industry because of a number of factors, including the reputation
of the Company as a hardware supplier, competition from other manufacturers and
and quality of the software or software support. The future success of the Com-
pany in the stand-alone software business is subject to all of the risks inher-
ent in the establishment of a new line of business. Unforeseen expenses,
difficulties, complications and delays in developing and marketing the
software, dependence upon current management, lack of market acceptance of
IOWorks, or the effects of competition could prevent the Company from becoming
successful as a software vendor. If IOWorks is not successful in the market,
it could have a significant impact on the Company's financial condition and
operating results.
6
THE COMPANY HAS INCREASED ITS DEBT LEVEL AND WORKING CAPITAL REQUIREMENTS.
Traditionally, the Company has utilized long-term liabilities as a major
financing source. Long-term debt of the Company rose from $200 thousand in 1986
to approximately $5.7 million as of September 30, 1998. The Company's
utilization of long-term debt is somewhat higher than the average company in
this industry. A primary reason for the increase in long-term debt was the need
for the Company to manage its growth. The Company believes its current revenue
level will be sufficient to service its long-term debt. However, if the
revenues and profits of the Company substantially decrease, it will be more
difficult for the Company to service its long-term debt, meet its current
obligations, and continue with its current business plan. As of September 30,
1998 the Company had sufficient current assets to liquidate all of its current
liabilities.
THE COMPANY'S PRODUCTS MAY BECOME OBSOLETE AND THE COMPANY MAY BE UNABLE TO
RESPOND TO FUTURE MARKET NEEDS.
Most of the Company's products are developed to meet certain industry
standards. These standards continue to develop and are subject to change.
Elimination or obsolescence of all or some of these standards could affect the
design, manufacture, and sale of the Company's products and require costly
redesign to meet new or emerging standards.
In general, technology in the computer industry, and the computer bus board
industry specifically, is subject to rapid technological change. The
introduction of new technology and products by others could adversely affect
the Company's business. There is no assurance that future advances in
technology may not make the Company's existing product line obsolete, resulting
in increased competition, and requiring the Company to undertake costly
redesign efforts. There can be no assurance that the Company will be able to
incorporate new technology into its product lines or redesign its products to
compete effectively.
Moreover, because new products and technologies require commitments well in
advance of sales, decisions with respect to those commitments must accurately
anticipate both future demand and the technology that will be available to meet
that demand. There can be no assurance that the Company will be able to
successfully anticipate or adapt to future technological changes, and failure
to do so may materially adversely affect the Company's business, financial
condition, or results of operations.
THE COMPANY MAY EXPERIENCE REDUCED CASH FLOWS AS A RESULT OF SELLING PRODUCTS
WITH SMALLER MARGINS, FLUCTUATIONS IN OPERATING RESULTS AND INCREASES IN
EXPENSES.
The Company is dependent upon the success of its recently developed IOWorks
software, embedded PC board products and Reflective Memory products to
substantially increase revenue growth. Embedded PC board products and
Reflective Memory products typically yield smaller margins than the Company's
traditional product mix and the Company's profits could therefore erode in the
future.
In addition, the Company has experienced reduced net cash flows, attrib-
butable to substantial software development, inventory expansion, building
expansion, purchased technologies associated with PC single-board computers,
the Company's expanded use of internal products for software development, and
fluctuations in the Company's operating results. Moreover, because of the Com-
pany's high level of current fixed expenses and working capital requirements,
and because the Company believes it should continue its current business
strategy of expending substantial resources on research and development,
VMIC may experience a negative cash flow position in the future.
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY PROTECT ITS INTELLECTUAL PROPERTY
AND CONFIDENTIAL INFORMATION.
The Company's success is, to a significant degree, attributable to the
unique features of its software, proprietary technology and other confidential
information. Unfortunately, software and information technology industries have
experienced widespread unauthorized reproduction of software products and other
proprietary technology. While the Company has some patent protection for its
hardware products, the Company's software is not patented, and existing
copyright law offers only limited practical protection. For most of its
intellectual property protection, VMIC relies on a combination of trade secret
laws, copyright protection, common law intellectual property rights, license
agreements, nondisclosure, and other contractual provisions. The Company does
not, however, sell its software source code, or provide its customers access to
the source code associated with its software products.
7
There is no assurance that the Company will be able to protect its trade
secrets or that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's trade secrets. There is no assurance that foreign intellectual
property laws will protect the Company's intellectual property rights. In
addition, the computer industry is characterized by frequent litigation
regarding patent and other intellectual property rights, and litigation has
been, and may in the future be necessary to enforce the Company's trade secrets
or to defend against claims of infringement. While VMIC believes that its
proprietary rights do not infringe upon the proprietary rights of others,
third parties may assert infringement claims against the Company in the future
and such assertion could cause the Company to enter into a license agreement or
royalty arrangement with the party asserting the claim. The Company may also be
required to indemnify its customers for claims made against them. Responding
to and defending any such claims, developing non-infringing intellectual
property or acquiring licenses could have a material adverse affect on the
Company's business, financial condition or results of operations.
THE COMPANY MAY NOT BE ABLE TO ADEQUATELY FINANCE ITS CONTINUED GROWTH.
The Company has been growing since 1986, during which time the Company has
experienced increased debt, sales growth, high research and development
expenditures, and an increased asset base. There are certain risks inherent in
any growing company arising from such factors as increased working capital and
capital expenditure requirements. Moreover, the Company's business strategy
calls for substantial continued investment in new products. The Company also
anticipates expanding its inventory and increasing investments in equipment and
other fixed assets. There is no assurance that the Company will be successful
in obtaining additional long-term debt or equity financing, or if obtained,
there can be no assurance that the debt or equity financing will be on terms
favorable to the Company or its shareholders. The failure of the Company to
obtain additional funds or the obtaining of such funds on unfavorable terms
could adversely affect the financial performance and prospects of the Company
and any equity investment on unfavorable terms could cause substantial dilution
to the shareholders.
THE COMPANY WILL BE REQUIRED TO EXPENSE CERTAIN SOFTWARE DEVELOPMENT COSTS IF
SOFTWARE SALES ARE NOT SUFFICIENT TO AMORTIZE THE CAPITALIZED SOFTWARE
DEVELOPMENT COSTS OVER A FIVE-YEAR PERIOD.
The Company, in fiscal year 1996, began to capitalize development costs
associated with its IOWorks software and certain other software products.
Unamortized capitalized costs were approximately $3.4 million as of September
30, 1998 and VMIC anticipates that an additional $2.0 million of software
development costs will be capitalized for the fiscal year ending September 30,
1999. The Company will be required to amortize these costs against future sales
of the software products over a five-year period after the release of the
products.
The Company accounts for these software development costs in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. The Company
capitalizes certain costs incurred in the production of computer software once
technological feasibility of the product to be marketed has been established.
Capitalization of these costs ceases when the product is considered available
for general release to customers. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by VMIC. If software
sales are not sufficient to amortize the capitalized costs over the five-year
period the Company will be required to expense those capitalized costs,
resulting in substantial write-offs.
THE COMPANY RELIES ON SUPPLIERS FOR MANY OF ITS ELECTRONIC COMPONENTS, SOME OF
WHICH CAN ONLY BE OBTAINED FROM A SINGLE SOURCE.
Most of the Company's products contain state-of-the-art digital elect-
ronic components and integrated circuits. The Company is dependent upon third
parties for the continuing supply of most of these components and all of its
integrated circuits. Some of these components are obtained from a sole supplier
supplier, such as Altus, Triquent, Intel, AMD, Tundra, Cypress; or a limited
number of suppliers, for which alternative sources would be difficult to
locate. The Company has experienced shortages of integrated circuits and other
key components from time to time, and this has resulted in delay s in product
deliveries. The Company has also had to terminate its marketing of certain
products, even newly developed products, when a component supplier termi-
nated its production of a critical component. Moreover, suppliers may
discontinue or upgrade some of the components incorporated into the Company's
products, which could require the Company to redesign a product to incorp-
porate newer or alternative technology. Although the Company believes it
maintains good relationships with its suppliers, and has arranged for an
adequate supply of components to meet its short-term requirements, any unavail-
8
ability of components could cause delayed shipments and lead to customer
dissatisfaction. Any sustained unavailability of components could materially
adversely affect the Company's operating results and financial condition.
THE COMPANY HAS LIMITED MANUFACTURING FACILITIES AND MUST RELY ON
SUBCONTRACTORS TO COMPLETE SOME OF THE COMPANY'S PRODUCTS.
The Company relies on subcontractors for manufacturing some of the Company's
products. One subcontractor, Nextek Inc., produces 20% of the Company's
products. The contractors may experience delays because of quality problems,
backlog, component availability, financial difficulty, or other situations
which could have an adverse effect on the Company's operating results and
customer relationships. In this event, the Company may be required to find
alternative subcontractors, and there can be no assurance that the Company
could find suitable subcontractors.
THE LOSS OF ONE OR MORE MAJOR CUSTOMERS OR A NUMBER OF SMALLER CUSTOMERS COULD
ADVERSELY AFFECT THE COMPANY'S REVENUES AND PROFITS.
Sales to two major customers accounted for approximately 6.4% of VMIC's
sales in 1998 and 8.3% of VMIC's sales during 1997. If either or both of
these customers discontinued purchasing products from the Company, the Com-
pany's operating results and financial condition could be materially
adversely affected. In addition, in fiscal year 1998, approximately 25% of the
Company's sales were derived directly or indirectly from the U. S. Department
of Defense. Although the percentage of the Company's sales derived from
governmental contracts has decreased from a high of 75% in 1986, the Company
expects that the government will continue to be a significant source of
sales. It is possible that changes in national policy or other factors could
result in reduced defense spending which could materially adversely affect
the operating results and financial condition of the Company.
LACK OF A PUBLIC MARKET AND CERTAIN TRANSFER RESTRICTIONS.
There presently exists no public market for the shares of the Company's
stock, nor is there any likelihood of one developing in the near future. A
holder of the Company's Common Stock may not be able to liquidate his or her
position when liquidity is needed and may be required to retain the
securities indefinitely.
CONTROL BY EXISTING SHAREHOLDERS.
Carroll E. Williams and Mary W. Williams own 38.8% of the Company's Common
Stock. Together, all of the current officers and directors of the Company
(including Carroll E. Williams and Mary W. Williams) own a substantial majority
of its Common Stock. Consequently, these individuals, and particularly Carroll
E. Williams and Mary W. Williams, will control virtually all aspects of the
Company's business by virtue of their ability to nominate and elect the Board
of Directors and officers of the Company. As directors and officers of the
Company, they will, subject to their fiduciary duties, be entitled to develop
and implement the Company's course of business. Neither the Company's Articles
of Incorporation nor its Bylaws permit cumulative voting. Consequently, the
remaining shareholders will not be entitled to elect a representative to the
Company's Board of Directors.
THE COMPANY DOES NOT ANTICIPATE PAYING DIVIDENDS.
Since its incorporation, the Company has never paid dividends and does not
anticipate paying cash dividends in the foreseeable future. The Company
projects that it will retain future earnings, if any, to provide working
capital and implement the Company's business strategy. Also, pursuant to its
loan agreement, the Company's ability to pay dividends is substantially limited
because the loan agreement requires the Company to maintain certain financial
ratios that the Company believes would not be maintained if dividends were
paid.
THE COMPANY MAY NOT BE ABLE TO MAKE ACQUISITIONS AND THE COMPANY'S ACQUISITIONS
MAY NOT BE SUCCESSFUL.
Part of the Company's strategy for growth includes acquisitions of
complementary technologies or businesses that would enhance the Company's
capabilities or increase the Company's customer base. The Company's ability to
9
expand successfully through acquisitions depends on many factors, including
business and management's ability to effectively integrate and operate acquired
companies. The Company may compete for acquisition opportunities with other
companies that have significantly greater financial and management resources.
There can be no assurance that the Company will be successful in acquiring or
integrating any such technologies or businesses.
THE COMPANY MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
The Company's products and services may be subject to product liability or
electronics manufacturing errors or omissions liability claims. The Company
maintains primary product liability and electronics errors or omissions
liability insurance with a general aggregate limit of $2.0 million, and $1.0
million per occurrence, with a $2.0 million excess policy. While the Company
has never been the subject of any such claims, given the wide use of the
Company's products and the propensity of claimants to initially pursue all
possible contributors in a legal action, there can be no assurance that such
coverage will be adequate to protect the Company from liability. Further, the
Company may be unable to obtain insurance in the future at rates acceptable to
the Company. In the event of a successful lawsuit against the Company,
insufficiency of insurance coverage could have a material adverse effect upon
the Company.
THE COMPANY MAY NOT BE ABLE TO RETAIN AND RECRUIT KEY EMPLOYEES AND SKILLED
PERSONNEL NECESSARY TO MAINTAIN OR GROW THE BUSINESS.
The Company's success will depend in large part on the continued services of
its key management, and technical personnel. The loss of the services of one
or more of the Company's key employees or the inability to hire additional key
personnel as needed could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be successful in attracting and retaining
needed personnel. While the Company is currently experiencing relatively low
rates of turnover for skilled employees, there can be no assurance that these
rates of turnover will not increase in the future. The inability of the
Company to hire, train, and retain a sufficient number of qualified employees
could impair the Company's ability to compete in its markets resulting in a
material adverse effect on the Company's business, financial condition and
results of operations.
THE COMPANY MAY NOT BE ABLE TO IDENTIFY, SUCCESSFULLY REMEDY OR ASSESS ALL YEAR
2000 RELATED DATE-HANDLING PROBLEMS THAT COULD DIRECTLY OR INDIRECTLY IMPACT
ITS BUSINESS OR FINANCIAL CONDITION.
The Company is aware that many computer programs were designed and developed
without considering the upcoming change in the century, which could lead to
failure of computer applications or create erroneous results by or at the year
2000. This issue is referred to as the "Year 2000" problem. The Year 2000
problem is a broad business issue, whose impact may extend beyond the Company's
computer hardware and software and may affect utility and telecommunication
services as well as disrupt the systems of its customers and suppliers. It is
possible that the Company's currently installed computer systems, software
products or other business systems, or those of its suppliers or customers,
will not always accept input of, store, manipulate or output dates in the years
1999, 2000, or thereafter without error or interruption. VMIC has conducted a
review of its business systems, including its computer systems, in an attempt
to identify ways in which its systems could be affected by Year 2000 problems.
Based on this review, the Company does not expect the Year 2000 issue to have a
material adverse affect on its systems. In addition, the Company is requesting
assurances from all software vendors from which it has purchased or from which
it may purchase software that the software sold to the Company will correctly
process date information. The Company is querying its significant customers and
suppliers as to their progress in identifying and addressing problems that
their computer systems may face in correctly processing date information as the
Year 2000 approaches. However, there can be no assurance the Company will
identify all date-handling problems in its business systems or those of its
customers and suppliers in advance of their occurrence or that the Company will
be able to successfully remedy problems that are discovered. The expenses of
the Company's efforts to identify and address such problems, or the expense or
liabilities to which the Company may become subject as a result of such
problems, could have a material adverse affect on the Company's business and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000"
10
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1998. The following table should be read in conjunction with
the Company's historical financial statements.
September 30, 1998
(in thousands)
Current Portion of Long-term Debt.............................. $ 2,105
Long-Term Debt - Net of Current Portion........................ 5,713
Shareholders' Equity
Common Stock, $0.10 par value (1)............................ 446
Additional Paid-in Capital................................... 6,433
Retained Earnings............................................ 4,868
Shareholders' Equity............................................ 11,747
-------
Total capitalization............................................ $19,565
=======
__________
(1) The par value of the Company's Common Stock is $0.10 per share. As of
of September 30, 1998, 10,000,000 shares were authorized and 4,462,917
were issued and outstanding. The table shows the shares outstanding as
of September 30, 1998, but does not reflect shares issued after September
30, 1998, or shares subject to options or subject to purchase under the
Employee Stock Purchase Plan. See "Management- Directors Compensation" and
"Employee Benefit Plans."
DIVIDENDS
The Company currently intends to retain its earnings to finance future
growth, and therefore does not anticipate paying cash dividends in the
foreseeable future. The Board of Directors may review the Company's dividend
policy from time to time to determine the desirability and feasibility of
paying dividends after giving consideration to the Company's capital
requirements, operating results and financial condition and such other factors
as the Board of Directors deems relevant.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
THE FOLLOWING TABLE SUMMARIZES CERTAIN SELECTED FINANCIAL DATA FOR VMIC,
WHICH SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE AND WITH "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THE SELECTED
FINANCIAL DATA FOR ALL YEARS PRESENTED HAS BEEN DERIVED FROM THE COMPANY'S
AUDITED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION> VMIC, INC.
YEARS ENDED SEPTEMBER 30
--------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 18,745 $ 23,104 $ 23,791 $ 27,901 $ 31,049
Gross profit 12,275 15,546 15,495 18,108 20,290
Selling, general and administrative expenses 7,175 8,328 9,661 10,995 13,302
Research and development 3,684 5,105 5,335 5,307 6,231
Income from operations 1,416 2,113 499 1,806 757
Net income $ 791 $ 1,455 $ 41 $ 934 $ 205
PER SHARE DATA:
Diluted earnings per share $ 0.21 $ 0.37 $ 0.01 $ 0.22 $ 0.04
Weighted average common share outstanding 3,802,194 3,901,278 4,047,989 4,189,113 4,554,448
BALANCE SHEET DATA:
Working capital $ 2,906 3,463 2,544 4,693 4,724
Total assets 10,173 13,511 16,410 19,707 25,162
Long-term debt 2,784 3,507 5,078 5,395 5,713
Total stockholders' net investment 4,674 6,365 6,693 9,397 11,747
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, manufactures, markets, and services a broad
range of embedded computer products as well as products for desktop work-
stations and industrial computers. Applications of the Company's products
typically involve dedicated use of computers to perform repetitive tasks
associated with such markets as Data Acquisition and control, plant monitoring,
Simulation and Training, industrial automation, Telecommunications, Defense,
and Test and Measurement. The Company's product line includes single-board PC
computers, I/O boards and systems, software, and networks.
While the Company's historical business has typically involved limited
volume, high-gross margin niche markets such as Simulation and Training,
Power Plant Monitoring and Data Acquisition, the Company's new focus involves
vertically integrated markets such as Telecommunications and Industrial
Automation that require high volume production, but yield lower profit
margins.
The Company's sales have increased each year due primarily to the Com-
pany's penetration of new markets with new products. The Company's sales,
however, have reached a magnitude that requires the Company to focus on
larger markets to sustain its growth rate. The Company is, therefore, more
focused on markets that can contribute significantly to its growth requirements
such as Telecommunications, Test and Measurement, Industrial Automation,
12
and Defense. The Company believes that it will be able to increase unit volumes
of its PC computer product line and networking product line while reducing
product costs through redesign and alliances with large subcontracting manu-
facturers.
The Company's most recent focus has been on the introduction of new products
and the subsequent redesign of new products to reduce product manufacturing
costs. The Company believes that it will be able to increase its market
share by offering high quality products and services, at a low cost.
Recently, the Company leveraged its technological expertise, and brand
recognition in the embedded PC market, to initiate discussions with a number
of potential customers relating to the development of high-volume, custom
products associated with the Company's embedded bus solutions such as VME,
CPCI, and other proprietary buses. The challenge for the Company is to select
those opportunities that offer the lowest risk and greatest growth potential
while maintaining its standard commercial off-the-shelf products. The Company
believes that the development of custom products results in closer customer
relationships that are difficult for a competitor to disturb with price cuts
alone. These opportunities may result in increased research and development
spending to capture potentially large future revenues.
While the Company's gross margins have remained constant, VMIC anticipates
some erosion as lower margin product sales increase as a percentage of total
sales. The Company believes that significant sales of lower margin, high volume
products will benefit the Company, and it is anticipated that net profits after
taxes will rise as efficiencies of sales associated with this high-volume
business are realized. Because sales of the Company's new software products
benefit from higher margins, if software sales increase as a percentage of
total sales, software sales should partially offset the effect of lower
margin hardware sales.
The Company's sales have increased each year; however, operating results
may vary significantly in the future. The Company is presently experiencing
significant increases in its order growth rate and backlog. Operating expenses
are relatively fixed in the short term because the Company has enough
employees and equipment to support the projected growth. A shortfall of
revenues could impact the Company's financial results significantly in a
given quarter or for the fiscal year.
The Company has recently increased its component inventory levels. While
such increases allow for improved response times to customer purchase orders,
the Company faces a greater risk of inventory obsolescence which could have
an adverse effect on the Company's business and operating results. The
Company also maintains a significant, separate, customer service inventory to
support customer requirements for replacement equipment associated with
warranty returns and products returned for repair or replacement.
The Company's operating results may also fluctuate as a result of a number
of factors including customer order patterns, defense spending patterns,
product warranty returns, changes in product mix, increased competition,
announcements of new products by the Company or its competitors, the loss
of certain key employees to other companies including competitors, and the
Company's overall ability to design, test, and introduce new hardware and
software products on a timely basis.
RESULTS OF OPERATION
Year Ended September 30, 1998 Compared to Year Ended September 30, 1997
SALES. The Company's sales increased 11% from $27.9 million in 1997
to $31.0 million in 1998. The Company's international sales increased 7%
in 1998 to $5.7 million, from $5.3 million in 1997. Sales for 1998 did not
meet expectations because of delays in orders from several major customers.
Equipment manufacturers whose products are marketed in Asian countries
have been experiencing repercussions from the Asian financial market problems
and have been slow to place orders. Delayed orders negatively impacted the
sales of VMIC's quad redundant Reflective Memory for Naval surface applica-
tions, and several Industrial Automation products. The week fiber-optic cable
market has also caused a delay in orders for VMIC equipment.
While the IOWorks software product has been well received in the market-
place, software sales of IOWorks have not met expectations because of the
delayed time-to-market of certain software components that make the product
more attractive to users of non-VMIC hardware. The Company has recently
enhanced the IOWorks product to appeal to a broader market, and has redesigned
its multimedia presentations and demonstration compact disks to support its
marketing to this larger, more general market.
13
GROSS MARGINS. The Company's gross margin, which represents sales less cost
of goods sold as a percentage of sales, increased from 64.9% in 1997 to 65.4%
in 1998. The Company expects its gross margin to decline in the future as the
contribution of lower margin product to total sales increases. Such lower
margins may, however, be partially offset by sales of the Company's new soft-
ware.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative expenses (including warranty and software amortization)
increased 21% from $11.0 million in 1997 to $13.3 million in 1998. This
increase was partially attributable to staffing increases in the Sales and
Marketing department, and the Company's recent publication and worldwide
distribution of more than 5,000 copies of its new 450-page product catalog. The
company also released a new software only catalog. Additional promotional
expenditures, including an enhanced Internet site, have approximately doubled
the number of qualified sales leads generated each week. The Company also
incurred expenses associated with the termination of certain independent sales
representatives, and their replacement with Company sales people in locations
throughout the United States.
WARRANTY EXPENSE. The Company's warranty expenses decreased to $501,000
in 1998, from $645,000 in 1997. This reduction was partially attributable to
the Company's use of new suppliers for certain components used in its
Reflective Memory products and the improvements made to its Pentium processor
based products.
