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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended JUNE 30, 1997 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 1-10981
SBS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New Mexico 85-0359415
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
(505) 875-0600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
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Common Stock, no par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on September
2, 1997 as reported on NASDAQ was approximately $110,375,605. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 2, 1997, Registrant had 5,467,428 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Part III of
this Form 10-K Report: (1) Definitive Proxy Statement for Registrant's 1997
Annual Meeting of Stockholders to be held November 11, 1997.
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PART I
ITEM 1. BUSINESS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO. INFORMATION DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING STATEMENTS
REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, AND
ARE SUBJECT TO A NUMBER OF RISKS AND OTHER FACTORS WHICH COULD CAUSE THE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD LOOKING
STATEMENTS. AMONG SUCH FACTORS ARE: GENERAL BUSINESS AND ECONOMIC CONDITIONS;
CUSTOMER ACCEPTANCE OF AND DEMAND FOR THE COMPANY'S PRODUCTS; THE COMPANY'S
OVERALL ABILITY TO DESIGN, TEST AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS;
THE NATURE OF THE MARKETS ADDRESSED BY THE COMPANY'S PRODUCTS; AND OTHER RISK
FACTORS LISTED FROM TIME TO TIME IN DOCUMENTS FILED BY THE COMPANY WITH THE SEC.
INTRODUCTION
SBS Technologies, Inc. (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"), special purpose I/O
interface applications, and high performance interconnect hardware and
software. 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 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.
Fiscal 1997 was a year of progress in the continued development of the
Company. The Company focused on continually enhancing and improving the
products it delivers and its ability to satisfy customer needs. During
1997 the Company substantially broadened the range of product solutions
provided and added significantly to the number of customers served.
Revenues for the fiscal year ended June 30, 1997 increased 68.7% from $31.3
million to $52.8 million. The source of this revenue increase was twofold:
growth in the core businesses, and growth by the acquisition of two product
areas.
The Company entered fiscal 1997 as a leader in several segments of the
multi-billion dollar embedded computer market, with the continuing goal of
expanding its market presence. In the computer mezzanine board I/O segment,
the Company broadened its line of IndustryPacks-Registered Trademark- ("IPs")
to over 100 variants. During the year, IP's became an open standard
approved by the American National Standards Institute (ANSI) as an
internationally recognized standard meeting the criteria for open system
compatibility demanded by the industry. More and more engineers have
recognized the advantages of this I/O solution in time-to-market and design
flexibility. In the Avionics business, the Company's interface boards and
bus analyzers remained the industry standard for quality and innovation with
a broadening of the Company's customer base and participation on such
programs as the X-33 [Reusable Launch Vehicle (RLV)], the International Space
Station and the B-52 Life Extension Program. The Company repositioned its
telemetry product line toward the satellite test and control market in order
to serve the rapidly expanding satellite market driven by both
telecommunications and defense applications.
In August 1996, the Company expanded into the broader embedded computing
market with the acquisition of Logical Design Group, Inc. ("LDG"), a
manufacturer of Intel processor-based CPU boards. This acquisition
positioned the Company to take advantage of the growth in the use of both
Intel processors and Microsoft software in the embedded computer market.
In November 1996, the Company acquired Bit 3 Computer Corporation ("Bit 3"),
a leading developer and manufacturer of high performance bus interconnect
hardware and software products for many of the
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most widely used computer architecture standards in the standard bus embedded
computer market. This acquisition takes advantage of the introduction into
the embedded computing market of new bus standards such as PCI and
CompactPCI, expands the Company's customer base and opens the bus expansion
market to the Company. In the quarter ended December 31, 1996, the Company
took a one time $11.0 million in-process research and development charge to
earnings associated with this acquisition.
In June 1997, the Company divested its Judgmental Use of Force Training
business. The Company determined that this business was not consistent with the
Company's objective of becoming a leading supplier of board level components to
the standard bus embedded computer market.
Excluding the effect of the one time $11.0 million charge to earnings, net
income for the year would have increased 97.2% from $3.6 million to $7.1
million, and earnings per share would have increased 38.1% from $.97 to $1.34.
Including this charge, net income was $461,685, or $0.09 per share.
The Company was incorporated in New Mexico in November 1986 and began operations
in September 1987. 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 to the "Company"
or "SBS" are to SBS Technologies, Inc. and its consolidated subsidiaries. The
Company has four subsidiaries, Berg Systems International, Inc. ("BSI"),
GreenSpring Computers, Inc. ("GreenSpring"), Logical Design Group, Inc. ("LDG"),
and Bit 3 Computer Corporation ("Bit 3"). IndustryPack-Registered Trademark- is
a registered trademark of the Company. All other trademarks or tradenames
referred to in this document are the property of their respective owners.
In fiscal 1998, the Company plans to rename its subsidiaries as follows:
NEW BUSINESS NAME FORMERLY KNOWN AS:
SBS Embedded Computers, Inc. Logical Design Group, Inc.
SBS GreenSpring Modular I/O, Inc. GreenSpring Computers, Inc.
SBS Bit 3 Operations, Inc. Bit 3 Computer Corporation
SBS Berg Telemetry Systems, Inc. Berg Systems International, Inc.
SBS' PRODUCTS
The Company's primary product lines are divided into two groups: general purpose
products including CPU products, general purpose I/O products and bus interface
products, and special purpose products including telemetry and avionics
interface products.
GENERAL PURPOSE PRODUCTS
CPU PRODUCTS. The Company entered the standard bus embedded computer CPU
board market with its acquisition of LDG in August 1996 (See "Management's
Discussion & Analysis: Recent Acquisitions"). 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. At present, the
Company offers six Intel processor-based CPU boards ranging in price from
approximately $2,500 to approximately $8,500. In fiscal 1997, sales of these
products comprised 11.5% of the Company's total sales. As of September 2,
1997, backlog orders were $.7 million. All backlog orders are expected to be
filled in the current fiscal year.
GENERAL PURPOSE I/O PRODUCTS. In April 1995, the Company purchased
GreenSpring (See "Management's Discussion & Analysis: Recent Acquisitions"), a
leading developer and producer of I/O modules known as IPs. IPs are small
mezzanine boards that plug onto an embedded computer board or a carrier board
and provide specific types of I/O for embedded computer systems. The Company
has continued to expand the market for IP products by broadening its line of
carrier cards that can accommodate up to four IPs. 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 services 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 approximately
$350 to approximately $3,500. In fiscal years 1997, 1996, and 1995, sales of
these products comprised approximately 26%, 35% and 9%, respectively, of the
Company's total sales. As of
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September 2, 1997 and 1996, backlog orders were $14.2 and $2.5 million,
respectively. All backlog orders are expected to be filled in the current
fiscal year.
BUS INTERFACE PRODUCTS. In November 1996, the Company purchased Bit 3 (See
"Management's Discussion & Analysis: Recent Acquisitions"), a leading developer
and manufacturer of high performance bus interconnect hardware and software
products. Bit 3 was incorporated in 1980 and its management recognized early
on 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,
PCI, CompactPCI, Sbus, ISA, EISA, Micro Channel, GIO, TURBOCHANNEL, Multibus
and Qbus. The development of Bit 3's new products is driven by the emergence
of significant new standard bus specifications and applications.
Bit 3 products 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. In fiscal 1997, sales of these products comprised 17.1% of the
Company's total sales. As of September 2, 1997, backlog orders were $1.5
million. All backlog orders are expected to be filled in the current fiscal
year.
SPECIAL PURPOSE PRODUCTS
TELEMETRY PRODUCTS. In August 1992, the Company purchased BSI , a major
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, PCI,
and ISA bus telemetry markets at prices ranging from approximately $1,600 to
approximately $41,000. In fiscal years 1997, 1996 and 1995, sales of these
products comprised approximately 12%, 21% and 34%, respectively, of the
Company's total sales. As of September 2, 1997 and 1996, backlog orders were
$.9 million and $.7 million, respectively. All backlog orders are expected
to be filled within the current fiscal year.
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 approximately $4,000 to approximately $20,000. In
fiscal years 1997, 1996 and 1995, sales of this product comprised approximately
31%, 40% and 50%, respectively, of
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the Company's total sales. As of September 2, 1997 and 1996, backlog orders
were $2.0 and $1.9 million, respectively. All backlog orders are expected to
be filled within the current fiscal year.
In June 1997, the Company sold its Judgmental Use of Force product (see
"Management's Discussion & Analysis: Sale of Judgmental Use Of Force
Business"). This product utilized an embedded computer in a device to train
police officers and military personnel in proper responses to crisis
situations. In fiscal years 1997, 1996 and 1995, sales of this product
comprised approximately 3%, 4% and 4%, respectively, of the Company's total
sales.
CUSTOMERS AND APPLICATIONS
The Company's broad range of products support a wide range of applications.
In fiscal 1997, 1996 and 1995, 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
COMMERCIAL AND INDUSTRIAL APPLICATIONS
<S> <C> <C>
Aircraft Simulation Flight Safety International Interconnect
Aircraft Simulation CAE Electronics Interconnect
Airport Baggage Inspection InVision Technologies Interconnect
Airport Ground Traffic Control Norden/Westinghouse CPU
"C" Size Copier Xerox I/O
Color Proof Copier Eastman Kodak I/O
Contact Lens Inspection Perceptics Interconnect
Currency Inspection System Currency Systems CPU
Document Scanner General Scanning I/O
OCR Mail Address Processing Bell & Howell Interconnect
Semiconductor Handler Delta Design I/O
Turbine Control System GE Motors CPU
Video Animation Sun Microsystems Interconnect
COMMUNICATIONS
Cellular Telephone Systems ArgoSystems CPU
Commercial Satellite Testing Loral Test & Information Telemetry
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 Test Stands W.M. Associates/ Digital Equipment Corp. Interconnect
Automotive Wheel Alignment Burke Porter Machinery CPU
Carpet Manufacturer Process Control MOOG I/O
Combustion Turbine Control Westinghouse Electric Corp. Interconnect
Packaging Machinery Triangle Package Machinery I/O
PLC Co-processor GE Fanuc CPU
Programmable Logic Controller Reliance Electric Interconnect
Real-time Control Systems Queue Systems, Inc./Digital Equipment Corp Interconnect
Robot Control Adept Technology I/O
Semiconductor Trim Equipment Control Automation CPU
Surface Mount Board Assembly Seiko Instruments Interconnect
</TABLE>
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<TABLE>
<CAPTION>
MEDICAL DEVICES
<S> <C> <C>
Blood Analyzer IGEN I/O
Blood Analyzer Helena Laboratories CPU
CT Beam Scanner Imatron Interconnect
PET Imaging Systems UGM Medical Systems, Inc. Interconnect
Positron Emissions Topography Positron Corporation Interconnect
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
Mission Planning & Debriefing Lockheed-Sanders Interconnect
Satellite Imaging TRW Telemetry
TAC-3 Hughes Data Systems Interconnect
TAC-4 Hewlett Packard Interconnect
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
VLSI Tester LTX/Trillium Interconnect
TRANSPORTATION
Aircraft Flight Testing Cessna Telemetry
Commercial Avionics System Test Honeywell Avionics
Commercial Avionics System Test Rockwell International Avionics
Jet Engine Testing Pratt & Whitney 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. As of
September 2, 1997, the Company had 32 employees, who typically hold
engineering degrees, in sales, marketing and customer relations. In
addition, during the year ended June 30, 1997, the Company utilized over 43
independent manufacturers' representatives and 35 international distributors.
During fiscal 1998, the Company plans to realign its sales force into
commercial and aerospace sales channels utilizing direct sales employees and
minimizing the use of independent manufacturers' representatives. The
aerospace sales force will be responsible for sales of the Company's avionics
interface and telemetry products and the commercial sales force will be
responsible for sales of the Company's CPU, I/O and interconnect products.
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 field sales personnel or
independent manufacturers' representatives and sales are closed by the sales
employees. In the case of the Company's CPU and I/O products, historically a
higher percentage of sales were either closed by independent manufacturers'
representatives or the result of catalog sales. Beginning with fiscal 1998,
sales will be closed by the commercial sales force or will result from
catalog sales. Sales of the Company's interconnect products primarily have
resulted from catalog
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sales. Beginning with fiscal 1998 the commercial sales force
will also be responsible for these 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
(See footnote 4 to the consolidated financial statements). 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; in Carlsbad, California, for its telemetry
products; and, in Minneapolis, Minnesota for its interconnect products. The
Company also maintains an international sales office in Glasgow, Scotland to
support European sales of its avionics interface products. During fiscal
1998, the Company plans to open additional sales locations. 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.
COMPANY 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 2, 1997, the Company had approximately 72
employees engaged in research and development activities. Of these employees,
46 have technical degrees and 17 have advanced degrees. The Company seeks to
combine special-purpose hardware, firmware and software in its products to
provide its customers with the desired functionality. Approximately 60% of
the Company's research and development efforts in fiscal year 1997 were
software related. The Company's research and development expense was $4.4
million, $2.8 million and $1.7 million in fiscal 1997, 1996 and 1995,
respectively, corresponding to 8.4%, 9.1% and 10.4% 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 fiber optic shared memory for
networked computer systems and an updated set of discrete and digital I/O IPs
with increased performance and functionality. The development of Bit 3's new
products is driven by the emergence of significant new bus specifications and
applications. For example, Bit 3 brought to market a family of PCI and
Compact PCI expansion products. BSI is continuing to upgrade its products'
performance by increasing the operating bit rates, a key performance measure
in the telemetry industry. 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. 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.
SUPPLIERS
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, 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.
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 Xylinx, Inc. or a limited number of suppliers
and
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alternative sources which would 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 short-term
requirements, the Company does not have contracts for the components which
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 affect the Company's profit margin,
or cause the Company to increase its inventory of scarce parts and thus
affect the Company's cash flow. There is 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.
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. The Company believes that 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 CPU product line, the Company competes with a number of
other suppliers of VME CPU boards. The Company's direct competitors include
other companies that build VME CPU boards based on Intel microprocessor
technology such as Force Computers, Inc. (a wholly owned subsidiary of
Solectron Corporation), Performance Technologies, Inc., RadiSys Corporation,
VME Microsystems, Inc. and XYCOM, Inc. Indirectly, however, the Company also
competes with suppliers of VME CPU boards based on other microcomputer
architectures such as Motorola 680x0, Sparc and PowerPC.
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. The Company's
competitors in each of these classes include Acromag, Inc., Systran, Inc.
and VME Microsystems, Inc.
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. The Company's
competitors include Aydin Vector Division, L3 Communications, Inc.,
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. The Company's
competitors include Ballard Technologies, Inc., Data Devices Corporation,
Systran, Inc., DY-4, Inc., Excalibur Technologies Corporation and
Gesellschaft Fur Angewandte Informatik und Mikroelekernik, GmbH.
In the Company's interconnect and expansion unit product line, the Company
competes with personal computer (PC) manufacturers that offer computer
motherboards with multiple PCI slots and with companies that have similar
product lines. There is no significant direct competitor in this market.
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EMPLOYEES
As of September 2, 1997, the Company had approximately 231 employees at its
five locations: Albuquerque, New Mexico; Carlsbad, California; Menlo Park,
California; Raleigh, North Carolina; and Minneapolis, Minnesota. Of these
employees, 19 were in executive and administrative positions; 32 were in
sales, marketing and customer relations; 72 were in research and development;
36 were clerical, and 72 were employed in support of ongoing production.
ITEM 2. FACILITIES
The Company leases office and manufacturing space in Albuquerque, New Mexico,
Carlsbad, California, Menlo Park, California, Raleigh, North Carolina and
Minneapolis, Minnesota. The Company's standard practice is to obtain all of its
facilities through operating leases. The Company maintains an insurance plan
covering all its facilities and contents.
The Albuquerque, New Mexico leased facility consists of 19,225 square feet
located in a multi-floor office building which includes adequate assembly and
test space for the Company's avionics interface product line, as well as
serving as the Company's corporate headquarters. Management is currently
negotiating for additional space within this facility, which is available if
terms can be agreed upon. Currently the assembly and test operations utilize
approximately 85% 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, approximately 12,000
square foot building, located in a business park, consisting of approximately
6,000 square feet of office space and 6,000 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 50%. The lease term for the Carlsbad, California
location runs through July 2000 with an option to extend the term for an
additional two years.
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 May 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 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 approximately 7,000 square feet of assembly
and test areas. The lease expires on 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.
The Company's interconnect business is located in an approximately 13,647
square foot facility in Minneapolis, Minnesota leased for a one year term
that expires October 1997. At the expiration of this lease, the Company plans
to relocate this operation to a 39,597 square foot facility located in a
business park in Eagen, Minnesota. The Company is currently finalizing lease
negotiations for this facility for a five year term. Management believes
that this facility will sufficiently serve the needs of this operation
through the term of the lease.
Before the sale of the Company's simulation business to Camber Corporation in
April 1995, the Company had additional leased facilities in Albuquerque, New
Mexico, Dallas and Houston, Texas. In conjunction with this sale, the
Company entered into sublease and lease assumption agreements with Camber
Corporation, transferring the obligations under these leases.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in Virtual Systems Group, Inc.
(VSG) v. SBS Technologies, Inc., filed on June 19, 1996 in the Second
Judicial District Court, County of Bernalillo, State of New Mexico. The
plaintiff, a company engaged by SBS to market its Judgmental Use of Force
Trainers, claims that the Company failed to fulfill all its obligations under
an Agreement between the Company and VSG whereby VSG would market the
Company's Judgmental Use of Force Trainers. The Company is vigorously
defending the lawsuit and has filed a counter suit alleging misrepresentation
and failure to perform on the part of VSG, and on the advice of counsel, does
not believe that the outcome of the litigation will have a material effect on
the Company's financial condition or results of operations.
The Company is subject to various claims which arise in the ordinary course
of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of closing price of the Company's
common stock as reported on the NASDAQ National Market System for each full
fiscal quarter within the last two fiscal years:
HIGH LOW
1st Quarter 1996 $ 9.00 $ 5.00
2nd Quarter 1996 8.94 7.13
3rd Quarter 1996 10.13 7.63
4th Quarter 1996 17.13 8.88
1st Quarter 1997 19.75 10.625
2nd Quarter 1997 39.00 19.00
3rd Quarter 1997 35.00 15.25
4th Quarter 1997 24.75 10.875
The Company's common stock is traded over the counter on the NASDAQ National
Market System using the symbol SBSE.
Based on the Company's survey of brokerage houses, management believes that
as of September 2, 1997, the number of common stockholders of record was
approximately 206, at which date the closing market value of the Company's
common stock was $21.375 per share.
The Company has not paid any cash dividends on its common stock.
Management's current policy is to retain earnings for use in the Company's
operations and for expansion of the Company's business. The Company's bank
line of credit also requires bank approval before the payment of any cash
dividends. No future dividend payments are expected.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the years ended June 30, 1993
through June 30, 1997 have been derived from the Company's audited
consolidated financial statements. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements
and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sales - continuing operations $ 52,814,568 31,331,793 16,217,648 10,196,568 5,907,658
Income - continuing operations $ 461,685 3,580,907 1,844,876 870,750 168,099
Income per common and common
equivalent share - continuing operations $ 0.09 0.97 0.65 0.30 0.05
Income - continuing operations
(Excluding $11.0 million in-process R&D charge) $ 7,061,685 -- -- -- --
Income per common and common
equivalent share - continuing operations
(Excluding $11.0 million in-process R&D charge) $ 1.34 -- -- -- --
Total assets $ 61,165,014 20,443,672 19,904,922 13,476,737 11,732,328
Long-term debt, excluding current installments $ 2,816,251 5,188,320 5,341,649 273,573 329,979
Total liabilities $ 10,838,326 10,392,752 14,855,674 7,611,400 6,885,973
Total stockholders' equity $ 50,326,688 10,050,920 5,049,248 5,865,337 4,846,355
</TABLE>
Note: The Company has not declared any dividends during the periods presented.
No future dividend payments are expected.
On November 18, 1996, the Company completed the purchase of Bit 3. In
connection with the acquisition of Bit 3, the Company recorded an $11.0
million in-process R&D charge in the second quarter of fiscal 1997.
On August 19, 1996, the Company completed a pooling of interests
transaction with LDG, the results of which are included in fiscal 1997
on a prospective basis.
On April 28, 1995 the Company completed the purchase of GreenSpring.
On April 26, 1995 the Company sold its flight simulation business to
Camber Corporation, which is reported as discontinued operations in the
consolidated financial statements.
The Selected Financial Data are for continuing operations only. The
financial statements herein reflect the separation of continuing
operations from discontinued operations.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO. INFORMATION DISCUSSED HEREIN MAY INCLUDE FORWARD-LOOKING
STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE
COMPANY, AND ARE SUBJECT TO A NUMBER OF RISKS AND OTHER FACTORS WHICH COULD
CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY
FORWARD LOOKING STATEMENTS. AMONG SUCH FACTORS ARE: GENERAL BUSINESS AND
ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR THE COMPANY'S
PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST AND INTRODUCE NEW
PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY THE
COMPANY'S PRODUCTS; AND OTHER RISK FACTORS LISTED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SEC.
OVERVIEW
The Company is a leading manufacturer of standard bus embedded computer
components that perform a broad range of CPU, general purpose I/O, special
purpose I/O interface applications, and high performance interconnect
hardware and software. In 1988, the Company entered the embedded computer
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 subsequently exited this
business. The Company marketed a Judgmental Use of Force Training System,
used to train police and military personnel in the appropriate situational
use of force, from 1993 through fiscal year 1997, when the Company sold this
business as discussed in "Sale of Judgmental Use of Force Business" below.
