<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---- Act of 1934 for the quarterly period ended MARCH 31, 2000
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
COMMISSION FILE NUMBER 1-10981
SBS TECHNOLOGIES, INC.
New Mexico 85-0359415
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2400 Louisiana Blvd. NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
(505) 875-0600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
As of May 1, 2000, the Registrant had 6,559,461 shares of
its common stock outstanding.
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,855,564 3,500,556
Receivables, net (note 2) 24,852,299 21,442,108
Inventories (note 3) 24,143,719 15,755,379
Deferred income taxes 2,687,501 2,179,143
Income tax receivable 1,515,643 31,728
Prepaid expenses 850,455 632,798
Other current assets 369,500 322,511
------------- -------------
Total current assets 62,274,681 43,864,223
------------- -------------
Property and equipment, net 7,267,897 7,321,717
Intangible assets, net 31,476,454 36,228,105
Deferred income taxes 4,921,514 4,488,059
Other assets 100,662 105,751
------------- -------------
Total assets $ 106,041,208 92,007,855
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- 3,900,000
Notes payable to related parties -- 1,391,216
Accounts payable 4,967,386 3,319,664
Accrued representative commissions 561,629 529,765
Accrued salaries 1,589,629 2,632,993
Accrued compensated absences 1,149,223 1,201,653
Other current liabilities 1,898,880 1,804,591
------------- -------------
Total current liabilities 10,166,747 14,779,882
------------- -------------
Total liabilities 10,166,747 14,779,882
------------- -------------
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized,
6,500,753 issued and outstanding at March 31, 2000
5,837,483 issued and outstanding at June 30, 1999 60,724,478 50,554,450
Common stock warrants -- 38,425
Accumulated other comprehensive loss (3,762,906) (2,059,126)
Retained earnings 38,912,889 28,694,224
------------- -------------
Total stockholders' equity 95,874,461 77,227,973
------------- -------------
Total liabilities and stockholders' equity $ 106,041,208 92,007,855
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 2
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended March 31 Three Months Ended March 31
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 90,341,358 78,325,058 29,888,637 26,830,138
Cost of sales 42,064,813 32,629,023 14,314,636 11,452,451
------------ ------------ ------------ ------------
Gross Profit 48,276,545 45,696,035 15,574,001 15,377,687
Selling, general and administrative expense 18,713,659 17,785,933 6,451,485 5,972,504
Research and development expense 11,241,327 10,642,029 3,703,181 3,786,455
Acquired in-process research and
development charge -- 527,514 -- --
Amortization of intangible assets 3,307,502 2,849,247 1,085,746 1,147,009
------------ ------------ ------------ ------------
Operating income 15,014,057 13,891,312 4,333,589 4,471,719
------------ ------------ ------------ ------------
Interest income(expense), net 272,485 91,363 97,698 (62,453)
Foreign exchange gains (losses) (92,359) 611,560 (62,377) 554,294
------------ ------------ ------------ ------------
180,126 702,923 35,321 491,841
------------ ------------ ------------ ------------
Income before income taxes and minority interest 15,194,183 14,594,235 4,368,910 4,963,560
Income taxes 5,180,170 5,395,189 1,429,877 1,735,323
------------ ------------ ------------ ------------
Income before minority interest 10,014,013 9,199,046 2,939,033 3,228,237
Minority interest -- 444,383 -- --
------------ ------------ ------------ ------------
Net income $ 10,014,013 8,754,663 2,939,033 3,228,237
============ ============ ============ ============
Net income per common share $ 1.64 1.50 0.46 0.55
------------ ------------ ------------ ------------
Net income per common share -
assuming dilution $ 1.49 1.42 0.41 0.52
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Accumulated Total
stock Common Other stock-
------------------------- stock Retained Comprehensive holders'
Shares Amount warrants earnings Loss equity
------------ ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1999 5,837,483 $ 50,554,450 $ 38,425 $ 28,694,224 $ (2,059,126) $ 77,227,973
Exercise of stock options and warrants 488,407 7,304,819 (38,425) -- -- 7,266,394
Stock-based compensation -- 21,093 -- -- -- 21,093
Acquisition of SciTech, Inc. 174,863 100 -- 642,692 -- 642,792
Dividends paid to former shareholders
of SciTech, Inc. -- -- -- (438,040) -- (438,040)
Income tax benefit from stock
options exercised -- 2,844,016 -- -- -- 2,844,016
Net income -- -- -- 10,014,013 -- 10,014,013
Other comprehensive income:
Foreign currency translation
adjustment -- -- -- -- (1,703,780) (1,703,780)
------------ ------------ ---------- ------------ ------------ ------------
BALANCE AT MARCH 31, 2000 6,500,753 $ 60,724,478 $ -- $ 38,912,889 $ (3,762,906) $ 95,874,461
============ ============ ========== ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 4
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,014,013 8,754,663
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,440,347 1,209,672
Amortization of intangible assets 3,307,502 2,849,247
Bad debt expense 36,557 186,173
Deferred income taxes (1,007,063) (486,427)
Loss on disposition of assets 75,375 32,142
Foreign exchange (gains) losses 92,359 (611,560)
Stock-based compensation 21,093 --
Acquired in-process research and development charge -- 527,514
Minority interest -- 444,383
Changes in assets and liabilities, net of effects of acquisitions:
Receivables (3,497,734) (1,800,679)
Inventories (8,138,458) (2,356,594)
Prepaids and other assets (284,044) (281,017)
Accounts payable 1,658,157 (369,546)
Accrued representative commissions 31,864 195,024
Accrued salaries (1,034,375) (1,333,345)
Accrued compensated absences (40,641) 135,782
Income taxes (1,469,649) (2,177,879)
Other current liabilities 254,371 90,911
------------ ------------
Net adjustments (8,554,339) (3,746,199)
------------ ------------
Net cash provided by operating activities 1,459,674 5,008,464
------------ ------------
Cash flows from investing activities:
Cash received from sale of assets -- 201
Business acquisitions (note 5) 64,162 (25,142,486)
Acquisition of property and equipment (1,478,279) (3,218,535)
------------ ------------
Net cash used by investing activities (1,414,117) (28,360,820)
------------ ------------
Cash flows from financing activities:
Payments on long-term borrowings and capital leases -- (3,000,000)
Payments on notes payable to related parties (1,391,216) (1,607,467)
Proceeds on notes payable to bank -- 6,500,000
Payments on notes payable (3,975,060) --
Dividends paid to former shareholders of SciTech, Inc. (438,040) --
Proceeds from exercise of stock options and warrants 7,266,394 1,111,899
Repurchase of common stock, net -- (181,928)
Income tax benefit of stock options exercised 2,844,016 542,500
------------ ------------
Net cash provided by financing activities 4,306,094 3,365,004
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
(Continued)
Page 5
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Effect of exchange rate changes on cash 3,357 65,002
----------- -----------
Net change in cash and cash equivalents 4,355,008 (19,922,350)
Cash and cash equivalents at beginning of period 3,500,556 22,874,754
----------- -----------
Cash and cash equivalents at end of period $ 7,855,564 2,952,404
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 88,029 78,978
Income taxes paid 4,886,828 7,428,969
Noncash financing and investing activities:
Stock issued for acquisition -- 713,878
Summary of assets acquired and liabilities assumed through acquisition:
Cash and cash equivalents $ 64,162 531,475
Receivables 382,065 5,314,703
Inventories 480,191 3,378,652
Deferred income taxes -- (105,638)
Prepaid expenses and other current assets -- 102,512
Goodwill -- 23,909,563
Covenant not to compete -- 200,000
Property and equipment 80,500 556,258
Accumulated depreciation (66,481) --
Note payable - related party -- (2,865,603)
Note payable (75,060) --
Accounts payable (201,061) (851,903)
Accrued salaries (21,524) (1,753,948)
Accrued compensated absences -- (82,225)
Income taxes -- (1,888,522)
Other current liabilities -- (771,363)
Common stock (100) --
Retained earnings (642,692) --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 6
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies as set forth in SBS Technologies, Inc.'s (the
"Company") Annual Report on Form 10-K dated September 23, 1999 have been
adhered to in preparing the accompanying interim consolidated financial
statements. These statements are unaudited but include all adjustments,
consisting of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position, results of
operations, and cash flows for such interim periods. Results for such
interim periods are not necessarily indicative of results for a full year.
2) RECEIVABLES, NET
Receivables, net consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Accounts receivable $ 25,552,350 22,205,155
Less: allowance for doubtful accounts (700,051) (763,047)
------------ ------------
$ 24,852,299 21,442,108
============ ============
</TABLE>
3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Raw materials $ 15,631,018 7,598,642
Work in process 4,131,832 4,150,779
Finished goods 4,380,869 4,005,958
------------- -------------
$ 24,143,719 15,755,379
============ ============
</TABLE>
4) EARNINGS PER SHARE
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:
<TABLE>
<CAPTION>
Nine Months Ended March 31
----------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $10,014,013 6,120,828 $1.64 $8,754,663 5,824,087 $1.50
===== =====
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants -- 584,345 -- 344,663
----------- ---------- ---------- -----------
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION
Net Income $10,014,013 6,705,173 $1.49 $8,754,663 6,168,750 $1.42
===== =====
</TABLE>
Page 7
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net Income $2,939,033 6,386,905 $0.46 $3,228,237 5,828,783 $0.55
===== =====
EFFECT OF DILUTIVE SECURITIES
Dilutive options and warrants -- 696,795 -- 334,882
---------- ------------ ---------- -----------
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION
Net Income $2,939,033 7,083,700 $0.41 $3,228,237 6,163,665 $0.52
===== =====
</TABLE>
For the nine and three months ended March 31, 2000 and 1999, options to
purchase 175,432 and 922,771 shares and 4,396 and 429,400 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.
5) BUSINESS ACQUISITION
On December 20, 1999, the Company acquired SciTech, Inc., a Madison,
Wisconsin based designer and manufacturer of communications network I/O
products based on PMC and PCI form factors. 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, SciTech Inc.'s shareholders exchanged all outstanding shares of
SciTech, Inc. stock for 174,863 shares of the Company's stock. SciTech,
Inc. was subsequently merged into SBS Technologies, Inc., Communications
Products ("Communications Products") (formerly SBS Technologies, Inc.,
Embedded PPC Products).
SciTech, Inc.'s historical results do not have a material effect on
combined financial position or results of operations, and as such, the
financial position and results of operations of the Company and SciTech,
Inc. are combined from October 1, 1999.
6) COMPREHENSIVE INCOME
Comprehensive income for the nine and three months ended March 31, 2000 was
$8.3 million and $2.1 million, respectively. Comprehensive income for the
nine and three months ended March 31, 1999 was $7.8 million and $1.9
million, respectively. The difference between comprehensive income and net
income was related to foreign currency translation adjustments.
7) SEGMENT FINANCIAL DATA
The Company operates internationally through three operating segments: the
Communications Group, the Computer Group, and the Aerospace Group. The
Communications Group was established this quarter and includes
Communications Products and SBS Technologies, Inc. Industrial Computers
which were included in the Computer Group prior to this time. OR Industrial
Computers GmbH ("OR") and ORTEC Electronic Assembly GmbH ("ORTEC"), which
were reported as the European Group previously, have been merged into the
Computer Group, as their business is closely related to the processor and
I/O product businesses and is now under the same management. These segments
are based on the markets that are served, the products that are provided to
those markets, and have managers who report directly to the chief operating
decision-maker. Reportable segments for all periods have been reclassified
to conform to the new segment reporting structure.
The Company measures its segments' results of operations based on income
before income taxes and minority interest and prior to allocation of
corporate overhead expenses, substantially all amortization of goodwill and
intangibles, corporate interest income and expense, and acquired in-process
research and development charges associated with purchase business
combinations. The accounting policies used to measure segment results of
operations are the same as those referred to in Note 1.
Page 8
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Corporate
Communications Computer Aerospace and un-
Group Group Group Allocated(1) Other(2) Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED MARCH 31
Gross Sales 2000 $ 28,428,142 42,098,183 20,497,096 -- -- 91,023,421
Intersegment sales (219,405) (185,397) (277,261) -- -- (682,063)
---------- ---------- ---------- ---------- ---------- -----------
Sales to external customers 28,208,737 41,912,786 20,219,835 -- -- 90,341,358
Gross Sales 1999 13,099,090 41,123,412 24,558,618 -- -- 78,781,120
Intersegment sales (212,692) (131,318) (112,052) -- -- (456,062)
---------- ---------- ---------- ---------- ---------- -----------
Sales to external customers 12,886,398 40,992,094 24,446,566 -- -- 78,325,058
Segment profit (Income
before 2000 7,298,997 8,536,722 5,507,428 (6,148,964) -- 15,194,183
taxes and minority
interest) 1999 2,482,261 9,416,595 8,494,676 (5,271,783) (527,514) 14,594,235
THREE MONTHS ENDED MARCH 31
Gross Sales 2000 11,454,247 13,259,369 5,474,177 -- -- 30,187,793
Intersegment sales (98,113) (92,929) (108,114) -- -- (299,156)
---------- ---------- ---------- ---------- ---------- -----------
Sales to external customers 11,356,134 13,166,440 5,366,063 -- -- 29,888,637
Gross Sales 1999 5,154,202 13,969,208 7,868,273 -- -- 26,991,683
Intersegment sales (78,910) (44,333) (38,302) -- -- (161,545)
---------- ---------- ---------- ---------- ---------- -----------
Sales to external customers 5,075,292 13,924,875 7,829,971 -- -- 26,830,138
Segment profit (Income
before 2000 3,352,537 2,046,548 1,124,126 (2,154,301) -- 4,368,910
taxes and minority
interest) 1999 1,104,194 3,193,135 2,368,816 (1,702,585) -- 4,963,560
MARCH 31
Total assets 2000 22,496,484 22,518,859 10,759,750 50,266,115 -- 106,041,208
1999 8,060,238 22,884,101 11,339,970 49,037,545 -- 91,321,854
---------- ---------- ---------- ---------- ---------- -----------
</TABLE>
(1) Corporate and unallocated includes corporate overhead, substantially all
interest expense, interest income, and amortization expense associated with
goodwill and intangibles not considered in assessing segment profit.
Corporate assets primarily include cash and cash equivalents, deferred and
current income tax assets and intangible assets.
(2) Acquired in-process research and development associated with purchase
business combinations that management does not consider in assessing
segment profits.
8) SUBSEQUENT EVENT
On April 12, 2000, the Company completed the acquisition of SDL
Communications, Inc. ("SDL") for $25.0 million in cash, subject to
adjustment upon finalizing the closing balance sheet. The acquisition was
funded with existing cash and a $20.0 million borrowing under the Company's
Credit Agreement with Bank of America, N.A. Acquisition costs are estimated
to be $2.0 million. SDL is a privately held company located in Easton,
Massachusetts that specializes in the design, manufacture and sale of WAN
I/O for the telecommunications and data communications markets. SDL
designs, manufactures, and markets T1/EI, T3/E3, HSSI and OC3 products
based on the PCI, CompactPCI, and PMC form factors, and supporting
protocols such as Frame Relay, HDLC, PPP, X.25 and ATM. In addition, SDL's
products support the operating systems most commonly used in
communications, including Windows NT, Solaris, and VxWorks. 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. In connection with the acquisition, the Company
expects to record an approximate $4.0 million acquired in-process research
and development charge. The remaining goodwill will be amortized over an
approximate eight year period. For the year ended December 31, 1999, SDL
had sales of $12.3 million and a loss before income taxes of $3.0 million
(unaudited). The loss before income taxes includes a stock-based
compensation charge as required by APB 25 of $4.5 million.
Page 9
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO. INFORMATION DISCUSSED HEREIN,
OTHER THAN STATEMENTS OF HISTORICAL FACT, THAT ADDRESSES ACTIVITIES, EVENTS OR
DEVELOPMENTS THAT THE COMPANY OR MANAGEMENT INTENDS, EXPECTS, PROJECTS, BELIEVES
OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE ARE FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE BASED UPON CERTAIN ASSUMPTIONS AND ASSESSMENTS MADE BY
MANAGEMENT OF THE COMPANY IN LIGHT OF ITS EXPERIENCE AND ITS PERCEPTION OF
HISTORICAL TRENDS, CURRENT CONDITIONS, EXPECTED FUTURE DEVELOPMENTS AND OTHER
FACTORS IT BELIEVES TO BE APPROPRIATE. THE FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS FORM 10-Q ARE ALSO SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES,
INCLUDING BUT NOT LIMITED TO ECONOMIC, COMPETITIVE, GOVERNMENTAL AND
TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES, PRICES, AND OTHER RISK FACTORS LISTED IN THE COMPANY'S FORM 10-K FOR
THE YEAR ENDED JUNE 30, 1999. THESE FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND ACTUAL RESULTS; DEVELOPMENTS AND BUSINESS
DECISIONS MAY DIFFER FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
SALES. For the nine-month period ended March 31, 2000, sales increased 15.3%,
or $12.0 million, from $78.3 million for the nine-month period ended March
31, 1999, to $90.3 million. Of this 15.3% increase, sales contributed by the
acquisition of SciTech, Inc. comprised 2.1%, and 13.2% was attributable to
the Company's other product lines. Unit shipments increased within the
Computer Group segment, primarily due to an increase in sales of the Group's
computer processor products and general purpose I/O products, partially
offset by pricing pressure, the negative impact of changes in exchange rates
on sales, and a decrease in sales of the Group's computer connectivity and
expansion unit products. Unit shipments increased among all product lines
within the Communications Group, but the increase in unit shipments was also
partially offset by pricing pressure. Unit shipments declined within the
Aerospace Group compared to the nine-month period ended March 31, 1999,
primarily due to a decline in large project bookings, declines in the
commercial satellite and military markets which Telemetry serves, and a
decline in major new aircraft development programs.
