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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: May 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16071
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SUMMAGRAPHICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0888312
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8500 Cameron Road, Austin, Texas 78754
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (512) 835-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, Par Value $.01 Per Share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such reports), and has been subject to such filing requirements
for the past ninety (90) days.
YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. YES [X] NO [ ]
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The aggregate market value as of August 18, 1995, of Common Stock held by non-
affiliates of the Registrant: $16,145,003 based on the last reported sale price
on the National Market System as reported by NASDAQ, Inc.
The number of shares of Common Stock outstanding as of August 18, 1995:
4,612,858
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PART I
ITEM 1 BUSINESS
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Summagraphics Corporation was incorporated in Delaware on June 29, 1972. The
Company's executive offices are located at 8500 Cameron Road, Austin, Texas
78754, telephone number (512) 835-0900. Unless the context otherwise requires,
the "Registrant", the "Company" and "Summagraphics" refer to Summagraphics
Corporation and its consolidated subsidiaries.
GENERAL
Summagraphics is engaged in the manufacture and sale of digitizing tablets,
large format plotters, thermal transfer printers, and graphic cutters.
A digitizer is a computer graphics input device, functionally similar to a
keyboard or mouse, consisting of an electronic stylus or cursor and a tablet
containing a grid of sensors which translate engineering drawings, maps and
other graphic information into digital form for entry into a computer.
A pen plotter is a computer graphics output device, functionally similar to a
printer, but used to automatically draw lines, symbols, diagrams and other
graphics output.
An ink jet plotter is a computer graphics output device, functionally similar
to a printer and pen plotter, but it uses ink jet technology rather than ink pen
technology to automatically draw lines, symbols, diagrams and other graphics
output.
A thermal transfer printer, capable of interfacing with PostScript(R) and
other industry standard software, uses Summagraphics' patented techniques to
produce brilliantly colored, high quality images up to 24" x 40" for sign-making
applications.
A cutter performs a function similar to a plotter, but rather than drawing an
image onto a sheet of paper it accurately cuts on various media (such as vinyl)
along a programmed image employing the same technique as a plotter except using
a knife instead of a pen.
The Company's products are used in applications with high-performance computer
graphics systems, including computer-aided design, manufacturing, engineering,
publishing and graphic arts.
The Company added pen plotters and cutters to its pre-existing digitizer
product lines in May 1990 with the acquisition of Houston Instrument. This
acquisition broadened the Company's presence in the U.S. market, provided the
Company with a manufacturing facility in Belgium and expanded the Company's
U.S., European and Far Eastern distribution networks. Approximately 56% of the
Company's net sales for the fiscal year ended May 31, 1995 was attributable to
overseas markets.
The Company's products are sold by its sales force primarily through
distributors and also to OEMs which incorporate the Company's products into
their own computer products. The Company's products may be integrated with most
personal computers, including IBM-compatible personal computers and Apple
personal computers, workstations from Sun Microsystems and Digital Equipment,
and publishing systems from Scitex, and are compatible with most industry
standard CAD and graphics software applications.
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The Company's strategy is: to pursue sales and market share growth for its
existing product lines, through product enhancements and new product
introductions; to devote resources to research and development of new products;
and, as and if appropriate opportunities arise, to acquire or develop one or
more complementary product lines or businesses serving the computer graphics
markets.
Summagraphics acquired the Houston Instrument Division ("Houston Instrument")
of Ametek, Inc. ("Ametek") from Ametek in May 1990 in an asset purchase
transaction for a consideration of $23.4 million in cash (after certain post-
closing adjustments) and a $5 million principal amount 8% Convertible
Subordinated Note issued to Ametek by the Company. The Company repurchased the
remaining balance of the Note ($2.5 million) on May 25, 1994 for $1.8 million
and cancelled the 333,333 warrants granted at the time of the acquisition
(exercisable at $15 per share) and issued 300,000 warrants, 150,000 of which
expired on May 1, 1995 and 150,000 of which are exercisable at $9 per share
expiring on May 1, 1997.
In March 1992, the Company restructured its North American operation by
combining the management and administrative processes of its digitizer and
Houston Instrument Divisions into a single operating unit; and established an
administrative headquarters in Europe responsible for cutter manufacturing, and
sales, distribution and service of all Company products for the European market.
Further restructuring was initiated in May 1993, associated with the arrival
of a new President and Chief Executive Officer who joined the Company in April
1993. The restructuring included a reduction in work force, asset write-downs,
consolidation of manufacturing operations in the Company's Austin, Texas
facility, changes in some of the Company's senior executives, and a redeployment
of assets to apply them more effectively. Also, North America and Asia Pacific
sales, manufacturing, and engineering administration is now based in Austin,
Texas.
During fiscal year 1995, the Company changed its corporate headquarters from
Seymour, Connecticut to Austin, Texas, and in late fiscal year 1995 undertook
additional organizational actions which included a reduction in force and
abandonment of the remaining portion of the Company's Connecticut lease.
DIGITIZERS
MARKET AND APPLICATIONS. Digitizers have accounted for approximately forty
percent (40%) of the sales of the Company in fiscal year 1995. Summagraphics'
primary markets for digitizers are in computer-aided design, engineering and
manufacturing (CAD/CAE/CAM). Digitizers typically are used with personal
computers and workstations and support a broad range of software applications
which include high-end computer aided publishing, construction management and
costing, graphics design and animation, mapping and geographic information
systems (GIS) and geological/seismic analysis. They also are used frequently
with software systems such as AutoCAD. Newspaper publishers, for example, use
the Company's digitizers as part of their complete computer-aided publishing
systems for publication layout. Engineers and architects use the Company's
digitizers in estimating construction costs rapidly and accurately from
blueprints and site plans while in the field. Animation and graphics design
uses for the Company's digitizers vary widely and include use in cinema
productions, colorization of black and white movies and television weather and
sport analysis. Digitizers offer significant benefits of speed and efficiency
to the user in CAD design over other input methodologies such as computer mice
and on-screen menus.
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Uses for digitizers include desktop publishing, image processing and pen-based
computing. See "Business -- Product Development."
TECHNOLOGY. Digitizers are capable of determining the absolute location of a
stylus or cursor to within several thousandths of an inch on a grid of sensors
imbedded in a tablet. Depending upon the technology used, this is accomplished
by pulsing either the grid or the cursor with an electric current causing a
reciprocal electrical flow in the cursor or the grid. This reciprocal flow is
measured, converted into a set of digital X-Y coordinates and transmitted to a
host computer for processing.
Digitizers can offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, joystick and touchpanels in graphics
intensive applications due to their high level of precision, greater
functionality and increased productivity. Keyboards are primarily used for
inputting text and numerical information and are not well suited for graphics
applications. Mice are low accuracy, relative pointing devices commonly used
with icon-based operating systems and low-resolution graphics applications. By
contrast, digitizers are capable of inputting X-Y coordinate data to communicate
an absolute position. Absolute positioning allows accurate drawing and
selection of discrete points on the surface of the digitizing tablet. The
latter is critical to high accuracy tasks such as digitizing a map or an
existing CAD drawing.
The Company's digitizer products are primarily based on electromagnetic
technology whereby a cursor or a grid generates an electromagnetic field which
is measured by built-in electronic instruments. These methods produce
digitizers capable of higher resolution than other commonly-used technologies
(magnetostrictive and resistive). Electromagnetic tablets offer the additional
advantage of being relatively unaffected by temperature, humidity, electrical
noise and conductive materials on the digitizing surface.
PRODUCTS. The Company offers three (3) series of electromagnetic digitizers:
desktop, industry standard tablets (the SummaSketch Series); low-cost, large-
format tablets (the Summagrid(R) Series); and large-format, high accuracy
tablets (the Microgrid(R) Series). Digitizers are offered in standard
configurations for the distribution market and are customized to meet specific
OEM and foreign market specifications. All are supported by a broad range of
accessory products including styli, cursors, pressure sensitive pens, power
supplies, cabling and software templates. Digitizers may be software or hardware
configured to meet various requirements.
The SummaSketch Series electromagnetic tablets, sold under the trade names
SummaSketch III and SummaSketch III Professional, comprises a majority of the
Company's digitizer sales. MM tablets are constructed using a single printed
circuit board housing the X-Y grid and the control and interface electronics.
Applications include desktop CAD, CAM, CAE, graphic arts design and general
purpose computing.
The Summagrid (SG) Series electromagnetic tablets are constructed of a single
large printed circuit board containing the X-Y grid and control interface
circuitry housed in a separate chassis common to all sizes. The Summagrid
Series offers customers a large format tablet with similar accuracy and
resolution to a desktop unit but at a significantly lower cost than the
Microgrid Series. Applications include cost estimation, facilities management
and low-end CAD or mapping. Both the Summagrid and the Microgrid Series of
digitizers are available in backlit versions for high-end medical and tracing
applications.
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The Microgrid (MG) Series electromagnetic tablets are constructed of a single
large printed circuit board containing the X-Y grid. Control and interface
electronics are integrated into the tablet in a chassis common to all sizes of
tablets. Applications include high-end CAD, CAE, cartography and civil and
mechanical engineering, which require greater accuracy and line resolution than
desktop models offer. Each Microgrid tablet is tested on the Company's laser
interferometer test bed to guarantee accuracy.
The Company introduced a product enhancement in fiscal year 1993 which enables
the user to utilize at their discretion the cursor or stylus as either a corded
or battery powered cordless (convertible) version. Cordless cursors are an
added convenience to users of large tablets where the large tablet surface
otherwise necessitates a long cord. The cordless technology used on Summagrid
represents core technology for the Company which can be applied to new and
existing digitizer products to offer unique customer benefits. Additionally,
the Company introduced its Microgrid(R) Ultra Series large-format tablet which
is an upgrade of the Company's Microgrid Series high-accuracy tablets for
applications requiring precise formatting devices such as GIS mapping,
electronic design and CAD.
In fiscal year 1995, the Company introduced the Summa Expression, a high
performance desktop tablet designed for graphic arts applications such as
drawing, painting, illustration and animation. This tablet features a small 6"
x 8" active area footprint and allows drawing with high precision and
flexibility using 256 levels of pressure sensitivity and customizable menu
buttons. This tablet is the first of a planned series of high performance
small-format tablets dedicated to address the needs of the professional graphics
user. The SummaPad/TM/ was also introduced in fiscal year 1995. This tablet
features a 4" x 5" active area and also provides pressure sensitivity.
PLOTTERS
MARKET AND APPLICATIONS. The Company began to market plotters in May 1990
with the acquisition of Houston Instrument. In each of the last three (3)
fiscal years, plotters have accounted for approximately thirty percent (30%) of
the Company's sales. The Company's primary markets for plotters are in
computer-aided design and engineering. Its pen plotter products are used
extensively by architects and mechanical, electrical electronic and civil
engineers to create complex drawings and specifications. Pen plotters are also
used with computerized mapping, geographical exploration and geographic
information systems, where precise high quality hard-copy output is required.
The Company's plotters are also used extensively in many other application
areas, including medical, scientific, business and educational presentation
graphics. Pen plotters remain the most cost effective means to create high
quality wide format, permanent line drawings.
The Company introduced in fiscal year 1994 a large-format, color thermal wax
transfer printer-- SummaChrome/TM/ -- for use in in-house design departments of
corporations and retail chains, advertising agencies, graphic design firms, and
sign, copy and photo shops servicing both businesses and consumers.
Applications include the production of colored signs, presentation materials,
photo enlargements, design renderings, maps, and satellite images. In fiscal
year 1995, the Company re-evaluated the resources required to sell this product
and decided to focus its energy on the segment of the graphics market where they
were already positioned for success -- sign-making. Recognizing their unique
opportunity to offer the first large-format digital printing solution that can
print directly on vinyl without any additional process for UV or water
resistance, the Company shifted its marketing focus to take advantage of this
technological advantage. Since
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the Company already had the sign-making channel in place to support its
SummaSign Series of high performance cutters/plotters, this shift in market
focus is more cost effective to execute.
In fiscal year 1995, the Company introduced its SummaJet/TM / 2 Series of ink
jet plotters for the CAD market. The SummaJet 2 entry took advantage of a void
in the existing ink jet market for low cost color printing.
TECHNOLOGY. All types of plotters function by creating images on hard-copy
media such as paper or polyester film. Pen plotters may be distinguished from
other hard-copy output devices, because pen plotters create hard copy of vector,
or point-to point lines, while other plotters produce raster, which constructs
an image as a series of dots, a print band at a time.
Pen plotters function by receiving plot commands downloaded from a computer
and, by following these instructions, moving one of a selection of pens relative
to paper, film or other media, thereby generating a drawing. The media is
driven bi-directionally on one axis while the pen is driven on the other axis.
Both functions are microprocessor controlled, highly responsive, closed-loop
servo systems that permit accurate and precise graphic creation.
The Company has developed significant expertise in relevant software, servo,
paper handling and mechanical design technologies.
The Company's line of feature-enhanced pen plotters called the HiPlot/(R)/
7000 Series in A-to D-size and A-to E-size plotters, improving speed of
throughput and plot quality.
The Company introduced in fiscal year 1994 its SummaChrome/TM/ Imaging System,
a color thermal transfer printer, which produces large-format color output
images up to 24" x 40" direct on vinyl. The product is intended for sign-makers
who produce large-format vinyl or screen print signs. Since it prints directly
on vinyl, it eliminates the need for weeding, transferring images and enabling
the user to make vivid, fine -lined large-format signs which are durable in
outdoor applications for up to 3-5 years.
The Company introduced in fiscal year 1995 its SummaJet plotter which is the
Company's entry into the color D- and E- size ink jet market. The product is
both raster and vector compatible and intended to address the CAD market with
features like replot, automatic pilot, printing, replot, automatic scaling and
mirror functions.
PRODUCTS. The Company offers a series of large-format plotters and small-
format plotters. The Company's offering of large-format plotters include high
performance, high speed CAD pen plotters.
The Company introduced the HiPlot 7000 Series of pen plotters in late fiscal
year 1993. The HiPlot Series offers users additional features of faster plot
completion, a primary application requirement and, in addition, improved
plotting quality and a new feature called HIQueue/TM/, a plot management package
for networked multi-user environments. The ability to effectively manage plot
data in a networked multi-user environment is a strong requirement among users.
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SummaChrome, the Company's color thermal transfer printer for the sign market,
produces color prints up to 24" x 40" of exceptional clarity and brilliance.
Its patented Ribbon Printing/TM/ mechanism permits highly precise registration
and increased resolution to 400 dpi from thermal's traditional desktop 300 dpi
range.
CUTTERS
Cutters are output devices, similar in construction to a pen plotter, but
employ a knife in place of a pen to cut vinyl for signs and banners, artfilm
for screen printing, and various stencil materials for etching text and images
into glass, wood and stone via an abrasive etching process. Cutter performance
is primarily measured by speed, acceleration, and guaranteed accuracy.
Additional features include knife type, tool pressure and software
compatibility. Speed is measured by how many inches the knife moves per second.
Acceleration is how quickly the knife reaches its top speed, this is important
since most signs consist of short lines. Guaranteed accuracy depends on the
drive mechanism, either friction or sprocket, in the cutter. There are
currently two (2) types of knife systems used to cut material; drag and
tangential. Drag knife units typically cost less, have less knife pressure
capability, and are used for general sign applications. Tangential knife units
are typically more expensive, with more knife pressure, greater precision
cutting abilities and the ability to cut a wider variety of material.
The Company markets a line of precision cutters designed to produce low-cost,
computer-generated letter and graphics for sign and display making applications.
During late fiscal year 1993 the Company introduced two (2) new tangential
cutters, the T1000 and the T600. In fiscal year 1994 the Company introduced
three (3) new drag knife cutters, the D610, D750 and the D1300. These cutters
primarily differ in the width of sign media they handle, the type of knife used
and the features they contain. In fiscal year 1995, the Company introduced the
SummaSign cutter (the SummaSign 1010 Plus). This high performance cutter
combines an advanced media handling system, offers both sprocket drive and
friction drive and is therefore capable of handling plain media as well as half-
inch industry-standard punched media. The Company also introduced the low cost,
small-format SummaCut Series of cutters designed for small, independent sign
shops who produce a limited quantity of vinyl signs.
AFTER MARKET SERVICE AND SUPPORT
The Company's customer service group provides customer support for the
Company's products via depot, on-site or on an exchange basis with standard
warranty protection programs which include Limited Lifetime Warranty, 48-Hour
Priority Response/TM/ in the first year after purchase, along with additional
warranty options for 24-Hour Priority Response/TM/ and multiple product leasing
options. This group also sells a wide range of plotting media and a variety of
pens for use with its plotters. The Company also offers a library of CAD
digitizer templates for use with AutoCAD. The Company's templates simplify the
use of CAD programs and increase productivity by permitting the user to bypass
nested menus and access necessary commands quickly.
PRODUCT DEVELOPMENT
During fiscal year 1993, 1994 and 1995 the Company's research and development
expenses were $8,003,000, $5,631,000, and $6,761,000, respectively.
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During fiscal year 1993, the Company acquired joint ownership of a broad
patent for incorporating a digitizer into a liquid crystal display (LCD) without
the use of a separate digitizer X-Y grid. This allows for a very cost effective
approach to "writing on the screen" pen computer systems. The Company has been
investigating relationships with LCD manufacturers to pursue this technology
further, and recently entered into a license agreement with Sharp Corporation to
enable them to enhance their product line of combined displays and input panels.
The Company's SummaChrome imaging system employs a technology for producing
high quality color thermal transfer images in sizes up to 24" x 40" targeted to
be sold to the sign market.
MARKETING AND CUSTOMERS
The Company seeks to offer a broad line of application-compatible computer
peripheral products for graphics input and output and to develop strong brand
recognition. The Company has developed a world-wide sales network including
OEMs, distributors and manufacturers' representatives and maintains sales
offices in the United States, Belgium, France and Germany.
The Company also maintains a support and technical assistance program for
third-party software developers in emerging markets and has on occasion entered
into several joint marketing support arrangements with developers of selected
applications. No single customer of the Company accounts for ten percent (10%)
or more of the Company's yearly sales.
The Company's network of distributors consists of national, vertical and
regional distributors. National distributors in the United States, such as
Ingram Micro, Inc. and Merisel, and Computer 2000 in Europe, sell to retail
accounts and account for a large percentage of the Company's sales. Vertical
distributors sell to retail accounts. They carry a line of the Company's
products and specialize in integrating the Company's standard products into
specialized systems for vertical markets. Regional distributors focus on an
area typically composed of five (5) to seven (7) states and specialize in
applications and accounts which require a greater amount of service and
technical skill in making the sale. The Company attempts in most instances to
have more than one (1) distributor in foreign countries. The Company believes
that by avoiding reliance upon exclusive distributorship arrangements it
broadens the market for its products and fosters constructive competition among
its distributors.
The Company also sells its products directly to OEMs for incorporation into
systems manufactured by them and indirectly to smaller OEMs through a network of
manufacturer representatives. Many of these sales are customized products which
are incorporated into the OEMs design cycles.
The Company's CAD Warehouse, Inc. subsidiary sells Summagraphics products and
products of other companies, advertises through trade publications and its own
catalog, and sells through orders.
See Note 7 of Notes to Consolidated Financial Statements for information on
the Company's foreign and domestic sales. The Company maintains domestic
sales/service offices in Seymour, Connecticut; Austin, Texas; and Huntington
Beach, California. The Company has foreign sales subsidiaries located in
Brussels, Belgium; London, England; Munich, Germany; and a foreign sales office
located in Paris, France.
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The Company's marketing and sales organization consists of these groups:
product/management, distribution sales, marketing communications, and customer
service. Product management is responsible for market research, new product
planning and pricing strategies. The North America/Asia Pacific sales group,
headquartered in Austin, Texas, includes regional sales managers covering
domestic and foreign territories who are responsible for both direct and
indirect OEM account relationships, and distribution managers who work with
national, regional and vertical distributors. The European sales group is
headquartered in Brussels, Belgium and operates in a manner similar to its North
America/Asia Pacific counterpart. Each of the North America/Asia Pacific and
European sales and service groups has a marketing communications group
responsible for trade shows, advertising, product sales, literature and customer
relations, and a customer service support capability responsible for customer
service and assisting customers with technical issues.
MANUFACTURING OPERATIONS, QUALITY CONTROL AND WARRANTIES
The Company has certain of its manufacturing performed outside the United
States to take advantage of lower manufacturing costs, while allowing the
Company to maintain high standards of quality.
The Company maintains a manufacturing facility in Gistel, Belgium for the
manufacture of cutters and distribution of all of its products sold in the
European market. In order to reduce manufacturing costs, the Company recently
entered into agreements to outsource manufacturing of its SummaJet ink jet
product line and its large-format digitizer product line and has an ongoing
program of investigating the outsourcing of manufacturing of its remaining
products.
Final assembly of products takes place either at the outsourcing manufacturing
locations or at the Company's facilities in Austin, Texas and Gistel, Belgium
where there is also product warehousing. The Company also does product
warehousing and distribution at its Seymour, Connecticut location.
The Company generally purchases devices, components and sub-assemblies from
more than one source both domestically and internationally where alternative
sources are available and economical; however, the Company uses sole suppliers
for certain components. The Company believes that it maintains adequate
inventories of sole source items and that alternative components or sources for
those items could be readily incorporated into the Company's products.
The Company's present manufacturing capacity is adequate to meet its
anticipated production requirements for the foreseeable future. If required,
the Company has the ability to increase purchases under its existing
manufacturing and second source agreements or to manufacture domestically
products currently manufactured offshore.
The Company maintains quality control procedures for products manufactured
both domestically and offshore. These procedures include quality testing during
design, prototype and pilot stages of production, inspection of incoming raw
materials, inspection of sub-assemblies and testing of finished product using
automatic test equipment. Finished products undergo burn-in testing to provide
for long-term, reliable operation.
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The Company warrants its products for periods ranging from ninety (90) days to
the life of the product. The Company makes available extended warranties, spare
parts and out-of-warranty repair service in the United States and Europe. To
date, warranty costs have been insignificant.
COMPETITION
The markets in which the Company sells it products are highly competitive.
The Company faces actual and potential competition from a number of established
manufacturers, both domestic and international, including the Company's largest
competitors, CalComp, Inc., a subsidiary of Lockheed Corporation, and Hewlett-
Packard Co., which have or may have significantly greater financial, technical,
manufacturing and marketing resources than the Company; and Mutoh America
Corporation, Wacom Company, Ltd., Encad, Inc., and Oce Vandergrinten. CalComp
competes primarily with the Company's digitizer and plotter products; Mutoh
competes primarily with the Company's cutter products; and Hewlett-Packard
competes primarily with the Company's plotter products. The Company's lower
cost products face competition from manufacturers of mice and tablets, including
Logitech, Inc. The Company recently entered into an OEM agreement with Mutoh
for the production and sale of certain products of each of those companies by
the other, to enhance the Company's product offerings.
The Company believes that its competitive ability also depends on the quality,
pricing, performance and support of its products, manufacturing costs and the
Company's technical capability and successful introduction of new products and
product enhancements. See "Business -- Product Development and Emerging
Markets." The Company believes that it offers a number of important attributes,
including its product price and performance, market presence, technological
expertise, quality of its product line, relationships with certain OEMs and its
well-developed distribution channels. Inability to match product introductions
or enhancements or price/performance of competitors' products could adversely
affect the Company's market share and profitability.
BACKLOG
The Company manufacturers on the basis of its forecast of near-term demand and
maintains inventories of finished products in anticipation of firm orders from
its customers. The Company typically ships within thirty (30) days receipt of
orders. While certain OEMs and distributors place orders for scheduled
deliveries, most of the Company's customers currently order products on an as-
needed basis. For this reason, and because customers may cancel or reschedule
orders with little or no penalty, or may place orders on shipment hold, and
because the Company may decline to ship to customers for credit reasons, the
Company believes that it has no backlog orders that are firm, and, in any event,
that the level of such orders is not indicative of sales.
EMPLOYEES
As of May 31, 1995, the Company employed approximately 311 people, 238
domestically and 73 internationally. None of the employees are covered by a
collective bargaining agreement, although the Company's employees in Belgium are
covered by government mandated benefits. The Company believes that relations
with its employees are good.
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PATENTS AND PROPRIETARY INFORMATION
The Company attaches importance to its portfolio of patents, trademarks,
copyrights, trade secrets and know-how. In the course of research and
development, Summagraphics engineers at times devise inventions which the
Company may elect to patent if it would provide a clear-cut market advantage,
inhibit competitors, or generate a source of licensing revenues. The Company
has approximately fifty patents and twenty patents pending in the United States
and in a number of foreign countries. The Company also relies on trade secrets,
know-how, contracts, copyrights, trademarks and patents to establish and protect
its proprietary rights and to maintain the confidentiality of trade secrets,
proprietary information and creative developments.
As part of Summagraphics' strategy for protecting its technology and market
position, it will announce certain inventions that it intends to use but does
not intend to patent in order to prevent competitors and others from obtaining
patent protection on such inventions. As a matter of cost control, the Company
may allow certain patents that it judges to be obsolete to lapse.
The Company believes that its proprietary information is protected to the
fullest extent practicable. There can be no assurance that the confidentiality
agreements upon which the Company relies to protect its trade secrets and know-
how would be upheld by the courts. Moreover, patents relating to particular
products do not necessarily preclude competitors from successfully marketing
substitute products to compete with patented products. The Company believes
that the loss of any particular patent, or group of patents, will not have a
material adverse effect on the Company's financial position and results of
operations. Other companies may also obtain patents covering configurations and
processes relating to the Company's products, which would require the Company to
obtain licenses. There can be no assurance that the Company will be able to
acquire such licenses, if required, on commercially reasonable terms.
ITEM 2 PROPERTIES
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The Company's executive offices are located in Austin, Texas in a leased
building having a total of 96,400 square feet of space. The lease will expire
in June 2010. In addition, the Company leases a building in Seymour,
Connecticut (the lease will expire in November 1998), which is being vacated,
and owns a building in Gistel, Belgium, and those buildings have a total of
84,000 and 43,180 square feet of space, respectively. The Company also leases
office space for selling operations in Huntington Beach, California and
Macedonia, Ohio, and in three (3) foreign countries (Germany, France and
Belgium). Except for the Seymour, Austin and Gistel facilities, these locations
function primarily as sales, training and field service centers for their
regions. See Note 9 of Notes to Consolidated Financial Statements for
information regarding the Company's obligations under leases.
ITEM 3 LEGAL PROCEEDINGS
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The Company is a party to several legal actions arising in the normal course
of business. The Company believes that the disposition of these matters will
not have a material adverse affect on its financial position or results of
operations taken as a whole.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------ -----------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
COMMON STOCK MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ National Market System (symbol SUGR). The following table
shows the range of high and low sales prices for the Company's common stock.
As of May 31, 1995, the Company had 450 holders of record of its common stock.
This does not include holdings in street or nominee names.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- -------------------------------------------------
<S> <C> <C>
Aug. 31, 1993 3 7/8 3 5/8
Nov. 30, 1993 4 3/4 4 1/2
Feb. 28, 1994 7 5/8 7 3/8
May 31, 1994 7 3/4 7 1/4
Aug. 31, 1994 7 1/2 6 1/4
Nov. 30, 1994 9 3/8 7 7/8
Feb. 28, 1995 8 6 5/8
May 31, 1995 5 2 5/8
</TABLE>
ITEM 6 SELECTED FINANCIAL DATA
- ------ -----------------------
See page 54 hereof.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ----------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------- ----------
See pages 32-37 hereof.
------
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The following consolidated financial statements of the Company and the
independent auditors' report are on pages 38-53 hereof.
------
Independent Auditor's Report
Consolidated Balance Sheets -- May 31, 1994 and 1995
Consolidated Statements of Operations -- Years ended May 31, 1993, 1994 and
1995
Consolidated Statements of Stockholders' Equity -- Years ended May 31, 1993,
1994 and 1995
Consolidated Statements of Cash Flows -- Years ended May 31, 1993, 1994 and
1995
Notes to Consolidated Financial Statements
The information captioned "Quarterly Results of Operations" is on page 54 .
-----
13
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------ -------------------------------------------------------------------
The Company has no disagreement on accounting or financial disclosures matters
with its independent auditors, nor did it change auditors during the fiscal year
ended May 31, 1995.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
DIRECTORS
The following table sets forth the age, the principal occupation during the
past five (5) years and the positions with the Company of each director and any
other directorships held by such person in any company subject to the reporting
requirements of the Securities Exchange Act of 1934 or in any company registered
as an investment company under the Investment Company Act of 1940.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTORSHIPS
- ---- --- -------------------- -------------
<S> <C> <C> <C>
Michael S. Bennett 43 President and Chief Executive Officer
and Director of the Company since April
1993; Senior level positions at Dell
Computer Corp. since 1988; Director of
the Company since 1993.
Ken Draeger 55 President and Chief Executive Officer Galileo Electro-Optics
Decision Data Services, Inc. Since 1992; Corp.
Previously, President of Agfa Compugraphic
since September of 1988; Director of the
Company since June 1994.
Andrew Harris 40 Director of TechDirect International Ltd.
since 1994; President of Dell International
from 1987 to 1994; Director of the Company since
January 1995.
G. Glenn Henry 53 PC Division Director, MIPS Technologies, Inc.
since late 1993; Chief Technical Officer, Dell
Computer Corp. since early 1993; SVP Product
Group, Dell Computer Corp. since before 1989;
Director of the Company since August 1993.
Stephen J. Keane 67 Director of the Company since July, 1985. Storage Technology Corp., Maxserv,
Inc.
Dennis G. Sisco 49 Senior Vice President, Dun & Bradstreet Corp. Gartner Group, Inc.
since July 1993; President, D & B
Enterprises since December 1988, Director of
the company since October 1983.
</TABLE>
14
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company, the age of each, and the period during
which each has served in his present office are as follows:
MICHAEL S. BENNETT (43) joined the Company in April 1993 as President and
Chief Executive Officer and as a Director. Previously he was Vice President, PC
Systems, of Dell Computer Corporation since December 1990, and before that
served as Vice President and General Manager of Dell Marketing Corporation.
Earlier he was President and CEO of Pritronix, Inc., before that served as
President and CEO of Interlan, Inc., and prior to that he was employed for
twelve (12) years by Digital Equipment Corporation in various managerial
positions in manufacturing and sales in the United States and in Europe.
DENNIS JOLLY (45) joined the Company in September, 1995 as a Senior Vice
President of Sales, Marketing, and Service handling the sales, marketing and
support organizations and responsibilities for non-Europe areas. Previously,
Mr. Jolly was with Dell Computer Corporation for seven years in various
capacities, most recently as Group Vice President, Indirect Channel, USA of Dell
Computer Corporation. Prior thereto, he was Director of Marketing for Fourth
Shift Corporation, a manufacturing software company, and before that was
employed by Apple Computer for five years in various capacities, lastly as
Regional Sales Manger.
DAVID G. OSOWSKI (43) joined the Company in September 1986 as Corporate
Controller. In May 1990, he became Corporate Controller and Vice President of
the Company's Digitizer Division and in May 1991, he was promoted to Senior Vice
President, Controller and Treasurer of the Company. Prior to joining the
Company, Mr. Osowski served as Assistant Controller at Boehringer Ingelheim
Pharmaceuticals, Inc. and before that was an audit supervisor at Price
Waterhouse. He holds a BS degree from the University of Bridgeport.
DARIUS C. POWER (49) joined the Company as Senior Vice President of Worldwide
Manufacturing in July, 1995. Prior to joining the Company, Mr. Power was Vice
President of Manufacturing for Leading Edge Products, Inc. and prior thereto, he
was Managing Director of Manufacturing Operations for AST Research, Inc.
ROBERT B. SIMS (53) joined the Company as Vice President, General Counsel and
Secretary in June 1984. In May 1990, he was promoted to Senior Vice President,
General Counsel and Secretary. Mr. Sims has served in corporate counsel
capacities at Mathematical Applications Group, Inc., Lever Brothers Company,
Raymark Corporation and General Signal Corporation and has been associated with
the law firms of Whitham and Ransom and Cahill Gordon & Reindel. Mr. Sims is
director of Raytech Corporation. He holds a BS degree from Franklin and
Marshall College, a Juris Doctor (JD) degree from The George Washington
University Law School (National Law Center) and an MBA from New York University
Graduate School of Business Administration.
JOHN UFFORD (44) joined the Company in October, 1994 as Senior Vice President
of Output Devices and has since assumed management responsibility for Input
Devices as well. Prior to joining Summagraphics , he was with the DuPont
Company for 15 years in a variety of technical and managerial positions. His
most recent assignment was as the Vice President of Engineering for ImagiTex, a
DuPont subsidiary. Prior thereto, he was the Manager, Digital Systems for
Electronic Imaging within DuPont.
15
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
- ------- ----------------------
SUMMARY COMPENSATION TABLE (COMPENSATION AND OTHER INFORMATION CONCERNING
EXECUTIVE OFFICERS)
The following table sets forth all cash compensation for services in all
capacities with the Company and its subsidiaries rendered during the fiscal year
ended May 31, 1995, for the Chief Executive Officer at the end of the last
complete fiscal year and for each of the four (4) most highly compensated
executive officers:
LONG TERM
---------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME OF INDIVIDUAL ------------------- -------------------
OR NUMBER OF ALL OTHER
PERSONS IN GROUP (1) CAPACITIES IN WHICH SERVED YEAR SALARY ($) BONUS ($)(2) STOCK OPTIONS(3) COMPENSATION(4)($)
- -------------------- -------------------------- ---- ---------- ------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett President and 1995 250,000 ----- 10,000 ----
Chief Executive Officer 1994 250,000 ----- 31.250 ----
1993 32,225 ----- 175,000 ----
David G. Osowski Senior Vice President, 1995 120,000 ----- 10,000 ----
Controller and Treasurer 1994 120,000 6,600 28,500 ----
1993 127,483 22,350 6,000 3,850
William S. Paxton(5) Senior Vice President 1995 125,000 ----- 10,000 ----
Operations 1994 125,000 ----- 12,868 ----
Robert B. Sims Senior Vice President 1995 132,000 ----- 10,000 ----
General Counsel and 1994 132,000 6,600 28,500 ----
Secretary 1993 133,663 14,250 6,000 3,600
John C. Ufford Senior Vice President 1995 72,769 ----- 15,000 ----
Input/Output Devices
</TABLE>
(1) The Company presently has six (6) executive officers, including the CEO.
(2) Includes bonus payments accrued and paid during indicated fiscal year and
includes bonus payments which had accrued during prior fiscal year but were paid
in indicated fiscal year, all under the Company's management bonus plan and as
discretionary bonus authorized by the Company's Board of Directors.
(3) See also "Option Grant Table" for option grants.
(4) Includes Company contributions to Cash or Deferral Profit Sharing Plan
(401(k) Plan).
(5) Mr. Paxton left the Company in June 1995.
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
<TABLE>
<CAPTION>
ASSUMED ANNUAL RATES OF STOCK
% OF TOTAL APPRECIATION FOR OPTION TERM (2)
OPTIONS --------------------------------
GRANTED TO EXERCISE
EMPLOYEES OR BASE EXPIRATION HISTORIC
IN FISCAL PRICE DATE RATE %
NAME OPTIONS YEAR 1995 ($/SHARE) ($/SHARE) (1) 5%($) $10%($)$ (3) APPRECIATION
- ------------------------ ------- --------- ---------- -------- ------- ----- -------- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Micheal S. Bennett 10,000 6% 7.00 06/28/04 $44,023 $111,562 n/a (55.36%)
David G. Osowski 10,000 6% 7.00 06/28/04 $44,023 $111,562 n/a (55.36%)
William S. Paxton, Jr. 10,000 6% 7.00 06/28/04 $44,023 $111,562 n/a (55.36%)
Robert B. Sims 10,000 6% 7.00 6/28/04 $44,023 $111,562 n/a (55.36%)
John C. Ufford 15,000 10% 8.00 10/24/04 $75,467 $191,249 n/a (60.94%)
</TABLE>
(1) The options granted are non-qualified and are exercisable starting one (1)
year from the grant date but not after ten (10) years from the grant date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS MONEY
ACQUIRED AT 5/31/95 OPTIONS AT 5/31/95
ON VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/
EXERCISE REALIZED (#) UNEXERCISABLE
NAME (#) ($) EXERCISABLE/UNEXERCISABLE ($)
- ---- --- --- ------------------------- ---
<S> <C> <C> <C> <C>
Michael S. Bennett -0- -0- 91,250/125,000 62,300/ -0-
David G. Osowski -0- -0- 42,832/65,500 -0- / -0-
William S. Paxton, Jr. -0- -0- -0-/-0- -0- / -0-
Robert B. Sims -0- -0- 47,332/22,668 -0-/ -0-
John C. Ufford -0- -0- -0-/15,000 -0-/ -0-
</TABLE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
(PRINCIPAL STOCKHOLDERS; DIRECTORS; OFFICER)
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock as of August 18, 1995 by persons known to the
company to own beneficially five percent (5%) or more of the outstanding shares
of Common Stock of the company, by each Director of the Company, by each named
executive officer of the Company set forth in the
17
<PAGE>
Summary Compensation Table and by all directors and executive officers of the
Company as a group. Except as otherwise indicated, the persons listed have sole
voting and investment power with respect to shares beneficially owned by them.
Amount and
Nature of Approximate
Name and Affress Beneficial Percentage of
Beneficial Owner Ownership (1) Class
- ---------------- ------------- -----
Bessemer Venture Funds (2)...................... 306,562 6.6%
1025 Old Country Road
Suite 205
Westbury, NY 11590
John G. Panutsos................................ 255,065 5.5%
C.L. King & Associates.......................... 244,500 5.3%
Michael S. Bennett(3)........................... 91,250 2.0%
Ken Draeger(4).................................. 3,000 *
Andrew Harris................................... -0- *
G. Glenn Henry(5)............................... 6,000 *
Stephen J. Keane(6)............................. 7,500 *
Dennis G. Sisco(7).............................. 7,500 *
David G. Osowski(8)............................. 58,833 1.3%
William S. Paxton............................... -0- *
Robert B. Sims(9)............................... 56,332 1.2%
John C. Ufford(10).............................. 5,000 *
All directors and all executive officers as a
group(11)....................................... 235,415 5.1%
* Less than 1%.
- ----------------
(1) Except as otherwise noted, each person or group named in the table has sole
investment and voting power with respect to all shares of Common Stock shown as
beneficially owned by such person or group.
(2) Includes shares held by Bessemer Venture Partners I, L.P., shares held by
Bessemer Venture Partners II, L.P., shares held by G. Felda Hardymon and shares
held by affiliated parties. Mr. Hardymon was a director of the Company who
retired.
(3) Includes 74,583 shares which Mr. Bennett has the right to acquire pursuant
to the exercise of stock options which are exercisable on August 18, 1995 or
within (60) days thereafter.
(4) Includes 3,000 shares which Mr. Draeger has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(5) Includes 6,000 shares which Mr. Henry has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(6) Includes 7,500 shares which Mr. Keane has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(7) Includes 7,500 shares which Mr. Sisco has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(8) Includes 51,832 shares which Mr. Osowski has the right to acquire pursuant
to the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(9) Includes 56,332 shares which Mr. Sims has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(10) Includes 5,000 shares which Mr. Ufford has the right to acquire pursuant to
the exercise of stock options which are exercisable on
August 18, 1995, or within sixty (60) days thereafter.
(11) Includes 228,414 shares which all directors and all executive officers as a
group have the right to acquire pursuant to the exercise of stock options which
are exercisable on August 18, 1995, or within sixty (60) days thereafter.
18
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
None
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements.
The following consolidated financial statements of the Company and
the independent auditors' report are on pages 38-53 hereof.
-----
Independent Auditors' Report
Consolidated Balance Sheets -- May 31, 1994 and 1995
Consolidated Statements of Operations -- Years ended May 31, 1993,
1994 and 1995
Consolidated Statements of Stockholders' Equity -- Years ended May
31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows -- Years ended May 31, 1993,
1994 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following consolidated financial statement schedule of the
Company is included herein on page 31.
--
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
All other Financial Statement Schedules have been omitted because
they are not applicable or because the applicable disclosures have been included
in the Consolidated Financial Statements or in the Notes thereto.
3. Lists of Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1,4.1 Third Restated Certificate of Incorporation of the Registrant (filed
as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended May 31, 1988 (File No. 0-16071) and
incorporated herein by this reference).
19
<PAGE>
3.2, 4.2 By-laws of the Registrant, as amended (filed as Exhibit 3.02 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
4.3 Specimen Common Stock certificate (filed as Exhibit 4.02 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
4.4 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as Exhibit 2 to the Registrant's' Current Report
on Form 8-K, dated May 14, 1990, and incorporated herein by this
reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28,
1987 (filed as Exhibit 10.18 to the Registrant's Registration
Statement on Form S-1 (No. 33-15658) and incorporated herein by this
reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit
10.05 to the Registrant's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock Purchase
Plan (filed as Exhibit 10.06 to the Registrant's Registration
Statement on Form S-1 (No. 33-15658) and incorporated herein by this
reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the
Registrant's Form 10-K for fiscal year 1994 and incorporated herein
by reference).
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.7 Form of Employment Agreement between Summagraphics Corporation and
senior executive officers (filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
20
<PAGE>
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10 to
the Registrant's Registration Statement on Form S-1 (No. 33-15658)
and incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed as
Exhibit 10.14 to the Registrant's Registration Statement on Form S-1
(No. 33-15658) and incorporated herein by this reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement, as
amended (Exhibit 10.13) (filed as Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended May 31, 1988
(File No. 0-16071) incorporated herein by this reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between Ametek
and Summagraphics Corporation (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K, dated May 14, 1990, and
incorporated herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between the
Company and Ametek, Inc. (filed as Exhibit 3 to the Registrant's
Current Report on Form 8-K, dated May 14, 1990, as amended on July
13, 1990 and August 15, 1990 and incorporated here in by this
reference).
10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek,
Inc. and Summagraphics Corporation (filed as Exhibit 10.21 to the
Registrant's Form 10-K for fiscal year 1994 and incorporated herein
by reference).
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit 10.22
to the Registrant's Form 10-K for fiscal year 1994 and incorporated
herein by reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and QRS 11-5 (TX), Inc., as landlord, and Summagraphics
Corporation, as tenant, on premises located at 8500 Cameron Road,
Austin, Texas in connection with the sale and leaseback of that
property (filed as Exhibit 10.24 to the Registrant's Annual Report
for the fiscal year ended May 31, 1992 (File No. 0-16071) and
incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company and
Michael S. Bennett (filed as an Exhibit to the Registrant's Annual
10-K for the fiscal year ended may 31, 1993 (File No. 0-16071) and
incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and incorporated
herein by this reference).
21
<PAGE>
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and incorporated
herein by this reference).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and incorporated
herein by this reference).
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27, 1993,
between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord and
Summagraphics Corporation, as tenant (filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1993 (File No. 0-16071) and incorporated herein by this
reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by and
between the Company and Michael S. Bennett.
10.23 Credit Agreement dated as of July 18, 1994 by and between the
Company and Silicon Valley Bank.
10.24 Security Agreement dated as of December 13, 1994 between the Company
and Heller Financial, Inc.
10.25 Amendment dated as of June 1, 1995 of the Security Agreement dated
as of December 13, 1994 between the Company and Heller Financial,
Inc.
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD Warehouse,
Inc. (a Delaware corporation), John G. Panutsos, Rosemary Wollet,
and David C. Hoffer.
10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock.
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company.
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and
QRS 11-5 (TX), Inc. and the Company.
10.30 Manufacturing Agreement dated as of September 13, 1995 between the
Company and Harvard Manufacturing Ventures, LLC.
22
<PAGE>
10.31 License Agreement dated as of July 31, 1995 between the
Company and Sharp Corporation.
22.1 Subsidiaries
27 Financial Data Schedule
23
<PAGE>
REPORTS ON FORM 8-K
Reports on Form 8-K filed by the Company during the fourth quarter of the
Company's fiscal year ended May 31, 1995 were as follows:
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Summagraphics Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SUMMAGRAPHICS CORPORATION
AUGUST 29, 1995 BY: /s/ MICHAEL S. BENNETT
------------------
MICHAEL S. BENNETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following on behalf of Summagraphics
Corporation and in the capacities and on the date indicated.
/s/ MICHAEL S. BENNETT
- ---------------------------- President, Chief
MICHAEL S. BENNETT Executive Officer August 29, 1995
/s/ DAVID G. OSOWSKI
- ---------------------------- Senior Vice President,
DAVID G. OSOWSKI Controller & Treasurer August 29, 1995
(Principal Financial &
Accounting Officer)
/s/ KEN DRAEGER Director August 29, 1995
- ----------------------------
KEN DRAEGER
/s/ ANDREW HARRIS Director August 29, 1995
- ----------------------------
ANDREW HARRIS
/s/ G. GLENN HENRY Director August 29, 1995
- ----------------------------
G. GLENN HENRY
/s/ STEPHEN J. KEANE Director August 29, 1995
- ----------------------------
STEPHEN J. KEANE
/s/ DENNIS G. SISCO Director August 29, 1995
- ----------------------------
DENNIS G. SISCO
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ----- ---------------------- ----
<S> <C> <C>
3.1,4.1 Third Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended May 31, 1988 (File No. 0-16071)
and incorporated herein by this reference).
3.2, 4.2 By-laws of the Registrant, as amended (filed as Exhibit 3.02 to
the Registrant's Registration Statement on Form S-1 (No. 33-15658)
and incorporated herein by this reference).
4.3 Specimen Common Stock certificate (filed as Exhibit 4.02 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658)
and incorporated herein by this reference).
4.4 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as Exhibit 2 to the Registrant's' Current
Report on Form 8-K, dated May 14, 1990, and incorporated herein
by this reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28,
1987 (filed as Exhibit 10.18 to the Registrant's Registration
Statement on Form S-1 (No. 33-15658) and incorporated herein by
this reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658)
and incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit
10.05 to the Registrant's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock
Purchase Plan (filed as Exhibit 10.06 to the Registrant's
Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the
Registrant's Form 10-K for the fiscal year 1994 and incorporated
herein by this reference).
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.7 Form of Employment Agreement between Summagraphics Corporation
and senior executive officers (filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the
Registrant's Registration Statement on Form S-1 (No. 33-15658)
and incorporated herein by this reference).
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 (No. 33-
15658) and incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed
as Exhibit 10.14 to the Registrant's Registration Statement on
Form S-1 (No. 33-15658) and incorporated herein by this
reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement,
as amended (Exhibit 10.13) (filed as Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1988 (File No. 0-16071) incorporated herein by this
reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between
Ametek and Summagraphics Corporation (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K, dated May 14, 1990, and
incorporated herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between
the Company and Ametek, Inc. (filed as Exhibit 3 to the
Registrant's Current Report on Form 8-K, dated May 14, 1990, as
amended on July 13, 1990 and August 15, 1990 and incorporated
here in by this reference).
10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek,
Inc. and Summagraphics Corporation (filed as Exhibit 10.21 to the
Registrant's Form 10-K for the fiscal year 1994 and incorporated
herein by this reference).
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit
10.22 to the Registrant's Form 10-K for the fiscal year 1994 and
incorporated herein by this reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and QRS 11-5 (TX), Inc., as landlord, and
Summagraphics Corporation, as tenant, on premises located at 8500
Cameron Road, Austin, Texas in connection with the sale and
leaseback of that property (filed as Exhibit 10.24 to the
Registrant's Annual Report for the fiscal year ended May 31, 1992
(File No. 0-16071) and incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company
and Michael S. Bennett (filed as an Exhibit to the Registrant's
Annual 10-K for the fiscal year ended may 31, 1993 (File No. 0-
16071) and incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and
incorporated herein by this reference).
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and
incorporated herein by this reference).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1993 (File No. 0-16071) and
incorporated herein by this reference).
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27,
1993, between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord
and Summagraphics Corporation, as tenant (filed as an Exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by
and between the Company and Michael S. Bennett.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
10.23 Credit Agreement dated as of July 18, 1994 by and between the
Company and Silicon Valley Bank.
10.24 Security Agreement dated as of December 13, 1994 between the
Company and Heller Financial, Inc.
10.25 Amendment dated as of June 1, 1995 of the Security Agreement
dated as of December 13, 1994 between the Company and Heller
Financial, Inc.
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD
Warehouse, Inc. (a Delaware corporation), John G. Panutsos,
Rosemary Wollet, and David C. Hoffer.
10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock.
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company.
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and
QRS 11-5 (TX), Inc. and the Company.
10.30 Manufacturing Agreement dated as of September 13, 1995 between
the Company and Harvard Manufacturing Ventures, LLC.
10.31 License Agreement dated as of July 31, 1995 between the Company
and Sharp Corporation.
22.1 Subsidiaries
27 Financial Data Schedule
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
------------------------------------------------------------
The Board of Directors and Shareholders
Summagraphics Corporation:
The audits referred to in our report dated June 27, 1995, except as to Notes 5
and 9 which are as of September 20, 1995, included the related financial
statement schedule as of May 31, 1995, and for each of the years in the three-
year period ended May 31, 1995, included in the annual report of Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Our report refers to a change in the method of accounting for income taxes in
1993.
/s/ KPMG Peat Marwick LLP
Austin, Texas
June 27, 1995
30
<PAGE>
SUMMAGRAPHICS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Balance at
Description of Period Cost and Expenses Charge Off's End of Period
----------- ---------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Allowance for
doubtful
receivables:
1993 $ 547,000 $ 818,000 $ (246,000) $1,119,000
1994 $1,119,000 $ 124,000 $ (130,000) $1,113,000
1995 $1,113,000 $ 229,000 $ (388,000) $ 954,000
<CAPTION>
Balance at
Beginning Charged to Balance at
Description of Period Cost and Expenses Charge Off's End of Period
----------- ---------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
Reserves for
excess & obsolete
inventory:
1993 $4,126,000 $ 716,000 $ (647,000) $4,195,000
1994 $4,195,000 $ 637,000 $ (606,000) $4,226,000
1995 $4,226,000 $1,497,000 $(1,009,000) $4,714,000
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items in the
Consolidated Statements of Operations as percentages of net sales. The table
and the subsequent discussion should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
contained elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Years Ended May 31, 1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net Sales 100% 100% 100%
Cost of Sales 64 65 74
--- --- ---
Gross Profit 36 35 26
Selling, general and administrative 37 24 28
Research and development 10 7 9
Restructuring and other charges 10 - 3
--- --- ---
Operating income (loss) (21) 3 (14)
Interest income (expense), net * * (1)
Miscellaneous, net * * *
--- --- ---
Income (loss) before income taxes,
extraordinary gain and cumulative
effect of change in accounting method (21) 3 (15)
Provision for income taxes - - *
--- --- ---
Income (loss) before extraordinary
gain and cumulative effect of
change in accounting method (21) 3 (15)
Extraordinary gain - 1 -
Cumulative effect of change in accounting for
income taxes 1 - -
--- --- ---
Net income (loss) (20) 4 (15)
--- --- ---
* Not meaningful or less than 1%
</TABLE>
1995 Compared to 1994
Net sales increased 1% from 1994 to 1995. The net sales increase reflects
record European net sales, positive results of new distribution alliances in
Asia, and an increase in sales by CAD Warehouse. These increases were offset by
a decline in the Company's North American region, due to the accelerating
erosion of the large format pen plotter market, a later-than-planned
introduction of the Company's ink jet plotter (SummaJet), the loss of certain
digitizer OEM business and the final sell out of large format scanners, which
were discontinued in 1994.
The Company's gross profit margin declined to 26% in 1995 from 35% in 1994, due
to high startup and manufacturing costs related to the new large format ink jet
plotter, as well as lower selling prices for the Company's older line of pen
plotters. The reduction in gross margin also reflects the costs, including
severance, of outsourcing the manufacturing of its ink jet product, which is
expected to be completed during the first quarter of fiscal 1996 as well as
significant charges for reserves for obsolete and excess inventories. The
Company signed a manufacturing outsourcing contract in September 1995 for its
ink jet product which it expects will result in improved gross profit margins
for this product in 1996.
32
<PAGE>
Selling, general and administrative expenses as a percentage of net sales
increased from 24% or $18,934,000 in 1994 to 28% or $21,940,000 in 1995. This
increase reflects increased promotional costs related to the delayed
introduction of the Company's ink jet plotter and the lower than expected sales
volume generated by the product. Additional selling costs were also incurred on
other products in order to offset the lower revenues of the ink jet product.
The Company expects sales and promotional costs to decline in 1996, but still be
negatively impacted by continued efforts to increase demand for its ink jet
product.