Since 1995, the Company has focused its efforts and investments in the
embedded computer marketplace, expanding its product offerings and marketing
with the acquisition of three embedded computer companies as discussed in
"Recent Acquisitions" and "Public Stock Offering" below.
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 $1.2 million expensed through June 30, 1997 and the
remainder expected to be expensed through June 30, 2005, the estimated
benefit period. Had the acquisition taken place on July 1, 1994, the
Company's reported net loss and net 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 interests transaction
with LDG based in Raleigh, North Carolina. 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.
14
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On November 18, 1996, the Company completed the purchase of Bit 3. Bit 3 is a
Minneapolis-based manufacturer of computer networking and interconnection
hardware for many of the most widely used computer architecture standards in the
standard bus embedded computer market. 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 acquired all of
the outstanding capital stock of Bit 3 for a total purchase price of $24.0
million paid or to be paid from the proceeds from the public stock offering (see
"Public Stock Offering") and cash flow from the Company's operations. Of this
total purchase price, $20.0 million was paid to the Sellers in cash upon closing
of the offering. Of the balance of $4.0 million, $1.0 million was paid to the
Sellers on July 1, 1997 and $3.0 million will be paid to the Sellers on July 1,
1998, pursuant to secured promissory notes according to the terms of the
Acquisition Agreement. The financial results of Bit 3 have been included in the
Company's Consolidated Financial Statements from November 18, 1996. In
connection with the acquisition of Bit 3, the Company recorded an $11.0 million
earnings charge based on an assessment by the Company, in conjunction with an
independent valuation firm, of purchased technology of Bit 3. The assessment
determined that $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. In addition, as a result of the acquisition, the Company recorded
$10.0 million of goodwill which is being amortized over a ten year period.
The following proforma consolidated results of operations have been prepared as
if the acquisition of Bit 3 had occurred at July 1, 1995 and 1996.
(in thousands except per share amounts)
JUNE 30 JUNE 30
1997 1996
------- -------
Sales . . . . . . . . . . . . . . . . . . . . . . . . $ 58,949 45,519
Net income. . . . . . . . . . . . . . . . . . . . . . 1,626 385
Net income per common and common equivalent share . . 0.31 0.07
--------- ------
--------- ------
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had the acquisition been consummated as of that time, nor is it
intended to be a projection of future results.
PUBLIC STOCK OFFERING
On November 18, 1996, the Company consummated a fully underwritten public
offering of 1,500,000 shares of the Company's common stock at a price of
$25.625 per share. In addition, certain selling shareholders sold an
additional 300,000 shares in the offering. The proceeds of the sale of the
300,000 additional shares did not benefit the Company; however, the Company
did receive the exercise price of $4.80 per share from the exercise of
warrants covering 100,000 of the shares. The offering was managed by an
underwriting group led by Cowen & Co. and SoundView Financial Group, Inc.
The net proceeds to the Company from the public stock offering were used to
fund the acquisition of Bit 3 (see "Recent Acquisitions" above), to repay
long-term debt, and the balance will be used for general working capital
requirements.
15
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SALE OF JUDGMENTAL USE OF FORCE BUSINESS
On June 26, 1997, the Company sold substantially all of the assets of the
Company's Judgmental Use Of Force Business to Fats, Inc. for $2.0 million.
This business marketed a Judgmental Use Of Force Training System used to
train police and military personnel in appropriate situational use of force.
The results of operations of this business were immaterial to the total
operating results of the Company. The sale of property, plant, and equipment
(net) and inventory were recorded at $139,296 and $409,421, respectively.
The Company recorded estimated future costs associated with the sale of
$1,262,207 on the date of sale. The balance of $793,677 is included in other
current liabilities at June 30, 1997. The Company recognized a gain on the
sale of approximately $189,000.
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
------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of Sales 47.2 46.3 41.7
------ ------ ------
Gross Profit 52.8 53.7 58.3
Selling, general and administrative expense 19.4 20.1 24.0
Research and development expense 8.4 9.1 10.4
Acquired in-process research and development charge 20.8 -- --
Amortization of intangible assets 2.8 2.8 3.0
------ ------ ------
Operating income from continuing operations 1.4 21.7 20.9
Interest income (expense) (net) 0.1 (2.7) (1.2)
------ ------ ------
Income from continuing operations before income taxes 1.5 19.0 19.7
Income taxes 0.6 7.6 8.4
------ ------ ------
Income from continuing operations 0.9% 11.4% 11.3%
------ ------ ------
------ ------ ------
</TABLE>
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
SALES. In fiscal 1997, sales increased 68.7%, or $21.5 million, from $31.3
million in fiscal 1996, to $52.8 million. Sales contributed by LDG, which was
acquired effective August 9, 1996 and pooled effective July 1, 1996, and
sales contributed by Bit 3, which was acquired on November 18, 1996,
comprised 48.2% of this increase and 20.5% of this increase was attributable
to the Company's other product lines. The increases in sales for 1997
resulted from increased sales of existing products, introduction of new
products, and sales of new and existing products to new customers in all of
the Company's product lines. Sales of the Company's products are recorded at
the time of shipment. Throughout fiscal 1997, prices for the Company's
products remained firm.
16
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT. In fiscal 1997, gross profit increased 66.1%, or $11.1 million,
from $16.8 million in fiscal 1996, to $27.9 million, as a result of increased
sales volume. In fiscal 1997, gross margin decreased to 52.8% of sales from
53.7% in fiscal 1996, as a result of sales mix. In fiscal 1997, although gross
margins of each of the Company's product lines remained relatively constant with
fiscal 1996, total sales were comprised of a higher percentage of commercial
products (i.e. general purpose I/O, CPU, and interconnect products), which
generally yield lower gross margins than the Company's avionics and telemetry
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 EXPENSE. In fiscal 1997, selling, general
and administrative expense increased 61.9%, or $3.9 million from $6.3 million in
fiscal 1996, to $10.2 million, largely because of the increased staffing
resulting from the LDG and Bit 3 acquisitions and subsequent augmentation of
those staffs in an effort to increase productivity and efficiency, as well as
additional staffing and promotional costs related to the Company's avionics,
telemetry, and I/O product lines. However, selling, general and administrative
expense decreased as a percentage of sales from 20.1% in fiscal 1996 to 19.4% in
fiscal 1997 as the increase in sales more than offset the increase in expense.
RESEARCH AND DEVELOPMENT EXPENSE. In fiscal 1997, research and development
expense increased by 57.1%, or $1.6 million, from $2.8 million in fiscal 1996,
to $4.4 million. The increase resulted primarily from the added expenditures
resulting from the LDG and Bit 3 acquisitions, as well as additional staffing
required for new product development in the avionics, telemetry, and I/O product
lines. However, research and development expense decreased as a percentage of
sales from 9.1% in fiscal 1996, to 8.4% in fiscal 1997, as a result of sales
increasing at a faster rate than the expense.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. In conjunction with the
acquisition of Bit 3 completed on November 18, 1996, the Company recorded an
$11.0 million earnings charge based on an assessment by the Company, in
conjunction with an independent valuation firm, of purchased technology of Bit
3. The assessment determined that $11.0 million of Bit 3's purchase price
represented technology that did not meet the accounting definitions of completed
technology, and thus should be charged to earnings under generally accepted
accounting principles.
AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1997, amortization of intangible
assets increased 70.1%, or $620,000, from $884,000 in fiscal 1996, to $1.5
million as a result of goodwill amortization associated with the acquisition of
Bit 3.
INTEREST INCOME, NET OF INTEREST EXPENSE. In fiscal 1997, interest income, net
of interest expense, was $14,000 compared to interest expense, net of income, of
$830,000 in fiscal 1996. This change is attributable to the reduction of debt
incurred primarily to finance the acquisition of GreenSpring in April 1995, the
elimination of all bank debt effective November 22, 1996, by application of some
of the proceeds of the public stock offering, and earnings on surplus cash from
operations as well as earnings on cash received above the Company's immediate
requirements from the public offering, offset by imputed interest of $144,000 on
notes payable to the former owners of Bit 3.
INCOME TAXES. For fiscal 1997 and fiscal 1996 income taxes represent an
effective income tax rate of 40.0%.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. For fiscal 1997, net income
per common and common equivalent share was $0.09 compared to $0.97 for fiscal
1996. This reduction is due to the $11.0 million charge to earnings associated
with the acquisition of Bit 3 in November 1996 and due to more shares
outstanding. For fiscal 1997, net income per common and common equivalent
share excluding the charge to earnings would have been $1.34.
17
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 includes 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.
Sales of the Company's products are recorded at the time of shipment.
Throughout fiscal 1996, prices for the Company's products remained firm.
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 EXPENSE. 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 the expense.
RESEARCH AND DEVELOPMENT EXPENSE. 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 the 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.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. For fiscal 1996, net income
per common and common equivalent share from continuing operations was $.97
compared to $.65 from continuing operations for fiscal 1995. For fiscal 1995,
net income per common and common equivalent share from discontinued operations,
resulting from the sale of the Company's simulation business to Camber
Corporation in April 1995, was $(1.10).
18
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $21.7 million at June 30, 1997, an increase of $20.6 million
from June 30, 1996. This increase is a result of cash flow provided by
operations, as well as cash received above immediate requirements, from the
Company's public stock offering effective on November 18, 1996 and closed
on November 22, 1996 (see "Public Stock Offering"). Net cash provided by
operating activities for the year ended June 30, 1997 was $10.2 million.
Increased sales volume and demand for semiconductor parts during the year
ended June 30, 1997 caused the Company to increase accounts receivable and
inventory. Liabilities were in line with the current level of business. In
addition, the exercise and subsequent sale of stock related to stock option
plans reduced the Company's current tax liability. Net cash used in
investing activities for the year ended June 30, 1997 was $20.0 million.
Proceeds of $2.0 million from the sale of the Judgmental Use of Force
Business (see "Sale of Judgmental Use of Force Business") offset $20.5
million used for the acquisition of Bit 3 (see "Recent Acquisitions") and
$1.5 million used for the purchase of equipment . Net cash provided by
financing activities for the year ended June 30, 1997 was $30.3 million. Net
proceeds from the sale of common stock (see "Public Stock Offering") were
$35.5 million, with additional cash received from the exercise of stock
options and warrants of $1.9 million. A portion of these funds, $6.9
million, was used in November 1996 to pay down all existing debt, including
interest due, with NationsBank of Texas, N.A. ("NationsBank") incurred in
April 1995 primarily to finance the acquisition of GreenSpring.
In fiscal years ended June 30, 1996 and June 30, 1995, the Company generated
$3.4 million and $1.1 million, respectively, of positive cash flow from
operating activities. In fiscal 1996, the positive cash flow from operating
activities was partially used to pay down bank debt, to purchase equipment
and to acquire the IndustryPack-Registered Trademark--compatible product line
from Wavetron Microsystems, Inc. in January 1996. In fiscal 1995, the
positive cash flow from operating activities combined with bank borrowings
provided the Company sufficient funds to acquire GreenSpring in April 1995,
as well as to purchase required equipment.
On April 26, 1996 and November 15, 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 was completely paid down from the proceeds of the public
stock offering. The revolving line of credit matures on October 30, 1997. For
the entire year ended June 30, 1997, there were no borrowings drawn on the
revolving line of credit. 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, except those of LDG and
Bit 3, and imposes certain performance ratios on the Company. The amendment
dated November 15, 1996 excludes the $11.0 million earnings charge associated
with the acquisition of Bit 3 from the performance ratios. 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 l when compared to the Company's profit
before tax plus interest, depreciation, and amortization expense for the
preceding four quarters from time of 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 l when compared to the Company's interest
expense plus operating 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, 1997, the Company
was in compliance with all of the covenants of the amended financing agreement.
19
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Management believes that financial resources, including its internally generated
funds, available bank borrowings and the net proceeds from the public stock
offering, will be sufficient to finance the Company's current operations,
capital expenditures and certain 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.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share." SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS 128 replaces the currently required presentation
of primary EPS with a presentation of basic EPS, requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures, and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997, and
early application is not permitted. Management believes the application of
SFAS 128 will not have a material effect on the Company's future financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. Specifically, SFAS 130 requires that all items that meet the
definition of components of comprehensive income be reported in a financial
statement for the period in which they are recognized. However, SFAS 130
does not specify when to recognize or how to measure the items that make up
comprehensive income. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, and early application is permitted. Management believes
the application of SFAS 130 will not have a material effect on the Company's
future financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of Business Enterprise." SFAS 131
supersedes the "industry segment" concept of SFAS 14 with a "management
approach" concept as the basis for identifying reportable segments. SFAS 131
is effective for fiscal years beginning after December 15, 1997, and early
application is permitted. Management believes the application of SFAS 131
will not have a material effect on the Company's future financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
20
<PAGE>
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, 1997 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, 1997. 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, 1997 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, 1997 in conformity with generally accepted
accounting principles.
/S/ KPMG Peat Marwick LLP
Albuquerque, New Mexico
August 6, 1997
21
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30
---------------------------
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,661,671 1,130,030
Receivables, net (notes 5, 6 and 7) 9,244,269 6,421,224
Inventories (notes 6 and 7) 7,705,470 5,160,962
Deferred income taxes (note 8) 1,327,000 317,100
Prepaid expenses 232,283 303,846
Other current assets 128,560 104,249
------------ ------------
Total current assets 40,299,253 13,437,411
------------ ------------
Property and equipment, at cost (notes 6 and 7) 4,729,259 2,389,289
Less accumulated depreciation 2,247,408 1,041,719
------------ ------------
Net property and equipment 2,481,851 1,347,570
------------ ------------
Intangible assets, net 14,099,254 5,571,135
Deferred income taxes (note 8) 4,253,000 55,900
Other assets 31,656 31,656
------------ ------------
Total assets $ 61,165,014 20,443,672
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt (note 7) $ 13,316 1,458,976
Notes payable to related parties (note 7) 1,000,000 -
Accounts payable 1,541,846 1,243,748
Accrued representative commissions 449,699 353,278
Accrued salaries 1,868,623 1,077,121
Accrued compensated absences 560,061 340,342
Income taxes (note 8) 1,095,162 223,381
Other current liabilities (note 3) 1,493,368 507,586
------------ ------------
Total current liabilities 8,022,075 5,204,432
Long-term liabilities:
Long-term debt, excluding current installments (note 7) - 5,188,320
Notes payable to related parties (note 7) 2,816,251 -
------------ ------------
Total long-term liabilities 2,816,251 5,188,320
------------ ------------
Total liabilities 10,838,326 10,392,752
------------ ------------
Stockholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
5,405,378 and 3,178,133 issued and outstanding
at June 30, 1997 and 1996, respectively 43,889,754 4,690,786
Common stock warrants (note 10) 111,286 180,000
Retained earnings 6,325,648 5,180,134
------------ ------------
Total stockholders' equity 50,326,688 10,050,920
------------ ------------
Total liabilities and stockholders' equity $ 61,165,014 20,443,672
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 52,814,568 31,331,793 16,217,648
Cost of sales 24,910,271 14,510,106 6,756,560
------------ ------------ ------------
Gross Profit 27,904,297 16,821,687 9,461,088
Selling, general and administrative expense 10,223,374 6,292,954 3,891,408
Research and development expense 4,422,152 2,846,300 1,686,590
Acquired in-process research and
development charge 11,000,000 - -
Amortization of intangible assets 1,504,524 884,438 493,409
------------ ------------ ------------
Operating income from continuing operations 754,247 6,797,995 3,389,681
------------ ------------ ------------
Interest income 523,115 9,210 3,315
Interest expense (508,677) (839,028) (191,120)
------------ ------------ ------------
14,438 (829,818) (187,805)
------------ ------------ ------------
Income from continuing operations
before income taxes 768,685 5,968,177 3,201,876
Income taxes (note 8) 307,000 2,387,270 1,357,000
------------ ------------ ------------
Income from continuing operations 461,685 3,580,907 1,844,876
Discontinued operations (net of tax benefit
of $1,160,000) - - (1,781,235)
Loss on disposal of discontinued operations
(net of tax benefit of $896,000) - - (1,354,000)
------------ ------------ ------------
Loss from discontinued operations - - (3,135,235)
------------ ------------ ------------
Net income (loss) $ 461,685 3,580,907 (1,290,359)
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per common and
common equivalent share:
Continuing operations $ 0.09 0.97 0.65
Discontinued operations 0.00 0.00 (1.10)
------------ ------------ ------------
Net income (loss) per common and
common equivalent share $ 0.09 0.97 (0.45)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Total
stock Common stock-
------------------------ stock Retained holders'
Shares Amount warrants earnings equity
--------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance 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 and warrants 284,479 1,315,765 (20,000) - 1,295,765
Warrants issued for business
acquisition (note 2) - - 125,000 - 125,000
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
Exercise of stock options and warrants 527,245 1,960,780 (68,714) - 1,892,066
Income tax benefit from stock
options exercised - 1,645,740 - - 1,645,740
Acquisition of Logical Design
Group Inc. (note 2) 200,000 68,000 - 683,829 751,829
Common stock issued in
public offering 1,500,000 35,524,448 - - 35,524,448
Net income - - - 461,685 461,685
--------- ------------ --------- ----------- ------------
Balance at June 30, 1997 5,405,378 $ 43,889,754 $ 111,286 $ 6,325,648 $ 50,326,688
--------- ------------ --------- ----------- ------------
--------- ------------ --------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 461,685 3,580,907 (1,290,359)
------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 705,160 316,494 384,057
Amortization of intangible assets 1,504,524 884,438 536,328
Bad debt expense 223,004 56,933 -
Loss (gain) on disposition of assets (189,579) 44,218 -
Imputed interest 144,072 - -
Acquired in-process research and development charge 11,000,000 - -
Deferred income taxes (5,141,037) (13,000) (360,000)
Loss from sale of discontinued operations - - 2,250,000
Stock issued under employee stock bonus plan - - 399,270
Changes in assets and liabilities:
Receivables (888,824) 673,406 3,314,458
Inventories (541,340) (1,192,938) (1,101,607)
Prepaids and other assets 260,367 144,862 (476,828)
Accounts payable (143,036) (635,049) 1,172,798
Accrued representative commissions 79,181 27,810 218,669
Accrued salaries 683,403 562,603 277,433
Accrued compensated absences 65,584 58,270 (155,833)
Income taxes 2,519,073 (127,532) (1,500,209)
Other current liabilities (555,158) (943,359) (2,559,768)
------------ ----------- -------------
Net adjustments 9,725,394 (142,844) 2,398,768
------------ ----------- -------------
Net cash provided by operating activities 10,187,079 3,438,063 1,108,409
------------ ----------- -------------
Cash flows from investing activities:
Business acquisitions (note 2) (20,511,319) (317,746) (5,196,815)
Acquisition of property and equipment (1,451,643) (764,191) (426,769)
Proceeds from businesses divested
and asset sales (note 3) 2,000,000 - -
Proceeds from sale of discontinued
operations (note 12) - - 400,300
------------ ----------- -------------
Net cash used by investing activities (19,962,962) (1,081,937) (5,223,284)
------------ ----------- -------------
</TABLE>
25
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------
1997 1996 1995
------------ ------------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable to bank - 4,095,000 6,950,437
Payments on notes payable to bank - (4,717,383) (7,690,517)
Proceeds from long-term borrowings - - 7,000,000
Payments on long-term borrowings and capitalized leases (7,108,990) (3,332,390) (1,344,567)
Net proceeds from refinancing long-term borrowings - 549,108 -
Proceeds from exercise of stock options and warrants 1,892,066 1,295,765 -
Net proceeds from sale of common stock 35,524,448 - -
------------ ------------ -----------
Net cash provided (used) by financing activities 30,307,524 (2,109,900) 4,915,353
------------ ------------ -----------
Net increase in cash and cash equivalents 20,531,641 246,226 800,478
Cash and cash equivalents at beginning of period 1,130,030 883,804 83,326
------------ ------------ -----------
Cash and cash equivalents at end of period $ 21,661,671 1,130,030 883,804
------------ ------------ -----------
------------ ------------ -----------
Supplemental disclosure of cash flow information:
Interest paid $ 275,415 875,736 497,002
Income taxes paid 2,922,519 2,431,749 700,000
Noncash financing and investing activities:
Acquisition of GreenSpring Computers, Inc. (note 2):
Common stock warrants issued $ - 125,000 75,000
Long-term debt issued - - 1,000,000
------------ ------------ -----------
$ - 125,000 1,075,000
------------ ------------ -----------
------------ ------------ -----------
Assets acquired through capital leases $ 70,733 - -
Income tax benefit from stock options exercised $ 1,645,740 - -
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements
26
<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 leading
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, and high
performance interconnect hardware and software. The Company has
operations in New Mexico, Minnesota, North Carolina and California.
(b) SALES RECOGNITION
Sales are recognized when goods are shipped 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.
JUNE 30
------------------------
1997 1996
------------ ---------
Raw materials $ 3,211,502 2,254,788
Work in process 2,953,140 1,546,800
Finished goods 1,540,828 1,359,374
------------ ---------
$ 7,705,470 5,160,962
------------ ---------
------------ ---------
(e) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JUNE 30
-------------------------
1997 1996
------------ ---------
Computers $ 1,862,814 1,194,888
Software 946,608 411,839
Furniture and equipment 1,919,837 782,562
------------ ---------
$ 4,729,259 2,389,289
------------ ---------
------------ ---------
Depreciation of property and equipment is provided over the estimated
useful lives (three to twelve years) of the respective assets using
straight-line and accelerated methods.
