<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
SBS TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
NEW MEXICO 85-0359415
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
</TABLE>
2400 LOUISIANA BOULEVARD NE
AFC BUILDING 5, SUITE 600
ALBUQUERQUE, NEW MEXICO 87110
(505) 875-0600
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
CHRISTOPHER J. AMENSON, PRESIDENT
2400 LOUISIANA BOULEVARD NE
AFC BUILDING 5, SUITE 600
ALBUQUERQUE, NEW MEXICO 87110
(505) 875-0600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------
COPIES TO:
ALISON K. SCHULER, ESQ. EDWARD M. LEONARD, ESQ.
Schuler, Messersmith & McNeill Brobeck, Phleger & Harrison LLP
5700 Harper Drive NE, Suite 430 Two Embarcadero Place
Albuquerque, New Mexico 87109 2200 Geng Road
(505) 822-8826 Palo Alto, California 94303
(415) 424-1060
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value........... 2,070,000 shares $20.25 $41,917,500 $12,703
</TABLE>
(1) Includes up to 270,000 shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c).
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (Subject to Completion)
Dated October 9, 1996
1,800,000 Shares
[LOGO]
Common Stock
------------------
Of the 1,800,000 shares of common stock, no par value (the "Common Stock"),
offered hereby, 1,580,000 shares are being issued and sold by SBS Technologies,
Inc. ("SBS" or the "Company") and 220,000 shares are being sold by the selling
shareholders (the "Selling Shareholders"). The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders."
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SBSE." The last sale price for the Common Stock on October 7, 1996, as
reported on the Nasdaq National Market, was $23.50 per share. See "Price Range
of Common Stock."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholder
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
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(1) The Company, the Selling Shareholders and the additional selling
shareholders (the "Additional Selling Shareholders") have agreed to
indemnify the Underwriters against certain liabilities including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses, estimated at $421,165 payable by the Company,
which includes underwriting discounts and commissions to be paid by the
Company on behalf of certain Selling Shareholders for 100,000 shares of
Common Stock being sold by such Selling Shareholders. See "Underwriting."
(3) The Additional Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase an aggregate of
up to 270,000 additional shares at the Price to Public less Underwriting
Discounts and Commissions to cover over-allotments, if any. If all such
shares are purchased, the total Price to the Public, Underwriting Discounts
and Commissions, Proceeds to the Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1996.
------------------------
COWEN & COMPANY SOUNDVIEW FINANCIAL GROUP, INC.
, 1996
<PAGE>
[Picture of an AMI, an ABI-V5 and a PCMCIA board arranged from left to right
on the page.]
SBS Technologies, Inc. avionics interface products have undergone continued
technology enhancement since they were first introduced in 1987. The AMI,
pictured on the left, provided a single channel of full function MIL-STD-1553
interface capability. The ABI-V5 and PCMCIA boards introduced in 1995 and 1996,
respectively, provide enhanced functionality in smaller packages.
[Picture of a Motorola MVME162 board with several Industry Packs installed,
a GreenSpring carrier card with several Industry Packs installed and several
Industry Packs by themselves.]
SBS' Industry Pack products can be installed either on CPU products like the
Motorola MVME162 or on GreenSpring-designed carrier cards. Industry Packs shown
include standard I/O products as well as communications-related products such as
the T1/E1 interface and the Comm 360 Industry Packs.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THE PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITER'S
OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, UNLESS OTHERWISE INDICATED,
THE TERM FISCAL YEAR SHALL REFER TO THE 12 MONTH PERIOD ENDED OR ENDING JUNE 30
OF A GIVEN YEAR. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS INCLUDING THOSE SET FORTH IN THE "RISK FACTORS"
SECTION AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of central processing unit ("CPU"),
general purpose input/output ("I/O") and special purpose I/O interface
functions. The Company capitalizes on its design expertise and customer service
capabilities to enhance product quality and reduce time to market for OEM
customers. The Company is seeking to enhance its product offerings and has
entered into a definitive agreement to acquire Bit 3 Computer Corporation ("Bit
3"), a manufacturer of high-performance bus interconnect hardware that enables
embedded computers of differing standards to communicate. The Company will fund
the $24.0 million acquisition primarily with the net proceeds of this offering.
See "The Acquisition of Bit 3."
The Company's objective is to become a leading supplier of board level
components to the standard bus embedded computer market. The Company intends to
continue its growth through a combination of internal growth and acquisitions.
Internal growth is achieved through expanding its existing product lines through
new product development and through increasing penetration of its existing
customer base. The Company currently participates in a number of attractive
markets, including the Intel-based VME CPU board market, the IndustryPack ("IP")
market in general purpose I/O, the telemetry interface market and the
MIL-STD-1553 standard avionics interface market. The Acquisition of Bit 3 will
add a line of bus interconnect products for a variety of standard bus embedded
computer buses to the Company's current product offerings.
Unlike computers targeted at business computing applications, embedded
computers perform a single function or a closely related group of functions,
such as I/O and data processing, as part of a larger system and with a high
degree of reliability. Embedded computers generally are design-specific
solutions that require substantial engineering expertise, have extended product
lives reflecting the long product cycles of the systems into which they are
incorporated and often must adhere to specific size and operating requirements.
As a result, performance, reliability, supplier stability and customer support
are often the primary factors in the decision to purchase a particular embedded
computer solution.
OEMs requiring embedded computers either construct systems based on standard
bus designs together with off-the-shelf I/O, processor and memory modules, or
they develop custom or proprietary solutions. Standard bus solutions generally
enable product designers to develop systems quickly and with a high degree of
confidence in the reliability of the solution, to capitalize on the lower cost
of industry-standard components and to modify designs easily so that a single
product design can serve multiple applications. As a result of these factors,
standard bus systems today constitute a large and growing portion of the
embedded computer market. According to a recent industry study, BOARD-LEVEL
EMBEDDED COMPUTER MARKETS AND TRENDS, the standard bus embedded computer market
is projected to grow from approximately $2.5 billion in 1995 to approximately
$3.9 billion in 1999.
The most popular embedded computer standard today is VME, which has found
broad acceptance in aerospace and military, telecommunications, networking,
industrial automation and control, medical instruments and automated test and
measurement applications. According to BOARD-LEVEL EMBEDDED
3
<PAGE>
COMPUTER MARKETS AND TRENDS, the VME-bus embedded computer market is projected
to grow from approximately $1.2 billion in 1995 to approximately $2.3 billion in
1999. The modular nature of standard bus embedded computers, their wide range of
applications and the variety of bus architectures available have resulted in a
highly fragmented market. The variety of standard bus embedded computer
architectures supports a growing market for products that interconnect various
types of standard bus embedded computers.
The Company sells its products through a combination of direct sales and
independent manufacturers' representatives. The Company's products serve a broad
range of functions including commercial, communications, industrial automation,
medical device, military and space, test and measurement and transportation.
Customers include The Boeing Company, Caterpillar, Inc., Eastman Kodak Company,
General Electric Company and Lockheed Martin Corporation. International sales
constituted approximately 16% of the Company's sales in fiscal 1996.
The Company was incorporated in New Mexico in November 1986. The Company's
executive offices are located at 2400 Louisiana Boulevard, NE, AFC Building 5,
Suite 600, Albuquerque, New Mexico 87110, and its telephone number is (505)
875-0600. References in this Prospectus to the "Company" or "SBS" are to SBS
Technologies, Inc. and its consolidated subsidiaries. The Company has three
subsidiaries, Berg Systems International, Inc. ("BSI"), GreenSpring Computers,
Inc. ("GreenSpring") and Logical Design Group, Inc. ("LDG"). The Company's
corporate web site address is www.sbse.com. The information contained in the web
site is not deemed incorporated into this Prospectus. IndustryPack-Registered
Trademark- is a registered trademark of the Company. All other trademarks or
tradenames referred to in this Prospectus are the property of their respective
owners.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Common Stock offered:
<S> <C>
By the Company..................................... 1,580,000 shares
By Selling Shareholders............................ 220,000 shares
Common Stock to be outstanding after the offering.... 5,058,133 shares(1)
Use of proceeds...................................... To fund the acquisition of Bit 3,
to repay long term debt, and for
general working capital
requirements. See "Use of Proceeds."
Nasdaq National Market symbol........................ SBSE
</TABLE>
SUMMARY CONSOLIDATED AND PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED JUNE 30, YEAR ENDED
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1996(2)(3)
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales......................................... $ 2,542 $ 5,908 $ 10,197 $ 16,218 $ 31,332 $ 45,519
Gross profit.................................. 1,448 3,002 5,314 9,461 16,822 26,327
Income from continuing operations............. $ 73 $ 168 $ 871 $ 1,845 $ 3,581 $ 503
Income per common and common equivalent share
from continuing operations.................. $ 0.03 $ 0.05 $ 0.30 $ 0.65 $ 0.97 $ 0.10
Weighted average common and common equivalent
shares outstanding.......................... 2,363 2,958 2,948 2,859 3,792 5,142
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL PRO FORMA(2)
--------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................................................... $ 8,233 $ 17,338
Total assets.......................................................................... 20,443 41,370
Long term debt, excluding current portion............................................. 5,188 122
Total shareholders' equity............................................................ 10,051 33,146
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of June 30, 1996. Excludes
shares reserved for issuance under the Company's 1992, 1993, 1995 and 1996
Employee Incentive Stock Option Plans ("ISOPs"), the 1993 Director and
Officer Stock Option Plan and the 1996 Employee Stock Purchase Plan, of
which 1,383,312 shares were subject to outstanding unexercised options at
June 30, 1996 (731,807 shares under all ISOPs at an average exercise price
of $7.05 per share, 153,500 shares under the 1993 Director and Officer Stock
Option Plan at an average exercise price of $5.77 per share and 38,005
shares under the 1996 Employee Stock Purchase Plan at an average exercise
price of $7.75 per share) and 360,000 shares at an exercise price of $4.50
per share reserved for issuance under outstanding warrants. Includes 200,000
shares issued in a pooling transaction subsequent to June 30, 1996 and
100,000 shares which will be issued upon exercise of warrants, at an
exercise price of $4.80 per share, and sold in this offering. See "Risk
Factors--Potential Dilutive Effect of Outstanding Warrants and Options and
Registration Rights" and "Principal and Selling Shareholders."
(2) Gives Pro Forma effect to the Bit 3 Acquisition and the sale by the Company
of 1,580,000 shares of Common Stock offered hereby at an assumed public
offering price of $23.50 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, and
the application of the estimated net proceeds therefrom. See "Acquisition of
Bit 3," "Use of Proceeds" and "Pro Forma Combined Consolidated Financial
Statements."
(3) Earnings per common and common equivalent share are based on the weighted
average shares of common stock and, if dilutive, common equivalent shares
(options and warrants) outstanding during the period. See Note (f) to "Pro
Forma Combined Consolidated Statement of Operations."
5
<PAGE>
ACQUISITION OF BIT 3
Following completion of this offering, the Company will acquire (the
"Acquisition") Bit 3. Bit 3 is a manufacturer of computer networking and
interconnection hardware for many of the most widely used computer architecture
standards in the standard bus embedded computer market. See "Business--Bit 3
Computer Corporation."
Under the terms of the purchase agreement dated October 8, 1996 (the
"Acquisition Agreement") among the Company and the two shareholders of Bit 3
(the "Sellers"), the Company will acquire all of the outstanding capital stock
of Bit 3 for a total purchase price of $24.0 million, to be paid with the net
proceeds of this offering and cash flow from Company operations. See "Use of
Proceeds." Of this total purchase price, $20.0 million will be paid to the
Sellers in cash upon the closing of this offering. Of the balance of $4.0
million, $1.0 million will be paid to the Sellers on July 1, 1997 and $3.0
million will be paid on July 1, 1998, according to the terms of the Acquisition
Agreement.
In the Acquisition Agreement, the Sellers have made certain representations
and warranties regarding the business, affairs and assets of Bit 3, the material
breach of which will entitle the Company to indemnification. The Company has
likewise made certain representations and warranties to the Sellers, who are
also entitled to indemnification for material breaches. The Company is relying
upon certain representations and warranties about Bit 3 made by the Sellers of
Bit 3 in the Acquisition Agreement, as well as the Company's own due diligence
investigation. There can be no assurance that these representations and
warranties are true and correct or that the Company's due diligence
investigation discovered all matters of a material nature relating to the
Acquisition. In addition, there can be no assurance that the indemnifications
provided in the Acquisition Agreement will be adequate if a material breach is
discovered. The Acquisition Agreement also requires the Sellers to enter into
covenants not to compete for five years from the date of the covenant and
one-year employment agreements with the Company.
If the net proceeds to the Company from the sale of 1,580,000 shares of
Common Stock offered by the Company in this offering are insufficient to fully
pay the cash portion of the Bit 3 purchase price, the Company may be required to
use existing cash and additional bank borrowings to fund the Acquisition. As a
result, the Company's available cash reserves following this offering could be
substantially depleted. To the extent the Company borrows amounts under its line
of credit to fund a portion of the Acquisition, amounts available for further
borrowings under the credit facility will be correspondingly reduced. In
addition, if the Company were required to utilize its credit facility to
complete the Acquisition, the Company's interest expense would increase and the
Company's available credit would be limited for other operating requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of SBS Technologies, Inc.--Liquidity and Capital Resources."
As a result of the Acquisition, the Company will record approximately $9.75
million in intangible assets, including goodwill, which will be amortized on a
straight line basis over their estimated benefit period of 10 years. Although
Bit 3's current operations offset the amortization expense and the earnings
dilution associated with this offering, there can be no assurance that Bit 3's
operations will continue to perform at current levels. A decrease in Bit 3's
operations could adversely affect the Company's overall net income and earnings
per share. In addition, there can be no assurance that future market or
technology issues will not require more rapid levels of goodwill amortization in
such a way that overall Company financial condition or results of operations
would be adversely affected. In connection with the Acquisition, the Company
will record an estimated $11.0 million earnings charge expected to be recorded
in the second fiscal quarter of 1996, the anticipated quarter for closing of the
Acquisition. The earnings charge is based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment currently estimates that approximately $11.0 million of Bit
3's purchase price represented technology that does not meet the accounting
definitions of "completed technology," and thus should be charged to earnings
under generally accepted accounting principles. Based on the Company's
historical financial performance and the historical financial performance of Bit
3, the Company currently expects to incur a significant net loss for the second
fiscal quarter of 1996 as a
6
<PAGE>
result of the earnings charge. See "Risk Factors--Acquisition of Bit 3,"
"Fluctuations in Operating Results; Expected Second Quarter Loss" and "Pro Forma
Combined Consolidated Financial Statements."
Achieving the anticipated benefits of the Acquisition will depend upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The integration of Bit 3 will require, among other things, integration of
the Company's and Bit 3's respective product offerings and the coordination of
their sales and marketing and research and development efforts. The difficulties
of such integration may be increased by the necessity of coordinating
geographically separated organizations. The inability of management to
successfully integrate the operations of the Company and Bit 3 could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Acquisition of Bit 3."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING AN
INVESTMENT IN THE COMPANY AND BEFORE PURCHASING ANY SHARES OF THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW.
ACQUISITION OF BIT 3
The Company will use a significant portion of the net proceeds of this
offering to fund the Acquisition. See "Use of Proceeds." The Company estimates
that the total cash required to close the Acquisition will be approximately
$20.0 million. If the net proceeds to the Company from this offering are
insufficient to close the Acquisition, the Company may be required to use
existing cash and additional bank borrowings to fund the remaining portion of
the Acquisition. As a result, the Company's available cash reserves following
the offering could be substantially depleted. To the extent the Company borrows
amounts under its line of credit to fund a portion of the Acquisition, amounts
available for further borrowings under the credit facility will be
correspondingly reduced. In addition, if the Company were required to utilize
its credit facility to complete the Acquisition, the Company's interest expense
would increase and the Company's available credit would be limited for other
operating requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of SBS Technologies, Inc.--Liquidity and
Capital Resources."
The Acquisition Agreement between the Company and the Sellers, who are the
founders of Bit 3, may be terminated by either party if the offering is not
completed by December 20, 1996. The Acquisition of Bit 3 involves numerous risks
including difficulties in the assimilation of the operations, technologies and
products of Bit 3, diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience and in which competitors may have stronger market
positions, and the potential loss of key employees of Bit 3. In particular, the
Company anticipates that the Sellers will remain as employees of the Company
under one-year employment agreements. There can be no assurance that the Sellers
will remain with the Company for the period covered by their employment
agreements. In addition, the Company intends to operate Bit 3 in the Minneapolis
metropolitan area with its current employee base. Although the Company will seek
to retain these employees, there can be no assurance that these employees will
continue to remain with Bit 3 after the Acquisition. The Acquisition could
increase the rate of employee turnover, which could have an adverse impact on
Bit 3's performance and the Company's results of operations.
Achieving the anticipated benefits of the Acquisition will depend upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The integration of Bit 3 will require, among other things, integration of
the Company's and Bit 3's respective product offerings and the coordination of
their sales and marketing and research and development efforts. The difficulties
of such integration may be increased by the necessity of coordinating
geographically separated organizations. The inability of management to
successfully integrate the operations of the Company and Bit 3 could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Bit 3 has experienced fluctuations in its operating results in the past and
may experience such fluctuations in the future as a result of factors such as
changes in the marketplace, technology evolution and competition. Given the
possibility of such fluctuations, the Company believes that such comparisons of
the results of its operations for preceding quarters are not necessarily
meaningful and that the results for any one period should not be relied upon as
an indication of future performance.
8
<PAGE>
As a result of the $24.0 million Acquisition, the Company will record
approximately $9.75 million in intangible assets, including goodwill, which will
be amortized on a straight line basis over the estimated benefit period of 10
years. Although Bit 3's current operations cover the amortization expense and
the earnings dilution associated with this offering, there can be no assurance
that Bit 3's operations will remain at their current levels. A decrease in Bit
3's operations could adversely affect the Company's overall net income and
earnings per share. In addition, there can be no assurance that future market or
technology issues will not require more rapid levels of goodwill amortization in
such a way that overall Company financial condition or results of operations
would be adversely affected. In connection with the Acquisition, the Company
will record an estimated $11.0 million earnings charge expected to be recorded
in the second fiscal quarter of 1996, the anticipated quarter for closing of the
Acquisition. The earnings charge is based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment currently estimates that approximately $11.0 million of Bit
3's purchase price represented technology that does not meet the accounting
definitions of "completed technology," and thus should be charged to earnings
under generally accepted accounting principles. Based on the Company's
historical financial performance and the historical financial performance of Bit
3, the Company currently expects to incur a significant net loss for the second
fiscal quarter of 1996 as a result of the earnings charge. See "Acquisition of
Bit 3," "--Fluctuations in Operating Results; Expected Second Quarter Loss" and
"Pro Forma Combined Consolidated Financial Statements."
The Company is relying upon certain representations and warranties about Bit
3 made by the Sellers of Bit 3 in the Acquisition Agreement, as well as the
Company's own due diligence investigation. There can be no assurance that these
representations and warranties are true and correct or that the Company's due
diligence investigation discovered all matters of a material nature relating to
the Acquisition. See "Acquisition of Bit 3."
FLUCTUATIONS IN OPERATING RESULTS; EXPECTED SECOND QUARTER LOSS
The Company has experienced fluctuations in its operating results in the
past and may experience such fluctuations in the future. Sales, on both an
annual and a quarterly basis, are subject to fluctuations as a result of a
variety of factors, many of which are beyond the control of the Company. These
factors include the timing of customer orders, manufacturing delays, delays in
shipment due to component shortages, cancellations of orders, the mix of
products sold, cyclicality or downturns in the markets served by the Company's
customers, including significant reductions in defense spending affecting
certain of the Company's customers, and regulatory changes. In addition, the
Company tends to experience an increase in sales during its first fiscal
quarter, which ends on September 30, due to purchases made by U.S. government
agencies and contractors at the end of the U.S. government's fiscal year which
also ends on September 30. The Company primarily experiences this effect in its
avionics and telemetry product lines. Similarly, the Company tends to experience
little or no growth in sales during its second fiscal quarter, as sales
dependent on U.S. government funding are often delayed during the start of the
U.S. government's new fiscal year. Given the possibility of such fluctuations,
the Company believes that comparisons of the results of its operations for
preceding quarters are not necessarily meaningful and that the results for any
one quarter should not be relied upon as an indication of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results." In the event that the Company's sales or
earnings for any quarter are less than the level expected by securities analysts
or the market in general, such shortfalls could have an immediate and
significant adverse impact on the market price of the Company's Common Stock.
In connection with the Acquisition, the Company will record an estimated
$11.0 million earnings charge expected to be recorded in the second fiscal
quarter of 1996, the anticipated quarter for closing of the Acquisition. The
earnings charge is based on an assessment by the Company, in conjunction with an
independent valuation firm, of purchased technology of Bit 3. The assessment
currently estimates that approximately $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
"completed technology," and thus should be charged to earnings under generally
9
<PAGE>
accepted accounting principles. Based on the Company's historical financial
performance and the historical financial performance of Bit 3, the Company
currently expects to incur a significant net loss for the second fiscal quarter
of 1996 as a result of the earnings charge. See "Acquisition of Bit 3" and "Pro
Forma Combined Consolidated Financial Statements."
INTEGRATION OF ACQUISITIONS; EXPANSION THROUGH ACQUISITIONS
The Company has increased the scope of its operations primarily through the
addition of three new product lines acquired since 1992. BSI was acquired in
1992, GreenSpring was acquired in 1995 and LDG, was added in August 1996. There
can be no assurance that the Company's management and financial controls,
personnel, and other corporate support systems will be adequate to manage the
increase in the size and the diversity of scope of the Company's operations as a
result of the recent acquisitions, including the Acquisition. In addition, there
can be no assurance that the Company's acquisitions will be accretive to
earnings or that the companies acquired will continue to perform at their
historical levels.
A major element of the Company's business strategy is to continue to pursue
acquisitions that either expand or complement its business. There can be no
assurance that the Company will be able to identify and acquire acceptable
acquisition candidates on terms favorable to the Company and in a timely manner.
A substantial portion of the Company's capital resources could be used for these
acquisitions. Consequently, the Company may require additional debt or equity
financing for future acquisitions, which may not be available on terms favorable
to the Company, if at all. As the Company proceeds with its acquisition
strategy, the Company will continue to encounter the risks associated with the
integration of the acquisitions described above. See "Acquisition of Bit 3" and
"Business--SBS' Strategy."
The Company anticipates that one or more potential acquisition
opportunities, including some that could be material, may become available in
the near future. If and when appropriate acquisition opportunities become
available, the Company intends to pursue them actively. No assurance can be
given that any acquisition by the Company will or will not occur, that if such
an acquisition does occur that it will not materially and adversely affect the
Company or that any such acquisition will be successful in enhancing the
Company's business.
RELIANCE ON DEFENSE SPENDING
In each of fiscal 1994, 1995 and 1996, the majority of the Company's sales
were derived directly or indirectly from the U.S. Department of Defense. The
Company expects that the Department of Defense will continue to be a significant
source of sales. There can be no assurance that changes in the geopolitical
environment or in national policy will not result in significantly reduced
defense spending which could materially and adversely affect the Company's
business, financial condition or results of operations. In addition, the Company
believes that many of its potential customers will rely on U.S. government
funding for the purchase of the Company's products. Accordingly, sales to these
customers may be adversely affected by delays in obtaining, or the
unavailability of, such funds caused by budget constraints or the bureaucratic
processes.
RELIANCE ON INDUSTRY STANDARDS; FUNDAMENTAL TECHNOLOGY CHANGE
Most of the Company's products are developed to meet certain industry
standards, including MIL-STD-1553, Telemetry IRIG Standards and various ANSI
standards. These standards are continuing to develop and are subject to change.
Elimination or obsolescence of these standards could materially adversely affect
the design, manufacture and sale of the Company's products and require costly
redesign to meet new or emerging standards. In addition, the Company's success
will depend in part on its ability to develop products that evolve with changing
industry standards and customer preferences. There can be no assurance that the
Company will be successful in developing such products in a timely manner, or
that the Company will be successful in selling the products it develops. The
Company's delay or failure to adapt to
10
<PAGE>
changing industry standards could have a material adverse effect on the
Company's business, financial condition and results of operations.
Many of the Company's product designs rely on state of the art digital
technology. There is no assurance that future advances in technology may not
make obsolete the Company's existing product lines, resulting in increased
competition and requiring the Company to undertake costly redesign of its
products to maintain its competitive position. There can be no assurance that
the Company will be able to incorporate the new technology into its existing
products or redesign its existing products in order to compete effectively.
Moreover, new and enhanced products and solutions affecting the Company's
markets are continually being introduced by the Company's competitors. These
products and solutions can be expected to affect the competitive environment in
the markets in which they are introduced. Because new products and technologies
require commitments well in advance of sales, decisions with respect to those
commitments must accurately anticipate both future demand and the technology
that will be available to meet that demand. There is no assurance that the
Company will successfully adapt to future technological changes and failure to
do so may materially adversely affect the Company's business, financial
condition or results of operations. See "Business--Research and Development" and
"--Competition."
UNCERTAINTY OF MARKET DEVELOPMENT
Many potential customers design and manufacture standard bus embedded
computer systems internally. Increased market acceptance of the Company's
products and services is dependent in part on these customers relying on the
Company to provide embedded computer system components rather than designing and
manufacturing these products internally. The Company believes that a number of
factors will be important to achieve increased market acceptance of its products
and services. These factors include the quality of the Company's design and
production expertise, the increasing use and complexity of embedded computer
systems in new and traditional products, the expansion of markets that are
served by standard bus embedded computers, time-to-market requirements of the
Company's actual and potential, the assessment of direct and indirect cost
savings and the willingness to rely on the Company for mission-critical
applications by customers. The Company believes that in many customer
applications, the cost of its products may exceed or be perceived to exceed the
cost of internal development. Failure to achieve increased market acceptance of
the Company's products would have a material adverse effect on the Company's
ability to achieve its growth objectives.
COMPETITION
The standard bus embedded computer industry is highly competitive and
fragmented, and the Company's competitors differ depending on product type,
company size, geographic market and application type. The Company faces
competition in each of its product lines. Because of the diverse nature of the
Company's products and the fragmented nature of the embedded computer market,
there is little overlap of competitors for each product line. Competitive
factors across the Company's product lines include: performance, customer
support, product longevity, supplier stability, breadth of product offerings and
reliability. Many of the Company's existing and potential competitors have
financial, technological and marketing resources significantly greater than
those of the Company and may have established relationships with customers or
potential customers that afford them a competitive advantage. There can be no
assurance that the Company will be able to compete effectively in its current or
future markets or that competitive pressures will not adversely affect its
business, financial condition or results of operations. See
"Business--Competition."
In the Company's recently acquired CPU product line, the Company competes
with a number of other suppliers of VME CPU boards. Direct competitors include
other companies that build VME CPU boards based on Intel microprocessor
technology. Indirectly, however, the Company also competes with suppliers of VME
CPU boards based on other microcomputer architectures such as Motorola 680x0,
Sparc and
11
<PAGE>
Power PC. Competitors include Force Computers, Inc. (which has recently agreed
to be acquired by Solectron Corporation), Performance Technologies, Inc.,
RadiSys Corporation, VME Microsystems, Inc. ("VMIC") and XYCOM, Inc.
In the generalized computer I/O product area serviced by GreenSpring and its
IP product line, the Company has two classes of competition. The first class
includes companies that compete directly by selling IP products. The second
class includes companies that compete with I/O products using a different
implementation to provide functionally equivalent products. Competitors include
Computer Products, Inc., Systran, Inc. and VMIC.
In the telemetry market, the Company competes with other suppliers of open
architecture telemetry solutions. It also indirectly competes with suppliers of
traditional, closed architecture telemetry systems. Competitors include Aydin
Vector Division, Lockheed Martin Telemetry and Instrumentation, Terametrix, Inc.
and Veda, Inc.
In the avionics interface market, the Company competes with a number of
other companies that produce similar avionics interface products. Competitors
include Ballard Technologies, Inc., Data Devices Corporation, Digital
Technology, Inc. (a division of Dynatech, Inc.), DY-4, Inc. and Excalibur
Technologies Corporation and Gesellschaft Fur Angewandte Informatik und
Mikroelekernik, GmbH.
RELIANCE ON SPECIALIZED MARKETS
Many of the Company's products, including its telemetry and avionics
interface products, target specialized markets that support attractive profit
margins. There can be no assurance that these markets will continue to support
these margins or that these specialized markets will continue to provide the
Company with an environment to support current sales levels or acceptable growth
rates.
AVAILABILITY OF COMPONENT MATERIALS
Many of the Company's products consist, in part, of state of the art digital
electronic components. The Company is dependent upon third parties for the
continuing supply of many of these components, some of which are obtained from a
sole supplier, such as Xilinx, Inc., or a limited number of suppliers, for which
alternate sources may be difficult to locate. Moreover, suppliers may
discontinue or upgrade some of the products incorporated into the Company's
products, which could require the Company to redesign a product to incorporate
newer or alternative technology. Although the Company believes that it has
arranged for an adequate supply of components to meet its short term
requirements, the Company does not have contracts which would assure
availability and price. Lack of timely availability of components could cause
delays in shipment of product and affect the Company's revenues during certain
periods as well as lead to customer dissatisfaction. Limited availability of
components could also require the Company to pay premiums for parts to make
shipment deadlines and thus adversely affect the Company's profit margin, or
cause the Company to increase its inventory of scarce parts and thus adversely
affect the Company's cash flow. There can be no assurance that the Company will
continue to be able to obtain all of the components it requires or that the
price of certain components in short supply will not materially and adversely
affect its business, financial condition or results of operations.
RETENTION AND RECRUITMENT OF KEY EMPLOYEES
The Company's ability to maintain its competitive position and to develop
and market new products depends, in part, upon its ability to retain key
employees and to recruit additional qualified personnel, particularly engineers.
