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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-8419
SBE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-1517641
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
4550 Norris Canyon Road, San Ramon, California 94583
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(Address of principal executive offices and Zip Code)
(510) 355-2000
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(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the Common Stock of the Registrant
held by non-affiliates of the Registrant, based on the closing price for the
Registrant's Common Stock on December 31, 1997 as reported on the Nasdaq
National Market, was approximately $23,059,827. Shares of Common Stock held by
each executive officer, director and stockholder whose ownership exceeds five
percent of Common Stock outstanding have been excluded in that such persons may
be deemed to be affiliates of the Registrant. This determination of affiliate
status for purposes of the foregoing calculation is not necessarily a conclusive
determination of affiliate status for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of December
31, 1997 was 2,655,005.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy statement for Annual Meeting of Stockholders scheduled for March 24,
1998 -- Part III
Exhibit Index on Page 26
Total Pages 87
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SBE, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for The Registrant's Common Equity
and Related Stockholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
PART III
Item 10 Directors and Executive Officers of the Registrant 23
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners
and Management 24
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 25
SIGNATURES 28
SCHEDULE 44
EXHIBITS 45
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PART I
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 REPORT, PARTICULARLY IN THE SECTIONS
ENTITLED "BUSINESS--RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
ITEM 1. BUSINESS
OVERVIEW
SBE, Inc. (the "Company") develops, markets, sells and supports remote access
internetworking products and high speed intelligent computer communications
controllers that enable users to exchange data between computer systems. The
Company's products are distributed worldwide through a direct sales force,
distributors, independent manufacturers' representatives and value-added
resellers.
Founded in 1961 as Linear Systems, Inc., the Company evolved from a high-quality
supplier of radio communications equipment to a provider of comprehensive
network communications solutions for original equipment manufacturers and end
users. Over the last three years the Company has expanded its product lines to
include a family of remote access router products called netXpand-Registered
Trademark- and a family of wide area networking communications controllers for
PCI (Peripheral Component Interface/Interconnect) based workstations and network
servers called WanXL. Both the netXpand and the WanXL products are targeted to
meet the growing need for high speed communications servers and remote access
data communications products. Both of the markets served by these new product
lines are significantly larger and more competitive then the other markets in
which the Company participates. See "Products" for product mix by percentages.
The Company markets, sells and supports a broad range of high-speed intelligent
communications controller products sold primarily to original equipment
manufacturers. These products are often customized for a specific customer's
application, and they support applications in a broad spectrum of industrial and
commercial markets. Markets and application areas include cellular network data
communication, data networking, process control, medical imaging, CAE/automated
test equipment, military defense systems and telecommunications networks.
The Company's netXpand remote access router products are netXpand SoHo, Central
and Routeman-TM-. These products allow a remote PC or network to access an
existing network as a fully functional network node, thereby enabling users to
access network resources from their remote locations as if they were directly
connected to the enterprise network. These products include server hardware and
software, client software and network management software. SBE's remote access
products allow for single user dial-in to local area networks (LANs) over analog
or digital phone lines, individual dial-out from LANs to other locations and
routed or bridged LAN to LAN dial-up or direct connections. These products
support all major desktop computing platforms, including IBM-compatible PCs and
UNIX and Windows NT workstations.
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The Company's WanXL communications controllers leverage the Company's core
technology strength into a much larger applications market. The Company's WanXL
products are designed for applications that require high performance and high
speed communications capability. All of these products are "intelligent,"
containing their own microprocessors and memory. This architecture allows these
communications controllers to off-load many of the lower-level communications
tasks that would typically be performed by the host platform, greatly improving
overall system performance. The family of WanXL products is supported by
extensive communications software developed by both the Company and a variety of
third party partners.
RISK FACTORS
DEPENDENCE ON A LIMITED NUMBER OF OEM CUSTOMERS. Most of the Company's sales
were attributable to sales of board-level products and have been derived from a
limited number of OEM customers. In the year ended October 31, 1997, sales to
Tandem Computers ("Tandem") and Motorola, Inc. ("Motorola") accounted for 35
percent and 15 percent, respectively, of the Company's net sales. The Company
expects that sales from these two companies will also constitute a substantial
portion of the Company's net sales in fiscal 1998. The Company's OEM customers'
orders are affected by factors such as new product introductions, product life
cycles, inventory levels, manufacturing strategy, contract awards, competitive
conditions and general economic conditions. The Company's agreements with OEM
customers typically do not require minimum purchase quantities. A significant
reduction in orders from any of the Company's OEM customers, particularly Tandem
and Motorola, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company's sales to any single
OEM customer are also subject to significant variability from quarter to
quarter. Such fluctuations may have a material adverse effect on the Company's
operating results. In addition, there can be no assurance that the Company will
become a qualified supplier for new OEM customers or that the Company will
remain a qualified supplier with existing OEM customers.
FUTURE SUCCESS DEPENDENT ON NEW PRODUCT LINES. Since early 1995, the Company
has focused a significant portion of its research and development, marketing and
sales efforts on netXpand and WanXL products. The success of these products is
dependent on several factors, including timely completion of new product
designs, achievement of acceptable manufacturing quality and yields,
introduction of competitive products by other companies and market acceptance of
the Company's products. If the netXpand and WanXL products or other new
products developed by the Company do not gain widespread market acceptance, the
Company's business, operating results and financial condition may be materially
adversely affected.
HIGHLY COMPETITIVE ENVIRONMENT. The market for communications products is
highly competitive. The Company competes directly with traditional vendors of
terminal servers, modems, remote control software, terminal emulation software
and application specific communications solutions. The Company also competes
with suppliers of routers, hubs, network interface cards and other data
communications products. In the future, the Company expects competition from
companies offering remote access solutions based on emerging technologies such
as switched digital telephone services. In addition, the Company may encounter
increased competition from operating system and network operating system vendors
to the extent such vendors include full communications capabilities in their
products. The Company may also encounter future competition from telephony
service providers (such as AT&T or the regional Bell operating companies) that
may offer communications services through their telephone networks.
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Increased competition with respect to any of the Company's products could result
in price reductions and loss of market share, which would adversely affect the
Company's business, operating results and financial condition. Many of the
Company's current and potential competitors have greater financial, marketing,
technical and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully with its existing competitors
or will be able to compete successfully with new competitors.
FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating results
have fluctuated significantly in the past and are likely to fluctuate
significantly in the future due to several factors, some of which are outside
the control of the Company, including timing of significant orders from OEM
customers, fluctuating market demand for, and declines in, the average selling
prices of the Company's products, delays in the introduction of the Company's
new products, competitive product introductions, the mix of products sold,
changes in the Company's distribution network, the failure to anticipate
changing customer product requirements, the cost and availability of components
and general economic conditions. The Company generally does not operate with a
significant order backlog and a substantial portion of the Company's revenues in
any quarter is derived from orders booked in that quarter. Accordingly, the
Company's sales expectations are based almost entirely on its internal estimates
of future demand and not on firm customer orders. Based on the foregoing, the
Company believes that quarterly operating results are likely to vary
significantly in the future and that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Further, it is likely that in some future
quarter the Company's revenues or operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock is likely to be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE; ONGOING NEW PRODUCT DEVELOPMENT REQUIREMENTS. The
markets for the Company's products are characterized by rapidly changing
technologies, evolving industry standards and frequent new product
introductions. The Company's future success will depend on its ability to
enhance its existing products and to introduce new products and features to meet
and adapt to changing customer requirements and emerging technologies such as
ISDN (Integrated Services Digital Network), Frame Relay, ADSL (Assymmetric
Digital Subscriber Line) and ATM (Asynchronous Transfer Mode). There can be no
assurance that the Company will be successful in identifying, developing,
manufacturing and marketing new products or enhancing its existing products. In
addition, there can be no assurance that services, products or technologies
developed by others will not render the Company's products noncompetitive or
obsolete.
DEPENDENCE ON KEY EMPLOYEES. The Company is highly dependent on the technical,
management, marketing and sales skills of a limited number of key employees.
The Company does not have employment agreements with, or life insurance on the
lives of, any of its key employees. The loss of the services of any key
employees could adversely affect the Company's business and operating results.
The Company's success also depends on its ability to continue to attract and
retain additional highly talented personnel. Competition for qualified
personnel in the networking industry is intense. There can be no assurance that
the Company will be successful in retaining its key employees or that it can
attract or retain additional skilled personnel as required.
EXPANDED DISTRIBUTION REQUIRED FOR REMOTE ACCESS PRODUCTS. Although to date a
substantial percentage of the Company's sales has been made to OEM customers
through the Company's direct
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sales force, the Company expects that an increasing percentage of its revenues
will be derived from sales of its netXpand and WanXL products to end users. The
Company sells its netXpand and WanXL products through distributors, value added
resellers (VARs) and system integrators and, to date, has signed agreements with
over 200 distributors, VARs and system integrators (collectively, Channel
Partners) worldwide. Channel Partners generally offer products of several
different companies, including products that may compete with the Company's
products. Accordingly, these Channel Partners may give higher priority to
products of other suppliers, thus reducing their efforts to sell the Company's
products.
Agreements with Channel Partners are generally terminable at the Channel
Partner's option. A reduction in sales effort or termination of a Channel
Partner's relationship with the Company may have a material adverse effect on
future operating results. Use of Channel Partners also entails the risk that
Channel Partners will build up inventories in anticipation of substantial growth
in sales. If such growth does not occur as anticipated, these Channel Partners
may substantially decrease the amount of product ordered in subsequent quarters.
Such fluctuations could contribute to significant variations in the Company's
future operating results. In addition, Channel Partners generally have stock
rotation rights and price protection on unsold merchandise, which may adversely
impact the Company's profit margins.
DEPENDENCE ON KEY SUPPLIERS. The chipsets used in the Company's products are
currently available only from Motorola. In addition, certain other components
are currently available only from single suppliers. The inability to obtain
sufficient key components as required, or to develop alternative sources if and
as required in the future, could result in delays or reductions in product
shipments which, in turn, could have a material adverse effect on the Company's
business, operating results and financial condition.
DEPENDENCE ON CONTRACT MANUFACTURER. In December 1996 the Company sold all of
its manufacturing operations to XeTel Corporation (XeTel), a contract
manufacturing company headquartered in Austin, Texas. At the same time the
Company and XeTel entered into an exclusive manufacturing service agreement
under which XeTel is to manufacture all of the Company's products until at least
December 2000. The Company is dependent on XeTel's ability to manufacture the
Company's products according to specifications and in required volumes on a
timely basis. The failure of XeTel to perform its obligations under the
manufacturing service agreement could have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. Although the Company believes that its
future success will depend primarily on continuing innovation, sales, marketing
and technical expertise, the quality of product support and customer relations,
the Company must also protect the proprietary technology contained in its
products. The Company does not currently hold any patents and relies on a
combination of copyright, trademark, trade secret laws and contractual
provisions to establish and protect proprietary rights in its products. There
can be no assurance that steps taken by the Company in this regard will be
adequate to deter misappropriation or independent third-party development of its
technology. Although the Company believes that its products and technology do
not infringe proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims against the Company.
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YEAR 2000 COMPLIANCE; REPLACEMENT OF MANAGEMENT INFORMATION SYSTEMS. The
Company's current products, to the extent they have the capability to process
date-related information, were designed to be Year 2000 compliant; in other
words, the products were designed to manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality and
without inaccurate results relating to such dates. There can be no assurance
that systems operated by third parties that interface with or contain the
Company's products will timely achieve Year 2000 compliance. Any failure of
these third parties' systems to timely achieve Year 2000 compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is currently in the process of updating its internal management
information systems. The updated systems are designed to be Year 2000
compliant. The Company currently projects future, non-recurring expenses of
approximately $50,000 for the replacement of its management information systems,
the majority of which will be expensed in 1998. The Company believes it has
allocated adequate resources to replace such systems and otherwise timely
achieve Year 2000 compliance. However, there can be no assurance to that
effect.
STOCK PRICE VOLATILITY. The trading price of the Company's Common Stock could
be subject to wide fluctuations in response to quarter-to-quarter fluctuations
in operating results, the failure to meet analyst estimates, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the computer and communications industries, and other
events or factors. In addition, stock markets have experienced extreme price
and trading volume volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many high technology
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS AND DELAWARE LAW. The Company's Board of Directors has
the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be materially adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Furthermore, certain provisions of the company's
Certificate of Incorporation may have the effect of delaying or preventing
changes in control or management of the Company, which could adversely affect
the market price of the Company's Common Stock. In addition, the Company is
subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law.
INDUSTRY BACKGROUND
Significant changes in computer-based information systems have occurred over the
last decade. Historically, information stored in computer databases could only
be accessed by terminals or personal computers emulating terminals directly
connected to a central or host computer. Remote users wishing to access
information over the public switched telephone network used a modem to dial from
their terminal or computer into another modem that was usually connected
directly to the central or host computer.
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Beginning in the late 1980s, the following factors changed the nature of and
increased the demand for WAN (wide area network) communication products.
GROWTH OF THE INTERNET AND ON-LINE SERVICES. The number of users of the
Internet and on-line services such as America Online, CompuServe and Prodigy has
grown rapidly in recent years. According to International Data Corporation
(IDC) it is estimated that the number of users linked to the Internet has grown
from less than 2 million in 1992 to approximately 45 million today. This growth
is due to increased use of electronic mail and the proliferation of databases
and other information platforms such as the World Wide Web.
DEVELOPMENT OF DISTRIBUTED, CLIENT/SERVER COMPUTING. With the development of
LANs it became possible for information to be stored on a number of computers
that were connected to each other and located within a building or campus.
Simultaneously, the advent of new communications products such as hubs, bridges
and routers allowed multiple LANs to be integrated into distributed,
enterprise-wide computer networks. To take advantage of these distributed
computer networks, products utilizing client/server architecture, including
relational databases, e-mail and file and printer sharing were introduced to
collect, retrieve and distribute information. Distributed computing and
client/server-based software are now being used on a corporate enterprise-wide
and departmental basis to run critical processes and to provide the primary
means for corporate communications.
GROWTH IN MOBILE, REMOTE AND HOME OFFICES. Corporations, government agencies,
universities and other organizations are increasingly looking to control costs
while providing their employees with access to essential information and
resources to perform their jobs efficiently and effectively from any location.
The proliferation of notebook and home computers is allowing a newly created
remote workforce to work from home or on the road. To remain productive, these
users must be able to access their cooperative distributed networks from remote
locations.
TECHNOLOGICAL ADVANCES. Advances in modem technology such as the V.34
communications standard and switched digital service technology, such as ISDN
and Frame Relay, are helping to increase the speed of network communication,
which is a key user requirement for remote network access. Additionally, as
these technologies become more mature, the retail prices for products utilizing
these technologies generally decline, thereby making the products more
economically accessible to a larger portion of computer users.
The above factors have created an enormous growth in the number of remote users
seeking to access information on the corporate network or to connect to the
Internet and on-line services through network access providers. As a result,
the need for hardware and software products to support, expand and enhance
remote network access has created a number of rapidly growing markets.
Early remote connectivity solutions have typically followed three principal
computing oriented approaches: host-oriented terminal emulation, PC remote
control software and application-specific solutions.
Terminal emulation products allow remote workstations to simulate a local "dumb"
terminal session with a mainframe. These products are better suited to a
character-based centralized system and not the graphical client server systems
that are predominant today.
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Remote control software products allow a dial-in user to take control of a PC on
the network and remotely view the networked PC's screen. Like terminal
emulation, remote control software works best with character-based computing.
In addition, remote control solutions present both network security and
management problems as the controlled PC typically has complete access to all
the resources of the network and the network manager is typically unable to
identify an unauthorized remote user.
Application-specific solutions overcome the limitations of terminal emulation by
enabling users to access a single network application as a specialized remote
client. Examples of this type of solution include electronic mail programs that
offer remote versions. However, these application-specific products provide an
incomplete remote access solution for users who require access to other
resources or applications on the enterprise network.
Today's solutions use a communications-oriented approach where the network is
extended to users through the combination of hardware and software that lets
users expand their network using analog, digital or leased circuits. These
solutions have typically used expensive router products to connect branch
offices to networks using leased lines. But more recently introduced products
allow users to establish lower-cost dial-up connections that provide
multiprotocol, multiplatform routing and routing-related communications
technologies and hardware that address performance and security requirements of
remote network access. However, these products are typically designed to
principally provide either routing or remote access functions.
PRODUCTS
The Company designs and markets data communications products designed to allow
the connection of LANs to external WANs. In 1995 the Company began shipping its
netXpand products to meet the growing demand for remote access data
communications products. In 1996 the Company began shipping its WanXL products
to meet the growing demand for client/server networking products.