27
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) INTANGIBLE ASSETS
Intangible assets are stated at cost and consist of the following:
JUNE 30
-------------------------
1997 1996
------------ ---------
Noncompete covenants $ 1,540,000 1,540,000
Goodwill 16,584,314 6,551,671
------------ ---------
18,124,314 8,091,671
Less accumulated amortization (4,025,060) (2,520,536)
------------ ---------
$ 14,099,254 5,571,135
------------ ---------
------------ ---------
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 affect 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
------------------------------------
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Weighted average shares of common
stock outstanding during the year 4,535,746 3,017,575 2,810,426
Common equivalent shares - assumed
exercise of options and warrants 744,475 1,377,923 48,514
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 5,280,221 3,791,983 2,858,940
--------- --------- ---------
--------- --------- ---------
</TABLE>
28
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(i) FINANCIAL INSTRUMENTS
SFAS 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 1996 and 1995 financial statements have been
reclassified to conform with the 1997 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) STOCK OPTION PLANS
Prior to July 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On July 1, 1996, the
Company adopted SFAS 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the
provisions of APB Opinion 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants
made in 1996 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion 25 and provide the pro
forma disclosure provisions of SFAS 123.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on July 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
29
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(n) NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings Per Share." SFAS 128 establishes new standards for
computing and presenting earnings per share ("EPS"). Specifically,
SFAS 128 replaces the currently required presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities
with complex capital structures, and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the
financial statements issued for periods ending after December 15,
1997, and early application is not permitted. Management believes the
application of SFAS 128 will not have a material effect on the
Company's future financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
130, "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. Specifically, SFAS 130 requires that
all items that meet the definition of components of comprehensive
income be reported in a financial statement for the period in which
they are recognized. However, SFAS 130 does not specify when to
recognize or how to measure the items that make up comprehensive
income. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, and early application is permitted. Management
believes the application of SFAS 130 will not have a material effect
on the Company's future financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 supersedes the "industry segment" concept of SFAS 14 with a
"management approach" concept as the basis for identifying reportable
segments. SFAS 131 is effective for fiscal years beginning after
December 15, 1997, and early application is permitted. Management
believes the application of SFAS 131 will not have a material effect
on the Company's future financial statements.
(2) BUSINESS ACQUISITIONS
On November 18, 1996, the Company completed the purchase of Bit 3.
Bit 3 is a Minneapolis-based developer and manufacturer of high
performance bus interconnect hardware and software products. The
Company acquired all of the outstanding capital stock of Bit 3 for a
total purchase price of $24.0 million. The initial cash payment to
the two shareholders of Bit 3 (the "Sellers") of $20.0 million was
funded by an offering of SBS common stock. Subsequent cash payments
of $1.0 million and $3.0 million will be paid to the Sellers on July
1, 1997, and July 1, 1998, respectively. In connection with the
acquisition, the Company made an assessment, in conjunction with an
independent valuation firm, of purchased technology of Bit 3. The
assessment determined that $11.0 million of Bit 3's purchase price
represented technology that does not meet the accounting definitions
of "completed technology," and thus was charged to earnings under
generally accepted accounting principles. The acquisition was
accounted for using the purchase method of accounting, and
accordingly, Bit 3's results of operations have been included in the
consolidated financial statements since the date of acquisition.
Goodwill is being amortized over 10 years.
30
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assets acquired and liabilities assumed in the acquisition are as follows:
Cash and equivalents $ 22,138
Accounts receivable 1,715,946
Inventory 1,591,448
Prepaid and other assets 207,086
Property and equipment (net) 200,570
Deferred tax asset 39,463
Goodwill 10,032,643
Accounts payable (184,150)
Accrued salaries (88,099)
Accrued compensated absences (87,700)
Other accrued liabilities (242,358)
-----------
13,206,987
In-process research and development 11,000,000
-----------
$24,206,987
-----------
-----------
The purchase price was paid as follows:
Cash $20,000,000
Notes payable issued 4,000,000
Discount of notes payable (327,821)
Acquisition costs 534,808
-----------
$24,206,987
-----------
-----------
The following proforma consolidated results of operations have been prepared as
if the acquisition of Bit 3 had occurred at July 1, 1995, and 1996.
(in thousands except per share amounts)
June 30 June 30
1997 1996
-------- -------
Sales . . . . . . . . . . . . . . . . . $ 58,949 45,519
Net income . . . . . . . . . . . . . . 1,626 385
Net income per common and common
equivalent share . . . . . . . . . . 0.31 0.07
-------- -------
-------- -------
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actually would
have been achieved had the acquisition been consummated as of that time, nor
is it intended to be a projection of future results.
31
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On August 19, 1996, the Company acquired LDG, a Raleigh, North Carolina-based
designer and manufacturer of Intel processor-based CPU boards for the
standard bus embedded computer market. The acquisition qualified as a
pooling of interests for accounting purposes and constituted 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.
Assets, liabilities, and equity assumed in the acquisition are as follows:
Cash and equivalents $ 1,351
Accounts receivable 441,279
Inventory 821,141
Deferred income tax 26,500
Prepaid and other assets 6,029
Property and equipment 864,610
Accumulated depreciation (609,322)
Income taxes 1,552
Accounts payable (256,984)
Accrued representative commissions (17,240)
Accrued salaries (20,000)
Accrued compensated absences (66,435)
Debt (404,277)
Other current liabilities (36,375)
Common stock (68,000)
Retained earnings (683,829)
The financial position and results of operations of the Company and
LDG are combined in fiscal 1997 on a prospective basis. LDG's
historical results do not have a material effect on combined financial
position or results of operations.
On January 10, 1996, the Company's wholly owned subsidiary,
GreenSpring, 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 share 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, a corporation
based in Menlo Park, California, for $7,450,000. GreenSpring is
engaged in the design, development, marketing and manufacturing of
general purpose I/O products utilized in multiple segments of the
standard bus embedded computer market. The acquisition was accounted
for using the purchase method of accounting, and goodwill is being
amortized over 10 years.
32
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assets acquired and liabilities assumed in the acquisition are as follows:
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
-----------
-----------
The purchase price was paid as follows:
Notes payable issued $ 1,000,000
Warrants issued 200,000
Cash 6,250,000
-----------
$ 7,450,000
-----------
-----------
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) SALE OF JUDGMENTAL USE OF FORCE BUSINESS
On June 26, 1997, the Company sold substantially all of the assets of
the Company's Judgmental Use Of Force Business to Fats, Inc., for $2.0
million. This business marketed a Judgmental Use Of Force Training
System used to train police and military personnel in appropriate
situational use of force. The results of operations of this business
were immaterial to the total operating results of the Company. The
sale of property, plant, and equipment (net) and inventory were
recorded at $139,296 and $409,421, respectively. The Company recorded
estimated future costs associated with the sale of $1,262,207 on the
date of sale. The balance of $793,677 is included in other current
liabilities at June 30, 1997. The Company recognized a gain on the
sale of approximately $189,000.
(4) SIGNIFICANT CUSTOMERS AND FOREIGN SALES
In fiscal 1997, 1996 and 1995, no one customer exceeded 10% of the
Company's sales. 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, 1997, 1996 and 1995, export sales from
continuing operations, with minimal attendant risk, all of which were to
unaffiliated customers, were approximately $8.6 million, $5.1 million and
$1.6 million, respectively. Export sales from discontinued operations in
1995 were $2.4 million. Export sales from continuing operations were made
primarily in the following foreign markets:
33
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1997 1996 1995
-------------- ----------- ----------- -----------
Sales % Sales % Sales %
Foreign Market (000's) (000's) (000's)
-------------- ----------- ----------- -----------
United Kingdom $1,100 12.8 1,000 19.6 -- --
Germany 800 9.3 800 15.7 -- --
Korea 1,000 11.6 500 9.8 -- --
France 700 8.1 400 7.8 600 37.5
Japan 1,300 15.1 400 7.8 -- --
Canada 1,400 16.3 600 11.8 600 37.5
Belgium 50 0.6 300 5.9 -- --
All Others 2,250 26.2 1,100 21.6 400 25.0
------ ----- ----- ----- ------ -----
Total $8,600 100.0 5,100 100.0 1,600 100.0
------ ----- ----- ----- ------ -----
------ ----- ----- ----- ------ -----
Sales from
continuing operations $52,800 16.3 31,300 16.3 16,200 9.9
------- ---- ------ ---- ------ -----
------- ---- ------ ---- ------ -----
(5) RECEIVABLES
Receivables, net consisted of the following:
JUNE 30
--------------------------
1997 1996
----------- ---------
Accounts receivable $ 9,033,935 5,527,620
Contract receivables:
Amounts billed 268,913 721,803
Recoverable costs and accrued profit
on progress completed - not billed 242,416 242,038
----------- ---------
511,329 963,841
9,545,264 6,491,461
----------- ---------
Less: allowance for doubtful accounts (300,995) (70,237)
----------- ---------
$ 9,244,269 6,421,224
----------- ---------
----------- ---------
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 progress
billings are restricted by the contract to a percentage of costs
incurred until the contracts are closed.
34
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) 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, 1997 was 8.50 percent. During the year ended June
30, 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, 1997. The
line of credit provides for security interests in the Company's
receivables, inventories and equipment, except those of LDG and Bit 3.
Management anticipates that the line of credit will be renewed at
maturity in the normal course of business.
(7) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Note payable to bank, $5,000,000 at LIBOR plus
2.5% (8% at June 30, 1996), $1,525,000 at prime
plus .25% (8.5% at June 30, 1996), secured by
receivables, inventories and equipment,
due in monthly installments of $112,500 $ -- 6,525,000
Notes payable to former shareholders of Bit 3,
including imputed interest at 6.46% through
June 30, 1997, secured by all Company assets,
due July 1, 1998 2,816,251 --
Notes payable to former shareholders of Bit 3,
including imputed interest at 6.46% through
June 30, 1997, secured by all Company assets,
due July 1, 1997 1,000,000 --
Note payable, non-interest-bearing,
payable in monthly installments through
August 1997 13,316 113,316
8.24% note due in monthly installments of $2,215
including interest through August 1996 -- 4,385
8.14% note due in monthly installments of
$2,321 including interest through
August 1996 -- 4,595
--------- ---------
3,829,567 6,647,296
Less current installments (1,013,316) (1,458,976)
--------- ---------
$2,816,251 5,188,320
--------- ---------
--------- ---------
</TABLE>
Principal maturities of long-term debt as of June 30, 1997 are as follows:
1998 $1,013,316
1999 2,816,251
----------
$3,829,567
----------
----------
35
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
YEAR ENDED JUNE 30
----------------------------------
1997 1996 1995
------------ --------- ----------
Current:
U.S. Federal $ 4,432,000 1,916,770 1,211,000
State 1,082,000 483,500 352,000
Deferred:
U.S. Federal (4,204,000) (11,000) (145,000)
State (1,003,000) (2,000) (61,000)
Income tax before
discontinued operations 307,000 2,387,270 1,357,000
Income tax expense (benefit) from:
Discontinued operations -- -- (1,160,000)
Loss on disposal -- -- (896,000)
------------ --------- ----------
Total income tax expense $ 307,000 2,387,270 (699,000)
------------ --------- ----------
------------ --------- ----------
Income tax expense was provided for at an effective rate of 40.0,
40.0 and 42.4 percent in 1997, 1996 and 1995, 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 from continuing operations before income taxes) as follows:
YEAR ENDED JUNE 30
----------------------------------
1997 1996 1995
------------ --------- ----------
Computed "expected" tax expense $ 261,350 2,029,180 1,089,000
State income tax, net of federal income
tax benefit 51,050 319,112 212,000
Goodwill amortization -- 21,508 66,000
Nondeductible merger expenses 62,800 -- --
Dividend from foreign sales corporation (102,000) (45,000) --
Other 33,800 62,470 (10,000)
----------- --------- ---------
$ 307,000 2,387,270 1,357,000
----------- --------- ---------
----------- --------- ---------
36
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of deferred income tax assets are as follows:
YEAR ENDED JUNE 30
-------------------------
1997 1996
---------- ----------
Vacation and severance accruals $ 179,200 136,136
Inventory capitalization 519,100 198,792
Acquired in-process R&D charge 4,217,700 -
Accrued expenses 277,900 -
Amortization 234,900 -
Allowance for uncollectible accounts 120,400 -
Other 30,800 38,072
---------- -------
$5,580,000 373,000
---------- -------
---------- -------
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. 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, 1997.
Accordingly, management has no allowance for deferred tax assets at
June 30, 1997 or 1996.
(9) LEASES
The Company leases its main facilities in Albuquerque, New Mexico,
Carlsbad, California, Menlo Park, California, Minneapolis, Minnesota,
and Raleigh, North Carolina, under noncancelable operating leases
which expire at various dates through the year 2000. The Company also
leases various items of equipment under noncancelable operating leases
which expire at various dates through the year 2002.
BUILDINGS EQUIPMENT
YEAR ENDING MINIMUM MINIMUM
JUNE 30 LEASE PAYMENTS LEASE PAYMENTS TOTAL
----------- -------------- -------------- -----------
1998 $ 754,900 48,540 803,440
1999 650,605 48,540 699,145
2000 635,754 48,540 684,294
2001 108,789 14,087 122,876
2002 100,546 -- 100,546
-------------- ------------- -----------
$2,250,594 159,707 2,410,301
-------------- ------------- -----------
-------------- ------------- -----------
Total rental expense for operating leases for the years ended June
30, 1997, 1996, and 1995 was $886,965, $521,885 and $511,150,
respectively.
37
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) STOCK OPTION PLANS AND WARRANTS
(a) 1992, 1993, 1995, 1996 AND 1997 INCENTIVE STOCK OPTION PLANS
The Company has 1992, 1993, 1995, 1996 and 1997 Incentive Stock Option
Plans ("Plans") whereby a total of 1,400,000 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 the years 2001 to 2006.
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 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 of
these options are exercisable at the quoted market value of the
Company's stock in effect on the respective dates of the grants.
(b) 1993 DIRECTOR AND OFFICER STOCK OPTION PLAN
The Company has a 1993 Director and Officer Stock Option
Plan whereby a total of 2,000,000 shares of its common stock
are reserved for grant of options 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. All
options are granted at a price equal to fair market value.
The options become exercisable in one to three years from
the date of grant and terminate twelve months from the date
the optionee ceases to be a member of the Board of Directors
or in five years, whichever occurs first.
(c) 1996 EMPLOYEE STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan was adopted by the Board of
Directors on January 21, 1996 and was subsequently approved at
the November 1996 Annual Shareholders' Meeting. 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.
38
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) WARRANTS
In connection with the acquisition of GreenSpring, warrants to
purchase 400,000 shares of common stock at $4.50 were issued to the
former shareholders and option holders of GreenSpring. Of these
warrants, 150,000 were exercisable immediately upon closing and the
remaining 250,000 warrants vested during fiscal year 1996. At June
30, 1997, 143,132 warrants had been exercised and 34,297 were
forfeited under the net issuance method. Of the balance, 139,238
were exercisable at June 30, 1997 with the remaining exercisable at
June 30, 1998.
In connection with the 1992 Initial Public Offering, warrants to
purchase 100,000 common shares at $4.80 per share were issued to the
underwriter. All of the warrants issued vested in January 1993 and
were exercised in fiscal year 1997.
Information regarding the Company's stock option plans and warrants
is summarized below:
<TABLE>
<CAPTION>
1991 ALL 1993 1996
NSOP ISOPs D&O ESPP WARRANTS TOTAL
------- --------- -------- ------- ---------- ----------
------- --------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT 6/30/94 26,512 736,296 30,000 -- 100,000 892,808
Granted -- 135,000 10,000 -- 400,000 545,000
Exercised 8,228 -- -- -- -- 8,228
Cancelled -- 211,772 -- -- -- 211,772
------- --------- -------- ------- ---------- ----------
OUTSTANDING AT 6/30/95 18,284 659,524 40,000 -- 500,000 1,217,808
Granted -- 360,000 118,500 44,171 -- 522,671
Exercised 18,284 234,334 5,000 -- 26,861 284,479
Cancelled -- 36,716 -- 672 13,139 50,527
------- --------- -------- ------- ---------- ----------
OUTSTANDING AT 6/30/96 -- 748,474 153,500 43,499 460,000 1,405,473
Granted -- 399,997 170,000 25,510 -- 595,507
Exercised -- 294,474 16,500 -- 216,271 527,245
Cancelled -- 56,663 -- 10,154 21,158 87,975
------- --------- -------- ------- ---------- ----------
OUTSTANDING AT 6/30/97 -- 797,334 307,000 58,855 222,571 1,385,760
------- --------- -------- ------- ---------- ----------
------- --------- -------- ------- ---------- ----------
EXERCISABLE AT 6/30/95 18,284 346,191 -- -- 250,000 614,475
EXERCISABLE AT 6/30/96 -- 478,474 115,000 -- 293,334 886,808
EXERCISABLE AT 6/30/97 -- 217,333 108,500 -- 139,238 465,071
------- --------- -------- ------- ---------- ----------
------- --------- -------- ------- ---------- ----------
AVAILABLE FOR GRANT -- 73,858 146,740 241,145 -- 461,743
AT 6/30/97
------- --------- -------- ------- ---------- ----------
------- --------- -------- ------- ---------- ----------
</TABLE>
Weighted average option exercise price information for the years 1997, 1996,
and 1995 follows:
1997 1997 1995
------- ------ ------
Outstanding at July 1 $ 6.27 4.62 4.70
Granted during the year:
Price = Fair Value 22.28 11.25 4.55
Price > Fair Value -- 5.50 --
Exercised during the year 4.74 4.65 2.19
Cancelled during the year 9.37 4.53 4.78
Outstanding at June 30 13.53 6.27 4.62
Exercisable at June 30 6.71 4.83 4.67
39
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant option groups outstanding and exercisable at June 30, 1997
and related weighted average price and life information follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average Weighted
Number Remaining Exercise Number Average
Range of Exercise Prices Outstanding Contractual Price Exercisable Exercise Price
Life
- ------------------------ ------------ ----------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 4.13 - $ 5.50 488,621 7.44 $ 4.80 405,288 $ 4.86
$ 5.63 - $ 16.50 467,311 8.04 $ 11.85 19,783 $ 5.75
$ 18.25 - $ 34.00 429,828 7.29 $ 25.29 40,000 $ 25.88
- ------------------------ ------------ ----------- -------- ----------- ---------------
$ 4.13 - $ 34.00 1,385,760 7.59 $ 13.53 465,071 $ 6.71
- ------------------------ ------------ ----------- -------- ----------- ---------------
</TABLE>
The per share weighted-average fair value of stock options granted at a price
greater than fair value during 1997 and 1996 was $0 and $1.63, respectively,
on the date of grant. The per share weighted-average fair value of stock
options granted at a price equal to fair value during 1997 and 1996 was
$11.49 and $5.99, respectively, on the date of grant. The fair value of
options at date of grant was estimated using the Black-Scholes Model with the
following weighted-average assumptions:
1997 1996
------- -------
Expected life (years) 2.26 2.58
Risk free interest rate 06.05% 06.25%
Volatility 63.30% 63.30%
Dividend yield -- --
The Company applies APB Opinion 25 accounting for its plans and
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on fair value at grant date for its stock
options under SFAS 123, the Company's net income and EPS would have
been reduced to the pro forma amounts indicated below:
1997 1996
---------- ---------
Net income, as reported $ 461,685 3,580,907
Net income (loss), pro forma (1,694,626) 3,110,685
EPS, as reported $ 0.09 0.97
EPS, pro forma (0.30) 0.90
Pro forma net income reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting
periods and compensation cost for options granted prior to July 1, 1995 is
not considered.
40
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) 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, 1997, 1996 and 1995 were $342,029, $185,387 and $251,493,
respectively.
Bit 3 and LDG maintained retirement plans under Section 401(k) of the
Internal Revenue Code for all of their employees. Subsequent to the
Company's acquisition of Bit 3 and LDG, these plans were terminated
and merged into the Company's plan.
In addition, LDG maintained a profit sharing plan qualified under
Section 401(a) of the Internal Revenue Code for all of their
employees. Subsequent to the Company's acquisition of LDG, this plan
was terminated and plan participants had the option to take a
distribution from the plan or rollover their balances into the
Company's 401(k) plan.
(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, 1997, the
majority of these contracts have been substantially completed.
The disposition of the flight simulation business has been accounted
for as a discontinued operation. Revenues of the discontinued
operations were approximately $8,700,000 in 1995.
(13) CONTINGENCIES
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.
The Company is subject to various claims which arise in the ordinary
course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is incorporated by reference to the
Company's definitive proxy statement pursuant to Regulation 14A (the "Proxy
Statement") for its annual meeting to be held November 11, 1997.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Compensation of Executive
Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is incorporated by reference to the
corresponding section of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the section entitled "Directors and Executive
Officers".
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits. The Exhibits listed on the accompanying Index to Exhibits at
the end of this Report are filed as part of, or incorporated by
reference into, this Report.
(b) Financial Statement Schedules. The schedules are omitted inasmuch as the
required information is not present or not present in amounts sufficient
to require submission of the respective schedules, or the information is
included in the financial statements, including the notes thereto.
(c) Reports on Form 8-K during the fourth quarter.
None.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SBS TECHNOLOGIES, INC.
By: /S/ Christopher J. Amenson
Christopher J. Amenson
Chairman of the Board and
Chief Executive Officer
Date: September 26, 1997
44
<PAGE>
SBS Technologies, Inc.
