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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1998 or
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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
(Address of principal executive offices including zip code)
(505) 875-0600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
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 1, 1998 as reported on NASDAQ was approximately $99,353,678. 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 because these
persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of September 1, 1998, Registrant had 5,838,725 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
1998 Annual Meeting of Stockholders to be held November 9, 1998.
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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 HEREIN.
INTRODUCTION
SBS Technologies, Inc. (the "Company") is a leading designer and manufacturer
of open-architecture, standard bus embedded computer components that system
designers can easily utilize to create a custom solution specific to the
user's unique application. The Company's product lines include CPU boards
("CPU"), general purpose input/output ("I/O") modules, avionics interface
modules and analyzers, interconnection and expansion units, telemetry boards,
data acquisition software and industrial computer systems and enclosures. The
Company's products are used in a variety of applications, such as
telecommunications, medical imaging, industrial control, and flight
instrumentation in commercial and aerospace markets. 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 1998 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 fiscal
1998 the Company instituted a program of business integration. The Company
renamed all of its subsidiary companies under the "SBS" trade name and
realigned them into two operating groups, the SBS Computer Group and the SBS
Aerospace Group. In addition, the Company combined its separate subsidiary
sales forces into two groups, one focused on SBS Computer Group customers and
one focused on the SBS Aerospace Group customers.
Revenues for the fiscal year ended June 30, 1998 increased 40.5% from $52.8
million to $74.2 million. The source of this revenue increase was twofold:
growth in the core businesses, and growth by acquisition.
The Company entered fiscal 1998 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 120 variants and introduced a series of ruggedized mezzanine I/O boards
that serve a segment of the market in which the Company previously did not
participate. 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 in such programs
as the Joint Strike Fighter Replacement Program, the C130J next generation
military transport aircraft, and Sweden's GRIPEN fighter program. The
Company's telemetry product line is focused toward the satellite test and
control market in order to serve the rapidly expanding satellite market
driven by both telecommunications and defense applications.
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During the last two fiscal years, the Company acquired three business which
have expanded its products and marketing opportunities. It also divested one
part of its business which was not synchronous with its core businesses. In
August 1996, the Company expanded into the broader embedded computing market
with the acquisition of Logical Design Group, Inc. (renamed SBS Embedded
Computers, Inc. in fiscal 1998), 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 (renamed
SBS Bit 3 Operations, Inc. in fiscal 1998), a leading developer and
manufacturer of high performance bus interconnect hardware and software
products for many of the most widely used computer architecture standards in
the standard bus embedded computer market. This acquisition took advantage of
the introduction into the embedded computing market of new bus standards such
as PCI and CompactPCI, expanded the Company's customer base and opened the bus
interconnection and expansion market to the Company. In the quarter ended
December 31, 1996, the Company recorded a $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.
In November 1997, the Company acquired Micro Alliance, Inc. (renamed SBS
Micro Alliance, Inc. in fiscal 1998), which specializes in the design and
manufacture of special-purpose PC-compatible computer systems. This company
offers a variety of CPU boards and system enclosures, including rack mount,
desktop and mobile systems. Most systems contain passive backplanes that
allow the addition of up to 20 ISA and PCI cards. These products are often
customized to meet the needs of particular OEM applications.
After the end of the 1998 fiscal year, the Company acquired two more
businesses. On July 1, 1998, the Company acquired, through its newly formed
subsidiary, SBS Holdings GmbH, a 50.1% interest in OR Industrial Computers
GmbH ("OR") (see "Management's Discussion & Analysis: Subsequent Events"), a
leading European designer of CPU boards utilized in a wide range of embedded
computer applications. Based in Augsburg, Germany, OR, designs, manufactures
and markets CPU boards based on Intel computer architecture available in the
VME, CompactPCI, and PCCompact form factors, as well as VME CPU boards based
on the Motorola 680X0 series processors and a series of computer input/output
boards. As part of this acquisition, the Company acquired, through its newly
formed subsidiary, SBS Holdings GmbH, a 50.2% interest in ORTEC Electronic
Assembly GmbH, ("ORTEC") based in Mindelheim, Germany, a related company
which manufactures OR's commercial products and electronic products for other
customers. The Company also acquired, through its wholly-owned subsidiary SBS
Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR
Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing
support organization for the OR product line. In addition, the Company and
the shareholders of both OR and ORTEC entered into exclusive option
agreements under which the Company may acquire the remaining shares of both
companies on February 28, 1999.
On August 12, 1998, the Company purchased 100% of the outstanding shares of
V-I Computer ("V-I") (see "Management's Discussion & Analysis: Subsequent
Events"). Based in Encinitas, California, V-I designs, manufactures and
markets CPU boards based on the Motorola PowerPC -Registered Trademark-
processor for embedded computer applications based on the VME and CompactPCI
bus architecture standards.
Excluding the effect of the $11.0 million charge to earnings taken in fiscal
1997 in conjunction with the acquisition of Bit 3, net income for the 1998
fiscal year would have increased 42.3% from $7.1 million in fiscal 1997 to
$10.1 million, and diluted earnings per common share would have increased
22.4% from $1.34 to $1.64. Including the effects for the 1997 charge to
earnings, net income for fiscal 1997 was $461,685, or $0.09 per diluted
common share.
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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. As of June 30, 1998, the Company had five subsidiaries, SBS
Berg Telemetry Systems, Inc. ("Berg"), SBS GreenSpring Modular I/O, Inc.
("GreenSpring"), SBS Embedded Computers, Inc. ("SBS Embedded"), SBS Bit 3
Operations, Inc. ("Bit 3") and SBS Micro Alliance, Inc ("Micro Alliance").
After the end of the 1998 fiscal year, the Company added five additional
subsidiaries with the formation of SBS Holdings GmbH and the acquisitions of
OR, ORTEC, OR Industrial Computers, Inc. and V-I.
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.
SBS' PRODUCTS
The Company's primary product lines are divided into two groups: general
purpose products including CPU products, general purpose I/O products, bus
interface products and industrial computer systems and enclosures, and
special purpose products including telemetry products, avionics interface
products, and data acquisition software.
GENERAL PURPOSE PRODUCTS
CPU PRODUCTS. The Company entered the standard bus embedded computer CPU
board market with its acquisition of SBS Embedded 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, Pentium and Pentium II processors which provide access to the
large base of Windows and Windows NT software available from the PC market.
The CPU boards sold by SBS Embedded are based on Intel 80X86, Pentium and
Pentium II processors. At present, the Company offers nine Intel
processor-based CPU boards ranging in price from approximately $2,500 to
approximately $8,500. In fiscal 1998 and 1997, sales of these products
comprised 8.8% and 11.5%, respectively, of the Company's total sales. As of
September 1, 1998 and 1997, backlog orders were $.6 and $.7 million
respectively. All backlog orders are expected to be filled in the current
fiscal year.
The Company broadened its CPU product line with the recent acquisitions of OR
and V-I. The OR product line includes CPU boards based on Intel computer
architecture and is available in the VME, CompactPCI, and PCCompact form
factors. In addition, OR provides VME CPU boards based on the Motorola 680X0
series processors and a series of computer input/output boards. The OR
product line consists of boards and systems, including ruggedized products
for military and industrial applications, transportation, industrial
controls, factory automation, and various other commercial and industrial
applications. Like other SBS product lines, OR's products, can support some
application specific modifications with their line of component products. The
OR facility will serve as the European base of operations for the Company's
other product lines, and OR Computers, Inc. will operate as a wholly-owned
subsidiary of SBS Embedded Computers, Inc. for the foreseeable future. The
V-I Computer product line consists of products that are typically used in
telecommunication, industrial automation, and defense applications. The V-I
Computer product line complements the other CPU offerings and will enable the
Company to offer a more complete list of processor solutions to its customers.
GENERAL PURPOSE I/O PRODUCTS. In April 1995, the Company purchased
GreenSpring, a leading developer and producer of I/O modules known as IPs.
IPs are small mezzanine boards that plug onto an embedded computer
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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
six IPs. The Company's offerings currently include VME, PCI, PC\104, Compact
PCI and ISA bus carrier cards. GreenSpring's product line of over 120 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. During fiscal 1998, the Company
introduced sixteen ruggedized conduction cooled mezzanine I/O boards
primarily used in military environments. These serve a portion of the
embedded computer market in which the Company previously did not participate
and have prices ranging from approximately $800 to approximately $5,000. In
fiscal years 1998, 1997 and 1996, sales of general purpose products comprised
approximately 22.8%, 25.8% and 35.3%, respectively, of the Company's total
sales. As of September 1, 1998, 1997 and 1996, backlog orders were $3.2, $2.4
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. The rapid expansion of microprocessor-based industrial
computers has resulted in the proliferation of a number of different computer
architecture standards. Generally speaking, a computer designed on one
architectural standard cannot communicate with a computer designed on another
architectural standard. Products could not be configured using two or more
computer architectures unless a communications link between them could be
established. Bit 3 identified this market for products which permit
industrial computers designed around different computer architectures to
communicate. 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. In addition, Bit 3 provides a series of PCI expansion units,
which allows OEMs to increase the number of devices needed by their
particular application.
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 and expansion products to a wide variety of
commercial users. In fiscal 1998 and 1997, sales of these products comprised
22.7% and 17.1%, respectively, of the Company's total sales. As of September
1, 1998 and 1997, backlog orders were $.9 and $1.5 million, respectively. All
backlog orders are expected to be filled within the current fiscal year.
INDUSTRIAL COMPUTER SYSTEMS AND ENCLOSURES. In November 1997, the Company
purchased Micro Alliance, (see "Management's Discussion & Analysis: Recent
Acquisitions"), a leading designer and producer of PC-compatible industrial
computer systems for the embedded computer market. The systems are based on
PCI and ISA architectures and are typically passive backplane-based, allowing
up to 20 PCI or ISA cards to be added. The Micro Alliance computer systems
are designed for OEM customers in the industrial, telecommunication,
scientific and military markets. They come in a variety of shapes and sizes,
including rack mount, desktop and mobile. A majority of the systems are
specially designed to include custom paint colors, custom logos, custom face
plates, or custom chassis designs. In June of 1997, a new line of rugged
portable systems was introduced focusing on new segments of existing
business, including medical imaging, remote test and measurement and
telemetry applications. In fiscal 1998, sales of these products comprised
6.5% of the Company's total sales. As of September 1, 1998, backlog orders
were $2.8 million. All backlog orders are expected to be filled within the
current fiscal year.
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SPECIAL PURPOSE PRODUCTS
TELEMETRY PRODUCTS. In August 1992, the Company purchased Berg, 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.
Berg pioneered the concept of using boards specially designed for telemetry
interface which would be added to standard ground station computers. Berg 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. Berg sells
approximately 30 products for the VME, PCI, and ISA bus telemetry markets at
prices ranging from approximately $3,000 to approximately $30,000. In fiscal
years 1998, 1997 and 1996, sales of these products comprised approximately
9.7%, 11.9% and 20.8%, respectively, of the Company's total sales. As of
September 1, 1998, 1997, and 1996, backlog orders were $1.6 million, $0.9
million and $0.7 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 products at prices ranging from
approximately $4,000 to approximately $20,000. In fiscal years 1998, 1997 and
1996, sales of this product comprised approximately 29.5%, 30.6% and 39.9%,
respectively, of the Company's total sales. As of September 1, 1998, 1997 and
1996, backlog orders were $1.8 million, $2.0 million and $1.9 million,
respectively. All backlog orders are expected to be filled within the current
fiscal year.
DATA ACQUISITION SOFTWARE PRODUCT. The Company announced its first software
product development effort in October 1997, with the introduction of
DataXpress-TM-, a data acquisition software product designed for the
Microsoft Windows NT operating environment. The first commercial release of
DataXpress was shipped in July 1998. DataXpress acquires data from a variety
of interfaces, displays the data in real-time using multiple, animated
graphical views per screen, and distributes this information on a network.
Because it can run on PC's, laptops and workstations, DataXpress can be
easily and inexpensively expanded without sacrificing quality or
capabilities. This new product is designed to meet the needs of telemetry
ground and flight test applications, commercial and military avionics test
and integration, and industrial automation applications. DataXpress can also
expand existing data acquisition systems by providing object-oriented
interfaces that enable system administrators and programmers to easily
integrate DataXpress systems with the existing, third party software
applications. The Company offers a complete software product including
manuals, training and customer support for implementation and continuing
service.
OTHER BUSINESS. In June 1997, the Company sold its Judgmental Use of Force
product (see "Management's Discussion & Analysis: Sale of Judgmental Use of
Force Business"). Sales of this product line were immaterial to the Company's
operations.
CUSTOMERS AND APPLICATIONS
The Company's broad range of products support a wide range of applications.
In fiscal 1998, 1997 and 1996, no one customer exceeded 10% of the Company's
sales. The following table highlights some of the Company's representative
customers and their applications utilizing the Company's products.
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<TABLE>
<CAPTION>
APPLICATION CUSTOMER COMPANY PRODUCT
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COMMERCIAL AND INDUSTRIAL APPLICATIONS
<S> <C> <C>
Aircraft Simulation Flight Safety International I/O, Interconnect
Aircraft Simulation CAE Electronics Interconnect
Airport Baggage Inspection InVision Technologies Interconnect
Airport Ground Traffic Control Norden/Westinghouse CPU
Airport Ground Traffic Control ARINC I/O
Automated Plasma Processing Systems Plasma Therm Industrial Systems & Enclosures
"C" Size Copier Xerox I/O
Color Proof Copier Eastman Kodak I/O
Currency Inspection System Currency Systems CPU
Document Scanner General Scanning I/O
License Plate Readers Perceptics Interconnect
OCR Mail Address Processing Bell & Howell Interconnect
Semiconductor Handler Delta Design I/O
Semiconductor Handler Lamm Research I/O
Turbine Control System GE Motors CPU
Video Compression Sun Microsystems Interconnect
COMMUNICATIONS
Cellular Telephone Systems ArgoSystems CPU
Commercial DAMA Viasat I/O
Communications Satellite Testing TRW Telemetry
GSP Testing Aerospatiale Telemetry
Integrated Voice and Data Systems Dictaphone Industrial Systems & Enclosures
Network Switching Platforms Netrix Industrial Systems & Enclosures
PBX Systems Allstar Systems Industrial Systems & Enclosures
Satellite Power Supply Testing Elgar Corporation Industrial Systems & Enclosures
Telephone Switch Billing System ACECOM I/O
INDUSTRIAL AUTOMATION
Automotive Brake Tester Burke Porter Machinery CPU
CNC Controller MDSI I/O
CNC Controller Herkules I/O
CNC Machine UVA I/O
Carpet Manufacturer Process Control MOOG I/O
Packaging Machinery Triangle Package Machinery I/O
Robot Control Adept Technology I/O
Automotive Test Stands W.M. Associates/Digital Equipment Interconnect
Corp.
Automotive Wheel Alignment Burke Porter Machinery CPU
Carpet Manufacturer Process Control MOOG I/O
Packaging Machinery Triangle Package Machinery I/O
PLC Co-processor GE Fanuc CPU
Programmable Logic Controller Reliance Electric Interconnect
Real-time Control Systems Queue Systems, Inc./Digital Interconnect
Equipment Corp
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>
<S> <C> <C>
MEDICAL DEVICES
Blood Analyzer IGEN I/O
CT Beam Scanner Imatron Interconnect
DNA Analyzer Organon Teknika I/O
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 Boeing Telemetry/Avionics
Communications System Department of Defense CPU
Crusader UDLP/General Dynamics I/O
F-14 Northrop Grumman Avionics
F-15, F-16 U.S. Government Avionics
F-16 TRW Avionics
F-22 Lockheed Martin Avionics
Flight Test/Satellite Integration & Test Boeing Telemetry
Flight Test/Shuttle Command Launch Control NASA Telemetry
System
Helicopter Systems Fugitsu Avionics
Military Radios GEC Marconi CPU
Military Satellite Telemetry Tracking & Lockheed Martin Telemetry
Control/ Missile Test
Military Satellite Telemetry Tracking & Aerojet Telemetry
Control
Mini-DAMA Titan Linkabit I/O
Missile Systems/ F-18 Raytheon Avionics
Missile Test Raytheon Telemetry
Missile and Aircraft Test NAWC Telemetry
Missile and Aircraft Test McDonnell Douglas Telemetry
Mission Planning & Debriefing Lockheed-Sanders Interconnect
Rocket Launch Controller Orbital Sciences CPU
Satellite Imaging TRW Telemetry
Satellite Telemetry Tracking and & Control/ Real Time Logic Telemetry
Satellite Integration Test
Satellite Integration & Test TRW Space and Electronics Telemetry
Space Station Simulator Raytheon CPU
TAC-3 Hughes Data Systems Interconnect
TAC-4 Hewlett Packard Interconnect
TEST AND MEASUREMENT APPLICATIONS
Automotive Test/ Simulation Systems Integrated Systems 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
Aircraft Ground Control ARINC I/O
Commercial Avionics System Test Honeywell Avionics
</TABLE>
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<TABLE>
<S> <C> <C>
Commercial Avionics System Test Rockwell International Avionics
FAA Communication System Delta Information Systems I/O
Jet Engine Testing Pratt & Whitney Telemetry
Lane Controllers NYSTA I/O
Maritime Systems NEC Avionics
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 1, 1998, excluding the effect of the acquisitions of OR and V-I,
(see "Management's Discussion and Analysis: Subsequent Events"), the Company
had 70 employees, who typically hold engineering degrees, in sales, marketing
and customer relations. During fiscal 1998, the Company realigned its sales
force into two groups, the aerospace group sales force and the computer group
sales force and reduced its use of independent manufacturers' representatives
from 43 at the beginning of fiscal 1998 to 14 at the end of fiscal 1998. The
aerospace sales force is responsible for sales of the Company's avionics
interface and telemetry products and the computer group sales force is
responsible for sales of the Company's CPU, I/O, interconnect and industrial
computer systems and enclosures products. Employee sales personnel are
educated about 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' representative and closed with the assistance of the
appropriate product line manager. In the case of the Company's CPU, I/O,
interconnect and industrial computer systems and enclosure products, sales
are either closed by the computer group sales force, or independent
manufacturers' representatives or are the result of catalog sales. In each of
the Company's product lines, sales employees generally pursue "design in"
applications where the Company's products are included as part of a system.
The Company sells approximately 16% of its products outside the United States
(see footnote 4 to the consolidated financial statements). These sales are
primarily generated by the 41 international distributors which represent the
Company's products. During the 1999 fiscal year, the Company will add sales
from its recently acquired German businesses. The Company maintains sales
offices in Albuquerque, New Mexico 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; in St. Paul, Minnesota for its interconnect products and
in Vista, California for its industrial computer systems and enclosure
products. The Company's domestic field sales employees are located throughout
the United States. The Company also maintains an international sales office
near London, England to support European sales of its avionics interface
products. Sales and sales leads are generated through a range of activities
performed by the Company including identification of participants in key
defense-related programs, participation in numerous trade shows, direct mail
catalogs, advertisements in leading trade publications and corporate and
subsidiary web sites on the Internet.
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 1, 1998, excluding the effect of the
acquisition of OR and V-I (see "Management's Discussion and Analysis:
Subsequent Events"), the Company had approximately 86 employees engaged in
research and development activities. Of these employees, 48 have technical
degrees and 21 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
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60% of the Company's research and development efforts in fiscal 1998 were
software related. The Company's research and development expense was $8.0
million, $4.4 million and $2.8 million in fiscal 1998, 1997 and 1996,
respectively, corresponding to 10.8%, 8.4% and 9.1% of sales, respectively.
SBS Embedded's current research and development activity is focused on
evolutionary improvement of its existing product lines. 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 the recent introduction of 16 ruggedized conduction cooled mezzanine
I/O boards primarily used in military environments. The development of Bit
3's new products is driven by the emergence of significant new bus
specifications and applications. For example, Bit 3 recently introduced a
fiber optic adapter to connect PCI and VME systems. Berg is continuing to
upgrade its products' performance by increasing the operating bit rates, a
key performance measure in the telemetry industry. Berg 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 is continuing to
expand development of additional ruggedized avionics product for the
operational system market. In October 1997, the Company announced its first
software product development effort with the introduction of DataXpress-TM-,
a data acquisition software product designed for the Microsoft Windows NT
operating environment. This product is designed to meet the needs of
telemetry ground and flight test applications, commercial and military
avionics test and integration, and industrial automation applications. 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 of
these products, the Company performs test, packaging and support functions
for the Company's products. The Company reduces dependence on a particular
contract manufacturer 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. If the Company did
this it would become increasingly dependent on a smaller number of
manufacturers for the continued timely and efficient production of all of its
inventory. The Company's industrial computer systems and enclosure business
purchases all needed components from third party vendors. The Company
performs all assembly, test, packaging and support functions for these
products.
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,
alternative sources for 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, however the Company has negotiated cash
discount terms for prompt payment. 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.
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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 CPU boards. The Company's direct competitors include other
companies that build 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. In addition, with the acquisition of OR
and VI, the Company also competes with suppliers of CPU boards based on
Motorola 680x0 and PowerPC architectures.
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, AVTECH Systems, Inc., 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., Excalibur Technologies Corporation, Condor Engineering 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.
In the Company's industrial computer systems and enclosure business, the
Company competes with other suppliers of ISA/PCI systems and enclosures such
as I-Bus, a subsidiary of Maxwell Technologies, Texas Micro, Inc and
Industrial Computer Source.
EMPLOYEES
As of September 1, 1998, the Company had, exclusive of recent acquisitions,
approximately 327 employees at its six locations: Albuquerque, New Mexico;
Carlsbad, California; Vista, California; Menlo Park, California; Raleigh,
North Carolina; and St. Paul, Minnesota. Of these employees, 35 were in
executive and administrative positions; 70 were in sales, marketing and
customer relations; 86 were in research and development; 29 were clerical,
and 107 were employed in support of ongoing production.
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In July and August 1998 the Company added 98 employees resulting from the
50.1% acquisition of OR, the 50.2% acquisition of ORTEC, the 100% acquisition
of OR Computers, Inc. and the acquisition of VI (see "Management's
Discussion and Analysis: Subsequent Events"). Of these employees, 5 were in
executive and administrative positions; 22 were in sales, marketing and
customer relations; 34 were in research and development; 2 were clerical, and
35 were employed in support of ongoing production.
RISK FACTORS
Statements in this Report about SBS' outlook for its business and markets,
such as projections of future performance, statements of management's plans
and objectives, forecasts of market trends and other matters, are
forward-looking statements that involve risks and uncertainties. SBS' actual
results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed below:
GROWTH THROUGH ACQUISITIONS AND INTEGRATION OF ACQUIRED COMPANIES. SBS has
increased the scope of its operations through the acquisition of seven
businesses and product lines acquired since 1992. SBS acquired Berg in fiscal
1993, GreenSpring in fiscal 1995, SBS Embedded in fiscal 1997, Bit 3 in
fiscal 1997, Micro Alliance in fiscal 1998, and, in fiscal 1999, OR, ORTEC
and OR Computer Inc. and VI. SBS' management and financial controls,
personnel, and other corporate support systems might not be adequate to
manage the increase in the size and the diversity of scope of SBS' operations
as a result of the recent acquisitions or any future acquisitions. In
addition, SBS' acquisitions might not increase earnings and the companies
acquired might not continue to perform at their historical levels.
A major element of SBS' business strategy is to continue to pursue
acquisitions that either expand or complement its business. In the future,
SBS might not be able to identify and acquire acceptable acquisition
candidates on terms favorable to SBS, and in a timely manner. SBS could use a
substantial portion of its capital resources for these acquisitions.
Consequently, SBS may require additional debt or equity financing for future
acquisitions. This financing may not be available on terms favorable to SBS,
if at all. Also, even if SBS does acquire other businesses, it will continue
to encounter the risks associated with the integration of the acquisitions
described above.
SBS anticipates that one or more potential acquisition opportunities,
including some that could be material, may become available in the near
future. If and when appropriate acquisition opportunities become available,
SBS intends to pursue them actively. An acquisition by SBS might or might
not, however, occur. An acquisition which does occur could potentially
materially and adversely affect SBS and might not be successful in enhancing
SBS' business.
ACQUISITION CHARGES. As part of its strategy for growth, SBS acquires
compatible businesses. Not infrequently, in accounting for a newly acquired
business, SBS is required to amortize, over a period of years, intangible
assets, including goodwill. Although usually the acquired business' current
operating profit offsets the amortization expense, no one can assure that an
acquired business' operations will remain at their current levels. A decrease
in the acquired business' operating profit could reduce SBS' overall net
income and earnings per share. In addition, no one can assure that changes in
future markets or technologies will not require faster amortization of
goodwill in such a way that overall Company financial condition or results of
operations would be adversely affected. SBS may also be required, under
generally accepted accounting principles, to charge against earnings the
value of an acquired business' technology which does not meet the accounting
definition of "completed technology." When SBS acquired Bit 3 in fiscal 1997,
it recorded approximately $10.0 million in intangible assets, including
goodwill. These are being amortized on a straight-line basis over the
estimated benefit period of ten years. Also, in connection with the Bit 3
acquisition, SBS recorded an $11.0 million charge against earnings in the
second fiscal quarter of 1997. The amount of the charge against earnings was
based on an assessment by SBS, in conjunction with an independent valuation
firm, of purchased technology of Bit 3. SBS incurred a net loss of $5 million
(or $1.24 per share) for the second fiscal quarter of 1997 as a result of the
earnings charge. In connection
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with SBS' acquisition of Micro Alliance in fiscal 1998, SBS recorded $4.5
million of goodwill, which is being amortized over a ten-year period. As a
result of its recent acquisitions of OR, ORTEC, OR Computers, Inc. and VI,
SBS expects to amortize goodwill and take a charge against earnings for
technology which is not completed technology. (see "Fluctuations in Operating
Results").
FLUCTUATIONS IN OPERATING RESULTS. SBS has experienced fluctuations in its
operating results in the past and may experience those fluctuations in the
future. Sales, on both an annual and a quarterly basis, can fluctuate as a
result of a variety of factors, many of which are beyond SBS' control. These
factors include the timing of customer orders, manufacturing delays, delays
in shipment due to component shortages, cancellations of orders, the mix of
products sold, cyclicality or downturns in the markets served by SBS'
customers, including significant reductions in defense spending affecting
certain of SBS' customers, and regulatory changes. Because those fluctuations
can happen, SBS believes that comparisons of the results of its operations
for preceding quarters are not necessarily meaningful and that investors
should not rely on the results for any one quarter as an indication of how
SBS will perform in the future. Investors should also understand that, if
SBS' sales or earnings for any quarter are less than the level expected by
securities analysts or the market in general, the market price for SBS'
Common Stock could immediately and significantly decline.
RELIANCE ON DEFENSE SPENDING. In each of fiscal 1995, 1996, 1997 and 1998 SBS
derived a significant portion of its sales directly or indirectly from the
U.S. Department of Defense. SBS expects that the Department of Defense will
continue to be a significant source of sales. Changes in the geopolitical
environment or in national policy might result in significantly reduced
defense spending. Reduced spending could significantly reduce SBS' marketing
opportunities and revenues, and, therefore, materially adversely affect its
financial condition, results of operations, or liquidity. Also, SBS believes
that many of its potential customers will rely on U.S. government funding for
the purchase of SBS' products. Sales to these customers may be reduced if
those funds are unavailable or delayed because of budget constraints or
bureaucratic processes.
RELIANCE ON INDUSTRY STANDARDS; FUNDAMENTAL TECHNOLOGY CHANGE. Most of SBS'
products are developed to meet certain industry standards, which define the
basis of compatibility in operation and communication of a system supported
by different vendors. Among such standards which SBS' products meet are
MIL-STD-1553, Telemetry IRIG Standards and various ANSI standards. These
standards are continuing to develop and can change. If these standards are
eliminated or changed, the design, manufacture or sale of SBS' products could
be inappropriate or obsolete and could require costly redesign to meet new or
emerging standards. SBS also believes that its success will depend in part on
its ability to develop products that evolve with changing industry standards
and customer preferences. SBS may or may not be successful in developing
those products in a timely manner, or in selling the products it develops.
SBS' delay or failure to adapt to changing industry standards could
significantly adversely affect its marketing and sales, revenues and
financial condition.
Many of SBS' product designs rely on state of the art digital
technology. Future advances in technology might make obsolete SBS' existing
product lines, which would require SBS to compete more and to undertake
costly redesign of its products to maintain its competitive position. SBS
might not be able to incorporate the new technology into its existing
products or to redesign its existing products in order to compete effectively.
SBS' competitors are continually introducing new and enhanced products
and solutions for business needs. These products and solutions probably will
affect the competitive environment in the markets in which they are
introduced. The development of new products and technologies, or the
adaptation or development of products and technologies in response to them,
requires commitments of financial resources, personnel and time well in
advance of sales. Decisions with respect to those commitments must accurately
anticipate both future demand and the technology that will be available to
meet that demand. SBS might not be able to adapt to future technological
changes. If it does not, SBS' business might be materially adversely affected.
PRODUCT MARKET MIGHT NOT DEVELOP. Many of SBS' potential customers design and
manufacture standard bus embedded computers internally. Increased market
acceptance of SBS' products and services depends in part on these customers
relying on SBS instead of themselves to provide embedded computer components.
SBS believes
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that increased market acceptance of its products will also depend on a number
of factors. These factors include the quality of SBS' design and production
expertise, the increasing use and complexity of embedded computer systems in
new and traditional products, the expansion of markets that are served by
standard bus embedded computers, time-to-market requirements of the Company's
actual and potential products, the assessment of direct and indirect cost
savings, and customers' willingness to rely on SBS for mission-critical
applications. SBS believes that in many customer applications, the cost of
its products may exceed or be perceived to exceed the cost of internal
development. SBS will not be able to achieve its business growth objectives
if market acceptance of its products does not increase.
POTENTIAL YEAR 2000 PROBLEMS. The Year 2000 ("Y2K") issue refers to the
inability of certain date-sensitive computer chips, software, and systems to
recognize a two-digit date field as belonging to the 21st century. Mistaking
"00" for 1900 or any other incorrect year could result in a system failure or
miscalculations causing disruptions to operations, including manufacturing, a
temporary inability to process transactions, or send invoices, or engage in
other normal business activities. This is a significant issue for most, if
not all companies, with far reaching implications, some of which cannot be
anticipated or predicted with any degree of certainty. The Y2K issue may
create unforeseen risks to the Company from its internal computer systems as
well as from computer systems of third parties with which it deals. Failures
of the Company's and/or third parties' computer systems could have a material
adverse impact on the Company's ability to conduct its business (see
"Management's Discussion and Analysis: Year 2000 Issue").
COMPETITION. The standard bus embedded computer industry is
highly-competitive and fragmented, and SBS' competitors differ depending on
product type, company size, geographic market and application type. SBS faces
competition in each of its product lines. SBS believes that because of the
diverse nature of SBS' products and the fragmented nature of the embedded
computer market, there is little overlap of competitors for each product
line. Competition in all of SBS' product lines is based on: performance,
customer support, product longevity, supplier stability, breadth of product
offerings and reliability. At the end of the 1998 fiscal year, SBS had
revenues of $74.2 and net income of $10.1 million. Many of SBS' existing and
potential competitors are bigger companies which have financial,
technological and marketing resources significantly greater than those of
SBS, which may give them a competitive advantage. They and other competitors
may have established relationships with customers or potential customers
which can make it harder for SBS to sell its products to those customers. SBS
cannot promise that it will be able to compete effectively in its current or
future markets. Also, competitive pressures might significantly adversely
affect SBS' marketing and sales, revenues and financial condition.
In the CPU market in which SBS Embedded's products are marketed, SBS
competes with a number of other suppliers of CPU boards. SBS' direct
competitors include other companies that build CPU boards based on Intel
microprocessor technology, such as Force Computers, Inc. (a wholly-owned
subsidiary of Solectron Corporation), RadiSys Corporation, VME Microsystems,
Inc. and XYCOM, Inc. In addition, with the acquisition of OR and VI, SBS also
competes with suppliers of CPU boards based on Motorola 68OxO, and PowerPC
architectures.
In the generalized computer I/0 product area served by GreenSpring and
its IP product line, SBS 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/0 products using a different
implementation to provide functionally equivalent products. SBS' competitors
in each of these classes include Acromag, Inc., Systran, Inc. and VME
Microsystems, Inc.
In the telemetry market, SBS competes with suppliers such as Aydin
Vector Division, AVTECH Systems, Inc., L3 Communications, Inc., Terametrix,
Inc. and Veda, Inc.
In the avionics interface market in which SBS' MIL-STD 1553 products are
marketed, SBS competes with a number of other companies that produce similar
avionics interface products. SBS' competitors include Ballard Technologies,
Inc., Data Devices Corporation, Excalibur Technologies Corporation, Condor
Engineering and
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Gesellschaft Fur Angewandte Informatik und Mikroelekemik, GmbH.
In SBS' interconnect and expansion unit product line, SBS 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.
In SBS' industrial computer systems and enclosure business, SBS competes
with other suppliers of ISA/PCI systems and enclosures such as I-Bus, a
subsidiary of Maxwell Technologies, Texas Micro, Inc. and Industrial Computer
Source.
AVAILABILITY OF COMPONENT MATERIALS. Many of SBS' products contain state of
the art digital electronic components. SBS is dependent upon third parties
for the continuing supply of many of these components. Some of the components
are obtained from a sole supplier, such as Xilinx, Inc., or a limited number
of suppliers, for which alternate sources may be difficult to locate.
Moreover, suppliers may discontinue or upgrade some of the products
incorporated into SBS' products, which could require SBS to redesign a
product to incorporate newer or alternative technology. Although SBS believes
that it has arranged for an adequate supply of components to meet its
short-term requirements, SBS does not have contracts which would assure
availability and price. If sufficient components are not available when SBS
needs them, SBS' product shipments could be delayed, which could affect SBS'
revenues during certain periods as well as lead to customer dissatisfaction.
If enough components are not available, SBS might have to pay premiums for
parts in order to make shipment deadlines. Paying premiums for parts would
lower or eliminate SBS' profit margin and hurt its business and financial
condition, or cause SBS to increase its inventory of scarce parts, which
would adversely affect SBS' cash flow.
RETENTION AND RECRUITMENT OF KEY EMPLOYEES. SBS' ability to maintain its
competitive position and to develop and market new products depends, in part,
upon its ability to retain key employees and to recruit and retain additional
qualified personnel, particularly engineers. If SBS is unable to retain and
recruit key employees, its product development, marketing and sales,
revenues, and business condition could suffer material adverse effects.
NO PATENT PROTECTION. Although SBS believes that some of its processes and
equipment may be proprietary, SBS has not sought patent protection for its
technology. SBS has relied upon trade secret laws, industrial know-how and
employee confidentiality agreements. SBS' processes and equipment might not
provide it with a sufficient competitive advantage to overcome its lack of
patent protection. Others could independently develop equivalent or superior
products or technology. Also, SBS might not be able to establish trade secret
protection, and secrecy obligations might not be honored. If consultants,
employees and other parties apply technological information developed
independently, by them or others, to Company projects, disputes may arise as
to the proprietary rights to that information. Those disputes may not be
resolved in favor of SBS.
SBS could have to litigate to enforce its proprietary rights, protect its
trade secrets, determine the validity and scope of the intellectual property
rights of others or defend against claims of infringement. That litigation
could be very expensive and could divert resources which SBS could otherwise
use in its business, which could hurt SBS and its business.
Patent applications in the United States are not publicly disclosed until the
patents issue, so patent applications may have been filed by someone else
that relate to SBS' products and technology. SBS does not believe that it
infringes any patents of which it is aware, but someone could make a patent
infringement claim against SBS. Such a claim might significantly hurt SBS and
its business. If someone asserts infringement or invalidity claims against
SBS, SBS might have to litigate to defend itself against those claims. In
certain circumstances, SBS might try to obtain a license under the claimant's
intellectual property rights. The claimant might not be willing to give SBS a
license at all or on terms acceptable to SBS.
PRODUCT LIABILITY. SBS' products and services could be subject to product
liability or government or commercial warranty claims. SBS maintains primary
product liability insurance with a general aggregate limit of $2.0
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million, $1.0 million per occurrence, and an $9.0 million excess policy.
While SBS has never been the subject of any significant claims of this kind,
its products are widely used in a variety of applications and claimants have
a propensity initially to pursue all possible contributors in a legal action.
If a claim is made against SBS, SBS' insurance coverage might not be adequate
to pay for its defense or to pay for any award, in which case SBS would have
to pay for it. Also, SBS might not be able to continue that insurance in
effect for premiums acceptable to SBS. If a litigant were successful against
SBS, a lack or insufficiency of insurance coverage could have a material
adverse effect upon SBS.
INTERNATIONAL SALES IN GENERAL. SBS sells its products in countries
throughout the world from its United States and European based offices. These
sales subject SBS to various governmental regulations, export controls, and
the normal risks involved in international sales. Sales of products
internationally are subject to political, economic and other uncertainties,
including, among others, risk of war, revolution, expropriation,
renegotiation or modification of existing contracts, standards and tariffs,
and taxation policies. They are also subject to international monetary
fluctuations which may make payment in United States dollars more expensive
for foreign customers (who may, as a result, limit or reduce purchases).
CHANGES IN EXCHANGE RATES. Substantially all of SBS' revenues to date have
been received in United States dollars. However, some sales in the future may
be in other currencies. Any decline in the value of other currencies in which
SBS makes sales against the United States dollar will have the effect of
decreasing SBS' earnings when stated in United States dollars. SBS does not
engage in any hedging transactions that might have the effect of minimizing
the consequences of currency fluctuations, and SBS does not intend to do so
in the immediate future.
TRADE POLICIES AND DISPUTES. The political and economic policies and concerns
of countries in which SBS makes or could make sales could result in the
adoption of new trade policies in those countries or the United States or
lead to trade disputes between those countries and the United States. These
could limit, reduce, eliminate or disrupt SBS' sales outside the United
States, which might adversely affect SBS' total revenues and business
prospects outside the United States.
POTENTIAL DILUTIVE EFFECT OF OUTSTANDING WARRANTS AND OPTIONS AND
REGISTRATION RIGHTS. SBS, in connection with its acquisition of GreenSpring
in August 1995, issued warrants to purchase 400,000 shares of Common Stock at
an exercise price of $4.50 per share (the "GreenSpring Warrants"). SBS also
registered the Common Stock underlying the GreenSpring Warrants for sale
under the Securities Act of 1933 (the "Securities Act"). In April 1996, SBS
registered under the Securities Act options for 133,333 shares held by SBS'
Chairman of the Board and Chief Executive Officer, Mr. Amenson. As of June
30, 1998, 140,236 of the GreenSpring Warrants remained, all of which were
exercisable. The holders of the GreenSpring Warrants also possess until
August 2000 the right to sell shares of Common Stock underlying the
GreenSpring Warrants alongside SBS should SBS file a registration statement
during this period.
As of June 30, 1998, SBS had 463,933 options and warrants outstanding which
could be exercised and 944,267 options which were not yet eligible for
exercise.
LIMITED PUBLIC FLOAT; TRADING; VOLATILITY OF STOCK PRICE. SBS' Common Stock
is traded on the Nasdaq National Market. While a public market currently
exists for SBS' Common Stock and the number of shares in the public float as
of June 30, 1998 was 5,328,512, trading volume in the four weeks ended June
30, 1998 averaged 25,587 shares traded per day. Thus, trading of relatively
small blocks of stock can have a significant impact on the price at which the
stock is traded. In addition, the Nasdaq National Market has experienced, and
is likely to experience in the future, significant price and volume
fluctuations which could adversely affect the market price of the Common
Stock without regard to the operating performance of SBS. SBS believes
factors such as quarterly fluctuations in financial results, announcements of
new technologies impacting SBS' products, announcements by competitors or
changes in securities analysts' recommendations may cause the market price to
fluctuate, perhaps substantially. These fluctuations, as well as general
economic conditions, such as recessions or high interest rates, may adversely
affect the market price of the Common Stock.
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ABSENCE OF DIVIDENDS. Since its inception, SBS has not paid cash dividends on
its Common Stock. SBS intends to retain future earnings, if any, to provide
funds for business operations and, accordingly, does not anticipate paying
any cash dividends on its Common Stock in the foreseeable future.
ITEM 2. FACILITIES
The Company leases office and manufacturing space in Albuquerque, New Mexico,
Carlsbad, California, Menlo Park, California, Vista, California, Encinitas,
California, Raleigh, North Carolina, St. Paul, Minnesota and Angsburg and
Mindelheim, Germany. 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 31,482 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 believes that
this facility is capable of handling projected increases in production for
the foreseeable future, as the current capacity utilization of the available
productive floor space is approximately 50%. The lease term for the
Albuquerque, New Mexico facility runs through June 30, 2000, with an option
to extend the term for an additional five 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 31, 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 relocated during fiscal 1998 from
Minneapolis, Minnesota to a 39,597 square foot leased facility, located in a
business park, in St. Paul, Minnesota. This facility, consisting of 14,813
square feet of office space and 24,784 square feet of production and
warehouse space, has been leased for a term of five years expiring on
November 30, 2002. In addition, the Company has an option to extend the term
of the lease for one consecutive period of twenty-four to thirty-six months.
Management believes that this facility will be sufficient to serve needs of
the interconnect business through the term of the lease.
The Company leases, in Carlsbad, California, a one story 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 and development of the Company's data
acquisition software. The lease term for the Carlsbad, California location
runs through July 2000. In addition, the Company's industrial computer and
enclosure business is located in a leased facility in Vista, California
consisting of approximately 10,661 square feet as part of a multi-tenant
industrial building. This lease expires on December 31, 1998. Management is
currently finalizing a seven year lease for a 75,160 square foot one story
facility located in a business park in Carlsbad, California and will relocate
the Company's telemetry, data acquisition software development, and
industrial computer and enclosure operations, as well as the Company's recent
acquisition, VI, currently located in Encinitas, California (see "Management
Discussion and Analysis: Subsequent Events"), to this facility. Management
estimates that the relocation of these activities will be completed by
January 1999 and will not be disruptive to their operations. Management
believes that this facility will sufficiently serve the needs of these
operations through the term of the lease.
The Company leases, in Angsburg, Germany (see "Management's Discussion and
Analysis: Subsequent Events"), four floors, of a six floor building,
consisting of approximately 20,000 square feet of office and assembly and
test areas for its or operations. The lease has a term of ten years expiring
December 31, 2005 with an option to expand to the additional two floors,
consisting of 5,000 square feet each, five years from the commencement of the
lease. Management believes that the facility is sufficient to serve the needs
of the or operations through the term of the lease. In addition, the Company
leases approximately 5,000 square feet of manufacturing space in a multi-use
facility, in Mindelheim, Germany, for its other operations. The lease had a
five-year term that commenced May 1, 1992 with an option to extend in
one-year increments open three months written notice. Management believes
that the facility is sufficient to serve the needs of others for the
foreseeable future.
Page 18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company was 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 (the
Company sold this business in June 1997), claimed 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 settled this lawsuit in March 1998 for $40,000.
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, results of operations, or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 19
<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:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter 1997 $ 19.750 $ 10.625
Second Quarter 1997 39.000 19.000
Third Quarter 1997 35.000 15.250
Fourth Quarter 1997 24.875 10.875
First Quarter 1998 26.250 20.125
Second Quarter 1998 31.375 22.125
Third Quarter 1998 29.250 23.000
Fourth Quarter 1998 33.375 26.500
</TABLE>
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 1, 1998, the number of common stockholders of record was
approximately 250, at which date the closing market value of the Company's
common stock was $22.50 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. No dividend payments are expected to
be paid in the future.
Page 20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the years ended June 30, 1994
through June 30, 1998 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
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales - continuing operations $ 74,213,901 52,814,568 31,331,793 16,217,648 10,196,568
Net income - continuing operations $ 10,090,188 461,685 3,580,907 1,844,876 870,750
Net income per common share $ 1.81 0.10 1.19 0.66 0.30
Net income per common share - assuming dilution $ 1.64 0.09 0.97 0.65 0.30
Total assets $ 74,315,187 61,165,014 20,443,672 19,904,922 13,476,737
Long-term debt, excluding current installments $ -- 2,816,251 5,188,320 5,341,649 273,573
Total liabilities $ 10,051,200 10,838,326 10,392,752 14,855,674 7,611,400
Total stockholders' equity $ 64,263,987 50,326,688 10,050,920 5,049,248 5,865,337
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The Company has not declared any dividends during the periods presented.
No future dividend payments are expected.
On November 24, 1997, the Company completed the purchase of Micro
Alliance.
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.
For fiscal 1997, net income excluding the $11.0 million in-process R&D
charge would have been $7,061,685 (net of income taxes). Net income per
common share excluding the $11.0 million in-process R&D charge would
have been $1.56 and net income per common share - assuming dilution
would have been $1.34.
On August 19, 1996, the Company completed a pooling of interests
transaction with SBS Embedded, 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 was reported as discontinued operations in
the consolidated financial statements.
The Selected Financial Data for the statements of operations data are
for continuing operations only.
Page 21
<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 (SEE "ITEM 1. RISK FACTORS").
OVERVIEW
The Company is a leading designer and manufacturer of open-architecture,
standard bus embedded computer components that system designers can easily
utilize to create a custom solution specific to the user's unique
application. The Company's product lines include CPU boards ("CPU"), general
purpose input/output ("I/O") modules, avionics interface modules and
analyzers, interconnection and expansion units, telemetry boards, data
acquisition software and industrial computer systems and enclosures. In 1992,
the Company added a second embedded computer product line with the
acquisition of Berg, a developer of telemetry interface circuit boards. In
1995, the Company added a third embedded computer product line with the
acquisition of GreenSpring. GreenSpring is engaged in the design, development
and manufacture of general purpose I/O products. 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 five embedded computer companies as discussed in "Recent
Acquisitions," "Public Stock Offering," and "Subsequent Events" below.
RECENT ACQUISITIONS
On November 24, 1997, the Company completed the purchase of Micro Alliance, a
privately held San Diego county-based manufacturer of industrial computer
systems and enclosures. Micro Alliance specializes in the design and
manufacture of special-purpose PC-compatible computer systems offering a
variety of CPU boards and system enclosures, including rack mount, desktop
and mobile systems. Most systems contain passive backplanes that allow the
addition of up to 20 ISA and PCI cards. These systems are often customized to
meet the needs of particular OEM applications. Under the terms of the
purchase agreement dated November 24, 1997 (the "Agreement") among the
Company, Micro Alliance, a California corporation, and Jeffrey Huston, Edward
Larson, and Sherrin W. Larson (together "Shareholders"), the Company acquired
all of the outstanding capital stock of Micro Alliance for a total purchase
price of $5.8 million. Of this total purchase price, $250,000 in cash was
placed in a joint escrow account until the earlier of resolution of certain
tax issues or the end of any applicable statute of limitations. The financial
results of Micro Alliance have been included in the Company's Consolidated
Financial Statements from November 24, 1997. As a result of the acquisition,
the Company recorded $4.5 million of goodwill, which is being amortized over
a ten-year period.
Page 22
<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
St. Paul-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 was
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
definition 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 pro forma consolidated results of operations have been prepared
as if the acquisitions of Bit 3 and Micro Alliance had occurred at July 1,
1996.
<TABLE>
<CAPTION>
June 30 June 30
(in thousands except per share amounts) 1998 1997
---- ----
<S> <C> <C>
Sales $ 76,437 64,476
Net income 10,014 1,862
Net income per common share 1.79 0.41
---- ----
---- ----
Net income per common share - assuming dilution 1.62 0.35
---- ----
---- ----
</TABLE>
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 acquisitions been consummated as of that time, nor
is it intended to be a projection of future results.
On August 19, 1996, the Company completed a pooling of interests transaction
with SBS Embedded based in Raleigh, North Carolina. SBS Embedded manufactures
Intel processor-based CPU boards for the standard bus embedded computer
market. The financial results of SBS Embedded 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,
SBS Embedded recorded sales of approximately $4.0 million and income from
continuing operations of approximately $103,000.
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
Page 23
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
stock offering were used to fund the acquisition of Bit 3 (see "Recent
Acquisitions" above), to repay long-term debt, and the balance has been used
for general working capital requirements and acquisitions.
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.
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
----------------------------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of Sales 42.8 47.2 46.3
------------ ----------- ----------
Gross Profit 57.2 52.8 53.7
Selling, general and administrative expense 22.8 19.4 20.1
Research and development expense 10.8 8.4 9.1
Acquired in-process research and development charge -- 20.8 --
Amortization of intangible assets 2.6 2.8 2.8
------------ ----------- ----------
Operating income 21.0 1.4 21.7
Interest income (expense) (net) 1.3 0.1 (2.7)
------------ ----------- ----------
Income before income taxes 22.3 1.5 19.0
Income taxes 8.7 0.6 7.6
------------ ----------- ----------
Net income 13.6% 0.9% 11.4%
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
SALES. In fiscal 1998, sales increased 40.5%, or $21.4 million, from $52.8
million in fiscal 1997 to $74.2 million. Of this 40.5% increase, sales
contributed by Micro Alliance, which was acquired on November 24, 1997,
comprised 9.1%; sales contributed by Bit 3, which was acquired on November
18, 1996, comprised 14.7%; and 19.8% of this increase was attributable to the
Company's other product lines, offset by 3.1% due to the sale of the
Company's Judgmental Use of Force business on June 26, 1997. Throughout
fiscal 1998, prices for the Company's products remained firm, and unit
shipments increased across all product lines. Historically, less than 5% of
the Company's sales were direct sales to Asian-based customers. The Company
experienced minimal direct effect (less than 2% of sales) on its operations
due to the current Asian currency and economic crisis. Management believes
that any future direct effect on the Company from the Asian currency and
economic crisis will remain minimal; however, it is difficult for the Company
to predict any indirect effect derived from sales to U.S. based customers
whose products are sold into Asia. Sales of the Company's products are
recorded at the time of shipment.
Page 24
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
GROSS PROFIT. In fiscal 1998, gross profit increased 52.0%, or $14.5 million,
from $27.9 million in fiscal 1997, to $42.4 million. In fiscal 1998, gross
margin increased to 57.2% of sales from 52.8% in fiscal 1997. This increase
was primarily due to the acquisition of Micro Alliance and Bit 3, increased
sales volume over fixed costs, material cost improvements, and a reduction in
commissionable sales due to the movement from an independent representative
sales force to a direct sales force, and the sale of the Company's low margin
Judgmental Use of Force business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. In fiscal 1998, selling, general
and administrative expense increased 65.7%, or $6.7 million from $10.2
million in fiscal 1997, to $16.9 million resulting from the added
expenditures due to the acquisitions of Bit 3 and Micro Alliance, and
additional salaried sales personnel as the Company transitioned from an
independent sales force to a direct sales force, as well as additional
administrative staffing and promotional costs commensurate with the growth of
the Company. For the same reasons, selling, general and administrative
expense increased as a percentage of sales from 19.4% in fiscal 1997 to 22.8%
in fiscal 1998.
RESEARCH AND DEVELOPMENT EXPENSE. In fiscal 1998, research and development
expense increased by 81.8%, or $3.6 million, from $4.4 million in fiscal
1997, to $8.0 million. The increase resulted primarily from the added
expenditures due to the acquisition of Bit 3 as well as increased investment
in new products in the Company's other product areas. For the same reasons,
research and development expense increased as a percentage of sales from 8.4%
in fiscal 1997, to 10.8% in fiscal 1998.
AMORTIZATION OF INTANGIBLE ASSETS. In fiscal 1998, amortization of intangible
assets increased 26.7%, or $400,000 from $1.5 million in fiscal 1997, to $1.9
million as a result of goodwill amortization associated with the acquisitions
of Bit 3 and Micro Alliance.
INTEREST INCOME, NET OF INTEREST EXPENSE. In fiscal 1998, interest income,
net of interest expense, was $933,000 compared to $14,000 in fiscal 1997.
This change is attributable to 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 $184,000 on notes payable to the
former owners of Bit 3.
INCOME TAXES. For fiscal 1998 and fiscal 1997 income taxes represent
effective income tax rates of 39.0% and 40.0%, respectively. The decrease in
the effective rate is due to tax planning strategies implemented by the
Company in fiscal 1998, including a research and experimental tax credit.
EARNINGS PER SHARE. For fiscal 1998, net income per common share was $1.81
compared to $0.10 for fiscal 1997. Net income per common share - assuming
dilution was $1.64 for fiscal 1998 compared to $0.09 for fiscal 1997. This
change is primarily due to the $11.0 million charge to earnings associated
with the acquisition of Bit 3 in November 1996, offset by additional shares
outstanding. For fiscal 1997, net income per common share-assuming dilution,
excluding the charge to earnings, net of income taxes, would have been $1.34.
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 SBS Embedded,
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. Throughout fiscal 1997, prices for the Company's
products remained firm.
Page 25
<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 SBS Embedded 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 SBS Embedded 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 definition 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
interest 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%.
EARNINGS PER SHARE. For fiscal 1997, net income per common share was $0.10
compared to $1.19 for fiscal 1996. Net income per common share - assuming
dilution was $0.09 for fiscal 1997 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 share - assuming dilution excluding the
charge to earnings, net of income taxes, would have been $1.34.
Page 26
<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 expenditures and operations.
Cash totaled $22.9 million at June 30, 1998, an increase of $1.2 million from
June 30, 1997. This increase is a result of cash flow provided by operations
of $8.7 million and $2.0 million received from the exercise of stock options
and warrants, reduced by $5.6 million for the purchase of Micro Alliance, net
of cash received, $3.0 million for the purchase of property and equipment,
and $1.0 million for the payments to the former owners of Bit 3, in
conjunction with the acquisition. The Company's growth during the fiscal year
caused the Company to increase accounts receivable and inventory. Liabilities
were in line with the current level of business. The exercise of stock
options related to the Company's stock option plans reduced the Company's tax
liability.
In fiscal years ended June 30, 1997 and June 30, 1996, the Company generated
$10.2 million and $3.4 million, respectively, of positive cash flow from
operating activities. In fiscal 1997, the positive cash flow from operating
activities combined with the net proceeds from the sale of common stock (see
"Public Stock Offering") provided the Company sufficient funds to acquire Bit
3 in November 1996 and to pay down all existing debt. 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.
On April 26, 1996 and November 15, 1996, the Company amended its bank
financing agreement with NationsBank, N.A. 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 matured
on October 30, 1997, and was not renewed. For the entire year ended June 30,
1998, there were no borrowings drawn on the revolving line of credit. The
Company is currently negotiating a $15.0 million credit facility with
NationsBank, N.A. Management believes that financial resources, including its
internally generated funds, debt capacity, and the remaining net proceeds
from the public offering, will be sufficient to finance the Company's current
operations and capital expenditures, excluding acquisitions, for the next
twelve months.
For the three most recent fiscal years, there has been no significant impact
from inflation or changing prices on the Company's sales or income from
continuing operations.
YEAR 2000 ISSUE
DESCRIPTION OF THE ISSUE. The Y2K issue refers to the inability of certain
date-sensitive computer chips, software, and systems to recognize a two-digit
date field as belonging to the 21st century. Mistaking "00" for 1900 or any
other incorrect year could result in a system failure or miscalculations
causing disruptions to operations, including manufacturing, a temporary
inability to process transactions, or send invoices, or engage in other
normal business activities. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be
anticipated or predicted with any degree of certainty. The Y2K issue may
create unforeseen risks to the Company from its internal computer systems as
well as from computer systems of third parties with which it deals. Failures
of the Company's and/or third parties' computer systems could have a material
adverse impact on the Company's ability to conduct its business.
Page 27
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
YEAR 2000 TASK FORCE. The Company assembled, in April 1998, an internal task
force, chaired by the CEO and comprised of senior managers throughout the
Company, to review its products, business and engineering applications and
suppliers and develop contingency plans for Y2K readiness to be completed by
the end of calendar 1999. The goal of the task force is to minimize the
effect that Y2K issues will have on the Company and its customers. The CEO of
the Company updates the Board of Directors on its Y2K readiness at each
scheduled Board Meeting.
