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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 1-12912
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CENTENNIAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
DELAWARE 04-2978400
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
7 LOPEZ ROAD, WILMINGTON, MASSACHUSETTS 01887
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(508) 988-8848
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on July 10, 1997 was $35,357,012. The fair market value of the
Company's Common Stock on July 10, 1997 was $2.00 per share, based on
information reported by certain internet-based bulletin board services
purporting to monitor trading activities. The Company is unable to verify the
accuracy or completeness of such information.
As of July 10, 1997 there were 18,386,902 shares of Common Stock, $.01 par
value per share (the "Common Stock"), of the registrant outstanding.
This filing is complete except that an opinion of the Company's independent
accountants is not included herein.
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PART I
CAUTIONARY STATEMENTS
Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding possible price
competition, expansion into new markets, future sales mix, future supply of raw
materials, gross margins, the Company's customer base, future developments
involving certain investments, and future availability of financing. Such
statements involve a number of risks and uncertainties, including, but not
limited to, those (i) discussed below, (ii) discussed under the heading "Risk
Factors", and (iii) identified from time to time in the Company's filings with
the Securities and Exchange Commission. These risks and uncertainties could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements. The
Company assumes no obligation to update these forward-looking statements to
reflect events or circumstances after the date hereof.
The Company's independent accountants, Coopers & Lybrand L.L.P., ("Coopers
& Lybrand") is considering whether certain potential claims against Coopers &
Lybrand compromise its independence so as to render it unable to deliver its
opinion with respect to the Company's financial statements. The Company is
currently unable to determine when this concern will be resolved. If Coopers &
Lybrand determines that it cannot provide its opinion on the Company's financial
statements, the Company will be obliged to retain other independent accountants,
in which case its delivery of audited financial statements may be delayed for a
substantial period and, as a result of the examination of such financial
statements by successor independent accountants, there may be material changes
to such financial statements.
ITEM 1. BUSINESS
For purposes of this Annual Report on Form 10-K, all references to "fiscal
1997" mean the fiscal year consisting of the nine-month period of Centennial
Technologies, Inc. and Subsidiaries ("Centennial" or the "Company") ending March
31, 1997. All references to "fiscal 1996", "fiscal 1995" and "fiscal 1994" mean
the Company's twelve month fiscal year ended June 30, 1996, June 30, 1995 and
June 30, 1994, respectively.
RECENT DEVELOPMENTS
The operations and prospects of the Company have been and are expected to
continue to be significantly affected by the recent developments described
below.
Management Changes
On February 10, 1997, after receipt of information regarding various
financial and accounting irregularities in the Company's prior reported
financial results, the Board fired the Company's former Chief Executive Officer,
Emanuel Pinez, and relieved the Company's former Chief Financial Officer, James
M. Murphy, of his duties. On February 17, 1997, the Company hired Interim Chief
Executive Officer Lawrence J. Ramaekers and Interim Chief Financial Officer
Eugene M. Bullis.
Legal Proceedings
Class Action Litigation. Since the Company's announcement following the
Board meeting described above that it was undertaking an inquiry into the
accuracy of its prior reported financial results, and that preliminary
information had raised significant questions as to whether reported results
contained material misstatements, approximately 35 purported class action
lawsuits have been filed in the United States District Court for the District of
Massachusetts against the Company, its directors, certain of its officers, its
independent accountants, Coopers & Lybrand, and others, asserting claims under
Federal securities laws and related state law claims. See "Item 3 -- Legal
Proceedings."
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In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's common stock seeking recovery for certain
alleged breach of fiduciary duties, alleged gross negligence, alleged breach of
contract and alleged insider trading by members of the Company's Board of
Directors between August 21, 1996 and February 10, 1997. See "Item 3 -- Legal
Proceedings."
Department of Justice. On February 20, 1997, the Company received a
subpoena from the United States Department of Justice ("DOJ") to produce
documents in connection with a grand jury investigation regarding various
irregularities in the Company's previous press releases and financial
statements. The DOJ also requested certain information regarding some of the
Company's former officers, certain stock transactions by the Company's former
Chief Executive Officer, and correspondence with the Company's auditors. The
Company has not been notified by the DOJ that it is a target or subject of this
investigation.
New York Stock Exchange Proceedings. On February 21, 1997, the New York
Stock Exchange ("NYSE") announced that trading in the Company's Common Stock
would be suspended before the opening of trading on March 3, 1997, and that
following suspension, the NYSE would apply to the Securities and Exchange
Commission ("SEC") to de-list the issue. On March 10, 1997, the NYSE confirmed
that trading in the Company's Common Stock was suspended prior to the opening of
the market on March 3, 1997. On April 10, 1997, the NYSE, pursuant to Section
12(d) of the Securities Exchange Act of 1934 (the "1934 Act") and Rule 12d2-2
promulgated thereunder, applied to the SEC to strike from listing and
registration on the NYSE at the opening of the market on April 25, 1997 the
Company's Common Stock because, in the opinion of the NYSE, the Company's Common
Stock was no longer suitable for continued listing and trading on the NYSE. By
its order dated April 24, 1997, the SEC granted the NYSE application for removal
of the Company's Common Stock from listing, which became effective at the
opening of trading on April 25, 1997.
The Company's Common Stock is not currently listed on any organized stock
exchange.
SEC Investigation. In mid-February 1997, the Company was notified that the
Boston District Office of the SEC was conducting an investigation of the
Company. The SEC has requested that the Company provide the SEC with certain
documents concerning the Company's public reports and financial statements. The
SEC indicated that its inquiry should not be construed as an indication by the
SEC or its staff that any violations have occurred, or as a reflection upon the
merits of the securities involved or upon any person who effected transactions
in such securities. The Company is cooperating with the SEC in connection with
this investigation and its outcome cannot yet be determined.
RESTATEMENT OF FINANCIAL STATEMENTS
On February 10, 1997, the Company's Board of Directors reviewed information
which raised significant questions as to whether previously reported financial
results contained material misstatements. A special committee consisting of
outside members of the Company's Board of Directors, with the assistance of
outside counsel and the Company's independent accountants, conducted an
investigation regarding the financial statements and business affairs of the
Company. On June 12, 1997, the Company announced that it had completed the
financial review. Such financial review remains subject to completion of the
audit by and the opinion of the Company's independent accountants. Although the
Company does not anticipate any material changes, there is no assurance that
such material changes will not occur if the Company appoints new independent
accountants.
Cumulative adjustments to the Company's previously reported results of
operations through December 31, 1996 consist of reductions of sales totaling
$21.2 million; increases to cost of sales associated with inventory adjustments
totaling $8.8 million; and write-offs of investments in and advances to several
companies totaling $15.8 million. Additional increases in costs and expenses
include adjustments to plant and equipment, miscellaneous assets, investment in
Century Electronics Manufacturing, Inc., accrued liabilities and warranty
reserves for a net aggregate amount of $2.4 million. Netted against these
adjustments is an aggregate amount of $8.1 million in reductions to income
taxes, representing reversals of previously reported tax provisions.
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The following table sets forth the summary of restatement adjustments (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 31, -------------------------------
1996 1996 1995 1994
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Adjustments attributable to Centennial
Technologies, Inc.:
Reversal of invalid sales transactions............ $ (5,283) $(3,714) $(3,455) $ (413)
Reversal of bill and hold sales transactions...... (6,432) -- -- --
Reclassification of purchasing agency
arrangement..................................... (968) (585) -- --
Additional accounts receivable adjustments........ (239) (136) (9) --
-------- ------- ------- -------
Total adjustments to sales........................ (12,922) (4,435) (3,464) (413)
Corrections to inventory pricing and physical
counts.......................................... (1,336) (2,202) (4,560) (1,410)
Restoration of inventory related to bill and hold
sales transactions.............................. 3,435 -- -- --
Additional provisions for inventory
obsolescence.................................... (925) (1,351) (78) (381)
Reversal of certain additions to capital
equipment, net of related depreciation, which
were not bona fide.............................. (72) (2,266) (223) (177)
Provision for losses on investment activities..... (10,811) (1,496) -- --
Pre-acquisition advances to subsidiary............ (2,385) (1,101) -- --
Other adjustments-net............................. (568) 399 1,043 (211)
Reversal of provisions for income taxes........... 3,788 3,268 556 455
-------- ------- ------- -------
Total adjustments to net income (loss)............ (21,796) $(9,184) $(6,726) $(2,137)
======= ======= =======
Adjustments attributable to Century Electronics
Manufacturing, Inc.............................. (358)
--------
Total adjustments to net income (loss)............ $(22,154)
========
</TABLE>
As outlined in the criminal indictment of Centennial's former Chief
Executive Officer, the Company's sales figures were inflated in previous
periods. This inflation was achieved by various means, including shipping empty
PC card housings; billing customers for non-existent products; using the
delivery of non-product materials to generate shipping documents, which were
then used to create fictitious invoices; and the payment of these invoices with
funds apparently provided by the Company's former Chief Executive Officer.