Annual Report on Form 10-K
Fiscal Year Ended June 30, 1997
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
3.i(4) Articles of Incorporation, as amended on June 28, 1995 - -
3.ii(4) By-laws, as amended on May 8, 1995 - -
4.a(5) Article VI of the Articles of Incorporation, as amended, as
included in the Articles of Incorporation of SBS Technologies, Inc. - -
4.b(5) Articles I, II of the Bylaws of SBS Engineering, Inc., as amended - -
4.c(5) Form of certificate evidencing Common Stock - -
10.a(6) Employment agreement between Registrant and
Dr. Andrew C. Cruce, dated October 1, 1993,
as amended - -
10.b(6) Employment agreement between Registrant and
Scott A. Alexander, dated October 1, 1993,
as amended
10.c(7) 1997 Employee Incentive Stock Option Plan - -
10.d(6) Employment agreement between Registrant and
Christopher J. Amenson, dated April 24, 1992,
as amended - -
10.e(1) 1991 Key Employee Stock Option Plan - -
10.f(1)(7) 1992 Incentive Stock Option Plan - -
10.g(1) Stock Bonus Plan - -
10.h(2)(7) 1993 Incentive Stock Option Plan - -
10.i(2)(7) 1993 Director and Officer Stock Option Plan
10.j Employment Agreement between Registrant and Stephen D. Cooper
dated May 13, 1997 Filed herewith electronically
10.k First Amendment to Amended and Restated Credit Agreement
and Related Loan Documents between Registrant and NationsBank
of Texas, N.A. dated November 15, 1996 Filed herewith electronically
10.l(8) Stock Purchase Agreement between Bit 3 Computer Corporation
and Registrant dated October 8, 1996 - -
10.m Asset Purchase between Fats, Inc. and Registrant
dated June 26, 1997 Filed herewith electronically
10.q(3) Asset Purchase Agreement dated April 26, 1995 between registrant
and Camber Corporation. - -
10.r(3) Purchase Agreement dated April 28, 1995 between Registrant and GreenSpring
Computers, Inc. et al - -
10.s(3) Credit Agreement dated April 28, 1995 with NationsBank of Texas, N.A. - -
10.t(3) Lease dated May 25, 1995 between Registrant and PARS Asset
Management Company - -
10.v(6)(7) 1996 Employee Stock Purchase Plan, adopted January 21, 1996 - -
10.w(6) Amended and Restated Term Loan and Revolver
Credit Facility from NationsBank of Texas, N.A.
dated April 26, 1996. - -
10.x(6) Lease dated March 5, 1996, between Registrant and
Bohannon Trust Partnership II. - -
10.y(6) Pooling Agreement dated August 19, 1996 between
Registrant and Logical Design Group, Inc. et al - -
10.z Management Incentive Plan Filed herewith electronically
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11(6) Statement Re: Computation of Per-Share Income
21 Subsidiaries of the registrant Filed herewith electronically
23 Consent of KPMG Peat Marwick LLP Filed herewith electronically
25 Power of attorney Filed herewith electronically
27 Financial Data Schedules Filed herewith electronically
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-18 (No 33-43256-D), originally filed
October 8, 1991, which Registration Statement became effective
January 9, 1992.
(2) Incorporated by reference to Exhibits "A" & "B" of the Registrant's
Proxy Statement for its annual meeting held November 10, 1992.
(3) Incorporated by reference to Exhibits 10.q, 10.r, 10.s and 10.t of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995.
(4) Incorporated by reference to Exhibits 3.1 and 3.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(5) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 of Registrant's
Registration Statement on Form S-3 originally filed on January 5, 1996
and Amendment No. 1 filed on March 14, 1996.
(6) Incorporated by reference to Exhibits 10.a, 10.b, 10.d, 10.v, 10.w,
10.x, 10.y, and 11 of the Registrants Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(7) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 originally filed on March 10, 1997 and Amendment No.1
filed on April 4, 1997.
(8) Incorporated by reference from the Registrant's Registration Statement
on Form S-2 dated October 9, 1996 Amendment No.1 dated October 22,
1996 and Amendment No.2 dated November 14, 1996.
46
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
SBS TECHNOLOGIES, INC. ("Company") and Stephen D. Cooper ("Employee")
agree:
1. EMPLOYMENT. Company employs Employee for the period beginning on
the date of this Employment Agreement, and ending upon the resignation or
discharge of Employee (the "Employment Period"). During the Employment
Period, Employee will serve in the capacities of President and Chief
Operating Officer, or such other capacity mutually agreeable between the
Company and Employee. Employee will devote sufficient time and energies to
the business of Company to accomplish the duties assigned and described in
the attached Job Description, and will perform to the best of Employee's
ability all duties assigned to Employee by Company and will devote Employee's
best efforts to advance the interests of Company. Employee will have the
power and authority determined by Company for the position.
2. COMPENSATION. For all services performed by Employee for Company
during the Employment Period, Company will pay Employee the salary set forth
on Schedule "A". Employee will be entitled to participate in employee
benefit plans established by Company, and as listed on Schedule "A".
Vacation in amounts designated by Company will be taken at the times mutually
agreeable between Company and Employee. During that vacation, Employee will
receive Employee's usual compensation.
3. REIMBURSEMENT OF EXPENSES. Company recognizes that Employee, in
performing Employee's duties hereunder, may be required to spend sums of
money in connection with those duties for the benefit of Company. Employee
will present to
EMPLOYMENT AGREEMENT - PAGE 1
<PAGE>
Company an itemized voucher listing expenses paid by Employee in the
performance of Employee's duties on behalf of Company, and on presentation of
such itemized voucher Company will reimburse Employee for all reasonable
expenses itemized thereon, including, but not limited to, travel, meals,
lodging, entertainment, and promotion. Employee may receive advances from
Company for anticipated expenses. Employee agrees that the amount by which
an advance exceeds actual expenses ("Amount") will be promptly refunded to
Company upon determination by Company that is due, that the Amount may be
deducted from any payments of any nature, (including without limitation
salary) owed by Company to Employee, and that the Amount will constitute a
debt from Employee to Company, enforceable by Company in all respects as if
Employee had executed a promissory note or other instrument acknowledging the
debt.
4. SICK LEAVE AND DISABILITY. Employee will be entitled to sick leave
for the number of days determined by Company ("Sick Leave"). Employee will
be considered to be disabled during any period in excess of Sick Leave during
which Employee is unable to work because of illness or incapacity
("Disability Period"). Employee will be entitled to receive Employee's full
salary during Sick Leave and will be deemed to be on leave, without pay,
during the Disability Period. If the Sick Leave plus Disability Period
exceeds the initial eligibility or waiting period between the time of
disability and the date disability benefits commence as provided in any
disability insurance policy provided by the Company for the benefit of
Employee, or, if there is no such policy, 90 days, Employee will be
considered to have resigned as of the end of the waiting period or 90 days,
as the case may be, and will receive no further compensation. In no event
will Employee be entitled to payment or other compensation for unused
EMPLOYMENT AGREEMENT - PAGE 2
<PAGE>
Sick Leave or Disability Period, unless required by law or otherwise provided
in a policy or employment manual adopted by the Board of Directors of Company.
5. RESTRICTIONS. Employee may not during the Employment Period, and for
a period of one year following the termination of the Employment Period,
anywhere in the United States, directly or indirectly, own, manage, operate,
invest in, control, be employed by, participate in, be a financial sponsor of,
or be connected in any manner with, the ownership, management, operation or
control of any business operating in a manner similar to that of Company, which
competes with a business conducted by Company at any time during the Employment
Period or a business which Employee knows, during the Employment Period, that
Company intends to conduct.
6. RESIGNATION AND DISCHARGE. Employee may resign by giving two weeks'
written notice to Company before resigning. Employee's death will constitute
a resignation. Company may discharge Employee for cause or without cause
upon two weeks' notice. If Employee is terminated without cause, Employee
will receive six months severance benefit, determined on Employee's base
salary at the time of discharge, payable in six equal monthly installments
beginning the first day of the month following Employee's termination.
Employee will also receive the benefits set forth on Schedule A during the
time these installment payments are made. If the Employment Period is
terminated by resignation or discharge for cause, Employee will be paid
Employee's salary on a pro rata basis through the effective date of
resignation or discharge ("Effective Date"), and if requested by Company,
Employee will continue to render Employee's services through the Effective
Date. If employee refuses, upon Company's request, or fails, to render
services competently and in good faith to the Company's benefit through the
Effective Date, Company may deem the Effective Date
EMPLOYMENT AGREEMENT - PAGE 3
<PAGE>
to be the date of refusal or failure, as the case may be. If during the
Employment Period, Employee violates any provision or restriction or fails to
perform any obligation contained in this Employment Agreement or in any
Company policy or Company employment manual or practice, or, unless otherwise
provided by Company policy or Company employment manual, (a) is reasonably
believed by Company (i) to have failed to comply with any employment or
nondiscrimination or similar law, regulation or policy, (ii) to abuse, as
determined by the Company, alcohol or to use drugs, (other than as prescribed
by Employee's physician), or (b) refuses to submit to testing for alcohol or
drugs, or (c) is reasonably believed by Company to have committed or is
charged with any felony or a misdemeanor during employment (except minor
traffic violations and similar offenses), Company may immediately discharge
Employee without liability for salary after the date of the discharge and
without any other liability to Employee. Except as provided in this
Employment Agreement, in no event will Employee be entitled, up resignation
or discharge with or without cause, to payment for sick leave or similar
benefits of any kind unless required by law or otherwise provided in a policy
or employment manual adopted by the Board of Directors of Company.
7. CONFIDENTIAL INFORMATION. Employee acknowledges and recognizes that
Employee is, or will be, employed by Company in a confidential relationship
and may receive and have access to the confidential business information,
customer names, contracts and other customer data, business methods,
techniques and trade secrets of Company ("Confidential Information").
Employee may develop ideas, conceptions, inventions, processes, methods,
products and improvements; and Employee may receive disclosures of ideas,
conceptions, inventions, processes, methods, products and improvements made
by other employees of Company ("Company Inventions").
EMPLOYMENT AGREEMENT - PAGE 4
<PAGE>
Employee may participate with Company in improving and developing
Confidential Information and Company Inventions. Confidential Information
and Company Inventions developed on behalf of Company are neither commonly
known nor readily accessible to others and are used by Company in its
business to obtain a competitive advantage over Company's competitors who do
not know or use the Confidential Information or Company Inventions.
Protection of the Confidential Information and Company Inventions against
unauthorized disclosure and use is of critical importance to Company in
maintaining its competitive position. Employee agrees that Employee will
assign to Company Inventions developed on Company time and that Company is
the owner of those Company Inventions. Employee agrees that Employee will
not, at any time, during or after the Employment Period, make any independent
use of, or disclosure to any other person or organization, except as
authorized by Company in writing, any Confidential Information or Company
Inventions. Upon termination of the Employment Period for any reason,
Employee shall promptly deliver to Company all drawings, manuals, letters,
notes, notebooks, reports, customer lists, customer data, mailing lists, and
all other materials and records of any kind, and all copies thereof, that may
be in the possession of, or under the control of, Employee pertaining to
Company's business including any that contain any Confidential Information or
Company Inventions.
8. PERSONNEL POLICIES. Company's personnel policies apply to all of
Company's employees, including Employee, and describe additional terms and
conditions of employment of Employee. Those terms and conditions, as they may
be revised from time to time by Company, are incorporated by reference into this
Employment Agreement. Company reserves the right to revise the personnel
policies
EMPLOYMENT AGREEMENT - PAGE 5
<PAGE>
from time to time, as Company deems necessary. If any personnel policy
provision conflicts with a provision of this Employment Agreement, the terms
of this Employment Agreement shall govern.
9. ALCOHOL AND DRUG TESTING. Employee agrees to comply with and submit
to any Company program or policy for testing for alcohol abuse or use of
drugs.
10. BINDING EFFECT. This Employment Agreement constitutes the entire
understanding of the parties, may be modified only in writing, is governed by
laws of New Mexico, and will bind and inure to the benefit of Employee and
Employee's personal representative and Company and Company's successors and
assigns.
DATED: 5/13/97
------------------
COMPANY:
--------
SBS TECHNOLOGIES, INC.
By: /s/ CHRISTOPHER J. AMENSON
---------------------------------
Christopher J. Amenson
President & Chief Executive Officer
EMPLOYEE:
---------
/s/ STEPHEN D. COOPER
---------------------------------
Stephen D. Cooper
EMPLOYMENT AGREEMENT - PAGE 6
<PAGE>
SCHEDULE "A"
TO EMPLOYMENT AGREEMENT BETWEEN
SBS TECHNOLOGIES, INC. AND
STEPHEN D. COOPER
"EMPLOYEE"
BASE SALARY: $200,000
POSITION: President & Chief Operating Officer
STANDARD EMPLOYEE BENEFITS: Medical insurance
Dental insurance
Life insurance
Long and short-term disability insurance
Twenty vacation days per year
Ten holidays per year
Optional: 401(k) Plan
Flexible Spending Account program
Supplemental life insurance
All as provided by the Company to employees generally, and subject to
modification from time to time by the Company.
ADDITIONAL BENEFITS: Incentive stock options for 150,000 shares of
Common Stock, as provided in the attached
agreement.
Participation equal to CEO in MIP - Profile for FY97
Employee immediately, SBS will provide 4 weeks personal time to transition out
of current situation
EMPLOYMENT AGREEMENT - PAGE 7
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
AND RELATED LOAN DOCUMENTS
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
RELATED LOAN DOCUMENTS (this "AMENDMENT") is made and entered into as of
November 15, 1996, by and between SBS TECHNOLOGIES, INC. (formerly known as
SBS Engineering, Inc.), a New Mexico corporation ("BORROWER"), and
NATIONSBANK OF TEXAS, N.A., a national banking association ("LENDER"), and is
acknowledged and consented to by BERG SYSTEMS INTERNATIONAL, INC., a
California corporation ("BERG"), GREENSPRING COMPUTERS, INC., a California
corporation ("GREENSPRING"), LOGICAL DESIGN GROUP, INC., a North Carolina
corporation ("LDG"), and Bit 3 Computer Corporation, a Minnesota corporation
("BIT 3").
W I T N E S S E T H:
I. Borrower and Lender have previously executed and entered into that
certain Amended and Restated Credit Agreement (as modified or amended from
time to time, the "CREDIT AGREEMENT"), dated as of April 26, 1996 related to
a $6,750,000 term loan and a $2,500,000 revolving line of credit as therein
described. The Credit Agreement was executed in amendment and restatement of
that certain Credit Agreement dated April 28, 1995, executed by and between
Borrower and Lender. Each capitalized term used in this Amendment and not
otherwise defined herein shall have the meaning ascribed thereto in the
Credit Agreement.
II. Borrower has acquired (the "LDG ACQUISITION") 100% of the issued
and outstanding capital stock of LDG in accordance with the terms of that
certain Pooling Agreement dated August 19, 1996, executed by and between
Borrower, as purchaser, and LDG and certain individuals, as seller.
III. Borrower has acquired (the "BIT 3 ACQUISITION") 100% of the issued
and outstanding capital stock of Bit 3 in accordance with the terms of that
certain Pooling Agreement dated October 8, 1996, executed by and between
Borrower, as purchaser, and Bit 3 and certain individuals, as seller.
IV. Borrower requested Lender's consent to the LDG Acquisition and the
Bit 3 Acquisition (sometimes hereinafter referred to collectively as the
"ACQUISITIONS") prior to the consummation thereof since the Acquisitions are
not permitted under the terms of the Credit Agreement. As a condition to
Lender's consent to each of the Acquisitions, Borrower and Lender agreed to
modify and amend the Credit Agreement and the other Loan Documents in certain
respects, and agreed that LDG and Bit 3 would each guarantee the entire
Obligation under the Loan.
V. In connection with the Bit 3 Acquisition, Borrower incurred no
$11,000,000 charge for purchased Research and Development originating from
the Bit 3 Acquisition. Borrower has
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 1
AND RELATED LOAN DOCUMENTS
<PAGE>
requested that such charge not be included for purposes of calculating
certain financial covenants under the Loan Agreement in order to maintain
compliance with such covenants.
VI. SBS desires to sell substantially all of the assets of its
Interactive Computerized Arms Trainer (ICAT) Judgmental Use of Force division
(the "ICAT Division") to Firearms Training Systems, Inc. ("FTS") in
accordance with the Purchase Agreement dated June 26, 1997, executed by and
between SBS and FTS (the "ICAT Purchase Agreement"), and has requested
Lender's consent to the sale of such assets.
VII. Borrower and Lender desire to amend the Credit Agreement and all
of the other Loan Documents as herein provided, and LDG, Bit 3, Berg and
GreenSpring desire to acknowledge and consent to the same.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00), the covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and confessed, the parties hereto hereby covenant and
agree as follows:
1. MODIFICATIONS TO CREDIT AGREEMENT AND LOAN DOCUMENTS.
-----------------------------------------------------
(a) From and after the respective effective date of the LDG Acquisition
and the Bit 3 Acquisition, each of LDG and Bit 3 shall for all purposes be a
Guarantor and a Subsidiary under, and as such terms are defined in, the
Credit Agreement, and all references to such terms in the credit Agreement
and all of the other Loan Documents shall refer to and include LDG and Bit 3,
in addition to Berg and GreenSpring. Notwithstanding anything to the contrary
in the foregoing sentence or in any of the Loan Documents, including without
limitation the Collateral Documents. LDG and Bit 3 will not be required to
execute a security agreement in favor of Lender covering their respective
assets, and the assets of LDG and Bit 3 will not be subject to Lender's liens
and security interests securing the Loan.
(b) The following Exhibits to the Credit Agreement are hereby deleted
in their entirety and replaced with the corresponding Exhibits attached
hereto as Schedule I and Schedule II and incorporated herein and in the
Credit Agreement for all purposes: Exhibit G (Description of Existing Debt)
and Exhibit H (List of Subsidiaries).
(c) Any and all of the terms and provisions of the Credit Agreement,
the Notes and any and all other Loan Documents are hereby amended and
modified wherever necessary, and even though not specifically addressed
herein, so as to conform to the amendments and modifications set forth herein.
(d) Any and all of the terms and provisions of the Credit Agreement,
the Notes and any and all other Loan Documents shall, except as modified and
amended hereby, remain in full force
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 2
AND RELATED LOAN DOCUMENTS
<PAGE>
(e) The full name of the entity defined as "JAMS" in Section 9.11(a) of
the Credit Agreement is hereby changed to "ENDISPUTE, INC. D/B/A/
J.A.M.S.ENDISPUTE".
2. CERTAIN REQUIREMENTS. Borrower shall deliver, or cause to be
delivered, to Lender all of the following items as a condition to the
effectiveness of this Amendment:
(a) LDG and Bit 3 shall each execute and deliver to Lender a Guaranty
Agreement related to the Credit Facility substantially in the form of the
guaranty agreement executed by each of Berg and GreenSpring guaranteeing the
Loan.
(b) The following corporate documents related to LDG and Bit 3:
(i) Complete copies of the Certificate of Incorporation or
Articles of Incorporation and all amendments thereto, of LDG and bit 3,
certified to be true and correct by an authorized officer of the respective
corporations;
(ii) Copies of the Bylaws of LDG and bit 3 certified to be true
and correct by an authorized officer of the respective corporation;
(iii) Copies of certified corporate resolutions of each of LDG and
Bit 3 approving the terms of this Amendment, the Credit Agreement, its
respective Guaranty Agreement, the modifications to certain of the Loan
Documents, and each other Loan Documents, the granting of any and all liens
contained therein, and the due execution of all the applicable Loan Documents
by authorized officers of LDB or Bit 3, as the case may be;
(iv) Certificates of incumbency for the respective officers of LDG
and Bit 3; and
(v) Certificates of good standing and existence issued by the
state of incorporation of LDG and Bit 3 and from the appropriate governmental
authority of each state in which LDG and Bit 3 are required by applicable law
to be qualified.
(c) The following corporate documents related to Borrower, Berg and
GreenSpring:
(i) A certificate of the Secretary of Assistant Secretary of
Borrowing certifying (A) that, except as indicated therein, there has been no
change to the articles of incorporation or bylaws of Borrower, Berg or
GreenSpring since the same were furnished to Lender in connection with the
execution of the Credit Agreement, 9B) as to the name and title of the
officers of Borrower, Berg and GreenSpring and the authority of such officers
to execute the agreements required by this Amendment and the Consent Letter,
and (C) true, correct and complete resolutions of the Board of Directors of
Borrower authorizing the execution of this Amendment and all of the other
documents executed respectively by such parties in connection herewith; and
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 3
AND RELATED LOAN DOCUMENTS
<PAGE>
(ii) Certificates of good standing and existence issued by the
state of incorporation of Borrower, Berg and GreenSpring, as applicable, and
from the appropriate governmental authority of each state in which Borrower
is required by applicable law to be qualified.
(d) Lender must receive, in form and substance satisfactory to Lender,
such other documents and instruments as Lender may reasonably request in
connection with this Amendment, including without limitation a copy of the
stock purchase agreements and related documents and UCC search certificates
related to the Acquisitions and a copy of the final, executed ICAT Purchase
Agreement.
3. MODIFICATION OF FINANCIAL COVENANTS. For purposes of determining
compliance with the financial covenants applicable to Borrower set forth in
Sections 6.7, 6.8 and 6.9 of the Loan Agreement, the $11,000,000 one-time
non-cash charge taken by Borrower for "Research and Development in Process"
associated with the Bit 3 Acquisition, as reflected in Borrower's second
quarter 1997 financial statements submitted to Lender, shall not be taken
into account in the calculation of such covenants for the applicable quarter
and 1997 fiscal year periods. No exclusions or waivers for additional charges
or for other periods shall be inferred or permitted from the foregoing.
4. SALE OF ICAT DIVISION. Lender consents to the sale by Borrower of
all or substantially all of the assets included in its INCAT Division
according to Borrower's books and as shown in the ICAT Purchase Agreement, on
the terms set forth in the ICAT Purchase Agreement, and agrees that such sale
in and of itself shall not be a default under the Loan Documents.