There can be no assurance that the Company will be able to continue to retain or
recruit such personnel. The Company's inability to retain and recruit key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
12
<PAGE>
NO PATENT PROTECTION
Although the Company believes that some of its processes and equipment may
be proprietary, the Company has not sought patent protection for its technology.
The Company has relied upon trade secret laws, industrial know-how and employee
confidentiality agreements. There can be no assurance that the Company's
processes and equipment provide it with a sufficient competitive advantage to
overcome the lack of patent protection, or that others will not independently
develop equivalent or superior products or technology. Furthermore, there can be
no assurance that trade secret protection will be established, or that secrecy
obligations will be honored. Also, to the extent that consultants, employees and
other parties apply technological information developed independently, by them
or others, to Company projects, disputes may arise as to the proprietary rights
to that information, which may not be resolved in favor of the Company.
In addition, litigation may be necessary to enforce the Company's
proprietary rights, to protect the Company's trade secrets, to determine the
validity and scope of the intellectual property rights of others or to defend
against claims of infringement. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations.
Moreover, because patent applications in the United States are not publicly
disclosed until the patents issue, patent applications may have been filed that
relate to the Company's products and technology. The Company does not believe
that it infringes any patents of which it is aware; however, there can be no
assurance that patent infringement claims will not be asserted against the
Company or that any such assertions would not have a material adverse effect on
the Company's business, future financial condition or results of operations. If
infringement or invalidity claims are asserted against the Company, litigation
may be necessary to defend the Company against such claims, and in certain
circumstances the Company may choose to seek to obtain a license under the
third-party's intellectual property rights. There can be no assurance that such
licenses will be available on terms acceptable to the Company, if at all.
PRODUCT LIABILITY
The Company's products and services potentially may be subject to product
liability or government warranty claims. The Company maintains primary product
liability insurance with a general aggregate limit of $2.0 million, $1.0 million
per occurrence, and an $8.0 million excess policy. The Company has never been
the subject of any such claims. However, considering the wide use of the
Company's products in a variety of applications, as well as the propensity of
claimants initially to pursue all possible contributors in a problem situation,
there can be no assurance that such coverage will be adequate to protect the
Company from liability, or that the Company will be able to continue such
insurance in effect for premiums acceptable to the Company. In the event of a
successful suit against the Company, lack or insufficiency of insurance coverage
could have a material adverse effect upon the Company.
DEPENDENCE UPON CERTAIN OFFICERS
The success of the Company is dependent in part upon the services of certain
executive officers and other key employees. The Company maintains key man
insurance on the lives of each of its executive officers in the amount of $1.0
million. Executive officers also have entered into employment agreements with
the Company for varying lengths of time. Other key employees are retained by a
combination of employment agreements and incentive stock option plans. Loss of
the services of such employees could have a material adverse effect on the
Company's business. Dr. Cruce, the Company's current Chairman and Chief
Executive Officer, has announced to the Company's Board of Directors that he
will not stand for reelection as the Company's Chief Executive Officer. Dr.
Cruce currently anticipates continuing to serve as Chairman of the Board of
Directors and will remain an employee of the Company. It is currently
anticipated that Mr. Amenson will stand for election as the Company's Chief
Executive Officer. Mr. Amenson will continue to serve as the Company's President
and Chief Operating Officer as well as a Director. See "Management."
13
<PAGE>
CONTROL BY MANAGEMENT
Upon completion of this offering, the Officers and Directors of the Company
will beneficially own approximately 28.5% of the Company's issued and
outstanding Common Stock (approximately 24.1% if the Underwriter's
over-allotment is exercised in full). The Company's Articles of Incorporation do
not permit cumulative voting. The Officers and Directors ownership if voted
together provides management with the power to influence significantly all
matters requiring approval by the shareholders of the Company, including the
election of directors and approval of stock option and stock purchase plans.
POTENTIAL DILUTIVE EFFECT OF OUTSTANDING WARRANTS AND OPTIONS AND REGISTRATION
RIGHTS
The Company, in connection with its acquisition of GreenSpring in August
1995, issued warrants to purchase 400,000 shares of Common Stock at an exercise
price of $4.50 per share (the "GreenSpring Warrants"). The holders of the
GreenSpring Warrants were also granted the right to sell alongside a Company
registration. The Company is obligated to register the GreenSpring Warrants
under the Securities Act of 1933 (the "Securities Act"). In April 1996, the
Company registered under the Securities Act 150,001 GreenSpring Warrants as well
as certain options held by the Company's President and Chief Operating Officer,
Mr. Amenson. As of June 30, 1996, 360,000 of the GreenSpring Warrants remained,
of which 193,334 were exercisable and warrants to purchase 166,666 shares of
Common Stock become exercisable over the next two years. The holders of the
GreenSpring Warrants also possess until August 2000 the right to sell shares of
Common Stock underlying the GreenSpring Warrants alongside the Company should
the Company file a registration statement during this period.
Additionally, in connection with the Company's acquisition in August 1996 of
LDG, the Company granted to the two selling shareholders of LDG registration
rights and piggyback rights covering an aggregate of 200,000 shares of the
Company's Common Stock.
Such demand, piggyback and alongside registration rights may negatively
influence the Company's ability to raise additional equity capital in the
future. To the extent that outstanding options or warrants to purchase the
Company's Common Stock are exercised, there will be additional dilution in
excess of that resulting from use of common and common equivalent shares in
earnings calculations.
As of June 30, 1996, the Company had 586,807 vested options and 336,505
options subject to vesting.
LIMITED PUBLIC FLOAT; TRADING; VOLATILITY OF STOCK PRICE
The Company's Common Stock is traded on the Nasdaq National Market. While a
public market currently exists for the Company's Common Stock, the number of
shares in the public market is approximately 68.1% of the 5,058,133 shares of
Common Stock that will be outstanding at the completion of this offering.
Trading volume in the four weeks ended September 30, 1996 averaged 54,829 shares
traded per day. Thus, trading of relatively small blocks of stock can have a
significant impact on the price at which the stock is traded. In addition, the
Nasdaq National Market has experienced, and is likely to experience in the
future, significant price and volume fluctuations which could adversely affect
the market price of the Common Stock without regard to the operating performance
of the Company. The Company believes factors such as quarterly fluctuations in
financial results, announcements of new technologies impacting the Company's
products, announcements by competitors or changes in securities analysts'
recommendations may cause the market price to fluctuate, perhaps substantially.
These fluctuations, as well as general economic conditions, such as recessions
or high interest rates, may adversely affect the market price of the Common
Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing shareholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of the offering, the Company
will have 5,058,133 shares of Common Stock outstanding. Of these shares,
1,800,000 shares offered hereby (2,070,000 shares if the Underwriters'
14
<PAGE>
overallotment option is exercised in full) will be eligible for immediate sale
in the public market without restriction under the Securities Act, unless such
shares are held by affiliates of the Company, as that term is defined in the
Rule 144 under the Securities Act. In addition, approximately 186,700 shares
will be eligible for sale in the public market without restriction pursuant to
Rule 144(k) or Rule 701 under the Securities Act. Approximately 1,573,200
additional shares outstanding upon completion of the offering will be eligible
for sale pursuant to Rule 144, assuming no exercise of the over-allotment
option.
The holders of approximately 1,418,188 of the shares of Common Stock
outstanding after the offering and the holders of warrants and options to
purchase approximately 374,783 shares of Common Stock have agreed, subject to
certain exceptions, not to sell or otherwise dispose of any of their shares for
a period of 120 days after the date of the Prospectus. Cowen & Company may, in
its sole discretion, at any time without notice, release all or a portion of the
shares subject to lock-up agreements. Following the closing of the offering, the
holders of approximately 449,999 shares of Common Stock will be entitled to
certain demand and piggyback registration rights with respect to such shares.
ABSENCE OF DIVIDENDS
Since its inception, the Company has not paid cash dividends on its Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for business operations and, accordingly, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Pursuant to its Credit
Agreement, dated April 28, 1995, as amended, with NationsBank of Texas, N.A.
("NationsBank"), neither the Company nor any of its subsidiaries may, directly
or indirectly, make any cash or other distributions (such as dividends) on or in
respect of any person's interest as a shareholder in the Company.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,580,000 shares of Common
Stock offered by the Company in this offering are estimated to be $34,481,000
assuming a public offering price of $23.50 per share after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders. The Company intends to use
the net proceeds of the offering first to fund the Acquisition (see "Acquisition
of Bit 3") and then to pay down its long term debt. The Company believes that
the total cash required to close the Acquisition, including related fees and
expenses, will be approximately $20.0 million. In addition, the Company
currently has approximately $5.2 million of long term debt, excluding the
current portion of that debt, primarily from its acquisition of GreenSpring in
April 1995. This debt, with NationsBank, matures on October 30, 1999 and carries
an interest rate equal to NationsBank's prime rate plus 0.25% or LIBOR plus 2.5%
in 30, 60 or 90 day options. In fiscal 1996, the average rate associated with
this long term debt was approximately 10% per annum. The Company anticipates
that the balance of the net proceeds will be added to working capital and used
for general corporate purposes. The Company may also consider using any
remaining offering proceeds for the acquisition of complementary businesses,
products or technologies. However, the Company has no specific plans with
respect to any such acquisition. Pending such uses, the Company intends to
invest the net proceeds from this offering in short term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
Since its inception, the Company has not paid cash dividends on its Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for business operations and accordingly, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Pursuant to its Credit
Agreement, dated April 28, 1995, as amended, with NationsBank, neither the
Company nor any of its subsidiaries may, directly or indirectly, make any cash
or other distributions such as dividends on or in respect of any person's
interest as a shareholder in the Company.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "SBSE." The following table sets forth for the periods indicated the high
and low closing prices of the Company's Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year 1995
Quarter ended September 30, 1994........................................... $ 6.75 $ 4.00
Quarter ended December 31, 1994............................................ 7.13 4.38
Quarter ended March 31, 1995............................................... 5.00 3.75
Quarter ended June 30, 1995................................................ 5.25 4.00
Fiscal Year 1996
Quarter ended September 30, 1995........................................... $ 9.00 $ 5.00
Quarter ended December 31, 1995............................................ 8.94 7.13
Quarter ended March 31, 1996............................................... 10.13 7.63
Quarter ended June 30, 1996................................................ 17.13 8.88
Fiscal Year 1997
Quarter ended September 30, 1996........................................... $ 19.75 $ 10.63
Quarter ending December 31, 1996 (through October 7)....................... 23.50 19.50
</TABLE>
The last sale price of the Company's Common Stock on October 7, 1996 as
reported on the Nasdaq National Market was $23.50 per share. As of September 30,
1996, there were approximately 2,000 beneficial holders of the Company's Common
Stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the sale by the Company of the
1,580,000 shares of Common Stock offered hereby, assuming an offering price of
$23.50 per share, use of the estimated net proceeds to complete the Acquisition,
the effect on earnings of the write-off of in-process research and development
related to the Acquisition and the retirement of up to $5.2 million of the
Company's long-term debt with any remaining proceeds retained by the Company for
general corporate purposes. See "Acquisition of Bit 3," "Use of Proceeds" and
"Pro Forma Combined Consolidated Financial Statements."
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(1)(2)
---------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Long term debt, less current portion................................................ $ 5,188 $ 122
---------- --------
Shareholders' equity:
Common Stock...................................................................... 4,691 39,172
Common Stock warrants............................................................. 180 180
Retained earnings (deficit)......................................................... 5,180 (6,206)
---------- --------
Total shareholders' equity........................................................ 10,051 33,146
---------- --------
Total capitalization................................................................ $ 20,444 $ 41,370
---------- --------
---------- --------
</TABLE>
- ------------
(1) See "Pro Forma Combined Consolidated Financial Statements."
(2) Based on the number of shares outstanding as of June 30, 1996. Excludes
shares reserved for issuance under the Company's 1992, 1993, 1995, and 1996
Employee ISOPs, the 1993 Director and Officer Stock Option Plan and the 1996
Employee Stock Purchase Plan, of which 1,383,312 shares were subject to
outstanding unexercised options at June 30, 1996 (210,000 shares under all
ISOPs at an average exercise price of $7.05 per share, 153,500 shares under
the 1993 Director and Officer Stock Option Plan at an average exercise price
of $5.77 per share and 38,005 shares under the 1996 Employee Stock Purchase
Plan at an average exercise price of $7.75 per share) and 360,000 shares an
an exercise price of $4.50 per share reserved for issuance under outstanding
warrants. Includes 200,000 shares issued in a pooling transaction subsequent
to June 30, 1996 and 100,000 shares which will be issued upon exercise of
warrants, at an exercise price of $4.80 per share, and sold in this
offering. See "Risk Factors--Potential Dilutive Effect of Outstanding
Warrants and Options and Registration Rights."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
OF SBS TECHNOLOGIES, INC.
The following selected consolidated statement of operations data for the
years ended June 30, 1994, 1995 and 1996, and consolidated balance sheet data as
of June 30, 1995 and 1996 are derived from the Consolidated Financial Statements
of the Company and Notes thereto, which have been audited by KPMG Peat Marwick
LLP, independent auditors, and are included elsewhere in this Prospectus. The
following selected consolidated statement of operations data for the years ended
June 30, 1992 and 1993 and consolidated balance sheet data as of June 30, 1992,
1993 and 1994 are derived from audited financial statements not included in this
Prospectus. The following selected data should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales.................................................... $ 2,542 $ 5,908 $ 10,197 $ 16,218 $ 31,332
Cost of sales............................................ 1,094 2,906 4,883 6,757 14,510
--------- --------- --------- --------- ---------
Gross profit........................................... 1,448 3,002 5,314 9,461 16,822
Selling, general and administrative...................... 867 1,540 2,221 3,891 6,293
Research and development................................. 422 750 1,187 1,687 2,846
Amortization of intangible assets........................ -- 312 383 493 884
--------- --------- --------- --------- ---------
Operating income from continuing operations............ 159 400 1,523 3,390 6,799
Interest expense, net of interest income................. -- 12 14 188 830
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes.... 159 388 1,509 3,202 5,969
Income taxes............................................. 86 220 638 1,357 2,387
--------- --------- --------- --------- ---------
Income from continuing operations...................... 73 168 871 1,845 3,582
--------- --------- --------- --------- ---------
Discontinued operations, net of tax (1).................. (33) (35) 855 (1,781) --
Loss on disposal of discontinued operations, net of tax
(1).................................................... -- -- -- (1,354) --
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations(1)............ (33) (35) 855 (3,135) --
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 40 $ 133 $ 1,726 $ (1,290) $ 3,582
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common and common equivalent share:
Continuing operations.................................. 0.03 0.05 0.30 0.65 0.97
Discontinued operations(1)............................. (0.01) (0.01) 0.29 (1.10) --
--------- --------- --------- --------- ---------
Net income (loss) per common and common equivalent
share.................................................. $ 0.02 $ 0.04 $ 0.59 $ (0.45) $ 0.97
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding..................................... 2,363 2,958 2,948 2,859 3,792
<CAPTION>
JUNE 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 3,218 $ 2,542 $ 3,188 $ 3,320 $ 8,233
Intangible assets, net................................... 100 1,589 1,184 6,077 5,571
Total assets............................................. 5,515 11,732 13,477 19,905 20,443
Long-term debt, excluding current portion................ 3 330 274 5,342 5,188
Total shareholders' equity............................... 3,897 4,846 5,865 5,049 10,051
</TABLE>
- ---------------
(1) In April 1995, the Company divested its flight simulation business and
ceased operation in this line of business. The results of discontinued
operations reflect the performance of this line of business on the Company's
historical results of operations. The Company has exited from this business
and believes there will be no material future charges associated with this
discontinued business line. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of SBS Technologies,
Inc.--Overview."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF SBS TECHNOLOGIES, INC.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.
OVERVIEW
The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface applications. In 1988, the Company entered the embedded
computing market with the development of its avionics interface board, which is
used in ground-based avionics systems development and test applications. In
1992, the Company added a second embedded computer product line with the
acquisition of BSI, a developer of telemetry interface circuit boards. In recent
years, the Company has discontinued certain of its operations. From its
inception in 1986 until 1995, the Company provided flight simulators for a
variety of military aircraft to U.S. and foreign entities. In April 1995,
following a decline in the defense industry, the Company divested this business
and recorded a related charge of $2.3 million. Additionally, from 1987 through
the first half of fiscal 1996, the Company provided engineering services that
generated minimal revenue and profit. The Company has subsequently exited this
business.
Following completion of this offering, the Company will acquire Bit 3. Bit 3
is a manufacturer of computer networking and interconnection hardware for many
of the most widely used computer architecture standards in the standard bus
embedded computer market. In connection with the Acquisition, the Company will
record an estimated $11.0 million earnings charge expected to be recorded in the
second fiscal quarter of 1996, the anticipated quarter for closing of the
Acquisition. The earnings charge is based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment currently estimates that approximately $11.0 million of Bit
3's purchase price represented technology that does not meet the accounting
definitions of "completed technology," and thus should be charged to earnings
under generally accepted accounting principles. Based on the Company's
historical financial performance and the historical financial performance of Bit
3, the Company currently expects to incur a significant net loss for the second
fiscal quarter of 1996 as a result of the earnings charge. See "Acquisition of
Bit 3," "Risk Factors--Acquisition of Bit 3," "Flucuations in Operating Results;
Expected Second Quarter Loss" and "Pro Forma Combined Consolidated Financial
Statements."
RECENT ACQUISITIONS
On April 28, 1995, the Company acquired GreenSpring, based in Menlo Park,
California, for $7.5 million. GreenSpring is engaged in the design, development,
manufacturing and marketing of general purpose I/O products utilized in multiple
segments of the standard bus embedded computer market. The acquisition was
accounted for as a purchase. The Company recorded $5.8 million in goodwill with
$653,000 expensed through June 30, 1996 and the remainder expected to be
expensed through June 30, 2005, the estimated benefit period. Net income and
earnings per common and common equivalent share for fiscal 1994 would have been
approximately $1.7 million and $0.56, respectively, had the acquisition taken
place on July 1, 1993. Had the acquisition taken place on July 1, 1994, the
Company's reported net loss and net
19
<PAGE>
loss per common and common equivalent share for fiscal 1995 would have been
decreased by approximately $804,000 and $0.28, respectively.
On August 19, 1996, the Company completed a pooling of interest transaction
with LDG. LDG manufactures Intel processor-based CPU boards for the standard bus
embedded computer market. The financial results of LDG are not included in the
Company's Consolidated Financial Statements for the periods prior to July 1,
1996 as historical results did not have a material effect on combined
consolidated results of operations. For its fiscal year ended March 31, 1996,
LDG recorded sales of approximately $4.0 million and income from continuing
operations of approximately $103,000.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
data as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales............................................................................. 100.0% 100.0% 100.0%
Cost of sales..................................................................... 47.9 41.7 46.3
----- ----- -----
Gross profit.................................................................... 52.1 58.3 53.7
Selling, general and administrative............................................... 21.8 24.0 20.1
Research and development.......................................................... 11.6 10.4 9.1
Amortization of intangible assets................................................. 3.8 3.0 2.8
----- ----- -----
Operating income from continuing operations....................................... 14.9 20.9 21.7
Interest expense, net of interest income.......................................... 0.1 1.2 2.7
----- ----- -----
Income from continuing operations before income taxes........................... 14.8 19.7 19.0
Income taxes...................................................................... 6.3 8.3 7.6
----- ----- -----
Income from continuing operations................................................. 8.5% 11.4% 11.4%
----- ----- -----
----- ----- -----
</TABLE>
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
SALES. In fiscal 1996, sales increased 93.2%, or $15.1 million, from $16.2
million in fiscal 1995 to $31.3 million. This increase reflects a full year of
sales in fiscal 1996 for GreenSpring, whereas fiscal 1995 sales include only two
months of GreenSpring sales. As a result, $11.1 million in GreenSpring sales
were reflected in fiscal 1996 compared to $1.5 million in fiscal 1995. In
addition, sales of the Company's avionics and telemetry product lines increased
by 37.5%, or $5.5 million, in fiscal 1996. The increases in sales in fiscal 1996
reflected increases in unit volume, new product introductions and the addition
of new customers in all of the Company's product lines.
GROSS PROFIT. In fiscal 1996, gross profit increased 77.8%, or $7.4
million, from $9.5 million in fiscal 1995 to $16.8 million, as a result of
increased sales volume. In fiscal 1996, gross margin decreased to 53.7% of sales
from 58.3% in fiscal 1995 as a result of a change in sales mix. While gross
margins on the Company's avionics and telemetry products remained relatively
constant in fiscal 1996, fiscal 1996 sales were comprised of a higher proportion
of GreenSpring products, which generally yield lower gross margins than sales of
the Company's other products. Reductions in component material costs in each of
the Company's product lines partially offset the effect on gross margin of this
shift in sales mix.
SELLING, GENERAL AND ADMINISTRATIVE. In fiscal 1996, selling, general and
administrative expense increased 61.7%, or $2.4 million, from $3.9 million in
fiscal 1995 to $6.3 million. The increase resulted primarily from the addition
of certain expenses of GreenSpring's operations, and additional staffing and
promotional expenses related to the Company's avionics and telemetry product
lines. However, selling, general and administrative expense decreased as a
percentage of sales from 24.0% in fiscal 1995 to 20.1% in fiscal 1996, primarily
due to a more rapid increase in sales than in selling, general and
administrative expense.
20
<PAGE>
RESEARCH AND DEVELOPMENT. In fiscal 1996, research and development expense
increased by 68.8%, or $1.2 million, from $1.7 million in fiscal 1995 to $2.9
million, reflecting the costs of GreenSpring's operations and the additional
staffing required for new product development in the avionics product line.
However, research and development expense decreased as a percentage of sales
from 10.4% in fiscal 1995 to 9.1% in fiscal 1996, primarily due to a more rapid
increase in sales than in research and development expense.
AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1996, amortization of
intangible assets increased 79.3%, or $391,000, from $493,000 in fiscal 1995 to
$884,000 due to the increase in intangible assets related to the acquisition of
GreenSpring.
INTEREST EXPENSE, NET OF INTEREST INCOME. In fiscal 1996, interest expense,
net of interest income, increased by 342%, or $642,000, from $188,000 in fiscal
1995 to $830,000 as a result of debt assumed late in fiscal 1995 as part of the
acquisition of GreenSpring.
INCOME TAXES. In fiscal 1996, tax expense increased 75.9%, or $1.0 million,
from $1.4 million in fiscal 1995 to $2.4 million representing effective income
tax rates of 40% and 42%, respectively. The lower effective tax rate in fiscal
1996 resulted primarily from the use of a foreign sales corporation.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
SALES. In fiscal 1995, sales increased 59.1%, or $6.0 million, from $10.2
million in fiscal 1994 to $16.2 million. This increase resulted from a number of
factors, including introduction of the PASS 1000 bus analyzer product in
avionics, broader participation in defense-related programs and $1.5 million in
sales of GreenSpring products included for the two months following its
acquisition in April 1995.
GROSS PROFIT. In fiscal 1995, gross profit increased 78.0%, or $4.2
million, from $5.3 million in fiscal 1994 to $9.5 million due to increased sales
volume and improved gross margin. In fiscal 1995, gross margin increased from
52.1% of sales in fiscal 1994 to 58.3% of sales as a result of reductions in per
unit component and labor costs, and more efficient amortization of manufacturing
overheads resulting from increased volume.
SELLING, GENERAL AND ADMINISTRATIVE. In fiscal 1995, selling, general and
administrative expense increased 75.1%, or $1.7 million, from $2.2 million in
fiscal 1994 to $3.9 million. The increase resulted from the addition of
GreenSpring's costs, and increases in staffing and promotional expenses in the
avionics and telemetry product lines. As a percentage of sales, selling, general
and administrative expense increased from 21.8% in fiscal 1994 to 24.0% in
fiscal 1995, reflecting expense incurred in anticipation of increased sales.
RESEARCH AND DEVELOPMENT. In fiscal 1995, research and development expense
increased by 42.1%, or $500,000, from $1.2 million in fiscal 1994 to $1.7
million reflecting the costs of additional staffing required for new product
development in the avionics product line including the ABI V5, ABI V6 and PASS
1000 interface boards. However, research and development expense decreased as a
percentage of sales from 11.6% in fiscal 1994 to 10.4% in fiscal 1995, primarily
due to a more rapid increase in sales than in research and development expense.
AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1995, amortization of
intangible assets increased 28.8%, or $110,000, from $383,000 in fiscal 1994 to
$493,000 due to the increase in intangible assets related to the acquisition of
GreenSpring.
INTEREST EXPENSE, NET OF INTEREST INCOME. In fiscal 1995, interest expense,
net of interest income, increased by $173,000, or 1,183%, from $15,000 in fiscal
1994 to $188,000 as a result of debt assumed late in fiscal 1995 related to the
acquisition of GreenSpring.
INCOME TAXES. In fiscal 1995, tax expense increased 112.7%, or $719,000,
from $638,000 in fiscal 1994 to $1.4 million, representing an effective income
tax rate of 42% in each year.
21
<PAGE>
QUARTERLY RESULTS
The following tables present certain unaudited financial data for each of
the four fiscal quarters ended June 30, 1996. These data have been derived from
unaudited financial statements that, in the opinion of management, have been
prepared on the same basis as the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus, including all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial results herein. Such statement of operations data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. The operating results for
any previous quarter are not necessarily indicative of results for any future
period. See "Risk Factors--Fluctuations in Operating Results; Expected Second
Quarter Loss."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1996 1996
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................................... $ 7,575 $ 7,443 $ 7,896 $ 8,418
Cost of sales............................................ 3,581 3,530 3,683 3,716
----------- ----------- ----------- -----------
Gross profit........................................... 3,994 3,913 4,213 4,702
Selling, general and administrative...................... 1,549 1,486 1,560 1,698
Research and development................................. 685 678 705 778
Amortization of intangible assets........................ 233 213 222 216
----------- ----------- ----------- -----------
Operating income from continuing operations............ 1,547 1,536 1,726 2,010
Interest expense, net of interest income................. 280 200 200 150
----------- ----------- ----------- -----------
Income from continuing operations before income
taxes................................................ 1,247 1,336 1,526 1,860
Income taxes............................................. 524 560 560 743
----------- ----------- ----------- -----------
Income from continuing operations...................... $ 723 $ 776 $ 966 $ 1,117
----------- ----------- ----------- -----------
Net income per common and common share equivalents....... $ 0.23 $ 0.23 $ 0.26 $ 0.29
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
AS A PERCENTAGE OF SALES:
Sales.................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 47.3 47.4 46.6 44.2
----------- ----------- ----------- -----------
Gross profit........................................... 52.7 52.6 53.4 55.8
Selling, general and administrative...................... 20.4 20.0 19.8 20.2
Research and development................................. 9.0 9.1 8.9 9.2
Amortization of intangible assets........................ 3.1 2.9 2.8 2.5
----------- ----------- ----------- -----------
Operating income from continuing operations............ 20.2 20.6 21.9 23.9
Interest expense, net of interest income................. 3.7 2.7 2.5 1.8
----------- ----------- ----------- -----------
Income from continuing operations before income tax.... 16.5 17.9 19.4 22.1
Income taxes............................................. 6.9 7.5 7.1 8.8
----------- ----------- ----------- -----------
Income from continuing operations...................... 9.6% 10.4% 12.3% 13.3%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Company tends to experience an increase in sales during its first fiscal
quarter, which ends September 30, due to purchases made by U.S. government
agencies and contractors at the end of the U.S. government's fiscal year, which
also ends on September 30. The Company primarily experiences this effect in its
avionics and telemetry product lines. Similarly, the Company tends to experience
little or no growth in sales during its second fiscal quarter as sales dependent
on U.S. government funding are often delayed during the start of the U.S.
government's new fiscal year. However, as sales of its non-defense related
22
<PAGE>
product lines continue to grow in proportion to total sales the Company believes
this seasonal effect will diminish.
In connection with the Acquisition, the Company will record an estimated
$11.0 million earnings charge expected to be recorded in the second fiscal
quarter of 1996, the anticipated quarter for the closing of the Acquisition. The
earnings charge is based on an assessment by the Company, in conjunction with an
independent valuation firm, of purchased technology of Bit 3. The assessment
currently estimates that approximately $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions of
"completed technology," and thus should be charged to earnings under generally
accepted accounting principles. Based on the Company's historical financial
performance and the historical financial performance of Bit 3, the Company
currently expects to incur a significant net loss for the second fiscal quarter
of 1996 as a result of the earnings charge. See "Risk Factors--Acquisition of
Bit 3," "Fluctuations in Operating Results; Expected Second Quarter Loss" and
"Pro Forma Combined Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of the sale of equity securities, internally
generated funds and bank borrowings to finance its acquisitions, working capital
requirements, capital expenses and operations.
Cash totaled $1.1 million at June 30, 1996, an increase of $246,000 from
June 30, 1995. Net cash provided by operating activities for the year ended June
30, 1996 was $3.4 million, primarily due to the collection of contract
receivables of $2.9 million, the majority of which were from the Company's
discontinued flight and radar simulation business which were retained by the
Company when it exited this business in April 1995. Increases in sales volume
and demand for semiconductor parts during fiscal 1996 have caused the Company to
increase accounts receivable and inventory. In addition, liabilities increased
in line with the current level of business activity. In fiscal 1996, net cash
used in investing activities of $1.1 million was primarily for the purchase of
software and equipment totaling $764,000 and $237,000 for the purchase of the
IP-compatible product line from Wavetron Microsystems, Inc. in January 1996. In
fiscal 1996, the net cash used in financing activities of $2.1 million was
applied primarily to pay down short and long-term bank debt. The Company
subcontracts much of its manufacturing and, therefore, its capital expenditures
generally consist of computing equipment, leasehold improvement and office
furniture.