Reported revenue figures have also been corrected to exclude bill and hold
transactions which did not meet revenue recognition criteria for the periods in
which they were recorded, and to reclassify transactions related to a purchasing
agency contract with an affiliated company.
Adjustments to the Company's physical inventory balances are attributable
to prior manipulation of physical counts, the inclusion of empty PC card
housings in the Company's finished goods balances, various pricing errors and
manipulations, and the Company's prior failure to reflect adequately actual
inventory usage information in providing for reserves for inventory
obsolescence.
The Company has also reduced or written off the carrying value of several
of its investments in and advances to related technology companies. With regard
to the Company's advances to its recently acquired subsidiaries, Intelligent
Truck Project, Inc. and Fleet.Net, Inc., the Company has recorded a charge of
$3.5 million, equal to advances to these companies between April 1996 and
December 31, 1996 previously characterized as prepaid technology license fees,
as costs and expenses in the periods in which those advances were made. The
Company has also recorded valuation reserves and related accruals amounting to
$5.8 million related to several of its loans to and/or investments in technology
companies. In addition, the Company has reached agreements to settle claims
related to its investments in Infos International, Inc. and P.G. Technologies,
Inc. and has recorded a full write-off of its investments in these entities of
$6.0 million and $0.5 million, respectively.
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GENERAL
The Company was incorporated in 1994 in Delaware as the successor by merger
to C. Centennial, Inc., a Massachusetts corporation. The Company's principal
executive officers are located at 7 Lopez Road, Wilmington, Massachusetts, and
its telephone number is (508) 988-8848.
The Company designs, manufactures and markets an extensive line of PC
card-based solutions to OEMs. The Company primarily focuses on applications for
the following four industries: Communications (routers, wireless telephones, and
local area networks); Transportation (fleet data recording, navigation, vehicle
diagnostics); Mobile Computing (hand-held data collection terminals, notebook
computers, personal digital assistants); and Medical (blood gas analysis
systems, defibrillators, hand-held glucometers). The Company has sold its
products and services to over 250 OEMs, including 3Com Corporation ("3Com"), Bay
Networks, Inc. ("Bay Networks"), Lucent Technologies, Inc. ("Lucent
Technologies"), Philips Electronics N.V. ("Philips"), and Trimble Navigation
Limited ("Trimble Navigation").
The Company began operations in 1987 to develop and commercialize font
cartridges for laser printers. In 1992, the Company began designing,
manufacturing and marketing memory cards, including cards which conformed to the
specifications agreed upon by the PCMCIA and became known as "PC cards."
Industry Overview
In recent years, digital computing and processing have expanded beyond the
boundaries of desktop computer systems to include a broader array of electronic
systems, such as mobile communication systems, network switches, medical
devices, navigation systems, cellular telephones, portable computers, digital
cameras and portable data collection terminals. PC cards, with characteristics
such as high shock and vibration tolerance, low power consumption, small size
and higher access speed, better meet the requirements of these emerging
applications than do traditional hard drive and floppy disk storage solutions.
The Company believes that demand for PC cards will increase from increased
adoption of PCMCIA standards by electronic equipment manufacturers, the
inclusion of PC card slots on next generation electronic devices and the
development of PC cards offering new applications. In addition, the Company
believes that the recent introduction of Microsoft Corporation's new hand-held
computer operating system, Windows CE, may stimulate demand for certain
hand-held computers and personal digital assistants ("PDAs") that use PC cards
for storage and other applications.
Products
The Company's PC cards may contain memory chips (such as flash, static
random access memory ("SRAM") or one time programmable ("OTP") memory) for
storage capacity, input/output chips for transmitting and receiving data, and
memory chips with programmed software and other devices for specific
applications. Application-specific PC cards are generally designed by the
Company in cooperation with an OEM for a specific industry or commercial
application. The following are some of the applications in which the Company's
PC cards are used:
PC CARD PRODUCTS
TARGET INDUSTRY APPLICATIONS
Communications............. PC cards are used for storage in certain
wireless telephones and other personal
communication devices such as screen phones. PC
cards are also used in other communication
devices, such as PBX switches and network
routers. The Company also markets network
interface cards, which are used to connect
computing devices to local and wide area
networks.
Transportation............. The Company markets PC cards for navigation
systems, such as Global Positioning Satellite
("GPS") equipment used in rental cars,
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fleet vehicles, emergency and rescue vehicles,
airplanes, ships and military vehicles. GPS
systems interpret signals from a dedicated
network of satellites that circle the earth,
providing data on the position, direction,
altitude and speed of an object. The Company
also develops PC cards used to interact with
on-board information systems embedded in air,
marine and land based vehicles.
Mobile Computing and
Office Automation........ PC cards with memory chips are used for storage
capacity in portable consumer electronics
devices, such as notebooks, handheld computers
and PDAs, and in office automation products,
such as laser printers, facsimile machines and
desktop computers. PC cards are also used for
data acquisition and data conversion for serial
interfaces and in mixed signal converters, such
as the Company's multimedia PC card, which
allows conversion of analog video signals to
digital format in digital cameras. These cards
may be used to display images recorded by a
digital camera on a personal computer. Other
data acquisition and conversion cards are used
by field personnel to gather information, which
can then be transmitted and downloaded to
computing devices in remote offices.
Medical.................... The Company sells PC cards for use in medical
monitoring and diagnostic equipment.
Applications include blood gas analysis systems,
defibrillators and hand-held glucometers. PC
cards are used for recording patient data and
storing system program information.
The Company provides other non-PC card products based on flash memory
technology. Flash memory requires no power to retain data and is electronically
programmable and re-programmable, characteristics that are not present together
in other memory chips. Based on these advantages and recent decreases in the
cost of flash memory, the Company believes the use of flash memory will become
more prevalent in industrial and commercial equipment. Management believes that
the introduction of flash SIMMS (defined below) and miniature cards will
complement the Company's PC card product offerings and provide the Company's OEM
customers with alternative solutions to address data acquisition and processing
needs.
Small form factor flash cards are removable flash memory devices that fit
into small electronic devices, such as compact digital cameras, through slots
that are smaller than those designed for PC cards. Small form factor flash cards
increase memory capacity and functionality and are similar to PC cards in that
they are made with existing flash memory technology in a modified mechanical
package with modified electrical connections. The Company offers three types of
small form factor flash cards:
- The CompactFlash (a trademark of SanDisk Corporation) is based on the
standard endorsed by the CompactFlash Association, an industry
organization established to promote uniform standards for compact flash
cards, of which the Company is a member. The CompactFlash uses a design
that relies on an on-board microcontroller.
- The MiniatureCard (a trademark of Intel Corporation ("Intel")) is based
upon a design promoted by Intel. The MiniatureCard uses a linear design,
as opposed to the design of the CompactFlash, and requires no on-board
microcontroller.
- The Half Card is based upon a proprietary design developed by the Company
utilizing linear flash technology and requires no on-board
microcontroller or PCMCIA interface logic devices.
Flash Single In-line Memory Modules ("SIMMs") are a type of compact circuit
board assembly consisting of flash memory devices and related circuitry.
Electronic systems increasingly employ SIMMs as building blocks in system
design. SIMMs allow OEMs to configure a system with a variety of different
levels of memory, thus enabling OEMs to address cost-effectively multiple price
points or applications with a single base system that is easily upgradable.
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PC Card Systems The Company believes that systems incorporating multiple PC
cards can offer compact, cost-effective and easily upgradable solutions for OEMs
in connection with specific industry applications. In October 1996, the Company
announced the development of the NOMAD System (Nationwide On-Board Mobile Access
to Data), an integrated PC card system designed for the transportation industry.
Although hardware prototypes of the NOMAD System have been built, no
full-function prototype system has yet been developed, and no systems have yet
been sold. There are a number of significant risks related to the successful
commercial development of the NOMAD System. See "Risk Factors -- Risks
Associated with Commercialization of the NOMAD System."
Business Strategy
The Company's goal is to become a leading worldwide provider of PC
card-based solutions to OEMs in the communications, transportation, mobile
computing and medical industries. Key elements of the Company's business
strategy include the following:
Offer Comprehensive PC Card-Based Solutions. The Company offers an
extensive PC card product line as well as related value-added services, such as
(i) in-house design expertise, (ii) flexible manufacturing, including the
ability to make short production runs with minimum down time, (iii) private
labeling, (iv) programming and testing capabilities, (v) rapid order turnaround,
and (vi) just-in-time delivery programs. By offering comprehensive solutions for
OEM PC card requirements, from design to shipment, the Company believes it has a
competitive advantage in the PC card market.
Focus on OEM Customers. The Company markets its products and services to
OEMs that sell products for applications within the Company's target industries.