5. REPRESENTATION AND WARRANTIES. Borrower hereby represents and
warrants to Lender.
(a) No Default or Event of Default is in existence under the Loan
Documents, and all of the representations and warranties contained in ARTICLE
VII of the Credit Agreement and in the other Loan Documents are true and
correct in all material respects.
(b) Each of Borrower; Berg, GreenSpring, LDG and Bit 3 have taken all
requisite corporate action necessary for each of them to enter into and
perform their respective agreements set forth in this Amendment and all the
documents executed in connection herewith, and each of the signatories below
has been duly authorized by all necessary corporate action to make and enter
into this Amendment as the duly authorized act and deed of each such entity.
6. COSTS AND EXPENSES. Borrower shall pay all costs and expenses,
including reasonable attorneys' fees, of Lender in connection with the
drafting, negotiation and closing of this Amendment and the documents to be
executed and delivered pursuant hereto and the recordation and filing of any
such documents in connection therewith.
7. CONTINUING LIENS. This Amendment shall in no manner effect or
impair the liens or security interests securing payments of the Obligation,
and, except as provided in Paragraph 1(a)
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT Page 4
AND RELATED LOAN DOCUMENTS
<PAGE>
hereof, such liens and security interests shall not in any manner be waived,
which liens are acknowledged by each of Borrower, Berg, GreenSpring, LDG and
Bit 3 to be valid and subsisting.
8. GUARANTOR ACKNOWLEDGMENTS; COMMON ENTERPRISES. Each of LDG, Bit 3,
Berg and GreenSpring (collectively, "Guarantors") is executing this Amendment
in order to acknowledge and consent to the terms and conditions hereof.
Borrower and Guarantors are engaged in related businesses as set forth in
Borrower's Financial Statements. These operations require financing on a
basis such that the credit supplied can be made available from time to time
to Borrower and Guarantors, as required for the continued successful
operation of Borrower and Guarantors. Borrower has requested that Lender make
the Advances under the Credit Agreement available primarily for the purposes
of financing the operations of Borrower and Guarantors. Borrower and
Guarantors expect to derive benefit (and the boards of directors or other
governing body of each of Borrower and Guarantors may reasonably be expected
to derive benefit), directly or indirectly, from Advances under the Credit
Agreement, both in their separate capacities and as members of the group of
companies, since the successful operation and condition of Borrower and each
Guarantor is dependent on the continued successful performance of the
functions of the group as a whole.
9. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, and
shall inure to the benefit of, the parties and their respective
representatives, successors and assigns.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
11. FINAL AGREEMENT. THIS WRITTEN AMENDMENT, TOGETHER WITH THE OTHER
WRITTEN MODIFICATION DOCUMENTS AND THE LOAN DOCUMENTS, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE MATTERS ADDRESSED
HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES HERETO. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
12. COUNTERPARTS. This Amendment may be executed in any number of
original counterparts, each of which when so executed and delivered shall be
deemed an original, and all of which, collectively, shall constitute one
agreement, it being understood and agreed that the signature pages may be
detached from one of such counterparts and combined with the signature pages
from any other counterpart in order that one or more fully executed originals
may be assembled.
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEEMENT Page 5
AND RELATED LOAN DOCUMENTS
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
BORROWER:
SBS TECHNOLOGIES, INC. (formerly
known as SBS Engineering, Inc.),
a New Mexico corporation
By: /s/ CHRISTOPHER J. AMENSON
----------------------------
Christopher J. Amenson,
President
LENDER:
NATIONSBANK OF TEXAS, N.A.,
a national banking association
By: /s/ Brian Gordon
-----------------------------
Name: Brian Gordon
-----------------------------
Title: Vice President
-----------------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEEMENT Page 6
AND RELATED LOAN DOCUMENTS
<PAGE>
CONSENT AND AGREEMENT OF LOGICAL DESIGN GROUP, INC.
---------------------------------------------------
LDG hereby consents and agrees to the terms and provisions of the Credit
Agreement and this Amendment, including without limitation the addition of
LDG as a Guarantor and a Subsidiary, and agrees to be bound by the provisions
thereof relating to LDG in either such capacity.
LOGICAL DESIGN GROUP, INC.,
a New Mexico corporation
By: /s/ CHRISTOPHER J. AMENSON
--------------------------
Name: Christopher J. Amenson
------------------------
Title: President
-----------------------
CONSENT AND AGREEMENT OF BIT 3 COMPUTER CORPORATION
---------------------------------------------------
Bit 3 hereby consents and agrees to the terms and provisions of the
Credit Agreement and this Amendment, including without limitation the
addition of Bit 3 as a Guarantor and a Subsidiary, and agrees to be bound by
the provisions thereof relating to Bit 3 in either such capacity.
BIT 3 COMPUTER CORPORATION,
a Minnesota corporation
By: /s/ J.E. DIXON
----------------------
Name: J.E. Dixon
--------------------
Title: Secretary/Treasurer
-------------------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEEMENT Page 7
AND RELATED LOAN DOCUMENTS
<PAGE>
CONSENT OF EXISTING GUARANTORS
------------------------------
Each of the undersigned Subsidiaries hereby acknowledges and agrees to
the modifications of the Credit Agreement and other Loan Documents made
and/or contemplated in this Amendment, and in particular to the provisions of
Paragraph 8 of this Amendment, and further acknowledges and agrees that it's
Guaranty Agreement, as modified by this Amendment and the documents executed
in connection herewith, is and remains in full force and effect.
BERG SYSTEMS INTERNATIONAL, INC., a
California corporation
By: /s/ J.E. DIXON
--------------
Name: J.E. Dixon
------------
Title: Treasurer
-----------
GREENSPRING COMPUTERS, INC., a California
Corporation
By: /s/ J.E. DIXON
--------------
Name: J.E. Dixon
------------
Title: Secretary
-----------
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEEMENT Page 8
AND RELATED LOAN DOCUMENTS
<PAGE>
SCHEDULE I
----------
EXHIBIT "G"
-----------
TO CREDIT AGREEMENT
-------------------
DESCRIPTION OF EXISTING DEBT
----------------------------
1. Unsecured obligation to Peter and Marcia Berg under Non-Compete Covenant
executed August 20, 1992, with unpaid balance of $129,982 as of April 26,
1996.
2. Promissory note (purchase money note for software) payable to The CIT
Group dated September 27, 1993, with unpaid principal balance of $11,372
as of April 26, 1996.
3. Capital equipment lease payable to The CIT Group dated September 27,
1993, with unpaid principal balance of $10,851 as of April 26, 1996.
SCHEDULE I TO FIRST AMENDMENT TO AMENDED AND RESTATED Page 1
CREDIT AGREEMENT AND RELATED LOAN DOCUMENTS
<PAGE>
SCHEDULE II
-----------
EXHIBIT "H"
-----------
TO CREDIT AGREEMENT
-------------------
LIST OF SUBSIDIARIES
--------------------
SUBSIDIARY % OF STOCK OWNED BY BORROWER
---------- ----------------------------
Berg Systems International, Inc. 100%
GreenSpring Computers, Inc. 100%
Logical Design Group, Inc. 100%
Bit 3 Computer Corporation 100%
SCHEDULE II TO FIRST AMENDMENT TO AMENDED AND RESTATED Page 1
CREDIT AGREEMENT AND RELATED LOAN DOCUMENTS
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT, dated as of June 26, 1997, between
FATS, Inc., a Delaware corporation ("Buyer"), and SBS Technologies, Inc., a New
Mexico corporation ("Seller").
WHEREAS, Seller is, among other things, engaged through its
Interactive Computer-Assisted Training ICAT ("ICAT") division in the business
of small arms simulation and training systems; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, on a going concern basis, substantially all of the
assets, properties, goodwill, and business of ICAT, all on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed between Seller and
Buyer as follows:
ARTICLE I
DEFINITIONS
-----------
1.1. DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this SECTION 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from
time to time to the extent permitted by the applicable provisions thereof and
by this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person, including without limitation any officer or
director of such Person.
"AGREED ACCOUNTING PRINCIPLES" means generally accepted accounting
principles consistently applied, PROVIDED that, with respect to any matter as
to which there is more than one generally accepted accounting principle,
Agreed Accounting Principles means the generally accepted accounting
principles applied in the preparation of the financial statements included in
SCHEDULE 5.3; PROVIDED FURTHER that, notwithstanding the foregoing,
1
<PAGE>
Agreed Accounting Principles shall include the accounting policies and be
subject to the exceptions described in SCHEDULE 1.1.
"ASSUMED LIABILITIES" has the meaning specified in SECTION 2.3.
"BALANCE SHEET" means the unaudited balance sheet of ICAT as of
April 30, 1997 included in SCHEDULE 5.3.
"BALANCE SHEET DATE" means April 30, 1997.
"BUSINESS" has the meaning specified in SECTION 2.1.
"BUYER" has the meaning specified in the first paragraph of this
Agreement.
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Buyer under this Agreement
or in connection herewith.
"BUYER GROUP MEMBER" means Buyer and its Affiliates and their
respective successors and assigns, including without limitation any employees
or agents of Buyer acting within the scope of his or her employment or agency.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 ET SEQ., any
amendments thereto, any successor statutes, and any regulations promulgated
thereunder.
"CLAIM NOTICE" has the meaning specified in SECTION 10.3.
"CLOSING" means the closing of the transfer of the Purchased Assets
from Seller to Buyer.
"CLOSING DATE" has the meaning specified in SECTION 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement
dated April 1997 between Buyer and Seller.
"CONTAMINANT" means any waste, pollutant, hazardous or toxic
substance or waste, petroleum, petroleum-based substance or waste, special
waste, or any constituent of any such substance or waste.
"COPYRIGHTS" means United States and foreign copyrights, whether
registered or unregistered, and pending applications to register the same.
2
<PAGE>
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in
any arbitration proceeding.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention
agreement, defect in title, covenant or other restrictions of any kind.
"ENVIRONMENTAL LAW" means all Requirements of Laws derived from or
relating to all federal, state and local laws or regulations relating to or
addressing the environment, health or safety, including but not limited to
CERCLA, OSHA and RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXCLUDED ASSETS" has the meaning specified in SECTION 2.2.
"EXPENSES" means any and all expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals).
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" has the meaning specified in SECTION 5.8.
"ICAT" has the meaning specified in the first recital to this
Agreement.
"ICAT PROPERTY" means any personal property, equipment, unit, or
other asset owned, leased or operated by Seller and used in the Business.
"INSTRUMENT OF ASSIGNMENT" means the Instrument of Assignment in the
form of EXHIBIT A.
"INSTRUMENT OF ASSUMPTION" means the Instrument of Assumption in the
form of EXHIBIT B.
"INTELLECTUAL PROPERTY" means Copyrights, Patent Rights, Trademarks
and Trade Secrets.
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"IRS" means the Internal Revenue Service.
"LOSSES" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
Section 651 ET SEQ., any amendment thereto, any successor statute, and any
regulations promulgated thereunder.
"OWNED SOFTWARE" has the meaning specified in SECTION 5.11(E).
"PATENT RIGHTS" means United States and foreign patents, patent
applications, continuations, continuations-in-part, reissues, patent
disclosures, inventions (whether or not patentable) or improvements thereto.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"PURCHASE PRICE" has the meaning specified in SECTION 3.1.
"PURCHASED ASSETS" has the meaning specified in SECTION 2.1.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 ET SEQ., and any successor statute, and any regulations
promulgated thereunder.
"RELEASE" means release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of
a Contaminant into the indoor or outdoor environment or into or out of any
ICAT Property, including the movement of Contaminants through or in the air,
soil, surface water, groundwater or ICAT Property.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without
limitation, those pertaining to electrical, building, zoning, environmental
and occupational safety and health requirements) or common law.
"SELLER" has the meaning specified in the first paragraph of this
Agreement.
"SELLER AGREEMENTS" has the meaning specified in SECTION 5.16.
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"SELLER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Seller under this
Agreement or in connection herewith.
"SELLER GROUP MEMBER" means Seller and its Affiliates and their
respective successors and assigns, including without limitation any employees
or agents of Buyer acting within the scope of his or her employment or
agency.
"SOFTWARE" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level or "proprietary" languages, related documentation and
materials, whether in source code, object code or human readable form.
"TAX" means any federal, state, local or foreign net income,
alternative or add-on minimum, gross income, gross receipts, property, sales,
use, transfer, gains, license, excise, employment, payroll, withholding or
minimum tax, or any other tax custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
any penalty, addition to tax or additional amount imposed by any Governmental
Body.
"TAX RETURN" means any return, report or similar statement required
to be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund,
amended return and declaration of estimated Tax.
"TRADEMARKS" means United States, state and foreign trademarks,
service marks, logos, trade dress and trade names, whether registered or
unregistered, and pending applications to register the foregoing.
"TRADE SECRETS" means confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, reports, data, customer lists,
mailing lists, business plans, or other proprietary information.
ARTICLE II
PURCHASE AND SALE
------------------
2.1. PURCHASED ASSETS. Upon the terms and subject to the conditions
of this Agreement, on the Closing Date, Seller shall sell, transfer, assign,
convey and deliver to Buyer, and Buyer shall purchase from Seller, on a going
concern basis, free and clear of all Encumbrances substantially all of the
business and operations of Seller related to ICAT (such business and operations
being herein called the "BUSINESS") and substantially all of the assets and
properties of Seller of every kind and description, wherever located,
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personal tangible or intangible, used primarily in connection with the
Business as the same shall exist on the Closing Date (herein collectively
called the "PURCHASED ASSETS"), including, without limitation, all right,
title and interest of Seller in, to and under:
(a) all of the assets noted as "assumed" by Buyer on SCHEDULE 5.3 on
the Balance Sheet, except those disposed of or converted into cash after
the Balance Sheet Date in the ordinary course of business prior to the
Closing Date, and except the billed accounts receivable as of the Closing
Date;
(b) all raw materials, supplies, work-in-process and other materials
included in the inventory of ICAT as of June 24, 1997 as listed on SCHEDULE
2.1(B);
(c) the machinery, equipment, vehicles, furniture and other personal
property of ICAT listed or referred to in SCHEDULE 5.9 and all software
loaded on computers listed in SCHEDULE 5.9 (without warranty as to any
Encumbrances as to such software);
(d) the personal property leases listed in SCHEDULE 5.10;
(e) the Copyrights, Patent Rights and Trademarks (and all goodwill
associated therewith), and the agreements, contracts, licenses,
sublicenses, assignments and indemnities, listed in SCHEDULE 5.11
(excluding Collaboration Agreement with Thomson Training & Simulation
Limited and agreement with American Laser Games);
(f) the contracts and agreements marked as "assumed" and listed or
described in SCHEDULE 5.15;
(g) all Trade Secrets and other proprietary or confidential
information used in or relating to the Business;
(h) the Software and other assets listed in SCHEDULE 5.11;
(i) all of Seller's rights, claims or causes of action against third
parties relating to the assets, properties, business or operations of ICAT
arising out of transactions occurring prior to the Closing Date, with the
specific exclusion of (i) billed accounts receivable as of the Closing
Date, and (ii) any and all claims of Seller against Virtual Systems Group,
Inc.; and
(j) all books and records (including all data and other information
stored on discs, tapes or other media) of Seller relating to the assets,
properties, business and operations of ICAT.
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2.2. EXCLUDED ASSETS. Notwithstanding the provisions of SECTION
2.1, the Purchased Assets shall not include the following (herein referred to
as the "EXCLUDED ASSETS"):
(a) all cash, bank deposits, cash equivalents, and billed
accounts receivable as of the Closing Date of Seller;
(b) Seller's rights, claims or causes of action against third parties
relating to the assets, properties, business or operations of ICAT which
may arise in connection with the discharge by Seller of the Excluded
Liabilities;
(c) all contracts or policies of insurance;
(d) Seller's employee benefit agreements, plans or arrangements listed
in SCHEDULE 5.13(B) or otherwise maintained by Seller on behalf of persons
employed by Seller.
(e) all refunds of any Tax which Seller is due pursuant to SECTION
7.2(C).
(f) Seller's real property interests, including any leasehold or
option interests.
(g) Any rights allocated to Seller regarding the WTET Program in
accordance with Section 6.6 INFRA.
(h) All agreements identified on Schedule 2.2(H)(1) (the "Forefront
Agreements") with Forefront Graphics Corporation ("Forefront") except that
(i) Seller shall use its best efforts to cause Forefront to amend the
Forefront Agreements to agree to assignment to and assumption by Buyer of
the Forefront Agreements and to incorporate 30-day termination provisions
in each of the Forefront Agreements in form attached hereto as SCHEDULE
2.2(H)(2) (the "Amendment"); (ii) Buyer shall pay to Forefront all amounts
due to Forefront, if any, under the Forefront Agreements in connection with
any applicable unexpired sales quotes listed on SCHEDULE 2.3(D); (iii) in
the event Forefront executes the Amendment within thirty (30) days hereof,
(A), Buyer shall IPSO FACTO assume the amended Forefront Agreements, and
(B) Buyer agrees to discuss in good faith possible additional relationships
with Forefront in connection with Buyer's business in Canada; and (iv) in
the event Forefront fails to execute the Amendment within thirty (30) days
hereof, Buyer shall subcontract to Seller at a cost in accordance with the
Forefront Agreements all warranty obligations of Buyer which are Assumed
Liabilities under Seller Agreements for which Forefront has a
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contractual obligation to provide such warranty work, and Seller shall
cause Forefront to do such warranty work.
(i) the contracts and agreements marked as "not assumed" and listed
or described in SCHEDULE 5.15.
2.3. ASSUMED LIABILITIES. On the Closing Date, Buyer shall assume
and agree to discharge the following obligations and liabilities of Seller:
(a) all of Seller's warranty obligations to customers, whenever
arising, under those contracts and agreements listed in SCHEDULE 5.15 and
identified as Schedule of all Product Warranty Obligations Assumed by
Buyer;
(b) all liabilities and obligations of Seller to be paid or performed
after the Closing Date under the Seller Agreements listed in SCHEDULE 5.15
and marked as "assumed";
(c) all obligations identified on SCHEDULE 5.5;
(d) all valid unexpired sales quotes as of the Closing Date, as
listed on Schedule 2.3(D).
All of the foregoing liabilities and obligations to be assumed by Buyer
hereunder (excluding any Excluded Liabilities) are referred to herein as the
"ASSUMED LIABILITIES."
2.4. EXCLUDED LIABILITIES. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge any liability or obligation of Seller,
direct or indirect, known or unknown, absolute or contingent, not expressly
assumed by Buyer pursuant to the Instrument of Assumption (all such liabilities
and obligations not being assumed being herein called the "EXCLUDED
LIABILITIES") and, notwithstanding anything to the contrary in SECTION 2.3, none
of the following shall be Assumed Liabilities for purposes of this Agreement:
(a) any liabilities in respect of Taxes for which Seller is liable
pursuant to SECTION 7.2;
(b) any intercompany payables and other liabilities or
obligations of ICAT to Seller or any of its Affiliates;
(c) any costs and expenses incurred by Seller incident to its
negotiation and preparation of this Agreement and its performance and
compliance with the agreements and conditions contained herein;
(d) any liabilities or obligations in respect of any Excluded Assets;
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(e) any liabilities in respect of the claims or proceedings
described in SCHEDULE 5.17;
(f) accrued liabilities of any kind (except for warranty obligations
on Seller Agreements listed on Schedule 5.15 and marked as "assumed")
required to be reflected on the Balance Sheet prepared in accordance with
the Agreed Accounting Principles which were not reflected thereon as a
dollar amount;
(g) any liabilities and obligations related to, associated with or
arising out of (i) the occupancy, operation, use or control of any of
Seller's or ICAT's Property on or prior to the Closing Date or (ii) the
operation of the Business on or prior to the Closing Date, in each case
incurred or imposed by any Environmental Law, including, without
limitation, any Release of any Contaminant on, at or from (1) the ICAT
Property, (including, without limitation, all facilities, improvements,
structures and equipment thereon, surface water thereon or adjacent thereto
and soil or groundwater thereunder, or any conditions whatsoever on, under
or in the vicinity of such real property) or (2) any real property or
facility owned by a third Person to which Contaminants generated by the
Business were sent prior to the Closing Date;
(h) any product liability or claims for injury to person or property,
regardless of when made or asserted, relating to products manufactured,
distributed or sold by ICAT or services performed by ICAT prior to the
Closing Date.
(i) any obligations of Seller to its employees, including without
limitation any expenses of Seller's employees, incurred prior to the
Closing Date.
ARTICLE III
PURCHASE PRICE
--------------
3.1. PURCHASE PRICE. The purchase price for the Purchased Assets
(the "PURCHASE PRICE") shall be equal to two million dollars (U.S.
$2,000,000.00).
3.2. ALLOCATION OF PURCHASE PRICE. Within 30 days following the
Closing Date, Buyer and Seller shall agree to a schedule (the "ALLOCATION
SCHEDULE") allocating the Purchase Price among the Purchased Assets. The
Allocation Schedule shall be reasonable and shall be prepared in accordance with
Section 1060 of the Code and the regulations thereunder. Buyer and Seller each
agrees to file Internal Revenue Service Form 8594, and all federal,
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state, local and foreign Tax Returns, in accordance with the Allocation
Schedule. Buyer and Seller each agrees to provide the other promptly with
any other information required to complete Form 8594.