GROSS PROFIT. For the nine-month period ended March 31, 2000, gross profit
increased 5.6%, or $2.6 million from $45.7 million for the nine-month period
ended March 31, 1999, to $48.3 million. As expected, for the nine-month period
ended March 31, 2000, gross profit as a percentage of sales decreased to 53.4%
from 58.3% for the nine-month period ended March 31, 1999, primarily due to a
higher percentage of sales of the Company's Communications Group products, which
generally yield lower margins than the Company's other products, and lower
margins experienced by the Computer Group and the Aerospace Group. Gross margins
as a percentage of sales are expected to continue to decrease slightly, as the
Company's lower margin production and systems business continues to be a larger
portion of total sales mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. For the nine-month period ended
March 31, 2000, selling, general and administrative (SG&A) expense increased
5.2%, or $928,000, from $17.8 million for the nine-month period ended March 31,
1999, to $18.7 million. This increase was primarily due to an increase in costs
commensurate with the growth of the Communications Group and to the formation of
SBS Technologies Europe GmbH, which markets Computer Group products outside of
the United States. For the nine-month period ended March 31, 2000, SG&A expense
as a percentage of sales decreased to 20.7% from 22.7% in the nine-month period
ended March 31, 1999, as the increase in sales volume more than offset the
increase in expense.
RESEARCH AND DEVELOPMENT EXPENSE. For the nine-month period ended March 31,
2000, research and development expense (R&D) increased 5.6%, or $599,000, from
$10.6 million for the nine-month period ended March 31, 1999, to $11.2 million.
This increase resulted primarily from increased investment in product
development within the Communications Group, commensurate with the growth of the
segment, partially offset by a reduction in costs within the Aerospace Group.
For the nine-month period ended March 31, 2000, R&D expense as a percentage of
sales decreased to 12.4% from 13.6% in the nine-month period ended March 31,
1999, as the increase in sales volume more than offset the increase in expense.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE. For the nine-month period
ended March 31, 1999, in connection with the acquisition of the majority
interest in OR completed on July 1, 1998, the Company recorded a $0.5 million
earnings charge based on an assessment by the Company, in conjunction with an
independent valuation firm, of purchased technology of OR. The assessment
determined that $0.5 million of OR's purchase price represented technology that
did not meet the accounting
Page 10
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Continued)
definitions of completed technology, and thus should be charged to earnings
under generally accepted accounting principles. This assessment analyzed certain
VME, CompactPCI, and PC Compact products that were under development at the time
of acquisition. These programs were in various stages of completion ranging from
initial development to 90% of completion, with estimated completion dates
ranging from September 1998 through April 1999. The fair value of these
development programs was determined in accordance with views expressed by the
staff of the Securities and Exchange Commission.
AMORTIZATION OF INTANGIBLE ASSETS. For the nine-month period ended March 31,
2000, amortization of intangible assets increased 16.1%, or $458,000, from $2.8
million for the nine-month period ended March 31, 1999, to $3.3 million. This
increase was the result of the amortization of goodwill associated with the
acquisition of SBS Technologies, Inc., Communications Products (formerly SBS
Technologies, Inc., Embedded PPC Products) and the acquisition of the minority
interest in OR and ORTEC in December of 1998, partially offset by the favorable
impact of changes in exchange rates.
INTEREST INCOME, NET OF INTEREST EXPENSE. For the nine-month period ended March
31, 2000, interest income, net of interest expense increased 198.2%, or
$181,000, from $91,000 for the nine-month period ended March 31, 1999, to
$272,000. This increase was primarily due to an increase in interest income
associated with amendments of prior years' tax returns for research and
experimental tax credits, as well as the elimination of interest expense
associated with the $10.4 million payment made in February 1999 for the
remaining interest in OR and ORTEC.
FOREIGN EXCHANGE GAINS (LOSSES). For the nine-month period ended March 31, 2000,
the $92,000 foreign exchange loss was primarily attributable to the change in
exchange rates relating to interest payable on debt from the Company's foreign
subsidiary. For the nine-month period ended March 31, 1999, the $612,000 foreign
exchange gain was primarily attributable to the change in exchange rates between
December 9, 1998 and February 28, 1999, relating to the note payable entered
into on December 9, 1998 for DM 17.2 million paid on February 28, 1999 for the
remaining interest in OR and ORTEC.
INCOME TAXES. For the nine-month period ended March 31, 2000 and the nine-month
period ended March 31, 1999, income taxes represented an effective income tax
rate of 34.1% and 37.0%, respectively. The decrease in the effective income tax
rate was primarily due to U.S. tax planning strategies implemented by the
Company, including minimization of the Company's tax liability related to debt
between the Company and its foreign subsidiaries and increased use of the
Company's foreign sales corporation.
EARNINGS PER SHARE. For the nine-month period ended March 31, 2000, net income
per common share was $1.64 compared to $1.50 for the nine-month period ended
March 31, 1999. For the nine-month period ended March 31, 2000, net income per
common share assuming dilution was $1.49 compared to $1.42 for the nine-month
period ended March 31, 1999.
REVIEW OF BUSINESS SEGMENTS
The Company is managed and operates through three operating segments: the
Communications Group, the Computer Group and the Aerospace Group. The following
is a discussion of sales to external customers and segment profit for each
reportable segment. The Company does not allocate to these segments costs
associated with its corporate headquarters, substantially all of the
amortization expense associated with acquisitions, substantially all interest
income earned on cash balances, interest expense associated with Company
borrowing facilities, and acquired in-process research and development charges.
This measure of segment profit described above is referred to herein as "Segment
Profit."
COMMUNICATIONS GROUP
For the nine-month period ended March 31, 2000, Communications Group sales to
external customers increased 118.9%, or $15.3 million, from $12.9 million for
the nine-month period ended March 31, 1999 to $28.2 million. Of this 118.9%
increase, sales contributed from the acquisition of SciTech, Inc. accounted for
12.7% of the increase. The balance of the increase, 106.2%, was primarily
attributable to an increase in sales of the Group's industrial systems and
enclosures products and PowerPC based processor products, partially offset by
pricing pressure.
Page 11
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Continued)
For the nine-month period ended March 31, 2000, Communications Group segment
profit increased 194.0%, or $4.8 million, from $2.5 million for the nine-month
period ended March 31, 1999, to $7.3 million, primarily due to the increase in
sales among the Group's product lines, partially offset by an increase in SG&A
and R&D expenses commensurate with the growth of the segment. For the same
reasons, segment profit as a percentage of sales increased from 19.3% for the
nine-month period ended March 31, 1999 to 25.9% for the same period in 2000.
COMPUTER GROUP
For the nine-month period ended March 31, 2000, Computer Group sales to external
customers increased 2.2%, or $921,000, from $41.0 million for the nine-month
period ended March 31, 1999 to $41.9 million, primarily the result of an
increase in sales of the Group's general purpose I/O products and computer
processor products. This increase was partially offset by pricing pressure, the
negative impact of changes in exchange rates on sales, and a decrease in sales
of the Group's computer connectivity and expansion unit products, primarily the
result of a decrease in inventory requirements from a large adapter customer and
a decrease in export sales of adapters.
For the nine-month period ended March 31, 2000, Computer Group segment profit
decreased 9.3%, or $880,000, from $9.4 million for the nine-month period ended
March 31, 1999 to $8.5 million. This decrease was primarily due to a shift in
sales to lower margin products and an increase in SG&A expense primarily
associated with the formation of SBS Technologies Europe GmbH, which markets
Computer Group products outside of the United States. For the same reasons,
segment profit as a percentage of sales decreased from 23.0% for the nine-month
period ended March 31, 1999 to 20.4% for the same period in 2000.
AEROSPACE GROUP
For the nine-month period ended March 31, 2000, Aerospace Group sales to
external customers decreased 17.3%, or $4.2 million, from $24.4 million for the
nine-month period ended March 31, 1999 to $20.2 million. This decrease was
primarily the result of a decrease in sales of the Group's telemetry and
avionics interface products, which have been impacted by declines in large
project bookings and declines in the commercial satellite and military markets
which Telemetry serves, as well as a decline in major new aircraft development
programs.
For the nine-month period ended March 31, 2000, Aerospace Group segment profit
decreased 35.2%, or $3.0 million, from $8.5 million for the nine-month period
ended March 31, 1999 to $5.5 million. This decrease was primarily due to lower
sales of the Group's telemetry and avionics interface product lines and a shift
in sales mix to lower margin products, partially offset by reductions in R&D and
SG&A expense. For the same reasons, segment profit as a percentage of sales
decreased from 34.7% for the nine-month period ended March 31, 1999 to 27.2% for
the same period in 2000.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
SALES. For the three-month period ended March 31, 2000, sales increased
11.4%, or $3.1 million, from $26.8 million for the three-month period ended
March 31, 1999, to $29.9 million. Of this 11.4% increase, sales contributed
by the acquisition of SciTech, Inc. comprised 2.8%, and 8.6% was attributable
to the Company's other product lines. Unit shipments increased among all
product lines within the Communications Group segment, but this increase in
volume was partially offset by pricing pressure. Unit shipments declined
within the Computer Group, primarily the result of a decrease in sales of the
Group's computer connectivity and expansion unit products and computer
processor products, partially offset by an increase in sales of the Group's
general purpose I/O products. The Computer Group also experienced pricing
pressure during the quarter. Unit shipments declined within the Aerospace
Group compared to the three-month period ended March 31, 1999, primarily due
to a decline in large project bookings, declines in the commercial satellite
and military markets which Telemetry serves, and a decline in major new
aircraft development programs.
Page 12
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Continued)
GROSS PROFIT. For the three-month period ended March 31, 2000, gross profit
increased 1.3%, or $196,000 from $15.4 million for the three-month period ended
March 31, 1999, to $15.6 million. As expected, for the three-month period ended
March 31, 2000, gross profit as a percentage of sales decreased to 52.1% from
57.3% for the three-month period ended March 31, 1999, primarily due to a higher
percentage of sales of the Communications Group products, which generally yield
lower margins than the Company's other products, and lower margins experienced
by the Computer Group and the Aerospace Group. Gross margins as a percentage of
sales are expected to continue to decrease slightly, as the Company's lower
margin production and systems business continues to be a larger portion of total
sales mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. For the three-month period ended
March 31, 2000, selling, general and administrative (SG&A) expense increased
8.0%, or $479,000, from $6.0 million for the three-month period ended March 31,
1999, to $6.5 million. This increase was primarily due to an increase in costs
commensurate with the growth of the Communications Group and to the formation of
SBS Technologies Europe GmbH in July 1999, which markets Computer Group products
outside of the United States. For the three-month period ended March 31, 2000,
SG&A expense as a percentage of sales decreased to 21.6% from 22.3% in the
three-month period ended March 31, 1999, as the increase in sales volume more
than offset the increase in expense.
RESEARCH AND DEVELOPMENT EXPENSE. For the three-month period ended March 31,
2000, research and development expense (R&D) decreased 2.2%, or $83,000, from
$3.8 million for the three-month period ended March 31, 1999, to $3.7 million.
This decrease is primarily due to a reduction in costs within the Aerospace
Group, partially offset by increased investment in product development within
the Communications Group, commensurate with the growth of the segment. For the
same reasons for the three-month period ended March 31, 2000, R&D expense as a
percentage of sales decreased to 12.4% from 14.1% in the three-month period
ended March 31, 1999.
AMORTIZATION OF INTANGIBLE ASSETS. For the three-month period ended March 31,
2000, amortization of intangible assets decreased $61,000, due to the favorable
impact of changes in exchange rates.
INTEREST INCOME, NET OF INTEREST EXPENSE. For the three-month period ended March
31, 2000, interest income, net of interest expense increased $160,000, from
$(62,000) for the three-month period ended March 31, 1999, to $98,000. This
increase was primarily due to the elimination of interest expense associated
with the $10.4 million payment made in February 1999 for the remaining interest
in OR and ORTEC, and the elimination of interest expense associated with
borrowings drawn under the Company's line of credit during the quarter ended
March 31, 1999.
FOREIGN EXCHANGE GAINS (LOSSES). For the three-month period ended March 31,
2000, the $62,000 foreign exchange loss was primarily attributable to the change
in exchange rates in the quarter ended March 31, 2000 relating to interest
payable on debt from the Company's foreign subsidiary. For the three-month
period ended March 31, 1999, the $554,000 foreign exchange gain was primarily
attributable to the change in exchange rates between January 1, 1999 and
February 29, 1999, relating to the note payable entered into on December 9, 1998
for DM 17.2 million paid on February 28, 1999 for the remaining interest in OR
and ORTEC.
INCOME TAXES. For the three-month period ended March 31, 2000 and the
three-month period ended March 31, 1999, income taxes represented an effective
income tax rate of 32.7% and 35.0%, respectively. The decrease in the effective
income tax rate was primarily due to U.S. tax planning strategies implemented by
the Company, including minimization of the Company's tax liability related to
debt between the Company and its foreign subsidiaries and increased use of the
Company's foreign sales corporation.
EARNINGS PER SHARE. For the three-month period ended March 31, 2000, net income
per common share was $0.46 compared to $0.55 for the three-month period ended
March 31, 1999. For the three-month period ended March 31, 2000, net income per
common share assuming dilution was $0.41 compared to $0.52 for the three-month
period ended March 31, 1999.
Page 13
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Continued)
REVIEW OF BUSINESS SEGMENTS
The Company is managed and operates through three operating segments: the
Communications Group, the Computer Group and the Aerospace Group. The following
is a discussion of sales to external customers and segment profit for each
reportable segment. The Company does not allocate to these segments costs
associated with its corporate headquarters, substantially all of the
amortization expense associated with acquisitions, substantially all interest
income earned on cash balances, interest expense associated with Company
borrowing facilities, and acquired in-process research and development charges.
This measure of segment profit described above is referred to herein as "Segment
Profit."
COMMUNICATIONS GROUP
For the three-month period ended March 31, 2000, Communications Group sales to
external customers increased 123.8%, or $6.3 million, from $5.1 million for the
three-month period ended March 31, 1999 to $11.4 million. Of this 123.8%
increase, sales contributed by the acquisition of SciTech, Inc. accounted for
14.7% of the increase. The balance of the increase, 109.1%, was attributable to
organic growth primarily resulting from an increase in sales of the Group's
industrial systems and enclosures products and PowerPC based processor products,
partially offset by pricing pressure.
For the three-month period ended March 31, 2000, Communications Group segment
profit increased 203.6%, or $2.3 million, from $1.1 million for the three-month
period ended March 31, 1999, to $3.4 million, primarily due to the increase in
sales among the Group's product lines, partially offset by an increase in R&D
and SG&A expenses commensurate with the growth of the segment. For the same
reasons, segment profit as a percentage of sales increased from 21.8% for the
three-month period ended March 31, 1999 to 29.5% for the same period in 2000.
COMPUTER GROUP
For the three-month period ended March 31, 2000, Computer Group sales to
external customers decreased 5.4%, or $758,000, from $13.9 million for the
three-month period ended March 31, 1999 to $13.2 million, primarily the result
of a decrease in sales of the Group's computer connectivity and expansion unit
products, which were affected by a decrease in inventory requirements from a
large adapter customer and reduction in export sales of adapters, a decrease in
sales of the Group's computer processor products, negative impacts of changes in
exchange rates on sales, and pricing pressure, partially offset by an increase
in sales of the Group's general purpose I/O products.
For the three-month period ended March 31, 2000, Computer Group segment profit
decreased 35.9%, or $1.1 million, from $3.2 million for the three-month period
ended March 31, 1999 to $2.0 million. This decrease was primarily due to the
decrease in sales and a shift in sales mix to lower margin products, combined
with an increase in SG&A expense associated with SBS Technologies Europe GmbH,
which markets Computer Group products outside of the United States. For the same
reasons, segment profit as a percentage of sales decreased from 22.9% for the
three-month period ended March 31, 1999 to 15.5% for the same period in 2000.
AEROSPACE GROUP
For the three-month period ended March 31, 2000, Aerospace Group sales to
external customers decreased 31.5%, or $2.5 million, from $7.8 million for the
three-month period ended March 31, 1999 to $5.4 million. This decrease was
primarily the result of a decrease in sales of the Group's telemetry and
avionics interface products, which have been impacted by declines in the
commercial satellite and military markets which Telemetry serves, as well as a
decline in major new aircraft development programs.