The Company believes that it can achieve higher gross margins and customer
loyalty by serving the OEM market rather than consumer markets due to the OEM
market's requirements for value-added services, such as design expertise,
programming and prototype development. In addition, the Company believes that
serving OEMs gives it exposure to new technologies and emerging applications,
which helps the Company respond to technological advances and anticipate changes
in market conditions.
Provide Flexible, High Quality Manufacturing Solutions. The Company has
periodically upgraded and automated its manufacturing facilities to expand
production capacity. By manufacturing its PC cards in-house, the Company can
offer more flexible production schedules to accommodate OEMs that require the
delivery of a number of different products within a short time frame. The
Company's PC card manufacturing facility in Wilmington, Massachusetts is a
certified ISO 9001 manufacturer. ISO certification is based on numerous aspects
of the Company's business, including manufacturing, purchasing, human resources,
engineering and research.
Sales and Marketing
The Company targets industrial and commercial applications for PC cards
primarily in the communications, transportation, mobile computing and medical
industries. The Company markets its products primarily through 17 direct sales
people. The Company's sales staff operates primarily from the Company's main
office in Wilmington, Massachusetts. Field sales representatives operate from
in-home offices. The Company recently closed foreign sales branches in Montreal,
Canada and St. Albans, England.
The Company generally markets its products and capabilities to engineering
and purchasing departments of OEMs. The Company's sales staff and engineers work
with OEM engineers to design and engineer PC cards to OEM requirements, which
often leads to the Company providing custom-designed PC cards for specific
applications. The Company believes its interaction with OEM customers provides
exposure to emerging technologies and applications, facilitating a proactive
approach to product design. The Company's sales to its OEM customers are
generally made pursuant to purchase orders rather than long-term sales
agreements. The Company has sold its products and services to more than 250
OEMs, including 3Com, Bay Networks, Lucent Technologies, Philips, and Trimble
Navigation. The Company also pursues sales to the U.S. government, primarily for
PC cards used in navigation applications, and to corporate end-users.
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During fiscal 1997, Bay Networks and Philips accounted for approximately
32% and 22%, respectively, of the Company's sales. During fiscal 1996, Bay
Networks and Philips accounted for approximately 16% and 12%, respectively, of
the Company's sales. No one customer or group of customers accounted for more
than 10% of the Company's total sales during fiscal 1995. During fiscal 1997,
1996 and 1995, approximately 8%, 12% and 23% of the Company's sales were outside
of the United States. See "Risk Factors -- Dependence on Major Customers;
Concentration of Credit Risk" and " -- Risks of International Operations."
Engineering and Product Development
The Company directs its engineering and design efforts towards products for
which the Company believes there is a growing and profitable market. In
particular, the Company seeks to meet the requirements of its OEM customers for
products aimed at emerging applications in the communications, transportation,
mobile computing and medical industries by applying the latest available
technology and the PC card design and engineering know-how gained from the
Company's focus on these markets. The Company provides engineering and design
support to many of its OEM customers in order to help integrate the Company's
products into OEM equipment. OEMs often require PC cards for new applications
within the Company's target markets. The Company has developed a library of
several hundred designs through its work with OEMs. By working with these OEMs,
the Company is exposed to new market opportunities for the Company's PC
card-based solutions and contract manufacturing services.
Employees
As of March 31, 1997, the Company had 151 full-time employees, of whom five
were executive officers, 16 were involved in sales and marketing functions, 30
were involved with engineering and product development, 21 were involved with
administration, and 79 were involved in manufacturing.
On July 3, 1997, the Company carried out a reduction-in-force of one
engineering employee, three administrative employees and 24 production
employees.
None of the Company's employees are represented by a labor union, and the
Company is not aware of any activities seeking such organization. The Company
considers its relationships with its employees to be satisfactory.
Investment in Contract Manufacturing Operations
During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.
In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").
Pursuant to a joint venture agreement executed in May, 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital into its 51%
owned contract manufacturing joint venture in Thailand. The Company's joint
venture partner's initial capital contribution was $3.7 million.
On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.
On March 14, 1997, Century entered into an agreement in principal with the
Company, whereby Century agreed to redeem a portion of its shares in exchange
for $1.3 million in cash and a $6.0 million subordinated debenture, reducing the
Company's equity ownership position to 45%. The debentures bear interest at a
rate of 6% and mature in ten years. Under certain conditions, the debentures
will be convertible into the capital stock
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of an entity with which Century may merge. In addition, the Company agreed to
contribute to Century its interest in the Thailand joint venture. Century also
agreed to repay an 8.5% note payable to Centennial in the amount of $4.1 million
and to take the necessary steps to remove all outstanding guarantees of
third-party indebtedness.
On June 30, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the underlying equipment to
Century for $0.5 million in cash and a $1.9 million 9% promissory note due
December 1998. See Note 8 of Notes to Unaudited Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The Company maintains its principal executive offices and manufacturing
operations in a 34,000 square foot leased facility in Wilmington, Massachusetts.
The Company currently pays rent in the amount of approximately $17,000 per
month, pursuant to a lease that expires on April 30, 2002. The lease contains an
option to renew for an additional five-year period. The lease provides for
annual rent increases of 4% and provides that the Company will pay to its
landlord as additional rent its pro rata share of certain operational and
maintenance costs at the facility during the term of the lease.
As of March 31, 1997, the Company maintained sales offices in Los Angeles,
California; Santa Clara, California; and Munich, Germany. The Company intends to
close these offices and conduct business with its field sales representatives
using local in-home offices.
The Company believes that its facilities are adequate for its current needs
and that adequate facilities for expansion, if required, are available at
competitive rates.
ITEM 3. LEGAL PROCEEDINGS
CLASS ACTION LITIGATION
Since the Company's announcement on February 11, 1997 that it was
undertaking an inquiry into the accuracy of its prior reported financial
results, and that preliminary information had raised questions as to whether
reported results contained material misstatements, approximately 35 purported
class action lawsuits have been filed in or transferred to the United States
District Court for the District of Massachusetts. These complaints assert claims
against the Company under Section 10(b) of the 1934 Act and Rule 10b-5
promulgated thereunder, and related state law claims of fraud, deceit and
negligent misrepresentation. The complaints also assert claims against some or
all of the Company's Board of Directors, and some complaints assert claims
against certain of the Company's nondirector officers, under Section 20(a) of
the 1934 Act, as well as the same state law claims asserted against the Company.
The Company's independent accountants, Coopers & Lybrand, the Company's lead
underwriter for its March 1996 subsequent public offering, Needham & Company,
Inc., and a financial advisory subscription company, Cabot Heritage Corporation,
have also been named in some of the suits. These class action lawsuits were
purportedly brought by and on behalf of purchasers of the Company's Common Stock
between the Company's initial public offering on April 12, 1994 and February 10,
1997 (the "Centennial Securities Litigation"). See Note 17 of Notes to Unaudited
Consolidated Financial Statements.
On February 20, 1997, the Company received a subpoena from the DOJ to
produce documents in connection with a grand jury investigation regarding
various irregularities in the Company's previous press releases and financial
statements. The DOJ also requested certain information regarding some of the
Company's former officers, certain stock transactions by the Company's former
Chief Executive Officer, and correspondence with the Company's auditors. The
Company has not been notified by the DOJ that it is a target or subject of this
investigation.
On and after February 26, 1997, four complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased the Company's Common Stock on
February 25, 1997. The Complaint also names the Company's Interim Chief
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Executive Officer, Lawrence J. Ramaekers, and alleges violations of Sections
10(b) and 20(a) of the 1934 Act (the "February 25 Securities Litigation").
In mid-February 1997, the Company was notified that the Boston District
Office of the SEC was conducting an investigation of the Company. The SEC has
requested that the Company provide the SEC with certain documents concerning the
Company's public reports and financial statements. The SEC indicated that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations have occurred, or as a reflection upon the merits of the
securities involved or upon any person who effected transactions in such
securities. The Company is cooperating with the SEC in connection with this
investigation, the outcome of which cannot yet be determined.
On and after March 26, 1997, several complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased stock of WebSecure, Inc.
("WebSecure") between December 5, 1996 and February 27, 1997 (the "WebSecure
Complaints"). The WebSecure Complaints assert claims against WebSecure, certain
officers, directors and underwriters of WebSecure, and the Company. Claims
against the Company include alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "1933 Act") (the "WebSecure Securities Litigation").
See Note 17 of Notes to Unaudited Consolidated Financial Statements.
In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's common stock seeking recovery for certain
alleged breach of fiduciary duties and alleged gross negligence by members of
the Company's Board of Directors between August 21, 1996 and February 10, 1997
(the "Derivative Litigation"). See Note 17 of Notes to Unaudited Consolidated
Financial Statements.