SOFTWARE AMORTIZATION. Certain internal software development costs are
capitalized when incurred. Capitalization of software development costs begins
upon the establishment of technological feasibility. Amortization of
capitalized software costs is provided over the estimated economic useful
life of the software product on a straight-line basis, generally five years.
Amortization begins when a product master is made. Accumulated amortization
as of September 30, 1998 was $471,598 compared to $234,124 as of September 30,
1997. Unamortized software costs increased to $3,543,030 as of September 30,
1998 from $1,819,560 as of September 30 1997.
RESEARCH AND DEVELOPMENT. Research and Development expenses increased
17% from $5.3 million in 1997 to $6.2 million in 1998. As a percentage of
sales, research and development expenses increased from 19% in 1997 to 20%
in 1998. The Company has committed substantial resources to the continued
development of its IOWorks software, Reflective Memory products, and embedded
PC boards.
NET INCOME. Net Income after taxes decreased to $204,723 in 1998,
compared to $934,229 in 1997. Profits decreased despite higher sales because
of increased promotional, advertising, and staffing expenses and the sale of
lower margin products. The Company has recently reduced its operating expenses
as a percentage of sales, and plans to implement significant cost controls
in 1999.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
SALES. The Company's sales increased 17.3% from $23.8 million in 1996 to
to $27.9 million in 1997. The increase in sales resulted from increased
sales volume to existing customers and from increased new market penetra-
penetration. Sales of the Company's software products increased by 50%.
Domestic sales increased 24.4% from $18.2 million in 1996 to $22.6 million
in 1997, while international sales dropped 5.4% from $5.6 million in 1996 to
$5.3 million in 1997. International sales dropped from 23.5% of total sales
in 1996 to 18.85% of total sales in 1997. Domestic sales increased from 76.5%
of total sales in 1996 to 81.2% of total sales in 1997.
GROSS MARGINS. The Company's gross margin decreased slightly from 65.0%
in 1996 to 64.9% in 1997. Although the Company focused on high volume, low
margin hardware products in 1997, the Company's sales of high margin soft-
ware minimized the impact of this change in product mix.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, General, and
Administrative expenses (including warranty and software amortization)
increased 13.3% from $9.7 million in 1996 to $11.0 million in 1997. This
interest was attributable mainly to additional sales and marketing support of
its Industrial Automation products and IOWorks software. As a percentage of
sales, selling, general, and administrative expenses dropped from 40.6% of
sales in 1996 to 39.4% of sales in 1997.
WARRANTY EXPENSE. The Company's warranty expenses increased to $644,754
in 1997 from $355,293 in 1996. This increase was mainly attributable to the
failure of certain third-party supplied components used in VMIC's Reflective
14
Memory products and the addition of several new hardware products in 1996.
The Company responded by replacing the supplier of faulty components and refin-
ing its new hardware products.
SOFTWARE AMORTIZATION. Accumulated amortization in 1997 was $234,124
compared to $0 in 1996. Unamortized software costs increased to $1,819,560 at
September 30, 1997 from $584,958 at September 30, 1996.
RESEARCH AND DEVELOPMENT. Research and Development expenses decreased from
$5,335,288 in 1996 to $5,307,207 in 1997. As a percentage of sales, research
and development expenses decreased from 22.4% in 1996 to 19.0% in 1997.
NET INCOME. Net income increased to $934,229 in 1997, compared to $41,286
in 1996. The increase in profits resulted primarily from increased orders and
shipments during the third and fourth quarters of 1997, including a 50%
increase in software sales, and the Company's cost cutting efforts.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's total assets increased 28% to $25.1 million in 1998 from
from $19.7 million in 1997. The Company's outstanding long-term debt as of
September 30, 1998 was $5.7 million. The Company's long-term debt is
collateralized by buildings, land, equipment and other assets with a
combined book value at September 30, 1998 of approximately $9.0 million. As of
September 30, 1998, the Company's cash on hand was $527,972. The Company can
borrow under a $7.0 million revolving line of credit with interest payable
monthly at prime plus 0.5%. This line of credit is collateralized primarily by
accounts receivable and inventory of the Company. The line of credit
agreement expired on December 31, 1998. Negotiations are underway to extend
the line of credit for the next twelve months, and are expected to be finalized
before February 1, 1999. The Company had $0 and $400,000 outstanding borrow-
ings under this line of credit agreement at September 30, 1998 and 1997,
respectively. The Company also has an unused equipment line of credit of
$1.3 million.
1997 PRIVATE PLACEMENT
On November 30, 1997, the Company completed a private placement stock
offering of common stock, receiving net proceeds of $3.0 million from the
sale of 300,000 shares of stock. After payment of offering expenses and
legal fees, the Company used approximately $2.0 million of the offering
proceeds to repay the balance of its working line of credit. The balance
of the offering proceeds, approximately $1.0 million, was used for general
working capital purposes.
1998 CORPORATE NAME CHANGE
On December 12, 1998 the stockholders of the Company followed the recommen-
dation of the Company's Board of Directors and voted in favor of changing the
Company's name from VME Microsystems International Corporation to VMIC,
Inc. This change reflects the Company's substantial investment in the
registered trademark VMIC, and the expansion of the Company's product line
beyond VME bus-based hardware. The name change became effective on December
22, 1998.
15
YEAR 2000
OVERVIEW
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing
a date using "00" as the year 1900 rather than the year 2000. This could
cause significant software failures or miscalculations and is generally
referred to as the "Year 2000" problem.
The Company recognizes that the impact of the Year 2000 problem extends
beyond its computer hardware and software and may affect utility and telecommu-
nication services, as well as the systems of customers and suppliers. The Year
2000 problem is being addressed by a team within the Company and progress
is reported periodically to management. The Company has committed resources
to conduct extensive risk assessments and to take corrective action, where
appropriate, within each of the following areas:
VMIC PRODUCTS
VMIC has initiated extensive internal Year 2000 testing and analysis of
its of its products. The Company believes that a majority of its products
are Year 2000 compliant and VMIC anticipates maintaining compliance in
future revisions of any product that is currently compliant.
INTERNAL INFORMATION SYSTEMS
The Company's internal information systems utilize hardware and software from
several commercial suppliers. The Company has investigated its internal
information systems for Year 2000 compliance, and certain modifications have
already been identified and corrected on critical systems to ensure that the
Company's operations will be Year 2000 compliant. This effort will continue
throughout 1998 and 1999.
THIRD PARTIES
The Company has had initial communications with certain of its significant
suppliers and customers to evaluate their Year 2000 compliance plans, state
of readiness and to determine the extent to which the Company's systems may
be affected by the failure of others to remedy their own Year 2000 issues.
VMIC is conducting a Year 2000 certification program with all of its critical
suppliers, which will be completed by the end of 1998. In addition, Year
2000 compliance is a prerequisite to new supplier relationships. VMIC is also
in the process of distributing a Year 2000 assessment form to other parties
in order to provide VMIC with further information as to their Year 2000
conversion progress. However, the Company has received only preliminary
responses from such parties and has not independently confirmed all of
the information received from other parties with respect to the Year 2000
issues. As such, there can be no assurance that such other parties will com-
plete their Year 2000 conversion in a timely fashion or will not suffer a Year
2000 business disruption that may adversely affect the Company's business,
financial condition or results of operations.
16
CONTINGENCY PLANS
Because the Company's Year 2000 conversions are expected to be completed
prior to any potential disruption to the Company's business, VMIC has not
yet completed the development of a comprehensive Year 2000 specific contingency
plan. If VMIC determines that its business is at material risk of disruption
due to the Year 2000 problem, or anticipates that its Year 2000 conversion will
not be completed in a timely fashion, the Company will work to enhance its
contingency plan.
COST FOR YEAR 2000 COMPLIANCE
The Company believes that the total cost of Year 2000 compliance activity
will not be material to the Company's operations, liquidity and capital
resources. VMIC estimates that the total cost for its Year 2000 compliance
will be approximately $35,600, which represents 742 hours of internal
analysis, modification and testing. To date, the Company has completed 450
hours of Year 2000 compliance work at a cost of $21,600.
YEAR 2000 RISKS FACED BY VMIC
Although the Company believes that its Year 2000 compliance program is
comprehensive, the Company may not be able to identify, successfully remedy or
assess all date-handling problems in its business systems or operations or
those of its customers and suppliers. As a result, the Year 2000 problem
could have a materially adverse affect on the Company's business financial
condition or results of operation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, which requires the reporting and display of comprehensive
income and its components in an entity's financial statements, and SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
specifies revised guidelines for determining an entity's operating segments and
the type and level of financial information to be required. The Company is
required to adopt these standards in fiscal year 1999. The Company does not
expect the impact of these pronouncements to be material.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE
RECOGNITION, to supersede SOP 91-1, the previously released SOP on this topic.
SOP 97-2 provides additional guidance on when revenue should be recognized and
in what amounts, for licensing, selling, leasing or otherwise marketing
computer software. The provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after December 15, 1997. Adoption of
SOP 97-2 is not expected to have a material adverse affect on the Company's
financial statements.
In February 1998 and in June 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," respectively.
Adoption of these standards is not expected to impact the financial results of
the Company.
17
<PAGE>
BUSINESS
THE COMPANY
VMIC is a leading independent designer and manufacturer of embedded computer
solutions based upon a wide variety of open standard bus designs such as VME,
CPCI, PCI, PMC, Multibus, ISA, and special custom buses such as the GE 90/30.
The Company's products are used by original equipment manufacturers ("OEMs"),
systems integrators and end-users in various industries, including
manufacturing automation, Telecommunications, Simulation and Training,
environmental monitoring, and Test and Measurement. Unlike general purpose
computers, embedded computer solutions are i) incorporated into systems and
equipment to provide a single or a limited number of critical system control
functions; ii) generally integrated into larger automated systems; and iii)
often have extended product life cycles. The Company's embedded computers are
based upon the Intel x86 and Pentium architecture and are typically capable of
running PC-compatible operating systems and application software.
According to a recent industry publication, BOARD LEVEL EMBEDDED COMPUTER
MARKETS AND TRENDS, the standard bus embedded computer market is projected to
grow from approximately $2.4 billion in 1995 to approximately $3.9 billion in
1999. The Company offers a wide variety of board-level products based on
standard buses such as VMEbus, PCI bus, Compact PCI bus, PMC, Multibus, and
others. The most popular embedded computer standard today is VMEbus, which is
widely used in many markets. According to BOARD LEVEL EMBEDDED COMPUTER
MARKETS AND TRENDS, the VMEbus embedded computer market is projected to grow
from approximately $1.3 billion in 1995 to approximately $2.4 billion in 1999.
Recently the Company introduced its IOWorks suite of PC-based control
software modules that run on standard PC platforms using the Windows NT
operating system. IOWorks modules provide a comprehensive set of tools used to
create data acquisition and control systems and to interconnect the large
number of legacy control products commonly found in industrial plants. The
Company's IOWorks software is designed for compliance with open industry
standards, and the software modules can be mixed and matched to provide
solutions for a variety of industrial applications. The Data Acquisition and
control market represents the largest market for VMIC's products.
The Company is also involved in networking systems of dissimilar buses
using adapters, high-performance networks, and synergistic software. The
Company's family of networking products is based on a technology known in
the computer industry as "Reflective Memory." VMIC's connectivity products
allow low maintenance, high speed communication between PC computers,
workstations, computer mainframes and embedded computers manufactured by a
wide variety of companies.
The Company markets and sells more than 200 different products worldwide,
including application-specific embedded computer subsystems, board-level
modules, control and driver software, and network products. In addition to
offering standard commercial products, the Company is involved in the
development of custom products for high-volume applications where significant
revenues are possible.
INDUSTRY BACKGROUND
Unlike general-purpose computers, embedded computers are incorporated into
systems and equipment to perform a single or limited number of complex
applications. Embedded computers are used in such markets as Data Acquisition,
Control, Monitoring, Processes Control, Factory Automation and Defense. Some
applications include production testing of electrical components, fiber optic
cable manufacturing, film manufacturing, automotive manufacturing and
development, jet and rocket engine development, environmental monitoring, steel
and aluminum rolling mill control, telecommunications and switch gear, real-
time communications and networking, robotics, and machine control.
Data acquisition refers to the process of collecting what is commonly
referred to as real-world information phenomena such as light, pressure,
temperature, humidity, force, and flow. A data acquisition system (which
comprises a collection of measuring instruments, a computer, and control
devices) is used to collect, document, and analyze that information. Real-
world information, which is commonly represented by analog signals, originates
from sensors or transducers. The data acquisition system accepts these signals
produced by sensors and transducers and converts them into a format that the
18
computer can understand. Data acquisition and control also involves the
collection of digital input data that originates from switches, relays, lights,
and other on/off signals. In addition, computer-controlled digital outputs may
be used to turn on or off lights, relays, switches, valves, conveyor belts, or
on/off functions.
A data acquisition system can be used to gather, monitor, display, or
analyze data. If the system has output capabilities, it can also accurately
control the processes it is monitoring. The software works in association with
the Data Acquisition hardware. Without the software, the system's hardware is
considered to be generally ineffective. The software can be used to control the
collection of data, as well as to display and analyze the data.
The market for Data Acquisition boards, systems, and software, according to
to a recent study from Frost and Sullivan, is expected to generate just under
under $700 billion between 1994 and 2001. The primary end-user markets for
data acquisition boards, software, and systems include Industrial Manufactur-
ing, Test and Measurement, Aerospace and Defense, Medical, Pharmaceutical,
and Utility.
The industrial manufacturing sector is currently the largest end-user of
Data Acquisition products. The Company believes that strong trends exist in
multiple markets for equipment based upon open standards and standard PC
platforms. The industry is focused on technology leaders such as Intel and
Microsoft, and standard buses. Designs based upon this technology insure the
availability of enhanced equipment and software migration paths that preserve
the customers' investment in technology. The performance of PC technology has
now improved to the point where many applications that historically required
custom or special equipment can now use PC technology and embedded standard bus
products.
Standard bus solutions include such buses as VME, Compact PCI ("CPCI"),
Multibus, PMC, PCI and others. Standard buses are nonproprietary, which means
that the bus technology is available to any company and product designer.
Currently, the primary standard bus used in PCs and computer workstations is
PCI. Most leading industrial use computer manufacturers include PCI buses in
their machines for enhanced computer connectivity. CPCI is an embedded computer
version of PCI. CPCI capitalizes on the combination of the Eurocard form
factor, already popularized by VME, and the PCI bus characteristics. The wide
acceptance of the PCI bus in the desktop market has created an abundance of
inexpensive components. CPCI has certain advantages in applications that
require fast transfers of large amounts of data.
CPCI buses are preferred for single processor applications with moderate I/O
requirements which utilize less than 8 slots. VME, because of its superior bus
arbitration and distributed interrupt handling characteristics, is preferred
for larger applications where processes and I/O are partitioned across as many
as 20 boards in the backplane.
The process controller market is experiencing a major shift to standards
based upon PC technology and open bus architectures. According to Frost and
Sullivan, the total process control market generated revenues of $8.51 billion
in 1993. Revenues for this market are anticipated to increase to approximately
$15.2 billion by the year 2000. According to this study, the PC-based control
hardware and software segment will likely demonstrate the strongest growth. The
study also indicates that users are considering their control systems software
to be the value-added element in such systems. The market trend is shifting
from proprietary Programmable Logic Controllers ("PLCs") to more general-
purpose computers such as industrial PCS and embedded computers. This market
study complements the study by Automation Research Corporation ("ARC") which
indicates that PC-based logic control software ("SoftLogic") within a standard
computer environment can perform the exact same functions as conventional
hardware-based proprietary PLCs. Ability to upgrade the hardware while
preserving the customer's software investment is a key benefit of PC control.
According to ARC in a recent study, the worldwide revenues for PC-based
SoftLogic packages approached nearly $21 million in 1996. With a 70% average
annual growth rate projected over the next few years, this market is slated to
reach nearly $300 million by the year 2001. The Company believes that the
market is significantly larger than the study indicates, and anticipates
substantial revenue opportunities in the next five years.
COMPANY STRATEGY
THE COMPANY'S GROWTH STRATEGY INCLUDES THE FOLLOWING ELEMENTS:
FOCUS ON SINGLE-BOARD COMPUTERS BASED UPON PC TECHNOLOGY. The Company
has recently made major investments in the VMEbus single-board computer
19
market specializing in PC technology based upon Intel and AMD micro-
computers and Microsoft software. A recent decision by Microsoft not to
support Motorola's PowerPC processor with its Windows NT operating system
may reduce the attractiveness of Motorola's Power PC based products and help
the Company penetrate the market with Intel and AMD technologies. VMIC
believes it currently has the widest line of PC-based single-board com-
puters in the VMEbus market. The Company has also entered the CPCI market arena
with its PC technology.
INCREASE MARKET SHARE OF REFLECTIVE MEMORY NETWORKS. Reflective Memory is a
high-performance deterministic networking product that is used in many
applications, from over-the-horizon radar systems and rolling mills, to ship
communications. Reflective Memory is one of the Company's fastest growing
product lines. The product line now supports many computer buses such as PCI
bus, Compact PCI bus, VMEbus, PMC, and Multibus. The Reflective Memory
advantage over more traditional networks such as Ethernet, Fast Ethernet,
FDDI, and ATM include its deterministic properties and very high performance,
coupled with little or no software requirements for its use. The Company
continues to make significant investments in this technology.
INCREASE MARKET SHARE FOR INDUSTRIAL AUTOMATION AND TEST AND MEASUREMENT
MARKETS WITH COMPONENT SOFTWARE (IOWORKS). The Company has recently developed
and is continuing to enhance its line of software products to increase the
sales of its single-board computers, board-level products, I/O systems, and
stand-alone software sales. The Company continues to focus its IOWorks
marketing efforts in the Industrial Automation market. This market is
undergoing a substantial shift from the use of Programmable Logic Controllers
to the more open architecture of PCs. The Company's IOWorks software
components allow a PC to perform the same functions as a Programmable Logic
Controller.
CONTINUE TO GROW I/O BOARD-LEVEL PRODUCTS BUSINESS. According to Venture
Development Corporation, an independent market research organization, the
Company is the leader in VMEbus based I/O technology. The Company's strategy
for maintaining its leadership position is to continually enhance and expand
its product line. The Company will continue to support its currently existing
board-level product line with upgraded software, while developing improved
I/O technology for VMEbus and other buses such as Compact PCI.
CONTINUE TO GROW I/O SYSTEMS BUSINESS. VMIC will continue to focus on I/O
systems business for such markets as Industrial Automation, Test and
Measurement, Plant Monitoring and Simulation and Training markets. The I/O
systems offered by the Company are comprised of I/O boards, chassis,
backplanes, power supplies, software, and other products that provide customers
or Systems Integrators a building block approach to solve application-specific
problems, and avoid problems associated with I/O programming. The Company is
expanding its I/O systems business to include CPCI products.
EXPAND INTERNATIONAL MARKETS. VMIC sells products in more than 48 foreign
countries through its line of international distributors. VMIC plans to grow
its international presence by expanding into more countries while increasing
sales through existing distributors. The Company anticipates increasing its
investments in advertising, international trade shows, and international
offices.
MAINTAINING HIGH LEVEL OF INVESTMENTS IN ENGINEERING AND PRODUCT DEVELOPMENT.
The Company plans to continue its relatively high levels of research and
development expenses in order to provide innovative new products and to enhance
and redesign its existing products. The Company is focusing on new products
that may provide substantial growth opportunities in vertical markets. The
Company anticipates adding features, functions, and additional modules and
components to its IOWorks software, and expects its significant investments in
this product line to continue. The Company continuously monitors developing
technologies and introduces products as standards and markets emerge. The
Company plans to maintain its annual investment in Research and Development, as
a result, the Company expects that research and development investments, as a
percentage of revenues, will decrease if future revenues increase as
anticipated.
PRODUCTS
The Company designs and manufactures a wide variety of board-level products,
I/O systems, and software primarily for embedded computer solutions, as
well as communications products for most leading computer manufacturers. Some
of the Company's products are used for high-speed communications among
embedded computer systems and systems offered by such companies as DEC,
Silicon Graphics, Harris, IBM, Intergraph, Motorola, Gateway and DELL. The
Company's product lines can be partitioned into six primary groups:
20
Single-Board PC VMEbus CPUs and Peripherals. The Company is a technological
leader in VMEbus Intel-based CPU products. The product line spans the complete
line of Intel-based products including 486, 586, Pentium, Pentium Pro and
Pentium II processor-based single-board computers. The Company's Pentium
processor-based single-board computers have recently received national award
recognition from CONTROL ENGINEERING. The product line supports a wide variety
of operating systems such as DOS, Windows, Windows NT/RTX, LynxOS, Windows
CE/RTX, VxWorks and QNX. In addition, the Company manufactures an array of
compatible VMEbus boards such as floppy and hard drive modules. VMIC
manufactures fully functional PC/AT single-board computers which support off-
the-shelf PC/AT software and enable the user to completely configure an
embedded PC/AT computer system with VMIC products. The Company has recently
announced a variety of Pentium single board computers based on CPCI.
According to recent independent market studies and the Company's recent
marketing efforts, CPCI products have the greatest potential in the telecom
market area. The Company's single-board products are fully supported by the
Company's component software (IOWorks). See "Component Software (IOWorks)"
below.
GENERAL PURPOSE I/O BOARDS. The Company offers a wide range of I/O products
including VMEbus, Compact PCI, I/O boards, and boards designed for other
standard computer buses. The Company's I/O product and line includes more than
90 I/O boards and supporting software drivers based upon a broad line of
operating systems such as VxWorks, QNX Windows, and Windows NT/RTX. The
Company's I/O products are used to perform such tasks as monitoring
temperature, fluid flow, motion, resistance, strain, revolutions, and the
states of many different conditions such as closed/open status of values or
on/off status of switches.
COMMUNICATIONS PRODUCTS. The Company's communications product line includes
four discrete product categories. The categories are:
1. General purpose serial I/O products that support a wide variety
of connectivity options associated with peripherals, intelligent sensors
sensors, dials, and indicators.
2. Serial I/O communication products used in a wide variety of military
and space applications, including aircraft, missiles, ground support
equipment, and avionics buses which are used in commercial applications.
3. Bus repeater products which provide a means of expanding the capacity
of a system so that I/O boards may be used or added to the system with-
out the high cost of using a CPU for each chassis which may require
I/O boards. The Company's bus repeater products include more than six
products which support the configuration of large I/O systems and the
remoting of I/O boards from the CPU via fiber optics.
4. Reflective Memory products which offer real-time networking for applica-
tions where guaranteed delivery of data at precise times or time
intervals are primary requirements. The Company's Reflective Memory
allows customers to configure extremely high performance networks.
The Company's Reflective Memory product line supports networking of most
computer systems offered by DEC, Silicon Graphics, Harris, IBM, Intergraph,
Hewlett-Packard, Motorola, Gateway, DELL, and many others that are designed to
support standard buses. Reflective Memory has application for networking the
same or dissimilar computer systems in a high-performance, fiber-optic or
cable network. One of the most significant benefits of Reflective Memory is
that software is not required for its operation. However, the Company offers
industry-compatible networking software compliant to internationally recognized
standards such as TCP/IP which is typically used with other types of networks.