On April 26, 1996, the Company amended its bank financing agreement with
NationsBank, originally entered into in April 1995, to provide the Company with
a $6.8 million term loan and a $2.5 million revolving line of credit. The term
loan is a three year note with five year amortization maturing on October 30,
1999. This note refinanced a majority of the Company's outstanding debt,
including the $1.0 million note previously payable to the former shareholders
and option holders of GreenSpring entered into in April 1995 at the time the
Company acquired GreenSpring. The revolving line of credit matures on October
30, 1997. The interest rate on the term loan is NationsBank's prime rate plus
0.25% or LIBOR plus 2.5% in 30, 60, or 90 day options. The interest rate of the
revolving line of credit is NationsBank's prime rate or LIBOR plus 2.25% in 30,
60, or 90 day options. The amended financing agreement provides for a security
interest by NationsBank in the Company's receivables, inventories, and equipment
and imposes certain performance ratios on the Company. These ratios include a
current maturities ratio which requires that the Company's net earnings, plus
depreciation and amortization expense for the preceding four quarters from time
of measurement compared to the Company's current portion of its long-term debt,
will not be less than a ratio of 2 to 1; a senior funded debt to EBITDA ratio
which requires that the Company's total debt evidenced by promissory notes, loan
agreements, bonds or similar instruments, but excluding subordinated debt, will
not be greater than a ratio of 1.5 to 1 when compared to the Company's profit
before tax plus interest, depreciation, and amortization expense for the
preceding four quarters from time measurement; and a fixed charge coverage ratio
requiring that the Company's income before tax plus interest expense and
operating lease expense for the preceding four quarters from time of measurement
will not be less than a ratio of 2 to 1 when compared to the Company's interest
expense plus operating
23
<PAGE>
lease expense for the same preceding four quarters. The Company is also
prohibited from disposing of or acquiring certain assets and businesses without
the consent of the lender. At June 30, 1996, the Company was in compliance with
all of the covenants of the amended financing agreement. The outstanding balance
on the term loan with NationsBank at June 30, 1996 was $6.5 million, of which
$5.0 million bears interest at LIBOR plus 2.5% (8.0% at June 30, 1996) and $1.5
million was at NationsBank's base rate plus 0.25% (8.5% at June 30, 1996). The
term loan is payable in monthly installments of $112,500. As of June 30, 1996,
there were no borrowings drawn on the revolving line of credit. During fiscal
1996, total borrowings were reduced by $3.4 million.
The Company anticipates that the net proceeds from this offering, cash flow
from operations and available borrowing capacity will be sufficient to finance
normal operations, including any post-acquisition cash requirements of Bit 3.
Management believes that financial resources, including its internally generated
funds and available bank borrowings, will be sufficient to finance the Company's
current operations and capital expenditures, excluding acquisitions, for the
next twelve months.
For the three most recent fiscal years, there has been no impact from
inflation or changing prices to the Company's sales or income from continuing
operations.
ACCOUNTING PRINCIPLES
In October 1995, the FASB issued Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." Under the provisions of FAS
123, companies may elect to account for stock-based compensation plans using a
fair-value-based method or may continue measuring compensation expense for those
plans using the intrinsic-rate-based method. Companies electing to continue
using the intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied. Management intends to continue to account for stock-based compensation
using the stock-based method and, as such, does not believe FAS 123 will have an
impact on the Company's results of operations or financial position. FAS 123
becomes effective in fiscal year 1997.
24
<PAGE>
SELECTED FINANCIAL INFORMATION OF
BIT 3 COMPUTER CORPORATION
The following selected statement of operations data for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996, and
balance sheet data as of December 31, 1994 and 1995 and as of June 30, 1996 are
derived from the financial statements of Bit 3, which have been audited by KPMG
Peat Marwick LLP, independent auditors, and are included elsewhere in this
Prospectus. The balance sheet data as of December 31, 1991, 1992 and 1993 and as
of June 30, 1995 and the selected statement of operations data for the years
ended December 31, 1991 and 1992 and for the six month period ended June 30,
1995 have been derived from Bit 3's unaudited financial statements that have
been prepared on the same basis as the audited financial statements and in the
opinion of Bit 3, include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position and
operating results for the unaudited periods. The following selected data should
be read in conjunction with the Financial Statements of Bit 3 and Notes thereto
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................. $ 6,175 $ 8,042 $ 10,750 $ 11,599 $ 12,530 $ 5,980 $ 7,637
Cost of sales.......................... 2,794 3,085 4,151 4,219 4,438 2,149 2,393
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 3,381 4,957 6,599 7,380 8,092 3,831 5,244
Selling, general and administrative.... 1,300 1,321 1,473 1,661 1,857 840 865
Research and development............... 1,575 1,621 1,596 1,531 1,571 726 992
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 506 2,015 3,530 4,188 4,664 2,265 3,387
Other income........................... 52 46 28 58 66 23 34
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............. $ 558 $ 2,061 $ 3,558 $ 4,246 $ 4,730 $ 2,288 $ 3,421
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital.................................. $ 1,906 $ 3,360 $ 3,334 $ 3,195 $ 3,426 $ 4,011
Total assets..................................... 2,680 3,701 3,680 3,594 3,818 4,572
Total shareholders' equity....................... 2,242 3,599 3,579 3,395 3,590 4,159
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF BIT 3 COMPUTER CORPORATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH BIT
3 FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF BIT 3'S PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR
IN THIS PROSPECTUS. BIT 3'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE
HEREIN.
OVERVIEW
Bit 3 manufactures high performance computer bus interconnect hardware and
software used in a wide variety of applications, including data acquisition,
image and visualization processing, industrial process control, medical
electronics, signal processing and system integration. Bit 3, founded in 1979,
currently provides these interconnect products to a wide variety of commercial
users. Sales to one customer represented 19.2% of sales in 1995 and 21.9% of
sales in the total first six months ended June 30, 1996. Sales to a distributor
serving the adapter market in Japan, represented 8.1% of sales in 1995 sales and
11.8% of total first six months ended June 30, 1996. International sales
accounted for approximately 17.0% of total sales in 1995.
The results of operations for Bit 3 have been prepared using the accounting
policies used by the Company. See Note 2 of "Notes to Bit 3's Financial
Statements". During the period for the financial data contained herein, Bit 3
has elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. As a result, no provision has been made for federal or state
income taxes, because the applicable tax liability or benefit is the
responsibility of Bit 3's shareholders.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating
data as a percentage of sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 38.6 36.4 35.4 35.9 31.3
--------- --------- --------- --------- ---------
Gross profit........................................ 61.4 63.6 64.6 64.1 68.7
Selling, general and administrative................... 13.7 14.3 14.8 14.1 11.3
Research and development.............................. 14.8 13.2 12.5 12.1 13.0
--------- --------- --------- --------- ---------
Income from operations.............................. 32.9 36.1 37.3 37.9 44.4
Interest income....................................... 0.3 0.5 0.5 0.4 0.4
--------- --------- --------- --------- ---------
Income before income taxes.......................... 33.2% 36.6% 37.8% 38.3% 44.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND SIX MONTHS ENDED JUNE 30, 1995
SALES. For the six months ended June 30, 1996, sales increased 27.7%, or
$1.6 million, from $6.0 million in the six months ended June 30, 1995 to $7.6
million. This increase was attributable to increased sales of new products and
increased sales to existing customers.
26
<PAGE>
GROSS PROFIT. For the six months ended June 30, 1996, gross profit
increased 36.9%, or $1.4 million, from $3.8 million in the six months ended June
30, 1995 to $5.2 million as a result of increased sales volume. For the six
months ended June 30, 1996, gross margin increased to 68.7% of sales, from 64.1%
in the six months ended June 30, 1995 primarily as a result of reductions in
material costs and improved manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE. For the six months ended June 30,
1996, selling, general and administrative expense increased 3.0%, or $25,000,
from $840,000 in the six months ended June 30, 1995 to $865,000. However,
selling, general and administrative expense decreased as a percentage of sales
from 14.1% in the six months ended June 30, 1995 to 11.3% for the six months
ended June 30, 1996, primarily due to improved operating efficiencies achieved
by holding personnel costs constant as sales increased.
RESEARCH AND DEVELOPMENT. For the six months ended June 30, 1996, research
and development expense increased by 36.6%, or $266,000, from $726,000 in the
six months ended June 30, 1995 to $992,000 million. Research and development
expense increased as a percentage of sales from 12.1% in the six months ended
June 30, 1995 to 13.0% in the six months ended June 30, 1996, primarily due to
increased staffing.
OTHER INCOME. For the six months ended June 30, 1996, other income
increased by 47.8%, or $11,000, from $23,000 in the six months ended June 30,
1995 to $34,000 as a result increased cash reserves in interest bearing
accounts.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
SALES. In 1995, sales increased 8.0%, or $931,000, from $11.6 million in
1994 to $12.5 million. This increase was attributable to increased sales of new
products, particularly Bit 3's PCI to VME adapter, and increased sales to
existing customers.
GROSS PROFIT. In 1995, gross profit increased 9.6%, or $712,000, from $7.4
million in fiscal 1994 to $8.1 million as a result of increased sales volume. In
1995, gross margin increased to 64.6% of sales, from 63.6% in fiscal 1994
primarily as a result of reductions in material costs.
SELLING, GENERAL AND ADMINISTRATIVE. In 1995, selling, general and
administrative expense increased 11.8%, or $196,000, from $1.7 million in 1994
to $1.9 million. Selling, general and administrative expense increased as a
percentage of sales from 14.3% in 1994 to 14.8% in 1995 primarily due to
increased advertising and trade show expense.
RESEARCH AND DEVELOPMENT. In 1995, research and development expense
increased by 2.6%, or $40,000, from $1.5 million in 1994 to $1.6 million.
Research and development expense decreased as a percentage of sales from 13.2%
in 1994 to 12.5% in 1995 primarily due to a more rapid increase in sales than in
research and development expense.
INTEREST INCOME. In 1995, interest income increased by 13.8%, or $8,000,
from $58,000 in 1994 to $66,000 as a result increased cash reserves in interest
bearing accounts.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
SALES. In 1994, sales increased 7.9%, or $849,000, from $10.8 million in
1993 to $11.6 million. This increase resulted from a number of factors
including, increased sales of existing products, particularly the Sbus to VME
adapter, and increased sales to two major customers.
GROSS PROFIT. In 1994, gross profit increased 11.9%, or $781,000, from $6.6
million in 1993 to $7.4 million due to increased sales volume and improved gross
margin. In 1994, gross margin increased from 61.4% of sales in 1993 to 63.6% of
sales as a result of reductions in material costs.
27
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. In 1994, selling, general and
administrative expense increased by 12.8% or $188,000, from $1.5 million in 1993
to $1.7 million. The increase resulted from the addition of increased
promotional and trade show expenses. As a percentage of sales, selling, general
and administrative expense increased from 13.7% in 1993 to 14.3%.
RESEARCH AND DEVELOPMENT. In 1994, research and development expense
decreased by 4.1%, or $65,000, from $1.6 million in 1993 to $1.5 million
reflecting the completion of certain product development programs to the
pre-production stage. Research and development decreased as a percentage of
sales from 14.8% to 13.2% primarily due to a more rapid increase in sales than
in research and development expense.
INTEREST INCOME. In 1994, interest income increased by $30,000, or 107.1%,
from $28,000 in 1993 to $58,000 primarily as a result of increased cash reserves
in interest bearing accounts.
For the three most recent years, there has been no impact from inflation or
changing prices to Bit 3's sales or income from continuing operations.
28
<PAGE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
SBS TECHNOLOGIES, INC. AND BIT 3 COMPUTER CORPORATION
(UNAUDITED)
The Company intends to acquire all the outstanding stock of Bit 3 using the
net proceeds from this offering and, as required, additional debt or cash flow
from Company operations. The unaudited Pro Forma Combined Consolidated Financial
Statements reflect the following: (i) adjustment for the purchase accounting and
estimated fair value allocation of the assets to be acquired and the obligations
to be assumed; (ii) provision for income taxes as if the combined operations had
been taxed as a C corporation for the period presented; (iii) the sale of the
shares offered by the Company and the application of the anticipated net
proceeds therefrom to reduce outstanding long term debt and increase working
capital. The unaudited Pro Forma combined consolidated balance sheet as of June
30, 1996 was prepared as if the transaction had occurred at that date. The
unaudited Pro Forma Statement of Operations for the 12 month period ended June
30, 1996 was prepared as if the Acquisition had occurred on July 1, 1995. The
Bit 3 results for the period June 30, 1995 to June 30, 1996 are comprised of the
period between January 1, 1996 and June 30, 1996, and an allocation of Bit 3's
1995 results to the period July 1, 1995 to December 31, 1995.
In the opinion of Company management, all adjustments necessary to present
fairly such Pro Forma Combined Consolidated Financial Statements have been made
based on the proposed terms and structure of the Acquisition. The Company
anticipates, however, that changes in the composition of the assets to be
acquired and the liabilities to be assumed will occur due to changes in the
ordinary course of the Company's business. The Company believes any related
adjustments will not be material to the Pro Forma Combined Consolidated
Financial Statements. Certain of the Pro Forma adjustments are based on the
price per share of the Company's Common Stock on the date of completing the
offering. The adjustments included in the following Pro Forma Combined
Consolidated Financial Statements are based upon an assumed offering price of
$23.50 per share. To the extent that the actual price per share and net proceeds
after deducting underwriting discounts and commissions and offering expenses
payable by the Company to the Company are not the same as the assumed price, the
related adjustments will differ.
These unaudited Pro Forma Combined Consolidated Financial Statements are not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the respective periods nor do they
purport to indicate the results of future operations of the Company.
These unaudited Pro Forma Combined Consolidated Financial Statements should
be read in conjunction with the accompanying notes and with the financial
statements and notes thereto of the Company and Bit 3, respectively, included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of SBS Technologies, Inc." and
"Management's Discussion and Analysis of Results of Operations of Bit 3 Computer
Corporation."
29
<PAGE>
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (UNAUDITED)(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------- PRO FORMA
SBS BIT 3 ADJUSTMENTS PRO FORMA
--------- --------- ----------- -----------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 1,130 $ 887 $ 7,579(b) $ 9,596
Receivables........................................ 6,421 1,583 8,004
Inventories........................................ 5,161 1,932 7,093
Deferred income tax................................ 317 317
Prepaid expenses................................... 304 22 326
Other current assets............................... 104 104
--------- --------- ----------- -----------
Total current assets............................. 13,437 4,424 7,579 25,440
Property and equipment, net.......................... 1,348 148 1,496
Intangible assets:
Pre-acquisition intangible assets, net............. 5,571 5,571
Excess of estimated cost of acquisition over the
estimated fair value of the assets acquired...... 8,775(c) 8,775
--------- --------- ----------- -----------
Intangible assets, net............................. 5,571 8,775 14,346
--------- --------- ----------- -----------
Deferred income taxes................................ 56 56
Other assets......................................... 32 32
--------- --------- ----------- -----------
Total assets..................................... $ 20,444 $ 4,572 $ 16,365 $ 41,370
--------- --------- ----------- -----------
--------- --------- ----------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Current portion of long term debt.................. $ 1,459 $ 1,459 --
Accounts payable................................... 1,597 $ 191 $ 1,788
Accrued liabilities................................ 1,450 222 3,550(d) 5,222
Income taxes payable............................... 223 393 616
Other current liabilities.......................... 425 425
Reserve for discontinued operations 51 51
--------- --------- ----------- -----------
Total current liabilities........................ 5,205 413 2,484 8,102
Long term debt, less current portion................. 5,188 (5,066)(e) 122
--------- --------- ----------- -----------
Total liabilities................................ 10,393 413 (2,582) 8,224
Stockholders equity:
Common stock....................................... 4,691 20 34,461(f) 39,172
Common stock warrants.............................. 180 180
Retained earnings (deficit)........................ 5,180 4,139 (15,525)(g) (6,206)
--------- --------- ----------- -----------
Total stockholders' equity....................... 10,051 4,159 18,936 33,146
--------- --------- ----------- -----------
Total liabilities and stockholders' equity....... $ 20,444 $ 4,572 $ 16,354 $ 41,370
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
(SEE FOOTNOTES APPEARING ON NEXT PAGE)
30
<PAGE>
NOTES TO PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
(a) See introductory paragraphs under "Pro Forma Combined Consolidated Financial
Statements."
(b) Adjustment to cash consists of the following:
<TABLE>
<S> <C>
Net proceeds from the offering............................. $ 34,481
Capital adjustment to Bit 3 net equity of $3.35 million.... (909)
Cash used at closing....................................... (20,450)
Use of extra cash to eliminate long term debt.............. (6,525)
Interest adjustment resulting from increased cash and
reduced debt............................................. 982
---------
Total adjustment $ 7,579
---------
---------
</TABLE>
(c) Excess of estimated cost of acquisition over the estimated fair value of
assets acquired:
<TABLE>
<S> <C>
Purchase price............................................. $ 24,000
Estimated acquisition costs................................ 450
Less:
In-process research and development...................... (11,000)
Bit 3 net assets at closing per the acquisition
agreement.............................................. (3,250)
Discount on notes payable to selling shareholders........ (450)
---------
Intangible assets, including goodwill...................... $ 9,750
---------
Amortization............................................... (975)
Pro forma intangible assets, including goodwill............ $ 8,775
---------
---------
</TABLE>
(d) Liability for future payments to Sellers, see "Acquisition of Bit 3."
(e) Payment of long term debt financed by cash from the net proceeds from this
offering in excess of cash required at closing.
(f) Increase in Common Stock from the sale by the Company of 1,580,000 shares at
an assumed public offering price of $23.50 per share less Underwriting
Discounts and Commissions and estimated expenses and the purchase of Bit 3
Common Stock.
(g) Adjustment to eliminate the net investment of Sellers in Bit 3.
31
<PAGE>
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)(A)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996 PRO FORMA
-------------------- ------------------------
SBS BIT 3 ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales.............................................................. $ 31,332 $ 14,187 $ 45,519
Cost of sales...................................................... 14,510 4,682 19,192
--------- --------- -----------
Gross profit................................................... 16,822 9,505 26,327
Selling, general and administrative................................ 6,293 1,837 $ 11,000(b) 19,130
Research and development........................................... 2,846 1,881 4,727
Amortization of intangible assets.................................. 884 -- 975(c) 1859
--------- --------- ----------- -----------
Income from operations............................................. 6,799 5,787 (11,975) 611
Interest expense (income), net of interest income.................. 830 (76) (982)(d) (228)
--------- --------- ----------- -----------
Income (loss) before income tax provision.......................... 5,969 5,863 (10,993) 839
Income tax provision............................................... 2,387 2,345(e) (4,396)(f) 336
--------- --------- ----------- -----------
Income from continuing operations.................................. $ 3,582 $ 3,518 $ (6,597) $ 503
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Common and common equivalent shares outstanding.................... 3,792 5,142
Income per common and common equivalent share from continuing
operations(g)..................................................... $ 0.97 $ 0.10
--------- -----------
--------- -----------
</TABLE>
NOTES TO PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED JUNE 30, 1996
(a) See the introductory paragraphs under "Pro Forma Combined Consolidated
Financial Statements."
(b) Represents the earnings charge related to the purchased technology from the
Acquisition of Bit 3.
(c) Amortization of $9,750,000 of goodwill associated with the Acquisition over
the estimated benefit period of 10 years.
(d) Reduction in interest expense by using cash proceeds in excess of closing
requirements to reduce the Company's long term debt by $6,525,000. Current
interest rate on Company's long term debt is 10% per annum.
(e) Bit 3 income tax when taxed as a C Corporation at 40% rate.
(f) Change in income tax resulting from income charges due to the net of
increased amortization of intangible assets associated with the Bit 3
purchase and interest savings resulting from elimination of long term debt
as a result of the offering.
(g) The Company's earnings per common and common equivalent share are based on
the weighted average shares of common stock and, if dilutive, common
equivalent shares (options and warrants) outstanding during the period.
The numbers of shares used in the earnings per share computations for
SBS and pro forma combined consolidated earnings per share are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
PRO FORMA
COMBINED
SBS CONSOLIDATED
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Weighted average shares of common stock outstanding during the year................... 3,018 4,516
Common equivalent shares--assumed exercise of options and warrants.................... 1,378 1,378
Shares assumed to be repurchased with proceeds from exercise subject to 20% of average
shares outstanding maximum........................................................... (604) (752)
--------- -----
Total common and common equivalent shares......................................... 3,792 5,142
--------- -----
--------- -----
</TABLE>
32
<PAGE>
BUSINESS
GENERAL
The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface functions. The Company capitalizes on its design expertise
and customer service capabilities to enhance product quality and reduce time to
market for OEM customers. The Company is seeking to enhance its product
offerings and has entered into a definitive agreement to acquire Bit 3, a
manufacturer of high-performance bus interconnect hardware that enables embedded
computers of differing standards to communicate. The Company will fund the $24.0
million acquisition primarily with the net proceeds of this offering. See "The
Acquisition of Bit 3."
The Company's objective is to become a leading supplier of board level
components to the standard bus embedded computer market. The Company intends to
continue its growth through a combination of internal growth and acquisitions.
Internal growth is achieved through expanding its existing product lines through
new product development and increasing penetration of its existing customer
base. The Company currently participates in a number of attractive markets,
including the Intel-based VME CPU board market, the IP market in general purpose
I/O, the telemetry interface market and the MIL-STD-1553 avionics interface
market. The Acquisition will add a line of bus interconnect products for a
variety of standard bus embedded computer buses to the Company's current product
offerings.
The Company sells its products through a combination of direct sales and
independent manufacturers' representatives. The Company's products serve a broad
range of functions including commercial, communications, industrial automation,
medical device, military and space, test and measurement and transportation.
Customers include The Boeing Company, Caterpillar, Inc., Eastman Kodak Company,
General Electric Company and Lockheed Martin Corporation. International sales
constituted approximately 16% of the Company's sales in fiscal 1996. Bit 3
currently provides interconnect products to a wide variety of commercial users
including Digital Equipment Corporation, General Electric Medical Systems,
Lockheed Martin Corporation and Rockwell International Corporation.
INDUSTRY BACKGROUND
In recent years, development of electronics and semiconductor technology has
fueled rapid growth in sales of electronics products and systems. This growth
has resulted from the emergence of new markets such as cellular telephones and
personal computers, as well as the application of electronics technology in
existing markets such as factory automation, medical instrumentation, test and
measurement systems, telecommunications, transportation and retailing. The rapid
proliferation of increasingly complex electronics applications and the
widespread trend toward outsourcing of electronics subsystems by product
manufacturers have created attractive markets for experienced, highly-focused
developers and manufacturers of electronics subsystems and components.
EMBEDDED COMPUTER MARKET. Embedded computers, which are computers that
comprise part of larger systems and which often perform functions such as data
I/O and system communication and control, represent an important segment of the
electronics market. Examples of embedded computers include the computer board
that operates an automated teller machine and the computer system that operates
a factory. Embedded computers differ from computers targeted at business
applications in several key respects, including the following:
- Embedded computers are integrated into larger systems and perform a single
function or a closely related group of functions, such as I/O and data
processing, with high degrees of repeatability, accuracy and reliability.
33
<PAGE>
- Embedded computers are design-specific solutions that require substantial
engineering expertise and a comprehensive understanding of the individual
product into which they are incorporated.
- Unlike PC products, which have experienced and will likely continue to
experience short product cycles, typical embedded computer solutions have
an extended product life reflecting the long life cycles of the products
into which embedded computers are typically incorporated and the
manufacturer's desire to maintain a stable product configuration.
- Embedded computers must often adhere to specific requirements, including
size, reliability and ability to withstand the demands of extreme
operating environments.
- Embedded computers typically represent only a small portion of the overall
cost of the larger systems into which they are incorporated.
As a result, performance, reliability, supplier stability and customer support,
rather than price, are often the primary factors in a decision to purchase a
particular embedded computer solution.
A typical embedded computer application consists of an element, such as a
machine tool, to be controlled by or interfaced with the embedded computer,
input boards to transfer status data from the element into the embedded
computer, one or more processor boards to take the status data from the input
boards and select an appropriate action for the element to perform and output
boards to send control instructions back to the element. Embedded computers also
often incorporate a user interface through which an operator can control or
monitor the embedded computer manually. Additionally, multiple embedded
computers of similar or differing architectures are often interconnected to
create larger systems. An example is the interconnection of multiple computer
controlled machines to automate an entire factory. A typical embedded computer
architecture is illustrated by the diagram below which illustrates the use of
the Company's products.
34
<PAGE>
OEMs requiring embedded computers either construct systems based on standard
bus designs together with off-the-shelf I/O, processor and memory modules, or
they develop custom or proprietary solutions. Standard bus solutions generally
enable product designers to develop systems quickly and with a high degree of
confidence in the reliability of the solution, to capitalize on the lower cost
of industry-standard components and to modify designs easily so that a single
product design can serve multiple applications. As a result of these factors,
standard bus systems today constitute a large and growing portion of the
embedded computer market. According to a recent industry study, BOARD-LEVEL
EMBEDDED COMPUTER MARKETS AND TRENDS, the standard bus embedded computer market
is projected to grow from approximately $2.5 billion in 1995 to approximately
$3.9 billion in 1999.
The most popular embedded computer standard today is VME, which has found
broad acceptance in aerospace and military, telecommunications, networking,
industrial automation and control, medical instruments and automated test and
measurement applications. According to BOARD-LEVEL EMBEDDED COMPUTER MARKETS AND
TRENDS, theVME-bus embedded computer market is projected to grow from
approximately $1.2 billion in 1995 to approximately $2.3 billion in 1999.The
modular nature of standard bus embedded computers, their wide range of
applications and the variety of bus architectures available have resulted in a
highly fragmented market. The variety of standard bus embedded computer
architectures supports a growing market for products that interconnect various
types of standard bus embedded computers.
The modular nature of standard bus embedded computers, their wide range of
applications and the variety of bus architectures available have resulted in a
highly fragmented market. The variety of standard bus embedded computer
architectures supports a growing market for products that interconnect various
types of standard bus embedded computers. The rapid acceptance of embedded
computers among industrial product OEMs and the fragmentation of embedded
computer standards have also created a need for interconnection equipment
between individually incompatible embedded computer systems. This need has led
to the development of a growing set of products that support interconnection and
networking between various types of standard bus embedded computers.
TREND TOWARD OUTSOURCING. In recent years, the increasing complexity of
electronics subsystems and components, together with a widespread trend in many
companies to focus on core competencies, has led to growth in outsourcing the
design and manufacture of electronic components and subsystems by OEMs. The
increasing complexity of the design and manufacture of electronics components
and subsystems can require extensive research and divert valuable resources away
from the core competencies of an OEM. An OEM that designs and manufactures an
embedded computer internal typically maintains a specialized design staff, an
investment of inventory of components, and a specialized manufacturing
capability. To address the challenges created by the increasing complexity of
key electronics components and subsystems, such as embedded computers, and to
focus on their core areas of competency, a growing number of OEMs are
outsourcing the design and manufacture of complex embedded computer solutions.
As a result, the Company believes there is a significant opportunity to provide
OEMs with cost-effective, reliable and high value-added embedded computer
solutions.
SBS' STRATEGY
The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O and special
purpose I/O interface applications. The Company capitalizes on its design
expertise and customer service capabilities to enhance product quality and
reduce time to market for OEM customers. The Company's objective is to become a
leading supplier of board level components to the standard bus embedded computer
market. The multiple applications associated with this market and its fragmented
nature provide numerous opportunities for the Company to expand the scope of its
activity. Key elements of the Company's strategy are:
35
<PAGE>
- EXPAND MARKET PENETRATION THROUGH INTERNAL GROWTH. The Company has
achieved internal growth in each of its principal product lines through a
combination of new product development and increased sales of existing
products to new and existing customers. By increasing the direct sales
capability of the companies it has acquired, cross-selling to its existing
customers and to customers gained through acquisitions, and continuing to
update its existing products with state of the art technology, the Company
has been able to expand its available market and increase penetration of
its customer base. For example, after the Acquisition, the Company intends
to expand Bit 3's marketing focus from catalogue sales to include
increased emphasis on direct sales and thereby offer a wide range of
complementary I/O, CPU and interconnect solutions to both the Company's
existing customers and Bit 3's customers. The Company seeks to expand its
product offerings to accommodate popular embedded computer bus standards.
The Company currently has products serving the VME and ISA bus
marketplaces and is developing products compatible with compact PCI bus
formats.
- COMPLEMENT INTERNAL GROWTH THROUGH ACQUISITION. The Company has developed
its business through the acquisition of embedded computer companies with
product lines compatible with its own. As a result, the Company is able to
offer integrated solutions to its customers and to enter a number of
complementary markets. The Company's acquisitions of BSI, GreenSpring and
LDG have enabled the Company to expand from its initial specialized
applications markets into larger and broader markets. The Company views
the Acquisition as a key step in its acquisition growth strategy.
- CONTINUED TECHNOLOGY INTEGRATION. The Company invests in research and
development to improve product performance, extend its product offerings,
serve new applications and develop new products for its existing
customers. Existing products are regularly upgraded to incorporate
advanced digital technology and to maintain state of the art performance.
As a result of its efforts to increase product performance, the Company
has also been able to reduce product size and cost through the use of
state of the art components. The Company seeks to share technology between
its divisions to reduce development costs, development risks and time to
market.
- EMPHASIZE CUSTOMER SUPPORT. Because of the critical nature of many of the
applications for the Company's products and the complex nature of the
systems into which they are incorporated, comprehensive and timely
customer support are important aspects of a customer's purchase decision.
The Company provides extensive customer support to assist in the
integration of its products into customer systems. This support can
include providing on-site, applications engineering assistance at no cost.