The Company's research and development expenses, as a percentage of net sales,
increased from 7% in 1994 to 9% in 1995 principally due to the increased
spending associated with the development of the new large format ink jet
plotters introduced in 1995, new digitizer products and the conversion of its
SummaChrome product from primarily a paper printer to a vinyl media printer
targeted at the sign making market where the Company's cutter products are sold.
The Company anticipates that its research and development costs, as a percentage
of net sales, will decline in fiscal 1996 due to a reduction in major product
introductions planned for the Company's printer/plotter product lines.
Fourth Quarter 1995 Charges
- ---------------------------
In the fourth quarter of fiscal 1995, the Company incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances.
A lease abandonment charge of approximately $2.2 million was incurred related to
the Company's decision to move substantially all remaining activities at its
Connecticut facility to Austin, Texas. This charge reflects the remaining lease
obligations, leasehold improvement and operating costs associated with the lease
which expires in November 1998.
The Company incurred approximately $1.4 million in charges, primarily for
severance, related to the outsourcing of its ink jet and large format digitizer
manufacturing and general downsizing of its North American operations.
Delays in the initial introduction and subsequent manufacturing of the SummaJet
product resulted in approximately $2.2 million in charges in the fourth quarter
for air freighting of materials required for production and for delivery to
customers where orders were fulfilled later than requested, price credits to
distributors for in-stock inventories related to competitive price reductions to
which the company responded in the fourth quarter, rework related to adding a
product feature to aid in the marketing of the product, additional promotional
expenses to relaunch the product after the delayed introduction and write downs
of superseded parts inventories.
The Company recorded write-downs for unused fixed assets and for excess and
obsolete parts and products inventories of approximately $3.2 million primarily
related to discontinued and or excess plotter product lines and for parts and
supplies for its large format thermal wax printer that are not required for the
vinyl sign making application to which the product is now targeted.
33
<PAGE>
As a result of the factors described above, the Company had an operating loss of
$10,623,000 in 1995 compared to operating income of $2,664,000 in 1994.
Interest expense increased from $421,000 in 1994 to $609,000 in 1995. This
increase reflects an increase in average outstanding debt in 1995 as compared to
1994. The increased debt is related primarily to the increased inventory levels
maintained by the Company in 1995.
The Company had pre-tax loss of $11,412,000 in 1995 versus income of $2,142,000
in 1994.
The Company recorded a deferred tax provision of $187,000 related to one of the
Company's Belgian subsidiaries which was profitable in 1995.
1994 Compared to 1993
Net sales declined 4% from 1993 to 1994. The decline in sales resulted
primarily from a change in channel inventory management practices in North
America, continuing erosion of the large format pen plotter market, primarily as
a result of competition from ink-jet plotters, and the discontinuance of sales
of large format scanners.
The Company's gross profit margin declined from 36% in 1993 to 35% in 1994 due
to lower sales volume, reduced selling prices and increased freight charges
caused by lower inventory levels, offset by cost reductions implemented as part
of the consolidation of the Company's North American manufacturing operations
and generally tighter spending controls.
Selling, general and administrative expenses as a percentage of net sales
decreased from 37% in 1993 to 24% in 1994 despite the decline in net sales. Two
percent of the decline was due to the elimination of approximately $1,950,000 of
litigation expenses incurred in 1993 as a result of the favorable settlement of
a patent litigation suit against the Company in early 1994. The favorable
settlement, net of related expenses resulted in a gain of approximately
$120,000. The absence of large bad debt and intangible asset write-offs were
achieved through a combination of general personnel reductions, elimination of
personnel and expense redundancies as a result of the consolidation of certain
functions at the Company's Texas facility and tighter expense controls in all
areas.
The Company's research and development expenses, as a percentage of net sales,
decreased from 10% in 1993 to 7% in 1994 principally due to general personnel
reductions, tighter spending controls and the absence of major product
development expenditures as incurred in 1993 for products that were introduced
late in 1993 and early 1994.
In 1993, the Company incurred a restructuring charge of $8,487,000. No like
charges were incurred in 1994.
As a result of the factors described above, the Company had operating income for
$2,664,000 in 1994 compared to an operating loss of $16,750,000 in 1993.
Miscellaneous, net, decreased from income of $220,000 in 1993 to an expense of
$206,000 in 1994. This decrease is primarily due to the absence of favorable
foreign currency transaction gains realized in 1993.
34
<PAGE>
The Company had pre-tax income of $2,142,000 in 1994 versus a loss of
$16,835,000 in 1993.
In the fourth quarter of 1994 the Company realized a $645,000 extraordinary gain
on the early retirement of its remaining $2,500,000 of 8% convertible
subordinated debt.
Liquidity and Capital Resources
In May 1994, the Company amended its U.S. banking agreement, extending the
expiry date from May 22, 1994 to November 30, 1994.
In July 1994, the Company entered into an eighteen month $8,000,000 revolving
credit agreement (U.S. Credit Agreement) for its U.S. operations with a new
bank, replacing its previous credit agreement.
In November 1994, the Company completed a merger, accounted for as a pooling of
interests, with CAD Warehouse, Inc. a leading mail order marketer of computer
peripherals primarily to the computer aided design market. The consolidated
financial statements, as presented, have been prepared to provide for
retroactive effect of the merger.
In December 1994, the Company entered into a credit agreement to provide capital
expenditure financing in the aggregate amount of $2,500,000. The Company
received funding under this line in the amount of $1,153,000 which is repayable
over a period of three (3) years. In May 1995, the agreement was extended to
August 31, 1995.
During 1995, the Company borrowed approximately $9.3 million under its bank
credit facilities, primarily to fund increases in inventories. The inventory
increase was due primarily to the impact of the delayed sales introduction of
the Company's line of large format ink-jet plotters, a slow-down in demand for
the Company's line of pen plotters caused by several new competing ink jet
products introduced in the latter half of fiscal 1995 and increased cutter
inventories to satisfy a large increase in cutter demand.
In 1995, as a result of its U.S. operating losses and the various charges
described above, the Company violated certain financial covenants with its U.S.
bank, the landlord of its Texas facility and the loan agreement for the
Company's capital expenditures. In September 1995, all parties agreed to waive
all events of default and to revise the respective agreements.
In conjunction with the agreement with the U.S. bank, the credit facility will
be reduced to $7,000,000 and the term of the facility will be extended to
September 30, 1996. The Company cannot receive additional advances under this
facility. In return for the commitment, the Company has agreed to issue, at
current market values, warrants to acquire shares of the Company's common stock
and to provide accelerated repayment of the debt if additional cash proceeds are
generated from certain asset dispositions or issuances of any new subordinated
debt.
The Company's sources of liquidity consist of on-hand cash balances, a
$4,000,000 revolving credit facility in Belgium, the loan agreement for capital
expenditures, vendor credit and cash generated from operations. The Company's
availability under its Belgian bank credit line is calculated based upon
percentages, as determined by the banks, of certain eligible receivables and to
a lesser extent inventories. The Company has $1,347,000 available under its
loan agreement for capital expenditures, but only anticipates utilizing
$200,000 before the expiration date of August 31, 1995. The
35
<PAGE>
Company will not have any availability under its current domestic credit
facility. The Company has a substantial investment in inventories for its ink
jet plotter, thermal wax printer and pen plotters. Because of this investment,
the Company will not be required to purchase a substantial portion of the
materials required to build these output devices during the first two quarters
of fiscal 1996.
During the year the Company utilized its cash balances and credit facilities to
fund operations, working capital, capital expenditures and other costs. Charges
against the restructuring reserve established in 1993 totaled $2,081,000 during
1995. The remaining reserves of $1,804,000 relate to leased space at the
Company's former corporate headquarters in Connecticut. The Company expects the
restructuring and lease abandonment reserves to be utilized ratably over the
next four years. The Company estimates substantial savings in 1995 as a result
of the restructuring in 1993.
The Company experienced a significant loss in 1995 as a result of its decision
to abandon its lease in Connecticut, the delayed introduction of a significant
new product, charges related to downsizing operations in North America, write-
offs of idle fixed assets and excess or obsolete inventories and significant
competitive pressures primarily related to its plotter product lines. The
Company has developed a plan to return to profitable levels during fiscal 1996
which include outsourcing certain of its manufacturing and distribution
requirements as well as reducing expenditures in all areas. The waiver received
on the U.S. Credit Agreement was based in part, on management's projections of
future operations and cash flows. The ability of the Company to achieve its
projections is dependent upon various factors, some of which may be outside the
control of the Company. In addition management is considering various
alternatives to raise additional funds including additional debt or equity
financing and/or sales of certain operating assets. However, there can be no
assurance that any such alternatives can be successfully consummated.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on the results
of operations to date. However, since the Company sources a substantial portion
of its production from Far East manufacturers, the cost of imported product is
dependent on the inflation rate in those countries, fluctuations in the value of
the U.S. dollar and import duties or restrictions.
The Company does a substantial portion of its business internationally. The
Company's products are priced in dollars in all North American, Latin American,
Asian and Pacific Rim countries. In Europe, the Company prices its products in
local currencies in Germany, England, France, Belgium and in dollars in other
European and Middle Eastern countries. Approximately 50% of sales are
denominated in local currencies and 50% in dollars. The European operations
incur approximately the same percentages of their expenses in either local
currencies or dollars. Accordingly, the Company believes that it effectively
matches cash inflows and outflows and is not subject to material cash flow
impacts due to currency fluctuations. During the year the devaluation in Mexican
peso has slowed sales to Mexico and caused a slowdown in collection from
customers in Mexico. However, the Company has not experienced nor does it expect
any material write-offs of receivables from this event.
ACCOUNTING FOR ASSET IMPAIRMENT
During March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived
36
<PAGE>
Assets and for Long-Lived Assets To Be Disposed Of." The Company is required to
adopt Statement 121 in the fiscal year beginning June 1, 1996. Statement 121
requires that long-lived assets and certain indentifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not completed all of the analyses required to
estimate the impact of the new statement, however, the adoption of Statement 121
is not expected to have a material adverse impact on the Company's financial
position or the results of its operations at the time of adoption.
37
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended May 31, 1993 1994 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 81,404,000 $ 77,755,000 $ 78,494,000
Cost of sales 51,772,000 50,526,000 58,188,000
- ----------------------------------------------------------------------------------------
Gross profit 29,632,000 27,229,000 20,306,000
Selling, general and administrative 29,892,000 18,934,000 21,940,000
Research and development 8,003,000 5,631,000 6,761,000
Restructuring, lease abandonment and
other charges (note 2) 8,487,000 - 2,228,000
- ----------------------------------------------------------------------------------------
Operating income (loss) (16,750,000) 2,664,000 (10,623,000)
- ----------------------------------------------------------------------------------------
Other income (expense):
Interest income 124,000 105,000 21,000
Interest expense (429,000) (421,000) (609,000)
Miscellaneous, net 220,000 (206,000) (201,000)
- ----------------------------------------------------------------------------------------
(85,000) (522,000) (789,000)
- ----------------------------------------------------------------------------------------
Income (loss) before income
taxes, extraordinary gain and
cumulative effect of change
in accounting method (16,835,000) 2,142,000 (11,412,000)
Provision for income taxes (note 8) - - 187,000
- ----------------------------------------------------------------------------------------
Income (loss) before extraordinary
gain and cumulative effect of
change in accounting method (16,835,000) 2,142,000 (11,599,000)
Extraordinary gain (note 5) - 645,000 -
Cumulative effect of change in
method of accounting for income taxes 411,000 - -
- ----------------------------------------------------------------------------------------
Net income (loss) $(16,424,000) $ 2,787,000 $(11,599,000)
- ----------------------------------------------------------------------------------------
Net income (loss) per common share:
Income (loss) before extraordinary
gain and cumulative effect of change
in accounting method $ (3.89) $ 0.47 $ (2.56)
Extraordinary gain - 0.14 -
Cumulative effect of change in
method of accounting for income
taxes 0.09 - -
- ----------------------------------------------------------------------------------------
Net income (loss) per common share $ (3.80) $ 0.61 $ (2.56)
- ----------------------------------------------------------------------------------------
Weighted average shares used in computing
net income (loss) per common share 4,323,000 4,519,000 4,537,000
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, 1994 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 819,000 $ 560,000
Accounts receivable (less allowance for doubtful
accounts of $1,113,000 in 1994 and $954,000 in 1995) 17,914,000 18,039,000
Inventories:
Materials 5,269,000 9,881,000
Work-in process 1,043,000 2,504,000
Finished goods 5,224,000 6,998,000
- --------------------------------------------------------------------------------------------
11,536,000 19,383,000
Prepaid expenses and other current assets 1,117,000 1,136,000
- --------------------------------------------------------------------------------------------
Total current assets 31,386,000 39,118,000
- --------------------------------------------------------------------------------------------
Fixed assets:
Land 290,000 344,000
Building 1,319,000 1,616,000
Machinery and equipment 12,133,000 13,861,000
Furniture and fixtures 1,228,000 1,241,000
Leasehold improvements 1,009,000 1,044,000
Construction-in-progress 187,000 389,000
- --------------------------------------------------------------------------------------------
16,166,000 18,495,000
Less: accumulated depreciation and amortization (9,725,000) (13,188,000)
- --------------------------------------------------------------------------------------------
Net fixed assets 6,411,000 5,307,000
- --------------------------------------------------------------------------------------------
Intangible and other assets, net of accumulated
amortization (note 3) 9,509,000 9,176,000
- --------------------------------------------------------------------------------------------
$ 47,336,000 $ 53,601,000
- --------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 9,583,000 $ 12,500,000
Accrued liabilities (notes 2 and 4) 9,274,000 10,619,000
Notes payable (note 5) - 9,548,000
Current portion of long-term debt (note 5) 148,000 561,000
Current obligations under capital leases 458,000 277,000
- --------------------------------------------------------------------------------------------
Total current liabilities 19,463,000 33,505,000
- --------------------------------------------------------------------------------------------
Long-term liabilities, less current portion:
Long-term debt (note 5) 947,000 1,579,000
Capital lease obligations 535,000 282,000
Deferred gain on sale of building 510,000 476,000
Deferred tax liability (note 8) - 498,000
Restructuring, lease abandonment and other charges
(note 2) 1,804,000 2,857,000
- --------------------------------------------------------------------------------------------
Total long-term liabilities 3,796,000 5,692,000
- --------------------------------------------------------------------------------------------
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized
5,000,000 shares - -
Common stock, $.01 par value, authorized 20,000,000
shares, issued 4,546,000 shares in 1994 and
4,645,000 shares in 1995 45,000 46,000
Additional paid-in capital 38,639,000 39,111,000
Retained earnings (accumulated deficit) (13,830,000) (25,879,000)
Cumulative translation adjustment (302,000) 1,601,000
- --------------------------------------------------------------------------------------------
24,552,000 14,879,000
- --------------------------------------------------------------------------------------------
Less: Treasury stock, at cost - 49,000 shares in
1994 and 1995 (465,000) (465,000)
Stockholder note receivable (10,000) (10,000)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 24,077,000 14,404,000
- --------------------------------------------------------------------------------------------
$ 47,336,000 $ 53,601,000
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------
Number of Additional Paid-in Retained Earnings
Years ended May 31, 1993, 1994 and 1995 Shares Amount Capital (Accumulated Deficit)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at May 31, 1992 4,268,000 $43,000 37,921,000 1,213,000
Sale of common stock 146,000 1,000 58,000 -
Sale of common stock pursuant to the 1987
Employee Stock Plan 3,000 - 18,000 -
Imputed benefit from the granting of options
below fair market value - - 75,000 -
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan 59,000 1,000 276,000 -
Awards granted pursuant to the 1987 stock
plan 5,000 - 35,000 -
Net loss - - - (16,424,000)
Sale of treasury stock at $8.00 per share - - 14,000 -
Purchase of treasury stock at $7.69 per share - - - -
Unrealized translation loss - - - -
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - - (450,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1993 4,481,000 45,000 38,397,000 (15,661,000)
- -----------------------------------------------------------------------------------------------------------------------
Sale of common stock pursuant to the 1987
Employee Stock Plan 11,000 - 42,000 -
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan 47,000 - 165,000 -
Awards granted pursuant to the 1987 stock
plan 7,000 - 35,000 -
Net income - - - 2,787,000
Unrealized translation loss - - - -
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - - (956,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 4,546,000 45,000 38,639,000 (13,830,000)
- -----------------------------------------------------------------------------------------------------------------------
Sale of common stock pursuant to the 1987
Employee Stock Plan 59,000 1,000 304,000 -
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan 37,000 - 150,000 -
Awards granted pursuant to the 1987 stock
plan 3,000 - 18,000 -
Net loss - - - (11,599,000)
Unrealized translation gain - - - -
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - - (450,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 4,645,000 $46,000 39,111,000 (25,879,000)
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative Translation Treasury Stock and Stockholders'
Years ended May 31, 1993, 1994 and 1995 Adjustment Stockholder Note Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at May 31, 1992 154,000 (292,000) 39,039,000
Sale of common stock - - 59,000
Sale of common stock pursuant to the 1987
Employee Stock Plan - - 18,000
Imputed benefit from the granting of options
below fair market value - - 75,000
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan - - 277,000
Awards granted pursuant to the 1987 stock
plan - - 35,000
Net loss - - (16,424,000)
Sale of treasury stock at $8.00 per share - 186,000 200,000
Purchase of treasury stock at $7.69 per share - (369,000) (369,000)
Unrealized translation loss (147,000) - (147,000)
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - (450,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1993 7,000 (475,000) 22,313,000
- -----------------------------------------------------------------------------------------------------------------------
Sale of common stock pursuant to the 1987
Employee Stock Plan - - 42,000
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan - - 165,000
Awards granted pursuant to the 1987 stock
plan - - 35,000
Net income - - 2,787,000
Unrealized translation loss (309,000) - (309,000)
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - (956,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 (302,000) (475,000) 24,077,000
- -----------------------------------------------------------------------------------------------------------------------
Sale of common stock pursuant to the 1987
Employee Stock Plan - - 305,000
Sale of common stock pursuant to the 1988
Employee Stock Purchase Plan - - 150,000
Awards granted pursuant to the 1987 stock
plan - - 18,000
Net loss - - (11,599,000)
Unrealized translation gain 1,903,000 - 1,903,000
Dividends paid to stockholders of CAD
Warehouse, Inc., an S-corporation - - (450,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 1,601,000 (475,000) 14,404,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended May 31, 1993 1994 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (16,424,000) $ 2,787,000 $(11,599,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Gain on retirement of debt - (645,000) -
Cumulative effect of change in
accounting method (411,000) - -
Depreciation and amortization 5,536,000 3,580,000 3,629,000
Restructuring, lease abandonment and
other charges 8,487,000 - 2,228,000
(Gain) loss on sale of fixed assets 253,000 (4,000) 14,000
Compensation in form of stock 110,000 35,000 18,000
Changes in assets and liabilities:
Accounts receivable 2,360,000 34,000 864,000
Inventories (1,111,000) 644,000 (6,985,000)
Prepaid and other current assets 126,000 (8,000) 56,000
Accounts payable (1,424,000) 4,465,000 2,670,000
Accrued liabilities (198,000) (4,828,000) 883,000
Other liabilities - (321,000) 18,000
- --------------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (2,696,000) 5,739,000 (8,204,000)
- --------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,782,000) (1,528,000) (1,927,000)
Proceeds from sale of fixed assets 29,000 55,000 10,000
Intangible assets (516,000) 38,000 644,000
- --------------------------------------------------------------------------------------
Net cash used in investment
activities (3,269,000) (1,435,000) (1,273,000)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (450,000) (956,000) (450,000)
Proceeds from long-term borrowings 983,000 - 855,000
Proceeds from short-term borrowings 2,805,500 - 9,323,000
Proceeds from sales of common stock 354,000 208,000 455,000
Purchases of treasury stock (369,000) - -
Repayment of short-term debt - (2,805,000) -
Repayment of long-term debt and capital - - -
lease obligations (2,864,000) (2,623,000) (466,000)
- --------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 458,000 (6,176,000) 9,717,000
- --------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (322,000) 42,000 (499,000)
- --------------------------------------------------------------------------------------
Net change in cash (5,828,000) (1,830,000) (259,000)
Cash at beginning of year 8,477,000 2,649,000 819,000
- --------------------------------------------------------------------------------------
Cash at end of year $ 2,649,000 $ 819,000 $ 560,000
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31,1993, 1994, and 1995 Summagraphics Corporation and Subsidiaries
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company is primarily engaged in the manufacture and sale of digitizing
tablets (computer input devices), and plotters (computer output devices). These
products are used in applications with high performance computer graphics
systems such as computer-aided design (CAD). The Company engages in the
manufacture and sale of cutters. The Company also owns a mail-order distributor
of CAD related equipment and software. The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. All significant intercompany balances and transactions have been
eliminated.
Cash Equivalents
For the purpose of cash flows, the Company considers all highly liquid
investments with maturities of three (3) months or less to be cash equivalents.
The Company had no cash equivalents at May 31, 1994 and 1995.
Inventories
Inventories are stated at the lower of cost or market. Cost is applied on a
first-in, first-out (FIFO) basis; market is determined on the basis of estimated
net realizable value. The Company reserves for inventory that is determined to
be obsolete or substantially in excess of forecasted demand.
Fixed Assets
Fixed assets acquired are stated at cost. Equipment and furniture under capital
leases are stated at the lower of the present value of future minimum lease
payments or fair value at the inception of the lease.
Building depreciation is provided on the straight-line method over a period of
fifteen (15) years, depreciation of furniture and fixtures and machinery and
equipment (including amortization of assets covered by capital leases) is
provided on the straight-line method, based on estimated useful lives ranging
from three (3) to ten (10) years. Amortization of leasehold improvements is
provided over the lesser of estimated useful life of the improvement or the life
of the lease. Maintenance and repairs are charged to operations as incurred;
significant betterments are capitalized.
Intangible Assets
Goodwill represents the amount by which the cost to purchase Houston Instrument
exceeded the fair market value of the related net assets. The Company assesses
the recoverability of its intangible assets by determining whether the
amortization of the intangible asset balance over its remaining life can be
recovered through projected future operating cash flows before interest over the
remaining amortization period. As a result of this ongoing review, the Company
reduced the original life of the goodwill from forty (40) to twenty-five (25)
years. The effect of the change in fiscal 1995, which was recorded
prospectively, is $53,000.
Other acquired identifiable intangible assets are amortized using the straight-
line method over lives not exceeding seven and one-half (7.5) years.
42
<PAGE>
WARRANTY RESERVE
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates and
repair costs.
REVENUE RECOGNITION
The Company recognizes revenue when product is shipped to customers. Under
contract, certain customers may return a small percentage of the prior quarter's
net purchases provided the product is in resale condition and a new order of
equal value is placed for delivery within thirty (30) days. The Company carries
reserves for these and other returns based on historical trends.
INCOME TAXES
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Prior to June 1, 1992, the Company recorded taxes under the provisions set forth
in Statement of Financial Accounting Standards No. 96.
PER SHARE DATA
Net income (loss) per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options and warrants, calculated by using the Treasury Stock method.
FOREIGN EXCHANGE
Assets and liabilities of foreign subsidiaries generally are translated into
U.S. Dollars at exchange rates in effect at the end of the year whereas revenues
and expenses are translated using average exchange rates that prevailed during
the year. Gains and losses that result from this process are shown as an
adjustment in stockholders' equity.
RECLASSIFICATIONS
Certain reclassifications have been made to conform to prior years' data to the
current presentation.
BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared to give
retroactive effect to the merger with CAD Warehouse, Inc., an S - Corporation,
on November 10, 1994 in exchange for 510,000 shares of the Company's common
stock. The merger was accounted for using the pooling of interest method.
NOTE 2: RESTRUCTURING, LEASE ABANDONMENT AND OTHER CHARGES
In the fourth quarter of 1993, the Company incurred an $8,487,000 restructuring
charge in response to the difficult worldwide economic conditions as well as to
maximize cost efficiencies. The restructuring charge was provided to cover
costs of reductions in workforce, and the relocation of the Company's
Connecticut manufacturing operations to its Texas facility. The charge included
a provision of $248,000 for fixed assets write-downs due to the consolidation,
$2,606,000 of lease and leasehold improvement costs for the unused portion of
its Connecticut facility, $2,629,000 for severance and related charges due to a
43
<PAGE>
fifteen percent (15%) reduction of workforce in June, 1993, and $1,636,000 for
manufacturing consolidation costs consisting of moving, relocation, and
severance. At May 31, 1995, $1,804,000 of this liability, related to the
Connecticut lease, remained. This remaining amount will be utilized over the
approximately four (4) years remaining on the lease.
In the fourth quarter of 1995, the Company decided to abandon its leased
facility in Connecticut, and accordingly recorded a liability of $2,228,000
related to the furtherance of the Company's consolidation of operations to
Austin, Texas. This abandoned lease liability relates to the remaining lease
and leasehold improvement costs associated with the Company's Connecticut
facility. This liability will be funded over the approximately four (4) years
remaining on the lease.
NOTE 3: INTANGIBLE AND OTHER ASSETS
Significant components of intangible and other assets at May 31, 1994 and 1995
are as follows:
1994 1995
==== ====
Goodwill $9,570,000 $9,912,000
Other acquired intangibles 2,789,000 2,941,000
========== ==========
12,359,000 12,853,000
Less accumulated amortization 3,232,000 3,903,000
========== ==========
9,127,000 8,950,000
Other assets 382,000 226,000
========== ==========
$9,509,000 $9,176,000
========== ==========
NOTE 4: ACCRUED LIABILITIES
Significant components of accrued liabilities at May 31, 1994 and 1995 are as
follows:
1994 1995
==== ====
Payroll and other compensation $1,461,000 $1,223,000
Federal, state, foreign, and payroll
withholding taxes 774,000 444,000
Sales returns and allowances 1,040,000 3,026,000
Restructuring and lease abandonment costs 2,081,000 1,039,000
Other 3,918,000 4,887,000
========== ==========
$9,274,000 $10,619,000
========== ==========
44
<PAGE>
NOTES 5: INDEBTEDNESS AND LIQUIDITY
A. Long-Term Debt
Long-term debt at May 31, 1994 and 1995 consists of the following:
1994 1995
==== ====
Convertible subordinated note (i) $ - $ -
Other (ii) 1,095,000 2,140,000
========== ==========
1,095,000 2,140,000
Less current portion 148,000 561,000
========== ==========
$ 947,000 $1,579,000
The aggregate maturities of long-term debt are as follows:
1996 $ 561,000
1997 490,000
1998 352,000
1999 105,000
2000 and thereafter 632,000
==========
$2,140,000
==========
(i) Convertible Subordinated Note
In connection with the acquisition of Houston Instrument, the Company issued to
the seller an 8%, five-year, interest only, $5,000,000 convertible subordinated
note due on May 1, 1995. The note was convertible at anytime after May 1, 1991
into 333,333 shares of common stock of the Company at $15.00 per share, subject
to adjustment, through the exercise of attached warrants. In July, 1992, the
Company exercised its option to prepay $2,500,000, thereby reducing the
remaining note balance to $2,500,000. In May, 1994, the Company repurchased the
note (with a remaining balance of $2,500,000) for $1,800,000, resulting in an
extraordinary gain of $645,000. In connection with the note repayment, the
Company canceled the existing 333,000 warrants and issued 300,000 new warrants
to purchase shares of the Company's common stock (150,000 of which expired on
May 1, 1995 and 150,000 of which are exercisable at $9.00 a share, subject to
adjustment, and expire on May 1, 1997).
(ii) Other
Consists of local borrowings of a Belgian subsidiary, including a $1,054,000
mortgage due in the year 2005, on the subsidiary's facility in Gistel, Belgium.
Interest rates on this debt range from 7.55% to 10% per annum.
Also, in December 1994, the Company entered into a loan agreement (Loan
Agreement) that provides financing for capital expenditures through May 31,
1995, to a maximum amount of $2,500,000. The Company received funding under
this agreement in the amount of $1,153,000, through May 31, 1995, which is
payable over a period of three (3) years at a rate based on London InterBank
Offered Rate (LIBOR). In May 1995, the agreement was extended to August 31,
1995. Under the terms of the agreement, the Company is subject to certain
covenants and restrictions. At May 31, 1995, the Company was in default with
respect to certain of the covenants. On September 18, 1995, the Company
executed an agreement which waives the existing
45
<PAGE>
events of default and provides for amendments to the financial covenants
acceptable to both the lender and the Company.
B. REVOLVING CREDIT AGREEMENTS
On October 12, 1992, one of the Company's Belgian subsidiaries entered into a
$4,000,000 Credit Agreement. This agreement has no defined expiry date and
requires the bank to give six (6) months notice of termination, if no defaults
exist. Borrowings under this agreement may be in the form of various bank
instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement, the subsidiary is subject to
certain covenants and restrictions. As of May 31, 1995, the subsidiary was in
compliance with all covenants and restrictions. At May 31, 1995, $1,452,000 was
available under this agreement.
In July, 1994, the Company entered into an $8,000,000 Credit Agreement (U.S.
Credit Agreement) with a new bank replacing the $6,000,000 facility in place at
May 31, 1994. Under the terms of the agreement, the Company is subject to
certain covenants and restrictions. Borrowings under this agreement may be in
the form of various bank instruments at rates based on the bank's base rate and
are secured by substantially all of the Company's North American assets. At May
31, 1995, the Company was in default under the terms of the Credit Agreement.
On September 18, 1995 the Company received a commitment to amend the existing
Credit Agreement to extend the maturity date to September 30, 1996, waive the
existing events of default, reduce the facility to $7,000,000, and to adjust the
facility pricing and covenants and restrictions. At May 31, 1995, there was no
incremental availability under this agreement. In return for the commitment, the
Company has agreed to issue, at market value, warrants to acquire shares of the
Company's common stock and to apply a portion of proceeds from certain cash
inflows outside the ordinary course of business, if any, to outstanding
principal.
C. LIQUIDITY
The Company experienced a significant loss in 1995 as a result of its decision
to abandon its lease in Connecticut, the delayed introduction of a significant
new product, charges related to downsizing operations in North America, write-
offs of idle fixed assets and excess or obsolete inventories and significant
competitive pressures primarily related to its plotter product lines. The
Company has developed a plan to return to profitable levels during fiscal 1996
which include outsourcing certain of its manufacturing and distribution
requirements as well as reducing expenditures in all areas. The waiver received
on the U.S. Credit Agreement was based in part, on management's projections of
future operations and cash flows. The ability of the Company to achieve its
projections is dependent upon various factors, some of which may be outside the
control of the Company. In addition, management is considering various
alternatives to raise additional funds including additional debt or equity
financing and/or sales of certain operating assets. However, there can be no
assurance that any such alternatives can be successfully consummated.
NOTE 6: STOCKHOLDERS' EQUITY
A. COMMON STOCK RESERVED
The following shares of common stock are reserved for issuance at May 31,
1995:
Stock option plans:
Employee stock plan 1,213,000
46
<PAGE>
Non-employee director stock option plan 75,000
Performance unit plan 50,000
=========
1,338,000
Warrants 150,000
Employee stock purchase plan 35,000
=========
1,523,000
=========
B. Stock Option Plans
The Company's 1987 Stock Option Plan provides for the granting to directors,
consultants, officers, and other employees of options to purchase a total of
1,350,000 shares of common stock.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors' Plan")
for outside directors provides for the issuance of options for 75,000 shares of
common stock exercisable for a period of ten (10) years from date of the option
grant. Under the Directors' Plan, each member of the Board of Directors
("Board") who is neither an employee nor an officer of the Company will be
automatically granted on October 31 of each year an option to purchase 3,000
shares of the Company's common stock.
In addition to these two plans, the Board may also grant qualified and non-
qualified options, stock purchase rights, and stock awards.
Any options, awards, etc., granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc., shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in such
installments as the Board may specify. Each option shall expire on the date
specified by the Board, subject to earlier termination provisions, but not more
than, under 1987 Stock Plan, ten (10) years and one day and, under the
Directors' Plan, ten (10) years, from the date of grant.
A summary of changes in stock issuable under employee and non-employee option
plans follows:
Range of
Shares Exercise Prices
====== ================
Outstanding at May 31, 1992 501,000 $6.00 - $13.25
Granted 285,000 3.75 - 9.00
Exercised (8,000) 4.00 - 9.00
Canceled (152,000) 7.00 - 12.00
========= ==================
Outstanding at May 31, 1993 626,000 3.75 - 13.25
Granted 543,000 .01 - 7.13
Exercised (18,000) 3.50 - 7.13
Canceled (202,000) 3.13 - 11.50
========= ==================
Outstanding at May 31, 1994 949,000 .01 - 13.25
Granted 182,000 3.13 - 8.63
Exercised (62,000) 3.13 - 8.00
Canceled (225,000) 3.13 - 13.25
========= ==================
Outstanding at May 31, 1995 844,000 $.01 - $9.00
========= ==================
At May 31, 1995, 424,000 options were exercisable at prices ranging from $.01 to
$9.00 a share.
47
<PAGE>
C. Employee Stock Purchase Plan
The 1988 Employee Stock Purchase Plan which was approved by stockholders in
1989, provides that eligible employees may authorize payroll deductions between
2% and 10% of their regular pay to purchase up to a maximum of 2,000 shares of
the Company's common stock in a fiscal year. The purchase price of the stock is
the lesser of 85% of the average market price of the Company's common stock on
either the first or last business day of the Payment Period. Payment Periods
begin on June 1 and December 1 each year. The aggregate number for shares which
may be purchased under this plan is 250,000, of which 215,000 have been
purchased to date.
D. Performance Unit Plan
The 1989 Performance Unit Plan which was approved by stockholders in fiscal
1990, provides that officers and key employees of the Company may be granted
performance units by the Board or a committee comprised of at least three (3)
Board members (no such committee has been appointed). Performance units, which
are the equivalent of $100 each, may be granted either in cash or shares of
common stock or any combination thereof, to participants upon the attainment of
certain achievement objectives as established by the Board. No performance
units have been granted to date.
NOTE 7: FOREIGN AND DOMESTIC OPERATIONS, EXPORT SALES, AND MAJOR CUSTOMERS
Sales, operating income (loss), and identifiable assets of the Company by
geographical area are as follows:
Years Ended May 31, 1993 1994 1995
---- ---- ----
Sales to unaffiliated customers:
United States $ 45,147,000 $ 42,175,000 $ 34,228,000
Europe 21,881,000 21,435,000 27,381,000
Other 14,376,000 14,145,000 16,885,000
============ ============ ============
$ 81,404,000 $ 77,755,000 $ 78,494,000
============ ============ ============
Operating Income (Loss):
United States $(11,367,000) $ 1,426,000 $ (9,647,000)
Europe (4,255,000) 954,000 2,208,000
Other (1,128,000) 284,000 (3,184,000)
============ ============ ============
$(16,750,000) $ 2,664,000 $(10,623,000)
============ ============ ============
Balance at May 31, 1993 1994 1995
---- ---- ----
Identifiable Assets:
United States $ 38,237,000 $ 35,082,000 $ 34,898,000
Europe 20,066,000 18,751,000 21,987,000
Eliminations (6,028,000) (6,497,000) (3,284,000)
============ ============ ============
$ 52,275,000 $ 47,336,000 $ 53,601,000
============ ============ ============
During 1993, 1994, and 1995, export sales were $14,376,000, $14,145,000, and
$16,885,000, respectively. No one customer accounted for greater than ten
percent (10%) of net sales in any of these years.
48
<PAGE>
NOTE 8: INCOME TAXES
A $187,000 provision for income taxes was recorded in 1995 (none was recorded in
1994 or 1993). The provision (benefit) for income taxes consists of the
following for 1993, 1994, and 1995:
Year ended May 31, 1993 Current Deferred Total
------- -------- -----
Federal $(411,000) $ 789,000 $ 378,000
State - (88,000) (88,000)
Foreign - (290,000) (290,000)
========= ========= =========
Total $(411,000) $ 411,000 $ -
========= ========= =========
Year ended May 31, 1994 Current Deferred Total
------- -------- -----
Federal $ - $ - $ -
State - - -
Foreign - - -
========= ========= =========
Total $ - $ - $ -
========= ========= =========
Year ended May 31, 1995 Current Deferred Total
------- -------- -----
Federal $(400,000) $ - $(400,000)
State - - -
Foreign 21,000 566,000 587,000
========== ========== =========
Total $(379,000) $ 566,000 $ 187,000
========== ========== ==========
Effective June 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The components of the net deferred tax asset (liability) as of May 31, 1994 and
1995 were as follows:
U.S. Federal
As of May 31, 1994 & State Foreign
------------ -------
Deferred tax assets:
Other assets $ 328,000 $ -
Inventory reserves 1,495,000 -
Restructuring accruals 1,261,000 354,000
Other miscellaneous items 1,180,000 197,000
Tax credit carryforwards 1,986,000 -
Net operating loss carryforwards 1,708,000 2,085,000
Valuation allowance (7,440,000) (901,000)
=========== ===========
Total deferred tax asset 518,000 1,735,000
Deferred tax liabilities:
Property, Plant, and Equipment 518,000 -
Tax deductible goodwill - 1,735,000
=========== ===========
Total deferred tax liability 518,000 1,735,000
=========== ===========
Net deferred tax asset (liability) $ - $ -
=========== ===========
49
<PAGE>
U.S. Federal
As of May 31, 1995 & State Foreign
Deferred tax assets:
Other assets $ 944,000 $ 153,000
Inventory and warranty reserves 1,792,000 -
Restructuring accruals 2,283,000 51,000
Accounts receivable and return reserves 1,201,000 -
Tax credit carryforwards 1,689,000 -
Net operating loss carryforwards 3,598,000 2,361,000
Valuation allowance (10,518,000) (79,000)
============ ===========
Total deferred tax asset 989,000 2,486,000
============ ===========
Deferred tax liabilities:
Property, plant, and equipment 989,000 -
Tax deductible goodwill - 2,984,000
Total deferred tax liability 989,000 2,984,000
============ ===========
Net deferred tax asset (liability) $ - $ (498,000)
============ ===========
The valuation allowance for deferred tax assets as of June 1, 1994 was
$8,341,000. The net change in the valuation allowance for the year ended May
31, 1995 was an increase of $2,256,000. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of May 31, 1995
will be allocated as follows:
Income tax benefit that would be reported in the
consolidated statement of operations $ 10,343,000
Goodwill 254,000
===============
$ 10,597,000
===============
The provision for income taxes varies from the amounts computed by applying the
U.S. Federal Income Tax rate of thirty-four percent (34%) as follows:
<TABLE>
1993 1994 1995
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
expense (benefit) $(5,724,000) (34.0) $ 947,000 34.0 $(3,880,000) (34.0)
Increase (reduction)
resulting from:
Benefit of Subchapter S
Corporation status (169,000) (1.0) (333,000) (11.9) (156,000) (1.4)
Change in the beginning of
the year balance of the
valuation allowance for
deferred tax assets
allocated to income tax
expense 6,298,000 37.4 (690,000) (24.8) 2,256,000 19.8
Differing foreign tax rates (166,000) (1.0) 57,000 2.0 104,000 0.9
State taxes-net of federal
benefit (223,000) (1.3) - - - -
Amortization of goodwill 28,000 .2 26,000 .9 2,099,000 18.4
Other differences (44,000) (.3) (7,000) (.2) (236,000) (2.1)
============= ====== ========= ===== =========== =====
$ - - $ - - $ 187,000 1.6
============= ====== ========= ===== =========== =====
</TABLE>
50
<PAGE>
At May 31, 1995, the Company had available NOL carryforwards of approximately
$10,584,000 and $5,874,000 for U.S. and foreign tax reporting purposes,
respectively. The NOL carryforwards for tax reporting purposes expire in
varying amounts in the U.S. through the year 2009. The NOL's in foreign
jurisdictions carryforward indefinitely. Further, the Company has general
business credit carryforwards of approximately $669,000 which expire through the
year 2007, foreign tax credits of $514,000 which expire through the year 2000,
and alternative minimum tax carryforwards of $322,000 which have no expiration
dates.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
1993 1994 1995
U.S. $(13,759,000) $ 2,326,000 $(13,034,000)
Foreign (3,076,000) 461,000 1,622,000
============ =========== ============
$(16,835,000) $ 2,787,000 $(11,412,000)
============ =========== ============
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. There have been no material deficiencies asserted
by the IRS for the audit to date.
NOTE 9: COMMITMENTS AND CONTINGENCIES
A. Leases
In May, 1992, the Company concluded a sale and leaseback of its Austin, Texas
facility. The Company recorded a $612,000 gain on the sale which was deferred
and is being amortized over the lease term. The lease is an eighteen (18) year
operating lease expiring in the year 2010. The lease provides for a fixed
rental charge, plus additional rent based on increases in the Consumer Price
Index. Under the terms of the agreement, the Company is subject to certain
covenants and restrictions. At May 31, 1995, the Company was in default with
certain of the covenants. On September 20, 1995, the lessor committed to waive
defaults at May 31, 1995 and to forbear against exercising remedies to financial
covenant violations in exchange for commitments to specific performance by the
Company through August 31, 1996.
The Company leases various assets used in its operations, primarily buildings
and equipment. Substantially all of the leases provide that the Company pay for
maintenance and insurance.
Future minimum lease payments for leased capital assets total $607,000 of which
$48,000 represents interest. Capital leases and non-cancelable operating
leases, exclusive of the Connecticut facility, at May 31, 1995 require the
following annual minimum lease payments:
51
<PAGE>
Capital Operating
Leases Leases
------- ---------
1996 $312,000 $ 1,049,000
1997 270,000 1,009,000
1998 25,000 946,000
1999 - 899,000
2000 - 865,000
Later years - 8,626,000
======== ===========
$607,000 $13,394,000
======== ===========
Rental expense on operating leases for 1993, 1994, and 1995 was $1,803,000,
$1,530,000 and $1,686,000, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1995 was $1,776,000
and $164,000, respectively.
B. Employee 401 (k) Plan
The Company's 401(k) Plan covers all full-time employees who have completed six
(6) months of continuous employment and are eighteen (18) years of age or older.
Under the terms of the plan an employee may contribute up to twenty percent
(20%) of annual compensation, up to five percent (5%) of which will be matched
by the Company at 25%, 50%, 75% or 100% of the employee contribution depending
on years of service. Employee contributions vest fully upon contribution while
employer contributions vest twenty percent (20%) per year. Employer
contributions for 1993, 1994, and 1995 were $268,000, $0 and $0, respectively.
Additional contributions may be authorized by the Board of Directors predicated
on Company performance.
C. Litigation
The Company is party to various legal actions and administrative proceedings and
subject to various claims arising in the normal course of business. The Company
believes that the disposition of these matters will not have a material adverse
effect on its financial position or results of operations taken as a whole.
NOTE 10: SUPPLEMENTARY CASH FLOW INFORMATION AND OTHER
For the years ended May 31, 1993, 1994, and 1995 certain supplementary cash flow
information follows:
1993 1994 1995
-------- -------- --------
Cash paid during the year for:
Interest $450,000 $421,000 $609,000
Income taxes $499,000 $ - $ -
Non-cash financing activities,
capital leases $693,000 $175,000 $ 15,000
In the fourth quarter of fiscal 1995, the Company incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances which aggregated approximately $9 million.
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Summagraphics Corporation:
We have audited the accompanying consolidated balance sheets of Summagraphics
Corporation and subsidiaries as of May 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended May 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summagraphics
Corporation and subsidiaries as of May 31, 1994 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended May 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
Austin, Texas
June 27, 1995, except as to notes 5 and 9
which are as of September 20, 1995.
53
<PAGE>
Summagraphics Corporation and Subsidiaries
Selected Financial Information
<TABLE>
<CAPTION>
(000s omitted, except per share data) 1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 80,794 $ 77,295 $ 81,404 $ 77,755 $ 78,494
Operating income (loss) 7,644 810 (16,750) 2,664 (10,623)
Income (loss) before extraordinary
gain and cumulative effect of change
in accounting method 4,673 (1,231) (16,835) 2,142 (11,599)
Extraordinary gain - - - 645 -
Cumulative effect of change in
accounting for income taxes - - 411 - -
Net income (loss) 4,673 (1,231) (16,424) 2,787 (11,599)
Net income (loss) per common share:
Income (loss) before extraordinary
gain and cumulative effect of change
in accounting method 1.14 (0.30) (3.89) 0.47 (2.56)
Extraordinary gain - - - 0.14 -
Cumulative effect of change in
accounting for income taxes - - 0.09 - -
Net income (loss) per common share $ 1.14 $ (0.30) $ (3.80) $ 0.61 $ (2.56)
Weighted average shares used in
computing net income (loss) per
common share 4,116 4,113 4,323 4,519 4,537
Balance Sheet Data:
Working capital $ 16,421 $ 23,982 $ 11,329 $ 11,923 $ 5,613
Total assets 59,594 61,086 52,276 47,336 53,601
Long-term debt 5,370 5,261 3,627 947 1,579
Retained earnings (accumulated deficit) 2,443 1,213 (15,661) (13,830) (25,879)
Stockholders' equity $ 39,519 $ 39,039 $ 22,314 $ 24,077 $ 14,404
- --------------------------------------------------------------------------------------------------
Quarterly Results of Operations
(000s omitted, except per share data)
1994 Aug. 31 Nov. 30 Feb. 28 May 31
- --------------------------------------------------------------------------------------------------
Net sales $ 17,130 $ 19,479 $ 19,460 $ 21,686
Operating income (loss) (566) 1,038 852 1,330
Income (loss) before income taxes and
extraordinary gain (708) 910 679 1,261
Extraordinary gain - - - 645
Net income (loss) (725) 927 679 1,906
Net income (loss) per common share:
Income (loss) before extraordinary
gain (0.16) 0.21 0.15 0.27
Extraordinary gain - - - 0.14
Net income (loss) per common share $ (0.16) $ 0.21 $ 0.15 $ 0.41
- --------------------------------------------------------------------------------------------------
1995 Aug. 31 Nov. 30 Feb. 28 May 31
- --------------------------------------------------------------------------------------------------
Net sales $ 18,651 $ 20,419 $ 22,273 $ 17,151
Operating income (loss) 294 487 516 (11,920)
Income (loss) before income taxes 303 384 180 (12,279)
Net income (loss) 303 384 180 (12,466)
Net income (loss) per common share $ 0.06 $ 0.08 $ 0.04 $ (2.74)
- --------------------------------------------------------------------------------------------------
</TABLE>
Note - The Consolidated Financial Statements of the Company have been restated
- ----
to give retroactive effect to the merger with CAD Warehouse, Inc. (See note 1 of
Notes to the Consolidated Financial Statements).
54
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG SUMMAGRAPHICS CORPORATION,
NASDAQ US INDEX AND NASDAQ COMPUTER MANUFACTURERS
<TABLE>
<CAPTION>
Indexed to 5/31/90
NASDAQ US Index NASDAQ Computer Manufacturers Summagraphics
<S> <C> <C>
$ 100 $ 100 $ 100
$ 114 $ 115 $ 110
$ 133 $ 126 $ 59
$ 160 $ 153 $ 31
$ 169 $ 125 $ 56
$ 201 $ 185 $ 23
</TABLE>
[GRAPH APPEARS HERE]
55
<PAGE>
EXHIBIT 10.22
EMPLOYMENT MODIFICATION AGREEMENT
---------------------------------
This Employment Modification Agreement (the "Agreement"), dated as of April 25,
1995, by and between Summagraphics Corporation, a Delaware Corporation (the
"Company") and Michael S. Bennett (the "Employee").
WHEREAS, the Employee is serving the Company as its President and Chief
Executive Officer and as a Director; and
WHEREAS, the Employee has provided valuable support and service to the Company
as its President and Chief Executive Officer and as a Director; and
WHEREAS, the Employee and the Company are parties to an Employment Agreement
dated as of April 16,1993 (the "Employment Agreement"); and
WHEREAS, the Employee and the Company's Board of Directors (the "Board") have
agreed that they would like to extend the Term of the Employee's employment (as
that Term is defined in the Employment Agreement) and to make certain other
changes in the Employee's terms of employment, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing premises, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Employee and the Company hereby agree as follows:
SECTION 1. Term Of Agreement. The Term of the Employee's employment as provided
-----------------
in the Employment Agreement shall be extended from April 15,1996 through and
including the close of business on May 31,1997 (and that extended period shall
also be herein defined as the Term). At its sole discretion, the Board may
further extend the Term for such period of time as may be mutually agreed upon
between the Company and the Employee. The definition of "Term" shall include any
such further extended periods. The Company and the Board shall give the
Executive at least six (6) months prior written notice of its intention to
extend or not to extend the Term beyond May 31, 1997.
SECTION 2. Salary. The Board shall review the Employee's current base salary
-------
("Base Salary") and current fiscal year bonus ("Bonus") prior to the end of the
original Term of the Employment (4/16/96) and shall make such adjustments to
that Base Salary and Bonus as, in the sole discretion of the Board, the Board
shall determine, provided, however, that the revised base salary and bonus shall
not be less than the current Base Salary of $250,000 and the current fiscal
year's Bonus opportunity of $125,000.00 (based on the Company's attainment of
the level of operating income (or other) target as has been approved by the
Board).
SECTION 3. Stock Options. For the remainder of the Term the Board of Directors
-------------
will include employee in the annual renewal of stock options as determined by
the compensation committee.
1
<PAGE>
SECTION 4. Severance. Notwithstanding any of the provisions of the Employment
----------
Agreement which shall remain in full force and effect, in the event the Board
determines, for whatever reason, that it will not extend the Term beyond May 31,
1997, the Executive shall be paid as severance ("Severance") an amount
equivalent to his annual base salary for the twelve month period beginning on
June 1, 1997 and ending on May 31,1998. Severance shall be paid in full within
thirty (30) days of termination date.
SECTION 5. General Provisions.
------------------
(a) All other provisions of the Employment Agreement shall continue to apply and
are hereby incorporated by reference into this Agreement.
(b) Entire Agreement. This Agreement supersedes any and all other agreements,
----------------
either oral or in writing, between the parties hereto with respect to the
employment of Employee by the Company and contains all covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party or anyone
acting on behalf of any party, which are not embodied herein, and that no
agreement, statement or promise not contained in this Agreement shall be valid
or binding. Any breach or alleged breach of this Agreement by Employee or
termination hereof shall in no way affect Employee's or the Company's
obligations under any other agreement to which the Company and the Employee are
parties.
(c) Successors: Binding Agreement. The Company will require any successor
-----------------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) of
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumptions
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Employee to compensation from the
Company in the same amount and on the same terms as Employee would be entitled
hereunder if Employee terminated Employee's employment for Good Reason as that
term is defined in the Employment Agreement. As used in this Agreement,
"Company" shall mean the company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(d) Notice. For the purposes of this Agreement, Notices, and all other
------
communications provided for in this Agreement, shall be in writing and shall be
deemed to have been duly given when delivered or mailed by registered mail,
return receipt requested, postage pre-paid, addressed if to the Company to its
Board at its principal executive offices, and if to Employee at his address as
it appears on the Company's records, or such other address as either party may
2
<PAGE>
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
(e) Amendment. No provision of this Agreement may be modified, waived or
----------
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by Employee and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach of the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of any
other provisions or conditions at the time or at any prior or subsequent time
period.
(f) Validity. The invalidity or unenforceability of any provision of this
---------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(g) Counterparts. This Agreement may be executed in several counterparts, each
-------------
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(h) Governing Law. This Agreement shall be construed and all rights hereunder
-------------
shall be determined in accordance with the laws of the State of Texas and the
performance thereof shall be governed in accordance with its laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
SUMMAGRAPHICS CORPORATION
By: /s/ Dennis Sisco /s/ Michael S. Bennett
---------------- ----------------------
Dennis Sisco Michael S. Bennett
c-ext320.doc
3
<PAGE>
EXHIBIT 10.23
CREDIT AGREEMENT
[Line of Credit Loans]
THIS CREDIT AGREEMENT, dated as of July 18, 1994 by and between
SUMMAGRAPHICS CORPORATION, a Delaware corporation with its principal place of
business at 60 Silvermine Road, Seymour, Connecticut 06483 (the "Borrower") and
--------
SILICON VALLEY BANK, a California-chartered bank, with its principal place of
business at 3000 Lakeside Drive. Santa Clara, California 95054, with a loan
production office located at Wellesley Office Park. 45 William Street,
Wellesley, Massachusetts 02181 doing business under the name Silicon Valley East
(the "Bank").
----
Section 1 Line of Credit Loans.