The Company's Reflective Memory products have recently received national award
recognition from CONTROL ENGINEERING.
The Company has developed a quad-redundant, fault-tolerant version of its
Reflective Memory and network hubs for Naval applications involving ship
control and weapon systems for Hughes and Raytheon. This product also has
market potential in many other markets where real-time deterministic
communications, reliability, and fault-tolerant are paramount.
COMPONENT SOFTWARE (IOWORKS). The Company's new IOWorks software product
line is an extensive family of PC software components intended primarily for
applications in the Industrial Automation industry. The products also have
applications in the Test and Measurement, Simulation and Training,
21
Telecommunications, and other markets. These components provide a
comprehensive set of tools used to create data acquisition and control systems
and to interconnect the large number of legacy control products commonly found
in industrial plants today. IOWorks can be used to implement complete plant-
wide control or can be used in conjunction with existing control systems to
augment or supplement those existing systems. IOWorks' strength lies in the
seamless, cohesive, easy-to-use environment it provides and the flexibility it
gives users to pick and choose the right components for the application.
IOWorks components form a comprehensive development and control environment
for PC-compatible computers running Microsoft's Windows NT operating system.
Control systems run under Windows NT, Windows NT/RTX and VxWorks. IOWorks
software executes on the PC to read temperatures, pressures, motor shaft
positions, and other data from the plant and then controls such machines as
conveyors, packaging equipment, and extruders. IOWorks components are based
upon open standards such as IEC-1131-3 and Microsoft technologies. IEC-1131-3
is an internationally recognized software specification that defines and
standardizes programming of control and monitoring systems. IOWorks adherence
to these open standards allows integration with other standard off-the-shelf
Windows NT-compatible software products.
IOWorks component software functions with various third-party I/O boards and
platforms, as well as VMIC's hardware products. The software is designed for
hardware independence and software operating system independence at the system
control level. IOWorks supports open architecture and open systems solutions,
ensuring that the customer's investments will be compatible with future
programming environments.
I/O SYSTEMS PRODUCTS. The Company offers a wide range of systems for the
embedded computer market. A system is a combination of board-level products,
coupled with backplanes (interconnecting boards), power modules, mechanical
packaging, and software. Systems products are configured by the Company to
customer specifications and are delivered to the customer as an integrated
product. The Company typically does not provide any custom software or
hardware products for such sales. Systems products are generally sold to
OEM's, systems integrators, or end-users who install the equipment, develop
software, and add third-party products to customize such systems for specific
applications.
The Company's I/O systems, until recently, were primarily used in applica-
tions involving simulation and training for nuclear plants, defense simulation
and training, Test and Measurement, Data Acquisition and Control, and
Environmental Monitoring. The Company currently offers an expanded range of
I/O systems based upon new hardware and software products which have wider
applications in the Industrial Automation and Test and Measurement markets,
The Company's new IOWorks software enables the Company to offer systems-level
products for Industrial Automation which:
1. support the interconnectivity of a wide range of existing dissimilar I/O
systems, thereby opening a closed market,
2. replace antiquated closed proprietary I/O systems with state-of-the-art
open architecture I/O systems which are based on open standards,
3. enhance the performance and increase the functionality of antiquated
installed I/O systems, allowing customers to maintain their investment
in such equipment, and
4. support the interconnection of the Company's advanced I/O systems with a
broad array of installed I/O systems and new systems offered by third-
party suppliers.
The Company's potential growth in the Test and Measurement I/O systems
market has been significantly enhanced because its IOWorks software, when
coupled with the Company's equipment and third-party leading Test and
Measurement software, enable the Company to offer state-of-the-art open
architecture I/O systems to the Test and Measurement market. While the Company
has sold products into the Test and Measurement market, its potential for
significant growth has also been increased because of its investment in PC
single-board computers, new IOWorks component software, and new I/O board
products designed specifically for the Test and Measurement market.
SPECIAL PRODUCTS. The Company develops, manufactures, and markets a variety
of special products related to: safety applications in nuclear power plants,
supplements to VMIC standard products, private label products, and proprietary
bus applications.
The Company typically avoids such special products unless the business
22
relationship involves significant revenue opportunities. While special products
are normally developed at the customer's expense, occasionally the Company may
Company may share development expenses for such products or completely
underwrite the project.
CUSTOMERS, APPLICATIONS, AND MARKETS
The Company conducts business with more than 2,000 customers in more than
eight markets involving a wide variety of applications. The following is a
brief description of some applications, customers, and markets, some of
which the Company is currently addressing and others of which the Company
intends to pursue. There are no assurances that the Company will be
successful in expanding its presence in any of these industries.
A majority of the Company's customers are systems integrators, value-
added resellers, and end-users. However, in order to implement its strategy
of penetrating the Communications, Industrial Automation and other markets with
its Reflective Memory, I/O, IOWorks, and PC products, the Company has focused
significant marketing efforts on OEMs who will incorporate these new products
into their products for resale in these vertical markets.
Simulation and Training. The Simulation and Training industry can be
partitioned into three primary markets. These markets include Defense, Power
and Utilities, and Transportation. The Defense market involves the use of the
Company's simulation and training I/O products in aircraft, helicopter and ship
simulators, and trainers. The Company's customers are systems integrators such
as Reflectone, McDonnell Douglas, Quintron, Flight Safety International, AAI
Corporation, and others who typically purchase products designed specifically
for the industry. The power utility industry uses the Company's simulation and
training products for applications in nuclear power plant simulators and
trainers. The Company's customers are systems integrators and end-users such
as S3 Technologies, Siemens, Atlas, Thomson-CSF, Mitsubishi Heavy Industries,
Georgia Power, Virginia Electric Power, and TVA. The Company has also recently
received an order for I/O equipment for a simulator through STN Atlas
Elektronik for the G<o">sgen Nuclear Power Plant near Zurick, Switzerland.
The primary difference in the markets involves the size of the I/O system.
Usual I/O systems for nuclear power plants typically sell for $500,000 to
$1,000,000 per unit, whereas I/O systems for Defense applications typically
sell for $50,000 to $100,000 per unit.
Recently, the Company's I/O Systems have been specified by Samsung Electric
for use in a nuclear power plant simulator in Korea. Funding for this job has
been approved and the Company is negotiating pricing with the customer. In
addition, Samsung has been appointed as the systems integrator for three
three more simulator projects for which funding has not yet been been approved,
but for which the Company's equipment is specified. Several systems integrators
currently bidding on jobs in Russia, Greece and Germany have also specified the
Company's equipment.
The Company believes that its success in these markets centers around its
focus on providing a wide variety of standard bus products and systems that are
designed specifically for the Simulation and Training markets. This market
requires high-density I/O boards with self-test capability supporting extensive
fault detection and isolation capabilities. The Defense and Power Plant
industries have focused on open architecture solutions and VMEbus is the
leading embedded computer bus standard. The Company believes that its
customers in this market particularly value its Intelligent I/O Controllers
that were designed specifically for the Simulation and Training industry. The
Company's simulation and training product line enables a customer to order
systems solutions that obviate the need for detail-level programming of the
Company's equipment.
The Defense Simulation and Training market is undergoing significant
technology changes which will require the Company to focus on IOWorks component
software solutions for this industry in the future. The Company expects that
its revenues from the Simulation and Training market to be stagnant at
approximately $2 to $3 million annually for the next five years without any
consideration of IOWorks software sales. The Company is the leading supplier
of I/O equipment for this market.
The Company's Data Acquisition and Control products are used in
semiconductor ovens, annunciator systems, gas turbine monitoring and control,
electron particle acceleration, power train testing, wind tunnel testing, and
emissions monitoring. VMIC's customers for such applications include OEMs,
systems integrators and end-users such as Interautomation, Arnold Air Force
Base, Sverdrup, Chrysler, American Power, Ohio Edison, Synchrontron Radiation
Research Center, and others. The Company attributes its success in this market
to its broad array of I/O boards, open system technology, and the wide
acceptance of VMEbus in the embedded systems market.
The Company's line of Universal Intelligent I/O Controllers form the core of
23
its Data Acquisition and control systems. The I/O controller product line was
designed specifically for the Data Acquisition and Control market and features
many benefits required by OEMs, systems integrators, and end-users. One of the
primary benefits is the I/O controllers' support of the broadest assortment of
VMEbus I/O boards in the industry. This wide selection of I/O, coupled with
effective turnkey I/O solutions for the industry, is a major benefit, and the
prime reason for the Company's success in this market.
INDUSTRIAL AUTOMATION. Since the 1960's, Industrial Automation systems have
included mechanical devices, meters, and gauges, as well as data loggers and
strip chart recorders. In the 1970's, programmable logic controllers
("PLC's"), special-purpose, proprietary, stand-alone, industrial computers were
introduced and were primarily used for "discrete" manufacturing applications
such as automobile assembly. PLCs have traditionally had primitive operator
interface panels incorporating buttons, lights, and indicators. In parallel,
sophisticated Industrial Automation systems called distributed control systems
("DCS") were also adopted to provide computer control of large-scale continuous
processes such as those found in oil refineries. DCSs integrated a variety of
sensors and control elements using I/O connections all controlled by a central
computer running proprietary software. Systems were also configured based on
proprietary hardware.
The market is undergoing a significant changes, and customers are now
demanding solutions based upon open hardware platforms, and nonproprietary
standards such as VMEbus and CPCI; and PC solutions based upon Intel
processor technology and software (such as IOWorks) based upon Microsoft
operating systems and other Microsoft key technologies.
The Company has entered this market with applications for several industrial
applications such as petrochemical, hydro-desulphurization, film processing,
aluminum rolling mills, steel rolling mills, fiber-optic cable manufacturing,
silicon wafer manufacturing, and others. The customers utilizing the Company's
products in this market include OEMs and end-users such as the 3M Company, AVX
Corporation, Corning, Eastman Kodak, Bethlehem Steel, Dupont, Kimberly Clark,
Quester, Reynolds Aluminum, Tuscaloosa Steel, and Xerox.
TELECOMMUNICATIONS. Typical telecommunications systems have multiple
embedded computers working in concert. Potential applications include voice
message systems, routers, fiber optic cable testers, cell phone switching
systems, and environmental monitors. The Company believes that the
Telecommunications market offers significant sales opportunities for its VMEbus
and CPCI PC single-board computers and Reflective Memory fiber-optic networks
products. The Company has demonstration equipment at several potential
customer sites. The CPCI bus has been selected as the primary architecture for
the Telecommunications industry; therefore, the Company has made significant
investments in a CPCI product line involving PC single board computers and
Reflective Memory products. There are no assurances, however, the Company will
be successful in penetrating this market or that its market share would be
significant.
TEST AND MEASUREMENT. Test and measurement generally refers to the
collection and analysis of experimental data. Such applications typically
involve the testing and verification of the proper operation of products being
manufactured. Instrument systems may also be used to simulate manufacturing
processes or techniques.
The Company's Test and Measurement products are used in applications
involving structural testing of aircraft, transmission testing, airbag
sensor testing, flight computer testing, weapon systems testing, automobile
radiator testing, pitch and roll tables for shaking engines, automobile
engine test stands, rocket engine test stands, and military and commercial
jet engine test stands. Companies that utilize the Company's Test and Measure-
ment products include OEMs, systems integrators, and end users such as
Chrysler, Ford, BMW, Rolls Royce, Bristol, Deutsche Aerospace Daimler Benz,
GM, Pratt & Whitney, Argonne National Labs, FERMILAB, Harvard University,
Duke University, and Brookhaven National Labs.
The Company has established a relationship with Deutsche Aerospace Daimler
Benz Conglomerate ("DASA"), a diversified company with significant assets and
worldwide marketing resources. DASA is involved in most of the markets served
by the Company, and is negotiating a worldwide distribution agreement with VMIC
for the Company's products.
The Company has recently developed unique, new, high-accuracy, state-of-the-
art, board-level products for the Test and Measurement market. The Company
believes that the Company's Test and Measurement market potential has been
significantly enhanced because of its IOWorks software products, single-board
24
computer and I/O boards. The Company has also coupled IOWorks to National
Instruments' LabVIEW software product. National Instruments is a Test and
Measurement market leader with respect to its human machine interface ("HMI")
software and the Company's IOWorks product complements National Instruments'
HMI software product.
ROBOTICS. The Company's products are used in a wide range of robotic
applications including hazardous environments in the nuclear and chemical
industries. Applications also involve large robotic steel hauling trucks,
nuclear waste removal, and rail track repair. Customers in these industries
include end-users such as Fairmont Tamper, Westinghouse, RedZone Robotics, and
Mitsubishi Heavy Industries.
POWER PLANT MONITORING. The Company selected this market as a potential
growth market for its products because of its relationship with key systems
integrators dedicated to the Nuclear Power Plant Monitoring industry. The
market is highly project-oriented with very sophisticated systems integrators
within a very narrow market focus. I/O systems in this industry are typically
very large, with such systems selling in the range of $500,000 to more than
$1,000,000. There are more than 200 nuclear power plants worldwide, most of
which were built 10 to 15 years ago. Each plant must upgrade its equipment
every 10 to 15 years because of parts obsolescence, system performance
enhancements, and regulatory requirements. In addition, the U. S. Nuclear
Regulatory Commission and similiar organizations in other countries are
constantly revising safety standards which require utilities to modernize their
facilities. The Company supplies products to end-users such as Ontario Hydro,
River Bend, Virginia Electric Power, Union Electric, Kein Kroftwerk Gosgen,
and others.
The Company recently delivered its first nuclear-qualified I/O System to
SAIC. SAIC, is the systems integrator leader for this market in the United
States. Nuclear-qualified equipment involves the qualification of some of the
Company's standard products to meet certain vibration, radiation, and
electrical isolation requirements. Most of the Company's business in this
market does not involve nuclear qualification testing.
VMIC recently received an order from Siemens AG for a Nuclear Power Plant
Monitoring application at Kein Kroftwerk G<o">sgen. This is an upgrade to a
Siemens nuclear power plant, replacing a Siemens monitoring system.
MARKETING, SALES, AND DISTRIBUTION
The Company is a global corporation that distributes products in more than
48 foreign countries through over 23 distributors and 14 representative
organizations worldwide. As of September 30, 1998, the Company's marketing,
sales, and distribution programs were conducted by 42 of the Company's
employees. The Company sells its products in the United States through
commissioned-based independent sales organizations. As of September 30, 1998,
the Company has contracts with 14 representative organizations that employ over
52 sales people. These sales organizations are supported by their own support
staff, as well as the Company's employees. The Company has recently opened an
office in Paris, France to support its European customers and distributors.
The Company's products are sold internationally through 23 distributors. As
of September 30, 1998, the distributors employed over 40 sales people. The
Company plans to add eight additional distributors in eight foreign countries
by the end of fiscal year 1999. The Company's representative and distributor
contracts do not allow such organizations to sell competitive products.
In addition to international distributors and U. S. sales representatives,
the Company has 29 value-added resellers ("VARs") who represent the Company.
VARs purchase and resell the Company's products and add value to the Company's
products by including custom software, hardware or installation and maintenance
of the Company's equipment. The Company plans to add approximately six VARs by
the end of 1999.
The Company attends more than 40 table-top trade shows per year and more
than ten major trade shows per year. Table-top shows require minimum Company
involvement, whereas the major shows are market related and require significant
planning, staffing, and promotional efforts. The Company also markets its
products through publicity received from numerous publications and magazines
that publish articles and press releases.
The Company has recently expanded its sales and marketing organization to
support its Industrial Automation products. The marketing organization has
recently been expanded to include 14 full-time employees and several part-time
telemarketing consultants. The sales origination has been recently expanded to
25
include field located direct sales staff in several states. In addition, the
Company has recently dedicated a group of new employees to focus on IOWorks
software sales.
CUSTOMER SERVICE AND SUPPORT
The Company is dedicated to providing the products, service, quality, and
responsiveness that its customers require. The Company's core business is
characterized by repeat business from customers and long-term mutually
beneficial customer relationships. The Company understands that satisfaction
of the customer in all areas of the business relationship is crucial and the
Company solicits their feedback.
Users of the Company's products have access to a wide array of support
services. The Company has technical expertise and resources to support
installation, maintenance, and service of the Company's products. The Company
offers its customers standard classroom instruction, as well as "hands on"
training for all of the Company's hardware and software products. These
courses may be scheduled at the Company's facility, or they may be held at the
customer's site upon request.
The Company maintains a 24-hour per day phone service to support its
customers. The Company's organizational structure includes a staff of customer
service employees who offer sales support, warranty servicing, and product
repair. The customer service organization is supported by dedicated inventory
for quick product replacement. In addition, the customer service organization
has equipment committed exclusively to assist in emulation of customer problems
so that the Company can quickly respond to customer complaints. Critical
customer service inquiries are brought to the attention of upper management to
ensure that the Company continues to provide top quality service and prompt
response.
MANUFACTURING
The Company manufactures approximately 80% of its products in-house while
subcontracting the balance of the product manufacturing. The Company has an
in-house manufacturing capability that includes automated assembly and testing,
and surface mount technology. Product manufacturing operations at the Company
involve: electronic circuit card and module assembly; I/O systems assembly,
configuration, and testing, cable assembly, the production of technical
manuals, product support documentation, and software duplication on both CD-ROM
and diskette.
In addition, manufacturing agreements are established with several local
manufacturing companies to provide prompt service for customer's high volume
requirements. Although the Company subcontracts some of its manufacturing,
final testing, packaging, and quality assurance tasks are always conducted by
the Company.
The Company is strategically located in one of the country's largest high-
tech research communities which allows the Company to take advantage of the
quality and high volume manufacturing capabilities of several expert firms in
the area.
The principal steps in the manufacturing process are the purchase and
management of materials, assembly, testing, final inspection, packing, and
shipping. The Company purchases parts and components for assembly of all its
products from a large number of suppliers through a worldwide sourcing program.
However, certain key components used in the Company's products are currently
available from only one source, and other key components are available from
only a limited number of sources. In the past, the Company has experienced
delays in the receipt of certain key components, which have resulted in delays
in related product deliveries. The Company attempts to manage such risks
through developing alternative sources, engineering efforts designed to obviate
the necessity of certain components, and through maintaining quality
relationships and close personal contact with each of its suppliers. However,
there can be no assurance that delays in key component and product deliveries
will not occur in the future. The inability to obtain sufficient key components
as required, or to develop alternative sources if and as required in the
future, could result in delays or reductions in product shipments which, in
turn, could have a material adverse effect on the Company's customer
relationships and operating results.
Engineering refinements to the Company's new hardware and software products
are fairly common. These changes can result in the disruption of the
manufacturing operation and concurrent delays in delivery dates.
The Company's Quality Assurance program is compliant to the ISO 9002
26
specification. The Company's software is compliant to ISO 9000-3. ISO-9002 is
an internationally recognized "blueprint" for quality systems involving all
aspects of business, not just manufacturing and development. The Company
maintains an extensive Quality Assurance program that is consistently audited
by most customers for compliance to these commercial Quality Assurance
standards.
The Company has also teamed with EGS Corporation, a division of SAIC, to
provide safety-related equipment to the nuclear power industry. EGS offers
specialized support in the areas associated with procurement and evaluation of
safety-related equipment including addressing issues associated with the
dedication of commercial-grade products for safety-related use.
A substantial portion of the Company's shipments in any fiscal period
relates to orders received in that period. The Company's backlog as of
September 30, 1998 was $4.1 million compared to $ million as of September
30, 1997. Many of the Company's customers require immediate delivery which
requires the Company to maintain substantial raw and finished goods inventory
as well as separate customer service inventory to support quick warranty and
repair service.
RESEARCH AND DEVELOPMENT
The Company has recently undertaken substantial research and development
efforts outside of its traditional business area, resulting in the introduction
of new software control products, an improved line of computer network
solutions and new embedded PC single board computers. The Company has funded
this research by diverting research and development resources from its core
products.
VMIC's research and development expenses were approximately $5.3 million in
1996, $5.3 million in 1997 and $6.2 million in 1998, exclusive of capitalized
software investments.
COMPETITION
The markets for the Company's products are intensely competitive and are
characterized by rapid technological change and emerging industry standards
requiring ongoing expenditures for research and development and the timely
introduction of new technology and enhancements of existing technology. The
Company's future success will depend, in part, upon its ability to enhance its
current technology and services, respond effectively to technological changes,
sell additional services to its existing client base, introduce new
technologies and meet the increasingly sophisticated needs of its clients.
Other companies may develop products or technologies that may adversely affect
the Company's competitive position or render its technologies or services
obsolete. The Company competes for customers on the basis of price,
performance, features, quality, service, reliability, adherence to standards,
availability, development capabilities, and support. The Company's competitors
vary in the size, scope and breadth of the products and services they offer;
some of the Company's competitors and potential competitors have greater
financial, technological, manufacturing, marketing, sales, and personnel
resources than the Company.
While the Company faces entrenched competitors in the single-board computer
market, VMIC believes that it offers the most complete line of Intel and AMD
PC-based single-board computers in the VMEbus market, and maintains
technological advantages in the CPCI market. The Company was first to market
with Intel's Pentium and Pentium Pro processor-based single-board computers.
The Company believes that it can become a major supplier of PC processor-based
single-board computers and associated products, although there is no assurance
that it will do so.
GOVERNMENT BUSINESS
The Company's reliance on direct and indirect government business has been
significantly reduced over the past eight years from 75% of the Company's
business to 25%; however, the Company is involved in several government related
opportunities and contracts that could have a significant impact on the
Company's growth. The Company has received orders for CPUs and I/O products
from the Navy for shipboard propulsion monitoring and control and is well
positioned to receive sizable follow-on orders. Should the program prove
successful 27 cruiser class ships, including follow-ons for destroyers and
carrier class ships, would use the Company's products; therefore a significant
percentage of the Company's future revenue could be generated by government-
related business. The Company has received orders from the Navy for a
quad-redundant Reflective Memory for fault-tolerant ship communications and is
well positioned to receive sizable follow-on orders. Should the program prove
successful, and all of the Navy's ships use the Company's product, a
significant percentage of the Company's future revenue could be generated
by government-related business. However, there are no assurances that the
Company will be the sole supplier or that the initial test project will be
successful. Furthermore, even if the initial test is satisfactory, there
27
are no assurances that additional ships would be upgraded or retrofitted with
this new technology.
PROPRIETARY RIGHTS
The Company's success depends to a significant degree upon its software
proprietary technology and other confidential information. Unfortunately,
software and information technology industries have experienced widespread
unauthorized reproduction of software products and other proprietary
technology. The majority of the Company's software is not patented and existing
copyright law offers only limited practical protection. VMIC relies on a
combination of trade secret, copyright, common law intellectual property
rights, license agreements, nondisclosure and other contractual provisions and
technical measures to establish and protect its proprietary rights in its
intellectual property and confidential information. The Company does not,
however, sell its software source code, or provide its customers access to the
source code associated with its software products.