The Company believes that this focus on customer support has contributed
to high levels of repeat business and has helped expand sales of the
Company's products throughout its customers' organizations.
- EXPAND INTERNATIONAL SALES. Currently, the Company derives approximately
16% of its revenue from international sales, primarily in Europe, Canada
and the Far East. In 1996, the Company opened its first international
office in Scotland to service the European market. The Company seeks to
extend its sales penetration through a combination of international
distributions and sales representatives' networks, potential international
acquisitions, certifying its products to international standards and
opening additional international Company sales offices.
SBS' PRODUCTS
The Company's primary product lines are divided into two groups: general
purpose products including CPU products and general purpose I/O products, and
special purpose products including telemetry and avionics interface products.
The Acquisition will add bus interface products to the Company's general purpose
product grouping.
36
<PAGE>
GENERAL PURPOSE PRODUCTS
CPU PRODUCTS. The Company entered the standard bus embedded computer CPU
board market with its acquisition of LDG in August 1996. CPU boards contain the
computational functionality of an embedded computer system. The Company produces
CPU boards for the VME segment of the embedded computer market, the most widely
accepted bus standard in the industry. The VME CPU board market can be segmented
by processor type. The largest segment is made up of boards designed around the
Motorola 680x0 series processors, upon which the VME standard was based. A
growing segment is comprised of boards based on Intel 80x86 and Pentium
processors which provide access to the large base of Windows and Windows NT
software available from the PC market. The CPU boards sold by LDG are based on
Intel 80x86 and Pentium processors and are focused on the market for "Wintel"
CPU board products in the VME marketplace. In August 1996, the Company began
shipment of the first single-slot Pentium-based VME board in the industry. At
present, the Company offers six Intel processor-based CPU boards ranging in
price from $2,500 to $8,500.
GENERAL PURPOSE I/O PRODUCTS. In April 1995, the Company purchased
GreenSpring, a leading developer and producer of I/O modules known as
IndustryPacks ("IPs"). IPs are small mezzanine boards that plug onto an embedded
computer board and provide specific types of I/O for embedded computer systems.
GreenSpring originally developed the IP in conjunction with Motorola as a
modular I/O solution for Motorola's MVME162 processor board, which has become
the most popular processor board in the VME market. The Company has continued to
expand the market for IP products by introducing a line of carrier cards for VME
systems that can accommodate up to four IPs. This allows system designers to use
IPs even if they do not use Motorola MVME162 products. The Company's offerings
currently include VME, PCI, compact PCI and ISA bus carrier cards. GreenSpring's
product line of over 100 I/O products service a wide range of applications in
the embedded computer market including analog I/O, bus interface functions,
digital/parallel I/O, motion control, telecommunications/serial I/O,
telecommunications products, video/graphics adapters and temperature measurement
with prices ranging from $350 to $3,500.
SPECIAL PURPOSE PRODUCTS
TELEMETRY PRODUCTS. In August 1992, the Company purchased BSI, a leading
supplier of telemetry interface equipment for the embedded computer market.
Telemetry is the process used to send and receive digital data via radio waves.
The Company's telemetry interface products allow computers to receive, interpret
and process telemetry data. Telemetry is often used to transmit data from some
object under test, such as an aircraft, to a receiving station while the test is
underway. This allows engineers to monitor test performance in real time, often
decreasing total test costs and enhancing test safety. Use of this technology
has expanded to include continuous monitoring of remote sites and transmission
of digital data from satellites to the earth. BSI pioneered the concept of using
special purpose interface boards for telemetry ground station applications based
on standard bus embedded computers. BSI has expanded its product offerings to
include specialized equipment designed to receive and process satellite data.
The Company's telemetry products serve a specialized market and include a
significant software component. BSI sells approximately 30 products for the VME
and ISA bus telemetry markets at prices ranging from $2,400 to $38,000.
AVIONICS INTERFACE PRODUCTS. The Company's avionics products interface an
embedded computer system with the MIL-STD-1553 avionics bus used in a wide
variety of military and space applications including aircraft, missiles, ground
vehicles, the International Space Station, the Space Shuttle and naval vessels.
Initial applications for the Company's products were support of system
development, system testing and simulation. Over the past several years, the
Company has expanded its product line to include ruggedized interface products
that are used in operational systems, and monitor and test systems that can be
used as diagnostic tools for operational systems. Like its telemetry products,
the Company's avionics products occupy a niche market and include a significant
software component. The Company offers approximately 20 avionics interface
boards at prices ranging from $4,000 to $20,000.
37
<PAGE>
The Company also produces a judgmental use of force product. This product
utilizes an embedded computer in a device to train police officers and military
personnel in proper responses to crisis situations.
BIT 3 COMPUTER CORPORATION
A significant portion of the net proceeds from this offering will be used to
acquire Bit 3. See "Acquisition of Bit 3" and "Use of Proceeds." Shortly after
its formation in 1979, Bit 3's management recognized that the rapid expansion of
microprocessor-based industrial computers had resulted in the proliferation of a
number of different computer architecture standards. Bit 3 identified a market
for products that interface and network industrial computers designed around
different computer architectures. In 1983, Bit 3 introduced its first adapter
product, an interface device to connect IBM PC equipment with Multibus
architecture computers. Since then, Bit 3 has expanded its product line to
include computer networking and interconnection hardware for many of the popular
computer architecture standards used in the standard bus embedded computer
market, including VME, Sbus, ISA, EISA, Micro Channel, GIO, TURBOCHANNEL, PCI,
Multibus and Qbus. Currently, the majority of Bit 3's new product development is
focused on VME, PCI and compact PCI bus designs. The development of Bit 3's new
products is driven by the emergence of significant new bus specifications and
applications.
Bit 3 produces high performance bus interconnect hardware and software
products that are used in a wide variety of applications, including data
acquisition, image and visualization processing, industrial process control,
medical electronics, signal processing and system integration. Bit 3's typical
customer uses bus adapter products, because of the need for high speed,
low-latency interconnections between computer platforms. This connectivity
cannot be provided at the required performance levels by common local area
networking solutions, such as Ethernet or Token Ring, nor can it in most cases
be provided by higher speed protocols, such as ATM or FDDI. Bit 3 currently
provides interconnect products to a wide variety of commercial users. Sales to
one customer represented approximately 19.2% and 21.9% of Bit 3's sales for the
twelve months ended December 31, 1995 and the six months ended June 30, 1996,
respectively. A decrease in sales to this customer could materially adversely
affect Bit 3's business.
The Company believes that Bit 3's products, technology and customers are
synergistic with its existing businesses, particularly its general purpose CPU
and I/O products. As with its other businesses, the Company intends to actively
pursue cross selling opportunities between its existing product lines, including
those acquired with Bit 3. It also believes that the computer interconnect
market will continue to grow as the use of standard bus embedded computers
proliferates and that it can participate in this growth through active marketing
of Bit 3 products. However, there can be no assurance that any synergy will take
place between Bit 3 and the Company's existing product lines or that Bit 3 will
experience future growth or remain at its current level of sales and
profitability in the future. See "Risk Factors--Acquisition of Bit 3."
Achieving the anticipated benefits of the Acquisition will depend upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The integration of Bit 3 will require, among other things, integration of
the Company's and Bit 3's respective product offerings and the coordination of
their sales and marketing and research and development efforts. The difficulties
of such integration may be increased by the necessity of coordinating
geographically separated organizations. The inability of management to
successfully integrate the operations of the Company and Bit 3 could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Acquisition of Bit 3."
38
<PAGE>
APPLICATIONS AND CUSTOMERS
The Company's broad range of products support a wide range of applications.
In fiscal 1994, 1995 and 1996, no one customer exceeded 10% of the Company's
sales. The following table highlights some of the Company's representative
customers and their applications utilizing the Company's products.
<TABLE>
<CAPTION>
APPLICATION CUSTOMER COMPANY PRODUCT
- ----------------------------------------------------------- ------------------------------ --------------------
<S> <C> <C>
COMMERCIAL AND INDUSTRIAL APPLICATIONS
Airport Ground Traffic Control Norden/Westinghouse CPU
"C" Size Copier Xerox I/O
Color Proof Copier Eastman Kodak I/O
Currency Inspection System Currency Systems CPU
Document Scanner GE Scanning I/O
Heavy Machinery Testing Caterpillar Telemetry
Semiconductor Handler Delta Design I/O
Turbine Control System GE Motors CPU
COMMUNICATIONS
Cellular Telephone Systems ArgoSystems CPU
Commercial Satellite Testing Loral Test & Information Avionics
Communications Satellite Testing TRW Telemetry
GSP Testing Aerospatiale Telemetry
SS7 Telephone Protocol Undisclosed I/O
Telephone Protocol Undisclosed I/O
Telephone Switch Billing System ACECOM I/O
INDUSTRIAL AUTOMATION
Animatronics Walt Disney I/O
Automotive Brake Tester Burke Porter Machinery CPU
Automotive Wheel Alignment Burke Porter Machinery CPU
Carpet Manufacturer Process Control MOOG I/O
Packaging Machinery Triangle Package Machinery I/O
PLC Co-processor GE Fanuc CPU
Robot Control Adept Technology I/O
Semiconductor Trim Equipment Control Automation CPU
MEDICAL DEVICES
Blood Analyzer IGEN I/O
Blood Analyzer Helena Laboratories CPU
Ventilators Display NellCor I/O
MILITARY AND SPACE APPLICATIONS
Ariane V System Test and Simulation Aerospatiale Avionics
Ariane V Test Support Lockheed Martin Telemetry
B-2 Flight Testing Northrop Grumman Telemetry
C-17 Aircraft Testing McDonnell Douglas Telemetry
Satellite Imaging TRW Telemetry
TEST AND MEASUREMENT APPLICATIONS
Cyclotron Controller Univ. of Wisconsin I/O
Particle Collision and Detection System CERN I/O
Temperature Control Therm-O-Disk I/O
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
APPLICATION CUSTOMER COMPANY PRODUCT
- ----------------------------------------------------------- ------------------------------ --------------------
TRANSPORTATION
<S> <C> <C>
Aircraft Flight Testing Cessna Telemetry
Commercial Avionics System Test Honeywell Avionics
Commercial Avionics System Test Rockwell International Avionics
Jet Engine Testing General Electric Telemetry
Jet Engine Testing Pratt & Whitney Telemetry
Jet Engine Testing Rolls Royce Telemetry
Lane Controllers NYSTA I/O
Maritime Systems NEC Avionics
Personal Rapid Transit Raytheon I/O
777 Aircraft Testing Boeing Telemetry
Train Track Alignment System Fairmont Tamper CPU
</TABLE>
SALES AND MARKETING
The Company markets its products both domestically and internationally
through 14 sales employees, who typically hold engineering degrees, and over 36
independent manufacturers' representatives. Employee sales personnel are
educated on each of the Company's product lines and refer opportunities to
appropriate product line managers. Primary sales methods vary among the
Company's product lines. The Company's avionics interface and telemetry products
generally have the most complex applications and, as a result, leads are
generally identified by independent manufacturers' representatives and sales are
closed by the sales employees. In the case of its CPU and I/O products, a higher
percentage of sales are either closed by independent manufacturers'
representatives or are the result of catalog sales. In each of the Company's
product lines, sales employees generally pursue "design in" applications where
the Company's products are included as part of a system.
The Company sells approximately 16% of its products outside the United
States. It maintains sales offices in Albuquerque for its avionics interface
products, in Raleigh, North Carolina, for its Intel processor-based CPU boards,
in Menlo Park, California, for its I/O products and in Carlsbad, California, for
its telemetry products. The Company also maintains an international sales office
in Glasgow, Scotland to support European sales of its avionics interface
products. Sales and sales leads are generated through a range of activities
performed by the Company including identification of participants in key
defense-related programs, participation in numerous trade shows, direct mail
catalogs, advertisements in leading trade publications and corporate and
subsidiary web sites on the Internet.
RESEARCH AND DEVELOPMENT
The Company invests in research and development programs to develop new
products in related markets and to integrate state of the art technology into
existing products. As of September 1, 1996, the Company had approximately 28
employees engaged in research and development activities. Of these employees, 20
have technical degrees and eight have advanced degrees. The Company's products
combine special-purpose hardware, firmware and software to provide a customer
with the desired functionality. Approximately 60% of the Company's research and
development efforts in fiscal year 1996 were software related. The Company's
research and development expense was $2.8 million, $1.7 million and $1.2 million
in fiscal 1996, 1995 and 1994, respectively, corresponding to 9.1%, 10.4% and
11.6% of sales, respectively.
LDG's current research and development activity is focused on evolutionary
improvement of its existing product line. GreenSpring's efforts are directed
towards broadening the scope of its market by developing new IPs and upgrading
existing products to state of the art technology. Examples include a new IP
designed to provide high speed reflective memory for networked computer systems
and an updated set of discrete and digital I/O IPs with increased performance
and functionality. BSI is continuing to upgrade its products' performance by
increasing the operating bit rates, a key performance measure in the
40
<PAGE>
telemetry industry, in its new products. BSI is also continuing to expand its
offerings of high performance, CCSDS packet switching products for the satellite
ground station market. The Company is also extending its avionics interface
product line. For example, the Company has completed development of a new
ruggedized avionics product for the operational system market. Additionally, the
Company has recently introduced a PCMCIA version of its avionics bus analyzer
product. There can be no assurance that the Company will be successful in
developing and bringing to market any products as a result of its research and
development efforts. See "Risk Factors--Reliance on Industry Standards;
Fundamental Technology Change."
COMPETITION
The standard bus embedded computer industry is highly competitive and
fragmented, and the Company's competitors differ depending on product type,
company size, geographic market and application type. The Company faces
competition in each of its product lines. Because of the diverse nature of the
Company's products and the fragmented nature of the embedded computer market,
there is little overlap of competitors for each product line. Competitive
factors across the Company's product lines include performance, customer
support, product longevity, supplier stability, breadth of product offerings and
reliability. Many of the Company's existing and potential competitors have
financial, technological and marketing resources significantly greater than
those of the Company and may have established relationships with customers or
potential customers that afford them a competitive advantage. There can be no
assurance that the Company will be able to compete effectively in its current or
future markets or that competitive pressures will not adversely affect its
business, financial condition or results of operations.
In the Company's recently-acquired CPU product line, the Company competes
with a number of other suppliers of VME CPU boards. Direct competitors include
other companies that build VME CPU boards based on Intel microprocessor
technology. Indirectly, however, the Company also competes with suppliers of VME
CPU boards based on other microcomputer architectures such as Motorola 680x0,
Sparc and Power PC. Competitors include Force Computers, Inc. (which has
recently agreed to be acquired by Solectron Corporation), Performance
Technologies, Inc., RadiSys Corporation, VME Microsystems, Inc. and XYCOM, Inc.
In the generalized computer I/O product area served by GreenSpring and its
IP product line, the Company has two classes of competition. The first class
includes companies that compete directly by selling IP products. The second
class includes companies that compete with I/O products using a different
implementation to provide functionally equivalent products. Competitors include
Computer Products, Inc., Systran, Inc. and VMIC.
In the telemetry market, the Company competes with other suppliers of open
architecture telemetry solutions. It also indirectly competes with suppliers of
traditional, closed architecture telemetry systems. Competitors include Aydin
Vector Division, Lockheed Martin Telemetry and Instrumentation, Terametrix, Inc.
and Veda, Inc.
In the avionics interface market, the Company competes with a number of
other companies that produce similar avionics interface products. Competitors
include Ballard Technologies, Inc., Data Devices Corporation, Digital
Technology, Inc. (a division of Dynatech, Inc.), DY-4, Inc. and Excalibur
Technologies Corporation and Gesellschaft Fur Angewandte Informatik und
Mikroelekernik, GmbH. See "Risk Factors--Competition."
MANUFACTURING
The Company uses contract manufacturing to produce substantially all of its
board-level products. The Company obtains parts from large electronics parts
suppliers and printed circuit boards from printed circuit board manufacturers
and provides these parts and boards as kits to contract manufacturing companies
that fabricate the Company's products. Following manufacturing, the Company
performs test,
41
<PAGE>
packaging and support functions for the Company's products. Dependence on a
particular contract manufacturer is reduced by using multiple contract
manufacturers for each of the Company's product lines. However, the Company may
choose in the future to consolidate its contract manufacturing to gain economies
of scale and to shift its inventory control to the contract manufacturer, in
which case the Company would become increasingly dependent on a smaller number
of manufacturers for the continued timely and efficient production of all of its
inventory. See "Risk Factors--Availability of Component Materials."
EMPLOYEES
As of September 30, 1996, the Company had approximately 144 employees at its
four locations: Albuquerque, New Mexico; Carlsbad, California; Menlo Park,
California and Raleigh, North Carolina. Of these employees, 16 are in executive
and administrative positions; 19 are in sales, marketing and customer relations;
28 are in research and development; 35 are clerical and 46 are employed in
support of ongoing production. At the time of executing the Acquisition
Agreement, Bit 3 had approximately 55 employees in Minneapolis, Minnesota.
FACILITIES
The Company leases office and manufacturing space in Albuquerque, New
Mexico, Carlsbad, California, Menlo Park, California and Raleigh, North
Carolina. The Company's standard practice is to obtain all of its facilities
through operating leases. Management maintains an insurance plan covering all
its facilities and contents.
The Albuquerque, New Mexico leased facility consists of 18,741 square feet
located in a multi-floor office building which includes adequate assembly and
test space for the Company's avionics interface and judgmental use of force
product lines, as well as serving as the Company's corporate headquarters.
Management believes expansion space is available, if required. Currently the
assembly and test operations utilize approximately 50% of the productive floor
space. The lease term for the Albuquerque, New Mexico location is five years
commencing July 1, 1995 with one additional five year option.
The Carlsbad, California leased facility is a one story, 13,000 square foot
building, located in a business park, consisting of 3,000 square feet of office
space and 10,000 square feet of assembly and test areas for the Company's
telemetry products. Management believes that this facility is capable of
handling projected increases in production for the foreseeable future as the
current capacity utilization of the manufacturing area is approximately 35%. The
lease term for the Carlsbad, California location runs through May 1997, and has
a one year option for 1998.
The Company's general purpose I/O business is located in Menlo Park,
California. The 16,394 square foot facility, which is leased for a four year
term expiring July 2000, is a one story multi-tenanted building in a business
park which consists of 6,000 square feet of office space and 10,394 square feet
of assembly and test areas. Management believes that the facility will be
sufficient to serve the general purpose I/O business' needs through the term of
the lease.
The Company's newly acquired CPU products business, located in Raleigh,
North Carolina, leases a one story multi-tenanted facility consisting of
approximately 4,000 square feet of office space and 9,500 square feet of
assembly and test areas. The Company has occupied the facility since August 1986
with the term of the lease expiring November 30, 2002. Management believes that
the facility is adequate at the Company's current level of business and that
expansion space is available if required.
Bit 3's operations are located in a 14,061 square foot facility in
Minneapolis, Minnesota leased on a month-to-month basis. The Company intends
that within the next 18 months it will move this business to a different
location in the Minneapolis metropolitan area. Management believes that
adequate, alternative space is available.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Andrew C. Cruce, Ph.D........................ 53 Chairman of the Board and Chief Executive Officer
Christopher J. Amenson....................... 46 President, Chief Operating Officer and Director
James E. Dixon, Jr........................... 51 Vice President of Finance and Administration, Treasurer and
Chief Financial Officer
Scott A. Alexander........................... 46 Vice President, Secretary and Director
William J. Becker, Brigadier General,
retired(1)(2)............................... 70 Director
Lawrence A. Bennigson, Ph.D.(1)(2)........... 58 Director
A. Wade Black(1)............................. 31 Director
Joseph N. Najjar, Jr.(3)..................... 52 Director
Warren Andrews............................... 53 Director Nominee
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Mr. Najjar will not stand for reelection to the Company's Board of Directors
at the Company's November 1996 annual meeting
Andrew C. Cruce, Ph.D., is a founder of the Company and has served as a
Director since the commencement of its business activity in September 1987, as
President and Chief Operating Officer from November 1987 to April 1992, as
Treasurer from late 1991 to November 1995, and as Chief Executive Officer since
early 1992. From April 1985 to September 1987, Dr. Cruce was a Senior Principal
Staff Member of the BDM Corporation. Before 1985, Dr. Cruce was the technical
director for simulation at the Naval Air Test Center, the Navy's primary
facility for Development, Test and Evaluation of Naval aircraft. Dr. Cruce holds
a Master's Degree in Business Management from the Sloan Fellows Program at the
Massachusetts Institute of Technology, as well as a Doctorate in Aeronautical
Engineering and a Master's Degree in Electrical Engineering. Dr. Cruce has
announced to the Company's Board of Directors that he will not stand for
reelection as the Company's Chief Executive Officer. Dr. Cruce currently
anticipates continuing to serve as Chairman of the Board of Directors and
remaining an employee of the Company.
Christopher J. Amenson became the President and Chief Operating Officer of
the Company in April 1992, and a Director in August 1992. For five years before
joining the Company, Mr. Amenson was President of Industrial Analytics, Inc., a
Boston-based firm engaged in consulting in support of operations, mergers and
acquisitions. Mr. Amenson holds a Bachelor's Degree in Government from the
University of Notre Dame and a Master's Degree in Business Management from the
Sloan Fellows Program at the Massachusetts Institute of Technology. It is
currently anticipated that Mr. Amenson will stand for election as the Company's
Chief Executive Officer. Mr. Amenson will continue to serve as the Company's
President and Chief Operating Officer as well as a Director.
James E. Dixon, Jr. was appointed Vice President of Finance and
Administration, Treasurer and Chief Financial Officer of the Company in
September 1995. For eight years before joining the Company, Mr. Dixon held the
position of Director of Finance, Howden Group America, Inc., a wholly owned
subsidiary of Howden Group PLC. Howden Group America's subsidiaries, whose
combined annual revenue exceeds $200 million, specialize in the design and
manufacture of air and gas handling equipment, defense-related products and food
processing equipment. Mr. Dixon held various controller positions at
43
<PAGE>
Westinghouse Electric from 1971 to 1985. Mr. Dixon holds a Bachelor's Degree in
Business Education from Indiana University of Pennsylvania.
Scott A. Alexander is a founder of the Company and has served as Director
since the commencement of its business activity in September 1987, and as
Secretary since November 1987. Mr. Alexander was appointed Vice President in
August 1991. Mr. Alexander served as the Company's Treasurer from November 1987
to late 1991. As Chief Engineer for the Company, Mr. Alexander supports the
design, development and implementation of critical architectural requirements
for the Company's computer interface products. From November 1985 to September
1987, Mr. Alexander was a Senior Principal Staff Member of the BDM Corporation.
During this time he participated in the design of a complete flight test range
for the Republic of China, including the design of the Mission Command Center
(including control consoles), computer architecture, display and control
software. Before November 1985, Mr. Alexander was employed at the Naval Air Test
Center, where he was responsible for the continuing development and use of the
Tactical Avionics Software Test and Evaluation Facility and the Manned Flight
Simulator Facility. Mr. Alexander holds a Master's Degree in Electrical
Engineering from Virginia Polytechnic Institute and a Bachelor of Science Degree
in Physics from Old Dominion University.
William J. Becker, Brigadier General, retired, became a Director in August
1992. Since 1981 he has been self-employed as a senior independent consultant,
advising on international technology, to such organizations as the United States
Department of Energy, EG&G Inc., Mactec, Inc., Raytheon Services Co.,
Westinghouse Electric Corporation and International Technology, Inc. During his
long career in the United States Air Force, General Becker oversaw a number of
logistics and mobility operations and in his last assignment was commander of
the Defense Property Disposal Services. General Becker attended the University
of Southern California and holds a Bachelor's Degree in Management and a
Master's Degree in Logistics from the Air Force Institute of Technology's
Graduate School of Systems & Logistics at Wright Patterson Air Force Base in
Ohio.
Lawrence A. Bennigson, Ph.D., became a Director in November 1995. Dr.
Bennigson has provided consulting services on corporate, business and
manufacturing strategy and related organizational issues to major corporations
and to governments for over 30 years. Dr. Bennigson has been an independent
management consultant since January 1994. He worked extensively in European
countries, as well as on business matters in Russia and China. As Senior Vice
President of the former MAC Group, Inc., Dr. Bennigson helped to lead the
strategic development of the firm resulting in its 1991 acquisition and merger
to become Gemini Consulting. Dr. Bennigson taught executives, graduate students,
and undergraduates as a faculty member of the School of Engineering, Stanford
University, The Harvard University Graduate School of Business and as a visiting
faculty member at the London Business School and the Graduate School of
Business, Lund University, Sweden. Before his academic and consulting career,
Dr. Bennigson served for six years as a U.S. Naval Officer. Dr. Bennigson holds
a Bachelor's Degree in General Engineering from UCLA, as well as Master's and
Doctorate Degrees in Industrial Engineering (with specialization in Human
Factors Engineering and Industrial Organization) from Stanford University.
A. Wade Black became a Director in November 1995. Mr. Black is president and
CEO of Seven Bar Enterprises, Inc., a privately owned holding company. Seven Bar
Enterprises is one of the founding stockholders of SBS Technologies, Inc. Mr.
Black has been president, CEO and a director of Seven Bar Enterprises since 1990
and oversees the company's operations and subsidiaries within the aviation, air
medical, real estate development, and investment businesses. Mr. Black holds a
Bachelor's Degree in Petroleum Engineering from Texas A&M University and a
Master's Degree in Business Administration from Southern Methodist University.
Joseph N. Najjar, Jr. became a Director in November 1995. Mr. Najjar was the
founder and President of Computers and Peripherals Incorporated (a dealer and
lessor of new and used large scale IBM mainframes and peripherals) from 1978 to
1986, when it was sold to a public company. For six years before that time, Mr.
Najjar was vice president of a privately-held computer equipment company. Since
1987,
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<PAGE>
Mr. Najjar has been a private investor and consultant, whose practice is
primarily based upon his research of mass behavior as it relates to securities
prices, corporate strategy and marketing strategy. Mr. Najjar holds a Master of
Science Degree in Management from the Sloan School of Management at the
Massachusetts Institute of Technology. Mr. Najjar will not stand for reelection
to the Company's Board of Directors at the Company's November 1996 annual
meeting.
Warren Andrews, a Director nominee standing for election at the Company's
1996 annual meeting of shareholders, is editor-in-chief of RTC MAGAZINE, the
leading publication in the open-systems, board-level industry. From 1987 to
1994, Mr. Andrews served as a senior editor for COMPUTER DESIGN MAGAZINE while,
at the same time, publishing his own newsletter, EMBEDDED COMPUTER TRENDS. From
1985 to 1987, he served as managing editor of ELECTRONIC DESIGN MAGAZINE. Before
1985, Mr. Andrews was semiconductor editor for ELECTRONIC ENGINEERING TIMES and
owned and operated his own business providing electronic design services and
developing, manufacturing and selling microprocessor-based switching systems for
a variety of audio and video applications in the retail and host industries. In
addition, he holds one U.S. patent and has designed other products for the cable
TV, burglar and fire alarm, and educational communications markets. Mr. Andrews
holds a Bachelor of Science Degree from Fairleigh Dickinson University.
45
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership, as of September 16, 1996, and as adjusted to reflect the sale of the
Common Stock offered hereby (i) each person known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each Director of the
Company, (iii) each of the Company's Executive Officers, (iv) each Selling
Shareholder and (v) all Officers and Directors as a group. Except as otherwise
noted, the Company believes that the persons listed below have sole investment
and voting power with respect to the Common Stock owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
----------------------- SHARES BEING -----------------------
NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Andrew C. Cruce, Ph.D.(3)(4)(5)........................ 516,543 14.4% -- 516,543 10.0%
Christopher J. Amenson(3)(5)(6)........................ 267,392 7.2 -- 267,392 5.0
Scott A. Alexander(3)(4)(5)(7)......................... 452,958 12.7 -- 452,958 8.8
James E. Dixon, Jr.(3)(5).............................. 178 * -- 178 *
William J. Becker(3)(8)................................ 16,000 * -- 16,000 *
Martin Bell(10)(11).................................... 1,000 * 1,000 -- --
Lawrence Bennigson(3).................................. -- -- -- -- --
A. Wade Black(3)(9).................................... 440,117 12.7 -- 320,117 6.3
Alison Brown(10)(11)................................... 300 * 300 -- --
Silvia Coakley(10)(11)................................. 500 * 500 -- --
D.H. Blair Investment Banking Corporation(10)(11)...... 9,000 * 9,000 -- --
J. Morton Davis(10)(11)................................ 20,000 * 20,000 -- --
Richard Maid........................................... 1,000 * 1,000 -- --
Stephens Monte(10)(11)................................. 200 * 200 -- --
David Nachamie(10)(11)................................. 500 * 500 -- --
Joseph N. Najjar, Jr.(3)............................... -- -- -- -- --
Kalman Renov(10)(11)................................... 20,000 * 20,000 -- --
Lindsay Rosenwald...................................... 25,000 * 25,000 -- --
Seven Bar Enterprises, Inc............................. 437,117 12.6 120,000 317,117 6.3
3860 West Northwest Highway, Suite 406
Dallas, TX 75220
Michael Siciliano(10)(11).............................. 500 * 500 -- --
Alan Stahler(10)(11)................................... 20,000 * 20,000 -- --
Kenton Wood(10)(11).................................... 2,000 * 2,000 -- --
All directors and officers as a group (8 1,693,188 43.1% 120,000 1,573,188 28.5%
persons)(4)(5)(6)(7)(8)(9)...........................
</TABLE>
- ------------
* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person and that are exercisable within 60 days from the date of this
Prospectus have been exercised.