INTERNAL BUSINESS AND ENGINEERING SYSTEMS. The task force is currently
reviewing all internal business and engineering computer systems to ensure
that such systems either will be Y2K ready, or will be modified or replaced
by Y2K ready systems. The Company has already been assured that its business
information system, installed in 1998 and utilized at most of its locations,
is Y2K ready as long as the Company adheres to the supplier's Y2K readiness
guidelines. The Company plans to simulate and test, in a Y2K environment, its
business information systems to verify its Y2K readiness by the middle of
calendar 1999. All other internal engineering development applications and
systems are planned to be modified if necessary, by the middle of calendar
1999.
SUPPLIERS. The major suppliers to the Company are component parts
distributors and contract manufacturers. Often the Company sources its
products and manufacturing services from multiple, competing vendors. The
Company is conducting reviews of its key suppliers to ensure Y2K readiness of
as many vendors as possible and has initiated communication with all of its
key suppliers to determine to what extent the Company may be vulnerable due
to their failure to be Y2K ready. This communication, including site visits
by Company personnel, will be ongoing throughout calendar 1999. There can be
no assurance that the systems of other companies on which the Company relies
will be Y2K ready on a timely basis and will not have an adverse effect on
the operations of the Company. In the instances where the Company is unable
to determine that its vendors have taken appropriate steps to minimize
disruption due to non-Y2K readiness, the Company will consider contingency
plans, including moving to currently identified alternate sources, or
developing new alternate sources.
PRODUCTS. The Company also has a program to assess the capability of its
existing and legacy products to handle the year 2000. In addition, all
products under development are also being reviewed to ensure Y2K readiness
prior to release. Certain of the Company's computer processor board level
products and integrated computer systems utilize computer chips that include
built in operating systems ("BIOS") allowing the computer to initialize and
load software. For many users, software is provided by sources other than the
Company. As with the typical PC computer, the assessment of whether a
complete system will operate correctly may depend on the BIOS capability and
software. To the extent that older BIOS or software are not Y2K ready, they
may need to be upgraded or replaced.
COSTS. The Company expects the cost of its Y2K assessment, including both
incremental spending and redeployed resources, will not be material. The
current assessment does not include potential costs related to any customer
or other claims or the cost of internal software and hardware replaced in the
normal course of business. This assessment is subject to change. Since there
is no uniform definition of "Y2K readiness" and since all customer situations
cannot be anticipated, particularly those involving third party products, the
Company may see claims as a result of the Y2K transition. Such claims, if
successful, could have a material adverse impact on future results.
CUSTOMERS. Since the Company has no customer which comprises more than 5% of
its sales, the Company believes that the effect of a failure of any single
customer to continue to purchase goods and services from the Company due to
non-Y2K readiness will not be material to the operations of the Company. As
the Company sells its products and services to many hundreds of customers,
there can be no assurance that some of
Page 28
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
the Company's customers will not become Y2K ready, and in the aggregate, have
a material effect on the Company's operations.
SUBSEQUENT EVENTS
On July 1, 1998, the Company acquired through its newly formed subsidiary,
SBS Holdings GmbH, a 50.1% interest in or. Based in Augsburg, Germany, OR
designs, manufactures, and markets CPU boards utilized in a wide range of
embedded computer applications. As part of the acquisition, the Company
acquired, through its newly formed subsidiary, SBS Holdings GmbH, a 50.2%
interest in ORTEC, a Mindelheim, Germany based related company which
manufactures OR's commercial products and electronic products for other
customers. The Company also acquired, through its wholly-owned subsidiary SBS
Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR
Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing
support organization for the OR product line. In addition, the Company and
the shareholders of both OR and ORTEC entered into exclusive option
agreements which means that the Company may acquire the remaining shares of
both companies on February 28, 1999. The purchase price, excluding
transaction costs, for the majority interest in the two companies based in
Germany and 100% of OR Computers Inc. was DM 17.5 million, approximately $9.7
million, paid in cash and common stock at closing. The purchase price for the
remaining interest in the two companies based in Germany is DM 17.2 million,
approximately $9.5 million based on the exchange rate at June 26, 1998. The
acquisition will be accounted for under the purchase method, whereby the
purchase price will be allocated to the underlying assets and liabilities
based upon their estimated fair values. It is expected that a portion of the
purchase price will be allocated to in-process research and development
which, under generally accepted accounting principles, will be expensed by
the Company in the quarter ending September 30, 1998. Goodwill will be
amortized over 10 years. For the year ended December 31, 1997, combined sales
and net income of OR, ORTEC, and OR Computers, Inc. were approximately $12.1
million and $1.8 million, respectively. In fiscal 1999, the Company plans to
change the name of OR to SBS OR Industrial Computers GmbH; OR Computers, Inc.
will operate as a wholly-owned subsidiary of SBS Embedded Computers, Inc. for
the foreseeable future.
On August 12, 1998, the Company completed the acquisition of VI for $5.0
million, subject to adjustment upon finalizing the closing balance sheet.
Based in Encinitas, California, VI designs, manufactures and markets CPU
boards based on the Motorola PowerPC processor for computer applications that
utilize VME and CompactPCI bus standards. The acquisition will be accounted
for under the purchase method, which means that the purchase price will be
allocated to the underlying assets and liabilities based upon their estimated
fair values. Goodwill will be amortized over 10 years. For the year ended
December 31, 1997, VoI had sales of approximately $5.6 million and net income
of approximately $480,000.
NEW ACCOUNTING STANDARDS
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.
Page 29
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures About Segments Of An Enterprise And Related Information." 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. The Company
will adopt SFAS 131 in fiscal 1999, having identified its reportable segments
as the Computer Group and the Aerospace Group.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition, to
supersede SOP 91-1, the previously released SOP on this topic. SOP 97-2
provides additional guidance on when revenue should be recognized, and in
what amounts, for licensing, selling, leasing, or otherwise marketing
computer software. The provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after December 15, 1997. Adoption of
SOP 97-2 is not expected to have a material adverse impact on the Company's
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's liquid investment is cash invested either in money market
accounts or in overnight repurchase agreements. The Company's long-term debt
as of June 30, 1998 and 1997 was at a fixed interest rate maturing within one
year. As a result, the Company believes that the market risk arising from its
holdings of financial instruments is minimal.
In conjunction with the acquisitions of OR and ORTEC in July 1998, the
Company entered into an option agreement to acquire the remaining interests
in OR and ORTEC for DM 17.2 million (see "Management's Discussion and
Analysis: Subsequent Events"). Accordingly, the Company is subject to
potentially adverse movements in the foreign currency exchange rates. As of
September 1998, the Company has not entered into any foreign exchange forward
contracts to reduce its exposure to changes in the foreign currency exchange
rate on the purchase option.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page 30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SBS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of SBS
Technologies, Inc. and subsidiaries as of June 30, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998 in conformity with generally accepted
accounting principles.
/S/ KPMG Peat Marwick LLP
Albuquerque, New Mexico
August 4, 1998
Page 31
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS June 30, 1998 June 30, 1997
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,874,754 21,661,671
Receivables, net (note 5) 13,118,717 9,244,269
Inventories 10,661,211 7,705,470
Deferred income taxes (note 8) 1,600,000 1,327,000
Prepaid expenses 288,350 232,283
Other current assets 335,694 128,560
--------------- ---------------
Total current assets 48,878,726 40,299,253
--------------- ---------------
Property and equipment, at cost 6,776,965 4,729,259
Less accumulated depreciation 2,316,689 2,247,408
--------------- ---------------
Net property and equipment 4,460,276 2,481,851
--------------- ---------------
Intangible assets, net 16,694,154 14,099,254
Deferred income taxes (note 8) 4,230,000 4,253,000
Other assets 52,031 31,656
--------------- ---------------
Total assets $ 74,315,187 61,165,014
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,000,000 1,013,316
Accounts payable 2,062,373 1,541,846
Accrued representative commissions 236,228 449,699
Accrued salaries 1,996,431 1,868,623
Accrued compensated absences 743,944 560,061
Income taxes (note 8) 901,909 1,095,162
Other current liabilities (note 3) 1,110,315 1,493,368
--------------- ---------------
Total current liabilities 10,051,200 8,022,075
Long-term liabilities:
Long-term debt, excluding current installments - 2,816,251
--------------- ---------------
Total long-term liabilities - 2,816,251
--------------- ---------------
Total liabilities 10,051,200 10,838,326
--------------- ---------------
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized,
5,678,200 issued and outstanding at June 30, 1998
5,405,378 issued and outstanding at June 30, 1997 47,778,033 43,889,754
Common stock warrants (note 10) 70,118 111,286
Retained earnings 16,415,836 6,325,648
--------------- ----------------
Total stockholders' equity 64,263,987 50,326,688
--------------- ----------------
Total liabilities and stockholders' equity $ 74,315,187 61,165,014
--------------- ----------------
--------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
Page 32
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales $ 74,213,901 52,814,568 31,331,793
Cost of sales 31,793,078 24,910,271 14,510,106
---------------- ---------------- ----------------
Gross Profit 42,420,823 27,904,297 16,821,687
Selling, general and administrative expense 16,891,907 10,223,374 6,292,954
Research and development expense 7,983,570 4,422,152 2,846,300
Acquired in-process research and
development charge - 11,000,000 -
Amortization of intangible assets 1,937,353 1,504,524 884,438
---------------- ---------------- ----------------
Operating income 15,607,993 754,247 6,797,995
---------------- ---------------- ----------------
Interest income 1,120,871 523,115 9,210
Interest expense (187,676) (508,677) (839,028)
---------------- ---------------- ----------------
933,195 14,438 (829,818)
---------------- ---------------- ----------------
Income before income taxes 16,541,188 768,685 5,968,177
Income taxes (note 8) 6,451,000 307,000 2,387,270
---------------- ---------------- ----------------
Net income $ 10,090,188 461,685 3,580,907
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income per common share $ 1.81 0.10 1.19
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income per common share -
assuming dilution $ 1.64 0.09 0.97
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
Page 33
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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, 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 10) - - 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
SBS Embedded (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
Exercise of stock options
and warrants 272,822 2,032,675 (41,168) - 1,991,507
Income tax benefit from stock
options exercised - 1,855,604 - - 1,855,604
Net income - - - 10,090,188 10,090,188
---------- ------------ ---------- ------------- -------------
Balance at June 30, 1998 5,678,200 $ 47,778,033 $ 70,118 $ 16,415,836 $ 64,263,987
---------- ------------ ---------- ------------- -------------
---------- ------------ ---------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
Page 34
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,090,188 461,685 3,580,907
------------ ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 960,943 705,160 316,494
Amortization of intangible assets 1,937,353 1,504,524 884,438
Bad debt expense 136,078 223,004 56,933
Deferred income taxes (250,000) (5,141,037) (13,000)
(Gain) loss on disposition of assets 7,802 (189,579) 44,218
Imputed interest 183,749 144,072 -
Acquired in-process research and development charge - 11,000,000 -
Changes in assets and liabilities:
Receivables (3,066,609) (888,824) 673,406
Inventories (2,480,430) (541,340) (1,192,938)
Prepaids and other assets (262,465) 260,367 144,862
Accounts payable 343,790 (143,036) (635,049)
Accrued representative commissions (253,711) 79,181 27,810
Accrued salaries 53,870 683,403 562,603
Accrued compensated absences 173,912 65,584 58,270
Income taxes (247,290) 873,333 (127,532)
Other current liabilities (460,937) (555,158) (943,359)
------------ ----------- -----------
Net adjustments (3,223,945) 8,079,654 (142,844)
------------ ----------- -----------
Net cash provided by operating activities 6,866,243 8,541,339 3,438,063
------------ ----------- -----------
Cash flows from investing activities:
Cash received from sale of assets 54,200 - -
Business acquisitions, net of cash acquired (note 2) (5,565,603) (20,511,319) (317,746)
Acquisition of property and equipment (2,975,552) (1,451,643) (764,191)
Proceeds from businesses divested and asset sales (note 3) - 2,000,000 -
------------ ----------- -----------
Net cash used by investing activities (8,486,955) (19,962,962) (1,081,937)
------------ ----------- -----------
</TABLE>
(Continued)
Page 35
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable to bank - - 4,095,000
Payments on notes payable to bank - - (4,717,383)
Payments on long-term borrowings and capital leases (1,013,316) (7,108,990) (3,332,390)
Net proceeds from refinancing long-term borrowings - - 549,108
Proceeds from exercise of stock options and warrants 1,991,507 1,892,066 1,295,765
Income tax benefit of stock options exercised 1,855,604 1,645,740 -
Net proceeds from sale of common stock - 35,524,448 -
------------ ----------- -----------
Net cash provided (used) by financing
activities 2,833,795 31,953,264 (2,109,900)
------------ ----------- -----------
Net increase in cash and cash equivalents 1,213,083 20,531,641 246,226
Cash and cash equivalents at beginning of period 21,661,671 1,130,030 883,804
------------ ----------- -----------
Cash and cash equivalents at end of period $ 22,874,754 21,661,671 1,130,030
------------ ----------- -----------
------------ ----------- -----------
Supplemental disclosure of cash flow information:
Interest paid $ 3,916 275,415 875,736
Income taxes paid 5,092,687 2,922,519 2,431,749
Noncash financing and investing activities:
Assets acquired through capital leases $ - 70,733 -
Debt issued for acquisition - 3,672,179 -
Summary of assets, liabilities, and equity
acquired through acquisition:
Cash and cash equivalents $ 239,021 23,489 -
Receivables 943,917 2,157,225 -
Inventories 475,311 2,412,589 -
Deferred income tax - 65,963 -
Prepaid expenses 21,111 213,115 -
Goodwill 4,532,254 10,032,643 -
Property and equipment 25,817 1,065,180 -
Accumulated depreciation - (609,322) -
Accounts payable (176,737) (441,134) -
Accrued representative commissions (40,240) (17,240) -
Accrued salaries (73,938) (108,099) -
Accrued compensated absences (9,971) (154,135) -
Debt - (404,277) -
Income taxes (54,037) 1,552 -
Other current liabilities (77,884) (278,733) -
Common stock - (68,000) -
Retained earnings $ - (683,829) -
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
Page 36
<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.
The Company is a leading designer and manufacturer of open-
architecture, standard bus embedded computer components that
system designers can easily utilize to create a custom solution
specific to the user's unique application. The Company's product lines
include CPU boards, general purpose input/output modules, avionics
interface modules and analyzers, interconnection and expansion units,
telemetry boards, data acquisition software and industrial computer
systems and enclosures. 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. Substantially all cash is
held at one financial institution.
(d) INVENTORIES
Inventories are valued at standard cost, which approximates weighted
average cost, does not exceed market, and consists of the following:
<TABLE>
<CAPTION>
June 30
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 4,970,267 3,211,502
Work in process 3,709,312 2,953,140
Finished goods 1,981,632 1,540,828
------------ ---------
$ 10,661,211 7,705,470
------------ ---------
------------ ---------
</TABLE>
(e) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Computers $ 2,358,773 1,862,814
Software 1,526,558 946,608
Furniture and equipment 2,891,634 1,919,837
------------ ---------
$ 6,776,965 4,729,259
------------ ---------
------------ ---------
</TABLE>
Page 37
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
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.
(f) INTANGIBLE ASSETS
Intangible assets are stated at cost and consist of the following:
<TABLE>
<CAPTION>
June 30
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Noncompete covenants $ - 1,290,001
Goodwill 20,868,107 16,584,314
----------- ----------
20,868,107 17,874,315
Less accumulated amortization (4,173,953) (3,775,061)
----------- ----------
$16,694,154 14,099,254
----------- ----------
----------- ----------
</TABLE>
Noncompete covenants are amortized over the life of the covenants
using the straight-line method. Goodwill is amortized over the
estimated useful lives (three to ten years) of the respective assets
using the straight-line method. The Company assesses the
recoverability of goodwill by determining whether the amortization of
the goodwill balance over its remaining life can be recovered through
projected undiscounted future results. Impairment would be recognized
in operating results if a permanent diminution in value were to occur.
(g) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Deferred income taxes are recognized for the tax consequences
of differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities by applying enacted
statutory tax rates applicable to future years. The effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the change.
(h) EARNINGS PER SHARE
Effective with the quarter ended December 31, 1997, the Company
adopted SFAS No. 128, "Earnings Per Share." In accordance with SFAS
No. 128, all previously reported earnings per share amounts have been
restated to comply with SFAS No. 128. Net income per common share is
based on weighted average shares outstanding. Net income per common
share - assuming dilution includes the dilutive effects of potential
common shares outstanding during the period.
A reconciliation of the numerator and denominator of the per share and
per share - assuming dilution calculation follows:
Page 38
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 ----------------------------------------
1998 Income Shares Per-Share
---- (Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $10,090,188 5,583,429 $ 1.81
------
------
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants - 580,012
----------- ---------
NET INCOME PER COMMON SHARE
-ASSUMING DILUTION
Net Income $10,090,188 6,163,441 $ 1.64
----------- --------- ------
----------- --------- ------
<CAPTION>
----------------------------------------
1997 Income Shares Per-Share
---- (Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $ 461,685 4,535,746 $ 0.10
------
------
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants - 494,916
----------- --------- ------
NET INCOME PER COMMON SHARE
-ASSUMING DILUTION
Net Income $ 461,685 5,030,662 $ 0.09
----------- --------- ------
----------- --------- ------
<CAPTION>
----------------------------------------
1996 Income Shares Per-Share
---- (Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $ 3,580,907 3,017,575 $ 1.19
------
------
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants - 676,233
----------- ---------
NET INCOME PER COMMON SHARE
-ASSUMING DILUTION
Net Income $ 3,580,907 3,693,808 $ 0.97
----------- --------- ------
----------- --------- ------
</TABLE>
For the years ended June 30, 1998, 1997 and 1996, options to purchase
388,267; 279,828 and 210,000 shares of common stock, respectively,
were outstanding but were not included in the computation of net
income per common share - assuming dilution because the options'
exercise price was greater than the average market price of the common
shares.
(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 cash and cash equivalents,
accounts receivable, accounts payable, and long-term debt. The
carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and long-term debt, because of their nature,
approximate fair value.
(j) RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.
Page 39
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
(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 is recorded on
the date of grant only if the current market price of the underlying
stock exceeds 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 fiscal
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 (undiscounted and without interest
charges) 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 or results of operations.
(n) NEW ACCOUNTING STANDARDS
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.
Page 40
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Disclosures About Segments Of An Enterprise And Related
Information." 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. The Company will adopt SFAS
131 in fiscal 1999, having identified its reportable segments as the
Computer Group and the Aerospace Group.
In October 1997, the American Institute of Certified Public
Accountants issued SOP 97-2, Software Revenue Recognition, to
supersede SOP 91-1, the previously released SOP on this topic. SOP
97-2 provides additional guidance on when revenue should be
recognized, and in what amounts, for licensing, selling, leasing,
or otherwise marketing computer software. The provisions of SOP
97-2 are effective for transactions entered into in fiscal years
beginning after December 15, 1997. Adoption of SOP 97-2 is not
expected to have a material adverse impact on the Company's
financial statements.
(2) BUSINESS ACQUISITIONS
On November 24, 1997, the Company completed the purchase of Micro Alliance,
a privately held San Diego county-based manufacturer of industrial computer
systems and enclosures. Micro Alliance specializes in the design and
manufacture of special-purpose PC-compatible computer systems offering a
variety of CPU boards and system enclosures, including rack mount, desktop
and mobile systems. The Company acquired all of the outstanding capital
stock of Micro Alliance for a total purchase price of $5.8 million. The
acquisition was accounted for using the purchase method of accounting and
$4.5 million of goodwill is being amortized over 10 years. The financial
results of Micro Alliance have been included in the Company's Consolidated
Financial Statements from November 24, 1997.
The purchase price was paid as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 5,736,368
Acquisition costs 68,256
------------
$ 5,804,624
------------
------------
</TABLE>
On November 18, 1996, the Company completed the purchase of Bit 3. Bit 3 is
a St. Paul-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 were 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 definition 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.
The purchase price was paid as follows:
Page 41
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash $ 20,000,000
Notes payable issued 4,000,000
Discount of notes payable (327,821)
Acquisition costs 534,808
------------
$ 24,206,987
------------
------------
</TABLE>
The following (unaudited) pro forma consolidated results of operations have
been prepared as if the acquisitions of Bit 3 and Micro Alliance had
occurred at July 1, 1996:
<TABLE>
<CAPTION>
June 30 June 30
(in thousands except per share amounts) 1998 1997
---- ----
<S> <C> <C>
Sales $76,437 64,476
Net income 10,014 1,862
Net income per common share 1.79 0.41
------- ------
------- ------
Net income per common share - assuming dilution 1.62 0.35
------- ------
------- ------
</TABLE>
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 acquisitions been consummated as of that
time, nor is it intended to be a projection of future results.
On August 19, 1996, the Company acquired SBS Embedded, 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, SBS Embedded shareholders exchanged all outstanding
shares of SBS Embedded stock for 200,000 shares of the Company's stock. The
financial position and results of operations of the Company and SBS
Embedded are combined in fiscal 1997 on a prospective basis. SBS Embedded'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-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 share for fiscal 1996
would not have been materially different from that reported had the
acquisition taken place at the beginning of fiscal 1996.
(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 was
included in other current liabilities at June 30, 1997 and no liability
existed at June 30, 1998. The Company recognized a gain on the sale of
approximately $189,000 in fiscal 1997.
Page 42
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
(4) SIGNIFICANT CUSTOMERS AND FOREIGN SALES
In fiscal 1998, 1997 and 1996, no one customer exceeded 10% of the
Company's sales. All of the Company's operations were conducted in the
United States. International sales are denominated in U.S. dollars. During
the years ended June 30, 1998, 1997 and 1996, export sales with minimal
attendant risk, all of which were to unaffiliated customers, were
approximately $11.6 million, $8.6 million and $5.1 million, respectively.
Export sales were made primarily in the following foreign markets:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Sales % Sales % Sales %
Foreign Market (000's) (000's) (000's)
-------------- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
United Kingdom $ 1,400 12.1 1,100 12.8 1,000 19.6
Germany 1,100 9.5 800 9.3 800 15.7
Korea 700 6.0 1,000 11.6 500 9.8
France 1,150 9.9 700 8.1 400 7.8
Japan 2,600 22.4 1,300 15.1 400 7.8
Canada 1,700 14.7 1,400 16.3 600 11.8
Belgium 200 1.7 50 0.6 300 5.9
All Others 2,750 23.7 2,250 26.2 1,100 21.6
-------- ----- ------- ----- ------- -----
Total $ 11,600 100.0 8,600 100.0 5,100 100.0
-------- ----- ------- ----- ------- -----
-------- ----- ------- ----- ------- -----
Sales $ 74,200 15.6 52,800 16.3 31,300 16.3
-------- ----- ------- ----- ------- -----
-------- ----- ------- ----- ------- -----
</TABLE>
(5) RECEIVABLES
Receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30
--------------------
1998 1997
---- ----
<S> <C> <C>
Accounts receivable $ 13,408,656 9,545,264
Less allowance for doubtful accounts (289,939) (300,995)
------------ ---------
$ 13,118,717 9,244,269
------------ ---------
------------ ---------
</TABLE>
(6) FINANCING
The Company's $2,500,000 line of credit matured on October 30, 1997 and was
not renewed. No amounts were drawn on this line of credit during the years
ended June 30, 1998 and 1997.
Page 43
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
(7) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30
-----------------------
1998 1997
---- ----
<S> <C> <C>
Notes payable to former shareholders of Bit 3, including
imputed interest at 6.46% through June 30, 1998, secured
by all Company assets, due July 1, 1998 $ 3,000,000 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
----------- ----------
3,000,000 3,829,567
Less current installments (3,000,000) (1,013,316)
----------- ----------
$ - 2,816,251
----------- ----------
----------- ----------
</TABLE>
(8) INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ 5,447,200 4,432,000 1,916,770
State 1,253,800 1,082,000 483,500
Deferred:
U.S. Federal (202,500) (4,204,000) (11,000)
State (47,500) (1,003,000) (2,000)
------------ ---------- ----------
Total income tax expense $ 6,451,000 307,000 2,387,270
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
Income tax expense was provided for at an effective rate of 39.0, 40.0 and
40.0 percent in 1998, 1997 and 1996, respectively. The actual tax expense
differs from the "expected" tax expense (computed by applying the statutory
U.S. Federal tax rate to income before income taxes) as follows:
Page 44
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 5,735,651 261,350 2,029,180
State income tax, net of federal income
tax benefit 933,631 51,050 319,112
Goodwill amortization - - 21,508
Nondeductible merger expenses - 62,800 -
Dividend from foreign sales corporation (102,000) (102,000) -
Research and experimental tax credit (250,000) - -
Other 133,718 33,800 17,470
----------- -------- ---------
$ 6,451,000 307,000 2,387,270
----------- -------- ---------
----------- -------- ---------
</TABLE>
The significant components of deferred income tax assets are as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------
1998 1997
---- ----
<S> <C> <C>
Vacation and severance accruals $ 297,600 179,200
Inventory capitalization 685,200 519,100
Acquired in-process R&D charge 3,924,000 4,217,700
Accrued expenses 197,500 277,900
Amortization 497,500 234,900
Allowance for uncollectible accounts 100,000 120,400
Other 128,200 30,800
---------- ---------
$5,830,000 5,580,000
---------- ---------
---------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. 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,
1998. Accordingly, management has no allowance for deferred tax assets at
June 30, 1998 and 1997.
(9) LEASES
The Company leases its main facilities in Albuquerque, New Mexico,
Carlsbad, California, Menlo Park, California, Vista, California, St. Paul,
Minnesota, and Raleigh, North Carolina, under noncancelable operating
leases which expire at various dates through fiscal 2003. The Company also
leases various items of equipment under noncancelable operating leases
which expire at various dates through fiscal 2003.
Page 45
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Buildings Equipment
Year ending minimum minimum
June 30 lease payments lease payments Total
------- -------------- -------------- -----
<S> <C> <C> <C>
1999 $ 1,281,874 99,359 1,381,233
2000 1,244,284 87,356 1,331,640
2001 446,682 48,215 494,897
2002 386,497 12,444 398,941
2003 197,772 7,730 205,502
----------- ------- ---------
$ 3,557,109 255,104 3,812,213
----------- ------- ---------
----------- ------- ---------
</TABLE>
Total rental expense for operating leases for the years ended June 30,
1998, 1997, and 1996 was $1,289,457, $886,965 and $521,885, respectively.
(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 Plans generally permit 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 of the underlying common stock 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 of the
underlying common stock on the date of grant. Options granted under
the Plans 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 common 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 5% of the number of shares outstanding at the first day of
each fiscal year plus shares not awarded in prior years and underlying
expired or terminated options, 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 of Directors.
All options are granted at a price equal to fair market value of the
underlying common stock on the date of grant. The Directors' options
become exercisable one year 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.
Page 46
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
(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 common 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. On
September 15, 1997 the Board of Directors approved an extension of
this plan for an additional five years.
(d) 1998 LONG-TERM EQUITY INCENTIVE PLAN
The 1998 Long-Term Equity Incentive Plan ("Plan") was adopted by the
Board of Directors on September 15, 1997 and subsequently approved at
the December 1997 reconvened Annual Shareholder Meeting. All full-time
employees of the Company and its subsidiaries and all non-employee
Directors of the Company are eligible to be selected to participate in
the Plan, except that no person owning, directly or indirectly, more
than 15% of the total combined voting power of all classes of stock
shall be eligible to participate. The Plan provides for the grant of
any or all of the following types of awards: (i) Stock Options,
including Incentive Stock Options; (ii) Stock Appreciation Rights;
(iii) Restricted Stock; (iv) Performance shares and Units; and (v)
other stock-based awards. The maximum number of shares of common stock
that shall be available for grant of awards under the Plan shall not
exceed 1,500,000, subject to adjustment in accordance with the
provisions of the Plan. The exercise price of each option is
determined by the Board of Directors but cannot be less than 100% of
the fair market value of the underlying common stock on the date of
grant. The term of these options cannot exceed ten years from grant
date. The Plan expires in January, 2008.
(e) 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,
1998, 213,537 warrants had been exercised and 46,227 were forfeited
under the net issuance method.
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.
Page 47
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
Information regarding the Company's stock option plans and warrants is
summarized below:
<TABLE>
<CAPTION>
1991 ALL 1993 1996 1998
NSOP ISOPS D&O ESPP LT WARRANTS TOTAL
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Granted -- 105,000 37,000 43,796 283,000 -- 468,796
Exercised -- 64,886 103,500 34,031 -- 70,405 272,822
Cancelled -- 38,750 117,500 5,354 -- 11,930 173,534
------------------------------------------------------------------------------------------------------------
OUTSTANDING AT 6/30/98 -- 798,698 123,000 63,266 283,000 140,236 1,408,200
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
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
EXERCISABLE AT 6/30/98 -- 246,197 77,500 -- -- 140,236 463,933
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
AVAILABLE FOR GRANT -- 7,609 227,240 202,709 1,217,000 -- 1,654,558
AT 6/30/98
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
Weighted average option exercise price information for fiscal years
1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at July 1 $ 13.53 6.27 4.62
Granted during the year:
Price = Market Value 25.51 22.28 11.25
Price > Market Value -- -- 5.50
Exercised during the year 7.76 4.74 4.65
Cancelled during the year 17.81 9.37 4.53
Outstanding at June 30 18.11 13.53 6.27
Exercisable at June 30 9.89 6.71 4.83
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
Page 48
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
Significant option groups outstanding and exercisable at June 30, 1998
and related weighted average price and life information follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Weighted
Average Weighted
Remaining Average
Range of Exercise Number Contractual Exercise Number Weighted Average
Prices Outstanding Life Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.50 - $ 6.50 356,433 6.28 $ 4.94 326,433 $ 4.85
$ 7.88 - $18.25 353,500 7.84 $ 13.86 60,000 $ 16.04
$20.25 - $28.25 388,034 7.97 $ 24.29 67,500 $ 25.23
$28.56 - $34.00 310,233 8.18 $ 30.35 10,000 $ 34.00
--------------------------------------------------------------------------------------------
$ 4.50 - $34.00 1,408,200 7.56 $ 18.11 463,933 $ 9.89
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
The per share weighted-average fair value of stock options granted at
a price greater than market value during 1996 was $1.63 on the date of
grant. The per share weighted-average fair value of stock options
granted at a price equal to market value during 1998, 1997 and 1996
was $11.89, $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:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 3.14 2.26 2.58
Risk free interest rate 5.83% 6.05% 6.25%
Volatility 62.59% 63.30% 63.30%
Dividend yield -- -- --
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $ 10,090,188 461,685 3,580,907
Net income (loss), pro forma 6,333,362 (1,694,626) 3,110,685
EPS, as reported (basic) 1.81 0.10 1.19
EPS, pro forma (basic) 1.13 (0.37) 1.03
EPS, as reported (diluted) 1.64 0.09 0.97
EPS, pro forma (diluted) 1.09 (0.37) 0.96
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
Pro forma net income (loss) reflects only options granted in fiscal 1998,
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.
Page 49
<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 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, 1998, 1997 and 1996 were $582,488, $342,029 and
$185,387, respectively.
Bit 3 and SBS Embedded maintained retirement plans under Section 401(k) of
the Code for all of their employees. Subsequent to the Company's
acquisition of Bit 3 and SBS Embedded, these plans were terminated and
merged into the Company's plan.
In addition, SBS Embedded maintained a profit sharing plan qualified under
Section 401(a) of the Code for all of their employees. Subsequent to the
Company's acquisition of SBS Embedded, 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) CONTINGENCIES
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, results of operations, or liquidity of the Company.
(13) SUBSEQUENT EVENTS
On July 1, 1998, the Company acquired through its newly formed subsidiary,
SBS Holdings GmbH, a 50.1% interest in OR. Based in Augsburg, Germany, OR
designs, manufactures, and markets CPU boards utilized in a wide range of
embedded computer applications. As part of the acquisition, the Company
acquired, through its newly formed subsidiary, SBS Holdings GmbH, a 50.2%
interest in ORTEC, a Mindelheim, Germany based related company which
manufactures OR's commercial products and electronic products for other
customers. The Company also acquired, through its wholly-owned subsidiary
SBS Embedded Computers, Inc. based in Raleigh, NC, 100% of the shares of OR
Computers, Inc, based in Fairfax, Virginia, which is the U.S. marketing
support organization for the OR product line. In addition, the Company and
the shareholders of both OR and ORTEC entered into exclusive option
agreements whereby the Company may acquire the remaining shares of both
companies on February 28, 1999. The purchase price, excluding transaction
costs, for the majority interest in the two companies based in Germany and
100% of OR Computers Inc. was DM 17.5 million, approximately $9.7 million,
paid in cash and common stock at closing. The purchase price for the
remaining interest in the two companies based in Germany is DM 17.2
million, approximately $9.5 million based on the exchange rate at June 26,
1998. The acquisition will be accounted for under the purchase method,
whereby the purchase price will be allocated to the underlying assets and
liabilities based upon their estimated fair values. It is expected that a
portion of the purchase price will be allocated to in-process research and
development which, under generally accepted accounting principles, will be
expensed by the Company in the quarter ending September 30, 1998. Goodwill
will be amortized over 10 years. For the year ended December 31, 1997,
combined sales and net income of OR, ORTEC, and OR Computers, Inc. were
approximately $12.1 million and $1.8 million, respectively. In fiscal 1999,
the Company plans to change the name of OR to SBS OR Industrial Computers
GmbH, and OR Computers, Inc. will operate as a wholly-owned subsidiary of
SBS Embedded Computers, Inc. for the foreseeable future.
Page 50
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On August 12, 1998, the Company completed the acquisition of VI for $5.0
million, subject to adjustment upon finalizing the closing balance sheet.
Based in Encinitas, California, VoI designs, manufactures and markets CPU
boards based on the Motorola PowerPC processor for computer applications
that utilize VME and CompactPCI bus standards. The acquisition will be
accounted for under the purchase method, whereby the purchase price will be
allocated to the underlying assets and liabilities based upon their
estimated fair values. Goodwill will be amortized over 10 years. For the
year ended December 31, 1997, VoI had sales of approximately $5.6 million
and net income of approximately $480,000 (unaudited).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 51
<PAGE>
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 9, 1998.
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".
Page 52
<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.
Page 53
<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 25, 1998
Page 54
<PAGE>
SBS Technologies, Inc.
Annual Report on Form 10-K
Fiscal Year Ended June 30, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ---------------------------------------------------------------- ----
<S> <C> <C>
3.i(4) Articles of Incorporation, as amended on February 11, 1998 - -
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 - -
4.1(10) Rights Agreement dates as of September 15, 1997 between SBS
Technologies, Inc. and First Security Bank, National Association,
as Rights Agent, which includes the form of Right Certificate
as Exhibit A and the Summary of Rights to Purchase Common Shares
as Exhibit B.2 - -
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(9) Employment Agreement between Registrant and Stephen D. Cooper
dated May 13, 1997 - -
10.k(9) First Amendment to Amended and Restated Credit Agreement
and Related Loan Documents between Registrant and NationsBank
of Texas, N.A. dated November 15, 1996 - -
10.l(8) Stock Purchase Agreement between Bit 3 Computer Corporation
and Registrant dated October 8, 1996 - -
10.m(9) Asset Purchase between Fats, Inc. and Registrant
dated June 26, 1997 - -
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. - -
Page 55
<PAGE>
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
10.aa(11) Purchase Agreement among Micro Alliance, Jeffrey Huston,
Edward Larson, Sherrin W. Larson and the Registrant
dated November 24, 1997 - -
10.ab(12) Third Amendment to that Certain Lease Agreement dated
May 29, 1995 by and between Firouz D. Memarzedah and
Farah R. Memarzadeh, husband and wife dba PARS Asset
Management Company and SBS Technologies, Inc., dated
December, 1997 - -
10.ac(12) Office/Warehouse Lease Between Lutheran Brotherhood,
(a Minnesota Corporation), and Bit 3 Computer Corporation,
a wholly owned subsidiary of SBS Technologies, Inc.,
dated September 5, 1997. - -
10.ad(12) Amendment #1 to Lease between Lutheran Brotherhood, a Minnesota
Corporation, and Bit 3 Computer Corporation, a wholly
owned subsidiary of SBS Technologies, Inc., dated
December 23, 1997 - -
10.ae(13) Settlement Agreement and Release between SBS Technologies,
Inc. and Stephen D. Cooper - -
10.af Purchase Agreement dated July 1, 1998 between SBS
Technologies, Inc. and or Industrial Computers GmbH,
et al Filed herewith electronically
10.ag Purchase Agreement dated August 12, 1998 between SBS
Technologies, Inc. and Themis Computer and the minority
shareholders of VI Computer Filed herewith electronically
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
27.1(13) Financial Data Schedule, restated, Fiscal Years
End 1997 and 1998 - -
27.2(13) Financial Data Schedule, restated, Quarters 1 and
2 of Fiscal Year End 1997 - -
27.3(13) Financial Data Schedule, restated, Quarters 1, 2,
and 3 of Fiscal Year End 1997 - -
99.1a(13) Agreement to Serve as Rights Agent. On January 21,
1998, pursuant to Section 21 of the Shareholder Rights
Agreement dated September 15, 1997, SBS Technologies,
Inc. appointed Norwest bank Minnesota N.A. as Successor
Rights Agent - -
</TABLE>
Page 56
<PAGE>
(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 Exhibit 3.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1997.
(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.
(9) Incorporated by reference to Exhibits 10.j, 10.K, and 10.m of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.
(10) Incorporated by reference to Exhibit 4.1 to the Registrant's Form
8-K filed September 23, 1997
(11) Incorporated by reference to Exhibit 10.aa to the Registrant's
Form 8-K filed December 9, 1997
(12) Incorporated by reference to Exhibits 10.ab, 10.ac, and 10.ad of
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1997.
(13) Incorporated by reference to Exhibits 10.ae, 27.1, 27.2, 27.3 and
99.1a of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998
Page 57
<PAGE>
EXHIBIT 10.z - MANAGEMENT INCENTIVE PLAN
The Company has adopted a Management Incentive Plan ("MIP") for fiscal 1999
which applies to approximately 20 operating officers and managers who serve at
the subsidiary, group and corporate management level.
Under the terms of the MIP a maximum of 50% of an employee's annual base pay may
be earned in cash incentive, based on the achievement of certain performance
objectives. The plan operates as follows:
1. A pool of cash incentive for each employee is credited based on the
performance to target of the unit to which the employee is assigned.
The incentive pool is created, beginning at 20% of base payable at 90%
of target unit earnings performance and capping at 25% of the employee's
annual pay at 100% of target unit earnings performance. Target earnings
performances have been established for each operating unit of the
Company, at the group level, and for the Company in total.
2. Additionally, the pool of cash incentive for each employee is credited
based on the performance to target of the Company, beginning at 20% of
base payable at 90% of target Company earnings performance and capping
at 25% of the employee's annual pay at 100% of target Company earnings
performance.
3. One half of the pool is to be paid, based solely on the achievement of
the target financial levels.
4. The second half of the incentive pool is to be paid based on the
employee achieving certain stipulated non-financial performance
objectives.
5. The Chief Executive Officer will receive no MIP if the target Company
earnings performance is not attained.
6. Additional cash incentive may be paid to selected managers based on the
achievement of outstanding unit financial performance or the attainment
of certain strategic goals, at the recommendation of the Management
Development and Compensation Committee of the Company Board of Directors
and if approved by the Company Board of Directors.
<PAGE>
1
EXHIBIT 10.AF
CERTIFIED TRANSLATION FROM THE GERMAN LANGUAGE
or GmbH Contract
DEED REGISTER NO. 1453/1998
SHARE PURCHASE AND TRANSFER CONTRACT (OR GMBH)
Today, this July 1, 1998
Appeared before me, Dr. Peer Koch, notary public in Augsburg, having gone to the
Law offices of Messrs. Seitz, Weckbach, Fent, at Schiessgrabenstrasse 14, 86150
Augsburg for the purpose of the execution of a notarial deed:
1. Mr. Frank Oettle, born on February 8, 1962, residing at Ortsstrasse 23, 86420
Diedorf
Mr. Oettle declares that he is acting both in his own name and in his function
as managing director of or Industrial Computers GmbH; with respect thereto, I
declare, by virtue of examination of the commercial register of the local court
of Augsburg, that Mr. Frank Oettle is the managing director of Industrial
Computers GmbH having sole power of representation,
2. Mr. Hans Naumann, born March 20, 1940, graduated engineer, residing at
Castellring 35, 61130 Nidderau
Mr. Naumann declares that he is not acting in his own name but as representative
of ADMINI VIER (IV) Vermogensverwaltungs-GmbH with its head office in Cologne,
registered in the commercial register of the local court of Cologne under HR B
29606, and under legalized power of attorney dated June 30, 1998 of the managing
director Chris Amenson, which is attached in the original. For this purpose, Mr.
Naumann has handed over a shareholders' resolution of ADMINI VIER (IV)
Vermogensverwaltungs-GmbH (in future "SBS Technologies Holding GmbH") of June
26, 1988 (deed register No. 673/1998 of the notary public Dr. Ingrid Doye,
Cologne), under which Mr. Chris Amenson was appointed as the new managing
director having sole power of representation and being exempt from the
restrictions of Section 181 BGB (German Civil Code).
The persons appearing before me have identified themselves by presentation of
their official identity cards. They request notarization for the following share
purchase contract:
PREAMBLE:
1) The company or Industrial Computers GmbH with its head office in Augsburg is
registered in the commercial register of the local court of Augsburg under HRB
9107. The corporate object of Industrial Computers GmbH is the development,
production and distribution of electronic equipment (hardware and software).
Mr. Frank Oettle has an interest in the share capital of or Industrial Computers
GmbH, amounting to DM 100,000.00, as a sole shareholder with shares in the
amount of a total of DM 100,000.00, which have been acquired as follows:
<PAGE>
2
a) in the amount of one share at DM 22,500.00 on the occasion of the formation
of the Corporation through the instrument of April 15, 1985 (deed register No.
812) of the notary public Dr. Barthel, Augsburg;
b) in the amount of a partial share of DM 5,000.00 by the acquisition by Mr.
Thomas Reichler through the instrument of July 26, 1988 (deed register No. 2115
W) of the notary public Dr. Weigel, Augsburg;
c) in the amount of one share of DM 50,000.00 through an increase/decrease in
the capital (through the instrument of October 19, 1994, deed register No. E
1893 of the notary public Engelhardt, Augsburg, the share capital of the
Corporation was increased by DM 950,000.00, with the original capital
contribution to be taken over for the increase in the share capital being taken
over in the full amount by Mr. Frank Oettle; through the instrument of April 13,
1995, deed register No. E 575, of the notary public Engelhardt, Augsburg, a
decrease in the share capital from DM 1.0 million by DM 900,000.00 to DM 100,000
was then decided upon, and the decrease in the share capital was conducted in
such a manner that a partial amount in the amount of DM 900,000.00 of the
original capital contribution made in the amount of DM 950,000.00 was repaid to
Mr. Frank Oettle);
d) in the amount of one share of DM 22,500.00 through the acquisition by Mrs.
Hannelore Oettle through the instrument of December 16, 1994 (deed register No.
E2335) of the notary public Engelhardt, Augsburg.
2) As, with the shares mentioned above under sub-paragraph a) to d), all shares
are in Mr. Frank Oettle's hand, all shares are fully paid-up and any obligation
to make further contributions does not exist pursuant to the by-laws, the said
shares shall hereby - pursuant to the resolution of the sole shareholder Frank
Oettle - be combined and a combined share in the nominal value of DM 100,000.00
shall be formed.
Pursuant to the additional resolution of the sole shareholder Frank Oettle, the
said combined share of DM 100,000.00 shall then be divided into two partial
shares, one partial share of DM 50,100.00 and another partial share of DM
49,900.00.
3) Mr. Frank Oettle wishes to sell and transfer his partial share in the nominal
amount of DM 50,100.00 stated in paragraph 2 to the company ADMINI VIER (IV)
Vermogensverwaltungs-GmbH. The company ADMINI VIER (IV)
Vermogensverwaltungs-GmbH wishes to purchase and take over the aforesaid partial
share.
4) Mr. Frank Oettle shall be hereinafter referred to as "Vendor". The company
ADMINI VIER (IV) Vermogensverwaltungs-GmbH shall hereinafter be referred to as
"Vendee".
or Industrial Computers GmbH shall hereinafter be referred to as "Corporation".
or Industrial Computers GmbH, Ortec Electronic Assembly GmbH, registered in the
commercial register of the local court of Memmingen, HRB 5720 (hereinafter
"Ortec GmbH") and or Computers Inc., 11150 Main Street, Fairfax VA 22030, USA
(hereinafter "or Inc.") shall hereinafter be referred to collectively as "or
Companies".
5) The Vendee requests that it be granted an option to acquire the remaining
partial share of the Vendor to the nominal amount of DM 49,900.00 following a
certain period of time during which the Vendee intends to test the market in
Germany in the area of "embedded computers" provided that such market test
proves to be positive. It shall therefore be granted an option right, which will
be limited in time, to acquire the remaining share in the nominal amount of DM
49,900.00 through a separate notarial deed.
<PAGE>
3
Having stated the above, the following is agreed upon:
<PAGE>
4
SECTION I
SALE, ASSIGNMENT, TRANSFER DATE, PURCHASE PRICE
SECTION 1
OBJECT OF THE PURCHASE, ASSIGNMENT, OPTION ON ACQUISITION
1) The Vendor sells and hereby assigns the partial share in the Corporation in
the nominal amount of DM 50,100.00, which is stated in the preamble,
sub-paragraph (2), with all rights to participate in the profits and other
affiliated rights to the Vendee, subject to the following Section 2 (2) and (3).
The Vendee hereby accepts this assignment of shares.
2) In his capacity as managing director of the Corporation, the Vendor agrees to
the division of the share and the share assignment pursuant to Section 8 of the
by-laws of the Corporation.
SECTION 2
TRANSFER DATE
1) The Transfer Date within the meaning of this Contract shall be July 1, 1999.
2) As of the Transfer Date, the Vendee shall be entitled to receive the
dividends distributed with regard to the sold partial share.
3) The Vendor shall be entitled to receive dividend for the sold partial shares
for the period until the Transfer Date. The interim financial statements to be
prepared pursuant to Section 7 (3) of this Contract in the version binding
between the parties shall be authoritative. In this respect, the Vendee is aware
of the distribution resolutions of the Vendor as the sole shareholder of the
Corporation of June 29, 1998 mentioned in exhibit 4 A. The Vendee expressly
agrees that revenue reserves of the Corporation formed pursuant to the Generally
Accepted Accounting Principles on the Transfer Date are set off by the Vendee to
the Vendor as at September 30, 1998 by way of further payment of the purchase
price if the share capital to the amount of DM 100,000.00 is fully maintained
and if such revenue reserves are not required for calculated compensation of
negative equity capital of or Inc. on the Transfer Date.
SECTION 3
PURCHASE PRICE
1) The purchase price for the partial share in the nominal amount of DM
50,100.00 transferred in accordance with the above Section 1 shall amount to a
total of DM 16,515,900.00 (sixteen million five hundred and fifteen thousand and
nine hundred German marks).
2) The purchase price in the amount of DM 13,739,310.00 shall be paid by
bank-confirmed check of Dresdner Bank, Augsburg. The check shall be delivered to
the Vendor on a reciprocal basis against signature of this deed.
3) The purchase price, in the remaining amount of DM 1,250,000.00, is to be paid
by transfer of 24,000 standard shares in SBS Technologies Inc. (traded at NASDAQ
under "SBSE") from the Vendee to the Vendor. Such transfer shall be effected by
delivery of the share certificate on or
<PAGE>
5
before July 15, 1998. For details, please refer to the letter of the Vendee of
July 1, 1998, which is attached as exhibit 3 A.
4) The purchase price, in the remaining amount of DM 1,526,590.00, is to be
transferred into the notarial trust account of the notary public who has
performed notarial recording with Bayerische Vereinsbank, account No. 226 17 15,
bank code 720 200 70 on June 30, 1998. The remaining amount shall be invested in
a fixed manner by the notary public until November 30, 1998. The Vendor shall be
entitled to receive interest arising therefrom. The cost of the deposit shall be
borne by the Vendee. The deposited amount including interest shall be released
on December 1, 1998 and paid out into the account of the Vendor with Bayerische
Vereinsbank AG Augsburg, account No. 785 96 00, bank code 720 200 70, unless the
Vendee informs the Vendor - with a copy of such notice being submitted to the
notary public - that a right of retention pursuant to this contract is asserted.
In that event, the amount may only be released by way of mutual agreement or a
binding decision by a court.
SECTION II
WARRANTIES
The Vendor declares that he has provided the Vendee with correct and complete
information regarding all items requested by the Vendee or otherwise material
for the evaluation of the or Companies. For the execution and performance of
this Agreement, the Vendee also relies on such information.
The Vendor therefore expressly represents and warrants the foregoing and the
following as of the date of this Contract in terms of a legally binding
guarantee, without any regard to the question of fault.
SECTION 4
ASSURANCES AND GUARANTEES CONCERNING THE SHAREHOLDER RELATIONSHIP AND VENDOR'S
FREEDOM TO DISPOSE
The Vendor assures and guarantees that upon conclusion of this Contract:
1) the share capital of the Corporation has been fully paid up in cash, has
neither partly nor fully been repaid to the shareholders, is non-assessable and
free of secondary or other obligations or restrictions, and that the shares sold
herein and the shares subject to the Vendee's option are unencumbered and the
Corporation is neither subject to excessive debt nor insolvent.
2) the by-laws as amended on April 13, 1995 (deed of the notary public
Engelhardt, Augsburg, deed register No. E 581 of April 13, 1995), last amended
by the deed of the notary public Dr. Koch of June 18, 1998, deed register No. K
01335/1998) shall be effective.
3) the Corporation does not maintain any relations under company law of any type
with third parties, it does not hold a participation or sub-participation in any
other company, it has not concluded any inter-company agreements within the
meaning of Sections 291, 292 AktG (German Stock Corporation Law) with other
companies or any agreements on cooperation or transfer of profits/losses and it
has not made executed any letters of intent in favor of other companies, with
the exception of the holding of listed securities and memberships in
professional associations and societies and the participation in Augusta Band eG
with a cooperative share in the nominal amount of DM 1,500.00.
<PAGE>
6
4) the shares stated in paragraphs 1) to 3) of the preamble exist, and the
Vendor is entitled to hold them; the Vendor is not subject to any restrictions
of disposal with respect to such shares, in particular, on the basis of rights
of any third parties;
5) the shares have neither been distrained nor pledged nor assigned to any third
party by way of security or for other reasons and, in addition, no option or
other rights entitle a third party to acquire the shares;
6) the shares are not subject to any trust relationship with a third party;
7) the shares and/or rights to such shares are neither the object of usufruct of
a third party nor of a sub-participation or similar relationship under company
law; the formerly existing silent partnerships with Miss Jana Madeleine
Schlagbauer, born on February 3, 1988, and Miss Vera Janet Schlagbauer, born on
November 15, 1985, have been completely dissolved prior to the Transfer Date and
all claims and obligations in this respect have been completely fulfilled;
8) for the alienation of the shareholding, neither the participation of a
testamentary executor not the agreement of subsequent heirs or other third
parties shall be necessary;
9) no judicial composition or bankruptcy proceedings concerning the property of
the Vendor have been applied for or commenced or, in addition, no circumstances
exist which could justify any rescission of alienation in accordance with the
bankruptcy regulations or composition code or the rescission law:
10) no other agreements or resolutions of any type exist which could affect the
corporate relationship between the Vendor and the Corporation, including, but
not limited to, agreements or resolutions regarding increases in the share
capital, the resignation or entry of shareholders, sub-participations,
trusteeships, participations with regard to income, sales volume or assets of
the Corporation and/or the exercise of voting rights.
11) persons and companies other than the Vendor did not hold any direct or
indirect participation of any type in the Corporation and no claims for the
granting of such participation existed.
12) the assignment of the shares by the Vendor to the Vendee shall not be
subject to the consent of any third party.
13) the Vendor has not adopted any shareholder's resolutions except for those
listed in exhibit 4A since January 1, 1998 and the Corporation has not concluded
any contracts with the Vendor and Mrs. Hannelore Oettle except for the
agreements to annul an obligatory relation listed in exhibit 4B since January 1,
1998. In his capacity as managing director, the Vendor declares that he shall
guarantee full deduction of wage tax when paying out amounts of compensation
pursuant to exhibit 4B. Statutory tax exemptions and reductions in wage rates
shall only be applied in accordance with information provided upon submission to
the competent local tax office. Any wage tax refund or reduction amount shall be
refunded to the Vendor or, as applicable, Mrs. Hannelore Oettle by the
Corporation;
14) the shares in the Corporation do not represent the entire or a substantial
portion of the Vendor's property so that no liability exists pursuant to Section
419 BGB (German Civil Code);
15) the Vendor does not hold any participation in any enterprise other than the
or Companies which are engaged in the area of activity of the or Companies or a
related area or maintain business relations with the or Companies.
<PAGE>
7
16) he is unrestrictedly liable to taxation in Germany and, in addition, he has
not acquired any shares in the Corporation from any persons since January 1,
1989 who have not been entitled to set off corporate income tax pursuant to
Section 50 c EStG [Income Tax Act].
SECTION 5
ASSURANCES AND GUARANTEES IN RESPECT OF THE FINANCIAL CIRCUMSTANCES OF THE
CORPORATION
The Vendor assures and guarantees that on the Transfer Date
1) at least those fixed assets indicated in the inventory list exist which has
been signed by the parties and delivered to the Vendee;
2) the objects leased/hired by the Corporation and listed in exhibit 5A are in
existence;
3) no restrictions exist to the freedom to dispose with respect to the objects
owned by the Corporation, except for any reservation of title customary in trade
(including extended reservation of title) to the assets being part of the
inventories and to the business assets of the Corporation mentioned under the
following paragraph 5.
4) exhibit 5B contains a correct and complete list of all managers, PROKURISTEN
(persons holding general commercial power of representation) and other
comparable members of the management of the Corporation as well as all general
powers of attorney granted by the Corporation and all bank accounts and
authorities to sign.
5) the Corporation has full, unrestricted and unencumbered title to and
possession of all movable and immovable assets which serve or are intended to
serve its business operations, except for those movable assets which are leased
from persons and companies other than the Vendor in the ordinary course of
business on normal market terms or which are subject to customary reservations
of title by suppliers pending payment.
6) the Corporation does not have any branches or divisions outside its principal
place of business in Augsburg.
SECTION 6
ASSURANCES REGARDING CONTRACTUAL AND LEGAL RELATIONSHIPS
1) The Vendor assures and guarantees that the rights and contracts of the
Corporation stated in the following existed in unchanged form upon conclusion of
this Contract:
A) the consultancy contracts listed in exhibit 6a;
B) the exclusive dealer agreements listed in exhibit 6b;
C) the license agreements listed in exhibit 6c;
D) the lease, rent and tenancy agreements listed in exhibit 6d;
E) the contracts with a duration of more than 12 months following the Transfer
Date with the exception of the contracts mentioned in exhibits 6A to 6D and 6F
to 6H;
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8
F) the insurance contracts listed in exhibit 6F;
G) the contracts listed in exhibit 6G - including loan agreements - with the
Vendor, his family members and other enterprises in which the Vendor holds more
than 5%;
H) the agreements listed in exhibit 6H with the plant council and contracts with
trade unions except for supra-plant, regional and supra-regional collective
agreements or memberships in employers' associations.