- ------- - ---- -- ------ -----
1.1 Amount. Subject to and upon the terms and conditions set forth below,
-------
the Bank agrees to make loans (each a "Line of Credit Loan" and collectively the
-------------------
"Line of Credit Loans") to the Borrower under this Section 1.1 from time to time
--------------------
to and including January 10, 1996 (the "Commitment Expiration Date"), unless
--------------------------
earlier terminated pursuant to Section 1.6, in an aggregate principal amount not
to exceed at any one time outstanding the sum of $8,000,000 (the "Line of Credit
--------------
Commitment"), subject to the limitation set forth in Section 1.4. Within the
- ----------
limit of the Line of Credit Commitment, the Borrower may borrow, repay and
reborrow at any time or from time to time until the Commitment Expiration Date,
or the termination of the Line of Credit Commitment, whichever occurs earlier.
1.2 Line of Credit Note. The Line of Credit Loans shall be evidenced by
-------------------
and payable with interest in accordance with the note of the Borrower in the
form of attached Exhibit A, dated today's date (the "Note").
--------- ----
1.3 Requests For Line of Credit Loans. Whenever the Borrower desires to
---------------------------------
obtain a Line of Credit Loan, it shall notify the Bank by telex, telecopy or
telephone received no later than 1:00 p.m. (Boston time) one Banking Day before
the day on which the requested Line of Credit Loan is to be made. Such notice
shall specify the effective date and the amount of such Loan. Each such notice
(a "Notice of Borrowing") shall be irrevocable and shall be immediately followed
-------------------
by a written Borrowing Certificate by the Borrower substantially in the form of
attached Exhibit G, provided, if such written confirmation differs in any
---------
material respect from the action taken by the Bank, the records of the Bank
shall control absent manifest error. The Bank shall make such Line of Credit
Loan by crediting its amount in immediately available funds to the Borrower's
regular deposit account with the Bank.
1.4 Borrowing Base. The Borrower shall not permit, or request any advance
--------------
or the issuance of any Letter of Credit hereunder that would cause, the sum of
(a) the aggregate unpaid principal amount of all Line of Credit Loans under the
Line of Credit Commitment, (b) the aggregate Letter of Credit Usage and (c) the
aggregate amount of all banker's acceptances created for the account of the
Borrower as provided in Section 1.8 below (the sum of (a), (b) and (c), the
"Extensions of Credit"), to exceed at any time an amount equal to the lesser of
- ---------------------
(i) the Commitment or (ii) the sum of (A) 80% of all Eligible Domestic Accounts
Receivable and (8) 80% of Eligible International Accounts Receivable
(collectively. the "Borrowing Base"). If at any time the aggregate principal
--------------
amount of all Extensions of Credit exceeds the Borrowing Base, the Borrower
shall, on the next Banking Day, prepay such excess principal amount together
with accrued interest thereon at the applicable rate, and if such excess is not
eliminated thereby, the Borrower shall also pledge to the Bank an amount by
which the aggregate Extensions of Credit exceed the Borrowing Base, in a manner
acceptable to the Bank.
<PAGE>
-2-
1.5 Maturity Date of Line of Credit Loans. All Line of Credit Loans shall
-------------------------------------
mature and the total unpaid principal amount thereof shall be due and payable on
the Commitment Expiration Date. at which time all amounts advanced under this
Section 1 shall be immediately due and payable.
1.6 Termination of Commitment. The Borrower, upon (a) at least two (2)
-------------------------
Banking Days' prior written notice to the Bank and (b) the repayment in full of
the outstanding principal balance of the Line of Credit Loans (and accrued
interest thereon) and the payment in full of any expenses or other fees owed by
the Borrower to the Bank under or pursuant to this Agreement, may elect to
permanently terminate the Line of Credit Commitment.
1.7 Letters of Credit. The Borrower may use up to $5,000,000 of the Line
-----------------
of Credit Commitment for Letters of Credit to be issued by the Bank, provided
that in each case (a) the Borrower executes and delivers a letter of credit
application and reimbursement agreement satisfactory to the Bank and complies
with any conditions to the issuance of such Letter of Credit (including payment
of any applicable fees); (b) the Bank has approved the form of such Letter of
Credit; (c) such Letter of Credit bears an expiration date not later than the
Commitment Expiration Date; and (d) the conditions set forth in Sections 4.2 and
4.3 shall have been satisfied as of the date of the issuance of the Letter of
Credit.
1.8 Banker's Acceptances. Subject to the requirements set forth below, the
--------------------
Borrower may use the available Line of Credit Commitment by requesting that the
Bank accept the Borrower's time drafts (payable up to 90 days after sight), and
discount such drafts at the applicable interest rate. The aggregate outstanding
amount of all acceptances so created by the Bank may not exceed $3,000,000 at
any time. As a condition to the creation and discount of any acceptance by the
Bank: (i) the Borrower shall have executed and delivered an acceptance credit
agreement satisfactory in form and substance to the Bank (an "Acceptance
----------
Agreement), and shall have complied with any conditions to the creation of such
- ---------
acceptance (including the payment of any acceptance commission and the
satisfaction of any additional collateral requirements) set forth therein; (ii)
such acceptance shall be an Eligible Acceptance (as defined in Section 9.1
below); (iii) the maturity date of such acceptance may not occur later than the
Commitment Expiration Date unless the Bank otherwise agrees in writing; and (iv)
the conditions set forth in Sections 4.2 and 4.3 below shall have been satisfied
as of the date of the creation of such acceptance.
Section 2 Interest Rates; Payments and Optional Prepayments.
------------------------------------------------------------
2.1 Interest Rates.
--------------
(a) The Borrower agrees to pay interest on the unpaid principal amount of
each Line of Credit Loan for each day from and including the date such Line of
Credit Loan was made to but excluding the date the principal amount of such Line
of Credit Loan is due (whether at maturity, by acceleration or otherwise), at a
fluctuating rate per annum equal to the Prime Rate plus the Applicable Margin
(as defined below) which interest rate shall change when the Prime Rate shall
change. The "Applicable Margin" shall be three-quarters of one percent (3/4%)
-----------------
per annum, provided, however, that effective upon, and after the occurrence of a
Rate Reduction Event, the Applicable Margin, shall be one-half of one percent
(1/2%) per annum. Such interest shall be payable monthly in arrears on the last
day of each month commencing with the first such date hereafter and when the
principal amount of such Line of Credit Loan is due (whether at maturity, by
acceleration or otherwise).
(b) Any overdue principal of any such Line of Credit Loan and, to the
extent permitted by law, overdue interest thereon. shall, at the Bank's option,
bear interest (after as well as before judgment), payable on demand. for each
day from and including the date payment was due to but excluding the date of
actual payment, at a fluctuating rate per annum equal to four (4)
<PAGE>
-3-
percentage points above the rate of interest applicable under Section 2.1
(a) immediately prior to the occurrence of the delinquency.
2.2 Manner and Place of Payment. All payments under this Agreement or
---------------------------
otherwise in respect of the Borrower Loans shall be made not later than 2:00
p.m. (Boston Time) on the date when due and shall be made in immediately
available funds at the Office of the Bank or by the Borrower's check drawn on
the depository account(s) maintained by the Borrower with the Bank payable to
the Bank or its order. All payments shall be made without setoff, counterclaim,
withholding or reduction of any kind whatsoever. Borrower will regularly deposit
some portion of funds received from its business activities in accounts
maintained by the Borrower at the Office of the Bank. Borrower hereby requests
and authorizes the Bank to debit any of Borrower's accounts with the Bank,
specifically, without limitation, Account Number 07007264-70, for payments of
interest due on the Line of Credit Loans and any other obligations owing by the
Borrower to the Bank. The Bank will notify the Borrower of all debits which the
Bank makes against the Borrower's accounts. Any such debits against the
Borrower's accounts shall in no way be deemed a set-off.
2.3 Payments Due on Saturdays. Sundays and Holidays. Whenever any payment
-----------------------------------------------
to be made hereunder or under the Note shall be due on a day which is not a
Banking Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall be included in computing any interest or fees due.
2.4 Optional Prepayments. The Borrower shall have the right to prepay the
--------------------
Line of Credit Loans in whole or in part, without premium or penalty, at any
time and from time to time, provided that at the time of the prepayment in full
of the Line of Credit Loans, the Borrower shall pay all interest accrued on the
amount prepaid. Principal amounts repaid or prepaid under the Line of Credit
Note or the Line of Credit Commitment may be reborrowed by the Borrower subject
to the terms hereof.
2.5 Capital Requirements. If the Bank shall determine that the adoption or
--------------------
implementation of any applicable law, rule, regulation or treaty regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank (or its applicable lending office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of the Bank or any Person controlling the
Bank (a "Parent") as a consequence of its obligations hereunder to a level below
------
that which the Bank (or its Parent) could have achieved but for such adoption,
change or compliance (taking into consideration its policies with respect to
capital adequacy by an amount deemed by the Bank to be material, then from time
to time, within 15 days after demand by the Bank the Borrower shall pay to the
Bank such additional amount or amounts as will compensate the Bank for such
reduction. A statement of the Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive absent manifest error; provided that the determination thereof is
--------
made on a reasonable basis.
Section 3 Security.
-------------------
3.1 Security Interests. (a) The Borrower agrees to grant to the Bank a
------------------
security interest in, and a lien on, all right, title and interest of the
Borrower in and to all assets of the Borrower and to enter into a Security
Agreement in favor of the Bank in the form of Exhibit B hereto (the "Security
--------- --------
Agreement") in order to secure payment and performance of the Borrower's
- ---------
obligations to the Bank under this Agreement, the Note and the other Loan
Documents.
(b) In addition, the Borrower agrees to enter into a Copyright Mortgage in
favor of the Bank in the form of Exhibit C hereto (the "Copyright Mortgage") and
-------- ------------------
a collateral assignment of patents
<PAGE>
-4-
Assignment") in order further to secure payment and performance of the
----------
Borrower's obligations to the Bank under this Agreement, the Note and the other
Loan Documents.
Section 4 Conditions Precedent.
-------------------------------
The Bank shall not be obligated to make any of the Extensions of Credit to
the Borrower hereunder until the following conditions have been satisfied (in no
event later than August 15, 1994):
4.1 Agreement, the Note and the Security Instruments. This Agreement, the
------------------------------------------------
borrowings hereunder. the Note, the Security Instruments and all transactions
contemplated by this Agreement and the Security Instruments shall have been duly
authorized by the Borrower. The Borrower shall have duly executed and delivered
to the Bank this Agreement, the Note and the Security Instruments to the Bank in
form and substance reasonably satisfactory to the Bank and its counsel .
4.2 No Default. On the date hereof and on the date of the making of each
----------
Extension of Credit, no Default or Event of Default shall have occurred and be
continuing.
4.3 Correctness of Representations. On the date hereof and on the date of
------------------------------
each Extension of Credit. all representations and warranties made by the
Borrower in Section 5 below or any other material representation and warranty
otherwise in writing in connection herewith shall be true and correct in all
material respects with the same effect as though such representations and
warranties had been made on and as of today's date, except that representations
and warranties expressly limited to a certain date shall be true and correct as
of that date.
4.4 Opinion of Counsel for the Borrower. On the date hereof, the Bank
-----------------------------------
shall have received the favorable opinion of the general counsel of the
Borrower, in form and substance satisfactory to the Bank and its counsel.
4.5 Filing of Financing Statements. etc. On or before the making of any
-----------------------------------
Extensions of Credit, the Borrower shall have promptly executed and delivered to
the Bank financing statements, and other appropriate documentation relating to
the security interests and rights granted pursuant to the Security Instruments.
and the Bank shall have duly and promptly recorded or filed the same in such
manner and in such places as is required by law (including pursuant to the UCC)
to establish, preserve, protect, and perfect such security interests and rights;
and all taxes, fees and other charges in connection with the execution, delivery
and filing of this Agreement and such financing statements and other appropriate
documentation shall have been duly paid.
4.6 Supporting Documents. On or before the date hereof, there shall have
--------------------
been delivered to the Bank the following supporting documents:
(a) legal existence and corporate good standing certificates with respect
to the Borrower dated as of a recent date issued by the appropriate Secretary of
State or other officials;
(b) certificates dated as of a recent date with respect to the due
qualification of the Borrower to do business in each jurisdiction where the
failure to be so qualified would have a Material Adverse Effect, issued by the
Secretary of State of each such jurisdiction;
(c) copies of the corporate charters of the Borrower, certified by the
appropriate Secretary of State or other officials, as in effect on the date
hereof;
(d) a certificate of the Secretary or Assistant Secretary of the Borrower
certifying as to (i) the By-Laws of the Borrower as in effect on the date
hereof; (ii) the incumbency and signatures of the officers of the Borrower who
have executed any documents in connection with
<PAGE>
-5-
the transactions contemplated by this Agreement; and (iii) the resolutions of
the Board of Directors and, to the extent required by law, the shareholders. of
the Borrower authorizing the execution. delivery and performance of this
Agreement and the making of the Line of Credit hereunder, and the execution and
delivery of the Note; and
(e) all other information and documents which the Bank or its counsel may
reasonably request in connection with the transactions contemplated by this
Agreement.
4.7 Commitment Fee. The Borrower shall have paid to the Bank a non-
--------------
refundable commitment fee in the amount of $30.000 and the Bank's reasonable
expenses (including reasonable attorney's fees) in connection herewith.
4.8 Compliance and Borrowing Base Certificates. The Borrower shall have
------------------------------------------
furnished to the Bank a Compliance Certificate in the form of attached Exhibit E
---------
appropriately completed and signed by the chief financial officer of the
Borrower or other duly authorized officer of the Borrower as to whose authority
the Bank has been given notice (an "Authorized Officer), and to the extent the
Borrower is requesting an Extension of Credit on the date hereof, a Borrowing
Base Certificate in the form of Exhibit F hereto appropriately completed and
---------
signed by the chief financial officer, president of the Borrower or other
Authorized Officer, each of which certificates shall reflect compliance by the
Borrower with the requirements of this Agreement.
4.9 Accounts Receivable Audit. The Bank shall have received the results of
-------------------------
an accounts receivable audit satisfactory to the Bank in all reasonable
respects.
4.10 Legal Matters All documents and legal matters incident to the
-------------
transactions contemplated by this Agreement shall be reasonably satisfactory to
Sullivan & Worcester, special counsel for the Bank.
Each borrowing hereunder shall constitute a representation and warranty by
the Borrower to the Bank that all of the conditions specified in this Section 4
have been complied with as of the time of any such Extension of Credit.
Section 5 Representations and Warranties.
--------- ------------------------------
In order to induce the Bank to enter into this Agreement and to make the
contemplated Extensions of Credit, the Borrower hereby represents and warrants
as follows (except to the extent qualified by supplemental disclosure set forth
on Schedule A hereto) and the following representations and warranties as so
----------
qualified shall survive the execution and delivery of this Agreement and the
Note:
5.1 Corporate Status. The Borrower is a duly organized and validly
----------------
existing corporation in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified or licensed as a foreign corporation in good
standing in each jurisdiction in which the failure to do so would have a
Material Adverse Effect.
5.2 No Violation. Neither the execution, delivery or performance of this
------------
Agreement or any other Loan Document, nor consummation of the contemplated
transactions will (i) contravene any law, statute, rule or regulation to which
the Borrower or any of its Subsidiaries is subject or any judgment, decree,
franchise, order or permit applicable to the Borrower or any of its
Subsidiaries, or (ii) conflict or be inconsistent with or result in any breach
of, or constitute a default under, or result in or require the creation or
imposition of any Lien (other than the lien created by the Security Instruments)
upon any of the property or assets of the Borrower or any of its Subsidiaries
pursuant to, any Contractual Obligation of the Borrower or any of its
Subsidiaries, or (iii) violate any provision of the corporate charter or by-laws
of the Borrower or any of its Subsidiaries.
<PAGE>
-6-
5.3 Corporate Power and Authority. The execution, delivery and performance
-----------------------------
of this Agreement and the other Loan Documents are within the corporate powers
of the Borrower and have been duly authorized by all necessary corporate action.
5.4 Enforceability. This Agreement and each other Loan Document
---------------
constitutes a valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
subject to general principles of equity, whether applied in a court of equity or
at law.
5.5 Governmental Approvals. No order, permission. consent, approval,
----------------------
license, authorization, registration or validation of, or filing with, or
exemption by, any Governmental Authority is required to authorize, or is
required in connection with, the execution, delivery and performance of this
Agreement or any other Loan Document by the Borrower. or the taking of any
action contemplated hereby or thereby, except for the filing of UCC-1 financing
statements in the appropriate UCC filing offices listed on the Perfection
Certificate (as defined in the Security Agreement) and the filing of the
Copyright Mortgage and the Patent and Trademark Assignment and except as further
disclosed in Schedule A.
----------
5.6 Financial Statements. (a) The Borrower has furnished the Bank with
--------------------
complete and correct copies of the audited consolidated balance sheet of the
Borrower and its Subsidiaries as of the Financial Statements Date. and the
related audited consolidated statements of income and of cash flows for the
fiscal year of the Borrower and its Subsidiaries ended on such date, examined by
the Accountants. Such financial statements (including the related schedules and
notes) fairly present the consolidated financial condition of the Borrower and
its Subsidiaries as of the Financial Statements Date. and the consolidated
results of their operations and their consolidated cash flows for the fiscal
year then ended.
(b) The Borrower has furnished the Bank with complete and correct copies of
the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as
of February 28, 1994, and the related consolidated statements of income and of
cash flows for the 9-month period ended on such date. Such financial statements
(including the related schedules and notes) fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of February 28,
1994, and the consolidated results of their operations and their consolidated
cash flows for the 9-month period ended on such date (subject to normal year-end
audit adjustments).
(c) Neither the Borrower nor any of its Subsidiaries has any material
liabilities, contingent or otherwise, including liabilities for taxes or any
unusual forward or long-term commitments or any Guarantee, which are not
disclosed by or included in the financial statements referenced in subparagraphs
(a) and (b) above or in the accompanying notes and there are no unrealized or
anticipated losses from any unfavorable commitments of the Borrower or any of
its Subsidiaries which may have a Material Adverse Effect. During the period
from the Financial Statements Date to the date hereof: (i) there has been no
sale, transfer or other disposition by the Borrower of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any Person) material in relation to the
financial condition of the Borrower at the Financial Statements Date; and (ii)
except as described in Schedule A the Borrower has not made a Restricted
----------
Payment, or agreed or committed to make a Restricted Payment.
(d) All the above-referenced financial statements (including the related
schedules and notes) have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
Accountants and disclosed therein and, in the case of interim financial
statements, subject to normal year-end adjustments and the absence of footnotes
and schedules).
<PAGE>
-7-
5.7 No Material Change. Since the Financial Statements Date there has been
------------------
no development or event, nor to the best knowledge of the Borrower, any
prospective development or event, which has had or could have a Material Adverse
Effect.
5.8 Litigation. There are no actions, suits or proceedings pending or
-----------
threatened against or affecting the Borrower or any of its Subsidiaries before
any Governmental Authority, which in any one case or in the aggregate, if
determined adversely to the interests of the Borrower or any Subsidiary thereof,
would have a Material Adverse Effect.
5.9 Compliance with Other Instruments; Compliance with Law. Neither the
------------------------------------------------------
Borrower nor any Subsidiary thereof is in default under (a) any Contractual
Obligation, where such default could have a Material Adverse Effect. or (b) the
terms of any Contractual Obligation relating to any Indebtedness of the Borrower
or a Significant Subsidiary. Neither the Borrower nor any Subsidiary thereof is
in default and or in violation of any applicable statute, rule, writ,
injunction, decree, order or regulation of any Governmental Authority having
jurisdiction over the Borrower or any Subsidiary thereof which default or
violation would have a Material Adverse Effect.
5.10 Subsidiaries. The Borrower has no Subsidiaries except as set forth on
------------
Schedule A as attached as of the date first set forth above or as may be
- ----------
amended and supplemented from time to time.
5.11 Investment Borrower Status: Limits on Ability to Incur Indebtedness.
-------------------------------------------------------------------
The Borrower is not an "investment company" or a company "controlled by" an
investment company within the meaning of the Investment Company Act of 1940, as
amended. The Borrower is not subject to regulation under any Federal or State
statute or regulation which limits its ability to incur Indebtedness .
5.12 Title to Property. The Borrower has good and marketable title to all
-----------------
of its properties and assets, including the properties and assets reflected in
the balance sheet of the Borrower as of the Financial Statements Date, except
such as have been disposed of since that date in the ordinary course of
business, and none of such properties or assets is subject to any Lien except
for (a) Permitted Liens, or (b) a defect in title or other claim other than
defects and claims that, in the aggregate, would have no Material Adverse
Effect. The Borrower enjoys peaceful and undisturbed possession under all leases
necessary in any material respect for the operation of its properties and
assets, none of which contains any unusual or burdensome provisions which might
materially affect or impair such properties or assets. All such leases are valid
and subsisting and are in full force and effect.
5.13 ERISA. The Borrower and each member of the Controlled Group have
-----
fulfilled their obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and are in compliance in all material respects
with the presently applicable provisions of ERISA and the Code, and have not
incurred any liability to the PBGC or a Plan under Title IV of ERISA (other than
to make contributions or premium payments in the ordinary course).
5.14 Taxes. All tax returns of the Borrower and its Subsidiaries required
-----
to be filed with the U.S. Internal Revenue Service or other state and local
taxing authorities located in the United States (collectively, "U.S. Taxing
-----------
Authorities") have been timely filed, all taxes, fees and other governmental
- ------------
charges (other than those being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
have been established and, in the case of ad valorem taxes or betterment
-- -------
assessments, no proceedings to foreclose any lien with respect thereto have been
commenced and, in all other cases, no notice of lien has been filed or other
action taken to perfect or enforce such lien) shown thereon which are payable
have been paid. The charges and reserves on the books of the Borrower and its
Subsidiaries for all income and other taxes are adequate, and the Borrower knows
of no additional assessment or any basis therefor. As of the date of this
Agreement, the Federal income tax returns
<PAGE>
-8-
of the Borrower and its Subsidiaries have not been audited within the last three
years, all prior audits have been closed, and there are no unpaid assessments,
penalties or other charges arising from such prior audits.
5.15 Environmental Matters. (a) The Borrower and each of its Subsidiaries
------------- -------
have obtained all Governmental Approvals that are required for the operation of
its business under any Environmental Law, except where the failure to so obtain
a Governmental Approval would not have a Material Adverse Effect.
(b) The Borrower and each of its Subsidiaries are in compliance with all
terms and conditions of all required Governmental Approvals and are also in
compliance with all terms and conditions of all applicable Environmental Laws,
noncompliance with which would have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, investigation, proceeding, notice or demand
letter pending or, to the best knowledge of the Borrower threatened against the
Borrower or any Subsidiary thereof relating in any way to the Environmental Laws
which if adversely determined would have a Material Adverse Effect, and there is
no Lien of any private entity or Governmental Authority against any property of
the Borrower or any Significant Subsidiary thereof relating in any way to the
Environmental Laws.
(d) There has been no claim, complaint, notice or request for information
received by the Borrower with respect to any site listed on the National
Priority List promulgated pursuant to the Comprehensive Environmental Response.
Compensation, and Liability Act ("CERCLA"), 42 USC (S) 9601 et sea., or any
------ -- ----
state list of sites requiring investigation or cleanup with respect to
contamination by Hazardous Substances.
(e) To the best of the Borrower's knowledge, there has been no release or
threat of release of any Hazardous Substance at any Borrower Property which
would likely result in liability being imposed upon the Borrower or any
Subsidiary thereof, which liability would have a Material Adverse Effect.
5.16 Intellectual Property. Schedule A lists all of the copyrights,
------------ --------- -------- -
patents, trademarks and similar rights (Intellectual Property) owned by the
------------ --------
Borrower and its Subsidiaries as of the date hereof, together with information,
where applicable, as to registration number, filing date, record owner and
remaining life. Except as set forth in Schedule A, the Borrower or a Subsidiary
-------- --
thereof is the absolute owner of all right, title and interest in the
Intellectual Property, free and clear of all Liens in favor of other Persons
with full right to pledge, sell, assign. transfer and grant a security interest
therein. The Borrower owns or possesses such Intellectual Property and similar
rights necessary for the conduct of its business as now conducted, without any
known conflict with the rights of others which would have a Material Adverse
Effect. No Subsidiary owns Intellectual Property which is necessary for the
conduct of the Borrower's business.
5.17 Borrowing Base. Giving effect to any Extensions of Credit to be made
--------- -----
as of the date hereof under this Agreement, the aggregate amount of all
Extensions of Credit under this Agreement does not exceed the Borrowing Base on
the date hereof.
5.18 Bank Accounts. Etc. All depository, disbursement and other accounts
---- --------- ---
maintained by the Borrower with any financial institution, and all institutions
that have issued certificates of deposit or similar evidences of Indebtedness to
the Borrower thereof, are listed in Schedule A to this Agreement or (in the case
-------- -
of any accounts established after the date hereof) in a writing to the Bank.
<PAGE>
-9-
Section 6 Affirmative Covenants.
--------- ---------------------
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Extensions of Credit, together with all interest thereon
and all other Obligations of the Borrower to the Bank are paid or satisfied in
full:
6.1 Maintenance of Existence. The Borrower will maintain its existence and
----------- -- ---------
comply with all applicable statutes, rules and regulations and to remain duly
qualified as a foreign corporation, licensed and in good standing in each
jurisdiction where such qualification or licensing is required by the nature of
its business, the character and location of its property, business. or the
ownership or leasing of its property, except where such noncompliance or failure
to so qualify would not have a Material Adverse Effect, and the Borrower will
maintain its properties in good operating condition, and continue to engage in
the same line of business as currently conducted or one reasonably related
thereto.
6.2 Taxes and Other Liens. The Borrower will, and will cause each of its
----- --- ----- ------
Subsidiaries to, pay when due all taxes, assessments, governmental charges or
levies imposed by U.S. Taxing Authorities which, if unpaid. might become a Lien
against the Borrower or such Subsidiary or on its property, except liabilities
being contested in good faith and by proper proceedings, as to which adequate
reserves are maintained on the books of the Borrower or its Subsidiaries, in
accordance with GAAP.
6.3 Insurance. The Borrower will maintain insurance with financially sound
----------
and reputable insurance companies in such amounts and against such risks as is
usually carried by owners of similar businesses and properties in the same
general areas in which the Borrower operate, provided that in any event the
Borrower shall maintain or cause to be maintained (a) insurance against
casualty, loss or damage covering all property and improvements of the Borrower
in amounts and in respect of perils usually carried by owners of similar
businesses and properties in the same general areas in which Borrower operates;
(b) comprehensive general liability insurance against claims for bodily injury,
death or property damage; and (c) workers' compensation insurance to the extent
required by applicable law. In the case of policies referenced in clauses (a)
and (b) above, all such insurance shall (i) name the Bank as a loss payees and
an additional insured as its interests may appear; (ii) provide that no
termination, cancellation or material reduction in the amount or material
modification to the extent of coverage shall be effective until at least 30 days
after receipt by the Bank of notice thereof; and (iii) be reasonably
satisfactory in all other respects to the Bank.
6.4 Financial Statements. Etc. The Borrower will furnish to the Bank:
--------- ----------- ----
(a) within thirty-five (35) days after the end of each calendar month (45
days with respect to the last month of the first three fiscal quarters of each
fiscal year and 90 days with respect to the last month of the fiscal year), the
unaudited consolidated balance sheet and income statement of the Borrower and
its Significant Subsidiaries (if any) as at the end of, and for, such month
(provided, however, that in the case of financial statements for the last month
of any fiscal quarter, such financial statements shall include an income
statement for such fiscal quarter), accompanied by a certificate of the chief
financial officer of the Borrower (or other Authorized Officer) to the effect
that such financial statements fairly present the consolidated financial
condition of the Borrower and its Significant Subsidiaries (if any) as of the
end of such month, and the consolidated results of their operations for such
month, in each case in accordance with GAAP (except for the absence of
footnotes) consistently applied (subject to normal year-end audit adjustments);
(b) within ninety (90) days after the last day of each fiscal year of the
Borrower, the audited consolidated balance sheet and income statement and
statement of cash flows of the Borrower and its Subsidiaries as at and for the
fiscal year then ended, certified by the Accountants
<PAGE>
-10-
(the substance of such report to be reasonably satisfactory to the Bank),
together with a certificate of the chief financial officer or other Authorized
Officer of the Borrower to the effect that such financial statements fairly
present the consolidated financial condition of the Borrower and its
Subsidiaries as of the end of such fiscal year, and the consolidated results of
their operations for such fiscal year, in each case in accordance with GAAP. The
Borrower shall indicate on said financial statements all Guarantees or material
and unusual forward or long-term commitments made by the Borrower or any
Subsidiary thereof;
(c) at the time of the delivery of the monthly and yearly financial
statements required by Sections 6.4(a) and 6.4(b) above. a Compliance
Certificate signed by the chief financial officer, the president or other
Authorized Officer of the Borrower in the form attached to this Agreement as
Exhibit E, appropriately completed;
- ---------
(d) within twenty-five (25) days after the end of each fiscal month of the
Borrower, (i) a list of the accounts receivable aging for the Borrower as of the
end of such month in such form as the Bank may prescribe, all in reasonable
detail. Provided, however, that the receivables aging for the last month of
--------- --------
any fiscal quarter shall be net of inter-company receivables, and (ii) a
Borrowing Base Certificate signed by the chief financial officer, the president
or other Authorized Officer of the Borrower in the form attached to this
Agreement as Exhibit F, appropriately completed;
---------
(e) promptly upon the mailing thereof to the shareholders of the Borrower
generally, copies of all financial statements, reports, proxy statements and
other materials;
(f) promptly upon request by the Bank, copies of any management letter
provided by the Accountants, provided that the Borrower shall promptly advise
the Bank in the event the Borrower receives any such letter;
(g) promptly upon the filing thereof by the Borrower with the SEC (and in
any event within five (5) days of such filing), copies of any registration
statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents if such
forms no longer exist);
(h) promptly upon becoming aware of any litigation or other proceeding
against the Borrower or any Subsidiary thereof that may have a Material Adverse
Effect, notice thereof;
(i) within thirty (30) days after the beginning of each fiscal year of the
Borrower (commencing with fiscal year 1996), a copy of the operating budget,
including, without limitation, projections of the anticipated cash flow of the
Borrower for such fiscal year and a statement of the assumptions on which such
budget was prepared; and
(j) promptly following the request of the Bank, such further information
concerning the business, affairs and financial condition or operations of the
Borrower as the Bank may reasonably request.
6.5 Notice of Default. As soon as practicable, and in any event, within
------ -- -------
three (3) Banking Days of becoming aware of the existence of any condition or
event which constitutes a Default, the Borrower will provide the Bank with
written notice specifying the nature and period of existence thereof and what
action the Borrower is taking or proposes to take with respect thereto.
6.6 Environmental Matters.
---------------------
(a) The Borrower and each of its Subsidiaries shall comply with all terms
and conditions of all applicable Governmental Approvals and all applicable
Environmental Laws, except where failure to comply would not have a Material
Adverse Effect.
<PAGE>
-11-
(b) The Borrower shall promptly notify the Bank should the Borrower become
aware of:
(i) any spill, release, or threat of release of any Hazardous Substance at
or from any Borrower Property or by any Person for whose conduct the Borrower or
any Subsidiary thereof is responsible, to the extent the Borrower is required by
Environmental Laws to report such to any Governmental Authority;
(ii) any action or notice with respect to a civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or threatened against
the Borrower or any Subsidiary thereof relating in any way to the Environmental
Laws, or any Lien of any Governmental Authority or any other Person against any
Borrower Property relating in any way to the Environmental Laws;
(iii) any claim made or threatened by any Person against the Borrower or
any Subsidiary thereof or any property of the Borrower or any Subsidiary thereof
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Substance pertaining to such property or the
business or operations of the Borrower or such Subsidiary; and
(iv) any occurrence or condition on any real property adjoining or in the
vicinity of any Borrower Property known to the officers or supervisory personnel
of the Borrower or any Subsidiary thereof or other employees having
responsibility for the compliance by the Borrower or any Subsidiary thereof with
Environmental Laws, without any independent investigation, which does cause, or
could cause, such Borrower Property, or any part thereof, to contain Hazardous
Substances in violation of any Environmental Laws, or which does cause, or could
cause, such Borrower Property to be subject to any restrictions on the
ownership, occupancy, transferability or use thereof by the Borrower or any
Subsidiary thereof.
(c) The Borrower will, and will cause each of its Significant Subsidiaries
to, at its own cost and expense, and within such period as may be required by
applicable law or regulation, initiate all remedial actions and thereafter
diligently prosecute such action as shall be required by law for the cleanup of
such Borrower Property, including all removal, containment and remedial actions
in accordance with all applicable Environmental Laws and shall further pay or
cause to be paid, at no expense to the Bank, all cleanup, administrative, and
enforcement costs of applicable Government Authorities which may be asserted
against such Borrower Property, provided, however, the Borrower may delay
initiating and prosecuting such remedial actions if (i) it is contesting such
requirements in good faith by appropriate proceedings; (ii) adequate reserves
have been established; (iii) no criminal liability or punitive damages would
result therefrom; and (iv) no Liens have been or are reasonably anticipated to
be imposed on Borrower Property as a result thereof.
6.7 ERISA Information. If and when the Borrower or any member of the
----- -----------
Controlled Group (a) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, (b) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or (c) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer the Plan, the Borrower shall in each such
instance promptly furnish to the Bank a copy of any such notice.
6.8 Inspection. The Borrower will, upon the request of the Bank, permit a
-----------
representative of the Bank (including any field examiner or auditor retained by
the Bank) to inspect and make copies of the Borrower's books and records, and to
discuss its affairs, finances and
<PAGE>
-12-
accounts with its officers and designated employees and, with your
participation, the Accountants, at such reasonable times and as often as the
Bank may reasonably request and cause each of its Significant Subsidiaries which
becomes a party to this Agreement to do so, provided, however, until an Event of
Default occurs and is continuing. the Bank shall not conduct more than two
inspections of the Borrower's books and records between the date hereof and
the Commitment Expiration Date fiscal year.
6.9 Use of Proceeds. The Borrower shall use the proceeds of the
--- -- ---------
borrowings under the Line of Credit Note for the general business purposes of
the Borrower; provided that the initial advance under the Note may be used to
repay Indebtedness of the Borrower to Bank of New York incurred prior to the
date hereof. Without limiting the foregoing, no part of such proceeds will be
used for the purpose of purchasing or carrying any "margin security" as such
term is defined in Regulation U of the Board of Governors of the Federal Reserve
System.
6.10 Further Assurances. The Borrower will execute and deliver to the Bank
------- -----------
any writings and do all things necessary, effectual or reasonably requested by
the Bank to carry into effect the provisions and intent of this Agreement or any
other Loan Document.
6.11 Depository Accounts. The Borrower shall maintain an operating deposit
---------- ---------
account at the offices of the Bank, and shall deposit some portion of its excess
cash with the Bank in either a demand deposit account, a money market deposit
account, or certificates of deposit, or a combination thereof.
6.12 Subsidiaries. The Borrower shall immediately notify the Bank of the
------------
organization of any additional foreign or domestic Subsidiaries of the Borrower
after the date hereof. The Bank may require that any such additional Significant
Subsidiaries become parties to any of the Loan Documents as guarantors or
sureties and/or that the Borrower pledge the stock of any such additional
Significant Subsidiaries as collateral for the Obligations of the Borrower.
6.13 Intellectual Property. The Borrower will promptly inform the Bank of
------------ --------
all applications filed by the Borrower for trademarks and copyrights and of all
trademarks, patents and copyrights granted or issued on or after the date of
this Agreement, and, upon the request of the Bank, will promptly execute and
deliver such forms of conditional assignment, mortgage, pledge and similar
documents as the Bank may reasonably require so as to ensure that the security
interests granted pursuant to the Security Instruments extend to and are
perfected in respect of such additional trademarks, patents and copyrights.
Section 7 Negative Covenants.
--------- -------- ---------
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Extensions of Credit, together with all interest thereon
and all other Obligations of the Borrower to the Bank are paid or satisfied in
full, without the prior written consent of the Bank:
7.1 ERISA. The Borrower will not permit any Plan maintained by the
-----
Borrower or by any member of a "Controlled Group" (ERISA (Section) 210(c) or
ERISA 3210(d)) of which the Borrower is a member to: (a) engage in any
"prohibited transaction" (ERISA (Section) 2003(c)); (b) fail to report to the
Bank a "reportable event" (ERISA (Section) 4043) within 30 days after its
occurrence or as to any reportable event as to which the 30-day notice period
requirement of Section 4043(b) of Title IV of ERISA has been waived by the PBGC,
within 30 days of such time as the Borrower is requested to notify the PBGC of
such reportable event; (c) incur any accumulated funding deficiency" (ERISA
(Section) 302); (d) terminate its existence at any time in a manner which could
result in the imposition of a Lien on the property of the Borrower or any
Subsidiary thereof; or (e) fail to report to the Bank any "complete withdrawal"
or "partial withdrawal" by the Borrower or an affiliate from a "multiemployer
plan" (ERISA (Sections) 4203, 4205, and 4001, respectively). The quoted
terms are defined in the respective sections of ERISA cited above.
<PAGE>
-13-
7.2 Transactions with Affiliates. The Borrower will not, and will not
------------ ---- ----------
permit any of its Significant Subsidiaries to, directly or indirectly, pay any
funds to or for the account of, make any Investment in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, or engage in any
transaction in connection with any joint enterprise or other joint arrangement
with, any Affiliate of the Borrower, unless such transaction is otherwise
permitted under this Agreement, or is in the ordinary course of the Borrower's
or such Significant Subsidiary's business, and is upon fair and reasonable terms
no less favorable to the Borrower or such Significant Subsidiary than those that
could be obtained in a comparable arm's length transaction with a Person not an
Affiliate.
7.3 Consolidation Merger or Acquisition. The Borrower will not, and will
------------- ------ -- -----------
not permit any Significant Subsidiaries to. merge or consolidate with or into
any other Person, or make any acquisition of the business of any other Person
unless it obtains the prior written consent of the Bank; Provided that any
--------
Significant Subsidiary may merge into Borrower or any wholly-owned Significant
Subsidiary of the Borrower, provided, further, however, the Borrower or any
Significant Subsidiary may merge with or acquire another party without the prior
written consent of the Bank as long as (a) the Borrower or the Significant
Subsidiary is the surviving party, (b) the other party is engaged in the same or
in a related line of business, (c) not more than one-half of the senior
management positions of the Borrower change as a result thereof and (d) no Event
of Default has occurred and is continuing or would arise as a result of such
merger, consolidation or acquisition.
7.4 Disposition of Assets. The Borrower will not, and will not permit any
----------- -- -------
of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of
any of its property, business or assets (including, without limitation, accounts
receivable and leasehold assets), whether now owned or hereafter acquired,
except.
(a) obsolete, excess or worn out property disposed of in the ordinary
course of business;
(b) the sale or other disposition of any property in the ordinary course of
business, Provided that the aggregate book value of all assets (other than
--------
inventory) so sold or disposed of in any period of twelve consecutive months
shall not exceed 10% of the consolidated total assets of the Borrower and its
Subsidiaries as at the beginning of such twelve month period; and
(c) the sale of inventory in the ordinary course of business.
7.5 Indebtedness. The Borrower will not create, incur, assume or suffer to
-------------
exist any Indebtedness, except:
(a) Indebtedness payable to the Bank;
(b) existing Indebtedness, including Subordinated Debt, if any, listed on
Schedule A hereto;
- -------- -
(c) Purchase Money Indebtedness; provided that, giving effect to the
--------
incurrence of such Purchase Money Indebtedness and to the receipt and
application of the proceeds thereof, no Default shall have occurred and be
continuing; and
(d) Subordinated Debt incurred by the Borrower after the date hereof;
provided that, giving effect to the incurrence of such Subordinated Debt and to
- --------
the receipt and application of the proceeds thereof, no Default shall have
occurred and be continuing.
7.6 Liens. The Borrower will not create, incur, assume or suffer to exist
------
any Lien on any of its properties or assets, except the following (collectively,
"Permitted Liens"):
--------- -----
<PAGE>
-14-
(a) Liens for taxes (i) not delinquent or (ii) being contested in good
faith and by proper proceedings, as to which adequate reserves are maintained on
the books of the Borrower in accordance with GAAP;
(b) carriers', warehousemen's. mechanics', materialmen's or similar liens
imposed by law incurred in the ordinary course of business in respect of
obligations not overdue, or being contested in good faith and by proper
proceedings and as to which adequate reserves with respect thereto are
maintained on-the books of the Borrower in accordance with GAAP;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other types of social security legislation;
(d) security deposits made to secure the performance of leases, licenses
and statutory obligations incurred in the ordinary course of business;
(e) Liens in favor of the Bank;
(f) existing Liens. if any, listed on Schedule A hereto; provided that no
-------- - --------
such Lien is spread to cover any additional property after the date hereof, and
that the amount of the Indebtedness secured thereby is not increased; and
(g) Purchase Money Security Interests securing Purchase Money Indebtedness
permitted under Section 7.5(c) above.
7.7 Restricted Payments. The Borrower will not declare or make any
---------- --------
Restricted Payment, except upon ten (10) days prior written notice to the Bank
and only as long as no Default or Event of Default has occurred and is
continuing or is can be reasonably anticipated to occur as a result thereof.
7.8 Investments. The Borrower will not, and will not permit any of its
------------
Significant Subsidiaries to, make, maintain or acquire any Investment in any
Person other than:
(a) Investments of the type falling within the Investment Guideline
attached hereto as Schedule B which have been approved by the Borrower's Board
-------- -
of Directors;
(b) additional forms of Investment approved through amendments to the
Investment Guidelines hereafter approved by the Borrower's Board of Directors,
subject to the prior written approval of the Bank, which approval shall not be
unreasonably withheld;
(c) certificates of deposit, eurodollar time deposits, commercial paper or
any other obligations of the Bank or of any other bank or trust company
organized or licensed to conduct a banking business under the laws of the United
States or any State thereof and which has (or which is a Subsidiary of a bank
holding company which has) publicly traded debt securities rated A or higher by
Standard & Poor's Corporation or A-2 or higher by Moody's Investors Service,
Inc.;
(d) stock or obligations issued to the Borrower or any Subsidiary thereof
in settlement of claims against others by reason of an event of bankruptcy or a
composition or the readjustment of debt or a reorganization of any debtors of
the Borrowers or such Subsidiary;
(e) loans or advances to officers and employees of the Borrower not
exceeding in aggregate principal amount of $1,500,000 at any one time
outstanding during fiscal year 1995 and $500,000 during fiscal year 1996 and
thereafter;
<PAGE>
-15-
(f) investments by the Borrower in its Subsidiaries, and Investments by
such Subsidiaries in the Borrower; provided that the sum of (i) the aggregate
--------
amount of all Investments made after the date hereof by the Borrower in its
Subsidiaries and (ii) the outstanding aggregate amount of any Indebtedness of
any Subsidiary of the Borrower that is Guaranteed by Borrower, may not exceed
$1,000.000 at any time, provided further, however, nothing herein shall prohibit
the Borrowers from converting Indebtedness of a Subsidiary to equity of such
Subsidiary; and
(g) Investments by the Borrower in joint ventures or partnerships with
third parties, provided that such joint venture or partnership is engaged in the
same or a related line of business and provided that the sum of (i) the
aggregate amount of all Investments made or committed to be made after the date
hereof by the Borrowers in such joint ventures or partnerships and (b) the
outstanding aggregate amount of any Indebtedness of such joint venture or
partnership that is guaranteed pursuant to clause (i) of this subparagraph (e),
may not exceed $2,500,000 at any time.
7.9 Sale and Leaseback. The Borrower shall not, except upon 14 days prior
---- --- ----------
written notice to the Bank, enter into any arrangement. directly or indirectly,
whereby it shall sell or transfer any property owned by it in order to lease
such property or lease other property that the Borrower intends to use for
substantially the same purpose as the property being sold or transferred .
7.10 Current Ratio. The Borrower will not permit the Current Ratio at the
------- ------
end of any of the following fiscal months to be less than the ratio set forth
below opposite such month:
Minimum
Fiscal Month Ending Current Ratio
- ------------------- -------------
5/31/94 1.0 to 1
and thereafter
7.11 Minimum Profitability. The Borrower will not permit Net Loss for
------- --------------
any of the following fiscal quarters to be greater than the amount set forth
opposite such fiscal quarter:
Fiscal Quarters Ending Maximum Net Loss
- ---------------------- ----------------
5/31/94 $ 1 00,000
8/31/94 $1,000,000
11/30/94 and thereafter $ 100,000
In addition, the Borrower shall not incur Net Losses in any two consecutive
fiscal quarters.
7.12 Leverage. The Borrower will not permit the ratio of Total Senior
---------
Liabilities to Tangible Net Worth at the end of any of the following fiscal
months to be greater than the ratio set forth below opposite such fiscal month:
Maximum
Fiscal Month Ending Permitted Ratio
------------------- ---------------
5/31/94 through 1/31/95 2.0 to 1
2/28/95 and thereafter 1.8 to 1
7.13 Tangible Net Worth. The Borrower will not permit its Tangible Net
-------- --- -----
Worth at the end of any fiscal month to be less than the amount set forth below
opposite such fiscal month:
<PAGE>
-16-
Minimum
Fiscal Month Tangible Net Worth
- ------------ ------------------
5/31/94 through 1/31/95 $9,000,000
2/28/95 and thereafter $9,750,000
7.14 Receivables from Subsidiaries. The Borrower will not permit
----------- ---- -------------
receivables from its Subsidiaries which are not Significant Subsidiaries at the
end of any fiscal quarter to exceed $4,500,000 in the aggregate.
Section 8 Events of Default.
- ------- - ------ -- --------
8.1 Events of Default. The occurrence of any of the following events shall
------ -- -------
be an "Event of Default" hereunder:
(a) The Borrower shall default in the due and punctual payment of
principal or interest on the Note, or shall default in the payment of any other
amount due under any Loan Document; or
(b) Any representation, warranty or statement made herein or in any
other Loan Document, or in any certificate or statement furnished pursuant to or
in connection herewith or therewith, shall prove to be incorrect, misleading or
incomplete in any material respect on the date as of which made or deemed made:
or
(c) The Borrower shall default in the performance or observance of any
term, covenant or agreement on its part to be performed or observed pursuant to
Sections 7.3, and 7.10 through 7.13; or
(d) The Borrower shall default in the performance or observance of any
term, covenant or agreement on its part to be performed or observed pursuant to
any of the provisions of this Agreement or any other Loan Document (other than
those referred to in paragraphs 8.1(a) through 8.1(c) above) and such default
shall continue unremedied for a period of twenty (20) days after the occurrence
of such default; or
(e) Any obligation of the Borrower or any Significant Subsidiary
thereof in respect of any Indebtedness (other than the Note) or any Guarantee in
an aggregate amount in excess of $300,000 shall be declared to be or shall
become due and payable prior to the stated maturity thereof, or such
Indebtedness or Guarantee shall not be paid as and when the same becomes due and
payable, or there shall occur and be continuing any default under any
instrument, agreement or evidence of indebtedness relating to any such
Indebtedness the effect of which is to permit the holder or holders of such
instrument, agreement or evidence of indebtedness, or a trustee, agent or other
representative on behalf of such holder or holders, to cause such Indebtedness
to become due prior to its stated maturity provided, however, the aforementioned
circumstance shall not constitute an Event of Default as long as (i) the
Borrower is contesting the Indebtedness in good faith by proper proceedings;
(ii) adequate reserves have been established and are maintained; and (iii)
assuming that the Borrower would be required to pay such Indebtedness in full
without setoff or counterclaim, the Borrower would at all times continue to be
in compliance with the provisions of Sections 7.10 through 7.13 above; or
(f) The Borrower or a Significant Subsidiary thereof shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file
a petition seeking to take advantage of any other law relating to
<PAGE>
-17-
bankruptcy, insolvency, reorganization, winding-up. or composition or
readjustment of debts. (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or (vi) take any corporate action
for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Borrower or any Significant Subsidiary thereof in any court of
competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Borrower or such Significant Subsidiary or of all or any substantial part of its
assets, or (iii) similar relief in respect of the Borrower or such Significant
Subsidiary under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 days; or an order for relief against the Borrower or
such Significant Subsidiary shall be entered in an involuntary case under the
Bankruptcy Code; or
(h) Any of the events and circumstances described in subparagraphs
(f) and (9), which if involving or relating to the Borrower or a Significant
Subsidiary would constitute an Event of Default under such subparagraphs, occur
with respect to a Subsidiary which is not a Significant Subsidiary, and (i) such
---
occurrence has resulted in a Material Adverse Effect; or (ii) in the reasonable
judgment of the Bank such occurrence can be reasonably anticipated to result in
a Material Adverse Effect or Event of Default.
(i) A judgment or judgments for the payment of money in excess of
$300,000 (net of insurance proceeds) in the aggregate shall be rendered against
the Borrower and any such judgment or judgments shall not have been vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or
(j) The Borrower or any member of the Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess of $300,000 which it is
obligated to pay to the PBGC or to a Plan under Title IV of ERISA; or a notice
of intent to terminate a Plan or Plans having aggregate Unfunded Liabilities in
excess of $300,000 shall be filed under Title IV of ERISA by the Borrower or any
member of the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans against the Borrower or any member of the Controlled Group to enforce
Sections 515 or 421 9(c)(5) of ERISA; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree adjudicating that any such
Plan or Plans must be terminated; or there shall occur a complete or partial
withdrawal form, or a default, within the meaning of Section 421 9(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which could cause the
Borrower or one or more members of the Controlled Group to incur a current
payment obligation in excess of $300,000; or
(k) The Borrower or any Significant Subsidiary thereof shall default
in the performance or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to any of the provisions of any agreement
with the Bank or any instrument delivered in favor of the Bank (other than, in
either case, a Loan Document), and such default shall continue unremedied beyond
the grace period (if any) provided for therein; or
(l) Any Security Instrument shall, as a result of any action or
failure to act on the part of the Borrower, cease for any reason to be in full
force and effect or shall cease to be
<PAGE>
-18-
effective to grant a perfected security interest in the collateral described in
such Security Instrument with the priority stated to be granted thereby; or
(m) Borrower shall make any payment on account of the Subordinated
Debt identified in Schedule A and additional Subordinated Debt hereinafter
-------- -
incurred. except to the extent such payment is expressly permitted by Section
7.7 or under any subordination agreement entered into with the Bank.
8.2 Remedies Upon an Event of Default. If any Event of Default shall
-------- ---- -- ----- -- --------
have occurred and be continuing, the Bank may (a) declare the Line of Credit
Commitment terminated (whereupon the Line of Credit Commitment shall be
terminated) and/or (b) declare the principal amount then outstanding of, and the
accrued interest on, the Note and commitment fees and all other amounts payable
hereunder and under the Note to be forthwith due and payable, whereupon such
amounts shall be and become immediately due and payable, without notice
(including, without limitation, notice of intent to accelerate), presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower; provided that in the case of the occurrence of
--------
an Event of Default with respect to the Borrower referred to in clauses 8.1 (f)
and 8.1(9) of Section 8.1, the Line of Credit Commitment shall be automatically
terminated and the principal amount then outstanding of, and the accrued
interest on, the Note and commitment fees and all other amounts payable
hereunder and under the Note shall be and become automatically and immediately
due and payable, without notice (including, without limitation, notice of intent
to accelerate), presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
Section 9 Definitions.
------- - ------------
9.1 Certain Definitions.
------- ------------
"Accountants" means KPMG Peat Marwick, or another accounting firm of
-----------
national reputation or other certified public accountants selected by the
Borrower and approved by the Bank.
"Affiliate" means, with respect to any specified Person (the
---------
"Specified Person"), any Person directly or indirectly controlling, controlled
----------------
by or under direct or indirect common control with, the Specified Person and,
without limiting the generality of the foregoing, includes (i) any director or
officer of the Specified Person or any Affiliate of the Specified Person, (ii)
any such director's or officer's parent, spouse, child or child's spouse (a
"relative"), (iii) any group acting in concert, of one or more such directors,
--------
officers, relatives or any combination thereof (a "group"), (iv) any Person
-----
controlled by any such director, officer, relative or group in which any such
director, officer, relative or group beneficially owns or holds 5% or more of
any class of voting securities or a 5% or greater equity or profits interest and
(v) any Person or group which beneficially owns or holds 5% or more of any class
of voting securities or a 5% or greater equity or profits interest in the
Specified Person. For the purposes of this definition, the term "control" when
used with respect to any Specified Person means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Specified Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement.
----------
"Applicable Margin" shall have the meaning set forth in Section 2.1.
---------- ------
"Banking Day" shall mean any day, excluding Saturday and Sunday and
-----------
excluding any other day which in the Commonwealth of Massachusetts or the State
of California is a legal holiday or a day on which banking institutions are
authorized by law to close.