ARTICLE IV
CLOSING
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4.1. CLOSING DATE. The Closing shall be consummated on or before
11:00 A.M., on June 30, 1997 (or such later date as may be mutually agreed upon
by Buyer and Seller) after the conditions set forth in ARTICLES IX and X have
been satisfied, at the offices of Kemp, Smith, Duncan & Hammond, 500 Marquette
Street, Suite 1200, Albuquerque, New Mexico, or at such other place as shall be
mutually agreed upon by Buyer and Seller. The time and date on which the
Closing is actually held are sometimes referred to herein as the "CLOSING DATE."
4.2. PAYMENT ON THE CLOSING DATE. Subject to fulfillment or waiver
of the conditions set forth in ARTICLE IX, at Closing Buyer shall pay Seller an
amount equal to the Purchase Price by wire transfer of immediately available
funds to the account in the United States specified by Seller in writing to
Buyer at least two business days prior to the Closing.
4.3. BUYER'S ADDITIONAL DELIVERIES. Subject to fulfillment or waiver
of the conditions set forth in ARTICLE IX, at Closing Buyer shall deliver to
Seller all the following:
(a) Copies of Buyer's Certificate of Incorporation certified as of a
recent date by the Secretary of State of the State of Delaware;
(b) Certificate of good standing of Buyer issued as of a recent date
by the Secretary of State of the State of Delaware;
(c) Certificate of the secretary or an assistant secretary of Buyer,
dated the Closing Date, in form and substance reasonably satisfactory to
Seller, as to (i) no amendments to the Certificate of Incorporation of
Buyer since a specified date; (ii) the by-laws of Buyer; (iii) the
resolutions of the Board of Directors of Buyer authorizing the execution
and performance of this Agreement and the transactions contemplated hereby;
and (iv) incumbency and signatures of the officers of Buyer executing this
Agreement and any Buyer Ancillary Agreement;
(d) The Instrument of Assumption duly executed by Buyer, contained in
EXHIBIT B;
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(e) The certificate contemplated by SECTION 9.1, duly executed by the
President, Treasurer, or any Vice President of Buyer;
(f) Certificates (or other evidence) that Buyer is duly licensed to
purchase, own and sell Class 1 and Class 2 firearms; and
(g) Opinion of counsel to Buyer substantially in the form contained
in EXHIBIT C;
4.4. SELLER'S DELIVERIES. Subject to fulfillment or waiver of the
conditions set forth in ARTICLE IX, at Closing Seller shall deliver to Buyer all
the following:
(a) Copies of the Certificate of Incorporation of Seller certified as
of a recent date by the State Corporation Commission of the State of New
Mexico;
(b) Certificate of good standing of Seller issued as of a recent date
by the State Corporation Commission of the State of New Mexico;
(c) Certificate of the secretary or an assistant secretary of Seller,
dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, as to (i) no amendments to the Certificate of Incorporation of
Seller since a specified date; (ii) the by-laws of Seller; (iii) the
resolutions of the Board of Directors of Seller authorizing the execution
and performance of this Agreement and the transactions contemplated hereby;
and (iv) incumbency and signatures of the officers of Seller executing this
Agreement and any Seller Ancillary Agreement;
(d) Opinion of counsel to Seller substantially in the form contained
in EXHIBIT D;
(e) The Instrument of Assignment duly executed by Seller, contained
in EXHIBIT A;
(f) Certificates of title or origin (or like documents) with respect
to any vehicles or other equipment included in the Purchased Assets for
which a certificate of title or origin is required in order to transfer
title;
(g) All consents, waivers or approvals obtained by Seller with
respect to the Purchased Assets or the consummation of the transactions
contemplated by this Agreement;
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(h) The certificates contemplated by SECTION 8.1, duly executed by the
authorized officer of Seller;
(i) Such other bills of sale, assignments and other instruments of
transfer or conveyance as Buyer may reasonably request or as may be
otherwise necessary to evidence and effect the sale, assignment, transfer,
conveyance and delivery of the Purchased Assets to Buyer.
In addition to the above deliveries, Seller shall take all steps and
actions as Buyer may reasonably request or as may otherwise be necessary to put
Buyer in actual possession or control of the Purchased Assets.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller represents and warrants
to Buyer and agrees as follows:
5.1. ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Mexico.
Seller is duly qualified to transact business as a foreign corporation and is in
good standing in each of the jurisdictions listed in SCHEDULE 5.1, which
jurisdictions are the only ones in which the ownership or leasing of the
Purchased Assets or the conduct of the Business requires such qualification. No
other jurisdiction has demanded, requested or otherwise indicated to Seller that
Seller is required so to qualify on account of the ownership or leasing of the
Purchased Assets or the conduct of the Business. Seller has full power and
authority to own or lease and to operate and use the Purchased Assets and to
carry on the Business as now conducted.
True and complete copies of the certificate or articles of
incorporation and all amendments thereto and of the By-laws, as amended to date,
of Seller have been delivered to Buyer.
5.2. AUTHORITY OF SELLER. Seller has full power and authority to
execute, deliver and perform this Agreement and all of the Seller Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Seller Ancillary Agreements by Seller have been duly authorized and approved by
Seller's board of directors and do not require any further authorization or
consent of Seller or its stockholders. This Agreement has been duly authorized,
executed and delivered by Seller and is the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, and each of the Seller
Ancillary Agreements has been duly authorized by Seller and upon
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execution and delivery by Seller will be a legal, valid and binding
obligation of Seller enforceable in accordance with its terms.
Except as set forth in SCHEDULE 5.16, neither the execution and
delivery of this Agreement or any of the Seller Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event creating
rights of acceleration, termination or cancellation or a loss of rights under,
or result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets, under (1) the charter or By-laws of Seller, (2) any Seller
Agreement, (3) any other material note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right, restriction or
obligation to which Seller is a party or any of the Purchased Assets is subject
or by which Seller is bound, (4) any Court Order to which Seller is a party or
any of the Purchased Assets is subject or by which Seller is bound, or (5) to
the actual knowledge of Seller, any Requirements of Laws affecting Seller or the
Purchased Assets.
5.3. FINANCIAL STATEMENTS. (a) SCHEDULE 5.3 contains (i) the
unaudited balance sheet of ICAT as of June 30, 1996, and the statements of
income for the years ended June 30, 1994, June 30, 1995, and June 30, 1996, and
(ii) the unaudited balance sheet of ICAT as of April 30, 1997 and the related
statement of income for the ten (10) months then ended. Except as set forth
therein, such balance sheets and statements of income have been prepared in
conformity with generally accepted accounting principles consistently applied,
and to the actual knowledge of Seller, such balance sheets and related
statements of income present fairly the financial position and results of
operations of ICAT as of their respective dates and for the respective periods
covered thereby.
(b) Seller agrees to cooperate with Buyer to provide such additional
existing documentation or verification of Seller's financial statements as is
reasonably requested by Buyer.
5.4. OPERATIONS SINCE BALANCE SHEET DATE. (a) Except as set forth
in SCHEDULE 5.4(A), since the Balance Sheet Date, there has been:
(i) no material adverse change in the Purchased Assets, the Business
or the operations, liabilities, profits, prospects or condition (financial
or otherwise) of ICAT, and no fact or condition exists or is contemplated
or threatened which might reasonably be expected to cause such a change in
the future; and
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(ii) no damage, destruction, loss or claim, whether or not covered by
insurance, or condemnation or other taking adversely affecting any of the
Purchased Assets or the Business.
(b) Except as set forth in SCHEDULE 5.4(B), since the Balance Sheet Date,
Seller has conducted the Business only in the ordinary course and in conformity
with past practice. Without limiting the generality of the foregoing, since the
Balance Sheet Date, except as set forth in such Schedule, Seller has not, in
respect of the Business:
(i) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from ICAT to Seller or any of its Affiliates), or
mortgaged or pledged, or imposed or suffered to be imposed any Encumbrance
on, any of the assets reflected on the Balance Sheet or any assets acquired
by ICAT after the Balance Sheet Date, except for inventory and minor
amounts of personal property sold or otherwise disposed of for fair value
in the ordinary course of the Business consistent with past practice and
except for Permitted Encumbrances;
(ii) cancelled any debts owed to or claims held by ICAT (including
the settlement of any claims or litigation) other than in the ordinary
course of the Business consistent with past practice;
(iii) created, incurred or assumed, or agreed to create, incur or
assume, any indebtedness for borrowed money in respect of ICAT (other than
money borrowed or advances from Seller or any of its Affiliates in the
ordinary course of the Business consistent with past practice) or entered
into, as lessee, any capitalized lease obligations (as defined in Statement
of Financial Accounting Standards No. 13);
(iv) accelerated billing of any notes or accounts receivable
generated by the Business that would have otherwise been billed in the
ordinary course of the Business consistent with past practice on or after
the Closing Date;
(v) delayed or accelerated payment of any account payable or other
liability of the Business beyond or in advance of its due date or the date
when such liability would have been paid in the ordinary course of the
Business consistent with past practice;
(vi) allowed the levels of raw materials, supplies, work-in-process
or other materials included in the inventory of ICAT to vary in any
material respect from the levels customarily maintained in the Business;
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(vii) made, or agreed to make, any payment of cash or distribution of
assets to Seller or any of its Affiliates (other than cash realized upon
collection of receivables in the ordinary course of the Business); or
(viii) other than as set forth in SCHEDULE 5.4(B), instituted any
increase in any compensation payable to any employee of Seller with respect
to the Business or in any profit-sharing, bonus, incentive, deferred
compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other benefits made available to employees of Seller
with respect to the Business; or
(ix) made any change in the accounting principles and practices used
by Seller from those applied in the preparation of the Balance Sheet and
the related statements of income and cash flow for the period then ended.
5.5. NO UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE
5.5, Seller, to its actual knowledge, is not subject, with respect to the
Business, to any liability (including, without limitation, unasserted claims,
whether known or unknown), whether absolute, contingent, accrued or otherwise,
which is not shown or which is in excess of amounts shown or reserved for in the
Balance Sheet, other than liabilities of the same nature as those set forth in
the Balance Sheet and the notes thereto and reasonably incurred in the ordinary
course of the Business after the Balance Sheet Date.
5.6. TAXES. Except as set forth in SCHEDULE 5.6, (i) Seller has, in
respect of the Business and the Purchased Assets, filed all Tax Returns which
are required to be filed and have paid all Taxes which have become due pursuant
to such Tax Returns or pursuant to any assessment which has become payable;
(ii) all such Tax Returns are complete and accurate and disclose all Taxes
required to be paid in respect of the Business and the Purchased Assets; (iii)
there is no action, suit, investigation, audit, claim or assessment pending or
proposed or threatened with respect to Taxes of the Business or the Purchased
Assets and, to Seller's actual knowledge, no basis exists therefor; (iv) Seller
has not waived or been requested to waive any statute of limitations in respect
of Taxes associated with the Business or the Purchased Assets; (v) all monies
required to be withheld by Seller from employees for income Taxes and social
security and other payroll Taxes in connection with the Business have been
collected or withheld, and either paid to the respective taxing authorities, set
aside in accounts for such purpose, or accrued, reserved against and entered
upon the books of the Business; and (vi) following the Closing Date, pursuant to
any agreement or arrangement entered into by Seller on or prior to the Closing
Date, Buyer will not be obligated to make a payment to an individual that would
be a "parachute payment" to a "disqualified individual" as those terms are
defined in Section 280G of the
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Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
5.7. AVAILABILITY OF ASSETS. (a) Except as set forth in SCHEDULE 5.7
and except for the Excluded Assets, the Purchased Assets constitute
substantially all the assets used in the Business (including, but not limited
to, all books, records, computers and computer programs and data processing
systems, but specifically excepting computers, software, and business
information systems used generally by Seller in its other business activities
which are also used to support the Business), and are in good condition (subject
to normal wear and tear).
(b) EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT, SELLER HEREBY
DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND WITH RESPECT TO TANGIBLE PROPERTY
CONSTITUTING ANY OF THE PURCHASED ASSETS (THE "TANGIBLE PURCHASED ASSETS"),
INCLUDING WITHOUT LIMITATION ANY WARRANTIES, EXPRESS OR IMPLIED, OF FITNESS FOR
A PARTICULAR PURPOSE OR MERCHANTABILITY , AND EXCEPT AS EXPRESSLY CONTAINED IN
THIS AGREEMENT, BUYER HEREBY ACKNOWLEDGES THAT BUYER IS PURCHASING THE TANGIBLE
PURCHASED ASSETS "AS IS, WHERE IS," WITH ALL FAULTS, AND WITHOUT ANY WARRANTIES,
WHETHER EXPRESS OR IMPLIED, OF ANY KIND.
(c) SCHEDULE 5.7 sets forth a description of all material services
provided by Seller or any Affiliate of Seller with respect to the Business
utilizing either (i) assets not included in the Purchased Assets or (ii)
employees not listed in SCHEDULE 5.13(F) and the manner in which the costs of
providing such services have been allocated to the Business.
5.8. GOVERNMENTAL PERMITS. Seller owns, holds or possesses all
licenses, franchises, permits, privileges, immunities, approvals and other
authorizations from any Governmental Body which are necessary to entitle it to
own or lease, operate and use the Purchased Assets and to carry on and conduct
the Business substantially as currently conducted (herein collectively called
the "GOVERNMENTAL PERMITS"). SCHEDULE 5.8 sets forth a list and brief
description of each Governmental Permit, except for such incidental licenses,
permits and other authorizations which would be readily obtainable by any
qualified applicant without undue burden in the event of any lapse, termination,
cancellation or forfeiture thereof. Complete and correct copies of all of the
Governmental Permits have heretofore been made available to Buyer by Seller.
5.9. PERSONAL PROPERTY. SCHEDULE 5.9 contains a detailed list as of
April 30, 1997 of all machinery, equipment, vehicles, furniture and other
personal property owned by Seller having an original cost of $1,000.00 or more
and used in or relating to the Business.
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5.10. PERSONAL PROPERTY LEASES. SCHEDULE 5.10 contains a brief
description of each lease or other agreement or right, whether written or oral
(including in each case the annual rental, the expiration date thereof and a
brief description of the property covered), under which Seller is lessee of, or
holds or operates, any machinery, equipment, vehicle or other tangible personal
property owned by a third Person and used in or relating to the Business.
5.11. INTELLECTUAL PROPERTY AND SOFTWARE. (a) SCHEDULE 5.11
contains a list and description (showing in each case any product, device,
process, service, business or publication covered thereby, the registered or
other owner, expiration date and number, if any) of all Copyrights, Patents and
Trademarks (including all assumed or fictitious names under which Seller is
conducting the Business or has within the previous five years conducted the
Business) owned by, licensed to or used by Seller in connection with the conduct
of the Business.
(b) SCHEDULE 5.11 also contains a list and description (showing in
each case any owner, licensor or licensee) of all Software owned by, licensed
to, or used by Seller in the conduct of the Business (excluding commercial off
the shelf Software licensed to Seller that is available in consumer retail
stores and subject to "shrink-wrap" license agreements).
(c) Except as disclosed in SCHEDULE 5.11, Seller either: (i) owns
the entire right, title and interest in and to the Intellectual Property and
Software included in the Purchased Assets, free and clear of any Encumbrance; or
(ii) has the perpetual, paid-up, royalty-free right to use the same.
(d) Except as set forth in SCHEDULE 5.11, to Seller's actual
knowledge, no infringement of any Intellectual Property Right of any other
Person has occurred or results in any way from the operations of the Business,
no claim of any infringement of any Intellectual Property Right of any other
Person has been made or asserted in respect of the operations of the Business
and Seller has not had notice of, or knowledge of any basis for, a claim against
Seller that the operations, activities, products, software, equipment, machinery
or processes of the Business infringe any Intellectual Property Right of any
other Person.
(e) Except as disclosed in SCHEDULE 5.11: (i) the Software included
in the Purchased Assets is not subject to any transfer, assignment, site,
equipment, or other operational limitations; (ii) Seller has maintained and
protected the Software included in the Purchased Assets that it owns (the "OWNED
SOFTWARE") (including, without limitation, all source code and system
specifications) with appropriate proprietary notices (including, without
limitation, the notice of copyright in accordance with the requirements of 17
U.S.C. Section 401), confidentiality and non-disclosure agreements and such
other
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measures as are standard in the industry to protect the proprietary, trade
secret or confidential information contained therein; (iii) Seller has copies of
all releases or separate versions of the Owned Software; (iv) to the actual
knowledge of Seller, Seller has complete and exclusive right, title and interest
in and to the Owned Software purchased from third parties; (v) Seller has
complete and exclusive right, title and interest in and to the Owned Software
developed through its own efforts and for its own account without the aid or use
of any consultants, agents, independent contractors or Persons (other than
Persons that are employees of Seller); (vi) to the actual knowledge of Seller,
the Owned Software does not infringe any Intellectual Property Right of any
other Person; (vii) any Owned Software includes the source code, system
documentation, statements of principles of operation and schematics, as well as
any pertinent commentary, explanation, program (including compilers),
workbenches, tools, and higher level (or "proprietary") language used for the
development, maintenance, implementation and use thereof and (viii) there are no
agreements or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Owned Software by any other Person,
except as shown on SCHEDULE 5.16.
(f) Except as disclosed in SCHEDULE 5.11, all employees, agents,
consultants or contractors who have contributed to or participated in the
creation or development of any copyrightable, patentable or trade secret
material on behalf of Seller either: (i) is a party to a "work-for-hire"
agreement under which Seller is deemed to be the original owner/author of all
property rights therein; or (ii) has executed an assignment or an agreement to
assign in favor of Seller (or such predecessor in interest, as applicable) of
all right, title and interest in such material.
(g) Seller has made available to Buyer all technical drawings,
specifications, and code regarding all ICAT Products purchased hereunder.
(h) SCHEDULE 5.11 identifies all video disks and film used in the
Business.
5.12. INVENTORIES. The inventories of ICAT (including raw materials,
supplies, work-in-process, finished goods and other materials) (i) are in good,
merchantable and useable condition, (ii) are reflected in the Balance Sheet and
will be reflected in the Balance Sheet at the average cost in accordance with
generally accepted accounting principles and (iii) are, in the case of finished
goods, of a quality and quantity saleable in the ordinary course of business
and, in the case of all other inventories are of a quality and quantity useable
in the ordinary course of business. The inventory obsolescence policies of ICAT
are appropriate for the nature of the products sold and the marketing methods
used by ICAT, the reserve for inventory obsolescence contained in the Balance
Sheet fairly reflects the amount of obsolete inventory as of the Balance
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Sheet Date, and the reserve for inventory obsolescence contained in Balance
Sheet fairly reflects the amount of obsolete inventory as of the Balance
Sheet Date.
5.13. EMPLOYEES AND RELATED AGREEMENTS; ERISA. (a) Except as
described in SCHEDULE 5.13(A), Seller is not, with respect to the Business, a
party to or bound by any oral or written:
(i) employee collective bargaining agreement, employment agreement
(other than employment agreements terminable by Seller without premium or
penalty on notice of 30 days or less under which the only monetary
obligation of Seller is to make current wage or salary payments and provide
current fringe benefits), consulting, advisory or service agreement,
deferred compensation agreement, confidentiality agreement or covenant not
to compete;
(ii) contract or agreement with any officer, director or employee
(other than employment agreements disclosed in response to clause (i) or
excluded from the scope of clause (i)), agent, or attorney-in-fact of
Seller; or
(iii) stock option, stock purchase, bonus or other incentive plan or
agreement.
(b) There is no pending or, to the actual knowledge of Seller, threatened
claim which alleges any violation of ERISA or any other law (i) by or on behalf
of any of Seller's ERISA Benefit Plans or (ii) by any employee of Seller or any
plan participant or beneficiary against any such plan.
(c) SCHEDULE 5.13(F) contains: (i) a list of all employees or
commissioned salespersons of ICAT as of May 30, 1997 whose then current annual
compensation was in excess of $10,000; (ii) the then current annual compensation
of, and a description of the fringe benefits (other than those generally
available to employees of Seller) provided by Seller to any such employees or
salespersons; (iii) a list of all present or former employees or commission
salespersons of ICAT paid in excess of $5,000 in calendar year 1996 who have
terminated or given notice of their intention to terminate their relationship
with Seller or ICAT since June 1, 1996; (iv) a list of any increase, effective
after December 31, 1996, in the rate of compensation of any employees or
commission salespersons if such increase exceeds ten percent (10%) of the
previous annual salary of such employee or commission salesperson; and (v) a
list of all substantial changes in job assignments of, or arrangements with, or
promotions or appointments of, any employees or commission salespersons whose
compensation as of December 31, 1996 was in excess of $25,000 per annum.
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(d) Except as set forth in SCHEDULE 5.13(G), (i) to the actual knowledge
of Seller, ICAT is not involved in any transaction or other situation with any
employee, officer, director or Affiliate of Seller which may be generally
characterized as a "conflict of interest", including, but not limited to, direct
or indirect interests in the business of competitors, suppliers or customers of
ICAT, and (ii) there are no situations with respect to the Business which
involved or involves (A) the use of any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
political activity, (B) the making of any direct or indirect unlawful payments
to government officials or others from corporate funds or the establishment or
maintenance of any unlawful or unrecorded funds, (C) the violation of any of the
provisions of The Foreign Corrupt Practices Act of 1977, or any rules or
regulations promulgated thereunder, (D) the receipt of any illegal discounts or
rebates or any other violation of the antitrust laws or (E) any investigation by
the Securities and Exchange Commission or any other federal, foreign, state or
local government agency or authority.