There is no assurance that the Company will be able to protect its trade
secrets or that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's trade secrets. There is no assurance that foreign intellectual
property laws will protect the Company's intellectual property rights. In
addition, the computer industry is characterized by frequent litigation
regarding patent and other intellectual property rights, and litigation has
been and may in the future be necessary to enforce the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others, or to
defend against claims of patent infringement. Litigation with respect to
patents or other intellectual property matters could result in substantial
costs and diversion of management and other resources and could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
VMIC believes that its proprietary rights do not infringe upon the
proprietary rights of third parties. However, third parties may assert
infringement claims against the Company in the future and such assertion could
cause the Company to enter into a license agreement or royalty arrangement with
the party asserting the claim. The Company may also be required to indemnify
its customers for claims made against them. Responding to and defending any
such claims, developing non-infringing intellectual property or acquiring
licenses may distract the attention of the Company's management and could have
a material adverse affect on the Company's business, financial condition or
results of operations
EMPLOYEES
As of September 30, 1998, the Company had 266 full-time employees. 95 were
in Research and Development, 15 were in Marketing, 16 were in General
Administration, 41 were in Sales, 89 were in Production, and 10 were in Quality
Assurance. None of the Company's employees is represented by a collective
bargaining agreement, nor has the Company ever experienced any work stoppage.
The Company believes that it has an excellent relationship with its employees.
PROPERTIES
The Company's headquarters and principal administrative, engineering, sales,
marketing, and manufacturing facilities are located in office buildings
containing approximately 77,000 square feet located on approximately 10 acres
of land in Huntsville, Alabama. The Company from time to time also leases
additional space necessary. The Company believes that its existing production
facilities are suitable for the Company's projected growth over the next 24 to
36 months, whereas its Administration, Sales, Marketing, and Research and
Development facilities may need to be expanded. The Company owns sufficient
land to expand its current facilities.
LEGAL PROCEEDING
The Company has been involved from time to time in litigation in the normal
course of its business. The litigation has been associated with alleged patent
and trademark infringement and termination of a sales representative. The
Company is not aware of any pending or threatened litigation matters which will
have a material adverse affect on the Company.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
Name Age Position
- ---- --- --------
Carroll E. Williams 51 President, CEO and Chairman of the Board
Mary W. Williams 54 Director, Secretary, and Treasurer
Arthur Faulkner (1) 58 Director
Alfred F. Casteleyn 56 Director, Vice President Sales and Marketing
Ernest Potter (1) 58 Director
R. Gary Saliba 44 Director
Jim Caudle, Sr. (1) 63 Director
Charles McDonald 58 Executive Vice President of Operations
George Meares 49 Vice President Research and Development
Gordon Hubbert 54 Vice President and Chief Financial Officer
__________
(1) Member of the Compensation Committee
The Board of Directors of the Company is composed of seven directors who are
elected for one year terms. The officers of the Company are elected by the
Board of Directors and serve until their successors are duly elected and
qualified.
CARROLL E. WILLIAMS. Mr. Williams is the founder of the Company and has
served as its President, Chief Executive Officer, and Chairman of the Board of
Directors since its incorporation. Prior to founding the Company, he was a
Design Engineer for SAIC, Huntsville Division from 1972 to 1983. Mr. Williams
was the founder and Division Manager of the VME Microsystems Division of SAIC
from 1984 to 1986. Prior to joining SAIC, Mr. Williams was employed by Sperry
Rand where he was involved in numerous assignments associated with highly
reliable, fault-tolerant computer systems including the space shuttle main
engine controller dual processors. Mr. Williams gained experience with Data
Acquisition and control systems while employed at Pratt & Whitney Aircraft
during 1970 and 1971. Mr. Williams graduated from Georgia Tech in 1969, with
honors, and continued graduate studies in electrical engineering and computer
science at the University of Florida and the University of Alabama.
CHARLES MCDONALD. Mr. McDonald is an Executive Vice President of the
Company and acts as the Company's Executive Vice President of Operations. Mr.
McDonald has 30 years of electronics experience and has held positions in the
29
areas of manufacturing systems, computers, computer hardware systems, and
products. Before joining the Company Mr. McDonald spent seven years with SAIC,
where he was the Project Manager/Engineer for several computer systems
contracts and was manager of utilities system integration. Mr. McDonald has
been with the Company since August 10, 1987 and has served as an officer of the
Company since 1990.
ALFRED F. CASTELEYN. Mr. Casteleyn is the Vice President of Sales and
Marketing of the Company, and has been an officer of the Company since June of
1991. He is also a member of the Board of Directors of the Company. Prior to
joining the Company, he was the Sales and Marketing Manager and International
Manager for EAI Electronic Associates of West Long Branch, New Jersey. Mr.
Casteleyn has substantial experience in the International Sales and Marketing
area of the industry and has built a career in the field for over 30 years. He
has been successful in such efforts as design and maintenance of marketing
programs, planning company sales activities, representative/distributor
supervision, trade show preparation and participation, advertising, staff
recruitment and preparation of financial packages.
GEORGE T. MEARES. Dr. Meares is the Vice President of Research and
Development. Dr. Meares has been with the Company since 1990. He has over 14
years of experience in engineering leadership positions and has vast experience
in the design and development of communication and display products for many
commercial and governmental applications. Dr. Meares was formerly associated
with Pentastar Electronics, Inc. as the Electrical Design Branch Manager, a
Project Leader, and a Design Engineer. Dr. Meares earned his Ph.D. in
Electrical Engineering from Tennessee Technical University, as well as his M.S.
in Systems Engineering, and a B.S. in Electrical Engineering. Dr. Meares takes
a very active role in the design and development of the Company's product
lines.
GORDON HUBBERT. Mr. Hubbert is the Vice President and Chief Financial
Officer of the Company. He has been with the Company since 1991, and has been
an officer of the Company since September of 1996. Mr. Hubbert was formerly
the Controller at Tenneco and Duracell, as well as Division Controller at SCI.
Mr. Hubbert received his MBA from Indiana Northern University in 1976.
MARY W. WILLIAMS. Ms. Williams is a director of the Company and has served
in this capacity since its incorporation. Prior to retiring as an employee on
January 19, 1996, Ms. Williams served as the Company's Manager of the Company
Information Systems (MIS), Secretary and Treasurer.
ARTHUR FAULKNER. Mr. Faulkner is a director of the Company and has served
in this capacity since 1986. He is a Certified Public Accountant with
Faulkner, Shannon, Hill and Fogg in Huntsville, Alabama, and has been a
certified public accountant for 26 years.
ERNEST POTTER. Mr. Potter is a director of the Company and has served in
this capacity since 1986. Mr. Potter is an Attorney who practices law in
Huntsville, Alabama, and has practiced law since 1963.
JIM CAUDLE, SR. Mr. Caudle is a director of the Company and has served in
this capacity since 1986. Mr. Caudle is the founder and a member of the Board
of Directors of United Plating, United Printed Circuits, and United Circuits,
all located in Huntsville, Alabama. Mr. Caudle is the retired president of
Snapper, Inc.
R. GARY SALIBA. Mr. Saliba is a director of the Company and has served in
this capacity since 1990. Mr. Saliba is President of Saliba Financial
Economics Group, which is the firm that has annually prepared the valuation of
the Company and its Common Stock. Mr. Saliba formerly served as Senior Vice
President and Trust Officer of SouthTrust Bank, and Senior Vice President and
Chief Investment Officer of Colonial Bank.
COMPENSATION COMMITTEE
The Board has established a compensation committee currently comprised of
Arthur Faulkner, Ernest Potter and Jim Caudle. The Company's compensation
committee awards incentive or nonqualified stock options to employees, officers
and directors; makes recommendations to the board for approval of any
compensation changes or bonuses for officers of the Company; and makes
recommendations to the board for any stock or cash bonus awards to any
employee.
30
DIRECTOR COMPENSATION
Directors not employed by the Company receive a fee of $550 for each board
meeting attended and $200 for each committee meeting attended which is held
independently of a board meeting. Employee directors do not receive
compensation for attending board meetings or committee meetings.
Non-employee directors are eligible to receive options pursuant to the
Company's Non-qualified Stock Option Plan as determined by the Compensation
Committee. The purpose of awarding stock options to directors is to promote
the interests of the Company by strengthening the Company's ability to attract
and retain the services of experienced and knowledgeable non-employee directors
and by encouraging such directors to acquire an increased proprietary interest
in the Company. See "Stock Incentive Plans, Options and Awards."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors except for liability arising
out of i) a breach of their duty of loyalty to the corporation or its
stockholders, ii) acts or omissions not in good faith or which involve
intentional misconduct as a knowing violation of law, iii) unlawful payments of
dividends or unlawful stock repurchases or redemption as provided in Section
174 of the Delaware General Corporation Law, or iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Company protection against
awards of monetary damages resulting from breaches of their duty of care or
fiduciary duty (except as provided above). As a result of this provision, the
ability of the Company or a shareholder of the Company to successfully
prosecute an action against a director for a breach of his duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his or her duty of care.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company, and the Company is not
aware of any threatened litigation or proceeding which may result in a claim
for indemnification.
STOCK INCENTIVE PLANS, OPTIONS AND AWARDS.
The Company maintains an Incentive Stock Option Plan, a Nonqualified Stock
Option Plan for Non-employee directors ("Outside Directors"), an Employee Stock
Purchase Plan, and annually awards stock and cash bonuses. Based upon the
Company's operating results for fiscal year 1998, incentive options to purchase
88,637 shares of Common Stock were issued under the Company's Incentive Option
Plan, 10,000 of which were issued to the Company's officers. For fiscal year
1998, each Outside Director was awarded 1,000 options under the Nonqualified
Option Plan, for a total of 5,000 nonqualified options. The Company also
awards cash and stock bonuses each year based on the Company's performance or
individual employee performance. Awards to particular officers and employees
are based in part upon the performance of the respective areas of
responsibility of the employees and officers. The Compensation Committee makes
recommendations to the Board for stock or cash bonus awards to officers. As of
September 30, 1998, there were 520,919 options outstanding, with a range of
exercise prices from $4.90 to $11.50, and a weighted average exercise price of
$8.51. As of September 30, 1998 198,538 options were exercisable with a
weighted exercise price of $6.64. See "Employee Benefit Plans" and "Director
Compensation."
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company for the fiscal year ended September 30, 1998, for its Chief Executive
Officer and the four highest compensated executive officers of the Company
whose total annual salary and bonuses determined at August 31, 1998, exceeded
$100,000 (collectively, the "Named Executive Officers"):
31
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Year Ended All Other Number of Shares
Name and Principal Position August 31, 1998 Compensation Subject to Options
--------------------------- ------------------- ------------ ------------------
<S> <C> <C> <C>
Carroll E. Williams $211,000 $25,000 0
President and Chief Executive Officer
George Meares 125,000 $ 7,500 0
Vice President, Marketing
Gordon Hubbert 92,000 $ 5,000 0
Vice President and Chief Financial Officer
Charles McDonald 109,000 $ 7,500 0
Executive Vice President, Operations
Alfred F. Casteleyn (1) 170,292 $13,400 0
Vice President, Sales and Marketing
_______
(1) includes Sales Commission
</TABLE>
EMPLOYEE BENEFIT PLANS
INCENTIVE STOCK OPTION PLAN
The Company has a stock option plan under which 1,062,000 shares of common
stock have been reserved for issue to certain employees, officers, and
directors through incentive stock options at September 30, 1998. The options
vest and are exercisable primarily over a four year period from the date of
grant and normally expire either five years or ten years from the date of grant
depending on when the options were granted.
OPTION GRANTS TO THE NAMED EXECUTIVE OFFICERS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value At
----------------- Assumed Annual Rates Of Stock Price
Appreciation For Option Term (1)
-----------------------------------
Percent Of
Total Exercise Of
Number of Options Base Price
Options Granted In ($/Sh) Expiration
Name Granted FY 1998 Date 5% 10%
---- --------- ---------- ----------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
0 0 11.50 09/30/2009 $0 $0
George Meares 2000 2.5 11.50 09/30/2009 $3,877 $19,797
Gordon Hubbert 1500 1.9 11.50 09/30/2009 $2,908 $14,848
Charles McDonald 2000 2.5 11.50 09/30/2009 $3,877 $19,797
Alfred F. Casteleyn 3000 3.8 11.50 09/30/2009 $5,815 $29,695
</TABLE>
(1) Based on the price of the Common Stock on December 31 of $8.25, which is
set each December by VMIC's Board of Directors using a share price for VMIC
stock calculated by an external valuation company.
32
STOCK AWARDS
In addition to the stock options granted under the stock option plan, the
Company has granted to employees stock awards, which vest in variable terms,
not to exceed five years. The nonvested shares of the stock awards outstanding
at September 30, 1998 and 1997 were 362,885 and 369,918, respectively. During
1998 and 1997, 7,033 and 11,750, respectively, shares of the Company's common
stock were issued.
EMPLOYEE STOCK PURCHASE PLAN
In July 1992, the Company adopted an employee stock purchase plan (the Stock
Plan) for employees who have been employed by the Company for the twelve months
immediately preceding the date of participation in the Stock Plan. The Stock
Plan provides for the Company to withhold any amount, not to exceed $25,000,
for the purpose of purchasing shares of the Company's stock at 85% of its fair
market value on a quarterly basis. The Company has reserved 100,000 shares of
its common stock for issuance under the Stock Plan. Included in accrued
liabilities at September 30, 1998 and 1997 in the accompanying balance sheets,
is approximately $117,500 and $130,200, respectively, withheld from employees
to purchase the Company's common stock under the Stock Plan.
401(K) PLAN
In April 1991, the Company adopted an incentive savings plan (the Savings
Plan) for all of its employees. The Savings Plan provides certain employment
benefits to all eligible employees and qualifies as a deferred arrangement
under Section 401(k) of the Internal Revenue Code. Upon approval by the Board
of Directors, the Company will match one-fourth of the participants'
contributions, limited to 6% of a participant's income. An employee's interest
in the Company's contributions begins vesting after one year and becomes 100%
vested after five years. Amounts expensed for the Savings Plan amounted to
approximately $110,300, $106,200, and $71,200 in 1998, 1997, and 1996,
respectively.
CERTAIN TRANSACTIONS
1997 PRIVATE PLACEMENT
On November 30, 1997, the Company completed a private placement stock
offering of common stock, receiving net proceeds of $3.0 million from the sale
of 300,000 shares of stock. After payment of offering expenses and legal fees,
the Company used approximately $2.0 million of the offering proceeds to repay
the balance of its working line of credit. The balance of the offering
proceeds, approximately $1.0 million, was used for general working capital
purposes.
33
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1998, certain information
with respect to beneficial ownership of the Common Stock and the common stock
of VMIC by: i) each person known by the Company to be the beneficial owner of
more than five percent of the outstanding Common Stock, ii) each director and
executive officer of the Company, and iii) all directors and executive officers
of the Company as a group.
Number of Shares Percentage of
Beneficially Held Common Stock
Carroll Williams 1,140,768 26%
Mary W. Williams 561,440 13%
Alfred F. Casteleyn 128,366 3%
Jim Caudle, Sr. 9,084 *
Arthur Faulkner 22,496 *
Ernest Potter 93,632 *
R. Gary Saliba 29,066 *
Gordon Hubbert 35,000 *
Executive officers and
directors as a group 1,974,406 45%
* less than one percent
(1) In accordance with Securities and Exchange Commission rules, a person is
deemed to have beneficial ownership of any securities as to which such
person, directly or indirectly, has or shares voting power or investment
power and of any securities with respect to which such person has the right
to acquire such voting or investment power within 60 days. Except as
otherwise noted in the accompanying footnotes, the named persons have sole
voting and investment power.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 10 million shares of
Common Stock, par value $.10 per share. As of September 30, 1998, the Company
had issued and outstanding 4,462,917 shares of Common Stock.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share for the
election of directors and all matters to be submitted to a vote of the
Company's shareholders. The holders of shares of Common Stock are entitled to
share ratably in such dividends as may be declared by the Board of Directors
and paid by the Company out of funds legally available therefor. In the event
of a dissolution, liquidation, or winding up of the Company, holders of shares
of Common Stock are entitled to share ratably in all assets remaining after
payment of all liabilities and liquidation preferences, if any. Holders of
shares of Common Stock have no preemptive, subscription, redemption, or
conversion rights. The outstanding shares of Common Stock are duly authorized,
validly issued, fully paid, and nonassessable. The Company acts as its own
transfer agent and registrar.
34
LEGAL MATTERS
The validity of this Registration Statement will be passed upon for the
Company by Lanier Ford Shaver & Payne P.C., Huntsville, Alabama. Members of
the law firm own 10,000 shares of common stock of the Company
INDEPENDENT ACCOUNTANTS
The financial statements of the Company appearing in this Registration
Statement have been audited by PricewaterhouseCoopers LLP, independent
accountants, to the extent indicated in their reports thereon.
ADDITIONAL INFORMATION
The Exchange Act Registration Statement and the exhibits and schedules
thereto filed by VMIC may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 5th Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such material can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 or accessed electronically
by means of the Commission's home page on the Internet (http://www.sec.gov).
Following the registration of VMIC's Common Shares, VMIC will be required to
comply with the reporting requirements of the Exchange Act and will file
annual, quarterly and other reports with the Commission. VMIC will also be
subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish audited financial statements to its stockholders in
connection with its annual meetings of stockholders.
No person is authorized by VMIC to give any information or to make any
representations other than those contained in this document, and if given or
made, such information or representations must not be relied upon as having
been authorized.
35
<PAGE>
INDEX TO VMIC, INC. CORPORATION
FINANCIAL STATEMENTS
Report of Independent Accountants................... F-1
Balance Sheets...................................... F-2
Statements of Income................................ F-3
Statements of Changes in Stockholders' Equity....... F-4
Statements of Cash Flows ........................... F-5
Notes to the Financial Statements................... F-6
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
VMIC, Inc.
In our opinion, the accompanying balance sheets and related statements of
income, changes in stockholders' equity, and cash flows present fairly, in all
material respects, the financial position of VMIC, Inc., formally known as VME
Microsystems International Corporation (the Company) as of September 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Birmingham, Alabama
November 2, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
VMIC, INC
BALANCE SHEETS
September 30, 1998 and 1997
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and Cash Equivalents $ 527,972 $ 339,101
Accounts Receivable (includes allowance for doubtful accounts of
$384,383 and $300,462 in 1998 and 1997, respectively) 4,366,330 3,941,132
Inventories 4,943,239 4,132,236
Prepaid Expenses 250,733 91,216
Income Tax Receivable 573,771 278,583
Deferred Income Taxes 954,929 513,627
---------------- -------------
Total Current Assets 11,616,974 9,295,895
Property, plant, and equipment, net 9,033,922 7,661,575
Purchased product and software costs, net 967,852 930,244
Software development costs 3,543,030 1,819,560
---------------- -------------
$ 25,161,778 $ 19,707,274
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,367,397 $ 1,161,396
Current portion of notes, mortgages, and capital leases 2,104,777 1,264,518
Accrued liabilities 2,421,180 2,176,859
---------------- -------------
Total current liabilities 6,893,354 4,602,773
Notes, mortgages, and capital leases, less current portion above 5,713,086 5,395,057
Deferred income taxes 808,101 312,358
---------------- -------------
Total liabilities 13,414,541 10,310,188
---------------- -------------
Commitments and contingencies (Note 10)
Stockholders' Equity:
Common stock, par value $.10 (5,000,000 shares authorized;
4,462,917 AND 4,214,535 shares issued and outstanding in
1998 AND 1997, respectively) 446,292 421,454
Additional paid-in capital 6,432,799 4,312,209
Retained earnings 4,868,146 4,663,423
--------------- -------------
Total stockholders' equity 11,747,237 9,397,086
--------------- -------------
$ 25,161,778 19,707,274
=============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
VMIC, INC.
Statements of Income
for the years ended September 30, 1998, 1997, and 1996
<S> <C> <C> <C>
1998 1997 1996
Sales $ 31,049,273 $ 27,901,128 $ 23,791,415
---------------- ----------------- -----------------
Cost and expenses:
Cost of products sold 10,759,343 9,793,061 8,296,334
RESEARCH AND DEVELOPMENT EXPENSE 6,231,572 5,307,207 5,335,288
Selling, general, and administrative expense 13,301,730 10,994,853 9,660,821
---------------- ----------------- -----------------
30,292,645 26,095,121 23,292,443
Operating income 756,628 1,806,007 498,972
Other income (expense):
Interest income 81,544 25,497 34,208
Interest (557,849) (586,030) (451,147)
--------------- ---------------- -----------------
(476,305) (560,533) (416,939)
--------------- ---------------- -----------------
Income before income taxes 280,323 1,245,474 82,033
Provision for income taxes (75,600) (311,245) (40,747)
---------------- ----------------- -----------------
Net income $ 204,723 $ 934,229 $ 41,286
================ ================= =================
Net income per common and common equivalent share:
Basic $0.05 $0.23 $0.01
================ ================= =================
Diluted $0.04 $0.22 $0.01
Weighted average common and common equivalent ================ ================= =================
shares outstanding:
Basic 4,405,808 4,054,764 3,953,922
================ ================= =================
Diluted 4,554,448 4,189,113 4,047,989
================ ================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
VMIC, INC.
Statements of Changes in Stockholders' Equity
For the years ended September 30, 1998, 1997, and 1996
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
--------- ----------- ------------- ------------ ------------
Balance, September 30, 1995 1,950,639 $ 195,064 $ 2,482,378 $ 3,687,908 $ 6,365,350
Issuance of shares to effect
stock split (see Note 5) 1,950,639 195,064 (195,064) 0
Issuance of common stock 42,816 4,281 217,245 221,526
Exercise of stock options 51,386 5,139 82,709 87,848
Purchase of common shares for
constructive retirement (5,796) (580) (45,788) (46,368)
Income tax benefit from exercise
of nonqualified stock options 23,621 23,621
Net income 41,286 41,286
---------- ----------- ------------- ------------- -------------
Balance, September 30, 1996 3,989,684 $ 398,968 2,565,101 3,729,194 6,693,263
Issuance of common stock 177,378 17,739 1,669,532 1,687,271
Exercise of stock options 58,040 5,804 121,726 127,530
Purchase of common shares for
constructive retirement (10,567) (1,057) (104,367) (105,424)
Income tax benefit from exercise
of nonqualified stock options 60,217 60,217
Net 934,229 934,229
---------- ----------- -------------- -------------- -------------
Balance, September 30, 1997 4,214,535 421,454 4,312,209 4,663,423 9,397,086
Issuance of common stock 187,528 18,753 1,827,230 1,845,983
Exercise of stock options 60,854 6,085 102,010 108,095
Income tax benefit from exercise
of nonqualified stock options 191,350 191,350
Net 204,723 204,723
--------- ----------- ------------- ------------- -------------
Balance, September 30, 1998 4,462,917 $ 446,292 $ 6,432,799 $ 4,868,146 $ 11,747,237
========= =========== ============ ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
VMIC, Inc.