The Vendee had received complete copies of the contracts listed in exhibit 6.
2) In addition, the Vendor assures and guarantees that
A) with the exception of the legal disputes listed in exhibit 6I hereto, the
Corporation is not a party to any legal dispute and will also not be actively
involved in any legal dispute until the Transfer Date without the prior consent
of the Vendee, except for the recovery of accounts receivable from deliveries
and services of ongoing business and, in addition, that no circumstances are
known which could cause third parties to commence a legal dispute and/or give
notice of a third party complaint vis-a-vis the Corporation;
B) the Corporation is not in default of payable payment obligations on the
Transfer Date;
C) the Corporation has the full right and power to conduct its business as
presently conducted and to possess and operate its business and assets.
3) Exhibit 6J contains a complete and correct list of all patents, utility
patents, registered designs, trade marks and all applications relating thereto
and all other industrial and intellectual property rights of the Corporation.
Unless expressly stated otherwise in exhibit 6J, the said industrial and
intellectual property rights are free of any rights of third parties and are not
subject to revocation or full or partial cancellation or any material right of
earlier users; the Corporation is not impaired in its sole and exclusive
utilization. To the best of the knowledge of the Vendor, none of the said
industrial and intellectual property rights is infringed by third parties. In
addition to the industrial and intellectual property rights listed in exhibit
6J, the Corporation had all rights which are additionally required for its
present business establishment.
The Corporation possesses all know-how with respect to production, manufacturing
and distribution for all its present house products and for all house products
and product improvements being presently prepared. It possesses all documents
relating thereto insofar as the said know-how with respect to production,
manufacturing and distribution exists in writing. To the best of the Vendor's
knowledge, the Corporation does not infringe any industrial or intellectual
property rights or other rights of third parties through the production and
distribution of its present products or through any other measure of business
management performed until the Transfer Date. The Vendor as an individual does
not have any rights with respect to the know-how and other requirements for the
carrying out of the present activities of the Company. In addition, the Vendor
warrants that with the exception of compulsory provisions of the German act
governing employee inventions all industrial and intellectual property rights
remain with the Corporation, independently of the resignation of an employee.
4) To the best of the Vendor's knowledge, the Corporation has all legal and
administrative approvals and permissions required for the management of its
present business establishment, including, without restriction, software
licenses, licenses and permits under water law and other environmental
protection laws. To the best of the Vendor's knowledge, it does not violate any
rights of third parties including competition laws, trade and industry laws and
statutory provisions
<PAGE>
9
under environmental protection law in its field of business. To the best of the
Vendor's knowledge, it is not responsible for the violation of any provisions
under environmental protection law which had or could have caused personal
injury, illness or damage. The same shall apply with respect to the real
property which has been and still is free of inherited burdens due to the
operation of the Corporation, including, without restriction, the freedom from
hazardous materials or other pollutants.
On the basis of present production, including the increases in production
presently planned by the Corporation until the date of execution of this
Contract, fresh water supply and sewage, waste and exhaust air disposal are
fully guaranteed to the best of the Vendor's knowledge. To the best of the
Vendor's knowledge, no licenses are required for the products produced and/or
distributed by the Corporation and no licenses to that effect have been applied
for.
To the best of the Vendor's knowledge
A) all house products produced and/or distributed by the Corporation comply with
the relevant German and US-American legal and other applicable standards,
B) or - if and insofar as they do not comply with such standards -
AA) such a deviation from such standards, to the best of the Vendor's knowledge,
has not given rise to any claims by customers which have not been satisfied so
far or
BB) the deviations from the said standards have been accepted or, as applicable,
expressly requested by the customer.
As regards the "Year-2000" problem, the Vendor assures and guarantees that he
has caused a proper review of this problem and, as a result of the said review,
that he is not aware of any problems except for those listed in exhibit 6K.
The Vendor is solely responsible for claims, actions, fees, expenses and
penalties relating to such measures or arising in connection thereto, which
result from the running of the Corporation prior to the transfer.
5) The Vendor is not entitled to any unpaid claims of any type against the
Corporation.
6) The Corporation is not subject to any understanding with respect to
competition with third parties.
SECTION 7
REPRESENTATIONS CONCERNING THE FINANCIAL STATEMENTS
1) The Vendor assures that to the best of his knowledge he has given all
information requested by the Vendee in a complete and correct manner and that no
information other than that given appeared necessary.
In addition, the Vendor assures that he has not concealed any known exceptional
risks or other aspects outside the usual scope of the business operation which
are of essential significance for the determination of the assets and profit
situation of the Corporation and of its prospective future development. In light
of the fact that the Vendee is aware of the economic and legal situation in
detail through the due diligence examination effected by him, the Vendor is not
liable for the future development, profit situation and profitability of the
company in which the
<PAGE>
10
transferred shareholding exists. The valuation of the Corporation and the other
or Companies is not based on warranties of the Vendor concerning future profits
but on the expectations of the Vendee based on the performance of the
Corporation in the previous fiscal years (average profits and sales volumes for
the calendar years 1994 to 1997 and the 1st half-year of 1998).
2) In addition, the Vendor assures
A) that the financial statements (balance sheets including profit and loss
statements) of the Corporation for the years 1994, 1995, 1996 and 1997, which
were delivered to the Vendee with the audit report of the certified public
accountant Wolfgang Konig, Garmisch-Partenkirchen, of June 26, 1998, were
prepared with the due diligence of a prudent businessman on the basis of proper
accounting and in accordance with German Generally Accepted Accounting,
Valuation and Depreciation Principles (GRUNDSATZE ORDNUNGSGEMABER BUCHFUHRUNG
UND BILANZIERUNG) and in compliance with the principle of consistency of the
method of valuation and valuation; due to the change in the valuation of the
inventory, the notes to the financial statements for 1996 are referred to.
The financial statements of the Corporation are complete and correct and
completely and correctly reflect the profit situation of the Corporation and the
net worth position as for each balance sheet stated there and with respect to
the results of the or Companies for the accounting period ended on the
respective balance sheet date. All risks, impairments of value and losses
determinable upon preparation of the relevant financial statements have been
duly taken into account through adequate depreciation, changes in the valuation
or formation of provisions; the company does not have any pension obligations;
B) and that
- - items on the balance sheet were continuous as regards the balance sheet of the
respective previous year in the application of equal, legally admissible
valuation principles and that valuation rights were exercised continuously in
equal form;
- - known risks and liabilities of the Corporation have been taken into account;
- - no changes in the valuation and depreciation modalities including
extraordinary depreciation and valuation adjustments have been made. Due to the
change in the valuation of the inventory, the notes to the financial statements
for 1996 are referred to again.
3) Interim financial statements are to be prepared as at the date prior to the
Transfer Date. The Vendor assures and guarantees that upon conclusion of this
Contract the Corporation reports equity capital in the amount of the share
capital as defined in paragraph 1 of the preamble, pursuant to Section 272 HGB
[German Commercial Code], in these interim financial statements.
The interim financial statements shall be prepared pursuant to HGB and shall
correspond to previous financial statements of the Corporation as regards
legally permissible valuation methods and procedures. In particular, they shall
consider the following to a sufficient degree:
A) any existing and obvious risks with respect to the valuation of the
inventory, the warranty claims and accounts receivable,
B) the existence of slow-moving or obsolete inventory with respect to the
valuation of the inventory and
C) sufficient accruals for pending or threatened legal disputes
<PAGE>
11
d) sufficient accruals for tax liabilities or risks; in this respect, the
parties, by mutual agreement, assume that no accruals shall be formed for tax
contingencies, in particular, contingencies which are a result of the position
of the Vendor as a shareholder and
e) sufficient accruals for liabilities due to patent infringements; in this
respect, the parties, by mutual agreement, assume that the liability vis-a-vis
Nortel Northern Telecom Limited has not been concretized to a sufficient degree.
The parties assume that the amounts of compensation to be paid under the
agreements attached as exhibit 4B constitute expenditure in the interim
financial statements as at the Transfer Date and no end-of-year adjustment
[Section 250 (1) HGB (German Commercial Code)] has to be performed.
Upon preparation of the interim statements, the claim of the Corporation against
or Industrial Computers Ltd., England and/or the directors and/or affiliated
persons of or Industrial Computers Ltd. is to be written off to DM 1.00. The
Corporation hereby assigns the said claim with the express approval of the
Vendee and with effect after the Transfer Date to the Vendor at the book value
then applicable. The Vendor hereby accepts such assignment. Without prejudice to
the said assignment, the Corporation shall remain entitled and, at the Vendor's
request, also obligated to continue to assert the claim in its own name to the
outside if the Vendor assumes the costs of prosecution incurred for this
purpose.
In addition thereto, warranties pursuant to paragraph (2) above are to apply
mutatis mutandis with respect to the interim financial statements stated herein
as at June 30, 1998.
The Vendee may request that the interim financial statements of the Corporation
as at June 30, 1998 be audited by KPMG Deutsche Treuhandgesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft, Berlin (KPMG) at its
expense. If the Vendor does not agree with the results of the audit of KPMG, he
may, within one month subsequent to his receipt of the results of the audit of
KPMG of the interim financial statements, request another audit of the interim
financial statements of the Corporation as of June 30, 1998 by an auditing
company agreed upon by the parties or - should agreement be impossible - by such
an auditing company named by the President of the Chamber of Industry and
Commerce, Augsburg.
The Vendor shall bear the costs of the said audit if the result of the audit of
KPMG of the interim financial statements of the Corporation as at June 30, 1998
is correct with respect to application of the HGB. Otherwise the Vendee shall
bear the costs of such audit of the second auditor. Should it come to light that
the audit of the second auditor does not follow any of the foregoing interim
financial statements, the costs of the second audit shall be borne by the Vendor
and the Vendee in proportion to the deviation pursuant to Sections 91 et seq.
ZPO [Code of Civil Procedure].
The interim financial statements audited by KPMG or, if another audit is
requested, the interim financial statements of the auditing company agreed upon
by the parties or named by the President of the Chamber of Industry and Commerce
of Augsburg is to be binding between the parties with respect to determining
whether the interim financial statements correspond to the warranties given by
the Vendor. The interim financial statements as of June 30, 1998 shall also be
binding if neither the Vendor nor the Vendee requests that they be audited
within one month after the Corporation has forwarded the interim financial
statements to the parties; such request shall be made in writing to the other
party to the Contract.
If the equity capital, pursuant to the interim financial statements binding
between the parties, is lower than the share capital pursuant to Section 7 (3),
sub-paragraph 2, the Vendor shall be obligated to effect a payment to the
differential amount to the Vendee. However, this shall not apply in the
<PAGE>
12
event of modifications to the equity capital arising from the treatment of the
Matra and OSC contracts on the balance sheet. Such modifications as a result of
the treatment of the Matra and OSC contracts on the balance sheet also shall not
have any effect on the increase amount pursuant to Section 2 (3) of the
instrument.
Insofar as the modifications to the annual financial statements for 1998
resulting from the treatment of the Matra and OSC contracts on the balance sheet
lead to the advance dividend distributed to the Vendor exceeding the profit for
the year for 1998 which is available for distribution, the Vendee undertakes to
exempt the Vendor from any repayment obligation vis-a-vis the Corporation.
Section 8 shall not apply.
4) Since January 1, 1998 the Corporation has only been conducted within the
normal and ordinary course of business. Since that time, no extraordinary
business event or legal arrangement has occurred or been entered into - with the
exception of the agreements to annul an obligatory relation with the Vendor and
Mrs. Hannelore Oettle listed in exhibit 4 B - and no event has occurred which by
itself or together with other events has materially affected the assets or the
profit situation of the Corporation in an adverse manner. All salary and wage
increases granted since January 1, 1998 have been required under collective
agreements or, if not, were in the normal scope. The Vendee has knowledge that
in July 1998, in accordance with past years' practice, employees' salaries and
wages shall be increased corresponding to their individual performance. No
claims, actions or lawsuits under employment law are asserted or filed or
threatened to be asserted or filed against the Corporation and, to the best of
the Vendor's knowledge, no basis exists for such claims.
The employees of the Corporation are not entitled to any payments or special
benefits not explicitly set out in their respective employment contracts.
5) No circumstances are known to the Vendor which jeopardize the realization of
the budget for 1998 (exhibit 7A).
6) All tax returns which the Corporation has had to file for past accounting
periods have been filed in a timely manner and correctly. In particular, the
classification of the equity capital applied for corporate income tax purposes
is correctly reflected in the corporate income tax return of the Corporation for
1996 and also in the draft corporate income tax return for 1997.
Neither the Vendor nor any persons close to him had received hidden profit
distributions from the Corporation in the period until the Transfer Date. This
also applied after the Transfer Date with respect to the agreements made in the
Preliminary Deed.
The equity capital applied for corporate income tax purposes of the Corporation
as at December 31, 1997 includes the following items (prior to allowing for the
distributions for 1996 and 1997 which have been carried out in 1998): EK 50 = DM
0; EK 45 = DM 5,442,768.00; EK 02 = DM 423; and EK 04 = DM 0.
For the period until the Transfer Date, the Corporation will not incur any tax
liabilities which have not been allowed for in the interim financial statements
as of the Transfer Date.
7) To the best of the Vendor's knowledge, no particular circumstances exist
which are able to materially affect the business of the Corporation. The Vendor
is not aware of any facts and circumstances which could result in any
restriction, impediment or cessation of manufacturing and/or distribution of
material products which are produced and/or marketed by the Corporation at that
time.
<PAGE>
13
SECTION 8
LEGAL CONSEQUENCES/STATUTE OF LIMITATIONS
1) If the obligations, warranties and assurances of the Vendor in this Section
II of the contract are not fully fulfilled or are in any other manner not
fulfilled in accordance with the contract, the Vendee shall be entitled to
request the Vendor to restore the contractual status, determining - via
registered mail - an adequate period of time of a minimum of 2 weeks for this
purpose. The Vendee does not have the said right, however, if and to the extent
that it has not gained knowledge of such deviation from the contractual status
within the scope of the due diligence examination performed by it. This
exclusion shall not apply to the warranty contained in Section 7 (6) of the
Contract. As regards the assurance made in Section 6 (3) sub-paragraph 7 of the
deed, such exclusion shall not apply to any claims of the company Nortel
Northern Telecom Limited.
The request with determination of an additional period of time pursuant to
sentence 1 above is not necessary if restoration of the contractual status is
not possible for the Vendor or refused by him or if the requirements pursuant to
paragraph 2 below have been complied with. If the determination of the
additional period is not necessary or if the contractual status is not restored
within the additional period, the Vendor will place the Vendee or, if requested
by the Vendee, the Corporation in an economic position, which the Vendee or, as
applicable, Corporation would have if such obligations, warranties and
assurances had been correct. Claims for payments in accordance with the
foregoing paragraph shall only arise if, in any individual case, they exceed DM
100,000.00 or if their total amount for the or Companies exceeds DM 500,000.00.
The regulation contained in the foregoing sentence shall not apply to tax
liabilities and risks for which no provisions are to be formed pursuant to
Section 7 (3) lit. d). Tax liabilities and risks, however, shall not be
compensated for by the Vendor at all or shall not be compensated by the Vendor
insofar as they are balanced by tax advantages of the Corporation, for example,
by virtue of tax savings due to increased depreciation, in the ensuing years.
2) The Vendee shall be entitled to withdraw from this Contract or - applying the
principles of Section 463 BGB (German Civil Code) - to conduct a calculation of
damage under reversed transaction if the warranties in Section II Section 4 are
breached to a substantial extent or if adjustment pursuant to paragraph 1
exceeds the amount of DM 5.0 million with respect to the total for all or
Companies. Apart from this event, the right to withdraw from the contract or -
applying the principles of Section 463 BGB - to perform a calculation of damage
under reversed transaction shall be expressly excluded. In particular, this
shall apply in the event of violation of the assurances and guarantees in
Sections 5 and 6 of the document. In the event of withdrawal, the right of the
Vendee for damages, including consequential damage, shall remain unaffected.
3) The Vendee shall only be entitled to put forward any claims pursuant to
paragraph 1 and 2 if and insofar as no corresponding advantages in connection
with the sale of the shares in Ortec GmbH or or Inc. exist. The aforesaid
regulation shall only cover the shift in revenue or expenditure between the or
Companies.
4) All claims pursuant to this part II shall be excluded if they are not
asserted and substantiated in writing to the other party on or before December
31, 1999. The preclusive period of time in accordance with the foregoing
sentence shall, with regard to claims connected to taxes and social security
contributions, not end before the end of one month subsequent to the
administrative finality of the official replies by virtue of a tax field audit
or, as applicable, an audit of social security contributions. The period of
limitation for asserted claims shall be three months after the end of the
aforesaid period of application; should any tax audit not lead to an immediate
tax liability but impair the tax situation of the Corporation in any other
respect, the Vendee may bring an action for declaration prior to the end of the
period of limitation in order to preserve its
<PAGE>
14
rights. Sections 477 to 479 BGB (German Civil Code) and 377, 378 HGB (German
Commercial Code) shall be excluded.
5) The Vendor and Vendee shall be obligated to inform and assist each other if
third parties assert any claims vis-a-vis the Corporation if such claims may
give rise to claims pursuant to this Section II.
SECTION III
OTHER PROVISIONS
SECTION 9
TRANSFER OF THE BUSINESS TO THE VENDEE; MANAGEMENT
1) The Vendor shall become active as managing director of the Corporation for a
period of two years pursuant to an employment contract. The employment contract
shall be concluded with the contents pursuant to exhibit 9A.
2) The mother of the Vendor, Mrs. Hannelore Oettle, has resigned from her office
as managing director of the Corporation by the letter attached in exhibit 9 B.
However, she will continue to be active in the Corporation. The Vendor and the
Vendee agree upon concluding an employment contract with Mrs. Hannelore Oettle
in the name of the Corporation with the contents pursuant to exhibit 9 C.
3) The Vendor and Vendee are required to mutually provide all information and to
cooperate in all transactions and legal actions which are required to implement
this document. In particular, the Vendor undertakes to deliver to the Vendee all
business papers and documents owned by the Corporation and to inform the Vendee
unrestrictedly with respect to the affairs of the Corporation as regards the
period of time prior to the Transfer Date upon request if required in the
interest of the Corporation and the Vendee.
4) The Vendor undertakes to provide the Corporation with a loan in the amount of
DM 2,495,000.00 (= 49.9 percent of DM 5.0 million). Interest shall be paid on
the said loan with 7.5% p.a. It may be terminated with a notice period of one
month as of the end of a month, but no earlier than as of December 31, 1999.
However, the loan may already be terminated as of February 28, 1999 if the
Vendee has also acquired the remaining shares in the Corporation as at this date
and unless an absolute guarantee of SBS Technologies Inc., 2400 Louisiana
Boulevard NE, Albuquerque, NM 87110, USA is available on the same day pursuant
to which SBS Technologies, Inc. guarantees repayment of the then outstanding
remaining loan amount of the Vendor on first demand. However, the Corporation
shall be granted a special right to redeem. Interest is payable at each end of a
half year, initially on December 31, 1998 or, as applicable, upon repayment of
the loan.
5) The Vendee undertakes to provide the Corporation with DM 2,505,000.00
(= 50.1% of DM 5.0 million) as a loan on July 8, 1998. The loan shall remain
non-interest-bearing until December 31, 1998. As of January 1, 1999, interest
shall be paid on the said loan at a rate of 7.5 % p.a. The loan may be
terminated no earlier than as at December 31, 1999 with a notice period of one
month. The Corporation is granted a special right to redeem.
SECTION 10
NON-COMPETITION CLAUSE
<PAGE>
15
Until December 31, 2001 the Vendor shall be obligated not to compete with the or
Companies or the Vendee in such fields of business which are covered by the
business object of the or Companies as defined in Section 2 of the by-laws of
the Corporation in the version stated in Section 4, paragraph 2. The Vendor
guarantees that he will also comply with this non-competition clause in the
companies affiliated with him. This non-competition clause shall be reduced to a
period of 6 months as of the date of termination of the Vendor's agreement on
service as a manager if such employment relationship is terminated by the
Corporation prior to its contractual termination and such termination of the
contract is held unlawful by a court.
SECTION 11
FINAL PROVISIONS
1) It shall be the joint understanding between the parties that this purchase
contract is subject to a condition precedent due to the legally effective
execution of the employment contract of the Vendor as managing director of the
Corporation in accordance with the above Section 9, paragraph (1) in connection
with exhibit 9 A.
2) Unless otherwise required by law, the parties undertake to keep the contents
of this Contract in confidence.
3) All expressions of will and other notifications in connection with this
Agreement shall be made in writing and shall be sent by registered mail or
facsimile to the following persons and addresses or such other addresses as the
parties hereafter communicate to each other:
a) on the part of the Vendor:
Law offices of Messrs. Seitz, Weckbach, Fent, Schiessgrabenstr. 14, 86150
Augsburg,
b) on the part of the Vendee:
KPMG Deutsche Treuhandgesellschaft, Kurfurstendamm 207 - 208, 10719 Berlin -
Attn. Lawyer Richard Staudacher
4) Any amendments and supplements to this Contract shall be made in writing
unless notarial recording is required in a compulsory manner.
5) The costs of this deed and its execution shall be borne by the Vendee. The
respective costs of their consultants shall be borne by the Vendor and Vendee
themselves.
6) This Contract shall be governed by the laws of the Federal Republic of
Germany. The exclusive jurisdiction of the courts in Augsburg is hereby agreed.
7) Notification of the registry court of the assignment of the share transferred
by this document shall be performed by the Corporation itself.
8) The sale of the shares in the Corporation transferred by this deed and the
sale of the shares in Ortec GmbH transferred by the instrument of the notary
public Dr. Koch of July 1, 1998 (deed register No. K 1455/1998) and the shares
in or Inc. transferred by the deed of the notary public Dr. Koch of July 1, 1998
(deed register No. K 1457/1998) constitute a legal entity within the meaning of
Section 139 BGB (German Civil Code). Should any of the provisions of this deed
be or become ineffective or unenforceable, the effectiveness and enforceability
of the other
<PAGE>
16
provisions of this contract shall not be affected thereby. In this event, the
parties shall replace such an ineffective or unenforceable provision by such a
provision which comes closest to the economic intention of the agreement.
9) Each party to the contract shall receive one copy of this deed. Other
certified copies of this deed shall be submitted to
- - the Corporation;
- - the local tax office (Finanzamt) of Augsburg - municipal tax agency for bodies
corporate for tax No. 386/11073;
- - the lawyer Mr. Stefan Kiesewalter, KPMG Deutsche Treuhandgesellschaft,
Kurfurstendamm 207-208, 10719 Berlin;
- - the lawyers Seitz, Weckbach, Fent, for the attention of the lawyer Dr. Theodor
Seitz, Schiessgrabenstr. 14, 86150 Augsburg.
The above record including exhibits was read out by the notary public, approved
by the persons appearing and signed in their own hands.
[4 illegible signatures]
[STAMP:]
Dr. Peer Koch, Notary Public in Augsburg
- ------------------------------------
Authentication
I have examined the German original/photocopy/facsimile
and this is a true translation of same into English.
Barbara Wohanka, registered translator for the English
language at the District Court of Landshut, Germany,
July 16, 1998
<PAGE>
17
APPENDIX 4 A (OR GmbH) GmbH
- - Shareholders' resolutions since 1st January 1998 -
1. Resolution dated 29th April 1998 (adoption of the annual accounts to 31st
December 1996, among others)
2. Resolution dated 29th June 1998 (adoption of the annual accounts to 31st
December 1997, among others)
3. Resolution dated 29th June 1998 (advance distribution from the net income
for the year 1998)
4. Resolution dated 30th June 1998 (adoption of the annual accounts 1994,
1995 and 1996 in the certified version, among others)
i.e. the resolutions named in clauses 2) to 4) are attached hereto.
<PAGE>
18
APPENDIX 4 B (OR GmbH)
- - Contracts with the vendor and Ms Hannelore Oettle since 1st January 1998 -
1. Rescission contract with Mr Frank Oettle dated 30th June 1998 (attached to
this correspondence)
2. Rescission contract with Ms Hannelore Oettle dated 30th June 1998 (attached
to this correspondence)
<PAGE>
19
CONTRACT OF RESCISSION
between
OR INDUSTRIAL COMPUTERS GmbH,
REPRESENTED BY THE SHAREHOLDERS
- hereinafter referred to as the "corporation" -
and
MR FRANK OETTLE
PRELIMINARY STATEMENT:
Mr Oettle has been working for the corporation as managing director since it was
founded on 15th April 1985. The basis of his work as managing director is the
employment contract dated 16th December 1994, supplemented by shareholder
resolutions regarding the managing director remuneration, as well as the
granting of a direct insurance. With regard to the managing director salary, it
was last decided through a shareholders' resolution dated 27th December 1996
that Mr Oettle was to receive a monthly salary of DM 45,000.--for his work as
managing director from 1st January 1997, whereby 14 monthly salaries per year
were to be paid, plus a bonus of DM 210,000.--. The notice period for a routine
termination of the employment contract dated 16th December 1994 amounts to 12
months.
There has been a change in the shareholders' circle of the corporation with
effect of 1st July 1998, since Mr Oettle, as the previous sole shareholder
through the contract dated 1st July 1998, will be transferring a business share
with a nominal amount of DM 50,100.00 - corresponding to a share of 50.1% of the
nominal capital of the corporation - to a subsidiary of SBS Technologies Inc.,
Albuquerque, New Mexico, USA.
The following has been agreed at the instigation of the new majority partners:
SECTION 1
RESCISSION OF THE EMPLOYMENT CONTRACT DATED 16TH DECEMBER 1994
The employment contract between Mr Oettle and the corporation dated 16th
December 1994 is herewith completely rescinded with effect of 30th June 1998.
<PAGE>
20
SECTION 2
NEW EMPLOYMENT REGULATION
The employment between the corporation and Mr Oettle will be newly regulated by
a new managing director contract, the contents and wording of which is to
largely correspond to the contract according to appendix 9 A of the notarial
contract dated 1st July 1998.
SECTION 3
COMPENSATION
In view of the loss of the managing director remuneration for the next 12 months
according to the employment contract dated 16th December 1994 named in the
preliminary statement, corresponding to an amount of DM 630,00.00 (14 month's
salary a DM 45,000.--), plus a bonus of DM 210,000.--, Mr Oettle will receive a
compensation amount of DM 465,000.--.
SECTION 4
FINAL CLAUSES
1) Providing nothing has been legally stipulated to the contrary, the parties
undertake to treat the contents of this contract confidentially.
2) Alterations and supplements to this contract need to be done in writing.
3) The laws of the Federal Republic of Germany are valid for this agreement.
The exclusive court of jurisdiction has been agreed as the courts in
Augsburg.
4) Should a term in this contract be ineffective, or be or become
unenforceable, this will not give rise to the other terms in this contract
becoming ineffective or unenforceable. In this case the parties will
replace such an ineffective or unenforceable term by one coming closest to
the economic intention of this agreement.
Augsburg, ______
- ------------ --------------------------
Corporation Frank Oettle
<PAGE>
21
CONTRACT OF RESCISSION
between
OR INDUSTRIAL COMPUTERS GMBH,
REPRESENTED BY THE SHAREHOLDERS
- hereinafter referred to as the "corporation" -
and
MS HANNELORE OETTLE
PRELIMINARY STATEMENT:
Ms Oettle has been working for the corporation as managing director since it was
founded on 15th April 1985. The basis of this work as managing director is the
employment contract dated 16th December 1994, supplemented by shareholder
resolutions regarding the managing director remuneration ,as well as the
granting of a direct insurance. With regard to the managing director salary, it
was last decided through a shareholders' resolution dated 27th December 1996
that Ms Oettle was to receive a monthly salary of DM 30,000.--for her work as
managing director from 1st January 1997, whereby 14 monthly salaries per year
were to be paid, plus a bonus of DM 140,000.--. The notice period for a routine
termination of the employment contract dated 16th December 1994 amounts to 12
months.
There has been a change in the shareholders' circle of the corporation with
effect of 1st July 1998, since Mr Frank Oettle, as the previous sole shareholder
through the contract dated 1st July 1998, will be transferring a business share
with a nominal amount of DM 50,100.00 - corresponding to a share of 50.1% of the
nominal capital of the corporation - to a subsidiary of SBS Technologies Inc.,
Albuquerque, New Mexico, USA.
Ms Hannelore Oettle has resigned from office of managing director of the
corporation with effect of 30th June 1998 at the instigation of the new majority
partners. The following is additionally agreed at the instigation of the new
majority partners:
SECTION 1
RESCISSION OF THE EMPLOYMENT CONTRACT DATED 16TH DECEMBER 1994
The employment contract between Ms Oettle and the corporation dated 16th
December 1994 is herewith completely rescinded with effect of 30th June 1998.
<PAGE>
22
SECTION 2
NEW EMPLOYMENT REGULATION
The employment between the corporation and Ms Oettle will be newly regulated by
a contract (employment contract), the contents and wording of which is to
largely correspond to the contract according to appendix 9 A of the notarial
contract dated 1st July 1998.
SECTION 3
COMPENSATION
In view of the loss of the managing director remuneration for the next 12
months, according to the employment contract dated 16th December 1994 named in
the preliminary statement, corresponding to an amount of DM 420,00.00 (14
month's salary a DM 30,000.--), plus a bonus of DM 140,000.--, Ms Oettle will
receive a compensation amount of DM 410,000.--.
SECTION 4
FINAL CLAUSES
1) Providing nothing has been legally stipulated to the contrary, the parties
undertake to treat the contents of this contract confidentially.
2) Alterations and supplements to this contract need to be done in writing.
3) The laws of the Federal Republic of Germany are valid for this agreement.
The exclusive court of jurisdiction has been agreed as the courts in
Augsburg.
4) Should a term in this contract be ineffective, or be or become
unenforceable, this will not give rise to the other terms in this contract
becoming ineffective or unenforceable. In this case the parties will
replace such an ineffective or unenforceable term by one coming closest to
the economic intention of this agreement.
Augsburg, ______
- ------------ -----------------
Corporation Ms Hannelore Oettle
represented by Mr Frank Oettle
<PAGE>
23
APPENDIX 5 A (OR GMBH)
- - Objects taken out on lease/tenancy, rented or leased by the corporation -
1. The corporation's business premises are rented in Augsburg, Memminger 14.
For the rudiments of the tenancy agreement compare appendix 6D.
2. Moveable objects have neither been taken out on lease/tenancy nor rented or
leased by the corporation.
3. For existing licence contracts compare appendix 6C.
<PAGE>
24
APPENDIX 5 B (OR GMBH)
- - List of all managing directors, "Prokurists" and other comparable members of
the management of the corporation, as well as all general Powers of Attorney
which were granted by the corporation, as well as all bank accounts and
signature authorities -
1. MANAGING DIRECTOR:
Mr Frank Oettle
2. "PROKURISTS"
none
3. COMPARABLE MEMBERS OF THE MANAGEMENT
none
4. GENERAL POWERS OF ATTORNEY
none
5. BANK ACCOUNTS AND SIGNATURE AUTHORITIES
a) The corporation keeps two DM-accounts at the Bayerischen Vereinsbank Augsburg
- - no. 223 3550 and no. 223 3134
b) as well as a US-$ account
- - no. 878 74800,
over which the following are exclusively authorised to dispose: Mr Frank Oettle,
Ms Hannelore Oettle, Mr Alfons Oettle, as well as Ms Rosa Ungemach, balance
sheet accountant at the corporation.
c) the following are exclusively authorised to dispose over a further account at
the Bayerischen Vereinsbank
- - no. 225 5405
Mr Frank Oettle, Ms Hannelore Oettle, as well as Mr Alfons Oettle.
Further bank accounts or signature authorities do not exist.
APPENDIX 6 A (OR GMBH)
<PAGE>
25
- - Advisory contracts -
none
<PAGE>
26
APPENDIX 6 C (OR GMBH)
License agreements
I LICENSE AGREEMENTS WITH RUNNING REMUNERATION PAYMENTS
1. Contract with the company PBU Computer Systeme, Friedberg, on two
"solid-edge" licences in accordance with the offer dated 30th September
1997 (rent for two licences including maintenance, DM 2,000.00 monthly plus
sales tax, duration October 1997 until October 1998).
II ACQUIRED LICENCES AGAINST NON-RECURRENT REMUNERATION
1. Software used as a development tool and software which has been bought to
be sold on to customers.
<TABLE>
<CAPTION>
date company product agreement
<S> <C> <C> <C>
Adobe Acrobat Writer and Tools Registration Card
12.09.97 Alvsjo Data AB QNX VMEbus driver Distribution License
20.04.95 Award PC-BIOS source code Software License Agreement
20.04.95 Award PC-BIOS binary code Software License Agreement
C & T Inc. Grafic BIOS, SK65555 Software License Agreement
C & T Inc. Grafic BIOS, SK65548 Software License Agreement
C & T Inc. Grafic BIOS, SK65550 Software License Agreement
24.04.95 Cimus Logic GD62x5 BIOS + driver License for Distribution of Executable Software
10.08.92 Cimus Logic CL-GD6420 BIOS + driver License for Distribution of Executable Software
05.11.91 Cimus Logic CL-GD6410 BIOS + driver License for Distribution of Executable Software
Delix Linus DLD.3 Registration card
Xi Graphics Accelerated X Software License Agreement
12.05.98 Integrated Systems Microtec C/C ++ Compiler Development Delivery note
package pSOS + 680
Development package pSOS + 683
XRAY C debugger
14.02.94 Integrated Systems price list VAR Agreement
04.03.93 Integrated Systems XRAY SUN-4 Software License Agreement
KM/RS/NS/LC-68K-S4
FTP Software Interdrive Client NT Software License Package
12.05.98 Intersolv PVCS Version Manager 5.3 Product Registration Information
Microsoft Developer Network Membership card
Enterprise Edition Membership card
03.03.92 Microsoft Packaged MS-DOS Distribution Agreement
<PAGE>
27
Distribution
Microsoft Visual C++ 4.0 End-User License Agreement
Microsoft Visual C++ 5.0 End-User License Agreement
Enterprise Edition Upgrade End-User License Agreement
NuMega SoftICE V3.0 Product Registration Card
21.08.96 Phoenix Card Manager 4. X Object Software License Agreement
SUN Solstice Network Client Right-to-Use License Upgrade Agreement
14.05.93 Western Digital WD90C24 BIOS and drivers Software License Agreement
</TABLE>
<PAGE>
28
APPENDIX 6 D (OR GMBH)
- - Lease, rent and tenancy agreements
1. RENT AGREEMENT ON THE FACTORY BUILDING
Rent agreement dated 27th July / 9th August 1995 with the following further
components:
a) amended page 2, dated 16th November 1995
b) "supplements to the rent agreement" dated 18th August 1995
c) "2nd supplement to the rent agreement" dated 6th March / 12th May 1997
d) "addendum/supplement to the rent agreement" dated 27th July / 9th August
1995" dated 26th November / 24th November 1997.
The rent agreement including the supplementary components according to the above
letters a) to d) was already presented to the vendee within the framework of the
due-diligence inspection as appendix OR-II-6 A, B, C, D and E.
2. FURTHER LEASE, RENT AND TENANCY AGREEMENTS
No other lease, rent and tenancy agreements do exist.
<PAGE>
29
APPENDIX 6 E (OR GMBH)
Contracts with a duration of more than 12 months after the assignment cut-off
date with the exception of the contracts named in the appendices 6 A to 6 D and
6 F to 6 H.
<TABLE>
<CAPTION>
I. Internet contract of use
Date Contract party Type of contract
<S> <C> <C>
01.04.96 Hassler & Mair GmbH Internet user contract
II. Continuous purchase contracts
<CAPTION>
Date Contract party Type of contract
<S> <C> <C>
12.05.98 diverse listing of skeleton orders
03.06.97 Alphi Technology OEM Purchase Agreement
14.02.97 MEN Micro Elektronik GmbH Distribution Agreement no. 9702/01
11.08.94 MEN Micro Elektronik GmbH Sales/Distribution Agreement
02.10.92 Beckhoff Industrie Elektronik GmbH Sales/Distribution Contract
21.09.92 LP Elektronik GmbH Sales/Distribution Contract
</TABLE>
For clarification purposes it is indicated that the "list of skeleton
agreements" dated 12th May 1998, which was presented within the framework of
the due-diligence inspection as appendix OR-VII-1B, on the purchase of
individual articles from different suppliers all have a duration of less than 12
months.
<PAGE>
30
APPENDIX 6 F (OR GMBH)
- - Insurance contracts -
1. Electronic insurance (Mediaversicherung no. 12256)
2. Fire insurance (Thuringia no. 445-491.260.925-S1)
3. Manufacturer's liability insurance (Victoria, no. 6882488.5-332)
4. Transport insurance (Albingia, no. 19640042.1162-1/00842.2)
5. Life assurance (direct insurance; HUK-Coburg-Leben, no. 900/294455-G-71)
6. Life assurance (direct insurance; HUK-Coburg-Leben, no. 900/214362-R-71)
7. Life assurance (direct insurance; HUK-Coburg-Leben, no. 900/214361-Q-71)
<PAGE>
31
APPENDIX 6 G (OR GMBH)
- - Contracts (including loan agreements) with the vendor, his relatives and other
shareholders, of which the vendor maintains more than 5% -
1. Employment contract between the vendor and the corporation dated 16th
December 1994, rescinded with contract of rescission dated 30th June 1998
(compare appendix 4B).
2. Employment contract between Ms Hannelore Oettle and the corporation dated
16th December 1994 rescinded with contract of rescission dated 30th June
1998 (compare appendix 4B).
3. Loan agreements : not applicable
4. Direct insurances according to appendix 6 F clause 5 to 7 (the vendor and
Ms Hannelore Oettle respectively are each entitled to dividends)
5. Running management of corporation wage accounting by Mr Georg Schlagbauer,
spouse of the vendor's sister, for a monthly remuneration to the amount of
DM 620 within the framework of an insignificant employment contract (a
written agreement does not exist).
6. Orders to the advertising agency run by Mr Georg Schlagbauer because of
advertising by the corporation in specialised journals (a written agreement
going beyond the individual order does not exist).
7. Wage preparation of electronic packages for the corporation by ortec GmbH
(written continuous purchase contracts or skeleton agreements do not
exist).
<PAGE>
32
APPENDIX 6 H (OR GMBH)
- - Agreements with the shop council and contracts with unions, with the exception
of regional and supra-regional trade union agreements or memberships in
employers' associations -
1. Agreement with the shop council (works agreement) dated 14th December 1993
2. Agreement with the shop council dated 2nd July 1997.
<PAGE>
33
APPENDIX 6 I (OR GMBH)
- - Legal disputes -
1. PENDING ACTIVE PROCESSES AND PROCEDURES
a) law suits in which the corporation asserts claims against third parties are
presently not pending.
b) the corporation is asserting extra-judicial payment claims to the extent of
approx. DM 300,000.00 against or Industrial Computers Ltd - a former sales
company of the corporation for Great Britain - or the corporations
associated with it, or its managing director.
c) The handling of this claim within the framework of the contract concluded
here is regulated in Section 7 clause 3 c).
2. PENDING PASSIVE PROCESSES AND PROCEDURES
a) law suits in which third parties assert claims against the corporation are
presently not pending.
b) in a letter dated 30th March 1998, claims to a subsequent payment of
ancillary costs were asserted extra-judicially by the lessor of the
corporation's business premises. Further details in this respect can be
taken from the letter of the vendor's legal representative (lawyers Seitz,
Weckbach, Fent) dated 5th June 1998 to the representatives of the vendee
(KPMG Deutsche Treuhandgesellschaft AG, attn. Mr WP Furholzer).
The matter is to be settled by common consent in association with a further
rent contract question (option right to renting further surfaces in the
present factory building).
c) The company Nortel (Northern Telecom Ltd., Brampton, Canada) indicated in a
letter to the corporation dated 18th June 1998, which was presented to the
representatives of the vendee (KPMG Deutsche Treuhandgesellschaft AG, attn
Mr Kiesewalter, lawyer) with the letter of the legal representatives of the
vendor (lawyers Seitz, Weckbach, Fent) dated 23rd June 1998, that patents
of Nortel may have been infringed with regard to certain products of the
corporation and have requested a reply to this from the corporation.
In the letter dated 23rd June 1998 mentioned above, the lawyers Seitz,
Weckbach,
<PAGE>
34
Fent informed the representatives of the vendee, among others, that no
Nortel patents were being violated through the present production by the
corporation.
3. ADMINISTRATION FINES AND CRIMINAL PROCEEDINGS
none
APPENDIX 6 J (OR GMBH)
- - Patents, consumer samples, design samples, trade marks and all related
registrations and other industrial and intellectual property rights of the
corporation -
none
<PAGE>
35
APPENDIX 6 K (OR GMBH)
- - Declaration by the vendor on his knowledge of the difficulties in view of the
"year 2000 issue" -
The vendor's knowledge of the difficulties in view of the "year 2000 issue" is
summarised in the following two statements by the corporation to its customers,
which are available to the representatives of the vendee:
1. "Year 2000" compliance, status: 12th May 1998
2. BIOS application note, status: 29th April 1998
<PAGE>
36
APPENDIX 9 A (OR GMBH)
- - Employment contract for Mr Frank Oettle -
MANAGING DIRECTOR CONTRACT
between
OR INDUSTRIAL COMPUTERS GMBH
REPRESENTED BY THE SHAREHOLDERS
- hereinafter referred to as "corporation" -
and
MS FRANK OETTLE
PRELIMINARY STATEMENT:
The parties have, by common consent, rescinded the existing employment contract
which has existed up to now with Mr Frank Oettle as managing director of the
corporation. With effect from 1st July 1998 Mr Frank Oettle is to continue to
work for the corporation on the basis of the following contract:
SECTION 1
DUTIES AND OBLIGATIONS
1. Oettle is the managing director of the corporation. He represents the
corporation according to the regulations in the corporation contract and
the conditions of the shareholders' meeting.
2. Oettle runs the corporation according to the laws, the corporation
contract, possible internal rules issued by the management and the
conditions of the shareholders' meeting.
<PAGE>
37
SECTION 2
CONTRACT PERIOD; TERMINATION
(1) This contract begins on 1st July 1998 and ends on 30th June 2000.
(2) During this contract period a proper termination of the contract is
excluded. The right to terminate the contract for an important reason
remains unaffected by this.
(3) Just as with the termination of this employment contract, the removal from
office of Ms Oettle as managing director during this contract period is
only permissible for an important reason.
(4) A possible termination of this contract, as with a possible removal from
office of Mr Oettle as managing director needs to be done in writing. The
termination or removal from office by the corporation ensues by means of a
written notification of a corresponding resolution by the shareholders'
meeting.
SECTION 3
REMUNERATION
(1) The employee receives a gross annual salary to the amount of DM 275,000.00
for his work. The annual salary will be paid at the end of each calendar
month in 12 equal instalments, whilst withholding the legal deductions.
(2) Furthermore, Mr Oettle will receive a profit-sharing bonus to the amount of
5% of the basis of assessment. The basis of assessment is calculated as
follows:
(a) we are assuming the basis to be taken is the annual net profit before
corporation income tax minus 3 million German marks shown in annual
accounts determined for the respective financial year;
(b) to be deducted from this is a possible low amount brought forward from
previous financial years;
(c) to be added is the profit-sharing bonus.
This applies pro rata temporis for the first year of employment.
(3) According to the long-term SBS-interest plan 1998, Mr Oettle furthermore
has the right to acquire 50,000 shares in SBS Technologies at a purchase
price corresponding to the stock exchange price on 30th June 1998, whereby
the option for acquiring these shares is to be exercised each at 50%
respectively on each of the annual days of employment - meaning half on
30th June 1999 as well as on 30th June 2000 respectively.
<PAGE>
38
(4) A car (mid-range car up to a list price of DM 60,000.00) will be made
available to Mr Oettle for his work within the framework of this contract,
which can also be used for private purposes. The wages tax on the cash
advantage of private use is to be borne by Mr Oettle. After the contract
has finished the car is to be returned to the corporation immediately.
(5) The corporation continues to pay the dividends to the present amount of
3,000 German marks annually for the existing direct insurance in favour of
Mr Oettle.
SECTION 4
ILLNESS, ACCIDENT, DEATH
(1) In the case of a temporary inability to work by Mr Oettle, arising through
illness or through another reason for which he is not responsible, the
remuneration package will continue to be paid for three months according to
Section 3; this will be carried out by deducting an amount corresponding
the daily sickness benefits and hospital benefits paid by the health
insurance company. The continuance of the salary payment will ensue to the
end of the contract at the latest.
(2) Should Mr Oettle pass away during the contract period, then his long-time
companion, Ms Martina Schussler, and his underage offspring as joint and
several creditors have a right to a continuation of the salary payment in
accordance with Section 3 for the month when he passes away and the three
subsequent months.
(3) The corporation will insure Mr Oettle against accident to the normal extent
for managing directors of the corporation.
SECTION 5
HOLIDAY
Mr Oettle is entitled to an annual holiday of 30 work days.
SECTION 6
REFUND CLAIMS
Refunding expenses arising to Mr Oettle whilst performing his duties according
to this contract will be done to the amount of the respectively valid internal
guidelines of the corporation.
SECTION 7
DUTY TO OBSERVE SECRECY
Mr Oettle is obliged to treat all information concerning the affairs of the
corporation in a strictly confidential way towards third parties. This
obligation also remains valid after he has left the services of the corporation.
<PAGE>
39
SECTION 8
RECORDS
When Mr Oettle leaves the services of the corporation he is obliged to
immediately return to the corporation the written correspondence, EDP
programmes, diskettes, designs and the like concerning the affairs of the
corporation and which are still in his possession.
SECTION 9
FINAL CLAUSES
(1) The contractual relationship on hand is subject to German law.
(2) Should individual terms in this contract be ineffective, the effectiveness
of the remaining part of the contract are not affected by this. The parties
are obliged to replace the ineffective condition with an effective one
which comes as close as possible to the economic success intended with the
ineffective condition.
(3) Alterations and supplements to this contract need to be done in writing to
be effective.
_____, ______
- -------------- ------------------------
Corporation Managing Director
<PAGE>
40
APPENDIX 9 B (OR GmbH)
- - Letter on the resigning of the office of managing director by Ms Hannelore
Oettle -
- --------------------------------------------------------------------------------
compare attached letter by Ms Hannelore Oettle dated 29th June 1998.
<PAGE>
41
Hannelore Oettle
Adalbert-Stifter-Str. 40
86356 NeusaB
29th June 1998
or Industrial Computers GmbH
Attn: Management
Frank Oettle
Memminger Str. 14
86159 Augsburg
MANAGEMENT
Dear Mr Oettle,
I am herewith resigning my office as managing director of the or Industrial
Computers GmbH with effect of 30th June 1998.
Sincerely yours,
Hannelore Oettle
<PAGE>
42
APPENDIX 9 C (OR GMBH)
- - Employment contract for Ms Hannelore Oettle -
EMPLOYMENT CONTRACT
between
OR INDUSTRIAL COMPUTERS GMBH
- hereinafter referred to as "corporation" -
and
MS HANNELORE OETTLE
born 10th February 1934, Adalbert-Stifter-Str. 40, 86356 NeusaB
- hereinafter referred to as "employee" -
PRELIMINARY STATEMENT:
The parties have, by common consent, rescinded the employment contract which has
existed up to now with Ms Hannelore Oettle as managing director of the
corporation. With effect from 1st July 1998 Ms Hannelore Oettle is to continue
to work for the corporation on the basis of the following contract for a period
up to 28th February 1999:
SECTION 1 BEGINNING OF EMPLOYMENT
The employment begins on 1st July 1998 and ends on 28th February 1999.
<PAGE>
43
SECTION 2 WORK AND SCOPE OF DUTIES
1. The employee is employed as a commercial employee. Her scope of duties
includes accounting and personnel matters.
2. The employee undertakes to carry out the work entrusted to her carefully
and also to undertake other reasonable tasks than those tasks stipulated in
the contract, this could possibly also be in a different department, other
business premises, should the requirements of the business demand this. The
firm's right to assign other work to the employee is also not limited by a
long standing position at the same place of work.
SECTION 3 WORKING HOURS
1. The regular working hours presently amount to 38 hours per week.
2. The beginning and end of the daily working hours and the breaks will be
laid down in a separate business agreement and announced through the usual
business channels.
3. The employee undertakes to do overtime within the framework of the legal
regulations by special order. Overtime is considered to be the case if, as
an employee in full time employment, the individual regular weekly working
hours are exceeded.
4. A claim for extra pay for overtime only exists if an order has been given
to do overtime.
SECTION 4 REMUNERATION
1. The employee receives a gross salary to the amount of DM 12,500.00 for her
work, to be paid on a monthly basis. The remuneration is due on the last
day of each month respectively. The payment ensues on a cashless basis.
Irregularities, such as extra payments for overtime, will be settled with
the following month's salary respectively.
2. The corporation undertakes to continue with the existing direct insurances
for the employee and to pay the dividends due up to 28th February 1999.
3. Overtime will be reimbursed with a 25% extra payment on the basic salary.
4. The employee will receive an extra payment of 50% on her salary during her
holiday. This payment ensues on a monthly basis. The monthly salary is the
calculation basis, but not the actual holiday period.
5. The employee receives capital-building payments to the amount of DM 624.
The payment ensues on a monthly basis at 1/12 respectively.
<PAGE>
44
6. The employee receives DM 30.--per calendar year for account maintenance
charges. The payment ensues on a monthly basis at 1/12 respectively.
7. The employee receives a Christmas bonus to the amount of 55% of a monthly
salary paid with the November salary. In the first year the Christmas bonus
will be paid proportionately to the months from the commencement of the
employment.
In other respects Section 4.10 applies.
8. Voluntary bonuses and payments - apart form the monthly gross salary,
holiday pay and Christmas bonus - are freely revocable, even if the
revocability is not explicitly indicated as such. In particular, these
payments can be credited to salary increases.
The payment of ex gratia payments, profit shares, dividends and other
bonuses are at the firm's discretion and do not substantiate any legal
claim, even if the payment ensues again without an explicit optional
reservation.
The claim to ex gratia payments / bonuses (e.g. Christmas bonus) is
excluded if the employment has been terminated by one of the parties to the
contract at the point in time of the payment being made, or by 31st
December.
9. A voluntarily ex gratia payment / bonus can be reduced for reasons of
illness and other periods of absence by 1/60 of the ex gratia payment /
bonus per day of absence.
10. The employee is obliged to pay back a granted ex gratia payment / bonus if
she leaves the company before 31st March following the calendar year when
the payment was made, or, provided the ex gratia payment exceeds the
monthly remuneration, by 30th June following the calendar year when the
payment was made, after having given notice herself, or due to a
termination of employment by the firm because of an exceptional, business,
personal or conduct reason. The repayment obligation is correspondingly
valid if the employment is terminated within the above-mentioned periods
through a contract of rescission and if the cause of the contract of
rescission is a right to termination by the firm due to exceptional,
business, personal or conduct reasons, or the wish on the part of the
employee to rescind the contract.
11. The firm is entitled to set off the repayment demand against the
remuneration claims in arrears or which become due after the termination
under observance of the protection from execution terms.
12. The employee will receive a 100% continued payment of wages in the case of
illness.
SECTION 5 ILLNESS
1. The employee is obliged to immediately notify the employer of her inability
to work and the probable duration of absence and to submit a doctor's note
stating the inability to work after the inability to work has begun, as
well as its probable duration.
<PAGE>
45
2. A sick note not submitted on time represents an infringement of the
contractual obligations and triggers off a termination of employment,
should this be repeated.
SECTION 6 HOLIDAY
The employee is presently entitled to an annual holiday of 30 work days every
calendar year. The holiday is to be determined in agreement with the employee's
superior. In other respects the legal regulations apply.
SECTION 7 SALARY PLEDGE OR ASSIGNMENT
The employee is neither allowed to pledge nor assign her remuneration claims.
She declares that there are no attachment of earnings against her, nor are any
to be expected.
The employee is to bear the costs incurred by the firm as a result of the
attachment. A lump sum per calculated attachment of 3% of the attached amount
for these costs which are to be reimbursed is calculated, providing actually
higher costs are not incurred.
SECTION 8 ASSIGNMENT
The employee assigns her compensation claims to the firm in as far as they have
been infringed by a third party and the firm continues to pay the salary in the
case of illness.
She is obliged to provide information to the firm in order for it to be able to
investigate claims.
SECTION 9 ADVANCE PAYMENTS AND LOANS
Advanced payments and loans are due in the case of termination of employment
because of the still open remaining amount, without regard to the submission of
agreements already made.
SECTION 10 ADDITIONAL JOBS
Additional jobs are to be notified to the firm before commencement. The employer
can refuse his consent if the additional job violates the general competitive
interests of the employer, or if it is to be feared that the employer is then no
longer in a position to fulfil her obligations from her employment in a proper
way.
<PAGE>
46
The firm is entitled to terminate the employment contract in the case of the
prohibition of a forbidden additional job being violated.
SECTION 11 CONTRACTUAL PENALTY
In the case of a culpable non-commencement or termination of work contrary to
the terms of the agreement, the employee undertakes to pay the firm a
contractual penalty to the amount of the agreed gross monthly salary.
The firm is entitled to assert an ongoing claim.
SECTION 12 PROHIBITION OF COMPETITION
The employee undertakes not to work anywhere in the world for a competitor for
the duration of a year after the termination of employment, and neither directly
nor indirectly to play a part in founding or running such a company.
The corporation undertakes to pay the employee half of the salary received at
the time of termination for the duration of the agreed prohibition of
competition. The corporation is now already declaring itself willing to pay out
competition compensation at a non-recurrent amount of DM 75,000.--on 31st March
1999.
In other respects the terms in Sections 74 to 75 D HGB (German Commercial Code)
apply for this prohibition of competition.
The employee explicitly confirms receipt of a copy of the deed of this contract
signed by both parties to the contract with this prohibition of competition.
SECTION 13 DUTY TO OBSERVE SECRECY
The employee is obliged to treat all information, such as, e.g. company results,
personal data of clients, suppliers and staff, company code numbers, external
salaries and other external payments, business connections, sales and technical
information, etc., in a strictly confidential way and to maintain secrecy
towards third parties. This also applies regarding other staff members, apart
from if the passing on of information is brought about for business reasons.
The misuse and passing on of such data and information can lead to an
exceptional dismissal - also without a prior warning being given. The employee
is obliged to pay damages, in as far as legally possible, if damages arise to
the firm or a third party through the passing on of data or information which is
contrary to the agreement.
<PAGE>
47
The firm undertakes to maintain secrecy towards third parties in the case of the
personal data of an employee, providing this is not legally necessary. In the
case of an infringement, the employee is entitled to make the firm liable.
Furthermore, the employee is obliged to hand back all firm property when she
leaves the company. A right of retention doesn't apply here.
SECTION 15 END OF EMPLOYMENT
The employment ends on 28th February 1999 without notice having to be given.
SECTION 16 EXPIRY DATES
All claims from this employment cease when three months have expired after they
became applicable, if they haven't been asserted in writing within this period.
Upon the refusal of a claim by the counter party, the claim is to be asserted
within one further month, otherwise it expires finally. The expiry deadlines do
not apply to claims arising from tortious acts (Section 823 BGB - German Civil
Code) in connection with the regulations from the Penal Code. The legal
regulations are valid for these claims.
SECTION 17 MISCELLANEOUS
The employee is obliged to immediately inform the firm of a change of address.
Notifications or other declarations to the last address notified by the employee
are valid as having been received by the latest on the third day after dispatch.
SECTION 18 PLACE OF PERFORMANCE AND COURT OF JURISDICTION
The place of performance is the place at which the disputed obligation is to be
fulfilled.
If the employee has no place of abode within the country, or if she no longer
lives within the country, then the place of performance applying to both parties
is the headquarters of the firm.