On June 18, 1997, the Company announced that it had reached an agreement in
principle to settle the Centennial Securities Litigation, the February 25
Securities Litigation and the Derivative Litigation. This agreement in principle
contemplates that the Company and certain of its officers and directors would be
released from liability arising from the allegations included in these suits. In
return, the Company would agree to pay to the plaintiffs in the Centennial
Securities Litigation and the February 25 Securities Litigation the proceeds, if
any, of any recovery from the Company's directors and officers liability
insurance policies, and an additional $1,475,000 in cash. The Company would also
agree to issue to these plaintiffs 37% of the Company's Common Stock. The
Company also expects to adopt certain agreed upon corporate governance policies
and procedures. The plaintiffs would retain their claims against the Company's
former Chief Executive Officer, Emanuel Pinez, and the Company's former Chief
Financial Officer, James M. Murphy.
The plaintiffs in the February 25 Securities Litigation have not yet
reached an agreement with the Company's Interim Chief Executive Officer,
Lawrence J. Ramaekers, regarding their alleged claims against him. These
plaintiffs have agreed in principle to release the Company from any direct
liability related to those alleged claims. In the agreement under which Mr.
Ramaekers is providing services to the Company, the Company agreed to provide
Mr. Ramaekers with the same indemnification as is applicable to other officers
of the Company pursuant to the Company's By-Laws. The Company has agreed to
indemnify, hold harmless, and defend Mr. Ramaekers from and against certain
claims arising out of his engagement with the Company.
On June 19, 1997, the Company announced that it had reached an agreement in
principle to settle the WebSecure Securities Litigation. The agreement in
principle contemplates that the Company and certain of its officers and
directors would be released from any and all liability arising from the
allegations included in the WebSecure Securities Litigation in return for the
issuance to the WebSecure Securities Litigation class of 345,000 shares of the
Company's Common Stock and the payment to the class of up to $50,000 for notice
and administrative costs.
As of March 31, 1997, the Company has recorded a provision for the
potential settlement of the Centennial Securities Litigation of $20.0 million,
representing the cash portion of the potential settlement, together with an
amount equal to 37% of the estimated market capitalization of the Company. The
cash portion ($1,475,000) of the potential settlement is included in accounts
payable and accrued expenses and the Common Stock portion ($18,525,000) is
included in additional paid-in capital.
10
<PAGE> 11
A number of material terms remain to be negotiated regarding the Centennial
Securities Litigation, the February 25 Securities Litigation, the Derivative
Litigation, and the WebSecure Securities Litigation. A binding commitment to the
terms described above, as well as resolution of other currently unresolved
material terms, must await the execution of final settlement agreements.
Furthermore, any settlement agreement must be submitted to the Court for review
and approval and, thereafter, presented to class members for consideration. If a
sufficiently large number of class members opt not to participate in the
settlement agreement, the agreement may be withdrawn. No assurance can be given
that the parties will be able to reach such final settlement agreements, that
any such agreements, if reached, will be approved by the Court, or that, if such
approval is obtained, that a material number of class members will not decline
to participate in the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the third (and final) quarter of fiscal 1997, the Company did not
submit any matter to a vote of its security holders, through a solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the American Stock Exchange
("AMEX") from April 12, 1994 through November 25, 1996. The Common Stock was
traded on the NYSE from November 26, 1996 until the opening of the market on
March 3, 1997, at which time the Common Stock was suspended from trading on
NYSE. See "Item 3 -- Legal Proceedings". Since March 3, 1997, the Common Stock
has not been traded on an organized stock exchange.
The Company's publicly-traded redeemable common stock purchase warrants
(the "Redeemable Warrants") were traded on AMEX from April 12, 1994 through
December 7, 1995, at which time substantially all of the Redeemable Warrants had
been exercised.
For the periods indicated, the following table sets forth the range of high
and low sale prices for the Common Stock and the Redeemable Warrants (as
reported by AMEX and NYSE to March 3, 1997 with respect to the Company's Common
Stock). All high and low sale prices for the Common Stock have been adjusted to
reflect a three-for-two stock split effected on August 30, 1995 and a
two-for-one stock split effected on November 18, 1996. All sale prices have been
rounded to the nearest one-sixteenth.
COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1996
July 1, 1995 through September 30, 1995............................... 9 5/16 6 11/16
October 1, 1995 through December 31, 1995............................. 10 3/8 6 1/4
January 1, 1996 through March 31, 1996................................ 11 8 9/16
April 1, 1996 through June 30, 1996................................... 15 7/16 8 5/16
FISCAL 1997
July 1, 1996 through September 30, 1996............................... 21 7/16 12 7/16
October 1, 1996 through December 31, 1996............................. 58 1/4 21 7/8
January 1, 1997 to March 3, 1997...................................... 50 1 5/8
March 4, 1997 to March 31, 1997(1).................................... 4 1/4 1 3/4
</TABLE>
REDEEMABLE WARRANTS
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1996
July 1, 1995 through September 30, 1995............................... 10 1/2 6 13/16
October 1, 1995 through December 7, 1995.............................. 11 1/2 5 7/8
</TABLE>
- ---------------
(1) Based on information reported by certain internet-based bulletin board
services purporting to monitor trading activities. The Company is unable to
verify the accuracy or completeness of such information.
11
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected unaudited consolidated financial data set forth below should
be read in conjunction with the Company's consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein. Such unaudited
consolidated financial data remain subject to completion of the audit by and the
opinion of the Company's independent accountants. Although the Company does not
anticipate any material changes, there is no assurance that such material
changes will not occur if the Company appoints new independent accountants. The
selected consolidated financial data as of June 30, 1993 and for the year ended
June 30, 1993 have been derived from financial statements not included herein.
UNAUDITED CONSOLIDATED INCOME STATEMENT DATA (in thousands of dollars, except
per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ------
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Sales...................... $ 28,263 $ 21,768 $ 33,412 $ 8,982 $ 7,801 $6,301
Costs and expenses:
Cost of goods sold....... 24,453 21,018 29,778 11,575 6,508 3,419
Engineering costs........ 1,061 1,126 1,434 753 567 444
Selling, general and
administrative........ 7,318 2,705 3,803 2,442 2,083 1,566
Loss on investment
activities............ 14,096 69 2,662 -- -- --
Special investigation
costs................. 3,673
Provision for settlement
of shareholder
litigation............ 20,000 -- -- -- -- --
Net interest expense..... 391 174 17 64 486 112
-------- -------- -------- -------- -------- ------
Total costs and expenses... 70,992 25,092 37,694 14,834 9,644 5,541
-------- -------- -------- -------- -------- ------
Income (loss) before income
taxes and equity in
earnings of affiliate.... (42,729) (3,324) (4,282) (5,852) (1,843) 760
Equity in earnings
of affiliate............. 67 -- -- -- -- --
-------- -------- -------- -------- -------- ------
Income (loss) before income
taxes.................... (42,662) (3,324) (4,282) (5,852) (1,843) 760
Provision (benefit) for
income taxes............. (171) 318
-------- -------- -------- -------- -------- ------
Net income (loss).......... $(42,662) $ (3,324) $ (4,282) $ (5,852) $ (1,672) $ 442
======== ======== ======== ======== ======== ======
Net income (loss) per
share.................... $ (2.46) $ (.26) $ (.31) $ (.63) $ (.19) $ .07
Weighted average shares
outstanding.............. 17,367 12,678 13,632 9,363 9,027 6,000
</TABLE>
UNAUDITED CONSOLIDATED BALANCE SHEET DATA (in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ---------------------------------------------------
1997 1996 1995 1994 1993
--------- ---------- ---------- ---------- ------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Current assets......................... $27,213 $ 37,017 $8,237 $4,265 $3,221
Total assets........................... 51,198 41,132 9,550 5,203 4,095
Current liabilities.................... 22,644 8,856 5,121 889 3,027
Working capital........................ 4,569 28,161 3,116 3,406 194
Stockholders' equity................... 28,554 31,909 4,267 4,315 1,044
</TABLE>
12
<PAGE> 13
RESTATEMENT OF FINANCIAL STATEMENTS
On February 11, 1997, the Company announced that it had commenced a special
investigation into certain apparent financial and management irregularities and
that its previously published financial statements and related financial
disclosures could no longer be relied upon. On June 12, 1997, the Company
announced the completion of the financial review associated with the special
investigation, including condensed restated financial information, as well as
the financial results for the periods ended March 31, 1997. The Company had
previously changed its fiscal year end to March 31, in order to accelerate the
receipt of certain tax refunds and in order to complete audited financial
statements for the entire periods under review as quickly as possible. The
accompanying financial statements give effect to the adjustments arising from
the financial review. Such financial review remains subject to completion of the
audit by and the opinion of the Company's independent accountants. Although the
Company does not anticipate any material changes, there is no assurance that
such material changes will not occur if the Company's independent accountants
withdraw and the Company appoints new independent accountants.