Statements of Cash Flows
for the years ended September 30, 1998, 1997 and 1996
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities: $ 204,723 $ 934,229 $ 41,286
Net income adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,646,552 2,014,322 1,558,166
Provision for losses on accounts receivable 83,921 50,955 72,000
Stock issued in lieu of cash compensation 71,680 116,110 168,703
Gain on disposal of property and equipment (3,322)
Change in operating assets and liabilities:
Accounts receivable (509,119) (1,013,504) 448,655
Inventories (811,003) (844,236) (833,124)
Prepaid expenses (159,517) 40,422 (37,540)
Income tax receivable (295,188) (197,066) (81,517)
Deferred income taxes, net 54,441 53,928 16,244
Accounts payable 1,206,001 (540,483) 633,208
Accrued liabilities 244,321 385,233 348,279
Income taxes payable (92,968)
------------ ------------ ------------
Total adjustments 2,528,767 65,681 2,200,106
------------ ------------ ------------
Net cash provided by operating activities 2,733,490 999,910 2,241,392
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (3,304,007) (1,268,476) (3,449,362)
Purchased product and software costs (288,150) (332,471) (453,255)
Software development costs (2,195,068) (1,468,726) (584,958)
Proceeds from dispositions of property, plant,
and equipment 10,570
------------ ------------ ------------
Net cash used in investing activities (5,776,655) (3,069,673) (4,487,575)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,120,581 3,830,202 3,737,384
Principal payments on long-term debt (3,962,293) (3,264,167) (2,167,607)
Proceeds from issuance of common stock 1,882,398 1,698,691 140,671
Purchase of common stock for constructive retirement (105,424) (46,368)
Income tax benefit from exercise of nonqualified stock options 191,350 60,217 23,621
------------ ------------ ------------
Net cash provided by financing activities 3,232,036 2,219,519 1,687,701
------------ ------------ ------------
Net increase (decrease) in cash and
cash equilvaents 188,871 149,756 (558,482)
Cash and cash equivalents, beginning of year 339,101 189,345 747,827
------------ ------------ ------------
Cash and cash equivalents, end of year $ 527,972 $ 339,101 $ 189,345
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 558,150 $ 584,671 $ 481,543
============ =========== ============
Cash paid during the year for income taxes $ 125,000 $ 381,600 $ 175,368
============= =========== ============
The accompanying notes are an integral part of these financial
</TABLE>
F-5
<PAGE>
VMIC, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
VMIC, Inc., formally known as VME Microsystems International VMIC, Inc.,
formally known as VME Microsystems International Corporation (the Company)
primarily develops, manufactures, and markets VMEbus board level products,
including intelligent I/O controllers, and certain other products including
computer software. The products connect to a VMEbus that through its elec-
rical and bussing structure permits the interconnection of microcomputers
and various types of board level products and I/O controllers. The Company,
which is located in Huntsville, Alabama, primarily sells within the United
States but has international sales. These international sales are denomi-
nated in United States currency. The financial statements of the Company
include the following significant accounting policies:
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to
to be cash equivalents.
INVENTORIES - Inventories are valued at the lower of standard cost,
which approximates first-in, first-out cost, or market.
FINANCIAL INSTRUMENTS - The carrying amount reported in the balance sheet
for cash and cash equivalents, accounts receivable, and accounts payable
approximates fair value because of the immediate or short-term maturity of
these financial instruments. The carrying amounts reported for notes,
mortgages, and capital leases approximate fair value because the under-
lying instruments are either at variable interest rates which reprice
frequently or at stated rates of interest which approximate market.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment is stated
at cost and depreciated using the straight-line method over the estimated
estimated useful lives of the assets of three to fifteen years. Main-
tenance and repairs are charged to expense as incurred. Replacements and
improvements are capitalized and depreciated over the estimated remaining
useful lives of the assets. When items are sold or retired, the
related cost and accumulated depreciation are removed from the accounts
and any gain or loss is included in net income.
PURCHASED PRODUCT AND SOFTWARE COSTS - Certain purchased product and
software costs are being amortized over three to five years. Amortization
expense for the years ended September 30, 1998, 1997, and 1996 was
$250,542, $172,447, and $78,748, respectively.
SOFTWARE DEVELOPMENT COSTS - Certain internal software development costs are
capitalized when incurred. Capitalization of software development costs
begins upon the establishment of technological feasibility. The establish-
of technological feasibility and the ongoing assessment of recoverability
of capitalized software development costs require considerable judgment
by management with respect to certain external factors including, but not
limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Amortization of capitalized software costs is provided over the estimated
economic useful life of the software product on a straight-line basis,
generally five years. Amortization begins when a product master is made.
Accumulated amortization as of September 30, 1998, 1997, and 1996 was
$705,722, $234,124, and $0, respectively. Amortization expense for the
years ended September 30, 1998, 1997, and 1996 was $471,598, $234,124,
and $0, respectively.
F-6
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
LONG-LIVED ASSETS - The Company recognizes impairment losses on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying values. There were no such losses recognized
during 1998, 1997, or 1996.
LIABILITY FOR WARRANTY RETURNS - The Company's sales generally include a
two year warranty for product defects. The liability for warranty
returns which totaled approximately $630,000 and $600,000 at September
30, 1998 and 1997, respectively, is management's estimate of the Company's
liability for such warranty returns (at cost to repair or replace
products) on sales made by the Company. This liability is included in
in accrued liabilities in the balance sheet.
REVENUE RECOGNITION - The Company records sales upon shipment of the
related products, net of any discounts and provision for warranty returns.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs incurred
prior incurred prior to the establishment of technological feasibility are
expensed as incurred.
ADVERTISING EXPENSE - Advertising costs are expensed as incurred. Adver-
tising expense totaled approximately $907,000, $849,000 and $689,000 for
the years ended September 30, 1998, 1997, and 1996, respectively.
ACCOUNTING FOR INCOME TAXES - The Company accounts for income taxes
under the asset and liability method. Deferred income taxes are recognized
for the tax consequences in future years of temporary differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each year end. The amounts recognized are based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabil-
ities.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, which requires the
reporting and display of comprehensive income and its components in an
entity's financial statements, and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which specifies revised
guidelines for determining an entity's operating segments and the type
and level of financial information to be required. The Company is
required to adopt these standards in fiscal 1999. The Company does not
expect the impact of these pronouncements to be material.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, to supersede SOP 91-1, the previously released SOP on this
topic. SOP 97-2 provides additional guidance on when revenue should be
recognized and in what amounts, for licensing, selling, leasing or
otherwise marketing computer software. The provisions of SOP 97-2 are
F-7
effective for transactions entered into in fiscal years beginning after
December 15, 1997. Adoption of SOP 97-2 is not expected to have a
material adverse affect on the Company's financial statements.
In February 1998 and in June 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Bene-
fits" and SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," respectively. Adoption of these standards is not
expected to impact the financial results of the Company.
2. INVENTORIES
At September 30, 1998 and 1997, inventories consist of the following:
1998 1997
Raw materials $ 2,388,844 $ 1,321,735
Work in process 829,125 1,775,673
Finished goods 1,725,270 1,034,828
------------- -------------
$ 4,943,239 $ 4,132,236
============= =============
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at September 30,
1998 and 1997:
1998 1997
Land $ 676,313 $ 676,313
Buildings 4,664,693 4,664,693
Machinery and equipment 9,719,590 7,572,801
Furniture and fixtures 115,035 84,152
Automobiles 273,579 249,291
Construction in progress 1,058,742
------------ ------------
$ 16,507,952 $ 13,247,250
Less accumulated depreciation 7,474,030 5,585,675
------------ ------------
$ 9,033,922 $ 7,661,575
============ ============
F-8
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
4. NOTES, MORTGAGES, AND CAPITAL LEASES
Notes, mortgages, and capital leases payable at September 30, 1998 and
1997 consist of the following:
1998 1997
Short-term obligations:
Current portion of mortgage payable (1) $ 992,424 $ 109,704
Current portion of note payable (2) 1,112,353 754,814
Line of credit (3) 400,000
------------ ------------
$ 2,104,777 $ 1,264,518
============ ============
Long-term obligations:
Mortgage payable (1) $ 2,510,291 $ 2,741,925
Note payable (2) 3,202,795 2,653,132
------------ ------------
$ 5,713,086 $ 5,395,057
============ ============
(1) Mortgages on buildings and land with unpaid principal balances becoming
due from 1998 through 2012. Interest rates ranged from 7.5% to 8.5% at
September 30, 1998. The mortgages are collateralized by building, con-
struction-in-process, and land with a net book value of approximately
$4,880,000 at September 30, 1998.
(2) Automobile and equipment financing payable in monthly installments rang-
ing from $806 to $70,200 with the final payment due in May 2001; pay-
ments payments include interest at rates ranging from 7.65% to 8.3% at
September 30, 1998. Automobiles and equipment with a net book
value of approximately $4,119,000 at September 30, 1998 serve as
collateral.
(3) The Company can also borrow under a $7,000,000 revolving line of credit
with interest payable monthly at prime plus 0.5%. This line of credit
is collateralized primarily by accounts receivable and inventory of
the Company. The line of credit agreement expires on August 1, 1999.
1999. The Company had $0 and $400,000 outstanding borrowings under
this line of credit agreement at September 30, 1998 and 1997,
respectively.
The aggregate maturities of notes and mortgages at September 30, 1998
are as follows:
1999 $ 2,104,777
2000 1,320,475
2001 1,347,935
2002 661,426
2003 399,600
Thereafter 1,983,650
-----------
$ 7,817,863
===========
F-9
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
5. STOCK SPLIT
On December 9, 1995, the stockholders approved the recommendation of the
the Board of Directors to increase the authorized common stock from 3
million shares to 5 million shares, par value $.10. The Company declared
a 2 for 1 stock split, which was effected through a stock dividend, payable
on December 9, 1995 to stockholders of record on December 9, 1995. All
common stock information included in the financial statements, except the
statements of changes in stockholders' equity, gives retroactive effect to
this stock split.
6. STOCK OPTIONS
The Company has a stock option plan under which 1,062,000 shares of common
stock have been reserved for issue to certain employees, officers, and
directors through incentive stock options at September 30, 1998. The options
vest and are exercisable primarily over a four year period from the date
of grant and normally expire either five years or ten years from the date
of grant depending on when the options were granted.
Transactions for 1998, 1997, and 1996, which reflect the retroactive effect
of the stock split in 1996 discussed in Note 5, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted-
Average
Number of Range of Exercise
Options Exercise Prices Price
------------ ------------------ ------------
Options outstanding, October 1, 1995 447,856 $2.125-$4.00 $ 2.29
Options granted 110,850 $4.00-$8.00 $ 7.89
Options exercised (57,394) $2.125-$4.90 $ 2.54
Options canceled (37,882) $2.125-$2.45 $ 2.30
------------ ----------------- ------------
Options outstanding, October 1, 1996 463,430 $2.125-$8.00 $ 4.23
Options granted 159,176 $8.00-$10.00 $ 9.76
Options exercised (58,040) $2.125-$8.00 $ 2.20
Options canceled (20,800) $4.25-$8.00 $ 7.50
------------ ----------------- ------------
Options outstanding, September 30, 1997 543,766 $4.25-$10.00 $ 6.13
Options granted 92,887 $10.00-$11.50 $ 11.46
Options exercised (60,854) $4.25-$10.00 $ 6.19
Options canceled (54,880) $4.90-$11.50 $ 8.34
------------ ----------------- -----------
Options outstanding, September 30, 1998 520,919 $4.90-$11.50 $ 8.51
============ ================ ===========
</TABLE>
F-10
<PAGE>
VMIC, INC. NOTES TO FINANCIAL STATEMENTS- (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise September 30, Contractual Exercise September 30, Exercise
Prices 1998 Life Price 1998 Price
----------- ------------- ----------- -------- ------------- ---------
$4.90-$8.00 96,611 0.69 $4.90 9,5171 $4.90
$8.00-$10.00 209,640 4.56 $8.00 9,1169 $8.00
$10.00-$11.50 214,668 9.28 $10.63 12,198 $10.00
------------- -------------
520,919 198,538
============= =============
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in account-
ing for its stock plans. Accordingly, no compensation cost has been
recognized related to the stock options. Had compensation cost for the
Company's stock based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with
the method prescribed in SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Net income - as reported $ 204,723 $ 934,229 $ 41,286
Net income (loss) - pro forma $ 9,605 $ 754,430 $ (22,029)
Diluted earnings per share - as reported $ 0.04 $ 0.22 $ 0.01
Diluted earnings per share - pro forma $ 0 $ 0.18 $ (0.01)
</TABLE>
The pro forma amounts reflected above are not representative of the effects
on reported net income in future years because, in general, the options
granted typically do not vest for several years and additional awards are
made each year. The fair value of each option grant was estimated on the
grant date using the following assumptions:
1998 1997 1996
Dividend yield 0% 0% 0%
Expected life (years) 7 6 6
Risk-free interest rate 4.76%-6.63% 5.87%-6.63% 5.67%-6.63%
F-11
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
In addition to the stock options granted under the stock option plan, the
Company has granted to employees stock awards, which vest in variable
terms, not to exceed five years. The nonvested shares of the stock awards
outstanding at September 30, 1998 and 1997 were 362,885 and 369,918,
respectively. During 1998 and 1997, 7,033 and 11,750, respectively, shares
respectively, shares of the Company's common stock were issued and $71,680
and $116,110, respectively, was charged to expense relating to the
following:
1998 1997
--------------------- ----------------------
Shares Shares
Issued Amounts Issued Amounts
--------- ---------- --------- ----------
Employee bonuses 7,033 $ 71,680 7,850 $ 77,500
Employee compensation 3,900 38,610
--------- --------- --------- -------
7,033 $ 71,680 11,750 $ 116,110
========= ========= ========= =========
7. INCOME TAXES
The components of the provision for income taxes for the years ended
September 30, 1998, 1997, and 1996 are as follows:
1998 1997 1996
Current:
Federal $ 13,598 $ 223,816 $ 19,686
State 7,560 33,501 4,817
---------- --------- --------
Total current 21,158 $ 257,317 24,503
Deferred 54,442 53,928 16,244
---------- ---------- ---------
Total provision for income taxes $ 75,600 $ 311,245 $ 40,747
Temporary differences which generated deferred tax assets and liabilities
at September 30, 1998 and 1997 are as follows:
1998 1997
Current deferred tax assets:
Accounts receivable $ 139,224 $ 74,568
Inventory 418,702 213,629
Tax credits 554,291
Accurals and other 397,003 (328,861)
------------ ------------
Net current deferred tax asset $ 954,929 $ 513,627
============ ============
F-12
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
1998 1997
Noncurrent deferred tax liability:
Property, Plant, and equipment $ 75,886 $ (7,279)
Software development costs (1,251,307) (422,683)
Loss carryfordwards 300,183
Tax credits 67,137
Other 117,604
------------ ---------
Net noncurrent deferred tax liability $ (808,101) $ (312,358)
During 1998 and 1997, temporary differences resulted primarily from using
different methods of depreciation for book and tax purposes, the capitali-
zation of certain inventory costs for tax purposes, the capitalization of
certain software development costs for book purposes, accrued warranty
expense, and differences in the deduction of bad debts and compensated
absences for book and tax purposes.
The Company has remaining research and development tax credit carryforwards
for federal income tax purposes available to reduce future federal income
taxes, if any. These carryforwards expire in varying amounts between 2002
and 2009. The Company also has approximately $67,000 in minimum tax
carryforwards available for years beginning after September 30, 1998. The
Company has approximately $800,000 and $663,000 of regular and alternative
minimum tax net operating loss carryforwards, respectively, which expire
in 2018.
The provision for income taxes differs from the amounts computed by apply-
ing the statutory federal income tax rate of 34% to income before income
taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Income tax expense at statutory federal income tax rate $ 95,310 $ 423,461 $ 27,890
Effect of tax credits (40,488) (174,366)
State income taxes - net of federal income tax benefit 7,102 25,830 3,180
Miscellaneous 13,676 36,320 9,677
------------ ------------- -----------
Total provision for income taxes $ 75,600 $ 311,245 $ 40,747
============ ============== ===========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
In April 1991, the Company adopted an incentive savings plan (the Savings
Plan) for all of its employees. The Savings Plan provides certain
employment benefits to all eligible employees and qualifies as a deferred
arrangement under Section 401(k) of the Internal Revenue Code. Upon
approval by the Board of Directors, the Company will match one-fourth of the
participants' contributions, limited to 6% of a participant's income. An
employee's interest in the Company's contributions begins vesting after one
one year and becomes 100% vested after five years. Amounts expensed for the
Savings Plan amounted to approximately $110,300, $106,200, and $71,200 in
1998, 1997, and 1996, respectively.
F-13
<PAGE>
VMIC, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
9. EMPLOYEE STOCK PURCHASE PLAN
In July 1992, the Company adopted an employee stock purchase plan (the
Stock Plan) for employees who have been employed by the Company for the
twelve months immediately preceding the date of participation in the Stock
Plan. The Stock Plan provides for the Company to withhold any amount, not
to exceed $25,000, for the purpose of purchasing shares of the Company's
stock at 85% of its fair market value on a quarterly basis. The
Company has reserved 100,000 shares of its common stock for issuance under
the Stock Plan. Included in accrued liabilities at September 30, 1998
and 1997 in the accompanying balance sheets, is approximately $117,500 and
$130,200, respectively, withheld from employees to purchase the Company's
common stock under the Stock Plan.
10. CONTINGENCIES
During the normal course of business, the Company is subjected to various
lawsuits and claims. Management does not anticipate any judgments against
the Company in excess of their insurance coverage or liabilities already
established which would have a material impact, individually or in the
aggregate, on the financial statements of the Company.
11. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share for
the years ended September 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION> <C> <C> <C>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
1998
Basic EPS:
Income available to common stockholders $ 204,723 4,405,808 $ .05
Effect if dilutive securities:
Stock Options 148,640
Diluted EPS $ 204,723 4,554,448 $ .04
1997
Basic EPS:
Income available to common stockholders $ 934,229 4,054,764 $ .23
Effect of dilutive securities:
Stock Options 134,349
Diluted EPS $ 934,229 4,189,113 $ .22
F-14
<PAGE>
1996
Basic EPS:
Income available to common stockholders $ 41,286 3,953,922 $ .01
Effect of dilutive securities:
Stock Options 94,067
Diluted EPS $ 41,286 4,047,989 $ .01
</TABLE>
Options to purchase 90,137 shares of common stock at $11.50 per share were
outstanding during 1998 but are not included in the computation of 1998
diluted EPS because the options' exercise price was greater than the average
market price of common shares. The options, which expire through September
2008, were still outstanding at September 20, 1998.
Options to purchase 137,961 shares of common stock at $10 per share were
outstanding during 1997 but are not included in the computation of 1997
diluted EPS because the options' exercise price was greater than the average
market price of common shares.
All options to purchase common stock were included in the 1996 diluted EPS.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, VMIC, Inc. has duly caused this Registration Statement on Form 10 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Huntsville, State of Alabama on January 22, 1999.
VMIC, INC.
Carroll E. Williams
By:___________________________________________
Carroll E. Williams, President,
CEO and Chairman of the Board
Mary W. Williams
By:____________________________________________
Mary W. Williams, Director,
Secretary and Treasurer
Arthur Faulkner
By:____________________________________________
Arthur Faulkner, Director
Alfred F. Castelyn
By:____________________________________________
Alfred F. Castelyn, Director,
Vice President Sales and Marketing
By:____________________________________________
Ernest Potter, Director
R. Gary Saliba
By:____________________________________________
R. Gary Saliba, Director
Jim Caudle, Sr.
By:____________________________________________
Jim Caudle, Sr., Director
II-2
<PAGE>
PART II
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 1997, the Company completed a private placement stock offering
of common stock, receiving net proceeds of $3.0 million from the sale of
300,000 shares of stock. After payment of offering expenses and legal fees,
the Company used approximately $2.0 million of the offering proceeds to repay
the balance of its working line of credit. The balance of the offering
proceeds, approximately $1.0 million, was used for general working capital
purposes.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION
_________ _______________________________________________________________
3.1 Certificate of Incorporation of VME Microsystems International
Corporation and Amendments
3.2 By-Laws of VME Microsystems International Corporation and
Amendments
10.1 Consolidated Nonqualified and Incentive Stock Option Plan*
10.2 Form of Nonqualified Stock Option Agreement*
10.3 Form of Incentive Stock Option Agreement*
10.4 1992 Employee Stock Purchase Plan and Amendment*
27.1 Financial Data Schedule (for SEC use only)**
- ------------------
*Management contract or compensatory plan or arrangement
**To be filed by amendment.
II-1
<PAGE>
INDEX OF EXHIBITS
3.1 Certificate of Incorporation of VME Microsystems International
Corporation and Amendments
3.2 By-Laws of VME Microsystems International Corporation and
Amendments
10.1 Consolidated Nonqualified and Incentive Stock Option Plan*
10.2 Form of Nonqualified Stock Option Agreement*
10.3 Form of Incentive Stock Option Agreement*
10.4 1992 Employee Stock Purchase Plan and Amendment*
27.1 Financial Data Schedule (for SEC use only)**
- ----------------
*Management contract or compensatory plan or arrangement.
**To be filed by Amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
1. The name of the corporation is VME Microsystems International
Corporation.
2. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is:
(a) To develop, manufacture, invent, diagram, patent,
copyright, own, hold, use, improve, repair, sell, market, advertise or
otherwise produce, deal in or distribute VMEbus board level
products and intelligent I/O controllers, microcomputers,
intelligent data acquisition and control systems, I/O modules,
synchro/resolver modules, converter modules, test modules and all
other and similar, related and peripheral products.
(b) To develop, build, manufacture, process, compound or
otherwise produce; to purchase, lease, exchange, take, receive, or
otherwise acquire; to own, hold, use, operate, manage, improve,
repair, or otherwise have an interest in or deal with; to sell,
lease, exchange, convey, assign, mortgage, pledge, hypothecate,
distribute, or otherwise deal in and dispose of buildings,
structures, machinery, equipment, apparatus, appliances, devices,
products, materials, articles, processes, systems, goods, wares and
merchandise of every kind, nature and description and to engage in
any industrial, manufacturing, mining, mercantile, trading,
agricultural, service or other lawful business of any kind or character
whatsoever.
(c) To purchase, lease, exchange, take, receive or otherwise
acquire; to own, hold, use, operate, manage, improve, repair or
otherwise have an interest in or deal with; to sell, lease,
exchange, convey, assign, mortgage, pledge, hypothecate, distribute
or otherwise deal in and dispose of property, whether real, personal,
or mixed, of every kind, character and description whatsoever and
wheresoever situated or any interest therein.
(d) To hold, own, use, operate, manage, improve, repair, erect
or otherwise have an interest in or deal with any building or other
structure located on real property which is owned, held by or leased
by the corporation or in which the corporation has any interest
whatsoever.
(e) To render to others and to engage in the business of
rendering to others consulting, advisory, administrative, industrial,
engineering, accounting, bookkeeping and other services of every
nature, kind and other services of every nature, kind and
character, whether similar or dissimilar to those hereinabove set
forth, which a corporation may legally render.
(f) To purchase, lease, exchange, take, receive or otherwise
acquire all or any part of or any interest in the properties, assets,
business, good will and rights of any person, firm, corporation,
country, state, county, municipality or governmental unit,
department, division, agency , authority, or instrumentality; to
pay for the same or any part or combination thereof in cash, in
shares of stock, bonds or other securities or evidences of obligations
or indebtedness of this corporation or of any other corporation by
undertaking, assuming or guaranteeing the whole or any part of the
bonds, mortgages, franchises, leases, contracts, indebtednesses,
guarantees, liabilities and obligations of the transferor or by any
combination of any of the foregoing; to own, hold, use, operate,
manage, improve, repair, reorganize or otherwise convey, assign,
mortgage, pledge, hypothecate, distribute, liquidate or otherwise
deal in and dispose of all or any part of or any interest in such
properties, assets, business, good will and rights, and, in
conjunction with any of the foregoing, to undertake, assume or
guarantee the whole or any part of the bonds, mortgages,
franchises, leases, contracts, indebtednesses, guarantees,
liabilities and obligations of the transferor.