The court of jurisdiction for the parties to the contract is the industrial
tribunal responsible for the place of performance.
SECTION 19 SUBSIDIARY AGREEMENTS, CONTRACT ALTERATIONS
<PAGE>
48
1. Verbal subsidiary agreements do not exist. Alterations and supplements to
this contract need to be done in writing.
2. Should individual terms in this contract be ineffective, the effectiveness
of the remaining part of the contract are not affected by this.
Augsburg, _____ 1998
- --------------------------------------------------------------------------------
Signature of employee
- --------------------------------------------------------------------------------
Signature of employer
<PAGE>
49
CERTIFIED TRANSLATION FROM THE GERMAN LANGUAGE
DEED REGISTER NO. K1454/1998
OFFER (OR GMBH)
Today, this July 1, 1998
Appeared before me, Dr. Peer Koch, notary public in Augsburg, having gone to the
law offices of Messrs. Seitz, Weckbach, Fent, at Schiessgrabenstrasse 14, 86150
Augsburg for the purpose of the execution of a notarial deed:
1. Mr. Frank Oettle, born on February 8, 1962, residing at Ortsstrasse 23, 86420
Diedorf
Mr. Oettle declares that he is acting both in his own name and in his function
as managing director having sole power of representation of or Industrial
Computers GmbH.
2. Mr. Hans Naumann, born on March 20, 1940, graduated engineer, residing at
Castellring 35, 61130 Nidderau
Mr. Naumann declares that he is not acting in his own name but as representative
of ADMINI VIER (IV) Vermogensverwaltungs-GmbH with its head office in Cologne,
registered in the commercial register of the local court of Cologne under HR B
29606, and under legalized power of attorney dated June 30, 1998 of the managing
director having sole power of representation, Chris Amenson, which is attached
in the original. For this purpose, Mr. Naumann delivers a shareholders'
resolution of ADMINI Vier (IV) Vermogensverwaltungs-GmbH (in future "SBS
Technologies Holding GmbH") of June 26, 1998 (deed register No. 673/1998 of the
notary public Dr. Ingrid Doye, Cologne, under which Mr. Chris Amenson was
appointed as the new managing director having sole power of representation and
being exempt from the restrictions of Section 181 BGB (Civil Code).
The persons appearing before me have identified themselves by presentation of
their official identity cards. They request notarization for the following
option contract:
PREAMBLE:
1) The company or Industrial Computers GmbH with its head office in Augsburg is
registered in the commercial register of the local court of Augsburg under HRB
9107.
The following parties have an interest, as shareholders, in the share capital of
the company of DM 100,000.00:
a) The company ADMINI VIER (IV) Vermogensverwaltungs-GmbH with a partial share
in the nominal amount of DM 50,100.00, acquired by the preceding deed, deed
register
<PAGE>
50
No. K 1453/1998, of today of the notary public acting in his official capacity
(hereinafter "Preliminary Deed");
b) Mr. Frank Oettle with a partial share of DM 49,900.00, with respect to the
acquisition of which paragraphs 1 and 2 of the preamble of the Preliminary Deed
are referred to.
2) Mr. Frank Oettle shall be hereinafter referred to as "Vendor". The company
ADMINI VIER (IV) Vermogensverwaltungs-GmbH shall hereinafter be referred to as
"Vendee".
or Industrial Computers GmbH shall hereinafter be referred to as "Corporation".
or Industrial Computers GmbH, Ortec Electronic Assembly GmbH, registered in the
commercial register of the local court of Memmingen, HRB 5720 (hereinafter
"Ortec GmbH") and or Computers Inc., 11150 Main Street, Fairfax VA 22030, USA
(hereinafter "or Inc.") shall hereinafter be referred to collectively as "or
Companies".
3) In addition, the Vendee is to be granted the option to acquire the remaining
partial share of the Vendee (SIC) in the Corporation in the nominal amount of DM
49,900.00 following a certain period of time during which the Vendee intends to
test the market in Germany in the area of "embedded computers" provided that
such market test proves to be positive.
A.
OFFER
Having stated the above, the Vendor offers the conclusion of the Contract
reflected in the following sections I to III (Sections 1 to 11) to the Vendee.
Such offer shall be limited in time: It may only be accepted in the period from
February 1, 1999 to February 28, 1999 ("option period").
The said offer refers to the conclusion of the following Contract:
SECTION I
SALE, ASSIGNMENT, TRANSFER DATE, PURCHASE PRICE
SECTION 1
OBJECT OF THE PURCHASE, ASSIGNMENT
1) THE VENDOR SELLS AND HEREBY ASSIGNS THE PARTIAL SHARE IN THE CORPORATION IN
THE NOMINAL AMOUNT OF DM 49,900.00, WHICH IS STATED IN THE PREAMBLE,
SUB-PARAGRAPH 1B), WITH ALL RIGHTS TO PARTICIPATE IN THE PROFITS AND OTHER
AFFILIATED RIGHTS TO THE VENDEE, SUBJECT TO THE FOLLOWING SECTION 2 (2) AND (3).
<PAGE>
51
THE VENDEE HEREBY ACCEPTS THE ASSIGNMENT OF SHARES.
2) IN HIS CAPACITY AS MANAGING DIRECTOR OF THE CORPORATION, THE VENDOR AGREES TO
THE SHARE ASSIGNMENT PURSUANT TO SECTION 8 OF THE BY-LAWS OF THE CORPORATION.
SECTION 2
TRANSFER DATE
1) THE TRANSFER DATE WITHIN THE MEANING OF THIS CONTRACT SHALL BE MARCH 1, 1999.
2) AS OF THE TRANSFER DATE, THE VENDEE SHALL BE ENTITLED TO RECEIVE THE
DIVIDENDS DISTRIBUTED WITH REGARD TO THE SOLD PARTIAL SHARE.
3) THE VENDOR SHALL BE ENTITLED TO RECEIVE A FRACTIONAL DIVIDEND PAYMENT,
DEPENDENT UPON THE SALES VOLUME, FOR THE SOLD PARTIAL SHARE FOR THE PERIOD FROM
JULY 1, 1998 TO FEBRUARY 28, 1999 AS FOLLOWS:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SALES VOLUME BASE VARIABLE
- --------------------------------------------------------------------------------
<S> <C>
UP TO DM 8,000,000.00 DM 500,000
- --------------------------------------------------------------------------------
FROM DM 8,000,000.01 TO DM 10.00 % OF THE SALES VOLUME
10,000,000.00
- --------------------------------------------------------------------------------
FROM DM 10,000,000.01 TO DM 12.00 % OF THE SALES VOLUME
12,000,000.00
- --------------------------------------------------------------------------------
FROM DM 12.000.000,01 14.00 % OF THE SALES VOLUME
- --------------------------------------------------------------------------------
</TABLE>
SALES VOLUME WITHIN THE MEANING OF THIS REGULATION SHALL BE THE SALES VOLUME
INVOICED BY THE CORPORATION IN THE PERIOD FROM JULY 1, 1998 TO FEBRUARY 28,
1999. THE DIVIDEND SHALL AMOUNT TO 56% OF THE BASE VARIABLE.
THE VENDEE EXPRESSLY AGREES TO ADOPT A SHAREHOLDERS' RESOLUTION ON FEBRUARY 28,
1999 TO THE EFFECT THAT THE AFORESAID DIVIDEND SHALL BE ENTERED IN THE BOOKS AS
A LIABILITY OF THE CORPORATION VIS-A-VIS THE VENDOR AS AT FEBRUARY 28, 1999, BUT
SHALL NOT BE DUE FOR PAYMENT TO THE VENDOR UNTIL MARCH 10, 1999. IN THE EVENT
THAT THE DIVIDEND EXCEEDS THE ANNUAL NET PROFIT FOR 1998 OR, AS APPLICABLE, THE
ANNUAL NET PROFIT FOR 1999 WHICH CAN BE DISTRIBUTED, THE VENDEE UNDERTAKES TO
EXEMPT THE VENDOR FROM ANY REPAYMENT OBLIGATION VIS-A-VIS THE CORPORATION.
SECTION 3
PURCHASE PRICE
THE PURCHASE PRICE FOR THE PARTIAL SHARE IN THE NOMINAL AMOUNT OF DM 49,900.00
TRANSFERRED IN ACCORDANCE WITH THE ABOVE SECTION 1 SHALL AMOUNT TO A TOTAL OF DM
16,222,725.00 (SIXTEEN MILLION TWO HUNDRED AND TWENTY-TWO THOUSAND SEVEN HUNDRED
AND TWENTY-FIVE GERMAN MARKS).
<PAGE>
52
SECTION II
WARRANTIES
THE VENDOR DECLARES THAT, WITHIN THE SCOPE OF CONTRACTUAL NEGOTIATIONS AND THE
DUE DILIGENCE INVESTIGATION WHICH HAVE LED TO THE CONCLUSION OF THE CONTRACT
PURSUANT TO THE PRELIMINARY DEED, HE HAS PROVIDED THE VENDEE WITH CORRECT AND
COMPLETE INFORMATION REGARDING ALL ITEMS REQUESTED BY THE VENDEE OF OTHERWISE
MATERIAL FOR THE EVALUATION OF THE OR COMPANIES. FOR THE EXECUTION AND
PERFORMANCE OF THIS AGREEMENT, THE VENDEE ALSO RELIES ON SUCH INFORMATION.
THE VENDOR THEREFORE EXPRESSLY WARRANTS AS OF THE DATE OF THIS AGREEMENT IN
TERMS OF A LEGALLY BINDING UNDERTAKING, WITHOUT ANY REGARD TO THE QUESTION OF
FAULT, THE FOREGOING AND THE FOLLOWING.
SECTION 4
ASSURANCES AND GUARANTEES CONCERNING THE SHAREHOLDER RELATIONSHIP AND VENDOR'S
FREEDOM TO DISPOSE
(1) THE VENDOR ASSURES AND GUARANTEES THAT UPON THE TRANSFER DATE:
a) THE SHARE CAPITAL OF THE CORPORATION HAS BEEN FULLY PAID UP IN CASH, HAS
NEITHER PARTLY NOR FULLY BEEN REPAID TO THE SHAREHOLDERS, IS NON-ASSESSABLE AND
FREE OF SECONDARY OR OTHER OBLIGATIONS OR RESTRICTIONS, AND THAT THE SHARES SOLD
HEREIN ARE UNENCUMBERED.
b) THE SHAREHOLDING MENTIONED IN SUB-PARAGRAPH 1 b) OF THE PREAMBLE EXISTS AND
THE VENDOR IS ENTITLED TO IT; THE VENDOR IS NOT SUBJECT TO ANY RESTRAINTS ON
DISPOSAL WITH RESPECT TO SUCH SHAREHOLDING, IN PARTICULAR, UNDER RIGHTS OF ANY
THIRD PARTIES;
c) THE SHARES HAVE NEITHER BEEN DISTRAINED NOR PLEDGED NOR ASSIGNED TO ANY THIRD
PARTY BY WAY OF SECURITY OR FOR OTHER REASONS AND, IN ADDITION, NO OPTION OR
OTHER RIGHTS ENTITLE A THIRD PARTY TO ACQUIRE THE SHARES;
d) THE SHARES ARE NOT SUBJECT TO ANY TRUST RELATIONSHIP WITH A THIRD PARTY;
e) THE SHARES AND/OR RIGHTS TO SUCH SHARES ARE NEITHER THE OBJECT OF USUFRUCT OF
A THIRD PARTY NOR OF A SUB-PARTICIPATION OR SIMILAR RELATIONSHIP UNDER COMPANY
LAW; THE FORMERLY EXISTING SILENT PARTNERSHIPS WITH MISS JANA MADELEINE
SCHLAGBAUER, BORN ON FEBRUARY 3, 1988, AND MISS VERA JANET SCHLAGBAUER, BORN ON
NOVEMBER 15, 1985, HAVE BEEN COMPLETELY DISSOLVED PRIOR TO THE TRANSFER DATE AND
ALL CLAIMS AND OBLIGATIONS IN THIS RESPECT HAVE BEEN COMPLETELY FULFILLED;
<PAGE>
53
f) FOR THE ALIENATION OF THE SHAREHOLDING, NEITHER THE PARTICIPATION OF A
TESTAMENTARY EXECUTOR NOT THE AGREEMENT OF SUBSEQUENT HEIRS OR OTHER THIRD
PARTIES SHALL BE NECESSARY;
g) NO JUDICIAL COMPOSITION OR BANKRUPTCY PROCEEDINGS CONCERNING THE PROPERTY OF
THE VENDOR HAVE BEEN APPLIED FOR OR COMMENCED OR, IN ADDITION, NO CIRCUMSTANCES
EXIST WHICH COULD JUSTIFY ANY RESCISSION OF ALIENATION IN ACCORDANCE WITH THE
BANKRUPTCY REGULATIONS OR COMPOSITION CODE OR THE RESCISSION LAW:
h) NO OTHER AGREEMENTS OR RESOLUTIONS OF ANY TYPE EXIST WHICH AFFECT THE
CORPORATE RELATIONSHIP BETWEEN THE VENDOR AND THE CORPORATION, INCLUDING, BUT
NOT LIMITED TO, AGREEMENTS OR RESOLUTIONS REGARDING INCREASES IN THE SHARE
CAPITAL, THE RESIGNATION OR ENTRY OF SHAREHOLDERS, SUB-PARTICIPATIONS,
TRUSTEESHIPS, PARTICIPATIONS WITH REGARD TO INCOME, SALES VOLUME OR ASSETS OF
THE CORPORATION AND/OR THE EXERCISE OF VOTING RIGHTS.
i) THE ASSIGNMENT OF THE SHARES BY THE VENDOR TO THE VENDEE SHALL NOT BE SUBJECT
TO THE CONSENT OF ANY THIRD PARTY.
j) THE SHARES IN THE CORPORATION DO NOT REPRESENT THE ENTIRE OR A SUBSTANTIAL
PORTION OF THE VENDOR'S PROPERTY SO THAT NO LIABILITY EXISTS PURSUANT TO SECTION
419 BGB (GERMAN CIVIL CODE).
k) THE VENDOR DOES NOT HOLD ANY PARTICIPATION IN ANY ENTERPRISE OTHER THAN THE
OR COMPANIES WHICH ARE ENGAGED IN THE AREA OF ACTIVITY OF THE OR COMPANIES OR A
RELATED AREA OR MAINTAIN BUSINESS RELATIONS WITH THE OR COMPANIES AND
l) HE IS UNRESTRICTEDLY LIABLE TO TAXATION IN GERMANY AND, IN ADDITION, HE HAS
NOT ACQUIRED ANY SHARES IN THE CORPORATION FROM ANY PERSONS SINCE JANUARY 1,
1989 WHO HAVE NOT BEEN ENTITLED TO SET OFF CORPORATE INCOME TAX PURSUANT TO
SECTION 50 c EStG [INCOME TAX ACT].
(2) THE VENDOR ASSURES AND GUARANTEES THAT ON JULY 1, 1998
a) THE CORPORATION WAS NEITHER SUBJECT TO EXCESSIVE DEBT NOR INSOLVENT.
b) THE BY-LAWS AS AMENDED ON APRIL 13, 1995 (DEED OF THE NOTARY PUBLIC
ENGELHARDT, AUGSBURG, DEED REGISTER NO. E 581 OF APRIL 13, 1995), LAST AMENDED
BY THE DEED OF THE NOTARY PUBLIC DR. KOCH OF JUNE 18, 1998, DEED REGISTER NO.
K01335/1998) WERE EFFECTIVE.
c) THE CORPORATION DID NOT MAINTAIN ANY RELATIONS UNDER COMPANY LAW OF ANY TYPE
WITH THIRD PARTIES, IT DID NOT HOLD A PARTICIPATION OR SUB-PARTICIPATION IN ANY
OTHER COMPANY, IT HAD NOT CONCLUDED ANY INTER-COMPANY AGREEMENTS WITHIN THE
MEANING OF SECTIONS 291, 292 AktienG (GERMAN STOCK CORPORATION LAW) WITH OTHER
COMPANIES OR ANY AGREEMENTS ON COOPERATION OR TRANSFER OF PROFITS/LOSSES AND IT
HAS NOT EXECUTED ANY LETTERS OF INTENT IN FAVOR OF OTHER COMPANIES, WITH THE
EXCEPTION OF THE HOLDING OF LISTED SECURITIES AND MEMBERSHIPS IN PROFESSIONAL
ASSOCIATIONS AND SOCIETIES AND THE PARTICIPATION IN AUGUSTA BANK eG WITH A
COOPERATIVE SHARE IN THE NOMINAL AMOUNT OF DM 1,500.00:
<PAGE>
54
d) PERSONS AND COMPANIES OTHER THAN THE VENDOR DID NOT HOLD ANY DIRECT OR
INDIRECT PARTICIPATION OF ANY TYPE IN THE CORPORATION AND NO CLAIMS FOR THE
GRANTING OF SUCH PARTICIPATION EXISTED.
e) THE VENDOR HAD NOT ADOPTED ANY SHAREHOLDER'S RESOLUTIONS SINCE JANUARY 1,
1998 EXCEPT FOR THOSE LISTED IN EXHIBIT 4A OF THE PRELIMINARY DEED AND THE
CORPORATION HAD NOT CONCLUDED ANY CONTRACTS WITH THE VENDOR AND/OR MRS. OETTLE
EXCEPT FOR THE AGREEMENTS TO ANNUL AN OBLIGATORY RELATION LISTED IN EXHIBIT 4 B.
SECTION 5
ASSURANCES AND GUARANTEES IN RESPECT OF THE FINANCIAL CIRCUMSTANCES OF THE
CORPORATION
THE VENDOR ASSURES AND GUARANTEES THAT ON JULY 1, 1998
1) AT LEAST THOSE FIXED ASSETS INDICATED IN THE INVENTORY LIST EXISTED WHICH WAS
SIGNED BY THE PARTIES AND HAD BEEN DELIVERED TO THE VENDEE PRIOR TO JULY 1,
1998;
2) THE OBJECTS LEASED/HIRED BY THE CORPORATION AND LISTED IN EXHIBIT 5A OF THE
PRELIMINARY DEED WERE IN EXISTENCE;
3) NO RESTRICTIONS EXISTED TO THE FREEDOM TO DISPOSE WITH RESPECT TO THE OBJECTS
OWNED BY THE CORPORATION, EXCEPT FOR ANY RESERVATION OF TITLE CUSTOMARY IN TRADE
(INCLUDING EXTENDED RESERVATION OF TITLE) TO THE ASSETS BEING PART OF THE
INVENTORIES AND TO THE BUSINESS ASSETS OF THE CORPORATION MENTIONED UNDER THE
FOLLOWING PARAGRAPH 5:
4) EXHIBIT 5B OF THE PRELIMINARY DEED CONTAINED A CORRECT AND COMPLETE LIST OF
ALL MANAGERS, PROKURISTEN (PERSONS HOLDING GENERAL COMMERCIAL POWER OF
REPRESENTATION) AND OTHER COMPARABLE MEMBERS OF THE MANAGEMENT OF THE
CORPORATION AS WELL AS ALL GENERAL POWERS OF ATTORNEY GRANTED BY THE CORPORATION
AND ALL BANK ACCOUNTS AND AUTHORITIES TO SIGN;
5) THE CORPORATION HAD FULL, UNRESTRICTED AND UNENCUMBERED TITLED TO AND
POSSESSION OF ALL MOVABLE AND IMMOVABLE ASSETS WHICH SERVED OR WERE INTENDED TO
SERVE ITS BUSINESS OPERATIONS, EXCEPT FOR THOSE MOVABLE ASSETS WHICH WERE LEASED
FROM PERSONS AND COMPANIES OTHER THAN THE VENDOR IN THE ORDINARY COURSE OF
BUSINESS ON NORMAL MARKET TERMS OR WHICH WERE SUBJECT TO CUSTOMARY RESERVATIONS
OF TITLE BY SUPPLIERS PENDING PAYMENT:
6) THE CORPORATION DID NOT HAVE ANY BRANCHES OR DIVISIONS OUTSIDE ITS PRINCIPAL
PLACE OF BUSINESS IN AUGSBURG.
SECTION 6
ASSURANCES REGARDING CONTRACTUAL AND LEGAL RELATIONSHIPS
<PAGE>
55
1) THE VENDOR ASSURES AND GUARANTEES THAT ON JULY 1, 1998 THE RIGHTS AND
CONTRACTS OF THE CORPORATION STATED IN THE FOLLOWING EXISTED IN UNCHANGED FORM:
a) THE CONSULTANCY CONTRACTS LISTED IN EXHIBIT 6A OF THE PRELIMINARY DEED;
b) THE DISTRIBUTOR CONTRACTS LISTED IN EXHIBIT 6B OF THE PRELIMINARY DEED;
c) THE LICENSE AGREEMENTS LISTED IN EXHIBIT 6C OF THE PRELIMINARY DEED;
d) THE LEASE, RENT AND TENANCY AGREEMENTS LISTED IN EXHIBIT 6D OF THE
PRELIMINARY DEED;
e) THE CONTRACTS WITH A DURATION OF MORE THAN 12 MONTHS FOLLOWING THE TRANSFER
DATE LISTED IN EXHIBIT 6E OF THE PRELIMINARY DEED WITH THE EXCEPTION OF THE
CONTRACTS MENTIONED IN EXHIBITS 6A TO 6D AND 6F TO 6H OF THE PRELIMINARY DEED;
f) THE INSURANCE CONTRACTS LISTED IN EXHIBIT 6F OF THE PRELIMINARY DEED;
g) THE CONTRACTS LISTED IN EXHIBIT 6G OF THE PRELIMINARY DEED - INCLUDING LOAN
AGREEMENTS - WITH THE VENDOR, HIS FAMILY MEMBERS AND OTHER ENTERPRISES IN WHICH
THE VENDOR HELD MORE THAN 5%;
h) THE AGREEMENTS LISTED IN EXHIBIT 6H OF THE PRELIMINARY DEED WITH THE PLANT
COUNCIL AND CONTRACTS WITH TRADE UNIONS EXCEPT FOR SUPRA-PLANT REGIONAL AND
SUPRA-REGIONAL COLLECTIVE AGREEMENTS OR MEMBERSHIPS IN EMPLOYERS' ASSOCIATIONS.
THE VENDEE HAD RECEIVED COMPLETE COPIES OF THE CONTRACTS LISTED IN EXHIBIT 6 OF
THE PRELIMINARY DEED.
2) IN ADDITION, THE VENDOR ASSURES AND GUARANTEES THAT ON JULY 1, 1998
a) WITH THE EXCEPTION OF THE LEGAL DISPUTES LISTED IN EXHIBIT 6I OF THE
PRELIMINARY DEED, THE CORPORATION WAS NOT A PARTY TO ANY LEGAL DISPUTE AND WILL
ALSO NOT HAVE BEEN ACTIVELY INVOLVED IN ANY LEGAL DISPUTE UNTIL THE TRANSFER
DATE WITHOUT THE PRIOR CONSENT OF THE VENDEE, EXCEPT FOR THE RECOVERY OF
ACCOUNTS RECEIVABLE FROM DELIVERIES AND SERVICES OF ONGOING BUSINESS AND FURTHER
THAT NO CIRCUMSTANCES WERE KNOWN WHICH COULD HAVE CAUSED THIRD PARTIES TO
COMMENCE A LEGAL DISPUTE AND/OR GIVE NOTICE OF A THIRD PARTY COMPLAINT VIS-A-VIS
THE CORPORATION;
b) THE CORPORATION WAS NOT IN DEFAULT OF ANY PAYABLE PAYMENT OBLIGATIONS;
c) THE CORPORATION HAD THE FULL RIGHT AND POWER TO CONDUCT ITS BUSINESS AS
CONDUCTED AT THAT TIME AND TO POSSESS AND OPERATE ITS BUSINESS AND ASSETS.
3) ON JULY 1, 1998 EXHIBIT 6 OF THE PRELIMINARY DEED CONTAINED A COMPLETE AND
CORRECT LIST OF ALL PATENTS, UTILITY PATENTS, REGISTERED DESIGNS, TRADE MARKS
AND ALL APPLICATIONS RELATING THERETO AND ALL OTHER INDUSTRIAL AND INTELLECTUAL
PROPERTY RIGHTS OF THE CORPORATION AS AT JULY 1, 1998. UNLESS EXPRESSLY STATED
OTHERWISE IN EXHIBIT 6J OF THE PRELIMINARY DEED, THE SAID INDUSTRIAL AND
INTELLECTUAL PROPERTY RIGHTS WERE FREE OF ANY RIGHTS OF THIRD PARTIES AND WERE
NOT SUBJECT TO REVOCATION OR FULL OR PARTIAL CANCELLATION OR ANY MATERIAL
<PAGE>
56
RIGHT OF EARLIER USERS; THE CORPORATION WAS NOT IMPAIRED IN ITS SOLE AND
EXCLUSIVE UTILIZATION. TO THE BEST OF THE KNOWLEDGE OF THE VENDOR, NONE OF THE
SAID INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS WAS INFRINGED BY THIRD PARTIES.
IN ADDITION TO THE INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS LISTED IN EXHIBIT
6J OF THE PRELIMINARY DEED, THE CORPORATION HAD ALL RIGHTS WHICH WERE
ADDITIONALLY REQUIRED FOR ITS BUSINESS ESTABLISHMENT AT THAT TIME.
ON JULY 1, 1998 THE CORPORATION POSSESSED ALL KNOW-HOW WITH RESPECT TO
PRODUCTION, MANUFACTURING AND DISTRIBUTION FOR ALL ITS PRODUCTS EXISTING
PREVIOUSLY AND ON JULY 1, 1998 AND FOR ALL PRODUCTS AND PRODUCT IMPROVEMENTS
BEING PREPARED AT THAT TIME. ON JULY 1, 1998, IT POSSESSED ALL DOCUMENTS
RELATING THERETO INSOFAR AS THE SAID KNOW-HOW WITH RESPECT TO PRODUCTION,
MANUFACTURING AND DISTRIBUTION EXISTED IN WRITING. TO THE BEST OF THE VENDOR'S
KNOWLEDGE, THE CORPORATION DID NOT INFRINGE ANY INDUSTRIAL OR INTELLECTUAL
PROPERTY RIGHTS OR OTHER RIGHTS OF THIRD PARTIES ON JULY 1, 1998 THROUGH THE
PRODUCTION AND DISTRIBUTION OF ITS PRODUCTS EXISTING AT THAT TIME OR THROUGH ANY
OTHER MEASURE OF BUSINESS MANAGEMENT CONDUCTED UNTIL JULY 1, 1998. THE VENDOR AS
AN INDIVIDUAL DID NOT HAVE ANY RIGHTS WITH RESPECT TO THE KNOW-HOW AND OTHER
REQUIREMENTS FOR THE CARRYING OUT OF THE ACTIVITIES OF THE COMPANY AT THAT TIME.
IN ADDITION, THE VENDOR WARRANTS THAT WITH THE EXCEPTION OF COMPULSORY
PROVISIONS OF THE GERMAN ACT GOVERNING EMPLOYEE INVENTIONS ALL INDUSTRIAL AND
INTELLECTUAL PROPERTY RIGHTS REMAINED WITH THE CORPORATION, INDEPENDENTLY OF THE
RESIGNATION OF AN EMPLOYEE, AS AT JULY 1, 1998.
4) TO THE BEST OF THE VENDOR'S KNOWLEDGE, THE CORPORATION HAD ALL LEGAL AND
ADMINISTRATIVE APPROVALS AND PERMISSIONS REQUIRED FOR THE MANAGEMENT OF THE
BUSINESS ESTABLISHMENT AT THAT TIME, INCLUDING, WITHOUT RESTRICTION, SOFTWARE
LICENSES, LICENSES AND PERMITS UNDER WATER LAW AND OTHER ENVIRONMENTAL
PROTECTION LAWS ON JULY 1, 1998. TO THE BEST OF THE VENDOR'S KNOWLEDGE, IT DID
NOT VIOLATE ANY RIGHTS OF THIRD PARTIES INCLUDING COMPETITION LAWS, TRADE AND
INDUSTRY LAWS AND STATUTORY PROVISIONS UNDER ENVIRONMENTAL PROTECTION LAW IN ITS
FIELD OF BUSINESS ON JULY 1, 1998. TO THE BEST OF THE VENDOR'S BELIEF, IT WAS
NOT RESPONSIBLE FOR THE VIOLATION OF ANY PROVISIONS UNDER ENVIRONMENTAL
PROTECTION LAW WHICH HAD OR COULD HAVE CAUSED PERSONAL INJURY, ILLNESS OR DAMAGE
ON JULY 1, 1998. THE SAME SHALL APPLY WITH RESPECT TO THE REAL PROPERTY WHICH
WAS FREE OF INHERITED BURDENS DUE TO THE OPERATION OF THE CORPORATION ON JULY 1,
1998, INCLUDING, WITHOUT RESTRICTION, THE FREEDOM FROM HAZARDOUS MATERIALS OR
OTHER POLLUTANTS.
ON THE BASIS OF PRODUCTION TAKING PLACE AT THAT TIME, INCLUDING THE INCREASES IN
PRODUCTION PLANNED BY THE CORPORATION AT THAT TIME UNTIL THE DATE OF EXECUTION
OF THIS CONTRACT, FRESH WATER SUPPLY AND SEWAGE, WASTE AND EXHAUST AIR DISPOSAL
WERE FULLY GUARANTEED TO THE BEST OF THE VENDOR'S KNOWLEDGE. TO THE BEST OF THE
VENDOR'S KNOWLEDGE, NO LICENSES WERE REQUIRED FOR THE PRODUCTS PRODUCED AND/OR
DISTRIBUTED BY THE CORPORATION AND NO LICENSES TO THAT EFFECT WERE APPLIED FOR.
TO THE BEST OF THE VENDOR'S KNOWLEDGE
a) ALL HOUSE PRODUCTS PRODUCED AND/OR DISTRIBUTED BY THE CORPORATION ON JULY 1,
1998 COMPLIED WITH THE GERMAN AND US-AMERICAN LEGAL AND OTHER APPLICABLE
STANDARDS,
b) OR - IF AND INSOFAR AS THEY DID NOT COMPLY WITH SUCH STANDARDS -
<PAGE>
57
aa) UNTIL THE SAID TIME SUCH A DEVIATION FROM SUCH STANDARDS, TO THE BEST OF THE
VENDOR'S KNOWLEDGE, HAD NOT GIVEN RISE TO ANY CLAIMS BY CUSTOMERS WHICH HAD NOT
BEEN SATISFIED BY THAT TIME OR
bb) THE DEVIATIONS FROM THE SAID STANDARDS WERE ACCEPTED OR, AS APPLICABLE,
EXPRESSLY REQUESTED BY THE CUSTOMER ON JULY 1, 1998.
AS REGARDS THE "YEAR-2000" PROBLEM, THE VENDOR ASSURES AND GUARANTEES THAT HE
CAUSED A PROPER REVIEW OF THIS PROBLEM AS AT JULY 1, 1998 AND HE WAS NOT AWARE
OF ANY PROBLEMS ON JULY 1, 1998 AS A RESULT OF SUCH REVIEW EXCEPT FOR THOSE
LISTED IN EXHIBIT 6K OF THE PRELIMINARY DEED.
ON JULY 1, 1998 THE VENDOR WAS SOLELY RESPONSIBLE FOR CLAIMS, ACTIONS, FEES,
EXPENSES AND PENALTIES RELATING TO SUCH MEASURES OR ARISING IN CONNECTION
THERETO, WHICH RESULTED OR AROSE FROM THE RUNNING OF THE CORPORATION PRIOR TO
THE TRANSFER.
5) THE VENDOR WAS NOT ENTITLED TO ANY UNPAID CLAIMS OF ANY TYPE AGAINST THE
CORPORATION ON JULY 1, 1998.
6) THE CORPORATION WAS NOT SUBJECT TO ANY UNDERSTANDING WITH RESPECT TO
COMPETITION WITH THIRD PARTIES ON JULY 1, 1998.
SECTION 7
REPRESENTATIONS CONCERNING THE FINANCIAL STATEMENTS
1) THE VENDOR ASSURES THAT TO THE BEST OF HIS KNOWLEDGE HE HAD GIVEN ALL
INFORMATION REQUESTED BY THE VENDEE AS AT JULY 1, 1998 IN A COMPLETE AND CORRECT
MANNER AND THAT NO INFORMATION OTHER THAN THAT GIVEN APPEARED NECESSARY.
IN ADDITION, THE VENDOR ASSURES THAT, ON JULY 1, 1998, HE HAD NOT CONCEALED ANY
KNOWN EXCEPTIONAL RISKS OR PROCESSES OUTSIDE THE USUAL SCOPE OF THE BUSINESS
OPERATION WHICH WERE OF ESSENTIAL SIGNIFICANCE FOR THE DETERMINATION OF THE
ASSETS AND PROFIT SITUATION OF THE CORPORATION AND OF ITS PROSPECTIVE FUTURE
DEVELOPMENT. IN LIGHT OF THE FACT THAT THE VENDEE KNEW THE ECONOMIC AND LEGAL
SITUATION BASED ON THE DUE DILIGENCE EXAMINATION EFFECTED BY IT, THE VENDOR IS
NOT LIABLE FOR THE FUTURE DEVELOPMENT, PROFIT SITUATION AND PROFITABILITY OF THE
COMPANY IN WHICH THE TRANSFERRED SHAREHOLDING EXISTS. THE VALUATION OF THE
CORPORATION AND THE OTHER OR COMPANIES IS NOT BASED ON WARRANTIES OF THE VENDOR
CONCERNING FUTURE PROFITS, BUT ON THE EXPECTATIONS OF THE VENDEE BASED ON THE
PERFORMANCE OF THE CORPORATION IN THE PREVIOUS FISCAL YEARS (AVERAGE PROFITS AND
SALES VOLUMES FOR THE CALENDAR YEARS 1994 TO 1997 AND THE FIRST HALF YEAR OF
1998).
2) IN ADDITION, THE VENDOR ASSURES ON JULY 1, 1998
a) THAT THE FINANCIAL STATEMENTS (BALANCE SHEETS INCLUDING PROFIT AND LOSS
STATEMENTS) OF THE CORPORATION FOR THE YEARS 1994, 1995, 1996 AND 1997, WHICH
WERE DELIVERED TO THE VENDEE WITH THE AUDIT REPORT OF THE CERTIFIED PUBLIC
ACCOUNTANT WOLFGANG KO NIG, GARMISCH-PARTENKIRCHEN, OF JUNE 26, 1998, WERE
PREPARED WITH THE DUE DILIGENCE OF A PRUDENT BUSINESSMAN ON THE BASIS OF PROPER
ACCOUNTING AND IN ACCORDANCE WITH GERMAN
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58
GENERALLY ACCEPTED ACCOUNTING, VALUATION AND DEPRECIATION PRINCIPLES (GRUNDSATZE
ORDNUNGSGEMABER BUCHFUHRUNG UND BILANZIERUNG) AND IN COMPLIANCE WITH THE
PRINCIPLE OF CONSISTENCY OF THE METHOD OF VALUATION AND VALUATION; DUE TO THE
CHANGE IN THE VALUATION OF THE INVENTORY, THE NOTES TO THE FINANCIAL STATEMENTS
FOR 1996 ARE REFERRED TO.
THE FINANCIAL STATEMENTS OF THE CORPORATION WERE COMPLETE AND CORRECT AND
COMPLETELY AND CORRECTLY REFLECTED THE PROFIT SITUATION OF THE CORPORATION AND
THE NET WORTH POSITION AS FOR EACH BALANCE SHEET STATED THERE AND WITH RESPECT
TO THE RESULTS OF THE OR COMPANIES FOR THE ACCOUNTING PERIOD ENDED ON THE
RESPECTIVE BALANCE SHEET DATE. ALL RISKS, IMPAIRMENTS OF VALUE AND LOSSES
DETERMINABLE UPON PREPARATION OF THE RELEVANT FINANCIAL STATEMENTS WERE DULY
TAKEN INTO ACCOUNT THROUGH ADEQUATE DEPRECIATIONS, CHANGES IN THE VALUATION OR
FORMATION OF PROVISIONS; THE COMPANY DID NOT HAVE ANY PENSION OBLIGATIONS;
b) AND THAT
- - ITEMS ON THE BALANCE SHEET WERE CONTINUOUS AS REGARDS THE BALANCE SHEET OF THE
RESPECTIVE PREVIOUS YEAR IN THE APPLICATION OF EQUAL, LEGALLY ADMISSIBLE
VALUATION PRINCIPLES AND THAT VALUATION RIGHTS WERE EXERCISED CONTINUOUSLY IN
EQUAL FORM;
- - KNOWN RISKS AND LIABILITIES OF THE CORPORATION HAVE BEEN SET FORTH;
- - NO CHANGES IN THE VALUATION AND DEPRECIATION MODALITIES INCLUDING
EXTRAORDINARY DEPRECIATION AND VALUATION ADJUSTMENTS HAVE BEEN MADE; DUE TO THE
CHANGE IN THE VALUATION OF THE INVENTORY, THE NOTES TO THE FINANCIAL STATEMENTS
FOR 1996 ARE REFERRED TO AGAIN.
3) INTERIM FINANCIAL STATEMENTS WERE TO BE PREPARED AS AT THE DAY BEFORE JULY 1,
1998. IN THIS RESPECT, THE VENDOR GIVES THE EQUITY CAPITAL GUARANTEE CONTAINED
IN SECTION 7 (3) SUB-PARAGRAPH 2 OF THE PRELIMINARY DEED AGAIN. FOR FURTHER
DETAILS, PLEASE SEE SECTION 7 (3) OF THE PRELIMINARY DEED.
4) FROM JANUARY 1, 1998 TO JUNE 30, 1998 THE CORPORATION WAS ONLY CONDUCTED
WITHIN THE NORMAL AND ORDINARY COURSE OF BUSINESS. DURING THIS PERIOD, NO
EXTRAORDINARY BUSINESS EVENT OR LEGAL ARRANGEMENT HAD OCCURRED OR BEEN ENTERED
INTO, WITH THE EXCEPTION OF THE AGREEMENTS TO ANNUL AN OBLIGATORY RELATION WITH
THE VENDOR AND MRS. HANNELORE OETTLE LISTED IN EXHIBIT 4 B, AND NO EVENT
OCCURRED WHICH BY ITSELF OR TOGETHER WITH OTHER EVENTS MATERIALLY AFFECTED THE
ASSETS OR THE PROFIT SITUATION OF THE CORPORATION IN AN ADVERSE MANNER. ALL
SALARY AND WAGE INCREASES GRANTED SINCE JANUARY 1, 1998 WERE REQUIRED UNDER
COLLECTIVE AGREEMENTS OR, IF NOT, WERE IN THE NORMAL SCOPE. THE VENDEE HAD
KNOWLEDGE THAT IN JULY 1998, IN ACCORDANCE WITH PAST YEARS' PRACTICE, SALARIES
AND WAGES OF EMPLOYEES SHALL BE INCREASED CORRESPONDING TO THEIR INDIVIDUAL
PERFORMANCE. NO CLAIMS, ACTIONS OR LAWSUITS UNDER EMPLOYMENT LAW WERE ASSERTED
OR FILED OR THREATENED TO BE ASSERTED OR FILED AGAINST THE CORPORATION AND, TO
THE BEST OF THE VENDOR'S KNOWLEDGE, NO BASIS EXISTED FOR SUCH CLAIMS.
THE EMPLOYEES OF THE CORPORATION WERE NOT ENTITLED TO ANY PAYMENTS OR SPECIAL
BENEFITS NOT EXPLICITLY SET OUT IN THEIR RESPECTIVE EMPLOYMENT CONTRACTS.
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59
5) NO CIRCUMSTANCES WERE KNOWN TO THE VENDOR ON JULY 1, 1998 WHICH JEOPARDIZED
THE REALIZATION OF THE BUDGET FOR 1998 PURSUANT TO EXHIBIT 7A OF THE PRELIMINARY
DEED.
6) ALL TAX RETURNS WHICH THE CORPORATION HAD TO FILE FOR PAST ACCOUNTING PERIODS
HAD BEEN FILED IN A TIMELY MANNER AND CORRECTLY BY JULY 1, 1998. IN PARTICULAR,
THE CLASSIFICATION OF THE EQUITY CAPITAL APPLIED FOR CORPORATE INCOME TAX
PURPOSES WAS CORRECTLY REFLECTED IN THE CORPORATE INCOME TAX RETURN OF THE
CORPORATION FOR 1996 ON JULY 1, 1998 AND ALSO IN THE DRAFT CORPORATE INCOME TAX
RETURN FOR 1997.
NEITHER THE VENDOR NOR ANY PERSONS CLOSE TO HIM HAD RECEIVED HIDDEN PROFIT
DISTRIBUTIONS FROM THE CORPORATION IN THE PERIOD UNTIL JULY 1, 1998. THIS ALSO
APPLIED AFTER JULY 1, 1998 WITH RESPECT TO THE AGREEMENTS MADE IN THE
PRELIMINARY DEED.
THE EQUITY CAPITAL APPLIED FOR CORPORATE INCOME TAX PURPOSES OF THE CORPORATION
AS AT DECEMBER 31, 1997 INCLUDED THE FOLLOWING ITEMS ON JULY 1, 1998 (PRIOR TO
ALLOWING FOR THE DISTRIBUTIONS FOR 1996 AND 1997 WHICH HAVE BEEN CARRIED OUT IN
1998): EK 50 = DM 0; EK 45 = DM 5,442,768.00; EK 02 = DM 423; AND EK 04 = DM 0.
FOR THE PERIOD UNTIL JULY 1, 1998, THE CORPORATION WILL NOT HAVE INCURRED ANY
TAX LIABILITIES WHICH HAVE NOT BEEN ALLOWED FOR IN THE INTERIM FINANCIAL
STATEMENTS AS OF JULY 1, 1998.
7) TO THE BEST OF THE VENDOR'S KNOWLEDGE, NO PARTICULAR CIRCUMSTANCES EXISTED ON
JULY 1, 1998 WHICH WERE ABLE TO MATERIALLY AFFECT THE BUSINESS OF THE
CORPORATION. ON JULY 1, 1998, THE VENDOR WAS NOT AWARE OF ANY FACTS AND
CIRCUMSTANCES WHICH COULD HAVE RESULTED IN ANY RESTRICTION, IMPEDIMENT OR
CESSATION OF MANUFACTURING AND/OR DISTRIBUTION OF MATERIAL PRODUCTS WHICH WERE
PRODUCED AND/OR MARKETED BY THE CORPORATION AT THAT TIME.
SECTION 8
LEGAL CONSEQUENCES/STATUTE OF LIMITATIONS
1) IF THE OBLIGATIONS, WARRANTIES AND ASSURANCES OF THE VENDOR IN THIS SECTION
II OF THE CONTRACT ARE NOT FULLY FULFILLED OR ARE IN ANY OTHER MANNER NOT
FULFILLED IN ACCORDANCE WITH THE CONTRACT, THE VENDEE SHALL BE ENTITLED TO
REQUEST THE VENDOR TO RESTORE THE CONTRACTUAL STATUS, DETERMINING - VIA
REGISTERED MAIL - AN ADEQUATE PERIOD OF TIME OF A MINIMUM OF 2 WEEKS FOR THIS
PURPOSE. THE VENDEE MAY NOT EXERCISE SUCH RIGHT IF AND TO THE EXTENT THAT IT HAS
GAINED KNOWLEDGE OF SUCH DEVIATION FROM THE CONTRACTUAL STATUS UPON THE DUE
DILIGENCE EXAMINATION PERFORMED BY IT. THIS EXCLUSION SHALL NOT APPLY TO THE
WARRANTY CONTAINED IN SECTION 7 (6) OF THIS CONTRACT. AS REGARDS THE ASSURANCE
MADE IN SECTION 6 (3) SUB-PARAGRAPH 7 OF THE DEED, SUCH EXCLUSION SHALL NOT
APPLY TO ANY CLAIMS OF THE COMPANY NORTEL NORTHERN TELECOM LIMITED.
THE REQUEST WITH DETERMINATION OF AN ADDITIONAL PERIOD OF TIME PURSUANT TO
SENTENCE 1 ABOVE IS NOT NECESSARY IF RESTORATION OF THE CONTRACTUAL STATUS IS
NOT POSSIBLE FOR THE VENDOR OR REFUSED BY HIM OR IF THE REQUIREMENTS PURSUANT TO
PARAGRAPH 2 BELOW HAVE BEEN COMPLIED WITH. IF THE DETERMINATION OF THE
ADDITIONAL PERIOD IS NOT NECESSARY OR IF THE CONTRACTUAL STATUS IS NOT RESTORED
WITHIN THE ADDITIONAL PERIOD, THE VENDOR WILL PLACE THE VENDEE OR, IF REQUESTED
BY THE VENDEE, THE CORPORATION IN AN ECONOMIC POSITION,
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60
WHICH THE VENDEE OR, AS APPLICABLE, CORPORATION WOULD HAVE IF SUCH OBLIGATIONS,
WARRANTIES AND ASSURANCES HAD BEEN CORRECT. CLAIMS FOR PAYMENTS IN ACCORDANCE
WITH THE FOREGOING PARAGRAPH SHALL ONLY ARISE IF, IN ANY INDIVIDUAL CASE, THEY
EXCEED DM 100,000.00 OR IF THEIR TOTAL AMOUNT FOR THE OR COMPANIES EXCEEDS DM
500,000.00. THE REGULATION CONTAINED IN THE FOREGOING SENTENCE SHALL NOT APPLY
TO TAX LIABILITIES AND RISKS FOR WHICH NO PROVISIONS ARE TO BE FORMED PURSUANT
TO SECTION 7 (3) LIT. D). TAX LIABILITIES AND RISKS, HOWEVER, SHALL NOT BE
COMPENSATED FOR BY THE VENDOR AT ALL OR SHALL NOT BE COMPENSATED BY THE VENDOR
INSOFAR AS THEY ARE BALANCED BY TAX ADVANTAGES OF THE CORPORATION, FOR EXAMPLE,
BY VIRTUE OF TAX SAVINGS DUE TO INCREASED DEPRECIATION, IN THE ENSUING YEARS.
2) THE VENDEE SHALL BE ENTITLED TO WITHDRAW FROM THIS CONTRACT OR - APPLYING THE
PRINCIPLES OF SECTION 463 BGB (GERMAN CIVIL CODE) - TO CONDUCT A CALCULATION OF
DAMAGE UNDER REVERSED TRANSACTION IF THE WARRANTIES IN SECTION II SECTION 4 ARE
VIOLATED TO A SUBSTANTIAL EXTENT OR IF ADJUSTMENT PURSUANT TO PARAGRAPH 1
EXCEEDS THE AMOUNT OF DM 5.0 MILLION WITH RESPECT TO THE TOTAL FOR ALL OR
COMPANIES. APART FROM THIS EVENT, THE RIGHT TO WITHDRAW FROM THE CONTRACT OR -
APPLYING THE PRINCIPLES OF SECTION 463 BGB - TO PERFORM A CALCULATION OF DAMAGE
UNDER REVERSED TRANSACTION SHALL BE EXPRESSLY EXCLUDED. IN ADDITION, WITHDRAWAL
FROM THE CONTRACT OR - APPLYING THE PRINCIPLES OF SECTION 463 BGB - CALCULATION
OF DAMAGE UNDER REVERSED TRANSACTION SHALL ALWAYS BE EXCLUDED IN THE EVENT OF
VIOLATION OF THE ASSURANCES AND GUARANTEES IN SECTIONS 5 AND 6 OF THE DOCUMENT.
IN THE EVENT OF WITHDRAWAL, THE RIGHT OF THE VENDEE TO RECEIVE DAMAGES,
INCLUDING CONSEQUENTIAL DAMAGE, SHALL REMAIN UNAFFECTED.
3) THE VENDEE SHALL ONLY BE ENTITLED TO PUT FORWARD ANY CLAIMS PURSUANT TO
PARAGRAPH 1 AND 2 IF AND INSOFAR AS NO CORRESPONDING ADVANTAGES IN CONNECTION
WITH THE SALE OF THE SHARES IN ORTEC GMBH OR OR INC. EXIST. THE AFORESAID
REGULATION SHALL ONLY COVER THE SHIFT IN REVENUE OR EXPENDITURE BETWEEN THE OR
COMPANIES.
4) ALL CLAIMS PURSUANT TO THIS PART II SHALL BE EXCLUDED IF THEY ARE NOT
ASSERTED AND SUBSTANTIATED IN WRITING TO THE OTHER PARTY ON OR BEFORE DECEMBER
31, 1999. THE PRECLUSIVE PERIOD OF TIME IN ACCORDANCE WITH THE FOREGOING
SENTENCE SHALL, WITH REGARD TO CLAIMS CONNECTED TO TAXES AND SOCIAL SECURITY
CONTRIBUTIONS, NOT END BEFORE THE END OF ONE MONTH SUBSEQUENT TO THE
ADMINISTRATIVE FINALITY OF THE OFFICIAL REPLIES BY VIRTUE OF A TAX FIELD AUDIT
OR, AS APPLICABLE, AN AUDIT OF SOCIAL SECURITY CONTRIBUTIONS. THE PERIOD OF
LIMITATION FOR ASSERTED CLAIMS SHALL BE THREE MONTHS AFTER THE END OF THE
AFORESAID PERIOD OF APPLICATION; SHOULD ANY TAX AUDIT NOT LEAD TO AN IMMEDIATE
TAX LIABILITY BUT IMPAIR THE TAX SITUATION OF THE CORPORATION IN ANY OTHER
RESPECT, THE VENDEE MAY BRING AN ACTION FOR DECLARATION BEFORE THE END OF THE
PERIOD OF LIMITATION IN ORDER TO PRESERVE HIS RIGHTS. SECTIONS 477 TO 479 BGB
(GERMAN CIVIL CODE) AND 377, 378 HGB (GERMAN COMMERCIAL CODE) SHALL BE EXCLUDED.
5) THE VENDOR AND VENDEE SHALL BE OBLIGATED TO INFORM AND ASSIST EACH OTHER IF
THIRD PARTIES ASSERT ANY CLAIMS VIS-A-VIS THE CORPORATION AND IF SUCH CLAIMS IN
TURN MAY GIVE RISE TO CLAIMS PURSUANT TO THIS SECTION II.
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61
SECTION III
OTHER PROVISIONS
SECTION 9
TRANSFER OF THE BUSINESS TO THE VENDEE
1) WITHOUT PREJUDICE TO THE EXISTING OBLIGATION PURSUANT TO SECTION 9 (3) OF THE
PRELIMINARY DEED, THE VENDOR AND VENDEE ARE REQUIRED TO MUTUALLY PROVIDE ALL
INFORMATION AND TO COOPERATE IN ALL TRANSACTIONS AND LEGAL ACTIONS WHICH ARE
REQUIRED TO IMPLEMENT THIS DOCUMENT. IN PARTICULAR, THE VENDOR UNDERTAKES TO
DELIVER TO THE VENDEE ALL BUSINESS PAPERS AND DOCUMENTS OWNED BY THE CORPORATION
AND TO INFORM THE VENDEE UNRESTRICTEDLY WITH RESPECT TO THE AFFAIRS OF THE
CORPORATION AS REGARDS THE PERIOD OF TIME PRIOR TO THE TRANSFER DATE UPON
REQUEST IF REQUIRED IN THE INTEREST OF THE CORPORATION AND THE VENDEE.
2) THE VENDEE EXPRESSLY AGREES TO THE FACT THAT THE CORPORATION PAYS TO MRS.
HANNELORE OETTLE A NON-RECURRENT COMPENSATION IN THE AMOUNT OF DM 75,000.00 AS
AT MARCH 31, 1999 WITH RESPECT TO THE NON-COMPETITION CLAUSE CONTAINED IN HER
EMPLOYMENT CONTRACT ATTACHED AS EXHIBIT 9 C OF THE PRELIMINARY DEED.
3) IN ADDITION, THE VENDEE EXPRESSLY AGREES TO THE FACT THAT THE CORPORATION
EFFECTS SPECIAL PAYMENTS TO THE EMPLOYEES OF THE OR COMPANIES IN THE AMOUNT OF A
TOTAL OF DM 100,000.00 AS AT MARCH 31, 1999.
SECTION 10
NON-COMPETITION CLAUSE
UNTIL DECEMBER 31, 2001 THE VENDOR SHALL BE OBLIGATED NOT TO COMPETE WITH THE OR
COMPANIES OR THE VENDEE IN SUCH FIELDS OF BUSINESS WHICH ARE COVERED BY THE
BUSINESS OBJECT OF THE OR COMPANIES AS DEFINED IN SECTION 2 OF THE BY-LAWS IN
THE VERSION STATED IN SECTION 4, PARAGRAPH 2. THE VENDOR GUARANTEES THAT HE WILL
ALSO COMPLY WITH THIS NON-COMPETITION CLAUSE IN THE COMPANIES AFFILIATED WITH
HIM. THIS NON-COMPETITION CLAUSE SHALL BE REDUCED TO A PERIOD OF 6 MONTHS AS OF
THE DATE OF TERMINATION OF THE VENDOR'S AGREEMENT ON SERVICE AS A MANAGER IF
SUCH EMPLOYMENT RELATIONSHIP IS TERMINATED BY THE CORPORATION PRIOR TO ITS
CONTRACTUAL TERMINATION AND THIS TERMINATION OF THE CONTRACT IS HELD UNLAWFUL BY
A COURT.
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62
SECTION 11
FINAL PROVISIONS
1) UNLESS OTHERWISE REQUIRED BY LAW, THE PARTIES UNDERTAKE TO KEEP THE CONTENTS
OF THIS CONTRACT IN CONFIDENCE.
2) ALL EXPRESSIONS OF WILL AND OTHER NOTIFICATIONS IN CONNECTION WITH THIS
AGREEMENT SHALL BE MADE IN WRITING AND SHALL BE SENT BY REGISTERED MAIL OR
FACSIMILE TO THE FOLLOWING PERSONS AND ADDRESSES OR SUCH OTHER ADDRESSES AS THE
PARTIES HEREAFTER COMMUNICATE TO EACH OTHER:
a) ON THE PART OF THE VENDOR:
LAW OFFICES OF MESSRS. SEITZ, WECKBACH, FENT, SCHIESSGRABENSTR. 14, 86150
AUGSBURG,
b) ON THE PART OF THE VENDEE:
KPMG DEUTSCHE TREUHANDGESELLSCHAFT, KURFURSTENDAMM 207 - 208, 10719 BERLIN -
ATTN. LAWYER RICHARD STAUDACHER
3) ANY AMENDMENTS AND SUPPLEMENTS TO THIS CONTRACT SHALL BE MADE IN WRITING
UNLESS NOTARIAL DEED IS REQUIRED IN A COMPULSORY MANNER.
4) THE COSTS OF THIS DEED AND ITS EXECUTION SHALL BE BORNE BY THE VENDEE. THE
RESPECTIVE COSTS OF THEIR CONSULTANTS SHALL BE BORNE BY THE VENDOR AND VENDEE
THEMSELVES.
5) THIS CONTRACT SHALL BE GOVERNED BY THE LAWS OF THE FEDERAL REPUBLIC OF
GERMANY. THE EXCLUSIVE JURISDICTION OF THE COURTS IN AUGSBURG IS HEREBY AGREED
UPON.
6) NOTIFICATION OF THE ASSIGNMENT OF THE SHARE TRANSFERRED BY THIS DOCUMENT
SHALL BE PERFORMED BY THE CORPORATION ITSELF.