(2) Assumes no exercise of the Underwriter's over-allotment option. If the
over-allotment option is exercised in full, the number of shares being
offered, the number of shares owned after the offering and the percentage of
shares owned after this offering for the following Additional Selling
Shareholders would be: Scott A. Alexander; 30,000; 422,958; 8.2%;
Christopher J. Amenson--33,000; 234,392; 4.4%; J. Kenneth Boyette--27,000;
100,047; 2.0%; Andrew C. Cruce, Ph.D.--100,000; 416,543; 8.1%; Seven Bar
Enterprises, Inc.--80,000; 237,117; 4.7%.
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<PAGE>
(3) The address for the shareholder is in care of the Company at 2400 Louisiana
Blvd, NE, Albuquerque, NM 87110.
(4) Includes options to purchase 100,000 shares of Common Stock currently
exercisable under the Company's stock option plans.
(5) Includes Common Stock owned through the SBS Technologies, Inc. 401(k) Profit
Sharing Plan.
(6) Includes options to purchase 253,116 shares of Common Stock; options to
purchase 119,783 shares of Common Stock are currently exercisable under the
Company's stock option plans and options to purchase 133,333 shares of
Common Stock are currently exercisable under option agreements between Mr.
Amenson and certain other shareholders of the Company.
(7) Includes 27,000 shares of Common Stock held by Mr. Alexander as trustee for
the benefit of his minor children.
(8) Includes options to purchase 5,000 shares of Common Stock currently
exercisable under the Company's stock option plans.
(9) Includes 437,117 shares owned of record by Seven Bar Enterprises, Inc., of
which Mr. Black is president and a director, 120,000 shares of which are
being sold in this offering by Seven Bar Enterprises, Inc.
(10) The address for the shareholder is in care of D.H. Blair & Co., Inc., 44
Wall Street, New York, New York 10005.
(11) Represent shares which will be issued upon exercise of warrants at an
exercise price of $4.80 per share.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, each without par value. The following description of the Common
Stock is qualified in all respects by the reference to the Articles of
Incorporation, as amended, and the Bylaws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The holders of the Common Stock elect all Directors and are entitled to one
vote per share. All shares of Common Stock participate equally in dividends if,
when and as declared by the Board of Directors (See "Dividend Policy") and in
net assets on liquidation. All outstanding shares are, and the shares to be sold
by the Company and the Selling Shareholders pursuant to this offering will be,
duly authorized, validly issued, fully paid and non-assessable. Shares of Common
Stock have no preemptive rights, are not redeemable, are not liable for further
calls and assessments, and do not have cumulative voting rights.
WARRANTS
The Company, in connection with its acquisition of GreenSpring in August
1995, issued warrants to purchase 400,000 shares of Common Stock at an exercise
price of $4.50 per share (the "GreenSpring Warrants"). The holders of the
GreenSpring Warrants were also granted the right to sell alongside a Company
registration. The Company is obligated to register the GreenSpring Warrants
under the Securities Act of 1933 (the "Securities Act"). In April 1996, the
Company registered under the Securities Act 150,001 GreenSpring Warrants as well
as certain options held by the Company's President and Chief Operating Officer,
Mr. Amenson. As of June 30, 1996, 360,000 of the GreenSpring Warrants remained,
of which 193,334 were exercisable and warrants to purchase 166,666 shares of
Common Stock become exercisable over the next two years. The holders of the
GreenSpring Warrants also possess until August 2000 the right to sell shares of
Common Stock underlying the GreenSpring Warrants alongside the Company should
the Company file a registration statement during this period.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing shareholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of the offering the Company
will have 5,058,133 shares of Common Stock outstanding. Of these shares,
1,800,000 shares offered hereby (2,070,000 shares if the Underwriters'
over-allotment option is exercised in full) will be eligible for immediate sale
in the public market without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless such shares are held by Affiliates of the
Company, as that term is defined in the Rule 144 under the Securities Act. In
addition, approximately 150,700 shares will be eligible for sale in the public
market without restriction pursuant to Rule 144(k) and Rule 701 under the
Securities Act. Approximately 1,573,200 additional shares outstanding upon
completion of the offering will be eligible for sale pursuant to Rule 144,
assuming no exercise of the over-allotment option.
The holders of approximately 1,418,188 of the shares of Common Stock
outstanding after the offering and the holders of warrants and options to
purchase approximately 374,783 shares of Common Stock have agreed, subject to
certain exceptions, not to sell or otherwise dispose of any of their shares for
a period of 120 days after the effective date of the Registration Statement.
Cowen & Company may, in its sole discretion, at any time without notice, release
all or a portion of the shares subject to lock-up agreements. Following the
closing of the offering, the holders of approximately 449,999 shares of Common
Stock will be entitled to certain demand and piggyback registration rights with
respect to such shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Common Stock is First Security Bank of Utah,
Corporate Trust Department, 79 South Main Street, Salt Lake City, Utah 84111.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, for whom Cowen & Company and SoundView Financial
Group, Inc. are acting as Representatives, and each of the Underwriters has
severally agreed to purchase from the Company and the Selling Shareholders, the
respective number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Cowen & Company................................................................................
SoundView Financial Group, Inc.................................................................
-----------------
Total.................................................................................. 1,800,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
closing certificates, opinions and letters from the Company, its counsel, the
Selling Shareholders and independent auditors. The nature of the Underwriter's
obligations is that they are committed to purchase all the shares of the Common
Stock being offered hereby if any such shares are purchased.
The Underwriters propose to offer the share of Common Stock in part directly
to the public at the public offering price set forth on the cover of this
Prospectus and in part to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the shares of Common Stock are released for sale to the public,
the offering prices and other selling terms may from time to time be varied by
the Representatives.
The Company and the Additional Selling Shareholders have granted the
Underwriters an option exercisable for 30 days after the date of this Prospectus
to purchase up to an aggregate of 270,000 shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them as shown in the foregoing table, bears to
1,800,000 shares of Common Stock offered hereby. The Underwriters may exercise
such options only to cover over-allotments made in connection with the sale of
the 1,800,000 shares of Common Stock offered hereby.
50
<PAGE>
The Company, the Selling Shareholders and the Additional Selling
Shareholders have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, and contribute to
payments the Underwriters may be required to make in respect thereof.
D.H. Blair Investment Banking Corporation, ("D.H. Blair"), a member of the
National Association of Securities Dealers, served as the Company's underwriter
in the Company's initial public offering (the "IPO") and certain other persons
associated with D.H. Blair (the "Warrantholders") at the time of the IPO
received 100,000 warrants to purchase the Company's Common Stock at an exercise
price of $4.80 per share (the "Warrants"). The Warrants will be exercised in
connection with the offering and the 100,000 shares of Common Stock underlying
the Warrants will be sold in the offering (the "Warrant Shares"). The Company is
paying, on behalf of the Warrantholders a fee which is equal to the underwriting
discounts and commissions covering the Warrant Shares.
The Company and the Company's Officers and Directors who own shares of the
Common Stock, all Selling Shareholders and the Additional Selling Shareholders
and certain other shareholders and option holders of the Company have entered
into agreements providing that, from the date of the agreement through 120 days
following the date of this Prospectus, they will not, without the prior written
consent of Cowen & Company, directly or indirectly offer, sell, assign,
transfer, encumber, pledge contract to sell, grant an option to purchase or
otherwise dispose of any shares of Common Stock of the Company, any options or
warrants to purchase any shares of Common Stock of the Company or any securities
convertible into, or exchangeable for, Common Stock of the Company. See
"Description of Capital Stock--Shares Eligible for Future Sale."
The Representatives have advised the Company, the Selling Shareholders and
the Additional Selling Shareholders that the Underwriters do not intend to
confirm sales in excess of 5% of the shares offered hereby to any account over
which they exercise discretionary authority.
In conjunction with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock of
the Company or Nasdaq immediately prior to the commencement of sales in the
offering, in accordance with Rule 10b-6A under the Exchange Act. Passive market
making consists of displaying bids on Nasdaq limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Company's Common
Stock during a specified prior period and must be discontinued when such limit
is reached. Passive market making may stabilize the market price of the Common
Stock of the Company at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Schuler, Messersmith & McNeill, Albuquerque, New
Mexico. Certain legal matters relating to this offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The Consolidated Financial Statements of SBS Technologies, Inc. as of June
30, 1996 and 1995 and for each of the years in the three-year period ended June
30, 1996, have been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
51
<PAGE>
The Financial Statements of Bit 3 Computer Corporation as of December 31,
1994 and 1995 and June 30, 1996 and for each of the years in the three-year
period ended December 31, 1995 and for the six month period ended June 30, 1996,
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-2, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to such Registration Statement, and exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. SBS Technologies, Inc. is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance with those requirements files reports
and other information with the Commission. Information, including reports and
proxy and information statements, filed by SBS Technologies, Inc. (and by it
under its previous name of SBS Engineering, Inc.) with the Commission and a copy
of the Registration Statement, including exhibits thereto, can be inspected and
copied at the public reference facilities of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street N. W., in Washington, D.C., 20459, or at its
Regional Office located at 1801 California Street, Suite 4800, Denver, Colorado,
80202-2648. Copies of this material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street N.W., in Washington, D.C., 20549 at
prescribed rates. SBS Technologies, Inc. Common Stock is listed on the National
Association of Securities Dealers, Inc. National Market System. Reports, Proxy
and information statements, and other information concerning the Company can be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a web site that
contains proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the Commission
and the address of such site is www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, filed by the Company with the Securities and
Exchange Commission (File No. 1-10981), under the Securities Act of 1934, as
amended (the "Exchange Act") is incorporated in this Prospectus by reference and
made a part hereof: The Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
The document incorporated into this Prospectus by reference shall be deemed
to be a part of this Prospectus from the date of the filing of such document
with the Commission. Any statement contained in the document incorporated by
reference, or deemed to be incorporated by reference, herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon request, a copy of any documents
incorporated by reference. Requests for such copies should be directed to the
Company's principal executive offices: SBS Technologies, Inc., 2400 Louisiana
Boulevard NE, AFC Building 5, Suite 600, Albuquerque, New Mexico 87110,
Attention: Chief Financial Officer.
52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets, June 30, 1995 and 1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and 1996................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1994, 1995 and
1996................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
BIT 3 COMPUTER CORPORATION
Independent Auditors' Report............................................................................. F-19
Balance Sheets, December 31, 1994 and 1995 and June 30, 1996............................................. F-20
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months
Ending June 30, 1996................................................................................... F-21
Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and for the Six
Months Ending June 30, 1996............................................................................ F-22
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months
Ending June 30, 1996................................................................................... F-23
Notes to Financial Statements............................................................................ F-24
</TABLE>
F-1
<PAGE>
KPMG Peat Marwick LLP
6565 Americas Parkway, NE #700
Post Office Box 3939
Albuquerque, NM 87190
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SBS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of SBS
Technologies, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SBS
Technologies, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
July 30, 1996
F-2
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 883,804 $ 1,130,030
Receivables, net (notes 4, 5 and 6).............................................. 7,151,563 6,421,224
Inventories (notes 5 and 6)...................................................... 3,903,957 5,160,962
Deferred income taxes (note 7)................................................... 360,000 317,100
Prepaid expenses................................................................. 359,083 303,846
Other current assets............................................................. 175,649 104,249
------------- -------------
Total current assets........................................................... 12,834,056 13,437,411
------------- -------------
Property and equipment, at cost (notes 5 and 6).................................... 1,728,764 2,389,289
Less accumulated depreciation.................................................... 784,673 1,041,719
------------- -------------
Net property and equipment..................................................... 944,091 1,347,570
------------- -------------
Intangible assets, net............................................................. 6,076,894 5,571,135
Deferred income taxes (note 7)..................................................... -- 55,900
Other assets....................................................................... 49,881 31,656
------------- -------------
Total assets................................................................... $ 19,904,922 $ 20,443,672
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 6)....................................... $ 1,751,392 $ 1,458,976
Notes payable to bank (note 5)................................................... 2,959,920 --
Accounts payable................................................................. 1,878,797 1,243,748
Accrued representative commissions............................................... 325,468 353,278
Accrued salaries................................................................. 514,518 1,077,121
Accrued compensated absences..................................................... 282,072 340,342
Accrued software license fees.................................................... 313,000 33,000
Income taxes (note 7)............................................................ 350,913 223,381
Other current liabilities........................................................ 353,877 425,033
Reserve for discontinued operations (note 3)..................................... 784,068 49,553
------------- -------------
Total current liabilities...................................................... 9,514,025 5,204,432
Long-term liabilities:
Long-term debt, excluding current portion (note 6)............................... 5,341,649 5,188,320
------------- -------------
Total long-term liabilities.................................................... 5,341,649 5,188,320
------------- -------------
Total liabilities.............................................................. 14,855,674 10,392,752
------------- -------------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized, 2,893,654 and 3,178,133
issued and outstanding at June 30, 1995 and 1996, respectively................. 3,375,021 4,690,786
Common stock warrants (note 2)................................................... 75,000 180,000
Retained earnings................................................................ 1,599,227 5,180,134
------------- -------------
Total stockholders' equity..................................................... 5,049,248 10,050,920
------------- -------------
Total liabilities and stockholders' equity..................................... $ 19,904,922 $ 20,443,672
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 10,196,568 $ 16,217,648 $ 31,331,793
Cost of sales....................................................... 4,881,851 6,756,560 14,510,106
------------- ------------- -------------
Gross profit...................................................... 5,314,717 9,461,088 16,821,687
Selling, general and administrative expense......................... 2,221,431 3,891,408 6,292,954
Research and development expense.................................... 1,186,817 1,686,590 2,846,300
Amortization of intangible assets................................... 383,085 493,409 884,438
------------- ------------- -------------
Operating income from continuing operations....................... 1,523,384 3,389,681 6,797,995
------------- ------------- -------------
Interest income..................................................... 1,761 3,315 9,210
Interest expense.................................................... (16,395) (191,120) (839,028)
------------- ------------- -------------
(14,634) (187,805) (829,818)
------------- ------------- -------------
Income from continuing operations before income taxes............. 1,508,750 3,201,876 5,968,177
Income taxes (note 7)............................................... 638,000 1,357,000 2,387,270
------------- ------------- -------------
Income from continuing operations................................. 870,750 1,844,876 3,580,907
------------- ------------- -------------
Discontinued operations (net of tax benefits (expense) of ($627,000)
and $1,160,000 for 1994 and 1995, respectively).................... 855,555 (1,781,235) --
Loss on disposal of discontinued operations (net of tax benefits of
$896,000).......................................................... -- (1,354,000) --
------------- ------------- -------------
Income (loss) from discontinued operations.......................... 855,555 (3,135,235) --
------------- ------------- -------------
Net income (loss)................................................... $ 1,726,305 $ (1,290,359) $ 3,580,907
------------- ------------- -------------
------------- ------------- -------------
Income (loss) per common and common equivalent share:
Continuing operations............................................. $ 0.30 $ 0.65 $ 0.97
Discontinued operations........................................... 0.29 (1.10) --
------------- ------------- -------------
Net income (loss) per common and common equivalent share............ $ 0.59 $ (0.45) $ 0.97
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------------- COMMON STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT WARRANTS EARNINGS EQUITY
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1993........................ 2,964,957 $ 3,683,074 $ -- $ 1,163,281 $ 4,846,355
Common stock repurchased......................... (154,531) (707,323) -- -- (707,323)
Net income....................................... -- -- -- 1,726,305 1,726,305
------------ ------------ ------------ ------------ -------------
Balances at June 30, 1994........................ 2,810,426 2,975,751 -- 2,889,586 5,865,337
Exercise of stock options........................ 8,228 18,020 -- -- 18,020
Common stock issued under employee stock bonus
plan............................................ 75,000 381,250 -- -- 381,250
Warrants issued for business acquisition (note
2).............................................. -- -- 75,000 -- 75,000
Net loss......................................... -- -- -- (1,290,359) (1,290,359)
------------ ------------ ------------ ------------ -------------
Balance at June 30, 1995......................... 2,893,654 3,375,021 75,000 1,599,227 5,049,248
Exercise of stock options........................ 257,618 1,295,765 -- -- 1,295,765
Warrants issued for business acquisition (note
2).............................................. -- -- 125,000 -- 125,000
Exercise of warrants............................. 26,861 20,000 (20,000) -- --
Net income....................................... -- -- -- 3,580,907 3,580,907
------------ ------------ ------------ ------------ -------------
Balance at June 30, 1996......................... 3,178,133 $ 4,690,786 $ 180,000 $ 5,180,134 $ 10,050,920
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 1,726,305 $(1,290,359) $3,580,907
----------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation............................................................. 340,344 384,057 316,494
Amortization of intangible assets........................................ 459,467 536,328 884,438
Bad debt expense......................................................... -- -- 56,933
Loss on disposition of assets............................................ -- -- 44,218
Loss from sale of discontinued operations................................ -- 2,250,000 --
Stock issued under employee stock bonus plan............................. -- 399,270 --
Changes in assets and liabilities:
Receivables............................................................ (1,459,380) 3,314,458 673,406
Inventories............................................................ (539,916) (1,101,607) (1,192,938)
Deferred income taxes.................................................. -- (360,000) (13,000)
Prepaids and other assets.............................................. (54,780) (476,828) 144,862
Accounts payable....................................................... (809,055) 1,172,798 (635,049)
Accrued representative commissions..................................... 54,770 218,669 27,810
Accrued salaries....................................................... 372,972 277,433 562,603
Accrued compensated absences........................................... 85,055 (155,833) 58,270
Accrued software license fees.......................................... 41,000 21,000 (280,000)
Income taxes........................................................... 615,000 (1,500,209) (127,532)
Other current liabilities.............................................. (120,213) (2,580,768) (663,359)
----------- ---------- ----------
Net adjustments...................................................... (1,014,736) 2,398,768 (142,844)
----------- ---------- ----------
Net cash provided by operating activities............................ 711,569 1,108,409 3,438,063
Cash flow from investing activities:
Business acquisition (note 2)............................................ (95,000) (5,196,815) (317,746)
Refund of down payment on contracts...................................... 500,000 -- --
Acquisition of property and equipment.................................... (854,671) (426,769) (764,191)
Cash received from sale of discontinued operations (note 3).............. -- 400,300 --
----------- ---------- ----------
Net cash used by investing activities................................ (449,671) (5,223,284) (1,081,937)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable to bank...................................... 13,501,622 6,950,437 4,095,000
Payments on notes payable to bank........................................ (12,913,622) (7,690,517) (4,717,383)
Payments on liability to stockholder..................................... (204,166) (116,666) (100,000)
Proceeds from long-term borrowings....................................... -- 7,000,000 --
Payments on long-term borrowings......................................... (55,442) (1,227,901) (3,232,390)
Net proceeds from refinancing long-term borrowings....................... -- -- 549,108
Proceeds from exercise of stock options.................................. -- -- 1,295,765
Repurchase of common stock............................................... (707,323) -- --
----------- ---------- ----------
Net cash provided (used) by financing activities..................... (378,931) 4,915,353 (2,109,900)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....................... (117,033) 800,478 246,226
Cash and cash equivalents at beginning of period........................... 200,359 83,326 883,804
----------- ---------- ----------
Cash and cash equivalents at end of period................................. $ 83,326 $ 883,804 $1,130,030
----------- ---------- ----------
Supplemental disclosure of cash flow information:
Interest paid............................................................ $ (163,953) $ (497,002) $ (875,736)
Income taxes paid........................................................ $ (700,000) $ (700,000) $(2,431,749)
Noncash financing and investing activities:
Acquisition of GreenSpring Computers, Inc. (note 2):
Common stock warrants issued........................................... $ -- $ 75,000 $ 125,000
Long term debt issued.................................................. -- 1,000,000 --
----------- ---------- ----------
$ -- $1,075,000 $ 125,000
----------- ---------- ----------
Assets acquired through capital leases................................... $ 145,238 $ -- $ --
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
The consolidated financial statements include the accounts of SBS
Technologies, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
SBS Technologies, Inc. and subsidiaries (the Company) is a manufacturer of
standard bus embedded computer components that perform a broad range of central
processing unit, general purpose input/output and special purpose input/output
interface applications.
(B) SALES RECOGNITION
Sales are recognized when goods are delivered to the customer.
(C) CASH AND CASH EQUIVALENTS
Temporary investments with original maturities of ninety days or less are
classified as cash and cash equivalents.
(D) INVENTORIES
Inventories are valued at average cost which does not exceed market:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Raw materials............................................................... $ 1,724,307 $ 2,254,788
Work in process............................................................. 757,682 1,546,800
Finished goods.............................................................. 1,421,968 1,359,374
------------ ------------
$ 3,903,957 $ 5,160,962
------------ ------------
------------ ------------
</TABLE>
(E) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Computers................................................................... $ 836,593 $ 1,194,888
Software.................................................................... 226,659 411,839
Furniture and equipment..................................................... 665,512 782,562
------------ ------------
$ 1,728,764 $ 2,389,289
------------ ------------
------------ ------------
</TABLE>
Depreciation of property and equipment is provided over the estimated useful
lives (three to seven years) of the respective assets using straight-line and
accelerated methods.
F-7
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INTANGIBLE ASSETS
Intangible assets are stated at cost and consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Noncompete covenants...................................................... $ 1,540,000 $ 1,540,000
Goodwill.................................................................. 6,172,992 6,551,671
------------- -------------
7,712,992 8,091,671
Less accumulated amortization............................................. (1,636,098) (2,520,536)
------------- -------------
$ 6,076,894 $ 5,571,135
------------- -------------
------------- -------------
</TABLE>
Noncompete covenants are amortized over the life of the covenants using the
straight-line method. Goodwill is amortized over the estimated useful lives
(three to ten years) of the respective assets using the straight-line method.
The Company assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted future results. Impairment would be recognized in
operating results if a permanent diminution in value were to occur.
(G) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for the tax consequences of differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities by applying enacted statutory tax rates applicable to
future years. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the change.
(H) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average shares of common stock and, if dilutive, common equivalent shares
(options and warrants) outstanding during the period.
The numbers of shares used in the earnings per share computations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average shares of common stock outstanding during the
year......................................................... 2,874,058 2,810,426 3,017,575
Common equivalent shares--assumed exercise of options and
warrants..................................................... 74,110 48,514 1,377,923
Shares assumed to be repurchased with proceeds from exercise
subject to 20% of average shares outstanding maximum......... -- -- (603,515)
------------ ------------ ------------
Total common and common equivalent shares................. 2,948,168 2,858,940 3,791,983
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-8
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) FINANCIAL INSTRUMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107, Disclosures about Fair
Values of Financial Instruments, requires the fair value of financial
instruments be disclosed. The Company's financial instruments are accounts
receivable, accounts payable, and long-term variable rate debt. The carrying
amounts of accounts receivable, accounts payable, and long-term variable rate
debt, because of their nature, approximate fair value.
(J) RECLASSIFICATIONS
Certain amounts in the fiscal 1994 and 1995 financial statements have been
reclassified to conform with the fiscal 1996 presentation.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(L) NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation". Under the provisions of FAS
123, companies may elect to account for stock-based compensation plans using a
fair-value-based method or may continue measuring compensation expense for those
plans using the intrinsic-value-based method. Companies electing to continue
using the intrinsic-value-based method must provide pro forma disclosures of net
income and earnings per share as if the fair-value-based method had been
applied. Management intends to continue to account for stock-based compensation
using the intrinsic-value-based method and, as such, FAS 123 will not have an
impact on the company's results of operations or financial position. FAS 123
becomes effective in fiscal 1997.
(2) BUSINESS ACQUISITIONS
On January 10, 1996, the Company's wholly owned subsidiary, GreenSpring
Computers, Inc., completed an asset purchase of the
IndustryPack-Registered Trademark--compatible product line from Wavetron
Microsystems, Inc. The purchase price, including capitalizable expenses, was
$236,626. In conjunction with the acquisition, goodwill of $172,559 was recorded
and is being amortized over five years. The reported net income and net income
per common and common equivalent shares for the reported periods would not have
been materially different from that reported had the acquisition taken place at
the beginning of the respective fiscal year.
On April 28, 1995, the Company acquired GreenSpring Computers, Inc.
("GreenSpring"), a corporation based in California, for $7,450,000. GreenSpring
is engaged in the design, development, marketing and manufacturing of industrial
circuit boards and computers. The acquisition was accounted for using the
purchase method of accounting, and goodwill is being amortized over 10 years.
F-9
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) BUSINESS ACQUISITIONS (CONTINUED)
Assets acquired and liabilities assumed in the acquisition are as follows:
<TABLE>
<S> <C>
Cash and equivalents.................................................... $1,053,185
Accounts receivable..................................................... 1,725,641
Inventory............................................................... 1,216,904
Other assets............................................................ 39,908
Property and equipment.................................................. 129,695
Goodwill and other intangible assets.................................... 5,752,440
Accounts payable........................................................ (2,467,773)
----------
$7,450,000
----------
----------
</TABLE>
The purchase price was paid as follows:
<TABLE>
<S> <C>
Notes payable issued.................................................... $1,000,000
Warrants issued......................................................... 200,000
Cash.................................................................... 6,250,000
----------
$7,450,000
----------
----------
</TABLE>
Warrants to purchase 400,000 shares of common stock were issued to the
former shareholders and option holders of GreenSpring, of which 150,000 were
exercisable immediately upon closing and the remaining 250,000 warrants vested
during fiscal 1996. At June 30, 1996, 40,000 warrants were exercised under the
net issuance method with the balance exercisable ratably over the next two
fiscal years.
Net income and net income per common and common equivalent share for the
year ended June 30, 1994, would have been approximately $1,655,000 and $0.56,
respectively, had the acquisition taken place on July 1, 1993. Had the
acquisition taken place on July 1, 1994, the reported net loss and net loss per
common and common equivalent share for the year ended June 30, 1995 would have
been decreased by approximately $804,000 and $0.28, respectively.
(3) SIGNIFICANT CUSTOMERS
Sales to significant customers as a percentage of total sales are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
CUSTOMERS 1994 1995 1996
- ----------------------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
A.................................................................................. 14 -- --
B.................................................................................. 20 -- --
</TABLE>
Sales to significant customers in 1994 were related to the simulation
division which was sold during 1995. All of the Company's operations are
conducted in the United States. International sales are denominated in U.S.
dollars. During the years ended June 30, 1994, 1995 and 1996, export sales from
continuing operations, all of which were to unaffiliated customers, were
approximately $1.2 million, $1.6 million and $5.1 million, respectively. Export
sales from discontinued operations in 1994 and 1995
F-10
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SIGNIFICANT CUSTOMERS (CONTINUED)
were $6.8 million and $2.4 million, respectively. Export sales from continuing
operations were made primarily in the following foreign markets:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
SALES SALES SALES
FOREIGN MARKET (000'S) % (000'S) % (000'S) %
- ------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United Kingdom................................... $ 1,000 19.6%
Germany.......................................... 800 15.7
Korea............................................ 500 9.8
France........................................... $ 600 37.5% 400 7.8
Japan............................................ 400 7.8
Canada........................................... $ 800 66.7% 600 37.5 600 11.8
Belgium.......................................... 300 5.9
All Others....................................... 400 33.3 400 25.0 1,100 21.6
--------- --------- --------- --------- --------- ---------
Total............................................ $ 1,200 100.0% $ 1,600 100.0% $ 5,100 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Sales from continuing operations................. $ 10,200 11.8% $ 16,200 9.9% $ 31,300 16.3%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
(4) RECEIVABLES
Receivables, net consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Accounts receivable......................................................... $ 3,276,762 $ 5,527,620
Contract receivables:
Amounts billed............................................................ 2,216,673 721,803
Recoverable costs and accrued profit on progress completed--
not billed.............................................................. 1,665,799 242,038
------------ ------------
3,882,472 963,841
------------ ------------
7,159,234 6,491,461
Less: allowance for doubtful accounts....................................... (7,671) (70,237)
------------ ------------
------------ ------------
$ 7,151,563 $ 6,421,224
------------ ------------
------------ ------------
</TABLE>
Recoverable costs and accrued profit not billed are comprised principally of
amounts of revenue recognized on contracts for which billings had not been
presented to the contract owners since the amounts were not billable at the
balance sheet date, because contract specified milestones had not yet been
reached or because progress billings are restricted by the contract to a
percentage of costs incurred.
(5) FINANCING
The Company has an available bank line of credit of $2,500,000, which
matures October 1997. Interest is payable monthly at LIBOR plus 2.25 percent or
the bank's prime lending rate. The bank's prime lending rate at June 30, 1996
was 8.25 percent. During fiscal 1996, the Company refinanced through long-term
borrowings $2,337,537 previously outstanding on the line of credit. The Company
had no amounts drawn on this line of credit at June 30, 1996. The line of credit
provides for security interests in the Company's
F-11
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) FINANCING (CONTINUED)
receivables, inventories and equipment. Management anticipates that the line of
credit will be renewed at maturity in the normal course of business.
