UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______ to ________
Commission file number 0-8419
SBE, INC.
_____________________________________________________
(Exact name of registrant as specified in its charter)
California 94-1517641
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4550 Norris Canyon Road, San Ramon, California 94583
_____________________________________________________
(Address of principal executive offices and zip code)
(510) 355-2000
______________
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____
The number of shares of Registrant's Common Stock outstanding as of August 26,
1997 was 2,616,355.
<PAGE>
SBE, INC.
INDEX TO JULY 31, 1997 FORM 10-Q
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1997 and October 31, 1996 3
Condensed Consolidated Statements of Operations for the
three and nine months ended July 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II Other Information
Items 1, 2, 3, 4, and 5 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT 15
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1997 and October 31, 1996
(In thousands)
<CAPTION>
July 31, October 31,
1997 1996
(Unaudited)
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,579 $ 41
Trade accounts receivable, net 2,182 2,044
Inventories 1,117 2,741
Deferred income taxes 291 291
Other 277 88
------- -------
Total current assets 7,446 5,205
Property, plant and equipment, net 1,131 2,070
Capitalized software costs, net 344 551
Other 68 68
------- -------
Total assets $ 8,989 $ 7,894
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ --- $ 980
Trade accounts payable 1,094 1,085
Accrued payroll and employee benefits 540 262
Other accrued expenses 402 829
------- -------
Total current liabilities 2,036 3,156
Deferred tax liabilities 318 318
Deferred rent 417 439
------- -------
Total liabilities 2,771 3,913
------- -------
Shareholders' equity:
Preferred stock --- 750
Common stock 9,460 8,427
Accumulated deficit (3,242) (5,196)
------- -------
Total shareholders' equity 6,218 3,981
------- -------
Total liabilities and shareholders' equity $ 8,989 $ 7,894
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended July 31, 1997 and 1996
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 7,393 $ 2,909 $17,462 $ 9,565
Cost of sales 3,682 1,854 9,197 5,998
------- ------- ------- -------
Gross profit 3,711 1,055 8,265 3,567
Product research and development 832 1,232 1,881 4,221
Sales and marketing 977 1,087 2,645 3,700
General and administrative 1,189 755 2,486 2,542
Restructuring costs --- --- --- 255
Writeoff of deferred offering costs --- 105 --- 105
Writedown of software costs --- --- --- 794
------- ------- ------- -------
Total operating expenses 2,998 3,179 7,012 11,617
------- ------- ------- -------
Operating income (loss) 713 (2,124) 1,253 (8,050)
Gain on sale of assets --- --- 685 ---
Interest and other income (expense), net 27 (9) 16 13
------- ------- ------- -------
Income (loss) before income taxes 740 (2,133) 1,954 (8,037)
Provision for income taxes --- --- --- ---
------- ------- ------- -------
Net income (loss) $ 740 $(2,133) $ 1,954 $(8,037)
======= ======= ======= =======
Net income (loss) per common share $ 0.27 $ (1.00) $ 0.72 $ (3.81)
======= ======= ======= =======
Shares used in per share computations 2,781 2,125 2,702 2,110
======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 1997 and 1996
(In thousands)
(Unaudited)
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,954 $(8,037)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 840 1,294
Writedown of capitalized software --- 794
Gain from sale of property and equipment (685) ---
Expenses and reserves related to sale of property
and equipment (407) ---
Other 2 5
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable (138) 1,584
Decrease (increase) in inventories 1,624 (607)
Decrease in income tax recoverable --- 1,827
(Increase) decrease in other assets (189) 178
Decrease in trade accounts payable 9 112
(Decrease) increase in other current liabilities (149) 725
(Decrease) increase in noncurrent liabilities (22) 100
------- -------
Net cash provided (used) by operating activities 2,839 (2,025)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (204) (363)
Disposals of property and equipment 1,600 ---
Proceeds from sale of fixed assets --- 8
Acquisition of capitalized software --- (42)
------- -------
Net cash provided (used) by investing activities 1,396 (397)
------- -------
Cash flows from financing activities:
Repayments of borrowing on bank facilities (980) ---
Proceeds from sale of preferred stock --- 1,112
Proceeds from stock plans 283 388
------- -------
Net cash (used) provided by financing activities (697) 1,500
------- -------
Net increase (decrease) in cash and cash equivalents 3,538 (922)
Cash and cash equivalents at beginning of period 41 857
------- -------
Cash and cash equivalents at end of period $ 3,579 $ (65)
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Period Reporting:
The condensed consolidated financial statements are unaudited and include all
adjustments consisting of normal recurring adjustments that are, in the opinion
of management, necessary for a fair presentation of the financial position and
results of operations and cash flows for the interim periods. The results of
operations for the quarter ended July 31, 1997 are not necessarily indicative
of expected results for the full 1997 fiscal year.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes contained in the Company's Annual Report on Form 10-K for the year ended
October 31, 1996.