7) THE SALE OF THE SHARES IN THE CORPORATION TRANSFERRED BY THIS DEED AND THE
OFFER FOR SALE (INSTRUMENT OF THE NOTARY PUBLIC DR. KOCH OF JULY 1, 1998; DEED
REGISTER NO. K1456/1998) CONSTITUTE A LEGAL ENTITY WITHIN THE MEANING OF SECTION
139 BGB (GERMAN CIVIL CODE). SHOULD ANY OF THE PROVISIONS OF THIS CONTRACT BE OR
BECOME INEFFECTIVE OR UNENFORCEABLE, THE EFFECTIVENESS AND ENFORCEABILITY OF THE
OTHER PROVISIONS OF THIS CONTRACT SHALL NOT BE AFFECTED THEREBY. IN THIS EVENT,
THE PARTIES SHALL REPLACE SUCH AN INEFFECTIVE OR UNENFORCEABLE PROVISION BY SUCH
A PROVISION WHICH COMES CLOSEST TO THE ECONOMIC INTENTION OF THE AGREEMENT.
B.
OPTION RIGHT
1) The Vendee shall be entitled to accept the offer within the option period by
notarial declaration of acceptance, preferably for the attention of the notary
public acting in an
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63
official capacity or his deputy or any other notary public of Augsburg, in the
latter case following prior written notice of the Vendor by the notary public
who records the declaration in a notarial deed. The notary public in accordance
with the aforesaid sentence 1 shall be authorized to accept the declaration of
acceptance of the Vendee. He shall be instructed not to record the declaration
of acceptance in a notarial deed until he has received a bank-confirmed check of
a major German bank to the amount of DM 15,222,725.00.
2) The notary public is instructed to immediately deliver the aforesaid check to
the Vendor.
3) The purchase price, at the option of the Vendor, shall either be transferred
to the Vendor's account with Bayerische Vereinsbank, account No. 785 96 00, bank
code 720 200 70 to the amount of the remaining purchase price of DM 1,000,000.00
on or before March 15, 1999 or, if the Vendor declares this in writing vis-a-vis
the Vendee on or before March 1, 1999, paid by shares of SBS Technologies Inc.,
2400 Louisiana Blvd., 5-800, Albuquerque, NM 87110, with the number of shares
being determined by the closing price in effect on February 26, 1999. If
transfer by shares is chosen, the procedure described in SECTION 3 (3) of the
Preliminary Deed shall apply MUTATIS MUTANDIS with respect to the
implementation.
4) If the right to accept this offer in accordance with the above paragraph
("option") is not exercised by the Vendee on or before February 28, 1999, it
shall expire.
C.
REPURCHASING OPTION
Should the Vendee fail to exercise the right to accept the offer pursuant to the
aforesaid SECTIONs A and B within the option period, the Vendee - subject to a
condition precedent due to the failure to exercise the option granted to the
Vendee under the above SECTION B within the option period - now offers the
division of the share in the nominal amount of DM 50,100.00 transferred to it by
the Preliminary Deed into two partial shares in the nominal amount of DM
49,400.00 and DM 700.00 and the assignment of the partial share last mentioned
for DM 700.00 in a concurrent manner against assignment of a partial share in
the Corporation to the amount of DM 500 which is to be created by division; if
the repurchasing option is exercised, the Vendor shall pay an additional price
of DM 65,000.00 to the Vendee. The Vendor shall be entitled to accept this offer
within a period of two months following expiration of the option period.
The Vendee irrevocably authorizes the Vendor to make and accept all declarations
which become necessary for handling the exchange of shares required for this
purpose. Such authorization shall only become effective in the event of legally
permissible exercise of the repurchasing option. The costs which are related
thereto shall be borne by the Vendor.
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64
D.
FINAL PROVISIONS
1) Unless otherwise required by law, the parties undertake to keep the content
of this Contract in confidence.
2) All expressions of will and other notifications in connection with this
Agreement shall be made in writing and shall be sent by registered mail or
facsimile to the following persons or addresses or, as applicable, such other
addresses which the parties communicate to each other in the following:
a) on the part of the Vendor: Law offices of Messrs. Seitz, Weckbach, Fent,
Schiessgrabenstr. 14, 86150 Augsburg,
b) on the part of the Vendee:
KPMG Deutsche Treuhandgesellschaft, Kurfurstendamm 207 - 208, 10719 Berlin -
Attn. Lawyer Richard Staudacher
3) Any amendments and supplements to this Contract shall be made in writing
unless notarial recording is required in a compulsory manner.
4) The costs of this deed and its execution shall be borne by the Vendee. The
respective costs of their consultants shall be borne by the Vendor and Vendee
themselves.
5) This Contract shall be governed by the laws of the Federal Republic of
Germany. The exclusive jurisdiction of the courts in Augsburg is hereby agreed.
6) Each party to the Contract shall receive one copy of this deed. Other
certified copies of this deed shall be submitted to
- - the Corporation
- - the local tax office of Augsburg - municipal tax agency for bodies corporate
for tax No. 386/11073,
- - the lawyer Mr. Stefan Kiesewalter, KPMG Deutsche Treuhandgesellschaft,
Kurfurstendamm 207-208, 10719 Berlin
- - the lawyers Seitz, Weckbach, Fent, for the attention of the lawyer Dr. Theodor
Seitz, Schiessgrabenstr. 14, 86150 Augsburg
7) The offer of the shares in the Corporation offered by this Contract and the
offer of the shares in Ortec GmbH offered by the instrument of the notary public
Dr. Koch of July 1, 1998 (deed register No. 1456/1998) constitute a legal entity
within the meaning of Section 139 BGB (German Civil Code). Should any of the
provisions of this Contract be
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65
or become ineffective or unenforceable, the effectiveness and enforceability of
the other provisions of this Contract shall not be affected thereby. In this
event, the parties shall replace such an ineffective or unenforceable provision
by such a provision which comes closest to the economic intention of this
Agreement.
The above record was read out by the notary public, approved by the persons
appearing and signed in their own hands.
((4 illegible signatures))
((STAMP:))
Dr. Peer Koch, Notary Public in Augsburg
- -------------------------------------------
Authentication
I have examined the German original/photocopy/facsimile
and this is a true translation of same into English.
Barbara Wohanka, registered translator for the English
language at the District Court of Landshut, Germany, July 15, 1998
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66
CERTIFIED TRANSLATION FROM THE GERMAN LANGUAGE
certified copy
or Inc. Contract
DEED REGISTER NO. K1457/1998
SHARE PURCHASE AND TRANSFER CONTRACT (OR INC.)
Today, this July 1, 1998
Appeared before me, Dr. Peer Koch, notary public in Augsburg, having gone to the
Law offices of Messrs. Seitz, Weckbach, Fent, at Schiessgrabenstrasse 14, 86150
Augsburg for the purpose of the execution of a notarial deed:
1. Mr. Frank Oettle, born on February 8, 1962, residing at Ortsstrasse 23, 86420
Diedorf
Mr. Oettle declares that he is acting both in his own name and in his function
as managing director of or Industrial Computers GmbH and as President of or
Computers Inc., USA.
2. Mr. Hans Naumann, born March 20, 1940, graduated engineer, residing at
Castellring 35, 61130 Nidderau
Mr. Naumann declares that he is not acting in his own name but as representative
of SBS Embedded Computers Inc., 6301 Chapel Hill Road, Raleigh, NC 27606, and
under legalized power of attorney dated June 25, 1998 of the Chairman
Christopher Amenson, which is attached in the original. With respect thereto, I
declare, by virtue of submission of a confirmation of the secretary of SBS
Embedded Computers Inc., Mr. James E. Dixon, of June 25, 1998 that Mr.
Cristopher Amenson is the Chairman having sole power of representation of this
company established in the State of New Mexico, USA.
The persons appearing before me have identified themselves by presentation of
their official identity cards. They request notarization for the following share
purchase and transfer contract:
PREAMBLE:
1) The company or Industrial Computers GmbH with its head office in Augsburg
(hereinafter "or GmbH") is registered in the commercial register of the local
court of Augsburg under HRB 9107. The corporate object of Industrial Computers
GmbH is the development, production and distribution of electronic equipment
(hardware and software).
Until June 30, 1998, or GmbH, as subscriber to the memorandum of association,
held the sole share in the share capital of or Computers Inc., the principal
place of business of which is located in 11150 Main Street, Fairfax, VA 22030,
USA (hereinafter "Corporation"). The Corporation shall be entitled to issue 3000
shares without determination of any nominal value. So far, 100 shares have been
issued against an original capital contribution of US$ 10,000.00.
The Corporation has been registered in the State of Delaware, USA. It is allowed
to conduct its business in the State of Virginia, USA. It is entitled to conduct
all permitted business for which a company may be established under the company
law of the State of Delaware.
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67
or GmbH has sold and transferred the said interest by the share purchase and
transfer contract of June 30, 1998, deed register No. K1450/1998 of the notary
public Dr. Koch to Mr. Frank Oettle.
2) Mr. Frank Oettle wishes to sell and transfer his share in the Corporation
mentioned in paragraph 1 to the company SBS Embedded Computers Inc. SBS Embedded
Computers Inc. wishes to purchase and take over the aforesaid share in
connection with the purchase of the shares in or GmbH and Ortec Electronic
Assembly GmbH, entered in the commercial register of the local court of
Memmingen under HRB 5720, the principal place of business of which is located in
Mindelheim (hereinafter "Ortec GmbH") by ADMINI VIER (IV)
Vermogensverwaltungs-GmbH (in the future "SBS Technologies Holding GmbH").
3) Mr. Frank Oettle shall hereinafter also be referred to as "Vendor". The
company SBS Embedded Computers Inc. shall hereinafter be referred to as
"Vendee".
The Corporation, or GmbH and Ortec GmbH shall hereinafter be referred to
collectively as "or Companies".
Having stated the above, the following is agreed upon:
SECTION I
SALE, ASSIGNMENT, TRANSFER DATE, PURCHASE PRICE
SECTION 1
OBJECT OF THE PURCHASE, ASSIGNMENT, OPTION ON ACQUISITION
1) The Vendor hereby sells and assigns the shares in the Corporation in the
nominal amount of $ 10,000.00, which are stated in the preamble, sub-paragraph
(1), by endorsement with all rights to participate in the profits and other
affiliated rights to the Vendee, subject to the following Section 2.
The Vendee hereby accepts this assignment of the said shares.
2) In his capacity as President of the Corporation, the Vendor hereby agrees to
the transfer of the shares.
SECTION 2
TRANSFER DATE
1) The Transfer Date within the meaning of this Contract shall be July 1, 1998.
2) As of the Transfer Date, the Vendee shall be entitled to receive the
dividends distributed with regard to the sold shares.
<PAGE>
68
SECTION 3
PURCHASE PRICE
1) The purchase price for the shares in the nominal amount of US $ 10,000.00
(10,000.00 US dollars) transferred in accordance with the above Section 1 is
composed of a basic purchase price and an increase amount. The basic purchase
price amounts to DM 18,000.00.
2) In addition to the aforesaid purchase price, the Vendor is entitled to
receive 49.9% of the difference between 28% of the North American sales volume
of or GmbH in the period from July 1, 1998 to February 28, 1999 and US$
309,328.00 (= the eightfold amount of the estimated monthly average costs of the
Corporation of US $ 38,666.00) (hereinafter "increase amount"). The sales volume
shall be the sales volume invoiced by or GmbH to the Corporation in the period
from July 1, 1998 to February 28, 1999. A conversion rate of DM 1.80 = 1.00 US$
is taken as a basis for the aforesaid average costs of the Corporation.
3) The basic purchase price to the amount of DM 16,200.00 shall be paid by
bank-confirmed check of Dresdner Bank of Augsburg. The check shall be delivered
to the Vendor on a reciprocal basis against signature of this deed.
4) The purchase price, in the remaining amount of DM 1,800.00, is to be
transferred on June 30, 1998 into the notarial trust account of the notary
public who has performed notarial recording with Bayerische Vereinsbank, account
No. 226 17 15, bank code 720 200 70. The remaining amount shall be invested in a
fixed manner by the notary public until November 30, 1998. The Vendor shall be
entitled to receive interest arising therefrom. The cost of the deposit shall be
borne by the Vendee. The deposited amount including interest shall be released
on December 1, 1998 and paid out into the account of the Vendor with Bayerische
Vereinsbank AG Augsburg, account No. 785 96 00, bank code 720 200 70, unless the
Vendee informs the Vendor - with a copy of such notice being submitted to the
notary public - that a right of retention pursuant to this Contract is asserted.
In that event, the amount may only be released by way of mutual agreement or a
binding decision by a court.
5) The full increase amount is due for payment into the Vendor's account with
Bayerische Vereinsbank, account No. 785 96 00, bank code 720 200 70 on March 31,
1999.
SECTION II
WARRANTIES
The Vendor declares that he has provided the Vendee with correct and complete
information regarding all items requested by the Vendee or otherwise material
for the evaluation of the or Companies. For the execution and performance of
this Agreement, the Vendee also relies on such information.
The Vendor therefore expressly represents and warrants the foregoing and the
following in terms of a legally binding guarantee as of the date of this
Agreement, without any regard to the question of fault:
<PAGE>
69
SECTION 4
ASSURANCES AND GUARANTEES CONCERNING THE SHAREHOLDER RELATIONSHIP AND VENDOR'S
FREEDOM TO DISPOSE
The Vendor assures and guarantees that upon conclusion of this Contract:
1) the share capital of the Corporation has been fully paid up in cash, has
neither partly nor fully been repaid to the shareholders, is non-assessable and
free of secondary or other obligations or restrictions, and that the shares sold
herein are unencumbered and the Corporation is neither subject to excessive debt
nor insolvent;
2) the by-laws as amended on January 2, 1996 shall be effective;
3) the Corporation does not maintain any relations under company law of any type
with third parties, it does not hold a participation or sub-participation in any
other company, it has not concluded any inter-company agreements within the
meaning of Sections 291, 292 AktG (German Stock Corporation Law) with other
companies or any agreements on cooperation or transfer of profits/losses and it
has not executed any letters of intent in favor of other companies, with the
exception of the holding of listed securities and memberships in professional
associations and societies;
4) the shareholding in the Corporation stated in the preamble exists and the
Vendor is entitled to hold it; the Vendor is not subject to any restrictions of
disposal with respect to such interest, in particular, on the basis of rights of
any third parties;
5) the shares have neither been distrained nor pledged nor assigned to any third
party by way of security or for other reasons and, in addition, no option or
other rights entitle a third party to acquire the shares;
6) the shareholding is not subject to any trust relationship with a third party;
7) the shares and/or rights to such shares are neither the object of usufruct of
a third party nor of a sub-participation or similar relationship under company
law;
8) for the alienation of the shareholding, neither the participation of a
testamentary executor nor the agreement of subsequent heirs or other third
parties shall be necessary;
9) no judicial composition or bankruptcy proceedings concerning the property of
the Vendor have been applied for or commenced or, in addition, no circumstances
exist which could justify any rescission of alienation in accordance with the
provisions contained in the bankruptcy act or composition code or the rescission
act;
10) no other agreements or resolutions of any type exist which may affect the
corporate relationship, including, but not limited to, agreements or resolutions
regarding increases in the share capital, the resignation or entry of any
shareholders, sub-participation, trusteeships, participation with regard to
income, sales volume or assets of the Corporation and/or the exercise of voting
rights;
11) persons and companies other than the Vendor do not hold any direct or
indirect share of any type in the Corporation and no claims for the granting of
such share exist;
12) the assignment of the shares by the Vendor to the Vendee shall not be
subject to the consent of any third party.
<PAGE>
70
13) the Vendor or, as applicable, his legal predecessor has not adopted any
shareholder's resolutions since January 1, 1998.
14) the shares in the Corporation do not represent the entire or a substantial
portion of the Vendor's property so that no liability exists pursuant to Section
419 BGB (German Civil Code).
15) the Vendor does not hold any participation in any enterprise other than the
or Companies which is engaged in the area of activity of the or Companies or a
related area or maintains business relations with the or Companies.
SECTION 5
ASSURANCES AND GUARANTEES IN RESPECT OF THE FINANCIAL CIRCUMSTANCES OF THE
CORPORATION
The Vendor assures and guarantees that on the Transfer Date
1) at least those fixed assets indicated in the inventory list exist which has
been signed by the parties and delivered to the Vendee;
2) the objects leased/hired by the Corporation and listed in exhibit 5A are in
existence;
3) no restrictions exist to the freedom to dispose with respect to the objects
owned by the Corporation, except for any reservation of title customary in trade
(including extended reservation of title) to the assets being part of the
inventories and to the business assets of the Corporation mentioned under the
following paragraph 5.
4) exhibit 5B contains a correct and complete list of all managers, PROKURISTEN
(persons holding general commercial power of representation) and other
comparable members of the management of the Corporation as well as all general
powers of attorney granted by the Corporation and all bank accounts and
authorities to sign.
5) the Corporation has full, unrestricted and unencumbered title to and
possession of all movable and immovable assets which serve or are intended to
serve its business operations, except for those movable assets which are leased
from persons and companies other than the Vendor in the ordinary course of
business on normal market terms or which are subject to customary reservations
of title by suppliers pending payment.
6) the Corporation does not have any branches or divisions outside its principal
place of business in Fairfax, Virginia, USA.
7) he shall endeavor to obtain the consent of 50 - Jermantown Limited
Partnership to this Contract in its capacity as lessor pursuant to article 11
(1) sub-paragraph 2 of the lease agreement concluded with the Corporation on
March 15, 1996.
SECTION 6
ASSURANCES REGARDING CONTRACTUAL AND LEGAL RELATIONSHIPS
1) The Vendor assures and guarantees that the rights and contracts of the
Corporation stated in the following shall exist in unchanged form upon
conclusion of this Agreement:
<PAGE>
71
a) the consultancy contracts listed in exhibit 6A;
b) the distributor contracts listed in exhibit 6B;
c) the license agreements listed in exhibit 6C;
d) the lease, rent and tenancy agreements listed in exhibit 6D;
e) the contracts with a duration of more than 12 months following the Transfer
Date listed in exhibit 6E, with the exception of the contracts mentioned in
exhibits 6A to 6D and 6F to 6H;
f) the insurance contracts listed in exhibit 6F;
g) the contract listed in exhibit 6G - including loan agreements - with the
Vendor, his family members and other enterprises in which the Vendor holds more
than 5%;
h) the agreements listed in exhibit 6H with the plant council and contracts with
trade unions except for supra-plant regional and supra-regional collective
agreements or memberships in employers' associations.
The Vendee has received complete copies of the contracts listed in exhibit 6.
2) In addition, the Vendor assures and guarantees that
a) with the exception of the legal disputes listed in exhibit 6I to this
Contract, the Corporation is not a party to any legal dispute and will also not
be actively involved in any legal dispute until the Transfer Date without the
prior consent of the Vendee, except for the recovery of accounts receivable from
deliveries and services of ongoing business and further that no circumstances
are known which could cause third parties to commence a legal dispute and/or
give notice of a third party complaint vis-a-vis the Corporation;
b) the Corporation is not in default of payable payment obligations on the
Transfer Date;
c) the Corporation has the full right and power to conduct its business as
presently conducted and to possess and operate its business and assets.
3) Exhibit 6J contains a complete and correct list of all patents, utility
patents, registered designs, trade marks and all applications relating thereto
and all other industrial and intellectual property rights of the Corporation.
Unless expressly stated otherwise in exhibit 6J, the said industrial and
intellectual property rights are free of any rights of third parties and are not
subject to revocation or full or partial cancellation or any material right of
earlier users; the Corporation is not impaired in its sole and exclusive
utilization. To the best of the knowledge of the Vendor, none of the said
industrial or intellectual property rights is infringed by third parties. In
addition to the industrial and intellectual property rights listed in exhibit
6J, the Corporation has all rights which are additionally required for its
present business establishment.
To the best of the Vendor's knowledge, the Corporation does not violate any
industrial or intellectual property rights or other rights of third parties
through the distribution of the products presently distributed by it or through
any other measure of business management performed until the Transfer Date. The
Vendor as an individual does not have any rights with respect to the know-how
and other requirements for the carrying out of the present activities of the
Company.
4) To the best of the Vendor's knowledge, the Corporation has all legal and
administrative approvals and permissions required for the management of its
present business establishment,
<PAGE>
72
including, without restriction, software licenses, licenses and permits under
water law and other environmental protection laws. To the best of the Vendor's
knowledge, it does not violate any rights of third parties including competition
laws, trade and industry laws and statutory provisions under environmental
protection law in its field of business. To the best of the Vendor's knowledge,
it is not responsible for the violation of any provisions under environmental
protection law which had or could have caused personal injury, illness or
damage. The same shall apply with respect to the real property which has been
and still is free of inherited burdens due to the operation of the Corporation,
including, without restriction, the freedom from hazardous materials or other
pollutants.
To the best of the Vendor's knowledge
a) all house products of or GmbH distributed by the Corporation comply with the
German and US-American legal and other applicable standards,
b) or - if and insofar as they do not comply with such standards -
aa) has such a deviation from such standards, to the best of the Vendor's
knowledge, not given rise to any claims by customers which have not been
satisfied so far or
bb) the deviations from the said standards have been accepted or, as applicable,
expressly requested by the customer.
As regards the "Year-2000" problem, the Vendor assures and guarantees that he
has caused a proper review of this problem and, as a result of the said review,
that he is not aware of any problems except for those listed in exhibit 6K.
The Vendor is solely responsible for claims, actions, fees, expenses and
penalties relating to such measures or arising in connection thereto, which
result from the operations of the Corporation prior to the Transfer Date.
5) The Vendor is not entitled to any unpaid claims of any type against the
Corporation.
6) The Corporation is not subject to any understanding with respect to
competition with third parties.
SECTION 7
REPRESENTATIONS CONCERNING THE FINANCIAL STATEMENTS
1) The Vendor assures that to the best of his knowledge he has given all
information requested by the Vendee in a complete and correct manner and that no
information other than that given appeared necessary.
In addition, the Vendor assures that he has not concealed any exceptional risks
or other aspects outside the usual scope of the business operation known to him
which are of essential significance for the determination of the assets and
profit situation of the Corporation and of its prospective future development.
In light of the fact that the Vendee knows the economic and legal situation in
detail based on the due diligence examination effected by it, the Vendor is not
liable for the future development, profit situation and profitability of the
company in which the transferred shareholding exists. The valuation of the
Corporation and the other or Companies is not based on warranties of the Vendor
concerning future profits, but on the expectations of the
<PAGE>
73
Vendee based on the performance of the Corporation in the previous fiscal years
(average profits and sales volumes for the calendar years 1996 and 1997 and the
1st half-year of 1998).
2) In addition, the Vendor assures
a) that the financial statements (balance sheets including profit and loss
statements) of the Corporation for the years 1996 and 1997, which have been
delivered to the Vendee, have been prepared with the due diligence of a prudent
businessman on the basis of proper accounting and in accordance with US-American
Generally Accepted Accounting, Valuation and Depreciation Principles
(hereinafter "GAAP") and in compliance with the principle of consistency of the
method of valuation and valuation.
The financial statements of the Corporation are complete and correct and
completely and correctly reflect the profit situation of the Corporation and the
net worth position as for each balance sheet stated there for the accounting
period ended on the respective balance sheet date. All risks, impairments of
value and losses determinable upon preparation of the relevant financial
statements have been duly taken into account through adequate depreciation,
changes in the valuation or formation of provisions; the company does not have
any pension obligations;
b) and that
- - items on the balance sheet were continuous as regards the balance sheet of the
respective previous year in the application of equal, legally admissible
valuation principles and that valuation rights were exercised continuously in
equal form;
- - known risks and liabilities of the Corporation have been taken into account;
- - no changes in the valuation and depreciation modalities including
extraordinary depreciation and valuation adjustments have been made.
3) Interim financial statements are to be prepared as at the date prior to the
Transfer Date. The Vendor assures and guarantees that upon conclusion of this
Contract the Corporation reports equity capital in the amount of the share
capital as defined in paragraph 1 of the preamble, pursuant to GAAP, in these
interim financial statements.
The interim financial statements shall be prepared pursuant to GAAP and shall
correspond to previous financial statements of the Corporation as regards the
valuation methods and procedures. In particular, it shall consider the following
to a sufficient degree
a) any existing and obvious risks with respect to the valuation of the
inventory, the warranty claims and accounts receivable,
b) the existence of slow-moving or obsolete inventory with respect to the
valuation of the inventory
c) sufficient accruals for pending or threatened legal disputes and
d) sufficient accruals for tax liabilities or risks; in this respect, the
parties, by mutual agreement, assume that no accruals shall be formed for tax
contingencies, in particular, such contingencies which are a result of the
position of the Vendor as a shareholder and
e) sufficient accruals for liabilities due to patent infringements; in this
respect, the parties, by mutual agreement, assume that the liability vis-a-vis
Nortel Northern Telecom Limited has not been concretized to a sufficient degree.
<PAGE>
74
In addition, warranties pursuant to paragraph (2) above shall apply mutatis
mutandis with respect to the interim financial statements stated herein as at
June 30, 1998.
The Vendee may request that the interim financial statements of the Corporation
as at June 30, 1998 be audited by KPMG Peat Marwick LLP (KPMG) at its expense.
If the Vendor does not agree with the results of the audit by KPMG, he may,
within one month subsequent to his receipt of the results of the audit by KPMG
of the interim financial statements, request another audit of the interim
financial statements of the Corporation as at June 30, 1998 by an auditing
company agreed upon by the Vendor and Vendee or - should agreement be impossible
- - by such an auditing company named by the President of the German-American
Chamber of Industry and Commerce of New York.
The Vendor shall bear the costs of the said audit if the result of the audit by
KPMG of the interim financial statements of the Corporation as of June 30, 1998
are correct with respect to the application of the GAAP. Otherwise the Vendee
shall bear the costs of such audit of the second auditor. Should it come to
light that the audit of the second auditor does not follow any of the foregoing
interim financial statements, the costs of the second audit shall be borne by
the Vendor and the Vendee in proportion to the deviation pursuant to Sections 91
et seq. ZPO [Code of Civil Procedure].
The interim financial statements audited by KPMG or, if another audit is
requested, the interim financial statements of the auditing company agreed upon
by the parties or named by the President of the Chamber of Industry and Commerce
of New York is to be binding with respect to determining whether the interim
financial statements correspond to the warranties given by the Vendor. The
interim financial statements as of June 30, 1998 shall also be binding if
neither the Vendor nor the Vendee request an audit within one month after the
Corporation has submitted the interim financial statements to the Vendor or, as
applicable, Vendee; such request shall be made in writing to the Vendor or, as
applicable, Vendee.
If the equity capital, pursuant to the interim financial statements binding
between the parties, is lower than the share capital pursuant to Section 7 (3),
sub-paragraph 2, the Vendor shall be obligated to effect a payment to the
differential amount to the Vendee. However, this shall not apply in the event of
modifications to the equity capital arising from the treatment of the OSC
contracts on the balance sheet. Section 8 shall not apply.
4) Since January 1, 1998 the Corporation has only been conducted within the
normal and ordinary course of business. Since that time, no extraordinary
business event or legal arrangement has occurred or been entered into and no
event has occurred which by itself or together with other events has materially
affected the assets or the profit situation of the Corporation in an adverse
manner. All salary and wage increases granted since January 1, 1998 have been
within the normal scope. No claims, actions or lawsuits under employment law are
asserted or filed or threatened to be asserted or filed against the Corporation
and, to the best of the Vendor's knowledge, no basis exists for such claims.
The employees of the Corporation are not entitled to any payments or special
benefits not explicitly set out in their respective employment contracts.
5) All tax returns which the Corporation has had to file for past accounting
periods have been filed in a timely manner and correctly.
For the period until the Transfer Date, the Corporation will not incur any tax
liabilities which have not been allowed for in the interim financial statements
as of the Transfer Date.
<PAGE>
75
6) To the best of the Vendor's knowledge, no particular circumstances exist
which may materially affect the business of the Corporation in the future. The
Vendor is not aware of any facts and circumstances which could result in any
restriction, impediment or cessation of manufacturing and/or distribution of
material products which are presently produced and/or marketed by the
Corporation.
SECTION 8
LEGAL CONSEQUENCES/STATUTE OF LIMITATIONS
1) If the obligations, guarantee and warranty commitments of the Vendor in this
Section II of the contract are not fully fulfilled or are in any other manner
not fulfilled in accordance with the contract as at the Transfer Date, the
Vendee shall be entitled to request the Vendor to restore the contractual
status, determining - via registered mail - an adequate additional period of
time of a minimum of 2 weeks for this purpose. The Vendee, however, shall not
have such right if and to the extent that it has gained knowledge of such
deviation from the contractual status through the due diligence examination
performed by it. This exclusion shall not apply to the assurance contained in
Section 7 (5) of this Contract.
The request with determination of an additional period of time pursuant to
sentence 1 above is not necessary if restoration of the contractual status is
not possible for the Vendor or refused by him or if the requirements pursuant to
paragraph 2 below have been complied with. If the determination of the
additional period is not necessary or if the contractual status is not restored
within the additional period, the Vendor will place the Vendee or, if requested
by the Vendee, the Corporation in an economic position, which the Vendee or, as
applicable, Corporation would have if such obligations, warranties and
assurances had been correct. Claims for payments in accordance with the
foregoing paragraph shall only arise if, in any individual case, they exceed DM
100,000.00 or if their total amount for the or Companies exceeds DM 500,000.00.
The regulation contained in the foregoing sentence shall not apply to tax
liabilities and risks for which no provisions are to be formed pursuant to
Section 7 (3) lit. d). Tax liabilities and risks, however, shall not be
compensated for by the Vendor at all or shall not be compensated for by the
Vendor insofar as they are balanced by tax advantages of the Corporation, for
example, by virtue of tax savings due to increased depreciation, in the ensuing
years.
2) The Vendee shall be entitled to withdraw from this Contract or - applying the
principles of Section 463 BGB (German Civil Code) - to conduct a calculation of
damage under reversed transaction if the warranties in Section II Section 4 are
breached to a substantial extent or if adjustment pursuant to paragraph 1
exceeds the amount of DM 5.0 million with respect to the total for all or
Companies. Apart from these events, the right to withdraw from the contract or -
applying the principles of Section 463 BGB - to perform a calculation of damage
under reversed transaction shall always be excluded in the event of violation of
the assurances and guarantees in Sections 5 and 6 of the document. In the event
of withdrawal, the right of the Vendee for damages, including consequential
damage, shall remain unaffected.
3) The Vendee shall only be entitled to any claims pursuant to paragraph 1 and 2
if and insofar no corresponding advantages in connection with the sale of the
shares in Ortec GmbH or, as applicable, or GmbH exist. The aforesaid regulation
shall only cover the shift in revenue or expenditure between the or Companies.
4) All claims pursuant to this part II shall be excluded if they are not
asserted and substantiated in writing to the other party on or before December
31, 1999. The preclusive period of time in accordance with the foregoing
sentence shall, with regard to claims connected to taxes and social security
contributions, not end before the end of one month subsequent to the
<PAGE>
76
administrative finality of the official replies by virtue of a tax field audit
or, as applicable, an audit of social security contributions. The period of
limitation for asserted claims shall be three months after the end of the
aforesaid period of application; should any tax audit not lead to an immediate
tax liability but impair the tax situation of the Corporation in any other
respect, the Vendee may bring an action for declaration before the end of the
period of limitation in order to preserve its rights. Sections 477 to 479 BGB
(German Civil Code) and 377, 378 HGB (German Commercial Code) shall be excluded.
5) The Vendor and Vendee shall be obligated to inform and assist each other if
third parties assert any claims vis-a-vis the Corporation if such claims may
give rise to claims pursuant to this Section II.
SECTION III
OTHER PROVISIONS
SECTION 9
TRANSFER OF THE BUSINESS TO THE VENDEE; MANAGEMENT
1) The Vendor and Vendee are required to mutually provide all information and to
cooperate in all transactions and acts which are required to implement this
Contract. In particular, the Vendor undertakes to deliver to the Vendee all
business papers and documents owned by the Corporation and to inform the Vendee
unrestrictedly with respect to the affairs of the Corporation as regards the
period of time prior to the Transfer Date upon request if required in the
interest of the Corporation and the Vendee.
The Vendee undertakes to maintain the Corporation in Fairfax, Virginia until
March 31, 1999. Should the option, which the Vendee has been granted on the
acquisition of the remaining shares in or GmbH (deed of the notary public Dr.
Koch of July 1, 1998, deed register No. K 1454/1998) or on the acquisition of
the remaining partial shares in Ortec GmbH (deed of the notary public Dr. Koch
of July 1, 1998, deed register No. K 1456/1998), not be exercised by the Vendee,
the Vendee now offers the purchase of the shares in the Corporation to the
Vendor at a purchase price of DM 18,000.00. The offer may be accepted during the
period from March 1, 1999 until March 31, 1999 by notarial declaration of
acceptance, preferably for the attention of the notary public performing
notarial recording, Dr. Koch, or his deputy. Notarial recording of the
declaration of acceptance by the aforesaid notary public shall be decisive for
the timeliness of acceptance.
Should the repurchasing option be exercised, the Vendor shall be entitled,
without restrictions, in particularly, without the restrictions pursuant to
Section 10 of the instrument, to become commercially active in the US in the
field of activities of the or Companies.
SECTION 10
NON-COMPETITION CLAUSE
Until December 31, 2001 the Vendor shall be obligated not to compete with the or
Companies or the Vendee in such fields which are covered by the business object
of the or Companies as defined in Section 2 of the by-laws of or GmbH in the
version stated in Section 4, paragraph (2) of the deed of the notary public, Dr.
Koch, of July 1, 1998 (deed register No. K 1453/1998). The Vendor guarantees
that he will also comply with this non-competition clause in the companies
affiliated
<PAGE>
77
with him. This non-competition clause shall be reduced to a period of 6 months
as of the date of termination of the Vendor's agreement on service as a managing
director with or GmbH if such employment relationship is terminated by or GmbH
prior to its contractual termination date and this termination of the contract
is held unlawful by a court.
SECTION 11
FINAL PROVISIONS
1) Unless otherwise required by law, the parties undertake to keep the contents
of this Contract in confidence.
2) All expressions of will and other notifications in connection with this
Agreement shall be made in writing and shall be sent by registered mail or
facsimile to the following persons and addresses or such other addresses as the
parties hereafter communicate to each other:
a) on the part of the Vendor:
Law offices of Messrs. Seitz, Weckbach, Fent, Schiessgrabenstr. 14, 86150
Augsburg,
b) on the part of the Vendee:
KPMG Deutsche Treuhandgesellschaft, Kurfurstendamm 207 - 208, 10719 Berlin -
Attn. Lawyer Richard Staudacher
3) Any amendments and supplements to this Contract shall be made in writing
unless notarial deed is required in a compulsory manner.
4) The costs of this deed and its execution shall be borne by the Vendee. The
respective costs of their consultants shall be borne by the parties themselves.
5) This Contract shall be governed by the laws of the Federal Republic of
Germany. The exclusive jurisdiction of the courts in Augsburg is hereby agreed.
6) Each party to the contract shall receive one copy of this deed. Other
certified copies of this deed shall be submitted to
- - the Corporation
- - the lawyer Mr. Stefan Kiesewalter, KPMG Deutsche Treuhandgesellschaft,
Kurfurstendamm 207-208, 10719 Berlin
- - the lawyers Seitz, Weckbach, Fent, for the attention of the lawyer Dr. Theodor
Seitz, Schiessgrabenstr. 14, 86150 Augsburg
The above record was read out by the notary, approved by the persons appearing
and signed in their own hands.
((4 illegible signatures))
((STAMP:))
Dr. Peer Koch, Notary Public in Augsburg
<PAGE>
78
- --------------------------------
Authentication
I have examined the German original/photocopy/facsimile and this is a true
translation of same into English.
Barbara Wohanka, registered translator for the English language at the District
Court of Landshut, Germany, July 17, 1998
<PAGE>
79
ENCLOSURE 5 A (OR INC.)
- - Objects leasehold by operator, rented and/or leased
1. Floor space of business in Fairfax, Virginia USA is leased.
For the rent-contractual basic contract cf. Enclosure 6 D.
2. Telephone system.
<PAGE>
80
ENCLOSURE 5 B (OR INC.)
- - List of all managers, all procurists and other comparable members of
company management, as well as all full holders of powers of attorney, who
were admitted by business, including all those with account and signature
authority -
1. President
Mr. Frank Oettle
2. Vice President / Secretary:
Mr. David French
3. Comparable members of management:
none
4 Holders of full powers of attorney:
none
5. Bank accounts and signature-authorized persons:
a) The company has an account at the First Virginia Bank with
account no. 0907-7502
Mr. David French has sole disposal authority for this account.
b) The company maintains a further bank account with American Express. A
credit card drawn on this account is issued likewise in the name of Mr.
David French.
Further bank accounts or signature-authorized persons do not exist.
<PAGE>
81
ENCLOSURE 6 A (OR INC.)
Consultation contracts
none
<PAGE>
82
ENCLOSURE 6 B (OR INC.)
Exclusive dealer contracts (distributor contracts) -
none
<PAGE>
83
ENCLOSURE 6 C (OR INC.)
- - Franchise agreements -
none (with the exception of Standard-Software)
<PAGE>
84
ENCLOSURE 6 D (OR INC.)
- - Leasing, renting and leasehold contracts -
1. Leasing contract for company floor space
Lease dated 15.03.1996 already presented within the framework of the
Due-Diligence test on 02.06.1998, transferred to the representative of
the buyer.
2. Leasing contract for telephone system.
Cf. Enclosure 6 E
<PAGE>
85
ENCLOSURE 6 E (OR INC.)
- - Contracts of duration more than 12 months after the transfer fixed date,
with the exception of the contracts mentioned in Enclosures 6 A to 6 D and
6 F to 6 H.
1. Contracts with clients
<TABLE>
<CAPTION>
Document No. Title Client Name Contract date Signature date
------------ ----- ----------- ------------- --------------
<S> <C> <C> <C> <C>
LSG-9606-012 Contract Orbital Sciences Corporation 20.05.98
SOW 20.02.97
Modification 20.05.98
SOW 14.01.98
PEG-9803-073 Agreement Orbital Sciences Corporation 20.03.98 17.09.97
Agreement 03.12.97
Agreement 03.02.98
Agreement 08.04.98
PEG-9803-073 Agreement or Industrial Computers GmbH 20.03.98 08.04.98
</TABLE>
Copies of all contracts were transferred to Mr. Kiesewater (KPMG) on 30.06.1998
2. Telephone system contract
Contract with Telco Communications Group dated 20.05.1997 (3 year
contract)
Copies of all contracts were transferred to Mr. Kiesewater (KPMG) on
30.06.1998
<PAGE>
86
ENCLOSURE 6 F (OR INC.)
Contracts of insurance -
1. Combined property and liability insurance (Hanover Insurance No. ODR
5064030)
A copy of the insurance contract was given to the representative of the buyer,
within the framework of the Due-Diligence test, on 02.06.1998.
<PAGE>
87
ENCLOSURE 6 G (OR INC.)
- - Contracts with the vendor (including loan agreements), his family members
and other businesses of which the vendor holds more than 5%
1. With regard to the activities of the company of or Inc. (sale of or
products) there are contracts for the delivery of or products from or GmbH
to or Inc.
2. There is no framework agreement
<PAGE>
88
ENCLOSURE 6 H (OR INC.)
- - Agreements with the works committee and contracts with unions, with the
exception of industry-wide regional and supraregional wage agreements or
memberships in employers' associations -
none
<PAGE>
89
ENCLOSURE 6 I (OR INC.)
- - Lawsuits -
none
<PAGE>
90
ENCLOSURE 6 J (OR INC.)
- - Patents, utility-model patents, design patents, brand names and all
registrations in this connection and other industrial and
industrial-property rights of business -
none
<PAGE>
91
ENCLOSURE 6 K (OR INC.)
- - Declaration of the vendor regarding his awareness of difficulties with
regard to the "Year 2000 Problem" -
The awareness of the Vendor of difficulties with regard to the "Year 2000"
problem is summarized in the two announcements, from or GmbH to its customers,
listed below, which have been presented to the Buyer:
1. "Year 2000" compliance, status 12.05.1998
2. BIOS application note, status 29.04.1998
<PAGE>
92
Contract of employment for management employees
Between ortec Electronic Assembly GmbH, Mindelheim, as employer mentioned in the
following company and
Mr. Frank Oettle, born on 08.02.1962
- ----------------
as employee, the following extra-tariff contract of employment has been
concluded:
Section 1 COMMENCEMENT AND TYPE OF ACTIVITY
The employee entered the services of the company on 01.10.1991 as a manager. The
company reserves the right to negotiate for the employee another, equivalent
activity, corresponding to his abilities and knowledge, without a change in the
level of remuneration occurring. The parties are agreed that the employee, on
account of this contract of employment and his position, is to be regarded as a
management employee in the sense of Section 5 Section 3, Labor Management
Regulations Law.
Section 2 REMUNERATION
The employee receives a gross salary of 580 DM as monthly compensation for his
activity.
Section 3 TRAVEL COSTS
The company guidelines apply to payment of travel costs
Section 4 VACATION
The employee has a claim to vacation of 30 workdays in each calendar year. The
vacation date is determined in agreement with the company.
Section 5 PAYMENT OF SALARY IN THE CASE OF ILLNESS AND DEATH
The company pays the salary in the case of illness of the employee for a period
of 6 weeks. In the case of death of the employee during the contract period, the
agreed upon fixed remuneration is still received by the surviving dependent for
the rest of the month of decease as well as for a further 3 months.
Section 6 SECONDARY ACTIVITIES
The employee performs the obligations of this contract as a secondary activity.
Section 7 OBLIGATION TO CONFIDENTIALITY
The employee is obliged to preserve confidentiality regarding all technical,
organizational and economic matters pertaining to the company. Business and
trade secrets, which are entrusted or become known by reason of his activity are
neither to be utilized nor communicated to third parties, also in the case where
the employee has left.
<PAGE>
93
Section 8 COMPETITION PROHIBITION
After the completion of the employer-employee relationship the employee is
obliged not to be employed by a rival business for the duration of a year,
worldwide, either directly or to participate indirectly in the foundation or
in the operation of such a company. The company is obliged to pay the
employee one half of the monthly remuneration which was being received on
ending the contract, for the duration of the agreed-upon
competition-prohibition period. The amount is transferred in each case at the
end of the month; in addition the competition-prohibition is governed by
Sections 74-75 HGB. The employee confirms explicitly to have preserved this
competition prohibition, in a document of this contract, signed by both
partners.
Section 9 NOTICE TO TERMINATE
This contract of employment can be terminated during the first half year by both
contracting parties with a period of time of 4 weeks to the end of the month and
subsequently with a period of time of 12 months to the end of the month.
Section 10 CONTRACTUAL PENALTY DECLARATION
In the case of a contract-violating activity, as well as offenses against the
agreed upon competition prohibition itself, the employee is obliged pay a
contractual penalty, in the amount of 10,000 DM, to the company. Further claims
for compensation of the company are not affected by this contractual penalty.
Section 11 PLACE OF JURISDICTION
The labor court in Augsburg is the local place of jurisdiction for both
contracting parties.
Section 12 OTHER AGREEMENTS
This contract replaces the existing articles of employment dated 01.10.1991 and
becomes effective on 01.01.1995
Section 13 ALTERATIONS OF CONTRACT
Verbal agreements, outside of this contract text, do not exist between the
parties. Secondary agreements, complements and modifications of this contract
become effective only if they are laid down in writing.
Augsburg, 16.12.1994
<PAGE>
94
Ortec-GmbH - Offer
DEED NO. K1456 / 1998
Certified Copy
Today, on 1 July 1998
appeared before me, Dr Peer Koch, notary in Augsburg, I having gone to the law
firm Seitz, Weckbach, Fent in SchieBgrabenstraBe 14, 86150 Augsburg in order to
record this deed:
1. Mr Frank Oettle, born on 8 February 1962 and resident at OrtsstraBe 23, 86420
Diedorf;
Mr Oettle declares that he is acting both in his own name and in his capacity as
Managing Director of Ortec Electronic Assembly GmbH; after inspecting the
Commercial Register at the Local Court of Memmingen I have established that Mr
Frank Oettle is the Managing Director of Ortec Electronic Assembly GmbH and has
sole powers of representation,
2. Mrs Hannelore Oettle, nee Hohmann, born on 10 February 1934 and resident at
Adalbert-Stifter-Str. 40, 86356 NeusaB;
3. Mr Alfons Oettle, born on 7 September 1928 and resident at
Adalbert-Stifter-Str. 40, 86356 NeusaB;
4. Mrs Anke Schlagbauer, nee Oettle, born on 16 April 1958 and resident at
Peter-Dorfler-Weg 14, 89407 Dillingen;
5. Mr Hans Neumann, Dipl. Ingenieur (university-trained engineer) born on 20
March 1940 and resident at Castellring 35, 61130 Niderau
Mr Neumann declares that he is not acting in his own name, but as representative
of ADMINI VIER (IV) Vermogensverwaltungs-GmbH, which has its registered offices
in Cologne and is registered in the Commercial Register of the Local Court of
Cologne under number HR B 29606, and upon a legalised power of attorney dated 30
June 1998 of the Managing Director, Mr Chris Amenson. The original copy of this
power of attorney is attached to this deed. Mr Naumann presented a copy of a
resolution of the
<PAGE>
95
shareholders of ADMINI Vier (IV) Vermogensverwaltungs-GmbH (in future "SBS
Technologies Holding GmbH") dated 26 June 1998 (deed no. 673/1998 of the notary
De Ingrid Doye, Cologne), according to which Mr Chris Amenson has been appointed
as the company's new Managing Director with sole powers of representation and
exempt from the restrictions imposed by section 181 of the German Civil Code
(BGB).
The persons appearing before me have identified themselves by presenting their
official identity cards. They wish for the following Option Agreement to be
notarially attested.
PREAMBLE:
1) Ortec Electronic Assembly GmbH, whose head offices are in Mindelheim, is
registered in the Commercial Register of the Local Court of Memmingen under the
number HRB 5720.
The company's share capital amounts to DM 50,000.00 and is held by the following
shareholders:
a) ADMINI VIER (IV) Vermogensverwaltungs-GmbH, which holds a partial share with
a nominal value of DM 25,100.00, acquired by virtue of today's foregoing deed
no. K.1455 / 1998 of the officiating notary ("foregoing deed")
b) Mr Frank Oettle who holds a partial share of DM 4,900.00, in respect of whose
acquisition reference is made to points 1 and 2 in the preamble to the foregoing
deed,
c) Ms Hannelore Oettle who holds a partial share of DM 4,900.00, in respect of
whose acquisition reference is made to points 1 and 2 in the preamble to the
foregoing deed,
d) Mr Alfons Oettle who holds a partial share of DM 4,900.00, in respect of
whose acquisition reference is made to points 1 and 2 in the preamble to the
foregoing deed, and
d) Ms Anke Schlagbauer who holds a partial share of DM 10,200.00, in respect of
whose acquisition reference is made to points 1 and 2 in the preamble to the
foregoing deed,
2) The parties to this Agreement will be referred to hereafter as follows:
<PAGE>
96
- - Mr Frank Oettle as "Vendor 1)"
- - Ms Hannelore Oettle as "Vendor 2)"
- - Mr Alfons Oettle as "Vendor 3)"
- - Ms Anke Schlagbauer as "Vendor 4)"
- - Vendors 1), 2), 3) and 4) will be referred to jointly as "Vendors" or "All
Vendors"
- - ADMINI VIER (IV) Vermogensverwaltungs-GmbH will be referred to as "Buyer"
- - Ortec Electronic Assembly GmbH will be referred to as "Company"
- - Ortec Electronic Assembly GmbH, or Industrial Computers GmbH, registered in
the Commercial Register of the Local Court of Augsburg under HRB 9107 ("or
GmbH") and or Computers Inc., 11150 Main Street, Fairfax VA 22030 USA ("or
Inc.") will be jointly referred to in this Agreement as "OR COMPANIES".
3) In the foregoing deed specified under point 1 a) the Buyer acquired partial
shares in the company from the Vendors. These partial shares have a total
nominal value of DM 25,100.00.
In addition to this, the Buyer is to be given the option of acquiring the
Vendors' remaining partial shares in the Company with a total nominal value of
DM 24,900.00 after a certain phase during which the Buyer wishes to test the
market in Germany and the field of "embedded computers", and in as far as this
test proves positive.
<PAGE>
97
A.
OFFER
On this basis the Vendors offer the buyer the conclusion of the agreement set
out in Sections I to III (clauses 1 to 11) hereunder. The offer is of limited
duration. It can only be accepted during the period from 1 February 1999 until
28 February 1999 ("the option period").
The offer is in respect of the conclusion of the following agreement:
SECTION I
SALE, ASSIGNMENT, TRANSFER DATE AND PURCHASE PRICE
SECTION 1
THE ITEM TO BE PURCHASED, ASSIGNMENT
1) VENDOR 1), VENDOR 2) AND VENDOR 3) HEREBY SELL AND ASSIGN THEIR PARTIAL
SHARES IN THE COMPANY, AS SET OUT IN POINT (1) OF THE PREAMBLE. EACH OF THESE
PARTIAL SHARES HAS A NOMINAL VALUE OF DM 4,900.00. VENDOR 4) HEREBY SELLS AND
ASSIGNS HER PARTIAL SHARE IN THE COMPANY AS SET OUT IN POINT (1) OF THE
PREAMBLE. THIS PARTIAL SHARE HAS A NOMINAL VALUE OF DM 10,200.00. IN EACH CASE
ALL ASSOCIATED PROFIT PARTICIPATION RIGHTS AND ALL ANCILLARY RIGHTS SHALL PASS
TO THE BUYER, AS DEFINED IN CLAUSE 2 BELOW.
THE BUYER ACCEPTS THE ASSIGNMENT OF THESE PARTIAL SHARES.
2) IN HIS CAPACITY AS MANAGING DIRECTOR OF THE COMPANY, VENDOR 1) HEREBY AGREES
TO THE ASSIGNMENT OF THE SHARE IN ACCORDANCE WITH CLAUSE 4 OF THE COMPANY'S
ARTICLES OF ASSOCIATION.
SECTION 2
TRANSFER DATE
1) THE DATE OF TRANSFER UNDER THIS AGREEMENT IS 1 MARCH 1998.
<PAGE>
98
2) AS FROM THE DATE OF TRANSFER THE BUYER SHALL BE ENTITLED TO THE DIVIDENDS
PAID ON THE PARTIAL SHARES WHICH HAVE BEEN SOLD.
SECTION 3
PURCHASE PRICE
1) THE PURCHASE PRICE OF THE PARTIAL SHARES WITH A TOTAL NOMINAL VALUE OF
DM 24,900.00 AND ASSIGNED AS SET OUT IN CLAUSE 1 ABOVE CONSISTS OF A BASIC
PURCHASE PRICE OF DM 991,020.00 (NINE HUNDRED AND NINETY-ONE THOUSAND, AND
TWENTY GERMAN MARKS) AND AN ADDITIONAL AMOUNT. THE ADDITIONAL AMOUNT IS
DEPENDENT ON SALES AND SHALL BE CALCULATED AS FOLLOWS:
<TABLE>
<CAPTION>
SALES INITIAL AMOUNT
<S> <C>
UP TO DM 500,000.00 DM 40,000.00
AS FROM DM 500,000.01 10 % OF SALES
</TABLE>
THE ADDITIONAL AMOUNT SHALL CORRESPOND TO 59 % OF THE INITIAL AMOUNT. SALES AS
DEFINED UNDER THIS ARRANGEMENT ARE THE SALES INVOICED FOR BY THE COMPANY DURING
THE PERIOD FROM 1 JULY 1998 UNTIL 28 FEBRUARY 1999.
2) OUT OF THE BASIC PURCHASE PRICE VENDOR 1) VENDOR 2) AND VENDOR 3) SHALL EACH
BE ENTITLED TO THE SUM OF DM 195,020.00 AND VENDOR 4) TO THE SUM OF
DM 405,960.00. VENDORS 2) TO 4) EXPRESSLY AUTHORISE VENDOR 1) TO ACCEPT AND CASH
MEANS OF PAYMENT. THE INTERNAL DISTRIBUTION OF THESE FUNDS IS A MATTER WHICH
CONCERNS THE VENDORS ALONE.
3) THE BUYER SHALL PAY THE ADDITIONAL AMOUNT PURSUANT TO PARAGRAPH (1) ABOVE
INTO THE ACCOUNT OF VENDOR 1) AT BAYERISCHE VEREINSBANK AUGSBURG ACCOUNT
NO. 785 96 00, BANK CODE 720 200 70, WITH EXONERATING EFFECT FOR AND AGAINST
VENDORS 2) TO 4). THE ADDITIONAL AMOUNT SHALL BE DUE BY 31 MARCH 1999.
SECTION II
WARRANTIES
VENDOR 1) DECLARES THAT DURING THE CONTRACTUAL NEGOTIATIONS AND THE DUE
DILIGENCE EXAMINATION WHICH, ACCORDING TO THE FOREGOING DEED, LED TO THE
CONCLUSION OF THE AGREEMENT HE HAS PROVIDED THE BUYER WITH CORRECT AND COMPLETE
INFORMATION REGARDING ALL ITEMS REQUESTED BY THE BUYER OR OTHERWISE MATERIAL FOR
THE VALUATION OF THE OR COMPANIES. IN SIGNING AND PERFORMING THIS AGREEMENT THE
BUYER TRUSTS THAT THIS INFORMATION IS CORRECT.
ON THIS BASIS THE VENDORS EXPRESSLY ASSURE THE FOREGOING AND THE FOLLOWING IN
THE FORM OF A LEGALLY BINDING WARRANTY GIVEN ON THE DATE OF THE EXECUTION OF
THIS AGREEMENT, WITHOUT ANY REGARD TO THE QUESTION OF BLAME, THE
<PAGE>
99
WARRANTIES GIVEN BY VENDOR 1) ALSO BEING REGARDED AS APPLYING TO THE PARTIAL
SHARES SOLD BY VENDORS 2) TO 4), HOWEVER, WITHOUT ANY PERSONAL OBLIGATION ON
THEIR PART, IN AS FAR AS NOTHING TO THE CONTRARY IS AGREED HEREUNDER:
SECTION 4
ASSURANCES AND GUARANTEES AS REGARDS THE RELATIONSHIP BETWEEN THE SHAREHOLDERS
AND THE VENDORS' FREEDOM TO DISPOSE OVER THEIR SHARES
1) THE VENDORS ASSURE AND GUARANTEE THAT ON THE TRANSFER DATE
a) THE COMPANY'S SHARE CAPITAL HAD BEEN FULLY PAID UP IN CASH, HAD NOT BEEN PAID
BACK TO THE SHAREHOLDERS, NEITHER IN PART NOR IN FULL, WAS NOT LIABLE TO
ADDITIONAL CONTRIBUTIONS AND WAS FREE OF SECONDARY OBLIGATIONS AND OTHER
OBLIGATIONS OR RESTRICTIONS, THAT THE SHARES SOLD UNDER THIS AGREEMENT ARE FREE
OF ENCUMBRANCES;
b) THE SHARES AS DEFINED UNDER POINT 1) OF THE PREAMBLE EXIST AND THAT THE
VENDORS ARE ENTITLED TO THEM; THAT THE VENDORS ARE NOT SUBJECT TO ANY RESTRAINTS
OF DISPOSAL IN RESPECT OF THESE SHARES, PARTICULARLY NOT DUE TO ANY THIRD-PARTY
RIGHTS;
c) THE SHARES HAVE NEITHER BEEN ATTACHED NOR PLEDGED NOR ASSIGNED TO THIRD
PARTIES AS A COLLATERAL OR FOR ANY OTHER REASON AND THAT, FURTHER, NO OPTION OR
OTHER RIGHTS ENTITLE A THIRD PARTY TO ACQUIRE THE SHARES;
d) THE SHARES ARE NOT THE SUBJECT OF A FIDUCIARY RELATIONSHIP WITH THIRD
PARTIES;
e) THE SHARES AND/OR RIGHTS TO SUCH SHARES ARE NEITHER THE OBJECT OF
USUFRUCTUARY RIGHTS OF THIRD PARTIES NOR OF SUB-PARTICIPATION AND SIMILAR LEGAL
RELATIONSHIPS;
f) NEITHER THE COOPERATION OF AN EXECUTOR NOR THE AGREEMENT OF REVERSIONARY
HEIRS OR OTHER THIRD PARTIES IS REQUIRED IN ORDER TO SELL THE SHARES;
g) NO JUDICIAL SETTLEMENT OR BANKRUPTCY PROCEEDINGS CONCERNING THE VENDORS'
ASSETS HAVE BEEN APPLIED FOR OR INITIATED AND, FURTHERMORE, THAT NO
CIRCUMSTANCES EXIST WHICH COULD JUSTIFY A CONTESTATION OF THE SALE PURSUANT TO
THE BANKRUPTCY REGULATIONS OR INSOLVENCY LAWS OR THE LAWS OF RECISSION.
h) THERE ARE NO OTHER AGREEMENTS OR DECISIONS OF WHATSOEVER TYPE WHICH COULD
AFFECT THE LEGAL RELATIONS BETWEEN THE VENDORS AND THE COMPANY
<PAGE>
100
INCLUDING, BUT NOT RESTRICTED TO, AGREEMENTS AND DECISIONS CONCERNING AN
INCREASE IN THE SHARE CAPITAL, THE WITHDRAWAL OR ADDITION OF SHAREHOLDERS,
SUB-PARTICIPATION, FIDUCIARY RELATIONSHIPS, PARTICIPATION WITH REGARD TO THE
COMPANY'S INCOME, TURNOVER OR ASSETS AND/OR VOTING RIGHTS;
i) THE ASSIGNMENT OF THE SHARES TO THE BUYER ON THE PART OF THE VENDORS IS NOT
SUBJECT TO THE CONSENT OF ANY THIRD PARTIES;
j) THE SHARES IN THE COMPANY DO NOT REPRESENT THE ENTIRE OR THE MAJOR PART OF
THE VENDORS' ASSETS, SO THAT THERE IS NO LIABILITY PURSUANT TO SECTION 419 OF
THE GERMAN CIVIL CODE (BGB);
k) THE VENDORS DO NOT HOLD SHARES IN ANY OTHER COMPANIES, APART FROM THE OR
COMPANIES, WHICH OPERATE IN THE SAME LINE OF BUSINESS AS THE OR COMPANIES OR IN
A RELATED LINE OF BUSINESS OR WHICH MAINTAIN BUSINESS RELATIONS WITH THE OR
COMPANIES.