Cumulative adjustments to the Company's previously reported results of
operations through December 31, 1996 consist of reductions of sales totaling
$21.2 million; increases to cost of sales associated with inventory adjustments
totaling $8.8 million; and write-offs of investments in and advances to several
companies totaling $15.8 million. Additional increases in costs and expenses
include adjustments to plant and equipment, miscellaneous assets, investment in
Century, accrued liabilities and warranty reserves for a net aggregate amount of
$2.4 million. Netted against these adjustments is an aggregate amount of $8.1
million in reductions to income taxes, representing reversals of previously
reported tax provisions.
The following table sets forth the effects of these adjustments on the
Company's financial position and results of operations (in thousands except per
share data):
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEAR ENDED JUNE 30,
ENDED -------------------------------
DEC. 31, 1996 1996 1995 1994
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales:
As previously reported......................... $ 30,192 $37,848 $12,445 $ 8,213
As adjusted.................................... 17,370 33,412 8,982 7,801
Cost of goods sold:
As previously reported......................... 17,978 23,636 6,833 4,523
As adjusted.................................... 15,582 29,778 11,575 6,508
Net income (loss):
As previously reported......................... 5,805 4,902 874 464
As adjusted.................................... (16,221) (4,282) (5,852) (1,672)
Net income (loss) per share:
As previously reported......................... .33 .34 .08 .07
As adjusted.................................... (.94) (.31) (.63) (.19)
Total assets:
As previously reported......................... 89,952 55,782 18,199 7,553
As adjusted.................................... 58,320 41,132 9,550 5,203
Total stockholders' equity:
As previously reported......................... 70,874 46,045 12,445 6,419
As adjusted.................................... 36,611 31,909 4,267 4,315
</TABLE>
13
<PAGE> 14
The following table sets forth the summary of restatement adjustments (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 31, -------------------------------
1996 1996 1995 1994
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Adjustments attributable to Centennial
Technologies, Inc.:
Reversal of invalid sales transactions............ $ (5,283) $(3,714) $(3,455) $ (413)
Reversal of bill and hold sales transactions...... (6,432) -- -- --
Reclassification of purchasing agency
arrangement..................................... (968) (585) -- --
Additional accounts receivable adjustments........ (239) (136) (9) --
-------- ------- ------- -------
Total adjustments to sales........................ (12,922) (4,435) (3,464) (413)
Corrections to inventory pricing and physical
counts.......................................... (1,336) (2,202) (4,560) (1,410)
Restoration of inventory related to bill and hold
sales transactions.............................. 3,435 -- -- --
Additional provisions for inventory
obsolescence.................................... (925) (1,351) (78) (381)
Reversal of certain additions to capital
equipment, net of related depreciation, which
were not bona fide.............................. (72) (2,266) (223) (177)
Provision for losses on investment activities..... (10,811) (1,496) -- --
Pre-acquisition advances to subsidiary............ (2,385) (1,101) -- --
Other adjustments, net............................ (568) 399 1,043 (211)
Reversal of provisions for income taxes........... 3,788 3,268 556 455
-------- ------- ------- -------
Total adjustments to net income (loss)............ (21,796) $(9,184) $(6,726) $(2,137)
======= ======= =======
Adjustments attributable to Century Electronics
Manufacturing, Inc.............................. (358)
--------
Total adjustments to net income (loss)............ $(22,154)
========
</TABLE>
As outlined in the criminal indictment of Centennial's former Chief
Executive Officer, the Company's sales figures were previously inflated. This
inflation was achieved by various means, including shipping empty PC card
housings; billing customers for non-existent products; using the delivery of
non-product materials to generate shipping documents, which were then used to
create fictitious invoices; and the payment of these invoices with funds
apparently provided by the Company's former Chief Executive Officer.
Reported revenue figures have also been corrected to exclude bill and hold
transactions which did not meet revenue recognition criteria for the periods in
which they were recorded, and to reclassify transactions related to a purchasing
agency contract with an affiliated company.
Adjustments to the Company's physical inventory balances are attributable
to prior manipulation of physical counts, the inclusion of empty PC card
housings in the Company's finished goods balances, various pricing errors and
manipulations, and the Company's prior failure to reflect adequately actual
inventory usage information in providing reserves for inventory obsolescence.
The Company has also reduced or written off the carrying value of several
of its investments in and advances to related technology companies. With regard
to the Company's advances to its recently acquired subsidiaries, Intelligent
Truck Project, Inc. and Fleet.Net, Inc., the Company has recorded a charge of
$3.5 million, equal to advances to these companies between April 1996 and
December 31, 1996 previously characterized as prepaid technology license fees,
as costs and expenses in the periods in which those advances were made. The
Company has also recorded valuation reserves and related accruals amounting to
$5.8 million related to several of its loans to and/or investments in technology
companies. In addition, the Company has reached agreements to settle claims
related to its investments in Infos International, Inc. and P.G. Technologies,
Inc. and has recorded a full write-off of its investments in these entities of
$6.0 million and $0.5 million, respectively.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding possible price
competition, expansion into new markets, future sales mix, future supply of raw
materials, gross margins, the Company's customer base, future developments
involving certain investments, and future availability of financing. Such
statements involve a number of risks and uncertainties, including, but not
limited to, those (i) discussed below, (ii) discussed under the heading "Risk
Factors", and (iii) identified from time to time in the Company's filings with
the Securities and Exchange Commission. These risks and uncertainties could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements. The
Company assumes no obligation to update these forward-looking statements to
reflect events or circumstances after the date hereof.
The Company's independent accountants, Coopers & Lybrand is considering
whether certain potential claims against Coopers & Lybrand compromise its
independence so as to render it unable to deliver its opinion with respect to
the Company's financial statements. The Company is currently unable to determine
when this concern will be resolved. If Coopers & Lybrand determines that it
cannot provide its opinion on the Company's financial statements, the Company
will be obliged to retain other independent accountants, in which case its
delivery of audited financial statements may be delayed for a substantial period
and, as a result of the examination of such financial statements by successor
independent accountants, there may be material changes to such financial
statements.
INTRODUCTION
On February 11, 1997 the Company announced that it had commenced a special
investigation into certain apparent financial and management irregularities and
that its previously published financial statements and related financial
disclosures could no longer be relied upon. On June 12, 1997, the Company
announced the completion of the financial review associated with the special
investigation, including condensed restated financial information, as well as
the financial results for the periods ended March 31, 1997. The Company had
previously changed its fiscal year end to March 31, in order to accelerate the
receipt of certain tax refunds and in order to complete audited financial
statements for the entire periods under review as quickly as possible. The
accompanying financial statements give effect to the adjustments arising from
the financial review. Such financial review remains subject to completion of the
audit by and the opinion of the Company's independent accountants. Although the
Company does not anticipate any material changes, there is no assurance that
such material changes will not occur if the Company appoints new independent
accountants.
During the nine month period ended March 31, 1997, the Company completed
three separate business acquisitions of contract manufacturing activities and
formed an entity, Century Electronics Manufacturing, Inc. of which Centennial
held a 67% equity ownership position for the purpose of conducting this
business. On March 14, 1997, the Company agreed to reduce its equity ownership
position to 45% in a transaction which was completed June 30, 1997. Accordingly
the accompanying financial statements include the results of operations of
Century from the dates of acquisition on the equity method of accounting.
OVERVIEW
The Company designs, manufacturers and markets an extensive line of PC
cards used primarily by OEMs in industrial and commercial applications. The
Company's PC cards provide added functionality to devices containing
microprocessors by supplying increased storage capacity, communications
capabilities and programmed software for specialized applications.
The Company was incorporated and began operation in 1987 to develop and
commercialize font cartridges for laser printers. Beginning in 1992, when the
Company began designing, manufacturing and marketing PC cards, the Company
gradually deemphasized the marketing and sales of font cartridges in order to
focus on the rapidly growing PC card market. As the Company effected this shift
in focus, the Company's sales increased from $7.8 million in fiscal 1994 to
$28.3 million in the nine month period ended March 31, 1997.
15
<PAGE> 16
The Company had incurred losses during each of these periods. See "Results
of Operations" appearing hereinafter for further discussion of losses.
During fiscal 1996, the Company began a strategy of making investments,
financed through a combination of cash and common stock, in technology companies
for the expressed purpose of market development for its PC card business as well
as investment gain. Management has decided to focus its financial resources on
its core business, and to suspend new investment activities. The Company has
written down its portfolio of investments based on an individual assessment of
their future viability.
On December 13, 1996, the Company completed merger agreements with
Intelligent Truck Project, Inc., Fleet.Net, Inc., and Smart Traveler Plazas,
Inc. (collectively, "ITP/Fleet.Net"), agreeing to exchange 792,960 shares of
Centennial Common Stock for all the outstanding common stock of the acquired
businesses. Subsequent to the Company's announcement of financial
irregularities, the principal shareholder of ITP/Fleet.Net filed suit, alleging,
among other things, breach of representations and warranties regarding the
Company's prior reported financial results. On March 4, 1997, the Company and
the principal shareholder of ITP/Fleet.Net entered into a memorandum of
understanding pursuant to which the parties would unwind the merger agreements.