5.14. EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 5.14,
Seller to its actual knowledge has complied in respect of the Business with all
applicable laws, rules and regulations which relate to prices, wages, hours,
discrimination in employment and collective bargaining and to the operation of
the Business and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. Seller believes that
its relations with the employees of ICAT are satisfactory. Seller is not a
party to, and ICAT is not affected by or threatened with, to the actual
knowledge of Seller, any dispute or controversy with a union or with respect to
unionization or collective bargaining involving the employees of ICAT. Neither
Seller nor ICAT is materially affected by any dispute or controversy with a
union or with respect to unionization or collective bargaining involving any
supplier or customer of ICAT. SCHEDULE 5.14 sets forth a description of any
union organizing or election activities involving any non-union employees of
ICAT which have occurred since January 1, 1996 or, to the knowledge of Seller,
are impending as of the date hereof.
5.15. CONTRACTS. Except as set forth in SCHEDULE 5.15 or any other
Schedule hereto, Seller is not, with respect to the Business, a party to or
bound by:
(i) any purchase contracts to or from any third party;
(ii) any contract for the purchase, licensing or development of
software to be used by ICAT;
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(iii) any consignment, distributor, dealer, manufacturers
representative, sales agency, advertising representative or advertising or
public relations contract;
(iv) any agreement which provides for, or relates to, the incurrence
by Seller of debt secured by any of the Purchased Assets for borrowed money
(including, without limitation, any interest rate or foreign currency swap,
cap, collar, hedge or insurance agreements, or options or forwards on such
agreements, or other similar agreements for the purpose of managing the
interest rate and/or foreign exchange risk associated with its financing);
(v) any contract not made in the ordinary course of the Business; or
(vi) any other contract, agreement, commitment, understanding or
instrument which is material to ICAT or the Business.
Seller will use its reasonable best efforts to assist in causing the contract
with Ontario Ministry of the Solicitor General and Correctional Services to be
assigned to Buyer.
5.16. STATUS OF CONTRACTS. Except as set forth in SCHEDULE 5.16 or
in any other Schedule hereto, each of the leases, contracts and other agreements
listed in SCHEDULE 5.15 (collectively, the "SELLER AGREEMENTS") constitutes a
valid and binding obligation of the parties thereto and is in full force and
effect and (except as set forth in SCHEDULES 5.4(A) AND 5.4 (B), and except for
those Seller Agreements which by their terms will expire prior to the Closing
Date or are otherwise terminated prior to the Closing Date in accordance with
the provisions hereof) may be transferred to Buyer pursuant to this Agreement
and will continue in full force and effect thereafter, in each case without
breaching the terms thereof or resulting in the forfeiture or impairment of any
rights thereunder and without the consent, approval or act of, or the making of
any filing with, any other party. Seller has fulfilled and performed its
obligations under each of the Seller Agreements, and Seller is not in, or, to
the actual knowledge of Seller, alleged to be in, breach or default under, nor
(except as set forth in SCHEDULE 5.16) is there or, to the actual knowledge of
Seller, is there alleged to be any basis for termination of, any of the Seller
Agreements and no other party to any of the Seller Agreements has breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by Seller or by any such other party.
Seller is not currently renegotiating any of the Seller Agreements or paying
liquidated damages in lieu of performance thereunder. Complete and correct
copies of each of the Seller Agreements have heretofore been made available to
Buyer by Seller.
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5.17. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set
forth in SCHEDULE 5.17:
(i) the Purchased Assets and their uses comply with all applicable
Requirements of Laws and Court Orders;
(ii) Seller has complied with all Requirements of Laws and Court
Orders which are applicable to the Purchased Assets or the Business;
(iii) there are no lawsuits, claims, suits, proceedings or
investigations pending or, to the actual knowledge of Seller, threatened
against or affecting Seller in respect of the Purchased Assets or the
Business nor, to the actual knowledge of Seller, is there any basis for any
of the same, and there are no lawsuits, suits or proceedings pending in
which Seller is the plaintiff or claimant and which relate to the Purchased
Assets or the Business;
(iv) there is no action, suit or proceeding pending or, to the actual
knowledge of Seller, threatened which questions the legality or propriety
of the transactions contemplated by this Agreement; and
(v) to the actual knowledge of Seller, no legislative or regulatory
proposal has been adopted or is pending which could adversely affect the
Business.
5.18. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 5.18:
(i) to the actual knowledge of Seller, the operations of the
Business comply with all applicable Environmental Laws; and
(ii) to the actual knowledge of Seller, Seller has, in respect of
the Business, obtained all environmental, health and safety Governmental
Permits necessary for its operation, and all such Governmental Permits are
in good standing and Seller is in compliance with all terms and conditions
of such permits.
5.19. CUSTOMERS AND SUPPLIERS. Set forth in SCHEDULE 5.19 hereto
is (i) a list of names and addresses of the significant customers and
suppliers of Seller in respect of the Business and the type of supplies
purchased from each such supplier, and (ii) copies of the forms of purchase
order for inventory and other supplies and sales contracts for finished goods
used by Seller in respect of the Business. Except as set forth in SCHEDULE
5.19, to the actual knowledge of Seller, there exists no actual or threatened
termination, cancellation or limitation of, the business relationship of
Seller with any customer or group of customers whose purchases individually
or in the aggregate are material to the
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operations of the Business, or with any supplier or group of suppliers whose
sales individually or in the aggregate are material to the operations of the
Business.
5.20. WARRANTIES. SCHEDULE 5.20 sets forth (i) a specimen copy of
the form of written warranties covering products and services sold by ICAT
which have not yet expired; and (ii) a summary of the warranty expense
incurred by ICAT during each of its last three fiscal years.
5.21. NO FINDER. Neither Seller nor any Person acting on its
behalf has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement.
5.23. FINANCIAL PROJECTIONS. Seller has made available to Buyer
certain financial projections with respect to the Business, which projections
were prepared for internal use only. Seller makes no representation or
warranty regarding the accuracy of such projections or as to whether such
projections will be achieved or otherwise.
5.24. NO UNDISCLOSED WARRANTY OBLIGATIONS. Except as set forth in
SCHEDULE 5.24 hereto, there are not, to Seller's actual knowledge, any
claims or assertions by any customer of Seller that any defects, repairs, or
other work which is or is alleged to be covered by Seller's warranty
agreements(s) are outstanding, pending, or unperformed.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer hereby represents and
warrants to Seller and agrees as follows:
6.1. ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to own or lease and to operate and
use its properties and assets and to carry on its business as now conducted.
6.2. AUTHORITY OF BUYER. Buyer has full power and authority to
execute, deliver and perform this Agreement and all of the Buyer Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Buyer Ancillary Agreements by Buyer have been duly authorized and approved by
Buyer's board of directors and do not require any further
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authorization or consent of Buyer or its stockholders. This Agreement has
been duly authorized, executed and delivered by Buyer and is the legal, valid
and binding agreement of Buyer enforceable in accordance with its terms, and
each of the Buyer Ancillary Agreements has been duly authorized by Buyer and
upon execution and delivery by Buyer will be a legal, valid and binding
obligation of Buyer enforceable in accordance with its terms.
Neither the execution and delivery of this Agreement or any of the Buyer
Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the
terms, conditions and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under (1) the Certificate of Incorporation or By-laws of Buyer, (2)
any material note, instrument, agreement, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or obligation
to which Buyer is a party or any of its properties is subject or by which
Buyer is bound, (3) any Court Order to which Buyer is a party or by which
it is bound or (4) any Requirements of Laws affecting Buyer; or
(ii) require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, filing or registration with, any Person
(except as provided under federal or state securities laws and
regulations); or, if such consent, approval, authorization, or act is
required, it has been obtained by Buyer.
6.3. NO FINDER. Neither Buyer nor any Person acting on its behalf
has paid or become obligated to pay any fee or commission to any broker, finder
or intermediary for or on account of the transactions contemplated by this
Agreement.
6.4. NO INSOLVENCY. Buyer is not currently insolvent, nor shall the
consummation of the transactions contemplated by this Agreement by Buyer render
Buyer insolvent or unable to meet its financial obligations as they come due.
6.5. FIREARMS PERMITS. Buyer owns all firearms licenses and permits
sufficient to acquire from Seller Class 1 and Class 2 firearms as portions of
the Purchased Assets. Buyer has delivered, or shall deliver at Closing, to
Seller a copy of such license(s) and permit(s), which shall be effective as of
the Closing Date.
6.6. WTET PROGRAM.
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a. Seller is a party to a certain Weapons Team Engagement
Commercialization Agreement, Number N0014-96-2-5000, with the Office of Naval
Research (the "WTET Agreement"), which Buyer has reviewed. Buyer and Seller
agree to cooperate and use their best efforts in seeking novation of the WTET
Agreement. Buyer agrees, until novation of the WTET Agreement is effective, to
perform by subcontract with Seller on terms mutually agreeable to Seller and
Buyer, certain work under the WTET Agreement. Between the date hereof and
novation, Buyer agrees to defend, indemnify, and hold Seller harmless from all
liability arising on or after the Closing Date in connection with the WTET
Agreement, unless caused by Seller prior to novation.
b. Any and all payments under the WTET Agreement made after the
date hereof shall be payable to Buyer.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
7.1. COVENANT NOT TO COMPETE OR SOLICIT BUSINESS. (a) In furtherance
of the sale of the Purchased Assets and the Business to Buyer hereunder by
virtue of the transactions contemplated hereby and more effectively to protect
the value and goodwill of the Purchased Assets and the Business so sold, Seller
covenants and agrees that, for a period ending on the fifth (5th) anniversary of
the Closing Date, neither Seller nor any of its Affiliates will:
(i) directly or indirectly (whether as principal, agent,
independent contractor, partner or otherwise) own, manage, operate,
control, participate in, perform services for, or otherwise carry on,
a business similar to or competitive with the Business of ICAT
anywhere throughout the world (it being understood by the parties
hereto that the Business of ICAT is worldwide in nature, and that such
business may be engaged in effectively from any location throughout
the world); or
(ii) induce or attempt to persuade any employee, agent or
customer of Buyer to terminate such employment, agency or business
relationship in order to enter into any such relationship on behalf of
any other business organization in competition with the Business;
PROVIDED, HOWEVER, that nothing set forth in this SECTION 7.1 shall prohibit
Seller or its Affiliates from owning not in excess of 5% in the aggregate of any
class of capital stock of any corporation if such stock is publicly traded and
listed on any national or regional stock exchange or on the NASDAQ market
system.
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(b) Except as specifically set forth in Schedules 5.11 and 5.13(G),
Seller covenants and agrees that neither it nor any of its Affiliates will
divulge or make use of any trade secrets or other confidential information of
the Business other than to disclose such secrets and information to Buyer or its
Affiliates.
(c) In the event Seller or any Affiliate of Seller violates any of its
obligations under this SECTION 7.1, Buyer may proceed against it in law or in
equity for such damages or other relief as a court may deem appropriate.
Seller acknowledges that a violation of this SECTION 7.1 may cause Buyer
irreparable harm which may not be adequately compensated for by money
damages. Seller therefore agrees that in the event of any actual or
threatened violation of this SECTION 7.1, Buyer shall be entitled, in
addition to other remedies that it may have, to a temporary restraining order
and to preliminary and final injunctive relief against Seller or such
Affiliate of Seller to prevent any violations of this SECTION 7.1, without
the necessity of posting a bond. The prevailing party in any action
commenced under this SECTION 7.1 shall also be entitled to receive reasonable
attorneys' fees and court costs. It is the intent and understanding of each
party hereto that if, in any action before any court or agency legally
empowered to enforce this SECTION 7.1, any term, restriction, covenant or
promise in this SECTION 7.1 is found to be unreasonable and for that reason
unenforceable, then such term, restriction, covenant or promise shall be
deemed modified to the extent necessary to make it enforceable by such court
or agency.
7.2. TAXES. (a) Seller shall be liable for and shall pay all Taxes
(whether assessed or unassessed) applicable to the Business and the Purchased
Assets attributable to periods (or portions thereof) ending prior to the Closing
Date. Buyer shall be liable for and shall pay all Taxes (whether assessed or
unassessed) applicable to the Business and the Purchased Assets attributable to
periods (or portions thereof) beginning on or after the Closing Date. For
purposes of this paragraph (a), any period beginning before and ending after the
Closing Date shall be treated as two partial periods, one ending immediately
prior to the Closing Date and the other beginning on the Closing Date except
that Taxes (such as property Taxes) imposed on a periodic basis shall be
allocated on a daily basis.
(b) Notwithstanding SECTION 7.2(a), any sales Tax, use Tax, real property
transfer or gains Tax, documentary stamp Tax or similar Tax attributable to the
sale or transfer of the Purchased Assets shall be paid by Seller. Upon the
request of Seller, Buyer agrees to timely sign and deliver such certificates or
forms as may be necessary or appropriate to establish an exemption from (or
otherwise reduce), or make a report with respect to, such Taxes.
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7.3. DISCHARGE OF ICAT'S LIABILITIES. (a) Seller covenants and
agrees that it will pay and discharge, and hold Buyer harmless from, each and
every liability and obligation of Seller in respect of the Business or the
Purchased Assets arising from events occurring prior to the Closing Date,
excepting only the Assumed Liabilities, it being understood and agreed that
Buyer is assuming no liabilities or obligations of Seller other than such
Assumed Liabilities.
(b) Buyer covenants and agrees that it will pay and discharge, and
hold Seller harmless from, each and every liability and obligation of Buyer
in respect of the Purchased Assets and Buyer's operation of ICAT arising from
events occurring on or after the Closing Date, and in respect of the Assumed
Liabilities. The parties understand and agree that Seller is assuming no
liabilities or obligations with respect to the Assumed Liabilities and with
respect to the Purchased Assets and Buyer's operation of ICAT arising on or
after the Closing Date.
7.4. EMPLOYEES AND EMPLOYEE BENEFIT PLANS. (a) Buyer shall offer
relocation packages and employment agreements to those key ICAT personnel
and/or consultants listed on SCHEDULE 7.4 hereto, under such terms and
conditions as shall be mutually agreed-upon between Buyer and such personnel.
Except as specifically set forth in such terms and conditions as are
mutually agreed-upon between Buyer and such personnel, Buyer shall be under
no obligation to employ or otherwise engage any such personnel following
Closing. Notwithstanding the foregoing, Seller shall use its best efforts to
encourage all such personnel to accept employment or engagement with Buyer,
if offered.
(b) Seller shall make available on an as-needed basis, for up to sixty
(60) days following the Closing Date, two consultants (Antoinette Baca and
Roger Baer) to provide consulting services to Buyer in connection with the
Business of ICAT. Buyer shall be entitled to such consulting services at no
cost to Buyer, except that Buyer shall reimburse Seller for any reasonable
travel or other out-of-pocket expenses incurred in connection therewith.
7.5. ONGOING CONSULTING SERVICES. Seller shall make available Dr.
Andrew Cruce on a part-time basis during normal business hours for a period
of two (2) months following Closing as a consultant, to provide consulting
services to Buyer in connection with the Business of ICAT. Buyer shall be
entitled to such consulting services at no cost to Buyer, except that Buyer
shall reimburse Seller or Dr. Cruce (as applicable) for any reasonable travel
or other out-of-pocket expenses incurred in connection therewith.
7.6. RECEIPT OF PAYMENTS AFTER THE CLOSING DATE. (a) Buyer
agrees that upon receipt of any payment that is attributable to notes or
accounts receivable of the Business existing immediately prior to the Closing
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Date, Buyer shall immediately notify Seller of the same and shall promptly
forward such payment to Seller. This section shall not apply to any payments
received pursuant to the WTET Program, which is addressed separately and
solely in accordance with the provisions of Section 6.6, SUPRA.
(b) Seller agrees that upon receipt of any payment that is
attributable to notes or accounts receivable of the Business generated
following the Closing Date, Seller shall immediately notify Buyer of the same
and shall promptly forward such payment to Buyer. This section shall not
apply to any payments received pursuant to the WTET Program, which is
addressed separately and solely in accordance with the provisions of Section
6.6, SUPRA.
7.7. USE OF ICAT NAME BY SELLER. Seller agrees promptly after the
Closing Date to discontinue its use of the name "ICAT", or any variation
thereof.
7.8. TRANSITION PERIOD. (a) Buyer shall have the right to use at
no charge for up to sixty (60) days after the Closing Date the leased real
property space currently occupied by the Business. Buyer agrees to indemnify
and hold Seller harmless from all claims, demands, and liabilities (including
attorneys' fees) arising from any such use, except normal and customary rent,
utilities, and other ordinary operating expenses.
(b) If any of the key employees listed in Schedule 7.4 do not accept
employment with Buyer, Seller at the written request of Buyer shall make an
offer to such employee(s) of continuing temporary employment as a consultant
to Buyer, with salary to be paid by Buyer at such employee's current salary
level (together with applicable payroll taxes and current employee benefits)
during such period of temporary employment.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer under this Agreement shall, at the option of
Buyer, be subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
8.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
There shall have been no material breach by Seller in the performance of any
of its covenants and agreements herein; each of the representations and
warranties of Seller contained or referred to herein shall be true and
correct in all material respects on the Closing Date as though made on the
Closing Date, except for changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing
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by Buyer; and there shall have been delivered to Buyer a certificate to such
effect, dated the Closing Date, signed on behalf of Seller by the President
or any Vice President of Seller.
8.2. NO RESTRAINT OR LITIGATION. No action, suit, investigation or
proceeding shall have been instituted or threatened to restrain or prohibit
or otherwise challenge the legality or validity of the transactions
contemplated hereby.
8.3. NECESSARY GOVERNMENTAL APPROVALS. The parties shall have
received all approvals and actions of or by all Governmental Bodies (except
from the U.S. Navy with respect to the WTET program, which Buyer and Seller
shall use their best efforts to novate the GSA contract, and contracts with
customers which prohibit or limit assignability) which are necessary to
consummate the transactions contemplated hereby, which are either specified
in SCHEDULE 5.16 or otherwise required to be obtained prior to the Closing by
applicable Requirements of Laws or which are necessary to prevent a material
adverse change in the Purchased Assets, the Business or the operations,
liabilities, profits, prospects or condition (financial or otherwise) of the
Business.
8.4. NECESSARY CONSENTS. Seller shall have received consents, in
form and substance reasonably satisfactory to Buyer, to the transactions
contemplated hereby from the other parties to all contracts, leases,
agreements and permits (except from the U.S. Navy with respect to the WTET
program, and from GSA, both of which Buyer and Seller shall use their best
efforts to novate, and except with respect to contracts with customers which
prohibit or limit assignability) to which Seller is a party or by which
Seller or any of the Purchased Assets is affected and which are specified in
SCHEDULE 5.16 or are otherwise necessary to prevent a material adverse change
in the Purchased Assets, the Business or in the operations, liabilities,
profits, prospects or condition (financial or otherwise) of the Business.
8.5 SETTLEMENT OF CLAIMS OR ACTIONS INVOLVING BUYER.
(a) Seller shall have executed a mutual release and settlement
agreement, in the form set forth at SCHEDULE 8.5, forever irrevocably and
unconditionally releasing and discharging Buyer, together with its
predecessors, successors, assigns, agents, partners, employees,
representatives, agents, attorneys, parents, subsidiaries, and affiliates,
from any and all claims, liabilities, actions, demands, damages, debts,
suits, liens, obligations, losses, or expenses (all of the foregoing
collectively referred to as the "Claims") related to or pertaining to the
following matters: (i) the matter of FIREARMS TRAINING SYSTEMS, INC. VS.
STATE OF CALIFORNIA DEPARTMENT OF GENERAL SERVICES, Case No. 95-CS-02580, or
any matter related thereto; and (ii) any other pending matters
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or disputes between Buyer and Seller or ICAT, including without limitation
any Claims of antitrust, restraint of trade, or unfair competition.
(b) Such release shall not relieve Buyer of any obligations contained in
this Agreement or any other agreement pertaining to this transaction.
(c) Seller shall have withdrawn, discontinued, and abandoned, and shall
have agreed to refrain from ever again pursuing, prosecuting, or repeating,
any and all allegations, complaints, or contentions made to any third party
which accuse Buyer, or any of its agents, employees, or affiliates, of
antitrust, restraint of trade, or unfair competition in connection with any
matters occurring prior to the date of Closing.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
The obligations of Seller under this Agreement shall, at the option
of Seller, be subject to the satisfaction, on or prior to the Closing Date,
of the following conditions:
9.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND WARRANTIES.
There shall have been no material breach by Buyer in the performance of any
of its covenants and agreements herein; each of the representations and
warranties of Buyer contained or referred to in this Agreement shall be true
and correct on the Closing Date as though made on the Closing Date, except
for changes therein specifically permitted by this Agreement or resulting
from any transaction expressly consented to in writing by Seller and there
shall have been delivered to Seller a certificate to such effect, dated the
Closing Date and signed on behalf of Buyer by the President or any Vice
President of Buyer.
9.2. NO RESTRAINT OR LITIGATION. No action, suit or proceeding by
any Governmental Body shall have been instituted or threatened to restrain,
prohibit or otherwise challenge the legality or validity of the transactions
contemplated hereby.
9.3. NECESSARY GOVERNMENTAL APPROVALS. The parties shall have
received all approvals and actions of or by all Governmental Bodies necessary
to consummate the transactions contemplated hereby, which are required to be
obtained prior to the Closing by applicable Requirements of Laws.
9.4 SETTLEMENT OF CLAIMS OR ACTIONS INVOLVING BUYER.
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(a) Buyer shall have executed a mutual release and settlement agreement,
in the form set forth at SCHEDULE 8.5, forever irrevocably and
unconditionally releasing and discharging Seller, together with its
predecessors, successors, assigns, agents, partners, employees,
representatives, agents, attorneys, parents, subsidiaries, and affiliates,
from any and all claims, liabilities, actions, demands, damages, debts,
suits, liens, obligations, losses, or expenses (all of the foregoing
collectively referred to as the "Claims") related to or pertaining to the
following matters: (i) the matter of FIREARMS TRAINING SYSTEMS, INC. VS.