2) VENDOR 1) ASSURES AND GUARANTEES, SUCH ASSURANCE ALSO APPLYING FOR THE
PARTIAL SHARES SOLD BY VENDORS 2) TO 4), THAT AS AT 1 JULY 1998
a) THE COMPANY WAS NEITHER OVERINDEBTED NOR INSOLVENT,
b) THAT THE ARTICLES OF ASSOCIATION WERE APPLICABLE AS LAST AMENDED ON 20 JUNE
1991 (DEED OF THE NOTARY HOFMANN, OBERGUNZBURG, DEED NO. 1247 OF 20 JUNE 1991);
<PAGE>
101
c) THAT THE COMPANY DID NOT MAINTAIN ANY KIND OF SHAREHOLDER RELATIONSHIP WITH
THIRD PARTIES AND THAT, IN PARTICULAR, IT DID NOT HAVE A PARTICIPATING INTEREST
OR A SUB-PARTICIPATION IN ANY OTHER COMPANY, THAT IT HAD NOT ENTERED INTO ANY
INTER-COMPANY AGREEMENTS AS DEFINED IN SECTIONS 291 AND 292 OF THE GERMAN STOCK
CORPORATION LAW (AktG) NOR ANY CONTRACTS CONCERNING COOPERATION OR PROFIT AND
LOSS TRANSFER AND HAD NOT ISSUED ANY LETTERS OF INTENT IN FAVOUR OF ANY OTHER
COMPANIES; THIS DOES NOT INCLUDE OWNERSHIP OF SECURITIES LISTED ON THE STOCK
EXCHANGE AND MEMBERSHIP IN PROFESSIONAL ASSOCIATIONS OR ORGANISATIONS AND ITS
PARTICIPATION IN AUGUSTA BANK AG WITH A COOPERATIVE SHARE WITH A NOMINAL VALUE
OF DM 1,500.00.
d) NO OTHER PERSONS OR COMPANIES BESIDES THE VENDORS HAVE ANY DIRECT OR INDIRECT
PARTICIPATION IN THE COMPANY OF ANY TYPE WHATSOEVER AND THERE ARE NO CLAIMS FOR
SUCH PARTICIPATION TO BE GRANTED.
SECTION 5
ASSURANCES AND GUARANTEES IN RESPECT OF THE COMPANY'S ASSETS
VENDOR 1) ASSURES AND GUARANTEES, SUCH ASSURANCE ALSO APPLYING TO THE PARTIAL
SHARES SOLD BY VENDORS 2) TO 4), THAT ON 1 JULY 1998
1) AT LEAST THE FIXED ASSETS LISTED IN THE INVENTORY SIGNED BY THE PARTIES
EXISTED; THIS INVENTORY WAS ALREADY HANDED OVER TO THE BUYER PRIOR TO 1 JULY
1998;
2) THAT THE OBJECTS LEASED OR HIRED BY THE COMPANY, AS LISTED IN APPENDIX 5 B OF
THE FOREGOING DEED, EXISTED;
3) THAT THERE WERE NO RESTRAINTS ON THE FREEDOM TO DISPOSE OVER THE ITEMS
BELONGING TO THE COMPANY WITH THE EXCEPTION OF THE RETENTION OF TITLE USUAL IN
COMMERCIAL TRANSACTIONS (INCLUDING PROLONGED RETENTION OF TITLE) AS REGARDS
INVENTORIES AND THE COMPANY'S ECONOMIC GOODS SET OUT IN PARAGRAPH 5 HEREUNDER;
4) APPENDIX 5 B OF THE FOREGOING DEED CONTAINED A CORRECT AND COMPLETE LIST OF
ALL MANAGERS, "PROKURISTS" AND COMPARABLE MEMBERS OF THE COMPANY'S MANAGEMENT
AND OF ALL GENERAL POWERS OF ATTORNEY GRANTED BY THE COMPANY AS WELL AS ALL BANK
ACCOUNTS AND ALL PERSONS AUTHORISED TO SIGN ON THE COMPANY'S BEHALF;
<PAGE>
102
5) THE COMPANY HAD FULL, UNRESTRICTED AND UNENCUMBERED TITLE TO AND POSSESSION
OF ALL MOVABLE AND IMMOVABLE ASSETS WHICH SERVED OR WERE DESTINED TO SERVE ITS
BUSINESS OPERATIONS EXCEPT FOR THOSE MOVABLE ASSETS WHICH WERE LEASED FROM
PERSONS AND COMPANIES OTHER THAN THE VENDORS IN THE ORDINARY COURSE OF BUSINESS
ON NORMAL MARKET TERMS OR WHICH WERE SUBJECT TO THE USUAL RESERVATIONS OF TITLE
BY SUPPLIERS PENDING PAYMENT;
6) THE COMPANY HAD NO OTHER BRANCHES APART FROM ITS REGISTERED OFFICE IN
MINDELHEIM.
SECTION 6
ASSURANCES AS REGARDS CONTRACTUAL AND LEGAL RELATIONS
1) VENDOR 1) ASSURES AND GUARANTEES, SUCH ASSURANCE ALSO APPLYING TO THE PARTIAL
SHARES SOLD BY VENDORS 2) TO 4), THAT ON 1 JULY 1998 THE COMPANY'S RIGHTS AND
CONTRACTS AS LISTED HEREUNDER REMAINED UNCHANGED:
a) THE CONSULTING AGREEMENTS LISTED IN APPENDIX 6 A OF THE FOREGOING DEED;
b) THE DISTRIBUTION AGREEMENTS LISTED IN APPENDIX 6 B OF THE FOREGOING DEED;
c) THE LICENCE AGREEMENTS LISTED IN APPENDIX 6 C OF THE FOREGOING DEED;
d) THE LEASING, RENTAL AND TENANCY AGREEMENTS LISTED IN APPENDIX 6 D OF THE
FOREGOING DEED;
e) THE AGREEMENTS WITH A TERM OF MORE THAN 12 MONTHS AS FROM THE DATE OF
TRANSFER LISTED IN APPENDIX 6 E OF THE FOREGOING DEED, WITH THE EXCEPTION OF THE
AFORESAID AGREEMENTS IN APPENDICES 6A TO 6 D AND 6F TO 6 H;
f) THE INSURANCE AGREEMENTS LISTED IN APPENDIX 6 F OF THE FOREGOING DEED;
g) THE AGREEMENTS AS LISTED IN APPENDIX 6 G OF THE FOREGOING DEED INCLUDING LOAN
AGREEMENTS, WITH THE VENDOR, MEMBERS OF HIS FAMILY AND OTHER COMPANIES IN WHICH
THE VENDOR HOLDS A SHARE OF MORE THAN 5 %;
h) THE AGREEMENTS WITH THE WORKS COUNCIL, AS LISTED IN APPENDIX 6 H OF THE
FOREGOING DEED, AND AGREEMENTS WITH TRADE UNIONS WITH THE EXCEPTION OF THE
REGIONAL AND SUPRA-REGIONAL COLLECTIVE BARGAINING AGREEMENTS OR MEMBERSHIP IN
EMPLOYERS' ASSOCIATIONS.
<PAGE>
103
THE BUYER HAS BEEN GIVEN COMPLETE COPIES OF THE AGREEMENTS LISTED IN APPENDIX 6
OF THE FOREGOING DEED.
2) FURTHERMORE VENDOR 1) ASSURES AND GUARANTEES, SUCH ASSURANCE ALSO APPLYING TO
THE PARTIAL SHARES SOLD BY VENDORS 2) TO 4), THAT ON 1 JULY 1998
a) WITH THE EXCEPTION OF THE LEGAL DISPUTES LISTED IN APPENDIX 6 1 OF THE
FOREGOING DEED TO THIS AGREEMENT, THE COMPANY WAS NOT INVOLVED IN ANY LEGAL
DISPUTE AND WILL NOT HAVE BECOME ACTIVELY INVOLVED IN ANY LEGAL DISPUTE WITHOUT
THE BUYER'S PRIOR CONSENT BEFORE THE DATE OF TRANSFER, WITH THE EXCEPTION OF
COLLECTING TRADE RECEIVABLES FROM ONGOING BUSINESS TRANSACTIONS; FURTHERMORE
THAT THE VENDOR KNEW OF NO CIRCUMSTANCES WHICH COULD HAVE CAUSED THIRD PARTIES
TO INITIATE LEGAL ACTION AND/OR TO ANNOUNCE A DISPUTE WITH THE COMPANY;
b) THAT ON THE TRANSFER DATE THE COMPANY HAD NOT DEFAULTED ON ANY PAYMENT
LIABILITIES;
c) THAT THE COMPANY HAD FULL POWER AND AUTHORITY TO CONDUCT ITS BUSINESS AS IT
CONDUCTED IT AT THE TIME, TO OWN ITS BUSINESS AND ASSETS AND TO OPERATE ITS
BUSINESS;
3) APPENDIX 6 J OF THE FOREGOING DEED CONTAINED A COMPLETE AND ACCURATE LIST OF
ALL PATENTS, UTILITY MODELS, REGISTERED DESIGNS, TRADEMARKS AND ALL APPLICATIONS
IN THIS RESPECT AND ALL OTHER INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS
BELONGING TO THE COMPANY AS AT 1 JULY 1998. AS LONG AS NOTHING TO THE CONTRARY
WAS EXPLICITLY STATED IN APPENDIX 6 J TO THE FOREGOING DEED, THESE INDUSTRIAL
AND INTELLECTUAL PROPERTY RIGHTS WERE FREE OF THIRD-PARTY RIGHTS AND WERE NOT
SUBJECT TO REVOCATION OR TO BEING DECLARED NULL AND VOID, NEITHER IN PART NOR IN
FULL, NOR TO ANY MAJOR RIGHTS OF PREVIOUS OWNERS. THE COMPANY WAS NOT HINDERED
IN ITS SOLE AND EXCLUSIVE EXPLOITATION OF SUCH RIGHTS. TO THE BEST OF THE
KNOWLEDGE OF VENDOR 1), NONE OF THESE INDUSTRIAL OR INTELLECTUAL PROPERTY RIGHTS
HAD BEEN INFRINGED BY THIRD PARTIES. IN ADDITION TO THE INDUSTRIAL AND
INTELLECTUAL PROPERTY RIGHTS LISTED IN APPENDIX 6 J TO THE FOREGOING DEED, THE
COMPANY WAS ALSO IN POSSESSION OF ALL RIGHTS WHICH IT ADDITIONALLY REQUIRED IN
ORDER TO OPERATE ITS BUSINESS AT THE TIME.
ON 1 JULY 1998 THE COMPANY OWNED THE COMPLETE KNOW-HOW FOR THE CONTRACTS FARMED
OUT TO IT TO THE BEST OF THE KNOWLEDGE OF VENDOR 1), THE COMPANY, ON 1 JULY
1998, DID NOT INFRINGE THE INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS OF ANY
THIRD PARTIES IN COMPLETING ITS CONTRACTS NOR BY ANY OTHER MANAGEMENT MEASURE
TAKEN UP UNTIL 1 JULY 1998. AS INDIVIDUALS, THE
<PAGE>
104
VENDORS HAD NO RIGHTS TO THE KNOW-HOW AND OTHER REQUIREMENTS FOR THE COMPANY'S
CURRENT OPERATIONS. VENDOR 1) FURTHER GUARANTEES THAT WITH THE EXCEPTION OF THE
COMPELLING PROVISIONS OF THE GERMAN LAW ON INVENTIONS BY EMPLOYEES, THE COMPANY
RETAINED ALL INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS DESPITE AN EMPLOYEE
LEAVING THE COMPANY ON 1 JULY 1998.
4) TO THE BEST OF THE KNOWLEDGE OF VENDOR 1), THE COMPANY HAD ALL THE LEGAL AND
ADMINISTRATIVE APPROVALS AND PERMISSION THAT IT NEEDED IN ORDER TO OPERATE ITS
CURRENT BUSINESS INCLUDING, BUT WITHOUT BEING RESTRICTED TO, SOFTWARE LICENCES,
APPROVAL PERTAINING TO THE USE OF WATER AND OTHER FORMS OF APPROVAL AND
PERMISSION RELATING TO THE PROTECTION OF THE ENVIRONMENT. TO THE BEST OF THE
KNOWLEDGE OF VENDOR 1), THE COMPANY, IN OPERATING ITS BUSINESS, DID NOT INFRINGE
ANY THIRD-PARTY RIGHTS AS AT 1 JULY 1998, INCLUDING COMPETITION AND TRADING
RIGHTS, NOR ANY PROVISIONS CONCERNING THE PROTECTION OF THE ENVIRONMENT. TO THE
BEST OF THE KNOWLEDGE OF VENDOR 1), THE COMPANY AS AT 1 JULY 1998 WAS NOT IN
BREACH OF ANY LEGAL PROVISIONS CONCERNING THE PROTECTION OF THE ENVIRONMENT
WHICH RESULTED IN OR COULD HAVE RESULTED IN PERSONAL INJURY, SICKNESS OR DAMAGE.
THE SAME APPLIES WITH REGARD TO ITS LAND WHICH ON 1 JULY 1998 WAS FREE OF
CONTAMINATION FROM THE COMPANY'S OPERATIONS, INCLUDING, BUT WITHOUT BEING
RESTRICTED TO, FREEDOM FROM DANGEROUS MATERIALS OR OTHER CONTAMINATING
SUBSTANCES.
DUE TO AN ENVIRONMENTAL AUDIT WHICH THE BUYER CARRIED OUT IN JUNE 1998, THE
BUYER WAS INFORMED OF THE COMPANY'S OPERATIONS IN RESPECT OF THE ENVIRONMENT,
INCLUDING PROTECTION AGAINST FIRE. A SUMMARY OF THIS ENVIRONMENTAL AUDIT FORMS
APPENDIX 6 K TO THIS AGREEMENT.
TO THE BEST OF THE KNOWLEDGE OF VENDOR 1), THE FACILITIES FOR THE SUPPLY OF
FRESH WATER, THE DISPOSAL OF WASTE WATER, REFUSE AND OUTGOING AIR WERE
COMPLETELY ADEQUATE FOR THE PURPOSES OF PRODUCTION AT THE TIME AND THE STEP-UP
IN PRODUCTION WHICH WAS PLANNED TO HAVE BEEN EFFECTED BY THE DATE OF EXECUTION
OF THIS AGREEMENT. TO THE BEST OF THE KNOWLEDGE OF VENDOR 1), NO APPROVAL WAS
REQUIRED FOR THE PRODUCTS WHICH THE COMPANY PRODUCED AND/OR DISTRIBUTED AND NO
SUCH APPROVAL HAD BEEN APPLIED FOR.
TO THE BEST OF THE KNOWLEDGE OF VENDOR 1)
a) ON 1 JULY 1998 ALL PRODUCTS PRODUCED AND/OR DISTRIBUTED BY THE COMPANY
COMPLIED WITH THE APPLICABLE GERMAN AND US LEGAL STANDARDS AND OTHER APPLICABLE
STANDARDS,
b) OR - IF AND TO THE EXTENT THAT THEY DID NOT CONFORM TO THESE STANDARDS -
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aa) THE DEVIATION FROM THESE STANDARDS HAD SO FAR, TO THE BEST OF THE KNOWLEDGE
OF THE VENDOR, GIVEN CUSTOMERS NO CAUSE TO ASSERT ANY CLAIMS WHICH HAD NOT BEEN
SATISFIED OR
bb) AS AT 1 JULY 1998 THE CUSTOMERS ACCEPTED OR EXPRESSLY DESIRED THE DEVIATIONS
FROM THESE STANDARDS.
WITH REGARD TO THE "TURN OF THE MILLENNIUM" PROBLEM VENDOR 1) DECLARED THAT HE
HAD THIS ISSUE PROPERLY INVESTIGATED AS AT 1 JULY 1998 AND, AS A RESULT OF SUCH
AN INVESTIGATION AS AT 1 JULY 1998, HE KNEW OF NO PROBLEMS IN THIS RESPECT. THIS
DECLARATION OF VENDOR 1) ALSO APPLIES IN RESPECT OF THE PARTIAL SHARES SOLD BY
VENDORS 2) TO 4).
ON 1 JULY 1998 VENDOR 1) ALONE WAS RESPONSIBLE FOR CLAIMS, ACTS, FEES,
DISBURSEMENTS AND ANY PENALTIES IN RELATION TO OR ARISING IN CONNECTION WITH
SUCH MEASURES AND WHICH RESULTED FROM THE COMPANY'S OPERATIONS BEFORE THE
TRANSFER DATE.
5) ON 1 JULY 1998 VENDOR 1) HAD NO OUTSTANDING CLAIMS TOWARDS THE COMPANY OF
WHATSOEVER NATURE.
6) THE COMPANY HAD NOT MADE ANY ARRANGEMENTS WITH THIRD PARTIES RESTRICTING
COMPETITION.
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SECTION 7
ASSURANCES CONCERNING THE DETAILS IN THE FINANCIAL STATEMENTS
1) VENDOR 1) ASSURES TO THE BEST OF HIS KNOWLEDGE, SUCH ASSURANCE ALSO APPLYING
TO THE PARTIAL SHARES SOLD BY VENDORS 2) TO 4), THAT ON 1 JULY 1998 HE PROVIDED
ALL THE INFORMATION REQUESTED BY THE BUYER COMPLETELY AND CORRECTLY AND THAT HE
DID NOT CONSIDER IT NECESSARY TO GIVE ANY FURTHER INFORMATION OTHER THAN THAT
REQUESTED.
VENDOR 1) ASSURES FURTHER THAT ON 1 JULY 1998 HE HAD NOT CONCEALED ANY KNOWN AND
EXCEPTIONAL RISKS OR OTHER ASPECTS OUTSIDE THE USUAL SCOPE OF BUSINESS WHICH
WERE OF ESSENTIAL IMPACT FOR THE EVALUATION OF THE COMPANY'S NET WORTH AND
EARNINGS SITUATION AND OF ITS PROBABLE DEVELOPMENT IN THE FUTURE. IN VIEW OF THE
FACT THAT THE BUYER WAS AWARE OF THE DETAILS OF THE ECONOMIC AND LEGAL SITUATION
BASED ON THE DUE DILIGENCE EXAMINATION IT HAD EFFECTED, THE VENDORS ARE NOT
LIABLE FOR THE FUTURE DEVELOPMENT, EARNINGS SITUATION AND PROFITABILITY OF THE
ENTERPRISE WHOSE SHARES WERE ASSIGNED. THE VALUATION OF THE COMPANY AND OF THE
OTHER OR COMPANIES IS NOT BASED ON WARRANTIES GIVEN BY THE VENDORS CONCERNING
FUTURE PROFITS, BUT ON THE BUYER'S EXPECTATIONS BY VIRTUE OF THE COMPANY'S
PERFORMANCE DURING THE PAST FINANCIAL YEARS (AVERAGE PROFIT AND SALES FOR THE
CALENDAR YEARS 1994-1997) AND THE FIRST HALF OF 1998).
2) FURTHERMORE VENDOR 1) ASSURES, SUCH ASSURANCE ALSO APPLYING TO THE PARTIAL
SHARES SOLD BY VENDORS 2) TO 4), THAT AS AT 1 JULY 1998
a) THE COMPANY'S ANNUAL FINANCIAL STATEMENTS (BALANCE SHEETS INCLUDING PROFIT
AND LOSS STATEMENTS) FOR THE FINANCIAL YEARS 1994, 1995, 1996 AND 1997, WHICH
THE BUYER HAD ALREADY RECEIVED, WERE PREPARED WITH THE CARE OF A CONSCIENTIOUS
BUSINESSMAN ON THE BASIS OF PROPER ACCOUNTING PRINCIPLES AND IN ACCORDANCE WITH
THE GENERALLY RECOGNISED ACCOUNTING AND REPORTING PRINCIPLES IN GERMANY, TAKING
ACCOUNT OF THE PRINCIPLE OF CONSTANCY IN THE VALUATION METHODS AND THE
VALUATION.
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THE COMPANY'S ANNUAL FINANCIAL STATEMENTS WERE COMPLETE AND ACCURATE AND GAVE A
TRUE AND FAIR ACCOUNT OF THE COMPANY'S EARNINGS SITUATION AND NET WORTH WITH
REGARD TO EACH OF THE BALANCE SHEETS THEREIN AND WITH REGARD TO THE COMPANY'S
RESULTS FOR THE PERIOD ENDING ON THE RELEVANT BALANCE SHEET DATE. ALL RISKS,
IMPAIRMENT OF VALUE AND LOSSES WHICH IT WAS POSSIBLE TO ASCERTAIN AT THE TIME
THAT THE RELEVANT FINANCIAL STATEMENTS WERE PREPARED WERE PROPERLY TAKEN INTO
ACCOUNT THROUGH SUFFICIENT DEPRECIATION, ADJUSTMENTS IN VALUATION OR THE
FORMATION OF RESERVES; THE COMPANY HAD NO PENSION COMMITMENTS;
b) AND THAT
- - THE ITEMS ON THE BALANCE SHEET WERE CONTINUOUS AS REGARDS THE LAST BALANCE
SHEET DATE IN APPLICATION OF THE SAME, LEGALLY PERMISSIBLE VALUATION PRINCIPLES
AND THAT THE VALUATION RIGHTS WERE EXERCISED CONTINUOUSLY IN THE SAME FORM;
- - THAT ACCOUNT WAS TAKEN OF THE COMPANY'S KNOWN RISKS AND LIABILITIES;
- - THAT THERE HAD BEEN NO CHANGES IN THE VALUATION AND DEPRECIATION MODALITIES,
INCLUDING EXTRAORDINARY DEPRECIATION, AND THAT VALUE ADJUSTMENTS WERE MADE.
3) INTERIM FINANCIAL STATEMENTS WERE TO BE DRAWN UP ON THE DAY BEFORE 1 JULY
1998. IN THIS RESPECT VENDOR 1), AS AT 1 JULY 1998, AGAIN GIVES THE EQUITY
WARRANTY PURSUANT TO CLAUSE 7 (3), SENTENCE 2 OF THE FOREGOING DEED, THIS
WARRANTY ALSO APPLYING IN RESPECT OF THE PARTIAL SHARES OF VENDORS 2) TO 4).
REFERENCE IS MADE TO CLAUSE 7 (3) OF THE FOREGOING DEED AS REGARDS THE EXACT
DETAILS.
4) FROM 1 JANUARY 1998 UNTIL 30 JUNE 1998 THE COMPANY'S AFFAIRS WERE MANAGED
ONLY WITHIN THE NORMAL AND ORDINARY COURSE OF BUSINESS. DURING THIS TIME NO
EXTRAORDINARY BUSINESS EVENT OCCURRED AND NO EXTRAORDINARY LEGAL AGREEMENT WAS
CONCLUDED AND NO EVENT OCCURRED WHICH BY ITSELF OR TOGETHER WITH OTHER EVENTS
HAD A MAJOR EFFECT ON THE COMPANY'S ASSETS OR EARNINGS SITUATION. ALL SALARY AND
WAGE INCREASES GRANTED SINCE 1 JANUARY 1998 WERE NECESSARY DUE TO COLLECTIVE
BARGAINING AGREEMENTS OR, IF NOT, WERE ONLY WITHIN THE SCOPE OF WHAT IS NORMAL
AND REASONABLE. THE BUYER WAS AWARE THAT IN JULY 1998 THE SALARIES AND WAGES OF
THE COMPANY'S EMPLOYEES WERE TO BE INCREASED ON THE BASIS OF THE INDIVIDUAL
PERFORMANCE OF THE EMPLOYEES, AS HAD BEEN THE ESTABLISHED PRACTICE IN PREVIOUS
YEARS.
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AS AT 1 JULY 1998 THERE WERE NO CLAIMS, ACTS OR LITIGATION TO ASSERTED OR
PENDING AGAINST THE COMPANY UNDER LABOUR LAW AND TO THE BEST OF THE KNOWLEDGE OF
VENDOR 1) THERE WAS NO BASIS FOR ANY SUCH CLAIMS.
AS AT 1 JULY 1998 THE COMPANY'S EMPLOYEES WERE NOT ENTITLED TO ANY SPECIAL
PAYMENTS OR BENEFITS WHICH WERE NOT EXPLICITLY SET OUT IN THEIR INDIVIDUAL
CONTRACTS OF EMPLOYMENT.
5) ON 1 JULY 1998 VENDOR 1) HAD NO KNOWLEDGE OF ANY CIRCUMSTANCES WHICH MIGHT
JEOPARDISE THE IMPLEMENTATION OF THE BUDGET FOR 1998 ACCORDING TO APPENDIX 7 A
TO THE FOREGOING DEED.
6) ALL TAX RETURNS WHICH THE COMPANY WAS OBLIGED TO FILE FOR PAST PERIODS WERE
PROPERLY FILED IN GOOD TIME AS AT 1 JULY 1998, A PARTICULAR POINT BEING THAT THE
COMPANY'S TAX RETURNS FOR 1996 IN RESPECT OF CORPORATION TAX CORRECTLY STATED
THE CLASSIFICATION OF THE COMPANY'S AVAILABLE EQUITY CAPITAL FOR CORPORATION TAX
PURPOSES AS AT 1 JULY 1998. THE SAME APPLIED FOR THE DRAFT VERSION FOR 1997.
DURING THE PERIOD UP UNTIL 1 JULY 1998 NEITHER THE VENDORS NOR ANY PERSONS CLOSE
TO THEM HAD RECEIVED DISGUISED PROFIT DISTRIBUTIONS FROM THE COMPANY.
DURING THE PERIOD UP UNTIL THE TRANSFER DATE NEITHER THE VENDORS NOR ANY PERSONS
CLOSE TO THEM HAVE RECEIVED HIDDEN PROFIT DISTRIBUTIONS FROM THE COMPANY.
THE COMPANY'S AVAILABLE EQUITY CAPITAL FOR PURPOSES OF CORPORATION TAX AS AT 31
DECEMBER 1997 LISTED THE FOLLOWING ITEMS AS AT 1 JULY 1998 (BEFORE TAKING
ACCOUNT OF THE DISTRIBUTION MADE IN 1998 FOR 1996 AND 1997): EK 50 = DM 0; EK 45
= DM 228,152.00; EK 02 = MINUS DM 2,804.00 AND EK 04 = DM 0.
FOR THE TIME UP UNTIL 1 JULY 1998 THE COMPANY WILL HAVE INCURRED NO TAX
LIABILITIES WHICH WERE NOT ALREADY TAKEN INTO ACCOUNT IN THE INTERIM FINANCIAL
STATEMENTS AS AT 1 JULY 1998.
7) TO THE BEST OF THE KNOWLEDGE OF VENDOR 1) ON 1 JULY 1998 THERE WERE NO
SPECIAL CIRCUMSTANCES WHICH COULD HAVE HAD A MAJOR INFLUENCE ON THE COMPANY'S
BUSINESS IN THE FUTURE. ON 1 JULY 1998 VENDOR 1) KNEW OF NO FACTS OR
CIRCUMSTANCES WHICH COULD HAVE RESULTED IN A RESTRICTION OF, HINDRANCE TO OR THE
CESSATION OF PRODUCTION AND / OR THE DISTRIBUTION OF
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109
IMPORTANT PRODUCTS WHICH THE COMPANY WAS PRODUCING AND / OR MARKETING AT THE
TIME.
SECTION 8
LEGAL CONSEQUENCES/STATUTE OF LIMITATIONS
1) IF THE OBLIGATIONS, WARRANTIES AND ASSURANCES GIVEN BY THE VENDORS IN THIS
SECTION II OF THE AGREEMENT HAVE NOT BEEN COMPLETELY FULFILLED ON THE DATE OF
TRANSFER OR ARE OTHERWISE DEFECTIVE UNDER THE TERMS OF CONTRACT, THE BUYER SHALL
BE ENTITLED TO SET THE VENDORS AN ADEQUATE DEADLINE VIA REGISTERED MAIL,
ALLOWING THEM AT LEAST 2 WEEKS IN WHICH TO RESTORE THE CONTRACTUAL STATUS. THE
BUYER, HOWEVER, MAY NOT EXERCISE SUCH A RIGHT IF AND TO THE EXTENT THAT IT
BECOMES AWARE OF THE FACT THAT THE AGREEMENT IS NOT BEING PERFORMED AS AGREED
DURING THE COURSE OF THE CONTRACTUAL NEGOTIATIONS AND THE DUE DILIGENCE
EXAMINATION WHICH LED TO THE CONCLUSION OF THE AGREEMENT ACCORDING TO THE
FOREGOING DEED. THIS EXCLUSION DOES NOT APPLY FOR THE ASSURANCE GIVEN IN CLAUSE
7 (6) OF THE DEED. THIS EXCLUSION DOES NOT APPLY FOR THE ASSURANCE GIVEN IN
CLAUSE 7 (6) OF THE DEED.
NO DEADLINE NEEDS TO BE SET PURSUANT TO SENTENCE 1 ABOVE IF IT IS NOT POSSIBLE
FOR THE VENDORS TO RESTORE THE CONTRACTUAL STATUS OR IF THEY REFUSE TO DO SO OR
IF THE REQUIREMENTS PURSUANT TO SUBPARAGRAPH (2) BELOW ARE MET. IF THE DEADLINE
IS NOT NECESSARY OR IF THE CONTRACTUAL STATUS IS NOT RESTORED WITHIN THE
DEADLINE, VENDOR 1) SHALL PLACE THE BUYER, OR (ON THE BUYER'S REQUEST) THE
COMPANY, IN THE SAME ECONOMIC POSITION WHICH THE BUYER OR THE COMPANY WOULD HAVE
BEEN IN IF SUCH OBLIGATIONS, WARRANTIES AND ASSURANCES HAD BEEN CORRECT .CLAIMS
FOR PAYMENTS IN ACCORDANCE WITH THE PRECEDING SENTENCE SHALL ONLY ARISE IF AN
INDIVIDUAL CLAIM EXCEEDS DM 100,000.00 OR IF THE TOTAL SUM OF THE CLAIMS EXCEEDS
DM 500,000.00. THE ARRANGEMENT IN THE PRECEDING SENTENCE SHALL NOT APPLY FOR TAX
LIABILITIES AND RISKS FOR WHICH NO RESERVES ARE TO BE FORMED PURSUANT TO CLAUSE
7 (3), LETTER D) OF THE FOREGOING DEED. THE VENDORS, HOWEVER, SHALL NOT PROVIDE
COMPENSATION FOR TAX LIABILITIES AND RISKS IN AS FAR AS THESE ARE SET OFF BY TAX
ADVANTAGES ACCRUING TO THE COMPANY IN THE FOLLOWING YEARS, FOR EXAMPLE DUE TO
TAX SAVINGS ON THE BASIS OF INCREASED DEPRECIATION.
2) THE BUYER SHALL BE ENTITLED TO WITHDRAW FROM THIS AGREEMENT OR, IN
APPLICATION OF THE PRINCIPLES OF SECTION 463 BGB (GERMAN CIVIL CODE), SHALL BE
ENTITLED TO CALCULATE DAMAGES IN RETROSPECT IF THERE IS A SUBSTANTIAL
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110
BREACH OF THE WARRANTIES GIVEN IN SECTION II, CLAUSE 4 OR IF THE ADJUSTMENT
ACCORDING TO PARAGRAPH 1 EXCEEDS THE SUM OF DM 5.0 MILLION FOR THE OR COMPANIES
AS A WHOLE. WITH THE EXCEPTION OF THESE CASES, IT IS EXPLICITLY STATED THAT NO
PARTY SHALL HAVE THE RIGHT TO WITHDRAW FROM THE AGREEMENT OR, IN APPLICATION OF
THE PRINCIPLES OF SECTION 463 OF THE GERMAN CIVIL CODE (BGB), TO CALCULATE
DAMAGES IN RETROSPECT. FURTHERMORE WITHDRAWAL FROM THE AGREEMENT OR - SUBJECT TO
THE PRINCIPLES OF SECTION 463 OF THE GERMAN CIVIL CODE (BGB) - THE CALCULATION
OF DAMAGES IN RETROSPECT SHALL ALWAYS BE EXCLUDED IN THE EVENT OF THE
INFRINGEMENT OF THE PROMISES AND WARRANTIES IN CLAUSES 5 AND 6 OF THE DEED. A
WITHDRAWAL FROM THE AGREEMENT SHALL NOT AFFECT THE BUYER'S RIGHT TO CLAIM
DAMAGES, INCLUDING COMPENSATION FOR CONSEQUENTIAL DAMAGE.
3) THE BUYER MAY ONLY ASSERT CLAIMS PURSUANT TO PARAGRAPHS 1 AND 2 IF AND TO THE
EXTENT THAT THEY ARE NOT COUNTERACTED BY CORRESPONDING ADVANTAGES IN CONNECTION
WITH THE SALE OF THE SHARES IN OR GMBH OR IN OR INC. ONLY THE TRANSFER OF
EARNINGS OR EXPENSES BETWEEN THE OR COMPANIES SHALL BE AFFECTED BY THE FOREGOING
PROVISION.
4) ALL CLAIMS UNDER THIS SECTION II SHALL BE EXCLUDED IF THEY ARE NOT ASSERTED
TOWARDS THE OTHER PARTY AND SUBSTANTIATED IN WRITING BY 31 DECEMBER 1999. AS FAR
AS CLAIMS IN CONNECTION WITH TAXES AND SOCIAL SECURITY CONTRIBUTIONS ARE
CONCERNED, THE PRECLUSIVE PERIOD ACCORDING TO THE PRECEDING SENTENCE SHALL NOT
END BEFORE THE LAPSE OF ONE MONTH AFTER THE ASSESSMENT NOTICES BASED ON AN
EXTERNAL TAX AUDIT OR AN AUDIT OF THE SOCIAL SECURITY CONTRIBUTIONS HAVE BECOME
FINAL. THE PERIOD OF LIMITATIONS FOR CLAIMS WHICH HAVE BEEN ASSERTED SHALL BE
THREE MONTHS AFTER THE END OF THE PRECLUSIVE PERIOD DESCRIBED ABOVE. IF AN
EXTERNAL TAX AUDIT DOES NOT GIVE RISE TO AN IMMEDIATE TAX LIABILITY BUT WORSENS
THE COMPANY'S TAX SITUATION IN ANY OTHER RESPECT, THE BUYER CAN FILE ACTION FOR
A DECLARATORY JUDGEMENT BEFORE THE LAPSE OF THE PERIOD OF LIMITATIONS IN ORDER
TO PRESERVE ITS RIGHTS. SECTIONS 477 TO 479 OF THE GERMAN CIVIL CODE (BGB) AND
SECTIONS 377 AND 378 OF THE GERMAN COMMERCIAL CODE (HGB) SHALL BE EXCLUDED.
5) THE VENDORS AND THE BUYER SHALL BE OBLIGED TO INFORM AND ASSIST EACH OTHER IF
THIRD PARTIES ASSERT CLAIMS AGAINST THE COMPANY, IN AS FAR AS SUCH CLAIMS CAN,
IN THEIR TURN, LEAD TO CLAIMS AS SET OUT IN THIS SECTION II.
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SECTION III
FURTHER PROVISIONS
SECTION 9
TRANSFER OF THE ENTERPRISE TO THE BUYER/MANAGEMENT
WITHOUT PREJUDICE TO THE EXISTING OBLIGATION PURSUANT TO CLAUSE 9 (3) OF THE
FOREGOING DEED, THE VENDORS AND THE BUYER UNDERTAKE TO PROVIDE EACH OTHER WITH
ALL INFORMATION AND TO COOPERATE IN ALL TRANSACTIONS AND LEGAL ACTS WHICH ARE
NECESSARY FOR THE PERFORMANCE OF THIS AGREEMENT. THE VENDORS PARTICULARLY AGREE
TO PROVIDE THE BUYER WITH ALL BUSINESS RECORDS AND DOCUMENTS THAT BELONG TO THE
COMPANY AND, UPON REQUEST, TO INFORM THE BUYER OF ALL DETAILS OF THE COMPANY'S
BUSINESS AFFAIRS DURING THE TIME PRIOR TO THE TRANSFER DATE, IN AS FAR AS THIS
IS NECESSARY IN THE COMPANY'S AND THE BUYER'S INTERESTS.
SECTION 10
PROHIBITION ON COMPETITION
UNTIL 31 DECEMBER 2001 VENDOR 1) UNDERTAKES NOT TO COMPETE WITH THE OR COMPANIES
OR WITH THE BUYER IN ANY LINE OF BUSINESS WHICH CORRESPONDS TO THE PURPOSE OF
THE OR COMPANIES, AS DEFINED IN CLAUSE 2 OF THE COMPANY'S ARTICLES OF
ASSOCIATION IN THE VERSION SPECIFIED IN PART I CLAUSE 4 (2) LETTER B). VENDOR 1)
GUARANTEES THAT HE WILL ALSO OBSERVE THIS PROHIBITION ON COMPETITION IN HIS
AFFILIATED COMPANIES. THE PROHIBITION ON COMPETITION SHALL LAST ONLY 6 MONTHS AS
FROM THE TIME OF THE TERMINATION OF VENDOR 1)'S CONTRACT OF EMPLOYMENT AS
MANAGING DIRECTOR OF OR GMBH, SHOULD OR GMBH TERMINATE THE CONTRACT OF
EMPLOYMENT AT A EARLIER DATE THAN THAT AGREED ON UNDER CONTRACT AND IT BE
ESTABLISHED BY A COURT OF LAW THAT THE CONTRACT WAS UNLAWFULLY TERMINATED.
SECTION 11
FINAL PROVISIONS
1) SHOULD NOTHING TO THE CONTRARY BE PRESCRIBED BY LAW, THE PARTIES UNDERTAKE TO
TREAT THE CONTENTS OF THIS AGREEMENT AS CONFIDENTIAL.
2) ALL DECLARATIONS OF INTENTION AND OTHER NOTIFICATIONS IN CONNECTION WITH THIS
AGREEMENT SHALL BE MADE IN WRITING AND SENT TO THE FOLLOWING PERSONS AND
ADDRESSES BY REGISTERED MAIL OR BY FACSIMILE OR TO ANY OTHER ADDRESSES OF WHICH
THE PARTIES NOTIFY EACH OTHER AT A LATER DATE:
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112
a) ON THE PART OF THE VENDORS:
THE LAW FIRM SEITZ, WECKBACH, FENT, SCHIEBGRABENSTR. 14, 86150 AUGSBURG.
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113
b) ON THE PART OF THE BUYER:
KPMG DEUTSCHE TREUHANDGESELLSCHAFT, KURFURSTENDAMM 207-208, 10719 BERLIN, ATT.
MR RICHARD STAUDACHER, ATTORNEY AT LAW
3) AMENDMENTS AND ADDITIONS TO THIS AGREEMENT MUST BE MADE IN WRITING, UNLESS
NOTARIAL DEED IS REQUIRED BY VIRTUE OF THE LAW.
4) THE COSTS OF THIS NOTARIAL DEED AND ITS EXECUTION SHALL BE BORNE BY THE
BUYER. THE BUYER AND THE VENDOR SHALL EACH PAY THEIR OWN ADVISERS' FEES.
5) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE FEDERAL REPUBLIC OF
GERMANY. THE EXCLUSIVE JURISDICTION OF THE COURTS IN AUGSBURG IS HEREBY AGREED.
8) THE SALE OF THE SHARES IN THE COMPANY ASSIGNED BY VIRTUE OF THIS AGREEMENT
AND THE SALE OF THE SHARES ASSIGNED BY VIRTUE OF THE DEED OF THE NOTARY DR KOCH
OF 1 JULY 1998 IN OR GMBH (DEED NO. K1454/ 1998) FORM A LEGAL UNITY AS DEFINED
IN SECTION 139 OF THE GERMAN CIVIL CODE (BGB). SHOULD ANY PROVISION OF THIS
AGREEMENT BE OR BECOME INVALID OR UNENFORCEABLE, THIS SHALL NOT AFFECT THE
VALIDITY OR ENFORCEABILITY OF THE OTHER PROVISIONS OF THIS AGREEMENT. IN SUCH A
CASE THE CONTRACTING PARTIES SHALL REPLACE SUCH AN INVALID OR UNENFORCEABLE
PROVISION BY A PROVISION WHICH COMES AS CLOSE AS POSSIBLE TO THE COMMERCIAL
INTENT OF THIS AGREEMENT.
B.
THE RIGHT OF OPTION
1) The Buyer is entitled to accept the offer within the option period by making
a notarially attested declaration of acceptance, preferably for the attention of
the officiating notary or his deputy or another notary in Augsburg, in the
latter case after prior written notification to the Vendor by the notary who
records the declaration. The notary pursuant to the preceding sentence 1 is
authorised to accept the Buyer's declaration of acceptance. The notary is
instructed not to record the declaration of
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acceptance until he has been presented with a cheque for the sum of DM
991,020,000 confirmed by a major German bank.
2) The notary is instructed to immediately hand over the aforesaid cheque to
Vendor 1). Vendors 2) to 4) expressly authorise Vendor 1) to accept and cash
this cheque. The internal distribution of the money is the sole affair of the
Vendors.
3) Should the Buyer not exercise this right of acceptance ("the option") by 28
February 1999 at the latest, this right shall lapse.
C.
REPURCHASE OPTION
Should the Buyer not exercise the right set out in under sections A) and B)
above within the option period, the Buyer, subject to the condition precedent
that the Buyer does not exercise its right of option as granted under section B)
above, hereby offers to split the share to the nominal value of DM 25,100.00, as
assigned to the Buyer in the foregoing deed, into two partial shares with a
nominal value of DM 24,400.00 and DM 700.00 respectively and to surrender the
latter partial share to the value of DM 700.00 to Vendor 1) contemporaneously
with the assignment of a partial share of DM 500 which Vendor 1) has in the
company and to be formed by splitting a share. In the event that this repurchase
option is exercised Vendor 1) shall pay the Buyer an agio of DM 7,960.00. Vendor
1) shall be entitled to accept this offer within a period of two months after
the expiry of the option period.
The Buyer irrevocably authorises Vendor 1) to make and accept all declarations
which are required for the necessary exchange of shares. This power of attorney
shall only become effective if the repurchase option is exercised in a legally
permissible form. All expenses in this connection shall be borne by Vendor 1).
IV
FINAL PROVISIONS
1) Should nothing to the contrary be prescribed by law, the parties undertake to
treat the contents of this Agreement as confidential.
2) All declarations of intention and other notifications in connection with this
Agreement shall be made in writing and sent to the following persons and
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115
addresses by registered mail or by facsimile or to any other addresses of which
the parties notify each other at a later date:
a) on the part of the Vendors:
the law firm Seitz, Weckbach, Fent, SchieBgrabenstr. 14, 86150 Augsburg.
b) on the part of the Buyer:
KPMG Deutsche Treuhandgesellschaft, Kurfurstendamm 207-208, 10719 Berlin, Att.
Mr Richard Staudacher, attorney at law
3) Each contracting party shall receive a copy of this deed. Other copies of
this deed shall be sent to
- - the Company
- - the tax office of the city of Augsburg, corporation tax department with the
taxpayer's reference no. 386/11434
- - Mr Stefan Kiesewalter, attorney at law, KPMG Deutsche Treuhandgesellschaft,
Kurfurstendamm 207 - 208, 10719 Berlin
- - the law firm Seitz, Weckbach, Fent, Att: Dr Theodor Seitz, attorney at law,
SchieBgrabenstraBe 14, 86150 Augsburg.
5) Amendments and additions to this Agreement must be made in writing, unless
notarial deed is required by virtue of the law.
6) The costs of this notarial deed and its execution shall be borne by the
Buyer. The Buyer and the Vendor shall each pay their own advisers' fees.
7) This Agreement shall be governed by the laws of the Federal Republic of
Germany. The exclusive jurisdiction of the courts in Augsburg is hereby agreed.
8) The offer of the shares in the Company assigned made under this Agreement and
the offer of the shares made by virtue of the deed of the notary Dr Koch of 1
July 1998 in or GmbH (deed no. 1454/1998) form a legal unity as defined in
section 139 of the German Civil Code (BGB). Should any provision of this
Agreement be or become invalid or unenforceable, this shall not affect the
validity or enforceability of the other
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116
provisions of this Agreement. In such a case the contracting parties shall
replace such an invalid or unenforceable provision by a provision which comes as
close as possible to the commercial intent of this Agreement.
The notary read out the aforesaid contents of this deed; they were approved by
the persons present and the deed signed in their own hand as follows.
(six signatures)
(stamp of the notary, DR PEER KOCH, NOTARY IN AUGSBURG)
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117
Certified Copy
Ortec-GmbH Agreement
DEED NUMBER K1455/1998
AGREEMENT CONCERNING THE PURCHASE AND ASSIGNMENT OF SHARES (ORTEC GMBH)
Today, on 1 July 1998
appeared before me, Dr Peer Koch, notary in Augsburg, I having gone to the law
firm Seitz, Weckbach, Fent in SchieBabenstraBe 14, 86150 Augsburg in order to
record this deed:
1. Mr Frank Oettle, born on 8 February 1962 and resident at OrtsstraBe 23, 86420
Diedorf;
Mr Oettle declares that he is acting both in his own name and in his capacity as
Managing Director of Ortec Electronic Assembly GmbH; after inspecting the
Commercial Register at the Local Court of Memmingen I have established that Mr
Frank Oettle is the Managing Director of Ortec Electronic Assembly GmbH and has
sole powers of representation,
2. Mrs Hannelore Oettle, nee Hohmann, born on 10 February 1934 and resident at
Adalbert-Stifter-Str. 40, 86356 NeusaB;
3. Mr Alfons Oettle, born on 7 September 1928 and resident at
Adalbert-Stifter-Str. 40, 86356 NeusaB;
4. Mrs Anke Schlagbauer, nee Oettle, born on 16 April 1958 and resident at
Peter-Dorfler-Weg 14, 89407 Dillingen;
5. Mr Hans Neumann, Dipl. Ingenieur (university-trained engineer) born on 20
March 1940 and resident at Castellring 35, 61130 Niderau
Mr Neumann declares that he is not acting in his own name, but as representative
of ADMINI VIER (IV) Vermogensverwaltungs-GmbH, which has its registered offices
in Cologne and is registered in the Commercial Register of the Local Court of
Cologne under number HR B 29606, and upon a legalised power of attorney dated 30
June 1998 of the Managing Director, Mr Chris Amenson. The original copy of this
power of attorney is attached to this deed. Mr Naumann presented a copy of a
resolution of the shareholders of ADMINI Vier (IV) Vermogensverwaltungs-GmbH (in
future "SBS Technologies Holding GmbH") dated 26 June 1998 (deed no. 673/1998 of
the notary De Ingrid Doye, Cologne), according to which Mr Chris Amenson has
been appointed as the company's new Managing Director with sole powers of
representation and exempt from the restrictions imposed by section 181 of the
German Civil Code (BGB).
The persons appearing before me have identified themselves by presenting their
official identity cards. They wish for the following Agreement concerning the
Purchase of Shares to be notarially attested:
PREAMBLE:
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1) Ortec Electronic Assembly GmbH, whose registered offices are in Mindelheim,
is registered in the Commercial Register of the Local Court of Memmingen under
the number HRB 5720. The purpose of Ortec Electronic Assembly GmbH is the
manufacture and assembly of electronic parts, particularly the fabrication of
electronic components, the assembly of printed boards and the finishing of
cables.
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The share capital of Ortec Electronic Assembly GmbH amounts to DM 50,000.00 and
is held by the following shareholders:
A) Mr Frank Oettle who holds a share of DM 12,500.00
B) Mrs Hannelore Oettle who holds a share of DM 12,500.00
C) Mr Alfons Oettle who holds a share of DM 12,500.00 and
D) Mrs Anke Schlagbauer who holds a share of DM 12,500.00.
All shares were acquired on the formation of Ortec Electronic Assembly GmbH by
virtue of deed no. 1247/1991 of the notary Hofmann in Obergunzburg and dated 20
June 1991.
The parties have stated that all shares have been paid up in full.
2) The shares of the shareholders Frank Oettle, Hannelore Oettle and Alfons
Oettle, specified under point 1, a), b) and c), are hereby each split into two
partial shares of DM 7,600.00 and DM 4,900.00, according to the unanimous
resolution of the shareholders of Ortec Electronic Assembly GmbH, who are all
present. The share specified under point 1 d) and belonging to the shareholder
Anke Schlagbauer is hereby split into two partial shares of DM 2,300.00 and DM
10,200.00.
3) The company hereby consents to the division of the shares as set out under
point 2.
4) Mr Frank Oettle, Mrs Hannelore Oettle and Mr Alfons Oettle wish to sell and
assign the partial shares specified under point 2 and each with a nominal value
of DM 7,600.00 to ADMINI VIER (IV) Vermogensverwaltungs GmbH and Ms Anke
Schlagbauer wishes to sell and assign her partial share specified under point 2
and with a nominal value of DM 2,300.00 to ADMINI VIER (IV)
Vermogensverwaltungs-GmbH. ADMINI VIER (IV) Vermogensverwaltungs GmbH wishes to
purchase and acquire the aforementioned partial shares.
5) The parties to this Agreement will be referred to hereafter as follows:
- - Mr Frank Oettle as "Vendor 1)"
- - Mrs Hannelore Oettle as "Vendor 2)"
- - Mr Alfons Oettle as "Vendor 3)"
- - Mrs Anke Schlagbauer as "Vendor 4)"
- - Vendors 1), 2), 3) and 4) will be referred to jointly as "Vendors" or "All
Vendors"
- - ADMINI VIER (IV) Vermogensverwaltungs-GmbH will be referred to as "Buyer"
- - Ortec Electronic Assembly GmbH will be referred to as "Company"
- - Ortec Electronic Assembly GmbH, or Industrial Computers GmbH, registered in
the Commercial Register of the Local Court of Augsburg under HRB 9107 ("or
GmbH") and or
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Computers Inc., 11150 Main Street, Fairfax VA 22030 USA ("or Inc."), will be
jointly referred to in this Agreement as "OR COMPANIES".
6) The Buyer wishes to be given the option of acquiring the Vendors' remaining
partial shares with a total nominal value of DM 24,900.00 after a certain phase,
during which the Buyer wishes to test the market in Germany and the field of
"embedded computers", and if this test proves positive. In a separate,
notarially attested deed the Buyer shall therefore be granted an option on the
remaining shares with a total nominal value of DM 24,900.00. This option,
however, may only be exercised within a limited period of time.
On this basis the parties now agree as follows:
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SECTION I
SALE, ASSIGNMENT, TRANSFER DATE AND PURCHASE PRICE
Section 1
THE ITEM TO BE PURCHASED, ASSIGNMENT OPTION
1) Vendor 1), Vendor 2) and Vendor 3) hereby sell and assign their partial
shares in the Company, as set out in point (2) of the preamble. Each of these
partial shares has a nominal value of DM 7,600.00. Vendor 4) hereby sells and
assigns her partial share in the Company as set out in clause (2) hereunder.
This partial share has a nominal value of DM 2,300.00. In each case all
associated profit participation rights and all ancillary rights shall pass to
the Buyer.
The Buyer hereby accepts the assignment of these partial shares.
2) In his capacity as Managing Director of the Company, Vendor 1) hereby agrees
to the split of the shares and the assignments of the split shares in accordance
with clause 4 of the Company's articles of association.
Section 2
TRANSFER DATE
1) The date of transfer under this Agreement is 1 July 1998.
2) As from the date of transfer the Buyer shall be entitled to the dividends
paid on the shares which have been sold.
Section 3
PURCHASE PRICE
The purchase price of the partial shares with a total nominal value of DM
25,100.00 and assigned as set out in clause 1 above consists of a basic
purchase price of DM 998,980.00 (nine hundred and ninety-eight thousand, nine
hundred and eighty German marks) and an additional amount. The additional
amount corresponds to the non-distributed net income shown in the balance
sheet on the transfer date (net income in 1997 plus revenue reserves for the
preceding years plus the profit for the first half of 1998). The interim
financial statements to be prepared pursuant to clause 7 (3) of this deed, in
the version binding on the parties, shall be authoritative in this respect
and a full distribution of profits is to be assumed as regards the
calculation of the reserve for corporation tax ("net income shown in the
balance sheet for 1997/98"). The Buyer shall compensate the Vendors for this
by paying an additional price which shall be due by 30 September 1998.
2) Out of the basic purchase price Vendor 1) Vendor 2) and Vendor 3) shall
each be entitled to the sum of DM 302,480.00 and Vendor 4) to the sum of DM
91,540.00. Vendors 2) to 4) expressly authorise Vendor 1) to accept and cash
means of payment. The internal distribution of these funds is a matter which
concerns the Vendors alone.
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3) The basic purchase price of DM 899,082.00 shall be paid to Vendor 1) by a
cheque confirmed by Dresdner Bank, Augsburg. The cheque is to be handed over
to Vendor 1) contemporaneously with the execution of this deed. The remaining
part of the basic purchase price amounting to DM 99,898.00 is to be
transferred to the fiduciary account of the notary who recorded this deed at
Bayerische Vereinsbank, account no. 226 17 15, bank code 720 200 70 by 30
June 1998. The notary shall invest this remaining amount for a fixed term
until 30 November 1998. The interest shall be due to the Vendors. The Buyer
shall bear the cost of depositing this sum. The deposited amount, including
interest, is to be released on 1 December 1998 and paid into the Vendor's
account at Bayerische Vereinsbank AG Augsburg, account no. 785 96 00, bank
code 720 200 70, unless the Buyer notifies Vendor 1) (sending a copy of such
notification to the notary) that it intends to assert a right of retention
under this Agreement. In this case the outstanding amounts cannot be released
until a mutual understanding is reached or a binding decision is pronounced
by a court of law.