(6) LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Note payable to bank, $5,000,000 at LIBOR plus 2.5% (8.0% at June 30,
1996), $1,525,000 at prime plus 0.25% (8.5% at June 30, 1996), secured by
receivables, inventories and equipment, due in monthly installments of
$112,500................................................................. -- $ 6,525,000
Note payable to bank at prime plus 1.5% (10.5% at June 30, 1995), secured
by receivables, inventories and equipment, due in monthly installments of
$116,667................................................................. $ 5,819,469 --
16% notes payable to former shareholders and option holders of GreenSpring
common stock, secured by receivables but subordinate to the above
described note, due in quarterly installments commencing when the
principal balance of the aforementioned note is less than $3,000,000..... 1,000,000 --
Note payable, non-interest-bearing, payable in monthly installments
through August 1997...................................................... 213,316 113,316
8.24% note due in monthly installments of $2,215 including interest
through August 1996...................................................... 31,470 4,385
8.14% note due in monthly installments of $2,321 including interest
through August 1996...................................................... 28,786 4,595
------------- -------------
7,093,041 6,647,296
Less current portion...................................................... (1,751,392) (1,458,976)
------------- -------------
$ 5,341,649 $ 5,188,320
------------- -------------
------------- -------------
</TABLE>
Principal maturities of long term debt as of June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997.................................................................... $1,458,976
1998.................................................................... 1,363,320
1999.................................................................... 3,825,000
---------
$6,647,296
---------
---------
</TABLE>
F-12
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current:
U.S. Federal............................................... $ 716,000 $ 1,211,000 $ 1,916,770
State...................................................... 208,000 352,000 483,500
Deferred:
U.S. Federal............................................... (209,000) (145,000) (11,000)
State...................................................... (77,000) (61,000) (2,000)
------------ ------------- ------------
Income tax before discontinued operations.................... 638,000 1,357,000 2,387,270
Income tax expense (benefit) from
Discontinued operations.................................... 627,000 (1,160,000) --
Loss on disposal........................................... -- (896,000) --
------------ ------------- ------------
Total income tax expense..................................... $ 1,265,000 $ (699,000) $ 2,387,270
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
Income tax expense was provided for at an effective rate of 42.2, 42.4 and
40.0 percent in fiscal 1994, 1995 and 1996, respectively. The actual tax expense
differs from the "expected" tax expense (computed by applying the U.S. Federal
corporate tax rate of 34 percent to income before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax expense........................................... $ 513,000 $ 1,089,000 $ 2,029,180
State income tax, net of federal income tax benefit....................... 65,000 212,000 319,112
Goodwill amortization..................................................... 60,000 66,000 21,508
Other..................................................................... -- (10,000) 17,470
---------- ------------ ------------
$ 638,000 $ 1,357,000 $ 2,387,270
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
The significant components of deferred income tax assets (liabilities) are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Vacation and severance accruals........................................................... $ 176,274 $ 136,136
Reserve for discontinued operations....................................................... 169,435 --
Inventory capitalization.................................................................. -- 198,792
Other..................................................................................... 14,291 35,072
---------- ----------
$ 360,000 $ 370,000
---------- ----------
---------- ----------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
F-13
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Based on the Company's historical taxable transactions, the timing of the
reversal of existing temporary differences, and the evaluation of tax planning
strategies, management believes it is more likely than not that the Company's
future taxable income will be sufficient to realize the benefit of the deferred
tax assets existing at June 30, 1996. Accordingly, management has no allowance
for deferred tax assets at June 30, 1995 or 1996.
(8) LEASES
The Company leases its main facilities in Albuquerque, New Mexico, Carlsbad,
California and Menlo Park, California under noncancelable operating leases which
expire at various dates through 2000. The Company also leases various items of
equipment under noncancelable operating leases which expire at various dates
through the year 2001.
<TABLE>
<CAPTION>
BUILDINGS EQUIPMENT
MINIMUM LEASE MINIMUM LEASE
YEAR ENDING JUNE 30, PAYMENTS PAYMENTS TOTAL
- -------------------------------------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
1997................................................................ $ 542,831 $ 45,710 $ 588,541
1998................................................................ 450,633 43,179 493,812
1999................................................................ 443,932 43,179 487,111
2000................................................................ 436,599 43,179 479,778
2001................................................................ -- 13,929 13,929
-------------- -------------- ------------
$ 1,873,995 $ 189,176 $ 2,063,171
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
Total rental expense for operating leases for the years ended June 30, 1994,
1995, 1996 was $569,188, $511,150 and $521,885, respectively.
(9) STOCK OPTION PLANS
(A) 1991 KEY EMPLOYEE STOCK OPTION PLAN
The Company has a 1991 Key Employee Stock Option Plan (Key Employee Plan)
whereby 42,908 shares of its common stock are reserved for discretionary
issuance by the Board to certain key employees to encourage them to continue to
promote the growth of the Company.
The Key Employee Plan is not intended to be tax-qualified under the Internal
Revenue Code. Options granted under the Key Employee Plan must (i) be
accompanied by an agreement signed by each grantee setting forth the terms of
the option; (ii) may not equal more than $100,000 aggregate purchase price;
(iii) may be transferable by grantees only in accordance with applicable
securities laws; and (iv) have a price per share that will be equal to fair
market value at the time of the decision to grant the option as determined by
the Board of Directors.
(B) 1992, 1993, 1995 AND 1996 INCENTIVE STOCK OPTION PLANS
The Company has 1992, 1993, 1995 and 1996 Incentive Stock Option Plans
(Plans) whereby a total of 1,100,000 shares of its common stock are reserved for
discretionary grant of options by the Board to officers and employees who are
not directors. The Plans all terminate ten years after inception, from 2001 to
2005.
F-14
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCK OPTION PLANS (CONTINUED)
The options are intended to qualify as "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code (the Code). The option plan
generally permits options to be granted (i) only to employees or officers and
not to directors as such; (ii) for a period of up to ten years; and (iii) at
prices not less than fair market value at the date of grant. Under the Code,
holders of more than 10 percent of the Company's Common stock cannot be granted
options with a duration of more than five years or exercisable at a price less
than 110 percent of the fair market value on the date of grant. Options granted
under the plan may be exercised as provided by the administering committee or
Board of Directors of the Company. All options granted prior to the Company's
initial public offering are exercisable at $4.00 per share, the presumed market
value at that time. All other options are exercisable at the quoted market value
of the Company's stock in effect on the respective dates of the grants.
(C) 1993 DIRECTOR AND OFFICER STOCK OPTION PLAN
The 1993 Director and Officer Stock Option Plan permits options to be
granted to all Directors of the Company who are not employees and all Executive
Officers of the Company. Directors who are not employees of the Company receive
automatic grants on the anniversary date of their service as a director of the
Company. Executive Officers receive grants subject to the discretion of the
Board.
(D) 1996 EMPLOYEE STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan was adopted by the Board of Directors
on January 21, 1996, but is subject to shareholder approval at the November 1996
annual meeting. Those eligible to participate in the plan are full-time
employees of the Company who are not participants in any Incentive Stock Option
Plans provided by the Company. The plan provides for the grant of options to
eligible employees on January 21, 1996, 1997 and 1998. Individual grants are
issued for a percentage of the employee's annual base salary, (as determined
each year by the Board of Directors, up to 10%), divided by the fair market
value of one share of the Company's stock on the date of grant. Options are
eligible to be exercised beginning 18 months after the date of grant for a
period of nine months at which time they will expire.
F-15
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCK OPTION PLANS (CONTINUED)
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
ALL 1993
1991 NSOP ISOP'S D & O 1996 ESPP
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS OUTSTANDING--JUNE 30, 1993................. 26,512 318,533 20,000 --
Granted.......................................... -- 520,000 10,000 --
Exercised........................................ -- -- -- --
Canceled......................................... -- 75,725 -- --
--------- --------- --------- ---------
OPTIONS OUTSTANDING--JUNE 30, 1994................. 26,512 762,808 30,000 --
Granted.......................................... -- 140,000 10,000 --
Exercised........................................ 8,228 -- -- --
Canceled......................................... -- 236,667 -- --
--------- --------- --------- ---------
OPTIONS OUTSTANDING--JUNE 30, 1995................. 18,284 666,141 40,000 --
Granted.......................................... -- 360,000 118,500 42,894
Exercised........................................ 18,284 234,334 5,000 --
Canceled......................................... -- 60,000 -- 4,889
--------- --------- --------- ---------
OPTIONS OUTSTANDING--JUNE 30, 1996................. -- 731,807 153,500 38,005
--------- --------- --------- ---------
--------- --------- --------- ---------
OPTIONS AVAILABLE TO GRANT--JUNE 30, 1996.......... -- 133,859 157,833 261,995
AVERAGE OPTION PRICE PER SHARE:
at June 30, 1994................................. $ 2.190 $4.600 $5.375 --
at June 30, 1995................................. 2.190 5.102 5.438 --
at June 30, 1996................................. -- 7.047 5.773 $7.750
OPTIONS EXERCISABLE:
at June 30, 1994................................. 26,512 297,546 -- --
at June 30, 1995................................. 18,284 347,807 -- --
at June 30, 1996................................. -- 471,807 115,000 --
AVERAGE PRICE OF OPTIONS EXERCISED:
at June 30, 1995................................. $2.190 -- -- --
at June 30, 1996................................. 2.190 $4.620 $5.500 --
</TABLE>
F-16
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) RETIREMENT PLAN
The Company maintains a retirement plan under Section 401(k) of the Internal
Revenue Code for all employees of the Company. The plan provides for employees
to selectively defer a percentage of their wages, which the Company matches at a
predetermined rate not to exceed 4 percent of the employee's wages. The plan
also provides for additional contributions at the discretion of the Board of
Directors. Total Company contributions to the plan during the years ended June
30, 1994, 1995 and 1996 were $273,373, $251,493 and $185,387, respectively.
(11) INITIAL PUBLIC OFFERING
In connection with the Company's initial public offering in 1992, warrants
to purchase 100,000 common shares at $4.80 per share were issued to the
underwriter. The warrants are exercisable from January 9, 1993 through January
8, 1997.
(12) DISCONTINUED OPERATIONS
On April 26, 1995, the company sold its flight simulation business for
$400,300. Included in the sale were net assets of approximately $1,225,000. The
purchaser has agreed to complete simulation contracts in progress at the time of
the sale on a time and material and fixed price basis. The Company is
responsible for completion of these contracts, until novation of the contracts
by the customer, to the purchaser of the simulation operations. As of June 30,
1996, the majority of these contracts have been substantially completed.
The disposition of the flight simulation business has been accounted for as
a discontinued operation and prior years consolidated statements of operations
have been restated accordingly. Revenue of the discontinued operations were
approximately $18,560,00 and $8,700,000 in fiscal 1994 and 1995, respectively.
(13) CONTINGENCIES
The New Mexico Department of Taxation and Revenue is currently auditing the
Company's compliance with applicable New Mexico gross receipts tax laws and
regulations. Certain compliance issues have been identified during the audit
which may result in an assessment of additional tax, penalties and interest. The
Company intends to contest any proposed adjustments vigorously and expects that
the ultimate resolution of this matter will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Direct and allocable indirect costs charged to government contracts are
subject to audit by the Company's customers or their principal agent, the
Defense Contract Audit Agency. As of June 30, 1996, as a result of past audits,
no significant adjustments were required. Disallowed costs, if any, resulting
from future audits will be recognized in the period of the disallowance.
Management estimates that any such disallowed cost would not be material to the
consolidated financial statements.
The Company has been named as a defendant in a lawsuit filed on June 19,
1996. The Company is vigorously defending the lawsuit and has filed a counter
suit. Management does not believe that the outcome of the litigation will have a
material affect on the Company's financial condition or results of operations.
F-17
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) SUBSEQUENT EVENT
On August 19, 1996, the Company acquired Logical Design Group, Inc. ("LDG"),
a Raleigh, North Carolina based designer and manufacturer of Intel-based VME
central processing unit boards. The acquisition qualifies as a pooling of
interests for accounting purposes and will constitute a tax-free reorganization
for federal income tax purposes. Under the terms of the agreement, LDG
shareholders exchanged all outstanding shares of LDG stock for 200,000 shares of
the Company's stock.
The financial position and results of operations of the Company and LDG will
be combined in fiscal 1997 on a prospective basis. LDG's historical results do
not have a material affect on combined results of operations or results of
operations.
EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE
INDEPENDENT AUDITORS' REPORT
On October 8, 1996, the Company entered an agreement to acquire all of the
outstanding shares of Bit 3 Computer Corporation for a total cash purchase price
of $24 million, subject to the successful completion of a public offering of
1,580,000 shares of the Company's common stock with estimated net proceeds to
the Company of approximately $34 million. In connection with the acquisition,
the Company has made an assessment, in conjunction with an independent valuation
firm, of purchased assets and technology. The assessment currently estimates
that approximately $11 million of the purchase price represents technology that
does not meet the accounting definitions of "completed technology," and thus
should be charged to earnings under generally accepted accounting principles.
Had the acquisition and the offering of stock occurred at July 1, 1995, reported
net income and net income per common and common equivalent share for the year
ended June 30, 1996 would have been approximately $503,000 and $.10,
respectively.
F-18
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bit 3 Computer Corporation:
We have audited the accompanying balance sheets of Bit 3 Computer
Corporation (the Company) as of December 31, 1994 and 1995 and June 30, 1996,
and the related statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995 and for
the six-month period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bit 3 Computer Corporation
as of December 31, 1994 and 1995 and June 30, 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995 and for the six-month period ended June 30, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 27, 1996
F-19
<PAGE>
BIT 3 COMPUTER CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 845,026 $ 836,691 $ 887,023
Accounts receivable less allowances of $17,000, $31,000, and $31,000,
respectively........................................................ 957,704 1,264,154 1,582,743
Inventory............................................................. 1,577,918 1,527,290 1,932,443
Prepaid expenses...................................................... 12,854 25,993 21,934
------------ ------------ ------------
Total current assets................................................ 3,393,502 3,654,128 4,424,143
------------ ------------ ------------
Property and equipment:
Equipment............................................................. 786,641 843,430 884,672
Software.............................................................. 143,279 147,666 151,722
Furniture and fixtures................................................ 22,041 22,041 22,041
------------ ------------ ------------
951,961 1,013,137 1,058,435
Less accumulated depreciation......................................... (751,856) (849,602) (910,354)
------------ ------------ ------------
Total property and equipment........................................ 200,105 163,535 148,081
------------ ------------ ------------
Total assets........................................................ $ 3,593,607 $ 3,817,663 $ 4,572,224
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 43,312 $ 45,134 $ 191,115
Accrued payroll and related costs..................................... 111,555 121,484 158,564
Accrued warranty...................................................... 26,427 50,976 40,000
Other accrued liabilities............................................. 17,502 10,395 23,917
------------ ------------ ------------
Total current liabilities........................................... 198,796 227,989 413,596
------------ ------------ ------------
Stockholders' equity:
Common stock, no par value, 2,500 shares authorized, 500 issued and
outstanding......................................................... 20,400 20,400 20,400
Retained earnings..................................................... 3,374,411 3,569,274 4,138,228
------------ ------------ ------------
Total stockholders' equity.......................................... 3,394,811 3,589,674 4,158,628
------------ ------------ ------------
Total liabilities and stockholders' equity.......................... $ 3,593,607 $ 3,817,663 $ 4,572,224
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS
------------------------------------------- ENDED JUNE
1993 1994 1995 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales:
Hardware.......................................... $ 10,516,609 $ 11,298,950 $ 12,220,614 $ 7,460,612
Software.......................................... 233,530 299,788 309,138 176,592
------------- ------------- ------------- -------------
Total sales..................................... 10,750,139 11,598,738 12,529,752 7,637,204
Cost of sales....................................... 4,151,451 4,218,957 4,437,909 2,392,914
------------- ------------- ------------- -------------
Gross profit.................................... 6,598,688 7,379,781 8,091,843 5,244,290
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and administrative expense....... 1,472,835 1,660,787 1,856,689 864,507
Research and development.......................... 1,595,887 1,531,302 1,570,502 992,390
------------- ------------- ------------- -------------
Total operating expenses........................ 3,068,722 3,192,089 3,427,191 1,856,897
------------- ------------- ------------- -------------
Income from operations.......................... 3,529,966 4,187,692 4,664,652 3,387,393
------------- ------------- ------------- -------------
Interest income................................... 27,609 58,468 65,727 33,561
------------- ------------- ------------- -------------
Net income...................................... $ 3,557,575 $ 4,246,160 $ 4,730,379 $ 3,420,954
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
--------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992............................................... $ 20,400 $ 3,474,676 $ 3,495,076
Net income for the year.................................................. -- 3,557,575 3,557,575
Distributions to stockholders............................................ -- (3,500,000) (3,500,000)
--------- ------------- -------------
Balance, December 31, 1993............................................... 20,400 3,532,251 3,552,651
Net income for the year.................................................. -- 4,246,160 4,246,160
Distributions to stockholders............................................ -- (4,404,000) (4,404,000)
--------- ------------- -------------
Balance, December 31, 1994............................................... 20,400 3,374,411 3,394,811
Net income for the year.................................................. -- 4,730,379 4,730,379
Distributions to stockholders............................................ -- (4,535,516) (4,535,516)
--------- ------------- -------------
Balance, December 31, 1995............................................... 20,400 3,569,274 3,589,674
Net income for the six-month period...................................... -- 3,420,954 3,420,954
Distributions to stockholders............................................ -- (2,852,000) (2,852,000)
--------- ------------- -------------
Balance, June 30, 1996................................................... $ 20,400 $ 4,138,228 $ 4,158,628
--------- ------------- -------------
--------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
BIT 3 COMPUTER CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------------- ENDED JUNE
1993 1994 1995 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income.......................................... $ 3,557,575 $ 4,246,160 $ 4,730,379 $ 3,420,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 134,854 128,390 97,746 60,752
Increase in receivables........................... (28,205) (71,661) (306,450) (318,589)
(Increase) decrease in inventory.................. (162,368) (95,185) 50,628 (405,153)
(Increase) decrease in prepaid expenses........... (3,381) 7,247 (13,139) 4,059
Increase (decrease) in accounts payable........... (3,179) (7,970) 1,822 145,981
Increase in accrued liabilities................... 32,512 4,835 27,371 39,626
------------- ------------- ------------- -------------
Net cash provided by operating activities....... 3,527,808 4,211,816 4,588,357 2,947,630
Cash flow from investing activities--purchase of
equipment, software, and furniture................... (140,340) (83,692) (61,176) (45,298)
Cash flow from financing activities--
distributions to stockholders........................ (3,500,000) (4,404,000) (4,535,516) (2,852,000)
------------- ------------- ------------- -------------
Net increase (decrease) in cash................... (112,532) (275,876) (8,335) 50,332
Cash and cash equivalents at the beginning of
period............................................... 1,233,434 1,120,902 845,026 836,691
------------- ------------- ------------- -------------
Cash and cash equivalents at the end of period........ $ 1,120,902 $ 845,026 $ 836,691 $ 887,023
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Bit 3 Computer Corporation (a Minnesota corporation) is in the business of
designing and selling computer connectivity equipment. Products consist
primarily of printed circuit card hardware and software designed to support
hardware products. Product users are primarily large manufacturing companies,
the aerospace industry, defense agencies and their subcontractors, and the
automaker industry.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue on hardware sales and software licenses is recognized upon product
shipment.
INVENTORIES
Inventories are carried at the lower of cost or market.
CAPITALIZED SOFTWARE COSTS
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as research and development and expensed as incurred. Once
technological feasibility has been determined, additional costs incurred in
development, including coding, testing, and product quality assurance, are
capitalized when material. During the years ended December 31, 1993, 1994, and
1995 and the six-month period ended June 30, 1996, software development costs
subject to capitalization were not material and, accordingly, were not
capitalized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
utilizing the accelerated and straight line methods.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Equipment......................................................... 3-7 years
Software.......................................................... 5 years
Furniture and fixtures............................................ 5-7 years
</TABLE>
F-24
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. As a result, no provision has been made for federal
or state income taxes, since the applicable tax liability or benefit is the
responsibility of the Company's stockholders.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
WARRANTY COSTS
Estimated product warranty costs are accrued at date of shipment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of all
financial instruments to which the Company is a party. All financial instruments
are carried at amounts that approximate estimated fair value.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials....................................... $ 458,848 $ 455,504 $ 770,081
Work-in-process..................................... 442,260 309,079 282,697
Finished goods...................................... 676,810 762,707 879,665
------------ ------------ ------------
$ 1,577,918 $ 1,527,290 $ 1,932,443
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(4) EMPLOYEE BENEFIT PLANS
The Company has adopted a savings plan (the Plan) in compliance with Section
401(k) of the Internal Revenue Code. Employees are eligible to participate in
the Plan the day subsequent to the first day of service. The Plan is primarily
funded by employee contributions but the Company is permitted to make
discretionary contributions to the Plan. The Company did not make a contribution
to the Plan during the three-year period ended December 31, 1995 or the
six-month period ended June 30, 1996.
(5) OPERATING LEASE
The Company conducts its operations from facilities that are leased under a
month-to-month operating lease. Rent expense was $157,000, $175,000, $167,000,
and $91,000 for the years ended December 31, 1993, 1994, and 1995 and the
six-month period ended June 30, 1996, respectively.
(6) SIGNIFICANT CUSTOMERS
The Company had sales to one customer that represented 17%, 14%, 16%, and
22% of the Company's net sales for the years ended December 31, 1993, 1994, and
1995 and the six-month period
F-25
<PAGE>
BIT 3 COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) SIGNIFICANT CUSTOMERS (CONTINUED)
ended June 30, 1996, respectively, and had sales to a different customer that
represented 10% and 12% of the Company's net sales for the year ended December
31, 1994 and the six-month period ended June 30, 1996, respectively.
(7) SUBSEQUENT EVENT
The Company is currently negotiating an agreement with a third party to sell
all the stock of the Company. The sale is contingent upon the acquiring company
successfully completing a public offering.
F-26
<PAGE>
[Picture of LDG's latest Pentium processor card.]
In August 1996, SBS completed a pooling of interest transaction with Logical
Design Group, Inc. ("LDG"). The CPU boards sold by LDG are based on Intel 80x86
and Pentium processors and are focused on the market for "Wintel" CPU board
products in the VME marketplace. Shown is LDG's latest product, the V5A, a
single slot VME product designed around the Intel Pentium processor.
[Picture of a monitor displaying real-time T-mate displays with several BSI
boards beside the monitor.]
Many of SBS' products have a substantial software component. SBS provides
real-time data analysis and display software to accompany its telemetry
products. Displays like these shown allow engineers to monitor a test while it
is in progress, decreasing total test costs and enhancing test safety. The
telemetry interface board products shown install in a standard bus embedded
computer and transform it into a self-contained telemetry ground station. They
can also be used in traditional ISA or PCI-based computers.
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations not contained herein must
not be relied upon as having been authorized by the Company, the Selling
Shareholders, any of the Underwriters or by any other person. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any date subsequent to the date hereof.
--------------------------
CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary.................................... 3
Acquisition of Bit 3.................................. 6
Risk Factors.......................................... 8
Use of Proceeds....................................... 16
Dividend Policy....................................... 16
Price Range of Common Stock........................... 16
Capitalization........................................ 17
Selected Consolidated Financial Information of
SBS Technologies, Inc................................ 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations of
SBS Technologies, Inc................................ 19
Selected Financial Information of Bit 3 Computer
Corporation.......................................... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Bit 3 Computer
Corporation.......................................... 26
Pro Forma Combined Consolidated Financial
Statements........................................... 29
Business.............................................. 33
Management............................................ 43
Principal and Selling Shareholders.................... 47
Description of Capital Stock.......................... 49
Underwriting.......................................... 50
Legal Matters......................................... 51
Experts............................................... 51
Additional Information................................ 52
Incorporation of Certain Documents by Reference....... 52
Consolidated Financial Statements..................... F-1
</TABLE>
1,800,000 Shares
SBS TECHNOLOGIES, INC.
Common Stock
------------------
PROSPECTUS
------------------------
COWEN & COMPANY
SOUNDVIEW FINANCIAL
GROUP, INC.
, 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses incurred or to be incurred by
the Registrant. Underwriting commissions payable by the Registrant, the Selling
Shareholders and the Additional Selling Shareholders are not reflected in the
listed expenses. The Registrant will pay all expenses on behalf of the Selling
Shareholders and the Additional Selling Shareholders except for underwriting
commissions, if any, which will be paid by the Selling Shareholders and the
Additional Selling Shareholders. D.H. Blair Investment Banking Corporation,
("D.H. Blair"), a member of the National Association of Securities Dealers,
served as the Company's underwriter in the Company's initial public offering
(the "IPO") and certain other persons associated with D.H. Blair (the
"Warrantholders") at the time of the IPO received 100,000 warrants to purchase
the Company's Common Stock at an exercise price of $4.80 per share (the
"Warrants"). The Warrants will be exercised in connection with the offering and
the 100,000 shares of Common Stock underlying the Warrants will be sold in the
offering (the "Warrant Shares"). The Company is paying, on behalf of the
Warrantholders, a fee which is equal to the underwriting discounts and
commissions covering the Warrant Shares. All amounts are estimated except the
Registration Fee, the NASD Filing Fee and the Nasdaq Listing Fee.
<TABLE>
<CAPTION>
ITEM AMOUNT OF MONEY
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Registration Fee............................................................ $ 12,703
NASD Filing Fee............................................................. 4,692
Nasdaq Listing Fee.......................................................... 17,500
Blue Sky Fees and Expenses.................................................. 7,000
Printing Expenses........................................................... 85,000
Legal Fees and Expenses..................................................... 90,000
Accountants Fees and Expenses............................................... 40,000
Transfer Agent and Registrar Fees........................................... 4,000
Miscellaneous............................................................... 19,270
--------
Total................................................................... $ 280,165
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended Articles of Incorporation provide that the directors
of the Company will not be personally liable to the Company or its shareholders
for monetary damages for any breach of a director's fiduciary duty as a
director, except for liability for breach or for failure to perform the duties
of the office of director in compliance with the New Mexico Business Corporation
Act, as amended, ("Corporation Act") if that breach or failure constitutes
wilful misconduct or recklessness (or, in the case of an ownership interest in
the Company, if the breach or failure constitutes negligence, willful misconduct
or recklessness).
The Bylaws of the Company provide for indemnification, in accordance with
the Corporation Act of directors and officers of the Company for certain
expenses (including attorney's fees), judgments, fines and settlement amounts
incurred by that person in any action or proceeding, on account of services as a
director or officer of the Company, as a director or officer of any subsidiary
of the Company, or as a director or officer of any other company or enterprise
for which the person provides services at the request of the Company. The
Company believes that these provisions and agreements are necessary to attract
and retain qualified persons as directors and officers. The Corporation Act
currently provides that if the proceeding was by or in the right of the
corporation, indemnification may be made only against reasonable expenses and
may not be made for proceedings in which the person is adjudged to be liable to
the
II-1
<PAGE>
corporation. No indemnification is permitted for any proceeding charging
improper personal benefit to the person, whether or not involving action in the
person's official capacity, if the person is adjudged to be liable on the basis
that personal benefit was improperly received by the person.
Reference is made to Section 6 of the Underwriting Agreement filed as
Exhibit 1.1 hereto for certain provisions as to the indemnification of the
Underwriters by the Company and the Selling Shareholders and as to
indemnification by the Underwriters of the Company and the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement between Cowan & Company and SBS Technologies, Inc.
4.1 Article VI of the Articles of Incorporation, as amended, as included in the Articles of
Incorporation of SBS Technologies, Inc. filed as Exhibit 3.1 of the Registrant's Form 10-Q
for the quarter ended December 31, 1995.*
4.2 Articles I, II of the Bylaws of SBS Engineering, Inc., as amended, as included in the Bylaws
filed as Exhibit 3.2 of the Registrant's Form 10-Q for the quarter ended December 31, 1995.*
4.3 Form of certificate evidencing Common Stock, filed as Exhibit 4.3 of the Registrant's
Registration Statement on Form S-3 (No. 333-58), effective April 16, 1996.*
5 Opinion of Schuler, Messersmith & McNeill.**
10.1 Employment Agreement between Registrant and Dr. Andrew C. Cruce, dated October 1, 1993, as
amended, filed as Exhibit 10(a) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*
10.2 Employment Agreement between Registrant and Scott A. Alexander, dated October 1, 1993, as
amended, filed as Exhibit 10(b) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*
10.3 Employment Agreement between Registrant and Christopher J. Amenson, dated August 24, 1992, as
amended, filed as Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year ended June
30, 1996.*
10.4 1991 Key Employee Stock Option Plan, filed as Exhibit 10(d) of the Registrant's Registration
Statement on Form S-18 (No. 33-43256-D), effective January 9, 1992.*
10.5 1992 Incentive Stock Option Plan, filed as Exhibit 10(e) of the Registrant's Registration
Statement on Form S-18 (No. 33-43256-D), effective January 9, 1992.*
10.6 Stock Bonus Plan, filed as Exhibit 10(f) of the Registrant's Registration Statement on Form
S-18 (No. 33-43256-D), effective January 9, 1992.*
10.7 1993 Incentive Stock Option Plan, filed as Exhibit A of the Registrant's Proxy Statement for
its annual meeting held November 10, 1992.*
10.8 1993 Director and Officer Stock Option Plan, filed as Exhibit B of the Registrant's Proxy
Statement for its annual meeting held November 10, 1992.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------
10.9 Asset Purchase Agreement dated April 26, 1995 between Registrant and Camber Corporation, filed
as Exhibit 10(q) of the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995.*
<C> <S>
10.10 Purchase Agreement dated April 28, 1995 between Registrant and GreenSpring Computers, Inc.,
filed as Exhibit 10(r) of the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.*
10.11 Credit Agreement dated April 28, 1995 with NationsBank of Texas, N.A., filed as Exhibit 10(s)
of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.*
10.12 Lease dated May 25, 1995 between the Registrant and PARS Asset Management Company, filed as
Exhibit 10(t) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1995.*
10.13 1996 Employee Stock Purchase Plan adopted January 21, 1996, as amended, subject to shareholder
approval, filed as Exhibit 10(v) of the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996.*
10.14 Amended and Restated Term Loan and Revolver Credit Facility from NationsBank of Texas, N.A.
dated April 26, 1996, filed as Exhibit 10.w of the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.*
10.15 Lease dated March 5, 1996, between the Registrant and Bohannon Trust Partnership II, filed as
Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the fiscal year ended June
30, 1996.*
10.16 Pooling Agreement dated August 19, 1996 between the Registrant and Logical Design Group, Inc.
et al, filed as Exhibit 10(y) of the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996.*
10.17 Management Incentive Plans, filed as Exhibit 10.2 of the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1996.*
10.18 Stock Purchase Agreement dated October 8, 1996 between the Registrant and Philip M. Vukovic and
Larry L. Larsen.**
11 Statement Re Computation of Per-Share Income filed as Exhibit 11 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.*
23.1 Consent of Schuler, Messersmith & McNeill (included in Exhibit 5).**
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Warren Andrews.