"Borrowing Base" shall have the meaning specified in Section 1.4.
--------------
<PAGE>
-19-
"Borrower Property" means any real property owned, occupied or operated by the
-------- --------
Borrower or any of its Subsidiaries which is located in the United States.
"Code" means the Internal Revenue Code of 1986, as amended, or any successor
----
statute.
"Collateral" shall have the meaning given that term in the Security Agreement.
----------
"Commitment Expiration Date" shall have the meaning specified in Section 1.1.
---------- ---------- ----
"Contractual Obligation" means, as to any Person, any provision of any
----------- ----------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Controlled Group" means all members of a controlled group of corporations and
---------- -----
all trades or businesses (whether or not incorporated) under common control
which. together with the Borrower, are treated as a single employer under
Section 414 of the Code.
"Copyright Mortgage" shall mean the meaning set forth in Section 3.1 (b).
--------- --------
"Current Assets" means, at any time, assets of the Borrower at such
------- ------
time, on a non-consolidated basis, that would be classified as current assets in
accordance with GAAP, including without limitation, cash and inventory (but in
no event in excess of $10,500,000 in net book value, of inventory) and
receivables.
"Current Liabilities" means, at any time. all liabilities of the Borrower at
------- -----------
such time, on a nonconsolidated basis. that would be classified as current
liabilities in accordance with GAAP, including, without limitation, all
Indebtedness of the Borrower payable on demand or maturing within one year of
such time, or renewable at the option of the Borrower for a period of not more
than one year from such time, and all serial maturity and periodic or
installment payments on any Indebtedness, to the extent such payments are
required to be made within one year from such time.
"Current Ratio" means, at any time, all Current Assets divided by the
------- -----
aggregate of all Current Liabilities at such time.
"Default" means any condition or event that constitutes an Event of
-------
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Eligible Acceptance" means an acceptance (i) against the liability
-------- ----------
for which the Bank is not required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System in effect from time to
time, or under any other law or regulation, and (ii) which is eligible for
discount by Federal Reserve Banks.
"Eligible Domestic Accounts Receivable" means an account receivable
-------- -------- -------- ----------
owing to the Borrower which met the following specifications at the time it came
into existence and continues to meet the same until it is collected in full:
(a) The original stated maturity of the account is not more than 90
days after the invoice date thereof, and the account (regardless of its stated
maturity date) does not remain unpaid more than 90 days after such invoice date.
(b) The account arose from the performance of services or an outright
sale of goods by Borrower, such goods have been shipped to the account debtor,
and Borrower has possession of, or has delivered to Bank. shipping and delivery
receipts evidencing such shipment or performance of services.
<PAGE>
-20-
(c) The account is owned solely by the Borrower, and is not subject to
any assignment, claim, lien, or security interest. other than a security
interest in favor of the Bank.
(d) The account is not subject to set-off, credit, allowance or
adjustment by the account debtor, except discount allowed for prompt payment:
the account is not one as to which the account debtor disputes liability or
makes any claim with respect thereto or as to which the Bank believes. in its
sole reasonable discretion, that there is a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or which involves an
account debtor subject to any insolvency proceeding, or becomes insolvent, or
goes out of business.
(e) The account arose in the ordinary course of Borrower's business
and did not arise from the performance of services or a sale of goods to a
supplier or employee of the Borrower.
(f) No notice of bankruptcy or insolvency of the account debtor has
been received by or is known to the Borrower.
(g) The Borrower has pledged any instrument or chattel paper
evidencing the account to the Bank pursuant to the provisions of the Security
Agreement.
(h) Not more than 50% of the aggregate receivables of the account
debtor have remained unpaid for a period of more than ninety (90) days from the
invoice date.
(i) The aggregate accounts receivables from the account debtor
(including its Subsidiaries and any other Affiliates which are known as such by
any member of senior management of the Borrower) do not exceed 25% of the total
Eligible Accounts Receivable of the Borrower; that portion of the account over
the 25% level will be disqualified.
(j) The account does not relate to goods placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional.
(k) The account debtor is not a Subsidiary, officer, employee, agent
of the Borrower or any other Affiliate of the Borrower who is known as such by a
member of senior management of the Borrower.
(i) The account debtor is not a Governmental Authority.
(m) The Borrower does not owe any amounts to the account debtor for
goods sold, services rendered or otherwise; to the extent that any amounts are
so owed, the accounts of such account debtor in an amount equal to the amounts
owed by the Borrower to the account debtor shall be disqualified.
(n) The Bank has not notified the Borrower that the Bank has
determined that an account or account debtor is unsatisfactory for credit
reasons (which determination shall not be made unreasonably).
(o) The account debtor is a person or entity located in the United
States or Canada and the account arose out of services rendered or goods
delivered in the United States or Canada.
"Eligible International Accounts Receivable" means an account receivable owing
-------- ------------- -------- ----------
to the Borrower which met the requirements set forth in clauses (a) through (n)
for Eligible Domestic
<PAGE>
-21-
Accounts Receivable and also the following specifications at the time
it came into existence and continues to meet the same until it is collected in
full:
(a) The account debtor is a Person located outside the United States
and the account arose out of services rendered or goods delivered outside the
United States: and
(b) The obligations of the account debtor under such account are
supported either (i) by a transferable commercial letter of credit or standby
letter of credit issued for the account of the account debtor and for the
benefit of the Borrower by a bank or other financial institution approved by the
Bank in writing, that (A) is payable in the United States. (B) provides for the
full payment to the Borrower or its transferee of such account receivable,
either (x) upon shipment of goods or the provision of services and upon
presentation of documentation that such goods have been shipped or that such
services have been provided, or (y) upon default in payment of such account
receivable in accordance with its terms, and (C) has been delivered and pledged
to the Bank; or (ii) by insurance covering such obligations with terms that have
been approved by the Bank in writing and underwritten by an insurer that has
been approved by the Bank in writing. The Bank reserves the right in its sole
discretion to disapprove a bank, other financial institution or insurer (even if
previously approved) by notice to the Borrower, provided, however, such
disapproval shall not apply to accounts receivable previously included in the
Borrowing Base but only to accounts receivable arising after the effective date
of the notice of disapproval.
"Environmental Laws" means all federal. state, local and foreign laws,
------------- ----
and all regulations, notices or demand letters issued, promulgated or entered
thereunder, relating to pollution or protection of the environment and to
occupational health and safety, including, without limitation, laws relating to
emissions, discharge-s, releases or threatened releases of pollutants,
contaminants, chemicals, or Hazardous Substances into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use. treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended, or any successor statutes.
"Event of Default" has the meaning set forth in Section 8.1.
----- -- -------
"Extension of Credit" shall have the meaning set forth in Section 1.4.
--------- -- ------
"Financial Statements Date" means May 31, 1993.
--------- ---------- ----
"GAAP" means accounting principles generally accepted in the United
----
States applied on a consistent basis.
"Governmental Approvals" shall mean any authorization, consent, order,
------------ ---------
approval, license, lease, ruling, permit, tariff, rate, certification,
validation, exemption, filing or registration by or with, or notice to, any
Governmental Authority.
"Governmental Authority" shall mean any federal, state, municipal or
----------------------
other governmental department, commission, board, bureau, agency, court,
tribunal or other instrumentality, domestic or foreign, and any arbitrator.
"Guarantee by any Person means any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality Gf
the foregoing, any obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or
<PAGE>
-22-
payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or (b) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term Guarantee shall
--------
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" shall mean all hazardous and toxic substances,
--------- ----------
wastes or materials, hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, urea formaldehyde insulation.
radioactive materials. biological substances, PCBs, pesticides, herbicides and
any other kind and/or type of pollutants, or contaminates and/or any other
similar substances or materials which, because of toxic, flammable, explosive,
corrosive, reactive, radioactive or other properties that may be hazardous to
human health or the environment, are included under or regulated by any
Environmental Laws.
"Indebtedness" of any Person at any date shall mean, la) all
-------------
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (excluding current trade liabilities Incurred in
the ordinary course of business and payable in accordance with customary
practices, but including any class of capital stock of such Person with fixed
payment obligations or with redemption at the option of the holder), or which is
evidenced by a note, bond, debenture or similar instrument, (b) all obligations
of such Person under leases that should be treated as capitalized leases in
accordance with GAAP, (c) all obligations of such Person in respect of
acceptances issued or created for the account of such Person, and all
reimbursement obligations (contingent or otherwise) of such Person in respect of
any letters of credit issued for the account of such Person, and (d) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof.
"Intellectual Property" shall have the meaning specified in Section
------------ ---------
5.16.
"Investments" means, with respect to any Person (the "Investor"), (a)
-----------
any investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a partnership
or joint venture interest, loan, time deposit, demand deposit or otherwise and
(b) any Guarantee by the Borrower of any Indebtedness or other obligation of any
other Person.
"Letter of Credit" means any commercial letter of credit or standby
------ -- ------
letter of credit issued by the Bank for the account of the Borrower as provided
in this Agreement.
"Letter of Credit Usage" means, at any time. the aggregate at such
------ -- ------ -----
time of (a) the maximum amount then available to be drawn under all outstanding
Letters of Credit, and (b) all then unreimbursed drawings under any Letters of
Credit.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other). or preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any lease
that should be capitalized in accordance with GAAP, and the filing of a
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction), together with any renewal or extension thereof.
"Line of Credit Commitment" shall have the meaning specified in
---- -- ------ ----------
Section 1.1.
"Line of Credit Loans" shall have the meaning specified in Section
---- -- ------ -----
1.1.
<PAGE>
-23-
"Loan Documents" means, collectively, this Agreement, the Note. the
---- ---------
Financing Statements, the Security Instruments, and all other agreements and
instruments that are from time to time executed in connection with this
Agreement, as each of such agreements and instruments may be amended, modified
or supplemented from time to time.
"Material Adverse Effect" means a material adverse effect on (a) the
-------- ------- ------
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower, (b) the ability of the Borrower to perform its obligations
under this Agreement, the Note or any of the other Loan Documents, (c) the
validity or enforceability of this Agreement, the Note or any of the other Loan
Documents, or the rights or remedies of the Bank hereunder or thereunder. or (d)
the right of the Bank to enforce the payment of accounts against account debtors
in any particular state.
"Multiemployer Plan" means at any time an employee pension benefit
------------- -----
plan within the meaning of Section 4001 (a)(3) of ERISA to which the Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions. including for these purposes any Person which ceased to be a
member of the Controlled Group during such five year period.
"Net Income" or "Net Loss" for any period in respect of which the
--- ------ --- ----
amount thereof shall be determined, shall mean the aggregate of the consolidated
net income (or net loss) after taxes for such period (taken as a cumulative
whole) of the Borrower and its Significant Subsidiaries (if any), determined in
accordance with GAAP.
"Obligations" shall have the meaning given the term "Secured
-----------
Obligations" in the Security Agreement.
"Office of the Bank" shall mean the banking office of the Bank located
------ -- --- ----
at 3000 Lakeside Drive, Santa Clara, California 95054, or such other location of
which the Bank shall notify the Borrower.
"Patent and Trademark Assignment shall have the meaning set forth in
------ --- --------- ----------
Section 3.1 (b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall have the meaning set forth in Section 7.6.
--------- ------
"Person" shall mean and include any individual, firm, corporation,
------
trust or other unincorporated organization or association or other enterprise or
any government or political subdivision, agency, department or instrumentality
thereof.
"Plan" means any employee pension benefit plan which is covered by
----
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a~ maintained by the Borrower or any member of the
Controlled Group for employees of the Borrower or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Borrower or any member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions .
"Prime Rate" shall mean the per annum rate of interest from time to
----------
time announced and made effective by the Bank as its Prime Rate (which rate may
or may not be the lowest rate available from the Bank at any given time).
<PAGE>
-24-
"Purchase Money Indebtedness" shall mean Indebtedness incurred to
-------- ----- ------------
finance the acquisition of assets or the cost of improvements on real property
or leaseholds, in each case in an amount not in excess of the lesser of (a) the
purchase price or acquisition cost of said assets or the cost of said
improvements and (b) the fair market value of said assets or said improvements
on the date of acquisition of said assets or contract for said improvements.
"Purchase Money Security Interest" shall mean (a) a security interest
--------------------------------
securing Purchase Money Indebtedness, which security interest applies solely to
the particular assets acquired with the Purchase Money Indebtedness that said
Purchase Money Security Interest secures, and (b) the renewal, extension and
refunding of such Purchase Money Indebtedness in an amount not exceeding the
amount thereof remaining unpaid immediately prior to such renewal, extension or
refunding.
"Rate Reduction Event" means an event that occurs when the following
---- --------- -----
conditions are satisfied:
(a) the Borrower shall, in any two consecutive fiscal quarters
commencing with the fiscal quarter ending May 31, 1994, have Net Income (on a
non-consolidated basis) in excess of One Dollar ($1.00) for each of such
quarters; and
(b) the Borrower shall have furnished to the Bank financial statements
of the Borrower (on a non-consolidated basis) demonstrating satisfaction of the
condition referred to in clause (a) above. Once a Rate Reduction Event occurs,
------ ---
the reduced rate shall remain in effect until the Commitment Expiration Date.
"Restricted Payment" means, with respect to the Borrower, (a) any
---------- -------
dividend or other distribution on any shares of capital stock of the Borrower
(except dividends payable solely in shares of capital stock or rights to acquire
capital stock of the Borrower, (b) any payment on account of the purchase,
redemption, retirement or acquisition of (i) any shares of the capital stock of
the Borrower or (ii) any option, warrant, convertible security or other right to
acquire shares of the capital stock of the Borrower, other than, in either case,
payments made solely to the Borrower, and (c) any required or optional payment
of any principal of, or premium [or interest] on, or any required or optional
purchase, redemption or other retirement or other acquisition of any
Subordinated Debt.
"SEC" means the Securities and Exchange Commission.
---
"Security Agreement" shall have the meaning set forth in Section
-------- ---------
3.1 (a).
"Security Instruments" means, collectively. the Security Agreement,
-------- -----------
the Copyright Mortgage, the Patent and Trademark Assignment, and each other
instrument or agreement that purports to secure the Obligations of the Borrower
to the Bank.
"Significant Subsidiary" means any Subsidiary of the Borrower which is
----------- ----------
organized under the laws of, or has its principal place of business in, a state
or commonwealth of the United States.
"Subordinated Debt" means Indebtedness of the Borrower that is
------------ ----
subordinated to the Indebtedness of the Borrower owing to the Bank either (a)
pursuant to a subordination agreement in form and substance satisfactory to the
Bank between the Bank and the holder(s) of such Indebtedness, or (b) pursuant to
the terms thereof, where the Bank has confirmed in writing that such terms are
satisfactory to it.
"Subsidiary" means, with respect to any Person, any corporation or
----------
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board
<PAGE>
-25-
of directors or other Persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Tangible Net Worth" means, at any time, the consolidated
-------- --- -----
stockholders' equity of the Borrower and its Significant Subsidiaries. if any.
at such time determined in accordance with GAAP, less all assets that are
----
reflected on the consolidated balance sheet of the Borrower at such time that
would be treated as intangibles under GAAP (including. but not limited, to
goodwill, capitalized software development costs and excess purchase costs as
well as all inter-company notes receivable and all Investments in Subsidiaries),
plus all then outstanding Subordinated Debt and all inter-company trade
- ----
receivables.
"Total Senior Liabilities" means, at any time, the consolidated
----- ------ -----------
liabilities of the Borrower and its Significant Subsidiaries, if any, at such
time, determined in accordance with GAAP, less all then outstanding Subordinated
----
Debt.
"UCC" shall have the meaning given such term in the Security
---
Agreement.
"Unfunded Liabilities" means, with respect to any Plan, at any time.
-------- -----------
the amount (if any) by which (a) the present value of all benefits under such
Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of the Borrower or any member of the Controlled Group to the PBGC or such Plan
under Title IV of ERISA.
Section 10 Miscellaneous.
------- -- --------------
10.1 Accounting Terms and Definitions. Unless otherwise specified
---------- ----- --- ------------
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP;
provided that if any change in GAAP in itself materially affects the calculation
- --------
of any financial covenant in this Agreement, the Borrower may by notice to the
Bank. or the Bank may by notice to the Borrower, require that such covenant
thereafter be calculated in accordance with GAAP as in effect, and applied by
the Borrower, immediately before such change in GAAP occurs. If such notice is
given, the compliance certificates delivered pursuant to Section 6.4(c) after
such change occurs shall be accompanied by reconciliations of the difference
between the calculation set forth therein and a calculation made in accordance
with GAAP as in effect from time to time after such change occurs. To enable the
ready determination of compliance with the covenants set forth in this
Agreement, the Borrower will not change the date on which its fiscal year or any
of its fiscal quarters end without the prior consent of the Bank.
10.2 Amendments. Etc. No amendment or waiver of any provision of this
----------- ---
Agreement or the Note, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Bank and the Borrower and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
10.3 Notices. Etc. All notices and other communications provided for
-------- ---
hereunder shall be in writing and shall be delivered by hand, by a nationally
recognized commercial overnight delivery service, by certified, return receipt
requested. first class mail or by telecopy, delivered, addressed or transmitted,
if to the Borrower, at its address at 60 Silvermine Road, Seymour, Connecticut
06483, Attention David Osowski, Telecopy No. (203) 881-5370 with a copy to the
Borrower at 8500 Cameron Road. Austin, Texas 78754, Attention: David Osowski and
Clifford Maxwell, Telecopy No. (512) 339-1490; and if to the Bank, at its
address at Wellesley Office Park, 45 Williams Street, Wellesley, Massachusetts
02181, Attention: James C. Maynard, Assistant Vice President, Telecopy No. (617)
431-9906; or, as to each party. at such other address as shall be
<PAGE>
-26-
designated by such party in a written notice to the other party. All such
notices and communications shall be deemed effective. (a) in the case of hand
deliveries. when delivered; (b) in the case of an overnight delivery service, on
the next Banking Day after being placed in the possession of such delivery
service, with delivery charges prepaid: (c) in the case of mail, upon delivery
of the signed receipt to the sender; and (d) in the case of telecopy notices,
when electronic indication of receipt is received, except that notices to the
Bank pursuant to the provisions of Section 1.6 shall not be effective until
received by the Bank.
10.4 No Waiver; Remedies. No failure on the part of the Bank to
-- ------- ---------
exercise, and no delay in exercising, any right hereunder or under the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder or under the Note preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.5 Right of Set-off. (a) Upon the occurrence and during the
----- -- --------
continuance of any Event of Default, the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special. time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank to
or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Note, irrespective of whether or not the Bank shall have made any demand
hereunder and although such obligations may be contingent or unmatured.
(b) The Bank agrees promptly to notify the Borrower after any such
set-off and application, provided that the failure to give such notice shall not
--------
affect the validity of such set-off and application. The rights of the Bank
under this Section 10.5 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Bank may have.
10.6 Expenses; Indemnification. (a) The Borrower shall pay on demand
--------- ---------------
(i) the reasonable fees and disbursements of counsel to the Bank in connection
with the preparation of this Agreement and the preparation or review of each
agreement, opinion, certificate and other document referred to in or delivered
pursuant hereto; (ii) all reasonable out-of-pocket costs and expenses of the
Bank in connection with the administration of this Agreement and the other Loan
Documents, and any waiver or amendment of any provision hereof or thereof,
including without limitation, the reasonable fees and disbursements of counsel
for the Bank, and of any field examiner or auditor retained by the Bank as
contemplated in Section 6.8; and (iii) if any Event of Default occurs, all
reasonable costs and expenses incurred by the Bank, including the reasonable
fees and disbursements of counsel to the Bank, and of any appraisers,
environmental engineers or consultants, or investment banking firms retained by
the Bank in connection with such Event of Default or collection, bankruptcy,
insolvency and other enforcement proceedings related thereto. The Borrower
agrees to pay, indemnify and hold the Bank harmless from, any and all recording
and filing fees, and any and all liabilities with respect to, or resulting from
any delay in paying, stamp, excise or other taxes, if any, which may be payable
or determined to be payable in connection with the execution and delivery of or
the consummation or administration of any of the transactions contemplated by,
or any amendment, supplement or modification of, or any waiver or consent under
or in respect of, this Agreement or the other Loan Documents, or any documents
delivered pursuant hereto or thereto.
(b) The Borrower agrees to indemnify the Bank and its officers and
directors and hold the Bank and its officers and directors harmless from and
against any and all liabilities, losses. damages, costs and expenses of any kind
(including, without limitation, the reasonable fees and disbursements of counsel
for the Bank in connection with any investigative, administrative or judicial
proceeding initiated by a third party and involving the Bank in any way, whether
as a party defendant, a deponent or as a source of records and information,
which may be incurred by the Bank, relating to or arising out of this Agreement
or any other Loan Document, or the existence of
<PAGE>
-27-
any Hazardous Substance on, in, or under any Borrower Property, or any violation
of any applicable Environmental Laws for which the Borrower or any Subsidiary
thereof has any liability or which occurs upon any Borrower Property, or the
imposition of any Lien under any Environmental Laws, provided that the Bank
--------
shall not have the right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
(c) The agreements in this Section 10.6 shall survive the repayment of
the Note, and all other amounts payable under this Agreement and the other Loan
Documents.
10.7 Binding Effect. This Agreement shall become effective when it
------- -------
shall have been executed by the Borrower and the Bank (provided. however, in no
event shall any Extension of Credit be available until this Agreement is signed
by an officer of the Bank in California) and thereafter shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may assign to any financial institution all or any
part of, or any interest (undivided or divided) in, the Bank's rights and
benefits under this Agreement or the Note, and to the extent of that assignment
such assignee shall have the same rights and benefits against the Borrower
hereunder as it would have had if such assignee were the Bank making the Line of
Credit Loans hereunder.
10.8 Severability. Any provision of this Agreement which is
-------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction .
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
--------- ---
IN ACCORDANCE WITH, THE LAWS Of THE COMMONWEALTH Of MASSACHUSETTS.
10.10 WAIVER Of JURY TRIAL. THE BANK AND THE BORROWER AGREE THAT
------ -- ---- -----
NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT
OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR
THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE
BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
10.11 VENUE, CONSENT TO SERVICE OF PROCESS. THE BORROWER ACCEPTS FOR
------ ------- -- ------- -- --------
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE Of CALIFORNIA OR THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT, THE NOTE, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL
JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN
WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER PROVIDED,
SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE EXTENT
THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION,
AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT,
<PAGE>
-28-
THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION.
THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN
ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF
THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL
PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
10.12 Headings. Section headings in this Agreement are included herein
---------
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.13 Counterparts. This Agreement may be signed in one or more
------------
counterparts each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.,
SUMMAGRAPHICS CORPORATION
By: /s/ Clifford Maxwell
-----------------------------
Name:
Title: Assistant Treasurer
SILICON VALLEY EAST, a Division of
Silicon Valley Bank
By: /s/ James C. Maynard
-----------------------------
Name: James C. Maynard
Title: Asst. Vice President
SILICON VALLEY BANK
By: /s E. Guiels
-----------------------------
Name: E. Guiels
Title: Operations Officer
(Signed at Santa Clara,
California)
<PAGE>
Schedule A to the Credit Agreement
Restricted Payments - reference 5.6(c) -- the Borrower has retired $2.5 million
of Subordinated Debt since the Financial Statements Date
Subsidiaries -- reference 5.10 -- See list below
Taxes -- reference 5.14 -- the Borrower is currently undergoing a federal income
tax audit by the Internal Revenue Service for the fiscal year ended May 31,
1991. No Material Adverse Effect is anticipated.
Intellectual Property - reference 5.16 See attachment A. The Borrower also owns
a 50% interest in U.S. Patent #4,839,634 in the name of More, et al. The
interest is not transferable without the approval of the owner of the other 50%
interest.
Existing Indebtedness--reference 7.5
(b) capital lease obligations (at 6/30/94)--$835k
(c) letters of credit (at 7/18/94) $423K
Existing Liens - reference 7.6(f) -- See Liens identified in Perfection
Certificate search
List of Subsidiaries:
Summagraphics, N.V.
Corporation organized under the laws of and headquartered in Belgium.
European manufacturing and distribution company.
Summagraphics Europe, N.V.
Corporation organized under the laws of and headquartered in Belgium.
European sales company.
Summagraphics, Ltd.
Corporation organized under the laws of and headquartered in Belgium.
Provides repair and support services to European customers.
Summagraphics, Gmbh.
Corporation organized under the laws of and headquartered in Germany.
German sales company.
<PAGE>
EXHIBIT 10.24
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (hereinafter referred to as "Agreement" or " Security
Agreement"), made this 13th day of December, 1994, by and between Summagraphics
Corporation, a Delaware corporation ("Debtor") whose business address is 8500
Cameron Road, Austin, Texas 78754 and Heller Financial, Inc., a Delaware
corporation, ("Secured Party") whose address is Heller Financial, Inc.,
Commercial Equipment Finance Division, 900 Circle 75 Parkway, Suite 1600,
Atlanta, Georgia 30339.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of up
------ --------
to two million five hundred thousand dollars ($2,500,000) as evidenced by one or
more note or notes (the "Notes"), which Debtor has executed and delivered and
will execute and deliver to Secured Party and also to secure any other
indebtedness or liability of Debtor to Secured Party, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
including all future advances or loans which may be made at the option of
Secured Party (all the foregoing hereinafter called the "Indebtedness"), Debtor
hereby grants and conveys to Secured Party a first superior continuing lien and
security interest in the property described below and/or on the Schedule(s)
attached hereto (the "Schedules"), all products and proceeds (including
insurance proceeds) thereof, if any, and all increases, substitutions,
replacements, attachments, additions, and accessions thereto, all or any of the
foregoing hereinafter called the "Collateral" .
(DESCRIPTION OF COLLATERAL ON ATTACHED SCHEDULES. THE SCHEDULES MAY BE
SUPPLEMENTED FROM TIME TO TIME TO EVIDENCE THE COLLATERAL, SUBJECT TO THIS
AGREEMENT.)
Secured Party will make up to two million five hundred thousand dollars
($2,500,000) in financing available. There will be no more than ten (10)
fundings, with all fundings to occur by May 31, 1995. Ten days prior to each
funding, Debtor must submit to Secured Party the Loan Request Certificate that
sets forth there is no default hereunder, and that each of the covenants and
conditions contained herein have been satisfied. Second Party has no obligation
to make additional advances if there is an Event of Default hereunder.
2. Warranties and Representations. Debtor warrants, represents, and agrees as
---------- --- ----------------
follows:
(a) Perform Obligations. Debtor shall pay all of the Indebtedness secured by
------- -----------
this Agreement and perform all of the obligations contained in this Agreement
according to its terms. Debtor shall use the loan proceeds primarily for
business uses and not for personal, family, household, or agricultural uses.
(b) Defend the Collateral. Debtor shall defend the title to the Collateral
------ --- -----------
against all persons and against all claims and demands whatsoever, which
Collateral, except for the security interest granted hereby, is lawfully owned
by Debtor and is now free and clear of any and all liens, security interests,
claims, charges, encumbrances, taxes, and assessments of any kind, except as may
be set forth on the Schedules. At the request of Secured Party, Debtor shall
furnish adequate assurance of title, execute any written agreement or do any
other acts reasonably necessary to
1
<PAGE>
effectuate the purposes and provisions of this Agreement, execute any instrument
or statement required by law or otherwise in order to perfect, continue, or
terminate the security interest of Secured Party in the Collateral and pay all
reasonable costs of filing in connection therewith.
(c) Keep Possession of the Collateral. Debtor shall retain possession of the
---- ---------- -- --- -----------
Collateral until the Indebtedness is fully paid and performed and shall not
sell, exchange, assign, loan, deliver, lease, mortgage, or otherwise dispose of
the Collateral or any part thereof without the prior written consent of Secured
Party. Debtor shall keep the Collateral at the location specified on the
Schedules and shall not remove same (except in the usual course of business for
temporary periods) without the prior written consent of Secured Party.
(d) Collateral Free and Clear. Debtor shall keep the Collateral free and clear
---------- ---- --- ------
of all liens, charges, encumbrances, assessments, and other security interests
of any kind and shall pay, when due, all taxes, assessments, and license fees
relating to the Collateral.
(e) Collateral in Good Operating Order. All of the Collateral is in good
---------- -- ---- --------- ------
operating order, condition and repair and is used or useful in the business of
Debtor. Debtor shall keep the Collateral, at Debtor's sole cost and expense, in
good repair and condition and not misuse, abuse, waste, or allow it to
deteriorate except for normal wear and tear. Debtor shall make the Collateral
available for inspection by Secured Party at all reasonable times, and Debtor
will use and maintain the Collateral in a lawful manner in accordance with all
applicable laws, regulations, ordinances, and codes.
(f) Insurance. Debtor shall insure the Collateral against loss by fire
---------
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed $50,000.00
per occurrence and without co-insurance. The insurance policy shall name Secured
Party as loss payee and additional insured. In addition, Debtor shall, if
Secured Party so requests, obtain liability insurance, including automobile if
the Collateral includes motor vehicles, respecting the Collateral covering
liability for bodily injury, including death and property damage, in an amount
of at least $5,000,000 per occurrence or such greater amount as may comply with
general industry standards. Policies shall be in such form, amounts, and with
such companies as Secured Party may approve; shall provide for at least thirty
(30) days prior written notice to Secured Party prior to any modification or
cancellation thereof; shall be payable to Debtor and Secured Party as their
interests may appear; shall waive any claim for premium against Secured Party;
and shall provide that no breach of warranty or representation or act or
omission of Debtor shall terminate, limit or affect the insurers' liability to
Secured Party. Certificates of insurance or policies evidencing the insurance
required hereby, shall be delivered to Secured Party who is authorized, but
under no duty, to obtain such insurance upon failure of Debtor to do so. Debtor
shall give immediate written notice to Secured Party and to insurers of loss or
damage to the Collateral and shall promptly file proofs of loss with insurers.
Debtor hereby irrevocably appoints Secured Party, after an Event of Default, as
Debtor's attorney-in-fact, coupled with an interest, for the purpose of
obtaining, adjusting and canceling (cancellation relating to policies assigned
Heller) any such insurance and endorsing settlement drafts. Debtor hereby
assigns to Secured Party, as additional security for the Indebtedness, all sums
which may become payable under such insurance, including return premiums and
dividends.
2
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(g) Complete Information. The information set forth herein and on the Schedules
-------- -----------
is complete and accurate, and Debtor shall immediately notify Secured Party in
writing of any material change in the information set forth herein and on the
Schedules.
(h) If Collateral Attaches to Real Estate. If the Collateral or any part thereof
-- ---------- -------- -- ---- ------
has been attached to or is to be attached to real estate, a description of the
real estate and the name and address of the record owner is set forth on the
Schedules. If said Collateral is attached to real estate prior to the perfection
of the security interest granted hereby, Debtor will, on demand of Secured
Party, furnish Secured Party with a disclaimer or waiver of any interest in the
Collateral satisfactory to Secured Party and signed by all persons having an
interest in the real estate. Notwithstanding the foregoing, the Collateral shall
remain personal property and shall not be affixed to realty without the prior
written consent of Secured Party.
(i) Financial Statements. Debtor shall deliver to Secured Party its 10-K and
--------- -----------
independent outside audited annual financial statements, compliance certificate,
and covenant calculation worksheet within one hundred twenty (120) days after
the end of Debtor's fiscal years and shall furnish, within sixty (60) days after
the end of each quarter, its lO-Qs and quarterly uncertified financial
statements of Debtor, compliance certificate, and covenant calculation
worksheet. Debtor shall within twenty (20) days of any filing, provide Secured
Party with any material SEC filings. Debtor shall certify that all financial
information and statements provided to Secured Party fairly present the
financial condition of Debtor at the date thereof.
(j) Perfection. This Agreement creates a valid and first priority security
----------
interest in the Collateral, securing the payment and performance of the
Indebtedness and all actions necessary to perfect and protect such security
interest have been duly taken. Without limitation of the foregoing, all
Collateral which, under applicable law, is required to be registered is properly
registered in the name of Debtor; and all Collateral the ownership of which,
under applicable law, is evidenced by a certificate of title, is properly titled
in the name of Debtor. On or before the date hereof, Debtor shall have caused
all certificates of title and registrations evidencing Debtor's ownership of
such Collateral then in existence to have been noted to indicate the existence
of Secured Party's first priority security interest thereon and returned to
Secured Party, together with appropriate applications or similar documents, for
recordation or re-registration, as appropriate. Hereafter, if, as and to the
extent Debtor acquires any such Collateral in the nature of substitutions for,
or replacements of, Collateral existing on the date hereof, to the extent
authorized or permitted hereby, in which its ownership is likewise to be
evidenced by a certificate of title or similar registration, Debtor shall cause
such notation to appear thereon forthwith upon its issuance and forthwith
deliver same to Secured Party, together with appropriate applications or similar
documents, for recordation or re-registration, as appropriate.
(k) Authorization. Debtor is now, and will at all times remain, duly licensed,
-------------
qualified to do business and in good standing in every jurisdiction where
failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. Debtor has the
power to authorize, execute and deliver this Security Agreement, the Notes and
the other documents relating thereto (the Security Agreement, Notes and other
documents, all as amended from time to time, are hereafter collectively referred
to as the "Loan Documents"), to incur and perform obligations hereunder and
thereunder, and to grant the security interests
3
<PAGE>
created hereby. The Loan Documents have been duly authorized, executed, and
delivered by or on behalf of Debtor, and constitute the legal, valid, and
binding obligations of Debtor and are enforceable against Debtor in accordance
with their respective terms. Debtor will preserve and maintain its existence and
will not wind up its affairs or otherwise dissolve. Debtor will not, without
thirty (30) days prior written notice to Secured Party, (l) change its name or
so change its structure such that any financing statement or other record notice
becomes misleading or (2) change its principal place of business or chief
executive or accounting offlces from the address stated herein.
(I) Litigation. There are no actions, suits, proceedings, or investigations
-----------
("Litigation") pending or, to the knowledge of Debtor, threatened against Debtor
that would have a material adverse effect on the company, and no litigation
other than as disclosed in public filings or, in any event, nothing since those
filings that to the knowledge of Debtor would have a material adverse effect on
the company . Debtor is not in violation of any material term or provision of
its by-laws, or of any material agreement or instrument, or of any judgment,
decree, order, or any statute, rule, or governmental regulation applicable to
it. The execution, delivery, and performance of the Loan Documents do not and
will not violate, constitute a default under, or otherwise conflict with any
such term or provision or result in the creation of any security interest, lien,
charge, or encumbrance upon any of the properties or assets of Debtor, except
for the security interest herein created. Debtor will promptly notify Secured
Party in writing of Litigation against it if: (l) the outcome of such Litigation
may materially or adversely affect the finances or operations of Debtor or (2)
such Litigation questions the validity of any Loan Document or any action taken
or to be taken pursuant thereto. Debtor shall furnish to Secured Party such
information regarding any such Litigation as Secured Party shall reasonably
request. For the purpose of this Section 2(1) Litigation, one million dollars
($1,000,000) shall be deemed material.
(m) Compliance with Laws. Debtor shall comply in all material respects with all
---------- ---- ----
applicable laws, rules, and regulations and duly observe all valid requirements
of all governmental authorities, and all statutes, rules and regulations
relating to its business, including, without limitation, those concerning public
and employee health, safety, and social security and withholding taxes and those
concerning employee benefit plans and as such may be required by the Internal
Revenue Code, as amended from time to time ("the Code") and the Employees
Retirement Income Security Act of 1974 as amended from time to time ("ERISA").
With respect to any "multiple employer plan" or "single employer plan" as
defined in ERISA (collectively, "Plans"), Debtor will not knowingly: (i) incur
any liability to the Pension Benefit Guaranty Corporation ("PBGC"); (ii)
participate in any prohibited transaction involving any of such Plans or any
trust created thereunder which would subject Debtor to a tax or penalty on
prohibited transactions imposed under the Code or ERISA; (iii) fail to make any
contribution which it is obligated to pay under the terms of such Plan; (iv)
allow or suffer to exist any occurrence of a "reportable event", or any other
event or condition which presents a risk of termination by the PBGC of any such
Plan; or (v) incur any withdrawal liability with respect to any Plan which is
not fully bonded.
(n) Taxes. Debtor has timely filed all tax returns (federal, state, local, and
------
foreign) required to be filed by it and has paid or established reserves for all
taxes, assessments, fees, and other governmental charges upon its properties,
assets, income and franchises. Debtor does not know
4
<PAGE>
of any actual or proposed additional tax assessments for any fiscal period
against it which would have a material adverse effect on it. Debtor will
promptly pay and discharge all taxes, assessments, and other governmental
charges prior to the date on which penalties are attached thereto, establish
adequate reserves for the payments of such taxes, assessments, and other
governmental charges, make all required withholding and other tax deposits, and,
upon reasonable request, provide Secured Party with receipts or other proof that
any or all of such taxes, assessments, or governmental charges have been paid in
a timely fashion; provided, however, that nothing contained herein shall require
the payment of any tax, assessment, or other governmental charge so long as its
validity is being contested in good faith and by appropriate proceedings
diligently conducted. Should any stamp, excise, or other tax, including
mortgage, conveyance, deed, intangible, or recording taxes become payable in
respect of this Security Agreement, the Notes, or any other Loan Documents,
Debtor shall pay the same (including interest and penalties, if any) and shall
hold Secured Party harmless with respect thereto.
(o) Labor Laws. Debtor is in compliance with the Fair Labor Standards Act.
----- -----
Debtor is not engaged in any unfair labor practice which would have a material
adverse effect on it. There are: (l) no unfair labor practice complaints pending
or, to the best knowledge of Debtor, threatened against Debtor before the
National Labor Relations Board and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements are pending or, to the
best knowledge of Debtor, threatened; (2) no strikes, work stoppages, or
controversies pending or threatened between Debtor and any of its employees; and
(3) no union organizing activities known to be taking place.
(p) Environmental Laws. Debtor has complied and will comply in all material
------------- -----
respects with all Environmental Laws applicable to the transfer, construction
on, and operations of its property and business. Debtor has (l) not received any
summons, complaint, order, or similar notice that it is not in compliance with,
or that any public authority is investigating its compliance with, any
Environmental Laws and (2) no knowledge of any material violation of any
Environmental Laws on or about its assets or property. Debtor will comply, in
all material respects with all Environmental Laws and provide Secured Party,
upon reasonable request, copies of any correspondence, notice, complaint, order,
or other document that it receives asserting or alleging a circumstance or
condition which requires or may require a cleanup, removal, remedial action or
other response by or on the part of Debtor under Environmental Laws, or which
seeks damages or civil, criminal or punitive penalties from Debtor for an
alleged violation of any Environmental Laws. Debtor will advise Secured Party in
writing as soon as Debtor becomes aware of any condition or circumstance that
makes the environmental representations or warranties contained in this
Agreement inaccurate in any material respect. For purposes of this Security
Agreement, "Environmental Laws" means all federal, state, and local laws, rules,
regulations, orders, and decrees relating to health, safety, hazardous
substances, and environmental matters, including, without limitation, the
Resource Recovery and Reclamation Act of 1976, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Toxic Substances Control
Act, the Clean Water Act of 1977, and the Clean Air Act, all as amended from
time to time.
(q) Setoff. Without limiting any other right of Secured Party, whenever Secured
------
Party has the right to declare any Indebtedness to be immediately due and
payable (whether or not it has so declared), Secured Party is hereby authorized
at any time and from time to time to the fullest
5
<PAGE>
extent permitted by law, to set off and apply against any and all of the
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party in any capacity, whether or not the obligation to pay such monies owed by
Secured Party is then due. Secured Party shall be deemed to have exercised such
right of set-off immediately at the time of such election even though any charge
therefor is made or entered on Secured Party's records subsequent thereto.
(r) Regulations. No proceeds of the loans or any other financial accommodation
------------
hereunder will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, as that term is defined in Regulations G, T, U, X
of the Board of Governers of the Federal Reserve System.
(s) Books and Records. Debtor shall maintain, at all times, true and complete
----- --- --------
books, records and accounts in which true and correct entries are made of its
transactions in accordance with GAAP and consistent with those applied in the
preparation of Debtor's financial statements. At all reasonable times, upon
reasonable advance notice, and during normal business hours, Debtor will permit
Secured Party or its agents to audit, examine and make extracts from or copies
of any of its books, ledgers, reports, correspondence, and other records
relating to the Equipment. Secured Party may verify any Collateral in any
reasonable manner which Secured Party may consider appropriate, and Debtor shall
furnish all reasonable assistance and information and perform any acts which
Secured Party may reasonably request in connection therewith.
(t) Indemnity. Debtor shall indemnify, defend, protect and hold Secured Party,
----------
its parent, officers, directors, agents, employees, and attorneys harmless from
and against any loss, expense (including reasonable attorneys' fees and costs),
damage or liability arising directly or indirectly out of (i) any breach of any
representation of the Debtor, warranty or covenant contained herein and in the
other Loan Documents, (ii) any claim or cause of action that would deny Secured
Party the full benefit or protection of any provision herein and in the Loan
Documents, and (iii) the ownership, possession, lease, operation, use,
condition, sale, return, or other disposition of the Collateral. If after
receipt of any payment of all or any part of the Indebtedness, Secured Party is
for any reason compelled to surrender such payment to any person or entity,
because such payment is deterrnined to be void or voidable as a preference by an
entity having legal jurisdiction over such matters, impermissible set-off, or a
diversion of trust funds, or for any other reason having the effect or force of
law, this Security Agreement and the Loan Documents shall continue in full force
and effect and Debtor shall be liable to Secured Party for the amount of such
payment surrendered. The provisions of the preceding sentence shall be and
remain effective notwithstanding any contrary action which may have been taken
by Secured Party in reliance upon such payment for a period of one year from the
date of such payment, and any such contrary action so taken shall be without
prejudice to Secured Party's rights under this Security Agreement and shall be
deemed to have been conditioned upon such payment having become final and
irrevocable. Additionally, Debtor will pay or reimburse Secured Party for any
and all reasonable costs and expenses incurred in connection herewith,
including, but not limited to, attorneys' fees, filing fees, search fees, and
lien recordation. The provisions of this paragraph shall survive the termination
of this Security Agreement and the Loan Documents.
6
<PAGE>
(u) Collateral Documentation. Debtor shall deliver to Secured Party prior to
---------- --------------
each funding and prior to any and all advances or loans, satisfactory
documentation regarding the Collateral to be financed, including, but not
limited to, such invoices, canceled checks and cost verifications evidencing
payments, current financial statements, or other documentation as may be
reasonably requested by Secured Party. Debtor shall deliver, prior to the first
funding, a fully executed copy of Debtor's current Lending and Banking
Agreement, current financial statements consistent with the covenants of this
Agreement, and any Landlord Waivers or Consents that Secured Party may
reasonably request. Prior to any funding in excess of five hundred thousand
dollars ($500,000), Debtor will deliver to Secured Party the first quarter of
fiscal 1995 lO-Q for period ending August 31, 1994. Debtor will permit Secured
Party to perform a physical site inspection of the Collateral prior to each
funding and from time to time thereafter, as reasonably requested by Secured
Party. Additionally, prior to each funding Debtor must satisfy Secured Party
with current financial statements and compliance certificates restating each of
the warranties and representations herein, and that they are true and correct on
the date thereof and that Debtor's business and financial information is as has
been represented and there has been no material change in Debtor's business,
financial condition, or operations.
(v) Financial Covenants. (i) Debtor will maintain a Consolidated Net Worth of
--------- ----------
not less than twenty million dollars ($20,000,000)at the end of each fiscal
quarter; (ii) Debtor will at all times maintain a Debt Service Coverage Ratio of
not less than 1.5 to 1.0 on a rolling twelve (12) month basis measured at the
end of each fiscal quarter. Debt Service Coverage Ratio is defined as the ratio
of EBITDA to Total Debt Service. EBITDA is defined as earnings before interest,
income, tax, depreciation and amortization. Total Debt Service is defined as
total interest expense plus the current maturities of long-term debt and current
portion of obligations under capital leases. Consolidated Net Worth shall have
the meaning found in GAAP.
(w) Prohibition on Dividends and Distributions. Debtor will not, as long as
----------- -- --------- --- --------------
there is an Event of Default hereunder, or if such distribution or dividend
would create an Event of Default hereunder, make, directly or indirectly, any
distribution, advance, or dividend to any shareholder, officer, director, or
affiliate of Debtor. Debtor is permitted, in the ordinary course of business, to
make travel or other advances up to $100,000 in the aggregate without Secured
Party's consent.
3. Prepayment. Debtor may prepay the Indebtedness in whole upon forty-five (45)
----------
days prior written notice to Secured Party, provided, however, that Debtor pays
a prepayment fee as liquidated damages and not as a penalty, a sum equal to the
following percentages of the principal amount prepaid; 2% in Loan Year 1 and 1%
in Loan Years 2 and 3. The phrase "Loan Year" as used herein shall mean each
twelve (12) consecutive months commencing on the date of the initial funding of
each Note. In addition, Debtor shall pay the amount equal to the present value,
as of the date of the prepayment, of all installments of principal and interest
which are avoided by such prepayment, determined by discounting such payments of
principal and interest at a rate per annum equal to the T-Note at the time of
prepayment plus 325 (3.25%) basis points, minus the principal amount to be
prepaid.
4. Events of Default. If any one of the following events (each of which is
------ -- --------
herein called an "Event of Default") shall occur: (a) Debtor defaults in the
payment, when due, of any Indebtedness after ten (10) days written notice from
Secured Party, or (b) any warranty or representation of Debtor
7
<PAGE>
is untrue or inaccurate or Debtor breaches any warranty or representation
hereunder, and said event remains uncured or unremedied for ten (10) days
thereafter, or (c) Debtor breaches or defaults in the performance of any other
agreement or covenant hereunder, and said event remains uncured or unremedied
for ten (10) days thereafter, or (d) Debtor shall default in the payment or
performance of any debt or other obligation owed by it, under that certain
Credit Agreement with Silicon Valley Bank, its successors or assigns, including
any amendments, substitutions, or replacement financings with other financial
institutions or (e) Debtor becomes insolvent, makes an assignment for the
benefit of creditors or ceases to continue as a going business, or (g) Debtor
shall file a voluntary petition in bankruptcy or answer-seeking liquidation,
reorganization arrangement or readjustment of its debts, or for any other relief
under the Bankruptcy Code, or any other act or law pertaining to insolvency or
Debtor relief where there has been filed against Debtor, an involuntary petition
of bankruptcy, seeking liquidation, reorganization, arrangement, or readjustment
of its debts, or for any other relief under the Bankruptcy Code or under any
other act or law pertaining to insolvency or Debtor relief, unless in such case
of an involuntary action, the appointment of process is fully bonded against,
vacated or dismissed within thirty (30) days of its effective date, but not less
than twenty (20) days prior to any proposed disposition of assets pursuant to
such proceeding, or (h) a petition is filed by or against Debtor under the
Bankruptcy Code or any amendment thereto or under any other insolvency law or
laws providing for the relief of debtors, or (i) if there is a material adverse
change in the business or financial condition of Debtor then, and in any such
event, Secured Party shall have the right to exercise any one or more of the
remedies hereinafter provided.
5. Remedies. If an Event of Default shall occur, in addition to all rights and
--------
remedies of a secured party under the Uniform Commercial Code, Secured Party
may, at its option, at any time (a) declare the entire unpaid Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter into the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; and
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS IF ANY TO (l) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store, and repair the
Collateral so removed and sell any or all of it at a public or private sale or
sales. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will give Debtor reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made, it being understood and agreed that Secured
Party may be a buyer at any such sale and Debtor may not, either directly or
indirectly, be a buyer at any such sale. The requirements, if any, for
reasonable notice will be met if such notice is sent pursuant to paragraph 10
hereof to Debtor at its address shown above, at least five (5) days before the
time of sale or disposition. Debtor shall also be liable for and shall upon
demand pay to Secured Party all reasonable expenses incurred by Secured Party in
connection with the undertaking or enforcement by Secured Party of any of its
rights or remedies hereunder or at law, including, but not limited to, all
expenses of repossessing, storing, shipping, repairing, selling or otherwise
disposing of the Collateral and legal expenses, including reasonable attorneys'
fees, all of which costs and expenses shall be additional Indebtedness hereby
secured. After any such sale
8
<PAGE>
or disposition, Debtor shall be liable for any deficiency of the Indebtedness
remaining unpaid, with interest thereon at the rate set forth in the related
Note.
6. Cumulative Remedies. All remedies of Secured Party hereunder are cumulative,
---------- --------
are in addition to any other remedies provided for by law or in equity and may,
to the extent permitted by law, be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed an election of such remedy or to
preclude the exercise of any other remedy. No failure on the part of Secured
Party to exercise, and no delay in exercising any right or remedy, shall operate
as a waiver thereof or in any way modify or be deemed to modify the terms of
this Security Agreement and the other Loan Documents or the Indebtedness, nor
shall any single or partial exercise by Secured Party of any right or remedy
preclude any other or further exercise of the same or any other right or remedy.
7. Assignment. Secured Party may transfer or assign this Security Agreement, the
-----------
Note, or the Indebtedness and the other Loan Documents either together or
separately without releasing Debtor or the Collateral, and upon such transfer or
assignment the assignee or holder shall be entitled to all the rights, powers,
privileges and remedies of Secured Party to the extent assigned or transferred.
The obligations of Debtor shall not be subject, as against any such assignee or
transferee, to any defense, set-off, or counter-claim available to Debtor
against Secured Party and any such defense, set-off, or counter-claim may be
asserted only against Secured Party.
8. Time is of the Essence. Time and manner of performance by Debtor of its
---- -- -- --- --------
duties and obligations under this Security Agreement, the Notes, and the other
Loan Documents is of the essence. If Debtor shall fail to comply with any
provision of this Security Agreement and the other Loan Documents, Secured Party
shall have the right, but shall not be obligated, to take action to address such
non-compliance, in whole or in part, and all moneys reasonably spent and
expenses reasonably incurred and reasonable obligations incurred or assumed by
Secured Party shall be paid by Debtor upon demand and shall be added to the
Indebtedness. Any such action by Secured Party shall not constitute a waiver of
Debtor's default.
9. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
-----------
WITH THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS. AT SECURED PARTY'S
ELECTION AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE AN ACTION IN ANY
OTHER JURISDICTION, DEBTOR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND
VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF
ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE
BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED POSTAGE PREPAID, DIRECTED TO THE
LAST KNOWN ADDRESS OF DEBTOR, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN
(10) DAYS AFTER THE DATE OF MAILING THEREOF.
10. Further Assurance; Notice. Debtor shall, at its expense, do, execute and
------- ---------- -------
deliver such further acts and documents as Secured Party may from time to time
reasonably require to assure and confirm the rights created or intended to be
created hereunder to carry out the intention or facilitate the performance of
the terms of this Security Agreement and the Loan Documents or to assure the
validity, perfection, priority or enforceability of any security interest
created hereunder. Debtor agrees, after an Event of Default, to execute any
instrument or instruments necessary or expedient for filing, recording,
perfecting, notifying, foreclosing, and/or liquidating of Secured
9
<PAGE>
Party's interest in the Collateral upon request of, and as determined by,
Secured Party, and Debtor hereby specifically authorizes Secured Party to
prepare and file Uniform Commercial Code financing statements and other
documents and to execute same for and on behalf of Debtor as Debtor's attorney-
in-fact, irrevocably and coupled with an interest, for such purposes. All
notices required or otherwise given by either party shall be deemed adequately
and properly given if sent by certified mail, return receipt requested, or by
overnight courier with a copy by facsimile to the other party at the addresses
stated herein or at such other address as the other party may from time to time
designate in writing.
11. Waiver of Jury Trial. DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE
------ -- ---- ------
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS SECURITY AGREEMENT, THE NOTES, OR THE OTHER LOAN DOCUMENTS. THIS WAIVER
IS INFORMED AND FREELY MADE. DEBTOR AND SECURED PARTY ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. Complete Agreement. This Security Agreement and the other Loan Documents are
-------- ----------
intended by Debtor and Secured Party to be the final, complete, and exclusive
expression of the agreement between them. This Security Agreement and the other
Loan Documents may not be altered, modified or terminated in any manner except
by a writing duly signed by the parties hereto. Debtor and Secured Party intend
this Security Agreement and the other Loan Documents to be valid and binding and
no provisions hereof and thereof which may be deemed unenforceable shall in any
way invalidate any other provisions of this Security Agreement and the other
Loan Documents, all of which shall remain in full force and effect. This
Security Agreement and the other Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
singular shall include the plural, the plural shall include the singular, and
the use of any gender shall be applicable to all genders. If there be more than
one Debtor, the warranties, representations and agreements herein are joint and
several. The Schedules on the following page[s] are a part hereof. Sections and
subsections headings are included for convenience of reference only and shall
not be given any substantive effect.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Security
Agreement as of the day and year first above written.