The parties were unable to reach mutually satisfactory terms to complete the
unwinding and on May 15, 1997, agreed to complete the merger and exchange mutual
releases of certain claims. Based on the material uncertainties surrounding the
value of consideration on the original merger date, which uncertainties were not
resolved until the execution of a settlement and mutual release agreement, the
Company has recorded the merger and corresponding issuance of Common Stock as of
May 15, 1997. Advances to ITP/Fleet.Net made during fiscal 1996 and the nine
months ended March 31, 1997, certain of which were previously characterized as
advance payments for technology license arrangements, have been included in loss
on investment activities in the periods the advances were made.
The following table sets forth certain statements of operations data as a
percentage of sales for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR ENDED JUNE
ENDED MARCH 31, 30,
---------------- -------------------------
1997 1996 1996 1995 1994
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold.............................. 86.5 96.6 89.1 128.9 83.5
Engineering costs............................... 3.8 5.2 4.3 8.3 7.3
Selling, general and administrative expenses.... 25.9 12.4 11.4 27.2 26.7
Loss on investment activities................... 49.9 .3 8.0 -- --
Special investigation costs..................... 13.0 -- -- -- --
Provision for settlement of shareholder
litigation................................... 70.8 -- -- -- --
Net interest expense............................ 1.4 .8 .1 .8 6.2
------ ----- ----- ----- -----
Loss before income taxes and equity in earnings of
affiliate....................................... (151.2) (15.3) (12.9) (65.2) (23.7)
Equity in earnings of affiliate................... .3 -- -- -- --
------ ----- ----- ----- -----
Loss before income taxes.......................... (150.9) (15.3) (12.9) (65.2) (23.7)
Provision (benefit) for income taxes.............. -- -- -- -- (2.2)
------ ----- ----- ----- -----
Net loss.......................................... (150.9)% (15.3)% (12.9)% (65.2)% (21.5)%
====== ===== ===== ===== =====
</TABLE>
16
<PAGE> 17
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Sales. Sales increased 30% to approximately $28.3 million in the 1997
period compared to $21.8 million in the 1996 period, primarily as a result of
increased volume of sales of PC cards. Such increase resulted primarily from
expansion of the PC card market, increased sales and marketing efforts by the
Company and the broadening of the Company's product line.
Sales outside of the United States represented 8% of sales in the 1997
period compared to 12% of sales in the 1996 period.
Sales to one of the Company's customers represented 22% of total sales in
the 1997 period and 12% of sales in the 1996 period. The Company expects a
significant decline in orders from this customer due to the completion of the
program under which the product was originally shipped. In addition, the Company
is in dispute with the customer regarding certain unshipped orders which have
not been included in sales.
Another significant customer represented 32% of total sales in the 1997
period and 16% of total sales in the 1996 period. If these customers were to
reduce significantly the amount of business they conduct with the Company, it
could have a material adverse effect on the Company's business, financial
condition and results of operations. No other customer or group of related
customers accounted for more than 10% of the Company's sales.
Costs of Goods Sold. Cost of goods sold increased 16% to $24.5 million for
the 1997 period compared to $21.0 million for the 1996 period. Gross margins
were 13.5% for the 1997 period compared to 3.5% for the 1996 period. Costs of
goods sold include provisions for inventory obsolescence of $925,000 in the 1997
period and $1,351,000 in the 1996 period, representing 3.3% of sales in the 1997
period and 6.2% in the 1996 period, reflecting a strategy of building inventory
in anticipation of customer orders, a portion of which did not materialize. The
decline in obsolescence as a percentage of sales reflects, in part, a change in
the practice in February 1997, which change significantly decreased the amount
of inventory purchased in advance of receipt of customer orders. The Company's
gross margins have also been impacted by declining memory chip prices, which
reduced PC card selling prices in certain situations where the Company had
already purchased memory chips at higher prices.
During the 1997 and 1996 periods, the Company recorded sales of $5.3
million and $3.7 million, respectively, which were subsequently deemed to be
invalid and reversed in the process of restating the Company's financial
statements. These transactions had the effect of overstating the Company's gross
margins and contributed to inappropriate pricing decisions and selling
practices.
Engineering Costs. Engineering costs were $1.1 million in both periods.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased to $7.3 million in the 1997 period compared to
$2.7 million in the comparable 1996 period. Sales compensation and related
travel costs for domestic operations increased from $872,000 to $1,604,000,
reflecting increased investment in sales personnel. Legal, accounting and other
professional fees were approximately $1.8 million in the 1997 period compared to
$90,000 in the 1996 period, reflecting increased costs associated with Company's
investment activities as well as costs associated with a public offering for
convertible debentures which was cancelled in December 1996.
Depreciation expense increased to $702,000 in the 1997 period compared to
$346,000 in the 1996 period, reflecting increased capital equipment expenditures
to increase production capacity and improve productivity.
The Company's Canadian and United Kingdom sales subsidiaries incurred
$590,000 of selling, general and administrative expenses in the 1997 period
compared to $464,000 in the 1996 period. These operations
17
<PAGE> 18
were both shut down in April 1997 and support for all international sales
activities was consolidated at the Company's headquarters.
During the 1997 period, the Company revised its method of allocating
overhead costs to cost of goods sold, which revision reduced the allocation for
this period by approximately $360,000.
Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses on disposition of a
series of investments made during the 1997 and 1996 periods. The following table
describes the elements and the amounts reflected in this category (in
thousands):
<TABLE>
<S> <C>
Costs incurred in connection with ITP/Fleet.Net.................... $ 3,729
Provision for loss on investment in Infos International............ 6,024
Provision for loss on investment in Industrial Imaging............. 2,283
Provision for loss on investment in WebSecure...................... 1,765
Less gain on sale of investment in WebSecure....................... (1,200)
Amortization of goodwill and equity in losses of ViA............... 585
Other losses....................................................... 910
-------
$14,096
=======
</TABLE>
ITP/ Fleet.Net
On December 13, 1996, the Company completed merger agreements regarding
ITP/Fleet.Net agreeing to exchange 792,960 shares of Common Stock of the Company
for all of the outstanding common stock of the acquired businesses. Subsequent
to the Company's February announcement of financial irregularities, the
principal shareholder of ITP/Fleet.Net filed suit, alleging, among other things,
breach of representations and warranties regarding the Company's prior reported
financial statements. On March 4, 1997, the Company and the principal
shareholder of ITP/Fleet.Net entered into a memorandum of understanding pursuant
to which the companies would unwind the merger agreement. The parties were
unable to reach mutually satisfactory terms to complete the unwinding and on May
15, 1997 agreed to complete the merger and exchange mutual releases of certain
claims. Based on the material uncertainties surrounding the value of
consideration on the original merger date, which uncertainties were not resolved
until the execution of the Settlement and Mutual Release, the Company has
recorded the merger and corresponding issuance of Common Stock as of May 15,
1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997, certain
of which were previously characterized as advance payments for technology
license arrangements, have been included in loss on investment activities in the
periods the advances were made. The merger will be recorded using purchase
accounting, and the excess of the purchase price over the fair value of assets
acquired (approximately $3.0 million) will be written off as of May 15, 1997,
the settlement agreement date, because of the uncertainties related to the
future operations of ITP/Fleet.Net.
Infos International, Inc.
During fiscal 1997, the Company acquired a 38% interest in Infos
International, Inc., a supplier of intelligent hand held data collection
equipment for route and shop floor accounting. The purchase price amounted to
approximately $3.0 million in cash and 230,000 shares of Centennial Common Stock
having a market value of $3.9 million at date of acquisition. On May 14, 1997,
the Company and shareholders of Infos reached an agreement in principal whereby
the Company would return its shares of Infos in exchange for shares of Common
Stock issued and a three-year warrant to acquire shares of Infos equal to up to
15% of the then outstanding common stock of Infos with certain limitations. The
parties have also agreed to exchange mutual releases of any claims arising from
the original acquisition agreement. Since Infos is a privately-held company,
there is no available market information in order to ascribe value to the
warrants, and current financial information is not presently available.
Accordingly, the full amount of the investment cost ($7.0 million) has been
written off. The recorded loss of $(6.0) million reflects the use by Infos of
$1.0 million of the original cash proceeds to repay an obligation of that amount
due to Centennial from an Infos subsidiary,
18
<PAGE> 19
Information Capture Corporation ("ICC"). This obligation originally arose in
fiscal 1995, prior to Infos acquiring ICC, in connection with a sales
transaction that was determined in the Company's financial review not to be bona
fide. The effect of the adjustment is to reflect $1.0 million of the investment
cost as a reduction of sales and net income in fiscal 1995 and the remainder as
loss on investment activities in fiscal 1997.