4) The Buyer shall pay the additional amount pursuant to paragraph (1) above
into the account of Vendor 1), as indicated in paragraph (4), with
exonerating effect for and against Vendors 2) to 4). For this purpose Vendors
2) to 4) expressly grant Vendor 1) authority to collect the money. How the
additional amount is to be distributed among the Vendors is a matter which
concerns them alone.
SECTION II
WARRANTIES
Vendor 1) declares that he has provided the Buyer with correct and complete
information regarding all items requested by the Buyer or otherwise material for
the valuation of the OR COMPANIES. In signing and performing this Agreement the
Buyer trusts that this information is correct.
On this basis Vendor 1) and All Vendors expressly assure the foregoing and the
following in the form of a legally binding warranty given on the date of the
execution of this Agreement, without any regard to the question of blame, the
warranties given by Vendor 1) also being regarded as applying to the partial
shares sold by Vendors 2) to 4), however, without any personal obligation on
their part, in as far as nothing to the contrary is agreed hereunder:
Section 4
ASSURANCES AND GUARANTEES AS REGARDS THE RELATIONSHIP BETWEEN THE SHAREHOLDERS
AND THE VENDORS' FREEDOM TO DISPOSE OVER THEIR SHARES
All Vendors assure and guarantee that upon execution of this agreement
1) the Company's share capital had been fully paid up in cash, had not been paid
back to the shareholders, neither in part nor in full, does not require
supplementary contributions and was free of secondary obligations and other
obligations or restrictions, that the shares sold under this Agreement and the
shares on which the Buyer has an option are free of encumbrances and that the
Company is neither overindebted nor insolvent;
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2) the articles of association remain applicable in the version of 20 June 1991
(deed of the notary Hofmann, Obergunzburg, deed no. 1247 of 20 June 1991);
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3) with the exception of the Company's participation in Augusta Bank eG,
Augsburg with a cooperative share to the nominal value of DM 1,500.00, the
Company does not maintain any kind of shareholder relationship with a third
parties and that, in particular, it does not have a participating interest or
a sub-participation in any other company, that it has not entered into any
inter-company agreements as defined in sections 291 and 292 of the German
Stock Corporation Law (AktG) nor any contracts concerning cooperation or
profit and loss transfer and has not issued any letters of intent in favour
of any other companies; this does not include the ownership of securities
listed on the stock exchange and membership in professional associations or
organisations;
4) the shares defined under point 1) of the preamble exist and the Vendors are
entitled to them; that the Vendors are not subject to any restraints of disposal
in respect of these shares, particularly not due to any third-party rights;
5) the shares have neither been attached nor pledged nor assigned to third
parties as a collateral or for any other reason and that, further, no option or
other rights entitle a third party to acquire the shares;
6) the shares are not the subject of a fiduciary relationship with third
parties;
7) the shares and/or rights to such shares are neither the object of
usufructuary rights of third parties nor of sub-participations and similar legal
relationships;
8) neither the cooperation of an executor nor the agreement of reversionary
heirs or other third parties is required in order to sell the shares;
9) no judicial settlement or bankruptcy proceedings concerning the Vendors'
assets have been applied for or initiated and, furthermore, that no
circumstances exist which could justify a contestation of the sale pursuant to
the bankruptcy regulations or insolvency laws or the laws of recission.
10) there are no other agreements or decisions of whatsoever type which could
affect the legal relations between the Vendors and the Company including, but
not restricted to, agreements and decisions concerning an increase in the share
capital, the withdrawal or addition of shareholders, sub-participation,
fiduciary relationships, participation with regard to the company's income,
turnover or assets and/or voting rights;
11) no other persons or companies besides the Vendors have any direct or
indirect participation in the Company of any type whatsoever and there are no
claims for such participation to be granted;
12) the assignment of the shares to the Buyer on the part of the Vendors is not
subject to the consent of any third parties;
13) since 1 January 1998 the Vendors have not passed any shareholders'
resolutions with the exception of those listed in appendix 4A and that since 1
January 1998 the company has concluded no agreements with the Vendors with the
exception of the annulment agreement with Vendor 2), which forms appendix 4B to
this deed.
14) the shares in the company do not represent the entire or the major part of
the Vendors' assets, so that there is no liability pursuant to section 419 of
the German Civil Code (BGB);
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15) the Vendors hold no shares in any other companies, apart from the OR
COMPANIES, which operate in the same line of business as the OR COMPANIES or in
a related line of business or which maintain business relations with the OR
COMPANIES.
Section 5
ASSURANCES AND GUARANTEES IN RESPECT OF THE COMPANY'S ASSETS
Vendor 1) assures and guarantees, such assurance also applying to the partial
shares sold by Vendors 2) to 4), that on the transfer date
1) at least the fixed assets listed in the inventory signed by the parties
existed; this inventory has already been handed over to the Buyer;
2) that the objects leased or hired by the Company, as listed in appendix 5 B,
existed;
3) that there were no restraints on the freedom to dispose over the items
belonging to the Company with the exception of the retention of title usual in
commercial transactions (including prolonged retention of title) as regards
inventories and the Company's economic goods set out in paragraph 5 hereunder.
4) that appendix 5 C hereto contains a correct and complete list of all
managers, "prokurists" and comparable members of the Company's management and of
all general powers of attorney granted by the Company as well as all bank
accounts and all persons authorised to sign on the Company's behalf.
5) that the Company has full, unrestricted and unencumbered title to and
possession of all movable and immovable assets which serve or are destined to
serve its business operations, except for those movable assets which are hired
from persons and companies other than the Vendors in the ordinary course of
business on normal market terms or which are subject to the usual reservations
of title by suppliers pending payment;
6) the Company has no other branches apart from its registered office in
Mindelheim.
Section 6
ASSURANCES AS REGARDS CONTRACTUAL AND LEGAL RELATIONS
1) Vendor 1) assures and guarantees, such assurance also applying to the partial
shares sold by Vendors 2) to 4), that on the execution of this Agreement the
Company's rights and contracts as listed hereunder remained unchanged:
A) the consulting agreements listed in Appendix 6 A;
B) the distribution agreements listed in Appendix 6 B;
C) the licence agreements listed in Appendix 6 C;
D) the leasing, rental and tenancy agreements listed in Appendix 6 D;
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E) the agreements with a term of more than 12 months as from the date of
transfer listed in Appendix 6 E, with the exception of the aforesaid agreements
in Appendices 6A to 6 D and 6F to 6 H;
F) the insurance agreements listed in Appendix 6 F;
G) the agreements as listed in Appendix 6 G, including loan agreements, with the
Vendors, members of their families and other companies in which the Vendors hold
a share of more than 5 %;
H) the agreements with the works council, as listed in Appendix 6 H, and
agreements with trade unions with the exception of the regional and
supra-regional collective bargaining agreements or membership in employers'
associations.
The Buyer has been given complete copies of the agreements listed in Appendix 6.
2) Furthermore Vendor 1) assures and guarantees, such assurance also applying to
the partial shares sold by Vendors 2) to 4), that
A) with the exception of the legal disputes listed in Appendix 6 1 to this
Agreement, the Company is not involved in any legal dispute and shall not become
actively involved in any legal dispute without the Buyer's prior consent until
the date of transfer, with the exception of collecting trade receivables from
ongoing business transactions; furthermore that he knows of no circumstances
which could cause third parties to initiate legal action and/or to announce a
dispute with the Company;
B) that on the transfer date the Company had not defaulted on any payment
liabilities;
C) that the Company has full power and authority to conduct its business as it
conducts it at present, to own its business and assets and to operate its
business;
3) Appendix 6 J contains a complete and accurate list of all patents, utility
models, registered designs, trademarks and all applications in this respect and
all other industrial and intellectual property rights belonging to the Company.
Should nothing to the contrary be explicitly stated in Appendix 6 J, these
industrial and intellectual property rights are free of third-party rights and
are not subject to revocation or to being declared null and void, neither in
part nor in full, nor to any major rights of previous owners. The Company is not
hindered in its sole and exclusive exploitation of such rights. To the best of
the knowledge of Vendor 1), none of these industrial or intellectual property
rights have been infringed by third parties. In addition to the industrial and
intellectual property rights listed in Appendix 6 J, the Company also has all
rights which it additionally requires in order to operate its current business.
The Company owns the complete know-how for the contracts farmed out to it. To
the best of the knowledge of Vendor 1), the Company, up until the transfer date,
had not infringed the industrial and intellectual property rights of any third
parties in completing its contracts nor by any other management measure. As
individuals the Vendors have no rights to the know-how and other requirements
for the Company's current operations. Vendor 1) further guarantees that, with
the exception of the provisions of the German law on inventions by employees
which the Company is obliged to observe, the OR COMPANIES will retain all
industrial and intellectual property rights despite the departure of individual
employees.
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4) To the best of the knowledge of Vendor 1), the Company has obtained all the
legal and official approvals and permission that it needs in order to conduct
its current business including, but without being restricted to, software
licences, approval in connection with the laws on water and other forms of
approval and permission relating to the protection of the environment. To the
best of the knowledge of Vendor 1), the Company, in operating its business, does
not infringe any third-party rights, including competition and trading rights,
nor any provisions concerning the protection of the environment. To the best of
the knowledge of Vendor 1), the Company is not in breach of any legal provisions
concerning the protection of the environment, which have resulted in or could
result in personal injury, sickness or damage. The same applies with regard to
its land which is and has been free of contamination due to the Company's
operations, including, but without being restricted to, freedom from dangerous
materials or other contaminating substances.
Due to an environmental audit which the Buyer carried out in June 1998, the
Buyer is informed of the Company's operations in respect of the environment,
including protection against fire. A summary of this environmental audit forms
Appendix 6 K to this agreement.
To the best of the knowledge of Vendor 1), the facilities for the supply of
fresh water, the disposal of waste water, refuse and outgoing air are completely
adequate for the purposes of current production and the step-up in production
which is planned to have been effected by the date of execution of this
agreement. To the best of the knowledge of Vendor 1), no approval is required
for the products which the Company produces and/or distributes and no such
approval has been applied for.
Vendor 1) bears sole responsibility for claims, acts, fees, disbursements and
any penalties in relation to or arising in connection with such measures and
which result from the Company's operations before the transfer date.
With regard to the "turn of the millennium" problem Vendor 1) declares and
guarantees that he has had this issue properly investigated and that the results
of this investigation brought no such problems to his knowledge. This
declaration of Vendor 1) also applies in respect of the partial shares sold by
Vendors 2) to 4).
5) The Vendors have no outstanding claims towards the Company whatsoever.
6) The Company has not made any arrangements with third parties restricting
competition.
Section 7
ASSURANCES CONCERNING THE DETAILS IN THE FINANCIAL STATEMENTS
1) Vendor 1) assures to the best of his knowledge, such assurance also applying
to the partial shares sold by Vendors 2) to 4), that he has provided all the
information requested by the Buyer completely and correctly and that he did not
consider it necessary to give any further information other than that requested.
Vendor 1) assures further that he had not concealed any known and exceptional
risks or other aspects outside the usual scope of business which are of
essential importance for the evaluation of the company's net worth and earnings
situation and of its probable development in the future. In view of the fact
that the Buyer is aware of the details of the economic and legal situation based
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on the due diligence examination it has effected, the Vendors are not liable for
the future development, earnings situation and profitability of the enterprise
whose shares have been assigned. The valuation of the Company and of the other
OR COMPANIES is not based on warranties given by the Vendors concerning future
profits, but on the Buyer's expectations by virtue of the company's performance
during the past financial years (average profits and turnover for the calendar
years 1994-1997) and the first six months of 1998.
2) Furthermore Vendor 1) assures, such assurance also applying to the partial
shares sold by Vendors 2) to 4),
A) that the Company's annual financial statements (balance sheets including
profit and loss statements) for the financial years 1994, 1995, 1996 and 1997,
which the Buyer has already received, were prepared with the care of a
conscientious businessman on the basis of proper accounting principles and in
accordance with the generally recognised accounting and reporting principles in
Germany, taking account of the principle of constancy in the valuation methods
and the valuation.
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The Company's annual financial statements are complete and accurate and give a
true and fair account of the Company's earnings situation and net worth with
regard to each of the balance sheets therein and with regard to the Company's
results for the period ending on the relevant balance sheet date. All risks,
impairment of value and losses which it was possible to ascertain at the time
that the relevant financial statements were prepared have been properly taken
into account through sufficient depreciation, adjustments in valuation or the
formation of reserves; the Company has no pension commitments;
B) and that
- - the items in the balance sheet were continuous as regards the last balance
sheet date in application of the same, legally permissible valuation principles
and that the valuation rights have been exercised continuously in the same form;
- - that account has been taken of the Company's known risks and liabilities;
- - that there have been no changes in the valuation and depreciation modalities,
including extraordinary depreciation, and that value adjustments have been made.
3) Interim financial statements are to be drawn up on the day before the
transfer date. Vendor 1) assures and guarantees, such assurance also applying to
the partial shares sold by Vendors 2) to 4), that upon execution of this
Agreement the Company in these interim financial statements shall report equity
capital in conformity with section 272 of the German Commercial Code (HGB)
amounting to the sum of the share capital as defined in point 1 of the preamble.
The interim financial statements are to be prepared in accordance with the
German Commercial Code (HGB) and must correspond to the Company's financial
statements for previous years as regards the legally permissible valuation
methods and procedures. They must particularly take sufficient account of
A) any existing or obvious risks with regard to the valuation of inventory,
claims under warranty and accounts receivable,
B) the presence of slow-moving or obsolete inventory with regard to inventory
pricing and
C) sufficient reserves for pending or anticipated litigation and
D) sufficient reserves for tax liabilities or risks; the parties are unanimous
in the assumption that no reserves are to be formed for uncertain tax
liabilities and risks, especially such that are due to the Vendors' status as
shareholders, and
E) sufficient reserves for liabilities due to patent infringements; the parties
are unanimous in the assumption that there is no sufficient evidence for a
liability towards Nortel Northern Telecom Limited.
In addition to this, the warranties pursuant to paragraph (2) above shall apply
with regard to the aforesaid interim financial statements as at 30 June 1998.
The Buyer can request that the company's interim financial statements at 30 June
1998 be audited by KPMG Deutsche Treuhandgesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft (KPMG) at the Buyer's expense. If the Vendors do
not agree
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with the results of the audit by KPMG they can, within one month after they
have received the results of the audit of the interim financial statements as
carried out by KPMG, request another audit of the company's interim financial
statements as at 30 June 1998 to be performed by an auditing company to be
agreed on by the parties or, should no agreement be possible, by an auditing
company to be nominated by the President of the Chamber of Industry and
Commerce in Augsburg.
The Vendors shall bear the costs of such an audit, if the results of the audit
of the Company's interim financial statements as performed by KPMG as at 30 June
1998 are correct with regard to the application of the German Commercial Code
(HGB). Otherwise the Buyer shall bear the costs of such an audit carried out by
the second auditor. Should it transpire that the audit carried out by the second
auditor does not follow any of the interim financial statements set out above,
the costs of the second audit shall be born by the Vendors and the Buyer in
ratio to the difference pursuant to sections 91 ff of the Civil Code of
Procedure (ZPO).
The interim financial statements as audited by KPMG or, if another audit is
requested, by the auditing company agreed on between the parties or nominated by
the President of the Chamber of Industry and Commerce in Augsburg shall be
binding on the parties in determining whether the interim financial statements
correspond to the warranties given by the Vendors. The interim financial
statements as at 30 June 1998 shall also be binding if neither the Vendors nor
the Buyer request that they be audited within one month after the Company has
forwarded the interim financial statements to the parties. The request must be
made in writing to the other contracting party.
Should the equity capital fall below the share capital pursuant to clause 7 (3),
sentence 2, after the preparation of the interim financial statements which are
binding on the parties, the Vendors shall be obliged to pay the Buyer the
difference. Clause 8 shall not apply.
4) Since 1 January 1998 the Company's affairs have been managed only within the
normal and ordinary course of business. Since this time no extraordinary
business event has occurred and no extraordinary legal agreement has been
concluded and no event has occurred which by itself or together with other
events has had a major effect on the Company's assets or earnings situation. All
salary and wage increases granted since 1 January 1998 were necessary due to
collective bargaining agreements or, if not, were only within the scope of what
is normal and reasonable. The Buyer is aware that in July 1998 the salaries and
wages of the Company's employees are to be increased on the basis of the
individual performance of the employees, as has been the established practice in
previous years. There are no claims, acts or litigation to be asserted or
pending against the Company under labour law and, to the best of the knowledge
of Vendor 1), there is no basis for any such litigation.
The Company's employees are not entitled to any special payments or benefits
which are not explicitly set out in their individual contracts of employment.
The Vendor knows of no circumstances which might jeopardise the implementation
of the budget for 1998 (appendix 7 A).
6) All tax returns which the Company was obliged to file for past periods have
been properly filed in good time. The Company's tax returns for 1996 in respect
of corporation tax correctly state the classification of the company's available
equity capital for corporation tax purposes. The same applies for the draft
version for 1997.
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During the period up until the transfer date neither the Vendors nor any persons
close to them have received hidden profit distributions from the Company. This
shall also apply after the transfer date as regards the arrangements made under
this Agreement.
The company's available equity capital for purposes of corporation tax as at 31
December 1997 lists the following items, before taking account of the
distribution to be made in 1998 for 1996 and 1997: EK 50 = DM 0; EK 45 = DM
228,152; EK 02 = minus DM 2,804 and EK 04 = DM 0.
During the period until the transfer date the Company will incur no tax
liabilities which have not already been taken into account in the interim
financial statements as at the transfer date.
7) To the best of the knowledge of Vendor 1) there are no special circumstances
which could have a major influence on the Company's business in the future.
Vendor 1) knows of no facts or circumstances which could result in a restriction
of, hindrance to or the cessation of production and / or the distribution of
important products which the company currently produces and / or markets.
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Section 8
LEGAL CONSEQUENCES/STATUTE OF LIMITATIONS
1) If the obligations, warranties and assurances given by the Vendors in this
section II of the Agreement have not been completely fulfilled on the transfer
date or are otherwise defective under the terms of contract, the Buyer shall be
entitled to set the Vendors an adequate deadline via registered mail, allowing
them at least 2 weeks in which to restore the contractual status. The Buyer,
however, may not exercise such a right if and to the extent that it becomes
aware of the fact that the Agreement is not being performed as agreed during the
course of the due diligence examination which it carries out. This exclusion
does not apply for the assurance given in clause 7 (6) of the deed.
No deadline needs to be set pursuant to sentence 1 above if it is not possible
for the Vendors to restore the contractual status or if they refuse to do so or
if the requirements pursuant to subparagraph (2) below are met. If the deadline
is not necessary or if the contractual status is not restored within the
deadline, Vendor 1) shall place the Buyer, or (on the Buyer's request) the
Company, in the same economic position which the Buyer or the Company would have
been in if such obligations, warranties and assurances had been correct .Claims
for payments in accordance with the preceding sentence shall only arise if an
individual claim exceeds DM 100,000.00 or if the total sum of the claims exceeds
DM 500,000.00. The arrangement in the preceding sentence shall not apply for tax
liabilities and risks for which no reserves are to be formed pursuant to clause
7 (3), letter d). The Vendors, however, shall not provide compensation for tax
liabilities and risks in as far as these are set off by tax advantages accruing
to the Company in the following years, for example due to tax savings on the
basis of increased depreciation.
2) The Buyer shall be entitled to withdraw from this Agreement or, in
application of the principles of section 463 BGB (German Civil Code), shall be
entitled to calculate damages in retrospect if there is a substantial breach of
the warranties given in section II, clause 4 or if the adjustment according to
paragraph 1 exceeds the sum of DM 5.0 million for the OR COMPANIES as a whole.
With the exception of this case, it is explicitly stated that no party shall
have the right to withdraw from the Agreement or, in application of the
principles of section 463 of the German Civil Code (BGB), to calculate damages
in retrospect. Furthermore withdrawal from the Agreement or - subject to the
principles of section 463 of the German Civil Code (BGB) - the calculation of
damages in retrospect shall always be excluded in the event of the infringement
of the promises and warranties in clauses 5 and 6 of the deed. A withdrawal from
the Agreement shall not affect the Buyer's right to claim damages, including
compensation for consequential damage.
3) The Buyer may only assert claims pursuant to paragraphs 1 and 2 if and to the
extent that they are not counteracted by corresponding advantages in connection
with the sale of the shares in or GmbH or in or Inc. Only the transfer of
earnings or expenses between the or companies shall be affected by the foregoing
provision.
4) All claims under this section II shall be excluded if they are not asserted
towards the other party and substantiated in writing by 31 December 1999. As far
as claims in connection with taxes and social security contributions are
concerned, the preclusive period according to the preceding sentence shall not
end before the lapse of one month after the issuance of final assessment notices
based on an external tax audit or an audit of the social security contributions.
The period of limitations for claims which have been asserted shall be three
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133
months after the end of the preclusive period described above. If an external
tax audit does not give rise to an immediate tax liability but worsens the
company's tax situation in any other respect, the Buyer can file action for a
declaratory judgement before the lapse of the period of limitations in order to
preserve its rights. Sections 477 to 479 of the German Civil Code (BGB) and
sections 377 and 378 of the German Commercial Code (HGB) shall be excluded.
5) The Vendors and the Buyer shall be obliged to inform and assist each other if
third parties assert claims against the Company, in as far as such claims can,
in their turn, lead to claims as set out in this section II.
Section III
Further provisions
Section 9
Transfer of the enterprise to the Buyer/management
1) Vendor 1) shall continue to act as the Company's Managing Director
pursuant to the agreement which forms Appendix 9 A to this deed, on condition
that this agreement shall expire on 30 June 2000 by mutual consent.
2)The Vendors and the Buyer agree to amend the Company's articles of
association with essentially the wording pursuant to Appendix 9 B.
3) Furthermore the Vendors and the Buyer undertake to provide each other with
all information and to cooperate in all transactions and legal acts which are
necessary for the performance of this deed. The Vendors particularly agree to
provide the Buyer with all business records and documents that belong to the
Company and, upon request, to inform the Buyer of all details of the
Company's business affairs during the time prior to the transfer date, in as
far as this is necessary in the Company's and the Buyer's interests.
Section 10
PROHIBITION ON COMPETITION
Until 31 December 2001 Vendor 1) undertakes not to compete with the OR
COMPANIES or with the Buyer in any line of business which corresponds to the
purpose of the OR COMPANIES, as defined in clause 2 of the Company's articles
of association in the version specified in clause 4 paragraph (2). Vendor 1)
guarantees that he will also observe this prohibition on competition in his
affiliated companies. The prohibition on competition shall last only 6 months
as from the time of the termination of Vendor 1)'s contract of employment as
Managing Director of or Industrial Computers GmbH, should or Industrial
Computers GmbH terminate the contract of employment at a earlier date than
that agreed on under contract and it be established by a court of law that
the contract was unlawfully terminated.
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134
Section 11
FINAL PROVISIONS
1) The parties are in mutual agreement that this Purchase Agreement has been
entered into subject to the condition precedent that the contract of employment
with Vendor 1), as the Managing Director of or Industrial Computers GmbH, is
executed in legally binding form pursuant to section 9 paragraph (1) of the deed
of the officiating notary, that is the deed dated 1 July 1998, deed no.
K1453/1998 , in connection with its Appendix 9 A.
2) Should nothing to the contrary be prescribed by law, the parties undertake to
treat the contents of this Agreement as confidential.
3) All declarations of intention and other notifications in connection with this
Agreement shall be made in writing and sent to the following persons and
addresses by registered mail or by facsimile or to any other addresses of which
the parties notify each other at a later date:
a) on the part of the Vendors:
the law firm Seitz, Weckbach, Fent, SchieBgrabenstr. 14, 86150 Augsburg.
b) on the part of the Buyer:
KPMG Deutsche Treuhandgesellschaft, Kurfurstendamm 207-208, 10719 Berlin, Att.
Mr Richard Staudacher, attorney at law
4) Each contracting party shall receive a copy of this deed. Other certified
copies of this deed shall be sent to
- - the Company
the tax office of the city of Augsburg, corporation tax department with the
taxpayer's reference no. 386/11434
- - Mr Stefan Kiesewalter, attorney at law, KPMG Deutsche Treuhandgesellschaft,
Kurfurstendamm 207 - 208, 10719 Berlin
- - the law firm Seitz Weckbach Fent, Att: Dr Theodor Seitz, attorney at law,
SchieBgrabenstraBe 14, 86150 Augsburg.
The Company itself shall be responsible for notifying the Court of Registration
of the assignment.
5) Amendments and additions to this Agreement must be made in writing, unless
notarial deed is required by virtue of the law.
6) The costs of this notarial deed and its execution shall be borne by the
Buyer. The Buyer and the Vendor shall each pay their own advisers' fees.
7) This Agreement shall be governed by the laws of the Federal Republic of
Germany. The exclusive jurisdiction of the courts in Augsburg is hereby agreed.
8) The sale of the shares in the Company assigned by virtue of this Agreement,
of the shares assigned by virtue of the deed of the notary Dr Koch of 1 July
1998 in or GmbH (deed no.
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135
K1453/1998) and of the shares assigned by virtue of the deed of the notary Dr
Koch of 1 July 1998 in or Inc. (deed no. K1457/1998) form a legal unity as
defined in section 139 of the German Civil Code (BGB). Should any provision
of this Agreement be or become invalid or unenforceable, this shall not
affect the validity or enforceability of the other provisions of this
Agreement. In such a case the contracting parties shall replace such an
invalid or unenforceable provision by a provision which comes as close as
possible to the commercial intent of this Agreement.
The notary read out the aforesaid contents of this deed together with the
contents of its appendices; they were approved by the persons present and the
deed signed in their own hand as follows.
(Six signatures)
Stamp of the notary, DR PEER KOCH, NOTARY IN AUGSBURG
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EXHIBIT 10.AG
PURCHASE AGREEMENT
V I Computer ("VI"), a California corporation, and Themis Computer, a
California corporation ("Themis"), Harry White ("White") and certain other
shareholders listed on the signature page to this Agreement (together, including
Themis and White, "Shareholders") and SBS Technologies, Inc., a New Mexico
Corporation ("Buyer"), agree:
I. RECITALS
A. OWNERSHIP. Shareholders are the owners of all of the outstanding
common stock ("VI Shares") of VI, in the amounts set out on Exhibit IA to this
Agreement, and wish to sell the VI Shares to Buyer for cash consideration.
B. RECEIPT OF SHARES. Buyer wishes to purchase the VI Shares under the
terms and conditions of this Agreement.
C. PURCHASE TREATMENT. The parties intend that the Transactions (as
later defined) be accounted for as a purchase in accordance with generally
accepted accounting principles, and that a Section 338(h)(10) election be made
under the Internal Revenue Code of 1986, as amended ("IRC").
D. EMPLOYMENT ARRANGEMENTS. Upon receipt of the VI Shares, Buyer wishes
to employ White, who is an employee of VI, as well as other employees of VI as
provided in this Agreement. White wishes to be employed by Buyer.
E. COVENANTS NOT TO COMPETE. As part of the Transactions, Themis and
White will enter into Covenants Not to Compete with Buyer.
II. ACQUISITION.
A. ACTION. Subject to the terms and conditions of this Agreement, Buyer
will acquire the VI Shares at closing ("Closing") of the transactions
contemplated by this Agreement ("Transactions").
B. CONSIDERATION. At Closing, and subject to the withholding of the
Escrow Amount under Section XB, Buyer will pay ("Purchase Price") to the
Shareholders, for their VI Shares and as reflected on Exhibit XB, a total of $5
million in cash, adjusted up or down, as appropriate, on a dollar for dollar
basis for changes in the equity of VI from $1,064,551, as reported in the
Closing Balance Sheet (as later defined). For example, if the equity of VI on
the Closing Balance Sheet is $1,100,000, the Purchase Price will be $5,035,449,
that is, increased by $35,449 as a result of the difference between $1,100,000
and $1,064,551.
C. OFFICERS. VI's directors and officers will submit their resignations
from those positions at Closing. At Closing, Buyer will designate such
directors and officers as it may determine to be in the best interest of VI.
Nothing in this paragraph shall entitle any director or officer to maintain that
position if not thereafter duly elected or appointed to it.
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III. EMPLOYMENT AGREEMENTS, COVENANTS NOT TO COMPETE, AND OPTIONS.
A. EMPLOYMENT AGREEMENT AND COVENANTS NOT TO COMPETE. At Closing, Buyer
will enter into a two-year employment agreement, substantially as set forth in
Exhibit IIIA, with White ("Employment Agreement"). Shareholders White and
Themis will enter into Covenants Not to Compete in the form attached as Exhibit
IIIA2.
B. SHAREHOLDER OPTIONS. In connection with the Employment Agreement,
Buyer will issue, at Closing, to White stock options under Buyer's 1998
Long-Term Equity Incentive Plan ("Plan") for 30,000 shares of Buyer common stock
(the "Shareholder Options"). The White option will be in the form set forth as
Exhibit IIIB.
C. OTHER EMPLOYMENT AGREEMENTS. As soon as possible after Closing, Buyer
will enter into employment agreements in its standard form for Buyer employees
with each employee of VI wishing to continue his or her employment after
Closing. The agreements will provide for VI employees to continue at their VI
rate of compensation as of the date of Closing, to receive the same standard
benefits which are available to all Buyer employees, and, for purposes of
qualification for benefits, to be deemed to have entered Buyer's employ on the
date that such employee entered the employ of VI.
IV. IRC ELECTION.
Each of Buyer and Shareholders hereby covenant and agree to make a
Section 338(h)(10) election under the IRC and to take all actions necessary to
make that election effective. Buyer and Themis will allocate the Purchase Price
such that the difference between net book value of assets shown on the Closing
Balance Sheet (as hereafter defined) and the Purchase Price is goodwill.
I. SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES CONCERNING SHAREHOLDERS.
Each of the Shareholders, except where otherwise noted below, hereby
severally represents and warrants to Buyer that the following are true as of the
date of this Agreement and will be true at Closing except as disclosed in the
Disclosure Schedule designated as Exhibit V to this Agreement :
A. STOCK OWNERSHIP. The Shareholder has good and valid title to the VI
Shares held by the Shareholder, free from encumbrance or any contractual or
other restrictions on their transfer or encumbrance, other than compliance with
applicable securities laws and except as provided in the Shareholders Agreement
dated as of May 17, 1996 by and among VI and the Shareholders (the "Shareholders
Agreement"), and the Shareholder has full power, right and authority to transfer
such VI Shares pursuant to this Agreement.
B. APPROVAL. The Shareholder has approved this Agreement. No other
approval (including, as to Shareholder Themis, approval of its shareholders) is
necessary for the Shareholder to consummate the Transactions contemplated by
this Agreement. This Agreement constitutes the legal, valid and binding
obligation of the Shareholder,
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enforceable in accordance with its terms (subject as to enforcement of remedies,
to the discretion of courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally). The Shareholder has individually waived by
all necessary action all rights to purchase VI Shares being transferred and the
right to cause VI to purchase offered VI Shares, as set forth in the
Shareholders Agreement.
C. DISCLOSURE. In statements contained in this Agreement, the Exhibits
and Schedules attached to it and any other writing delivered pursuant to this
Agreement, during due diligence, or at the Closing, Shareholders Vorenkamp,
Nguyen and Rasmuson have not made any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
D. NO VIOLATION OF CORPORATION INSTRUMENTS OR OTHER AGREEMENTS. The
execution and delivery of this Agreement does not, and the consummation of the
Transactions will not: (i) violate any stock restriction, buy-sell or similar
agreement to which the Shareholder may be subject; (ii) result in any material
breach or the acceleration of any material obligation under any instrument,
indenture, note, lien, bond, agreement, contract, mortgage, lease, license, or
commitment under which the Shareholder is bound; (iii) require any consent,
approval or authorization of any governmental or regulatory authority, except
where the failure to obtain any such consent, approval or authorization would
not have a material adverse effect on the business, operations or financial
condition of VI or the consummation of the Transactions; or (iv) violate any
order, writ, injunction, judgment, decree, or violate in any material respect
any statute (including without limitation environmental and business statutes),
rule or regulation applicable to that Shareholder.
E. BROKERAGE. No brokerage fees are payable in connection with the
Transactions resulting from any brokerage agreements entered into by the
Shareholder.
F. SHAREHOLDER INTERESTS AND AGREEMENT. No disputes of any nature,
whether claims, lawsuits or other disagreements formally filed or informally
pursued exist between the Shareholder and another person or entity or on the
Shareholder's behalf (individually or jointly) with respect to the Shareholder's
VI share ownership, and no such disputes have been threatened. Each such
Shareholder individually and jointly waives, releases and renounces any and all
claims of any nature whatsoever against Buyer or against any other Shareholder
arising out of Buyer's form, method or allocation of payment of the Purchase
Price and any other consideration under this Agreement as provided in this
Agreement.
G. NO AGREEMENTS CONCERNING SHARES. No Shareholder has any current or
prior agreements, oral, express, implied or otherwise to sell or transfer that
Shareholder's VI Shares except to Buyer. Each Shareholder has separately
negotiated the sale of the Shareholder's VI Shares to Buyer and acknowledges
that the amounts to be received by the Shareholders from Buyer as consideration
for the VI Shares may differ as to price per share from Shareholder to
Shareholder. Although each Shareholder has separately
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negotiated the sale of that Shareholder's VI Shares, Shareholders have entered
into this Purchase Agreement for the mutual convenience of Shareholders and
Buyer.
VI. SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
Shareholders Themis and White, jointly and severally, represent and warrant
to Buyer that the following are true at the date of this Agreement and will be
true at Closing except as disclosed on the Disclosure Schedule designated as
Exhibit VI to this Agreement; provided, however, that the representations and
warranties set forth in section VIK, Disclosures, are made by Themis and White
severally, and not jointly. For purposes of this Section VI only and except
where otherwise indicated, the term "Shareholders" refers only to Themis and
White, and not to any of the other Shareholders. With respect to any
representation and warranty set forth in this Section VI that is made to Buyer
by each of White and Themis to his or its knowledge or best knowledge, each of
White and Themis also hereby represents to each other that such representation
and warranty is true at the date of this Agreement and will be true at Closing
except as disclosed on the Disclosure Schedule designated as Exhibit VI to this
Agreement.
A. ORGANIZATION AND STANDING OF VI. VI is a corporation validly existing
under the laws of the State of California, with full power and authority to
carry on its business as it is now being conducted, and to own and operate its
assets and business. It has no subsidiaries. VI owns or leases properties
solely in the State of California and is not required to be licensed or
qualified to transact its business or own or lease its properties in any other
jurisdiction, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, operations or financial
condition of VI.
B. CAPITALIZATION. VI is authorized to issue 5,000,000 shares of common
stock and 1,000,000 shares of preferred stock, and only 1,000,000 common shares,
constituting the VI Shares, are issued and outstanding. VI holds no shares of
VI stock as treasury shares. The VI Shares have been validly issued and are
fully paid and nonassessable. No outstanding subscriptions, options, warrants,
calls, commitments or agreements relating to the authorized or issued shares of
VI are outstanding. Any options to acquire stock which are outstanding before
Closing are compensatory options as described under Treasury Section
1.1504-4(d)(2)(v).
C. APPROVAL. To the extent corporate approval for VI is required, the VI
board of directors has taken all necessary action approving this Agreement.
Except for this approval and that of each Shareholder, no other approval is
necessary to consummate the Transactions contemplated by this Agreement. This
Agreement constitutes the legal, valid and binding obligation of VI, enforceable
in accordance with its terms (subject as to enforcement of remedies, to the
discretion of courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). VI and Shareholders individually have waived by all
necessary action all rights to purchase VI Shares being transferred and the
right to cause VI to purchase offered VI Shares, as set forth in the
Shareholders Agreement.
D. FINANCIAL STATEMENTS. The Closing Balance Sheet (Exhibit VID) and
supporting information, when delivered to Buyer, will be, and the books and
records on which they are based are and will be, correct in all material
respects, and will fairly represent the financial and operational condition of
VI as of 11:59 p.m. Pacific Daylight Time on August 11, 1998. The Year-End
Financial Statements (Exhibit VID2) and the
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April 30, 1998 Financial Statements (Exhibit VID3), and the books and records on
which they are based, are correct in all material respects and fairly represent
the financial and operational condition of VI as of VI's most recent year end
and the end of VI's four month period ending April 30, 1998, respectively.
Shareholders and VI agree that the Closing Balance Sheet, the Year-End Financial
Statements, the April 30, 1998 Financial Statements, and any other financial
statements provided to Buyer, will be and have been prepared in accordance with
generally accepted accounting principles, consistently applied.
E. OWNERSHIP OF VI. As of the date of Closing, except for this
Agreement, there will not be any outstanding or authorized warrants, calls,
rights, commitments or other agreements of any nature to which VI is a party, or
by which it may be bound, requiring it to issue, transfer, sell, purchase,
redeem or acquire any shares of capital stock or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for or
acquire any shares of capital stock of VI.
F. ABSENCE OF CERTAIN CHANGES. Since April 30, 1998, the date of the
April 30, 1998 Financial Statements, there have not been: (i) any material
changes in VI's financial or operational condition, assets, liabilities, or
business, other than changes in the ordinary course of business, none of which
has been materially adverse; (ii) any damage, destruction, or loss, whether or
not covered by insurance, materially and adversely affecting VI's properties or
business or its assets; (iii) any labor trouble or any event or condition of any
character materially and adversely affecting VI's business; (iv) any
indebtedness incurred by VI for borrowed money or any commitment to borrow money
entered into or any guarantee given by VI, except for trade advances from
customers in the ordinary course of business and in accordance with historic
business practices; (v) any mortgage, pledge, subjection to lien, charge or
encumbering of or creation of any security interest in all or any of VI's assets
or its business; (vi) any failure to maintain insurance policies or renewals
thereof in force or to give all notices or claims made thereunder in a timely
fashion; or (vii) any material increase in the compensation payable by VI to any
officer, director or key employee of VI.
G. TITLE TO PROPERTIES. VI owns, free and clear of any liens,
encumbrances, claims, charges, contractual or other restrictions on transfer,
equities, security interests, options or other restrictions, and has good title
to its assets, subject to any lien for current taxes or assessments not yet
delinquent, for which accruals have been made.
H. CONTRACTS. There are no contracts, agreements, leases, or
commitments not terminable at will, which would prevent Buyer from continuing
VI's business as it is now substantially conducted by VI, including without
limitation, those with purveyors or suppliers of items used in the conduct of
VI's business. VI has materially performed all its contracts to which it is a
party as of the date hereof, to the extent performance is due, and has cured all
material defaults under those contracts of which it is aware or should
reasonably have been aware.
I. ACTIONS. There are no judgments, actions, suits, claims, proceedings,
investigations, bankruptcy or insolvency proceedings or receiverships
(collectively, "Actions") pending or, to the best of VI's and Shareholders'
knowledge, threatened against or relating to VI, its assets or business, in any
court, in arbitration, or before any governmental department or agency, nor is
VI or any of its assets subject to any unsatisfied judgment, order or award as a
result of any such Actions. To the best of VI's and Shareholders' knowledge,
there is no basis for any such Actions.
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J. TAX MATTERS. The information concerning tax matters contained in the
Closing Balance Sheet, April 30, 1998 Financial Statements and Year-End
Financial Statements are, and will be at Closing, true and correct in all
material respects as of their dates. All tax returns required to be filed
before Closing with respect to VI or its operations with any taxing authority as
of Closing have been filed and with respect to the short period from January 1,
1998 to Closing ("Short Period"), will be filed promptly after Closing or when
due, and all taxes required to be paid with respect to the periods covered by
those returns, including the Short Period, have been paid or accrued or adequate
reserves, as shown on the Closing Balance Sheet, for the payment thereof have
been established. VI is not delinquent in the payment of any tax, assessment or
governmental charge.
K. DISCLOSURE.
1. In statements contained in this Agreement, the Exhibits and
Schedules hereto and any other writing delivered pursuant to this Agreement, or
at the Closing, none of the Shareholders or VI has made any untrue statement of
a material fact nor has any omitted to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made and the dates as of which they were made, not misleading.
2. In statements contained in the "Due Diligence Materials" (as
defined herein), none of the Shareholders or VI, to its or his best knowledge
(or, as to Themis only, knowledge), has made any untrue statement of a
material fact nor has any omitted to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they
were made, in light of the circumstances under which they were made and the
dates as of which they were made, not misleading; PROVIDED, HOWEVER, that
neither Themis nor White makes any representation or warranty under this
Agreement or otherwise with respect to:
(i) any financial or customer forecasts or projections or
similar forward looking financial or other information contained in or
comprising the Due Diligence Materials;
(ii) any financial statement of VI at and as of December 31,
1997 or April 30, 1998 contained in the Due Diligence Materials, except for
those which are attached to this Agreement as an Exhibit;
(iii) any agreements contained in the Due Diligence
Materials, except that Themis and White represent and warrant that such
agreements are valid and binding and, to the best of their knowledge, there are
no breaches or defaults, or circumstances which with the passage of time or the
delivery of notice would constitute breaches or defaults, thereunder; or
(iv) the documents contained in the Due Diligence Materials and
titled "Customer/Prospect analysis for 1999 Revenue Plan with Objectives," "June
Shipments" and "Outstanding Quotes," other than as set forth in Section VIK3
hereof.
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For purposes of this Agreement, the "Due Diligence Materials" shall mean the
documents obtained by the Buyer during the course of its due diligence
investigation of VI prior to the Closing and sent by the law firm of Schuler,
Messersmith & McNeill to Bryan Cave LLP under cover of a letter dated July 23,
1998, as received by Bryan Cave on July 24, 1998.
3. Themis represents to its knowledge, and White represents and
warrants to his best knowledge:
(i) as to the document attached as Exhibit VIK
("Customer/Prospect Analysis for 1999 Revenue Plan with Objectives"), as of the
date in May, 1998, on which that document was delivered to Buyer, VI had
submitted bids or quotes or was in good faith preparing or planning to prepare
bids or quotes for submission to the entities specified in the column labeled
"Customers," and knew of no reason that the bid or quote would not be
considered, and that the insignia "(c)" denoted a current customer of VI as of
such date or within six (6) months prior thereto; PROVIDED, HOWEVER, that Themis
and White make no representation or warranty that any of such bids or quotes are
outstanding or have been accepted as of the date of this Agreement;
(ii) as to the document attached as Exhibit VIK2 (first page
titled "June Shipments"), as of the date in June 1998 on which that document was
delivered to Buyer, VI had received cancelable orders from the entities
specified in the column labeled "Customers," for the products specified in the
column labeled "Board," in the quantity specified in the column labeled "Qty."
and for the price specified in the fourth, unlabeled column; and
(iii) as to the document attached as Exhibit VIK3 (titled, in
handwriting, "Outstanding Quotes"), as of the date in June, 1998, on which that
document was delivered to Buyer,VI had submitted bids or quotes to the entities
specified in the column labeled "Prospects," for the products specified in the
column labeled "Product," in the quantity specified in the column labeled "Qty,"
at the unit price specified in the column labeled "Unit Price" and at a total
price specified in the column labeled "Ext. Price"; PROVIDED, HOWEVER, that
Themis and White make no representation or warranty as to whether such bids or
quotes were accepted, withdrawn or rejected subsequent the date of the document
or as to whether such bids are outstanding as of the date hereof.
L. NO VIOLATION OF CORPORATION INSTRUMENTS OR OTHER AGREEMENTS. The
execution and delivery of this Agreement does not, and the consummation of the
Transactions will not: (i) violate or conflict with any provision of the
Articles of Incorporation, Bylaws, Stock Certificates, Stock Records or Minute
Book of VI, or of any stock restriction, buy-sell or similar agreement to which
any of Shareholders may be subject; (ii) result in any material breach or the
acceleration of any material obligation under any instrument, indenture, note,
lien, bond, agreement, contract, mortgage, lease, license, or commitment under
which any or all of VI and Shareholders are bound; (iii) require any consent,
approval or authorization of any governmental or regulatory authority, except
where the failure to obtain any such consent, approval or authorization would
not have a material adverse effect on the business, operations or financial
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condition of VI or the consummation of the Transactions, and no novation will be
required for any contracts as a result of the Transactions; (iv) violate any
order, writ, injunction, judgment, decree, or violate in any material respect
any statute (including without limitation environmental and business statutes),
rule or regulation applicable to VI or Shareholders or VI's business or any of
VI's assets; or (v) result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature upon the assets or business of
VI.
M. BROKERAGE. No brokerage fees are payable in connection with the
Transactions resulting from any brokerage agreements entered into by
Shareholders or VI.
N. PERMITS, LICENSES AND FRANCHISES. To the best of Shareholders' and
VI's knowledge: (i) VI has all permits, licenses, franchises, and other
authorizations necessary to, and has substantially complied with all laws
applicable to, the conduct of its business in the manner in which the business
is currently being conducted, and all those permits, licenses, franchises and
authorizations are valid and in full force and effect, except where the failure
to have or maintain any such permits, licenses, franchises or authorizations in
full force and effect would not have a material adverse effect on VI's business,
operations or financial condition; (ii) VI and Shareholders have not engaged in
any activity which would cause revocation or suspension of any such permit,
license, franchise or authorization which would result in a material adverse
effect on VI or the operation of VI's business; and (iii) neither VI nor
Shareholders (or either of them) has knowledge of any action, threat or
proceeding looking to or contemplating the revocation or suspension of any
thereof.
O. INTELLECTUAL PROPERTY. For purposes of this paragraph, intellectual
property means (i) all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part, revisions,
extensions, and re-examinations thereof, (ii) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (iii) all copyrights, and all applications,
registrations, and renewals in connection therewith, (iv) all mask works and all
applications, registrations, and renewals in connection therewith, (v) all trade
secrets and confidential business information (including research and
development, know-how, formulae, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (vi) all computer software (including data and
related documentation), (vii) all other proprietary rights, and (viii) all
copies and tangible embodiments thereof (in whatever form or medium).
1. VI owns or has the right to use pursuant to license, sublicense
agreement, or permission all intellectual property used to design, manufacture
and sell its current products and for such office administration as is conducted
by VI and not by Themis, the failure to possess which would have a material
adverse effect on VI. Each material item of intellectual property owned or used
by VI immediately before the Closing will be owned or available for use by VI on
identical terms and conditions immediately after the Closing. VI has taken
appropriate, commercially reasonable, action to maintain and protect as a trade
secret each material item of intellectual property that it owns or uses.
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2. To VI's and Shareholders' best knowledge, none of the products
manufactured by VI infringes upon any intellectual property rights of third
parties, and none of the Shareholders nor VI has received any written charge,
complaint, claim, demand, or notice alleging any such infringement (including
any claim that VI must license or refrain from using any intellectual property
rights of any third party).
3. VI owns the patents listed on Exhibit VIO3. VI has not granted
to any third party any license with respect to any of its intellectual property
to manufacture or produce any product.
4. The Disclosure Schedule identifies each item of intellectual
property that any third party owns and that VI embodies or incorporates in VI's
products, pursuant to license, sublicense, agreement, or permission. The
Shareholders and VI have delivered to Buyer correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of intellectual property required to be identified in
the Disclosure Schedule, the license, sublicense, agreement, or permission
covering the item is, to the Shareholder's best knowledge, the legal, valid and
binding obligation of VI, enforceable in accordance with its terms, and in full
force and effect, and will stay in effect following the Closing, and the
occurrence of Closing will not, in and of itself, with the passage of time, the
giving of notice, or both, cause a default under any such license, sublicense,
agreement or permission.
P. EMPLOYEES. To the best of VI's and Shareholders' knowledge, no third
party has claimed that any person employed or affiliated with VI has violated or
may be violating any of the terms and conditions of that person's employment,
non-competition or non-disclosure agreement with that third party, or disclosed
or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of that third party or interfered or
may be interfering in the employment relationship between that third party and
any of its present or former employees. Shareholders have no knowledge that any
key employee of VI intends to leave or is leaving the employ of VI in order to
take part, as an employee or otherwise, in any business in competition with VI.
Q. ENVIRONMENTAL, HEALTH AND SAFETY. (i) VI has materially complied with
all applicable environmental, health and safety laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand has been
filed or commenced against it, and no notice has been received by it, alleging
any failure so to comply; (ii) without limiting the generality of the preceding,
each of VI and its predecessors and affiliates has obtained and been in material
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
environmental, health and safety laws; and (iii) none of VI, its predecessors
and affiliates has any liability for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to any
employee or other individual or for any reason under any environmental, health
or safety law. To the best of Shareholders' and VI's knowledge, all properties
and equipment used in VI's and its predecessors' and affiliates' business have
been free of asbestos, PCB's, methylene chloride, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans, and extremely hazardous substances (as defined in the
Emergency Planning and Community Right to Know Act of 1986, as amended).
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R. PRODUCT LIABILITY. To the best of Shareholders' and VI's knowledge, VI
has no material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
VI.
S. YEAR 2000 COMPLIANCE. VI has duly investigated the compliance of its
products and the material products furnished by its vendors with "year 2000"
requirements, and its products and, to the best knowledge of Shareholders, the
material products furnished by its vendors are year 2000 compliant. For purposes
of this Agreement, "year 2000 compliant" means, with respect to information
technology, that the technology as used before, during and after calendar year
2000 will accurately receive, provide and process date/time data to the extent
that any other information technology used in combination with that technology
properly exchanges date/time data with it.
T. FRAUDULENT CONVEYANCES, INSOLVENCY AND INDEMNIFICATION. When effected,
the transactions contemplated by, and obligations to be incurred in accordance
with, this Agreement, whether considered singly or collectively, and whether
under statutory or common law, will not: (i) be fraudulent or unfair as to any
creditor of VI or Themis; (ii) effect or constitute a fraudulent transfer,
fraudulent conveyance or an effective equivalent thereof, as to any creditor of
VI or Themis; (iii) give rise to any claim or action in the nature of or for
"fraudulent conveyance", "fraudulent transfer" or an effective equivalent
thereof; (iv) leave VI or Themis with fewer assets than liabilities; (v) leave
VI or Themis unable to satisfy its liabilities and obligations as the same come
due; (vi) leave VI or Themis with an unreasonably small capital for the purpose
of carrying on its business, or otherwise not financially viable; or (vii)
otherwise render VI or Themis insolvent, bankrupt or effectively insolvent or
bankrupt.
Neither VI nor Themis, now or as a consequence of the transactions
contemplated by, and the obligation to be incurred in accordance with, this
Agreement: (i) has or will have liabilities in excess of its assets (ii) is or
will be unable to satisfy its liabilities and obligations as the same come due;
(iii) has or will have unreasonably small capital for the purpose of carrying on
its business; (iv) is not or will not be financially viable; or (v) is or will
be insolvent, bankrupt or effectively insolvent or bankrupt.
U. SHAREHOLDER INTERESTS AND AGREEMENT. Shareholders represent and
warrant that they hold all of the issued and outstanding shares of capital stock
of VI, and that no disputes of any nature, whether claims, lawsuits or other
disagreements formally filed or informally pursued exist among them or between
them and another person or entity or on their behalf (individually or jointly)
with respect to that share ownership, and, to the best knowledge of
Shareholders, no such disputes have been threatened. Shareholders individually
and jointly waive, release and renounce any and all claims of any nature
whatsoever against Buyer or between each other arising out of Buyer's form,
method or allocation of payment of the Purchase Price and any other
consideration under this Agreement as provided in this Agreement.
V. CONSOLIDATED TAX RETURN. Shareholders represent and warrant that
Themis has validly elected to include VI within the federal consolidated tax
returns of which Themis is the common parent.
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VII. BUYER'S WARRANTIES AND REPRESENTATIONS.
Buyer represents and warrants to Shareholders that the following are true
as of the date of this Agreement and will be true at Closing except as disclosed
on the Disclosure Schedule designated as Exhibit VII to this Agreement:
A. ORGANIZATION AND STANDING OF BUYER. Buyer is a corporation validly
existing and in good standing under the laws of the State of New Mexico, with
full power and authority to carry on its business as it is conducted, to own and
operate its assets, and to execute this Agreement and consummate the
Transactions. Buyer has six wholly-owned subsidiaries: SBS GreenSpring Modular
I/O, Inc., SBS Berg Telemetry Systems, Inc., SBS Bit 3 Operations, Inc., SBS
Micro Alliance, Inc., SBS Embedded Computers, Inc. and SBS German Holdings,
GmbH. Buyer is duly licensed or qualified to transact business as a foreign
corporation in California and is in good standing in each jurisdiction in which
the nature of the business transacted by it or the character of the properties
owned or leased by it requires that licensing or qualification except where the
failure to be so licensed or qualified would not have a material adverse effect
on the business, operations or financial condition of Buyer.
B. APPROVAL. Buyer's Board of Directors and, to the extent required, its
shareholders, have approved, by all necessary corporate action, the execution,
delivery and performance of this Agreement and consummation of the Transactions
and has authorized its officers to take all action and to execute, acknowledge
and deliver all documents appropriate to consummate the Transactions. This
approval constitutes all and the only actions required by law, the Articles of
Incorporation or Bylaws of Buyer or otherwise to authorize the execution and
delivery of this Agreement and the consummation of the Transactions and this
Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms (subject as to enforcement of remedies,
to the discretion of courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally).
C. NO VIOLATION OF CORPORATE INSTRUMENTS OR OTHER AGREEMENTS. The
execution and delivery of this Agreement does not, and the consummation of the
Transactions will not: (i) violate any provision of the Articles of
Incorporation, Bylaws, Stock Certificates, Stock Records or Minute Book of
Buyer; (ii) result in any material breach or result in the acceleration of any
material obligation under any instrument, indenture, note, lien, bond,
agreement, contract, mortgage, lease, license or commitment under which Buyer is
bound; (iii) require any consent, approval or authorization of any governmental
or regulatory authority; (iv) violate any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Buyer, Buyer's business or any
of Buyer's assets; or (v) result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature upon the assets or
business.
D. BROKERAGE. No brokerage fees are payable by Buyer in connection with
the Transactions resulting from any brokerage agreements entered into by Buyer.
E. FINANCIAL STATEMENTS. Buyer has filed Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 ("Public Report"). The financial statements
included in or incorporated by reference into that Public Report (including the
related notes and schedules) have been prepared in accordance with generally
accepted accounting principles, applied on a consistent basis throughout the
periods covered by them, are correct in all material respects, and present
fairly the financial and operational condition
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of Buyer as of the indicated dates and the results of operations of Buyer for
the indicated periods. Since the end of the most recent fiscal year as reported
in the Public Report, there has not been any material adverse change in the
financial or operational condition of Buyer and its subsidiaries taken as a
whole.
F. INVESTMENT REPRESENTATION. Buyer is acquiring the VI Shares for its
own account, for investment and without any view to resale or distribution of
the Shares or any portion thereof. Buyer understands that the VI Shares have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of a specific exemption from the registration
provisions of the Securities Act, which exemption may depend upon, among other
things, the bona fide nature of the investment intent as expressed herein.
G. AVAILABILITY OF FUNDS. Buyer has sufficient cash and/or available
credit facilities to pay to Shareholders the Purchase Price at the Closing.
H. RESTRICTIONS ON TRANSFER. Buyer acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless a transfer of the Shares is exempt from registration under the Securities
Act.