2. Inventories:
Inventories comprise the following (in thousands):
July 31, October 31,
1997 1996
------- -------
Finished goods $ 875 $ 750
Subassemblies 6 175
Parts and materials 236 1,816
------- -------
$ 1,117 $ 2,741
======= =======
3. Net Income (Loss) Per Common Share:
Net income per common share for the three and nine months ended July 31, 1997
was computed by dividing net income by the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding. Common stock
equivalents relate to stock options and stock warrants. Net loss per common
share for the three and nine months ended July 31, 1996 was computed by
dividing net loss by the weighted average number of shares of common stock only
as common stock equivalents have an antidilutive effect.
4. Bank Facility:
On August 26, 1997 the Company entered into a revolving working capital line of
credit agreement. The agreement allows for a $2,000,000 line of credit and
expires on September 1, 1998. Borrowings under the line of credit bear
interest at the bank's prime rate plus one half percent and are collateralized
by accounts receivable and other assets. Borrowings are limited to 75 percent
of adjusted accounts receivable balances, and the Company is required to
maintain a minimum tangible net worth of $4.5 million, a quick ratio of cash,
investments, and receivables to current liabilities of not less than 1.30:1.00,
and minimum profitability levels. The line of credit agreement also prohibits
the payment of cash dividends without consent of the bank.
As of August 31, 1997, there were no borrowings outstanding under the line of
credit.
5. Sale of Manufacturing Assets:
On December 6, 1996 the Company sold all the assets of its manufacturing
operation to XeTel Corporation, a contract manufacturing company with
headquarters in Austin, Texas, for $1.6 million. Additionally, the Company
entered into a four-year exclusive agreement to purchase manufacturing services
from XeTel and subleased a portion of its San Ramon Facility to XeTel. Also, a
director of SBE, Inc. is also a director of XeTel Corporation. The sale
resulted in a gain of $685,000, or 25 cents per share, and is included in the
results of operations for the nine months ended July 31, 1997.
6. Reclassifications:
Certain reclassifications have been made to the 1996 condensed consolidated
financial statements to conform to the 1997 presentation.
<PAGE>
SBE, INC.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and those
discussed in the Company's Annual Report on Form 10-K for the year ended
October 31, 1996, particularly in the section entitled "Business--Risk
Factors."
Overview
For more than 15 years, SBE, Inc. (the "Company") has shipped network
connectivity products that have helped customers deploy network-computing
solutions. Historically, the Company's networking products have provided
connectivity solutions for large original equipment manufacturers and system
integrators throughout the world. Leveraging this expertise in network
communications technology, the Company is now delivering new innovative
products for Internet, Intranet, and small- to medium-sized enterprise network
users. The Company is committed to providing access solutions that make
networks more accessible and easier to use, manage and operate. The Company's
comprehensive line of access solutions includes products for Internet and
Intranet access, branch office access, home-to-office access, and access to
wide area networks.
The Company offers two new remote access/router product lines to meet the needs
of its customers: netXpand(R) and WanXL(TM). The Company's netXpand products
provide from one to ten ports of wide area network or remote access connections.
The Company's WanXL products operate within a network server to provide high-
speed network access. Sales of these new access products constituted over 16
percent of net sales for fiscal year 1996 and 27 percent of net sales for the
first nine months of fiscal 1997. The Company expects the netXpand and WanXL
product lines to constitute an increasing percentage of net sales in future
periods; however, there can be no assurance to that effect. The netXpand and
WanXL products are targeted at the high-growth, price-sensitive sectors of the
internetworking market. Based upon market information supplied by market
research firms, the Company expects these market segments to grow at a
compounded annual rate in excess of 50 percent in the United States and at a
greater rate in international markets. However, there can be no assurance that
the market will grow at this rate, if at all, or that the Company will be
successful in achieving widespread market acceptance of its netXpand and WanXL
products.