STATE OF CALIFORNIA DEPARTMENT OF GENERAL SERVICES, Case No. 95-CS-02580, or
any matter related thereto; and (ii) any other pending matters or disputes
between Buyer and Seller or ICAT, including without limitation any Claims of
antitrust, restraint of trade, or unfair competition.
(b) Such release shall not relieve Seller of any obligations contained
in this Agreement or any other agreement pertaining to this transaction.
(c) Buyer shall have withdrawn, discontinued, and abandoned, and shall
have agreed to refrain from ever again pursuing, prosecuting, or repeating,
any and all allegations, complaints, or contentions made to any third party
which accuse Seller, or any of its agents, employees, or affiliates, of
antitrust, restraint of trade, or unfair competition in connection with any
matters occurring prior to the date of Closing.
ARTICLE X
INDEMNIFICATION
---------------
10.1. INDEMNIFICATION BY SELLER. (a) Seller agrees to indemnify and
hold harmless each Buyer Group Member from and against any and all Losses and
Expense incurred by such Buyer Group Member in connection with or arising from:
(i) any breach by Seller of any of its covenants in this Agreement
or in any Seller Ancillary Agreement;
(ii) any failure of Seller to perform any of its obligations in this
Agreement or in any Seller Ancillary Agreement;
(iii) any breach of any warranty or the inaccuracy of any
representation of Seller contained or referred to in this Agreement or any
certificate delivered by or on behalf of Seller pursuant hereto; or
(iv) the failure of Seller to perform any Excluded Liability.
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(b) The indemnification provided for in this SECTION 10.1 shall terminate
one (1) year after the Closing Date (and no claims shall be made by any Buyer
Group Member under this SECTION 10.1 thereafter), except that the
indemnification by Seller shall continue as to:
(i) the representations and warranties set forth in SECTION 5.6 and
the covenants of Seller set forth in SECTIONS 2.4, 5.2, 6.6, 7.2, 7.3,
7.6, 7.7, 11.2, and 11.13, which shall terminate five (5) years after the
Closing Date ;
(ii) the covenants of Seller set forth in SECTION 11.6, which shall
terminate six (6) years after the Closing Date;
(iii) the covenant set forth in SECTION 7.1, as to which the
indemnification provided for in this SECTION 10.1 shall terminate one year
after the expiration of the noncompetition period provided for therein; and
(iv) any Loss or Expense of which any Buyer Group Member has
notified Seller in accordance with the requirements of SECTION 10.3 on or
prior to the date such indemnification would otherwise terminate in
accordance with this SECTION 10.1, as to which the obligation of Seller
shall continue until the liability of Seller shall have been determined
pursuant to this ARTICLE X, and Seller shall have reimbursed all Buyer
Group Members for the full amount of such Loss and Expense in accordance
with this ARTICLE X.
10.2. INDEMNIFICATION BY BUYER. (a) Buyer agrees to indemnify and
hold harmless each Seller Group Member from and against any and all Loss and
Expense incurred by such Seller Group Member in connection with or arising from:
(i) any breach by Buyer of any of its covenants or agreements in this
Agreement or in any Buyer Ancillary Agreement;
(ii) any failure by Buyer to perform any of its obligations in this
Agreement or in any Buyer Ancillary Agreement;
(iii) any breach of any warranty or the inaccuracy of any
representation of Buyer contained or referred to in this Agreement or in
any certificate delivered by or on behalf of Buyer pursuant hereto; or
(iv) the failure of Buyer to perform any of the Assumed Liabilities.
(b) The indemnification provided for in this SECTION 10.2 shall terminate
one (1) year after the Closing Date (and no claims shall be made by Seller under
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this SECTION 10.2 thereafter), except that the indemnification by Buyer shall
continue as to:
(i) the covenants of Buyer set forth in SECTIONS 2.3, 6.2, 6.6, 7.2,
7.3, 7.6, 11.2, and 11.13, which shall terminate five (5) years after the
Closing Date;
(ii) the covenants of Buyer set forth in SECTION 11.6, which shall
terminate six (6) years after the Closing Date; and
(iii) any Loss or Expense of which Seller has notified Buyer in
accordance with the requirements of SECTION 10.3 on or prior to the date
such indemnification would otherwise terminate in accordance with this
SECTION 10.2, as to which the obligation of Buyer shall continue until the
liability of Buyer shall have been determined pursuant to this ARTICLE X,
and Buyer shall have reimbursed all Seller Group Members for the full
amount of such Loss and Expense in accordance with this ARTICLE X.
10.3. NOTICE OF CLAIMS. Any Buyer Group Member or Seller Group
Member (the "INDEMNIFIED PARTY") seeking indemnification hereunder shall give to
the party obligated to provide indemnification to such Indemnified Party (the
"INDEMNITOR") a notice (a "CLAIM NOTICE") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based; PROVIDED, that a Claim Notice in
respect of any action at law or suit in equity by or against a third Person as
to which indemnification will be sought shall be given promptly after the action
or suit is commenced; PROVIDED FURTHER that failure to give such notice shall
not relieve the Indemnitor of its obligations hereunder except to the extent it
shall have been prejudiced by such failure.
10.4. THIRD PERSON CLAIMS. (a) Subject to SECTION 10.4(b), the
Indemnified Party shall have the right to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any third Person
claim, action or suit against such Indemnified Party as to which indemnification
will be sought by any Indemnified Party from any Indemnitor hereunder, and in
any such case the Indemnitor shall cooperate in connection therewith and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested by the Indemnified Party in connection therewith; PROVIDED, that the
Indemnitor may participate, through counsel chosen by it and at its own expense,
in the defense of any such claim, action or suit as to which the Indemnified
Party has so elected to conduct and control the defense thereof;
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<PAGE>
and PROVIDED, FURTHER, that the Indemnified Party shall not, without the
written consent of the Indemnitor (which written consent shall not be
unreasonably withheld), pay, compromise or settle any such claim, action or
suit, except that no such consent shall be required if, following a written
request from the Indemnified Party, the Indemnitor shall fail, within 14 days
after the making of such request, to acknowledge and agree in writing that,
if such claim, action or suit shall be adversely determined, such Indemnitor
has an obligation to provide indemnification hereunder to such Indemnified
Party. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay, settle or compromise any such claim, action or suit without
such consent, PROVIDED that in such event the Indemnified Party shall waive
any right to indemnity therefor hereunder unless such consent is unreasonably
withheld.
(b) If any third Person claim, action or suit against any Indemnified
Party is solely for money damages or, where Seller is the Indemnitor, will
have no continuing effect in any material respect on the Business or the
Purchased Assets, then the Indemnitor shall have the right to conduct and
control, through counsel of its choosing, the defense, compromise or
settlement of any such third Person claim, action or suit against such
Indemnified Party as to which indemnification will be sought by any
Indemnified Party from any Indemnitor hereunder if the Indemnitor has
acknowledged and agreed in writing that, if the same is adversely determined,
the Indemnitor has an obligation to provide indemnification to the
Indemnified Party in respect thereof, and in any such case the Indemnified
Party shall cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the Indemnitor
in connection therewith; PROVIDED, that the Indemnified Party may
participate, through counsel chosen by it and at its own expense, in the
defense of any such claim, action or suit as to which the Indemnitor has so
elected to conduct and control the defense thereof. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit, PROVIDED that in such event the
Indemnified Party shall waive any right to indemnity therefor hereunder
unless the Indemnified Party shall have sought the consent of the Indemnitor
to such payment, settlement or compromise and such consent was unreasonably
withheld, in which event no claim for indemnity therefor hereunder shall be
waived.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1. SURVIVAL OF OBLIGATIONS. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement to the extent
provided in ARTICLE X.
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11.2. CONFIDENTIAL NATURE OF INFORMATION. Each party agrees that it
will treat in confidence all documents, materials and other information which
it shall have obtained regarding the other party during the course of the
negotiations leading to the consummation of the transactions contemplated
hereby (whether obtained before or after the date of this Agreement), the
investigation provided for herein and the preparation of this Agreement and
other related documents, and, in the event the transactions contemplated
hereby shall not be consummated, each party will return to the other party
all copies of nonpublic documents and materials which have been furnished in
connection therewith. Such documents, materials and information shall not be
communicated to any third Person (other than, in the case of Buyer, to its
counsel, accountants, financial advisors or lenders, and in the case of
Seller, to its counsel, accountants or financial advisors). No other party
shall use any confidential information in any manner whatsoever except solely
for the purpose of evaluating the proposed purchase and sale of the Purchased
Assets; PROVIDED, HOWEVER, that after the Closing Buyer may use or disclose
any confidential information included in the Purchased Assets or otherwise
reasonably related to the Business or the Purchased Assets, but Buyer may not
use or disclose any information not reasonably related to the Business. The
obligation of each party to treat such documents, materials and other
information in confidence shall not apply to any information which (i) is or
becomes available to such party from a source other than such party, (ii) is
or becomes available to the public other than as a result of disclosure by
such party or its agents, (iii) is required to be disclosed under applicable
law or judicial process, but only to the extent it must be disclosed, or (iv)
such party reasonably deems necessary to disclose to obtain any of the
consents or approvals contemplated hereby.
11.3. NO PUBLIC ANNOUNCEMENT. Neither Buyer nor Seller shall,
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement,
except as and to the extent that any such party shall be so obligated by law
or the rules of any stock exchange, in which case the other party shall be
advised and the parties shall use their best efforts to cause a mutually
agreeable release or announcement to be issued; PROVIDED that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with accounting and Securities and
Exchange Commission disclosure obligations.
11.4. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered personally or when sent by registered or certified
mail or by private courier addressed as follows:
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If to Buyer, to:
FATS, Inc.
7340 McGinnis Ferry Road
Suwanee, Georgia 30174
Attention: David A. Apseloff, Vice President
with a copy to:
James G. Archer, Esq.
SIDLEY & AUSTIN
875 Third Avenue
New York, New York 10022
If to Seller, to:
SBS Technologies, Inc.
2400 Louisiana Boulevard, N.E.
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Attention: James E. Dixon, Vice President - Finance and
Administration
with a copy to:
John P. Eastham, Esq.
Bruce E. Castle, Esq.
KEMP, SMITH, DUNCAN & HAMMOND, P.C.
500 Marquette Avenue, N.W., Suite 1200
Albuquerque, New Mexico 87102-5311
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
11.5. SUCCESSORS AND ASSIGNS. (a) The rights of either party under
this Agreement shall not be assignable by such party hereto prior to the Closing
without the written consent of the other, except that the rights of Buyer
hereunder may be assigned prior to the Closing, without the consent of Seller,
to FATS, Inc. or any corporation all of the outstanding capital stock of which
is owned or controlled by Seller, PROVIDED that (i) the assignee shall assume in
writing all of Buyer's obligations to Seller hereunder, (ii) Buyer shall not be
released from any of its obligations hereunder by reason of such assignment and
(iii) Seller's obligations under this Agreement shall be subject to the delivery
by such assignee, on or prior to the Closing Date, of a certificate signed on
its behalf containing representations and warranties similar to those
36
<PAGE>
made by Buyer in ARTICLE VI and an opinion of Buyer's counsel with respect to
the assignee which is similar to the opinion with respect to Buyer set forth
in EXHIBIT E. Following the Closing, either party may assign any of its
rights hereunder, but no such assignment shall relieve it of its obligations
hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. The successors
and permitted assigns hereunder shall include without limitation any
permitted assignee as well as the successors in interest to such permitted
assignee (whether by merger, liquidation (including successive mergers or
liquidations) or otherwise). Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon any Person other
than the parties and successors and assigns permitted by this SECTION 11.5
any right, remedy or claim under or by reason of this Agreement.
11.6. ACCESS TO RECORDS AFTER CLOSING. For a period of six years
after the Closing Date, Seller and its representatives shall have reasonable
access to all of the books and records of ICAT transferred to Buyer hereunder
to the extent that such access may reasonably be required by Seller in
connection with matters relating to or affected by the operations of ICAT
prior to the Closing Date. Such access shall be afforded by Buyer upon
receipt of reasonable advance notice and during normal business hours.
Seller shall be solely responsible for any costs or expenses incurred by it
pursuant to this SECTION 11.6. If Buyer shall desire to dispose of any of
such books and records prior to the expiration of such six-year period, Buyer
shall, prior to such disposition, give Seller a reasonable opportunity, at
Seller's expense, to segregate and remove such books and records as Seller
may select.
For a period of six years after the Closing Date, Buyer and its
representatives shall have reasonable access to all of the books and records
relating to the Business which Seller or any of its Affiliates may retain
after the Closing Date. Such access shall be afforded by Seller and its
Affiliates upon receipt of reasonable advance notice and during normal
business hours. Buyer shall be solely responsible for any costs and expenses
incurred by it pursuant to this SECTION 11.6. If Seller or any of its
Affiliates shall desire to dispose of any of such books and records prior to
the expiration of such six-year period, Seller shall, prior to such
disposition, give Buyer a reasonable opportunity, at Buyer's expense, to
segregate and remove such books and records as Buyer may select.
11.7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Exhibits and Schedules referred to herein and the documents delivered
pursuant hereto contain the entire understanding of the parties hereto with
regard to the subject matter contained herein or therein, and supersede all
prior agreements, understandings or letters of intent between or among any of
the parties hereto,
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including without limitation the Confidentiality Agreement. This Agreement
shall not be amended, modified or supplemented except by a written instrument
signed by an authorized representative of each of the parties hereto.
11.8. INTERPRETATION. Article titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Schedules
and Exhibits referred to herein shall be construed with and as an integral part
of this Agreement to the same extent as if they were set forth verbatim herein.
11.9. WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if, as to any party,
it is authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
11.10. EXPENSES. Each party hereto will pay its own costs and
expenses incident to its negotiation and preparation of this Agreement and to
its performance and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel and accountants.
11.11. PARTIAL INVALIDITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
11.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of Seller and Buyer.
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11.13. FURTHER ASSURANCES. (a) On the Closing Date Seller shall (i)
deliver to Buyer such other bills of sale, deeds, endorsements, assignments and
other good and sufficient instruments of conveyance and transfer, in form
reasonably satisfactory to Buyer and its counsel, as Buyer may reasonably
request or as may be otherwise reasonably necessary to vest in Buyer all the
right, title and interest of Seller in, to or under any or all of the Purchased
Assets, and (ii) take all steps as may be reasonably necessary to put Buyer in
actual possession and control of all the Purchased Assets. From time to time
following the Closing, Seller shall execute and deliver, or cause to be executed
and delivered, to Buyer such other instruments of conveyance and transfer as
Buyer may reasonably request or as may be otherwise necessary to more
effectively convey and transfer to, and vest in, Buyer and put Buyer in
possession of, any part of the Purchased Assets, and, in the case of licenses,
certificates, approvals, authorizations, agreements, contracts, leases,
easements and other commitments included in the Purchased Assets (i) which
cannot be transferred or assigned effectively without the consent of third
parties which consent has not been obtained prior to the Closing, to cooperate
with Buyer at its request in endeavoring to obtain such consent promptly, and if
any such consent is unobtainable, to use its best efforts to secure to Buyer the
benefits thereof in some other manner, or (ii) which are otherwise not
transferable or assignable, to use its best efforts jointly with Buyer to secure
to Buyer the benefits thereof in some other manner (including the exercise of
the rights of Seller thereunder). Notwithstanding anything in this Agreement to
the contrary, this Agreement shall not constitute an agreement to assign any
license, certificate, approval, authorization, agreement, contract, lease,
easement or other commitment included in the Purchased Assets if an attempted
assignment thereof without the consent of a third party thereto would constitute
a breach thereof.
(b) On the Closing Date and at any time thereafter, Buyer shall
deliver all documents, instruments, certificates and take all steps as may be
reasonably requested by Seller to fully consummate the transactions contemplated
by this Agreement. In addition, Buyer shall make available after Closing to
Seller, at Seller's expense, employees of Buyer as reasonably requested by
Seller for litigation support relating to Seller's operation of the Business.
11.14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of New Mexico.
11.15. SUBMISSION TO JURISDICTION. Seller and Buyer hereby
irrevocably agree that any suit, action or proceeding arising out of or related
to this Agreement or any of the transactions contemplated hereby or thereby
shall be determined and settled by arbitration to be held in Bernalillo County,
New
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Mexico in accordance with the commercial arbitration rules then effective of
the American Arbitration Association. Any award rendered therein shall be final
and binding on each and all of the parties, and judgment may be entered thereon
in any court of competent jurisdiction.
11.16. TIME OF THE ESSENCE. Time shall be of the essence with
respect to each term and condition of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first above written.
FATS, INC.
By: /s/ David A. Apseloff
---------------------------
David A. Apseloff
Vice President
(Corporate Seal)
ATTEST:
/s/ Charles N. Bowen
- -------------------------
SBS TECHNOLOGIES, INC.
By: /s/ James E. Dixon
---------------------------
James E. Dixon,
Vice President - Finance and Administration
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EXHIBIT 10.Z
MANAGEMENT INCENTIVE PLAN
FISCAL 1997
Subsequent to the fiscal year end, certain members of management of the Company
received incentive compensation in the form of cash payments under the Company's
Management Incentive Plan ("MIP"). Under the terms of this MIP, as administered
by the Compensation Committee, cash payments were awarded to certain members of
Management because its divisions and subsidiaries exceeded profitability targets
established at the onset of the fiscal year, and to the corporate officers
because the Company achieved a greater than $1.21 Earnings Per Share for the
fiscal year. Under the MIP, a sliding scale of cash incentive was awarded based
on the amount the individual units and Company exceeded the targets established
by the Board of Directors at the recommendation of the Compensation Committee.
Payments under the MIP were increased by a factor of up to one third based on
Management meeting certain non-financial goals established by the Compensation
Committee for the corporate officers, and by the President and chief operating
officer, in the case of the division and subsidiary management. In total,
sixteen managers received a total of $771,263 in cash compensation under the
MIP, all of which was expensed during the fiscal year.
In addition, the vesting of certain ISOP stock options accelerated to July 21,
1997 based on the division and subsidiary units achieving certain pretax profits
for the fiscal year ended June 30, 1997.
FISCAL 1998
For the fiscal year ending June 30, 1998, the vesting of certain stock options
granted to management on July 24, 1997 will accelerate to July 21, 1998 if two
non-financial goals which the Board of Directors deems as very important to the
Company are achieved by the end of the fiscal year and if the Earnings Per Share
of the Company for the fiscal year exceed a target level established by the
Board of Directors at the recommendation of the Compensation Committee. In
addition, cash compensation may be earned by members of management if the
Earnings Per Share of the Company exceed a higher target which was established
by the Board of Directors at the recommendation of the Compensation Committee.
Earnings Per Share targets are net of any incentive compensation costs.
<PAGE>
EXHIBIT 21 -- SUBSIDIARIES OF THE REGISTRANT
SBS Technologies, Inc. has the following subsidiaries:
NAME STATE OF INCORPORATION
---- ----------------------
Berg Systems International, Inc. California
GreenSpring Computers, Inc. California
Logical Design Group, Inc. New Mexico
Bit 3 Computer Corporation Minnesota
<PAGE>
The Board of Directors
SBS Technologies, Inc.:
We consent to incorporation by reference in the registration statements (No.'s
333-23053 and 333-98558) on Form S-8 and (No. 333-20129) on Form S-3 of SBS
Technologies, Inc. of our report dated August 6, 1997, relating to the
consolidated balance sheets of SBS Technologies, Inc. and Subsidiaries as of
June 30, 1997, 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 ending June 30, 1997, which report appears in the June 30,
1997, annual report on Form 10-K of SBS Technologies, Inc..
/S/ KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
September 26, 1997
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christopher J. Amenson and Stephen D. Cooper,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Christopher J. Amenson Chairman of the Board, 9/15/97
- ------------------------- Chief Executive Officer, ---------------------
Christopher J. Amenson & Director
/s/Stephen D. Cooper President, Chief Operating 9/15/97
- ------------------------- Officer, & Director ---------------------
Stephen D. Cooper
/s/Scott A. Alexander Executive Vice President, 9/15/97
- ------------------------- Secretary, & Director ---------------------
Scott A. Alexander
/s/James E. Dixon Vice President, Finance & 9/15/97
- ------------------------- Administration, & Treasurer ---------------------
James E. Dixon
/s/Warren W. Andrews Director 9/15/97
- ------------------------- ---------------------
Warren W. Andrews
/s/William J. Becker Director 9/15/97
- ------------------------- ---------------------
William J. Becker
/s/Lawrence A. Bennigson Director 9/15/97
- ------------------------- ---------------------
Lawrence A. Bennigson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S 10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,661,671
<SECURITIES> 0
<RECEIVABLES> 9,545,264
<ALLOWANCES> (300,995)
<INVENTORY> 7,705,470
<CURRENT-ASSETS> 40,299,253
<PP&E> 4,729,259
<DEPRECIATION> 2,247,408
<TOTAL-ASSETS> 61,165,014
<CURRENT-LIABILITIES> 8,022,075
<BONDS> 0
0
0
<COMMON> 43,889,754
<OTHER-SE> 6,436,934
<TOTAL-LIABILITY-AND-EQUITY> 61,165,014
<SALES> 52,814,568
<TOTAL-REVENUES> 52,814,568
<CGS> 24,910,271
<TOTAL-COSTS> 52,060,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 223,004
<INTEREST-EXPENSE> 508,677
<INCOME-PRETAX> 768,685
<INCOME-TAX> 307,000
<INCOME-CONTINUING> 768,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461,685
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.00
</TABLE>