I. ACCESS TO DATA; NO REPRESENTATIONS. Buyer has had an opportunity to
discuss VI's business, management and financial affairs with the Shareholders
and others involved in management of VI and has had an opportunity to review
VI's facilities and VI's books and records. Buyer acknowledges that neither VI
nor any of the Shareholders has made any representations regarding the VI Shares
or the business, management or financial affairs of VI except to the extent set
forth in this Agreement and the Exhibits and Schedules hereto , any other
writing delivered pursuant to this Agreement or at Closing, and in the Due
Diligence Materials; provided, however, that Buyer acknowledges the limited
nature of Themis' and White's representations regarding the Due Diligence
Materials as set forth in Section VIK hereof.
VIII. BUYER'S CONDITIONS PRECEDENT.
All obligations of Buyer under this Agreement to close the Transactions
are subject to the fulfillment before Closing, of each of the following
conditions:
A. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Shareholders' and
VI's representations and warranties contained in this Agreement are true in all
material respects at the time of Closing.
B. PERFORMANCE. Shareholders and VI have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by Shareholders and VI before or at Closing.
C. CERTIFIED RESOLUTIONS. Themis has provided to Buyer a certified copy
of resolutions duly adopted by the Board of Directors of Themis authorizing and
approving the execution and delivery of this Agreement and authorizing the
consummation of the Transactions.
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D. CONSENTS. Any consents, including without limitation that of Silicon
Valley Bank, Santa Clara, California, necessary to allow the Transactions to
occur have been obtained in writing, in form reasonably satisfactory to Buyer.
E. VI BANKRUPTCY. VI is not in a bankruptcy, reorganization or
insolvency proceeding, nor is any such proceeding contemplated.
F. DUE DILIGENCE. Buyer has completed its due diligence investigation
with respect to VI to its sole satisfaction.
G. RELEASE OF BANK LIEN. Silicon Valley Bank, Santa Clara, California,
has released any and all liens and security interests held by it with respect to
VI.
H. TERMINATION OF EXISTING WHITE EMPLOYMENT AGREEMENT. White and VI have
entered into an agreement (the "Termination Agreement") effective as of the
Closing pursuant to which (i) the Employment Agreement dated as of May 17, 1996
between VI and White (the "Existing White Employment Agreement") is terminated
and (ii) VI and White agree to a mutual general release with respect to their
obligations under it, all in form and substance reasonably satisfactory to
Buyer.
I. VI OPTION REPURCHASES, TERMINATION OF STOCK OPTION PLAN. VI and each
holder of options to purchase shares of VI Common Stock shall have entered into
an Option Repurchase Agreement (as defined in this Agreement), and the VI 1996
Stock Option Plan shall have been terminated.
J. ATTORNEY OPINION. Themis has furnished to Buyer an opinion of its
counsel, in form and substance reasonably acceptable to Buyer, that (i) Themis
has obtained all approvals necessary for sale of the Themis VI Shares to Buyer,
and (ii) based on the structure of the Transactions, Shareholders and Buyer will
make effective and binding Code Section 338(h)(10) elections.
K. OFFICE LEASE ASSIGNMENT AND CONSENT. North Coast Business Park
shall have executed and delivered to Buyer an Assignment of Lease and Landlord
Estoppel Certificate with respect to the premises commonly known as Suites 101,
114, 118 and 119 of 531 Encinitas Blvd. Encinitas, California. Themis, Buyer
and VI shall have executed the Assignment of Lease.
L. EQUIPMENT LEASE ASSIGNMENT AND CONSENT. Leasetec Systems Credit Corp.
("Leasetec") shall have executed and delivered to Buyer an Assignment of Lease
with respect to the equipment identified in Exhibit VIIIL. Themis, Buyer and VI
shall have executed the Assignment of Lease.
M. TERMINATION OF EXISTING WHITE/THEMIS/VI NONCOMPETITION AGREEMENT.
Themis, White and VI shall have entered into an agreement (the "Noncompetition
Termination Agreement") effective as of the Closing, pursuant to which the
Noncompetition Agreement dated as of May 17, 1996 shall be terminated and
canceled. The Noncompetition Termination Agreement shall be in the form
attached as Exhibit VIIIM.
IX. SHAREHOLDERS' CONDITIONS PRECEDENT. All obligations of Shareholders under
this Agreement to close the Transactions are subject to the fulfillment by
Closing of each of the following conditions:
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A. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Buyer's
representations and warranties contained in this Agreement are true in all
material respects at the time of Closing.
B. PERFORMANCE. Buyer has performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by Buyer
before or at Closing.
C. CERTIFIED RESOLUTIONS. Buyer has furnished to Shareholders a
certified copy of resolutions duly adopted by the Board of Directors of Buyer
authorizing and approving the execution and delivery of this Agreement and
authorizing the consummation of the Transactions.
D. BUYER BANKRUPTCY. Buyer is not in a bankruptcy, reorganization or
insolvency proceeding, nor is any such proceeding contemplated.
E. TERMINATION OF EXISTING WHITE EMPLOYMENT AGREEMENT. White and VI have
entered into the "Termination Agreement" effective as of the Closing pursuant to
which (i) the Existing White Employment Agreement is terminated and (ii) VI and
White agree to a mutual general release with respect to their obligations under
it, all in form and substance reasonably satisfactory to Themis.
F. VI OPTION REPURCHASES, TERMINATION OF STOCK OPTION PLAN. VI and each
holder of options to purchase shares of VI Common Stock shall have entered into
an Option Repurchase Agreement (as defined in this Agreement), and the VI 1996
Stock Option Plan shall have been terminated.
G. OFFICE LEASE ASSIGNMENT AND CONSENT. North Coast Business Park shall
have executed and delivered to Buyer an Assignment of Lease and Landlord
Estoppel Certificate with respect to the premises commonly known as Suites 101,
114, 118 and 119 of 531 Encinitas Blvd. Encinitas, California. Themis, Buyer
and VI shall have executed the Assignment of Lease.
H. EQUIPMENT LEASE ASSIGNMENT AND CONSENT. Leasetec Systems Credit Corp.
("Leasetec") shall have executed and delivered to Buyer an Assignment of Lease
with respect to the equipment identified in Exhibit VIIIL. Themis, Buyer and VI
shall have executed the Assignment of Lease.
I. TERMINATION OF EXISTING WHITE/THEMIS/VI NONCOMPETITION AGREEMENT.
Themis, White and VI shall have entered into an agreement (the "Noncompetition
Termination Agreement") effective as of the Closing, pursuant to which that
Noncompetition Agreement dated as of May 17, 1996 shall be terminated and
canceled. The Noncompetition Termination Agreement shall be in the form
attached as Exhibit VIIIM.
X. CLOSING. Closing will be held as soon as practicable at a place agreed
upon by the parties, but in any event not later than August 30, 1998. If
Shareholders' and Buyer's conditions precedent have been performed or waived,
the Transactions will be closed; provided, however, that the Transactions will
not be closed unless all of the VI Shares are being sold to Buyer under this
Agreement. If those conditions precedent have not been performed or waived, the
Transactions will not be closed, and the rights, duties and obligations between
the parties will be terminated without further liability.
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A. SHAREHOLDERS' DUTIES. Shareholders and VI, as appropriate, will
deliver to Buyer at Closing simultaneously with confirmation that the Purchase
Price (less the Escrow Amount, as defined below) has been wired to Shareholders'
accounts:
1. The VI Shares, properly endorsed for transfer or accompanied by
duly executed assignments separate from certificate;
2. Executed resignation letters of officers and directors of VI;
3. Executed Employment Agreement of White with Buyer;
4. Executed Covenants Not to Compete from Themis and White;
5. Executed Termination Agreement;
6. Certified resolutions of the Board of Directors of Themis
approving the Agreement and the performance of the Transactions;
7. Waiver by each Shareholder of rights under the Shareholders
Agreement; and
8. Any and all other documents required by this Agreement to be
delivered by Shareholders and VI to Buyer at Closing.
B. BUYER'S DUTIES. Buyer will deliver to Shareholders at Closing:
1. The Purchase Price (paid by wire transfer in accordance with
instructions delivered to Buyer at least five business days before Closing),
less $250,000 (the "Escrow Amount"), simultaneously with delivery of the VI
Shares, to each Shareholder in accordance with the distribution amounts set
forth on Exhibit XB;
2. Executed Employment Agreement;
3. Executed Shareholder Options;
4. Certified copy of resolutions of Buyer's Board of Directors
approving the Agreement and the performance of the Transactions; and
5. Any and all other documents required by this Agreement to be
delivered by Buyer to Shareholders at Closing.
C. ESCROW AMOUNT.
1. Buyer will deliver at the Closing to the trust account of
Alison K. Schuler, Attorney at Law ("Escrow Agent") the Escrow Amount, to be
held in escrow until written notification from Mr. James E. Dixon, on behalf of
the Buyer, and Themis and White, on behalf of the Shareholders, that the Closing
Balance Sheet has been prepared and that any adjustment in Purchase Price has
been calculated ("Adjustment Amount"). The notice shall direct the Escrow Agent
to pay to Shareholders, in the individual amounts and to the accounts indicated
in the notice, within three business days following the receipt of the notice
(i) the Escrow Amount less the Adjustment Amount, if
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the Adjustment Amount decreases the Purchase Price, and to return to Buyer
the Adjustment Amount, or (ii) the Escrow Amount, if the Adjustment Amount is
zero or increases the Purchase Price. If the Adjustment Amount increases the
Purchase Price in excess of $5,000,000, Buyer will immediately wire the
Adjustment Amount to the Shareholders in the ratio of 64.7760% to Shareholder
Themis, 32.8292% to Shareholder White, 1.4369% by check to Shareholder
Vorenkamp and 0.47895% by check to each of Shareholder Nguyen and shareholder
Rasmuson. The parties shall complete the Closing Balance Sheet as provided
in this Section.
2. The Escrow Agent will have no responsibility or liability of any
sort whatsoever arising from disbursement of the Escrow Amount in accordance
with the notice or in any case for any action or nonaction taken or not taken,
except for malfeasance. Except as provided in this paragraph, all conditions to
the obligations of the parties to consummate the Transactions will be deemed to
be satisfied without exception at Closing, and this Agreement will be a binding
and unconditional agreement between the parties subject only to the obligations
of this paragraph.
3. VI EQUITY. For purposes of this Agreement, "VI Equity" shall
mean the excess of the book value of VI's assets at and as of the Closing Date
over the book value of VI's liabilities at and as of the Closing Date, as
reflected in the Closing Balance Sheet.
4. CLOSING BALANCE SHEET. Themis will prepare, or cause its
independent public accountants to prepare, and will deliver to Buyer and
White no later than 30 days following the Closing Date, a balance sheet of VI
as at the Closing Date (the "Closing Balance Sheet"). The Closing Balance
Sheet will also set forth the VI Equity and the Adjustment Amount. The
Closing Balance Sheet will be prepared in accordance with generally accepted
accounting principles and in a manner consistent with the preparation of the
April 30, 1998 Financial Statements. Buyer shall provide Shareholders with
access to all records, facilities and inventory necessary to prepare the
Closing Balance Sheet. Representatives of Buyer may be present at the taking
of the physical inventory in connection with the preparation of the Closing
Balance Sheet. Themis will bear the fees and expenses of preparing the
Closing Balance Sheet. Following Buyer's receipt of the Closing Balance Sheet
and subject to Section XC5, Buyer, Themis and White will provide to Escrow
Agent the notice provided for in Section XC1.
5. DISPUTES CONCERNING CLOSING BALANCE SHEET. If Buyer disputes any
amount shown on the Closing Balance Sheet or the Adjustment Amount shown
thereon, Buyer shall, within 30 days following delivery of the Closing Balance
Sheet, give written notice of that dispute to Themis. The notice shall set forth
in reasonable detail Buyer's specific objections. Buyer and its accountants
shall thereafter be entitled to examine the relevant working papers of Themis
relating to, and the procedures carried out by Themis in connection with,
Themis' preparation of the Closing Balance Sheet and its determination of the VI
Equity and the Adjustment Amount reflected therein. During the period
commencing on the date Buyer receives any notice of dispute, Buyer and Seller
will negotiate in good faith to resolve the dispute. If the dispute cannot be
resolved within a 30-day period, Buyer and Themis will submit the dispute to
Buyer's auditors, who will be KPMG Peat Marwick LLP or another nationally
recognized accounting firm,
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and to Themis' auditors, who will be Arthur Andersen LLP or another nationally
recognized accounting firm. Those auditors shall promptly commence good faith
negotiations with a view toward resolving the dispute, and their joint decision
as to the resolution of the dispute shall be final and binding. Buyer and
Themis shall each be responsible for the costs of their own auditors. If the
auditors are unable to reach a joint decision within ten business days after a
dispute has been submitted to them, they shall forthwith submit the dispute to a
nationally recognized accounting firm (the "Arbitrator") whom they shall jointly
appoint to resolve such dispute, and the decision of the Arbitrator shall be
final and binding. The Arbitrator shall make its determination as to such
dispute within 30 days after its appointment. Buyer, VI, Themis and White shall
promptly provide to the auditors or the Arbitrator, as the case may be, all
documents and information requested of them with respect to the dispute.
Following a decision by the auditors or the Arbitrator, as the case may be,
Themis, White and Buyer will promptly instruct the Escrow Agent in writing to
remit the Escrow Amount in accordance with Section XC1, and Buyer shall pay to
Themis, White and each of the other Shareholders any Adjustment Amount in
accordance with Section XC1. The costs of any Arbitrator shall be paid one-half
by Buyer and one-half by Themis.
6. CLOSING BALANCE SHEET. Unless Themis shall have received any
notice of dispute from Buyer within the 30-day period provided for herein, the
Closing Balance Sheet prepared by Themis or its auditors will be deemed the
"Closing Balance Sheet." If Buyer provides timely notice of any dispute in
accordance with Section XC5, the Closing Balance Sheet, as adjusted, if
necessary, to reflect the resolution of the dispute, will be deemed the "Closing
Balance Sheet."
D. JOINT DUTIES. Buyer and Shareholders will execute any further
documents and do all things necessary to consummate the Transactions
contemplated by and establish the escrow account provided for in this Agreement.
XI. PROPRIETARY INFORMATION. Shareholders agree, represent and warrant that,
unless Buyer's prior written consent has been obtained, Shareholders will not,
at any time after Closing, use for the benefit of other than Buyer, directly or
indirectly, on behalf of Shareholders or any other person or business entity,
any trade secrets, proprietary information, or confidential information
(collectively, the "Confidential Information") (i) concerning the business of
VI, including the composition, plans or technology of the products produced by
VI and the method of their manufacture, and VI financial data and related
information or (ii) provided by Buyer to Shareholders in connection with this
Agreement. Confidential Information does not include information generally
known in the industry in which VI and Buyer engage or information which is
available from public records or public sources, in either case not as a result
of violation of this paragraph. Shareholders agree that release of Confidential
Information will cause irreparable harm to Buyer and that, upon any breach or
threatened breach of this Section, Buyer may seek, without limitation of other
actions and remedies which might be available, equitable injunctive relief.
XII. REMEDY FOR BREACH OF WARRANTY. A. If any breach of any warranty or
representation in this Agreement, other than the representation and warranty in
Section VIJ, Tax Matters, is claimed within twenty-four months of Closing, or by
the date of the issuance of the first audited annual consolidated financial
statements of the combined entities following Closing, whichever is earlier, or,
as to the warranty and representation
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in Section VIJ, Tax Matters, the later of the expiration of the last applicable
statute of limitations or the final adjudication or settlement without further
recourse with respect to matters arising under Section VIJ (in each case, the
"Warranty Period"), the party desiring to make a claim for damages resulting
from such breach may do so by delivering to the allegedly breaching party or
parties (and any additional party under section XIIB) not later than one
business day after the expiration of the Warranty Period express written notice
of the details of that breach and the intent to make a claim. If the parties
cannot reach resolution of the claim, the dispute will be resolved by
arbitration conducted under the rules of the American Arbitration Association
(the parties to select one arbitrator, or, if they are unable to select an
arbitrator, the party claiming breach shall select one arbitrator and the party
or parties allegedly breaching (including any additional party under section
XIIB) shall collectively select one arbitrator and a third arbitrator will be
selected by the two arbitrators) for the purpose of determining liability and
compensation. The arbitration will take place in Los Angeles County,
California. The results of the arbitration shall be binding upon all parties.
The prevailing party in such arbitration shall be entitled to recover its costs,
including reasonable attorneys' fees, incurred in the arbitration proceeding,
from the non-prevailing party, and an award of those costs and expenses shall be
included in the final judgment entered in the arbitration. Except with respect
to Section VIJ, Tax Matters, unless the cumulative total of all damages being
sought for all claims has exceeded $25,000, the party against whom a claim is
made shall not be liable for any damages resulting from a breach hereunder;
however, if the $25,000 limit is exceeded, the liable party shall be liable for
the full amount of the breach. Any judgment upon an award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. All
warranties and representations of the parties herein shall terminate and be of
no further force and effect at the end of the Warranty Period. No party may
make any claim for breach of any warranty or representation after the Warranty
Period. The aggregate amount of all claims for which any Shareholder is liable
under this Section shall not exceed the portion of the Purchase Price paid to
that Shareholder. The aggregate amount of all claims for which Buyer is liable
under this Section shall not exceed the difference between the Purchase Price
paid and any additional Purchase Price owed under the terms of this Agreement.
The sole and exclusive remedy of Buyer and Shareholders, respectively, for any
and all claims of the nature described in this Section shall be the remedy set
forth in this Section.
B. KNOWLEDGE CLAIMS; ORDER OF RECOVERY. In the event Buyer determines
that it has any claim (a "Knowledge Claim") under Section XIIA against Themis
and/or White for any breach of a representation and warranty made by such
Shareholder under Article VI hereof to such Shareholder's knowledge or best
knowledge (each, a "Knowledge Representation"), then Buyer agrees that
notwithstanding anything herein to the contrary: (i) Buyer will notify both
Themis and White of such Knowledge Claim in accordance with Section XIIA hereof,
and each of Themis and White will have the right to participate fully in any
settlement of such Knowledge Claim or in any arbitration held with respect
thereto pursuant to Section XIIA hereof, including without limitation the right
to participate in the selection of an arbitrator to represent the allegedly
breaching parties, even if the claim has not formally been made against both of
them; (ii) unless otherwise agreed by Themis and White in writing, the
arbitrator in any arbitration proceeding shall be required to determine whether
and the extent to which the Knowledge Representation was breached by both Themis
and White or whether it was breached by only one of them; (iii) Buyer will not
enter into any settlement of any Knowledge Claim unless both Themis and White
have approved such settlement in writing; (iv) if only one of Themis or White
is determined in any settlement, arbitration or other resolution of the
Knowledge Claim to have breached the Knowledge Representation which is the
subject of the Knowledge Claim, then Buyer will seek recovery of its Damages
arising out of such Knowledge Claim (whether such Damages are determined in a
settlement or in an arbitration) first
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<PAGE>
from the breaching party and shall be entitled to recover Damages from the
non-breaching party only if the full amount of such Damages are not recovered
from the breaching party after Buyer's best efforts to make such recovery.
Neither the Warranty Period nor any other limitation period shall run during the
period that the Buyer pursues any claim "first" against the breaching party.
C. ASSIGNMENT BY BUYER OF SETTLEMENT, ARBITRATION AWARD OR OTHER RIGHTS
ARISING OUT OF A KNOWLEDGE CLAIM. In consideration of the mutual promises,
covenants and agreements set forth in the Agreement, Buyer agrees that if: (i)
either of White or Themis is determined in any settlement, arbitration or other
resolution of a Knowledge Claim to have breached the Knowledge Representation
which is the subject of the Knowledge Claim; (ii) Buyer is awarded ("Award")
damages pursuant to said settlement, arbitration or other resolution arising out
of such party's breach of the Knowledge Representation which is the subject of
the Knowledge Claim; (iii) such breaching party fails to satisfy the Award to
Buyer in whole; and (iv) under Section XIIB hereof, the non-breaching party
makes payment to Buyer for all or any portion of the Award not paid by the
breaching party, then Buyer shall assign to the non-breaching party for any and
all purposes Buyer's remaining rights in, to and under the Knowledge Claim and
that portion of the Award which was not satisfied by the breaching party.
Buyer further agrees that in any settlement, arbitration or other
resolution of any Knowledge Claim, Buyer shall not release any breaching party
with respect to the Knowledge Claim or Award, except to the extent such release
does not impair the non-breaching party's rights to enforce such rights in and
to the Knowledge Claim and Award as may be assigned to the non-breaching party
under clause (iv) of the preceding sentence.
D. KNOWLEDGE CLAIMS: THEMIS' AND WHITE'S RIGHTS AGAINST EACH OTHER. In
the event Buyer seeks recovery of Damages from either Themis or White under
Section XIIB hereof as a result of the other party's breach of a Knowledge
Representation hereunder, the breaching party hereby agrees to indemnify and
hold the non-breaching party harmless from and against any and all such Damages,
together with any and all losses, damages, costs and expenses, including
attorneys' fees incurred or suffered by such non-breaching party in seeking and
obtaining such indemnification. Any liabilities of Themis and White to each
other pursuant to Section XIID shall be subject to the dollar amount limitations
set forth in Section XIIA hereof.
E. ALLOCATION OF SHARED DAMAGES BETWEEN WHITE AND THEMIS. Except with
respect to Themis' or White's breach of (i) any representation or warranty
set forth in Article V hereof and (ii) any Knowledge Representation, Themis
shall be solely responsible and liable for 66.4% of any and all Damages
arising out of or in connection with any claim made by Buyer under Section
XIIA hereof (collectively "Shared Damages"), and White shall be solely
responsible and liable for 33.6% of such Shared Damages. Each of Themis and
White will hold harmless and indemnify the other for any portion of such
party's allocable share of any Shared Damages which are paid by the other
party pursuant to Section XIIA hereof, and for any and all losses, damages,
costs and expenses, including attorney's fees, incurred or suffered by such
party in collecting such allocable share of the Shared Damages. With respect
to any Shared Damages, neither Themis nor White shall settle any claim,
arbitration or other matter or proceeding relating thereto without obtaining
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Any liabilities of Themis and White to each other
pursuant to this Section XIIE shall be subject to the dollar amount
limitations set forth in Section XIIA hereof. This Section XIIE provides for
the allocation of liability and responsibility solely as between Themis and
White with respect to the matters
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<PAGE>
covered hereby and shall not in any way limit SBS' rights of recovery against
Themis and White under Section XIIA hereof.
XIII. TAX MATTERS.
In reliance on the representation and warranty in Section VIJ, Tax Matters,
Buyer agrees to cooperate with Shareholders in filing any Short Period tax
returns prepared and signed by Shareholders and their accountant and shall cause
VI to execute any such returns. If the Internal Revenue Service ("IRS") or the
State of California Franchise Tax Board ("FTB") audits any returns of VI for
periods before the Closing, including any tax returns filed for the Short
Period, Buyer shall cooperate with the Shareholders in contesting any audit or
positions taken by the IRS or the FTB and shall allow the Shareholders, on
behalf of VI, to contest and dispute any claims for additional tax liabilities
by the IRS or the FTB. Subject to the limitations in Section XII, Shareholders
will defend and hold Buyer harmless from any amounts, including without
limitation, taxes, interest, penalties and fines, which may be found by audit,
action or otherwise to be due with respect to the matters covered by Section VIJ
and this Section and all costs and expenses (including without limitation
reasonable legal and other professional fees) incurred in respect of defense or
prosecution thereof, based on a ratio of 66.4% for Themis, and 33.6% for White.
XIV. COOPERATION.
A. EFFECTUATION. Shareholders and VI, and Buyer will cooperate to
effectuate the purposes of this Agreement. Shareholders and VI, and Buyer will,
without additional consideration, execute any other documents and take any other
action reasonably necessary to carry out the purposes of this Agreement. Until
Closing, no news release about the Transactions will be released to the public
via any media by any Shareholders or VI, on the one hand, or Buyer, on the other
hand, without prior written approval of Buyer or VI, as the case may be, except
as may be required by law, in which case, VI or Buyer will have a reasonable
opportunity for review of and comment on a proposed news release.
B. ACTIONS. Shareholders and VI will cooperate with Buyer in connection
with any actions, proceedings, arrangements or disputes involving VI's business
or based upon the consummation of the Transactions or upon contracts,
arrangements or acts of Shareholders or VI which were in effect or occurred on
or before the Closing date.
C. FINANCIAL AND OTHER INFORMATION. Shareholders and VI will cooperate,
as reasonably required by Buyer, in the preparation in a form satisfactory to
Buyer and Buyer's accountants, of all financial and other information, including
an audit, needed by Buyer to comply with reporting and filing requirements
imposed on Buyer by federal and state regulatory authorities. The expense of
preparation of this financial and other information by Buyer's accountants will
be borne solely by Buyer.
D. ACCESS. After the Closing, Buyer shall, upon the reasonable request
of Themis, provide Themis and its representatives with access at all reasonable
times to all of the books and records of VI; provided, however, that such
access shall only be provided to the extent that it is reasonably required by
Themis in connection with (i) the preparation of tax returns or financial
reports relating to any period before the date of the Closing or (ii) any claim,
litigation, audit or investigation or any other proper purpose relating to
Themis' ownership of VI Shares before the date of the Closing. Any such
20
<PAGE>
review by Themis and its representatives shall be conducted in a manner which
will not unreasonably interfere with the business of Buyer and VI, and Themis
agrees to execute any non-disclosure or confidentiality agreements with respect
thereto as Buyer may reasonably request.
E. TERMINATION OF EXISTING EMPLOYMENT AGREEMENT. At or before Closing,
White, VI and Themis will enter into the Termination Agreement.
F. NON SOLICITATION OF EMPLOYEES. During the three (3) year period after
the Closing, neither Buyer nor any of its current or future affiliates,
including without limitation VI, will directly or indirectly employ or solicit
to employ, or otherwise retain or solicit to retain, any person employed by
Themis as of the date of Closing or at any time during the three (3) year period
thereafter, unless such person has been terminated by Themis without cause (as
determined in good faith by Themis and including termination of employment as a
result of the cessation of Themis' business operations or the elimination of the
terminated person's position) prior to the time of such solicitation, employment
or retention. This paragraph shall not apply in the limited circumstance in
which Buyer or an affiliate of Buyer acquires an independent business at which a
Themis employee to whom this paragraph would otherwise apply ("Former Employee")
has before the time of that acquisition been employed or retained, provided that
the Former Employee is not a control person of that business and provided
further that that business did not employ or retaim that employee at the behest
of Buyer or its affiliates.
G. NON-USE OF THEMIS OR TEKELEC NAME. Buyer acknowledges and agrees that
it will have no right to use the "Themis" or "Tekelec" names following the
Closing, on or in connection with any product or advertising or in any other
materials or in connection with any aspects of its business or operations,
except and to the extent required by law.
H. ACCOUNTS RECEIVABLE. After the Closing, Seller shall use its
commercially reasonable, best efforts on a continuing basis to collect the
Accounts Receivable of VI which are outstanding as of the date of Closing, and,
on a weekly basis, shall transfer to SBS the Accounts Receivable actually
collected.
I. VI CASH. Prior to Closing, Themis will transfer all cash belonging
to VI into those accounts, held in the name of VI Computer as a Demand
Deposit Account numbered 33 000 29544 at Silicon Valley Bank and a Cash
Disbursement Account numbered 009 65 32 at Mellon Bank N.A. (the "VI
Accounts"). At and after the Closing, Themis will insure that its directors,
officers and employees do not withdraw or transfer any funds from the
account, and, in cooperation with SBS, Themis immediately will take all steps
necessary or convenient to transfer full management and control of the VI
Accounts to SBS, including without limitation, revoking from all persons
other than Harry White the power to access, manage or use the VI Accounts or
the funds within it.
J. USE OF PROCEEDS. Following the Closing, Themis shall use the
Purchase Price received by it hereunder to satisfy its liabilities as they
become due.
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XV. REPURCHASE OF VI OPTIONS. Before the Closing, VI will enter into with each
optionee who holds an option to purchase shares of VI Common Stock an agreement
(each, an "Option Repurchase Agreement") pursuant to which VI will agree to
purchase, with funds provided by Themis, from the optionee, and the optionee
will irrevocably agree to sell to VI, effective at and as of the Closing, the
optionee's options to purchase shares of VI Common Stock at a purchase price
equal to the number of shares of VI Common Stock subject to his or her options
(whether the options are vested or unvested as to those shares) multiplied by a
per share purchase price equal to $4.11. At or before Closing, Themis will
provide to VI the sum of $163,372.50, being the amount equal to the number of
shares of VI Common Stock subject to all outstanding options to purchase shares
of VI Common Stock multiplied by $4.11. At or in conjunction with Closing, VI
will -remit to the optionees the option purchase funds provided by Themis, at
the times, in the amounts and otherwise in accordance with the Option Repurchase
Agreements. The obligation of VI to purchase the optionees' options under the
Option Repurchase Agreements and the funds provided by Themis to fund VI's
obligation to purchase will be reflected in the books and records of VI as of
the date of Closing as a capital contribution by Themis and a compensation
expense by VI.
XVI. TERMINATION OF STOCK OPTION PLAN. At or before the Closing, the VI
Computer 1996 Stock Option Plan will be terminated.
XVII. MISCELLANEOUS.
This Agreement binds and benefits the parties, their successors, assigns
and transferees. This Agreement is specifically enforceable and is governed by
New Mexico law. This Agreement, the Mutual Nondisclosure Agreement dated May
15, 1998 between Buyer and VI, and the Employment Agreement and the Covenants
Not to Compete constitute the entire agreement and understanding of the parties
as to the subject matter hereof and supersede all prior oral or written
agreements and understandings and may be modified only in writing. This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together will constitute one and the
same instrument. Captions and titles have been inserted in this Agreement for
the benefit of the parties in referring to this Agreement, but will not be
construed or interpreted as part of this Agreement. Each of Shareholders and
VI, and Buyer, will pay its expenses, including without limitation attorneys'
fees, arising out of the Transactions and the agreements embodying them. Neither
this Agreement nor any party's rights or obligations hereunder may be assigned
without the prior written consent of the other parties hereto. Neither this
Agreement nor any provision of it shall be deemed to create any right in favor
of or impose any obligation upon any person or entity other than the parties to
this Agreement and their respective successors, permitted assigns and legal and
personal representatives. For purposes of this Agreement, the term "knowledge"
means, as to a party, the party's actual knowledge without any duty of inquiry
or investigation, and the term "best knowledge" means that the party knew or
should have known after commercially reasonable inquiry and investigation.
XVIII. NOTICES. Any notice or other communication required under this
Agreement or desired to be given by any of the parties to this Agreement to
any other party shall be
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deemed to be duly given when personally delivered or five (5) business days
after being mailed by certified or registered United States mail, return
receipt requested, postage prepaid, to the other party, or one day after being
delivered pre-paid for over-night delivery to an express service, addressed as
follows:
BUYER:
SBS Technologies, Inc.
Attn: James E. Dixon, Jr.,
Vice President Finance and Administration
2400 Louisiana Boulevard, NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Telephone: (505) 875-0600
Copy to:
Alison K. Schuler, Esquire
Schuler, Messersmith & McNeill
4300 San Mateo Boulevard NE, Suite B-380
Albuquerque, New Mexico 87110
Telephone: (505) 872-0800
SHAREHOLDERS:
Mr. Harry White
c/o VI Computer
531 Encinitas Boulevard, Suite 114
Encinitas, California 92024
Telephone: (760) 632-5823
23
<PAGE>
Themis Computer
3185 Laurelview Court
Fremont, California 94538
Telephone: (510) 252-0870
Facsimile: (510) 490-5529
VI:
VI Computer
531 Encinitas Boulevard
Suite 114
Encinitas, California 92024
Telephone: (760) 632-5823
Facsimile: (760)632-5829
Copy to:
Katherine Ashton, Esquire
Bryan Cave LLP
120 Broadway, Suite 300
Santa Monica, California 90401-2305
Telephone: (310) 576-2100
Facsimile: (310) 576-2200
Or to such other address which may be furnished in writing.
XIX. POWER OF ATTORNEY BY CERTAIN SHAREHOLDERS. Each of the Shareholders
other than Themis and White irrevocably constitutes and appoints White as his
true and lawful attorney and agent to act on his behalf, as White deems
appropriate:
(a) To negotiate, execute and deliver any amendment to this
Agreement;
(b) To negotiate, execute and deliver all related or ancillary
agreements, certificates, consents and other documents in connection with this
Agreement or as may be necessary or appropriate to effectuate the Transactions;
(c) To receive on their behalf the funds due to them in connection
with this Agreement, the Transactions and any related and ancillary agreements
and the transactions contemplated thereunder and to disburse the same to them or
on their behalf;
(d) To deal with Buyer and to act (or refrain from acting) in all
matters (including the granting and accepting of waivers) arising out of, based
upon, in connection with or related to this Agreement, the Transactions, any
related and ancillary agreements and the transactions contemplated thereunder;
(e) To give and receive notices and other communications relating to
this Agreement, the Transactions and any related and ancillary agreements; and
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<PAGE>
(f) To take, or refrain from taking, any actions (whether by
negotiation, settlement, litigation or otherwise) to resolve and/or settle all
matters and disputes arising out of, or related to, the Transactions and the
performance and/or enforcement of the obligations, duties and rights pursuant to
this Agreement or any of the related or ancillary agreements.
The power of attorney set forth in this Section is irrevocable and shall
continue until August 15, 1998.
XX. LEGAL ADVICE AND CONSTRUCTION OF AGREEMENT; PARTIES' UNDERSTANDING. Each
party represents that it/he has received independent legal advice with respect
to the preparation of, and the advisability of entering into, this Agreement and
neither has been entitled to rely upon or has in fact relied upon the legal or
other advice of any other party or any such other party's counsel in entering
into this Agreement. Each party represents that it/he has carefully read this
Agreement (including the Schedules and Exhibits hereto), that this Agreement has
been fully explained to it/him by its/his attorney, that it/he fully understands
the final and binding effect of this Agreement, that the only promises made to
it/him to sign this Agreement are those stated above, and that it/he is signing
this Agreement voluntarily.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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XXI. SPECIFIC PERFORMANCE. The parties agree that they shall be entitled to
specific performance to enforce their rights hereunder, and each party
acknowledges that failure to fulfill such obligations to any of the other
parties hereto would result in irreparable harm.
DATED: August 12, 1998
----------------
BUYER: SHAREHOLDERS:
SBS TECHNOLOGIES, INC. THEMIS COMPUTER
/s/ James E. Dixon /s/ William E. Kehret
- ------------------------- ------------------------
By: James E. Dixon, Jr. By: William E. Kehret
Its: Vice President of Its: Chief Executive Officer
Finance and Administration
/s/ Harry White
VI COMPUTER ------------------------
Harry White
/s/ Harry White
- ------------------------- /s/ Mark D. Vorenkamp
By: Harry White ------------------------
Its President Mark D. Vorenkamp
/s/ Phuc V. Nguyen
------------------------
Phuc V. Nguyen
/s/ Glenn Rasmuson
------------------------
Glenn Rasmuson
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EXHIBIT IIIA
EMPLOYMENT AGREEMENT
SBS Technologies, Inc. ("Company") and Harry White ("Employee") agree:
1. EMPLOYMENT. Company employs Employee for the period beginning on the
date of this Employment Agreement as set forth below, and ending two years from
its date or upon discharge or resignation of Employee solely in accordance with
the terms of this Agreement (the "Employment Period"). During the Employment
Period, Employee will serve in the position of President of Company's
subsidiary, VI Computer ("VI") or other management position as determined by the
Company. Employee will devote sufficient time and energies to the business of
Company to accomplish the duties assigned, 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.
2. RENEWAL. This Agreement may be renewed at the end of the Employment
Period upon written agreement by Company and Employee. Company and Employee
agree to negotiate renewal in good faith.
3. COMPENSATION. For all services performed by Employee for Company
during the Employment Period, Company will pay Employee the salary and benefits
set forth on Appendix "A". Employee will be entitled to participate in employee
benefit programs established by Company and applicable to all full-time
employees. Employee will be entitled to vacation, national holidays and paid
sick leave in accordance with Company policy and Appendix A. During vacation,
national holidays, and paid sick leave, Employee will receive Employee's usual
compensation.
4. 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 agrees to
follow Company's written policies with regard to reimbursable expenses.
5. SICK LEAVE AND DISABILITY. Employee will be entitled to sick leave
and disability as described in the Company's written policies.
6. RESIGNATION AND DISCHARGE. Employee may resign or be discharged
pursuant to the terms of this paragraph. If Employee (i) resigns, Employee must
give 30 days' notice to Company; (ii) is discharged for cause (as later
defined), Company may discharge Employee immediately, without notice; or (iii)
is discharged not for cause, Company must give 6 months' notice to Employee. In
each of the above cases, severance pay will be paid and benefits accorded in
accordance with the Company's written policies then in effect.
For purposes of this paragraph, "for cause" means that during the Employment
Period, Employee materially breaches any provision or restriction or fails to
perform any
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obligation contained in this Employment Agreement or in any written 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
non-discrimination 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 (except minor traffic violations and
similar offenses).
7. CONFIDENTIAL INFORMATION RESTRICTIONS. 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"). 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 not,
at any time, during the Employment Period, and for a period of two years
following termination for any reason, as to Confidential Information of VI, and
after termination for any reason for all other Company Confidential Information
make any independent use of, or disclose 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 kinds, 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.
Employee acknowledges Company's efforts to establish valuable business
relationships with its clients, customers and suppliers. Employee recognizes
that Company has invested resources in the training and the professional
development of Employee, and Employee further recognizes Employee's
responsibility to the Company when Company entrusts Employee with Confidential
Information. In view of Company's efforts, Employee agrees that unless Company
authorizes Employee to do so in writing, Employee will not, for a period of six
months after termination of employment with Company or, if longer, the period
specified in the Covenant Not To Compete dated July **, 1998 between Employee
and Company, solicit the purchase of products or services
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directly competing with products and services of Company from any person,
corporation, business organization or enterprise which:
(i) has made any purchase of products or services from Company within
the two years immediately preceding termination of former Employee's
employment ("Customer"); or
(ii) has been contacted by Employee during the last 12 months of
Employee's employment for the purpose of securing the purchase of products
or services from Company ("Prospective Customer").
Employee and Company recognize that irreparable injury may result to
Company in the event of breach or threatened breach of this paragraph of this
Agreement by Employee. If Employee commits a breach or threatens to commit a
breach of any of the provisions of this paragraph, Company shall have the
right and remedy, in addition to any others that may be available, at law or
in equity, to have the provisions of this paragraph specifically enforced by
any court having equity jurisdiction, together with an accounting therefor,
Employee having specifically acknowledged that any such breach or threatened
breach will cause irreparable injury to Company and that money damages will
not provide an adequate remedy to Company.
8. INVALIDITY. If any provision of this Employment Agreement is later
construed to be unenforceable or invalid, the remaining provisions shall not
be affected but shall continue in full effect. If any term of this
Employment Agreement is found to be unenforceable or invalid by any court
having jurisdiction, that court shall have the power to reduce or revise the
term and the paragraph(s) shall then be fully enforceable.
9. ASSIGNMENT. Employee acknowledges that Employee's services are unique
and personal. Accordingly, Employee may not assign his rights or delegate his
duties or obligations under this Agreement. The Employer's rights and
obligations shall inure to the benefit of and shall be binding upon Employer's
successor and assigns.
10. PERSONNEL POLICIES. Company's written 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 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.
11. 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
and, in the absence of such a program or policy, to submit to such testing as
may be required by Company and administered in accordance with applicable law
and regulations.
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<PAGE>
12. BINDING EFFECT. This Employment Agreement constitutes the entire
understanding of the parties, may be modified only in writing, is governed by
laws of California, and will bind and inure to the benefit of Employee and
Employee's personal representative and Company and Company's successors and
assigns.
DATED: , 1998.
-------------
COMPANY:
SBS TECHNOLOGIES, INC.
BY:
-------------------------------
Its:
------------------------------
EMPLOYEE:
----------------------
Harry White
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APPENDIX A
TO
EMPLOYMENT AGREEMENT
HARRY WHITE
EMPLOYEE
POSITION: President of VI Computer
COMPENSATION: $150,000 base salary, plus participation in SBS Management
Incentive Plan as described below.
BENEFITS:
Standard Employee
Benefits: Medical Insurance
Dental Insurance
Life Insurance
Long and Short-Term Disability Insurance
Twenty Vacation Days Per Year
Ten Holidays Per Year
Sick Leave
Optional Benefits: 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.
STOCK OPTION GRANT: Incentive stock options for 30,000 shares of common
stock, with exercise, termination and other terms as provided in a 1998 Long
Term Equity Incentive Agreement ("Option Agreement") and the 1998 Long-Term
Equity Incentive Plan under which it is issued, including the following:
The Options will vest seven years from the date of issuance or, if VI
earnings hurdles as specified in the Option Agreement are achieved, may
accelerate to the following schedule:
<TABLE>
<CAPTION>
AMOUNT DATE
------ -----
<S> <C>
10,000 August 12, 1999
10,000 August 12, 2000
10,000 August 12, 2001
</TABLE>
The Options will terminate ten years from the date of grant.
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<PAGE>
Exercise price for the options will be the closing price as provided in the 1998
Long Term Incentive Plan.
MANAGEMENT INCENTIVE PROGRAM (MIP)
Employee will participate in the SBS MIP for Fiscal Year 1999 upon such terms
and conditions as determined by SBS Board of Directors. Employee will
participate in the SBS MIP in future years, if MIP programs are authorized by
SBS Board of Directors, upon such terms and conditions as determined by SBS
Board of Directors.
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EXHIBIT IIIA2
COVENANTS NOT TO COMPETE
COVENANT NOT TO COMPETE
The undersigned ("Seller") and SBS Technologies, Inc., a New Mexico
corporation ("SBS") agree as follows:
I. RECITALS
A. SBS and Seller are, simultaneously with the execution of this Covenant,
entering into a purchase agreement ("Purchase Agreement") under which SBS will
acquire all of the outstanding stock of VI Computer, a California corporation,
("VI") for cash.
B. SBS wishes to assure that Seller will refrain from competing with SBS in
the areas of VI's business, and Seller is willing to so refrain as provided in
this Covenant.
C. For purposes of this Agreement, "PowerPC" means all CPU's, processors,
cores, and similar intellectual property ("IP") in the form of silicon, chips,
modules, CPU boards, designs or technology that contain processing elements that
execute the PowerPC instruction set or conform to the PowerPC processor
architecture, including its derivatives, supersets, and successors.
D. For the purpose of this Agreement, "processor" means one silicon die.
Specifically, a CPU that includes multiple execution units ("supersealer") is a
single processor if it is implemented in a single silicon die.
II. COVENANT
A. Seller agrees that, during the term of the Covenant, Seller will not,
without prior written consent of SBS, for Seller's own account or jointly with
another, directly or indirectly, for or on behalf of any individual,
partnership, corporation or other legal entity, as principal, agent or
otherwise:
1. Own, control, manage or otherwise participate in the ownership,
control or management of a business involved within the Territory in the
development, manufacture, marketing or sale of PowerPC single board computers
or systems (together the "Products") during the term of this Covenant;
provided, however, that notwithstanding the foregoing, nothing contained
herein shall prevent Themis or any affiliate, during the term of this
Covenant, from developing, marketing and/or selling in the Territory
multiprocessing computers which are tightly coupled with four or more PowerPC
processors.
2. Solicit, call upon, or attempt to solicit any individual, partnership,
corporation or entity for the purpose of providing to that individual,
partnership, corporation or other entity products or services which are
competitive with the Products.
B. Seller may, without violation of the Covenant, own, directly or indirectly
not more than two percent (2%) of any class of outstanding securities of a
corporation or partnership (even if in competition with the Products) if that
class is regularly traded on a national securities exchange or in the
over-the-counter market.
III. TERM
The term of the Covenant will be three years ("Term").
IV. TERRITORY
33
<PAGE>
The territory covered by this Covenant is the world ("Territory").
V. CONSIDERATION
The consideration for the Covenant is the Purchase Agreement and an undivided
amount of the Purchase Price paid to Seller under the Purchase Agreement.
VI. ACKNOWLEDGEMENT
Seller recognizes the importance of the Covenant and acknowledges that, based on
Seller's past experiences and expertise, and Seller's past development,
exploitation and management of VI's Products, the close relationships Seller has
with VI customers and SBS's intent to utilize and exploit VI's Products and
expand VI's customer base, the restrictions in this Covenant are reasonable as
to terms, time and area, necessary for the protection of SBS's business and not
unduly restrictive of Seller's rights as an individual.
VII. BREACH
If Seller commits a breach or threatens to commit a breach of any of the
provisions of this Covenant, SBS shall have the right and remedy, in addition to
any others that may be available, at law or in equity, to have the provisions of
this Covenant specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, Seller having specifically acknowledged
that any such breach or threatened breach will cause irreparable injury to SBS
and that money damages will not provide an adequate remedy to SBS.
VIII. INVALIDITY
If any provision of the Covenant is later construed to be unenforceable or
invalid, the remaining provisions shall not be affected but shall continue in
full effect. If the Term or Territory are found to be unenforceable or invalid
by any court having jurisdiction, that court shall have the power to reduce the
Term or Territory of the Covenant and the Covenant as revised shall then be
fully enforceable. The payment provided for in Section V shall be payable in
full notwithstanding any such construction, finding or revision.
IX. MISCELLANEOUS
This Covenant binds and benefits the parties, their successors, assigns and
transferees, is specifically enforceable, constitutes (together with the
Purchase Agreement) the entire agreement of the parties and supersedes all prior
oral or written agreements and understandings, is governed by New Mexico law and
may be modified only in writing. This Covenant may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together will constitute one and the same instrument. Captions and titles have
been inserted in this Covenant for the benefit of the parties in referring to
this Covenant, but will not be construed or interpreted as part of this
Covenant. Any suits brought by the parties arising under this Covenant shall be
brought in the United States District Court for the Southern District of
California, and the parties expressly acknowledge that such court shall have
jurisdiction over the matter and parties, and that venue shall be proper in that
court.
X. NOTICES
Any notice or other communication required under this Covenant or desired to be
given by any of the parties to this Covenant to any other party shall be deemed
to be duly given when personally delivered, when mailed by certified or
registered mail, return receipt requested, postage prepaid, or when delivered
pre-paid to a next-day expedited delivery service to the other party, addressed
as follows:
SBS:
SBS Technologies, Inc.
Attn: James E. Dixon, Jr., Vice President
34
<PAGE>
Finance and Administration
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Copy to:
Alison K. Schuler, Esquire
4300 San Mateo Boulevard, NE, Suite B-380
Albuquerque, New Mexico 87110
35
<PAGE>
Seller:
As provided on Appendix X hereto.
Any party may change its address for notice by giving written notice of the
change pursuant to this Section.
XI. ANNOUNCEMENTS
Seller, without the prior written consent of SBS, will not make any
announcement, public or non-public, or issue any press release in respect of
this Covenant.
DATED: August , 1998
--------
SELLER: SBS TECHNOLOGIES, INC.
- ------------------------------ By:
Harry White ------------------------------
Its:
---------------------------
36
<PAGE>
APPENDIX X
SELLER'S ADDRESS FOR NOTICE
Mr. Harry White
c/o VI Computer
531 Encinitas Boulevard, Suite 114
Encinitas, California 92024
37
<PAGE>
COVENANT NOT TO COMPETE
The undersigned ("Seller") and SBS Technologies, Inc., a New Mexico corporation
("SBS") agree as follows:
I. RECITALS
A. SBS and Seller are, simultaneously with the execution of this Covenant,
entering into a purchase agreement ("Purchase Agreement") under which SBS will
acquire all of the outstanding stock of VI Computer, a California corporation,
("VI") for cash.
B. SBS wishes to assure that Seller will refrain from competing with SBS in
the areas of VI's business, and Seller is willing to so refrain as provided in
this Covenant.
C. For purposes of this Agreement, "PowerPC" means all CPU's, processors,
cores, and similar intellectual property ("IP") in the form of silicon, chips,
modules, CPU boards, designs or technology that contain processing elements
that execute the PowerPC instruction set or conform to the PowerPC processor
architecture, including its derivatives, supersets, and successors.
D. For the purpose of this Agreement, "processor" means one silicon die.
Specifically, a CPU that includes multiple execution units ("supersealer") is
a single processor if it is implemented in a single silicon die.
II. COVENANT
A. Seller agrees that, during the term of the Covenant, Seller will not,
without prior written consent of SBS, for Seller's own account or jointly with
another, directly or indirectly, for or on behalf of any individual,
partnership, corporation or other legal entity, as principal, agent or
otherwise:
1. Own, control, manage or otherwise participate in the ownership,
control or management of a business involved within the Territory in the
development, manufacture, marketing or sale of Power PC single board computers
or systems (together the "Products") during the term of this Covenant; provided,
however, that notwithstanding the foregoing, nothing contained herein shall
prevent Themis or any affiliate, during the term of the Covenant, from
developing, marketing and/or selling in the Territory multiprocessing computers
which are tightly coupled with four or more PowerPC processors.
2. Solicit, call upon, or attempt to solicit any individual, partnership,
corporation or entity for the purpose of providing to that individual,
partnership, corporation or other entity products or services which are
competitive with the Products.
B. Seller may, without violation of the Covenant, own, directly or indirectly
not more than two percent (2%) of any class of outstanding securities of a
corporation or partnership (even if in competition with the Products) if
that class is regularly traded on a national securities exchange or in the
over-the-counter market.
III. TERM
The term of the Covenant will be three years ("Term").
IV. TERRITORY
The territory covered by this Covenant is the world ("Territory").
38
<PAGE>
V. CONSIDERATION
The consideration for the Covenant is the Purchase Agreement and an undivided
amount of the Purchase Price paid to Seller under the Purchase Agreement.
VI. ACKNOWLEDGEMENT
Seller recognizes the importance of the Covenant and acknowledges that, based on
Seller's majority ownership of VI and, therefore, its knowledge of VI's past
development, exploitation and management of VI's Products and VI's customers,
and SBS's intent to utilize and exploit VI's Products and expand VI's customer
base, the restrictions in this Covenant are reasonable as to terms, time and
area, necessary for the protection of SBS's business and not unduly restrictive
of Seller's rights.
VII. BREACH
If Seller commits a breach or threatens to commit a breach of any of the
provisions of this Covenant, SBS shall have the right and remedy, in addition to
any others that may be available, at law or in equity, to have the provisions of
this Covenant specifically enforced by any court having equity jurisdiction,
together with an accounting therefor, Seller having specifically acknowledged
that any such breach or threatened breach will cause irreparable injury to SBS
and that money damages will not provide an adequate remedy to SBS.
VIII. INVALIDITY
If any provision of the Covenant is later construed to be unenforceable or
invalid, the remaining provisions shall not be affected but shall continue in
full effect. If the Term or Territory are found to be unenforceable or invalid
by any court having jurisdiction, that court shall have the power to reduce the
Term or Territory of the Covenant and the Covenant as revised shall then be
fully enforceable. The payment provided for in Section V shall be payable in
full notwithstanding any such construction, finding or revision.
IX. MISCELLANEOUS
This Covenant binds and benefits the parties, their successors, assigns and
transferees, is specifically enforceable, constitutes (together with the
Purchase Agreement) the entire agreement of the parties and supersedes all prior
oral or written agreements and understandings, is governed by New Mexico law and
may be modified only in writing. This Covenant may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together will constitute one and the same instrument. Captions and titles have
been inserted in this Covenant for the benefit of the parties in referring to
this Covenant, but will not be construed or interpreted as part of this
Covenant. Any suits brought by the parties arising under this Covenant shall be
brought in the United States District Court for the Southern District of
California, and the parties expressly acknowledge that such court shall have
jurisdiction over the matter and parties, and that venue shall be proper in that
court.
X. NOTICES
Any notice or other communication required under this Covenant or desired to be
given by any of the parties to this Covenant to any other party shall be deemed
to be duly given when personally delivered, when mailed by certified or
registered mail, return receipt requested, postage prepaid, or when delivered
pre-paid to a next-day expedited delivery service to the other party, addressed
as follows:
SBS:
SBS Technologies, Inc.
Attn: James E. Dixon, Jr.,
Vice President Finance and Administration
2400 Louisiana Blvd. NE
39
<PAGE>
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Copy to:
Alison K. Schuler, Esquire
4300 San Mateo Boulevard, NE, Suite B-380
Albuquerque, New Mexico 87110
40
<PAGE>
Seller:
As provided on Appendix X hereto.
Any party may change its address for notice by giving written notice of the
change pursuant to this Section.
XI. ANNOUNCEMENTS
Seller, without the prior written consent of SBS, will not make any
announcement, public or non-public, or issue any press release in respect of
this Covenant.
DATED: August , 1998
SELLER: SBS TECHNOLOGIES, INC.
THEMIS COMPUTER
By: By:
---------------------------- ----------------------------
Its: Chief Executive Officer & Its: Vice President of Finance &
President Administration
41
<PAGE>
APPENDIX X
SELLER'S ADDRESS FOR NOTICE
Themis Computer
3185 Laurelview Court
Fremont, CA 94538
Attention: President
With a copy to:
Bryan Cave LLP
120 Broadway, Suite 300
Santa Monica, CA 90401-2305
Attention: Katherine F. Ashton, Esquire
42
<PAGE>
EXHIBIT 21 - - Subsidiaries of the Registrant
As of September 22, 1998, SBS Technologies, Inc. has the
following subsidiaries:
Name State of Incorporation
----- ----------------------
SBS Berg Telemetry Systems, Inc. California, USA
SBS GreenSpring Modular I/O, Inc. California, USA
SBS Embedded Computers, Inc. New Mexico, USA
SBS Bit 3 Operations, Inc. Minnesota, USA
SBS OR Industrial Computers GmbH Germany
ORTEC Electronic Assembly GmbH Germany
V-I Computer California, USA
<PAGE>
EXHIBIT 23
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 4, 1998, relating to the
consolidated balance sheets of SBS Technologies, Inc. and subsidiaries as of
June 30, 1998, and 1997, 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, 1998, which report appears in
the June 30, 1998, annual report on Form 10-K of SBS Technologies, Inc..
/S/ KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
September 24, 1998
<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, jointly and
severally, his attorney-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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ------ -----
<S> <C> <C>
/s/ Christopher J. Amenson September 19, 1998
____________________________ Chairman of the Board, _____________________
Christopher J. Amenson Chief Executive Officer,
& Director
/s/ Scott A. Alexander September 19, 1998
____________________________ Executive Vice President, _____________________
Scott A. Alexander Secretary, & Director
/s/ James E. Dixon September 19, 1998
____________________________ Vice President, Finance & _____________________
James E. Dixon Administration, & Treasurer
/s/ Warren W. Andrews September 19, 1998
____________________________ Director _____________________
Warren W. Andrews
/s/ William J. Becker September 19, 1998
____________________________ Director _____________________
William J. Becker
/s/ Lawrence A. Bennigson September 19, 1998
____________________________ Director _____________________
Lawrence A. Bennigson
/s/ Alan F. White September 19, 1998
____________________________ Director _____________________
Alan F. White
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,874,754
<SECURITIES> 0
<RECEIVABLES> 13,408,656
<ALLOWANCES> (289,939)
<INVENTORY> 10,661,211
<CURRENT-ASSETS> 48,878,726
<PP&E> 6,776,965
<DEPRECIATION> 2,316,689
<TOTAL-ASSETS> 74,315,187
<CURRENT-LIABILITIES> 10,051,200
<BONDS> 0
0
0
<COMMON> 47,778,033
<OTHER-SE> 16,485,954
<TOTAL-LIABILITY-AND-EQUITY> 74,315,187
<SALES> 74,213,901
<TOTAL-REVENUES> 74,213,901
<CGS> 31,793,078
<TOTAL-COSTS> 58,605,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 136,078
<INTEREST-EXPENSE> 187,676
<INCOME-PRETAX> 16,541,188
<INCOME-TAX> 6,451,000
<INCOME-CONTINUING> 16,541,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,090,188
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.64
</TABLE>