The Company continues to support and expand its communication controller
business by developing new products for strategic customer accounts and by
focusing on emerging technologies that can be leveraged into current and new
sales channels. The Company believes that it is well positioned with a number
of key telecommunication systems providers that have large contracts to develop
wireless, data and telephone system infrastructure.
The communication controller portion of the Company's business is characterized
by a concentration of sales to a small number of customers and consequently the
timing of significant orders from major customers and their product cycles
cause fluctuations in the Company's operating results. In particular, sales to
Tandem Computers, Silicon Graphics and Motorola constituted 30, 17 and 10
percent of net sales in the nine months ended July 31, 1997 and 49, 16 and 5
percent of net sales in the three months ended July 31, 1997. The Company
expects that sales to these three customers will continue to be significant for
the foreseeable future. The loss of, or cancellation of any significant order
by any of these customers would likely have a material adverse impact on the
Company's business, financial condition and results of operations. There can
be no assurance that any large customer of the Company will continue to place
orders with the Company at current or higher levels.
Results of Operations
The following table sets forth, as a percentage of net sales, certain
consolidated statements of operations data for the fiscal quarters ended July
31, 1997 and 1996. These operating results are not necessarily indicative of
Company's operating results for any future period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of sales 50 64 53 63
----- ----- ----- -----
Gross profit 50 36 47 37
----- ----- ----- -----
Product research and development 11 42 11 44
Sales and marketing 13 37 15 39
General and administrative 16 26 14 27
Restructuring costs --- --- --- 2
Writeoff of deferred offering costs --- 4 --- 1
Writedown of software costs --- --- --- 8
----- ----- ----- -----
Total operating expenses 40 109 40 121
----- ----- ----- -----
Operating income (loss) 10 (73) 7 (84)
Gain on sale of assets --- --- 4 ---
Interest and other income (expense), net --- --- --- ---
----- ----- ----- -----
Income (loss) before income taxes 10 (73) 11 (84)
Provision for income taxes --- --- --- ---
----- ----- ----- -----
Net income (loss) 10% (73)% 11% (84)%
===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the third quarter of fiscal 1997 were $7.4 million, a 155 percent
increase from the third quarter of fiscal 1996. This increase was primarily
attributable to a significant increase in VME communication controller product
sales and, to a lesser extent, netXpand and WanXL product sales, both as
compared to the third quarter of fiscal 1996. Sales of VME communication
controller products increased to $5.7 million for the third quarter of fiscal
1997 compared to $1.5 million in the same period of fiscal 1996. Sales of
netXpand and WanXL products increased 46 percent from prior year levels to
$919,000 in the third quarter of fiscal 1997. Sales for the nine months ended
July 31, 1997 were $17.5 million, up from $9.6 million for the same fiscal
period of 1996, principally due to increased sales of VME communication
controllers and, to a lesser extent, of netXpand and WanXL products. Sales of
VME communication controller products increased to $10.5 million for the first
nine months of fiscal 1997 compared to $5.5 million in the same period of
fiscal 1996. Sales of netXpand and WanXL products increased 266 percent from
prior year levels to $4.7 million in the first nine months of fiscal 1997.
Sales of all product lines to individual customers in excess of 10 percent of
net sales of the Company for the quarter included sales to Tandem Computers and
Motorola, which represented 49 and 16 percent, respectively, of net sales in
the third quarter of fiscal 1997. This compares to 21 percent for Tandem
Computers and less than 10 percent for Motorola in the quarter ended July 31,
1996. Sales of all product lines to individual customers in excess of 10
percent of net sales of the Company for the nine months included sales to
Tandem Computers, Silicon Graphics and Motorola, which represented 30, 17 and
13 percent, respectively, of net sales in the nine months ended July 31, 1997.
This compares to 26 percent for Tandem Computers and less than 10 percent for
Silicon Graphics and Motorola in the nine months ended July 31, 1996. The
Company expects that sales to these three customers will continue to be
significant for the foreseeable future. The Company expects to continue to
experience fluctuation in communication controller product sales and net sales
as large customers' needs change.
International sales constituted 15 percent and 25 percent of net sales in the
nine months ended July 31, 1997 and 1996, respectively. The decrease in
international sales is primarily attributable to decreased stocking levels for
an international OEM.