For the three-month period ended March 31, 2000, Aerospace Group segment profit
decreased 52.5%, or $1.2 million, from $2.4 million for the three-month period
ended March 31, 1999 to $1.1 million. This decrease is primarily due to lower
sales of the Group's telemetry and avionics interface product lines and a shift
in sales mix to lower margin products, partially offset by a reductions in R&D
and SG&A expense. For the same reasons, segment profit as a percentage of sales
decreased from 30.3% for the three-month period ended March 31, 1999 to 20.9%
for the same period in 2000.
Page 14
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(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 $7.9 million at March 31, 2000, an increase of $4.4 million from
June 30, 1999. This increase was the result of $1.5 million of cash flow from
operations and $7.3 million from the exercise of stock options and warrants,
partially offset by $1.5 million of expenditures for capital equipment, $4.0
million of payments on the Company's notes payable, $1.4 million of payments
to the former shareholder of OR, and $0.4 million of dividends paid to the
former shareholders of SciTech, Inc., in conjunction with the pooling of
interests agreement dated December 20, 1999. The Company's growth during the
nine-month period ended March 31, 2000 caused the Company to increase
accounts receivable and inventory. Liabilities were in line with the current
level of business. The exercise of stock options reduced the Company's tax
liability.
On December 1, 1998, the Company entered into a $15.0 million Credit
Agreement ("Agreement") with Bank of America, N.A. ("Lender"), formerly
NationsBank, N.A. The Agreement expired on November 30, 1999, but was
modified to extend the expiration date to January 31, 2000. Effective January
31, 2000, the Agreement was renewed and modified, allowing for $25.0 million
of borrowings with an expiration date of November 30, 2001. Effective March
31, 2000, the Agreement was modified, allowing for $30.0 million of
borrowings with an expiration date of March 31, 2001. The Agreement also
amends the Tangible Net Worth covenant whereby stockholders' equity less the
net book value of intangible assets and unamortized debt discount and
expenses cannot be less than $30.0 million plus 75% of the cumulative
consolidated net income for each calendar quarter commencing on October 1,
1998, through the quarter of measurement, plus 75% of the amount of any
proceeds received from the issuance of any additional shares of stock or
other equity instruments, reduced by $8,000,000. Additionally, in
consideration of the increase in the available commitment and other
modifications, the Agreement was modified to include a pledge of the
Company's accounts receivable and inventory as collateral. As of March 31,
2000, there were no borrowings drawn on the Agreement, and the Company was in
compliance with all of the covenants of the agreement. On April 12, 2000, the
Company borrowed $20.0 million to finance the acquisition of SDL
Communications, Inc. (See "Subsequent Event" below). Management believes that
its financial resources, including its internally generated funds and debt
capacity, will be sufficient to finance the Company's current operations and
capital expenditures, excluding acquisitions, for the next twelve months. At
March 31, 2000, there were no material outstanding commitments for capital
expenditures.
For the nine-month period ended March 31, 2000, there was no significant impact
from inflation. However, changing prices impacted the Company's sales and income
from operations (see "Results of Operations" above).
SUBSEQUENT EVENT
On April 12, 2000, the Company completed the acquisition of SDL Communications,
Inc. ("SDL") for $25.0 million in cash, subject to adjustment upon finalizing
the closing balance sheet. The acquisition was funded with existing cash and a
$20.0 million borrowing under the Company's Credit Agreement with Bank of
America, N.A. Acquisition costs are estimated to be $2.0 million. SDL is a
privately held company located in Easton, Massachusetts that specializes in the
design, manufacture and sale of WAN I/O for the telecommunications and data
communications markets. SDL designs, manufactures, and markets T1/EI, T3/E3,
HSSI and OC3 products based on the PCI, CompactPCI, and PMC form factors, and
supporting protocols such as Frame Relay, HDLC, PPP, X.25 and ATM. In addition,
SDL's products support the operating systems most commonly used in
communications, including Windows NT, Solaris, and VxWorks. 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. In connection with the acquisition, the Company expects to record
an approximate $4.0 million acquired in-process research and development charge.
The remaining goodwill will be amortized over an approximate eight year period.
For the year ended December 31, 1999, SDL had sales of $12.3 million and a loss
before income taxes of $3.0 million (unaudited). The loss before income taxes
includes a stock-based compensation charge as required by APB 25 of $4.5
million. Excluding the stock-based compensation charge, income before income
taxes for the period ended December 31, 1999 would have been $1.5 million.
Page 15
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Continued)
EURO CONVERSION
On January 1, 1999 eleven of the fifteen member countries of the European Union
adopted the euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the euro. The legacy
currencies of the participating European Union members will remain legal tender
in the participating countries for the transition period from January 1, 1999 to
January 1, 2002. Beginning January 1, 2002, the participating countries will
issue new euro-denominated bills and coins for use in cash transactions. Legacy
currencies will no longer be legal tender for any transactions beginning July 1,
2002, making conversion to the euro complete. The Company has begun to assess
its need to adapt information technology and other systems to accommodate
euro-denominated transactions, any potential impact on terms and enforceability
of legacy denominated contracts, and potential tax consequences of currency
conversion. This assessment is being conducted to determine whether the euro
conversion will have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
NEW ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", was
issued in June 1998. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The provisions of SFAS
133, as amended, are effective for financial statements for fiscal years
beginning after June 15, 2000. The Company has not determined the financial
impact of adopting SFAS 133 to date.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the information on this risk that was
provided in the Company's Form 10-K for the year ended June 30, 1999.
Page 16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults by the Company upon its Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (exhibit reference numbers refer to Item 601 of
Regulation S-K)
03.i (1) Articles of Incorporation, as amended.
03.ii (1) Bylaws, as amended.
10.at (1) Second Modification of Credit Agreement,
Guaranty Agreements and Related Loan
Documents, between SBS Technologies, Inc.,
and Bank of America, N.A., formerly
NationsBank, N.A., and the Subsidiaries of
SBS Technologies, Inc. dated March 31, 2000.
10.au (1) Second Amended and Restated Revolving
Promissory Note, between SBS Technologies,
Inc., and Bank of America, N.A., formerly
NationsBank, N.A., dated March 31, 2000.
10.av (1) Supplement I to Loan Documents, made and
executed as of April 14, 2000 by SBS
Technologies, Inc., and SDL Communications,
Inc.
10.aw (1) Security Agreement, entered into as of
March 31, 2000, by SBS Technologies, Inc.
and all Subsidiaries of SBS Technologies,
Inc., in favor of Bank of America, N.A.,
formerly NationsBank, N.A.
27. Financial Data Schedule
(b) Reports on Form 8-K - On March 22, 2000, the Company filed Form
8-K relating to the issuance of a news release with respect to
its expected financial results. On April 26, 2000, the Company
filed Form 8-K relating to the acquisition of all of the
outstanding shares of SDL Communications, Inc. on April 12, 2000.
(1) See Exhibit Index on Page 19
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBS TECHNOLOGIES, INC.
Date: May 12, 2000 /s/ Christopher J. Amenson
----------------------------
Chairman of the Board,
Chief Executive Officer
and President
Date: May 12, 2000 /s/ James E. Dixon, Jr.
-------------------------
Vice President,
Finance and Administration;
Chief Financial Officer and
Treasurer
Page 18
<PAGE>
SBS TECHNOLOGIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
- -------------- ------------------------------------------------------------- -----------------------------
<S> <C> <C>
03.i (1) Articles of Incorporation, as amended. --
03.ii (2) Bylaws, as amended. --
10.at Second Modification of Credit Agreement, Guaranty Agreements
and Related Loan Documents, between SBS Technologies, Inc.,
and Bank of America, N.A., formerly NationsBank, N.A.,
and the Subsidiaries of SBS Technologies, Inc. dated
March 31, 2000. Filed herewith electronically
10.au Second Amended and Restated Revolving Promissory Note,
between SBS Technologies, Inc. and Bank of America, N.A.,
dated March 31, 2000. Filed herewith electronically
10.av Supplement I to Loan Documents, made and executed as of
April 14, 2000, by SBS Technologies, Inc., and SDL
Communications, Inc. Filed herewith electronically
10.aw Security Agreement, entered into as of March 31, 2000, by
SBS Technologies, Inc., and all Subsidiaries of SBS SBS
Technologies, Inc., in favor of Bank of America, N.A.
Formerly NationsBank, N.A. Filed herewith electronically
27. Financial Data Schedule Filed herewith electronically
</TABLE>
(1) Incorporated by reference to Exhibit 3.i, of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997.
(2) Incorporated by reference to Exhibit 3.ii, of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995.
Page 19
<PAGE>
EXHIBIT 10.at
SECOND MODIFICATION OF CREDIT AGREEMENT,
GUARANTY AGREEMENTS AND RELATED LOAN DOCUMENTS
THIS SECOND MODIFICATION OF CREDIT AGREEMENT, GUARANTY AGREEMENTS AND
RELATED LOAN DOCUMENTS (this "MODIFICATION AGREEMENT") is entered into as of
March 31, 2000, by and between SBS TECHNOLOGIES, INC., a New Mexico corporation
("BORROWER"), BANK OF AMERICA, N.A., formerly NationsBank, N.A., a national
banking association ("LENDER"), and the Subsidiaries of Borrower listed as
Guarantors on the signature pages hereof (the "GUARANTORS").
R E C I T A L S:
WHEREAS, Borrower and Lender (under its prior name, NationsBank, N.A.)
have previously executed that certain Credit Agreement (as modified, amended and
supplemented from time to time, the "CREDIT AGREEMENT") dated as of December 1,
1998, pursuant to which Lender has made available to Borrower a revolving credit
loan facility currently in the amount of $25,000,000, which Credit Agreement has
been amended by (i) that certain Note Modification Agreement dated as of
November 30, 1999 and (ii) Modification of Credit Agreement, Guaranty Agreements
and Related Loan Documents dated as of January 31, 2000 (the "FIRST
MODIFICATION")(any capitalized term used but not otherwise defined herein shall
have the meaning set forth in the Credit Agreement); and
WHEREAS, the indebtedness under the Credit Agreement is evidenced by
that certain Amended and Restated Revolving Promissory Note (the "RESTATED
NOTE") dated January 31, 2000, in the principal face amount of $25,000,000.00,
executed by Borrower and payable to the order of Lender, which Restated Note
amended and restated that certain Revolving Promissory Note, dated December 1,
1998, in the principal face amount of $15,000,000.00, executed by Borrower and
payable to the order of Lender; and
WHEREAS, Borrower and the Guarantors have requested an increase in the
revolving credit facility to $30,000,000, and certain other modifications to the
Credit Agreement, the Guaranty Agreements and the other Loan Documents; and
WHEREAS, Lender has agreed to such modifications, subject to the terms
and conditions hereof, including without limitation that certain assets of
Borrower and Guarantors be pledged as collateral to secure all of the
Obligations under and as defined in the Credit Agreement, as modified and
increased hereby, pursuant to the Security Agreement (hereinafter defined), and
upon the terms and conditions contained herein.
Page 1
<PAGE>
A G R E E M E N T:
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for and in
consideration of the terms, conditions and agreements contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Lender, Borrower and the Guarantors agree as follows:
1. INCREASE IN AVAILABLE COMMITMENT. From and after the effective date
hereof, the maximum amount of the revolving credit facility under the Credit
Agreement shall be increased from $25,000,000.00, to $30,000,000.00.
Accordingly, the definition of "AVAILABLE COMMITMENT" set forth in Section 1.1
of the Credit Agreement shall be amended to read in its entirety as follows:
"AVAILABLE COMMITMENT" means the maximum amount available to
be advanced under the Credit Facility, being $15,000,000.00 as of the
Closing Date through January 30, 2000; $25,000,000.00 as of January 31,
2000 through March 30, 2000; and $30,000,000.00 from and after March
31, 2000, subject to reduction as provided in SECTION 3.6(C)."
2. RESTATED NOTE. To evidence the increased Available Commitment,
Borrower shall execute and deliver to Lender contemporaneously with this
Modification Agreement, a Second Amended and Restated Revolving Promissory Note
(the "SECOND RESTATED NOTE") dated the date hereof, in the original principal
face amount of $30,000,000.00, payable to the order of Lender, in substantially
the same form as the Note, which Second Restated Note shall be in renewal,
extension, amendment, restatement and replacement of the Restated Note. From and
after the date hereof, all references to the term "Note" in the Credit
Agreement, each Guaranty Agreement, and all other Loan Documents shall mean and
refer to the Second Restated Note. Accordingly, the definition of "Note' in the
Credit Agreement is hereby amended to read in its entirety as follows:
"NOTE" means the Revolving Promissory Note dated the date
hereof, in the maximum principal amount of $15,000,000.00, executed by
Borrower and payable to the order of Lender, in the form of EXHIBIT A
attached hereto, as amended, extended, restated and replaced by the
Amended and Restated Revolving Promissory Note dated January 31, 2000,
in the maximum principal amount of $25,000,000.00, as further amended,
extended, restated and replaced by the Second Amended and Restated
Revolving Promissory Note dated March 31, 2000, in the maximum
principal amount of $30,000,000.00, and any and all renewals,
supplements, extensions, modifications, amendments, restatements and
replacements thereof."
The Restated Note held by Lender shall be legended to show that it has
been amended, restated and replaced by the Second Restated Note, and then
returned to Borrower.
3. TERMINATION DATE. The termination of the revolving credit facility
is changed to March 31, 2001, subject to the terms and conditions set forth in
the Credit Agreement. Accordingly, clause (i) of the definition of "Termination
Date" in Section 1.1 of the Credit Agreement (as amended by the First
Modification) is amended to insert the date "March 31,
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2001", in place of "November 30, 2001." Any reference to the "Termination Date"
in the Credit Agreement, the Second Restated Note, the Guaranty Agreements or
any other Loan Document shall mean and refer to such new Termination Date.
4. ACQUISITION OF SDL. Borrower has requested use of the proceeds of an
Advance in an amount up to $25,000,000 in connection with its acquisition of
100% of the stock of SDL Communications, Inc., a Massachusetts corporation
("SDL"). Notwithstanding the definition of "Permitted Acquisition" in Section
1.1 of the Credit Agreement or the provisions of Section 6.7 of the Credit
Agreement, Lender hereby agrees that up to $25,000,000 of the Available
Commitment may be used for an Advance for the acquisition by Borrower of 100% of
SDL's stock, subject to all other terms and conditions of Section 6.7 of the
Credit Agreement.
5. COLLATERAL. For and in consideration of the increase in the
Available Commitment and other modifications and consents herein, from and after
the date hereof, all accounts and inventory of Borrower and the Guarantors shall
be pledged as security for all of the Obligations. Accordingly, and as a
condition to the effectiveness hereof, Borrower and all the Guarantors shall
execute and deliver to, and in favor of, Lender, a Security Agreement (herein so
called) dated the date hereof, in form and content acceptable to Lender in all
respects. Upon consummation of Borrower's acquisition of SDL, the assets of that
subsidiary shall also be pledged, and, accordingly, SDL shall join in the
execution of the Security Agreement.
6. GUARANTY AGREEMENTS. Each of the undersigned Guarantors expressly
acknowledges and agrees to the increase in the Available Commitment to
$30,000,000, and the change of the Termination Date to March 31, 2001, and
agrees to execute an amended and restated Guaranty Agreement as a condition to
increasing the available Commitment. In addition, immediately upon Borrower's
acquisition of the stock of SDL, SDL shall become a Guarantor for all purposes
under the Credit Agreement and other Loan Documents, and, accordingly, SDL shall
execute a Guaranty Agreement in substantially the same form as the Guaranty
Agreement executed by the existing Guarantors on the date hereof. All Guarantors
shall also execute a replacement Contribution and Indemnification Agreement.
7. ACQUISITION OF SDL. If Borrower's acquisition of the stock of SDL is
consummated, then from and after the date of such acquisition, due to the change
in Tangible Net Worth that will result from the goodwill acquired in such
transaction, Section 6.10 of the Credit Agreement shall be amended such that
effective as of the date of the acquisition of SDL, (i) the number in clause (a)
thereof shall be reduced to $30,000,000. If the acquisition of SDL does not
occur for any reason, the foregoing amendment shall not become effective.
8. DEFINITION OF DOCUMENTS. All references to the Credit Agreement
therein and in the other Loan Documents shall mean the Credit Agreement as
amended hereby. The definition of "Loan Documents", as defined in and as used in
the Credit Agreement, each Guaranty Agreement and all other Loan Documents,
shall be, and is hereby, modified to include this Modification Agreement and any
and all documents executed in connection herewith, including without limitation
the Second Restated Note.
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9. CONDITIONS PRECEDENT TO THIS MODIFICATION AGREEMENT. As conditions
precedent to this Modification Agreement and the agreements herein and
modifications to the Credit Agreement pursuant hereto, all of the following
shall have been satisfied:
(a) Borrower and the Guarantors shall have executed and delivered to
Lender this Modification Agreement;
(b) Borrower shall have executed and delivered to Lender the original
Second Restated Note;
(c) Borrower and Guarantors shall have executed and deliverd the
Security Agreement;
(d) Each Guarantor shall have executed and delivered an amended and
restated Guaranty Agreement and an amended and restated Contribution and
Indemnification Agreement;
(e) Borrower shall have delivered, or cause to be delivered, to Lender
all corporate resolutions, consents, certificates or documents as Lender may
request relating to (i) the existence of Borrower and the Guarantors, and (ii)
the corporate authority for the execution, enforceability and validity of the
Second Restated Note and this Modification Agreement, together with all other
documents, instruments and agreements and any other matters relevant hereto or
thereto, all in form and content satisfactory to Lender;
(f) Borrower shall have paid to Lender the $1,000.00 commitment fee for
the increase of the Available Commitment as agreed to between Borrower and
Lender, the reasonable attorneys' fees and expenses of Lender's counsel, and any
other fees as agreed in connection with this Modification Agreement; and
(g) No Default of Event of Default shall exist.