HELLER FINANCIAL, INC. SUMMAGRAPHICS CORPORATION
By: /s/ David West By: /s/ Clifford Maxwell
Title: Assistant Vice President Title: ASSISTANT TREASURER
SUMMAGRAPHICS CORP.
<PAGE>
EXHIBIT 10.25
[LETTERHEAD OF HELLER FINANCIAL]
June 1, 1995
Mr. Clifford Maxwell
Assistant Treasurer
Summagraphics Corporation
8500 Cameron Road
Austin, TX 78754
Dear Cliff:
This letter will confirm that Heller Financial, Inc. has extended the commitment
to Summagraphics Corporation until August 31, 1995, subject to no material
adverse change or no events of default.
Sincerely,
HELLER FINANCIAL, INC.
/s/ Thomas J. Gordhamer
Thomas J. Gordhamer
Assistant Vice President
cc: David West
<PAGE>
SIGNATURE PAGE FOR COMMITMENT EXTENSION May 26, 1995
Approval is recommended for an extension of the Summagraphics commitment until
August 31, 1995 by:
COMMERCIAL EQUIPMENT
FINANCE - EASTERN REGION
/s/ David West
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E. David West, Assistant Vice President
/s/ Dominick J. Masciantonio
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Dominick J. Masciantonio, Vice President
/s/ La d M. Boulden
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La d M. Boulden, Senior Vice President
<PAGE>
EXHIBIT 10.26
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), executed on November 10, 1994 to be
effective as of October 31, 1994, among CAD Warehouse, Inc., a Nevada
corporation ("Purchaser"), Summagraphics Corporation, Inc., a Delaware
corporation ("Issuer"), CAD Warehouse, Inc., a Delaware corporation ("Seller"),
and the shareholders of Seller named on the signature page of this Agreement
(collectively, "Shareholders"), for the acquisition by Purchaser of
substantially all the assets of Seller.
1. TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES; PURCHASE PRICE. (a) On
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the terms and subject to the conditions herein expressed, Seller agrees to sell,
convey, transfer, assign, and deliver to Purchaser, and Purchaser agrees to
purchase, good and marketable title to all of the assets, properties, and
business of Seller of every nature, kind, and description, whether tangible or
intangible, real or personal, contingent or otherwise, wherever so located and
whether or not reflected on the books and records of Seller, including, without
limitation all furniture, fixtures, furnishings, vehicles, equipment,
copyrights, trademarks, and trade names and associated goodwill, work-in-
process, raw materials inventories, finished goods inventories, receivables and
notes, customer lists, sales data, proprietary information, trade secrets,
supplies, materials, catalogs, cash, securities, bank and investment accounts,
and all office supplies, books, files, records, journals, ledgers, disks, reels,
and all other written or electronic depositories of information of Seller,
machinery, supply agreements, claims and causes of action against third parties
whether or not pending, vendor credits, payments and other items in transit,
know how, patents, patent applications, rebates, refunds, material and
manufacturing specifications, drawings, designs, warranties, computer software
and systems, leasehold interests and improvements (including any prepaid rent,
security deposits and options to renew or repurchase thereunder), and all other
property and materials used in the manufacture or distribution of Seller's
products or otherwise in its business (together, the "Transferred Assets"), in
each case as the same shall exist as of the date of this Agreement, together
with such changes in the Transferred Assets as are permitted by this Agreement
on and prior to the Closing Date (as defined in Section 8). Without limiting
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the generality of the foregoing, it is agreed that the Transferred Assets shall
include, without limitation, all of the assets listed on Schedule 1(a) to this
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Agreement.
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(b) Notwithstanding anything to the contrary contained in Section l(a), the
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Transferred Assets shall not include the minute books, the corporate seal, and
the stock records of Seller or the assets described on Schedule l(b) to this
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Agreement (the "Excluded Assets");
(c) Purchaser shall assume all Liabilities of Seller existing as of the
Closing, other than the Excluded Liabilities set forth on Schedule l(c) (the
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"Assumed Liabilities"). For purposes of this Agreement, "Liabilities" means all
liabilities, liens, claims, obligations, and encumbrances disclosed on (i) the
September 30, 1994 or October 31, 1994 Balance Sheets included in the Financial
Statements (as defined in Section 2(d)), together with any increase or decrease
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in Seller's accounts payable and accrued liabilities as disclosed thereon which
occur in the ordinary course of business from October 31, 1994 to the Closing
Date, (ii) Schedule 2(n) and (iii) Schedule 2(q), which Seller and Shareholders
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have represented and warranted to Purchaser and Issuer to be all of the
liabilities, liens, claims, obligations and encumbrances applicable to Seller or
the Transferred Assets as of the Closing Date.
(d) The Purchaser shall purchase the Transferred Assets on the Closing Date
in exchange for the consideration described below in a transaction that is
intended by each of the parties to qualify as a non-taxable reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986. The purchase price
(the "Purchase Price") for the Transferred Assets shall be equal to the
following amounts:
(i) 510,129 shares of Issuer's Common Stock, $.01 par value per share (the
"Common Stock"), valued at $7.825 per share (the "Share Price") which shall be
increased or reduced by a number of Shares (the "Adjustment Shares") having a
value equal to any amount by which the stockholders' equity of Seller,
determined as of the Effective Date, is greater than (the "Positive Net Worth
Difference") or less than (the "Negative Net Worth Difference") $406,123 (a "Net
Worth Difference"), the number of Adjustment Shares to be determined by dividing
the Net Worth Difference by the Share Price (as so adjusted, the "Shares"); and
(ii) assumption of the Assumed Liabilities.
The Purchaser will determine the stockholders' equity of Seller as of the
Effective Date, in good faith and in accordance with generally accepted
accounting principles as consistently applied by Seller, within ninety (90) days
of the Closing Date and will notify Seller and Shareholders of any Net Worth
Difference. In the event a Negative Net Worth Difference is determined, Seller
and Shareholders, jointly
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and severally, shall return to Purchaser a number of shares of Common Stock
equal to the Adjustment Shares. In the event a Positive Net Worth Difference is
determined, Purchaser shall deliver to Seller a number of shares of Common Stock
equal to the Adjustment Shares.
(e) This Agreement has been executed on November 10, 1994 (the "Closing
Date") to be effective as of the close of business on October 31, 1994 (the
"Effective Date"). It is the intention of the parties that all transactions of
Seller occurring after the Effective Date and until the Closing Date will, upon
completion of the Closing, be deemed to have been undertaken and recorded for
the benefit of Purchaser and that, effective as of the Closing Date, such
transactions are to be recorded on the books and records of Purchaser for
purposes of financial accounting, and state, federal and local income tax
reporting. However, the Assumed Liabilities are intended to be the Liabilities,
other than the Excluded Liabilities, of Seller as they exist as of the Closing
Date, and the Purchased Assets are intended to be the Purchased Assets of Seller
as they exist as of the Closing Date. Purchaser has undertaken no
responsibility for, nor has Seller granted Purchaser any right to direct, the
conduct of Seller's business from the Effective Date until the Closing Date, and
in no event will Purchaser be liable for any act or obligation of Seller
incurred or arising prior to the Closing Date other than the Assumed
Liabilities..
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS. Seller and
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the Shareholders each, jointly and severally, represent and warrant to Purchaser
and Issuer, all of which representations and warranties shall be true as of the
Effective Date and as of the Closing Date, and shall survive the Closing for a
period of three (3) years from the Closing Date, the following:
(a) Seller is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and has the corporate power to
own its property and carry on its business as and where it is now being
conducted. Schedule 2(a) sets forth each jurisdiction in which the nature of
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the business conducted by Seller or the assets owned by Seller would require
Seller to qualify to do business as a foreign corporation. Except as set forth
on Schedule 2(a), Seller does not own any capital stock, partnership interest,
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trust interest, loan, note, advance or other ownership of or investment in any
other person or entity. Except as disclosed on Schedule 2(a), neither the
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Seller nor any Shareholder owns any shares of Issuer's Common Stock or
securities convertible into Issuer's Common Stock.
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(b) The execution, delivery, and performance of this Agreement and the
other agreements set forth on Schedule 2(b) (the "Other Agreements") by Seller
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and Shareholders have been duly authorized by all necessary action (corporate or
otherwise) on the part of Seller and its shareholders, and this Agreement and
the Other Agreements to which they are respective parties, have been duly
executed and delivered and constitute legal, valid, and binding agreements of
Seller and Shareholders, enforceable in accordance with their terms.
(c) Except as set forth in Schedule 2(c), neither the execution and
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delivery of this Agreement and the Other Agreements, nor the consummation of any
of the transactions contemplated hereby or thereby, will (i) require any
consent, waiver, approval, authorization or permit of, or filing with or
notification to, any person or Governmental Entity (as defined in Section 2(f))
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(other than any such requirements applicable only to Purchaser and Issuer), or
(ii) result in the breach or violation of any term or provision of, constitute a
default under, or result in the termination of, any right, privilege, license or
agreement of Seller or to which the Transferred Assets are subject, or any loss
or disadvantage to, or the creation of a lien on, any of the Transferred Assets
under any charter provision, bylaw, organizational or constituent document,
agreement, mortgage, deed of trust, note, bond, license, lease, indenture,
instrument, order, writ, judgment, injunction, decree, award, statute, law, rule
or regulation to which Seller or the Shareholders are parties or that is
otherwise applicable to Seller or the Shareholders or any of the Transferred
Assets.
(d) The financial statements of the Seller audited by KPMG Peat Marwick,
Certified Public Accountants, for the years ended December 31, 1993 and the nine
months ended September 30, 1994; financial statements of the Seller prepared by
Seller, for the years ended December 31, 1991 and 1992; and for the one (l)
month period ended October 31, 1994, each attached hereto as Schedule 2(d)
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(together, the "Financial Statements"), constitute true and correct statements
as of such dates of the financial condition of Seller, and fairly present the
financial position, assets, liabilities, revenues and expenses of Seller at the
dates and for the periods indicated, and have been prepared in accordance with
generally accepted accounting principles consistently applied. All expenses of
Seller during the periods covered by the Financial Statements and any subsequent
period until Closing have been appropriately recorded on the books and records
of Seller and have not been paid directly or indirectly by Shareholders or any
other person. The Shareholders have delivered or caused to be delivered to
Seller all funds paid to them or any affiliate (as defined in Section 2(t)) by
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any third party with respect to the business of Seller since the Effective Date.
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Seller and Shareholders have taken all actions necessary in order to permit the
purchase of the Transferred Assets to be accounted for by Purchaser and Issuer
as a pooling of interests in accordance with Accounting Principles Board Opinion
No. 15, the interpretative releases issued pursuant thereto, and the
pronouncements of the Securities and Exchange Commission, and none of the
Shareholders and Sellers have taken any action that would prevent such treatment
or failed to take any action that is necessary to permit such treatment, nor are
any of them aware of any facts or circumstances that would prevent such
treatment.
(e) Since December 31, 1993, there has not occurred or arisen, and the
Seller has not suffered, a material adverse change in the business of Seller and
Seller has not engaged in any transaction that is illegal or not in the ordinary
and usual course of its business consistent with past practice.
(f) Except as disclosed in Schedule 2(f), there are no actions, suits,
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proceedings, arbitrations or investigations pending or, to the best knowledge of
Seller and the Shareholders, threatened against Seller or affecting the business
of Seller before any court, agency or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") or arbitrator,
nor is any order, writ, judgment, injunction, or decree of any Governmental
Entity outstanding against the Seller. The business of Seller is not being, and
has not since its organization been, conducted in violation of any applicable
law, ordinance, rule, regulation, judgment, writ, decree, injunction, or order
of any Governmental Entity or arbitrator.
(g) Seller has, and the Bill of Sale with respect to the Transferred Assets
will be sufficient to convey to Purchaser, good and indefeasible title to the
Transferred Assets (including any trade names, trademarks, service marks and
other names and marks included within the Transferred Assets), which Transferred
Assets will be delivered to Purchaser free and clear of any and all liens,
encumbrances or restrictions, other than any liens, encumbrances or restrictions
reflected on Schedule 2(g).
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(h) Seller and Shareholders have timely filed with the appropriate
governmental agencies, and in correct form, all federal, state and local tax
returns, reports and estimates which were required to be filed by it and them
for all periods in which such were due; its and their federal and state income
tax returns have not been selected for examination, or been examined, by the
Internal Revenue Service or other taxing authority; there are no unpaid
assessments nor proposed assessments of additional federal or state income,
franchise, sales or use taxes pending against Seller or Shareholders; and
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Seller and Shareholders have granted no extensions of any limitation periods
with respect to its federal and state income tax returns. All taxes shown as due
on filed federal, state and local tax returns have been paid or the liability
therefor to their respective dates has been provided for in the financial
statements for the periods ending September, 30, 1994 attached as Schedule 2(d)
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hereto, and all federal, state and local income or franchise taxes for periods
subsequent to September 30, 1994 likewise have been paid or adequately accrued.
All withholding and other employment and other taxes Seller is obligated to
collect have been withheld or collected and if due have been duly paid over to
the taxing authority. Seller has made all deposits required by law to be made
with respect to employees' withholding and other employment taxes. There are no
tax liens on any of the assets or properties of Seller or Shareholders, and
Seller and Shareholders have not been notified of any audit or proposed
adjustment of its or their filed returns by any federal, state or local taxing
authority. Seller and Shareholders have delivered to Purchaser and Issuer true
and correct copies of its and their federal, state and local income tax returns
and all related correspondence and filings for the period commencing January 1,
1990 and ending on the Closing Date. On the date that Seller and Shareholders
elected S Corporation status under the Code there existed no built-in gain as
defined in Code Section 1374.
(i) The inventories of Seller as reflected in the financial statements in
Schedule 2(d) accurately reflect the value of such inventories at their
- -------- ----
respective dates, and there has been no change or diminution in value of the
inventory as reflected in Seller's financial statements for the nine months
ended September 30, 1994, except for changes resulting from operations in the
ordinary course of business since that date.
(j) Schedule 2(j) sets forth all (i) employment, severance, compensation,
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consulting, indemnification and other agreements (the "Employee Agreements")
between the Seller and its present employees, officers, directors and
consultants, and any employees, officers, directors and consultants terminated
by Seller in the twelve months prior to the execution date hereof, (ii)
agreements which provide for aggregate future payments by or to the Seller of
more than $10,000 (other than purchase orders entered into in the ordinary
course of business), (iii) agreements containing covenants limiting the freedom
of the Seller to compete with any person in any line of business or in any area
or territory, (iv) license agreements, (v) leases with respect to real property
and (vi) each indenture, mortgage, note, lien, license, government registration,
contract, lease, agreement or other instrument or obligation to which the Seller
is a
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party which is material to the conduct of its business (collectively, the
"Contracts"). True, complete and correct copies of all Contracts have previously
been made available to Issuer and Purchaser. Seller and Shareholders have in all
material respects performed all obligations to be performed by them under all
contracts, agreements and commitments to which Seller and Shareholders are
parties and that relate to the Transferred Assets or the business conducted by
Seller therewith, including the Contracts, and there is not under any thereof
any existing default or event of default or event that, with notice or lapse of
time or both, would constitute a default or event of default by any of the
parties thereto.
(k) Seller has provided to Purchaser and Issuer in Schedule 2(k) a true and
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complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, hospitalization or
other medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, or retirement plan, program, agreement or arrangement,
and each other material employee benefit plan, program, agreement or
arrangement, maintained or contributed to or required to be contributed to by
the Seller or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Seller would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated thereunder
("ERISA"), for the benefit of any employee or former employee of the Seller or
any ERISA Affiliate, whether formal or informal and whether legally binding or
not (the "Plans"). No Plan is subject to Title IV of ERISA. Neither the
Company nor any ERISA Affiliate has any formal plan or commitment, whether
legally binding or not, to create any additional plan, program, agreement or
arrangement or modify or change any existing Plan that would affect any employee
or former employee of the Seller or any ERISA Affiliate. All records of
benefits paid to or for the benefit of employees of Seller under the Plans since
January 1, 1993 have been provided to Purchaser and Issuer and are true and
correct. Seller and Shareholders are not aware of any circumstance that would
cause the expenses incurred by Purchaser after the Closing under any such Plans
to exceed the amounts incurred since January 1, 1993.
(l) Schedule 2(1) sets forth a complete list of all federal, state and
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local licenses, permits, authorizations and approvals (collectively, the
"Permits') required for the conduct of Seller's business and operations
conducted with the Transferred Assets. Seller is not in violation of any of the
requirements for such Permits and all such Permits are in full force and effect.
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(m) Seller's relationships with its employees are good, Seller is presently
in compliance with all applicable federal and state labor laws, regulations, and
agreements, and there is not any pending, or to the knowledge of Seller and
Shareholders threatened, labor grievance, strike, work stoppage, or other action
by any employee or employees that could have a material adverse effect on the
Transferred Assets or the business of Purchaser conducted therewith. The Seller
is not bound by or subject to (and none of its properties or assets is bound by
or subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and, since January 1, 1989, no labor union has
requested or, to the best knowledge of the Seller, has sought to represent any
of the employees, representatives or agents of the Seller, nor is the Seller
aware of any labor organization activity involving its employees. To the best
knowledge of the Seller and the Shareholders, no officer or key employee of the
Seller has any plans to terminate his employment with the Seller or refuse to
accept employment with Purchaser after Closing.
(n) Except as set forth on Schedule 2(n), as of September 30, 1994, the
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Seller had no liabilities or obligations (absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) material to the business of the Seller
other than as disclosed on the audited balance sheet of the Seller as at
September 30, 1994 delivered pursuant to Section 2(d). Except as set forth in
------------
Schedule 2(n), since December 31, l993, the Seller has not incurred any
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liabilities or obligations (absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise) material to the business of the Seller, except
liabilities incurred in the ordinary course of business consistent with past
practice.
(o) The Seller owns or is licensed to use all trademarks, trade names,
assumed names, service marks, logos, patents, copyrights (including those
relating to computer software and data bases), trade secrets, technology, know-
how and processes which are material to the business of the Seller as heretofore
conducted (collectively, the "Proprietary Rights", if owned by Seller, and the
"License" if licensed to the Seller) free and clear of all liens, and all of
such Proprietary Rights and Licenses are included in the Transferred Assets.
with respect to Proprietary Rights which are registered or as to which
application for registration has been made, the Seller is the beneficial owner
thereof and is the record owner thereof, or documentation to make the Seller the
record owner thereof has been filed. A list of all such registrations and
applications and all Licenses is set forth in Schedule 2(o). No Proprietary
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Rights or Licenses used by the Seller, and no services or products sold by the
Seller, conflict with or infringe upon any proprietary rights
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available to any third party. The Seller has not entered into any consent,
indemnification, forbearance to sue or settlement agreement with respect to
Proprietary Rights or Licenses except as disclosed in Schedule 2(o). No claims
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have been asserted in writing by any person with respect to the validity of or
the Seller's ownership or right to use the Proprietary Rights or Licenses and,
to the best knowledge of the Seller, there is no reasonable basis for any such
claim. The Proprietary Rights are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of a cancellation proceeding. Schedule 2(o) sets forth all of the
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material licenses to which the Seller is a party relating to the licensing of
Proprietary Rights. The Seller has complied with, in all material respects, its
respective contractual obligations relating to the protection of the Proprietary
Rights used pursuant to licenses. Except as set forth in Schedule 2(o), the
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consummation of the transactions contemplated hereby will not alter or impair
any Proprietary Rights. Seller has not infringed upon or violated the
Proprietary Rights of any person and, to the best knowledge of the Seller, no
person is infringing on or violating the Proprietary Rights owned or used by the
Seller. Schedule 2(o) sets forth each trade name, corporate name or assumed name
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under which Seller has conducted any business or owned any property at any time
since January 1, 1990.
(p) No information provided by or on behalf of the Seller or the
Shareholders to Issuer or Purchaser in connection with this Agreement and the
Other Agreements and the transactions contemplated hereby and thereby contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(q) None of the Seller, the Shareholders nor any of their officers,
directors or employees has employed any broker or finder or incurred any
liability for brokerage fees, commissions or finder's fees in connection with
the transactions contemplated by this Agreement.
(r)(i) Except as set forth in Schedule 2(r)(i), the Seller is in compliance
----------------
with all Environmental Laws (as hereinafter defined), which compliance includes,
but is not limited to, the possession by the Seller of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance in all respects with the terms and conditions thereof. Except as set
forth in Schedule 2(r)(i), the Seller has not received any communication
----------------
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the
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Seller is not in such compliance, and, to the best knowledge of the Seller and
the Shareholders, there are no circumstances that may prevent or interfere with
such compliance in the future. Except as set forth in Schedule 2(r)(i), there
----------------
are no permits or other governmental authorizations currently held by the Seller
pursuant to the Environmental Laws.
(ii) Except as set forth in Schedule 2(r)(ii) there are no Environmental
-----------------
Claims (as hereinafter defined) pending or, to the best knowledge of the Seller
and the Shareholders, threatened against the Seller, or, to the best knowledge
of the Seller and the Shareholders, against any person or entity whose liability
for any Environmental Claim the Seller has retained or assumed either
contractually or by operation of law.
(iii) Except as set forth in Schedule 2(r)(iii), there are no past or
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present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence, use,
generation, storage, transportation or disposal of any Material of Environmental
Concern (as hereinafter defined), that could form the basis of any Environmental
Claim against the Seller or, to the best knowledge of the Seller, against any
person or entity whose liability for any Environmental Claim the Seller has
retained or assumed either contractually or by operation of law.
(iv) Without in any way limiting the generality of the foregoing, (l) all
on-site and off-site locations where the Seller has stored, disposed of or
arranged for the disposal of Materials of Environmental Concern are identified
in Schedule 2(r)(iv)(1), (2) any underground storage tanks and the capacity and
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contents of such tanks, located on property owned or leased by the Seller are
identified on Schedule 2(r)(iv)(2), (3) except as set forth in Schedule
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2(r)(iv)(3), there is no asbestos contained in or forming part of any building,
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building component, structure or office space owned or leased by the Seller, and
(4) except as set forth in Schedule 2(r)(iv)(4), no polychlorinated biphenyls
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(PCBs) or PCB-containing items are used or stored at any property owned or
leased by the Seller.
(v) For purposes of this Agreement:
(A) "Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based upon or
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resulting from (x) the presence, transportation or release into the environment,
of any Material of Environmental Concern at any or from location, whether or not
owned or operated by the Seller or (y) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(B) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(C) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products.
(s) Neither Seller nor Shareholders have any knowledge of any termination
or cancellation of, or any modification or change in, the business relationship
of Seller with any customer or vendor or any existing condition or state of
facts or circumstances affecting the business of Seller generally which has
adversely affected or might adversely affect in any material way, the business
relationships of Seller with its customers, or has prevented or will prevent
such business relationships from being carried on by Purchaser subsequent to the
Closing in essentially the same manner as currently carried on.
(t) Except as set forth on Schedule 2(t), no affiliate of Seller or any
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Shareholder owns, directly or indirectly, any interest in (excepting not more
than a 5% holding for investment purposes in securities of publicly held and
traded companies), or is an officer, director, employer or consultant of or
otherwise receives remuneration from, any person which is, or is engaged in
business as, a competitor, lessor, lessee, customer or supplier of Seller.
Seller does not have, and no officer or director or shareholder of Seller or any
affiliate of Seller or any Shareholder has, nor during the period beginning July
1, 1991 to and including the Closing Date had, any interest in any property,
real or personal, tangible or intangible, used in or pertaining to the business
of Seller. None of the Shareholders has any claim or right against Seller
except as set forth in Schedule 2(t). Schedule 2(t) and the footnotes to the
-------- ---- -------- ----
financial statements disclose all related party transactions between
Shareholders and their affiliates and the Seller occurring since January 1,
1993. As
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used in this Section 2(t), "affiliate" means (i) any grandparent, parent, child
------------
or grandchild of a natural person or that person's spouse, together with any of
their lineal descendants, and (ii) any person that, directly or indirectly,
controls, or is controlled by or under common control with, another person.
"Control" means the power to direct or cause the direction of the management and
policies of a person, directly or indirectly, whether by ownership of voting
securities, by contract or otherwise.
(u) The Liabilities described in Section l(c) are all of the liabilities,
-----------
liens, claims, obligations and encumbrances applicable to Seller or the
Transferred Assets as of the Closing Date. Since September 30, 1994, except as
disclosed on Schedule 2(u), (i) Seller has and the Shareholders have caused
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Seller to, operate its business consistently with the standards set forth in
Section 7(a), (ii) and Seller and Shareholders have not taken any action
described in Section 7(b)(i)-(xv) of this Agreement.
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3. Representations and Warranties of Purchaser and Issuer. Purchaser and
Issuer each, jointly and severally, represent and warrant to Seller and
Shareholders, all of which representations and warranties shall be true as of
the Effective Date and as of the Closing Date, and shall survive the Closing for
a period of three (3) years from the Closing Date, the following:
(a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has the corporate power to
own or lease the properties and assets it purports to own or lease and to carry
on its business as now being conducted.
(b) Issuer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power to
own or lease and to carry on its business as now being conducted, and has
authorized capital stock consisting of 20,000,000 shares of Common Stock of the
par value of $.01 per share, of which, as of August 31, 1994, 4,042,501 shares
were issued and outstanding, fully paid and non-assessable.
(c) The execution, delivery, and performance of this Agreement and the
other agreements set forth on Schedule 2(b) (the "Other Agreements") by Issuer
-------------
and Purchaser have been duly authorized by all necessary action (corporate or
otherwise) on the part of Issuer and Purchaser, and this Agreement and the Other
Agreements to which they are respective pa ties have been duly executed and
delivered and constitute legal, valid, and binding agreements of Issuer and
Purchaser, enforceable in accordance with their terms.
-12-
<PAGE>
(d) None of the execution and delivery of this Agreement and the Other
Agreements, the delivery of the Shares, and the performance, observance or
compliance with the terms and provisions of this Agreement will violate any
provision of law, any order of any court or other governmental agency, the
Certificate of Incorporation or By-laws of Purchaser or Issuer or any indenture,
agreement or other instrument to which either Purchaser or Issuer is a party, or
by which either Purchaser or Issuer is bound or by which any of their respective
properties are bound, provided that a written consent of Silicon Valley Bank,
Issuer's Lender, will be required to permit the consummation of the transactions
contemplated by this Agreement.
(e) The Shares will, upon delivery in accordance with the terms hereof, be
validly issued, fully paid, non-assessable and free and clear of all liens,
encumbrances and claims of any kind.
(f) Issuer has heretofore delivered to Seller and Shareholders true and
complete copies of Issuer's Form 10-K Report for the fiscal year ended May 31,
1994, Issuer's Form 10-Q Report for the fiscal quarter ended August 31, 1994,
Issuer's Annual Report to Stockholders and Issuer's Proxy Statement for its
annual stockholders' meeting held on September 27, 1994. Such reports
constitute true and correct statements as of such dates of the financial
condition of Issuer at the dates and for the periods indicated, prepared in
accordance with generally accepted accounting principles consistently applied.
Since August 31, 1994, there has been no material adverse change in Issuer's
condition, financial or otherwise.
(g) Except as disclosed in Issuer's Annual Report for the year ended May
31, 1994 previously delivered to Seller and Shareholders, there are no actions,
suits, proceedings, arbitrations or investigations pending or, to the best
knowledge of Purchaser and Issuer, threatened against Purchaser or Issuer or
affecting the business of Purchaser or Issuer before any Governmental Entity or
arbitrator, nor is any order, writ, judgment, injunction, or decree of any
Governmental Entity outstanding against Purchaser or Issuer.
4. Conditions to the Obligations of Purchaser and Issuer. Purchaser and
-----------------------------------------------------
Issuer will have no obligation to close the transactions called for by this
Agreement to be completed on the Closing Date unless all of the following
conditions have been fulfilled or waived by them (or the failure to fulfill any
such condition is caused by Purchaser or Issuer):
-13-
<PAGE>
(i) Seller and Shareholders shall in all material respects have performed
all obligations and agreements, and complied with all covenants and conditions,
contained in this Agreement to be performed or complied with by them on or prior
to the Closing Date.
(ii) The representations and warranties made by Seller and Shareholders
herein shall be true and correct in all material respects on the Closing Date as
if made on and as of the Closing Date.
(iii) There shall have been no material adverse change in the condition,
financial, business or otherwise, of Seller from September 30, 1994 to the
Closing Date, including, without limitation, any material adverse change in the
business or assets of Seller as of the result of any fire, explosion,
earthquake, flood, accident, strike, lockout, taking of any such assets by any
governmental authorities, riot, activities of armed forces, or acts of God or of
public enemies.
(iv) No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person or legal or administrative proceeding
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby, and on the Closing Date, there
shall not be an effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them are not to be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby which Issuer and Purchaser deem unacceptable, in their sole
discretion.
(v) Issuer shall have received all necessary consents to the transactions
contemplated by this Agreement from Silicon Valley Bank.
5. CONDITIONS TO THE OBLIGATIONS OF SELLER AND SHAREHOLDERS. Seller and
--------------------------------------------------------
Shareholders will have no obligation to close the transactions called for by
this Agreement to be completed on the Closing Date unless all of the following
conditions have been fulfilled or waived by them (or the failure to fulfill any
such condition is caused by Seller or Shareholders):
(i) Purchaser and Issuer shall, in all material respects, have performed
all obligations and agreements, and complied with all covenants and conditions,
contained in this
-14-
<PAGE>
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(ii) The representations and warranties made by Purchaser and Issuer herein
shall be true and correct in all material respects on the Closing Date as if
made on and as of the Closing Date.
(iii) There shall have been no material adverse change in the condition,
financial, business or otherwise, of Issuer from the date of its Form 10-K
report for the year ended May 31, 1994 to the Closing Date, including, without
limitation, any material adverse change in the business or assets of Issuer as
of the result of any fire, explosion, earthquake, flood, accident, strike,
lockout, taking over of any such assets by any governmental authorities, riot,
activities of armed forces, or acts of God or of the public enemies .
(iv) No suit, action, investigation, inquiry or other proceeding by any
governmental authority or other person or legal or administrative proceeding
shall have been instituted or threatened which questions the validity or
legality of the transactions contemplated hereby, and on the Closing Date, there
shall not be an effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent jurisdiction directing that
the transactions provided for herein or any of them are not to be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby which Seller and the Shareholders deem unacceptable, in
their sole discretion.
6. COVENANTS OF PURCHASER AND ISSUER. Purchaser and Issuer covenant and
---------------------------------
agree that:
(a) Without the prior written consent of Seller and the Shareholders,
Purchaser and Issuer shall not take any action that would cause or tend to cause
the conditions to the obligations o~ the parties hereto to effect the
transactions contemplated hereby not to be fulfilled, including, without
limitation, taking, or causing to be taken, or permitting or suffering to be
taken or to exist any action, condition or thing that would cause the
representations and warranties made by Purchaser and Issuer herein not to be
true, correct and accurate as of the Closing.
(b) Purchaser and Issuer shall promptly file or submit and diligently
prosecute any and all applications or notices with public authorities, federal,
state or local, domestic or foreign, and all other requests for approvals to any
private persons, the filing or granting of which is necessary, or is
-15-
<PAGE>
deemed necessary or appropriate by any party hereto, for the consummation of the
transactions contemplated hereby.
(c) Purchaser and Issuer shall take all reasonable steps which are within
their power to cause to be fulfilled those of the conditions precedent to the
obligation of Seller and Shareholders to consummate the transactions
contemplated hereby which are dependent upon the actions of Purchaser and
Issuer.
(d) Without the prior written consent of Seller or Shareholders holding not
less than 50% of the issued and outstanding shares of Common Stock of Seller,
Purchaser and Issuer will not, and will not permit any director, officer,
employee, or adviser to, disclose to any person (other than persons actively
employed in advising them in connection with the transactions contemplated
hereby) any information regarding the transactions contemplated by this
Agreement and the Confidentiality and Competition Agreement, except disclosures
required by law, regulation or order of a court and disclosures of matters which
are or become publicly known other than as a result of any breach of this
covenant.
7. COVENANTS OF SELLER AND SHAREHOLDERS. Seller and the Shareholders,
------------------------------------
jointly and severally, covenant and agree that:
(a) From the date of execution of this Agreement until Closing Seller will,
and the Shareholders will cause Seller to, operate in accordance with its
current methods of transacting business and use its best efforts to preserve its
business organizations, keep available the services of its employees, maintain
good relationships with providers, suppliers, lessors, governmental authorities,
distributors, employees, customers and others having business relationships with
Seller, and maintain the condition of the Transferred Assets as represented in
this Agreement; make all normal and customary repairs, replacements and
improvements to its facilities and to the Transferred Assets; deliver to
Purchaser and Issuer, promptly after they are prepared, monthly management
operating reports setting forth Seller's revenues and expense for each month, on
a basis consistent with Seller's monthly management reports as prepared prior to
the Closing Date; and to promptly notify Issuer and Purchaser of any event,
occurrence or emergency material and adverse to, or not in the ordinary course
of business or consistent with the past practice of, Seller.
(b) Without limiting the generality of Subsection (a) above, from the date
of execution of this Agreement until Closing, Seller will not, and Shareholders
will not permit the Seller to, without the prior written consent of Issuer and
Purchaser:
-16-
<PAGE>
(i) Change its organizational or constituent documents or merge or
consolidate with or into any entity or obligate itself to do so, other than as
required by this Agreement;
(ii) Declare, set aside or pay any dividend or other distribution on or in
respect of shares of its capital stock, or any redemption, retirement or
purchase by them with respect to such shares or make any repayment of
indebtedness to the Shareholders, or make any other payment to any Shareholder
for any purpose other than regular payment of employment compensation in
accordance with past practices;
(iii) Discharge or satisfy any lien, charge, encumbrance or indebtedness
owing by Seller or to Seller outside of the ordinary course of business, or
waive any claims or rights of substantial value;
(iv) Sell, transfer or otherwise dispose of any of the Transferred Assets
other than sales of inventory in the ordinary course of business and on
consistent terms with Seller's prior practice;
(v) Dispose of or permit to lapse any right to the use of any Proprietary
Rights or License or dispose of or disclose to any person any Proprietary Rights
or Licenses;
(vi) Authorize, guarantee or incur any indebtedness for borrowed money;
(vii) Make (A) any capital expenditures or capital additions or
betterments, or commitments therefor, or (B) any non capital expenditures, or
commitments therefor, that are not in the ordinary course of business, or (C)
any non-capital expenditures, or commitments therefor, in the ordinary course of
business (other than purchases of inventory in the ordinary course of business)
if any such expenditure or commitment exceeds $5,000.00;
(viii) Loan funds to any person;
(ix) Institute, settle or agree to settle any litigation, action or
proceeding before any court or governmental body;
(x) Mortgage, pledge or subject to any other encumbrance, any of its
properties or assets, tangible or intangible;
-17-
<PAGE>
(xi) Authorize or pay any bonuses or special compensation of any kind
whatsoever for any employee or officer, or increase the rate of compensation,
bonuses or other benefits provided to officers or employees not consistent with
past practice;
(xii) Enter into any contract, agreement, commitment or other
understanding or arrangement other than in the ordinary course of business;
(xiii) Perform, take any action, incur or permit to exist any acts,
transactions, events or occurrences which are inconsistent with the
representations and warranties set forth herein or which would prevent the
performance of any covenant set forth herein;
(xiv) Modify any of its insurance coverage or fail to include Issuer and
Purchaser as additional insureds with respect to liability insurance wherever
possible; or
(xv) Agree, whether in writing or otherwise, to do any of the foregoing.
(c) Without the prior written consent of Purchaser, neither Seller nor
Shareholders shall take any action which would cause or tend to cause the
conditions upon the obligations of the parties hereto to effect the transactions
contemplated hereby not to be fulfilled, including, without limitation, taking,
causing to be taken, or permitting or suffering to be taken or to exist any
action, condition or thing which would cause the representations and warranties
made by Seller and/or Shareholders herein not to be true, correct and accurate
as of the Closing.
(d) Seller shall promptly file or submit and diligently prosecute any and
all applications or notices with public authorities, federal, state or local,
domestic or foreign, and all other requests for approvals to any private
persons, the filing or granting of which is necessary, or is deemed necessary or
appropriate by any party hereto, for the consummation of the transactions
contemplated hereby.
(e) Seller and Shareholders shall take all reasonable steps which are
within their power to cause to be fulfilled those of the conditions precedent to
the obligations of Purchaser and Issuer to consummate the transactions
contemplated hereby which are dependent upon the actions of Seller or
Shareholders or any of them.
(f) Seller shall, upon reasonable notice, afford Issuer, Purchaser, their
counsel, accountants and other representatives full access during normal
business hours
-18-
<PAGE>
throughout the period prior to the Closing Date to all of Seller's respective
properties and all of its books, contracts, commitments and records relating
thereto and to the Transferred Assets. Seller shall consult with Issuer and
Purchaser with respect to the financial condition, operations, assets and
liabilities on a regular basis if requested by Issuer and Purchaser. After
Issuer and Purchaser have completed their planned investigation of the business
of Seller to their satisfaction, Issuer and Purchaser shall be provided a
reasonable opportunity, in the presence of an officer of Seller, to consult with
representatives of customers and vendors of Seller regarding any agreement,
commitment or relationship with any such customer or vendor.
(g) From time to time prior to the Closing, Seller shall promptly notify
Purchasers of the development of any facts or events in connection with its
business which, had any such fact existed or event occurred at the date of this
Agreement, would have been required to be set forth or described in any schedule
hereto. No supplement or amendment of any schedule delivered by Seller and
Shareholder pursuant to this Agreement shall be deemed to cure or waive any
breach of any representation or warranty made by Seller and Shareholder in this
Agreement, unless Issuer and Purchaser specifically agree to such cure or waiver
in writing.
(h) Seller and Shareholders shall use their best efforts to preserve, and
shall assist Issuer and Purchaser in retaining, intact the goodwill of Seller,
its relationships with employees being retained by Purchaser their suppliers,
customers, and other persons or entities having business relationships with
Seller or related to the Transferred Assets. Seller and Shareholders each agree
to use their best efforts to cause to be completed each of the transactions
contemplated by this Agreement and to effect the transfer of the Transferred
Assets to Purchaser. Seller covenants and agrees to pay all amounts owed by
Seller to suppliers and vendors with respect to the Transferred Assets and not
expressly assumed by Purchaser as an Assumed Liability hereunder promptly after
each Closing.
(i) Seller and Shareholders shall take all such actions as are necessary to
change the name of Seller effective as of the Closing Date to a name acceptable
to Purchaser and to prepare and file such evidence of such name change as may be
required by any jurisdiction.
(j) Seller and the Shareholders will not, and will not permit any of their
respective officers, employees, representatives or agents to, directly or
indirectly, (i) encourage, solicit or initiate discussions or negotiations with,
or provide any information to, any person other than
-19-
<PAGE>
Purchaser and Issuer concerning any merger, sale of assets (other than in the
ordinary course of business consistent with past practice) or sale or issuance
of equity interests of the Seller or other transaction relating to any thereof
(together, an "Alternative Transaction"), or (ii) otherwise solicit, initiate or
encourage inquiries or the submission of any proposal contemplating an
Alternative Transaction. Shareholders and Seller will promptly communicate to
Purchaser and Issuer the terms of any inquiry or proposal which they or it may
receive in respect of an Alternative Transaction, and will promptly advise
Purchaser and Issuer if they or the Seller participate in any such discussion or
negotiation or provide any information to any person proposing an Alternative
Transaction.
(k) This Agreement will evidence the approval by the Shareholders of the
sale of the Transferred Assets pursuant to this Agreement in accordance with
Section 228 of the Delaware General Corporation Law and shall be effective as a
unanimous written consent of the shareholders of Seller under that provision.
(l) Without the prior written consent of Purchaser and Issuer, Seller and
the Shareholders will not, and will not permit any director, officer, employee,
or adviser to, disclose to any person (other than persons actively employed in
advising them in connection with the transactions contemplated hereby) any
information regarding the transactions contemplated by this Agreement and the
Other Agreements except disclosures required by law or regulation or an order of
a court and disclosures of matters which are or become publicly known other than
as a result of any breach of this covenant.
(m) Seller and Shareholders will not (i) take any action that would
jeopardize, or fail to take any action necessary in order to permit, the
treatment of the purchase of the Transferred Assets as a "pooling of interests"
for accounting purposes; (ii) take any action that would jeopardize, or fail to
take any action necessary in order to permit, the qualification of the purchase
of the Transferred Assets as a reorganization within the meaning of Section
368(a)(1)(C) of the Code; or (iii) enter into any contract, agreement,
commitment or arrangement with respect to either of the foregoing. Seller will
concurrently with the Closing distribute Issuer's Common Stock to the
Shareholders as part of a plan of reorganization qualifying under Section
368(a)(1)(C) of the Code.
8. Closing. (a) The closing occurred on November 10, 1994, the date on
-------
which all conditions to the Closing set forth in Sections 4 and 5 were satisfied
----------------
(the "Closing Date"),
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<PAGE>
at 10:00 o'clock a.m., at the offices of Hughes & Luce, L.L.P., 1717 Main
Street, Suite 2800, Dallas, Texas 75201.
(b) At the Closing, Seller and Shareholders delivered to Purchaser and
Issuer (each such delivery constituting an condition additional precedent to the
obligation of Purchaser and Issuer to consummate the Closing):
(i) a duly executed omnibus assignment, conveyance and bill of sale to
Purchaser (the "Bill of Sale") for the Transferred Assets in substantially the
form of Schedule 8(b)(i) attached hereto;
-------- -------
(ii) such other good and sufficient instruments of conveyance, assignment,
and transfer (including, without limitation, duly endorsed certificates of title
for all motor vehicles included in the Transferred Assets and assignment and
assumption agreements with respect to the Assumed Liabilities and the Contracts
included in the Transferred Assets or Assumed Liabilities to be assumed on the
Closing Date, in form and substance satisfactory to Purchaser's counsel, as
shall be necessary or desirable to vest in Purchaser good and marketable title
to the Transferred Assets;
(iii) employment agreements executed by the individuals named on Schedule
--------
8(b)(iii) in substantially the form attached hereto as Schedule 8(b)(iii);
- --------- ------------------
(iv) an opinion of counsel satisfactory to Purchaser and its counsel;
(v) evidence of any approvals or consents referred to by Section 2(c);
------- ----
(vi) evidence of all necessary corporate action having been taken by Seller
and the Shareholders to approve this Agreement and the transactions contemplated
hereby;
(vii) a Competition and Confidentiality Agreement executed by Seller and
Shareholders in substantially the form attached hereto as Schedule 8(b)(vii)
-------- ---------
(the "Competition and Confidentiality Agreement");
(viii) a certificate signed by the chief executive officer and chief
financial officer of Seller and each Shareholder, dated the Closing Date,
attesting that, to the best of their knowledge after due inquiry, all the
representations and warranties made by Seller and Shareholders herein are true
and correct on the Closing Date as if made on and as of the Closing Date;
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<PAGE>
(c) At the Closing, Purchaser delivered to Seller (each such delivery
constituting an additional condition precedent to the obligations of Seller):
(i) duly issued certificates in such names and quantity of shares as Seller
may request prior to the Closing evidencing the Shares issued pursuant to
Section 1(d);
- ------------
(ii) an opinion of counsel satisfactory to Seller, Shareholders and their
counsel;
(iii) evidence of any approvals and consents referred to by Section 3(d);
------- ----
(iv) evidence of all necessary corporate action having been taken by
Purchaser and Issuer to approve this Agreement and the transactions contemplated
hereby; and
(v) a certificate signed by officers of Purchaser and Issuer, dated the
Closing Date, attesting that, to the best of their knowledge after due inquiry,
all the representations and warranties made by Purchaser and Issuer herein are
true and correct on the Closing Date as if made on and as of the Closing Date.
9. Expenses. Seller and Shareholders and Purchaser and Issuer shall,
--------
respectively, pay their own expenses and costs incident to the preparation of
this Agreement and to the consummation of the transactions contemplated herein,
provided that Shareholders and Purchaser will each pay one-half of the cost of
an audit of Seller's financial statements for the year ended December 31, 1993
and the nine months ended September 30, 1994 by KPMG Peat Marwick. Seller's
expenses incurred in connection with this Agreement will either be paid by the
Shareholders or will be paid by Seller from cash contributions to Seller by the
Shareholders, and none of such expenses will be included in the Assumed
Liabilities or will reduce the amount of the Transferred Assets to be received
by Purchaser.
10. Restrictions on Transfer of Shares and Agreement to Register Shares.
-------------------------------------------------------------------
Seller and the Shareholders acknowledge that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") in reliance
upon the exemption provided by Section 4(2) of said Act for transactions by an
issuer not involving any public offering and, in connection therewith, it is
agreed by the parties that:
(a) Seller and Shareholders each acknowledge receipt of a copy of Issuer's
Form 10-K Report for its fiscal year ended May 31, 1994, Issuer's Form 10-Q
Report for its fiscal quarter ended August 31, 1994 a copy of Issuer's Annual
Report to Stockholders and Proxy Statement for its annual stockholders'
-22-
<PAGE>
meeting held on September 27, 1994, and that they have had an opportunity to ask
any questions they might have concerning the operations and financial condition
of Issuer.
(b) The certificates for the Shares will bear a restrictive legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL FOR THE COMPANY TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) Seller and the Shareholders hereby confirm that the Shares will be
acquired for investment for their accounts, not as nominees or agents, and not
with a view to the resale or distribution of any part thereof in a manner which
would require registration under the Securities Act or any applicable state
securities laws, and that Seller and the Shareholders have no present intention
of selling, granting any participation in, or otherwise distributing the same.
Seller and Shareholders covenant and agree that they will not sell, hypothecate
or take any other action to dispose of any Shares or to reduce their risk of
holding the Shares, directly or indirectly, until such time as Issuer has
published consolidated financial statements of the Issuer reflecting at least
thirty (30) days of combined operation of Issuer and Purchaser after the
Closing.
(d) Seller and the Shareholders agree that the Shares distributed, if sold
in market transactions, will not be sold by them, or any person acquiring Shares
from them (other than in a market transaction) (a "Transferee"), in an aggregate
amount on any day in excess of the greater of 3000 shares or twenty percent of
the average daily trading volume of Issuer's Common Stock 'or the ten preceding
trading days, and that any Transferee will be required to provide a written
undertaking to Issuer evidencing the Transferee's agreement to be bound by the
restrictions of this Section 10 as a condition to the Issuer's obligation to
register the transfer shares of Common Stock to such Transferee. Issuer has no
obligation to take any action or to waive in any respect full compliance by
Seller and Shareholders with this Section 10 in order to facilitate any transfer
of Shares to a nominee or brokerage account.
(e)(i) Issuer shall after the Closing use its reasonable best efforts to
cause 133,323 Shares (the "Registrable Shares") to be registered for resale
under the Securities Act (the proposed registration statement being referred to
herein as the "Registration Statement").
-23-
<PAGE>
(ii) Issuer may, if it concludes based upon the advice of its counsel or
financial advisors that the registration and sale of the Shares cannot be
undertaken without violating the Securities Act or damaging any interest of the
Issuer, by written notice to the Shareholders, defer the registration of the
Shares for a period of up to ninety (90) days.
(f) Issuer shall use its reasonable best efforts to cause the Registration
Statement to become effective as promptly after filing as is practicable, and
will use its reasonable best efforts to keep such registration statement current
for a period not exceeding ninety (90) days after it becomes effective. Issuer
may include shares of other shareholders having registration rights in the
Registration Statements.
(g) The Shareholders will cooperate with Issuer in the preparation and
filing of the Registration Statement and any amendments thereto, and WILL KEEP
ISSUER ADVISED OF THE SALE of any shares under such Registration Statement.
Issuer shall pay all costs and expenses incidental to preparing and filing the
Registration STATEMENT and any amendments and supplements thereto, except that
each Shareholder will pay (i) underwriting discounts or selling commissions
respecting sales of such shares, (ii) all applicable stock transfer taxes
relating to any Shares transferred, and (iii) all fees and expenses of their
counsel, if any.
(h) Issuer and each Shareholder selling Shares under the Registration
Statement (severally and not jointly) agree that it or they will indemnify and
hold harmless the other and any underwriter (as defined in the Securities Act),
if any, against any losses, claims, damages or liabilities), joint or several,
to which it or they may become subject, whether under the Securities Act or
otherwise, insofar as such are caused by an untrue statement or alleged untrue
statement of any material fact contained in a Registration Statement filed
pursuant to Section 10(e), or any omission or alleged omission to state therein
------- -----
a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, to the extent that the inclusion or
omission was with respect to data relating to Issuer, for which Issuer shall be
responsible, or a selling Shareholder or his or her stock holdings, for which
such selling Shareholder shall be responsible, as the case may be.
(i) Issuer and each Shareholder agree that prior to the filing of the
Registration Statement, they will enter into an agreement providing for cross
indemnity upon terms customarily found in underwriting agreements between
issuers of securities and underwriters offering the same to the public.
-24-
<PAGE>
11. Indemnification. (a) Seller and Shareholders. On and after the Closing
---------------
Date, Seller and Shareholders shall, and hereby do, jointly and severally,
indemnify and hold harmless Issuer and Purchaser from and against and shall
defend Purchaser against all liabilities, damages, costs, charges, legal fees,
judgments, expenses or other losses ("Indemnifying Losses"):
(i) Arising from any misrepresentation by Seller or Shareholders in or
pursuant to this Agreement or the Other Agreements or delivered to Purchaser or
Issuer on or before the Closing Date; or
(ii) Resulting from breach of any warranty of Seller or Shareholders
hereunder or under the Other Agreements, or breach or default in the performance
of any of the covenants which Seller and Shareholders are required to perform
under this Agreement or the Other Agreements;
(iii) Arising from or relating to any liability or obligation of Seller or
Shareholders not expressly assumed by Purchaser pursuant to this Agreement,
including without limitation the Excluded Liabilities and any federal, state or
local income tax payable by Seller or any Shareholder as a consequence of the
transactions described in this Agreement; or
(iv) Arising from, relating to the facts alleged in that certain litigation
matter filed in the United States District Court, Northern District of Ohio,
Eastern Division, Case No. 5:94CV692 styled CAD Warehouse, Inc., Plaintiff v.
---------------------------------
Hewlett-Packard Co., et al., Defendant, which has been dismissed by Order dated
- --------------------------------------
November 3, 1994.
(b) Purchaser and Issuer. On and after the Closing Date, Purchaser and
--------------------
Issuer shall, and hereby do, jointly and severally, indemnify and hold harmless
Seller and Shareholders from and against, and shall defend them against, all
Indemnifying Losses sustained by Seller or Shareholders:
(i) Arising from any misrepresentation by Purchaser or Issuer in or
pursuant to this Agreement or the Other Agreements delivered to Seller or
Shareholders on or before the Closing Date;
(ii) Resulting from breach of any warranty by Purchaser or Issuer hereunder
or breach or default in the performance of any of the covenants which Purchaser
or Issuer is required to perform under this Agreement or any Other Agreement; or
(iii) Arising from or in connection with the operation of or use of the
Transferred Assets by Purchaser on or after the Closing Date.
-25-
<PAGE>
(c) Procedure.
---------
(i) If any claim or demand shall be made or liability asserted against any
party being indemnified ("Indemnitee") or if any suit, action, or administrative
or legal proceedings shall be instituted or commenced in which any Indemnitee is
involved or shall be named as a defendant either individually or with others,
and if such claim, demand, liability, suit, action or proceeding, if
successfully maintained, will result in any Indemnifying Losses, such Indemnitee
shall give the party making the indemnification ("Indemnitor") written notice
within thirty (30) days of the pendency of the same. If, within thirty (30) days
after the giving of such notice, the Indemnitee receives written notice from
Indemnitor stating that Indemnitor disputes or intends to defend against such
claim, demand, liability, suit, action or proceeding, then Indemnitor shall have
the right to select counsel of its choice and to dispute or defend against such
claim, demand, liability, suit, action or proceeding at its expense, and such
Indemnitee shall fully cooperate with Indemnitor in such dispute or defense so
long as Indemnitor is conducting such dispute or defense diligently and in good
faith; provided, however, that Indemnitor shall not be permitted to settle such
dispute or claim without the prior written approval of Indemnitee, which shall
not be unreasonably withheld.