Gross Profit
Gross profit as a percentage of sales was 50 percent and 36 percent in the
third quarter of fiscal 1997 and the third quarter of fiscal 1996,
respectively. Gross profit as a percentage of sales in the first nine months
of fiscal 1997 was 47 percent, up from 37 percent for the same period of 1996.
The increases from fiscal 1996 to fiscal 1997 were primarily attributable to
lower material costs for certain higher volume products and lower costs
associated with the long-term manufacturing service contract with XeTel
Corporation. This contract may decrease the volatility of the quarterly cost
of sales as a percentage of sales.
Product Research and Development
Product research and development expenses were $832,000 in the third quarter of
fiscal 1997 and $1.2 million in the third quarter of fiscal 1996. Product
research and development costs for the first nine months of fiscal 1997
decreased 55 percent from the same period of fiscal 1996. The decreases in
research and development spending from fiscal 1996 to fiscal 1997 were a result
of the completion of the base netXpand product line and a corresponding
decrease in internal staff and third party consulting costs associated with the
launch of the netXpand products. The Company expects that product research and
development expenses will continue at current levels as a percentage of sales
as the Company focuses its resources on improving its netXpand and WanXL
product lines and enhancing communication controller products to meet specific
customers' needs.
Sales and Marketing
Sales and marketing expenses for the third quarter of fiscal 1997 were
$977,000, down from $1.1 million in the third quarter of fiscal 1996. Sales
and marketing expenses decreased 29 percent in the first nine months of fiscal
1997 from the same period of 1996. These decreases were primarily due to lower
marketing program costs for advertising and tradeshows. The Company continues
to focus its sales and marketing expenditures on specific results-oriented
programs and does not expect to see significant increases in marketing program
costs in the short term. The Company expects sales and marketing expenses to
continue at a similar percentage of total sales.
General and Administrative
General and administrative expenses for the third quarter of fiscal 1997 were
$1.2 million, an increase of 57 percent from $755,000 in the third quarter of
fiscal 1996. The increase represents increased costs related to incentive
compensation programs associated with the Company's return to profitability and
other strategic corporate initiatives. General and administrative expenses
decreased 2 percent in the first nine months of fiscal 1997 from the same
period of 1996. The Company expects general and administrative expenses to
continue at current absolute levels.
Gain on Sale of Assets
The Company recorded a $685,000 gain on the sale of assets in the first quarter
of fiscal 1997, consisting of cash proceeds of $1.6 million received from the
sale of the Company's manufacturing assets to XeTel Corporation less $508,000
in net book value of assets transferred and $407,000 in expenses and reserves
associated with the transaction.
Income Taxes
The Company did not record any provision for taxes in the third quarter or the
first nine months of fiscal 1997 due to the utilization of net operating loss
carryforwards from prior fiscal years. The Company did not record any benefit
for taxes in the third quarter or the first nine months of fiscal 1996 as a
result of not being able to realize any benefit from its net operating losses
and unused tax credits. In the event of future taxable income, the Company's
effective income tax rate in future periods could be lower than the statutory
rate as operating loss and tax credit carryforwards are recognized. The
Company has deferred tax assets of approximately $3.0 million that are reserved
due to the uncertainty of realizing the benefit of these items.
Net Income (Loss)
As a result of the factors discussed above, the Company recorded net income of
$740,000 in the third quarter of fiscal 1997 and a net loss of $2.1 million in
the third quarter of fiscal 1996. Net income for the first nine months of
fiscal 1997 was $1.9 million, as compared to a net loss of $8.0 million for the
same period of 1996.
Liquidity and Capital Resources
At July 31, 1997, the Company had cash and cash equivalents of $3.6 million, as
compared to $41,000 at October 31, 1996. In the first nine months of fiscal
1997, $2.8 million of cash was provided by operating activities, principally as
a result of $1.9 million in net income, a $1.6 million reduction in
inventories, and $840,000 in depreciation and amortization. These operating
cash inflows were partially offset by a $685,000 gain from the sale of property
and equipment. Working capital at July 31, 1997 was $5.4 million, as compared
to $2.0 million at October 31, 1996.
In the first nine months of fiscal 1997 the Company purchased $204,000 of fixed
assets, consisting primarily of computer and product testing equipment. The
Company expects capital expenditures during fiscal 1997 to increase from fiscal
1996 levels.