(g) To develop, apply for, register, take licenses in
respect of, purchase, lease, exchange, take, receive or otherwise
acquire; to own, hold, use, operate, manage, manufacture under,
improve or otherwise have an interest in or deal with; to sell, lease,
exchange, convey, assign, grant licenses in respect of, mortgage,
pledge, hypothecate, distribute or otherwise deal in and dispose of;
to contract with reference to any and all inventions, devices,
formulae, technical or business information, including trade secrets,
knowhow, processes, improvements and modifications thereof,
letters, patent and all rights connected therewith or appertaining
thereto, copyrights, trademarks, trade names, trade symbols and other
indications of origin and ownership, franchises, licenses, concessions,
patents or other rights granted by or recognized under the laws of any
country, state, county, municipality or governmental unit,
department, division, agency, authority or instrumentality.
(h) To purchase, subscribe for in its own name or in the
name of another, exchange, take, receive or otherwise acquire, to
guarantee, to invest or reinvest in, to underwrite, to own, hold,
use, manage or otherwise have an interest in or deal with, to sell,
exchange, convey, assign, mortgage, pledge, hypothecate, distribute or
otherwise deal in and dispose of any stock, bond or other security,
evidence of obligation or indebtedness of any person, firm,
corporation, country, state, county, municipality or governmental
unit, department, division, agency, authority or instrumentality; to
issue in connection with any acquisition of any of such property
shares of stock, bonds or other securities or evidences of
indebtedness or obligation of this corporation; and, while the
owner or holder of any such property, to receive, collect and
dispose of the interest, dividends, income and other rights
accruing on or from such property, to possess and exercise in respect
thereof all the rights, powers and privileges of ownership of
every kind and description, including the right to vote thereon, with
power to designate some person or persons for that purpose from time to
time to the same extent as natural persons might or could do, to
aid by loan, subsidy, guaranty or in any other manner, financially or
otherwise, those issuing, creating, or responsible for any such
property, and to do any other acts or things designed to protect,
preserve, improve or enhance the value of any such property.
(i) To the full extent permitted by the General Corporation
Law of Delaware, to purchase, exchange, take, receive or otherwise
acquire, to own, hold, use or otherwise have an interest in or deal
with, to sell, exchange, convey, assign, mortgage, pledge, hypothecate,
distribute or otherwise deal in or dispose of shares of its own stock.
(j) To borrow or raise money and, from time to time, without
limit as to amount, to draw, make, accept, endorse, execute, issue and
deliver all kinds of securities including, but not limiting the
generality thereof, bonds, debentures, drafts, bills of exchange,
warrants, notes and other negotiable and nonnegotiable instruments and
evidences of obligation or indebtedness; and to secure the payment and
full performance of such by mortgage on, or pledge, conveyance or
assignment in trust of, all or any part of or any interest in the
property of the corporation, either real, personal or mixed, including
contract rights, whether at the time owned or thereafter acquired.
(k) To guarantee the obligations of and to lend its aid and
credit to any person, firm, corporation, country, state, county,
municipality or governmental unit, department, division, agency,
authority or instrumentality, and to secure the same by mortgage on
or pledge, conveyance or assignment in trust of all, any part of or any
interest in the property of the corporation, either real, personal,
or mixed, including contract rights, whether at the time owned or
thereafter acquired.
(l) To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is 2,000,000 and the par value of each of such shares
is $.10 amounting in the aggregate to $200,000. The Board of Directors may
establish the various rights and preferences with respect to any new or
different series or classes of stock which may be authorized and designated
from time to time.
5. The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
C. Larimore Whitaker 1400 Park Place Tower
Birmingham, Alabama 35203
6. The names and mailing addresses of each person who is to serve
as a director until the first annual meeting of the stockholders or until their
successors are elected and qualified are as follows:
NAME MAILING ADDRESS
Carroll E. Williams 10110 Shades Road
Huntsville, Alabama 35803
Mary Williams 10110 Shades Road
Huntsville, Alabama 35803
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
(a) To make, alter or repeal the by-laws of the corporation.
(b) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation.
(c) To set apart out of any of the funds of the
corporation available for dividends a reserve or reserves for any
proper purpose and to abolish any such reserve in the manner in which
it was created.
(d) Subject to the other provisions of the certificate of
incorporation, to determine whether any, and if any, what part of the
earnings and assets of the corporation legally available for dividends
shall be declared in dividends and paid to the stockholders, and
whether or not in cash or capital stock of the corporation or in other
property, and generally to determine and direct the use and disposition
of any earnings and assets, and to fix the times for the
declaration and payment of dividends and to close the stock books
of the corporation or fix a record date for purposes of determining the
stockholders entitled to participate in any transfers in connection
with any such corporate act.
(e) To determine from time to time whether and to what extent
and at what times the accounts and books of the corporation, or any of
them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account or book or
document of the corporation except as conferred by the laws of the
State of Delaware or authorized by resolution of the board of
directors or the stockholders.
(f) At any time, and from time to time when authorized by
resolution of the board of directors, and without any action by its
stockholders, the board of directors may cause the corporation to issue
or sell any shares of its capital stock of any class, whether such
shares are issued or sold out of the unissued shares thereof authorized
by the certificate of incorporation, as from time to time amended, or
out of shares of its capital stock acquired by it after the issue
thereof; the board of directors also may cause the corporation to
issue and sell its obligations, secured or unsecured, and in bearer or
registered or such other form, and including such provisions
as to redeemability, convertibility or otherwise, as the board of
directors, in its sole discretion, may determine, and mortgage or
pledge, as security therefor, any property of the corporation, real or
personal including after-acquired property; and the board of
directors may cause the corporation to issue or grant warrants or
options, in bearer or registered or such other form as the board of
directors may determine, for the purchase of shares of its capital
stock of any class, within such period of time, or without limit as to
time, and at such price per share, as the board of directors may
determine. Any options or warrants issued or granted pursuant to the
last sentence may be issued or granted separately or in connection with
the issue of any bonds, debentures, notes or other evidences of
indebtedness or in connection with other shares of the capital stock of
any class of the corporation. The board of directors may cause the
corporation to issue and sell shares of its capital stock of any class,
including warrants and options, and to issue and sell its obligations
for such consideration as may from time to time be fixed by the board
of directors, and the corporation may receive in payment in whole or in
part, for any such securities issued or sold by it, cash, labor done,
personal property or real property or leases thereof. In the absence of
actual fraud in the transaction, the judgment of the board of directors
as to the value of the labor, personal property or real property or
leases thereof so received shall be conclusive.
(g) By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The by-laws may
provide that in the absence of disqualification of a member of a
committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of
directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided
in the resolution of the board of directors, or in the by-laws of the
corporation, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference to
amending the certificate of incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders a dissolution
of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution or by-laws
expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
(h) When and as authorized by the stockholders in accordance
with law, to sell, lease or exchange all or substantially all of the
property and assets of the corporation, including its good will and
its corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or
property including shares of stock in, and/or other securities of,
any other corporation or corporations, as its board of directors shall
deem expedient and for the best interests of the corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the General Corporation Law of Delaware)
outside the State of Delaware at such place or places as may be designated from
time to time by the board of directors or in the by-laws of the corporation.
9. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
10. The election of directors need not be conducted by written ballot.
11. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that the facts herein stated are true, and accordingly has hereunto set his
hand and seal this 16th day of December, 1985.
___________________________________ (SEAL)
C. Larimore Whitaker
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
VME Microsystems International Corporation, a corporation organized and
existing under the laws of the State of Delaware (hereinafter referred to as
"the Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
duly held on October 30, 1986, a resolution was duly adopted setting forth a
proposed amendment to the certificate of Incorporation of the Corporation and
declaring said amendment advisable and proposing adoption of said amendment at
the annual meeting of stockholders of the Corporation. The resolution setting
forth such proposed amendment is as follows:
"RESOLVED, that effective as of December 6, 1986, the Certificate of
Incorporation of the Corporation be amended by adding to Article
(paragraph) 6 the following:
The number of directors and the manner of their election shall be as
prescribed by the by-laws."
SECOND: That on December 6, 1986, pursuant to the by-laws of the
Corporation, and after due notice to the stockholders as provided by the
by-laws, at the annual meeting of the stockholders, the aforementioned proposed
amendment was considered and a majority of the outstanding stock entitled to
vote thereon voted in favor of the amendment.
THIRD: That at a meeting of the Board of Directors of the Corporation
duly held on October 30, 1986, a resolution was duly adopted setting forth a
proposed amendment tot he Certificate of Incorporation of the Corporation and
declaring said amendment advisable and proposing that same be adopted at the
annual meeting of stockholders. The resolution setting forth the proposed
amendment is as follows:
"RESOLVED, that effective as of December 6, 1986, the Certificate of
Incorporation of the Corporation be amended by adding thereto a new
Article (paragraph) 12, which shall read in its entirety as follows:
12. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by
such director as a director. Notwithstanding the foregoing sentence,
a director shall be liable to the extent provided by applicable law
(i) for breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the Delaware General Corporation Law
or (iv) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article 12 shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment."
FOURTH: That pursuant to the by-laws of the Corporation the annual
meeting of stockholders was duly called and held upon due notice on December 6,
1986, at which meeting such proposed amendment was duly considered and a
majority of the outstanding stock entitled to vote thereon voted in favor of the
amendment.
FIFTH: That both of said amendments set out hereinabove were duly
adopted in accordance with Section 242 of the General Corporation Law of the
State of Delaware.
SIXTH: That pursuant to the resolutions of the Board of Directors set
forth above and Section 103(d) of the General Corporation Law of the State of
Delaware, said amendment shall become effective as of December 6, 1986.
IN WITNESS WHEREOF, VME Microsystems International Corporation has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be executed by its President and attested by its Secretary, this
6th day of December, 1986.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
CARROLL E. WILLIAMS
By:_______________________________________
President
ATTEST:
___________________________________
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
VME Microsystems International Corporation, a corporation organized and
existing under the laws of the State of Delaware (hereinafter referred to as
"the Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
duly held on October 28, 1991, a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment advisable and proposing adoption of said amendment at
the annual meeting of stockholders of the Corporation. The resolution setting
forth such proposed amendment is as follows:
"RESOLVED, that effective as of December 14, 1991, the Certificate of
Incorporation of the Corporation be amended by changing Article
(paragraph) 4, to read as follows:
4. The total number of shares of stock which the Corporation shall
have authority to issue is 3,000,000 shares of common stock, and that
the par value of each such share is $.10, amounting in the aggregate
to $300,000. The Board of Directors may establish the various rights
and preferences with respect to any new or different series or classes
of stock which may be authorized and designated from time to time."
SECOND: That on December 14, 1991, pursuant to the By-Laws of the
Corporation, and after due notice to the stockholders as provided by the
By-Laws, at the annual meeting of the stockholders, the aforementioned proposed
amendment was considered and a majority of the outstanding stock entitled to
vote thereon voted in favor of the amendment.
THIRD: That said amendment set out hereinabove was duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That pursuant to the resolution of the Board of Directors set
forth above and Section 103(d) of the General Corporation Law of the State of
Delaware, said amendment shall become effective on filing.
IN WITNESS WHEREOF, VME Microsystems International Corporation has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be executed by its President and attested by its Secretary, this
14th day of December, 1991.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
CARROLL E. WILLIAMS
By:_______________________________________
President
ATTEST:
___________________________________
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
VME Microsystems International Corporation, a corporation organized and
existing under the laws of the State of Delaware (hereinafter referred to as
"the Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
duly held on December 1, 1995, a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment advisable and proposing adoption of said amendment at
the annual meeting of stockholders of the Corporation. The resolution setting
forth such proposed amendment is as follows:
"RESOLVED, that effective as of December 9, 1995, the Certificate of
Incorporation of the Corporation be amended by changing article
(paragraph) 4, to read as follows:
4. That the total number of shares of stock which the Corporation shall
have authority to issue is 5,000,000 shares of common stock, and that
the par value of each such share is $.10, amounting in the aggregate to
$500,000. The Board of Directors may establish the various rights and
preferences with respect to any new or different series or classes of
stock which may be authorized and designated from time to time."
SECOND: That on December 9, 1995, pursuant to the By-Laws of the
Corporation, and after due notice to the stockholders as provided by the
By-Laws, at the annual meeting of the stockholders, the aforementioned proposed
amendment was considered and a majority of the outstanding stock entitled to
vote thereon voted in favor of the amendment.
THIRD: That said amendment set out hereinabove was duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That pursuant to the resolution of the Board of Directors set
forth above and Section 103(d) of the General Corporation Law of the State of
Delaware, said amendment shall become effective on filing.
IN WITNESS WHEREOF, VME Microsystems International Corporation has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be executed by its President and attested by its Secretary, this
9th day of December 1995.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
Carroll E. Williams
By:________________________________________
President
ATTEST:
_________________________________
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
VME Microsystems International Corporation, a corporation organized and
existing under the laws of the State of Delaware (hereinafter referred to as
"the Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Company duly
held on November 12, 1998, a resolution was duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment advisable and proposing adoption of said amendment at
the annual meeting of stockholders of the Corporation. The resolution setting
forth such a proposed amendment is as follows:
"RESOLVED, that the Certificate or Incorporation of the corporation be
amended by changing article (paragraph) 1. To read as follows:
The name of the corporation is VMIC, INC."
SECOND: That on December 12, 1998, pursuant to the By-Laws of the
Corporation, and after due notice to the stockholders as provided by the By-
Laws, at the annual meeting of the stockholders, the aforementioned proposed
amendment was considered and a majority of the outstanding stock entitled to
vote thereon voted in favor of the amendment.
THIRD: That said amendment set out hereinabove was duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That pursuant to the resolution of the Board of Directors set
forth above and Section 103(d) of the General Corporation Law of the State of
Delaware, said amendment shall become effective on filing.
IN WITNESS WHEREOF, VME Microsystems International Corporation has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be executed by its President and attested by its Secretary, this
___ day of ______________________, 1998.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
Carroll E. Williams
By:_______________________________________
Its President
ATTEST:
___________________________________
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
VME Microsystems International Corp., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the board of Directors of VME Microsystems
International Corp. resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of VME Microsystems
International Corp. be amended by changing the Fourth Article thereof
so that, as amended, said Article shall be and read as follows:
FOURTH: The total numbers of shares of stock which the corporation
shall have the authority to issue is 10,000,000 shares of common stock,
and that the par value of each such share is $.10, amounting in the
aggregate to 1,000,000.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said VME Microsystems International Corp.
has caused this certificate to be signed by Carroll E. Williams, its
President, this *** Date of Signature***.
VME Microsystems International Corp.
Carroll E. Williams
By:___________________________________
President
<PAGE>
BY-LAWS
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
______________________
ARTICLE I. OFFICES
The principal office of the corporation in the State of Alabama shall be
located in the City of Huntsville, Madison County. The corporation may have
such other offices, either within or without the State of Alabama, as the Board
of Directors may designate or as the business of the corporation may require
from time to time.
ARTICLE II. SHAREHOLDERS MEETINGS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be
held on the first Saturday in December in each year, beginning with the year
1986, at the hour of eleven o'clock A.M., or at such other time on such other
day within such month as shall be fixed by the Board of Directors, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting shall be
a legal holiday in the State of Alabama, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the shareholders, or at the
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by law, may be called by the
president or by the Board of Directors, and shall be called by the president or
secretary at the request of the holder(s) of not less than one-third of all
outstanding shares of the corporation entitled to vote at the meeting.
Section 3. PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Alabama, as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all stockholders entitled to vote at a meeting may
designate any place, either within or without the State of Alabama, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation in the State of Alabama.
Section 4. NOTICE OF MEETING. Written notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called shall, unless otherwise prescribed by law, be
delivered not less than ten (10) nor more than twenty (20) days before the date
of the meeting, either personally or by mail, by or at the direction of the
president, or the secretary, or the officer or other persons calling the
meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
Unites States Mail, addressed to the stockholder at his address as it appears
on the stock transfer books of the corporation, with postage thereon prepaid.
Section 5. VOTING RECORD. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least five (5) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at each meeting of stockholders or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. For a period of five days prior to any meeting of stockholders,
such list shall be kept on file at the principal office of the corporation and
shall be subject to inspection by any stockholder making written request
therefor at any time during usual business hours. The list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting.
Section 6. QUORUM. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding
shares are present at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at a meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 7. PROXIES. At all meetings of stockholders, a stockholder may vote
in person or by proxy executed in writing by the stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
Section 8. VOTING OF SHARES. Each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
stockholders.
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name
of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such other corporation may prescribe, or, in
the absence of such provision, as the board of directors of such other
corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be voted
by him, either in person or by proxy, without a transfer of such shares into
his name. Shares standing in the name of a trustee may be voted by him, either
in person or by proxy, but no trustee shall be entitled to vote shares held by
him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority so to do be contained
in an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the corporation nor shares
held by another corporation if a majority of the shares entitled to vote for
the election of directors of such other corporation is held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time.
Section 10. Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the stockholders entitled to vote with respect to the subject matter
thereof.
ARTICLE III. BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation shall
be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the
corporation shall be five. Each director shall hold office until the next
annual meeting of shareholders and until his or her successor shall have been
elected and qualified, except as provided hereinafter in section 10 of this
article. Directors need not be residents of the State of Alabama and do not
have to be shareholders of the corporation.
Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Alabama, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the president or any two directors.
Section 5. PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Alabama, as the place of meeting for any
regular or special meeting of the Board of Directors. Members of the Board of
Directors may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
Section 6. NOTICE. Notice of any special meeting shall be given at least
three (3) days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
Mail, so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any director may waive notice of any
meeting. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 7. QUORUM. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
If a quorum is present when the meeting is convened, the directors present may
continue to do business, taking action by a vote of a majority of a quorum,
until adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum present, or the refusal of any director present to vote.
Section 8. MANNER OF ACTING. The act of the majority of directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the directors.
Section 10. VACANCIES. Any vacancy occurring in the Board of Directors,
including newly created directorships, may be filled by the affirmative vote of
a majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected to serve
until the next annual meeting of shareholders; or if no annual meeting is held,
then until his successor is elected. Provided, however, that the initial Board
of Directors, being five in number as provided under section 2 above, shall be
elected by the shareholders at a special meeting or the initial meeting
thereof.
Section 11. COMPENSATION. By resolution of the Board of Directors, each
director may be paid his or her expenses, if any, of attendance at each meeting
of the Board of Directors, any may be paid a stated salary as director or a
fixed sum for attendance at each meeting of the Board of Directors or both. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 12. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the corporation within twenty-four hours
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor or such action.
ARTICLE IV. OFFICERS
Section 1. NUMBER. The officers of the corporation shall be a president, one
or more vice-presidents, a secretary and a treasurer (or a secretary-
treasurer), all of whom shall be elected by the Board of Directors; provided,
however, that only the office of president and secretary is required to be
filled and the provisions hereof relating to other officers shall only be
effective if such offices are filled by appointment of persons to such offices
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors. Any
two or more offices may be held by the same person.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently
may be. Each officer shall hold office until his or her successor shall have
been duly elected and shall have qualified or until his death or until he or
she shall resign or shall have been removed in the manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
Section 4. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
Section 5. PRESIDENT. The president shall be the principal executive officer
of the corporation and, subject to the control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. He or she shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He or she may sign, with the
secretary or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation and
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of president and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 6. VICE-PRESIDENTS. In the absence of the president or in the event
of his or her death, inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the president
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. Any vice-president may sign, with the
secretary or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation; and
shall perform such other duties as from time to time may be assigned to him by
the president or by the Board of Directors.
Section 7. THE SECRETARY. The secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep
a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) sign with the president,
any vice-president, or the treasurer, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
or her by the president of by the Board of Directors.
Section 8. THE TREASURER. The treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for monies due and payable to the corporation from any source
whatsoever, and deposit all such monies in the name of the corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Article V of these By-Laws; (c) in general perform all
of the duties as from time to time may be assigned to him by the president or
by the Board of Directors. The treasurer may sign, with the secretary or any
other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation. If required by the
Board of Directors, the treasurer shall give a bond for the faithful discharge
of his or her duties in such sum and with such surety or sureties as the Board
of Directors may determine.
Section 9. SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the corporation
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers, agent or agents
of the corporation and in such manner as shall from time to time be determined
by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE VI. CERTIFICATES FOR SHARES
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the chairman of the board, the
president, any vice-president, or the treasurer, and by the secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a register, other than the corporation
itself or one of its employees. Each certificate for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number and
class of shares and date of issue, shall be entered on the stock transfer books
of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for alike number of shares shall have been surrendered or
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe or approve.
Section 2. TRANSFER OF SHARES. Transfer of shares to the corporation shall be
made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the
corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
Section 3. LOST, STOLEN, DESTROYED, OR MUTILATED CERTIFICATES. No certificate
for shares of stock in the corporation shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft as the Board of
Directors may in its discretion require, and on delivery to the corporation, if
the Board of Directors shall so require, of a bond of indemnity, upon such
terms and secured by such surety as the Board of Directors may in its
discretion require.
ARTICLE VII. FISCAL YEAR
The fiscal year of the corporation shall begin and end on such dates annually
as shall be determined by the Board of Directors.
ARTICLE VIII. DIVIDENDS
The Board of Directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and its Articles of Incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the corporation and the
state of incorporation and the words "Corporate Seal".
ARTICLE X. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director of
the corporation under the provisions of these By-Laws or the provisions of the
Articles of Incorporation or under the provisions of any law governing the
corporation, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated herein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XI. AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors, or alternatively by the shareholders, at any
regular or special meeting of either; provided, however, that the Board of
Directors may not alter, amend or repeal any By-Law establishing what
constitutes a quorum at shareholders meetings.
<PAGE>
FIRST AMENDMENT
TO
THE BY-LAWS
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
Pursuant to Article XI of the By-Laws (the "By-Laws") of VME
Microsystems International Corporation (the "Corporation"), the By-Laws are
hereby amended as follows:
Effective on the date hereof, the By-Laws of the Corporation are hereby
amended by adding a new Article XII as follows:
ARTICLE XII
INDEMNIFICATION
(a)RIGHT TO INDEMNIFICATION. Each person who was or is made a party of
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or any officer of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of the corporation
and as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any their capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the corporation to the fullest extent authorized by Delaware General
Corporation Law, as the same exists or any hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than such law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorney's fees, judgments, fines, Employee
Retirement Income Security Act excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section (c) of this
Article XII with respect to proceedings to enforce rights to indemnification,
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
corporation.
RIGHT TO ADVANCEMENT OF EXPENSES. The right to indemnification conferred
in Article shall include the right to be paid by the corporation the expenses
(including attorney's fees) incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Article or otherwise.