INTELLIGENT COMMUNICATIONS CONTROLLER PRODUCTS. Intelligent communications
controller products are used to provide connectivity between a system such as a
mini-computer or bridge/router and a local or wide area network. Communication
controller products enable computers to exchange data in much the same way as
the telephone system allows people to converse with one another. As computers
become more pervasive in all areas of society, computer users are demanding
greater productivity, efficiency and lower costs in their computer systems,
which has led to the sharing of databases, software applications and computer
peripheral equipment. Communications controllers have become a central
component to connecting networks and computers to deliver information more
efficiently.
The Company's communications products target all four major protocol
communications technologies for each of the bus architectures: Fiber Distributed
Data Interface (FDDI), Token Ring, Ethernet and high speed serial
communications. The latter is a growing wide-area networking technology that
enables computers to talk to one another using telephone lines. FDDI, Token
Ring and Ethernet are local area networking technologies that offer a wide range
of speed and reliability options.
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The Company's strategy for its intelligent controller products is to expand its
offerings to more segments of the market by adding software interfaces, improved
performance and new technologies that will provide lower-cost solutions for high
speed, high volume communication applications.
CLIENT/SERVER WAN PRODUCTS. The need to collect, store, analyze and distribute
information in a secure, timely and efficient manner has become an integral part
of operating a successful organization. Developments in computer technology
have resulted in less reliance on centralized mainframes and greater reliance on
distributed computing, which has led to the computer software architecture
concept of "client/server" computing systems. Client/server computing systems
typically provide for a large number of desktop computers, or clients,
interconnected with one, or often more than one, file server. The server
provides central resources to all remote computer users and provides common
services such as printing, communications and data backup and information
gateways to other local or distant client/server systems. The fundamental
premise of this architecture relies heavily on computer networking for both LAN
interconnections for desktop-to-server communications and WAN interconnections
for server-to-server communications.
As a result of the growing installed base of client/server computing systems,
the market opportunity for client/server networking products is rapidly
expanding. According to a recent industry study, there were approximately 91
million computers with network interface connections installed worldwide in
1995, and the number of those connections is expected to grow to over 249
million by the year 2000. This growth, combined with other market trends, is
expected to cause the computer networking equipment industry to continue to
experience substantial growth.
The Company's WanXL products are specifically targeted to meet the
interconnectivity needs of client/server systems. The Company offers a family
of products with one to four ports per controller with various physical
connection options and software features.
REMOTE ACCESS PRODUCTS. The Company's family of netXpand remote access products
includes SoHo, Central and Routeman. SoHo (Small office, Home office) is a
remote access product which can serve as either an access server or a branch
office router. Central is a larger version of SoHo with more WAN interfaces and
Routeman is a smaller, less expensive version of SoHo. The products have been
designed to provide cost-effective internetworking capabilities to the broadest
range of end users, the users of UNIX and Novell, Artisoft and Windows NT
networking products. These products allow users to access remote networks'
resources as full network clients or nodes. Applications appear the same to
users as they do when directly connected to the enterprise network, except that
the speed of computing through the remote access connection may be reduced as a
result of the speed limitations of telephone connections.
The Company's remote access products support up to 10 wide area network
interfaces at speeds up to T1/E1(1.5mbs). The products feature full routing for
Novell IPX and TCP/IP (Transmission Control Protocol, Internet Protocol); other
protocols are transparently bridged with filtering. The products use
Windows-based configuration tools, are SNMP manageable and support PAP, CHAP and
direct callback security. The remote access products list from $599 to $2,499
with various software configurations available.
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SINGLE-BOARD COMPUTER PRODUCTS. The Company supplies high performance
single-board computers (SBC) for Multibus* and VMEbus architectures. An SBC
manages and processes the data that passes between the boards within a computer
system. The Company's SBC products provide a high-speed interface for linking
to peripherals and intelligent I/O controllers that accommodate plug-on modules
for many industrial applications.
INTEGRATED CIRCUITS. The Company has designed a number of proprietary
integrated circuits that are used on many SBE products. The Company has a small
group of customers that purchase some of these proprietary chips for their
applications. This line of business is not being actively pursued by the
Company.
CUSTOM PRODUCTS. The Company has developed several products specifically for
single customer applications. These products typically have proprietary
functions that meet specific application needs of the customer. The Company
does not seek new custom relationships unless the products have significant
sales potential.
SOFTWARE PRODUCTS. The Company supplies software products that operate various
communications protocols for certain communications controller products
including X.25 for serial communications, SMT (Station Management) for FDDI and
TCP/IP for Ethernet applications. Real-time operating systems for Motorola's
68000 family are also supported. The Company's software products are
principally bundled with the hardware platform based upon the customer's
application requirement.
The following table shows sales by major product type as a percentage of net
sales for fiscal 1997, 1996 and 1995.
Year Ended October 31,
1997 1996 1995
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(percentage of net sales)
Communication Controllers 72% 73% 72%
WanXL products 14 1 --
netXpand Remote Access 7 15 3
Single Board Computer 3 4 9
Integrated Circuits 1 1 3
Custom -- -- 1
Other 3 6 12
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100% 100% 100%
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DISTRIBUTION, SALES AND MARKETING
The Company markets its WanXL and netXpand remote access products through
multiple indirect distribution channels worldwide, including distributors,
manufacturers' representatives, value-added resellers and certain OEM partners.
The Company had relationships with over 200 distributors and value-added
resellers as of October 31, 1997. Approximately one quarter of the Company's
distributors and resellers operate outside the United States.
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* Multibus is a Trademark of Intel Corporation
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The Company actively supports its indirect channel marketing partners with its
own sales and marketing organization. SBE's sales staff solicits prospective
customers, provides technical advice with respect to SBE products and works
closely with marketing partners to train and educate their staffs on how to
sell, install and support the WanXL and netXpand product lines.
The Company has focused its sales and marketing efforts principally in the
United States, Asia and Europe. International sales for the netXpand product
line represented 79 percent of total netXpand sales in fiscal 1997, 70 percent
in fiscal 1996 and 92 percent in fiscal 1995. The Company expects that, in the
future, domestic sales will represent a greater percentage of total netXpand
sales. All of the Company's international sales are negotiated in U.S. dollars.
The Company provides most of its distributors and resellers with product return
rights for stock balancing or product evaluation. Stock balancing permits
distributors to return products for credit, within specified limits and subject
to purchasing additional products. The Company believes that it has adequate
reserves to cover product returns although there can be no assurance that the
Company will not experience significant returns in the future.
The Company primarily markets its intelligent communications controller products
to OEMs and systems integrators. The Company sells its products both
domestically and internationally using a direct sales force as well as through
independent manufacturers' representatives. The Company also sells certain
products directly to end users. The Company believes that its direct sales
force is well suited to differentiate the Company's communications controller
products from those of its competitors.
The Company's intelligent communications controller sales are concentrated among
a small number of customers and, consequently, the timing of significant orders
from major customers has caused and is likely to continue to cause the Company's
operating results to fluctuate. See "Risk Factors--Dependence on a Limited
Number of OEM Customers."
The Company conducts its sales and marketing activities from its principal
offices in San Ramon, California. The Company's direct sales force is based in
five locations in the United States.
RESEARCH AND DEVELOPMENT
The Company's product development efforts are focused principally on its
strategic businesses, remote internetworking and intelligent communications
controllers. The Company's experience in high-speed data communication creates
opportunities to leverage its engineering investments and develop additional
integrated products for simpler, more innovative communications solutions for
customers. The development of new remote internetworking products, high
performance communications controllers and communications-related software is
critical to attracting new and retaining existing customers.
During the past three years, the Company has developed communications products
based on PCIbus, VMEbus and EISA architecture. The Company has also redesigned
and upgraded certain communications products to improve the products'
performance and lower the products' manufacturing costs. In addition, the
Company has acquired or licensed certain hardware
-12-
<PAGE>
products that have been integrated principally through the addition of software
into the Company's product line.
During fiscal 1997 the Company focused the majority of its development efforts
on the WanXL and netXpand remote access product lines, and it expects to
continue this focus in 1998. The Company expects its remote internetworking
products will leverage existing product designs and incorporate more
sophisticated software.
Information relating to accounting for research and development costs is
included in Note 1 of Notes to Consolidated Financial Statements. Also see the
section labeled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company does not use raw materials in any of its products or production
activity. Products are constructed from components which are generally
available as needed from a variety of suppliers. The Company believes that it
currently possesses adequate supply channels. An interruption in its existing
supplier relationships or delays by some suppliers could result in production
delays and may have a material adverse effect on the Company's operations.
Certain parts used in the Company's products are purchased from a single
supplier (see "Risk Factors--Dependence on Key Suppliers"). New
state-of-the-art high technology parts are normally available only from a single
supplier when first introduced into the market. These components generally
become available from alternative suppliers over time. Although the Company has
rarely experienced any significant problems in obtaining sole-source components,
the Company has sought to establish a close relationship with sole-source
suppliers and if necessary build up an inventory of such components.
The Company in December 1996 sold all of its manufacturing assets and entered
into an contract manufacturing agreement with XeTel Corporation to supply
manufacturing services. The Company believes that XeTel has been able to
provide lower prices and a more efficient and timely product delivery than the
Company could produce with its previous manufacturing resources.
COMPETITION
The market for remote access products is highly competitive. Many of the
Company's competitors have greater financial resources and are more established
than the Company. The Company competes directly with traditional vendors of
terminal servers, modems, remote control software, terminal emulation software
and application-specific remote access solutions, such as Shiva, Ascend
Communications, Bay Networks, Livingston Enterprises, Inc. and Netopia, Inc.
The Company also competes with suppliers of routers, hubs and other data
communications products, such as Cisco and 3Com. In addition, the Company may
encounter increased competition from operating system and network operating
system vendors, such as Microsoft and Novell, to the extent that such vendors
include full remote access or routing capabilities in their products. The
Company believes it can compete successfully in the remote access market by (1)
providing low-cost hardware and easy-to-use software, suited specifically to the
needs of the non-sophisticated user; (2) developing distribution channels that
provide close sales and support
-13-
<PAGE>
to end users; (3) providing economical, accessible support services; and (4)
directing sales channel development to niche vertical market segments. By
focusing on the above factors the Company believes that it can successfully
compete within the remote access market, although there can be no assurance to
that effect.
Competition within the intelligent communications controller market is
fragmented principally by application segment. The Company's VMEbus
communications controllers compete primarily with products from Motorola,
Interphase Corp., CMC, a Rockwell Company, Themis Computers, Network
Peripherals, Performance Technologies and various other companies on a
product-by-product basis. To compete in this market the Company emphasizes the
functionality, support, quality and price of its product in relation to its
competitors as well as the Company's ability to customize the product or
software to exactly meet the customer's needs. Competition within the EISAbus
communications controller market is also fragmented among various companies
providing different applications. The Company's EISAbus-based products are
targeted to potential customers using Hewlett Packard (HP) 9000 workstations.
Currently, the Company's EISAbus products face nominal competition in this
market.
Additionally, the Company competes with the internal engineering resources of
its customers. As its customers become successful with their products, they
examine methods to reduce costs and integrate functions. To compete with the
internal engineering resources of its customers, the Company works jointly with
their engineering staffs to understand its customers' system requirements and to
anticipate product needs.
INTELLECTUAL PROPERTY
The Company believes that its future success will depend principally on its
continuing product innovation, sales, marketing and technical expertise, product
support and customer relations. The Company also believes that it needs to
protect the proprietary technology contained in its products. The Company does
not currently hold any patents and relies on a combination of copyright,
trademark, trade secret laws and contractual provisions to establish and protect
proprietary rights in its products. The Company typically enters into
confidentiality agreements with its employees, strategic partners, Channel
Partners and suppliers and limits access to the distribution of its proprietary
information.
BACKLOG
On January 5, 1998, the Company had a backlog of orders of approximately $2.4
million for shipment within the next twelve months. On January 1, 1997, the
Company had a backlog of orders of approximately $3.6 million for shipment
within the next twelve months. Since recorded sales orders are subject to
changes in customer delivery schedules, cancellation, or price changes, the
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding fiscal period and is not considered firm.
EMPLOYEES
On January 5, 1998, the Company had 91 employees. None of the Company's
employees is represented by a labor union and the Company has experienced no
work stoppages. The Company's management believes its employee relations are
good.
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<PAGE>
The Company's management believes that the Company's future success will depend,
in part, on its ability to attract and retain qualified technical (particularly
engineering), marketing and management personnel. Such experienced personnel
are in great demand and the Company must compete for their services with other
firms, many of which have greater financial resources than the Company.
ITEM 2. PROPERTIES
The Company's engineering, manufacturing and administrative headquarters are
located in 63,000 square feet of leased space in a building located in San
Ramon, California. The lease expires in 2006. The Company expects that the
facility will satisfy its anticipated needs through the foreseeable future. In
December 1996, in conjunction with the sale of all of the Company's
manufacturing assets, the Company subleased approximately 24,000 square feet of
this office and manufacturing space to XeTel for a four year term with an option
to renew for an additional five years.
-15-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of stockholders of the Company was held on Friday,
October 31, 1997, at the Company's corporate offices located at 4550 Norris
Canyon Road, San Ramon, California.
The shareholders approved the following item:
(i) Reincorporation of the Company in Delaware. (For - 1,374,046; Against
- 270,144; Abstain - 15,921)
-16-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER
MATTERS
Fiscal Quarter Ended
--------------------------------------------------
1997 January 31 April 30 July 31 October 31
- ----------------------------------------------------------------------
High $4.50 $6.50 $9.75 $19.50
Low 3.38 3.63 4.88 8.00
1996
High $14.25 $12.50 $12.25 $6.63
Low 11.00 5.75 5.75 3.88
SBE common stock is quoted on the Nasdaq National Market under the symbol SBEI.
The above table sets forth the high and low closing sales prices for 1997 and
1996 for the quarters indicated. The Company has not paid cash dividends on its
common stock and anticipates that for the foreseeable future it would retain
earnings for use in its business. Additionally, the Company is currently
prohibited from paying dividends by its credit line agreement. As of December
31, 1997 SBE had approximately 1,000 stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except for per share
amounts and number of employees)
For Years Ended October 31 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
Net sales $24,970 $13,350 $19,368 $22,337 $26,732
Net income (loss) 3,333 (9,625) (4,568) 1,336 2,461
Net income (loss) per share $1.20 ($4.51) ($2.22) $0.63 $1.18
Product research and development 2,808 5,084 6,900 4,769 4,739
Working capital 7,492 2,049 7,644 7,436 6,608
Total assets 11,269 7,894 14,978 17,665 16,563
Long-term obligations 925 757 1,218 410 44
Stockholders' equity 7,966 3,981 12,108 15,864 14,889
Shares outstanding 2,641 2,233 2,074 2,035 2,005
Number of employees 80 92 173 165 148
-17-
<PAGE>
ITEM 7. 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 THE SECTION ENTITLED "BUSINESS"
(PARTICULARLY "BUSINESS-RISK FACTORS").
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 causes fluctuations in the Company's
operating results. The Company is attempting to diversify its sales with the
introduction of new products that are targeted at large growing markets. The
Company's WanXL products are focused on the client/server market and the
significant increases in communications activity that are driven by applications
such as email, electronic commerce, geographically diverse corporate networks
and general computer communications. Additionally, the Company's netXpand
products are targeted at the growing need for small businesses to connect their
computers together and to provide remote access for traveling employees. While
the Company believes the markets for the WanXL and netXpand products are large,
there can be no assurance that the Company will be able to succeed in
penetrating these markets and diversifying its sales.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
consolidated statements of operations data for the fiscal years ended October
31, 1997, 1996 and 1995. These operating results are not necessarily indicative
of Company's operating results for any future period.
YEAR ENDED OCTOBER 31,
----------------------
1997 1996 1995
Net sales 100% 100% 100%
Cost of sales 49 62 49
----- ----- -----
Gross profit 51 38 51
Operating expenses:
Product research and development 11 38 36
Sales and marketing 15 34 26
General and administrative 15 24 20
Restructuring and other -- 14 --
----- ----- -----
Total operating expenses 41 110 82
----- ----- -----
Operating income (loss) 10 (72) (31)
Gain on sale of assets 3 -- --
Interest and other expense, net -- -- (1)
----- ----- -----
Income (loss) before taxes 13 (72) (32)
Income tax benefit -- -- (8)
----- ----- -----
Net income (loss) 13% (72)% (24)%
----- ----- -----
----- ----- -----
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<PAGE>
NET SALES
Net sales for fiscal 1997 were $25.0 million, an 87 percent increase from fiscal
1996. Net sales for fiscal 1996 were $13.4 million, a 31 percent decrease from
fiscal 1995. The increase from fiscal 1996 to fiscal 1997 was primarily
attributable to increased sales of controller products and, to a lesser extent,
WanXL products. The decrease from fiscal 1995 to fiscal 1996 was primarily
attributable to lower sales of the Company's controller products to certain
large customers. Sales to individual customers in excess of 10 percent of net
sales of the Company included sales to Tandem Computers, Motorola, and Silicon
Graphics of $8.8 million, $3.8 million, and $3.0 million, respectively, in 1997,
sales to Tandem Computers of $2.7 million in fiscal 1996 and sales to America
Online and Tandem Computers of $3.1 million and $2.8 million, respectively, in
fiscal 1995. Sales to Motorola were $700,000 in fiscal 1996 and $761,000 in
fiscal 1995. There were no sales to Silicon Graphics in fiscal 1996 or fiscal
1995 and no sales to America Online in fiscal 1997 or fiscal 1996. Partially
offsetting the lower sales of board level products in fiscal 1996, sales of
netXpand remote access products increased by $1.5 million from fiscal 1995 to
fiscal 1996 to approximately 15 percent of total sales in fiscal 1996. Sales of
netXpand products remained unchanged from fiscal 1996 to fiscal 1997. The
Company expects to continue to experience fluctuation in communication
controller product sales as large customers' needs change. See "Risk
Factors--Dependence on a Limited Number of OEM Customers."