The Company received $283,000 in the first nine months of fiscal 1997 from
employee stock purchase plan purchases and employee stock option exercises.
On August 26, 1997 the Company entered into a revolving working capital line of
credit agreement. The agreement allows for a $2,000,000 line of credit and
expires on September 1, 1998. Borrowings under the line of credit bear
interest at the bank's prime rate plus one half percent and are collateralized
by accounts receivable and other assets. Borrowings are limited to 75 percent
of adjusted accounts receivable balances, and the Company is required to
maintain a minimum tangible net worth of $4.5 million, a quick ratio of cash,
investments, and receivables to current liabilities of not less than 1.30:1.00,
and minimum profitability levels. The line of credit agreement also prohibits
the payment of cash dividends without consent of the bank.
On December 6, 1996 the Company sold all the assets of its manufacturing
operation to XeTel Corporation, a contract manufacturing company with
headquarters in Austin, Texas, for $1.6 million. Additionally, the Company
entered into a four-year exclusive agreement to purchase manufacturing services
from XeTel and subleased a portion of its San Ramon Facility to XeTel. The
sale resulted in a gain of $685,000, or 25 cents per share, and is included in
the results of operations for the nine months ended July 31, 1997.
Based on the current operating plan, the Company anticipates that its current
cash balances, bank credit facility and anticipated cash flow from operations
will be adequate to finance operations over the next twelve months.
<PAGE>
SBE, INC.
Part II Other information
Items 1, 2, 3, 4, and 5
The above items have been omitted as inapplicable.
Item 6. Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits
10.1 Severance agreement with Michael R. Coker
27.1 Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended July 31, 1997.
<PAGE>
SBE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, as of September 11, 1997.
SBE, Inc.
Registrant
/s/ Timothy J. Repp
-------------------
Timothy J. Repp
Chief Financial Officer, Vice President of
Finance and Secretary (Principal Financial
and Accounting Officer)
<PAGE>
Exhibit 10.1
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement") is made as of ___________,
1997 between SBE, Inc., a California corporation (the "Company"), and Michael
R. Coker ("Executive").
The parties agree as follows:
Termination of Employment.
Definitions.
"Base Salary" means, as of a given time, Executive's base salary
(excluding bonus, any other incentive or other payments and stock option
exercises) in effect at such time, to the extent that it is includable in the
gross income of Executive for federal income tax purposes or would be
includable in gross income except for an election either under Section 125 of
the Code or under the terms of a nonqualified deferred compensation arrangement
sponsored by the Company.
"Cause" means (1) conviction of or pleading guilty or nolo
contendere to any felony or any crime involving moral turpitude or dishonesty,
(2) participation in a fraud or act of dishonesty against the Company, (3)
willful material breach of the Company's policies, (4) intentional damage to
the Company's property, (5) willful material breach of Executive's Proprietary
Information and Inventions Agreement or (6) conduct by Executive that, in the
reasonable determination of the Company's Board of Directors, demonstrates
gross unfitness to serve.
"Change of Control" means (1) the sale of all or substantially
all of the Company's assets to a single purchaser or a group of related
purchasers, (2) more than 50% of the Company's outstanding capital stock is
sold, exchanged or otherwise disposed of in a single transaction, or (3) a
merger or consolidation of the Company in a transaction in which the Company's
shareholders receive less than 50% of the outstanding voting shares of the
surviving entity.
"COBRA" means Section 4980B of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Excise Tax" has the meaning set forth in Section 1.9(a).
"Expiration Date" means the second anniversary of the date of
this Agreement.
"Good Reason" means any one of the following: (1) the removal
of Executive's managerial responsibility for the Company's sales and marketing
functions, (2) a change in Executive's reporting relationship so that he no
longer reports to the Company's Chief Executive Officer, (3) a greater than 10%
reduction in Executive's Base Salary as of the time that is immediately prior
to the Change of Control, or (4) failure or refusal of a successor in interest
to the Company to assume the Company's obligations under this Agreement.
"Memorandum" has the meaning set forth in Section 1.3(d).
"Payment" has the meaning set forth in Section 1.9(a).
"Repayment Amount" has the meaning set forth in Section 1.9(b).