The rights to indemnification and to the advancement of expenses conferred in
subparagraphs (a) and (b) of this Article shall be contract rights and such
rights shall continue as to an indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under subparagraphs (a)
and (b) Article is not paid in full by the corporation within sixty (60) days
after a written claim has been received by the corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
corporation to recover an advancement of expenses pursuant to the terms of an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also to the expense of prosecuting or defending
such suit. In (I) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses it shall be a defense that, and
(ii) in any suit brought by the corporation to recover an advancement f
expenses pursuant to the terms of an undertaking, the corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
Delaware General Corporation Law. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has me the applicable standard of conduct set forth in
Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article XII or otherwise shall be on the corporation.
Non-Exclusivity of Rights. The right to indemnification and to the
advancement of expenses conferred in this Article XXXII shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the corporation's Certificate of Incorporation, Bylaws, agreement, vote
of stockholder or disinterested directors or otherwise.
Insurance. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under Delaware General Corporation Law.
Except as amended above, the By-Laws shall remain in full force and
effect.
Done this the ______ day of _____________________, 1997.
Carroll E. Williams
_____________________________________________
Chairman of the Board of Directors
Of VME Microsystems International Corporation
<PAGE>
SECOND AMENDMENT TO
BY-LAWS
OF
VME MICROSYSTEMS INTERNATIONAL CORPORATION
OCTOBER 28, 1991
_________________________
At a regularly scheduled meeting of the Board of Directors of the
corporation held on October 28, 1991, in Huntsville, Alabama, with all directors
present and voting in favor, ARTICLE II. SHAREHOLDERS MEETINGS, Section 1.
Annual Meeting, was amended to read as follows:
The annual meeting of the shareholders shall be held on the second
Saturday in December in each year, beginning with the year 1991, at the
hour of ten o'clock A.M., or at such other time on such other day within
such month as shall be fixed by the Board of Directors, for the purpose
of electing directors and for the transaction of such other business as
may come before the meeting.
All other provisions of ARTICLE II., Section 1., shall remain the same.
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
Sec. 1.1 Definitions
As used herein, the following terms shall have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
(a)"Company" shall mean VME Microsystems International Corporation, a
Delaware corporation.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall mean the Unqualified Stock Option Plan Committee
of the Board.
(d) " Stock", with respect to each share to which that term refers,
shall mean one (1) share of Common Stock of the Company, par value $.10 per
share.
(e) "Option" shall mean an option to purchase Stock granted pursuant to
the provisions of Article VI hereof.
(f) Optionee" shall mean an employee to whom an Option has been granted
hereunder.
(g) "Plan" shall mean the Nonqualified Stock Option Plan, the terms of
which are set forth herein.
(h)"Stock Option Agreement" shall mean the agreement between the Company
and the Optionee under which the Options may purchase Stock hereunder.
ARTICLE II
THE PLAN
Sec. 2.1 Name
This Plan shall be known as the "Nonqualified Stock Option Plan."
Sec. 2.2 Purpose
The purpose of the Plan is to advance the interests of the Company and its
stockholders by affording to key employees of the Company an opportunity to
acquire or increase their proprietary interest in the Company by the grant to
such employees of Options under the terms set forth herein. By thus
encouraging such employees to become owners of Stock of the Company, the
Company seeks to motivate, retain and attract those highly competent
individuals upon whose judgment, initiative, leadership and continued efforts
the success of the Company in large measure depends.
Sec. 2.3 Effective Date
Subject to ratification and approval of the Plan by the holders of a majority
of the outstanding common stock of the Company the Plan shall be deemed adopted
and shall become effective upon its approval by the Board.
ARTICLE III
PARTICIPANTS
Sec. 3.1 Eligibility
Except as otherwise provided herein, any officer or other key employee of the
company shall be eligible to participate in the Plan; provided that such
officer or other key employee of the Company, if requested by the Committee,
shall execute an agreement with the Company pursuant to which such officer or
other key employee shall agree, under the circumstances and for the period
specified in such agreement, not to compete with the Company; and provided
further, that no member of the Committee shall be eligible to participate. The
Committee may grant Options to any eligible employee in accordance with such
determinations as the Committee from time to time in its sole discretion shall
make.
ARTICLE IV
ADMINISTRATION
Sec. 4.1 Duties and Powers of Committee
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and authority
to determine from among eligible employees those to whom and the time or times
at which Options may be granted, the number of shares of Stock to be subject to
each Option, and the period for the exercise of such Option, which need not be
the same for each grant hereunder. Subject to the express provisions of the
Plan, the Committee shall also have complete authority to interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement and to make
all other determinations necessary or advisable in the administration of the
Plan.
Sec. 4.2 Majority Rule
The Committee initially shall consist of three persons whose actions in
administering the Plan shall be final and binding on all parties. A majority
of the members of the Committee shall constitute a quorum, and any action taken
by a majority present at a meeting at which a quorum is present or any action
taken without a meeting evidenced by a writing executed by a majority of the
whole Committee shall constitute the action of the Committee.
Sec. 4.3 Company Assistance
The Company shall supply full and timely information to the Committee on all
matters relating to eligible employees, their employment, death, retirement,
disability, or other termination of employment, and such other pertinent facts
as the Committee may require. The Company shall furnish the Committee with
such clerical and other assistance as is necessary in the performance of its
duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
Sec. 5.1 Limitations
The number of shares of Stock which may be issued and sold hereunder shall not
exceed 58,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Section 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
Sec. 5.2 Options Granted Under Plan
Shares of Stock with respect to which an Option granted hereunder shall have
been exercised shall not again be available for grant hereunder. If Options
granted hereunder shall expire, terminate, or be canceled for any reason
without being wholly exercised, new Options may be granted hereunder covering
the number of shares to which such Option expiration, termination, or
cancellation relates.
Sec. 5.3 Antidilution
In the event that the outstanding shares of Stock hereafter are changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of merger, consolidation, other
reorganization, recapitalization, reclassification, combination of shares,
stock split-up or stock dividend,
(a) the aggregate number and kind of shares subject to Options which may
be granted hereunder shall be adjusted appropriately;
(b) rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted appropriately;
or
(c) where dissolution or liquidation of the Company or any merger or
combination in which the Company is not a surviving corporation is involved,
unless the Board and the Board of Directors of the surviving corporation
determines otherwise (in which case each outstanding Option will be converted to
an Option on the common stock of the surviving corporation), each outstanding
Option granted hereunder shall terminate, but the Optionee shall have the right,
immediately prior to such dissolution, liquidation, merger or combination, to
exercise his Option in full, without regard to any installment exercise
provisions, to the extent that it shall not have been exercised.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
shall provide for the elimination of fractional share interests.
ARTICLE VI
OPTIONS
Sec. 6.1 Option Grant and Agreement
Each Option granted hereunder shall be evidenced by minutes of a meeting or the
written consent of the Committee and by a Stock Option Agreement dated as of
the date of grant and executed by the Company and the Optionee, which Agreement
shall set forth such terms and conditions as may be determined by the Committee
consistent with the Plan.
Sec. 6.2 Option Price
The price of the Stock subject to each Option shall be $.50 per share, or such
other price as the Committee may from time to time determine.
Sec. 6.3 Option Period
The period for the exercise of each Option granted hereunder shall be
determined by the Committee.
Sec. 6.4 Option Exercise
(a) Subject to Section 6.6 hereof, no Option granted hereunder shall be
exercisable unless and until the Optionee shall have been or remained in the
employ of the Company or its subsidiaries for one (1) year from and after the
date such Option was granted, at which time the Optionee shall be entitled to
exercise the Option with respect to ten percent (10%) of the shares represented
thereby. When the Optionee has remained in the employ of the Company or its
subsidiaries for two (2) years from and after the date the Option was granted,
the Optionee may exercise the Option with respect to an additional twenty
percent (20%) of the shares represented thereby, followed by an additional
thirty percent (30%) after three (3) years, and an additional forty percent
(40%) after four (4) years. The right to exercise any unexercised Option may
be carried over from year to year.
(b) Options may be exercised with respect to whole shares only, for such
shares of Stock and within the period permitted by the exercise thereof as
determined by the Committee, and shall be exercised by written notice of intent
to exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office in the State of Alabama, and payment in
full to the Company at said office of the amount of the Option price for the
number of shares of Stock with respect to which the Option is then being
exercised.
Sec. 6.5 Nontransferability of Option
No Option shall be transferred by an Optionee otherwise than by will or the
laws of descent and distribution. During the lifetime of an Optionee, the
Option shall be exercisable only by him.
Sec. 6.6 Effect of Death or Other Termination of Employment
(a) In the even that the employment of an Optionee to whom an Option
shall have been granted shall be terminated for any reason other than death or
the total and permanent disability of such Optionee, such Option may be
exercised at any time prior to the expiration date of the Option or within
thirty (30) days after the date of such termination, whichever is earlier, but
only to the extent such Optionee had the right to exercise such Option at the
date of such termination.
(b) If an Optionee to whom an Option shall have been granted shall be
or become totally and permanently disabled while he is employed by the Company
or within thirty (30) days after the termination of his employment, such Option
may be exercised (to the extent that the Optionee shall have been entitled to
do so at the date of his total and permanent disability) by such Optionee or by
such Optionee's personal representatives at any time prior to the expiration of
six months following the date of total or permanent disability (but not to
exceed the original expiration date of the Option).
(c) In the event of the death of an Optionee, the executor or
administrator of the estate of the Optionee, or the person or persons to whom
an Option granted hereunder shall have been validly transferred by the executor
or the administrator pursuant to will or the laws of descent and distribution,
shall have the right to exercise the Optionee's Option for a period of six
months following the date of death (but not to exceed the original expiration
date of the Option).
(d) No transfer of an Option by the Optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of such Option.
Sec. 6.7 Rights as Stockholder
An Optionee or a transferee of an Option shall have no rights as a stockholder
with respect to any shares subject to such Option prior to the purchase of such
shares by exercise of such Option as provided herein.
ARTICLE VII
STOCK CERTIFICATES
Sec. 7.1 Stock Certificates
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, prior to fulfillment of all of the following conditions:
(a) the completion of any registration of other qualification of such
shares under any federal or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall in its sole discretion deem necessary or
advisable;
(b) the obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall in its sole discretion
determine to be necessary or advisable; and
(c) the lapse of such reasonable period of time following the exercise
of the Option as the Committee form time to time may establish for reasons of
administrative convenience.
ARTICLE VIII
TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
Sec. 8.1 Termination, Amendment, and Modification of the Plan
The board may at any time terminate, and may at any time and from time to time
and in any respect amend or modify, the Plan; provided, however, that no such
action of the Board without approval of the stockholders of the Company may:
(a) increase the total number of shares of Stock subject to the Plan
except as contemplated in Section 5.3 hereof;
(b) withdraw the administration of the Plan from the Committee; or
(c) permit any person while a member of the Committee to be eligible to
receive an Option under the Plan; and provided further, that no termination,
amendment, or modification of the Plan shall in any manner affect any Stock
Option Agreement theretofore granted pursuant to the Plan without the consent
of the Optionee or transferee of the Option.
ARTICLE IX
MISCELLANEOUS
Sec. 9.1 Employment
Nothing in the plan or in any Option granted hereunder or in any Stock Option
Agreement relating thereto shall confer upon any employee the right to continue
in the employ of the Company.
Sec. 9.2 Other Compensation Plans
The adoption of the Plan shall not affect any other stock option or incentive
or other compensation plans in effect for the Company or any Subsidiary, nor
shall the Plan preclude the Company from establishing any other forms of
incentive or other compensation for employees of the Company or any Subsidiary.
Sec. 9.3 Plan Binding on Successors
The Plan shall be binding upon the successors and assigns of the Company.
Sec. 9.4 Singular, Plural; Gender
Whenever used herein, nouns in the singular shall include the plural, and the
masculine pronoun shall include the feminine gender.
Sec. 9.5 Headings, Etc., No Part of Plan
Headings of Articles and Sections hereof are inserted for convenience and
reference; they constitute no part of the Plan.
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 6.4
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of
Directors on January 18, 1988, did approve the following amendments to the
Plan, hich shall be added following the present provisions in Sec. 6.4(a), as
follows:
SEC. 6.4 OPTION EXERCISE
(a) * * * * * *
Provided, however, that options granted to members of the Board of
Directors, who are not employees at the time of grant of such option, may be
exercised immediately, and for such duration as the Committee shall determine
in the grant of such option, but in any event within thirty (30) days of
termination of being a Director. In the event no limitation is placed upon
exercise of such option in the grant thereof by the Committee, then same shall
remain exercisable indefinitely, subject to the foregoing limitations (?6.6 and
within 30 days of termination of being a Director).
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 5.1
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of Directors on
November 17, 1987, did approve the following amendments to the Plan, and the
stockholders at the annual meeting on December 5, 1987, did ratify and approve
such amendments, which are as follows:
SEC. 5.1 LIMITATION
The number of shares of stock which may be issued and sold hereunder shall not
exceed 103,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
AMENDMENT TO SEC. 3.1
SEC. 3.1 ELIGIBILITY
Except as otherwise provided herein, any officer, member of the Board of
Directors, or other key employees of the Company shall be eligible to
participate in the Plan; provided that such officer, member of the Board of
Directors or other key employee of the Company, if requested by the Committee,
shall execute an agreement with the Company pursuant to which such officer or
other key employee shall agree, under the circumstances and for the period
specified in such agreement, no to compete with the Company; and provided
further, that no member of the Committee, except members of the Board of
Directors, shall be eligible to participate. The Committee may grant options
to any eligible employee in accordance with such determinations as the
Committee from time to time in its sole discretion shall make.
AMENDMENT TO SEC. 8.1
SEC. 8.1 TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
The Board may at any time terminate, and may at any time and from time to time
and in any respect amend or ratify, the Plan; provided, however, that no such
action of the Board without approval of the stockholders of the Company may:
(a) increase the total number of shares of Stock subject to the Plan
except as contemplated in Section 5.3 hereof;
(b) withdraw the administration of the Plan from the Committee; or
(c) permit any person while a member of the Committee, except members
of the Board of Directors, to be eligible to receive an Option under the Plan;
and provided further, that no termination, amendment, or modification of the
Plan shall in any manner affect any Stock Option Agreement theretofore granted
pursuant to the Plan without the consent of the Optionee or transferee of the
Option.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 5.1
Pursuant t the provisions of Article VIII, Sec. 8.1, the Board of Directors on
May 30, 1986, did approve the following amendment to the Plan, and the
stockholders at a special, called meeting thereof on June 6, 1986, did ratify
and approve such amendment, which is as follows:
"SEC. 5.1 LIMITATIONS
The number of shares of Stock which may be issued and sold hereunder shall not
exceed 78,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company."
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 5.1
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of Directors on
October 27, 1988, did approve the following amendment to the Plan, and the
stockholders at the annual meeting on December 3, 1988, did ratify and approve
such amendment, which is as follows:
SEC. 5.1 LIMITATION
The number of shares of stock which may be issued and sold hereunder shall not
exceed 138,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 5.1
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of Directors on
October 28, 1991, did approve the following amendment to the Plan, and the
stockholders at the annual meeting on December 14, 1991, did ratify and approve
such amendment, which is as follows:
SEC. 5.1 LIMITATION
The number of shares of stock which may be issued and sold hereunder shall not
exceed 241,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION PLAN
AMENDMENT TO SEC. 5.1
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of Directors on
November 3, 1992, did approve the following amendment to the Plan, and the
stockholders at the annual meeting on December 12, 1992, did ratify and approve
such amendment, which is as follows:
SEC. 5.1 LIMITATION
The number of shares of stock which may be issued and sold hereunder shall not
exceed 271,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
AMENDMENTS TO STOCK OPTION PLAN
Pursuant to the provisions of Article VIII, Sec. 8.1, the Board of Directors on
November 14, 1994, did approve the following amendments to the Plan, and the
stockholders at the annual meeting on December 10, 1994, did ratify and approve
such amendments, which are as follows:
Sec. 1.1(c)
"Option" shall mean an incentive stock option or nonqualified (i.e. non-
statutory) stock option to purchase Stock granted pursuant to the provisions of
Article VI hereof.
Sec. 5.1 Limitations
The number of shares of stock which may be issued and sold hereunder shall not
exceed 431,000 shares of Common Stock, subject to adjustment pursuant to the
provisions of Sec. 5.3 hereof. In either event, such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company.
Sec. 6.1 Option Grant and Agreement
Each Option granted hereunder shall be evidenced by minutes of a meeting or the
written consent of the committee and by a Stock Option Agreement dated as of
the date of grant and executed by the Company and the Optionee, which Agreement
shall set forth the type of option, i.e. incentive or nonqualified, and such
terms and conditions as may be determined by the Committee consistent with the
Plan.
Sec. 6.8 Incentive Stock Options
Any incentive stock option granted pursuant to this Plan shall be in compliance
with and conform to the requirements and provisions of the Internal Revenue
Code related to incentive stock options, including but not limited to I. R. C.
?422. In no event shall the aggregate fair market value (determined at the
time an incentive stock option is granted) of the stock with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under all such plans of the Company and its parent
and subsidiary corporations, or a predecessor corporation as defined in I. R.
C. ?424 (f)) exceed $100,000. <PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
___________, 1995 by and between VME Microsystems International Corporation,
a Delaware Corporation (herein called the "Corporation") and the undersigned
employee of the Corporation (herein called the "Employee" or "Optionee").
WHEREAS, the Board of Directors of the Corporation, with the
approval and authorization of the shareholders thereof, has adopted a STOCK
OPTION PLAN (the "Plan"), a copy of which is attached hereto and all of the
provisions of which are made a part hereof, in the conviction that it is in
the best interest of the Corporation for certain key employees to acquire a
proprietary interest in the Corporation, and
WHEREAS, the administration of the Plan is controlled by the Stock
Option Committee; and
WHEREAS, the Stock Option Committee (herein called the "Committee"),
having determined that the Employee is qualified to participate under the Plan,
has, as of the date hereof, awarded this option (hereinafter referred to as
"the option" or "this option") to acquire stock to the Employee;
THEREFORE, with due consideration to the purposes of this Agreement
and the mutual contract herein, the parties agree to the following:
1. The Corporation hereby grants to the Employee as a matter
of separate inducement and agreement in connection with his employment
by the Corporation, and not in lieu of any salary or other compensation
for his services, the right and option to purchase on the terms and
conditions herein set forth all or any part of an aggregate of _______
shares (herein termed "the maximum number of shares available") of the
presently authorized common stock of the Corporation ($.10 par value),
at the purchase price of eight dollars and 00/100's ($8.00) per share.
The above price per share and maximum number of shares available shall
be appropriately adjusted in the event of any stock split, stock
dividend, or other recapitalization of the Corporation pursuant to and
as provided by Section 5.3 of the Plan, as same may then provide,
subject to any amendments to such provisions. This Stock Option
Agreement shall continue for sixty (60) months from the date hereof,the
commencement date of this Agreement, except as and to the extent that
the term of the option may be reduced as provided in paragraphs 3 and
4. This Agreement is intended to provide to the Employee a
nonstatutory stock option (reference Section 83 as provided in the
Internal Revenue Code of 1986, as amended).
2. The option granted hereunder shall be exercisable by the giving
of not less than fifteen (15) days written notice of exercise
to the Corporation, specifying the number of shares to be purchased
and accompanying such notice with payment of the full purchase price
therefor. This option shall be exercisable during the lifetime of
the Employee and only by him. The exercise of any option hereunder is
subject to the limitation that the Employee may not exercise this
option, wholly or partially, while there is outstanding any other
option to purchase stock of the Corporation under the Plan, which was
granted before this option. The Stock Option Committee shall have
full authority in determining when and if options may be exercised
before their expiration date.
3. Subject to the other provisions hereof, in the event of (a) the
death of the Employee while in the employ of the Corporation or an
affiliated corporation of the Corporation, or (b) his death within
thirty (30) days after any cessation of his said employment, this option
may be exercised only within six (6) months following such death, and
then only (i) by the persons to whom the Employee's rights under this
option shall pass by the Employee's will or by the laws of descent and
distribution and (ii) if and to the extent that the Employee was
entitled to exercise this option or any portion thereof be exercisable
more than sixty (60) months after the commencement date of this
Stock Option Agreement, as defined in paragraph 1.
4. Subject to other provisions hereof, if the Employee shall
cease to be employed by the Corporation or an affiliated corporation
of the Corporation for any reason other than death, he may, but only
within thirty (30) days following such cessation of employment, exercise
this option to the extent and only to the extent that he was entitled
to exercise it at the date of such cessation of employment, and any
unexercised portion of the option granted hereunder and all of the
Employee's rights hereunder with respect to such option shall terminate
unless exercised within thirty (30) days of the date of such cessation
of employment; provided, however, that in no event shall the option or
any portion thereof be exercisable more than sixty (60) months after the
commencement date of this Agreement, as defined in paragraph 1.
5. The Employee shall have the right to purchase a number of shares
under the terms of this option in accordance with the following
schedule:
(a) Prior to the end of the first twelve months following the
commencement date, no stock option may be exercised.
(b) At the end of the first twelve months following the commencement
date, ten percent (10%) of the maximum number of shares available to
Employee shall be subject to exercise.
(c) At the end of two years following the commencement date, an
additional twenty percent (20%) of the maximum number of shares
available to the Employee shall be subject to exercise.
(d) At the end of three years following the commencement date, an
additional thirty percent (30%) of the maximum number of shares
available to the Employee shall be subject to exercise.
(e) At the end of four years following the commencement date, an
additional forty percent (40%) of the maximum number of shares available
to the Employee shall be subject to exercise.
(f) Thereafter, all of the maximum number of shares available to the
Employee shall be subject to exercise.
In the event that the application of the foregoing formula at any time
results in a fraction of a share being subject to exercise by the
Employee, the entirety of such share shall be deleted from the number
of shares available to the Employee until the following year. The
Employee may buy all, or from time to time any part, of the maximum
number of shares for which the right to purchase has occurred at
that time in accordance with the provisions hereof, but in no case may
the Employee exercise this option for a fraction of a share. In no event
shall the option or any portion thereof be exercisable more than sixty
(60) months after the commencement date of this Agreement, as defined in
paragraph 1. All of the foregoing schedule is subject to the Employee
continually having remained in the employ of the Corporation from the
commencement date until the time prescribed.
6. By accepting this option, the Employee agrees for himself and his
legal representatives that any and all shares purchased upon the
exercise of this option shall be acquired for investment and not for
distribution. Such shares unless registered under applicable securities
laws may not be sold or transferred absent an exemption from
registration and the Employee may be required to hold such shares
indefinitely. The share certificates shall bear a restrictive
securities legend.
7. If, at any time, either during or after his employment by the
Corporation or an affiliated corporation of the Corporation, the
Employee desires to sell any shares of the Corporation which have been
obtained through exercise of this Stock Option Agreement, he shall give
notice to the Secretary of the Corporation of his intention to sell
said shares. Said notice shall contain:
(a) A statement signed by Employee notifying the Corporation that he
desires to sell shares pursuant to a bona fide offer to purchase.
(b) A copy of the terms of the bona fide offer to purchase such shares
setting forth the following:
(1) The full name and address of the intended purchaser;
(2) The number of shares to be purchased or transferred to
purchaser;
(3) The price per share;
(4) The terms under which the purchase or transfer is intended
to be made;
(5) A statement, signed by the intended purchaser, that the
terms specified are a bona fide offer to purchase;
(6) A representation by purchaser that he has the financial or
other capability necessary to complete the transaction as
proposed.