International sales constituted 12 percent, 26 percent and 11 percent of net
sales in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. The decrease
in international sales from fiscal 1996 to fiscal 1997 is primarily attributable
to lower sales to certain Korean customers. The increase from fiscal 1995 to
fiscal 1996 is primarily attributable to increased sales of VME communication
controller products to a large customer in Korea and sales of netXpand products
in Taiwan and Japan. Sales of VMEbus-based communications products through the
Company's Channel Partner relationship with Hewlett Packard constituted 2
percent, 11 percent and 27 percent of net sales in fiscal 1997, fiscal 1996 and
fiscal 1995, respectively. No customer within this channel, other than America
Online during fiscal 1995, represented more than 5% of total sales. The Company
expects that future sales through the HP channel will continue at current
levels; however, sales through this channel will be subject to significant
variability from quarter to quarter.
GROSS PROFIT
Gross profit as a percentage of sales was 51 percent, 38 percent and 51 percent
in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. The increase from
fiscal 1996 to fiscal 1997 was primarily attributable to lower component costs
and favorable pricing with XeTel. The decrease from fiscal 1995 to fiscal 1996
was primarily attributable to lower sales and increased fixed manufacturing
costs. The Company in fiscal 1995 added significant manufacturing capacity in
anticipation of netXpand sales increases. The costs for the additional capacity
included the cost of leasing high speed placement and testing equipment,
facility lease costs and depreciation. In late fiscal 1996 the Company
concluded that it would not be able to maintain a production facility that would
allow it to be competitive with the production costs of its competitors;
therefore, in December 1996 the Company sold its manufacturing assets and
operations to XeTel. The Company also entered into a contract to purchase
manufacturing services from XeTel, which has and may continue to decrease the
volatility of the quarterly cost of sales as a percentage of sales.
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<PAGE>
PRODUCT RESEARCH AND DEVELOPMENT
Product research and development expenses net of capitalized software costs were
$2.8 million in fiscal 1997, $5.1 million in fiscal 1996 and $6.9 million in
fiscal 1995, representing 11 percent, 38 percent and 36 percent of sales,
respectively. The decreases in research and development spending were a result
of the completion of the base netXpand product line and a corresponding decrease
in third party consulting costs associated with the launch of the netXpand
products. The Company expects that product research and development expenses
will decrease as a percentage of sales as the Company focuses its resources on
improving its netXpand product line and enhancing its traditional board-level
products.
The Company capitalized software development costs of $1.5 million in fiscal
1995 in accordance with Statement of Financial Accounting Standards No. 86.
There were no such costs capitalized in fiscal 1996 or fiscal 1997. The amount
capitalized in fiscal 1995 represented 22 percent of gross product research and
development expenditures. The software costs capitalized in fiscal 1995 were
due to software development related to the netXpand product line. Those costs
are being amortized over a three year period.
SALES AND MARKETING
Sales and marketing expenses for fiscal 1997 were $3.8 million, down from $4.6
million in fiscal 1996. Sales and marketing expenses decreased due to lower
sales and commission expenses and the completion of one time costs associated
with product launch of the netXpand product line. Sales and marketing expenses
for fiscal 1995 were $5.0 million. The Company expects sales and marketing
expenses to increase slightly as a percentage of total sales from 1997 levels
for the foreseeable future.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for fiscal 1997 increased 18 percent from
fiscal 1996 to $3.7 million. General and administrative expenses for fiscal
1996 were $3.1 million, a 20 percent decrease from fiscal 1995. The increase
from fiscal 1996 to fiscal 1997 represents increased variable compensation
expense due to additional executive compensation and the Company's employee
profit sharing plan. The decrease from fiscal 1995 to fiscal 1996 represents
decreases in consulting, accounting and other administrative costs.
RESTRUCTURING COSTS AND OTHER
The Company incurred nonrecurring charges in fiscal 1996 for severance costs,
disposition of certain assets related to a reorganization of the Company and
writedown of capitalized software costs. Additionally, in fiscal 1995 the
Company recorded a nonrecurring charge to write off an equity investment in a
strategic software partner and to record realized losses on the liquidation of
investments.
GAIN ON SALE OF ASSETS
In December 1996 the Company sold all the assets of its manufacturing operation
to XeTel 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
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<PAGE>
XeTel. Further, a director of SBE, Inc. is also a director of XeTel. The
Company reported a gain of $685,000 net of expenses on the sale of these assets
in fiscal 1997.
INTEREST AND OTHER EXPENSE, NET
Interest income increased in fiscal 1997 from fiscal 1996 due to higher cash
balances. Interest income decreased in fiscal 1996 from fiscal 1995 due to
lower investment balances. Interest expense for fiscal 1997 decreased from
fiscal 1996 due to the repayment of borrowings. Interest expense increased in
fiscal 1996 from fiscal 1995 due to interest on outstanding borrowings.
INCOME TAXES
The Company recorded a tax benefit of $82,000 in fiscal 1997 due to carryback of
certain credits to prior year returns. The Company did not record any
significant tax expense in fiscal 1996 as a result of not being able to realize
any benefit from its net operating losses and unused tax credits. The Company's
effective tax rate was (3) percent and (27) percent in fiscal 1997 and 1995,
respectively. The Company's operating losses in fiscal 1995 enabled it to
realize a $1.7 million tax benefit, all of which was realized as a carryback
against prior taxes paid. The Company has recorded a valuation allowance in
fiscal 1997, 1996 and 1995 for certain deferred tax assets due to the
uncertainty of realization. This valuation allowance decreased from
approximately $4.3 million in fiscal 1996 to $3.3 million in fiscal 1997. 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 such tax assets are
realized.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company recorded net income of
$3.3 million in fiscal 1997 and net losses of $9.6 million and $4.6 million in
fiscal 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had cash and cash equivalents of $5.6
million, as compared to $41,061 at October 31, 1996. In fiscal 1997, $4.6
million of cash was provided by operating activities, principally as a result
of $3.3 million in net income, a $1.9 million reduction in inventory and $1.1
million in depreciation and amortization charges. These increases in cash
were offset by a $736,000 increase in accounts receivable, a $685,000 gain
from the sale of assets and $309,000 in other non-cash credits. Working
capital at October 31, 1997 was $7.5 million, as compared to $2.0 million at
October 31, 1996.
In fiscal 1997 the Company purchased $290,000 of fixed assets, consisting
primarily of computer and design testing equipment. The Company expects capital
expenditures during fiscal 1998 to be greater than fiscal 1997 levels.
The Company received $621,000 in fiscal 1997 from employee stock option
exercises and stock purchase plan purchases, an increase of 68 percent from
fiscal 1996 amounts.
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<PAGE>
In August 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 January 5, 1998, there were no borrowings outstanding under the line of
credit.
Based on the current operating plan, the Company anticipates that its current
cash balances, cash flow from operations and credit facilities will be
sufficient to meet its working capital needs in the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required under Item 8 are
provided under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
Information concerning the Company's directors is incorporated by reference to
the information in the section captioned "Election of Directors" appearing in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on March 24, 1998 (the "1998 Proxy Statement").
IDENTIFICATION OF EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and positions
with the Company are set forth in the following table. Executive officers serve
at the discretion of the Board of Directors. There are no family relationships
between a director or executive officer and any other director or executive
officer of the Company.
Name Age Position
- -----------------------------------------------------------------------------
William B. Heye, Jr. 59 President and Chief Executive Officer
Timothy J. Repp 37 Vice President, Finance, Chief
Financial Officer, Treasurer and Secretary
Michael R. Coker 44 Vice President, Sales and Marketing
Samuel J. Penny 60 Vice President, Engineering
Mr. Heye has been President, Chief Executive Officer, and a director of the
Company since November 1991. From 1989 to November 1991, he served as Executive
Vice President of Ampex Corporation, a manufacturer of high-performance scanning
recording systems and President of Ampex Video Systems Corporation, a
wholly-owned subsidiary of Ampex Corporation and a manufacturer of professional
video recorders and editing systems for the television industry. From 1986 to
1989 Mr. Heye was Executive Vice President of Airborn, Inc., a manufacturer of
components for the aerospace and military markets. Prior to 1986 Mr. Heye
served in various senior management positions at Texas Instruments, Inc. in the
U.S. and overseas, including Vice President and General Manager of Consumer
Products and President of Texas Instruments Asia, Ltd. headquartered in Tokyo,
Japan.
Mr. Repp has served as Secretary of the Company since December 1996 and as Vice
President, Finance, Chief Financial Officer and Treasurer since January 1992.
He joined the Company in January 1991 as Controller. From 1987 until 1990, he
was assistant controller at Grubb and
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<PAGE>
Ellis, a national real estate firm, and prior to 1987 he was an audit manager at
Coopers & Lybrand, an international accounting firm.
Mr. Coker has been Vice President, Sales and Marketing since October 1996. He
joined the Company as Vice President, Sales in March 1996. From January 1993
until February 1996, he was President and Chief Executive Officer of Syskonnect,
a provider of networking communication equipment. From October 1983 to December
of 1993, Mr. Coker served in various senior management positions, including Vice
President of International Sales, Vice President, Marketing and Director of
Marketing at Vitalink, a provider of routers, bridges and networking products.
Mr. Penny has been Vice President, Engineering since March 1997. Mr. Penny is a
founder of the Company and has served in various capacities since 1984,
including Director of Engineering and Director of Marketing.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference to the
section entitled "Executive Compensation" appearing in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" appearing in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a) FINANCIAL STATEMENTS (SEE ITEM 8).
PAGE
Report of Independent Accountants 29
Consolidated Balance Sheets at October 31, 1997 and 1996 30
Consolidated Statements of Operations for fiscal years
1997, 1996 and 1995 31
Consolidated Statements of Stockholders' Equity for fiscal
years 1997, 1996 and 1995 32
Consolidated Statements of Cash Flows for fiscal years
1997, 1996 and 1995 33
Notes to Consolidated Financial Statements 34
(b) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts 44
All other schedules are omitted as the required information is not
applicable or has been included in the consolidated financial
statements or the notes thereto.
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<PAGE>
(c) Exhibits
Exhibit Sequential
Number Description Page No.
------- ----------- ----------
3.1 Certificate of Incorporation, as amended through
December 15, 1997 45
3.2 Bylaws 49
(f)10.1 1996 Stock Option Plan, as amended ---
(a)10.2 1991 Non-Employee Directors' Stock Option Plan,
as amended ---
(d)10.3 1992 Employee Stock Purchase Plan, as amended ---
(b)10.4 Lease for 4550 Norris Canyon Road, San Ramon,
California dated November 2, 1992 between
the Company and PacTel Properties ---
(c)10.5 Amendment dated June 6, 1995 to lease for 4550 Norris
Canyon Road, San Ramon, California, between the
Company and CalProp L.P. (assignee of PacTel
Properties) ---
(e)10.6 Asset Purchase Agreement between XeTel Corporation and
SBE, Inc. dated as of December 6, 1996 ---
10.7 Letter of agreement to provide credit facilities
between the Company and Comerica Bank - California,
dated August 26, 1997 69
11.1 Statement re computation of per share earnings 85
23.1 Consent of Coopers & Lybrand, L.L.P., Independent
Public Accountants 86
27.1 Financial Data Schedule 87
(d) REPORTS ON FORM 8-K
No report on Form 8-K was filed by the Company during the
quarter ended October 31, 1997.
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<PAGE>
Explanations for letter footnotes:
- ----------------------------------------------------------------------------
(a) Filed as an exhibit to Annual Report on Form 10-K for the year ended
October 31, 1991 and incorporated herein by reference.
(b) Filed as an exhibit to Annual Report on Form 10-K for the year ended
October 31, 1993 and incorporated herein by reference.
(c) Filed as an exhibit to Annual Report on Form 10-K for the year ended
October 31, 1995 and incorporated herein by reference.
(d) Filed as an exhibit to Form S-8 dated February 26, 1992 and
incorporated herein by reference.
(e) Filed as an exhibit to the current report on Form 8-K dated December
6, 1996 and incorporated herein by reference.
(f) Filed as an exhibit to Annual Report on Form 10-K for the year ended
October 31, 1996 and incorporated herein by reference.
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<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SBE, Inc.
(Registrant)
Dated: January 28, 1998 By: /s/ Timothy J. Repp
-------------------------
Timothy J. Repp
Chief Financial Officer
and Vice President, Finance
Pursuant to the requirements for the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated, as of January 28, 1998.
Signature Title
--------- -----
/s/ William B. Heye, Jr.
- ------------------------------
William B. Heye Jr. Chief Executive Officer and President
(Principal Executive Officer)
/s/ Timothy J. Repp
- ------------------------------
Timothy J. Repp Chief Financial Officer, Vice President,
Finance, Secretary (Principal Financial and
Accounting Officer)
/s/ Raimon L. Conlisk
- ------------------------------
Raimon L. Conlisk Director, Chairman of the Board
/s/ George E. Grega
- ------------------------------
George E. Grega Director
/s/ Randall L-W Caudill
- ------------------------------
Randall L-W Caudill Director
/s/ Ronald J. Ritchie
- ------------------------------
Ronald J. Ritchie Director
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<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
SBE, Inc.
San Ramon, California
We have audited the consolidated financial statements of SBE, Inc. and
subsidiary as of October 31, 1997 and 1996 and for each of the three years in
the period ended October 31, 1997. We have also audited the financial
statement schedule listed in Item 14(b) of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SBE, Inc. and
subsidiary as of October 31, 1997 and 1996 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
November 20, 1997, except for
Note 13, as to which the date is December 15, 1997
-29-
<PAGE>
SBE, INC.
CONSOLIDATED BALANCE SHEETS
October 31 1997 1996
- ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,568,873 $ 41,061
Trade accounts receivable, net 2,780,273 2,043,959
Inventories 851,141 2,741,356
Income tax recoverable --- 8,990
Deferred income taxes 513,237 291,275
Other 156,370 78,118
------------ -----------
Total current assets 9,869,894 5,204,759
Property, plant and equipment, net 1,083,037 2,070,389
Deferred income taxes --- 27,083
Capitalized software costs, net 275,588 551,168
Other 40,700 40,700
------------ -----------
Total assets $ 11,269,219 $ 7,894,099
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ --- $ 980,340
Trade accounts payable 1,029,110 1,084,813
Accrued payroll and employee benefits 949,739 261,726
Customer advances --- 617,453
Accrued product warranties 251,956 90,447
Other 147,439 121,409
------------ -----------
Total current liabilities 2,378,244 3,156,188
Deferred tax liabilities 513,237 318,358
Deferred rent 411,881 438,939
------------ -----------
Total liabilities 3,303,362 3,913,485
------------ -----------
Commitments (Note 8).