24 Power of Attorney (included in signature page forming a part hereof).
27 Financial Data Schedule (filed electronically with the Company's Annual Report on Form 10-K for
the year ended June 30, 1996).*
</TABLE>
- ------------------------
*Incorporated by reference.
**To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Undertaking Concerning Claim for Indemnification Against Certain
Liabilities
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification against liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) Undertakings For a Registration Statement Permitted by Rule 430A:
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Albuquerque, State of New Mexico, on October 8, 1996.
SBS TECHNOLOGIES, INC.
By: /S/ ANDREW C. CRUCE, PH.D.
-----------------------------------------
Andrew C. Cruce, Ph.D.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew C. Cruce and Christopher J. Amenson, and
each of them, with full power to act as his true and lawful attorney-in-fact,
with full power of substitution and resubstitution for him in his name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement, or a related
registration statement filed pursuant to Rule 462(b), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys- in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ ------------------- ----------------
<C> <S> <C>
/S/ ANDREW C. CRUCE, Chairman of the
PH.D. Board, Chief
- ------------------------------ Executive Officer October 8, 1996
Andrew C. Cruce, Ph.D. and Director
Vice President of
/S/ JAMES E. Finance and
DIXON Administration October 8, 1996
- ------------------------------ Treasurer and Chief
James E. Dixon Financial Officer
/S/ CHRISTOPHER J.
AMENSON President and
- ------------------------------ Director October 8, 1996
Christopher J. Amenson
/S/ SCOTT A. ALEXANDER Vice President,
- ------------------------------ Secretary and October 8, 1996
Scott A. Alexander Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ ------------------- ----------------
<C> <S> <C>
/S/ WILLIAM J.
BECKER
- ------------------------------ Director October 8, 1996
William J. Becker
/S/ LAWRENCE A.
BENNIGSON
- ------------------------------ Director October 8, 1996
Lawrence A. Bennigson
/S/ A. WADE
BLACK
- ------------------------------ Director October 8, 1996
A. Wade Black
/S/ JOSEPH N. NAJJAR,
JR.
- ------------------------------ Director October 8, 1996
Joseph N. Najjar, Jr.
</TABLE>
II-6
<PAGE>
DRAFT 10/04/96
1,800,000 Shares
SBS TECHNOLOGIES, INC.
COMMON STOCK, NO PAR VALUE
UNDERWRITING AGREEMENT
, 1996
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. INTRODUCTORY. SBS Technologies, Inc., a New Mexico corporation
(the "Company") and a shareholder of the Company named in Schedule B hereto
(the "Firm Selling Shareholder" propose to sell, pursuant to the terms of
this Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), 1,580,000 and 220,000 shares of
Common Stock, no par value (the "Common Stock") of the Company, respectively.
The aggregate of 1,800,000 shares so proposed to be sold is hereinafter
referred to as the "Firm Stock." The Company, the Firm Selling Shareholder,
certain shareholders of the Company designated as principal selling
shareholders in Schedule B hereto (the "Principal Selling Shareholders") and
other shareholders of the Company named in Schedule B hereto (the "Other
Selling Shareholders," and together with the Firm Selling Shareholder and the
Principal Selling Shareholders, the "Selling Shareholders") also propose to
sell to the Underwriters, upon the terms and conditions set forth in Section
3 hereof, up to an additional 270,000 shares of Common Stock (the "Optional
Stock"). The Firm Stock and the Optional Stock are hereinafter collectively
referred to as the "Stock." Cowen & Company ("Cowen") and SoundView
Financial Group, Inc. are acting as representatives of the several
Underwriters and in such capacity are hereinafter referred to as the
"Representatives."
1.
<PAGE>
2. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SELLING SHAREHOLDERS. The Company and the Principal Selling
Shareholders represent and warrant to, and agree with, the several underwriters
that:
(a) (i) A registration statement on Form S-2 (File No. 333-_______) in the
form in which it became or becomes effective and also in such form as it
may be when any post-effective amendment thereto shall become effective
with respect to the Stock, including any pre-effective prospectuses
included as part of the registration statement as originally filed or as
part of any amendment or supplement thereto, or filed pursuant to Rule 424
under the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, copies of which,
including all documents incorporated by reference therein, have heretofore
been delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been filed
with the Commission under the Securities Act; one or more amendments to
such registration statement, including in each case an amended
pre-effective prospectus, copies of which amendments, including all
documents incorporated by reference therein, have heretofore been delivered
to you, have been so prepared and filed. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before
the offering of the Stock may commence, the term "Registration Statement"
as used in this Agreement means the registration statement as amended by
said post-effective amendment. The term "Registration Statement" as used
in this Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement,
or, (A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act, the term "Prospectus" as used in
this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant
to Rule 424(b) and (B) if prospectuses that meet the requirements of
Section 10(a) of the Securities Act are delivered pursuant to Rule 434
under the Securities Act, then (i) the term "Prospectus" as used in this
Agreement means the "prospectus subject to completion" (as such term is
defined in Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in the
form of prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and (ii) the date of
such prospectuses shall be deemed to be the date of the term sheets. The
term "Pre-effective Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the Registration
Statement at the time of the initial filing of the Registration Statement
with the Commission, and as such prospectus shall have been
2.
<PAGE>
amended from time to time prior to the date of the Prospectus. Any
reference herein to any Pre-effective Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Form S-2 under the Securities Act, as of the date of
such Pre-effective Prospectus or Prospectus, as the case may be, and any
reference to any amendment or supplement to any Pre-effective Prospectus or
the Prospectus shall be deemed to refer to and include any documents filed
after such date under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and so incorporated by reference.
(b) (ii) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Pre-effective Prospectus, and, at
its date of issue, each Pre-effective Prospectus conformed in all material
respects with the requirements of the Securities Act and did not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and, when the Registration Statement becomes effective and at all times
subsequent thereto up to and including each of the Closing Dates (as
hereinafter defined), the Registration Statement and the Prospectus and any
amendments or supplements thereto contained and will contain all material
statements and information required to be included therein by the
Securities Act and conformed and will conform in all material respects to
the requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing
representations, warranties and agreements shall not apply to information
contained in or omitted from any Pre-effective Prospectus or the
Registration Statement or the Prospectus or any such amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter,
directly or through you, or by any Selling Shareholder, specifically for
use in the preparation thereof; there is no franchise, lease, contract,
agreement or document required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed therein as required; and all
descriptions of any such franchises, leases, contracts, agreements or
documents contained in the Registration Statement are accurate and complete
descriptions of such documents in all material respects. The documents
incorporated by reference in the Registration Statement, any Preliminary
Prospectus and the Prospectus, when they were filed with the Commission,
conformed in all material respects to the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder, and none of
such documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(c) (iii) Subsequent to the respective dates as of which information is
given in the
3.
<PAGE>
Registration Statement and Prospectus, and except as set forth or
contemplated in the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, nor entered into any transactions not in the ordinary course of
business, and there has not been any material adverse change in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital stock,
short-term or long-term debt of the Company and its subsidiaries considered
as a whole.
(d) (iv) The financial statements, together with the related notes and
schedules, set forth in the Prospectus and elsewhere in the Registration
Statement fairly present, on the basis stated in the Registration
Statement, the financial position and the results of operations and changes
in financial position of the Company and its consolidated subsidiaries at
the respective dates or for the respective periods therein specified. Such
statements and related notes and schedules have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
except as may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus under the captions "Summary
Financial Data" and "Selected Consolidated Financial Data" fairly present,
on the basis stated in the Registration Statement, the information set
forth therein.
(e) (v) KPMG Peat Marwick LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectus are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(f) (vi) The Company and each of its subsidiaries have been duly organized
and are validly existing and in good standing as corporations under the
laws of their respective jurisdictions of organization, with power and
authority (corporate and other) to own or lease their properties and to
conduct their businesses as described in the Prospectus; the Company is and
each of its subsidiaries are in possession of and operating in compliance
with all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of its business,
all of which are valid and in full force and effect; and the Company is and
each of such subsidiaries are duly qualified to do business and in good
standing as foreign corporations in all other jurisdictions where their
ownership or leasing of properties or the conduct of their businesses
requires such qualification. The Company has and each of its subsidiaries
have all requisite power and authority, and all necessary consents,
approvals, authorizations, orders, registrations, qualifications, licenses
and permits of and from all public regulatory or governmental agencies and
bodies to own, lease and operate its properties and conduct its business as
now being conducted and as described in the Registration Statement and the
Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome
4.
<PAGE>
restriction not adequately disclosed in the Registration Statement and the
Prospectus. The Company owns or controls, directly or indirectly, only the
corporations, associations or other entities listed in exhibit 21.1 to the
Registration Statement.
(g) (vii) The Company's authorized and outstanding capital stock is on the
date hereof, and will be on the Closing Dates, as set forth under the
heading "Capitalization" in the Prospectus; the outstanding shares of
common stock (including the outstanding shares of Stock) of the Company
conform to the description thereof in the Prospectus and have been duly
authorized and validly issued and are fully paid and nonassessable; are
duly listed on the Nasdaq National Market and have been issued in
compliance with all federal and state securities laws and were not issued
in violation of or subject to any preemptive rights or similar rights to
subscribe for or purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or contemplated by
the Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, the Company does not have
outstanding any options or warrants to purchase, or any preemptive rights
or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations, except for options granted subsequent to the
date of information provided in the Prospectus pursuant to the Company's
employee and stock option plans as disclosed in the Prospectus. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights. All outstanding shares of capital stock
of each subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable and (except for directors' qualifying shares)
are owned directly by the Company or by another wholly owned subsidiary of
the Company free and clear of any liens, encumbrances, equities or claims.
(h) (viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and nonassessable and free of any
preemptive or similar rights and will conform to the description thereof in
the Prospectus.
(i) (ix) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is subject, which, if determined adversely to the Company or any
such subsidiary or affiliate, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration Statement,
(iii) prevent or suspend the use of the Pre-effective Prospectus in any
jurisdiction or (iv) result in a material adverse
5.
<PAGE>
change in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company
and its subsidiaries considered as a whole and there is no valid basis for
any such legal or governmental proceeding; and to the best of the Company's
knowledge no such proceedings are threatened or contemplated against the
Company or any subsidiary by governmental authorities or others. The
Company is not a party nor subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body or
other governmental agency or body. The description of the Company's
litigation under the heading "Legal Proceedings" in the Prospectus is true
and correct and complies with the Rules and Regulations.
(j) (x) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated (A) will not result in
any violation of the provisions of the certificate of incorporation,
by-laws or other organizational documents of the Company or its subsidiary,
or any law, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its subsidiary or any of
their properties or assets, (B) will not conflict with or result in a
breach or violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its properties is or may
be bound, the Articles of Incorporation, By-laws or other organizational
documents of the Company or any of its subsidiaries, or any law, order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties or will result in the creation of a lien.
(k) (xi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby, except such as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or under the
Securities Act or the Exchange Act or the securities or "Blue Sky" laws of
any jurisdiction in connection with the purchase and distribution of the
Stock by the Underwriters.
(l) (xii) The Company has the full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder (including to
issue, sell and deliver the Stock), and this Agreement has been duly and
validly authorized, executed and delivered by the Company and is a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnity
and contribution hereunder may be limited by federal or state securities
laws or the public policy underlying such laws.
(m) (xiii) The Company and its subsidiaries are in all material respects
in compliance
6.
<PAGE>
with, and conduct their businesses in conformity with, all applicable
federal, state, local and foreign laws, rules and regulations or any court
or governmental agency or body; to the knowledge of the Company, otherwise
than as set forth in the Registration Statement and the Prospectus, no
prospective change in any of such federal or state laws, rules or
regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company and its
subsidiaries.
(n) (xiv) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other tax
returns and have paid all taxes shown as due thereon or with respect to any
of their properties, and there is no tax deficiency that has been, or to
the knowledge of the Company is likely to be, asserted against the Company
or any of its subsidiaries or any of their respective properties or assets
that would adversely affect the financial position, business or operations
of the Company and its subsidiaries.
(o) (xv) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement or otherwise, except
for persons and entities who have expressly waived such right or who have
been given proper notice and have failed to exercise such right within the
time or times required under the terms and conditions of such right.
(p) (xvi) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any security
of the Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(q) (viii) The Company and its subsidiaries own or possess the right to
use all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being owned by them
or any of them or necessary for the conduct of their respective businesses,
and the Company is not aware of any claim to the contrary or any challenge
by any other person to the rights of the Company and its subsidiaries with
respect to the foregoing. The Company's business as now conducted and as
proposed to be conducted does not and will not infringe or conflict with in
any material respect patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses or other intellectual property or
franchise right of any person. Except as described in the Prospectus, no
claim has been made against the Company alleging the infringement by the
Company of any patent, trademark, service mark, trade name, copyright,
trade secret, license in or other intellectual property right or franchise
right of any person.
(r) (xix) The Company and its subsidiaries have performed all material
obligations required to be performed by them under all contracts required
by Item 601(b)(10) of
7.
<PAGE>
Regulation S-K under the Securities Act to be filed as exhibits to the
Registration Statement, and neither the Company nor any of its subsidiaries
nor any other party to such contract is in default under or in breach of
any such obligations. Neither the Company nor any of its subsidiaries has
received any notice of such default or breach.
(s) (xx) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (A) any executive, key
employee or significant group of employees of the Company or any subsidiary
plans to terminate employment with the Company or any such subsidiary or
(B) any such executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreement
that would be violated by the present or proposed business activities of
the Company and its subsidiaries. Neither the Company nor any subsidiary
has or expects to have any liability for any prohibited transaction or
funding deficiency or any complete or partial withdrawal liability with
respect to any pension, profit sharing or other plan which is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
to which the Company or any subsidiary makes or ever has made a
contribution and in which any employee of the Company or any subsidiary is
or has ever been a participant. With respect to such plans, the Company
and each subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(t) (xxi) The Company has obtained the written agreement described in
Section 8(l) of this Agreement from each of its officers, directors and
holders of Common Stock listed on Schedule C hereto.
(u) (xxii) The Company and its subsidiaries have, and the Company and its
subsidiaries as of the Closing Dates will have, good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned or proposed to be owned by them which is material
to the business of the Company or of its subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are
described the Prospectus or such as would not have a material adverse
effect on the Company and its subsidiaries considered as a whole; and any
real property and buildings held under lease by the Company and its
subsidiaries or proposed to be held after giving effect to the transactions
described in the Prospectus are, or will be as of each of the Closing
Dates, held by them under valid, subsisting and enforceable leases with
such exceptions as would not have a material adverse effect on the Company
and its subsidiaries considered as a whole, in each case except as
described in or contemplated by the Prospectus.
(v) (xxiii) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the businesses in which they are engaged
or propose to engage after giving effect to the transactions described in
the Prospectus; and neither the Company nor any
8.
<PAGE>
subsidiary of the Company has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue their business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiaries
considered as a whole, except as described in or contemplated by the
Prospectus.
(w) (xxiv) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company
any brokerage or finder's fee or other fee or commission as a result of any
of the transactions contemplated by this Agreement.
(x) (xxv) The Company has complied with all provisions of Section 517.075
Florida Statutes (Chapter 92-198; Laws of Florida).
(y) (xxvi) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) (xxvii) To the Company's knowledge, neither the Company nor any of its
subsidiaries nor any employee or agent of the Company or any of its
subsidiaries has made any payment of funds of the Company or any of its
subsidiaries or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(aa) (xxviii) Neither the Company nor any of its subsidiaries is or, after
application of the net proceeds of this offering as described under the
caption "Use of Proceeds" in the Prospectus, will become an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
(bb) (xxix) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the matters
covered thereby.
(b) REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder represents and warrants to, and agrees
with, the several Underwriters
9.
<PAGE>
that such Selling Shareholder:
(i) Now has, and on the Closing Dates will have, valid and marketable
title to the Shares to be sold by such Selling Shareholder, free and clear
of any lien, claim, security interest or other encumbrance, including,
without limitation, any restriction on transfer, and has full right, power
and authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement (each as hereinafter defined), and, to the extent such
Selling Shareholder is a corporation, has been duly organized and is
validly existing and in good standing as a corporation under the laws of
its jurisdiction of organization.
(ii) Now has, and on each of the Closing Dates will have, upon delivery
of and payment for each share of Stock hereunder, full right, power and
authority, any approval required by law to sell, transfer, assign and
deliver the Stock being sold by such Selling Shareholder hereunder, and
each of the several Underwriters will acquire valid and marketable title to
all of the Stock being sold to the Underwriters by such Selling
Shareholder, free and clear of any liens, encumbrances, equities claims,
restrictions on transfer or other defects whatsoever.
(iii) For a period of 120 days after the date of this Agreement, without
the consent of Cowen, such Selling Shareholder will not offer to sell,
sell, contract to sell or otherwise dispose of any Stock or securities
convertible into or exchangeable for Stock, including, without limitation
Stock which may be deemed to be beneficially owned by such Selling
Shareholder in accordance with the Rules and Regulations, except for the
Stock being sold hereunder.
(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered by the Representatives (the
"Power of Attorney"), appointing ____________ and ____________, and each of
them, as attorney-in-fact (the "Attorneys-in-fact") with authority to
execute and deliver this Agreement on behalf of such Selling Shareholder,
to authorize the delivery of the shares of Stock to be sold by such Selling
Shareholder hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this
Agreement.
(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered by the Representatives (the
"Custody Agreement"), with ____________ as custodian (the "Custodian"),
pursuant to which certificates in negotiable form for the shares of Stock
to be sold by such Selling Shareholder hereunder have been placed in
custody for delivery under this Agreement.
(vi) Has, by execution and delivery of each of this Agreement, the Power
of Attorney and the Custody Agreement, created valid and binding
obligations of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with its terms, except to the extent that rights
to indemnity hereunder may be limited by federal or state
10.
<PAGE>
securities laws or the public policy underlying such laws.
(vii) The performance of this Agreement, the Custody Agreement and the
Power of Attorney, and the consummation of the transactions contemplated
hereby and thereby will not result in a breach or violation by such Selling
Shareholder of any of the terms or provisions of, or constitute a default
by such Selling Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder or any of its properties is bound, or
any judgment of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties, or to such Selling
Shareholder's knowledge, any statute, decree, order, rule or regulation of
any court or governmental agency or body applicable to such Selling
Shareholder or any of its properties.
(c) Each of the Other Selling Shareholders represents and warrants to, and
agrees with, the several Underwriters that it is not aware that any of the
representations and warranties set forth in Section 2(a) above is untrue or
inaccurate in any material respect.
Each Selling Shareholder agrees that the shares of Stock represented
by the certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the
Underwriters, the other Selling Shareholders and the Company hereunder, and
that the arrangement for such custody and the appointment of the
Attorneys-in-fact are irrevocable; that the obligations of such Selling
Shareholder hereunder shall not be terminated by operation of law, whether
by the death or incapacity, liquidation or distribution of such Selling
Shareholder, or any other event, that if such Selling Shareholder should
die or become incapacitated or is liquidated or dissolved or any other
event occurs, before the delivery of the Stock hereunder, certificates for
the Stock to be sold by such Selling Shareholder shall be delivered on
behalf of such Selling Shareholder in accordance with the terms and
conditions of this Agreement and the Custody Agreement, and action taken by
the Attorneys-in-fact or any of them under the Power of Attorney shall be
as valid as if such death, incapacity, liquidation or dissolution or other
event had not occurred, whether or not the Custodian, the Attorneys-in-fact
or any of them shall have notice of such death, incapacity, liquidation or
dissolution or other event.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING
DATES. The Company and the Firm Selling Shareholder agree, severally and not
jointly, to sell to the Underwriters the Firm Stock, with the number of shares
to be sold by the Company and the Firm Selling Shareholder being the number of
Shares set opposite his name in Schedule B; and on the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company and the
Firm Selling Shareholder, the number of shares of Firm Stock to be purchased by
each Underwriter being set opposite its name in
11.
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Schedule A, subject to adjustment in accordance with Section 12 hereof. The
number of shares of Stock to be purchased by each Underwriter from the Firm
Selling Shareholder hereunder shall bear the same proportion to the total number
of shares of Stock to be purchased by such Underwriter hereunder as the number
of shares of stock being sold by the Firm Selling Shareholder bears to the total
number of shares of Stock being sold by the Firm Selling Shareholder, subject to
adjustment by the Representatives to eliminate fractions.
The purchase price per share to be paid by the Underwriters to the
Company and the Firm Selling Shareholder will be the price per share set for
$____ in the table on the cover page of the Prospectus under the heading
"Proceeds to the Company" (the "Purchase Price").
The Company and the Firm Selling Shareholder will deliver the Firm
Stock to the Representatives for the respective accounts of the several
Underwriters (in the form of definitive certificates, issued in such names and
in such denominations as the Representatives may direct by notice in writing to
the Company and the Firm Selling Shareholder given at or prior to 12:00 Noon,
New York Time, on the second full business day preceding the First Closing Date
(as defined below) or, if no such direction is received, in the names of the
respective Underwriters or in such other names as Cowen may designate (solely
for the purpose of administrative convenience) and in such denominations as
Cowen may determine, against payment of the aggregate Purchase Price therefor by
certified or official bank check or checks in immediately available funds (same
day funds), payable to the order of the Company and ____________ as Custodian
for the Firm Selling Shareholder, all at the offices of Schuler, Messersmith &
McNeill, 5700 Harper Drive, NE, Suite 430, Albuquerque, New Mexico 87109. The
time and date of the delivery and closing shall be at 10:00 A.M., New York Time,
on ____________, 1996, in accordance with Rule 15c6-1 of the Exchange Act. The
time and date of such payment and delivery are herein referred to as the "First
Closing Date." The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement among the
Company, the Firm Selling Shareholder and Cowen. The First Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company and the Firm Selling Shareholder shall make the
certificates for the Stock available to the Representatives for examination on
behalf of the Underwriters not later than 10:00 A.M., New York Time, on the
business day preceding the First Closing Date at the offices of Cowen & Company,
Financial Square, New York, New York 10005.
It is understood that Cowen or SoundView Financial Group, Inc.,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company or to the Firm Selling
Shareholder on behalf of any Underwriter or Underwriters, for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Cowen or
SoundView Financial Group, Inc. shall not relieve such Underwriter or
Underwriters from any of its or their other obligations hereunder.
The several Underwriters agree to make a public offering of the Firm
Stock at the
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public offering price as soon after the effectiveness of the Registration
Statement as in their judgment is advisable. The Representatives shall promptly
advise the Company and the Firm Selling Shareholder of the making of the initial
public offering.
For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Stock as contemplated by the
Prospectus, of the Selling Shareholders hereby grants to the Underwriters
an option to purchase, severally and not jointly, up to the aggregate number
of shares of Optional Stock set forth opposite the Company's and each such
Selling Shareholder's respective names on Schedule B hereto, for an aggregate
of up to 270,000 shares. The price per share to be paid for the Optional
Stock shall be the Purchase Price. The option granted hereby may be
exercised as to all or any part of the Optional Stock at any time, and from
time to time, not more than thirty (30) days subsequent to the effective date
of this Agreement. No Optional Stock shall be sold and delivered unless the
Firm Stock previously has been, or simultaneously is, sold and delivered.
The right to purchase the Optional Stock or any portion thereof may be
surrendered and terminated at any time upon notice by the Underwriters to the
Company and the Attorneys-in-fact, on behalf of the Selling Shareholders.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company and the Attorney's-in-fact, on
behalf of the Selling Shareholders, setting forth the number of shares of the
Optional Stock to be purchased by them and the date and time for delivery of and
payment for the Optional Stock. Each date and time for delivery of and payment
for the Optional Stock (which may be the First Closing Date, but not earlier) is
herein called the "Option Closing Date" and shall in no event be earlier than
two (2) business days nor later than ten (10) business days after written notice
is given. (The Option Closing Date and the First Closing Date are herein called
the "Closing Dates.") All purchases of Optional Stock from the Company and the
Selling Shareholders shall be made on a pro rata basis. Optional Stock shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule B hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company and the Selling Shareholders agree to
sell to the Underwriters the number of shares of Optional Stock set forth in the
written notice of exercise and the Underwriters agree, severally and not jointly
and subject to the terms and conditions herein set forth, to purchase the number
of such shares determined as aforesaid.
The Company and the Selling Shareholders will deliver the Optional
Stock to the Underwriters (in the form of definitive certificates, issued in
such names and in such denominations as the Representatives may direct by notice
in writing to the Selling Shareholders given at or prior to 12:00 Noon, New York
Time, on the second full business day preceding the Option Closing Date or, if
no such direction is received, in the names of the respective Underwriters or in
such other names as Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as Cowen may determine,
against
13.
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payment of the aggregate Purchase Price therefor by certified or official bank
check or checks in Clearing House funds (next day funds), payable to the order
of the Company and to ____________, as Custodian for the Selling Shareholders or
payable as directed by such Custodian all at the offices of Schuler, Messersmith
& McNeill, 5700 Harper Drive NE, Suite 430, Albuquerque, New Mexico 87109. The
Selling Shareholders shall make the certificates for the Optional Stock
available to the Underwriters for examination not later than 10:00 A.M., New
York Time, on the business day preceding the Option Closing Date at the offices
of Cowen & Company, Financial Square, New York, New York 10005. The Option
Closing Date and the location of delivery of, and the form of payment for, the
Option Stock may be varied by agreement among the Company, the Selling
Shareholders and Cowen. The Option Closing Date may be postponed pursuant to
the provisions of Section 12.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A of the of the Rules and
Regulations, use its best efforts to cause the Registration Statement to
become effective, (ii) if the Company and the Representatives have
determined to proceed pursuant to Rule 430A of the Rules and Regulations,
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and Rule 424 of
the Rules and Regulations and (iii) if the Company and the Representatives
have determined to deliver Prospectuses pursuant to Rule 434 of the
Rules and Regulations, to use its best efforts to comply with all the
applicable provisions thereof. The Company will advise the Representatives
promptly as to the time at which the Registration Statement becomes
effective, will advise the Representatives promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible the lifting thereof, if
issued. The Company will advise the Representatives promptly of the
receipt of any comments of the Commission or any request by the Commission
for any amendment of or supplement to the Registration Statement or the
Prospectus or for additional information and will not at any time file any
amendment to the Registration Statement or supplement to the Prospectus
which shall not previously have been submitted to the Representatives a
reasonable time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus which in the opinion of
the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use
its best efforts to cause the same to
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become effective as promptly as possible.
(c) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered
under the Securities Act any event relating to or affecting the
Company or any of its subsidiaries occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which
will correct such statement or omission; and in case any Underwriter
is required to deliver a prospectus relating to the Stock nine (9)
months or more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the expense
of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as
originally filed with the Commission, and all amendments thereto
including all financial statements and exhibits thereto and all
documents incorporated by reference therein, and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements, and all documents theretofore
incorporated by reference therein but without exhibits, and all
amendments thereto, as the Representatives may reasonably request.
The Company will deliver or mail to or upon the order of the
Representatives, from time to time until the effective date of the
Registration Statement, as many copies of the Pre-effective Prospectus
as the Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the Representatives on the
date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock
is required under the Securities Act, as many copies of the
Prospectus, in final form or as thereafter amended or supplemented as
the Representatives may reasonably request; provided, however, that
the expense of the preparation and delivery of any prospectus required
for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its shareholders as soon
as practicable, but not later than fifteen (15) months after the
effective date of the Registration Statement, an earning statement
which will be in reasonable detail
15.
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(but which need not be audited) and which will comply with
Section 11(a) of the Securities Act, covering a period of at least
twelve (12) months beginning after the "effective date" (as defined in
Rule 158 under the Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may designate and at the request
of the Representatives will make such applications and furnish such
consents to service of process or other documents as may be required
of it as the issuer of the Stock for that purpose; provided, however,
that the Company shall not be required to qualify to do business or to
file a general consent (other than that arising out of the offering or
sale of the Stock) to service of process in any such jurisdiction
where it is not now so subject. The Company will, from time to time,
prepare and file such statements and reports as are or may be required
of it as the issuer of the Stock to continue such qualifications in
effect for so long a period as the Representatives may reasonably
request for the distribution of the Stock. The Company will advise
the Representatives promptly after the Company becomes aware of the
suspension of the qualifications or registration of (or any such
exception relating to) the Common Stock of the Company for offering,
sale or trading in any jurisdiction or of any initiation or threat of
any proceeding for any such purpose, and in the event of the issuance
of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the
Representatives use its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its shareholders annual reports containing
financial statements certified by independent public accountants and
with quarterly summary financial information in reasonable detail
which may be unaudited. During the period of five (5) years from the
date hereof, the Company will deliver to the Representatives and, upon
request, to each of the other Underwriters, as soon as they are
available, copies of each annual report of the Company and each other
report furnished by the Company to its shareholders and will deliver
to the Representatives, (i) as soon as they are available, copies of
any other reports (financial or other) which the Company shall publish
or otherwise make available to any of its shareholders as such, (ii)
as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange and (iii) from time to time such other information
concerning the Company as you may request. So long as the Company has
active subsidiaries, such financial statements will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its shareholders
generally. Separate financial statements shall be furnished for all
subsidiaries whose accounts are not consolidated but which at the
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time are significant subsidiaries as defined in the Rules and
Regulations.
(h) The Company will use its best efforts to list the Stock, subject to
official notice of issuance, on the Nasdaq National Market
concurrently with the effectiveness of the Registration Statement.
(i) The Company will maintain a transfer agent and registrar for its
Common Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the Company
will have its independent auditors perform a limited quarterly review
of its quarterly numbers.