(ii) Even though Indemnitor selects counsel of its choice, Indemnitee shall
have the right to additional representation by counsel of its choice to
participate in such defense at Indemnitee's sole cost and expense. If no such
notice of intent to dispute or defend is received by Indemnitee within the
aforesaid thirty (30) day period, or if diligent and good faith defense is not
being, or ceases to be, conducted, Indemnitee shall have the right to dispute
and defend against the claim, demand or other liability at the sole cost and
expense of Indemnitor and to settle such claim, demand or other liability, and
in either event to be indemnified as provided for herein; provided, further,
that Indemnitee shall not be permitted to settle such dispute or claim without
the prior written approval of Indemnitor, which shall not be unreasonably
withheld.
(d) Limitations on Indemnification. Notwithstanding any other provision of
------------------------------
this Section 11, (i) the aggregate liability of Seller and the Shareholders (and
----------
any successor or affiliate thereof) under this Section 11 shall not exceed the
----------
amount of the Purchase Price; and (ii) no indemnity shall be owing under this
Section 11 unless the amount of the Indemnifying Loss, in any single case or
- ----------
related series of cases, exceeds $20,000, or if the aggregate amount of all
Indemnifying Losses exceeds $40,000.
-26-
<PAGE>
12. Arbitration.
-----------
(a) Any controversy or claim arising out of this Agreement or breach
thereof other than a claim for injunctive relief, (an "Arbitrable Claim") shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction.
(b) If an Arbitrable Claim arises, the Purchaser, Issuer, Seller or a
majority in interest of the Shareholders may demand arbitration by filing a
written demand with the other parties.
(c) The Seller, a majority in interest of the Shareholders and the
Purchaser and Issuer may agree on one (l) arbitrator. If they cannot agree on
one (l) arbitrator, there shall be three (3) arbitrators; one (1) named in
writing by the Seller and a majority in interest of the Shareholders, and one
(l) named in writing by the Purchaser and Issuer. The written notification of
the name(s) of the arbitrator(s) shall be given to the other parties within five
(S) days after demand for arbitration is given, and a third arbitrator shall be
chosen by the two (2) arbitrators so chosen. Should the Seller and a majority in
interest of the Shareholders or the Purchaser and Issuer refuse or neglect to
name an arbitrator, or refuse or neglect to furnish the arbitrator(s) with any
papers or information demanded following a reasonable opportunity to respond,
the arbitrator(s) may proceed ex parte.
(d) A hearing on the matter to be arbitrated shall take place before the
arbitrator(s) in the city of Dallas, County of Dallas, State of Texas, at the
time and place selected by the arbitrator(s). The arbitrator(s) shall select the
time and place promptly and shall give the Seller, Shareholders, Purchaser and
Issuer written notice of the time and place at least thirty (30) days before the
date selected. At the hearing, any relevant evidence may be presented by any
party hereto, and the formal rules of evidence applicable to judicial
proceedings shall not govern. Evidence may be admitted or excluded in the sole
discretion of the arbitrator(s). The arbitrator(s) shall hear and determine the
matter and shall execute and acknowledge the award in writing and cause a copy
of the writing to be delivered to the Seller, Shareholders, Purchaser, and
Issuer.
(e) If there is only one (1) arbitrator, his or her decision shall be
binding and conclusive on the parties, and if there are three (3) arbitrators,
the decision of any two (2) shall be binding and conclusive. The submission of
an Arbitrable Claim to the arbitrator(s) and the rendering of a
-27-
<PAGE>
decision by the arbitrator(s) shall be a condition precedent to any right of
legal action on the dispute. A judgment confirming the award may be given by any
court having jurisdiction.
(f) If three (3) arbitrators are selected, but no two (2) of the three (3)
are able to reach an agreement regarding the determination of the dispute, then
the matter shall be decided by three (3) new arbitrators who shall be appointed
and shall proceed in the same manner, and the process shall be repeated until a
decision is agreed on by two (2) of the three (3) arbitrators selected.
(g) The costs of the arbitration shall be borne by the losing party or
shall be borne in such proportions as the arbitrator(s) determine(s).
13. Miscellaneous.
-------------
(a) This Agreement is to be governed by and construed and enforced in
accordance WITH THE SUBSTANTIVE LAWS of the State of Texas.
(b) The rights and obligations of the parties under this Agreement are not
assignable by any party without the prior written consent of the other parties.
(c) All paragraph headings herein are inserted for convenience only. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, which together shall constitute one and the same instrument.
(d) This Agreement and the Other Agreements set forth the entire
understanding of the parties, there being no terms, conditions, warranties or
representations other than those contained herein and therein. No amendment to
this Agreement will be valid unless made in writing and signed by the parties
hereto.
(e) This Agreement shall be binding upon, and shall inure to the benefit
of, the heirs, executors, administrators, successors and assigns of Seller and
Shareholders, and the successors and assigns of Purchaser and Issuer, provided,
however, that nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
(f) In the event attorneys' fees or other costs are incurred to secure
performance of any of the obligations provided for in this Agreement, to
establish damages for the breach of this Agreement, or to obtain any other
appropriate
-28-
<PAGE>
relief, whether by way of prosecution or defense, the prevailing party will be
entitled to recover reasonable attorneys' fees and costs incurred therein.
(g) All notices, demands, requests, and other communications required or
permitted by any party to this Agreement shall be in writing and shall be sent
by certified mail, return receipt requested to the following addresses, or such
other addresses as any party may request by notice delivered to the other party
as set forth in this Subsection (g):
If to Purchaser: CAD Warehouse, Inc.
8500 Cameron Road
Austin, Texas 78754
Attention: Robert B. Sims,
General Counsel
with copies to: Michael W. Tankersley, Esq.
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
If to Issuer: Summagraphics Corporation
8500 Cameron Road
Austin, Texas 78754
Attention: Robert B. Sims,
General Counsel
with a copy to: Michael W. Tankersley, Esq.
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
If to Seller: CAD Warehouse, Inc.
1939 East Aurora Road
Twinsburg, Ohio 04487
with copies to: Larry Zink
Zink, Zink & Zink
3711 Whipple Avenue N.W.
Canton, Ohio 44718
If to Shareholders: The individuals and at the
addresses set forth on
Schedule 13(g)
-------- -----
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
PURCHASER:
CAD WAREHOUSE, INC., a Nevada corporation
By: /s/ Michael S. Bennett
-----------------------
Its: President
----------------------
ISSUER:
SUMMAGRAPHICS CORPORATION
- ------------- -----------
By: /s/ Michael S. Bennett
-----------------------
Its: President
----------------------
SELLER:
CAD WAREHOUSE, INC., a Delaware corporation
By: /s/ John G. Panutsos
-----------------------
Its: V.P. & C.E.O.
----------------------
SHAREHOLDERS:
/s/ John G. Panutsos
- -------------------------
John G. Panutsos
/s/ Rosemary Wollet
- -------------------------
Rosemary Wollet
/s/ David C. Hoffer
- -------------------------
David C. Hoffer
<PAGE>
EXHIBIT 10.27
As filed with the Securities and Exchange Commission on April 3, 1995.
Registration No. 33-89120
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUMMAGRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MICHAEL S. BENNETT COPIES TO: ROBERT B. SIMS MICHAEL W. TANKERSLEY
PRESIDENT & CHIEF EXECUTIVE OFFICER SENIOR VICE PRESIDENT HUGHES & LUCE, L.L.P.
SUMMAGRAPHICS CORPORATION AND GENERAL COUNSEL SUITE 2800
8500 CAMERON ROAD SUMMAGRAPHICS CORP. 1717 MAIN STREET
AUSTIN, TEXAS 78754 8500 CAMERON ROAD DALLAS, TEXAS 75201
(512) 835-0900 AUSTIN, TEXAS 78754
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the Registration Statement becomes effective.
----------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
line. ___
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following line. X
---
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Page 1 of 15 sequentially numbered pages.
Index to Exhibits appears on 15.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 3, 1995
SUMMAGRAPHICS CORPORATION
133,323 SHARES OF COMMON STOCK
This Prospectus relates to an offering of up to 133,323 shares of
common stock, par value $.01 per share (the "Common Stock"), of Summagraphics
Corporation, a Delaware corporation (the "Company" or "Summagraphics''), that
were issued pursuant to the Asset Purchase Agreement, executed on November
10, 1994, by and among the Company, CAD Warehouse, Inc., a Nevada corporation
and wholly owned subsidiary of the Company ("CAD Nevada"), CAD Warehouse,
Inc., a Delaware corporation ("CAD Delaware") and the shareholders of CAD
Delaware (the "Selling Shareholders").
The Common Stock being registered is being offered for the accounts of
the Selling Shareholders. See "Selling Shareholders." The Selling Shareholders
have agreed with the Company that, without the Company's prior consent, they
will not sell on any trading day an aggregate number of shares of Common Stock
in excess of the greater of 3,000 shares or 20% of the average daily trading
volume of the Common Stock for the preceding ten trading days. See "Plan of
Distribution." The Company will not receive any proceeds from the sale of the
shares of Common Stock offered hereby. The shares may be offered in transactions
on the Nasdaq National Market, in negotiated transactions, or through a
combination of such methods of distribution, at prices relating to the
prevailing market prices or at negotiated prices. See "Plan of Distribution."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SUGR." The shares of Common Stock being offered by this Prospectus have been
approved for listing on the Nasdaq National Market. On March 29, 1995, the last
sale price of the Common Stock, as reported by the Nasdaq National Market, was
$5.25 per share.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such other
information and representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained herein is
correct as of any time subsequent to its date. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, such securities in any circumstances in which such offer or solicitation
is unlawful.
--------------------
The date of this Prospectus is April 3, 1995.
<PAGE>
AVAILABLE INFORMAT10N
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements,
information statements, and other information filed by the Company with the
Commission pursuant to the requirements of the Exchange Act may be inspected and
copied at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549-1004 and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Company is a publicly
held corporation and its Common Stock is traded on the Nasdaq National Market
under the symbol "SUGR." Reports, proxy statements, information statements, and
other information can also be inspected at the offices of the Nasdaq Stock
Market, Inc.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as it
may determine to furnish or as may be required by law.
The Company has filed with the Commission a Registration Statement on
Form S-3 (referred to herein, together with all exhibits, as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all information set forth in the Registration Statement. Certain
parts of the Registration Statement have been omitted in accordance with the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement which can be inspected at the public
reference rooms at the offices of the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, including any beneficial owner, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests should be directed to:
Summagraphics Corporation
8500 Cameron Road
Austin, TX 78754
Attention: Robert B. Sims, Secretary
Telephone Number: (512) 835-0900
The Company's (i) Annual Report on Form lO-K which contains audited
financial statements for the fiscal year ended May 31, 1994 (the "1994 lO-K"),
(ii) Report on Form lO-Q for the quarter ended August 31, 1994, (iii) Report on
Form lO-Q for the quarter ended November 30, 1994, (iv) Current Report on Form
8-K dated November 23, 1994, as amended by Amendment No. 1 on Form 8-K dated
January 23, 1995, containing supplemental consolidated financial statements for
the fiscal years ended May 31, 1992, 1993 and 1994, and reporting the Company's
merger with CAD Delaware (collectively referred to herein as the "CAD Delaware
8-K"), (v) other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the 1994 lO-K and (vi) Form 8-A, dated July 27, 1987,
containing a description of the Company's Common Stock (Commission File No. 0-
16071), and including
<PAGE>
any amendment or report filed for the purpose of updating such description, are
hereby incorporated by reference into this Prospectus.
All documents filed with the Commission by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering relating to this
Prospectus shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. Any statement
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified, replaced, or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
THE COMPANY
The Company is engaged in the manufacture and sale of digitizing
tablets, pen plotters, ink jet plotters, thermal transfer printers, and wide
format graphic cutters. The Company's products are used in applications with
high-performance computer graphics systems, including computer-aided design,
manufacturing, engineering, publishing and graphic arts. The Company's products
are sold by its sales force primarily through distributors and also to OEMs
which incorporate the Company's products into their own computer products. The
Company's products may be integrated with most personal computers, including
IBM-compatible personal computers and Apple personal computers, workstations
from Sun Microsystems and Digital Equipment, and publishing systems from Scitex,
and are compatible with over four hundred applications including software such
as AutoCAD, Corel Draw, Adobe Illustrator, Microsoft Windows and Aldus Freehand.
The Company's strategy is to pursue sales and market share growth for its
existing product lines, through product enhancements and new product
introductions, to devote substantial resources to research and development,
including the development of new products for use in connection with pen-based
computing and computer graphics, and, as and if appropriate opportunities arise,
to acquire or develop one or more complementary product lines or businesses
serving the computer graphics markets.
The Company is seeking to make acquisitions of related or
complementary businesses primarily in exchange for additional shares of the
Company's Common Stock and/or cash. Effective October 31, 1994, the Company's
wholly owned subsidiary, CAD Nevada, acquired the assets and liabilities of CAD
Delaware in exchange for approximately 510,129 shares of Common Stock in a
transaction accounted for as a pooling of interests. CAD Nevada is engaged in
the mail order distribution of computer peripheral equipment used in computer
assisted design and related applications, including products manufactured by the
Company. The Company is continually evaluating potential acquisition candidates.
However, no assurance can be given at this time that any acquisitions will
become probable or that any material acquisitions will be consummated.
The Company is a Delaware corporation formed in 1972. The Company's
principal executive offices are located at 8500 Cameron Road, Austin, Texas
78754, and its telephone number is (512) 835-0900.
-2-
<PAGE>
RISK FACTORS
The following facts should be considered carefully in evaluating an
investment in the Common Stock.
Product Concentration.
- ----------------------
Digitizers account for approximately 50% of the sales revenues of the
Company. The Company anticipates that digitizers will continue to account for a
substantial portion of its sales for the foreseeable future. If for any reason
sales of digitizers were to decline, the Company's business would be adversely
affected.
Competition and Technological Change.
- ------------------------------------
The markets in which the Company sells its products are competitive
and are subject to changes as technology advances. The Company faces actual and
potential competition from a number of established manufacturers, both domestic
and international, including the Company's largest competitors, CalComp, Inc., a
subsidiary of Lockheed Corporation, and Hewlett-Packard Co., which have
significantly greater financial, technical, manufacturing and marketing
resources than the Company; and Kurta Corporation, Wacom Company, Ltd., Encad,
Inc., and Oce Vandegrinten. CalComp competes primarily with the Company's
digitizer and plotter products; Kurta competes primarily with the Company's
digitizer products; and HewlettPackard competes primarily with the Company's
output products (plotters). The Company's digitizer products face competition
from manufacturers of mice, including Logitech, Inc.
The Company believes that its competitive ability also depends on the
quality, pricing, performance and support of its products, manufacturing costs
and the Company's technical capability and successful introduction of new
products and product enhancements. Inability to match product introductions and
enhancements or price/performance of competitors' products could adversely
affect the Company's market share and profitability.
In 1994, the Company encountered delays in company shipments of its
SummaJet 2 inkjet plotter associated with patent analysis and the speed of
manufacturing ramp up which adversely affected its financial results for the
fiscal quarter ended February 28, 1995. This product began shipment in January
1995.
Recent Losses.
- --------------
The Company incurred a net loss of $16,425,552 for the year ended May
31, 1993, compared to net income of $2,786,685 for the year ended May 31, 1994.
The Company's net income for the six months ended November 30, 1994 was $687,325
compared to a net income of $201,572 for the six months ended November 30, 1993.
The 1993 loss was attributable to a number of factors, including adverse
operating conditions in general of the Company's markets, the incurrence of an
$8.5 million restructuring charge, $1.95 million of expenses attributable to a
patent lawsuit subsequently settled, a write-down of $698,000 of intangible
assets related to an acquisition, a $547,000 increase in the Company's reserve
for bad debts attributable to a large foreign customer and to costs to replace
the Company's CEO, increased promotional expenses, and expenses associated with
increased rent expense after the sale and leaseback of the Company's Austin,
Texas facility.
The Company has continued to incur a high level of R&D and marketing
costs as it has sought to design and introduce new products in order to remain
competitive in its markets. Gross margins continue to encounter pressure from
competitive products. While management believes that the Company will continue
to be profitable and will avoid large operating losses of the magnitude
incurred in 1993, the Company continues to face competitive pressures that
-3-
<PAGE>
can have a substantial adverse impact on its profitability. Significant dclays
in developing and introducing new products, or a failure to control
manufacturing costs, could contribute to losses in the future, which could be
material to the Company's business. There can be no assurance that the Company's
profitable operations in recent quarters will continue.
Protection of Proprietary Information.
- ---------- -- ----------- ------------
The Company relies in part upon trade secrets, know-how and patents to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technologies or that the
confidentiality agreements upon which the Company relies to protect its trade
secrets and know-how will be enforced by the courts. There can be no assurance
that the Company has established or will be able to maintain a patent position
sufficient to protect its processes or products. Other companies have obtained,
and can be expected to obtain in the future, patents covering a variety of
configurations and processes related to the Company's products, which could
require the Company to obtain licenses. There can be no assurance that the
Company will be able to obtain such licenses, if required, upon commercially
reasonable terms. The Company has from time to time been involved in litigation
to defend its rights in proprietary information which has required the
expenditure of substantial amounts. There can be no assurance that the Company
will not in the future incur additional expenses in this regard.
International Sales and Currency Exchange.
- ------------- ----- --- -------- ---------
During 1993 and 1994, international sales and operations represented
approximately 44.5% and 45.7%, respectively, of the Company's net revenues. At
May 31, 1994, the Company had identifiable foreign assets of $18.8 million.
Export sales to foreign countries from the United States totaled $9.8 million in
1993 and $12.1 million in 1994. In addition, the Company sells products to
systems integrators located within the United States which market the Company's
products worldwide.
International sales and operations are subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products for foreign countries,
difficulties in staffing and managing foreign operations, potential difficulties
in repatriation of earnings, and the burdens of complying with a wide variety of
foreign laws. The Company is also at risk of adverse currency fluctuations. An
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in foreign markets. As the Company increases its international
sales, its net revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower levels of business activity which typically
occur during the summer months in Europe. The Company's results in Western
Europe during 1993 and 1994 were negatively affected by the recession there, and
sales to China have decreased as a result of currency fluctuations and changes
in regulatory requirements affecting certain customers. There can be no
assurance that these factors will not have a material adverse effect on the
Company's future international sales and operations, and, consequently, on the
Company's business.
Potential Fluctuations in Quarterly Results.
- --------- ------------ -- --------- --------
The Company achieved profitable operations on a quarterly basis
commencing with the first fiscal quarter of 1994. Because of the rate of
technological change and competition generally there can be no assurance that
such profitability will continue on a quarterly basis in the future or that
levels of profitability may not vary over any such quarterly periods. The
Company operates with relatively small backlog and substantially all of its
net sales in each quarter result from orders booked within a generally short
cycle between order and shipment (typically less than 45 days). Accordingly,
if near-term demand for the Company's products
-4-
<PAGE>
weakens or if significant anticipated sales in any quarter are not realized as
expected, the Company's net sales for that quarter could be adversely affected.
The Company's net sales may fluctuate as a result of other factors, including
increased competition, variations in the net sales mix, announcements of new
products by the Company or its competitors, delays in shipment of existing or
new products and capital spending patterns of the Company' s customers.
Dependence on Key Employees.
- ---------- -- --- ----------
The Company's success if dependent in large measure on key technical,
sales and management personnel, the loss of one or more of whom could adversely
affect its business. The Company does not have employment agreements with any of
its officers or key personnel, except its President. The future success of the
Company will depend in large part on its continuing ability to attract and
retain talented, qualified employees. While the Company to date has not
experienced any difficulty in attracting and retaining qualified employees,
there can be no assurance that the Company can retain its key employees or that
it can attract, assimilate and retain its key employees or that it can attract,
assimilate and retain other skilled technical personnel.
Limited Sources of Supply.
- ------- ------- -- -------
Certain components used in, and certain of the Company's products, are
currently available from only one or a limited number of sources. The Company
has no long-term contracts with these suppliers. The Company's inability to
obtain sufficient supplies of sole or limited-source components or to develop
alternative sources as needed has in the past and could in the future result in
delays or reductions in product shipments. Operating results also could be
materially adversely affected by receipt of defective components or an increase
in component prices. Because the Company believes innovation is important to its
strategy, Company products under development may incorporate third-party
components that are under development, often with the assistance of the Company.
Typically, these component parts are not available until a short time before the
scheduled commercial shipment of the Company's products. Components may not
become available, may be delayed or may have quality problems, which could
result in production and sales delays or cancellations of orders for Company
products. Such factors would have a material adverse effect on the Company's
operating results.
Possible Anti-Takeover Effects of Certain Charter and Bylaw Provisions.
- -----------------------------------------------------------------------
The Company's Third Restated Certificate of Incorporation (the
"Charter") and Bylaws contain provisions that may discourage acquisition bids
for the Company. The Company has a substantial amount of authorized but unissued
capital stock available for issuance. The Company's Charter contains provisions
which authorize the Board of Directors, without the consent of the shareholders,
to issue additional shares of Common Stock and issue shares of Preferred Stock
in series, including establishment of the rights, powers and preferences,
including voting rights, of holders of the Preferred Stock, and grant authority
to the Board to amend the Company's Bylaws. Additionally, the Company's Bylaws
empower the Board to increase or decrease the number of directors, subject to
certain limitations, and specify that directors will generally hold office until
the next annual meeting of shareholders. These provisions may have the effect,
either alone or in combination with each other, of (i) limiting the price that
certain investors might be willing to pay in the future for shares of the Common
Stock, (ii) delaying, deferring or otherwise discouraging an acquisition or
change in control of the Company deemed undesirable by the Board of Directors
or (iii) adversely affecting the voting power of shareholders who own Common
Stock.
-5-
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders listed in the following table have agreed to
sell the number of shares of Common Stock set forth opposite their name. The
table sets forth information with respect to the beneficial ownership of the
Company's Common Stock by the Selling Shareholders immediately prior to this
offering and as adjusted to reflect the sale of shares of Common Stock pursuant
to the offering. All information with respect to the beneficial ownership has
been furnished by the Selling Shareholders:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENERLCIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING (l)
---------------------- ----------------------
SHARES TO
NUMBER OF PERCENT OF BE OFFERED NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS FOR SALE SHARES CLASS
- ------------------------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
JOHN G. PANUTSOS 255,065 5.6% 66,661 188,404 4.1%
ROSEMARY WOLLET 127,532 2.8% 33,331 94,201 2.1%
DAVID C. HOFFER 127,532 2.8% 33,331 94,201 2.1%
</TABLE>
(l) Assumes all the shares of Common Stock that may be offered are sold.
PLAN OF DISTRIBUTION
The sale of the Common Stock offered hereby may be effected from time to
time directly or by one or more broker-dealers or agents, in one or more
transactions (which may involve crosses and block transactions) on the Nasdaq
National Market, in negotiated transactions, or through a combination of such
methods of distribution, at prices related to prevailing market prices or at
negotiated prices.
In the event one or more broker-dealers or agents agree to sell the
Common Stock, they may do so by purchasing the Common Stock as principals or by
selling the Common Stock as agent for the Selling Shareholders. Any such broker-
dealers may receive compensation in the form of discounts, concessions, or
commissions from the Selling Shareholders and/or the purchasers of the shares of
Common Stock for which such broker-dealer may act as agent or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary compensation). The Company may be required to enter
into indemnity agreements with any such broker-dealers or agents providing
assurances as to the accuracy of this Prospectus and providing indemnity to any
such broker-dealer or agent in the event of any material misstatement or
omission of fact in this Prospectus.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Common Stock may not simultaneously
engage in market-making activities with respect to the Company's Common Stock
for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rule lOb-6.
In order to comply with certain states' securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Common Stock may not be sold
unless the Common Stock has been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.
The shares offered hereby are being registered pursuant to rights
granted the Selling Shareholders in the Asset Purchase Agreement providing for
the acquisition of CAD Delaware. The Asset Purchase Agreement requires the
Company to indemnify the Selling Shareholders
-6-
<PAGE>
against liabilities, including liabilities under the Securities Act of 1933,
that may arise as a consequence of any material misstatement or omission of fact
in this Prospectus. The Asset Purchase Agreement provides that the Selling
Shareholders will not, without the Company's prior consent, sell on any trading
day an aggregate number of shares of Common Stock in excess of the greater of
3,000 shares or 20% of the average daily trading volume of the Common Stock for
the preceding ten trading days. All of the proceeds generated from the sale of
the shares of Common Stock offered hereby will be immediately deposited into the
accounts of the Selling Shareholders.
USE OF PROCEEDS
The Company will not receive any proceeds from the offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Robert B. Sims, Senior Vice President and General Counsel of the
Company.
EXPERTS
The historical consolidated financial statements and schedules of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and for
each of the years in the three-year period ended May 31,1994, and the
supplemental consolidated financial statements of Summagraphics Corporation and
subsidiaries as of May 31, 1993 and 1994, and for each of the years in the
three-year period ended May 31, 1994, have been incorporated by reference herein
and in the Registration Statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The reports of KPMG Peat Marwick LLP covering the May 31, 1994
historical and supplemental consolidated financial statements refer to a change
in the method of accounting for income taxes in 1993. In addition, the report of
KPMG Peat Marwick LLP on the supplemental consolidated financial statements
indicates that the supplemental consolidated financial statements give
retroactive effect to the merger of Summagraphics Corporation and CAD Warehouse,
Inc. on November 10, 1994, which has been accounted for as a pooling of
interests. Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These supplemental financial statements do not extend through the date of
consummation. However, they will become the historical consolidated financial
statements of Summagraphics Corporation and subsidiaries after financial
statements covering the date of consummation of the business combination are
issued.
The financial statements of CAD Warehouse, Inc. as of September 30, 1994
and December 31, 1993 and for the nine-month period and the year then ended have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
-7-
<PAGE>
PART 11
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Registration fee $ 345
Accounting fees and expenses 10,000
Legal fees and expenses 10,000
Miscellaneous expenses 500
-------
Total $20.845
=======
</TABLE>
* Estimated
All of the above expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Third Restated Certificate of Incorporation and Bylaws
provide, consistent with the provisions of the Delaware General Corporation Law,
that no director of the Registrant will be personally liable to the Company or
any of its shareholders for monetary damages arising from the director's breach
of fiduciary duty as a director. However, this does not apply with respect to
any action in which the director would be liable under Section 174 of Title 8 of
the Delaware General Corporation Law nor does it apply with respect to any
action in which the director (i) has breached his duty of loyalty to the Company
and its shareholders, (ii) does not act in good faith or, in failing to act,
does not act in good faith, (iii) has acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, has acted in a
manner involving intentional misconduct or a knowing violation of law, or (iv)
has derived an improper personal benefit.
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law, every Delaware corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of any corporation, partnership,
joint venture, trust or other enterprise, against any and all expenses,
judgments, fines and amounts paid in settlement and reasonably incurred in
connection with such action, suit or proceeding. The power to indemnify applies
only if such person acted in good faith and in a manner he reasonably believed
to be in the best interest, or not opposed to the best interest, of the
corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
the corporation as well, but only to the extent of defense and settlement
expenses and not to any satisfaction of a judgment or settlement of the claim
itself, and with the further limitation that in such actions no indemnification
shall be made in the event of any adjudication unless the court, in its
discretion, believes that in light of all the circumstances indemnification
should apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of the actions referred to
therein, such person is entitled, pursuant to Section 145, to indemnification
as described above.
II-1
<PAGE>
The directors and officers of the Registrant are insured under a
directors' and officers' liability insurance policy insuring directors and
officers against liabilities for which they are entitled to indemnity as
described above in the event the Registrant is unable or fails to make payment.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Index to
Exhibits on page II-5 of this Registration Statement, which Index is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(l) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section lO(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
provided, kowever, that paragraphs (I)(i) and (I)(ii) do not apply if
--------- --------
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) and 15(d) of the Exchange
Act (and, where applicable, each filing of an
II-2
<PAGE>
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Austin, State of Texas, on March 27, 1995.
SUMMAGRAPHICS CORPORATION
By: /s/ Michael S. Bennett
-------------------------------------
Michael S. Bennett
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on March 27, 1995.
SIGNATURE TITLE
--------- -----
/s/ Michael S. Bennett President, Chief Executive Officer and
- -------------------------- Director (Principal Executive Officer)
Michael S. Bennett
/s/ David G. Osowski Senior Vice President, Controller and Treasurer
- -------------------------- (Principal Financial and Accounting Officer)
David G. Osowski
- -------------------------- Director
Ken Draeger
/s/ Andrew Harris* Director
- --------------------------
Andrew Harris
/s/ G. Glenn Henry* Director
- --------------------------
G. Glenn Henry
/s/ Stephen J. Keane* Director
- --------------------------
Stephen J. Keane
/s/ Dennis G. Sisco* Director
- --------------------------
Dennis G. Sisco
*By /s/ Michael S. Bennett
- ------------------------------------
Michael S. Bennett, Atforney-in-Fact
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
Summagraphics Corporation:
We consent to the use of our reports incorporated herein by reference
and to the reference to our Firm under the heading "Experts" in the prospectus.
Our report on the historical May 31, 1994 consolidated financial statements is
incorporated by reference from the Company's 1994 Annual Report on Form lO-K;
our report on the supplemental May 31, 1994 consolidated financial statements is
incorporated by reference from the Company's January 23, 1995 Amendment No. 1 on
Form 8-K; and our report on September 30, 1994 CAD Warehouse, Inc. financial
statements is incorporated by reference from the Company's November 23, 1994
Form 8-K.
Our reports covering the historical and supplemental consolidated
financial statements of Summagraphics Corporation and subsidiaries refer to a
change in the method of accounting for income taxes in 1993. Our report with
respect to the supplemental consolidated financial statements indicates that the
supplemental consolidated financial statements give retroactive effect to the
merger of Summagraphics Corporation and CAD Warehouse, Inc. on November 10,
1994, which has been accounted for as a pooling of interests. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These supplemental
financial statements do not extend through the date of consummation. However,
they will become the historical consolidated financial statements of
Summagraphics Corporation and subsidiaries after financial statements covering
the date of consummation of the business combination are issued.
KPMG PEAT MARWICK LLP
Austin, Texas
March 27, 1995
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS Page
- ------ ----------- -- -------- ----
4.1 Specimen of Common Stock Certificate (incorporated by --
reference from Exhibit 4.3 to the Company's
Registration Statement on Form S-l (Registration No.
33-15658)).
4.2 Asset Purchase Agreement (incorporated by reference --
from Exhibit 2.1 to the Company's Report on Form 8-K
dated November 23, 1994).
**5.1 Opinion of Robert B. Sims, Senior Vice President and --
General Counsel of the Registrant.
**23.1 Consent of Robert B. Sims, Senior Vice President and --
General Counsel of the Registrant (contained in
Exhibit 5).
*23.2 Consent of Independent Auditors (included in Part II --
on page II-5 of this Registration Statement).
**24.1 Power of Attorney. --
- ----------
* Filed Herewith.
** Previously Filed.
<PAGE>
EXHIBIT 10.28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934
SUMMAGRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portion of its current report on Form
8-K as set forth in the pages attached hereto.
(List all such items, financial statements, exhibits or other portions amended)
Financial Statements
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SUMMAGRAPHICS CORPORATION
Registrant
1/23/95 /s/ Robert B. Sims
- ------------------------------- -------------------------------
Date: ROBERT B. SIMS
Senior Vice President
Legal Counsel & Corporate Secretary
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Amendment No. 1 To
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported November 23,1994)
SUMMAGRAPHICS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-16071 06-0888312
- --------------------------------------------------------------------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
8500 Cameron Road Austin, Texas 78754
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 873-1540
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changes since last report)
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Supplemental Consolidated Financial Statements are attached
hereto as an amendment to Form 8-K dated November 23, 1994.
(b) Pro-Forma Financial Information
The registrant has filed Form 10-Q for the second quarter ended
November 30, 1994, reflecting historical financial statements which
include CAD Warehouse, Inc. In addition the supplemental consolidated
financial statements attached hereto reflect the historical financial
statements of Summagraphics Corporation and CAD Warehouse, Inc.
Therefore the filing of pro-forma financial statements as noted in the
previous Form 8-K is no longer required.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SUMMAGRAPHICS CORPORATION
By: /s/ Robert B. Sims
--------------------------
Robert B.Sims
Senior Vice President
Secretary and General Counsel
Dated: January 23, 1994
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1993 1994
- ------- ------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,648,635 $ 818,733
Accounts receivable (less allowance for doubtful accounts of
$1,118,515 in 1993 and $1,089,944 in 1994) 18,007,933 17,914,496
Inventories:
Materials 4,477,873 5,268,551
Work-in-process 1,271,577 1,043,386
Finished goods 6,557,373 5,223,825
------------- -----------
12,306,823 11,535,762
Prepaid expenses and other current assets 1,152,520 1,117,440
------------- -----------
TOTAL CURRENT ASSET 34,115,911 31,386,431
------------- -----------
Fixed assets:
Land 299,000 290,000
Building 1,301,000 1,319,000
Machinery and equipment 10,816,418 12,133,009
Furniture and fixtures 1,267,029 1,227,762
Leasehold improvements 1,017,115 1,009,171
Construction-in-progress 422,394 186,372
------------- -----------
15,122,956 16,165,314
Less: accumulated depreciation and amortization (7,364,913) (9,724,663)
------------- -----------
Net fixed assets 7 758,043 6,440,651
------------- -----------
Intangible and other assets, net of accumulated amortization (note 3) 10 401,590 9,508,739
------------- -----------
$ 52,275,544 $47,335,821
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,102,321 $ 9,582,737
Accrued liabilities (notes 2 and 4) 14,137,686 9,273,696
Notes payable (note 5) 2,805,000 -
Current portion of long-term debt (note 5) 232,000 148,019
Current obligations under capital leases 510,247 458,022
------------- -----------
TOTAL CURRENT LIABILITIES 22,787,254 19,462,474
------------- -----------
Long-term liabilities, less current portion:
Long-term debt (note 5) 3,627,000 947,306
Capital lease obligations 878,893 534,863
Deferred gain on sale of building 544,149 510,139
Restructuring charges (note 2) 2,124,528 1,803,844
------------- -----------
Total long-term liabilities 7,174,570 3,796,152
------------- -----------
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized 5,000,000 shares
Common stock, $.01 par value, authorized 20,000,000 shares,
issued 4,480,405 shares in 1993 and 4,545,692 shares in 1994 44,804 45,457
Additional paid-in capital 38,397,288 38,639,427
Retained earnings (accumulated deficit) (15,660,892) (13,830,207)
Cumulative translation adjustment 7,064 (302,938)
------------- -----------
22,788,264 24,551,739
------------- -----------
Less: Treasury stock, at cost - 48,720 shares in 1993 and 1994 (465,044) (465,044)
Stockholder note receivable (9,500) (9,500)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 22,313,720 24,077,195
------------- -----------
$ 52,275,544 $47,335,821
============= ===========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31, 1992 1993 1994
- ------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Net sales $77,295,442 $ 81,403,985 $77,755,350
Cost of sales 43,834,023 51,771,743 50,526,127
----------- ------------ -----------
GROSS PROFIT 33,461,419 29,632,242 27,229,223
Selling, general and administrative 24,050,888 29,892,137 18,933,930
Research and development 7,476,842 8,002,614 5,630,796
Restructuring and other charges (note 2) 1,124,000 8,487,461 -
----------- ------------ -----------
OPERATING INCOME (LOSS) 809,689 (16,749,970) 2,664,497
----------- ------------ -----------
Other income (expense):
Interest income 97,621 124,494 104,870
Interest expense (633,329) (429,420) (421,375)
Miscellaneous, net (445,726) 220,097 (206,429)
----------- ------------ -----------
(981,434) (84,829) (522,934)
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHOD (171,745) (16,834,799) 2,141,563
Provision for income taxes (note 8) 1,058,981 - -
----------- ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD (1,230,726) (16,834,799) 2,141,563
Extraordinary gain (note 5) - - 645,122
Cumulative effect of change in method of
accounting for income taxes - 411,247 -
----------- ------------ -----------
NET INCOME (LOSS) $(1,230,726) $(16,423,552) $ 2,786,685
Net income (loss) per common share:
Income (loss) before extraordinary gain and
cumulative effect of change in
accounting method $(0.30) $(3.89) $ 0.47
Extraordinary gain - - 0.14
Cumulative effect of change in method of
accounting for income taxes - 0.09 -
----------- ------------ -----------
NET INCOME (LOSS) PER COMMON SHARE $(0.30) $(3.80) $ 0.61
=========== ============ ===========
Weighted average share used in computing
net income (loss) per common share 4,113,458 4,323,325 4,519,096
=========== ============ ===========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
REPRESENTING INCREASES (DECREASES) IN CASH
<TABLE>
YEARS ENDED MAY 31, 1992 1993 1994
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities: $ (1,230,726) $ (16,423,552) $ 2,786,685
Net income (loss)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on retirement of debt - - (645,122)
Cumulative effect of change in
accounting method - (411,247) -
Depreciation and amortization 5,287,421 5,536,187 3,579,741
Restructuring charges 660,832 8,487,461 -
(Gain) loss on sale of fixed assets 31,348 253,268 (3,994)
Compensation in form of stock 44,837 110,088 35,135
Changes in assets and liabilities:
Accounts receivable (3,838,002) 2,359,708 34,438
Inventories (152,133) (1,111,469) 644,061
Prepaid and other current assets (83,971) 125,506 (7,755)
Accounts payable 100,701 (1,424,087) 4,465,416
Accrued liabilities 993,713 (197,639) (4,828,368)
Other liabilities (11,001) - (320,683)
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES 1,803,019 (2,695,776) 5,739,554
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (1,967,348) (2,781,865) (1,527,561)
Proceeds from sale of fixed assets 6,133,450 28,761 54,850
Intangible assets, principally patent costs (614,882) (516,405) 37,979
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY
INVESTMENT ACTIVITIES 3,551,220 (3,269,509) (1,434,732)
------------- ------------- -------------
Cash flows from financing activities:
Cash dividends paid - (450,000) (956,000)
Proceeds from long-term borrowings - 983,000 -
Proceeds from short-term borrowings - 2,805,000 -
Proceeds from sales of common stock 378,600 354,206 207,657
Purchases of treasury stock (106,552) (369,420) -
Repayment of short-term debt - - (2,805,000)
Repayment of long-term debt and capital
lease obligations (373,640) (2,864,320) (2,623,379)
------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (101,592) 458,466 (6,176,722)
------------- ------------- -------------
Effect of exchange rate changes on cash (471,154) (321,691) 41,998
------------- ------------- -------------
Net change in cash 4,781,493 (5,828,510) (1,829,902)
Cash at beginning of year 3,695,652 8,477,145 2,648,635
------------- ------------- -------------
Cash at end of year $ 8,477,145 $ 2,648,635 $ 818,733
============= ============= =============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
SUMMARGRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained Treasury
------------------ Additional Earnings Cumulative Stock and
Number of Paid-in (Accumulated Translation Stockholder Stockholders'
Years ended May 31, 1992, 1993 and 1994 Shares Amount Capital Deficit) Adjustment Note Equity
--------- ------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1991 4,090,913 $40,909 $37,485,194 $ 2,443,387 $(266,463) $(184,717) $ 39,518,310
Sale of common stock 121,000 1,210 48,519 - - - 49,729
Sale of common stock pursuant to
the 1987 Employee Stock Plan 14,047 140 84,142 - - - 84,282
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 36,656 367 244,222 - - - 244,589
Awards granted pursuant to the 1987 stock plan 5,400 54 44,783 - - - 44,837
Tax benefit from the exercise of options
below fair market value - - 14,403 - - - 14,403
Net loss - - - (1,230,726) - - (1,230,726)
Purchase of treasury stock at $7.10 per share - - - - - (106,552) (106,552)
Unrealized translation gain - - - - 420,219 - 420,219
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1992 4,268,016 42,680 37,921,263 1,212,661 153,756 (291,269) 39,039,091
--------- ------- ----------- ------------ --------- --------- ------------
Sale of common stock 145,929 1,460 58,540 - - - 60,000
Sale of common stock pursuant to the
1987 Employee Stock Plan 3,000 30 17,970 - - - 18,000
Imputed benefit from the granting of options
below fair market value - - 75,000 - - - 75,000
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 58,610 586 275,620 - - - 276,206
Awards granted pursuant to the 1987 stock plan 4,850 48 35,040 - - - 35,088
Net loss - - - (16,423,553) - - (16,423,553)
Sale of treasury stock at $8.00 per share - - 13,855 - - 186,145 200,000
Purchase of treasury stock at $7.69 per share - - - - - (369,420) (369,420)
Unrealized translation gain - - - - (146,692) - (146,692)
Dividends paid to stockholders' of
CAD Warehouse, Inc., an S-corporation - - - (450,000) - - (450,000)
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1993 4,480,405 44,804 38,397,288 (15,660,892) 7,064 (474,544) 22,313,720
--------- ------- ----------- ------------ --------- --------- ------------
Sale of common stock pursuant to the
1987 Employee Stock Plan 11,333 113 42,219 - - - 42,332
Sale of common stock pursuant to the
1988 Employee Stock Purchase Plan 46,854 469 164,856 - - - 165,325
Awards granted pursuant to the 1987 stock plan 7,100 71 35,064 - - - 35,135
Net income - - - 2,786,685 - - 2,786,685
Unrealized translation gain - - - - (310,002) - (310,002)
Dividends paid to stockholders' of
CAD Warehouse, Inc., an S-corporation - - - (956,000) - - (956,000)
--------- ------- ----------- ------------ --------- --------- ------------
Balance at May 31, 1994 4,545,692 $45,457 $38,639,427 $(13,830,207) $(302,938) $(474,544) $ 24,077,195
========= ======= =========== ============ ========= ========= ============
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1992, 1993 and 1994 Summagraphics Corporation and Subsidiaries
NOTE 1:
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
Principles of Consolidation. The Company is primarily engaged in
the manufacture and sale of digitizing tablets (computer input devices), and
plotters (computer output devices). These products are used in applications
with high performance computer graphics systems such as computer-aided
design. The Company also engages in the manufacture and sale of cutters. The
consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
Cash Equivalents. For the purpose of cash flows, the Company
considers all highly liquid investments which maturities of three months
or less to be cash equivalents. The Company had no cash equivalents at May
3l, 1993 and 1994.
Inventories. Inventories are stated at the lower of cost or
market. Cost is applied on a first-in. first-out (FIFO) basis; market is
determined on the basis of estimated net realizable value.
Fixed Assets. Fixed assets acquired are stated at cost.
Equipment and furniture under capital leases are stated at the lower of
the present value of future minimum lease payments or fair value are the
inception of the lease.
Building depreciation is provided on the straight-line method
ova a period of 15 years, depreciation of furniture and fixtures and
machinery and equipment (including amortization of assets covered by
capital leases) is provided on the straight-line method, based on
estimated useful lives ranging from 3 to 10 years. Amortization of
leasehold improvements is provided over the lesser of estimated useful
life of the improvement or the life of the lease. Maintenance and repairs
are charged to operations as incurred; significant betterments are
capitalized.
Intangible Assets. Goodwill represents the amount by which the
cost to purchase Houston Instrument exceeded the fair market value of the
related net assets. Goodwill is being amortized over 40 years using the
straight-line method.
Other acquired identifiable intangible assets are amortized
using the straight-line method over lives not exceeding 7.5 years.
Other intangibles consist of patent application costs which are
amortized on a straight-line basis over the lesser of the lives of the
applicable patents or estimated life of the product utilizing the patent.
Revenue Recognition. The Company recognizes revenue when product
is shipped to customers. Under contract, certain customers may return a
small percentage of the prior quarter's net purchases provided the product
is in resale condition and a new order of equal value is placed for
delivery within 30 days. The Company carries reserves for these and other
returns based on historical trends.
Income Taxes. Effective June 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Prior to June 1, 1992 the Company recorded taxes under the
provisions set forth in Statement of Financial Accounting Standards No.
96.
Per Share Data. Net income (loss) per common and common
equivalent share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options and warrants,
calculated by using the Treasury Stock method, and are included when their
effect is not antidilutive.
Foreign Exchange. Assets and liabilities of foreign subsidiaries
generally are translated into U.S. dollars at exchange rates in effect at
the end of the year whereas revenues and expenses are translated using
average exchange rates that prevailed during the year. Gains and losses that
result from this process are shown as an adjustment in stockholders' equity.
Reclassifications. Certain reclassifications have been made to
conform prior years' data to the current presentation.
Basis of Presentation. The supplemental consolidated financial
statements of the Company have been prepared to give retroactive effect to
the merger with Cad Warehouse, Inc., an S-Corporation, on November 10, 1994.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation,
however, they will become the historical consolidated financial statements
of the Company after financial statements covering the date of consummation
of the business combination are issued.
NOTE 2:
RESTRUCTURING
AND OTHER
CHARGES
In the fourth quarter of 1993, the Company incurred an $8,487,461
restructuring charge in response to the difficult worldwide economic
conditions as well as to maximize cost efficiencies. The restructuring
charge was provided to cover costs of reductions in workforce and the
relocation of the Company's Connecticut manufacturing operations to its
Texas facility. The charge included a provision of $248,000 for fixed asset
write downs due to the consolidation. $2,606,000 of lease and leasehold
improvement costs for the unused portion of its Connecticut facility,
S2,629,127 for severance and related charges due to a 15% reduction of
workforce in June 1993 and $l,636,334 for manufacturing consolidation costs
consisting of moving, relocation, and severance.
In the third quarter of 1992, the Company incurred a $1,124,000
restructuring charge as a result of implementing a computer system
allowing the management and administrative processes of the Connecticut and
Texas operations to be
<PAGE>
consolidated. The charge included a provision of $70,000 for asset write downs.
$702,000 for severance and related charges and $352,000 for consolidation
costs.
NOTE 3:
INTANGIBLE AND
OTHER ASSETS
Significant components of intangible and other assets at May 31, 1993 and 1994
are as follows:
1993 1994
---- ----
Goodwill $ 9,570,084 $ 9,570,084
Other acquired intangibles 3,149,191 2,788,776
----------- -----------
12,719,275 12,358,860
Less accumulated amortization 2,703,829 3,232,121
----------- -----------
10,015,446 9,126,739
Other assets 386,144 382,000
=========== ===========
$10,401,590 $ 9,508,739
NOTE 4:
ACCRUED
LIABILITIES
Significant components of accrued liabilities at May 31, 1993 and 1994 are as
follows:
1993 1994
---- ----
Payroll and other compensation $ 2,048,649 $ 1,460,817
Federal, state, foreign and
payroll withholding taxes 1,367,516 774,286
Sales returns and allowances 409,900 1,040,343
Restructuring costs 6,115,091 2,081,346
Other 4,196,530 3,916,904
----------- -----------
$14,137,686 $ 9,273,696
=========== ===========
NOTE 5:
INDEBTEDNESS
a. Long-Term Debt. Long-term debt at May 31, 1993 and 1994 consists of the
following:
1993 1994
---- ----
Convertible subordinated note (i) $ 2,500,000 $ -
Other (ii) 1,359,000 1,095,325
----------- -----------
3,859,000 1,095,325
Less current maturities 232,000 148,019
----------- -----------
$ 3,627,000 $ 947,306
=========== ===========
The aggregate maturities of long-term debt are as follows:
1995 $ 148,019
1996 148,017
1997 88,810
1998 88,810
1999 and thereafter 621,669
-----------
$ 1,095,325
===========
i. Convertible Subordinated Note. In connection with the acquisition of Houston
Instrument, the Company issued to the seller an 8%, five-year, interest only,
$5,000,000 convertible subordinated note due on May 1, 1995. The note was
convertible at any time after May 1, 1991 into 333,333 shares of common stock of
the Company at $15.00 per share, subject to adjustment, through the exercise
of attached warrants. In July 1992, the Company exercised its option to prepay
$2,500,000, thereby reducing the remaining note balance to $2,500,000. In May
1994, the Company repurchased the note (with a remaining balance of $2,500,000)
for $1,800,000 resulting in an extraordinary gain, net of related costs, of
$645,122. In connection with the more repayment, the Company cancelled the
existing 333,000 warrants. The Company then issued 300,000 warrants to purchase
shares of the Company's common stock (150,000 of which are exercisable at $15.00
a share, subject to adjustment, and expire on May 1, 1995 and 150,000 of which
are exercisable at $9.00 a share, subject to adjustment, and expire on May 1,
1997).
ii. Other. Consists primarily of local borrowings of a Belgian subsidiary,
including a $1,065,600 mortgage due in the year 2005, on the subsidiary's
facility in Gistel, Belgium. Interest rates on this debt range from 7.55% to 10%
per annum.
<PAGE>
b. Revolving Credit Agreements. On May 25. 1992, the Company entered into an
$8,000,000 Revolving Credit Agreement which was amended in May 1994, reducing
the credit line to $6,000,000 and extending the expiry to November 30, 1994.
Borrowings under this agreement may be in the form of various bank instruments
at rates based on either the bank's base rate or the London Inter-Bank Offered
Rate ("LIBOR"), at the Company's option, and are secured by substantially all of
the Company's North American assets. Under the terms of the agreement the
Company is subject to certain covenants and restrictions. At May 31, 1994, the
Company was in compliance with all covenants and restrictions. At May 31, 1994,
$5,560,239 was available under this agreement, net of outstanding letters of
credit of $439,761.
In July 1994, the Company entered into an $8,000,000 Credit Agreement with a new
bank replacing the $6,000,000 facility in place at May 31, 1994. Under the terms
of the agreement the Company is subject to certain covenants and restrictions.
Borrowings under this agreement may be in the form of various bank instruments
at rates based on the bank's base rate and are secured by substantially all of
the Company's North American assets.
On October 12, 1992, one of the Company's Belgian subsidiaries entered into a
$4,000,000 Credit Agreement. This agreement has no defined expiry date and
requires the bank to give six months notice of termination, if no defaults
exist. Borrowings under this agreement may be in the form of various bank
instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement the subsidiary is subject to
certain covenants and restrictions. As of May 31, 1994 the subsidiary was in
compliance with all covenants and restrictions. At May 31, 1994, $4,000,000 was
available under this agreement.
The following table sets forth the Company's borrowing activity and
financing rates under bank note agreements during the years ended May 31,
1993 and 1994:
1993 1994
---- ----
Average of daily balances outstanding $1,055,462 $ 260,422
Maximum amount outstanding $6,004,100 $2,805,000
Weighted average daily interest rate 5.78% 5.22%
a. Common Stock Reserved. The following amounts of shares of common stock are
reserved for issuance at May 31, 1994:
Stock Option Plans:
Employee stock plan 1,274,914
Non-employee director stock option plan 75,000
Performance unit plan 50,000
---------
1,399,914
Warrants 300,000
Employee stock purchase plan 72,138
---------
1,772,052
=========
b. Stock Option Plans. The Company's 1987 Stock Plan was amended at a Special
Meeting of Stockholders held on May 25, 1994 increasing the number of shares
authorized for issuance from 750,000 to 1,350,000. This plan provides for the
granting of options to purchase a total of 1,350,000 shares of common stock to
directors, consultants, officers and other employees.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors' Plan")
for outside directors provides for the issuance of options for 75,000 shares
of common stock exercisable for a period of ten years from date of the
option grant. Under the Directors' Plan, each member of the Board of Directors
("Board") who is neither an employee nor an officer of the Company will be
automatically granted on October 31 of each year an option to purchase 3,000
shares of the Company's common stock.
In addition to these two plans the Board may also grant qualified and
non-qualified options, stock purchase rights and stock awards.
Any options, awards, etc. granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc. shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in such
installments as the Board may specify. Each option shall expire on the date
specified by the Board, subject to earlier termination provisions, but not more
than, under the 1987 Stock Plan, ten years and one day and, under the
Directors' Plan, ten years, from the date of grant.
<PAGE>
A summary of changes in stock issuable under employee and non-employee
option plans follows:
<TABLE>
<CAPTION>
Range of
Shares Exercise Prices
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at May 31, 1991 471,026 S6.00-S14.25
Granted 129,800 7.00- 13.25
Exercised (19,847) 6.00- 13.25
Cancelled (80,079) 6.00- 14.25
- -----------------------------------------------------------------------------------------
Outstanding at May 31, 1992 500,900 6.00- 13.25
Granted 284,850 3.75- 9.00
Exercised (7,850) 4.00- 9.00
Cancelled (152,300) 7.00- 12.00
- -----------------------------------------------------------------------------------------
Outstanding at May 31, 1993 625,600 3.75- 13.25
Granted 543,673 .0l- 7.13
Exercised (18,233) 3.50- 7.13
Cancelled (201,937) 3.13- 11.50
- -----------------------------------------------------------------------------------------
Outstanding aa May 31,1994 949,103 $ .01-S13.25
- -----------------------------------------------------------------------------------------
</TABLE>
At May 31, 1994, 308,962 options were exercisable at prices ranging from $.01 to
$13.25 a share.
c. Employee Stock Purchase Plan. The 1988 Employee Stock Purchase Plan
which was approved by stockholders in 1989, provides that eligible employees may
authorize payroll deductions between 2% and 10% of their regular pay to
purchase up to a maximum of 2,000 shares of the Company's common stock in a
fiscal year. The purchase price of the stock is the lesser of 85% of the average
market price of the Company's common stock on either the first or last business
day of the Payment Period. Payment Periods begin on June 1 and December 1 each
year. The aggregate number of shares which may be purchased under this plan is
250,000, of which 177,862 have been purchased to date.
d. Performance Unit Plan. The 1989 Performance Unit Plan which was approved
by stockholders in fiscal 1990, provides that officers and key employees of the
Company may be granted performance units by the Board or a committee comprised
of at least three Board members (no such committee has been appointed).