Stockholders' equity:
Preferred stock (no par value); authorized
2,000 shares; issued 167 shares;
outstanding zero and 113 shares at
October 31, 1997 and 1996, respectively --- 750,460
Common stock (no par value); authorized
10,000,000 shares; issued and outstanding
2,640,516 and 2,232,858 at October 31,
1997 and 1996, respectively 9,828,837 8,426,315
Accumulated deficit (1,862,980) (5,196,161)
------------ -----------
Total stockholders' equity 7,965,857 3,980,614
------------ -----------
Total liabilities and stockholders'
equity $ 11,269,219 $ 7,894,099
------------ -----------
------------ -----------
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31
1997 1996 1995
- ------------------------------------------------------------------------------
Net sales $24,970,427 $13,350,228 $19,367,776
Cost of sales 12,151,883 8,277,879 9,566,784
----------- ----------- -----------
Gross profit 12,818,544 5,072,349 9,800,992
Product research and development 2,807,872 5,083,707 6,900,420
Sales and marketing 3,833,801 4,605,275 4,961,438
General and administrative 3,686,890 3,137,132 3,929,544
Restructuring costs --- 960,747 ---
Write-off of prepaid offering costs --- 105,000 ---
Writedown of software costs --- 794,018 ---
----------- ----------- -----------
Total expenses 10,328,563 14,685,879 15,791,402
Operating income (loss) 2,489,981 (9,613,530) (5,990,410)
Gain on sale of assets 684,502 --- ---
Interest income 101,546 34,486 342,463
Interest expense (24,858) (43,859) (14,783)
Write-off of equity investment --- --- (330,000)
Loss on sale of investments --- --- (293,797)
----------- ----------- -----------
Income (loss) before
income taxes 3,251,171 (9,622,903) (6,286,527)
(Benefit) provision for income
taxes (82,010) 1,600 (1,718,556)
----------- ----------- -----------
Net income (loss) $ 3,333,181 $(9,624,503) $(4,567,971)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per common share $ 1.20 $ (4.51) $ (2.22)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares 2,780,713 2,131,593 2,054,570
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
-31-
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Unrealized Losses Retained
Shares Amount Shares Amount on Investments Earnings (Deficit) Total
--------- -------- ---------- ----------- ----------------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1994 --- --- 2,034,842 $ 7,392,693 $(525,370) $ 8,996,313 $15,863,636
Stock issued in connection
with stock option plan --- --- 21,543 166,454 --- --- 166,454
Stock issued in connection
with stock purchase
plan --- --- 17,869 120,672 --- --- 120,672
Unrealized losses on
investments --- --- --- --- 525,370 --- 525,370
Net loss --- --- --- --- --- (4,567,971) (4,567,971)
----- -------- --------- ----------- ----------- ----------- -----------
Balances, October 31, 1995 --- --- 2,074,254 7,679,819 --- 4,428,342 12,108,161
Stock issued in connection
with preferred stock
offering 167 $ 1,109,087 --- --- --- --- 1,109,087
Stock retired/issued in
connection with
conversion to
common stock (54) (358,627) 104,719 358,627 --- --- ---
Stock issued in connection
with stock option
plans --- --- 35,283 221,939 --- --- 221,939
Stock issued in connection
with stock purchase
plan --- --- 18,602 165,930 --- --- 165,930
Net loss --- --- --- --- --- (9,624,503) (9,624,503)
----- -------- --------- ----------- ----------- ----------- -----------
Balances, October 31, 1996 113 750,460 2,232,858 8,426,315 --- (5,196,161) 3,980,614
Stock retired/issued in
connection with
conversion to
common stock (113) (750,460) 240,083 750,460 --- --- ---
Stock issued in connection
with dividend on
converted preferred
shares --- --- 8,836 31,558 --- --- 31,558
Stock issued in connection
with exercise of stock
warrants --- --- 42,539 --- --- --- ---
Stock issued in connection
with stock option
plans --- --- 102,588 570,988 --- --- 570,988
Stock issued in connection
with stock purchase
plan --- --- 13,612 49,516 --- --- 49,516
Net income --- --- --- --- --- 3,333,181 3,333,181
----- -------- --------- ----------- ----------- ----------- -----------
Balances, October 31, 1997 --- $ --- 2,640,516 $ 9,828,837 $ --- $(1,862,980) $ 7,965,857
----- -------- --------- ----------- ----------- ----------- -----------
----- -------- --------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-32-
<PAGE>
SBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31 1997 1996 1995
------------ ----------- ----------
Cash flows from operating activities:
Net income (loss) $ 3,333,181 $(9,624,503) $(4,567,971)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 1,083,274 1,659,787 1,312,061
Gain from sale of property and
equipment (684,502) --- ---
Costs and reserves related to
sale of property and equipment (442,585) --- ---
Restructuring costs --- 329,498 ---
Write-off of prepaid offering costs --- 105,000 ---
Writedown of capitalized software --- 794,018 ---
Write-off of equity investment --- --- 330,000
Loss on sale of investments --- --- 293,797
Deferred taxes --- --- 10,178
Other --- --- 955
Changes in assets and liabilities:
(Increase) decrease in trade
accounts receivable (736,314) 1,343,773 56,465
Decrease (increase) in
inventories 1,890,215 (129,943) (563,621)
(Increase) decrease in deferred
and recoverable income tax 8,990 1,827,325 (1,776,485)
(Increase) decrease in other
assets (78,252) 195,883 30,355
(Decrease) increase in trade
accounts payable (55,703) 143,925 138,613
Increase in other current
liabilities 258,099 380,519 122,174
Increase in noncurrent liabilities --- 99,805 218,725
---------- ----------- -----------
Net cash provided (used) by
operating activities 4,576,403 (2,874,913) (4,394,754)
---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (290,464) (385,236) (1,802,826)
Disposals of property and equipment 1,600,000 --- ---
Proceeds from sale of fixed assets 1,709 8,208 2,729
Capitalized software costs --- (41,500) (1,486,967)
Proceeds from sale of investments --- --- 5,936,416
Purchase of investments --- --- (250,585)
---------- ----------- -----------
Net cash provided (used) by
investing activities 1,311,245 (418,528) 2,398,767
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings on line
of credit --- 5,528,595 ---
Repayment of borrowings on line
of credit (980,340) (4,548,255) ---
Proceeds from sale of preferred stock --- 1,109,087 ---
Proceeds from stock plans 620,504 387,869 287,126
---------- ----------- -----------
Net cash (used) provided
by financing activities (359,836) 2,477,296 287,126
---------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 5,527,812 (816,145) (1,708,861)
Cash and cash equivalents at
beginning of year 41,061 857,206 2,566,067
---------- ----------- -----------
Cash and cash equivalents at
end of year $5,568,873 $ 41,061 $ 857,206
---------- ----------- -----------
---------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 24,858 $ 43,859 $ 14,783
---------- ----------- -----------
---------- ----------- -----------
Income taxes $ 2,540 $ 417 $ 33,824
---------- ----------- -----------
---------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of preferred stock
into common stock $ 750,460 $ 358,627 $ ---
---------- ----------- -----------
---------- ----------- -----------
Issuance of common stock in lieu of
dividend on converted preferred stock $ 31,558 $ --- $ ---
---------- ----------- -----------
---------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS SEGMENT AND BASIS OF PRESENTATION:
SBE, Inc. and subsidiary (the Company) designs and manufactures high-performance
network systems and products for world-wide distribution. The Company's
business falls exclusively within one industry segment.
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
Company reported a gain of $685,000 net of expenses on the sale of these assets
in fiscal 1997.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS:
The Company considers all highly liquid investments readily convertible into
cash with an original maturity of three months or less upon acquisition by the
Company to be cash equivalents. Substantially all of its cash and cash
equivalents are held in one large financial institution.
INVENTORIES:
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market value.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are carried at cost. The Company provides for
depreciation by charges to expense, which are sufficient to write off the costs
of the assets over their estimated useful lives of three to eight years, on a
straight-line basis. Leasehold improvements are amortized over the lesser of
their useful lives or the remaining term of the related leases.
-34-
<PAGE>
When assets are sold or otherwise disposed of, the cost and accumulated
depreciation are removed from the asset and allowance for depreciation accounts
and any gain or loss on such sale or disposal is credited or charged to income.
Maintenance, repairs and minor renewals are charged to expense as incurred.
Expenditures which substantially increase an asset's useful life are
capitalized.
CAPITALIZED SOFTWARE COSTS:
Capitalized software costs consist of costs to purchase software and to
internally develop software. Capitalization of software costs begins upon the
establishment of technological feasibility. All capitalized software costs are
amortized as related sales are recorded on a per-unit basis with a minimum
amortization based on a straight-line method over a three-year useful life. The
Company evaluates the estimated net realizable value of each software product
and records provisions to the asset value of each product for which the net book
value is in excess of the net realizable value.
REVENUE RECOGNITION AND WARRANTY COSTS:
The Company records product sales at the time of product shipment. Warranty
costs are not significant; however, the Company provides a reserve for estimated
warranty costs at the time of sale and periodically adjusts such amounts to
reflect actual expenses. The Company's sales transactions are negotiated
principally in US dollars.
PRODUCT RESEARCH AND DEVELOPMENT EXPENDITURES:
Product research and development (R&D) expenditures, except certain software
development costs, are charged to expense as incurred. Contractual
reimbursements for R&D expenditures under joint R&D contracts with customers are
accounted for as a reduction of related expenses as incurred. For the years
ended October 31, 1997, 1996 and 1995, direct costs incurred under R&D contracts
were $172,895, $42,543 and $112,868, respectively, and reimbursements earned
were $338,470, $73,852 and $221,120, respectively.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No.
109 requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of items that have been included in the consolidated
financial statements or tax returns. Under SFAS No. 109 the Company provides a
deferred tax expense or benefit equal to the change in the deferred tax asset or
liability during the year. Deferred income taxes represent future net tax
effects resulting from temporary differences 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. Valuation allowances are
recorded against net deferred tax assets where, in the opinion of management,
realization is uncertain.
-35-
<PAGE>
NET INCOME (NET LOSS) PER COMMON SHARE:
Net income per common share for the year ended October 31, 1997 was computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding. Common stock equivalents relate to stock
options and warrants. Common stock equivalents are excluded from the net loss
per common share (LPS) calculation for the years ended October 31, 1996 and
1995, as they have the effect of decreasing LPS. The difference between primary
and fully diluted net income (loss) per share was not significant in any year.
RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS 128), was issued and will become effective during the Company's
fiscal year ending October 31, 1998. The Company expects that the
implementation of SFAS 128 should not have a material effect on the earnings per
share calculation.
In March 1997, Statement of Financial Accounting Standards 129, "Disclosure of
Information About Capital Structure", was issued and is effective for the
Company's fiscal year ending October 31, 1998. In June 1997, Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information", were issued and are effective for the
year ending October 31, 1999. The Company has not determined the impact of the
implementation of these pronouncements.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation with no effect on net loss as
previously reported.
2. INVENTORIES
Inventories at October 31, 1997 and 1996 are comprised of the following :
1997 1996
- ----------------------------------------------------------------------
Finished goods $ 822,670 $ 750,508
Subassemblies --- 174,620
Parts and materials 28,471 1,816,228
--------- ----------
$ 851,141 $2,741,356
--------- ----------
--------- ----------
-36-
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, 1997 and 1996 are comprised of the
following:
1997 1996
- ----------------------------------------------------------------------
Machinery and equipment $ 4,840,507 $ 6,988,575
Furniture and fixtures 1,007,679 1,078,008
Leasehold improvements 289,572 519,309
----------- -----------
6,137,758 8,585,892
Less accumulated depreciation
and amortization 5,054,721 6,515,503
----------- -----------
$ 1,083,037 $ 2,070,389
----------- -----------
----------- -----------
Depreciation and amortization expense totaled $807,694, $1,307,054 and
$1,251,513 for the years ending October 31, 1997, 1996 and 1995, respectively.
4. CAPITALIZED SOFTWARE COSTS
Capitalized software costs at October 31, 1997 and 1996 comprise the following:
1997 1996
- ----------------------------------------------------------------------
Purchased software $ 109,116 $ 109,116
Internally developed software 805,333 805,333
---------- ----------
914,449 914,449
Less accumulated amortization 638,861 363,281
---------- ----------
$ 275,588 $ 551,168
---------- ----------
---------- ----------
No software costs were capitalized in 1997. The Company capitalized $41,500 of
purchased software costs in 1996. Amortization of capitalized software costs
totaled $275,580, $352,733 and $60,548 for the years ended October 31, 1997,
1996 and 1995, respectively. Additionally, the Company recorded a writedown of
its capitalized software costs of $794,000 during fiscal year 1996. The
carrying value of the asset was reduced due to the uncertainty of the future
realization of the asset, because of slower than expected sales of netXpand
products.
5. BANK FACILITY:
On August 26, 1997 the Company entered into a revolving working capital line of
credit agreement with a bank. 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 all other tangible 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, maximum debt to equity ratio of 1.00:1.00, and minimum
profitability levels. The line of credit agreement also prohibits the payment
of cash dividends without consent of the bank.
-37-
<PAGE>
6. CONVERTIBLE PREFERRED STOCK
On July 10, 1996, the Company issued and sold 167 shares of Series A Preferred
Stock ("Series A Preferred") for net proceeds of approximately $1.1 million The
issuance of Series A Preferred was exempt, pursuant to Regulation S promulgated
under the Securities Act of 1933, as amended (the "Act"), from registration
requirements under the Act.
Each share of Series A Preferred is convertible into the number of shares of
Common Stock of the Company ("Common Stock") equal to $7,500 divided by the
Conversion Price. The applicable Conversion Price is lesser of $6.675 or 75
percent of the average closing bid price of the Common Stock for the five
consecutive trading days immediately prior to conversion; provided however, that
the Series A Preferred, taken as a whole, may not at any time convert into 16.7
percent or more of the Company's outstanding Common Stock (measured on July 10,
1996 and on the date of conversion). The Series A Preferred will automatically
convert into Common Stock when the average closing bid price of the Common Stock
over a five trading day period is equal to or greater than $13.35. In addition,
all unconverted shares of Series A Preferred will be converted automatically
upon the earlier to occur of July 10, 1998 and the written consent of the
holders of two thirds of the then outstanding Series A Preferred. Holders of
Series A Preferred are also entitled to certain dividend rights and liquidation
preferences. The shares of Series A Preferred have no voting rights.
As of December 4, 1996 all outstanding shares of Series A Preferred had been
converted into 240,083 shares of Common Stock.
In connection with the sale of the Series A Preferred, the Company issued
warrants to purchase an aggregate of 93,703 shares of Common Stock with an
exercise price of $8.25 per share. The warrants expire in July 1999. As of
October 31, 1997 all the warrants had been exercised on a net basis, which
resulted in the issuance of 42,539 shares of Common Stock.
Additionally, the Company issued 8,836 shares of Common Stock in lieu of
$31,588 of dividends due on the convertible preferred stock.
7. INCOME TAXES
The components of the provision for income taxes for the years ended October 31,
1997, 1996 and 1995, are as follows:
1997 1996 1995
- -----------------------------------------------------------------------------
Federal:
Current $(83,610) $ --- $(1,731,734)
Deferred --- --- 10,178
State:
Current 1,600 1,600 3,000
Deferred --- ---
-------- -------- -----------
Total (benefit) provision
for income taxes $(82,010) $ 1,600 $(1,718,556)
-------- -------- -----------
-------- -------- -----------
-38-
<PAGE>
The effective income tax rate differs from the statutory federal income tax rate
for the following reasons:
1997 1996 1995
- -----------------------------------------------------------------------------
Statutory federal income tax rate 34.0% (34.0)% (34.0)%
State taxes, net of federal
income tax benefit --- --- ---
Change in valuation allowance (30.0) 34.0 12.2
Refund of prior year taxes (5.5) --- ---
Tax credits --- --- (5.0)
Nontaxable interest income --- --- (0.7)
Other, net (1.0) --- 0.2
------- ------ -------
(2.5)% 0.0% (27.3)%
------- ------ -------
------- ------ -------
Significant components of the Company's deferred tax balances as of October 31,
1997 and 1996 are as follows:
1997 1996
- -----------------------------------------------------------------------------
Deferred tax assets:
Current
Accrued employee benefits $ 70,000 $ 77,000
Inventory allowances 401,000 136,000
Allowance for doubtful accounts 67,000 42,000
Warranty accruals 100,000 37,000
Noncurrent
Deferred rent 173,000 179,000
R&D credit carryforward 784,000 706,000
Alternative minimum tax carryforward 251,000 143,000
Operating loss carryforward 1,841,000 3,136,000
Investments 130,000 130,000
Capital loss carryforward 74,000 74,000
----------- -----------
Total deferred tax assets 3,891,000 4,660,000
----------- -----------
Deferred tax liabilities:
Noncurrent
Depreciation (294,000) (96,000)
Capitalized software costs (220,000) (223,000)
----------- -----------
Total deferred tax liabilities (514,000) (319,000)
----------- -----------
Deferred tax asset valuation allowance (3,377,000) (4,341,000)
----------- -----------
Net deferred tax assets $ --- $ ---
----------- -----------
----------- -----------
A valuation allowance was established to offset certain deferred tax assets due
to management's uncertainty of realizing the benefit of these items. The net
changes in the valuation allowance were a decrease of $964,000 and an increase
of $3.4 million for the years ended October 31, 1997 and 1996, respectively.
The Company has research and experimentation tax credit carryforwards of
$784,000 for federal and state tax purposes. These carryforwards expire in the
periods ending 2007 through 2012. The Company has a net operating loss
carryforward for federal and state income tax purposes of approximately $4.9
million and $1.7 million, respectively, which expire in periods ending 1999
through 2012.
-39-
<PAGE>
8. COMMITMENTS
The Company leases all its buildings under noncancelable operating leases which
expire at various dates through the year 2006. Future minimum lease payments
under all operating leases, net of sublease proceeds, with initial or remaining
noncancelable lease terms in excess of one year at October 31, 1997 are as
follows:
Year ending October 31:
1998 $ 393,416
1999 393,416
2000 417,318
2001 645,408
2002 643,085
Thereafter 2,182,553
----------
Total minimum lease payments $4,675,196
----------
----------
Under the terms of the San Ramon, California building lease, rent includes the
lessor's operating costs and is offset by sublease proceeds. The building lease
also includes two five-year renewal options at market rates as defined by the
lease. Rent expense under all operating leases for the years ended October 31,
1997, 1996 and 1995 was $664,409 (net of sublease proceeds of $328,911),
$822,835 and $794,700, respectively.