At-Will Employment Relationship. Notwithstanding anything else in
this Agreement to the contrary, the Company or Executive may terminate
Executive's employment with the Company at any time for any reason whatsoever,
with or without Cause or advance notice. This at-will employment relationship
cannot be changed except in a writing approved by the Board of Directors of the
Company.
Termination Without Cause. If Executive's employment with the
Company is terminated by the Company without Cause prior to the Expiration Date
(other than concurrent with or within six months after a Change of Control),
the Company will continue to pay Executive his Base Salary at
the rate in effect on the date of termination until six months after the date
of termination;
if Executive elects to have COBRA health care coverage after
such termination, the Company will pay for such COBRA coverage until the
earlier of (1) six months after the date of termination and (2) the first date
that Executive is covered under another employer's health benefit program; and
each of Executive's outstanding options, if any, granted under
the Company's 1987 Stock Option Plan will immediately vest to the extent they
would have vested (absent the provisions of this Agreement) if Executive had
remained employed with the Company until the date that is six months after such
date of termination. Executive will have 90 days to exercise such options as
provided in his respective stock option agreements. Executive understands that
such acceleration of vesting may result in Executive's incentive stock options
being reclassified as nonqualified stock options, which could result in adverse
tax consequences to Executive.
on sales commission, within 15 days after the last day of the
fiscal quarter in which Executive is terminated, the Company will pay Executive
an amount equal to 6 months of commission based on the following. The
commission for the just-ended fiscal quarter will be calculated, pursuant to
the Memorandum dated as of January 15, 1997 (as amended or replaced from time
to time), from the Company (the "Memorandum"). The 6-months commission paid
will equal the commission due from the just-ended fiscal quarter multiplied by
a factor of two.
on bonus under the Company's Management Incentive Plan in effect
when Executive is terminated (the "Incentive Plan"), the Company will pay
Executive 6 months equivalent of bonus based on performance at the 100% point
of the Incentive Plan.
Executive will be entitled to no other bonus or commission
payments except as provided in (d) and (e) above.
Notwithstanding the foregoing, the Company's obligations under
this Section 1.3 are subject to Executive's compliance with Sections 1.6, 1.7
and 1.8.
Termination Due To Change Of Control. If, concurrent with or within
one year after a Change of Control that occurs before the Expiration Date,
Executive's employment with the Company is terminated by the Company without
Cause or is terminated by Executive for Good Reason,
the Company will continue to pay Executive his Base Salary at
the rate in effect on the date of termination until 12 months after the date of
termination;
if Executive elects to have COBRA health care coverage after
such termination, the Company will pay for such COBRA coverage until the
earlier of (1) 12 months after the date of termination and (2) the first date
that Executive is covered under another employer's health benefit program; and
each of Executive's outstanding options, if any, granted under
the Company's 1987 Stock Option Plan will immediately vest to the extent they
would have vested (absent the provisions of this Agreement) if Executive had
remained employed with the Company until the date that is 12 months after such
date of termination. Executive will have 90 days to exercise such options as
provided in his respective stock option agreements. Executive understands that
such acceleration of vesting may result in Executive's incentive stock options
being reclassified as nonqualified stock options, which could result in adverse
tax consequences to Executive.
on sales commission, within 15 days after the last day of the
fiscal quarter in which Executive is terminated, the Company will pay Executive
an amount equal to 12 months of commission based on the following. The
commission for the just-ended fiscal quarter will be calculated, pursuant to
the Memorandum. The 12-months commission amount will be determined by
multiplying the commission for the just-ended fiscal quarter by a factor of
four.
on bonus under the Incentive Plan, the Company will pay
Executive 12 months equivalent of bonus based on performance at the 100% point
of the Incentive Plan.
Executive will be entitled to no other bonus or commission
payment except as may be provided in (d) and (e) above.
Notwithstanding the foregoing, the Company's obligations under
this Section 1.4 are subject to Executive's compliance with Sections 1.6 and
1.7. In addition, in the event Executive's employment with the Company is
terminated by the Company in connection with a Change of Control and Executive
in connection therewith accepts equivalent employment with the Company's
successor in interest, such termination will not be a termination without Cause
for the purposes of this Section 1.4.
Other Termination. If Executive's employment is terminated for any
reason on or after the Expiration Date, at any time with Cause, or otherwise
under any circumstances not specifically covered by Section 1.3 or 1.4
(including due to Executive's failure to comply with Section 1.6 or 1.7),
Executive will not be entitled to severance pay, pay in lieu of notice or any
other such compensation, except to the extent provided in any applicable
severance plan or plans of the Company in effect on the date of termination.