Performance units, which are the equivalent of $100 each, may be granted either
in cash or shares of common stock or any combination thereof, to participants
upon the attainment of certain achievement objectives as established by the
Board. No performance units have been granted to date.
e. Share Repurchase Plan. In January 1991, the Company announced a program
to expend up to a maximum of $1 million to repurchase shares of the Company's
common stock from time-to-time at current market prices. During 1992, 1993 and
1994 shares repurchased under this plan were 15,000, 48,037 and 0, respectively.
Sales, operating income (loss) and identifiable assets of the Company by
geographical area are as follows:
NOTE 7:
FOREIGN AND
DOMESTIC
OPERATIONS,
EXPORT SALES
AND MAJOR
CUSTOMERS
<TABLE>
<CAPTION>
Years Ended May 31, 1992 1993 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America $39,701,057 $ 47,002,266 $43,667,203
Europe 25,086,598 21,881,239 21,435,080
Other 12,507,787 12,520,480 12,653,067
- ---------------------------------------------------------------------------
$77,295,442 $ 81,403,985 $77,755,350
- ---------------------------------------------------------------------------
Operating income (loss):
North America $ (797,688) $(10,869,830) $ 1,451,220
Europe 1,375,853 (4,254,825) 954,297
Other 231,524 (1,625,314) 258,980
- ---------------------------------------------------------------------------
$ 809,689 $(16,749,970) $ 2,664,497
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
Balance at May 31, 1992 1993 1994
---- ---- ----
Identifiable assets:
North America $45,589,053 $38,236,994 $35,081,750
Europe 19,161,252 20,066,457 18,751,166
Eliminations (3,664,005) (6,027,907) (6,497,095)
----------- ----------- -----------
$61,086,300 $52,275,544 $47,335,821
=========== =========== ===========
During 1992, 1993 and 1994, export sales were $8,913,022, $9,751,641, and
12,089,444, respectively. No one customer accounted for greater than 10% or net
sales in any of these years.
NOTE 8:
INCOME TAXES
No provison for income taxes was recorded in 1994 due to the Company's tax net
operating loss position. The provison (benefit) for income taxes consists of the
following for 1992 and 1993:
Year ended May 31, 1992 Current Deferred Total
------- -------- -----
Federal $ 413,658 $ - $ 413,658
State 115,623 - 115,623
Foreign 529,700 - 529,700
---------- ---------- ----------
Total $1,058,981 $ - $1,058,981
========== ========== ==========
Year ended May 31, 1993 Current Deferred Total
------- -------- -----
Federal $ (411,247) $ 789,773 $ 378,526
State - (88,276) (88,276)
Foreign - (290,250) (290,250)
---------- ---------- ----------
Total $ (411,247) $ 411,247 $ -
========== ========== ==========
Effective June 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The components of the net deferred tax asset (liability) as of May 31, 1994 were
as follows:
U.S. Federal
& State Foreign
------------ -----------
Deferred tax assets:
Other assets $ 328,125 $ -
Inventory reserves 1,495,081 -
Restructuring accruals 1,261,054 354,003
Other miscellaneous items 1,179,505 196,632
Tax credit carryforwards 1,985,988 -
Net operating loss carryforwards 1,708,387 2,084,937
Valuation allowance (7,439,904) (900,669)
---------- ----------
Total deferred tax asset 518,236 1,734,903
Deferred tax liabilities:
property, plant and equipment 518,236 -
Tax deductible goodwill - 1,734,903
---------- ----------
Total deferred tax liability 518,236 1,734,903
Net deferred tax asset (liability) $ - $ -
========== ==========
The valuation allowance for deferred tax assets as of June 1, 1993 was
$9,030,763. The net change in the valuation allowance for the year ended May 31,
1994 was a decrease of $690,190. Subsequently recognized tax benefits relating
to the valuation allowance for deferred tax assets as of May 31, 1994 will be
allocated as follows:
Income tax benefit that would be reported in the
consolidated statement of operations $8,086,652
Goodwill 253,921
----------
$8,340,573
==========
<PAGE>
The provision for income taxes varies from the amounts computed by applying
the U.S. Federal Income Tax Rate of 34% as follows:
<TABLE>
1992 1993 1994
----------------------------------------------------------------
Amount % Amount % Amount %
------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense (benefit) $ (58,393) (34.0) $ (5,723,832) (34.0) $ 947,473 34.0
Increase (reduction) resulting from:
Benefit of Subchapter S Corporation status (45,656) (26.6) (169,573) (1.0) (333,520) (12.0)
Utilization of capital loss (163,000) (94.9) - - - -
Utilization of tax credits (763,000) (444.3) - - - -
Change in the beginning of the year
balance of the valuation allowance for
deferred tax assets allocated to income
tax expense - - 6,298,431 37.4 (690,190) (24.8)
Tax effect of other expenses
not deductible for income
tax purposes 1,864,428 1085.7 - - - -
Differing foreign tax rates 107,564 62.6 (166,204) (1.0) 57,217 2.1
State taxes-net of federal benefit 76,311 44.4 (223,487) (1.3) - -
Amortization of goodwill 28,333 16.7 28,454 .2 25,614 .9
Other permanent differences 12,094 7.0 (43,789) (.3) (6,594) (.2)
---------- ------ ------------ ---- ---------- ----
$1,058,981 616.6 $ - - $ - -
========== ====== ============ ==== ========== ====
</TABLE>
At May 31,1994, the Company had available NOL carryforwards of approximately
$4,495,000 and $5,341,700 for U.S. and foreign tax reporting purposes,
respectively. The NOL carryforwards for tax reporting purposes expire in
varying amounts in the U.S. through the year 2008. The NOL's in foreign
jurisdictions carryforward indefinitely. Further, the Company has general
business credit carryforwards of approximately $674,300 which expire through
the year 2007, foreign tax credits of $803,300 which expire through the year
2000, and alternative minimum tax carryforwards of $322,000 which have no
expiration dates.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
1992 1993 1994
---- ---- ----
U.S $(1,547,602) $(14,257,507) $1,344,314
Foreign 1,241,575 (3,076,037 461,431
----------- ------------ ----------
$ (306,027) $(17,333,544) $1,805,745
=========== ============ ==========
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. The Company does not expect the results of this
audit to have a material effect on its financial position.
NOTE 9:
COMMITMENTS
AND
CONTINGENCIES
a. Leases. In May 1992, The Company concluded a sale and leaseback of its
Austin, Texas facility. The Company recorded a $612,167 gain on the sale which
was deferred and is being amortized over the lease term. The lease is an 18 year
operating lease expiring in the year 2010. The lease provides for a fixed rental
charge plus additional rent based on increases in the Consumer Price Index.
Under the terms of the agreement, the Company is subject to certain covenants
and restrictions.
The Company leases various assets used in its operations, primarily buildings
and equipment. Substantially all of the leases provide that the Company pay
for maintenance and insurance.
Future minimum lease payments for leased capital assets total $1,101,727 of
which $108,842 represents interest. Capital leases and non-cancelable
operating leases at May 31,1994 require the following annual minimum lease
payments:
Capital Operating
leases leases
------- ---------
1995 $ 521,255 $ 1,826,351
1996 298,391 1,764,800
1997 260,381 1,740,944
1998 21,700 1,678,164
1999 - 1,385,908
Later years - 9,488,556
---------- -----------
$1,101,727 $17,884,723
========== ===========
Rental expense on operating leases for 1992, 1993 and 1994 was $1,031,685,
$1,783,999 and $1,510,958, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1994 was $2,675,871
and $1,136,611, respectively.
<PAGE>
b. SOURCING AGREEMENTS. On February 4, 1993, the Company entered into an
eighteen-month (from date of first shipment) sourcing agreement with a foreign
manufacturer, which requires minimum quantities of each of the covered products
to be ordered and the total value of all ordered products must be at least
$6,500,000. Under the agreement, the Company has the ability to inspect (and
reject) all delivered products and retains its propriety position.
c. Employee 401 (k) Plan. The Company's 401(k) Plan covers all full-time
employees who have completed six months of continuous employment and are
eighteen years of age or older. Under the terms of the plan an employee may
contribute up to 20% of annual compensation, up to 5% of which will be matched
by the Company at 25%, 50%, 75% or 100% of the employee contribution depending
on years of service. Employee contributions vest fully upon contribution while
employer contributions vest at 20% per year. Employer contributions for 1992,
1993 and 1994 were $322,426, $268,299 and $0, respectively. Additional
contributions may be authorized by the Board of Directors predicated on Company
performance.
d. Litigation. In the second quarter of 1994 the Company entered into
an agreement with California Computer Products and Sanders Associates, each of
which is a subsidiary of Lockheed Corporation, that resolved all outstanding
litigation between the parties. As part of the accord, the Company received a
settlement amount which resulted in a gain being recorded in the second quarter
of the year.
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the normal course of business. The
Company believes that the disposition of these matters will not have a material
adverse effect on its financial position or results of operations taken as a
whole.
NOTE 10:
SUPPLEMENTARY
DATA
Advertising expenditures for the years 1992, 1993 and 1994 were $5,197,273,
$5,941,915 and $4,360,218, respectively.
NOTE 11:
SUPPLEMENTARY
CASH FLOW
INFORMATION
For the years ended May 31, 1992, 1993 and 1994 certain supplementary cash flow
information follows:
<TABLE>
<CAPTION>
Cash paid during the year for: 1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Interest $702,420 $449,511 $421,375
Income taxes $168,736 $498,955 -
Non-cash financing activities, capital leases $409,592 $693,268 $174,570
</TABLE>
NOTE 1:
ACQUISITION
AND
SUBSEQUENT
EVENT
On November 10, 1994 the Company merged with CAD Warehouse, Inc., an
S-Corporation, (CAD Warehouse) in exchange for 510,129 shares of the Company's
common stock. Under terms of the merger agreement each share of CAD Warehouse
common stock was exchanged for 170.043 shares of the Company's common stock. The
merger was accounted for using the pooling of interests method.
Financial information for the periods prior to the business combination is
summarized below. The combined financial statement amounts are based on the
respective historical financial statements and the notes thereto. The combined
revenues and net earnings summarized below combine the Company's historical
revenues and net earnings for the years ended May 31, 1992, 1993, and 1994, with
CAD Warehouse's historical revenues and net earnings for the same periods.
Intercompany sales between the Company and CAD Warehouse, a distributor of the
Company's products, have been eliminated.
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Summagraphics $ 73,894,603 70,337,420 64,670,079
CAD Warehouse 3,699,109 13,770,301 15,865,464
Elimination (298,270) (2,703,736) (2,780,193)
------------ ----------- -----------
Combined $ 77,295,442 81,403,985 77,755,350
------------ ----------- -----------
Net Earnings (Loss):
Summagraphics $ (1,365,008) (16,922,296) 1,805,745
CAD Warehouse 134,282 498,744 980,940
Combined $ (1,230,726) (16,423,552) 2,786,685
------------ ----------- -----------
Combined net income
(loss) per share $ (0.30) (3.80) 0.61
------ ------ ----
</TABLE>
<PAGE>
INDEPENDENT
AUDITORS'
REPORT
The Board of Directors and Shareholders Summagraphics Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994. and the
related supplemental consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended May 31,
1994. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Summagraphics Corporation and CAD Warehouse, Inc. on November
10,1994, which has been accounted for as a pooling of interests as described in
Note 12 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Summagraphics
Corporation and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31,1994, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
As discussed in Note 8 to the supplemental consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993.
KPMG Peat Marwick LLP
Austin, Texas
June 28, 1994, except as to Notes 5b
and 12, which are as of July 18, 1994
and November 10, 1994, respectively.
<PAGE>
INDEPENDENT
AUDITORS'
REPORT
The Board of Directors and Shareholders
Summagraphics Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
related supplemental consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended May 31,
1994. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examination on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Summagraphics Corporation and CAD Warehouse Inc. on November 10,
1994, which has been accounted for as a pooling of interests as described in
Note 12 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of Summagraphics
Corporation and subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
In our opinion the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Summagraphics Corporation and subsidiaries as of May 31, 1993 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1994, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
As discussed in Note 8 to the supplemental consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
Austin, Texas
June 28, 1994, except as to Notes 5b
and 12, which are as of July 18, 1994
and November 10, 1994, respectively.
<PAGE>
EXHIBIT 10.29
April 12, 1995
Summagraphics Corporation
60 Silvermine Road
Seymour, CT 06483
Re: Lease Agreement dated May 28, 1992 between QRS 10-12 (TX), Inc.
and QRS 11-5 (TX), Inc., as Landlord, and Summagraphics
Corporations, as Tenant, as Modified by
Letter Agreements dated March 16, 1993 and August 27, 1993
----------------------------------------------------------
Gentlemen:
Reference is hereby made of the above-referenced lease (the "Lease").
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the lease (including all exhibits thereto).
Effective as of February 28, 1995, the Lease is hereby amended as
follows:
1. Section C.(i) of Exhibit E to the Lease is deleted in its entirety
and replaced with amended text as follows:
(i) Minimum Tangible Net Worth. Permit Consolidated Tangible Net Worth
--------------------------
to be less than the amount set forth below at the end of any fiscal
quarter during the indicated period:
from 5/25/92 to 8/31/95 $10,000,000
from 9/1/95 to 5/31/96 $13,000,000
from 6/1/96 to 5/31/99 $17,000,000
from 5/1/99 and thereafter $22,000,000
2. Section C.(iii) of Exhibit E to the Lease is deleted in its
entirety.
3. The following paragraphs are added to Section C of Exhibit E to the
Lease:
(x) Indebtedness Ratio. Permit the ratio of Funded Indebtedness (as
------------------
hereinafter defined) to Total Capitalization (as hereinafter defined) at any
time to exceed .56:1. As used herein, "Funded Indebtedness" shall mean (a) all
obligations of the Tenant or its consolidated Susidiaries for or on account of
borrowed money, whether or not classified as current or long-term obligations in
accordance with GAAP, less any Indebtedness represented by debt instruments
("Convertible Debt") issued by the Tenant which are convertible to shares of
common stock of the Tenant,
<PAGE>
plus (b) all capitalized lease obligations of the Tenant or its consolidated
Subsidiaries. As used herein, "Total Capitalization" shall mean the sum of (a)
Consolidated Tangible Net Worth, plus (b) Funded Indebtedness, plus (c)
Convertible Debt.
(xi) Current Ratio. Permit the ratio of (a) current assets of the
-------------
Tenant and its consolidated Subsidiaries determined on the consolidated basis in
accordance with GAAP, to (b) the current liabilities of the Tenant and its
consolidated Subsidiaries determined on the consolidated basis in accordance
with GAAP, at any time to be less than 1.25:1.
Tenant agrees to pay all of Landlord's attorneys' fees and costs in
preparing this letter agreement and reviewing and preparing any modification of
the loan documents. Tenant also agrees to pay all fees and costs of the
lender's attorneys in effecting the above-described amendment.
Landlord waives any default under the Lease which may have occurred as a
result of non-compliance by the Tenant with the covenants amended by paragraphs
1-3 of this letter agreement.
Except as amended hereby, the Lease shall remain in full force and
effect.
This letter agreement shall not be effective unless and until
Creditanstalt-BankVerein has consented to the Landlord's execution of this
letter agreement.
Very truly yours,
QRS 10-12 (TX), Inc.
By /s/ H. Cabot Lodge III
------------------------
QRS 11-5 (TX), Inc.
By /s/ H. Cabot Lodge III
------------------------
Accepted and agreed to:
SUMMAGRAPHICS CORPORATION
By /s/ Clifford Maxwell
------------------------
-2-
<PAGE>
CONSENT
-------
The undersigned, as the holder of loan documents executed by Landlord to
the undersigned evidencing or securing a loan in the original principal face
amount of $3,700,000, consents to Landlord's execution of the foregoing letter
agreement.
CREDITANSTALT-BANKVEREIN
By
--------------------------
-3-
<PAGE>
EXHIBIT 10.30
MANUFACTURING AGREEMENT BETWEEN
-------------------------------
SUMMAGRAPHICS CORPORATION
-------------------------
AND HARVARD MANUFACTURING VENTURES, LLC
---------------------------------------
This AGREEMENT is by and between SUMMAGRAPHICS CORPORATION ("Summagraphics"), a
Delaware (U.S.A.) corporation, and HARVARD MANUFACTURING VENTURES, LLC
("HMV"), a Texas (U.S.A.) limited liability company.
WHEREAS, Summagraphics has certain rights, title and interest in and to certain
products which are set forth in Exhibit(s) attached hereto and made a part
hereof, which Exhibit(s) may be amended from time-to-time to include other
products of Summagraphics; and
WHEREAS, HMV is to manufacture and supply such products for Summagraphics;
and
NOW, THEREFORE, in consideration of the mutual promises and undertakings
hereinafter set forth, as well as other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1: DEFINITIONS
- ----------------------
For purposes of this Agreement, the following words, terms and phrases, where
written with an initial capital letter, shall have the meanings assigned to them
in this Article 1.
(a) "Agreement" means this Agreement, together with all of the terms and
conditions ("Terms") hereof and Attachments and Product Exhibit(s) and
Credit Terms appended hereto now or hereafter signed by the Parties, as the
same may be modified, amended or supplemented from time to time.
(b) "Components" shall mean elements of a Product referenced in the Agreement or
attachments to it.
(c) "Confidential Information" shall mean information (regardless of whether or
not the information is recorded on, or embodied in, a physical object, such
as a document, or other tangible medium and whether or not the information
is clearly designated, labeled, marked or stated to be confidential)
including but not limited to, the Technical Information, knowledge or data
furnished by or belonging to Summagraphics relating to its inventions,
discoveries, formulas, processes, machines, manufacturing processes,
compositions, computer programs, accounting methods, information systems,
business and financial plans and reports, or other matters which are and/or
may reasonably be recognized as being of a secret or confidential nature.
(d) "Credit Terms" shall mean the attachment A1 to this Agreement addressing
funding and credit terms and conditions pertaining to this Agreement and the
Product Exhibit(s) appended hereto.
HMV MC Page 1 of 33 Summagraphics _____
September 13, 1995
<PAGE>
(e) "Fit and/or Function" shall mean the capability of the Product to operate
and be consistently manufactured in accordance with the Technical
Information.
(f) "FOB Point" shall have the meaning set forth in the then-current Uniform
Commercial Code ("UCC"), made applicable to all modes of transport. In the
case of international shipments, unless otherwise agreed in writing, the
"FOB Point" shall be at the seaport or airport from which the Products are
shipped; and the price does not include the cost of transporting Product(s)
from HMV's factory to the seaport or the airport. In the case of local
shipments, the FOB Point shall be at Seller's shipping dock, 600 Glen
Avenue, Salisbury, Maryland 21801 or as otherwise agreed upon in a Product
Exhibit(s) to this Agreement.
(g) "Lead-time" shall mean the time elapsed from the date of issuance of
Summagraphics' Purchase Order ("P.O.") notification through the Shipdate.
(h) "On-time" shall mean on, or no more than five (5) days prior to or later
than, Shipdate.
(i) "Parties" means the two parties (Summagraphics and HMV) named in the
heading of this Agreement.
(j) "Parts" shall mean raw material (including kits) which Summagraphics may
furnish to HMV to manufacture the Product.
(k) The price ("Price") Summagraphics shall pay for Products(s) shall be that
which is set forth in Article 4 hereof and Attachments to Product Exhibit(s)
hereto.
(l) "Product(s)" shall mean finished goods, Spare Parts, Components, and other
materials supplied by HMV, referred to by part number in the attachments
to the Product Exhibit(s) to this Agreement.
(m) "Product Exhibit" shall mean the attachment(s) to this Agreement addressing
additional terms and conditions particular to certain Products referenced in
the Agreement or attachments to it.
(n) "Reliability" shall mean the ability of the Product to operate according to
the Technical Information without failure.
(o) "Seller" shall mean HMV.
(p) "Shipdate" shall mean the bill of lading date or the airway bill date for
the purchased Product(s).
(q) "Spare Parts" shall mean repair and replacement parts for Products as listed
in the attachments to the Product Exhibit(s) to this Agreement.
(r) "Specification(s)" shall include all Technical Information, Product
requirements and Product characteristics. All such documents are included in
this Agreement by reference to the part number listed in the attachments to
the Product Exhibit of this Agreement.
(s) "Standards" shall mean the applicable standards as detailed in the Technical
Information, applicable government and regulatory agency requirements (such
as UL, CSA, TUV, FCC, VDE), and other such Standards that apply to the
design, manufacture, and sale of the Products.
(t) "Technical Information" shall mean all technical knowledge, information,
data, trade secrets, manufacturing and test data, and Technical Information
involving or relating to the manufacture, production, maintenance and
operation of the Products as have heretofore been or may hereafter be
HMV MC Page 2 of 33 Summagraphics _____
September 13, 1995
<PAGE>
disclosed to HMV. All such documents are included in the Agreement by
reference to the part number listed in the attachments to the Product
Exhibit(s) of the Agreement.
(u) The term ("Term") and effective date ("Effective Date") of this Agreement
is/are the Term(s) (including any extension of the initial term) and
Effective Date(s) set forth in a Product Exhibit(s) appended to this
Agreement relating to one or more Products defined therein.
(v) "Term" see "Agreement" in Article 1.
ARTICLE 2: AGREEMENT
- --------------------
(a) This Agreement, and the Product Exhibit(s) and the Credit Terms appended
hereto and incorporated herein by reference, sets forth the mutual
understandings reached by the Parties to this Agreement during negotiations
concerning the items and work listed herein. This Agreement is limited to
the purchase of Products that are specifically identified in a Product
Exhibit(s) to this Agreement. Such Product Exhibit(s), in combination with
this Agreement, shall form the Terms of purchase/sale. In no way shall this
Agreement be construed as an operative document for any Products not
identified in a Product Exhibit(s) to this Agreement.
(b) HMV hereby grants to Summagraphics a continuing option to procure the
Products through the effective time period of this Agreement in accordance
with the Terms herein.
(c) If problems should be encountered with respect to any technical matters
concerning the Products, or if Parties should encounter problems not
specifically addressed by this Agreement, HMV and Summagraphics shall
discuss them in a cooperative and sincere spirit and attempt to arrive at a
mutual satisfactory resolution of the problem.
(d) Summagraphics may from time to time, especially in the early phase of this
Agreement, furnish Parts or other property ("Property") to HMV for HMV to
use in the manufacture of the Product. HMV will not have any obligation to
pay Summagraphics for those Parts, but the Product furnished by HMV to
Summagraphics shall reflect a reduced Price from the Price reflected in the
Agreement in an amount equivalent to Summagraphics' cost for those Parts
which Summagraphics demonstrates to HMV by providing documentation
evidencing Summagraphics' costs for those Parts. HMV shall purchase a
sufficient amount of insurance to cover Summagraphics' ownership rights up
to Summagraphics' cost. HMV shall take all necessary and appropriate action
to protect Summagraphics' Parts in the same manner as HIV undertakes to
protect its own property at the location where those Parts are located.
Except for such Parts and Property as may be furnished by Summagraphics to
HMV which shall be handled in the manner just described and as may be
further addressed in Attachment F hereto, the Terms of this Agreement shall
govern all Parts purchased by HMV from third party vendors.
HMV MC Page 3 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ARTICLE 3: PURCHASE ORDERS
- --------------------------
(a) This Agreement is not a purchase order ("P.O.") and does not authorize
delivery of or payment for any Products and/or services as described herein.
Such authority or order shall be evidenced by P.O.s issued at the discretion
of Summagraphics pursuant to this Agreement. Each P.O. shall be in the form
prepared by Summagraphics and shall include but is not limited to:
Summagraphics' P.O. number(s), Summagraphics' part number, quantity ordered,
requested Ship date and desired shipping destination.
(b) On or about the tenth (lOth) day of every month, Summagraphics will provide
an updated rolling forecast for Products to be ordered during the next six
(6) months. Such forecast are provided for planning purposes only and are
not purchase commitments.
(c) In the event that HMV's production capacity is not sufficient to meet total
customer demand, and allocation is required, HMV agrees to provide top
preference to Summagraphics' requirements to the extent of forecasted
demand. In the event HMV cannot maintain production capacity to meet
Summagraphics' forecasted demand, HMV agrees to cooperate with Summagraphics
in the development of alternate sources.
(d) Any Terms and conditions printed on the face or reverse side of
Summagraphics' P.O. form and/or HMV's acknowledgment form shall not be part
of this Agreement or add to or modify terms in this Agreement unless both
Parties hereto expressly agree in writing to include any such Terms or
conditions.
(e) For expediency purposes, Summagraphics may issue P.O.s by facsimile or
electronic mail. HMV shall confirm the receipt of Summagraphics' P.O.
notification, including the quantity and requested Ship date by facsimile or
electronic mail, within two (2) working days after receipt of Summagraphics'
P.O. notification. In the event such notification is not received by
Summagraphics within five (5) working days of receipt by HMV, the P.O. shall
be deemed to be accepted by HMV.
(f) HMV will accept any P.O. that is in compliance with the Terms and
conditions of this Agreement and its related Product Exhibit(s), insofar as
the quantities ordered by Summagraphics are reasonably within Summagraphics'
monthly rolling demand forecast and rescheduling privileges expressed in the
Product Exhibit(s).
(g) Summagraphics may periodically request HMV to verify all active P.O.
delivery commitment quantities and schedules. HMV shall respond to such
request within two (2) working days after receipt of request by
Summagraphics.
ARTICLE 4: PRICING AND PAYMENT
- ------------------------------
(a) The initial agreed upon Price as fixed in U.S. dollars shall be as detailed
in the Attachments to each of the Product Exhibit(s).
HMV MC Page 4 of 33 Summagraphics _____
September 13, 1995
<PAGE>
(b) Unless otherwise specified on individual P.O.s, all Prices are for Products
delivered from the FOB Point to Summagraphics' assigned carrier or freight
forwarder.
(c) Except to the extent that relevant government laws prohibit, HMV represents
to Summagraphics that Prices for Products sold hereunder shall be no less
favorable than the Prices at which HMV is selling such Products or
equivalent products at the same time to any other commercial customers in
the same or similar quantities. If HMV reduces its prices to any other such
customer below the price then in effect for Summagraphics, Summagraphics
shall receive the benefit of such a lower Price for any quantity of Products
not yet shipped from the FOB Point and for all future orders submitted
during the time period the discounted Price is in effect.
(d) HMV agrees to use all reasonable efforts to reduce Prices from time-to-time.
To this end, the Parties agree to cooperate to identify cost reductions,
followed by commercially reasonable efforts to quickly implement such
reductions. The Parties will discuss in good faith the determination as to
the initiating Party in any such cost reductions on a case-by-case basis,
and upon approval of implementation by Summagraphics, such cost savings
shall be shared, from incorporation in shipped Product, for the balance of
the Agreement, on the following basis:
(i) Changes originated by HMV: Any material or labor savings will be shared
equally between Summagraphics and HMV. HMV shall promptly advise
Summagraphics of any such savings and Summagraphics shall have the
right to review costs for such savings and shall have access to
information in HMV's possession in such detail as it reasonably deems
appropriate.
(ii) Changes originated by Summagraphics: Any material or labor savings
will pass to Summagraphics.
(e) Upon reasonable notice and at a mutually agreeable time, HMV agrees to
participate in periodic Price reviews with Summagraphics, and, upon mutual
agreement of the Parties hereto achieved through the exercise of their
reasonable efforts, shall adjust pricing if appropriate based on market
costs of components, benchmark market prices for same or similar Products
from competitive sources, or significant change in forecasted purchase
quantities.
(f) Summagraphics may elect to re-negotiate prices, during the quarter on the
basis of market conditions which significantly affect the price for the
Product. The re-negotiated price will be agreed to by both Parties and
incorporated into this Agreement; however, in no event will the unit price
be higher than the unit price for the immediately preceding quarter other
than as may be necessitated by market prices or significant changes in
purchase order volumes. If the parties cannot agree on a renegotiated price,
this Agreement shall remain in Full Force and affect at their current
Prices.
(g) Summagraphics and HMV acknowledge that Price(s) presented in this Agreement
are predicated on market conditions at the Effective Date of this Agreement
and that a material change in market conditions may impact HMV's cost
structure and necessitate a change in Price(s). HMV shall have the burden of
demonstrating to Summagraphics the materiality of changed
HMV MC Page 5 of 33 Summagraphics _____
September 13, 1995
<PAGE>
market conditions, whereupon the Parties agree to negotiate in good faith
and exercising best efforts a modified mutually agreeable Price(s) for the
Product(s). In the event the Parties are unable to reach agreement on Price
after reasonable attempt to do so, Summagraphics shall undertake an analysis
of competitive pricing for similar products from other vendors and provide
HMV with the lowest price Summagraphics is willing to pay to another
competent vendor and at which another competent vendor is willing to accept,
and HMV shall have the right of first refusal to accept that Price(s),
whereupon the Parties shall agree to that Price(s). If HMV rejects the
Price(s), either party shall have the right to terminate this Agreement.
(h) Payment shall be made as described in each Product Exhibit(s) to this
Agreement. Payment does not constitute Product acceptance or evidence of
Product acceptance.
(i) Summagraphics assumes no liability for components or finished goods beyond
that covered by fully authorized and approved P.O.s other than as set forth
in Attachment C of a Product Exhibit hereto.
ARTICLE 5: SHIPPING AND DELIVERY
- --------------------------------
(a) Summagraphics reserves the right to designate a freight forwarder or carrier
for the shipment of Products. In the event HMV uses a non-authorized means
of transportation, Summagraphics reserves the right to debit HMV the cost
difference between Summagraphics' authorized transit method and HMV's actual
method used.
(b) HMV shall use all reasonable efforts to ship Products to Summagraphics'
designated freight forwarder On-time.
(c) On-time delivery is of the essence. In the event Products are not expected
to be shipped on the agreed Shipdate, and the delay is the fault of HMV, HMV
shall immediately notify Summagraphics, and HMV shall bear the difference
between shipping cost via normal transit and expedited transit, including
air freight.
(d) HMV shall package and ship Products in accordance with the applicable
regulatory and carrier's requirements, as supplemented by the individual
Product Technical Information. The Product Technical Information shall
provide for packaging specifications and processing.
(e) HMV agrees to arrange shipment of the Products to any mutually agreed upon
location, insofar as no government restrictions, such as those described in
this Article, apply to Summagraphics' requested destination.
(f) Parties shall comply with all applicable export, import, and re-export laws
and regulations. The Products covered by this Agreement may fall within the
group of "strategic" electronic products or technical data specifically
governed by either the U.S. or other governments, the export of which may be
subject to export license controls. Prior to exportation, HMV is required to
abide by any licenses and provide all documentation which may be required
under the applicable laws of the U.S. (including the Export Administration
Act and its Regulations), and any other applicable laws and regulations.
HMV MC Page 6 of 33 Summagraphics _____
September 13, 1995
<PAGE>
(g) HMV shall deliver Products at the FOB Point described in the Product
Exhibit(s). Title and liability for loss and damage shall pass to
Summagraphics at the FOB Point.
(h) HMV shall consider Summagraphics a preferred customer, such that
Summagraphics shall be accorded preferential treatment over HMV's other
customers. Specifically, if the case arises whereby HMV's production
capacity, force majeure conditions, or other limiting factors require that
HMV determine an allocation of material and/or resources, Summagraphics'
preferential status will assure that HMV will fulfill its obligations to
Summagraphics prior to other HMV's customers, for the same or similar
Products.
ARTICLE 6: RESCHEDULING AND CANCELLATION
- ----------------------------------------
(a) HMV shall accept Summagraphics' request to reschedule deliveries according
to the provisions in the Product Exhibit(s) to this Agreement.
(b) Notwithstanding the rescheduling privileges of the Product Exhibit(s) to
this Agreement, Summagraphics reserves the right to reschedule without
charge if the Products have unresolved quality problems related to work
performed by HMV.
(c) Should resale market conditions occur which both Parties agree are
justifiable reasons for the cancellation of any P.O.s, the Parties agree to
negotiate a just and equitable solution, including cancellation terms for
such P.O.s. Unless otherwise agreed in writing by both Parties, such
cancellation terms are limited to actual material costs, actual labor costs,
and specifically identifiable overhead cost. HMV shall strive in good faith
to disposition excess materials to production of other supplier products. If
an agreement cannot be reached, this Agreement continues in full force and
effect.
ARTICLE 7: QUALITY
- ------------------
(a) As it is Summagraphics' intent to improve its position as a quality leader,
Summagraphics expects and HMV agrees to use all commercially reasonable
efforts to supply 100% of the Products purchased herein free of any
cosmetic, functional, or manufacturing discrepancies, and to be in
compliance with all agreed upon drawings, Technical Information, Standards,
and procedures, as detailed in this Agreement.
(b) HMV agrees to follow the quality control procedures as specified by
Summagraphics and to the specific attachments to the Product Exhibit(s). HMV
agrees to follow such procedures during the qualification process and to
assure that Products meet the requirements of the appropriate Technical
Information, prior to each shipment.
(c) Summagraphics reserves the right to process incoming Product dock-to-stock
with no incoming inspection. Should the quality of the Products require
inspection, Summagraphics retains the right to conduct, at Summagraphics'
expense, and incoming inspection of Products at the designated destination
in accordance with the inspection Standards and procedures set forth in the
attachments to each Product Exhibit(s). Alternatively, upon prior written
notice, Summagraphics shall have the
HMV MC Page 7 of 33 Summagraphics _____
September 13, 1995
<PAGE>
right to conduct, at Summagraphics' expense, source inspection at HMV's
site, in accordance with the inspection Standards and procedures set forth
in the attachments to each Product Exhibit(s).
(d) Summagraphics shall use a commercially reasonable standard in determining
whether to reject the Products. In case of Product rejection at
Summagraphics' incoming inspection, upon mutual agreement, one of the
following corrective actions shall be made:
(i) HMV shall rework the rejected Products at a mutually agreed location,
or
(ii) The delivered Products will be returned to HMV at HMV's expense and
HMV will repair or replace such Products, or
(iii) HMV shall request Summagraphics to rework the rejected Products. In
this case, HMV will furnish to Summagraphics repair or replacement
parts for the rework of the rejected Products performed by
Summagraphics and will agree to pay the labor costs incurred by
Summagraphics, or
(iv) HMV shall request Summagraphics to screen the rejected Products, and
will pay the reasonable labor costs incurred by Summagraphics. All
defective Products will be returned to HMV at HMV's expense.
(e) In case of Product rejection during source inspection, HMV shall promptly
perform a failure analysis, screening, rework and re-submission of the
failed Products to a mutually agreed schedule.
(f) If any Products (individual or lot) are rejected twice for the same cause
during either Summagraphics' incoming or source inspection, Summagraphics
reserves the right to return such rejected Products for either credit or
replacement, at Summagraphics' option.
(g) Upon request by Summagraphics, HMV shall perform a failure analysis of
defective Product and shall advise detailed results of failure analysis and
proposed corrective actions to prevent recurrence. Such analysis shall be
provided no later than fifteen (15) working days of receipt of defective
Product by HMV.
ARTICLE 8: REGULATORY COMPLIANCE
- --------------------------------
(a) Summagraphics is responsible for the procedures and expenses necessary to
obtain approval of Standards.
(b) HMV is responsible for associated costs to maintain approvals of Standards.
which are described in the Technical Information as an alternate site. HMV
is responsible for providing adequate technical Product information and
assistance to Summagraphics for submittal of Products, in combination with
Summagraphics' Products, to regulatory agencies, to the extent HMV has the
right to do so.
ARTICLE 9: ENGINEERING CHANGES
- -------------------------------
(a) The Parties recognize that from time-to-time changes to the Product(s) may
be desirable. HMV and Summagraphics agree to work cooperatively to
expeditiously change Products and Technical Information in ways that will
HMV MC Page 8 of 33 Summagraphics _____
September 13, 1995
<PAGE>
reduce total costs and/or improve Product performance in accordance with the
configuration control requirements in the Product Exhibit(s).
(b) HMV shall provide Summagraphics with a schedule and cost estimate for
implementing Engineering Change Notices ("ECN"); after which both Parties
will discuss and determine the responsibilities for such cost. Upon mutual
agreement of responsibilities, HMV shall supply supporting data prior to
performing the change.
(c) The disposition of HMV's existing stock of Products and Summagraphics' open
P.O.s (including Spare Parts) affected by any ECN, and any associated
replacement costs, will be reviewed by the Parties so as to determine the
most equitable and lowest cost settlement possible. Disposition of existing
stock will not be to the financial detriment of HMV.
(d) Any expenses resulting from Summagraphics' required rework (rework
unrelated to HMV's performance to this Agreement) will be negotiated in good
faith on a case-by-case between the Parties and noted on an approved ECNs
prior to the commencement of rework. Summagraphics will pay all related
substantiated reasonable costs.
ARTICLE 10: WARRANTY
- --------------------
(a) HMV warrants that it will have title to the Products furnished directly to
Summagraphics under this Agreement free and clear of any and all liens and
encumbrances.
(b) HMV further warrants the Products (except for Summagraphics' consigned
material) delivered hereunder will meet Product Technical Information and
Standards for a period as indicated in the specific Product Exhibit(s).
(c) HMV warrants the workmanship and merchantability of the Product(s) it
provides hereunder, excluding any warranty for defects in Products solely
related to the specifications or design provided by Summagraphics; or due to
user abuse or misapplication or due to hardware incompatibility, and HMV
shall indemnify and hold harmless Summagraphics from any and all claims and
liability to which Summagraphics may become exposed arising out of a
condition evidencing a breach of warranty by HMV related to things under
their control.
(d) Summagraphics and HMV shall agree on who will serialize Products to track
them.
ARTICLE 11: REMEDIES FOR NON-CONFORMANCE WITH WARRANTY
(a) Products found to be defective, determined in accordance with a commercially
reasonable standard, within the first ninety (90) days of the warranty
period beginning on FOB date will be considered to be Defective On Arrival
("DOA") and will be processed according to the Return Merchandise
Authorization ("RMA") procedure referenced in the Product Exhibit(s). The
following remedies shall be available.
(i) Summagraphics shall give notice in writing to HMV of any Product in
non-conformance to the warranty provided in Article 10 of this
Agreement. In turn, HMV shall supply, to a mutually agreed schedule(s)
and at no cost to Summagraphics, replacement parts necessary for the
repair of such Products by Summagraphics.
HMV MC Page 9 of 33 Summagraphics _____
September 13, 1995
<PAGE>
(ii) The labor costs associated with such repair will be borne by HMV.
(iii) HMV will arrange to repair the Products at a mutually agreed
location, to a mutually agreed schedule, or HMV reserves the right to
request that Summagraphics return any defective parts, freight
collect. If HMV determines that the returned parts are not defective,
HMV will so notify Summagraphics for appropriate disposition. Upon
concurrence by Summagraphics, Summagraphics shall reimburse HMV for
the actual freight charges and for all other reasonable direct labor
expenses incurred in the receiving, inspecting, and testing of the
parts.
(iv) If for some reason, Summagraphics is unable to adequately repair the
Products even after receipt of replacement parts from HMV,
Summagraphics shall so notify HMV and HMV shall promptly arrange to
repair or replace the defective Products at HMV's expense.
(b) After the Products have shipped to Summagraphics' end-user customers, in
the event that both Parties agree that a substantial number of Products are
demonstrated to have the same defect, HMV will be responsible for correcting
such defect so that the Products conform to the Technical Information and
Standards for subsequent Product shipments. Unless otherwise agreed in
writing by both Parties, such defects shall be considered epidemic in nature
if Summagraphics demonstrates to HMV's reasonable satisfaction that at least
two percent (2%) of the quantity of any Product shipped by HMV within any
two (2) month period have the same defect. If, due to such epidemic failure,
it is necessary to repair units installed in customer locations, HMV will
bear reasonable expenses incurred in relocating, removing, repairing or
replacing, and reinstalling units.
(c) The warranty period will not continue to run during the time that HMV,
Summagraphics or their properly authorized service agents repair such
Products. Upon return of a repaired Product under warranty, the warranty
will continue to apply for the longer of the remaining original warranty
period or ninety (90) days .
(d) With the exception of indemnity obligations detailed in Article 18 in this
Agreement, IN NO EVENT WILL EITHER PARTY OR ITS LICENSORS BE LIABLE FOR ANY
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS, LOSS OF USE
OF DATA, OR INTERRUPTION OF BUSINESS, WHETHER SUCH ALLEGED DAMAGES ARE
LABELED IN TORT, CONTRACT, OR INDEMNITY, EVEN IF THE PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 12: SERVICE AND TECHNICAL SUPPORT
- ------------------------------------------
(a) With the exception of the provisions outlined in Article 11 of this
Agreement, aftersale service and maintenance of the Products for
Summagraphics' customers shall be carried out at Summagraphics' or their
contracted service provider's responsibility and expense.
(b) HMV agrees to supply Summagraphics/Summagraphics' contracted service
provider with Spare Parts for a minimum of three (3) years after the date of
HMV MC Page 10 of 33 Summagraphics _____
September 13, 1995
<PAGE>
the last shipment of Products, and such Spare Parts shall be supplied at the
prices listed in the attachments to the Product Exhibit(s) or as otherwise
negotiated in good faith if the Product Exhibit(s) has expired or is
otherwise terminated.
(c) Spare Parts will be provided by HMV to Summagraphics in conformance to the
most recent revision level whenever applicable. Mandatory and nonmandatory
changes will be called out on the ECN; class levels of engineering changes
are described in Article 9 to this Agreement.
(d) Spare Parts will be marked with Summagraphics' part number in both an
English and bar-code format, or as otherwise defined in the Technical
Information. If the Spare Part is of such nature that Summagraphics' part
number marking is unnecessary or unreasonable, the individual pack for that
part number will be clearly marked with Summagraphics' name and part number,
in both an English and bar-code format.
(e) HMV agrees to provide support to Summagraphics' service
organization/provider as mutually agreed in the Product Exhibit(s).
ARTICLE 13: NOTICE
- ------------------
(a) All formal services, processes, or other notice required or allowed to be
given hereunder shall be deemed effective and sufficient if made by either
(1) delivery in person with signed receipt, (2) registered airmail, postage
prepaid, return receipt requested, addressed to the parties as follows:
If to HMV: Ed Urban
Title 600 Glen Avenue
Address Salisbury, Maryland 21801
If to Summagraphics: D.C. Power
Title Senior Vice President
Address 8500 Cameron Road
Austin, Texas 78754-3999
or such other address as either Party may from time-to-time specify by
written notice to the other Party.
(b) Notices shall be effective upon actual receipt.
ARTICLE 14: PUBLICITY
- ---------------------
Neither Party shall, without the prior written permission of the other,
publicly announce or otherwise disclose the existence of the Agreement or
the Terms hereof, or release any publicity regarding this Agreement (except
to the U.S. Government when a P.O. references a U.S. Government contract or
subcontract number or to the source Government or the U.S. government for
import/export authorization procedure). This provision shall survive the
expiration, termination, or cancellation of this Agreement.
HMV MC Page 11 of 33 Summagraphics _____
September 13, 1995
<PAGE>
(a) Unless otherwise agreed by the Parties, this Agreement shall be deemed to
be made in, and in all respect shall be interpreted construed and governed
by and in accordance with the laws of, the State of Texas, United States of
America, applicable to contracts made and fully performed in Texas. The
Parties consent to the jurisdiction of the federal and state courts sitting
in the State of Texas. The Parties agree that the United Nations Convention
on Contracts for the International Sale of Goods shall not apply to this
Agreement, and its application is hereby expressly excluded.
(b) This Agreement has been executed by the Parties hereto in the English
language, and no translated version of this Agreement into any other
language shall be controlling or binding upon the Parties hereto.
(c) All disputes and controversies concerning this Agreement shall be
determined by binding arbitration before a panel of three (3) arbitrators.
One arbitrator will be selected by Summagraphics, one will be selected by
HMV and a third will be selected by the two so selected. If arbitration
occurs, it will be held in Travis County, Texas. The rules of the American
Arbitration Association will apply and the Parties will share the expenses
of such arbitration.
ARTICLE 16: PROTECTION OF PROPRIETARY INFORMATION
- -------------------------------------------------
(a) Neither Party will disclose any Confidential Information to a third party as
required to execute this Agreement, except under the terms of the
Nondisclosure Agreement executed by the Parties, and as may be periodically
renewed and/or amended.
(b) The Data Coordinator for the Products listed in each Product Exhibit(s) is
specified in Product Exhibit(s).
ARTICLE 17: INTELLECTUAL PROPERTY
- ---------------------------------
Nothing contained in this Agreement shall be construed as granting or
implying any rights by license, estoppel or otherwise, to any Summagraphics
or HMV ideas, inventions, or patents that are issued now or in the future,
copyrights, trademarks, trade secrets, or any other intellectual property,
either with respect to Products manufactured for Summagraphics under this
Agreement or with respect to any other Summagraphics' Products, services,
technologies or background technologies not covered by this Agreement.
ARTICLE 18: INDEMNIFICATION
- ---------------------------
(a) HMV agrees to indemnify and to hold harmless Summagraphics, its officers,
agents, employees, and customers (mediate and immediate) from any and all
loss, expense, damage, liability, claims or demands either at law or in
equity for actual or alleged infringement of any patent rights, mask work
rights, design, trademark, or copyrights arising from the purchase, use,
sale or other distribution of materials or goods required by a P.O.
hereunder, except where such infringement or alleged infringement is caused
by designs for such materials or goods originally furnished to HMV by
Summagraphics, and also for Product defect causing personal injury or
HMV MC Page 12 of 33 Summagraphics _____
September 13, 1995
<PAGE>
property damage other than that solely related to the specification or
design of Summagraphics, provided that HMV is:
(i) given prompt notice of such claim;
(ii) furnished a copy of communications, notices, and/or other actions
relating to such claim and;
(iii) given the sole authority and reasonable assistance (at HMV's expense)
necessary to defend or settle such claim.
(b) Summagraphics agrees to defend HMV against any action which alleges
that the Products delivered hereunder infringe a United States patent or
copyright and to pay all costs and damages finally awarded against HMV,
provided that such infringement arises directly from the designs or goods
furnished to HMV by Summagraphics, and also for a Product Defect causing
personal injury or property damage solely related to the specifications or
design of Summagraphics, provided that Summagraphics is:
(i) given prompt notice of the claim;
(ii) furnished a copy of communications, notices, and/or other actions
relating to such claim and;
(iii) given the sole authority and reasonable assistance (at Summagraphics'
expense) necessary to defend or settle such claim.
ARTICLE 19: TERMINATION
- -----------------------
(a) In case either Party shall materially breach this Agreement, the non-
infringing Party may terminate this Agreement and any or all Product
Exhibit(s) after giving a thirty (30) day written notice to cure to the
other Party and the breach has not been cured during the thirty (30) day
period.
(b) In the event of termination of this Agreement and any or all Product
Exhibit(s) due to uncured material breach:
(i) The terminating Party may at its sole discretion cancel or disregard,
as the case may be, any P.O.s for the Products which are un-shipped at
the date of such cancellation. In such case, HMV may sell or otherwise
dispose of the Products so canceled by removing any Summagraphics'
signs, marks, and labels from the Products.
(ii) Each Party hereto shall promptly return to the other any materials or
property in its possession or custody supplied by or belonging to the
other Party in connection with the subject Product Exhibit(s).
Notwithstanding the above, unless otherwise mutually agreed in writing,
should termination result from Summagraphics' uncured material breach,
Summagraphics agrees to purchase the Products already manufactured
prior to the date of written notice, or to purchase any parts already
procured by HMV prior to the date of written notice.
(c) Either party may terminate this Agreement as provided in Article 4 (g)
hereof.
(d) Upon the termination of this Agreement, HMV shall promptly return to
Summagraphics all documents, letters, records, notebooks, papers, writings,
HMV MC Page 13 of 33 Summagraphics _____
September 13, 1995
<PAGE>
designs, drawings, models, blueprints and all other materials and all copies
thereof embodying or showing any of the Technical Information provided by
Summagraphics or any Confidential Information disclosed by Summagraphics,
then in HMV's possession or under its control, by whomever prepared, and all
other tooling or property owned by Summagraphics shall be returned.
(e) Except as is provided in this Agreement or in the Product Exhibit(s), both
Parties have considered the possibility of expenditures necessary in
preparing for the Agreement and Product Exhibit(s) and the possible losses
and damage incident to each in the event of cancellation, and agree to bear
their own expenses in such event.
ARTICLE 20: ASSIGNMENT AND SUBCONTRACT
- --------------------------------------
(a) Neither Party shall have the right to assign or otherwise transfer its
rights and obligation under this Agreement except with the prior written
consent of the other Party, and any attempt to do so shall be void and
without effect.
(b) HMV does not have the right to subcontract its performance contemplated
under this Agreement without Summagraphics' prior written consent, except
that HMV may subcontract a limited portion of HMV's performance obligations
under this Agreement relating to material handling, manufacturing, assembly
and shipment to Salisbury Technologies, LLC (a Maryland corporation)
("STL"), or Salisbury Supply Corporation ("SSC"), without Summagraphics'
prior written consent.
ARTICLE 21: HMV'S EMPLOYEES DEEMED NOT EMPLOYEES OF SUMMAGRAPHICS
- -----------------------------------------------------------------
Both Parties agree that HMV is retained as an independent contractor and in no
event will employees or agents hired by HMV be or be considered employees of
Summagraphics. Matters governing the terms and conditions of employment of HMV's
employees are entirely within the control of HMV. Summagraphics will have no
right to control any of the actions of the employees of HMV. HMV's matters such
as work schedules, wage rates, withholding income taxes, disability benefits or
the manner and means through which the work under this Agreement will be
accomplished are entirely within the discretion of HMV.
ARTICLE 22: LIABILITY
- ---------------------
HMV is responsible for the acts of its employees. HMV will indemnify and hold
Summagraphics harmless from and against any and all suits or claims of liability
and/or property damage arising from the acts of HMV, its suppliers or anyone
directly or indirectly employed by HMV arising out of, or in connection with,
HMV's performance under this Agreement.
Summagraphics is responsible for the acts of its employees. Summagraphics will
indemnify and save Summagraphics harmless from and against any and all suits or
claims of liability and/or property damage arising from the acts of
Summagraphics, its suppliers or anyone directly or indirectly employed by
HMV MC Page 14 of 33 Summagraphics _____
September 13, 1995
<PAGE>
Summagraphics arising out of, or in connection with, Summagraphic's performance
under this Agreement.
ARTICLE 23: INSURANCE
- ---------------------
HMV shall, at its own cost and expense, procure and maintain throughout the Term
of this Agreement and during all periods in which Summagraphics' Property
(Product inventory, other property of Summagraphics furnished to HMV, etc.) is
consigned to or stored by HMV or any entity affiliated with HMV, an insurance
policy or policies which shall be in an amount not less than the total purchase
price of such Property. ln the event of loss or damage to any of the Property,
the purchase price thereof will become immediately due and payable. Any
insurance proceeds received by HMV attributable to any loss or damage to
Summagraphics' Property will be credited against such purchase price.
ARTICLE 24: RELATIONSHIP WITH OTHER PARTIES
- -------------------------------------------
Summagraphics' relationship under this Agreement is solely with HMV and HMV
agrees that it may not make any representations or commitments for or on behalf
of Summagraphics to any other party. If a third party initiates any action
against Summagraphics based on an allegation of a third party that HMV made a
representation or commitment for or on behalf of Summagraphics, HMV shall
indemnify and hold harmless Summagraphics from and against any and all
responsibility or liability of any nature related to the alleged conduct of HMV.
ARTICLE 25: ORDER OF PRECEDENCE
- -------------------------------
In the event of an inconsistency in the various documents which govern the
Parties' performance, the order of precedence will be:
(i) This Agreement;
(ii) Attachments and Product Exhibit(s) to this Agreement;
(iii) The face side of the P.O.;
(iv) The reverse side of the P.O.