9. STOCK OPTION AND STOCK PURCHASE PLANS
The Company has one employee stock option plan, its 1996 Stock Option Plan (the
Employee Plan). Originally adopted as the 1987 Supplemental Stock Option Plan,
this plan was amended and restated on January 18, 1996 and retitled the 1996
Stock Option Plan. A total of 1,130,000 shares of common stock are reserved
under the plan. Stock options granted under the Employee Plan are exercisable
over a maximum term of ten years from the date of grant, vest in various
installments over this period and have exercise prices reflecting market value
at the date of grant. In May 1996, due to the reduced market price of the
Company's common stock, the Company offered employees the opportunity to have
their options repriced to $8.93 in exchange for restrictions of certain rights
under their option grants.
Additionally, in 1991, stockholders approved a "Non-Employee Director Stock
Option Plan" (the Plan). A total of 140,000 shares of common stock are reserved
for issuance under this Plan. Options granted under the plan vest over a
four-year period, expire five years after the date of grant and have exercise
prices reflecting market value at the date of grant.
At October 31, 1997 and 1996, 36,917 and 13,913 shares, respectively, were
available for stock option grants under the Employee Plan. A total of 59,000
shares were available for grant under the Non-Employee Director Plan at both
October 31, 1997 and 1996.
-40-
<PAGE>
A summary of the activity under the stock option plans is set forth below:
1991 Non-Employee
1996 Stock Directors
Option Plan Stock Option Plan
--------------------------------------------------
Exercise Exercise
Shares Price Shares Price
- ------------------------------------------------------------------------------
Outstanding at
October 31, 1994 315,926 $3.75 - $17.25 40,250 $5.25 - $13.00
Granted 275,907 7.50 - 14.50 20,000 9.50
Terminated (37,502) 7.00 - 14.50 --- ---
Exercised (21,543) 3.75 - 13.25 --- ---
---------------------------------------------------
Outstanding at
October 31, 1995 532,788 4.13 - 17.25 60,250 5.25 - 13.00
Granted 513,998 4.38 - 10.50 15,000 7.75
Terminated (232,703) 5.31 - 12.00 --- ---
Exercised (23,033) 4.25 - 10.25 (12,250) 5.25
---------------------------------------------------
Outstanding at
October 31, 1996 791,050 3.75 - 10.50 63,000 7.75 - 13.00
Granted 202,100 3.69 - 17.25 20,000 4.38 - 4.88
Terminated (226,787) 3.75 - 13.50 (31,000) 7.75 - 13.00
Exercised (102,588) 4.38 - 9.75 --- ---
---------------------------------------------------
Outstanding at
October 31, 1997 663,775 3.69 - 17.25 52,000 4.38 - 13.00
Exercisable at
October 31, 1997 345,587 $4.25 - $10.50 17,000 $7.75 - $13.00
The Company has an Employee Stock Purchase Plan (the Purchase Plan) under which
100,000 shares of common stock have been reserved for issuance. The Purchase
Plan allows participating employees to purchase, through payroll deductions,
shares of the Company's common stock at 85 percent of the stock's fair market
value at specified dates. At October 31, 1997, 77 employees were eligible to
participate in the Purchase Plan and 19,637 common shares were available for
issuance. In fiscal year 1997, 1996 and 1995, 13,612, 18,602 and 17,869 shares
were issued under the Purchase Plan, respectively.
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has two stock option plans, the 1996 Stock Option
Plan and the 1991 Directors Plan. The Company accounts for these plans under
APB Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined pursuant to the provisions of
SFAS No. 123, the Company's pro forma net income for 1997 and 1996 would have
been $3,076,918 and ($10,209,271), respectively, resulting in earnings per share
of $1.11 for fiscal 1997 and a loss per share of $4.79 for fiscal 1996. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for options granted in fiscal 1997: risk-free interest rate of
7 percent, expected dividend yield of zero, expected term of 6.45 years and
expected volatility of 93.4 percent. Assumptions used for fiscal 1996 were
similar to those used for fiscal 1997. The weighted average estimated fair
value of each option granted during fiscal 1997 and fiscal 1996 was $4.52 and
$2.48, respectively.
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Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to November 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
10. EMPLOYEE SAVINGS AND INVESTMENT PLAN
The Company contributes a percentage of income before income taxes into an
employee savings and investment plan. The percentage is determined annually by
the Board of Directors. These contributions are payable annually, vest over
five years and cover substantially all employees who have been with the Company
at least one year. Additionally, the Company makes matching payments to the
employee savings and investment plan of 50 percent of each employee's
contribution up to three percent of employees' earnings.
For the years ended October 31, 1997, 1996 and 1995, total expense under the
above plan was $279,899, $185,596 and $202,228, respectively.
11. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company's trade accounts receivable are concentrated among a small number of
customers, principally located in the United States. Ongoing credit evaluations
of customers' financial condition are performed and, generally, no collateral is
required. The Company maintains an allowance for doubtful accounts for
potential credit losses and actual bad debt losses have not been material and
have not exceeded management's expectations. Trade accounts receivable are
recorded net of allowance for doubtful accounts of $169,000 and $105,000 at
October 31, 1997 and 1996, respectively.
Sales to individual customers in excess of 10 percent of net sales of the
Company included sales to Tandem Computers, Motorola, and Silicon Graphics of
$8.8 million, $3.8 million, and $3.0 million, respectively, in 1997, sales to
Tandem Computers of $2.7 million in fiscal 1996 and sales to America Online
and Tandem Computers of $3.1 million and $2.8 million, respectively, in
fiscal 1995. International sales accounted for 12 percent and 26 percent and
of total sales during fiscal 1997 and fiscal 1996, respectively.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
1997: Net sales $4,217 $5,852 $7,393 $7,508
Gross profit 1,961 2,593 3,711 4,553
Net income 830 384 740 1,379
Net income per share $0.35 $0.15 $0.27 $0.45
1996: Net sales $3,993 $2,662 $2,909 $3,785
Gross profit 1,659 852 1,055 1,505
Net loss (1,989) (3,915) (2,133) (1,588)
Net loss per share $(0.95) $(1.85) $(1.00) $(0.72)
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The Company's fiscal 1997 first quarter reflects a $685,000 gain on the sale of
assets and the Company's fiscal 1996 fourth quarter reflects a $706,000
restructuring charge.
13. SUBSEQUENT EVENT
On December 15, 1997 the Company reincorporated in the state of Delaware. In
connection with the event, the Company increased the number of its authorized
shares of preferred stock to 2,000,000 shares and established a par value of
$0.001 for both its common and preferred stock.
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SBE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1996
Column A Column B Column C Column D Column E
---------- ----------- ------------ ---------- ----------
Balance at Additions Balance
Beginning Charged to costs End of
Description of Period and expenses Deductions(a) Period
- -------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997
Allowance for Doubtful
Accounts 105,000 78,000 (13,795) 169,205
Allowance for Obsolete
Inventory 166,146 1,075,014 (218,697) 1,022,463
Allowance for Warranty
Claims 90,447 280,462 (118,953) 251,956
Allowance for the deferred
tax asset 4,341,000 (964,000) 0 3,377,000
YEAR ENDED OCTOBER 31, 1996
Allowance for Doubtful
Accounts 130,000 0 (25,000) 105,000
Allowance for Obsolete
Inventory 531,014 212,778 (577,646) 166,146
Allowance for Warranty
Claims 104,894 50,290 (64,736) 90,447
Allowance for the deferred
tax asset 948,000 3,393,000 0 4,341,000
(a) Deductions represent activity charged to related asset or liability account.
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SBE, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is SBE, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware at
such address is the The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Twelve Million
(12,000,000) shares. Ten Million (10,000,000) shares will be Common Stock, par
value $0.001 per share, and Two Million (2,000,000) shares will be Preferred
Stock, par value $0.001 per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
(a "Preferred Stock Designation") pursuant to the Delaware General
Corporation Law, to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series is decreased in accordance with
the foregoing sentence, the shares constituting such decrease will resume the
status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
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A. (1) The management of the business and the conduct of the affairs
of the corporation will be vested in its Board of Directors. The number of
directors that will constitute the whole Board of Directors will be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
the directors will be divided into three classes designated as Class I, Class
II and Class III, respectively. Directors will be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the
adoption and filing of this Certificate of Incorporation, the term of office
of the Class I directors will expire and Class I directors will be elected
for a full term of three years. At the second annual meeting of stockholders
following the adoption and filing of this Certificate of Incorporation, the
term of office of the Class II directors will expire and Class II directors
will be elected for a full term of three years. At the third annual meeting
of stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class III directors will expire and
Class III directors will be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors will be elected for a
full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. Notwithstanding the foregoing provisions of
this Article, each director will serve until his or her successor is duly
elected and qualified or until his or her death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors will
shorten the term of any incumbent director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, no director will be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of
the holders of sixty-six and two thirds percent (66K%) of the voting power of
all the then-outstanding shares of voting stock of the corporation entitled
to vote at an election of directors (the "Voting Stock").
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of directors
will, unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships will be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote
of a majority of the directors then in office, even though less than a quorum
of the Board of Directors, and not by the stockholders. Any director elected
in accordance with the preceding sentence will hold office for the remainder
of the full term of the director for which the vacancy was created or
occurred and until such director's successor has been elected and qualified.
(5) In the event that Section 2115(a) of the California
Corporations Code is applicable to this corporation, then the following will
apply:
(a) Every stockholder entitled to vote in any election of
directors of this corporation may cumulate such stockholder's votes and give
one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the stockholder's shares
are otherwise entitled, or distribute the stockholder's votes on the same
principle among as many candidates as such stockholder thinks fit;
(b) No stockholder, however, may cumulate such stockholder's
votes for one or more candidates unless (A) the names of such candidates have
been properly placed in nomination, in
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accordance with the Bylaws of the corporation, prior to the voting, (B) the
stockholder has given advance notice to the corporation of the intention to
cumulative votes pursuant to the Bylaws, and (C) the stockholder has given
proper notice to the other stockholders at the meeting, prior to voting, of
such stockholder's intention to cumulate such stockholder's votes; and
(6) If any stockholder has given proper notice, all stockholders
may cumulate their votes for any candidates who have been properly placed in
nomination. The candidates receiving the highest number of votes of the
shares entitled to be voted for them up to the number of directors to be
elected by such shares shall be declared elected.
B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of sixty-six and two thirds percent (66K%) of the then outstanding
shares of the Voting Stock. The Board of Directors will also have the power
to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) Following the filing with the Secretary of State of the State
of Delaware of the Agreement and Plan of Merger effecting the merger between
the corporation and SBE, Inc., a California corporation, no action will be
taken by the stockholders of the corporation except at an annual or special
meeting of stockholders called in accordance with the Bylaws.
(4) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (A) the Chairman of the Board of
Directors, (B) the Chief Executive Officer, or (C) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (D) by the holders of the shares entitled
to cast not less than sixty-six and two thirds percent (66K%) of the votes at
the meeting, and will be held at such place, on such date, and at such time
as the Board of Directors fix therefor.
(5) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation must be given in the manner provided in
the Bylaws of the corporation.
VI.
A. A director of the corporation will not be personally liable to the
corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law (3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director will be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law as so
amended.
B. Any repeal or modification of this Article VI will be prospective
and will not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
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<PAGE>
VII.
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in
paragraph B. of this Article VII, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of sixty-six and two thirds percent (66K%) of
the then outstanding shares of the Voting Stock, voting together as a single
class, will be required to alter, amend or repeal Articles V, VI, and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
JODIE M. BOURDET Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day of
__________, 1997 by the undersigned, who affirms that the statements made herein
are true and correct.
--------------------------------
JODIE M. BOURDET
Sole Incorporator
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Exhibit 3.2
BYLAWS
OF
SBE, INC.
ARTICLE I
OFFICES
1. REGISTERED OFFICE. The registered office of the corporation in the
State of Delaware will be in the City of Wilmington, County of New Castle.
2. OTHER OFFICES. The corporation will also have and maintain an
office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
3. CORPORATE SEAL. The corporate seal will consist of a die bearing
the name of the corporation and the inscription, "Corporate Seal-Delaware."
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation
will be held at such place, either within or without the State of Delaware,
as may be designated from time to time by the Board of Directors, or, if not
so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, will be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business will be conducted as will have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(1) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (2) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (3)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in
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writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; PROVIDED, HOWEVER, that in the event that no annual meeting was held
in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must
be so received not earlier than the close of business on the ninetieth (90th)
day prior to such annual meeting and not later than the close of business on
the later of the sixtieth (60th) day prior to such annual meeting or, in the
event public announcement of the date of such annual meeting is first made by
the corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation.
A stockholder's notice to the Secretary will set forth as to each matter
the stockholder proposes to bring before the annual meeting: (1) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (2) the
name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (4) any
material interest of the stockholder in such business and (5) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business will be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b).
The chairman of the annual meeting will, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this paragraph (b), and, if
he should so determine, he will so declare at the meeting that any such
business not properly brought before the meeting will not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) will be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the corporation
entitled to vote in the election of directors at the meeting who complies
with the notice procedures set forth in this paragraph (c). Such
nominations, other than those made by or at the direction of the Board of
Directors, will be made pursuant to timely notice in writing to the Secretary
of the corporation in accordance with the provisions of paragraph (b) of this
Section 5. Such stockholder's notice will set forth (1) as to each person,
if any, whom the stockholder proposes to nominate for election or re-election
as a director: (A) the name, age, business address and residence address of
such person, (B) the principal occupation or employment of such person, (C)
the class and number of shares of the corporation which are beneficially
owned by such person, (D) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nominations are to be
made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is
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otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (2) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section
5. At the request of the Board of Directors, any person nominated by a
stockholder for election as a director will furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person will be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting will, if the facts warrant, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he will so declare
at the meeting, and the defective nomination will be disregarded.
(d) For purposes of this Section 5, "public announcement" will
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (1) the Chairman of the Board
of Directors, (2) the Chief Executive Officer, (3) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (4) by the holders of shares entitled to
cast not less than a majority of the votes at the meeting, and will be held
at such place, on such date, and at such time as the Board of Directors, will
fix.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request will be in writing, specifying
the general nature of the business proposed to be transacted, and will be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors will determine the time and place of such special
meeting, which will be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request will cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the
notice is not given within sixty (60) days after the receipt of the request,
the person or persons requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b)
will be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the Board of Directors may be held.
7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
will be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting,
such notice to specify the place, date and hour and purpose or purposes of
the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and
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will be waived by any stockholder by his attendance thereat in person or by
proxy, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting will be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these
Bylaws, the presence, in person or by proxy duly authorized, of the holders
of a majority of the outstanding shares of stock entitled to vote will
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business will be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken by the holders
of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present will be valid and binding upon the corporation;
PROVIDED, HOWEVER, that directors will be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a
class or classes or series is required, except where otherwise provided by
the statute or by the Certificate of Incorporation or these Bylaws, a
majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, will constitute a quorum entitled
to take action with respect to that vote on that matter and, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series will be the act of such
class or classes or series.
9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes, excluding abstentions. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If
the adjournment is for more than thirty (30) days or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting will be given to each stockholder of record entitled to
vote at the meeting.
10. VOTING RIGHTS. For the purpose of determining those stockholders
entitled to vote at any meeting of the stockholders, except as otherwise
provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, will be entitled to vote at any meeting of stockholders. Every
person entitled to vote will have the right to do so either in person or by
an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy will be
voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
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11. JOINT OWNERS OF STOCK. If shares or other securities having voting
power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it
is so provided, their acts with respect to voting will have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one
(1) votes, the act of the majority so voting binds all; (c) if more than one
(1) votes, but the vote is evenly split on any particular matter, each
faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the General
Corporation Law of Delaware, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) will be a majority
or even-split in interest.
12. LIST OF STOCKHOLDERS. The Secretary will prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list will be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place will be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list will be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
13. ACTION WITHOUT MEETING. No action will be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action will be taken by the stockholders
by written consent.
14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, will act as chairman. The Secretary, or, in his absence,
an Assistant Secretary directed to do so by the President, will act as
secretary of the meeting.
(b) The Board of Directors of the corporation will be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
will deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting
will have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business
for the meeting, rules and procedures for maintaining order at the meeting
and the safety of those present, limitations on participation in such meeting
to stockholders of record of the corporation and their duly authorized and
constituted proxies and such other persons as the chairman will permit,
restrictions on entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the
polls for balloting on matters
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which are to be voted on by ballot. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of
stockholders will not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
15. NUMBER AND TERM OF OFFICE. The authorized number of directors of
the corporation will be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors will not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose
in the manner provided in these Bylaws.