The Corporation shall have ten (10) days from the date of receipt of
such notice by the Secretary within which to exercise an option to
purchase said stock at the same price and upon the same terms as set
forth in said notice. The Corporation may, in exercising the option,
designate one or more nominees to purchase the stock, instead of the
Corporation purchasing it itself. Said option shall apply to all but
not less than all of the shares specified in the notice. In the event
the Corporation does not exercise said option, the Employee may sell the
shares specified in the notice within thirty (30) days thereafter to the
person, at the price and upon the terms and conditions specified in the
notice. Employee may not sell said shares to any other person or at any
different price or on any different terms without first re-offering the
shares to the Corporation. The provisions of this paragraph shall cease
to be applicable at such time as the shares of the Corporation are
listed on any stock exchange, or there is an established market
therefore on the over-the-counter market and said shares are listed in
the pink or white sheets of the National Stock Quotation services or a
comparable service. The share certificates for such shares shall bear
a legend referencing this first right of refusal.
8. This option and the rights of Optionee are not assignable or
transferable, except as has been specifically provided herein. Optionee shall
have no rights as a stockholder prior to approval of purchase of shares
pursuant to this option by the Committee and payment of the price
thereof. Issuance of certificates for any shares shall be subject to Section
7.1 of the Plan.
9.For the purpose hereof, an affiliated corporation is defined as subsidiary of
Corporation, a corporation holding a majority of the voting stock of
Corporation, or a corporation a majority of the voting stock of which is held
by persons who hold a majority of the stock of Corporation.
10.This Stock Option Agreement, together with the attached STOCK OPTION PLAN,
contains the entire agreement between the parties with respect to its subject
matter. This Stock Option Agreement with the Employee in no way implies a
guarantee of his continued employment by the Corporation.
This Stock Option Agreement shall be binding upon and shall inure to the
benefit of the respective parties, the successors and assigns of the
Corporation, and the heirs, legatees and personal representatives of the
Employee as provided herein.
VME MICROSYSTEMS INTERNATIONAL
CORPORATION
Carroll E. Williams
By:___________________________________
Carroll E. Williams "Corporation"
President
_______________________________________
"Employee"
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day of
____________, 1995 by and between VME Microsystems International Corporation,
a Delaware Corporation (herein called the "Corporation") and the undersigned
employee of the Corporation (herein called the "Employee" or "Optionee").
WHEREAS, the Board of Directors of the Corporation, with the approval
and authorization of the shareholders thereof, has adopted a STOCK OPTION PLAN
(the "Plan"), a copy of which is attached hereto and all of the provisions of
which are made a part hereof, in the conviction that it is in the best interest
of the Corporation for certain key employees to acquire a proprietary interest
in the Corporation, and
WHEREAS, the administration of the Plan is controlled by the Stock
Option Committee; and
WHEREAS, the Stock Option Committee (herein called the "Committee"),
having determined that the Employee is qualified to participate under the Plan,
has, as of the date hereof, awarded this option (hereinafter referred to as "the
option" or "this option") to acquire stock to the Employee;
THEREFORE, with due consideration to the purposes of this Agreement and
the mutual contract herein, the parties agree to the following:
1. The Corporation hereby grants to the Employee as a matter of
separate inducement and agreement in connection with his employment by the
Corporation, and not in lieu of any salary or other compensation for his
services, the right and option to purchase on the terms and conditions herein
set forth all or any part of an aggregate of ________ shares (herein termed
"the maximum number of shares available") of the presently authorized common
stock of the Corporation ($.10 par value), at the purchase price of eight
dollars and 00/100's ($8.00) per share. The above price per share and maximum
number of shares available shall be appropriately adjusted in the event
of any stock split, stock dividend, or other recapitalization of the
Corporation pursuant to and as provided by Section 5.3 of the Plan, as
same may then provide, subject to any amendments to such provisions. This
Stock Option Agreement shall continue for sixty (60) months from the date
hereof, the commencement date of this Agreement, except as and to the
extent that the term of the option may be reduced as provided in
paragraphs 3 and 4. This Agreement is intended to provide to the Employee an
incentive stock option as provided in the Internal Revenue Code of 1986, as
amended (the "Code"). Therefore, the option hereby granted is designated
an incentive stock option. This option agreement shall be interpreted and
administered in a manner consistent with the requirements of an incentive stock
option under Section 422 of the Code, notwithstanding any provision to the
contrary herein contained.
2. The option granted hereunder shall be exercisable by the giving of
not less than fifteen (15) days written notice of exercise to the Corporation,
specifying the number of shares to be purchased and accompanying such notice
with payment of the full purchase price therefor. This option shall be
exercisable during the lifetime of the Employee and only by him. The exercise
of any option hereunder is subject to the limitation that the Employee may not
exercise this option, wholly or partially, while there is outstanding any other
option to purchase stock of the Corporation under the Plan, which was granted
before this option. The Stock Option Committee shall have full authority in
determining when and if options may be exercised before their expiration date.
3. Subject to the other provisions hereof, in the event of (a)
the death of the Employee while in the employ of the Corporation or an
affiliated corporation of the Corporation, or (b) his death within thirty (30)
days after any cessation of his said employment, this option may be exercised
only within six (6) months following such death, and then only (i) by the
persons to whom the Employee's rights under this option shall pass by the
Employee's will or by the laws of descent and distribution and (ii) if and to
the extent that the Employee was entitled to exercise this option or any
portion thereof be exercisable more than sixty (60) months after the
commencement date of this Stock Option Agreement, as defined in paragraph 1.
4. Subject to other provisions hereof, if the Employee shall
cease to be employed by the Corporation or an affiliated corporation of the
Corporation for any reason other than death, he may, but only within
thirty (30) days following such cessation of employment, exercise this option
to the extent and only to the extent that he was entitled to exercise it at the
date of such cessation of employment, and any unexercised portion of the option
granted hereunder and all of the Employee's rights hereunder with respect to
such option shall terminate unless exercised within thirty (30) days of the
date of such cessation of employment; provided, however, that in no event shall
the option or any portion thereof be exercisable more than sixty (60) months
after the commencement date of this Agreement, as defined in paragraph 1.
5. The Employee shall have the right to purchase a number of shares
under the terms of this option in accordance with the following schedule:
(a) Prior to the end of the first twelve months following
the commencement date, no stock option may be exercised.
(b) At the end of the first twelve months following the
commencement date, ten percent (10%) of the maximum number of
shares available to Employee shall be subject to exercise.
(c) At the end of two years following the commencement
date, an additional twenty percent (20%) of the maximum
number of shares available to the Employee shall be subject to
exercise.
(d) At the end of three years following the commencement
date, an additional thirty percent (30%) of the maximum number
of shares available to the Employee shall be subject to
exercise.
(e) At the end of four years following the commencement
date, an additional forty percent (40%) of the maximum
number of shares available to the Employee shall be subject to
exercise.
(f) Thereafter, all of the maximum number of shares
available to the Employee shall be subject to exercise.
In the event that the application of the foregoing formula at any time
results in a fraction of a share being subject to exercise by the
Employee, the entirety of such share shall be deleted from the number of
shares available to the Employee until the following year. The Employee may buy
all, or from time to time any part, of the maximum number of shares for
which the right to purchase has occurred at that time in accordance with the
provisions hereof, but in no case may the Employee exercise this option for a
fraction of a share. In no event shall the option or any portion thereof be
exercisable more than sixty (60) months after the commencement date of this
Agreement, as defined in paragraph 1. All of the foregoing schedule is
subject to the Employee continually having remained in the employ of the
Corporation from the commencement date until the time prescribed.
6. By accepting this option, the Employee agrees for himself
and his legal representatives that any and all shares purchased upon the
exercise of this option shall be acquired for investment and not for
distribution. Such shares unless registered under applicable securities
laws may not be sold or transferred absent an exemption from registration
and the Employee may be required to hold such shares indefinitely. The
share certificates shall bear a restrictive securities legend.
7. If, at any time, either during or after his employment by the
Corporation or an affiliated corporation of the Corporation, the Employee
desires to sell any shares of the Corporation which have been obtained
through exercise of this Stock Option Agreement, he shall give notice to
the Secretary of the Corporation of his intention to sell said shares. Said
notice shall contain:
(a) A statement signed by Employee notifying the Corporation that
he desires to sell shares pursuant to a bona fide offer to purchase.
(b) A copy of the terms of the bona fide offer to purchase such
shares setting forth the following:
(1) The full name and address of the intended purchaser;
(2) The number of shares to be purchased or transferred to
purchaser;
(3) The price per share;
(4) The terms under which the purchase or transfer is intended
to be made;
(5) A statement, signed by the intended purchaser, that the
terms specified are a bona fide offer to purchase;
(6) A representation by purchaser that he has the financial or
other capability necessary to complete the transaction as
proposed.
The Corporation shall have ten (10) days from the date of receipt of such
notice by the Secretary within which to exercise an option to purchase said
stock at the same price and upon the same terms as set forth in said notice.
The Corporation may, in exercising the option, designate one or more nominees
to purchase the stock, instead of the Corporation purchasing it itself. Said
option shall apply to all but not less than all of the shares specified in the
notice. In the event the Corporation does not exercise said option, the
Employee may sell the shares specified in the notice within thirty (30) days
thereafter to the person, at the price and upon the terms and conditions
specified in the notice. Employee may not sell said shares to any other person
or at any different price or on any different terms without first re-offering
the shares to the Corporation. The provisions of this paragraph shall cease to
be applicable at such time as the shares of the Corporation are listed on any
stock exchange, or there is an established market therefore on the over-the-
counter market and said shares are listed in the pink or white sheets of the
National Stock Quotation services or a comparable service. The share
certificates for such shares shall bear a legend referencing this first right
of refusal.
8. This option and the rights of Optionee are not assignable or trans-
ferable, except as has been specifically provided herein. Optionee shall have
no rights as a stockholder prior to approval of purchase of shares
pursuant to this option by the Committee and payment of the price
thereof. Issuance of certificates for any shares shall be subject to Section
7.1 of the Plan.
9. For the purpose hereof, an affiliated corporation is defined as
subsidiary of Corporation, a corporation holding a majority of the
voting stock of Corporation, or a corporation a majority of the voting stock
of which is held by persons who hold a majority of the stock of Corporation.
10. This Stock Option Agreement, together with the attached STOCK OPTION
PLAN, contains the entire agreement between the parties with respect to its
subject matter. This Stock Option Agreement with the Employee in no way
implies a guarantee of his continued employment by the Corporation.
This Stock Option Agreement shall be binding upon and shall inure
to the benefit of the respective parties, the successors and assigns
of the Corporation, and the heirs, legatees and personal representatives
of the Employee as provided herein.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
Carroll E. Williams
By:_____________________________________
Carroll E. Williams "Corporation"
President
________________________________________
"Employee"
<PAGE>
VME MICROSYSTEMS INTERNATIONAL CORPORATION
1992 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSES
VME Microsystems International Corporation has established the plan set
forth herein in order to encourage ownership of its Common Stock by its
employees and employees of certain Affiliates, by providing them a
convenient means for regular and systematic purchases on an advantageous
basis, thereby increasing their interest in the Company's success.
ARTICLE II
DEFINITIONS
"Affiliate" means a subsidiary of the Company (including corporations
becoming subsidiaries subsequent to the adoption of the Plan) in an unbroken
chain of corporations beginning with the Company if at the time of the
granting of the Option each of such corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
"Company" means VME Microsystems International Corporation.
"Board" means the Company's Board of Directors.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and regulations thereunder.
"Effective Date" means July 1, 1992.
"Employee" means a full-time employee of the Company. A person shall
not be considered a full-time employee of the Company if his customary
employment is 20 hours or less per week or his customary employment is for
not more than 5 months in any calendar year.
"Employer" means the Company and its Affiliates which are designated
by the Board as an employer for purposes of this Plan. The Board may from
time to time change the designation of Affiliates who are employers for
purposes of this Plan.
"Option" means a right to purchase Stock granted under Section 4.1.
"Option Period" means a three-month period beginning on the Effective
Date of the Plan and any October 1, January 1, April 1, and July 1,
thereafter and ending on the next December 31, March 31, June 30, or September
30.
"Plan" means the VME Microsystems International Corporation 1992 Employee
Stock Purchase Plan set forth herein, as it may be amended from time to time.
"Stock" means the Common Stock of VME Microsystems International
Corporation.
ARTICLE III
ELIGIBILITY
An Employee shall be eligible to participate in the Plan if he has
been employed by the Company for the 12-month period immediately preceding the
date of participation in the Plan.
ARTICLE IV
GRANTING OF OPTIONS
4.1 OPTION PERIODS. On each October 1, January 1, April 1, and
July 1, beginning with the Effective Date, each Employee who is eligible for
an Option under Article III shall be granted an Option to purchase Stock from
the Company on the last day of the Option Period beginning on that date, by
authorizing payroll deductions under Article V. Notwithstanding the foregoing,
no Employee shall be eligible for an Option under Article III if such Employee,
immediately after the Option is granted, shall own 5 percent or more of the
voting power or value of all classes of stock of the Company or of any of
its Affiliates, treating the maximum amount of stock available to him under the
Plan for such Option Period and shares subject to any other option as
owned by him and treating as owned by him shares owned by others to the
extent provided in Section 425(d) of the Code. Any Options granted in an
Option Period which are not exercised on the last day of the Option Period
shall expire as of the end of the Option Period.
4.2 EXERCISE PRICE. Stock shall be purchased under each Option at 85
percent of its fair market value on the last day of the Option Period.
4.3 NONTRANSFERABILITY. Options granted to an Employee are not
transferable, and may be exercised during the Employee's lifetime only by
him. Any attempt of assignment, transfer, pledge, hypothecation, or other
disposition of any Option contrary to the provisions of this Plan, and the
levy and attachment or any similar proceedings upon any Option, shall be null
and void.
4.4 STOCKHOLDER APPROVAL. If the Plan is not approved by the
Company's stockholders prior to January 1, 1993, the Plan shall be null and
void.
4.5 LIMITS ON STOCK PURCHASE. No Employee may be granted an
Option which permits him to purchase during a calendar year under the Plan and
any other employee stock purchase plan, within the meaning of Section 423
of the Code, shares of the Company and its Affiliates having an aggregate fair
market value, determined at the time such Option is granted, of more than
$25,000.
4.6 AMOUNT OF STOCK AVAILABLE. An aggregate of 50,000 shares of Stock
shall be available for purchase under the Plan, subject to adjustment under
Section 4.7. To the extent Options expire unexercised, the Stock subject to
such Options shall become available for subsequent grant. Stock available
for purchase under the Plan shall be authorized but unissued shares or
treasury shares.
4.7 ADJUSTMENTS OF AMOUNT OF STOCK. In the event of change in the
number of shares of Stock outstanding by reason of a stock dividend, stock
split or other recapitalization, or by reason of a merger or consolidation or
otherwise, the number of shares of stock available under this Plan, and the
fair market value of such shares at the beginning of the Option Period during
which such change occurs, shall be adjusted in such manner as the Board, in
its discretion, deems equitable and appropriate.
ARTICLE V
PAYMENT FOR STOCK
5.1 PAYROLL DEDUCTIONS. Each Employee may exercise Options granted to him
under Section 4.1, exclusively by authorizing payroll deductions on a form
provided by his Employer. The actual exercise of the Options shall occur on
the last day of the Option Period. Deductions may be authorized beginning July
1, 1992, or any October 1, January 1, April 1, or July 1, thereafter, in any
integral percentage, of an Employee's basic rate of compensation paid by the
Employer. Total deductions may not exceed $25,000 for any calendar year. A
payroll deduction authorization hereunder shall remain in effect until
discontinued under Section 5.3.
5.2 PURCHASE OF STOCK. As of the last day of each Option Period the
amount of payroll deductions during such Option Period for each person who
remains an Employee on such date shall be used to purchase from the Company
whole shares of Stock under the Employee's Option. Any balance which is
attributable to a fractional share shall be retained by the Employer and
treated as a payroll deduction by the Employee for the next Option Period if
he remains an Employee. Upon the purchase of shares of Stock under an
Option, the Company shall deliver, or cause to be delivered, promptly to the
Employee stock certificates for such shares. Such shares shall be registered
in the name of the Employee or in the Employee's name jointly with a member
of the Employee's family.
5.3 DISCONTINUANCE. An Employee may discontinue payroll deductions
authorized under Section 5.1 at any time, by signing and filing with his
Employer, within the time prescribed in rules and regulations adopted under
Article VIII, a form provided for this purpose. Once discontinued hereunder,
payroll deductions may not be made again until the next succeeding October 1.
5.4 REFUND OF CONTRIBUTIONS. If during an Option Period an Employee
for whom contributions are being made under Section 5.1 becomes ineligible to
have Stock purchased from him under Section 5.1, or discontinues his
contributions under Section 5.3, his payroll deductions during such Option
Period shall be returned without interest to him within 30 days of the date on
which the Company first learns of the Employee's ineligibility, or the
date on which the Employee informs the Company that he wishes to
discontinue contributions. If the aggregate amount of payroll deductions
under Section 5.1, during any Option Period exceeds the purchase price
of Stock available under the Plan, the available Stock shall be allocated to
Employees in proportion to the respective maximum numbers of shares that can be
purchased during the Option Period, and amounts not used to purchase Stock
shall be returned without interest to the respective Employees as soon as
practicable. Any payroll deductions in excess of the limits in Section 4.5
shall be returned without interest to an Employee within 30 days of the date
on which the Company first learns of the existence of any excess contributions.
5.5 RIGHTS OF EMPLOYEES. An Employee shall have no right, title or
interest in any Stock subject to an Option, including no right to receive
dividends, until such Stock has been purchased for him and issued to him.
5.6 REQUIREMENTS OF SECURITIES LAWS. No shares of Stock may be issued
under any Option until all requirements of Federal, state or other securities
laws, and of any securities exchange upon which Stock may be listed, with
respect to the purchase, sale and issuance of the Stock shall have been
satisfied. If any action must be taken because of such requirements, then
the purchase, sale and issuance of the shares shall be postponed until such
action can reasonably be taken. Upon demand by the Company, an Employee shall
deliver to the Company a representation in writing that the purchase of all
shares of Stock under an Option is being made for investment only and not for
resale or with a view to distribution, and containing such other
representations and provisions with respect thereto as the Company may
reasonably require in order to comply with any registration requirements or
exemptions therefrom of applicable securities laws.
ARTICLE VI
APPLICABLE LAW
Options granted under this Plan shall be construed and shall take effect in
accordance with the laws of the State of Delaware.
ARTICLE VII
AMENDMENT; TERMINATION
7.1 AMENDMENT. The Board may amend this Plan at any time in such manner
and to such extent as it deems appropriate; provided, that no such amendment
shall, without approval of the stockholders of the Company, increase the
number of shares of Stock available for purchase under the Plan, except as
provided in Section 4.7.
7.2 TERMINATION. The Plan may be terminated by the Board at any time,
in its entirety or as to any group of Employees. In the event of termination
of the participation of an Employee under this Article VII during an Option
Period, no further payroll deductions shall be made with respect to such
Employee's annual basic rate of compensation under Section 5.1, but Stock
shall be purchased for him under the terms of Section 5.2 as of the last day of
the Option Period. If the Plan is terminated by the Board under this Article
VII and if (a) any reclassification or change of outstanding shares
of Stock, (b) any consolidation or merger of the Company with or into
another corporation, or (c) any sale, lease, exchange or other disposition of
all or substantially all the property and assets of the Company occurs on or
prior to the last day of the Option Period during which the Plan is
terminated, then notwithstanding the foregoing, no Stock shall be purchased as
of the last day of such Option Period and each Optionee's payroll deductions
during such Option Period shall be returned without interest to him within
30 days.
ARTICLE VIII
ADMINISTRATION
A Committee of persons, none of whom is eligible to receive an option or
was eligible to receive an option under the Plan within one year prior to
becoming a Committee member, appointed by the Board of Directors shall
have the authority and responsibility for administration of the Plan. The
Board may from time to time appoint or dismiss members of the Committee. The
Board may prescribe, amend and rescind, and the Committee may recommend to
the Board, rules and regulations for administration of the Plan, and the
Committee shall have full power and authority to construe and interpret the
Plan. A majority of the members of the Committee shall constitute a quorum
and the acts of a majority of the members present at a meeting or the consent
in writing signed by all members of the Committee shall be the acts of the
Committee and shall be final, conclusive and binding upon all parties,
including the Company, its Affiliates, the stockholders, the Employees and
all persons or entities claiming by or through the Employees. The Board
may correct any defect or any omission or reconcile any inconsistency in the
Plan or in any Option granted hereunder in the manner and to the extent it
shall deem desirable. The expense of the Plan shall be paid for by the
Company.
ARTICLE X
LIMITATIONS OF SALE OF STOCK PURCHASED UNDER THE PLAN
Each Employee will agree by entering the Plan, promptly to give the
Company notice of any Stock disposed of within two years after the date of the
last day of the Option Period during which the Stock was purchased showing the
number of such shares disposed of and the date or dates of disposition. Any
such resales shall not violate any applicable exemption from registration
available to the Company in connection with the sale of such stock to the
Employee hereunder.
<PAGE>
AMENDMENT NO. 1
TO
VME MICROSYSTEMS INTERNATIONAL CORPORATION
1992 EMPLOYEE STOCK PURCHASE PLAN
THIS AMENDMENT NO. 1 TO VME MICROSYSTEMS INTERNATIONAL CORPORATION
1992 EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is adopted on this the 11th
day of December, 1992, by VME Microsystems International Corporation (the
"Company") pursuant to a resolution of the Board of Directors of the
Company adopted December 11, 1992. Section 7.1 of the Plan stated that the
Board of Directors of the Company may amend the Plan at any time in such
manner and to such extent as it deems appropriate; provided that no such
amendment shall, without approval of the stockholders of the Company,
increase the number of shares of stock available for purchase under the Plan,
except as provided in Section 4.7. The Board of Directors pursuant to the
authority granted to it in Section 7.1 of the Plan does hereby amend the Plan
to provide as follows: (1)A new Article XI is hereby added to read as follows:
"Each Employee exercising an option and acquiring stock of the Company
shall be required to offer the Company the right to repurchase the stock
if his employment terminates and shall give the Company the first right of
refusal in the event he desires or his heirs and personal representatives
desire to sell any of the stock purchased pursuant to exercise of an option
under the Plan. The terms and conditions of such option to repurchase and
first right of refusal shall be determined by the Committee in its
discretion." (2)Section 5.2 is hereby amended to provide that the Company
may issue stock certificates on an annual basis unless an Employee
specifically requests certificates to be issued upon each option exercise. The
above amendment shall be effective January 1, 1993. Except as provided
above, the Plan shall remain in full force and effect according to its terms
and conditions.
IN WITNESS WHEREOF, the foregoing Amendment has been adopted by the
undersigned on the date and year first above written.
VME MICROSYSTEMS INTERNATIONAL CORPORATION
Carroll E. Williams
BY:___________________________________________
Its President and Chief Executive Officer