Continued COBRA coverage, if any, will be at Executive's expense as provided by
law. Executive's options, if any, will cease to vest in accordance with their
respective stock option agreements and the Company's 1987 Stock Option Plan.
Executive will not be entitled to any bonus not already paid pursuant to the
Memorandum and will not be entitled to any other bonus payment except as may be
provided in the Company's Management Incentive Plan or other bonus plan
applicable to Executive on the date of termination.
Release. Executive will not be entitled to receive any of the
benefits provided by Section 1.3 or 1.4 unless Executive executes the Release
attached as Exhibit A on or within 10 days after the date of termination and
such Release is not revoked. No payments will be required pursuant to Section
1.3 or 1.4 until the eighth day following the execution of such Release (but
only if such Release is not revoked prior to such date).
Compliance with Proprietary Information Agreement. Executive
represents and warrants to the Company that he has not breached the Proprietary
Information and Inventions Agreement between Executive and the Company. In the
event Executive has breached or in the future breaches such agreement, the
Company will not be obligated to comply with Sections 1.3 and 1.4.
Nonsolicitation. Until one year after Executive ceases to be
employed by the Company or its successor in interest, Executive will not
encourage or solicit any employee of or consultant to the Company to leave the
Company for any reason or devote less than all of such employee's or
consultant's efforts to the affairs of the Company, or interfere with any such
employee's or consultant's relationship with the Company.
Certain Reductions in Payments.
In the event that any payment received or to be received by
Executive pursuant to this Agreement (a "Payment") would (1) constitute a
"parachute payment" within the meaning of Section 280G of the Code and (2) but
for this Section 1.9(a), be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then, subject to the provisions of Section
1.9(b), such Payment will be reduced, if necessary, so that it is no greater
than the largest amount that Executive, in his discretion, determines would
result in maximizing his net proceeds with respect to such Payment after taking
into account the payment of any Excise Tax imposed on such Payment. The
determination by Executive of any required reduction pursuant to this Section
1.9(a) will be conclusive and binding upon the Company. The Company will
reduce a Payment in accordance with this Section 1.9(a) only upon written
notice by Executive indicating the amount of such reduction, if any. If the
Internal Revenue Service determines that a Payment is subject to the Excise
Tax, then Section 1.9(b) will apply, and the enforcement of Section 1.9(b) will
be the exclusive remedy to the Company for a failure by Executive to reduce the
Payment so that no portion thereof is subject to the Excise Tax.
If, notwithstanding any reduction described in Section 1.9(a) or
in the absence of any such reduction, the Internal Revenue Service determines
that Executive is liable for the Excise Tax as a result of the receipt of one
or more Payments, then Executive will be obligated to pay back to the Company,
within 30 days after final Internal Revenue Service determination, an amount of
such Payments equal to the smallest amount required to be paid to the Company
so that Executive's net proceeds with respect to such Payments after taking
into account the payment of the Excise Tax imposed on such Payments will be
maximized (the "Repayment Amount"). Notwithstanding the foregoing, the
Repayment Amount with respect to such payments will be zero if a Repayment
Amount of more than zero would not eliminate the Excise Tax imposed on such
Payments. If the Excise Tax is not eliminated pursuant to this Section 1.9(b),
Executive will pay the Excise Tax.
General Provisions.
Notices. Any notices provided hereunder must be in writing and will
be deemed given upon personal delivery or the third day after mailing by first
class mail to the Company at its primary office location or to Executive at his
address as listed on the Company payroll, as applicable.
Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
Waiver. If either party should waive any breach of any provision of
this Agreement, he or it will not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
Complete Agreement. This Agreement and its Exhibit constitute the
entire agreement between Executive and the Company and are the complete, final,
and exclusive embodiment of their agreement with regard to this subject matter.
Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but both of which taken together will constitute one and the same
Agreement.
Headings. The headings of the sections hereof are inserted for
convenience only and will not be deemed to constitute a part hereof nor to
affect the meaning thereof.
Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except
that Executive may not assign any of his rights hereunder without the written
consent of the Company.