16. POWERS. The powers of the corporation will be exercised, its
business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
17. CLASSES OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, the directors will be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors will be assigned to
each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following
the adoption and filing of this Certificate of Incorporation, the term of
office of the Class I directors will expire and Class I directors will be
elected for a full term of three years. At the second annual meeting of
stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class II directors will expire and
Class II directors will be elected for a full term of three years. At the
third annual meeting of stockholders following the adoption and filing of
this Certificate of Incorporation, the term of office of the Class III
directors will expire and Class III directors will be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
will be elected for a full term of three years to succeed the directors of
the class whose terms expire at such annual meeting. Notwithstanding the
foregoing provisions of this Article, each director will serve until his or
her successor is duly elected and qualified or until his or her death,
resignation or removal. No decrease in the number of directors constituting
the Board of Directors will shorten the term of any incumbent director.
18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, will
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships will be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor will have been
elected and qualified. A vacancy in the Board of Directors will be deemed to
exist under this Bylaw in the case of the death, removal or resignation of
any director.
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19. RESIGNATION. Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at
the pleasure of the Board of Directors. If no such specification is made, it
will be deemed effective at the pleasure of the Board of Directors. When one
or more directors will resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, will have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations will become
effective, and each Director so chosen will hold office for the unexpired
portion of the term of the Director whose place will be vacated and until his
successor will have been duly elected and qualified.
20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, no director will be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding
shares of voting stock of the corporation, entitled to vote at an election of
directors (the "Voting Stock").
21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors will
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors will be necessary and such meeting will be held for the
purpose of electing officers and transacting such other business as may
lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors will be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means will constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors will be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex,
or by electronic mail or other electronic means, during normal business
hours, at least twenty-four (24) hours before the date and time of the
meeting, or sent in writing to each
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director by first class mail, charges prepaid, at least three (3) days before
the date of the meeting. Notice of any meeting may be waived in writing at
any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, will be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the directors not present will sign a
written waiver of notice. All such waivers will be filed with the corporate
records or made a part of the minutes of the meeting.
22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum will be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation,
a quorum of the Board of Directors will consist of a majority of the exact
number of directors fixed from time to time by the Board of Directors in
accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next
regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business will be determined by the affirmative
vote of a majority of the directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.
23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
24. FEES AND COMPENSATION. Directors will be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed
sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained will be construed to
preclude any director from serving the corporation in any other capacity as
an officer, agent, employee, or otherwise and receiving compensation therefor.
25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors will have and may exercise all
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the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, including without limitation the
power or authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but
no such committee will have the power or authority in reference to amending
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed
by the Board of Directors will consist of one (1) or more members of the
Board of Directors and will have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but
in no event will such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors will
serve a term on the committee coexistent with such member's term on the Board
of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member will terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors will otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 will be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings
of any such committee may be held at any place which has been determined from
time to time by such committee, and may be called by any director who is a
member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting given in the manner
provided for the giving of written notice to members of the Board of
Directors of the
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time and place of special meetings of the Board of Directors. Notice of any
special meeting of any committee may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat,
except when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee will constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present will be the act of such committee.
26. ORGANIZATION. At every meeting of the directors, the Chairman of
the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, will preside over the meeting.
The Secretary, or in his absence, an assistant secretary directed to do so
by the President, will act as secretary of the meeting.
ARTICLE V
OFFICERS
27. OFFICERS DESIGNATED. The officers of the corporation will include,
if and when designated by the Board of Directors, the Chairman of the Board
of Directors, the President, one or more Vice Presidents, the Secretary, the
Chief Financial Officer, all of whom will be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint other officers and agents with such powers and duties as it will
deem necessary. The Board of Directors may assign such additional titles to
one or more of the officers as it will deem appropriate. The Board of
Directors may empower the chief executive officer of the corporation to
appoint such officers, other than the Chairman of the Board, President,
Secretary or Chief Financial Officer, as the business of the corporation may
require. Any one person may hold any number of offices of the corporation at
any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation will be fixed by or
in the manner designated by the Board of Directors.
28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers will hold office at the pleasure of the
Board of Directors and until their successors will have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, will preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors will perform other duties commonly incident to his office and will
also perform such other duties and have such other powers as the Board of
Directors will designate from time to time. If there is no President, then
the Chairman of the Board of Directors will also serve as the general manager
and chief executive officer of the corporation and will have the powers and
duties prescribed in paragraph (c) of this Section 28.
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(c) DUTIES OF PRESIDENT. The President will preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. The
President will be general manager and chief executive officer of the
corporation and will, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. The President will have discretion to prescribe the duties
of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the
Board of Directors. The President will perform other duties commonly
incident to his office and will also perform such other duties and have such
other powers as the Board of Directors will designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in order of their
rank as fixed by the Board of Directors, or if not ranked, the Vice President
designated by the Board of Directors, may assume and perform the duties of
the President in the absence or disability of the President or whenever the
office of President is vacant. The Vice Presidents will perform other duties
commonly incident to their office and will also perform such other duties and
have such other powers as the Board of Directors or the President will
designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary will attend all meetings of the
stockholders and of the Board of Directors and will record all acts and
proceedings thereof in the minute book of the corporation. The Secretary
will give notice in conformity with these Bylaws of all meetings of the
stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary will perform all other duties given
him in these Bylaws and other duties commonly incident to his office and will
also perform such other duties and have such other powers as the Board of
Directors will designate from time to time. If any assistant secretaries are
appointed, the President may direct the assistant secretary or one of the
assistant secretaries in the order of their rank as fixed by the Board of
Directors or, if they are not so ranked, the assistant secretary designated
by the Board of Directors, to assume and perform the duties of the Secretary
in the absence or disability of the Secretary, and each Assistant Secretary
will perform other duties commonly incident to his office and will also
perform such other duties and have such other powers as the Board of
Directors or the President will designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
will be responsible for all functions and duties of the treasurer of the
corporation. The Chief Financial Officer will keep or cause to be kept the
books of account of the corporation in a thorough and proper manner and will
render statements of the financial affairs of the corporation in such form
and as often as required by the Board of Directors or the President. The
Chief Financial Officer, subject to the order of the Board of Directors, will
have the custody of all funds and securities of the corporation. The Chief
Financial Officer will perform other duties commonly incident to his office
and will also perform such other duties and have such other powers as the
Board of Directors or the President will designate from time to time. If any
assistant financial officers are appointed, the President may direct the
assistant financial officer, or one of the assistant financial officers, if
there are more than one, in the order of their rank as fixed by the Board of
Directors or if they are not so ranked, the assistant financial officer
designated by the Board of Directors, to assume and perform the duties of the
Chief Financial Officer in the absence or disability of the Chief Financial
Officer, and each assistant financial officer will perform other duties
commonly incident to his office and will also perform such other duties and
have such other powers as the Board of Directors or the President will
designate from time to time.
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29. DELEGATION OF AUTHORITY. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
30. RESIGNATIONS. Any officer may resign at any time by giving written
notice to the Board of Directors or to the President or to the Secretary.
Any such resignation will be effective when received by the person or persons
to whom such notice is given, unless a later time is specified therein, in
which event the resignation will become effective at such later time. Unless
otherwise specified in such notice, the acceptance of any such resignation
will not be necessary to make it effective. Any resignation will be without
prejudice to the rights, if any, of the corporation under any contract with
the resigning officer.
31. REMOVAL. Any officer may be removed from office at any time with
cause by the affirmative vote of a majority of the directors in office at the
time, or by the unanimous written consent of the directors in office at the
time, or by any committee or superior officers upon whom such power of
removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in
its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf
of the corporation, except where otherwise provided by law or these Bylaws,
and such execution or signature will be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, will be executed, signed or
endorsed by the Chairman of the Board of Directors, or the President or any
Vice President, and by the Secretary or Chief Financial Officer. All other
instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation will
be signed by such person or persons as the Board of Directors will authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee will have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other
securities of other corporations owned or held by the corporation for itself,
or for other parties in any capacity, will be voted, and all proxies with
respect thereto will be executed, by the person authorized so
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to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the President, or
any Vice President.
ARTICLE VII
SHARES OF STOCK
34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of
stock of the corporation will be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in
the corporation will be entitled to have a certificate signed by or in the
name of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Chief Financial Officer or
assistant financial officer or the Secretary or assistant secretary,
certifying the number of shares owned by him in the corporation. Any or all
of the signatures on the certificate may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate will have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with
the same effect as if he were such officer, transfer agent, or registrar at
the date of issue. Each certificate will state upon the face or back
thereof, in full or in summary, all of the powers, designations, preferences,
and rights, and the limitations or restrictions of the shares authorized to
be issued or will, except as otherwise required by law, set forth on the face
or back a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation will send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series will be identical.
35. LOST CERTIFICATES. A new certificate or certificates will be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock
to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it will require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed.
36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation will be
made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
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(b) The corporation will have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date will not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date will not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders will be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders will apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
38. REGISTERED STOCKHOLDERS. The corporation will be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and will not
be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it will have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may
be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an assistant secretary, or the Chief Financial
Officer or assistant financial officer; PROVIDED, HOWEVER, that where any
such bond, debenture or other corporate security will be authenticated by the
manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security will be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, will be signed by the Chief
Financial Officer or assistant financial officer of the corporation or such
other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any
officer who will have signed or attested any bond, debenture or other
corporate security, or whose facsimile signature will appear thereon or on
any such interest coupon, will have ceased to be such officer before the
bond, debenture or other corporate security so signed or attested will have
been delivered, such bond, debenture or other corporate security nevertheless
may be adopted by the corporation and
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issued and delivered as though the person who signed the same or whose
facsimile signature will have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
DIVIDENDS
40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any
regular or special meeting. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
41. DIVIDEND RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors will think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
42. FISCAL YEAR. The fiscal year of the corporation will be fixed by
resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS,
EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation will indemnify
its directors and executive officers (for the purposes of this Article XI,
"executive officers will have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware
General Corporation Law; PROVIDED, HOWEVER, that the corporation may modify
the extent of such indemnification by individual contracts with its directors
and executive officers; and, PROVIDED, FURTHER, that the corporation will not
be required to indemnify any director or executive officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law or (iv) such indemnification is required to be made under
subsection (d).
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(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation will
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation will advance to 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, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance will be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph will not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (2) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw will be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer will be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (1) the claim for indemnification
or advances is denied, in whole or in part, or (2) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, will be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation will be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation will be entitled
to raise a defense as to any such action clear and convincing evidence that
such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted
without reasonable cause to believe that his conduct was lawful. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the
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claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, will be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct. In any suit brought by a director or executive officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the
burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise will be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw will not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw will continue as to a person who has ceased to be a director, officer,
employee or other agent and will inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw will only be
prospective and will not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof will be
invalidated on any ground by any court of competent jurisdiction, then the
corporation will nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Bylaw
that will not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions will apply:
(1) The term "proceeding" will be broadly construed and will
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(2) The term "expenses" will be broadly construed and will
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
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(3) The term the "corporation" will include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, will
stand in the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation will include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" will include employee
benefit plans; references to "fines" will include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" will include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan will be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it will be given
in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally will be sent to such address as such director will have
filed in writing with the Secretary, or, in the absence of such filing, to
the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given,
and
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the time and method of giving the same, will in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, will be deemed to have been given as at the time of mailing, and
all notices given by facsimile, telex or telegram will be deemed to have been
given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It will not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or
others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, will not be affected or extended in
any manner by the failure of such stockholder or such director to receive
such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person will
not be required and there will be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which will be taken or held without notice to
any such person with whom communication is unlawful will have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate will state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person will not be required. Any action or meeting which will be
taken or held without notice to such person will have the same force and
effect as if such notice had been duly given. If any such person will
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person will be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
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ARTICLE XIII
AMENDMENTS
45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors will
also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is
a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably
be expected to benefit the corporation. The loan, guarantee or other
assistance may be with or without interest and may be unsecured, or secured
in such manner as the Board of Directors will approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these
Bylaws will be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
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[COMPANY LOGO] REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------------------
OBLIGOR# NOTE# AGREEMENT DATE
AUGUST 26, 1997
- --------------------------------------------------------------------------------
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$2,000,000.00 B+0.50%
9.00% 48705 BRAD SMITH
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into on AUGUST 26, 1997, between COMERICA
BANK-CALIFORNIA ("Bank") as secured party, whose Headquarter Office is 333 WEST
SANTA CLARA STREET, SAN JOSE, CA and SBE, INC. ("Borrower"), a CALIFORNIA
CORPORATION whose sole place of business (if it has only one), chief executive
office (if it has more than one place of business) or residence (if an
individual) is located at 4550 NORRIS CANYON RD., SAN RAMON, CA.
The parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts and Inventory), any
concurrent or subsequent rider to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and any extensions, supplements,
amendments or modifications to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default or
enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain
relief from any stay, restraining order, injunction or similar process
which prohibits Bank from exercising any of its rights or remedies; and
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes
all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing
Borrower's assets, liabilities, Receivables, business operations or
financial condition, and all information relating thereto, computer
programs; computer disk or tape files; computer printouts; computer runs;
and other computer prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of: (1)
SEVENTY-FIVE percent (75.00*%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if any,
of the advances against Inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower. *75% advance on all foreign receivables covered by
foreign credit insurance, amount not to exceed insurance coverage.
1.6 "Cash Flow" as used in this Agreement means, for any applicable
period of determination, the Net Income (after deduction for income taxes
and other taxes of such person determined by reference to income or profits
of such person) for such period, plus, to the extent deducted in
computation of such Net Income, the amount of depreciation and amortization
expense and the amount of deferred tax liability during such period, all as
determined in accordance with GAAP. The applicable period of determination
will be _N/A_, beginning with the period from to ________________ to
______________________.
1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets
of Borrower in which Bank receives a security interest or which hereafter
come into the possession, custody or control of Bank; and the proceeds of
any of the foregoing, including, but not limited to, proceeds of insurance
covering the collateral and any and all Receivables, Intangibles,
negotiable collateral, Inventory, equipment, money, deposit accounts or
other tangible and intangible property of borrower resulting from the sale
or other disposition of the collateral, and the proceeds thereof.
Notwithstanding anything to the contrary contained herein, collateral shall
not include any waste or other materials which have been or may be
designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms, provides
for a specified interest rate and term.
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REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that
should be classified as current in accordance with GAAP, including without
limitation any portion of the principal of the Indebtedness classified as
current, plus (ii) to the extent not otherwise included, all liabilities of
the Borrower to any of its affiliates whether or not classified as current
in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced or incurred on such date, and
subtracting any payments or collections which are deemed to be paid and are
applied by Bank in reduction of the Credit on that date under the
provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within THIRTY (30)
days, or less, from the date of invoice, have been validly assigned to Bank
and strictly comply with all of Borrower's warranties and representations
to Bank; but Eligible Accounts shall not include the following: (a)
accounts with respect to which the account debtor is an officer, employee,
partner, joint venturer or agent of Borrower; (b) accounts with respect to
which goods are placed on consignment, guaranteed sale or other terms by
reason of which the payment by the account debtor may be conditional; (c)
accounts with respect to which the account debtor is not a resident of the
United States; (d) accounts with respect to which the account debtor is the
United States or any department, agency or instrumentality of the United
States; (e) accounts with respect to which the account debtor is any State
of the United States or any city, county, town, municipality or division
thereof; (f) accounts with respect to which the account debtor is a
subsidiary of, related to, affiliated or has common shareholders, officers
or directors with Borrower; (g) accounts with respect to which Borrower is
or may become liable to the account debtor for goods sold or services
rendered by the account debtor to Borrower; (h) accounts not paid by an
account debtor within ninety (90) days from the date of the invoice; (i)
accounts with respect to which account debtors dispute liability or make
any claim, or have any defense, crossclaim, counterclaim, or offset; (j)
accounts with respect to which any Insolvency Proceeding is filed by or
against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; and (k) accounts owed by any single account
debtor which exceed twenty percent (20%) of all of the Eligible Accounts;
and (l) accounts with a particular account debtor on which over twenty-five
percent (25%) of the aggregate amount owing is greater than ninety (90)
days from the date of the invoice; (m) allow concentration of up to 30% for
TANDEM COMPUTERS.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for
any applicable period of determination, the sum, without duplication, of
(a) all interest paid or payable during such period by a person on debt of
such person, plus (b) all payments of principal or other sums paid or
payable during such period by such person with respect to debt of such
person having a final maturity more than one year from the date of creation
of such debt, plus (c) all debt discount and expense amortized or required
to be amortized during such period by such person, plus (d) the maximum
amount of all rents and other payments paid or required to be paid by such
person during such period under any lease or other contract or arrangement
providing for use of real or personal property in respect of which such
person is obligated as a lessee, use or obligor, plus (e) all dividends and
other distributions paid or payable by such person or otherwise
accumulating during such period on any capital stock of such person, plus
(f) all loans or other advances made by such person during such period to
any Affiliate of such person. The applicable period of determination will
be _N/A_, beginning with the period from _______________to________________.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such
period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or
any guarantor of Borrower's Obligations, or any of borrower's account
debtors, under any provisions of the Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law, including but not limited to
assignments for the benefit of creditors, formal or informal moratoriums,
composition or extensions with some or all creditors, any proceeding
seeking a reorganization, arrangement or any other relief under the
Bankruptcy code, as amended, or any other bankruptcy or insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal
property (including, without limitation, any and all rights in any legal
proceedings, goodwill, patents, trade names, copyrights, trademarks,
blueprints, drawings, purchase orders, computer programs, computer disks,
computer tapes, literature, reports, catalogs and deposit accounts) other
than goods and Receivables, as well as Borrower's Books relating to any of
the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including,
but not limited to, goods hold by Borrower for sale or lease or to be
furnished under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, advertising
materials, and packing and shipping materials, wherever located and any
documents of title representing any of the above, and any equipment,
fixtures or other property used in the storing, moving, preserving,
identifying, accounting for and shipping or preparing for the shipping of
inventory, and any and all other items hereafter acquired by Borrower by
way of substitution,
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REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
replacement, return, repossession or otherwise, and all additions and
accessions thereto, and the resulting product or mass, and any documents of
title respecting any of the above.