10. REAFFIRMATION OF OBLIGATIONS. Borrower and the Guarantors
acknowledge and agree that they are well and truly indebted to Lender pursuant
to the Credit Agreement, the respective Guaranty Agreements, the Second Restated
Note and the other Loan Documents, as modified hereby. Except as expressly
modified hereby and by the amended and restated Guaranty Agreement, all terms,
provisions, representations, warranties, covenants and agreements of Borrower
and each Guarantor contained in the Credit Agreement, each Guaranty Agreement,
and the other Loan Documents shall remain unchanged are hereby ratified and
confirmed by Borrower and the Guarantors, and all such agreements shall be and
shall remain in full force and effect, enforceable in accordance with their
terms.
11. NO IMPLIED WAIVERS. None of the amendments or modifications
provided for herein shall be deemed a consent to or waiver of any breach of the
same or any other covenant, condition or duty. Borrower and the Guarantors
acknowledge and understand that Lender has no obligation to further amend or
modify the Credit Agreement, the Note, the Second Restated Note or any of the
other Loan Documents, or any of the terms, provisions or covenants thereof, and
that Lender has made no representations regarding any such amendments or
modifications. No
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failure or delay on the part of Lender in exercising, and no course of dealing
with respect to, any right, power or privilege under this Modification
Agreement, the Credit Agreement, the Guaranty Agreements, or any other Loan
Document shall operate as a waiver thereof or of the exercise of any other
right, power or privilege.
12. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery, and performance by the
Borrower and the Guarantors of this Modification Agreement and compliance with
the terms and provisions hereof (i) have been duly authorized by all requisite
action on the part of each such Person and (ii) do not, and will not violate or
conflict with, or result in a breach of, or require any consent under (A) the
articles of incorporation, certificate of incorporation, bylaws, partnership
agreement or other organizational documents of any such Person, (B) any
applicable law, rule, or regulation or any order, writ, injunction, or decree of
any Tribunal or arbitrator, or (C) any material agreement or instrument to which
any such Person is a party or by which any of them or any of their property is
bound or subject; (b) the signatories below have been duly authorized by all
necessary corporate action to make and enter this Modification Agreement as the
duly authorized action and deed of Borrower and the Guarantors; (c) the
representations and warranties contained in the Credit Agreement, as amended
hereby, and the other Loan Documents are true and correct in all material
respects on and as of the date hereof as though made on and as of the date
hereof; and (d) upon execution and effectiveness hereof, no Default or Event of
Default has occurred and is continuing.
13. RATIFICATION. Except as otherwise expressly modified by this
Modification Agreement and the Second Restated Note, all terms and provisions of
the Credit Agreement, the Guaranty Agreements and the other Loan Documents shall
remain unchanged and are ratified and confirmed and shall be and shall remain in
full force and effect, enforceable in accordance with their terms.
14. FURTHER ASSURANCES. Borrower shall execute and deliver to Lender
such other documents as may be necessary or as may be required, in the opinion
of Lender and/or counsel to Lender to effect the transactions contemplated
hereby and to create and evidence the rights and remedies of the Lender under
the Loan Documents.
15. INCONSISTENT PROVISIONS. This Modification Agreement shall control
in the case of any inconsistency between the terms and provisions hereof and
those contained in the other Loan Documents.
16. BINDING AGREEMENT. This Modification Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
legal representatives, successors and assigns.
17. GOVERNING LAW. THIS MODIFICATION AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW MEXICO, EXCEPT TO
THE EXTENT THAT UNITED STATES FEDERAL LAW APPLIES.
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18. COUNTERPARTS; TELECOPIES. This Modification Agreement may be
executed in multiple counterparts, each of which shall be deemed an original for
all purposes, and all of which, collectively, shall constitute one agreement. In
addition, due execution of this Modification Agreement by any party may be
evidenced by a telecopy reflecting such party's signature. Any party to this
Modification Agreement shall be entitled to receive upon request, from any other
party that has previously forwarded an executed counterpart of any such document
by telecopy, a duplicate of such document bearing such other party's ink
original signature.
19. ENTIRE AGREEMENT. This Modification Agreement, the Credit
Agreement, the Second Restated Note and the Guaranty Agreements together with
the other Loan Documents, contain the entire agreement between the parties
relating to the subject matter hereof and thereof.
THIS MODIFICATION AGREEMENT, TOGETHER WITH THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[Remainder of Page Intentionally Left Bank -- Signatures to Follow]
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IN WITNESS WHEREOF, this Modification Agreement is executed effective
as of the date first above written.
BORROWER:
SBS TECHNOLOGIES, INC.,
a New Mexico corporation
By: /s/ James E. Dixon Jr.
------------------------------
James E. Dixon, Jr.
Vice President, Finance and Administration
LENDER:
BANK OF AMERICA, N.A., formerly NationsBank, N.A.,
a national banking association
By: /s/ John A. Sanchez
-------------------------------
Name: John A. Sanchez
-----------------------------
Title: Senior Vice President
----------------------------
GUARANTORS:
SBS TECHNOLOGIES, INC. CONNECTIVITY
PRODUCTS, f/k/a SBS Bit 3 Operations, Inc.
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Treasurer
----------------------------
SBS TECHNOLOGIES, INC. TELEMETRY AND
COMMUNICATIONS PRODUCTS, f/k/a SBS Berg
Telemetry Systems, Inc.
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Treasurer
----------------------------
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<PAGE>
SBS TECHNOLOGIES INC. MODULAR I/O, f/k/a SBS
Greenspring Modular I/O, Inc.
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Secretary
----------------------------
SBS TECHNOLOGIES, INC. EMBEDDED
COMPUTERS, f/k/a SBS Embedded Computers, Inc.
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Treasurer
----------------------------
SBS TECHNOLOGIES INC. INDUSTRIAL
COMPUTERS, f/k/a SBS Micro Alliance, Inc.
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Treasurer
----------------------------
SBS TECHNOLOGIES INC. COMMUNICATIONS
PRODUCTS, f/k/a VI Computer
By: /s/ James E. Dixon Jr.
-------------------------------
Name: James E. Dixon, Jr.
-----------------------------
Title: Treasurer
----------------------------
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<PAGE>
EXHIBIT 10.au
SECOND AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$30,000,000.00 Albuquerque, New Mexico March 31, 2000
SBS TECHNOLOGIES, INC., a New Mexico corporation, having its principal
office located at 2400 Louisiana Blvd., NE, AFC Building 5, Suite 600,
Albuquerque, NM, 87110 ("BORROWER"), for value received, hereby promises to pay
to the order of BANK OF AMERICA, N.A., formerly NationsBank, N.A., a national
banking association ("LENDER"), at its Albuquerque, New Mexico office at 303
Roma, NW, Albuquerque, New Mexico 87102, or at such other address given to
Borrower by Lender, in immediately available funds and in lawful money of the
United States of America, the principal sum of THIRTY MILLION AND NO/100 DOLLARS
($30,000,000.00), or so much thereof as may be advanced and outstanding, on
March 31, 2001, or sooner as provided in the Credit Agreement (as defined
herein), together with interest on the unpaid principal balance of this Note
from time to time outstanding at the applicable interest rate. Unless prohibited
by Applicable Law and subject to the terms hereof and the Credit Agreement
limiting interest to the Maximum Lawful Rate, interest on this Note shall be
calculated on the basis of actual days elapsed, but as if each year consisted of
360 days.
This Note is executed pursuant to that certain Second Modification of
Credit Agreement, Guaranty Agreements and Related Loan Documents (the
"MODIFICATION AGREEMENT") of even date herewith executed by and among Lender,
Borrower and the Guarantors, pertaining to that certain Credit Agreement dated
as of December 1, 1998, executed by and between Lender and Borrower, as
previously modified by (i) Note Modification Agreement dated as of November 30,
1999 and (ii) Modification of Credit Agreement, Guaranty Agreements and Related
Documents dated as of January 31, 2000 ("First Modification Agreement") (such
Credit Agreement, as amended by such Note Modification Agreement, the First
Modification Agreement and the Modification Agreement, and as it may hereafter
be amended, supplemented, renewed, extended, or restated or replaced from time
to time, the "CREDIT AGREEMENT"), and this Note is the "Second Restated Note"
defined and described in the Modification Agreement and the "Note" under and as
defined in the Credit Agreement, the terms and provisions of the Credit
Agreement and the Modification Agreement related to this Note being incorporated
herein by reference for all purposes. Each capitalized term used but not
expressly defined herein shall have the meaning given to such term in the Credit
Agreement as modified by the Modification Agreement. Reference is hereby
expressly made to the Credit Agreement for a statement of the rights and
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obligations of Lender and the duties and obligations of Borrower in relation
thereto; but neither this reference to the Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of
Borrower to pay unpaid principal of and interest on this Note when due.
This Note is secured by the Credit Agreement and the Security Agreement
dated the date hereof and all other Loan Documents, and all liens and security
interests created or evidenced thereby, and payment of this Note is guaranteed
by the Guaranty Agreements. Any holder hereof shall be entitled to all benefits
of and remedies set forth in the Credit Agreement, the Security Agreement and
all the other Loan Documents.
This Note is given in modification, renewal, restatement and
replacement, but not in novation or extinguishment, of the Amended and Restated
Revolving Promissory Note dated January 31, 2000, evidencing the Advances under
the Available Commitment pursuant to the Credit Agreement. All rights and
interests of Lender under the Credit Agreement and such prior note are renewed
and extended hereby.
Lender may disburse the principal of this Note to Borrower in one or
more advances from time to time, subject to and upon the terms and conditions
set forth in the Credit Agreement with respect to the Available Commitment, so
long as the outstanding principal balance hereof never exceeds the then
applicable amount of the Available Commitment, less any Letter of Credit
Exposure. Subject to and upon the terms and conditions of the Credit Agreement,
Borrower shall be entitled to prepay the principal of this Note from time to
time, in whole or in part, without premium or penalty, except for any prepayment
fee due upon prepayment of a LIBOR Rate Portion prior to the expiration of the
applicable Interest Period as provided in Section 3.5(g) of the Credit
Agreement, and thereafter, prior to the maturity date hereof (and provided that
no Default has occurred and is in existence), to request additional advances
hereunder, subject to and in accordance with the terms and conditions of the
Credit Agreement.
1. INTEREST AND PAYMENT.
(a) MATURITY. The entire principal balance of this Note, and
all accrued but unpaid interest hereon, shall be due and payable in full on the
Termination Date.
(b) ACCRUAL OF INTEREST. Subject to Paragraph 1(f) below,
interest on this Note shall accrue at a rate per annum equal to the lesser of
(i) at Borrower's option exercised in accordance with the terms of the Credit
Agreement, the Variable Rate or the LIBOR Rate with respect to the Variable Rate
Portions and the LIBOR Rate Portions outstanding hereunder from
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time to time, subject, however, to the provisions of the Credit Agreement, or
(ii) the Maximum Lawful Rate; provided, however, that as to any portion of the
outstanding principal balance hereof that is not subject to an effective
election of or conversion to the LIBOR Rate in accordance with the terms of the
Credit Agreement, interest on such portion of this Note shall accrue interest at
the lesser of (i) the Variable Rate or (ii) the Maximum Lawful Rate. Interest on
this Note shall be calculated at a daily rate equal to 1/360 of the annual
percentage rate which this Note bears, subject to the provisions hereof limiting
interest to the Maximum Lawful Rate. Without notice to Borrower or any other
Person, the Variable Rate and the Maximum Lawful Rate shall each automatically
fluctuate upward and downward as and in the amount by which the Base Rate and
the Maximum Lawful Rate, respectively, fluctuate, subject always to limitations
contained in this Note and the Credit Agreement.
(c) AGREEMENTS CONCERNING PRICING ELECTION. Reference should
be made to the provisions of SECTION 3.5 of the Credit Agreement concerning the
terms, manner and agreements related to the interest rate elections available to
Borrower under this Note.
(d) PRINCIPAL AND INTEREST PAYMENTS. Principal and interest
hereon shall be due and payable as is provided in ARTICLE III of the Credit
Agreement, which provides, in part, for payments of accrued, unpaid interest on
the first (1st) day of each calendar quarter and, with respect to any LIBOR Rate
Portion, on the last day of the applicable Interest Period.
(e) COSTS DUE TO REGULATORY CHANGES. Borrower shall indemnify
Lender against and reimburse Lender for increased costs to Lender, as a result
of any Regulatory Change, in the maintaining of any LIBOR Rate Portion. All
payments made pursuant to this paragraph shall be made free and clear, without
reduction for, or account of, any present or future taxes or other levies of any
nature, excluding net income and franchise taxes.
(f) DEFAULT RATE. After maturity of this Note or the
occurrence of an Event of Default, the outstanding principal balance of this
Note shall, at the option of Lender, bear interest at the Default Rate. Any past
due principal and, to the extent permitted by law, past due interest on the Loan
shall bear interest, payable as it accrues on demand, for each day until paid at
the Default Rate. Such interest shall continue to accrue at the Default Rate
notwithstanding the entry of a judgment with respect to any of the Obligation or
the foreclosure of any of Lender's Liens.
(g) MAXIMUM LAWFUL RATE ADJUSTMENTS. If at any time a change
in the Variable Rate or the LIBOR Rate shall cause the rate of interest on this
Note to be limited to the Maximum Lawful Rate, any subsequent reductions in the
Variable Rate or the LIBOR Rate, as applicable, shall not reduce the rate of
interest on this Note below the Maximum Lawful Rate
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<PAGE>
until the total amount of interest accrued equals the amount of interest which
would have accrued if the Variable Rate or the LIBOR Rate, as applicable, had at
all times been in effect. In the event that at maturity (stated or by
acceleration), or at the final payment of the Loan, the total amount of interest
paid or accrued on the Loan is less than the amount of interest which would have
accrued if the Variable Rate or the LIBOR Rate, as applicable, had at all times
been in effect with respect thereto, then at such time, to the extent permitted
by law, Borrower shall pay to Lender an amount equal to the difference between
(a) the lesser of the amount of interest which would have accrued if the
Variable Rate or the LIBOR Rate, as applicable, had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid on
the Loan.
2. DEFAULT. The occurrence of a Default or an Event of Default,
under and as defined in the Credit Agreement, shall
constitute, respectively, a Default or an Event of Default
under this Note.
3. REMEDIES.
(a) ALL REMEDIES AVAILABLE. Upon the occurrence of an Event of
Default, the holder hereof shall have the right to declare the entire
unpaid principal balance of, and all accrued unpaid interest on, this
Note at once due and payable (and upon such declaration, the same shall
be at once due and payable), to foreclose any and all liens and
security interests securing payment hereof, to offset against this Note
any sum or sums owed by it to Borrower, and to exercise any of its
other rights, powers and remedies under this Note, under the Credit
Agreement or any other Loan Document, or at law or in equity.
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<PAGE>
(b) NO WAIVER. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to accelerate
the maturity of this Note or any other right, power or remedy upon any Default
or Event of Default shall be construed as a waiver of such Default or Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at any time. No single or partial exercise by the holder hereof of any right,
power or remedy shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy may be exercised at any
time and from time to time. All rights and remedies provided for in this Note
and in any other Loan Document are cumulative of each other and of any and all
other rights and remedies existing at law or in equity, and the holder hereof
shall, in addition to the rights and remedies provided herein or in any other
Loan Document, be entitled to avail itself of all such other rights and remedies
as may now or hereafter exist at law or in equity for the collection of the
indebtedness owing hereunder, and the resort to any right or remedy provided for
hereunder or under any such other Loan Document or provided for by law or in
equity shall not prevent the concurrent or subsequent employment of any other
appropriate rights or remedies. Without limiting the generality of the foregoing
provisions, the acceptance by the holder hereof from time to time of any payment
under this Note which is past due or which is less than the payment in full of
all amounts due and payable at the time of such payment, shall not (i)
constitute a waiver of or impair or extinguish the rights of the holder hereof
to accelerate the maturity of this Note or to exercise any other right, power or
remedy at the time or at any subsequent time, or nullify any prior exercise of
any such right, power or remedy, or (ii) constitute a waiver of the requirement
of punctual payment and performance, or a novation in any respect.
4. USURY SAVINGS PROVISIONS.
(a) GENERAL LIMITATION. Notwithstanding anything herein or in
any other Loan Documents, expressed or implied, to the contrary, in no event
shall any interest rate charged hereunder or under any of the other Loan
Documents, or any interest contracted for, collected or received by Lender or
any holder hereof, exceed the Maximum Lawful Rate.