Arbitration. In order to ensure rapid and economical resolution of
any dispute that may arise under this Agreement, all disputes or controversies
arising from or regarding the interpretation, performance, enforcement or
termination of this Agreement will be resolved by final and binding arbitration
under the then-existing rules of practice and procedure established by Judicial
Arbitration and Mediation Services, Inc. or the rules of practice and procedure
of any successor entity thereto. BY ENTERING INTO THIS AGREEMENT, THE COMPANY
AND EXECUTIVE ACKNOWLEDGE THAT THEY ARE WAIVING THEIR RIGHT TO JURY TRIAL OF
ANY DISPUTE COVERED BY THIS AGREEMENT.
Choice of Law. This Agreement will be governed by the laws of the
State of California without regard to conflict of laws principles.
The parties have executed this Agreement as of the date first set forth
above.
SBE, Inc.
By:
-------------------- --------------------
William B. Heye, Jr. Michael R. Coker
President
<PAGE>
Exhibit A
RELEASE
This release is executed by Michael R. Coker in consideration of payments
to be received by him pursuant to that certain Severance Agreement, dated as of
_________, 1997 (the "Severance Agreement"), between Mr. Coker and SBE, Inc., a
California corporation (the "Company").
Release of Claims.
Except as otherwise set forth in this Release, Mr. Coker hereby releases,
acquits and forever discharges the Company and its officers, directors, agents,
servants, employees, shareholders, successors, assigns, subsidiaries and
affiliates of and from any and all claims, or potential claims, liabilities,
demands, causes of action, costs, expenses, attorneys' fees, damages,
indemnities and obligations of every kind and nature, in law, equity, or
otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts
or conduct at any time prior to and including the date this Release is signed,
including but not limited to: any and all such claims and demands directly or
indirectly arising out of or in any way connected with Mr. Coker's employment
with the Company or the termination of that employment; claims or demands
related to salary, bonuses, commissions, stock, stock options, or any other
ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance benefits, or any other form of compensation (other
than pursuant to the Severance Agreement); claims pursuant to any federal,
state or local law or cause of action including, but not limited to, the
federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended ("ADEA"); the federal Americans with
Disabilities Act of 1990; the California Fair Employment & Housing Act, as
amended; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good
faith and fair dealing.
ADEA Waiver.
Mr. Coker acknowledges that he is knowingly and voluntarily waiving and
releasing any rights he may have under the federal Age Discrimination in
Employment Act of 1967, as amended. He also acknowledges that the
consideration given for the waiver in the above paragraph is in addition to
anything of value to which he was already entitled. He further acknowledges
that he has been advised by this writing, as required by the ADEA, that: (a)
this waiver and release do not apply to any claims that may arise after the
date this Release is signed; (b) he has the right to consult with an attorney
prior to executing this Release; (c) he has 21 days within which to consider
this Release (although he may choose to voluntarily execute this Release
earlier); (d) he has seven days following the execution of this Release to
revoke the Release; and (e) this Release will not be effective until the date
upon which the revocation period has expired, which will be the eighth day
after this Release is executed by Mr. Coker.
Section 1542 Waiver.
In granting the releases herein, Mr. Coker acknowledges that he has read
and understands Section 1542 of the Civil Code of the State of California,
which reads as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
Mr. Coker hereby expressly waives and relinquishes all rights and benefits
under that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Release.
Nondisparagement.
Mr. Coker agrees not to disparage the Company in any manner that might be
harmful to the Company's business reputation or to the personal or business
reputation of any of the Company's directors, officers, employees or
shareholders.
Mr. Coker has executed this Release as of the date first above written.
- --------------------
Michael R. Coker
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 3579
<SECURITIES> 0
<RECEIVABLES> 2182
<ALLOWANCES> 0
<INVENTORY> 1117
<CURRENT-ASSETS> 7446
<PP&E> 1131
<DEPRECIATION> 0
<TOTAL-ASSETS> 8989
<CURRENT-LIABILITIES> 2036
<BONDS> 0
0
0
<COMMON> 9460
<OTHER-SE> (3242)
<TOTAL-LIABILITY-AND-EQUITY> 8989
<SALES> 17462
<TOTAL-REVENUES> 17462
<CGS> 9197
<TOTAL-COSTS> 9197
<OTHER-EXPENSES> 7012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16)
<INCOME-PRETAX> 1954
<INCOME-TAX> 0
<INCOME-CONTINUING> 1954
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