Industrial Imaging, Inc.
For $730,000 in cash and the conversion of $200,000 of notes, the Company
purchased a minority interest in a corporation now known as Industrial Imaging,
Inc. which designs, manufactures and markets automated optical vision and
individual imaging systems for inspection and identification of defects in
printed circuit boards. In addition, effective April 1, 1996 and expiring June
30, 1997, the Company agreed to provide procurement services and purchase
material using the Company's credit arrangements for a service fee of $200,000.
The Company completed purchases aggregating $1.4 million on behalf of the
investee and initially reflected by the Company as sales with the equivalent
amount of cost of goods sold. Such sales have been reversed in connection with
the Company's financial review. During fiscal 1997, the Company determined that
the investee was unable to repay the Company for the material purchased, and
also determined that the value of the equity investment was permanently
impaired. The Company has agreed to convert its account receivable into common
stock of the investee and has recorded a valuation reserve equal to the carrying
value of the investment.
WebSecure, Inc.
During fiscal 1996 the Company purchased for $569,000 a minority interest
in WebSecure, Inc., a corporation which provides Internet services. The former
president and a shareholder of WebSecure was a Director of the Company from
February 1994 through November 1995. In connection with WebSecure's initial
public offering, the Company realized a gain of $1.2 million from the sale of a
portion of its investment. The remaining investment, having a cost of $560,000,
has been fully reserved on the basis that its value appears to have been
permanently impaired. In addition, the Company has deferred recognition of the
gain pending final resolution of certain litigation described in Note 17 of
Notes to Unaudited Consolidated Financial Statements.
ViA, Inc.
In December 1996, the Company acquired a 12% interest in ViA, Inc. a
privately held technology company that designs, develops, and markets miniature
communication and computing products. Due to the significance of the Company's
investment to ViA's total capitalization and on the basis of the complementary
nature of the companies' products and related development plans, Centennial is
accounting for this investment using the equity method, and is amortizing the
purchase price in excess of its interest in the investee's underlying net
assets, which excess amounted to $5.0 million, over 60 months. The Company has
recorded this amortization, as well as its share of the investee's losses since
the date of the investment, for an aggregate amount of $585,000, as loss on
investment activities.
Other Investments
During fiscal 1997 and 1996, the Company made investments aggregating
$860,000 in development stage businesses that have not yet reached commercial
viability. Such investments have been fully reserved as of March 31, 1997 net of
certain offsets included in accounts payable and accrued expenses.
19
<PAGE> 20
Special Investigation Costs. The following table describes the elements
and the amounts reflected in this category for fiscal 1997 (in thousands):
<TABLE>
<S> <C>
Fees for services provided by the Company's independent
accountants....................................................... $ 933
Fees for services provided by the Company's Special Litigation Legal
Counsel........................................................... 942
Fees for services provided by the Company's Interim Chief Executive
Officer and Interim Chief Financial Officer....................... 1,195
Fees for services provided by Counsel to the Special Committee of
the Board of Directors............................................ 541
Other............................................................... 62
------
$3,673
======
</TABLE>
As of March 31, 1997, $1.6 million of these fees have been paid and $2.0
million are included in accounts payable and accrued expenses. Such accruals
include estimates of fees in connection with the completion of the special
investigation, certain refinancing activities, and costs of legal defense
associated with shareholder litigation.
Provision for Settlement of Shareholder Litigation. As of March 31, 1997,
the Company has recorded a provision for the potential settlement of the
Centennial Securities Litigation of $20.0 million, representing the cash portion
of the potential settlement, together with an amount equal to 37% of the
estimated market capitalization of the Company. The cash portion ($1,475,000) of
the potential settlement is included in accounts payable and accrued expenses
and the Common Stock portion ($18,525,000) is included in additional paid-in
capital.
Net Interest Expense. Net interest expense increased from $174,000 in
fiscal 1996 to $391,000 in fiscal 1997, reflecting an increased level of
borrowing under the Company's revolving credit agreement.
Equity Interest in Earnings of Affiliate. The equity interest in earnings
of affiliate reflects the Company's net interest in earnings of Century.
YEARS ENDED JUNE 30, 1996 AND 1995
Sales. Sales increased 272% to approximately $33.4 million in fiscal 1996
from approximately $9.0 million in fiscal 1995, primarily as a result of
increased volume of sales of PC cards. Sales of PC cards as a percentage of
total sales increased to approximately 98% in fiscal 1996 from approximately 81%
in fiscal 1995. The growth in the Company's PC card sales resulted primarily
from expansion of the PC card market generally, increased sales and marketing
efforts by the Company and the broadening of the Company's PC card product line.
The increase in the Company's PC card sales was partially offset by a decrease
in sales of font cartridges. This decrease was attributed to weakening demand
for font cartridges as laser printer fonts are increasingly being delivered
through PC cards rather than font cartridges, and the gradual shift in the
Company's focus commenced in 1992, away from font cartridges and toward the PC
card market. See "Risk Factors -- Product Concentration."
Cost of Goods Sold. Cost of goods sold increased 157% resulting in gross
margin of $3.6 million in 1996 compared to negative gross margin of $2.6 million
in fiscal 1995. As a percentage of sales, gross margin was 10.9% in fiscal 1996
and (28.9)% in fiscal 1995. Gross margins reflect inventory adjustments
associated with the financial review of $3.6 million in fiscal 1996 and $4.6
million in fiscal 1995, based on roll-back analyses of adjusted sales activity
and review of available physical inventory records for recurring errors
misstating quantities and pricing, as well as provisions for inventory
obsolescence.
During fiscal 1996 and fiscal 1995, the Company recorded sales of $3.7
million and $3.5 million, respectively, which were subsequently deemed to be
invalid and reversed in the process of restating the Company's financial
statements. These transactions had the effect of overstating the Company's gross
margins and contributed to inappropriate pricing decisions and selling
practices.
20
<PAGE> 21
Engineering Costs. Engineering costs increased 91% to approximately $1.4
million in fiscal 1996 from approximately $753,000 in fiscal 1995 as a result of
increased engineering resources required by the Company's increased emphasis on
the PC Card marketplace. As a percentage of sales, research and development
expenses were 4% in fiscal 1996 as compared to 8% in fiscal 1995 due primarily
to the higher sales level.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 56% to approximately $3.8 million in fiscal
1996 from approximately $2.4 million in fiscal 1995. The increase was due to
expanded sales and marketing efforts, to increased depreciation expense
resulting primarily from the acquisition of additional manufacturing equipment
and to the cost associated with additional personnel. As a percentage of sales,
selling, general and administrative expenses decreased to 11% in fiscal 1996
from 27% in fiscal 1995 due primarily to higher sales levels.
Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses on disposition of a
series of investments. The following table describes the elements and the
amounts reflected in this category for the year ended June 30, 1996 (in
thousands):
<TABLE>
<S> <C>
Costs incurred in connection with ITP/Fleet.Net..................... $1,101
Loss on investment in Advent Technology Management, Inc............. 1,000
Loss on investment in P.G. Technologies, Inc........................ 396
Other............................................................... 165
------
$2,662
======
</TABLE>
The costs incurred in connection with ITP/Fleet.Net are pre-acquisition
advances for marketing and prototype development in connection with the NOMAD
program.
During fiscal 1996, the Company purchased a minority interest in Advent
Technology Management, Inc., a holding company of various technology-related
corporations for $250,000, and loaned to the investee an additional $1.0
million. The Company believes that the initial investment objectives were not
bona fide, and that the value of this investment has been permanently impaired.
Accordingly, these investments have been reflected in loss on investment
activities in fiscal 1996, excluding $250,000 that was repaid by the investee in
January 1997.
During fiscal 1996, the Company purchased a minority interest in P.G.
Technologies, Inc., a corporation that develops, manufactures and markets
products for vehicle and fleet management, for $396,500. In addition, the
Company loaned $100,000 to the investee. The carrying cost of this investment
and loan was written off in fiscal 1996 and the shares were returned to the
investee in May 1997 pursuant to a settlement and mutual release agreement.
Net Interest Expense. Net interest expense was approximately $17,000 in
fiscal 1996 compared to $64,000 in fiscal 1995. Interest expense increased by
approximately $296,000 due to increased borrowing under the Company's credit
arrangements. This increase was offset by a rise in interest income of
approximately $343,000 due to the investment of excess cash.