(b) INTENT OF PARTIES. It is expressly stipulated and agreed
to be the intent of Borrower and Lender at all times to comply with the
applicable law governing the maximum rate or amount of interest payable on or in
connection with this Note. If the applicable law is ever judicially interpreted
so as to render usurious any amount called for under this Note or under any of
the other Loan Documents, or contracted for, charged, taken, reserved or
received with respect to this Note, or if acceleration of the maturity of this
Note, any prepayment by Borrower, or any
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other circumstance whatsoever, results in Lender having been paid any interest
in excess of that permitted by applicable law, then it is the express intent of
Borrower and Lender that all excess amounts theretofore collected by Lender be
credited on the principal balance of this Note (or, if this Note has been or
would thereby be paid in full, refunded to Borrower), and the provisions of this
Note and the other applicable Loan Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder and thereunder. The right to accelerate the maturity of
this Note does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Lender does not intend
to collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of the
indebtedness evidenced hereby or by any other Loan Document shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
Maximum Lawful Rate. The term "APPLICABLE LAW" as used herein shall mean the
laws of the State of New Mexico, or any applicable United States federal law to
the extent that it permits Lender to contract for, charge, take, reserve or
receive a greater amount of interest than under New Mexico law. The provisions
of this paragraph shall control all agreements between Borrower and Lender.
5. GENERAL PROVISIONS.
(a) BUSINESS DAY. Whenever any payment shall be due under this
Note on a day which is not a Business Day, the date on which such payment is due
shall be extended to the next succeeding Business Day, and such extension of
time shall be included in the computation of the amount of interest then
payable.
(b) MANNER OF PAYMENT. The manner in which payments are to be
made on this Note shall be governed by the provisions hereof and the Credit
Agreement, including, without limitation, SECTION 3.10 of the Credit Agreement.
(c) PREPAYMENTS. Prepayments may be made on this Note subject
to and in accordance with SECTIONS 3.5(g) and 3.6 of the Credit Agreement.
(d) APPLICATION OF PAYMENTS. All payments made on this Note
shall be applied in accordance with SECTIONS 3.11 and 8.8 of the Credit
Agreement, as applicable. Nothing herein shall limit or impair any rights of any
holder hereof to apply as provided in the Loan Documents any past due payments,
any proceeds from the disposition of any collateral by
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foreclosure or other collections after default. Except to the extent specific
provisions are set forth in this Note or another Loan Document with respect to
application of payments, all payments received by the holder hereof shall be
applied, to the extent thereof, to the indebtedness owing by Borrower to the
holder hereof in such order and manner as the holder hereof shall deem
appropriate, any instructions from Borrower or anyone else to the contrary
notwithstanding.
(e) COSTS OF COLLECTION. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce or
defend this Note or any other Loan Document in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Borrower sues any holder
of this Note in connection with this Note or any other Loan Document and does
not prevail, then Borrower agrees to pay to each such holder, in addition to
principal and interest, all costs and expenses incurred by such holder in trying
to collect this Note or in any such suit or proceeding, including reasonable
attorneys' fees.
(f) WAIVERS AND ACKNOWLEDGMENTS. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notice (except only for any notice that is specifically required by the terms of
the Credit Agreement or any other Loan Document), filing of suit and diligence
in collecting this Note or enforcing any of the security herefor; (ii) agree to
any substitution, subordination, exchange or release of any such security or the
release of any party primarily or secondarily liable hereon; (iii) agree that
the holder hereof shall not be required first to institute suit or exhaust its
remedies against Borrower or others liable or to become liable hereon or to
enforce its rights against them or any security herefor; (iv) consent to any
extension or postponement of time of payment of this Note for any period or
periods of time and to any partial payments, before or after maturity, and to
any other indulgences with respect hereto, without notice thereof to any of
them; and (v) submit (and waive all rights to object) to personal jurisdiction
in the State of New Mexico, and venue in Bernalillo County, New Mexico, for the
enforcement of any and all obligations under the Loan Documents.
(g) AMENDMENTS IN WRITING. This Note may not be changed,
amended or modified except in a writing expressly intended for such purpose and
executed by the party against whom enforcement of the change, amendment or
modification is sought.
(h) PURPOSE OF PROCEEDS. The proceeds of this Note will be
used solely for business purposes and not for personal, family, household or
agricultural purposes.
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<PAGE>
(i) NOTICES. Any notice required or which any party desires to
give under this Note shall be given and effective as provided in SECTION 9.2 of
the Credit Agreement.
(j) ASSIGNMENTS/PARTICIPATIONS. Borrower acknowledges and
agrees that the holder of this Note may, at any time and from time to time,
assign all or a portion of its interest in the Credit Facility or transfer to
any Person a participation interest in the Credit Facility.
(k) SUCCESSORS AND ASSIGNS. All of the covenants,
stipulations, promises and agreements contained in this Note by or on behalf of
Borrower shall bind its successors and assigns and shall be for the benefit of
Lender and any holder hereof, and their successors and assigns, whether so
expressed or not.
(l) TIME OF THE ESSENCE. Time shall be of the essence in this
Note with respect to all of Borrower's obligations hereunder.
(m) JURY TRIAL WAIVER. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
EACH OF BORROWER AND LENDER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL
BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY OR OTHERWISE)
ARISING UNDER OR RELATING TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR ANY RELATED
MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING
WITHOUT A JURY.
(n) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY NEW MEXICO LAW, EXCEPT TO THE EXTENT THAT UNITED STATES
FEDERAL LAW APPLIES PURSUANT TO SECTION 9.8 OF THE CREDIT AGREEMENT OR
OTHERWISE. THE BOOKS AND RECORDS OF LENDER SHALL CONSTITUTE PRIMA FACIE EVIDENCE
OF ALL SUMS DUE LENDER HEREUNDER.
(o) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN LENDER AND BORROWER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF LENDER AND BORROWER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the date
first above written.
BORROWER:
SBS TECHNOLOGIES, INC., a New Mexico corporation
By: /s/ James E. Dixon Jr.
------------------------
James E. Dixon, Jr.
Vice President, Finance and Administration
Page 9
<PAGE>
EXHIBIT 10.av
SUPPLEMENT I TO LOAN DOCUMENTS
This SUPPLEMENT I TO LOAN DOCUMENTS (this "SUPPLEMENT") is made and
executed as of April 14, 2000, by SBS TECHNOLOGIES, INC., a New Mexico
corporation ("BORROWER"), and SDL COMMUNICATIONS, INC., a Massachusetts
Corporation (the "ADDITIONAL GUARANTOR"), pursuant to the Credit Agreement
(hereinafter defined) and in connection with the Second Modification
(hereinafter defined). All terms used but not defined herein shall have the
meanings set forth in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Borrower and Bank of America, N.A., formerly NationsBank,
N.A., a national banking association ("LENDER") have entered into that certain
Credit Agreement dated as of December 1, 1998, as modified and extended by (i)
Note Modification Agreement dated as of November 30, 1999, (ii) Modification of
Credit Agreement, Guaranty Agreements and Related Loan Documents dated as of
January 31, 2000 (the "FIRST MODIFICATION"), and (ii) Second Modification of
Credit Agreement, Guaranty Agreements and Related Loan Documents (the "SECOND
MODIFICATION") dated as of March 31, 2000, executed by and among Lender,
Borrower, and the Existing Guarantors (hereinafter defined) (such Credit
Agreement as so modified and as it may hereafter be modified, supplemented,
extended, renewed or restated, and as in effect from time to time, the "CREDIT
AGREEMENT"), which Credit Agreement sets forth the terms and conditions of a
revolving credit facility to Borrower;
WHEREAS, in connection with the Credit Agreement, (a) certain
Subsidiaries of Borrower named as Guarantors in the Second Modification (the
"EXISTING GUARANTORS") each executed and delivered a Guaranty Agreement (herein
so called) dated as of March 31, 2000, (b) the Borrower, the Existing Guarantors
and Lender executed that certain Contribution and Indemnification Agreement (the
"CONTRIBUTION AGREEMENT") pertaining to the Guaranty Agreements dated as of
March 31, 2000, and (c) the Borrower, the Existing Guarantors and Lender
executed that certain Security Agreement (herein so called) dated as of March
31, 2000;
WHEREAS, the Additional Guarantor is a Subsidiary of Borrower that is
required by the terms of the Credit Agreement to become a "Guarantor" for all
purposes under the Credit Agreement, subject to the terms of the Credit
Agreement and each of the other Loan Documents; and
WHEREAS, Additional Guarantor desires to execute this Supplement
because of the direct and/or indirect benefits to be obtained by Additional
Guarantor by virtue of the Credit Agreement.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for and in
consideration of the mutual promises contained herein and in the Credit
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned parties hereby
agree as follows:
1. GUARANTY AGREEMENT. Additional Guarantor acknowledges and
understands that Additional Guarantor is a domestic Subsidiary of Borrower and,
as such, is required to be a Guarantor under the Credit Agreement. Accordingly,
Additional Guarantor is executing a Guaranty Agreement of even date herewith
simultaneously with execution hereof, and from and after this date Additional
Guarantor shall be a "Guarantor" for all purposes under the Credit Agreement and
all the other Loan Documents, and expressly assumes and makes all of the
representations, agreements and obligations of a Guarantor therein. By executing
and delivering this Supplement, Additional Guarantor becomes a signatory to the
Contribution Agreement and
Page 1
<PAGE>
hereby expressly assumes all the obligations and liabilities of a "Guarantor"
thereunder as if it originally signed the Contribution Agreement.
2. SECURITY AGREEMENT. By executing and delivering this Supplement,
Additional Guarantor hereby (i) becomes a party to the Security Agreement as an
"Assignor" thereunder as if Additional Guarantor had originally signed the
Security Agreement, (ii) expressly assumes all obligations and liabilities for
an "Assignor" thereunder, and (iii) pledges and assigns to Lender (as defined
therein), and grants to Lender a security interest in and to, all of the
Collateral (as defined in the Security Agreement) of Additional Guarantor, and
all right, title and interest of Additional Guarantor therein, wherever located,
and now owned or hereafter acquired, as collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations, subject to and on the terms of the Security
Agreement. Schedules A, B, and C to the Security Agreement are each hereby
amended by supplementing such Schedules with the information contained in
Schedules A, B and C, attached as ANNEX I to this Supplement. Additional
Guarantor hereby makes each of the representations, warranties and agreements
contained in the Security Agreement on the date hereof, after giving effect to
this Supplement.
3. GENERAL MODIFICATIONS. All of the Loan Documents, including without
limitation the Credit Agreement, each Guaranty Agreement, the Contribution
Agreement and the Security Agreement, are hereby modified and amended to include
Additional Guarantor as a "Guarantor" or "Assignor," or any other defined term
used for the Guarantors thereunder to the same extent as the other Guarantors
that are parties thereto, without any further action being taken or further
documents required to be executed by any party.
4. COLLATERAL DOCUMENTATION. Borrower and Additional Guarantor agree to
execute and/or deliver to Lender any and all other documents and agreements
reasonably requested by Lender to further evidence the agreements contained in
this Supplement, including without limitation all financing statements necessary
or advisable in order to perfect or evidence the Lender's security interests in
the Collateral.
5. AUTHORITY DOCUMENTATION. Additional Guarantor agrees to deliver to
Lender all corporate authority and organizational documents required under
Section 4.1 of the Credit Agreement and represents and warrants to Lender that
(a) it is a corporation, duly created, presently existing and in good standing
under the laws of the state under which it is organized, (b) it has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and as contemplated
to be conducted, except where the failure to have any such item would not have a
material adverse effect on Additional Guarantor's business and financial
condition, (c) the execution, delivery and performance of this Supplement and
any other documents executed in connection herewith or with the Credit Agreement
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or office,
and do not contravene, or constitute a default under, any provision of
applicable law or regulations or of certificate of incorporation or bylaws,
articles of organization or regulations, as applicable, of Additional Guarantor,
or any other agreement binding on Additional Guarantor, (d) this Supplement, and
as a result of the execution hereof, each of the Loan Documents to which the
Additional Guarantor is a party, constitute the valid and binding agreement of
Additional Guarantor, enforceable in accordance with the terms thereof, except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent transfer or similar laws affecting creditor rights generally, and
(ii) the availability of equitable principles of general applicability, and (e)
Additional Guarantor is executing this Supplement for its direct or indirect
benefit, Additional Guarantor has reviewed and is satisfied with the rights of
contribution or subrogation to which it may be entitled with respect to all
other Guarantors (and such other Guarantors' ability to perform thereon), and
such Additional Guarantor has determined that entering into the Credit Agreement
and the other Loan Documents enables it to obtain substantial benefits which it
would not otherwise have.
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<PAGE>
6. ADDITIONAL DOCUMENTATION. Additional Guarantor shall execute and
deliver to Lender such other agreements, assignments, financing statements,
certificates and other documents and instruments as Lender may reasonably
request to effect the transactions contemplated hereby and to establish and
perfect the liens and security interests intended to be created by the Loan
Documents.
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns.
10. COUNTERPARTS. This Supplement may be executed in any number of
original counterparts, each of which when so executed and delivered shall be
deemed an original, and all of which, collectively, shall constitute one
agreement, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the signature
pages from any other counterpart in order that one or more fully executed
originals may be assembled.
11. BINDING. This Supplement shall be binding upon, and inure to the
benefit of, the parties hereto and their successors and assigns, subject to the
provisions of the Credit Agreement.
12. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW MEXICO AND APPLICABLE FEDERAL
LAWS.
13. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
Executed effective as of the date first above written.
BORROWER:
SBS TECHNOLOGIES, INC., a New Mexico corporation
By: /s/ James E. Dixon Jr.
----------------------------------
James E. Dixon, Jr.
Vice President, Finance and Administration
ADDITIONAL GUARANTOR :
SDL COMMUNICATIONS INC., a Massachusetts
corporation
By: /s/ James E. Dixon Jr.
----------------------------------
Name: James E. Dixon, Jr.
--------------------------------
Title: Secretary
-------------------------------
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<PAGE>
ANNEX I
TO
SUPPLEMENT I
SUPPLEMENTS TO SCHEDULES TO SECURITY AGREEMENT
Attached are replacement Schedules A, B and C to the Security Agreement.
Schedule A is also the replacement Schedule A to the Contribution Agreement.
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<PAGE>
SCHEDULE A
List of Subsidiary Assignors
SBS TECHNOLOGIES, INC. CONNECTIVITY PRODUCTS, f/k/a SBS Bit 3 Operations, Inc.
SBS TECHNOLOGIES, INC. TELEMETRY AND COMMUNICATIONS PRODUCTS, f/k/a SBS
Berg Telemetry Systems, Inc.
SBS TECHNOLOGIES INC. MODULAR I/O, f/k/a SBS Greenspring Modular I/O, Inc.
SBS TECHNOLOGIES, INC. EMBEDDED COMPUTERS, f/k/a SBS Embedded Computers, Inc.
SBS TECHNOLOGIES INC. INDUSTRIAL COMPUTERS, f/k/a SBS Micro Alliance, Inc.
SBS TECHNOLOGIES INC. COMMUNICATIONS PRODUCTS, f/k/a VI Computer
SDL COMMUNICATIONS, INC.
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<PAGE>
SCHEDULE B
Principal Place of Business
and
Location of Inventory, Equipment and Furniture
[LOGO]
SBS Technologies, Inc.
2400 Louisiana Boulevard, N.E.
AFC Building 5, Suite 600
Albuquerque, NM 87110-4316
SBS Technologies, Inc. Telemetry and Communications
Products
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Industrial Computers
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Communications Products
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Modular I/O
8371 Central Avenue, Suite C
Newark, CA 94560
SBS Technologies, Inc. Embedded Computers
6301 Chapel Hill Road
Raleigh, NC 27607
SBS Technologies, Inc. Connectivity Products
1284 Corporate Center Drive
St. Paul, MN 55121-1245
SDL Communications, Inc.
46 Eastman Street
Easton, MA 02375
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<PAGE>
SCHEDULE C
Trade Names
<TABLE>
<CAPTION>
NAME TRADE NAME(S)
---- -------------
<S> <C>
SBS Technologies, Inc. None
SBS Technologies, Inc. Telemetry and SBS Berg Telemetry Systems, Inc.
Communications Products
SBS Technologies Inc. Industrial Computers SBS Micro Alliance, Inc.
SBS Technologies Inc. Communications Products VI Computer
SBS Technologies Inc. Modular I/O SBS Greenspring Modular I/O, Inc.
SBS Technologies, Inc. Embedded Computers SBS Embedded Computers, Inc.
SBS Technologies, Inc. Connectivity Products SBS Bit 3 Operations, Inc.
SDL Communications, Inc. None
</TABLE>
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<PAGE>
EXHIBIT 10.aw
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT") is entered into as
of March 31, 2000, by SBS TECHNOLOGIES, INC., a New Mexico corporation
("BORROWER"), and all Subsidiaries of Borrower now or at a future time executing
this Security Agreement on the signature pages hereof or on any amendments or
supplements hereto as listed on SCHEDULE A hereto, as SCHEDULE A is amended or
supplemented from time to time (the "SUBSIDIARY ASSIGNORS") (Borrower and the
Subsidiary Assignors being sometimes referred to herein individually as an
"ASSIGNOR" and collectively as "ASSIGNORS"), in favor of BANK OF AMERICA, N.A.,
formerly NationsBank, N.A., a national banking association ("LENDER").