(k) The Company will not offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase or otherwise dispose of, other
than by operation of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock (including,
without limitation, Common Stock of the Company which may be deemed to
be beneficially owned by the Company in accordance with the Rules and
Regulations) during the 120 days following the date on which the price
of the Common Stock to be purchased by the Underwriters is set, other
than the Company's sale of Common Stock hereunder and the Company's
issuance of Common Stock upon the exercise of warrants and stock
options which are presently outstanding and described in the
Prospectus.
(l) The Company will apply the net proceeds from the sale of the Stock as
set forth in the description under "Use of Proceeds" in the
Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(m) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection
with the registration of the Stock under the Securities Act.
(n) Prior to each of the Closing Dates the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and its subsidiaries
for any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the Prospectus.
(o) Prior to each of the Closing Dates the Company will issue no press
release or other communications directly or indirectly and hold no
press conference with respect to the Company or any of its
subsidiaries, the financial condition, results of operations,
business, prospects, assets or liabilities of any of them, or the
offering of the Stock, without your prior written consent. For a
period of twelve (12) months following the first Closing Date, the
Company will use its best efforts
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to provide to you copies of each press release or other public
communications with respect to the financial condition, results of
operations, business, prospects, assets or liabilities of the Company
at least twenty-four (24) hours prior to the public issuance thereof
or such longer advance period as may reasonably be practicable.
(p) During the period of five (5) years hereafter, the Company will
furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with the
Commission, or the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company
mailed generally to holders of its Common Stock.
5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of the obligations of the Company and of the Selling
Shareholders under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and taxes
incident to the issuance and delivery of the Stock to the Representatives; (ii)
all expenses incident to the registration of the Stock under the Securities Act;
(iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses of the Company's counsel and the Company's independent
accountants; (vii) all costs and expenses incurred in connection with the
preparation, printing filing, shipping and distribution of the Registration
Statement, each Pre-effective Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, the Selling Shareholders' Powers of Attorney, the Custody Agreement,
the "Agreement Among Underwriters" between the Representatives and the
Underwriters, the Master Selected Dealers' Agreement, the Underwriters'
Questionnaire and the Blue Sky memoranda (including related fees and expenses of
counsel to the Underwriters) and this Agreement; (viii) all filing fees,
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with exemptions from the qualifying or registering (or obtaining
qualification or registration of) all or any part of the Stock for offer and
sale and determination of its eligibility for investment under the Blue Sky or
other securities laws of such jurisdictions as the Representatives may
designate; (ix) fees and expenses of counsel to the Underwriters; (x) all fees
and expenses paid or incurred in connection with filings made with the NASD; and
(xi) all other costs and expenses incident to the performance of their
obligations hereunder which are not
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otherwise specifically provided for in this Section.
(b) Each Selling Shareholder will pay (directly or by reimbursement)
all fees and expenses incident to the performance of such Selling Shareholder's
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and expenses of counsel for
such Selling Shareholder, such Selling Shareholder's pro rata share of fees and
expenses of the Attorneys-in-fact and the Custodian and all expenses and taxes
incident to the sale and delivery of the Stock to be sold by such Selling
Shareholder to the Underwriters hereunder.
(c) In addition to their other obligations under Section 6(a) hereof,
the Company and each Selling Shareholder jointly and severally agrees (except
for the Firm Selling Shareholder, whose obligation will not exceed a
proportional amount based on the ratio of the number of shares of stock sold to
the Underwriters by such Firm Selling Shareholder to the total number of Shares
sold to the Underwriters) that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon (I) any statement or omission or any alleged statement or omission,
(ii) any act or failure to act or any alleged act or failure to act or (iii) any
breach or inaccuracy in their representations and warranties, they will
reimburse each Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's and each Selling Shareholder's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, each Underwriter shall promptly return it to the Company and each
Selling Shareholder, as the case may be, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to timed
by _____________, New York, New York (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter in a timely manner
as provided below shall bear interest at the Prime Rate from the due date for
such reimbursement. This expense reimbursement agreement will be in addition to
any other liability which the Company or any Selling Shareholder may otherwise
have. The request for reimbursement will be sent to the Company with a copy to
each Selling Shareholder. In the event that the Company fails to make such
reimbursement payment within thirty (30) days of the reimbursement request, the
Representatives shall notify the Selling Shareholders of their obligation to
make such reimbursement payments within fifteen (15) days; provided, however,
that each Selling Shareholder shall be required to advance at such time only its
pro rata portion of the reimbursement payment. To the extent that any Selling
Shareholder fails to pay its pro rata portion in timely response to the
Underwriters' request, the other Selling Shareholders shall be jointly and
severally liable for such reimbursement payment and each shall render such
payment to the Representatives within fifteen (15) days of written demand
therefor by the Representatives.
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(d) In addition to its other obligations under Section 6(d) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in Section 6(b) hereof which relates to information
furnished to the Company pursuant to Section _____ hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director, controlling
person or Selling Shareholder) on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling Shareholder)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, controlling person or
Selling Shareholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (c) and/or (d) of
this Section 5 and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of
Section 6.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the
Principal Selling Shareholders agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter within the
meaning of the Securities Act and the respective officers, directors, partners,
employees, representatives and agents of each of such Underwriter (collectively,
the "Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses (including
the reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which may
be based upon the Securities Act, or any other
20.
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statute or at common law, (i) on the ground or alleged ground that any
Pre-effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof or (ii) for any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or expense arising out of or based upon matters
covered by clause (i) above (provided that neither the Company nor any Principal
Selling Shareholder shall be liable under this clause (ii) to the extent that it
is determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, or liability or expense resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or willful misconduct). The Company and the
Principal Selling Shareholders will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Company and the Principal
Selling Shareholders elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably acceptable to the Underwriters.
In the event the Company and the Principal Selling Shareholders elect to assume
the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Company and the Principal Selling Shareholders shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include any such Underwriter Indemnified Parties, and the Company, the Principal
Selling Shareholders and such Underwriter Indemnified Parties at law or in
equity have been advised by counsel to the Underwriters that one or more legal
defenses may be available to it or them which may not be available to the
Company and the Principal Selling Shareholders, in which case neither the
Company nor any Principal Selling Shareholder shall be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel. This indemnity agreement is not exclusive and will be
in addition to any liability which the Company or any principal Selling
Shareholder might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each Underwriter
Indemnified Party. In addition, in no event shall the liability of any
Principal Selling Shareholder for indemnification under this Section 6(a) or for
breach of representations or warranties under this Agreement exceed the net
proceeds received by such Principal Selling Shareholder from the Underwriters in
the offering.
(b) The Firm Selling Shareholder agrees to indemnify and hold
harmless each Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including, unless such Firm Selling Shareholder elects
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in
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connection therewith), joint or several, which may be based upon the Securities
Act, or any other statute or at common law, on the ground or alleged ground that
any Pre-effective Prospectus, the Registration Statement or the Prospectus (or
any Pre-effective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof. Such Firm Selling Shareholder
shall be entitled to participate at his own expense in the defense, or, if such
Firm Selling Shareholder so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Firm Selling Shareholder elects to
assume the defense, such defense shall be conducted by counsel chosen by him.
In the event that the Firm Selling Shareholder elects to assume the defense of
any such suit and retain such counsel, the Underwriter Indemnified Parties,
defendant or defendants in the suit, may retain additional counsel but shall
bear the fees and expenses of such counsel unless (i) such Firm Selling
Shareholder shall have specifically authorized the retaining of such counsel or
(ii) the parties to such suit include such Underwriter Indemnified Parties and
such Firm Selling Shareholder and such Underwriter Indemnified Parties have been
advised by counsel that one or more legal defenses may be available to it or
them which may not be available to such Firm Selling Shareholder, in which case
such Firm Selling Shareholder shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees and expenses of such
counsel. This indemnity agreement is not exclusive and will be in addition to
any liability which such Firm Selling Shareholder might otherwise have and shall
not limit any rights or remedies which may otherwise be available at law or in
equity to each Underwriter Indemnified Party. The Company and the Firm Selling
Shareholder may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to their respective amounts of such
liability for which they each shall be responsible. In addition, in no event
shall the liability of the Firm Selling Shareholder for indemnification under
this Section 6(b) or for breach of representations or warranties under this
Agreement exceed the net proceeds received by such Firm Selling Shareholder from
the Underwriters in the offering and such liability shall not exceed a
proportional amount based on the ratio of the number of shares of Stock sold to
the Underwriters by such Firm Selling Shareholder to the total number of shares
of Stock sold to the Underwriters.
(c) Each Other Selling Shareholder agrees to indemnify and hold
harmless each Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including, unless such Other Selling Shareholder elects
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which may be based upon the Securities Act, or any other
statute or at common law, on the ground or alleged ground that any Pre-effective
Prospectus, the Registration Statement or the Prospectus (or any Pre-effective
Prospectus, the Registration Statement or the Prospectus, as from time to time
amended and supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof. Such Other Selling Shareholder
shall be entitled to participate at his own expense in the defense, or, if such
Other Selling Shareholder so elects, to assume the defense of any suit brought
to enforce any such liability, but, if such Other Selling Shareholder elects to
assume the defense, such defense shall be conducted by counsel chosen by him.
In the event that any Other Selling Shareholder elects to assume the defense of
any such suit and retain such counsel, the Underwriter Indemnified Parties,
defendant or defendants in the suit, may retain additional counsel but shall
bear the fees and expenses of such counsel unless (i) such Other Selling
Shareholder shall have specifically authorized the retaining of such counsel or
(ii) the parties to such suit include such Underwriter Indemnified Parties and
such Other Selling Shareholder and such Underwriter Indemnified Parties have
been advised by counsel that one or more legal defenses may be available to it
or them which may not be available to such Other Selling Shareholder, in which
case such Other Selling Shareholder shall not be entitled to assume the defense
of such suit notwithstanding its obligation to bear the fees and expenses of
such counsel. This indemnity agreement is not exclusive and will be in addition
to any liability which such Other Selling Shareholder might otherwise have and
shall not limit any rights or remedies which may otherwise be available at law
or in equity to each Underwriter Indemnified Party. The Company and the Other
Selling Shareholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their respective amounts
of such liability for which they each shall be responsible. In addition, in no
event shall the liability of any Other Selling Shareholder for indemnification
under this Section 6(c) or for breach of representations or warranties under
this Agreement exceed the net proceeds received by such Other Selling
Shareholder from the Underwriters in the offering.
(d) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") and each Selling Shareholder and each person, if any, who
controls a Selling Shareholder within the meaning of the Securities Act
(collectively, the "Shareholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, unless the Underwriter or
Underwriters elect to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common law, on the ground
or alleged ground that any Pre-effective Prospectus, the Registration Statement
or the Prospectus (or any Pre-effective Prospectus, the Registration Statement
or the Prospectus, as from time to time amended and supplemented) includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, but only
insofar as any such statement
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or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party or Shareholder Indemnified
Party against whom the action is brought unless such Company Indemnified Party
or Shareholder Indemnified Party shall have notified such Underwriter in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party or Shareholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party or Shareholder Indemnified Party otherwise
than on account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if such Underwriter elects to assume the defense, such
defense shall be conducted by counsel chosen by it. In the event that any
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Company Indemnified Parties or Shareholder Indemnified Parties and
any other Underwriter or Underwriters or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, respectively. The Underwriter against whom
indemnity may be sought shall not be liable to indemnify any person for any
settlement of any such claim effected without such Underwriter's consent. This
indemnity agreement is not exclusive and will be in addition to any liability
which such Underwriter might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to any Company
Indemnified Party or Shareholder Indemnified Party.
(e) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
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relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this subsection
(d), no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The Underwriters' obligations to contribute are several in proportion
to their respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Shareholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof and
at and as of each of the Closing Dates, of the representations and warranties
made herein by the Company and the Selling Shareholders, to compliance at and as
of each of the Closing Dates by the Company and the Selling Shareholders with
their covenants and agreements herein contained and other provisions hereof to
be satisfied at or prior to each of the Closing Dates, and to the following
additional conditions:
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and
no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or the Representatives, shall be threatened
by the Commission, and any request for additional information on the
part of the Commission (to be included in the
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Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations,
shall have been made in the manner and within the time period required
by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) The Representatives shall have been satisfied that there shall not
have occurred any change, on a consolidated basis, prior to each of
the Closing Dates in the condition (financial or otherwise),
properties, business, management, prospects, net worth or results of
operations of the Company and its subsidiaries considered as a whole,
or any change in the capital stock, short term or long term debt of
the Company and its subsidiaries considered as a whole, such that (i)
the Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact which, in the
opinion of the Representatives, is material, or omits to state a fact
which, in the opinion of the Representatives, is required to be stated
therein or is necessary to make the statements therein not misleading,
or (ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the
Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or governmental
action, suit or proceeding affecting the Company which is material and
adverse to the Company or which affects or may affect the Company's or
the Selling Shareholders' ability to perform their respective
obligations under this Agreement shall have been instituted or
threatened and there shall have occurred no material adverse
development in any existing such action, suit or proceeding.
(d) At the time of execution of this Agreement, the Representatives shall
have received from KPMG Peat Marwick LLP, independent certified public
accountants, a letter, dated the date hereof, in form and substance
satisfactory to the Underwriters.
(e) The Representatives shall have received from KPMG Peat Marwick LLP,
independent certified public accountants, letters, dated each of the
Closing Dates, to the effect that such accountants reaffirm, as of
each of the Closing Dates, and as though made on each of the Closing
Dates, the statements made in the letter furnished by such accountants
pursuant to paragraph (d) of this Section 8.
(f) The Representatives shall have received from Schuler, Messersmith &
McNeill, counsel for the Company, opinions, dated each of the Closing
Dates, to the effect set forth in Exhibit I hereto.
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(g) The Representatives shall have received from Schuler, Messersmith &
McNeill, counsel for the Selling Shareholders, an opinion dated each
of the Closing Dates to the effect set forth in Exhibit II hereto.
(h) The Representatives shall have received from Brobeck, Phleger &
Harrison LLP, counsel for the Underwriters, their opinions dated each
of the Closing Dates with respect to the incorporation of the Company,
the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as it may reasonably
request, and the Company and the Selling Shareholders shall have
furnished to such counsel such documents as they may request for the
purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received a certificates, dated each of
the Closing Dates, of the chief executive officer or the President and
the chief financial or accounting officer of the Company to the effect
that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the
signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act;
(ii) Neither any Pre-effective Prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the Registration
Statement became effective and at all times subsequent thereto
up to the delivery of such certificate, included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as set forth or contemplated in the Prospectus, neither
the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, nor
entered into any material transactions not in the ordinary
course of business and there has not been any material adverse
change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of
operations of the Company and its subsidiaries considered as a
whole, or any change in the capital stock, short-term or
long-term debt of the Company and its subsidiaries considered
as a whole;
(iv) The representations and warranties of the Company in this
Agreement are true and correct at and as of each of the Closing
Dates, and the Company
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has complied with all the agreements and performed or satisfied
all the conditions on its part to be performed or satisfied at
or prior to the Closing Dates; and
(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, (i) there has
not been any material adverse change or a development involving
a material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole; (ii) the business and
operations conducted by the Company and its subsidiaries have
not sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole; (iii) no legal or governmental action, suit or
proceeding is pending or threatened against the Company which
is material to the Company, whether or not arising from
transactions in the ordinary course of business, or which may
materially and adversely affect the transactions contemplated
by this Agreement; (iv) since such dates and except as so
disclosed, the Company has not incurred any material liability
or obligation, direct, contingent or indirect, made any change
in its capital stock (except pursuant to its stock plans), made
any material change in its short-term or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and (v) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a date prior
to the Closing Date.
(j) The Representatives shall have received a certificate or certificates,
dated each of the Closing Dates, of the Attorney-in-fact, on behalf of
the Selling Shareholders, to the effect that as of each of the Closing
Dates its representations and warranties in this Agreement are true
and correct as if made on and as of each of the Closing Dates, and
that it has performed all its obligations and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Dates.
(k) The Company and each of the Selling Shareholders shall have furnished
to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at
and as of each of the Closing Dates, of the representations and
warranties made herein by them and as to compliance at and as of each
of the Closing Dates by them with their covenants and agreements
herein contained and other provisions hereof to be satisfied at or
prior to each of the Closing Dates, and as to satisfaction of the
other conditions to the obligations of the Underwriters hereunder.
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(l) Cowen shall have received the written agreements, substantially in the
form of Exhibit II hereto, of the officers, directors and holders of
Common Stock listed in Schedule C that each will not offer, sell,
assign, transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of, other than by operation of law,
gifts, pledges or dispositions by estate representatives, any shares
of Common Stock (including, without limitation, Common Stock which may
be deemed to be beneficially owned by such officer, director or holder
in accordance with the Rules and Regulations) during the 120 days
following the date of the final Prospectus, except for the Stock being
sold hereunder by the Selling Shareholders.
(m) The Nasdaq National Market shall have approved the stock for listing,
subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to each of the Closing Dates, but Cowen,
on behalf of the Representatives, shall be entitled to waive any of such
conditions.
9. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to
all other provisions, at 11:00 a.m. New York City time on the first full
business day following the effectiveness of the Registration Statement or at
such earlier time after the Registration Statement becomes effective as the
Representatives may determine on and by notice to the Company or by release of
any of the Stock for sale to the public. For the purposes of this Section 9,
the Stock shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Stock or upon the
release by you of telegrams (i) advising Underwriters that the shares of Stock
are released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first.
10. TERMINATION. This Agreement (except for the provisions of
Section 5) may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives and may
be terminated by the Representatives at any time before it becomes effective in
accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11 and other than as
provided in Section 12 as to the liability of defaulting Underwriters.
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This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date trading in securities on any of national exchanges or the Nasdaq National
Market shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium shall have
been declared by New York or United States authorities; (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market; (iii) if at or prior to the First Closing Date there
shall have been (A) an outbreak or escalation of hostilities between the United
States and any foreign power or of any other insurrection or armed conflict
involving the United States or (B) any change in financial markets or any
calamity or crisis which, in the judgment of the Representatives, makes it
impractical or inadvisable to offer or sell the Stock on the terms contemplated
by the Prospectus; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, makes it impracticable
or inadvisable to offer or deliver the Stock on the terms contemplated by the
Prospectus; (v) if there shall be any litigation or proceeding, pending or
threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the on the terms contemplated
by the Prospectus; or (vi) if there shall have occurred any of the events
specified in the immediately preceding clauses (i) to (v) together with any
other such event that makes it, in the judgment of the Representatives,
impractical or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other
provisions hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Shareholders pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to their obligations pursuant to Section 6
hereof, the Company will reimburse the reasonable out-of-pocket expenses of the
several Underwriters (including reasonable fees and disbursements of counsel for
the Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
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hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Shareholders shall have the right to postpone the Closing Dates for
a period of not more than five (5) full business days in order that the Company
and the Selling Shareholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company, the Selling Shareholders or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter, the Selling Shareholders or the Company, except
for expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
13. NOTICES. All communications hereunder shall be in writing and,
if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Cowen & Company at Financial
Square, New York, New York 10005, Attention: Adam Green, with a copy to Brobeck,
Phleger & Harrison at Two Embarcadero Road, 2200 Geng Road, Palo Alto,
California 94303, Attention: Edward M. Leonard, Esq. except that notices given
to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter
at the address furnished by the Representatives or, if sent to the Company,
shall be mailed, delivered or telegraphed and confirmed c/o SBS Technologies,
Inc. at AFC Building 5, 2400 Louisiana Boulevard, N.E., Suite 600, Albuquerque,
New Mexico 87110, Attention: Mr. Christopher J. Amenson, with a copy to
Schuler, Messersmith & McNeill, 5700 Harper Drive, NE, Suite 430, Albuquerque,
New Mexico 87109, Attention: Alison Schuler, Esq..
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Shareholders
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Shareholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of
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each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Shareholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters; and any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Shareholders.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
18. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Shareholders and the
Representatives.
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact
for a Selling Shareholder represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action.
32.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
SBS TECHNOLOGIES, INC.
By:
-----------------------------------------------
President
SELLING SHAREHOLDERS LISTED IN SCHEDULE B
By: [Attorney-in-fact]
Acting on his own behalf and on behalf of the
Selling Shareholders listed in Schedule B.
By:
-----------------------------------------------
Attorney-in-fact
Accepted and delivered in
San Francisco as of
the date first above written.
COWEN & COMPANY
SOUNDVIEW FINANCIAL GROUP, INC.
Acting on their own behalf and as
Representatives of several Underwriters
referred to in the foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By:
----------------------------
John P. Dunphy
33.
<PAGE>
Managing Director - Syndicate
34.
<PAGE>
SCHEDULE A
Number Number of
of Firm Optional
Shares Shares
to be to be
Purchased Purchased
--------- ---------
Name
- ----
Cowen & Company. . . . . . . . . . . . . . . . .
SoundView Financial Group, Inc.. . . . . . . . .
Total
--------- ---------
--------- ---------
--------- ---------
<PAGE>
SCHEDULE B
Number Number of
of Firm Optional
Shares Shares
to be to be
Sold Sold
-------- ---------
SBS Technologies, Inc. 1,580,000 0
Principal Selling Shareholders 0
- ------------------------------
Andrew C. Cruce, Ph.D. 0 100,000
Christopher J. Amenson 0 33,000
The Selling Shareholder
- -----------------------
A. Wade Black 120,000 80,000
Other Selling Shareholders
- --------------------------
J. Kenneth Boyette 27,000
Scott A. Alexander 30,000
[D. H. Blair] 100,000
Total
--------- ---------
1,800,000 270,000
--------- ---------
--------- ---------
<PAGE>
SCHEDULE C
Lockups
<PAGE>
[Form of Opinion of Issuer's Counsel]
Exhibit I
We are of the opinion that:
1. The Company and each of its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses requires such qualification, and
have all power and authority necessary to own or hold their respective
properties and conduct the businesses in which they are engaged;
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock off the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and all of the Shares to be issued and sold by the Company
to the Underwriters pursuant to the Underwriting Agreement have been duly
and validly authorized and, when issued and delivered against payment
therefor as provided for in the Underwriting Agreement, shall be duly and
validly issued, fully paid and non-assessable; and all of the issued shares
of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid, non-assessable and are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
3. There are no preemptive or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of, any of the Shares
pursuant to the Company's Certificate of Incorporation or By-Laws or any
agreement or other instrument;
4. There are no legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any property or assets of
the Company or any of its Subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, could have a material
adverse effect on the Company and its subsidiaries; and, to the best of our
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or other third parties;
5. The Company and each of its subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets
and rights described in the Prospectus as being owned by them or any of
them or necessary for the conduct of their respective businesses, and the
Company is not aware of any claim to the contrary or any challenge by any
other person to the rights of the Company or any of its subsidiaries with
respect to the foregoing. The Company's business as now conducted and as
proposed to be
<PAGE>
conducted does not and will not infringe or conflict with any patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses
or other intellectual property or franchise right of any person;
6. The Company and each of its subsidiaries have, and the Company and each of
its subsidiaries as of the Closing Dates will have, good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned or proposed to be owned by them which is
material to the business of the Company or any of its subsidiaries, in each
case free and clear of all liens, encumbrances and defects; and any real
property and buildings held under lease by the Company and its subsidiaries
or proposed to be held after giving effect to the transactions described in
the Prospectus are, or will be as of the Closing Dates, held by them under
valid, subsisting and enforceable leases with such exceptions as would not
have a material adverse effect on the Company and its subsidiaries
considered as a whole;
7. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including
to issue, sell and deliver the Shares), and the Underwriting Agreement has
been duly and validly authorized, executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent that rights to
indemnification and contribution thereunder may be limited by federal or
state securities laws or the public policy underlying such laws;
8. The execution, delivery and performance of the Underwriting Agreement and
the consummation of the transactions therein contemplated will not result
in a breach or violation of any of the terms or provisions of or constitute
a default under any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of them or any of their properties
is or may be bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any of its subsidiaries, or any
law, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties or result in the creation of a lien;
9. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except such as may
be required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the securities or "Blue Sky" laws of
any jurisdiction in connection with the purchase and distribution of the
Shares by the Underwriters;
10. The Company and each of its subsidiaries are in compliance with, and
conduct their businesses in conformity with, all applicable federal, state,
local and foreign laws, rules
<PAGE>
and regulations, including, but not limited to, those of any governmental
agency, court or tribunal; to the best of our knowledge, no prospective
change in any of such federal, state, local or foreign laws, rules or
regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company and its
subsidiaries. The Company and its subsidiaries are in compliance with all
applicable federal, state, local and foreign laws and regulations relating
to the protection of human health or the environment or imposing liability
or requiring standards of conduct concerning any Hazardous Materials;
11. The Registration Statement was declared effective under the Securities Act
as of __________, 1996, the Prospectus was filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations on __________, 1996
and no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is pending or,
to the best of our knowledge, threatened by the Commission;
12. The documents incorporated by reference in the Prospectus (except for any
financial statements and schedules and financial and statistical
information included in such documents as to which such counsel need
express no opinion), when they were filed with the Commission, complied as
to form in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder;
13. The Registration Statement and the Prospectus and any amendments or
supplements thereto comply as to form in all respects with the requirements
of the Securities Act and the Rules and Regulations and the documents
incorporated by reference in the Prospectus, when they became effective or
were filed with the Commission, as the case may be, complied as to form in
all respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the Rules and Regulations; and any amendment or
supplement to any such incorporated document, when they became effective or
were filed with the Commission, as the case may be, complied as to form in
all respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the Rules and Regulations;
14. To the best of our knowledge, there are no contracts or other documents
which are required by the Securities Act or by the Rules and Regulations to
be described in the Prospectus or filed as exhibits to the Registration
Statement which have not been described in the Prospectus or filed as
exhibits to the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
15. Other than as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the
<PAGE>
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to this
Registration Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under the Securities
Act;
16. The descriptions in the Registration Statement and Prospectus of statutes,
rules, regulations, legal or governmental proceedings, contracts and other
documents are accurate and such descriptions fairly present the information
required to be disclosed; and to the best of our knowledge, there are no
legal or governmental proceedings, statutes, ruler or regulations, or any
contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required;
17. The statements under the captions "Risk Factors"; and "Business-Government
Regulation," to the extent they reflect matters of federal law arising
under the laws of the United States or legal conclusions relating to such
law, accurately summarize and fairly present the legal and regulatory
matters described therein:
18. The Company has complied with all provisions of Section 517.075 of the
Florida Statutes (Chapter 92 - 198; Laws of Florida); and
19. The Company and each of its subsidiaries are not, nor will they be
immediately after receiving the proceeds from the sale of the Shares, an
"investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as
amended.
The foregoing opinion is limited to matters governed by the Federal laws of
the United States of America, the general corporate law of the State of New
Mexico and the laws of the State of New York.
We have acted as counsel to the Company on a regular basis, have acted as
counsel to the Company in connection with previous financing transactions and
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement and the Prospectus, and based on the
foregoing, no facts have come to our attention which lead us to believe that (i)
the Registration Statement or any amendment thereto, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus contains any untrue statement of
a material fact or omits to state a material fact Required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) any document
incorporated by reference in the Prospectus or any amendment or supplement to
any such incorporated document made by the Company, when they became effective
or were filed with the Commission, as the case may be, contained, in the case of
a registration statement which became effective under the
<PAGE>
Securities Act, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or, in the case of documents filed under the
Exchange Act with the Commission, contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
<PAGE>
[Form of Opinion of Selling Shareholders' Counsel]
Exhibit II
We are of the opinion that:
1. To the best of such counsel's knowledge, this Agreement and the Power of
Attorney and Custody Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders; the Agent
has been duly and validly authorized to act as the custodian of the Common
Shares to be sold by each such Selling Shareholder in accordance with the
terms and provisions of the Power of Attorney and Custody Agreement; and
the performance of this Agreement and the Power of Attorney and Custody
Agreement and the consummation of the transactions herein contemplated by
the Selling Shareholders will not result in a breach of, or constitute a
default under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which any of the Selling Shareholders is a party or by which
any of the Selling Shareholders or any of their properties may be bound, or
violate any statute, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having jurisdiction over any
of the Selling Shareholders or any of their properties; and to the best of
such counsel's knowledge, no approval, authorization, order or consent of
any court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement or the
Power of Attorney and Custody Agreement or the consummation by the Selling
Shareholders of the transactions contemplated by this Agreement, except
such as have been obtained and are in full force and effect under the Act
and such as may be required under the rules of the NASD and applicable Blue
Sky laws;
2. To the best of such counsel's knowledge, each of the Selling Shareholders
has good and marketable title to such Common Shares so sold, free and clear
of all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts, or other defects of title whatsoever, has been
transferred to the Underwriters (whom counsel may assume to be bona fide
purchasers) (assuming payment in full therefor by such Underwriters) who
have purchased such Common Shares hereunder; and
3. To the best of such counsel's knowledge, this Agreement and the Power of
Attorney and Custody Agreement are valid and binding agreements of each of
the Selling Shareholders in accordance with their terms except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to which no
opinion need be expressed.
<PAGE>
4. No transfer taxes are required to be paid in connection with the sale and
delivery of the Common Shares to the Underwriters hereunder.
<PAGE>
KPMG Peat Marwick LLP
6565 Americas Parkway, NE Suite 700
Post Office Box 3939
Albuquerque, New Mexico 87190
The Board of Directors
SBS Technologies, Inc. and
Bit 3 Computer Corporation:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
October 4, 1996
<PAGE>
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the reference to me as a director nominee of SBS
Technologies, Inc. (the ""Company'') in the Registration Statement filed by
the Company pursuant to the Securities Act of 1933.
/s/ Warren Andrews
- ---------------------------------
Warren Andrews
October 3, 1996
- ---------------------------------
Date