1.19 "Net Income" as used in this Agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or
capital assets, and any taxes on the excluded gains and any tax
deductions or credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in
which Borrower has an ownership interest, unless such net earnings
shall have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to
any agreement authorizing Bank to charge Borrower's account), obligations,
lease payments, guaranties, covenants and duties owing by Borrower to Bank
of any kind and description whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including, without limitation, any
debt, liability or obligation owing from Borrower to others which Bank may
have obtained by assignment, participation, purchase or otherwise, and
further including, without limitation, all interest not paid when due and
all Bank Expenses which Borrower is required to pay or reimburse by this
Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association,
trust, unincorporated association, joint stock company, government,
municipality, political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
returned to or reclaimed by Borrower and the Borrower's books (except
minute books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to____________________________________
__________________________________________________________________________
subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased
by Subordinated Debt, if any, and decreased by the following: patents,
licenses, goodwill, subscription lists, organization expenses, trade
receivables converted to notes, money due from affiliates (including
officers, directors, subsidiaries and commonly held companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of
a. the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and similar intangible assets)
after all appropriate deductions in accordance with GAAP
(including, without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization), over
b. all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance
with GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or
acquired, whether or not the obligations secured thereby shall have been
assumed; (b) all obligations which are capitalized lease obligations; and
(c) all guaranties, endorsements or other contingent or surety obligations
with respect to the indebtedness of others, whether or not reflected on the
balance sheets of the Borrower, including any obligation to furnish funds,
directly or indirectly through the purchase of goods, supplies, services,
or by way of stock purchase, capital contribution, advance or loan or any
obligation to enter into a contract for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
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1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for
below.
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base; provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing Base or the sum of TWO MILLION
AND NO/100 ($ 2,000,000.00), such amount being referred to herein as an
"Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of 500/1000 (0.500) percentage points
per annum above the Base Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360)
day year for actual days elapsed.
The Base Rate as of the date of this Agreement is EIGHT AND 500/1000
(8.500%) per annum. In the event that the Base Rate announced is, from
time to time hereafter changed, adjustment in the Rate shall be made and
based on the Base Rate in effect on the date of such change. The Rate, as
adjusted, shall apply to the Credit until the Base Rate is adjusted again.
The minimum interest payable by the Borrower under this Agreement shall in
no event be less than _N/A_ per month. All interest payable by Borrower
under the Credit shall be due and payable on the first day of each calendar
month during the term of this Agreement and Bank may, at its option, elect
to treat such interest and any and all Bank Expenses as advances under the
Credit, which amounts shall thereupon constitute Obligations and shall
thereafter accrue interest at the rate applicable to the Credit under the
terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to
_______N/A_ (_N/A____%) percentage points per month in excess of the
interest rate set forth in Section 2.2, from the date incurred and for each
month thereafter, until repaid in full.
3. TERM.
3.1 This Agreement shall remain in full force and effect until
SEPTEMBER 1, 1998 , or until terminated by notice by Borrower. Notice of
such termination by Borrower shall be effectuated by mailing of a
registered or certified letter not less than thirty (30) days prior to the
effective date of such termination, addressed to the Bank at the address
set forth herein and the termination shall be effective as of the date so
fixed in such notice. Notwithstanding the foregoing, should Borrower be in
default of one or more of the provisions of this Agreement, Bank may
terminate this Agreement at any time without notice. Notwithstanding the
foregoing, should either Bank or Borrower become insolvent or unable to
meet its debts as they mature, or fail, suspend, or go out of business, the
other party shall have the right to terminate this Agreement at any time
without notice. On the date of termination all Obligations shall become
immediately due and payable without notice or demand; no notice of
termination by Borrower shall be effective until Borrower shall have paid
all Obligations to Bank in full. Notwithstanding termination, until all
Obligations have been fully satisfied, Bank shall retain its security
interest in all existing Collateral and Collateral arising thereafter, and
Borrower shall continue to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created.
Bank's security interest in the Collateral shall attach to all Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral, including proceeds, is evidenced by or consists of a letter of
credit, advice of credit, instrument, money, negotiable documents, chattel
paper or similar property (collectively, "Negotiable Collateral"), Borrower
shall, immediately upon receipt thereof, endorse and assign such Negotiable
Collateral over to Bank and deliver actual physical possession of the
Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower (including without
limitation agings listing the names and addresses of, and amounts owing by
date by account debtors), and shall execute and deliver written assignments
of all Receivables to Bank all in a form acceptable to Bank, provided,
however, Borrower's failure to execute and deliver such schedules and/or
assignments shall not affect or limit Bank's security interest and other
rights in and to the Receivables. Together with each schedule,
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Borrower shall furnish Bank with copies of Borrower's customers' invoices
or the equivalent, and original shipping or delivery receipts for all
merchandise sold, and Borrower warrants the genuineness thereof. Bank or
Bank's designee may notify customers or account debtors of collection costs
and expenses to Borrower's account but, unless and until Bank does so or
gives Borrower other written instructions, Borrower shall collect all
Receivables for Bank, receive in trust all payments thereon as Bank's
trustee, and, if so requested to do so from Bank, Borrower shall
immediately deliver said payments to Bank in their original form as
received from the account debtor and all letters of credit, advices of
credit instruments, documents, chattel paper or any similar property
evidencing or constituting Collateral. Notwithstanding anything to the
contrary contained herein, if sales of Inventory are made for cash,
Borrower shall immediately deliver to Bank, in identical form, all such
cash, checks, or other forms of payment which Borrower receives. The
receipt of any check or other item of payment by Bank shall not be
considered a payment on account until such check or other item of payment
is honored when presented for payment, in which event, said check or other
item of payment shall be deemed to have been paid to Bank TWO (2) calendar
days after the date Bank actually receives such check or other item of
payment.
4.3 Bank's security interest in Inventory shall attach to all
Inventory without further act on the part of Bank or Borrower. Upon Bank's
request Borrower will from time to time at Borrower's expense pledge,
assemble and deliver such Inventory to Bank or to a third party as Bank's
bailee; or hold the same in trust for Bank's account or store the same in a
warehouse in Bank's name; or deliver to Bank documents of title
representing said Inventory; or evidence of Bank's security interest in
some other manner acceptable to Bank. Until a default by Borrower under
this Agreement or any other Agreement between Borrower and Bank, Borrower
may, subject to the provisions hereof and consistent herewith, sell the
Inventory, but only in the ordinary course of Borrower's business. A sale
of Inventory in Borrower's ordinary course of business does not include an
exchange or a transfer in partial or total satisfaction of a debt owing by
Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form
satisfactory to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement. Borrower hereby
irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and
lawful attorney-in-fact with power to sign the same of Borrower on any
financing statements, continuation financing statements, security
agreement, mortgage, assignment, certificate of title, affidavit, letter of
authority, notice of other similar documents which must be executed and/or
filed in order to perfect or continue perfected Bank's security interest in
the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount or condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power to endorse Borrower's name on
any checks, notes, acceptances, money order, drafts or other forms of
payment or security that may come into Bank's possession; to sign
Borrower's name on any invoice or bill of lading relating to any
Receivables, on drafts against account debtors, on schedules and
assignments of Receivables, on verifications of Receivables and on notices
to account debtors; to establish a lock box arrangement and/or to notify
the post office authorities to change the address for delivery of
Borrower's mail addressed to Borrower to an address designated by Bank, to
receive and open all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of
Receivables; and to do all things necessary to carry out this Agreement.
Borrower ratifies and approves all acts of the attorney-in-fact. Neither
Bank nor its attorney-in-fact will be liable for any acts or omissions or
for any error of judgement or mistake of fact or law. This power being
coupled with an interest, is irrevocable so long as any Receivables in
which Bank has a security interest remain unpaid and until the Obligations
have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause
to be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1 ) in form satisfactory to Bank
for filing and recording with the appropriate governmental
authorities;
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c. If Borrower is a corporation. then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for
herein and authorizing specific officers to execute and deliver
the agreements provided for herein;
d. If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws
of the state of its incorporation and certificates indicating that
Borrower is qualified to transact business and is in good standing
in any other state in which it conducts business;
e. Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of
Borrower;
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or
other similar documents which Bank may require and in such form as
Bank may require, in order to reflect, perfect or protect Bank's
first priority security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this
Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank.
Borrower's Borrowing Base at all times pertinent hereto shall not be less
than the advances made hereunder. Bank shall have the right to recompute
Borrower's Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within NINETY (90) days from the date
of invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a petition in bankruptcy or other application for
relief under the Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business,
then Bank may deem ineligible any and all accounts owing by that account
debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank
shall retain its security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual
customary practices of the Borrower, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered
shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all
disputes and claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no discount, credit or allowance shall
be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after
default by Borrower, settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral.
Bank has and shall continue to have a first priority perfected
security interest in and to the Collateral. The Collateral
shall at all times remain free and clear of all liens,
encumbrances and security interests (except those in favor of
Bank).
b. All accounts are and will, at all times pertinent hereto,
be bona fide existing obligations created by the sale and
delivery of merchandise or the rendition of services to account
debtors in the ordinary course of business, free of liens,
claims, encumbrances and security interests (except as held by
Bank and except as may be consented to, in writing, by Bank) and
are unconditionally owed to Borrower without defenses, disputes,
offsets, counterclaims, rights of return or cancellation, and
Borrower shall have received no notice of actual or imminent
bankruptcy or insolvency of any account debtor at the time an
account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the
account debtor or to the agent for the account debtor for
immediate shipment to, and unconditional acceptance by, the
account debtor. Borrower shall deliver to Bank, as Bank may
from time to time require, delivery receipts, customer's
purchase orders, shipping instruction, bills of lading and any
other evidence of shipping arrangements. Absent such a request
by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section
1.12, or on such other terms approved in writing by Bank in advance of the
creation of such accounts and which are expressly set forth on the face of
all invoices, copies of which shall be held by Borrower as custodian for
Bank, and no such eligible account will then be past due.
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6.5 Borrower shall keep the Inventory only at the following
locations:____________________________________________________________ and
the owner or mortgagees of the respective locations
are:____________________________________
a. Borrower, immediately upon demand by Bank therefor, shall now and
from time to time hereafter, at such intervals as are requested by
Bank, deliver to Bank, designations of Inventory specifying
Borrower's cost of Inventory, the wholesale market value thereof and
such other matters and information relating to the Inventory as Bank
may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or
the wholesale market value thereof, at all times pertinent hereto
shall not be less than_____N/A_____ Dollars($_______N/A____) of which
no less than_____N/A_____ Dollars($______N/A____) shall be in raw
materials and finished goods;
c. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except as
held by Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the Inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any
of Bank's officers, agents and employees for inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new
Inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter
be located or stored with a bailee, warehouseman or other third party
without Bank's prior written consent, and, in such event, Borrower
will concurrently therewith cause any such bailee, warehouseman or
other third party to issue and deliver to Bank, in a form acceptable
to Bank, warehouse receipts in Bank's name evidencing the storage of
Inventory or other evidence of Bank's prior rights in the Inventory.
In any event, Borrower shall instruct any third party to hold all
such Inventory for Bank's account subject to Bank's security
interests and its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and
examine the Inventory and to check and test the same as to quality,
quantity, value and condition and Borrower agrees to reimburse Bank
for Bank's reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that
Borrower will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association,
firm, corporation, entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any
of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to take
possession of any or all of Borrower's assets;
d. Other than sales of Inventory in the ordinary course of Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or
consolidate with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of Borrower's
business;
i. Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the United
States of America;
f. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely
effect the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts and interest thereon;
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
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m. Make loans, advances or extensions of credit to any Person, except
for sales on open account and otherwise in the ordinary course of
business;
n. Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement
for the furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock purchase,
capital contribution, advance or loan, for the purpose of paying or
discharging (or causing the payment or discharge of) the indebtedness
of any other Person, or otherwise, except for the endorsement of
negotiable instruments by the Borrower in the ordinary course of
business for deposit or collection.
o. (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more
than_____N/A_____Dollars ($______N/A____) (whether in one transaction
or in a series of transactions) except as to the sale of inventory in
the ordinary course of business; (b) change its name, consolidate
with or merge into any other corporation, permit another corporation
to merge into it, acquire all or substantially all the properties or
assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or (c) enter into
any sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person;
q. Purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any interest whatsoever in, any other
Person, except for the common stock of the Subsidiaries owned by the
Borrower on the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States
commercial banks with capital, surplus and undivided profits in
excess of $100,000,000 and direct obligations of the United States
Government maturing within one year from the date of acquisition
thereof; or
r. Allow any fact, condition or event to occur or exist with respect
to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of
any such plan or for the court appointment of a trustee to administer
any such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%)
in dollar volume of its total sales of all goods during the 12 months
preceding the filing by Bank of a financing statement describing the
Collateral. At no time hereafter shall Borrower's sales for resale of
goods for personal, family or household purposes exceed seventy-five
percent (75%) in dollar volume of its total sales.
6.8 Borrower's sole place of business or chief executive office or
residence is located at the address indicated above and Borrower covenants
and agrees that it will not, during the term of this Agreement, without
prior written notification to Bank, relocate said sole place of business or
chief executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, redeem or retire any such capital
stock;
b. Borrower is and shall at all times hereafter be a corporation duly
organized and existing in good standing under the laws of the state
of its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of
or constitute an event of default under any agreement to which Borrower is
now or hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its
acquisition by purchase, lease or otherwise of any after acquired property
of the type included in the Collateral, with the exception of purchases of
Inventory in the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any
of its property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it
by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will
make timely payment or deposit of all F.I.C.A. payments and withholding
taxes required of it by applicable laws, and will upon request furnish Bank
with proof satisfactory to it that Borrower has made such payments or
deposit. If Borrower fails to pay any such assessment, tax, contribution,
or make such deposit, or furnish the required proof, Bank may, in its sole
and absolute discretion and without notice to Borrower,
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(i) make payment of the same or any part thereof; or (ii) set up such
reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual
statements of the amount owing or other official statements issued by the
appropriate governmental agency. Each amount so paid or deposited by Bank
shall constitute a Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against
Borrower or any guarantor of Borrower before any court or administrative
agency and Borrower has no knowledge of any pending, threatened or imminent
litigation, governmental investigations or claims, complaints, actions or
prosecutions involving Borrower or any guarantor of Borrower, except as
heretofore specifically disclosed in writing to Bank. If any of the
foregoing arise during the term of the Agreement, Borrower shall
immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners who
use such properties in similar businesses for the full insurable value
thereof. Borrower shall also keep and maintain business interruption
insurance and public liability and property damage insurance relating to
Borrower's ownership and use of the Collateral and its other assets. All
such policies of insurance shall be in such form, with such companies, and
in such amounts as may be satisfactory to Bank. Borrower shall deliver to
Bank certified comes of such policies of insurance and evidence of the
payments of all premiums therefor. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement
in a form satisfactory to Bank showing Bank as a loss payee thereof, with a
waiver of warranties (Form 438-BFU), and all proceeds payable thereunder
shall be payable to Bank and, upon receipt by Bank, shall be applied on
account of the Obligations owing to Bank. To secure the payment of the
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers
under such policies of insurance to pay all proceeds thereof directly to
Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's officers,
employees or agents designated by Bank) as Borrower's attorney for the
purpose of making, selling and adjusting claims under such policies of
insurance, endorsing the name of Borrower on any check, draft, instrument
or other item of payment for the proceeds of such policies of insurance and
for making all determinations and decisions with respect to such policies
of insurance. Borrower will not cancel any of such policies without Bank's
prior written consent. Each such insurer shall agree by endorsement upon
the policy or policies of insurance issued by it to Borrower as required
above, or by independent instruments furnished to Bank, that it will give
Bank at least ten (10) days written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act or
default of Borrower, or any other person, shall affect the right of Bank to
recover under such policy or policies of insurance required above or to pay
any premium in whole or in part relating thereto. Bank, without waiving or
releasing any Obligations or any Event of Default, may, but shall have no
obligation to do so, obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect to such policies which
Bank deems advisable. All sums so disbursed by Bank, as well as reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
shall constitute Bank Expenses and are payable on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true
and correct and have been prepared in accordance with GAAP consistently
applied and there has been no material adverse change in the financial
condition of Borrower since the submission of such financial information to
Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied
with ledger and account cards and/or computer tapes and computer disks,
computer printouts and computer records pertaining to the Collateral which
contain information as may from time to time be requested by Bank, not
modify or change its method of accounting or enter into, modify or
terminate any agreement presently existing, or at any time hereafter
entered into with any third party accounting firm and/or service bureau
for the preparation and/or storage of Borrower's accounting records
without the written consent of Bank first obtained and without said
accounting firm and/or service bureau agreeing to provide information
regarding the Receivables and Inventory and Borrower's financial condition
to Bank; permit Bank and any of its employees, officers or agents, upon
demand, during Borrower's usual business hours, or the usual business hour
of third persons having control thereof, to have access to and examine all
of the Borrower's Books relating to the Collateral, Borrower's Obligations
to Bank, Borrower's financial condition and the results of Borrower's
operations and in connection therewith, permit Bank or any of its agents,
employees or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the end of
each MONTH, a COMPILED balance sheet and profit and loss statement covering
Borrower's operations and deliver to Bank within ninety (90) days after
the end of each of Borrower's fiscal years a(n) ANNUAL 10K & CPA *
statement of the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank relating to the
Collateral and the financial condition of Borrower, and a certificate
signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any kind or
nature relating to the foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete, correct and
thoroughly present the financial condition of borrower and that there
exists on the date of delivery to Bank no condition or event which
constitutes a breach or Event of Default under this Agreement.