ARTICLE 26: SEVERABILITY
- ------------------------
The provisions of this Agreement are severable; if any provision shall be deemed
invalid or unenforceable, the applicability or validity of any other provision
of this Agreement shall not be affected and if any such provision shall be
deemed invalid or unenforceable in any respect, such provisions shall be deemed
limited to the extent necessary to render it valid and enforceable.
ARTICLE 27: WAIVER
- ------------------
No failure by either Party to take any action or assert any right hereunder
shall be deemed to be a waiver of such right. No waiver, if given, shall be
construed as a subsequent waiver in the event of the continuation or repetition
of the circumstances giving rise to such right.
HMV MC Page 15 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ARTICLE 28: INTEGRATION
- -----------------------
(a) This Agreement, together with all attachments and Exhibit(s)s hereto, sets
forth the entire Agreement and understanding of the Parties hereto with
respect to the transactions contemplated hereby, and supersedes all prior
agreements, arrangements and understandings concerning the subject matter
hereof. No amendment or modification of the Agreement or any of its
attachments or Exhibit(s)s shall be effective unless in writing and signed
by duly authorized representatives of each Party.
(b) This Agreement applies only to the Parties hereto, namely SUMMAGRAPHICS and
HARVARD MANUFACTURING VENTURES. Neither Party, including any subsidiary or
affiliate company of either Party, may make any claim that a subsidiary,
affiliate, group or division of the other Party is obligated by this
Agreement or any subsidiary, affiliate, group or division of the other Party
is one and the same entity for purposes of this Agreement.
(c) Each attachment and Product Exhibit(s) of this Agreement shall constitute an
integral part of this Agreement.
(d) This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instruments
IN WITNESS WHEREOF, both Parties have signed and dated this document in the
space provided below:
SUMMAGRAPHICS HARVARD MANUFACTURING
CORPORATION VENTURES, LLC
/s/ M. Bennett M. Chavez
- ------------------------------ ---------------------------------
Signature of Officer Signature of Officer
Michael Bennett Manny Chavez
- ------------------------------ ---------------------------------
Printed Name of Officer Printed Name of Officer
9-15-95 15 Sep 95
- ------------------------------ ---------------------------------
Date Date
HMV MC Page 16 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ATTACHMENTS:
I. Product Exhibit(s)
II. Credit Terms (Exhibit A1)
HMV MC Page 17 of 33 Summagraphics _____
September 13, 1995
<PAGE>
PRODUCT EXHIBIT I
This Product Exhibit dated as of September 13, 1995 sets forth additional terms
and conditions particular to certain Products as described herein, and shall be
incorporated by reference into the Agreement ("Agreement") between SUMMAGRAPHICS
CORPORATION ("Summagraphics") and HARVARD MANUFACTURING VENTURES, LLC ("HMV")
dated as of September 13, 1995 to which this Product Exhibit is attached. Such
Products shall be sold by HMV to Summagraphics as detailed herein and dated as
of September 13, 1995 to which this Product Exhibit is attached. Such different
or additional terms are applicable only to the Products described below and in
no way alter the terms and conditions applicable to other Products incorporated
into the Agreement by the addition of other Product Exhibit(s). Except as this
Product Exhibit relates specifically to the Products referenced herein, all of
the Terms of the Agreement shall govern by this Product Exhibit.
ARTICLE 1-1: DEFINITIONS
- ------------------------
Unless otherwise specifically defined, all the Terms used in this Product
Exhibit shall retain the same meaning as defined in the Agreement and such
definitions are incorporated herein by reference.
ARTICLE 1-2: RIGHT TO THE PRODUCTS
- ----------------------------------
(a) HMV shall not incorporate any of Summagraphics' unique features of the
Products as defined in this Product Exhibit(s), including physical
appearance and Specification, into any Products under any trademarks other
than those of Summagraphics without the prior written consent of
Summagraphics.
(b) RIGHTS IN WORK PRODUCT:
(i) In the manufacture of Summagraphics' Product, the work product of
HMV's services, including results, and all ideas, developments, and
inventions which HMV conceives or reduces to practice during the course
of their performance under this Agreement shall be exclusive property
of Summagraphics. This information, material, and any such inventions
shall be deemed SUMMAGRAPHICS' PROPRIETARY INFORMATION and shall not be
disclosed to anyone outside of Summagraphics or used by HMV or others
without the prior written consent of Summagraphics. Any article, paper,
treatise, computer program, or report prepared by HMV pursuant to this
Agreement or which discusses the services performed hereunder or the
results thereof (written data) and which qualifies as a "work for hire"
under the copyright laws of the United States shall be the exclusive
property of Summagraphics as "work for hire".
(ii) In the event that HMV, during or after this Agreement but prior to
HMV's execution of a similar agreement with a third party, develops
additional ideas not investigated hereunder but within the scope of
this Agreement, HMV shall communicate the ideas to Summagraphics
HMV MC Page 18 of 33 Summagraphics _____
September 13, 1995
<PAGE>
and allow Summagraphics the right of first refusal to utilize HMV's
services to develop these additional ideas for Summagraphics.
(c) Summagraphics may use, distribute, and sell Products on a worldwide basis
without restriction by HMV.
ARTICLE 1-3: SHIPPING AND DELIVERY
- ----------------------------------
(a) Lead-times for Products are agreed as listed in Attachment A to this
Product Exhibit, which are the number of calendar days After Receipt of
Purchase Order ("ARO").
(b) HMV shall provide and advise Summagraphics of a Shipdate that is sufficient
to meet Summagraphics' P.O. delivery date, via five (5) day deferred surface
routing unless specified otherwise in the P.O. or other Summagraphics'
documentation.
(c) HMV shall pay and shall indemnify Summagraphics against all license fees,
taxes, and other charges now or which shall hereinafter be levied or
assessed by any public authority by reason of or in connection with Products
shipped under this Agreement, up until the time that Products have been duly
transferred to Summagraphics at the FOB Point.
(d) Upon delivery to Summagraphics' Freight Forwarder or HMV's Freight
Forwarder, HMV shall send a Shipping Notification and Commercial Invoice
listing the information below. This shall be sent via fax or e-mail to the
Summagraphics' Consignee for all export shipments for the purposes of
Customs Clearance. Information required:
(I) Transit Information:
(i) Sea Freight: Vessel Name; Vessel Departure Date; Cargo Receipt
Number; Estimated Arrival Time.
(ii) Air Freight: Air Departure Date; Master Air Waybill Number; House
Air Waybill Number; Estimated Arrival Time.
(II) Product Information:
Commercial Invoice Number; Summagraphics' P.O. Number; Summagraphics'
Part Number and Description; Quantity; Box Count; Shipment Weight;
Country of Origin.
ARTICLE 14: PRICING AND PAYMENT
- -------------------------------
(a) Prices for Products listed in Attachment B of this Product Exhibit(s) are
fixed in U.S. dollars. Prices are based on the target quantities listed in
Attachment A to this Product Exhibit(s). Target quantities are general in
nature and should be used for general planning purposes only. Prices may not
be changed under any circumstances for any open P.O. which has been duly
accepted by HMV under the Terms of this Agreement. Any proposed cost
increase must first be agreed to by both HMV and Summagraphics.
(b) Payment shall be due sixty (60) days from the later of P.O. scheduled
delivery date or date of receipt by Summagraphics of conforming products. In
the event any Product is rejected, HMV shall issue either a credit or a
refund to Summagraphics. Prices will be paid by Summagraphics in U.S.
dollars, and the prices in Product Exhibit(s) include all excise, sales,
use, and other taxes imposed by an federal, state, municipal or other
authority, all of
HMV MC Page 19 of 33 Summagraphics _____
September 13, 1995
<PAGE>
which shall be paid by HMV to the extent that any such taxes and other
charges are payable. Products will be shipped F.O.B. Maryland as detailed
in monthly releases. Title and risk of loss shall pass to Summagraphics
upon transfer to an authorized carrier or freight forwarder at the F.O.B.
Point.
(c) If requested by Summagraphics, HMV shall provide a facsimile copy of the
commercial invoice and bill of lading (or airway bill) within two (2)
working days from the Shipdate. The invoice documentation shall include, at
a minimum:
- Supplier Invoice Number
- Name of Freight Carrier
- Carrier Departure Date
- Estimated Arrival Date
- Summagraphics' P.O. Number
- Summagraphics' Part Number and Description
- Quantity and Box Count
- Per-Unit Price and Total Invoice Value
(d) Summagraphics' Contacts for Shipping and Invoice:
Buyer:
Traffic:
A/P:
ARTICLE 1-5: RESCHEDULING AND RE-CONFIGURATION
- ----------------------------------------------
Summagraphics (i) may not cancel a P.O. covering the current calendar month or
any of the next three calendar months; (ii) may not reschedule a P.O. covering
the current or next following calendar month; may reschedule up to fifteen
percent (15%) of a P.O. covering the second calendar month beyond the current
month by thirty (30) days; and may reschedule up to thirty percent (30%) of a
P.O. covering information for the third calendar month beyond the current month
by thirty (30) to forty-five (45) days. The Production information furnished to
HMV by Summagraphics covering the forth and fifth calendar months following the
current month are forecasts only and may be changed at any time without penalty.
Summagraphics may request Products already ordered pursuant to a P.O. to be
reconfigured by HMV prior to delivery in respect to CPU, Hard Drive, and/or
Display, and HMV agrees to respond in a timely fashion to such requests in good
faith by quoting reasonable re-configuration costs to Summagraphics based upon
actual additional expenses incurred by HMV for any such reconfiguration.
ARTICLE 1-6: PROTECTION OF PROPRIETARY INFORMATION
- --------------------------------------------------
The Data Coordinator for Summagraphics for all proprietary information
regarding the Products specified in this Product Exhibit(s) is, by Title Senior
Vice President, General Counsel & Secretary. The Data Coordinator for HMV for
all proprietary information is, by Title Director of Human Resources and
Administration.
HMV MC Page 20 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ARTICLE 1-7: TERM OF THE PRODUCT EXHIBIT(S)
- -------------------------------------------
This Product Exhibit(s) shall be deemed to come into force on the later of the
two dates signed by both Parties and shall continue (unless earlier terminated
in accordance with the provisions of this Agreement and Product Exhibit(s)) for
three (3) years. Following the initial three year Term of this Agreement, this
Product Exhibit(s) shall be automatically renewed for a one (1) year Term and
thereafter from year-to-year, unless either of the Parties hereto gives the
other Party at least four (4) months prior written notice to terminate this
Product Exhibit(s) before the expiration of the initial or any renewed term of
this Product Exhibit(s). If such prior written notice is made by either Party,
then this Product Exhibit(s) shall terminate on the initial or, as the case may
be, duly renewed expiration date hereof.
ARTICLE 1-8: WARRANTY AND QUALITY:
- ----------------------------------
HMV warrants Product for a period of fifteen (15) months from the Shipdate for
performance, compliance to specification, quality, and reliability of all
components, and agrees to repair or replace (at no cost to Summagraphics) any
unit or subassembly which fails under this warranty term. HMV shall manage all
third party component suppliers, and shall, except for actions by any affiliate
of Summagraphics, ensure compliance to the same Terms and conditions as are
included in this Agreement and Exhibit(s).
ARTICLE 1-9: CONFIGURATION CONTROL:
- -----------------------------------
(a) Each Product delivered under this Agreement will be uniquely identified by
Summagraphics' serial number, unless otherwise agreed between the parties.
HMV agrees to track changes to configurations using this serial number so
that at any time the revision level of a Product can be determined by the
serial number.
(b) Any change in configuration that affects form, fit, function, packaging,
servicing, reliability, safety, compatibility, appearance, dimensions, or
regulatory compliance, is to be documented by HMV as a revision to the
Product with serial number effectivity. Any such change must be communicated
to Summagraphics no less than thirty (30) days in advance of receipt of
Products which have been so changed.
(c) Any proposed change which modifies the Technical Information of this Product
Exhibit(s) must be communicated to Summagraphics no less than thirty (30)
days prior to being executed to gain acceptance from Summagraphics.
(d) HMV agrees to work cooperatively with Summagraphics on requested changes
from Summagraphics to improve the Products and incorporate such changes into
the product when appropriate.
IN WITNESS WHEREOF, both Parties have signed and dated this Product Exhibit(s)
in the space provided below:
HMV MC Page 21 of 33 Summagraphics _____
September 13, 1995
<PAGE>
SUMMAGRAPHICS HARVARD MANUFACTURING
CORPORATION VENTURES, LLC
/s/ Michael Bennett M. Chavez
- ------------------------------ ---------------------------------
Signature of Officer Signature of Officer
Michael Bennett Manny Chavez
- ------------------------------ ---------------------------------
Printed Name of Officer Printed Name of Officer
9-15-95 15 Sep 95
- ------------------------------ ---------------------------------
Date Date
HMV MC Page 22 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ATTACHMENTS:
Attachment A: Product Description
Attachment B: Pricing
Attachment C: Purchase Order Release Forecasting Provision
Attachment D: Product Quality and Acceptance
Attachment E: Materials Purchased from Summagraphics by HMV
Attachment F: Summagraphics' Property in Possession of HMV
Attachment G: Tooling Cost for New Items
HMV MC Page 23 of 33 Summagraphics _____
September 13, 1995
<PAGE>
ATTACHMENT A
Product Description
See Attachment A1 and A2 on following pages:
24(a) - 24(c)
HMV MC Page 24 of 33 Summagraphics _____
September 13, 1995
<PAGE>
SummaJet(TM) 2 Series
[SPECIFICATION SHEET FOR COMPANY'S INK JET PLOTTER WITH PHOTOGRAPHS]
INK JET PLOTTERS WITH UNMATCHED
VERSATILITY
The enhanced SummaJet 2 series low-cost large-format ink jet plotters not only
offers more standard features at a lower price, but also gives you flexible
upgrade paths to accommodate your changing business demands. The SummaJet 2
versatile feature set significantly lowers your overall cost of ownership and
operation, and with this lower cost of operation, the SummaJet 2 series plotters
become the value-rich choice to satisfy a range of color plotting requirements.
Technological innovations enable the SummaJet 2 to operate faster, provide more
flexible output options, and offers a broad range of upgrade enhancements. And,
SummaJet 2 offers standard 600 dpi x 300 dpi resolution capability in color. The
optional Ethernet adapter provides the network capability important for cost-
effective operation in today's workgroups. SummaJet 2's other options, including
memory enhancement and a roll feed upgrade will increase the return on your
equipment investment and keep pace with even the most dynamic organization.
. Best in plot resolution technology--SummaJet 2 offers 600 dpi x 300 dpi
resolution in color along with support for 32 levels of gray
. Cost-saving features include the unique refillable and interchangable ink
cartridges
. Lower acquisition cost and a significantly lower cost of operation
. Upgrade paths include additional RAM and rail feed option
. Optional Ethernet adapter that supports Novell and TCP/IP protocols
. Compatibility in software Formats and hardware interfaces
Summagraphics
Page 24(a) of 33
September 13, 1995
<PAGE>
SUMMAJET(TM) 2 SERIES [WARRANTY SYMBOL]
VERSATILE INK JET PLOTTERS FROM SUMMAGRAPHICS
DRAMATICALLY LOWERS OWNERSHIP COSTS
The SummaJet 2's combination of lower acquisition price and reduced operating
expense significantly lowers your overall ownership cost. The SummaJet 2 lowers
operating expense by using specially designed, refillable ink cartridges that
achieve the highest mileage from costly ink supplies.
FLEXIBLE UPGRADE OPTIONS MEET CHANGING DEMANDS
With a SummaJet 2 plotter on-line, each member of the workgroup can customize
output for specific project requirements. Using the HI(R) Queue software bundled
with each SummaJet 2, individuals can attach configuration commands to each plot
file from either DOS or Macintosh(R) computers. As plotting requirements change,
these upgrade options are available:
. Memory is upgradable with industry-standard 1-, 4-, and 16MB SIMMs
. Optional roll feed adapter
. Optional color upgrade kit for monochrome models
HARDWARE COMPATIBILITY
SummaJet 2 hardware connectivity features include:
. RS-232C compatible serial port and high-speed Centronics parallel port
. Optional Ethernet adapter supports Novell and TCP/IP protocols
BUILDS PRODUCTIVITY WITH COST-EFFECTIVE PERFORMANCE
Higher performance is an important measure of a plotter, but cost-effective
operation is even more vital in today's competitive environments. Summagraphics
gives you the tools you need to excel. SummaJet 2's features, which enable more
efficient output, include:
. Two-cartridge system
. Bi-directional printing
. Draft mode for fast review plots and final mode for presentation-quality
drawings
. Summagraphics interchangable cartridge design allows use of two black ink
cartridges for faster, draft-mode plotting, use of one black and one color
cartridge for targeted, economical color use, and use of two color cartridges
to create final, presentation plots
SUMMASUPPORT
Each SummaJet 2
plotter is covered by
a one-year limited
Priority Response(TM),
48-Hour Replacement
Warranty and Summagraphics offers several additional service options.
IN THE BOX
Each SummaJet 2 plotter comes complete and ready to operate. The standard unit
includes:
. Plotter
. ADI(R) and Microsoft(R) Windows(TM) drivers
. HI Queue plot management/configuration program
. Parallel cable
. Power cord
. Two refillable ink cartridges, with refills
. Sample media
. Operations manual
SUMMAJET 2 SPECIFICATIONS
PERFORMANCE:
Technology: Monochrome ink jet (upgradable to color)
Three-color ink jet (CMY, CMYK)
Resolution:
. Draft Mode: 150dpi/6dpmm
. Normal Mode: 300dpi/12dpmm
. Final Mode: 300dpi/12dpmm
. Hi-Res Mode: 600 x 300dpi/24dpmm x 12dpmm
Accuracy +/-0.10" (0.25mm) or 0.1% of vector length,
whichever is greater on 3mil (75 micron)
double-matte, ink-jet polyester film at
23 degrees C (73 degrees F), 50 to 60% RH
VECTOR PLOTTING:
Plot Languages: HP-GL/2, HP-GL, DM/PL
RASTER PLOTTING:
Raster File Formats: HP RTL, CALS Group 4
PLOTTING MATERIALS:
Media: Bond; translucent bond; vellum; double-matte,
ink jet polyester film
MEDIA SIZES: 1324M 1336M
1324C 1336C
. Engineering: A,B,C,D A,B,C,D,E,F
. Architectural: A,B,C,D,Legal A,B,D,E,F,Legal, 30" x 42"
. DIN: A4,A3,A2,A1 A4,A3,A2,A1,A0
. Oversize DIN: A4,A3,A2,A1 A4,A3,A2,A1,A0
MAXIMUM PLOT AREA: Arch.D-size Arch.E-size
34.2" x 23.2" 46.2" x 35.2"
(868 x 589mm) (1173 x 894mm)
INTERFACES:
Standard: Asynchronous serial RS232-C compatible
Centronics Parallel
OPTIONAL INTERFACE: Ethernet
NETWORK CAPABILITY: Optional Ethernet interface supports EtherTalk,
TCP/IP, and Novell;
Built-in job-control language
HI Queue plotter configuration from DOS or
Macintosh computers
Automatic I/O switching between two communication ports
Plotter I/O Connectors: DB-9P (serial), DB-25P (parallel)
Baud Rate: 2400, 4800, 9600, 19.2K and 38.4K (selectable)
MECHANICAL:
Drives: Servo
Buffer Size (RAM):
. Standard: 2MB (2M Series, monochrome) 4MB (2C Series, color)
. Maximum: 32MB (Accepts 1MB, 4MB, & 16MB SIMMs)
OPTIONS:
Stand . Ethernet adapter . Automatic rollfeed adapter . Serial cable kit
1, 4 and 16 MB Single inline memory modules (SIMMs)
Refillable, high-capacity black and color cartridges
Opaque bond, translucent paper, vellum, double-matte ink jet film
OPERATING ENVIRONMENT:
. Temperature: 50 degrees F to 95 degrees F (10 degrees C to 35
degrees C)
. Relative Humidity: 20% to 80% non-condensing
STORAGE ENVIRONMENT:
. Temperature: -40 degrees F to 158 degrees F (-40 degrees C to 70
degrees C)
. Relative Humidity: 5% to 95% non-condensing
ELECTRICAL:
Power Requirements:
. Power: 50W max while operating;
less than 25W in standby mode
. Source: 100/120/220/240 VAC
. Frequency: 48-62Hz
Fuse Ratings: 75 Amp (100-120 VAC)
375 (220-240 VAC)
Certification: FCC Class A, CSA, TUV
PLOTTER HARDWARE: 1324C WITH 1336C WITH
OPTIONAL STAND OPTIONAL STAND
Height: 44" (1118mm) 53" (1346mm)
Width: 52.5" (1334mm) 63.5" (1613mm)
Depth: 31" (787mm) 31" (787mm)
Weight: 96 lbs (43.6kg) 124 lbs (56.4kg)
FOR THE NAME OF THE RESELLER IN YOUR AREA, CALL: 800-33-SUMMA
North, South and 8500 Cameron Road, Austin, TX 78754
Central America, (512) 835-0900 FAX: (512) 873-1FAX
Asia-Pacific Technical Support 800-444-3425, menu option 2
email: [email protected]
BBS 512-873-1477
1200 to 14,400 baud
8,N,1;ANS1 emulation
Europe Brussels/Zaventem, Belgium +32-2-715-0600
Fax: +32-2-721-5289
(c)1995 Summagraphics corporation All rights reserved
SUMMAGRAPHICS(R)
Page 24(b) of 33
September 13, 1995
<PAGE>
ATTACHMENT A2
"D" SIZE UNITS "E" SIZE UNITS
-------------- --------------
1324M-1 EU 1336M-lEU
1324C-1 EU 1336C-lEU
1324M-2 1336M-2
1324C-2 1336C-2
428-lOOM 428-lOlM
428-lOOC 428-lOlC
1324M-1M 1336M-1M
1324C-1M 1336C -1M
HMV MC Page 24(c) of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT B
Pricing
Products Material Labor Wrap Total Unit
Costs Hours Rate Cost
See Product Description (1)(4) 7.3 (1) $25 (1) $(1)(3)
in Attachment A hereto (2)(4) 7.3 (2) $26 (2) $(2)(3)
1. When Product is furnished to HMV in kit form.
2. When ordering, receiving and inspection of product is performed by HMV.
3. This number is based on the standard cost of material as of August 25, 1995
measured by the configuration of Products on August 25.
4. This dollar amount shall be based on material overhead charges not to exceed
3.75% of standard cost as determined by note 3 of this Attachment B.
Spare parts purchased by Summagraphics from HMV will be at cost plus overhead
expenses not to exceed five percent (5%).
Summagraphics agrees to pay HMV a material handling charge of three and three
quarter percent (3 3/4%) while HMV purchases balanced sets of parts from
Summagraphics. Summagraphics agrees to pay HMV a material handling charge for
all materials purchased by HMV from third party vendors, payable monthly by
Summagraphics, not to exceed five percent (5%). This handling charge shall
decrease to four percent (4%) for all materials purchased when additional
volumes and/or models than existed on August 25, 1995.
"Wrap rate" charge:
This is HMV's rate per hour for manufacturing the above listed products.
This rate includes all HMV costs of manufacturing, exclusive of material
handling charges as noted above, incoming and outgoing freight, and any
material financing charges as defined herein.
HMV MC Page 25 of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT C
Purchase Order Release Forecasting Provision
See Product Exhibits, Article 1 - 5: Rescheduling and Re-Configuration.
HMV MC Page 26 of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT D
Product Quality and Acceptance
1.0 PURPOSE
- -----------
This Attachment defines Summagraphics' requirements for HMV's quality program,
HMV's responsibilities for manufacturing, inspecting, testing, and supplying
Product(s), to Summagraphics and HMV's obligations to maintain high-quality
production outputs.
2.0 APPLICABLE DOCUMENTS
- ------------------------
2.1 HMV will provide Products in conformance with the following documents which
are included herein, by reference:
Source Description Date
Summa SummaJet Product Inspection Plan 07/15/95
Summa Part Appearance Spec. No. 7026
Summa Mil-Std-105D Rev D
Summa Station One Assembly Instructions 12/17/94
Summa Station Two Assembly Instructions 12/08/94
Summa Station Three Assembly Instructions 12/10/94
Summa Station Four Assembly Instructions 12/08/94
Summa Station Five Assembly Instructions 12/08/94
Summa Station Six Assembly Instructions 12/08/94
Summa Station Seven Assembly Instructions 12/08/94
Summa Station Eight Assembly Instructions 12/08/94
Summa Station Nine Assembly Instructions 03/08/95
Summa Carriage Assembly Instructions 01/11/95
Summa Calibration Procedure
Summa Capping Station Assembly Procedures 12/17/95
HMV RMA Procedure No. 026 06/15/95
2.2 Such documents may be modified by Summagraphics from time-to-time, but any
actual changes to HMV's production of the Product(s) will be subject to the
ECN process, as described in Article 9 of the Agreement.
3.0 PROCESS REQUIREMENTS
- ------------------------
HMV shall adhere to a quality/manufacturing plan, including a data
collection/tracking/reporting system ("Process"), that will ensure compliance
with the requirements of the Terms and conditions of this Agreement, and ISO
9000. The Process and procedures developed by HMV shall be documented.
Summagraphics may review the Process at any time. HMV is solely responsible for
the quality of the Product(s) procured or manufactured for Summagraphics.
Approval of HMV's Process by Summagraphics does not relieve HMV of this
responsibility.
HMV MC Page 27 of 33 Summagraphics ______
September 13, 1995
<PAGE>
4.0 PART NUMBERING
- ------------------
HMV shall use Summagraphics' part numbers and part numbering scheme on all
documents, component, Product and transactions.
5.0 WORK IN PROCESS FAILURES
- ----------------------------
Regardless of HMV's quality Process, Summagraphics recognizes that, from time-
to-time, specific components or sub-assemblies will fail during testing prior to
shipment.
5.1 Such failures will be handled pursuant to the Terms of Article 11 of the
Agreement. Summagraphics expects that most such parts failures will be on
one-by-one basis-- "Incidental Failures". There is a possibility that parts
failures will be due to fundamental production, Process, or design problems,
such that unusually high failure rates ensue--"Chronic Failure".
5.2 For the case of Chronic Failures, HMV agrees to make best efforts to supply
replacement parts and immediate failure analysis. In the event of Chronic
Failure, HMV agrees to notify Summagraphics and implement a corrective
action plan within no more than five (5) working days after Summagraphics'
notification.
5.3 So as to help assure that the quality of the Products is continually being
improved, HMV will respond to failure reports and/or evaluate returned parts
in a timely manner. HMV will then make a failure analysis and suggest a
corrective action plan for the purpose of better assuring that such failures
are less likely to occur in the future.
5.4 As part of the Process, HMV shall implement a program which constantly
reduces Product defects. This program will insure the performance of
effective corrective actions, based upon information derived from failure
reporting and analysis. HMV will maintain records of corrective actions
indicating the frequency of defects, (both those reported by Summagraphics
and those found during HMV's production), the proposed corrective change in
the process, evaluation of its effectiveness, and the date of implementation
after Summagraphics' approval. Such records are subject to review by
Summagraphics.
6.0 PACKAGING REQUIREMENTS
- --------------------------
HMV will package each Product according to the Summagraphics' specification as
referenced herein. In packaging Products, HMV will also take such additional
steps as a reasonably prudent person would take to ensure maximum protection
from damage due to rough handling and other hazards which it is reasonably
foreseeable might occur to Product(s) up to the point of delivery to the
carrier.
7.0 RELIABILITY TEST PLAN
- -------------------------
7.1 Prior to mass production, HMV shall perform Reliability testing as described
by the "Reliability Test Plan" for the Products.
7.2 After mass production has started, HMV shall continuously maintain an
ongoing program to test Reliability. HMV will periodically supply reports
HMV MC Page 28 of 33 Summagraphics ______
September 13, 1995
<PAGE>
to Summagraphics regarding the results of such Reliability testing.
Summagraphics reserves the right to reasonably require additional or
different Reliability testing by HMV.
HMV MC Page 29 of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT E
Materials Purchased from Summagraphics by HMV
HMV MC Page 30 of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT F
SUMMAGRAPHICS' PROPERTY IN POSSESSION OF HMV
This Attachment F sets forth the terms and conditions applicable to all
Summagraphics' Properties which will be located at HMV's facility or in HMV's
possession. HMV will be requested to acknowledge receipt of each item of
Summagraphics' Property by signing on itemized listing of Property, if and when
such item(s) is(are) to be placed in the possession of HMV.
HMV MC Page 31 of 33 Summagraphics ______
September 13, 1995
<PAGE>
ATTACHMENT G
Tooling Cost
FOR NEW ITEMS:
1. Burn-in fixtures and final functional test equipment will be either
provided by Summagraphics or a separate tooling cost for those items will
be negotiated between the Parties.
2. All tools paid for by Summagraphics shall remain the property of
Summagraphics. Summagraphics shall furnish a list of these tools to HMV,
set forth in Attachment G1 on page 32(a) and 32(b) hereof.
3. Tooling costs shall be paid fifty percent (50%) due upon placement of
order and the balance due after acceptance of first article production,
or as otherwise may be negotiated between the Parties.
HMV MC Page 32 of 33 Summagraphics ______
September 13, 1995
<PAGE>
SHEET 1
PART NUMBER DESCRIPTION QTY U/M DATE
----------- ----------- --- --- ----
MC-3545 POWER CORDS 50 EA. 8/17/95
MH-1518 DBL SIDED TAPE 1 RL. 8/17/95
MC-3545 POWER CORDS 10 EA. 8/18/95
MH-1518 DBL SIDED TAPE 1 RL. 8/18/95
S-152 TRUARC PLIERS SM. 2 EA. 8/18/95
L-152 TRUARC PLIERS LG. 2 EA. 8/18/95
INTERNAL RING PLIERS 1 EA. 8/18/95
CR-018,DIS C-RING APPLICATOR 1 EA. 8/18/95
TK25 E-RING APPLICATOR 1 EA. 8/18/95
428-615 ADAPTER MKII 20 EA. 8/21/95
V-LET ARM PART 1 EA. 8/18/95
MODEL 808 SEALED AIR UNIT
SERIAL 01558 1
HMV MC Page 32(a) of 33 Summagraphics ______
September 13, 1995
<PAGE>
SHEET 2
FXT NUMBER DESCRIPTION QTY U/M SHIP
DATE
- ------------------------------------------------------------------------------
3151 X DRIVE DRUM ASSY 1 EA. 8/11/95
3272 WOOD STAND TO HOLD UP PLOTTERFOR COVER FEET INSTALL 2 EA. 8/11/95
3281 SETTING SOLINOID LOCATION FOR CAPPING STATION 1 EA. 8/11/95
3288 FLEX CABLE FOLDING,RIGHT,ADJUSTABLE SIDE 1 EA. 8/11/95
3294 FLEX CABLE FOLDING,LECT,FIXED SIDE 1 EA. 8/11/95
3249 CARRIAGE WHEEL ASSY 1 EA. 8/11/95
2853 BLOCK TO PRESS SHAFT INTO IDLE PULLEY 1 EA. 8/11/95
2446 GAUGE TO SET .005 ESNA NUT SPACING 1 EA. 8/11/95
2447 GAUGE TO SET .015 ESNA NUT SPACING 1 EA. 8/11/95
3180 LOCATING PAPER EDGE SENSOR 1 EA. 8/11/95
2681 GAUGE, SPACING PULLEY OFF SLMM,X&Y 3 EA. 8/11/95
3208 TOOK, INSERTING .06 DIA.ROLLPIN INTO PLATEN 1 EA. 8/11/95
3227 SETTING CARRIGAGE WHEEL HEIGHT 15 EA. 8/11/95
2683 PRESING MB-275 BEARING INTO PINCH ROLLER 2 EA. 8/11/95
2704 SOLDING(ROLL & MAIN)PAPER SENSORS TO CIRCUIT BOARD 3 EA. 8/11/95
2717 INSTALLING PIVOT PIN IN SLPR 1 SET. 8/11/95
3188 PRESSING BUSHINGS INTO CARRIAGE 1 EA. 8/11/95
2817 PRESSING BUSHING INTO PIILOW BLOCK 1 EA. 8/11/95
3209 GAUGE,SPACING PILLOW BLOCK ROM DRIVE SEGMENT 4 EA. 8/11/95
3210 PRESING ROLL PIN INTO SOLINOID PLUNGER 1 EA. 8/11/95
3221 VLET MAPPING FIXTURE 2 EA. 8/11/95
3252 CARRIAGE SUPPORT,FIXED SIDE 1 EA. 8/11/95
3253 CARRIAGE SUPPORT,ADJUSTABLE SIDE 1 EA. 8/11/95
3170 2 PIECE STYLE PLATEN TO ENDPLATE ASSY 1 SET. 8/11/95
3338 PEN BAR HEIGHT GO-NO 60 GAUGE 2 EA. 8/18/95
3180 CARRIAGE SENSOR HEIGHT GAUGE 1 EA. 8/18/95
3337 DRILL END COVERS 1 EA. 8/18/95
3339 WIPER HEIGHT GAUGE 2 SET. 8/18/95
2872 LOCATOR FOR NAME PLATE 1 EA. 8/21/95
3338 PEN BAR HEIGHT 3 EA. 8/24/95
3155 FOR DRIVESHAFT TO PLATEN ASSY. 1 EA. 8/11/95
Page 32(b) of 33
September 13, 1995
<PAGE>
EXHIBIT A1
Credit Terms
This Exhibit A1 is appended to an agreement ("Agreement") by and between
Summagraphics Corporation ("Sumrnagraphics") and Harvard Manufacturing Ventures,
L.L.C. ("HMV") dated as of August 25, 1995, and sets forth the funding and
credit terms and conditions pertaining to the Agreement. The terms and
conditions in this Exhibit Al ("Credit Terms") may be changed from time to time
by mutual consent of the parties to the Agreement.
The Credit Terms are as follows:
(1) As of the signing of the Agreement on September 13, 1995, HMV has extended
Summagraphics a credit of six hundred thousand dollars ($600,000).
(2) The State of Maryland has approved a five (5) year term loan to Salisbury
Supply Corporation ("SSC") in the amount of five hundred thousand dollars
($500,000) which will be funded in approximately two to three weeks, and
Salisbury will in turn buy from Summagraphics or other vendors parts to an
inventory limit of $500,000. Collateral for the loan will consist of a like
amount of component inventories ("Parts", as defined in the Agreement) held by
SSC as well as accounts receivable from STL plus cash on hand in SSC. Prior to
any funding by the State of Maryland, Summagraphics will provide HMV with a
reference letter from Summagraphics' bank (Silicon Valley Bank).
(3) Nations Bank has stated that if Summagraphics has a strong fiscal quarter
and if Summagraphics' financials otherwise justify it, it will make a loan in
the amount of one million dollars ($1,000,000) to Summagraphics, secured by a
like amount of inventory of Parts, and that the State of Maryland will guarantee
the loan.
(4) HMV will exercise its best efforts to obtain from the State of Maryland
reimbursement of Summagraphics' costs incurred for training and other actions
associated with implementing and maintaining the rnanufacture of the Product by
HMV.
(5) On the first, second and third anniversaries of the Agreement, HMV will
consider, in its sole discretion, upgrades in its line of credit to one million
dollars ($1,000,000), two million dollars ($2,000,000), and three million
dollars ($3,000,000), respectively.
HMV MC Page 33 of 33 Summagraphics ______
September 13, 1995
<PAGE>
EXHIBIT 10.31
LICENSE AGREEMENT
-----------------
This Agreement is made and entered into as of May 26, 1995, by and
between SUMMAGRAPHICS CORPORATION (hereinafter referred to as "LICENSOR"), a
corporation organized and existing under the laws of the State of Delaware,
having an office at 8500 Cameron Road, Austin, Texas 78754, and SHARP
CORPORATION (hereinafter referred to as "LICENSEE"), a corporation organized
and existing under the laws of Japan, having an office at 22-22 Nagaike-cho,
Abeno-ku, Osaka 545, Japan.
WHEREAS, LICENSOR has the sole and exclusive right to grant licenses
under U.S. Patent Nos. 4,839,634 and 5,194,852 relating to combined display and
input panels, and under all counterpart patents and patent applications in other
countries;
WHEREAS LICENSEE possesses expertise with respect to the design,
development, programming and manufacture of combined displays and input panels
in general;
WHEREAS LICENSEE would like to increase its product base by adding
thereto combined displays and input panels according to said patents;
WHEREAS, LICENSEE desires a nonexclusive right and license under said
patents to make, use and sell combined display and input panels and products
incorporating such display and input panels throughout the world; and
WHEREAS, LICENSOR is willing to grant such a license under the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, terms and conditions hereinafter set forth, the parties hereto
mutually covenant and agree as follows.
1
<PAGE>
1. DEFINITIONS
-----------
(a) "Licensed Patent(s)": any or all of the patents and patent
-------------------
applications set forth in Schedule 1 hereto, and any continuations, divisions
and reissues thereof.
(b) "Licensed Product(s)": any display which employs digitizer
-----------------
technology combined with an input panel, and any product incorporating same,
covered by a claim of any registered or issued (hereinafter referred to as
"Enforceable") Licensed Patent.
(c) "Subsidiary": any corporation or other entity of which a party
----------
hereto owns or controls directly or indirectly more than fifty percent (50%) of
the voting stock entitled to vote for the election of the members of the board
of directors or persons performing similar functions, or, in the case of
entities not having voting stock, equivalent ownership or control thereof; a
corporation which a party, by reason of national laws or regulations, does not
own or control more than fifty percent (50%) of the shares thereof shall
nevertheless be considered a Subsidiary so long as such party has and exercises
the right and power to cause such corporation to comply with all obligations of
such party under this Agreement; a corporation or other entity shall be
considered a Subsidiary of a party only so long as such Subsidiary shall be
owned or controlled as herein before set forth.
2. LICENSE
-------
(a) Subject to the terms and conditions set forth in this Agreement,
LICENSOR grants to LICENSEE, and LICENSEE accepts, a non-exclusive, non-
transferable, non-divisible right and license under the Licensed Patents,
without the right to sublicense, except for sublicenses to LICENSEE's
Subsidiaries, to make, have made, use and sell Licensed Products throughout the
world, provided that all royalties for the license and sublicense under this
Article are paid by the LICENSEE to LICENSOR.
2
<PAGE>
(b) No license with respect to any patent, or patent application,
either express or implied, is granted by LICENSOR to LICENSEE hereunder except
as specifically stated in paragraph 2(a) hereof.
(c) No license, either express or implied, is granted hereunder to use
as a trademark or otherwise the word "SUMMAGRAPHICS" or any other trademark or
trade or product name of LICENSOR. or any word or mark similar thereto.
3. ROYALTY
-------
(a) LICENSEE agrees to pay and does pay LICENSOR within sixty (60)
days of the effective date of this Agreement a non-refundable fee of
$100,000.00. This fee shall consist of a non-refundable license fee of
$40,000.00 and a non-refundable advance against future royalties of $60,000.00.
(b) LICENSEE agrees to pay LICENSOR the royalty for Class 1, Class 2,
Class 3, Class 4 and Class 5 Licensed Products stated in the table immediately
below made by or on behalf of LICENSEE or its Subsidiary in a country in which a
Licensed Patent is Enforceable, or shipped by or on behalf of LICENSEE or its
Subsidiary to a country in which a Licensed Patent is Enforceable. A royalty
accrues for a Licensed Product manufactured in a country in which a Licensed
Patent is Enforceable, or shipped to a country in which a Licensed Patent is
Enforceable. Royalties for Enforceable Licensed Patents accrue as of the month
following LICENSOR's notice to LICENSEE that a Licensed Patent becomes
registered or issued.
3
<PAGE>
<TABLE>
<CAPTION>
Royalty Fee Per
Class Minimum Size (Pixels) Maximum Size (Pixels) Module (U.S.$)
- ----- -------------------- --------------------- ---------------
<S> <C> <C> <C>
1 not applicable Less than 480x320 $0.75
2 480x320 Less than 640x480 $0.75
3 640x480 Less than 1024x768 $1.00
4 1024x768 Less than 1280x1024 $1.50
5 1280x 1024 no limit $2.00
</TABLE>
(c) No further royalty shall be due LICENSOR for a Licensed Product
for which LICENSEE paid LICENSOR a royalty and which LICENSEE, its Subsidiary
or customer thereof subsequently incorporates into a product.
(d) LICENSEE shall pay interest to LICENSOR at a rate of the lesser of
(i) two percent (2%) per annum over the current U.S. federal discount rate and
(ii) the maximum permitted by law, on any and all royalty amounts that are at
any time overdue and payable to LICENSOR under this Agreement, such interest
being calculated on each such overdue amount from the date when such amount
became overdue to the date of actual payment thereof. The payment of such
interest shall be in addition to and not in lieu of LICENSOR's other rights
under this Agreement resulting from LICENSEE's default by failure to pay any
amounts due hereunder.
(e) At any time during this Agreement, upon LICENSEE's request, both
parties will discuss an adjustment of royalty fees which are presented in this
Article when such royalty fees become, in LICENSEE's opinion, unreasonably high
due to price reductions or other changes of circumstances of the Licensed
Product.
4. TERM
----
This Agreement shall be effective as of the date first written above
and shall continue in full force and effect until the expiration of the last of
the Licensed Patents (the "Term") unless sooner terminated under the
provisions of this Agreement.
4
<PAGE>
5. STATEMENTS AND PAYMENTS
------------------------
(a) LICENSEE agrees to forward to LICENSOR within sixty (60) days
after the end of each fiscal half year of LICENSEE (ending on September 30 and
March 31) during the Term of this Agreement, a statement showing the number of
Licensed Products sold by it or otherwise disposed of by it during the preceding
fiscal half year period together with a computation of the royalties due and
payment for the royalties due, provided that the obligation to furnish these
royalty reports shall not commence until the first Licensed Product is
introduced into the market.
(b) Payment shall be made in United States currency. In the event
that the Japanese Government imposes any income tax on payments by LICENSEE to
LICENSOR and requires LICENSEE to withhold such tax from such payments, LICENSEE
may deduct any income tax imposed on such payments and required to be withheld
by the Japanese Government. LICENSEE shall furnish LICENSOR with certified
statements for such deduction. LICENSEE shall be responsible for all other
taxes, charges and duties imposed by governments and authorities in connection
with manufacture, sale and use of Licensed Products, except for LICENSOR's
income taxes imposed by the United States federal and local governments.
(c) LICENSOR shall be responsible for obtaining all approvals
required, if any, of the Japanese Government for this Agreement to become
effective, and this Agreement shall not be effective until any such approvals
are obtained.
5
<PAGE>
6. BOOKS OF ACCOUNT
(a) LICENSEE shall keep accurate and up-to-date records, files and
books of account containing all the data necessary for the full computation and
verification of the royalties to be paid to LICENSOR, and the information to be
given in the statements herein provided for, and such other particulars as may
be reasonably required to determine LICENSEE's compliance with this Agreement.
At all reasonable times (but not to exceed one inspection during each calendar
year) LICENSEE shall permit any independent certified public accountant,
appointed by LICENSOR and acceptable to LICENSEE, to inspect the records, files
and books of account to the extent reasonably necessary to establish the
accuracy of the accounting thereunder, and any such inspection shall be made at
LICENSEE's facilities during normal business hours within two years following
the end of the calendar year involved and if not made within such time the right
to make such inspection shall be deemed waived. Acceptance of the LICENSOR's
independent certified public accountant by LICENSEE shall not be withheld
without good reason. The cost of any inspection shall be borne by LICENSOR,
except that the LICENSEE shall bear the cost of any inspection which reveals
that royalties were underpaid by 10% or more of the total amount due for the
time period which the inspection covered.
(b) No termination of this Agreement shall affect the right of
LICENSOR to receive royalties and statements of account from LICENSEE covering
the manufacture and sale of Licensed Products subject to royalty under this
Agreement.
7. TERMINATION
-----------
(a) Should LICENSEE be in default as to the payment of any royalties
or other payments payable to LICENSOR as provided herein or should LICENSEE fail
to render reports or
6
<PAGE>
otherwise fail to abide by the conditions set forth herein, LICENSOR may, but
shall not be required to, terminate this Agreement by written notice thereof to
LICENSEE. Unless said default shall be corrected by LICENSEE within sixty (60)
days of said notice, then this Agreement and the license and rights granted by
it to LICENSEE shall automatically terminate. Termination of this Agreement
shall be in addition to any other remedies that LICENSOR may have at law or
equity.
(b) No termination of this Agreement shall relieve LICENSEE's
obligations to LICENSOR, including LICENSEE's obligation to pay all royalties
accrued to the termination date. Upon early termination of this Agreement under
this Article, LICENSEE shall have the right to sell all of the Licensed Products
it has on hand and has parts for on said date of termination, provided that such
sales are completed within one year from the date of termination, it being
clearly understood and agreed that upon termination of this Agreement, LICENSEE
will immediately terminate manufacture and purchase of Licensed Products. Sales
and use of all of Licensed Products after said date of termination shall carry
the same royalty as theretofore.
(c) In the event that LICENSEE is unable to meet its debts as they
fall due, is declared bankrupt or insolvent by any competent court or tribunal,
or makes any general assignment of assets for the benefit of creditors, or
enters into liquidation, or a receiver or trustee is appointed with respect to
all or a part of its property, this Agreement may be terminated by LICENSOR
effective upon written notice thereof to LICENSEE. Such termination shall be
without prejudice to any other rights or claims that LICENSOR may have against
LICENSEE.
7
<PAGE>
8. ASSIGNMENT
----------
(a) Neither this Agreement nor any interest herein may be assigned,
licensed or transferred in any way, in whole or in part, by LICENSEE without the
prior written consent of LICENSOR.
(b) This Agreement and any interest therein may be assigned by
LICENSOR without the consent of LICENSEE together with LICENSOR's business
relating to the Licensed Patents, provided that LICENSOR shall promptly notify
LICENSEE in writing of such assignment.
(c) This Agreement shall be binding and inure to the benefit of the
permitted assigns and successors of LICENSEE and shall be binding and inure to
the benefit of the assigns and successors of LICENSOR.
9. NOTICES
-------
Any notices, election, demand or report permitted or required to be
given hereunder shall be in writing and sent by registered or certified mail,
return receipt requested, courier, or by facsimile to the respective party at
the address stated below, or to such other address as the respective parties may
designate to the other in writing in the manner provided in this paragraph 9,
and shall be effective when received, or if not received, when diligent efforts
to transmit have been made. Notices to LICENSOR shall be sent to:
Summagraphics Corporation
8500 Cameron Road
Austin, Texas 78754
Attention: Robert B. Sims
Senior Vice President,
Secretary and General Counsel
8
<PAGE>
Notices to LICENSEE shall be sent to:
Sharp Corporation
22-22 Nagaike-cho, Abeno-ku, Osaka
545, Japan
Attention: Mr Masaru Umeda
Group General Manager, Law Group
10. REPRESENTATIONS AND WARRANTIES
------------------------------
(a) LICENSOR represents that:
(i) LICENSOR is the co-owner of all right, title and interest in
and to More et al. U S. Patent Nos. 4,839,634 and 5,194,852 and the counterpart
patent applications thereof set forth in Schedule 1.
(ii) LICENSOR is authorized and has the sole right to grant
licenses under the Licensed Patents.
(b) LICENSOR makes no other warranties, express or implied. LICENSOR
has made no representation to LICENSEE regarding the validity, scope or
enforceability of the Licensed Patents, and does not warrant that any Licensed
Product manufactured or sold under this Agreement will not infringe rights of
others or other rights of LICENSOR other than under the Licensed Patents.
(c) LICENSEE represents that LICENSEE is authorized to and has the
right to enter into this Agreement.
11. INFRINGEMENT BY THIRD PARTIES
------------------------------
(a) LICENSOR shall not be obligated to sue infringers and shall, if
it sues, have the right to dismiss or settle at any time any suit, and shall be
entitled to all of any amounts awarded.
9
<PAGE>
(b) If at any time LICENSEE becomes aware of any facts or information
indicating that any third party is or may be infringing a Licensed Patent,
LICENSEE. shall promptly inform LICENSOR of such facts and information. LICENSEE
shall not have any obligation, right or authority to institute any legal action
against third parties under the Licensed Patents on account of any such
infringement. LICENSOR will determine whether the apparent infringing condition
justifies taking an appropriate legal action to protect the affected Licensed
Patent(s) but shall not be required to do so if business reasons make taking
such action impractical.
12. SEVERABILITY
------------
Should any part or provision of this Agreement be held invalid,
unenforceable or in conflict with the law of any jurisdiction, the validity and
enforceability of the remaining parts or provisions shall not be affected by
such holding.
13. MOST FAVORABLE TERMS
--------------------
LICENSOR represents that it shall endeavor to keep the terms and
conditions under this Agreement as favorable to LICENSEE as are the terms and
conditions LICENSOR may include in any agreements similar in nature and content
to this Agreement which LICENSOR may enter into with other parties who are in
like circumstances as LICENSEE, and in the event LICENSOR subsequently enters
into such other agreement under terms and conditions more favorable than those
provided in this Agreement during the term of this Agreement, LICENSOR shall
make such favorable terms and conditions available to LICENSEE, to be accepted
or rejected at LlCENSEE's option within sixty (60) days after notice of such
grant by LICENSOR.
14. LIMITATION ON EFFECT OF WAIVER
-------------------------------
Failure of either party to insist upon the strict performance of any
provision hereof or to exercise any right or remedy shall not constitute a
continuing waiver of such provision and shall
10
<PAGE>
not be deemed a waiver of any right or remedy with respect to any existing or
subsequent breach or default; the election by either party of any particular
right or remedy shall not be deemed to exclude any other; and all rights and
remedies of either party shall be cumulative.
15. COMPLETE AGREEMENT
------------------
This Agreement contains the entire and complete understanding between the
parties and merges all prior and contemporaneous understandings with respect to
the subject matter covered herein. There are no warranties or representations
made by either party other than contained herein.
16. GOVERNING LAW
-------------
This Agreement shall be governed by, and for all purposes be, construed
and deemed to be a contract made under and pursuant to the laws of the State of
Texas, U.S.A.
17. DUPLICATE ORIGINALS
-------------------
This Agreement shall be executed in duplicate, and each executed copy
shall for all purposes be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
written below.
SHARP CORPORATION
(LICENSEE)
Date: 9/27/95 By: /s/ M. Umeda
--------------------- -----------------------------------
Signature of Authorized Officer
Masaru Umeda
-----------------------------------
Corporate Seal Printed Name
Group General Manager of Law Group
-----------------------------------
Title
11
<PAGE>
SUMMAGRAPHICS CORPORATION
(LICENSOR)
Date: July 31, 1995 By: /s/ Robert S. Sims
-----------------------------------
Signature of Authorized Officer
Robert S. Sims
-----------------------------------
Printed Name
Corporate Seal
Senior Vice President
-----------------------------------
Title
12
<PAGE>
AGREEMENT BETWEEN
SUMMAGRAPHICS CORPORATION
and
SHARP CORPORATION
Schedule 1
More et al. U.S. Patents
- ------------------------
4,839,634
5,194,852
Counterpart Patents and Patent Applications In Other Countries
- --------------------------------------------------------------
European Patent: Office Application No. 416176
Japan: Application No. 2-153823
13
<PAGE>
EXHIBIT 22
SUBSIDIARIES
------------
Name Country/State Name for Doing Business
- ---- ------------- -----------------------
Summagraphics N.V. Belgium Same
Summagraphics (Europe) N.V. Belgium Same
Summagraphics Ltd. United Kingdom Same
Summagraphics GmbH Germany Same
CAD Warehouse Nevada Same
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> MAR-01-1995
<PERIOD-END> MAY-31-1995
<CASH> 560
<SECURITIES> 0
<RECEIVABLES> 18,039
<ALLOWANCES> 954
<INVENTORY> 19,383
<CURRENT-ASSETS> 39,118
<PP&E> 18,495
<DEPRECIATION> 13,188
<TOTAL-ASSETS> 53,601
<CURRENT-LIABILITIES> 33,505
<BONDS> 1,861
<COMMON> 46
0
0
<OTHER-SE> 14,358
<TOTAL-LIABILITY-AND-EQUITY> 53,601
<SALES> 78,494
<TOTAL-REVENUES> 78,494
<CGS> 58,188
<TOTAL-COSTS> 58,188
<OTHER-EXPENSES> 30,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> (11,412)
<INCOME-TAX> 187
<INCOME-CONTINUING> (11,599)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,599)
<EPS-PRIMARY> (2.56)
<EPS-DILUTED> (2.56)
</TABLE>