W I T N E S S E T H:
WHEREAS, Borrower and Lender (under its prior name, NationsBank, N.A.)
have previously executed that certain Credit Agreement (as modified, amended or
supplemented or restated from time to time, the "CREDIT AGREEMENT") dated as of
December 1, 1998, pursuant to which Lender has made available to Borrower a
revolving credit loan facility, which currently is in an amount not to exceed
Twenty-Five Million and No/100 Dollars ($25,000,000.00), which Credit Agreement
has been amended by (i) Note Modification Agreement dated as of November 30,
1999, (ii) Modification of Credit Agreement, Guaranty Agreements and Related
Loan Documents dated as of January 31, 2000, and (iii) Second Modification of
Credit Agreement, Guaranty Agreements and Related Loan Documents (the "SECOND
MODIFICATION") of even date herewith, by and among Borrower, Lender, and the
Subsidiary Assignors as Guarantors thereunder (unless otherwise defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Credit Agreement, as modified); and
WHEREAS, pursuant to the Second Modification, Lender has agreed to an
increase in the revolving credit facility to $30,000,000 and certain other
modifications to the Credit Agreement, the Guaranty Agreements and the other
Loan Documents upon the terms and conditions set forth therein; and
WHEREAS, in consideration for the agreement of Lender to to increase
the credit facility and to enter into the Second Modification, and in order to
provide additional collateral security for the Obligations, Lender has
requested, and it is a condition to the effectiveness of the Second
Modification, that Assignors enter into this Security Agreement, pursuant to
which each Assignor will assign certain of its assets comprising the Collateral
(hereinafter defined) as security for the Obligations under the Credit
Agreement; and
WHEREAS, each Assignor has determined that valuable benefits will be
derived by it as a result of the increase in the credit facility pursuant to the
Second Modification.
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<PAGE>
NOW, THEREFORE, for and in consideration of the mutual covenants herein
and in the Second Modification and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Assignors covenant and agree with Lender as follows:
ARTICLE 1
GRANT OF SECURITY INTEREST,
DESCRIPTION OF COLLATERAL AND INDEBTEDNESS
1.1 ASSIGNMENT AND GRANT OF SECURITY INTEREST. Assignors hereby grant,
pledge and assign to Lender, and hereby grant to Lender a security interest in,
all of the Collateral (as hereinafter defined) of each Assignor, and all rights,
titles and interests of any Assignor therein, wherever located and whether now
owned or hereafter acquired by any Assignor or in which any Assignor now has or
at any time in the future may acquire any right, title or interest.
1.2 DESCRIPTION OF COLLATERAL. As used herein, the term "COLLATERAL"
shall mean and include the following:
(a) all accounts, accounts receivable, contract rights,
chattel paper, book debts, notes, drafts, instruments, documents, acceptances
and other forms of obligations now owned or hereafter received or acquired by or
belonging or owing to any Assignor (including under any trade names, styles or
divisions thereof) whether arising out of goods sold by it or services rendered
by it or from any other transaction, whether or not the same involves the sale
of goods or performance of services by such Assignor (including without
limitation, (i) any such obligation which would be characterized as an account,
general intangible or chattel paper under the UCC (as hereinafter defined), (ii)
any unbilled services rendered for which an invoice will later be created, and
(iii) all advances made by any Assignor on behalf of its customers for which
such Assignor is entitled to reimbursement or payment and for which an invoice
will be rendered) and all of any Assignor's rights in, to and under all invoices
now in existence or hereafter received or acquired by it for goods or services,
and all of any Assignor's rights to any goods represented by any of the
foregoing and all moneys due or to become due to any Assignor under all
contracts for the sale of goods and/or the performance of services by it
(whether or not yet earned by performance) or in connection with any other
transaction, now in existence or hereafter arising, including without limitation
the right to receive the Proceeds (as hereinafter defined) of said purchase
orders and contracts, and all collateral security and guarantees of any kind
given by any person or entity with respect to any of the foregoing, and all bank
accounts of any Assignor; and all customer lists, subscription lists, invoices,
agings, verification reports and other records relating in any way to such
accounts, all promissory notes (the "PLEDGED NOTES"), drafts, bills of exchange,
instruments, documents and trade acceptances (collectively, "INSTRUMENTS"), and
all deposit accounts, general intangibles, tax refunds and other obligations of
any kind owing to any Assignor (including under any trade names), now or
hereafter existing, arising out of or in connection with the sale or lease of
goods or the rendering of services or otherwise (including, without limitation,
any such obligations that would be characterized as an account, general
intangible or chattel paper under the UCC); and all rights now or hereafter
existing in and to all security agreements, leases, guarantees and other
contracts securing or otherwise relating to any of the foregoing (any and all
such accounts, instruments, deposit accounts, general intangibles
Page 2
<PAGE>
and obligations described in this SECTION 1.2(a) being sometimes referred to
herein collectively as the "ACCOUNTS");
(b) all inventory in all of its forms, wherever located, now
or hereafter existing, including, but not limited to, (i) all raw materials and
work in process therefor, finished goods thereof, and materials used or consumed
in the manufacture or production thereof, (ii) goods in which any Assignor has
an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which any Assignor has an interest or
right as consignee), and (iii) goods which are returned to or repossessed by any
Assignor, and all accessions thereto and products thereof and documents therefor
(any and all such inventory, accessions, products and documents being referred
to herein collectively as "INVENTORY"); and
(c) all accessions to, all substitutions for and replacements
of, and all proceeds, and products of, and all monies, income and benefits
arising from or by virtue of, and all payments and distributions (cash or
otherwise) payable or distributable with respect to, any and all of the
foregoing Collateral (including, without limitation, proceeds which constitute
property of the types described in this SECTION 1.2) and, to the extent not
otherwise included, all (i) payments under insurance (whether or not Lender is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral and (ii) all cash, including, without limitation, all "proceeds" as
defined in Section 9.306(a) of the UCC (or, if numbered differently in the UCC
adopted in the jurisdiction(s) in which a UCC-1 Financing Statement related to
this Security Agreement is filed, the applicable section of such UCC)
(collectively, the "PROCEEDS").
As used herein "UCC" means the Uniform Commercial Code as in effect in the State
of New Mexico, as amended, or, if stated with reference to another jurisdiction
or the Uniform Commercial Code of another jurisdiction is applicable in the
given situation, the Uniform Commercial Code as in effect in such other
jurisdiction.
1.3 DESCRIPTION OF OBLIGATIONS. This Security Agreement creates an
assignment of and a security interest in the Collateral (the "SECURITY
INTEREST") securing the payment and performance of the Obligations under and as
defined in the Credit Agreement, which includes, without limitation, all
obligations and indebtedness arising under or pursuant to the Credit Agreement
(including without limitation the Second Modification), the Guaranty Agreements,
the Note, and the other Loan Documents, including any extensions, modifications,
substitutions, amendments, renewals and restatements thereof, whether for
principal, interest, fees, premium, expenses, indemnification or otherwise.
Without limiting the generality of the foregoing, this Security Agreement
secures the payment of all amounts which constitute part of the Obligations and
would be owed to Lender, but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving any Assignor or any other Person.
Page 3
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each Assignor represents and warrants to Lender with respect to itself
and the Collateral now owned or hereafter acquired by such Assignor that:
2.1 OWNERSHIP OF COLLATERAL, RIGHT TO PLEDGE AND ENFORCEABILITY. Such
Assignor (a) is the sole registered, legal and beneficial owner of such
Collateral and all rights and interests thereunder, (b) has the power and
authority to execute and deliver this Security Agreement and to pledge such
Collateral to Lender, and (c) is the appropriate person to originate any
instruction or order regarding the pledge or transfer of such Collateral. Such
Assignor further represents and warrants that the obligations of such Assignor
hereunder are rightful, legal, valid and binding obligations, enforceable in
accordance with their terms.
2.2 STATUS OF COLLATERAL GENERALLY. As of the later of the date hereof
or the date of delivery to Lender, of any of such Collateral hereunder and under
the Credit Agreement, the following are true (or will be true at such date, with
respect to such Collateral hereafter pledged to Lender): (a) such Assignor has
(or will have) good title to such Collateral; (b) except as disclosed to Lender,
such Collateral has not (or will not have) been materially altered (other than
accessions or other alterations to Inventory in the normal course of business);
(c) no defense of any party to performance under any contract which constitutes
Collateral is (or will be) good against such Assignor; (d) such Assignor has (or
will have) no knowledge of any insolvency proceeding instituted with respect to
the issuer, drawer, maker and/or acceptor; (e) such Assignor's transfer of such
Collateral to Lender, is (or will be) effective and rightful; (f) except as
disclosed to Lender, no other lien, adverse claim, pledges or option has been
created by such Assignor or is known to such Assignor to exist with respect to
any such Collateral, and, to the best of such Assignor's information and belief,
no financing statement, registered pledge or other security instrument is on
file in any jurisdiction covering such Collateral; and (g) such Assignor does
not (or will not) know of any fact which might impair the validity of such
Collateral or the Security Interest with respect to such Collateral.
2.3 LENDER'S SECURITY INTEREST. Each grant of the Security Interest in
and to such Collateral and each assignment or pledge of such Collateral pursuant
to this Security Agreement will, upon the giving of value by the Lender, create
a valid, binding, and perfected first priority (subject only to any Permitted
Liens) security interest in and lien on such Collateral securing the payment of
the Obligations and will be enforceable against such Assignor and all other
Persons.
2.4 NO CONSENTS. The execution, delivery and performance of this
Security Agreement are not in contravention of any indenture, agreement or
undertaking to which such Assignor is a party or by which such Assignor is bound
and no consents of any person are required to be obtained by such Assignor in
connection with the execution, delivery and performance of this Security
Agreement.
Page 4
<PAGE>
2.5 NO APPROVALS. No authorization, approval or other action by, and no
notice to or filing with, any Tribunal or any other entity is required either
(a) for the grant by such Assignor of the security interest granted hereby or
for the execution, delivery or performance of this Security Agreement by such
Assignor, or (b) for the perfection of the Security Interest or exercise by
Lender of their rights and remedies hereunder.
2.6 PRINCIPAL PLACE OF BUSINESS. The principal place of business and
chief executive office of such Assignor, and the office where such Assignor
keeps its primary books and records, including those concerning the Accounts and
Contracts, is located at the address of Borrower shown on SCHEDULE B hereto, or
at such other address as is specifically set forth for such Assignor on SCHEDULE
B hereto. The Inventory and other goods comprising Collateral pledged by such
Assignor hereunder is located at the places specified on SCHEDULE B hereto or at
offices of such Assignor other than its principal place of business, provided
that each Assignor agrees upon the request of Lender from time to time to
furnish Lender a description of the Inventory and other goods (and approximate
value thereof) at each such other location. All promissory notes, including,
without limitation, the Pledged Notes, or other instruments evidencing the
Accounts have been pledged to Lender and delivered to Lender or a Custodian,
duly endorsed and accompanied by such duly executed instruments of transfer or
assignment as are necessary for such pledge, to be held as pledged collateral.
Other than such notes and instruments, each Assignor has possession and control
of the Collateral pledged by it hereunder.
2.7 TRADE NAMES. Such Assignor does not have or operate under any trade
names, except for any trade names set forth for such Assignor on SCHEDULE C
hereto.
2.8 ACCOUNTS. The amount represented by such Assignor to Lender from
time to time as owing by each account debtor or by all account debtors in
respect of the Accounts owned by such Assignor will at such time be, in all
material respects, the correct amount actually owing by such account debtor or
debtors thereunder. No amount payable to such Assignor under or in connection
with any such Account is evidenced by any instrument (as defined in the UCC) or
chattel paper (as defined in the UCC), other than checks and other similar
negotiable instruments and intercompany notes, which has not been delivered to
Lender.
2.9 POWER AND AUTHORITY; AUTHORIZATION. Such Assignor has the corporate
power and authority and the legal right to execute and deliver, to perform its
obligations under, and to grant the Security Interest in such Collateral
pursuant to, this Security Agreement and has taken all necessary corporate
action to authorize its execution, delivery and performance of, and grant of the
Security Interest in such Collateral pursuant to, this Security Agreement.
2.10 ENFORCEABILITY. This Security Agreement constitutes a legal, valid
and binding obligation of such Assignor enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting the
enforcement of creditors' rights generally.
2.11 NO CONFLICT. The execution, delivery and performance of this
Security Agreement will not violate any contractual obligations of such Assignor
and will not result in the creation or
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imposition of any encumbrance on any of the properties or revenues of such
Assignor or contractual obligations of such Assignor, except as contemplated
hereby.
ARTICLE 3
COVENANTS AND AGREEMENTS OF ASSIGNORS
Borrower covenants and agrees, and each Assignor with respect to itself
and the Collateral now owned or hereafter acquired by such Assignor, covenants
and agrees, as follows:
3.1 PERFECTION OF SECURITY INTEREST. Pursuant to the UCC, Borrower and
such Assignor shall take all action requested by Lender necessary to ensure the
validity and perfection of the Security Interest in such Collateral.
3.2 ASSIGNORS REMAIN LIABLE. Anything herein to the contrary
notwithstanding, such Assignor shall remain liable under each of the Accounts
and other items of Collateral it owns to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account. Lender shall
have no obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Security Agreement or the receipt
by Lender of any payment relating to such Account pursuant hereto, nor shall
Lender be obligated in any manner to perform any of the obligations of Assignors
under or pursuant to any Account (or any agreement giving rise thereto), to make
any payment, to make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
under any Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be entitled
at any time or times.
3.3 NOTICE TO ACCOUNT DEBTORS AND CONTRACTING PARTIES. Upon the request
of Lender at any time during the continuation of an Event of Default, such
Assignor shall notify account debtors on the Accounts owned by such Assignor
that such Accounts have been assigned to Lender and that payments in respect
thereof shall be made directly to Lender. Lender may in its own name or in the
name of others, during the continuation of an Event of Default, communicate with
account debtors on such Accounts to verify with them to its satisfaction the
existence, amount and terms of any such Accounts.
3.4 COLLECTIONS ON ACCOUNTS. Lender hereby authorizes each Assignor to
collect the Accounts owned by such Assignor, subject to, during the continuation
of an Event of Default, Lender's direction and control, and Lender may during
the continuation of an Event of Default curtail or terminate said authority at
any time. If required by Lender at any time during the continuation of an Event
of Default, any payments of such Accounts, when collected by such Assignor,
shall be forthwith (and, in any event, within two business days) deposited by
such Assignor in the exact form received, duly indorsed by such Assignor to
Lender if required, in a special collateral account maintained by Lender,
subject to withdrawal by Lender only, as hereinafter provided, and, until so
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turned over, shall be held by such Assignor in trust for Lender, segregated from
other funds of such Assignor. All Proceeds while held by Lender (or by such
Assignor in trust for Lender) shall continue to be collateral security for all
of the Obligations and shall not constitute payment thereof until applied as
hereinafter provided. If an Event of Default shall have occurred and be
continuing, at any time at Lender's election, Lender shall apply all or any part
of the funds on deposit in said special collateral account on account of the
Obligations in such order as Lender may elect, and any part of such funds which
Lender elects not so to apply and deems not required as collateral security for
the Obligations shall be paid over from time to time by Lender to such Assignor
or to whomsoever may be lawfully entitled to receive the same. If an Event of
Default shall have occurred and be continuing, at Lender's request, each
Assignor shall deliver to Lender all original and other documents evidencing,
and relating to, the agreements and transactions which gave rise to such
Accounts, including, without limitation, all original orders, invoices and
shipping receipts.
3.5 ANALYSIS OF ACCOUNTS. Lender shall have the right to make test
verifications of the Accounts owned by Assignors in any manner and through any
medium that it reasonably considers advisable, and each Assignor shall furnish
all such assistance and information as Lender may reasonably require in
connection therewith. At any time and from time to time, upon Lender's request
and at the expense of Borrower, but not more frequently than once in any
calendar quarter unless an Event of Default exists, Borrower shall cause
independent public accountants or others satisfactory to Lender to furnish to
Lender reports showing reconciliations, aging and test verifications of, and
trial balances for, such Accounts.
3.6 FURTHER ACTS AND ASSURANCES. From time to time Assignors shall
promptly execute and deliver to Lender all such other assignments, certificates,
supplemental writing, instructions, trust receipts, escrow agreements and
financing statements, and do all other acts or things as Lender may reasonably
request, in order more fully to establish, evidence and perfect the Security
Interest with respect to any and all items of the Collateral.
3.7 NO TRANSFER OR HYPOTHECATION. Without the prior written consent of
Lender, no Assignor will transfer its rights or interests in any Collateral,
sell, lease or otherwise dispose of any Collateral, or create any other lien or
security interest or otherwise encumber any of any Collateral, or release or
surrender any Collateral at any time, or permit any Collateral ever to be or
become subject to any lien, attachment, execution, sequestration, other legal or
equitable process, or any lien or encumbrance of any kind, except the Security
Interest and Permitted Liens. Assignors shall not send any notice to any Person
which may result in the creation of any other interest in the Collateral.