*UNQUALIFIED
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c. In addition to the financial statements requested above, the Borrower
agrees to provide Bank with the following schedules:
*___X___Accounts Receivable Agings on a ___MONTHLY___ basis; within 15
days of month end
*___X___Accounts Payable Agings on a ___MONTHLY___ basis; within 15
days of month end
_________Job Progress Reports on a _____________ basis; and
*___X___BORROWING BASE CERTIFICATE on a ___MONTHLY___ basis within 15
days of month end
*QUARTERLY REPORTING IF NOT BORROWING
QUARTERLY 10Q REPORTS WITHIN 45 DAYS OF QUARTER END.
6.17 Borrower shall maintain the following financial ratios and covenants
on a consolidated and non-consolidated basis:
a. Working Capital in an amount not less than_____________n/a______________
___________________________________________________________________________
b. Tangible Effective Net Worth in an amount not less than $4,500,000.00
TANGIBLE NET WORTH TO STEP UP BY 75% OF PROFITS & 75% OF NEW EQUITY RAISED.
c. a ratio of Current Assets to Current Liabilities of not less
than________N/A____________________________________________________________
___________________________________________________________________________
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than___________________1.30:1.00___________________
___________________________________________________________________________
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than_____________1.00:1.00____________
___________________________________________________________________________
f. a ratio of Cash Flow to Fixed Charges of not less than________N/A_______
___________________________________________________________________________
g. Net Income after taxes of GREATER THAN $0.00 ON A QUARTERLY AND AFTER
TAX BASIS. ALLOW FOR ONE LOSS QUARTER PER ANNUM NOT TO EXCEED $250,000.00.
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds______n/a______
Dollars ($____n/a____) in any fiscal year; and
i. ANNUAL 10K REPORT AND UNQUALIFIED CPA AUDITED CONSOLIDATED FINANCIAL
STATEMENTS WITHIN 90 DAYS OF FISCAL YEAR END, ANNUAL REPORT AND PROXY
STATEMENT WHEN AVAILABLE.
j. BUDGETS, SALES PROJECTIONS, OR OTHER FINANCIAL EXHIBITS WHICH THE BANK
MAY REASONABLY REQUEST.**
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and able
to pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for all
sums expended by Bank in connection with any action brought by Bank to correct
any default or enforce any provision of this Agreement, including all Bank
Expenses; Borrower authorizes and approves all advances and payments by Bank for
items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank immediately in writing of the existence of any other bank
account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in
no event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable
** k. ANNUAL A/R AUDITS
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event and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such reportable event given to the
Pension Benefit Guaranty Corporation, if a copy of such notice is
available to Borrower; (b) promptly after the filing thereof with the
United States Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any
notice Borrower may receive from the Pension Benefit Guaranty Corporation
or the Internal Revenue Service with respect to any deferred compensation
plan; provided, however, this subparagraph shall not apply to notice of
general application issued by the Pension Benefit Guaranty Corporation or
the Internal Revenue Service; and (d) when the same is made available to
participants in the deferred compensation plan, all notices and other
forms of information from time to time disseminated to the participants by
the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of __N/A__ in an
amount not to be less than N0/100 Dollars ($__n/a_) under one or
more policies issued by insurance companies satisfactory to Bank, which
policies shall be assigned to Bank as security for the Obligations and on
which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees:____N/A____,____________________ to an aggregate of
_____N/A_____Dollars ($_____N/A_____) per_________________.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement
between Borrower and Bank;
b. If any representation, statement, report or certificate made or
delivered by Borrower, or any of its officers, employees or agents to Bank
is not true and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment of all
or any portion of Borrower's Obligations or a material impairment of the
value or priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject to a
writ or distress warrant, or are levied upon, or come into the possession
of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
i. If a notice of lien, levy or assessment is filed of record with respect
to any or all of Borrower's assets by the United States Government, or any
department agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at
any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any or all of the Borrower's assets and
the same is not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any or
all of Borrower's assets and the same is not satisfied, dismissed or bonded
against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the
term of this Agreement such an agreement with an outside service bureau is
entered into, and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies, amends or changes
its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested
information or financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which
Borrower is a party with third parties so as to result in an acceleration
of the maturity of Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
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m. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if
any such warranty or representation is withdrawn by any officer or
director;
o. If any party subordinating its claims to that of Bank's or any
guarantor of Borrower's Obligations dies or terminates its subordination
or guaranty, becomes insolvent or an Insolvency Proceeding is commenced by
or against any such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of____N/A_____ percent
(______%) or more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines constitutes grounds
for the termination of any deferred compensation plan by the Pension
Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan,
shall have occurred and be continuing thirty (30) days after written
notice of such determination shall have been given to Borrower by Bank, or
any such Plan shall be terminated within the meaning of Title IV of the
Employment Retirement Income Security Act ("ERISA"), or a trustee shall be
appointed by the appropriate United States District Court to administer
any such plan, or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any plan and in case of any event described in
this Section 7.0, the aggregate amount of the Borrower's liability to the
Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of
ERISA shall exceed five percent (5%) of Borrower's Tangible Effective Net
Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of Default
shall thereafter not be deemed to have occurred by reason of the
occurrence of any of the events set forth in Sections 7.e, 7.f or 7.j of
this Agreement if, within ten (10) days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; provided,
however, if the event is the institution of Insolvency Proceedings against
Borrower, Bank shall not be obligated to make advances to Borrower during
such cure period.
8. BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this Agreement,
installment notes, demand notes or otherwise, immediately due and payable
to the Bank;
b. Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, or any other agreement between Borrower and
Bank;
c. Terminate this Agreement as to any future liability or obligation of
Bank, but without affecting Bank's rights and security interests in the
Collateral, and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, take and maintain
possession of the Collateral and the premises (at no charge to Bank), or
any part thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank appears to be
prior or superior to its security interest and to pay all expenses
incurred in connection therewith;
e. Without limiting Bank's rights under any security interest, Bank is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in completing production
of, advertising for sale and selling any Collateral and Borrower's rights
under all licenses and all franchise agreement shall inure to Bank's
benefit, and Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third parties on terms
acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sales and sell (in the manner provided for herein) the
Inventory;
g. Sell or dispose the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises)
as is commercially reasonable in the opinion of Bank. It is not necessary
that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as follows:
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(1) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request
for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some disposition other
than a public sale is to be made of the Collateral, the time on or
after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address appearing in this Agreement, at least
five (5) calendar days before the date fixed for the sale, or at
least five (5) calendar days before the date on or after which the
private sale or other disposition is to be made, unless the
Collateral is perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as they have furnished to
Bank;
(3) If the sale is to be a public sale, Bank shall also give notice
of the time and place by publishing a notice one time at least five
(5) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
and
(4) Bank may credit bid and purchase at any public sale.
i. Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of its rights and remedies as
herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will
be returned, without interest and subject to the rights of third
parties, to Borrower by Bank, or, in Bank's discretion, to any party
who Bank believes, in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in satisfaction of
an obligation within the meaning of 9505 of the Uniform Commercial
Code or an action under California Code of Civil Procedure 726, apply
any and all amounts maintained by Borrower as deposit accounts (as
that term is defined under 9105 of the Uniform Commercial Code) or
other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and
remedies not inconsistent herewith as provided by law or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and
no waiver by Bank of any default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election
or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments received by
Bank in payment or on account of Borrower's Obligations constitute only
conditional payment until such items are actually paid to Bank and
Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Obligations and Borrower agrees that Bank shall have the
continuing exclusive right to apply and reapply such payments in any
manner as Bank may deem advisable, notwithstanding any entry by Bank upon
its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, documents,
instruments chattel paper, and guarantees at any time held by Bank on
which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the Inventory; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All
risk of loss, damage or destruction of Inventory shall be borne by
Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm
and/or service bureau or consultant in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and
agrees that a Bank may contact directly any such accountants, accounting
firm and/or service bureau or consultant in order to obtain such
information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION
HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT
OR BREACH OF DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND
BORROWER.
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10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails
to pursue or enforce any terms, such waiver, delay or failure to pursue or
enforce shall only be effective with respect to that single act and shall
not be construed to affect any subsequent transactions or Bank's right to
later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing.
Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verify the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed effective when
executed by the Borrower and accepted and executed by Bank at its
Headquarter Office.
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided,
however, that Borrower may not assign this Agreement or any rights
hereunder without Bank's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Bank
shall release Borrower or any guarantor from their Obligations to Bank.
Bank may assign this Agreement and its rights and duties hereunder. Bank
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in Bank's rights and
benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any
rule of construction or otherwise; on the contrary, this Agreement has
been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto. When
permitted by the context, the singular includes the plural and vice versa.
-82-
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(Accounts & Inventory)
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except
as to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations,
if any, with respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective rights,
duties, powers liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good
faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Loan & Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER: SBE, INC.
By: /s/ Timothy J. Repp
- ------------------------------ ---------------------------------
Title: Signature of
Accepted and effective as of Title: CFO, Vice President Finance
AUGUST 26, 1997 at Bank's -------------------------------
Headquarter Office
By: /s/ Wm. B. Heye
---------------------------------
Signature of
(Bank) Title: President, CEO
--------------------------------
By: By:
--------------------------- ---------------------------------
Signature of BRAD SMITH Signature of
Title: VICE PRESIDENT Title:
------------------------ -------------------------------
By:
---------------------------------
Signature of
Title:
-------------------------------
-83-
<PAGE>
[COMPANY LOGO]
EQUIPMENT
RIDER
Borrower(s):
SBE, INC.
Borrower has entered into a certain Revolving Credit and Security
Agreement (Accounts and Inventory) or a certain Loan and Security Agreement
(Accounts and Inventory) (either hereinafter referred to as "Agreement", dated
AUGUST 26, 1997 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter
referred to as this Rider) date AUGUST 26, 1997 is hereby made a part of and
incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies, jigs and
attachments, wherever located, (including but not limited to, the
items listed and described on the Schedule of Equipment attached
hereto and marked Exhibit "A" and by this reference made a part hereof
as though, fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
(c) all of Borrowers general Intangibles, including without limitation,
computer programs, computer disks, computer tapes, literature,
reports, catalogs, drawings, blueprints and other proprietary items.
2. Bank's security interest in the Equipment as set forth above shall secure
each, any and all of Borrower's Obligations to Bank, as the term "Obligations"
is defined in the Agreement; and, the payment of Borrower's indebtedness in the
principal amount of TWO MILLION SIX HUNDRED FIFTY THOUSAND AND NO/100
Dollars ($2,650,000.00) and interest evidenced by LOAN AND SECURITY AGREEMENT.
3. Bank may, in its sole discretion, from time to time hereafter, make loans to
Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such
loans shall bear interest at the rate and be payable in the manner specified in
said promissory note(s) in the event Bank exercises the aforementioned option,
and in the event Bank does not, such loans shall bear interest at the rate and
be payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank,
(c) the Equipment shall be kept only at the following
locations:____________________________________________________________
______________________________________________________________________
(d) the owners or mortgagees of the respective locations
are:__________________________________________________________________
______________________________________________________________________
(e) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours to inspect and
examine the Equipment and Borrower agrees to reimburse Bank for its
reasonable costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating condition
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain: the Equipment insured
against loss or damaged by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrowers ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payment of all premiums thereof. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Bank showing loss payable to Bank and all proceeds payable
thereunder shall be payable to Bank and upon receipt by Bank shall be applied on
the account of Borrower's Obligations. To secure the payment of Borrower's
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof and directs all insurers under such policies of insurance
to pay all proceeds thereof directly to Bank. Borrower hereby irrevocably
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. Each
such insurer shall agree by endorsement upon the policy or policies of insurance
issued by it to Borrower as required above, or by independent instruments
furnished to Bank that it will give Bank at least ten (10) days written notice
before any such policy or policies of insurance shall be altered or canceled,
and that no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto. Bank, without
waiving or releasing any obligations or defaults by Borrower hereunder, may at
any time or times hereafter, but shall have no obligations to do so, obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorney's fees, court costs, expenses
and other charges relating thereto, shall be a part of Borrower's Obligations
and payable on demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower may,
subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the location or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon
request of Bank to do so, agrees to assemble and make the Equipment or any part
thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and properly
endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s): SBE, INC.
/s/ Timothy J. Repp
- -------------------------------- ----------------------------------------
By: By:
/s/ Wm. B. Heye
- -------------------------------- ----------------------------------------
By: By:
Accepted this 26TH day of AUGUST, 1997 at Bank's place of business in SAN JOSE,
CA 95113
By:
-------------------------------------
BRAD SMITH, VICE PRESIDENT
-84-
<PAGE>
Exhibit 11.1
SBE, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE YEARS ENDED OCTOBER 31
YEARS ENDED OCTOBER 31
---------------------------------
1997 1996 1995
---- ---- ----
PRIMARY EARNINGS PER SHARE:
Net income (loss) $3,333,181 ($9,624,503) ($4,567,971)
Average number of common shares
outstanding during the year 2,501,786 2,131,593 2,054,570
Assumed issuance of stock under the
employee and non-employee stock
option plans 200,974 (a) (a)
----------------------------------------
Weighted average common shares 2,702,760 2,131,593 2,054,570
----------------------------------------
Primary earnings (loss) per share $1.23 ($4.51) ($2.22)
----------------------------------------
----------------------------------------
FULLY DILUTED EARNINGS PER SHARE:
Average number of common shares
outstanding during the year 2,501,786 2,131,593 2,054,570
Assumed issuance of stock under the
employee and non-employee stock
option plans 278,927 (a) (a)
----------------------------------------
Weighted average common shares 2,780,713 2,131,593 2,054,570
----------------------------------------
Fully diluted (loss) earnings $1.20 ($4.51) ($2.22)
per share ----------------------------------------
----------------------------------------
(a) In loss years common share equivalents would have an anti dilutive effect
on (loss) per share and therefore have been excluded.
-85-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
SBE, Inc. on Form S-8 (File No. 33-42629) of our report dated November 20,
1997, except for Note 13, as to which the date is December 15, 1997, on our
audits of the consolidated financial statements and financial statement
schedule of the Company as of October 31, 1997 and 1996 and for the years
ended October 31, 1997, 1996 and 1995, which report is included in this 1997
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
January 26, 1998
-86-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 5,569
<SECURITIES> 0
<RECEIVABLES> 2,780
<ALLOWANCES> 0
<INVENTORY> 851
<CURRENT-ASSETS> 9,870
<PP&E> 1,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,269
<CURRENT-LIABILITIES> 2,378
<BONDS> 0
0
0
<COMMON> 9,829
<OTHER-SE> (1,863)
<TOTAL-LIABILITY-AND-EQUITY> 11,269
<SALES> 24,970
<TOTAL-REVENUES> 24,970
<CGS> 12,152
<TOTAL-COSTS> 12,152
<OTHER-EXPENSES> 10,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 3,251
<INCOME-TAX> (82)
<INCOME-CONTINUING> 3,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,333
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.20
</TABLE>