3.8 ENFORCEMENT. Borrower and each Assignor shall enforce each and
every obligation, term, covenant, condition and agreement in or pertaining to
the Collateral by any other party thereunder to be performed, and Borrower and
each applicable Assignor shall appear in and defend any action or proceeding
arising under, occurring out of or in any manner connected with the Collateral
or the obligations, duties or liabilities of any other party thereunder, and
upon request by Lender, Borrower and each Assignor will do so in the name and on
behalf of Lender, but at the expense of Borrower, and Borrower shall pay all
costs and expenses of Lender, including reasonable attorneys' fees and
disbursements, in any action or proceeding which Lender may appear. Without
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limiting the foregoing, Borrower shall pay any costs and expenses that Lender
incurs in attempting to foreclose its security interest in such Collateral.
3.9 COMPROMISE/MODIFICATION OF COLLATERAL. Such Assignor will not
adjust, settle or compromise any of the Collateral, except for such actions
taken in the ordinary course of business and that do not result in a material
reduction in the value of the Collateral taken as a whole, without the prior
written consent of Lender. No Assignor shall do anything to impair the rights of
Lender in any of the Collateral.
3.10 BOOKS AND RECORDS; INFORMATION. Borrower and each Assignor shall
keep accurate and complete books and records of the Collateral and such
Assignor's business and financial condition in accordance with GAAP. Each
Assignor shall from time to time at the request of Lender deliver to Lender such
information regarding such Collateral as Lender may request. Upon reasonable
notice, Borrower and each Assignor shall allow Lender or their agents, to
inspect all records of such Assignor relating to the Collateral or the
Obligations during normal business hours and to make and take away copies of
such records.
3.11 CHANGES. Borrower and each such Assignor shall promptly notify
Lender of any change in any material fact or circumstances warranted or
represented by Borrower or such Assignor in this Security Agreement or in any
other writing furnished by any Assignor in connection with the Collateral or the
Obligations.
3.12 CLAIMS. Borrower and each such Assignor shall promptly notify
Lender of any claim, action or proceeding affecting title to such Collateral, or
any part thereof, or the Security Interest, and at the request of Lender, appear
in and defend, at such Assignor's expense, any such action or proceedings, and
Assignors covenants that no such claims, actions or proceedings are pending or
threatened as of the date hereof.
3.13 COSTS. Borrower and Assignors shall promptly pay to Lender the
amount of all court costs and reasonable attorneys' fees incurred by Lender in
bringing any action for or on account of any breach, or to enforce or interpret
any of the terms, covenants or conditions, of this Security Agreement, or to
foreclose the Security Interest with respect to all or any part of the
Collateral.
3.14 INDEMNIFICATION. Borrower and Assignors agree to pay, and to save
Lender harmless from, any and all liabilities, costs and expenses (including,
without limitation, reasonable legal fees and expenses) (a) with respect to, or
resulting from, any delay in paying any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral, (b) with respect to, or resulting from, any delay in complying with
any laws applicable to any of the Collateral or (c) in connection with any of
the transactions contemplated by this Security Agreement. In any suit,
proceeding or action brought by Lender under any Account for any sum owing
thereunder, or to enforce any provisions of any Account, Borrower and each
Assignor will save, indemnify and keep Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by Borrower or any other Assignor of any
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obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from Assignors.
3.15 COMPLIANCE WITH LAWS, ETC. Each Assignor will comply in all
material respects with all Legal Requirements (as hereinafter defined)
applicable to the Collateral or any part thereof and/or to the operation of such
Assignor's business; PROVIDED, HOWEVER, that an Assignor may contest any Legal
Requirements in any reasonable manner which shall not, in Lender's
determination, adversely affect Lender's rights or the priority of the Security
Interests in the Collateral.
LEGAL REQUIREMENTS means (a) any and all present and future
judicial decisions, statutes, laws, rulings, rules, orders, regulations,
permits, licenses, certificates, or ordinances of any Tribunal in any way
applicable to any Assignor, (b) the presently or subsequently effective bylaws
and articles of incorporation and any other form of business association
agreement of any Assignor, (c) any and all covenants, conditions or restrictions
applicable to the Collateral or the ownership, use or occupancy thereof, and (d)
any and all leases or contracts (written or oral) of any nature that relate in
any way to any Collateral, or any portion thereof, or to which any Assignor may
be bound, and in each case which, if violated, would materially and adversely
affect (i) the present or potential ownership, use, sale, occupancy or
possession of the Collateral or any part thereof, by any Assignor, (ii) the
Security Interest or (iii) the financial condition of any Assignor.
3.16 COMPLIANCE WITH TERMS OF CONTRACTS, ETC. Each Assignor will
perform and comply in all material respects with all its obligations under the
Accounts it owns and all its other contractual obligations relating to the
Collateral.
3.17 PAYMENT OF OBLIGATIONS. Borrower, and each Assignor with respect
to Collateral owned by it, will pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Collateral it owns or in respect
of the income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to such Collateral, except that no such charge need be
paid if (a) the validity thereof is being contested in good faith by appropriate
proceedings, (b) such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of such Collateral or any interest therein and
(c) such charge is adequately reserved against on such Assignor's books in
accordance with GAAP.
3.18 LIMITATION ON LIENS ON COLLATERAL. Assignors will not create,
incur or permit to exist, will defend the Collateral it owns against, and will
take such other action as is necessary to remove, any encumbrance or claim on or
to such Collateral, other than the Security Interest, and will defend the right,
title and interest of Lender in and to any of such Collateral against the claims
and demands of all Persons whomsoever.
3.19 LIMITATIONS ON MODIFICATIONS, WAIVERS, EXTENSIONS OF AGREEMENTS
GIVING RISE TO ACCOUNTS. Without the prior written consent of Lender, which
consent shall not be unreasonably withheld, each Assignor will not (a) amend,
modify, terminate or waive any provision of any agreement giving rise to an
Account in any manner which could reasonably be expected to materially adversely
affect the value of such Account as Collateral, (b) fail to exercise promptly
and diligently each and every material right which it may have under each
agreement giving rise to an Account
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(other than any right of termination) or (c) fail to deliver to Lender a copy of
each material demand, notice or document received by it relating in any way to
any agreement giving rise to an Account.
3.20 LIMITATIONS ON DISCOUNTS, COMPROMISES, EXTENSIONS OF ACCOUNTS.
Other than in the ordinary course of business or as otherwise permitted under
the Credit Agreement, such Assignor will not grant any extension of the time of
payment of any of the Accounts, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partially, any party liable for
the payment thereof, or allow any credit or discount whatsoever thereon.
3.21 INVENTORY. Such Assignor shall keep all of the Inventory owned by
it at the place or places specified therefor in SECTION 2.6 or, upon thirty
days' prior written notice to Lender, at such other places in such jurisdiction
where all action required by Lender under SECTION 3.6 shall have been taken with
respect to such transferred Inventory. Such Assignor shall pay promptly when due
or before penalty all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including claims for labor,
materials and supplies) against, the Collateral pledged by it hereunder as
provided in the Credit Agreement. Upon notice to such Assignor, the Lender, and
its respective officers, agents and representatives shall at all reasonable
times have the right to enter into and upon any premises where any of the
Inventory is located for the purpose of inspecting the same, observing its use
or otherwise protecting its interests therein.
3.22 INSURANCE. Such Assignor will, at its own expense, maintain, or
cause to be maintained, insurance on the Collateral as provided in the Credit
Agreement. If Lender shall be named as loss payee and additional insured on
insurance policies which pertain to the Collateral, and such insurance policy
shall contain a standard mortgage clause requiring at least 30 days notice to
Lender prior to cancellation thereof. If any Assignor fails to perform or
observe any applicable covenants as to insurance on any of such Collateral,
Lender may at its option obtain insurance on such Collateral, and any premium
therefor paid by Lender shall become part of the Obligations. Each Assignor
hereby grants Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Lender and in all proceeds of such insurance and hereby
appoints Lender its attorney-in-fact to, after the occurrence and during the
continuance of an Event of Default, endorse any check or draft that may be
payable to each Assignor in order to collect such refunds or proceeds. Any such
sums collected by Lender shall be credited, except to the extent applied to the
purchase by Lender of similar insurance, to any amounts then owing on the
Obligations.
3.23 PLACE OF PERFECTION; RECORDS. No Assignor will (i) change the
location of its chief executive office from that specified in SCHEDULE B, or
(ii) change its name, identity or corporate structure to such an extent that any
financing statement filed by Lender in connection with this Security Agreement
would become seriously misleading, or (iii) use any trade name other than those
listed on SCHEDULE C, unless such Assignor shall have given prior written notice
to Lender as soon as practicable thereof, and prior to effecting any such change
such Assignor shall have taken such steps as Lender may deem reasonably
necessary or advisable to continue the perfection and priority of the security
interest granted pursuant hereto.
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3.24 FURTHER IDENTIFICATION OF COLLATERAL. Each Assignor will furnish
to Lender from time to time upon request statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Lender may reasonably request, all in reasonable detail
and in form satisfactory to such requesting party.
ARTICLE 4
CERTAIN RIGHTS OF LENDER
4.1 PROCEEDS OF COLLATERAL. Should the Collateral, or any part thereof,
ever be in any manner converted by its issuer into another type of property or
any money or other proceeds ever be paid or delivered to any Assignor as a
result of any Assignor's rights in the Collateral, then, in any such event, all
such property, money, and other proceeds shall immediately be and become part of
the Collateral. In addition, if Lender deems it necessary and so requests,
Assignors shall properly endorse or assign any and all such other proceeds to
Lender and shall deliver to Lender any and all such other proceeds which require
perfection by possession under the UCC. With respect to any of such property of
a kind requiring an additional security agreement, financing statement, or other
writing to perfect a security interest therein in favor of Lender, Assignors
forthwith shall execute and deliver to Lender whatever Lender shall deem
necessary or proper for such purpose.
4.2 PRESERVATION OF COLLATERAL. Lender shall not have any duty to fix
or preserve rights against prior parties to the Collateral, and shall never be
liable for failure to use diligence to collect any amount payable with respect
to the Collateral, or any part thereof, but shall be liable only to account to
Assignors for what Lender may actually collect or receive thereon.
4.3 PRESERVATION OF SECURED INDEBTEDNESS. Lender shall not be liable
for its failure to use due diligence in the collection of the Obligations, or
any part thereof, or for its failure to give notice to any Assignor of default
in the payment of the Obligations, or any part thereof, or in the payment of or
upon any security whether pledged hereunder or otherwise.
4.4 OTHER SECURITY. Should any other Person have heretofore executed or
hereafter execute, in favor of any Lender any deed of trust, mortgage or
security agreement, or have heretofore pledged or hereafter pledge any other
property to secure the payment of the Obligations or the Note, or any part
thereof, the exercise by such Lender or any right or power conferred upon it in
any such instrument, or by any such pledge, shall be wholly discretionary with
it, and the exercise or failure to exercise any such right or power shall not
impair or diminish such Lender's rights, titles, interest, liens and powers
existing hereunder.
4.5 POWER OF ATTORNEY. Each Assignor hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, effective upon the occurrence of an Event of Default and during
the continuance thereof, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the name of such Assignor or in its own name,
to take any and all action and to execute any and all documents and instruments
which Lender at any time and from time to time deems necessary or desirable to
accomplish the purposes of this
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Security Agreement and, without limiting the generality of the foregoing, each
Assignor hereby gives Lender the power and right on behalf of such Assignor and
in its own name to do any of the following, without notice to or the consent of
any Assignor:
(a) to demand, sue for, collect, or receive in the name of
such Assignor or in its own name, any money at any time payable or receivable on
account of or in exchange for any of the Collateral and, in connection
therewith, endorse checks, notes, drafts, acceptances, money orders, documents
of title, or any other instruments for the payment of money under the
Collateral;
(b) to pay or discharge taxes, liens, security interests, or
other encumbrances levied or placed on or threatened against the Collateral , to
effect any repairs or any insurance called for by the terms of this Security
Agreement and to pay all or any part of the premiums therefor and the costs
thereof; and
(c) (i) to direct any parties liable for any payment under any
of the Collateral to make payment of any and all monies due and to become due
thereunder directly to Lender or as Lender shall direct; (ii) to receive payment
of and receipt for any and all monies, claims, and other amounts due and to
become due at any time in respect of or arising out of any Collateral; (iii) to
sign and endorse any assignments, proxies, bond powers, verifications, and
notices in connection with accounts and other documents relating to the
Collateral; (iv) to commence and prosecute any suit, action, or proceeding at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any
Collateral; (v) to defend any suit, action, or proceeding brought against such
Assignor with respect to any Collateral; (vi) to settle, compromise, or adjust
any suit, action, or proceeding described above and, in connection therewith, to
give such discharges or releases as Lender may deem appropriate; (vii) to
exchange any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or other readjustment of the
issuer thereof and, in connection therewith, deposit any of the Collateral with
any committee, depositary, transfer agent, registrar, or other designated agency
upon such terms as Lender may determine; (viii) to add or release any borrower,
guarantor, indorser, surety, or other party to any of the Collateral; (ix) to
renew, extend, or otherwise change the terms and conditions of any of the
Collateral; and (x) to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Lender were the absolute owner thereof for all purposes, and to do, at
Lender's option and such Assignor's expense, at any time, or from time to time,
all acts and things which Lender deems necessary to protect, preserve, or
realize upon the Collateral and Lender's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Lender shall be under no duty to exercise or withhold the exercise
of any of the rights, powers, privileges, and options expressly or implicitly
granted to Lender in this Security Agreement, and shall not be liable for any
failure to do so or any delay in doing so. Lender shall not be liable for any
act or omission or for any error of judgment or any mistake of fact or law in
its individual capacity or in its capacity as attorney-in-fact except acts and
omissions resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on Lender solely to protect, preserve, and realize upon
the Security Interest in the Collateral. Lender shall not be responsible for any
decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against
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prior parties or to protect, preserve, or maintain any security interest or lien
given to secure the Collateral.
4.6 PERFORMANCE BY LENDER. If any Assignor fails to perform or comply
with any of its agreements contained herein, Lender itself may, at its sole
discretion, cause or attempt to cause performance or compliance with such
agreement and the expenses of Lender, together with interest thereon at the
Default Rate shall be payable by such Assignor to Lender on demand and shall
constitute Obligations. Notwithstanding the foregoing, it is expressly agreed
that Lender shall not have any liability or responsibility for the performance
of any obligation of any Assignor under this Security Agreement.
4.7 NO DUTY ON THE PART OF LENDER. The powers conferred on Lender
hereunder are solely to protect the interests of Lender in the Collateral and
shall not impose any duty upon Lender to exercise any such powers. Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to any Assignor for any act or failure
to act hereunder, except for its own gross negligence or willful misconduct, IT
BEING THE INTENT OF THE PARTIES HERETO THAT LENDER SHALL NOT BE ACCOUNTABLE FOR
ITS OWN NEGLIGENCE (WHETHER SOLE, COMPARATIVE, CONTRIBUTORY OR OTHERWISE) OR FOR
STRICT LIABILITY WHICH MAY ARISE FROM ANY ACT.
4.8 PROCEEDS. If an Event of Default shall occur and be continuing (a)
all Proceeds received by any Assignor consisting of cash, checks and other
non-cash items shall be held by such Assignor in trust for Lender, segregated
from other funds of such Assignor, and shall, forthwith upon receipt by such
Assignor, be turned over to Lender in the exact form received by such Assignor
(duly indorsed by such Assignor to Lender, if required), and (b) any and all
such Proceeds received by Lender (whether from such Assignor or otherwise) may,
in the sole discretion of Lender, be held by Lender as collateral security for,
and/or then or at any time thereafter may be applied by Lender against, the
Obligations (whether matured or unmatured), such application to be in such order
as Lender shall elect. Any balance of such Proceeds remaining after the
Obligations shall have been paid and performed in full shall be paid over to
such Assignor or to whomsoever may be lawfully entitled to receive the same.
ARTICLE 5
REMEDIES
5.1 REMEDIES. The occurrence of an Event of Default under the Credit
Agreement shall constitute an Event of Default under this Security Agreement. If
an Event of Default shall occur and be continuing, Lender may exercise, in
addition to all other rights and remedies granted to Lender in this Security
Agreement or the Credit Agreement or in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC. In addition to any and all other rights and
remedies that Lender may then have hereunder, under the UCC, or otherwise at law
or equity, Lender may at its option do any one or more of the following:
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(a) reduce its claim to judgment or foreclose or otherwise
enforce the Security Interest granted herein, in whole or in part, by any
available judicial procedure;
(b) after notification, if any provided for herein, dispose
of, at the office of Lender, on the premises of any Assignor or elsewhere, all
or any part of the Collateral, as a unit or in parcels by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Lender's power of sale, but
sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Obligations has been paid and performed in
full), and at any such sale it shall not be necessary to exhibit any of the
Collateral;
(c) buy the Collateral, or any part thereof, at any public
sale;
(d) buy the Collateral, or any part thereof, at any private
sale if such Collateral is of a type customarily sold in a recognized market or
is of a type which is subject to widely distributed standard price quotations;
(e) apply by appropriate judicial proceedings for appointment
of a receiver for the Collateral, or any part thereof, and Assignors hereby
consent to any such appointment;
(f) at its discretion, but only if Lender has stated such
intent to do so in writing, retain the Collateral in satisfaction of the
Obligations whenever the circumstances are such that Lender are entitled to do
so under the UCC or otherwise; and/or
(g) exercise any and all other rights it may have hereunder or
under the Second Modification, Credit Agreement, the Note or other Loan
Documents, or under the UCC or other applicable law.
5.2 NOTIFICATION OF SALE. Reasonable notification of the time and place
of any public sale of the Collateral, or reasonable notification of the time
after which any private sale or other intended disposition of the Collateral is
to be made, shall be sent to Assignors and to any other Person entitled under
the UCC to notice; provided that if any of the Collateral threatens to decline
speedily in value or is of the type customarily sold on a recognized market,
Lender may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than five (5) calendar days prior to taking of the action to
which the notice relates is reasonable notification and notice for the purposes
hereof.
5.3 WITH RESPECT TO COLLATERAL. Upon the occurrence of an Event of
Default, Lender is authorized and empowered (without the necessity of any
further consent or authorization from Assignors), at Borrower's cost and
expense, to exercise, without notice, all or any of the following powers at any
time with respect to all or any part or items of the Collateral:
(a) receive, endorse, collect by legal proceedings or
otherwise, and demand payment directly from the makers, issuers and/or obligors
of the Collateral and receipt for all sums
Page 14
<PAGE>
and amounts now or hereafter payable on or with respect to the Collateral;
provided that all such sums so paid to and received by Lender shall be applied
to the Obligations as provided herein;
(b) from time to time extend the time of payment, arrange for
payment in installments or otherwise modify the terms of or enter into any other
agreement in any wise relating to or affecting the Collateral, and in connection
therewith may deposit or surrender control of any security held therefor, accept
other property in exchange for any security held therefor and take such action
as if may deem proper, and any money or property received in exchange for any
security held therefor shall be applied to the Obligations, or thereafter held
by Lender pursuant to the provisions hereof;
(c) make any compromise or settlement Lender deems desirable
with respect to the Collateral;
(d) insure, process and preserve the Collateral;
(e) demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for Collateral;
(f) transfer to or register in the name of Lender or any
nominee of Lender any of the Collateral and whether or not so transferred or
registered and to exchange any of the Collateral for other property upon
reorganization, recapitalization or other readjustment of the issuer, or obligor
thereof and in connection therewith to deposit any of the Collateral with any
committee or depository or other third party upon such terms as Lender may
determine; all without notice and without liability except to account for
property actually received by Lender; provided, however, that Lender shall not
be under any obligation or duty to exercise any of the powers hereby conferred
upon it and shall be without liability for any act or failure to act in
connection with the collection of, or the preservation of any rights under, any
Collateral.
5.4 APPLICATION OF PROCEEDS. Any and all proceeds ever received by
Lender from any disposition of the Collateral, or any part thereof, pursuant to
its rights under this ARTICLE 5, may be applied to the Obligations in the order
and manner determined by Lender in its sole discretion, notwithstanding any
directions or instructions to the contrary by any Assignor.
5.5 DEFICIENCY. Borrower, and Assignor as Guarantors, shall remain
jointly and severally liable to Lender for any unpaid indebtedness outstanding
under the Obligations, plus any reasonable advances, costs, charges and expenses
incurred by Lender in connection therewith, together with interest thereon and
shall pay the same immediately to Lender at Lender's place of business.
5.6 REMEDIES CUMULATIVE. All rights, titles, interest, liens and
remedies of Lender hereunder are cumulative of each other and of every other
right, title, interest, lien or remedy which Lender may otherwise have at law or
in equity or under the Second Modification, Credit Agreement, the Note or any
other contract or other writing for the enforcement of the Security Interest
herein or the collection of the Obligations, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies. Should any
Page 15
<PAGE>
Assignor have heretofore executed or hereafter execute any other security
agreement in favor of Lender, or any of them, the security interest therein
created and all other rights, powers and privileges vested in Lender by the
terms thereof shall exist concurrently with the security interest created
herein.
5.7 INDEMNITY AND EXPENSES. (a) Borrower and each other Assignor agrees
to indemnify Lender, from and against any and all claims, damages, losses,
liabilities, costs and expenses of any kind (including reasonable attorneys'
fees) arising out of or resulting from this Security Agreement or the security
interest granted herein, or any of the Collateral (including, without
limitation, enforcement of this Security Agreement), EXPRESSLY INCLUDING SUCH
CLAIMS, LOSSES OR LIABILITIES ARISING OUT OF THE MERE NEGLIGENCE OF LENDER
(WHETHER SOLE, COMPARATIVE, CONTRIBUTORY, OR OTHERWISE)OR ANY ACT FROM WHICH
STRICT LIABILITY MAY ARISE, except claims, losses or liabilities resulting from
the gross negligence or willful misconduct of Lender.
(b) Assignors will upon demand pay to Lender the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Lender, or, as to the matters
described in clauses (iii) or (iv) below, the Lender may incur in connection
with (i) the administration of this Security Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Lender hereunder or (iv) the failure by any Assignor to
perform or observe any of the provisions hereof. Any such amounts so made shall
be a part of the Obligations, shall be payable upon demand, and if not paid upon
demand shall bear interest at the Default Rate.
ARTICLE 6
GENERAL
6.1 USURY SAVINGS CLAUSE. No provision herein or in the Note, or in any
other document evidencing or pertaining to the Obligations shall require the
payment or permit the collection of interest in excess of the maximum permitted
by law. If any excess of interest in such respect is provided for herein or in
any such promissory note, instrument or any other loan document, the provisions
of this paragraph shall govern, and Assignors shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. The intention of the parties being to conform strictly to the
applicable usury laws now in force, all promissory notes, instruments and other
loan documents evidencing the Obligations shall be held subject to reduction to
the amount allowed under said usury laws as now or hereafter construed by the
courts having jurisdiction.
6.2 NOTICES. Whenever this Security Agreement requires or permits any
consent, approval, notice, request or demand from one party to another, the
consent, approval, notice, request, or demand shall be given, and shall be
deemed delivered, in the manner set forth in the Credit Agreement.
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<PAGE>
6.3 FINANCING STATEMENTS. Lender shall have the right at any time to
execute and file this Security Agreement (or a photocopy hereof) as a financing
statement or to require each Assignor to execute and deliver one or more
separate financing statements or financing statement amendments which may be
filed in the appropriate state and/or county filing records, but the failure of
Lender to do so shall not impair the validity or enforceability of this Security
Agreement.
6.4 MODIFICATIONS; AMENDMENTS; SCHEDULES; ETC. No amendment or waiver
of any provision of this Security Agreement, and no consent to any departure by
any Assignor herefrom, shall in any event be effective unless the same shall be
in writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Upon any change in any information disclosed herein or on any Schedule
hereto, Borrower shall promptly prepare and deliver to Lender a replacement
schedule, indicating its effective date, in form and substance satisfactory to
Lender, and amendments to and additional financing statements as Lender may
require to preserve and perfect a first priority security interest in the
Collateral.
6.5 CONTINUING SECURITY INTEREST. This Security Agreement shall create
a continuing security interest in the Collateral and shall remain in full force
and effect until the later of (i) the final payment in full of the Obligations
and all amounts payable under this Security Agreement and (ii) the expiration or
termination of the Credit Agreement and the termination of the obligations of
the Lender to extend credit thereunder.
6.6 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding
upon and inure to the benefit of Assignors and Lender and their respective
heirs, devisees, legal and personal representatives, successors, and assigns;
provided that Assignors may not, without the prior written consent of Lender,
assign any rights, powers, duties, or obligations hereunder.
6.7 NO WAIVER; SEVERABILITY. Lender shall not by any act delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder to have acquiesced in any Event of Default of in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of any of Lender any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by any
of Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Lender would otherwise have on
any future occasion. This Security Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable Legal
Requirements. If any provision of this Security Agreement or the application
thereof to any person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, then neither the remainder of the instrument in
which such provision is contained nor the application of such provision to other
persons or circumstances nor the other instrument referred to hereinabove shall
be affected thereby, but rather, shall be enforced to the greatest extent
permitted by law.
6.8 GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
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<PAGE>
STATE OF NEW MEXICO, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW MEXICO. UNLESS OTHERWISE DEFINED HEREIN OR IN THE NOTES OR THE CREDIT
AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED HEREIN AS THEREIN DEFINED
THE PARTIES IRREVOCABLY AGREE THAT IN THE EVENT OF ANY DISPUTE ARISING HEREUNDER
OR IN CONNECTION WITH THE NOTES, VENUE FOR SUCH DISPUTE SHALL BE IN ANY COURT OF
COMPETENT JURISDICTION IN BERNALILLO COUNTY, NEW MEXICO.
6.9 SURVIVAL OF OBLIGATIONS. The Obligations shall survive the
execution and delivery of this Security Agreement, and shall continue in full
force and effect until the Obligations shall have been paid and performed in
full.
6.10 NO THIRD PARTY BENEFICIARY. This Security Agreement is for the
benefit only of Lender and Assignors and is not for the benefit of any third
party.
6.11 JURY TRIAL WAIVER. LENDER AND EACH ASSIGNOR HEREBY WAIVE ANY RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY MATTER ARISING OR RELATING TO THIS SECURITY
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
6.12 OBLIGATIONS NOT AFFECTED. To the fullest extent permitted by
applicable law, the obligations of each Assignor under this Security Agreement
shall remain in full force and effect without regard to, and shall not be
impaired or affected by:
(a) any amendment or modification or addition or supplement to
any Loan Document, any instrument delivered in connection therewith or any
assignment or transfer thereof;
(b) any exercise, non-exercise, or waiver by Lender of any
right, remedy, power or privilege under or in respect of, or any release of any
guaranty, any collateral or the Collateral or any part thereof provided pursuant
to, this Security Agreement or any other Loan Document;
(c) any waiver, consent, extension, indulgence or other action
or inaction in respect of this Security Agreement or any other Loan Document or
any assignment or transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of any Assignor, or any other
Person, whether or not such Assignor shall have notice or knowledge of any of
the foregoing.
6.13 LOAN DOCUMENT; CONFLICTS WITH CREDIT AGREEMENT AND OTHER LOAN
DOCUMENTS. This Security Agreement is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance
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<PAGE>
with the terms and provisions thereof. In the event of any conflict or
inconsistency between the terms of this Security Agreement and the terms of the
Credit Agreement, the terms of the Credit Agreement will control.
6.14 AGREEMENT TO SUPPLEMENT. Assignors acknowledge and agree that this
Security Agreement shall be amended and supplemented from time to time to add
additional Assignors and/or include a description of additional Collateral
subject hereto subsequent to the date hereof, as and when any new Subsidiary of
Borrower is to be added as a Guarantor under the Credit Agreement, it being
understood and agreed that each Subsidiary of Borrower organized in the United
States shall be a Guarantor and a Subsidiary Assignor. Lender shall be entitled
to supplement SCHEDULE A and any other applicable Schedules from time to time,
without any action or joinder of Assignors to reflect the addition of all such
additional Assignors and/or Collateral. Except as permitted by the Credit
Agreement, Lender shall have a valid first priority security interest in all
additional Collateral that comes into existence after the date hereof, whether
or not reflected on a supplement hereto. Assignors hereby agree to execute,
deliver and cause the filing of all notices, financing statements and other
documents and to take such further action as deemed necessary in Lender's
discretion with respect to each such additional Collateral to ensure the rights
of Lender hereunder with respect thereto.
6.15 COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
6.16 NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. PURSUANT TO 58-6-5 NMSA 1978 (REPL. PAMPHLET) A CONTRACT, PROMISE OR
COMMITMENT TO LOAN MONEY OR TO GRANT, EXTEND OR RENEW CREDIT OR ANY MODIFICATION
THEREOF, IN AN AMOUNT GREATER THAN TWENTY-FIVE THOUSAND AND NO/100 DOLLARS
($25,000.00) NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES MADE BY A
FINANCIAL INSTITUTION IS NOT ENFORCEABLE UNLESS IN WRITING AND SIGNED BY THE
PARTIES TO BE CHARGED OR THAT PARTY'S AUTHORIZED REPRESENTATIVES.
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<PAGE>
EXECUTED as of the date first above written.
BORROWER:
SBS TECHNOLOGIES, INC.,
a New Mexico corporation
By: /s/ James E. Dixon Jr.
-----------------------------
James E. Dixon, Jr.
Vice President, Finance and Administration
LENDER:
BANK OF AMERICA, N.A., formerly NationsBank, N.A.,
a national banking association
By: /s/ John A. Sanchez
-----------------------------
Name: John A. Sanchez
---------------------------
Title: Senior Vice President
--------------------------
SUBSIDIARY ASSIGNORS:
SBS TECHNOLOGIES, INC. CONNECTIVITY
PRODUCTS, f/k/a SBS Bit 3 Operations, Inc.
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Treasurer
--------------------------
SBS TECHNOLOGIES, INC. TELEMETRY AND
COMMUNICATIONS PRODUCTS, f/k/a SBS Berg
Telemetry Systems, Inc.
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Treasurer
--------------------------
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<PAGE>
SBS TECHNOLOGIES INC. MODULAR I/O, f/k/a SBS
Greenspring Modular I/O, Inc.
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Secretary
--------------------------
SBS TECHNOLOGIES, INC. EMBEDDED COMPUTERS,
f/k/a SBS Embedded Computers, Inc.
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Treasurer
--------------------------
SBS TECHNOLOGIES INC. INDUSTRIAL COMPUTERS,
f/k/a SBS Micro Alliance, Inc.
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Treasurer
--------------------------
SBS TECHNOLOGIES INC. COMMUNICATIONS
PRODUCTS, f/k/a VI Computer
By: /s/ James E. Dixon Jr.
-----------------------------
Name: James E. Dixon, Jr.
---------------------------
Title: Treasurer
--------------------------
Page 21
<PAGE>
SCHEDULE A
List of Subsidiary Assignors
SBS TECHNOLOGIES, INC. CONNECTIVITY PRODUCTS, f/k/a SBS Bit 3 Operations, Inc.
SBS TECHNOLOGIES, INC. TELEMETRY AND COMMUNICATIONS PRODUCTS, f/k/a SBS
Berg Telemetry Systems, Inc.
SBS TECHNOLOGIES INC. MODULAR I/O, f/k/a SBS Greenspring Modular I/O, Inc.
SBS TECHNOLOGIES, INC. EMBEDDED COMPUTERS, f/k/a SBS Embedded Computers, Inc.
SBS TECHNOLOGIES INC. INDUSTRIAL COMPUTERS, f/k/a SBS Micro Alliance, Inc.
SBS TECHNOLOGIES INC. COMMUNICATIONS PRODUCTS, f/k/a VI Computer
SDL COMMUNICATIONS, INC. [UPON ACQUISITION]
Page 22
<PAGE>
SCHEDULE B
Principal Place of Business
and
Location of Inventory, Equipment and Furniture
[LOGO]
SBS Technologies, Inc.
2400 Louisiana Boulevard, N.E.
AFC Building 5, Suite 600
Albuquerque, NM 87110-4316
SBS Technologies, Inc. Telemetry and Communications
Products
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Industrial Computers
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Communications Products
5791 Van Allen Way
Carlsbad, CA 92008
SBS Technologies Inc. Modular I/O
8371 Central Avenue, Suite C
Newark, CA 94560
SBS Technologies, Inc. Embedded Computers
6301 Chapel Hill Road
Raleigh, NC 27607
SBS Technologies, Inc. Connectivity Products
1284 Corporate Center Drive
St. Paul, MN 55121-1245
Page 23
<PAGE>
SCHEDULE C
Trade Names
<TABLE>
<CAPTION>
NAME TRADE NAME(S)
---- -------------
<S> <C>
SBS Technologies, Inc. None
SBS Technologies, Inc. Telemetry and Communications SBS Berg Telemetry Systems, Inc.
Products
SBS Technologies Inc. Industrial Computers SBS Micro Alliance, Inc.
SBS Technologies Inc. Communications Products VI Computer
SBS Technologies Inc. Modular I/O SBS Greenspring Modular I/O, Inc.
SBS Technologies, Inc. Embedded Computers SBS Embedded Computers, Inc.
SBS Technologies, Inc. Connectivity Products SBS Bit 3 Operations, Inc.
</TABLE>
Page 24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 7,855,564
<SECURITIES> 0
<RECEIVABLES> 25,552,350
<ALLOWANCES> 700,051
<INVENTORY> 24,143,719
<CURRENT-ASSETS> 62,274,681
<PP&E> 12,063,557
<DEPRECIATION> 4,795,660
<TOTAL-ASSETS> 106,041,208
<CURRENT-LIABILITIES> 10,166,747
<BONDS> 0
0
0
<COMMON> 60,724,478
<OTHER-SE> 35,149,983
<TOTAL-LIABILITY-AND-EQUITY> 106,041,208
<SALES> 90,341,358
<TOTAL-REVENUES> 90,341,358
<CGS> 42,064,813
<TOTAL-COSTS> 75,327,301
<OTHER-EXPENSES> 92,359
<LOSS-PROVISION> 36,557
<INTEREST-EXPENSE> 79,660
<INCOME-PRETAX> 15,194,183
<INCOME-TAX> 5,180,170
<INCOME-CONTINUING> 10,014,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,014,013
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.49
</TABLE>