YEARS ENDED JUNE 30, 1995 AND 1994
Sales. Sales increased 15% to approximately $9.0 million in fiscal 1995
from approximately $7.8 million in fiscal 1994, primarily as a result of
increased volume of sales of PC cards. Sales of PC cards as a percentage of
total sales increased to approximately 81% in fiscal 1995 from approximately 61%
in fiscal 1994. Sales of PC cards increased, primarily due to expansion of the
PC card market generally, increased sales and marketing efforts by the Company
and the broadening of the Company's PC card product line. The increase in the
Company's PC card sales was partially offset by a decrease in sales of font
cartridges. The decrease was attributable to weakening demand for font
cartridges as laser printer fonts were increasingly being delivered through PC
cards rather than font cartridges, and the shift in the Company's focus away
from font cartridges and toward the PC card market commenced in 1992.
21
<PAGE> 22
Cost of Goods Sold. Cost of goods sold increased 78% to approximately
$11.6 million in fiscal 1995 from approximately $6.5 million in fiscal 1994.
Gross margins were $(2.6) million, or (29)%, compared to $1.3 million, or 17% of
sales, in 1994. Gross margins reflect inventory adjustments associated with the
financial review of $4.6 million in fiscal 1995 and $1.8 million in fiscal 1994,
based on roll-back analyses of adjusted sales activity and review of available
physical inventory records for recurring errors misstating quantities and
pricing, as well as provisions for inventory obsolescence not previously
provided. During fiscal 1995 and 1994, the Company recorded sales of $3.5
million and $0.4 million, respectively, which were subsequently deemed to be
invalid and reversed in the process of restating the Company's financial
statement. These transactions had the effect of overstating the Company's gross
margins and contributed to inappropriate pricing decisions and selling
practices.
Engineering Expenses. Engineering expenses increased 33% to approximately
$753,000 in fiscal 1995 from approximately $567,000 in fiscal 1994. As a
percentage of sales, research and development expenses were 8% in fiscal 1995 as
compared to 7% in fiscal 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17% to approximately $2.4 million in fiscal
1995, from approximately $2.1 million in fiscal 1994. The increase was due to a
rise in the Company's workforce, expanded sales and marketing efforts and
greater depreciation expense resulting from the acquisition of additional
manufacturing equipment. As a percentage of sales, selling, general and
administrative expenses were 27% in fiscal 1995 and fiscal 1994.
Net Interest Expense. Net interest expense decreased to approximately
$64,000 in fiscal 1995 from approximately $486,000 in fiscal 1994, primarily due
to reduced borrowings and, to a lesser extent, lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operating activities
primarily from public and private offerings of equity securities and loans from
financial institutions and others.
1998 Liquidity Outlook
The Company has experienced significant losses from operations and has
taken measures to reduce those losses, including reducing various expenses and
implementing new cost controls. If cost savings are not achieved or revenues are
not increased, or bank financing were not available, it would significantly
impair the ability of the Company to continue as a going concern. The Company
believes that its present cash balances, anticipated financing from Congress
Financial, and anticipated future cash flows will be sufficient to fund future
operations. However, the Company can make no assurances that measures taken to
date or to be taken in the future will be sufficient to stem losses or that
future financing will be available to the Company or, if available, on terms
that will be satisfactory to the Company.
Operating Activities
At March 31, 1997, working capital declined to approximately $4.6 million,
compared to working capital of $28.2 million at June 30, 1996, due principally
to operating losses and cash used in investing activities. In fiscal 1997, the
Company experienced cash flow used in operations of approximately $(8.8)
million, compared to cash flow used in operations of $(15.5) million for the
comparable period in fiscal 1996. Days of sales outstanding in accounts
receivable amounted to 46 days at March 31, 1997 compared to 81 days at March
31, 1996, reflecting improved collection activities. The Company's inventories
represent approximately 12 weeks of manufacturing output at March 31, 1997,
compared to 12 weeks at March 31, 1996. Management has implemented new
procurement practices reflecting increased emphasis on reducing inventory
levels.
As a result of the adjustments made to the Company's financial statements
in connection with its financial review, previous provisions for income taxes
have been reversed and the associated payments of approximately $7.4 million are
classified as recoverable income taxes at March 31, 1997. Approximately $6.1
22
<PAGE> 23
million of these tax refunds were received as of June 30, 1997, and
substantially all of the remaining refunds are expected to be received by the
end of August 1997.
The Company's access to trade credit from its vendors has been subject to
increased scrutiny by its vendors and more limited terms since its announcement
of financial irregularities in February 1997. While certain suppliers have
imposed "collection on delivery" terms, the Company's principal suppliers have
continued to extend credit. If such suppliers were to discontinue or materially
limit existing credit terms, the Company could be placed in the position where
it would be unable to continue operations.
Investing Transactions
Capital expenditures amounted to $2.1 million in fiscal 1997, $1.3 million
in fiscal 1996 and $1.5 million in fiscal 1995. Such expenditures have been
financed, in part, through leasing arrangements amounting to $250,000, $702,000,
and $691,000, respectively. As of March 31, 1997, the Company had remaining
obligations of $671,000 on these equipment financing leases, which are in
default due to cross-default provisions between a master lease agreement and a
revolving credit agreement to which the Company is a party, both of which are
with the same bank lender. The Company intends to repay these leases using
proceeds from a new term loan facility. See "--Proposal from Congress Financial
Corp."
The Company has no commitments for future capital equipment expenditures.
Included in accounts payable and accrued expenses are invoices for capital
equipment amounting to $528,000, which the Company expects to finance, in part,
through a new capital acquisition facility. See "--Proposal from Congress
Financial Corp."
During fiscal 1996, the Company began a strategy of making investments,
financed through a combination of cash and common stock, in technology companies
for the expressed purpose of market development for its PC card business as well
as investment gain. The Company's management has decided to focus its resources
on its core business and to suspend new investment activities. The Company has
written down its portfolio of investments based on an individual assessment of
their future viability.
Financing Transactions
In November 1996, the Company renewed and amended its revolving line of
credit with a bank, pursuant to which the Company could borrow up to specified
limits based on the Company's eligible receivables and inventory, including
eligible receivables and inventory of Design Circuits, Inc. ("DCI"). See
" -- Investment in Century Electronics Manufacturing, Inc." Borrowings on the
DCI borrowing base were made by the Company and subject to a DCI guarantee. All
borrowings were collateralized by substantially all of the assets of the
Company. The agreement required the Company to comply with certain covenants
relating to the Company's net worth and indebtedness, among other things. On
February 14, 1997, the Company received a notice of default, and on March 18,
1997, entered into a forbearance agreement whereby the bank agreed to continue
to extend credit under certain conditions. In addition, on March 18, 1997,
certain advances from the Company to DCI were converted to an 8.5% promissory
note amounting to approximately $4.1 million. The forbearance agreement has been
subsequently extended to July 31, 1997. The defaulted credit agreement bears
interest at the bank's prime interest rate. The forbearance agreement sets the
interest rate at 9.5%. The Company is currently negotiating financing
arrangement with a new lender. See "--Proposal from Congress Financial Corp."
and Note 10 of Notes to Unaudited Consolidated Financial Statements. Although
the Company believes it will successfully accomplish the refinancing, the
proposal letter contains conditions to refinancing, and if the refinancing were
not effected, the Company would be obliged to seek alternative sources of
financing. There can be no assurance that such alternative sources of financing
will be available or, if they are available, that the terms of such alternative
financing would be acceptable to the Company. Failure of the Company to secure
bank credit would significantly impair the ability of the Company to continue as
a going concern.
23
<PAGE> 24
Investment in Century Electronics Manufacturing, Inc.
During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.
In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").
Pursuant to a joint venture agreement executed in May, 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital into its 51%
owned contract manufacturing joint venture in Thailand. The Company's joint
venture partner's initial capital contribution was $3.7 million.
On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash, and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.
On March 14, 1997, Century entered into an agreement in principal with the
Company, whereby Century agreed to redeem a portion of its shares in exchange
for $1.3 million in cash and a $6.0 million subordinated debenture, reducing the
Company's equity ownership position to 45%. The debentures bear interest at a
rate of 6% and mature in ten years. Under certain conditions, the debentures
will be convertible into the capital stock of an entity with which Century may
merge. In addition, the Company agreed to contribute to Century its interest in
the Thailand joint venture. Century also agreed to repay an 8.5% note payable to
Centennial in the amount of $4.1 million and to take the necessary steps to
remove all outstanding guarantees of third-party indebtedness.
On June 30, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the underlying equipment to
Century for $0.5 million in cash and a $1.9 million 9% promissory note due
December 1998. See Note 8 of Notes to Unaudited Consolidated Financial
Statements.
Status of Existing Revolving Credit Agreement
As a result of receipts of certain tax refunds, the cash proceeds of the
June 30, 1997 Century refinancing transaction, and improved inventory management
and accounts receivable collection programs, the Company has reduced borrowings
under its defaulted Revolving Credit Agreement to approximately $1.2 million as
of June 30, 1997, while also reducing trade accounts payable to $3.9 million as
compared to $4.8 million at March 31, 1997.
Proposal From Congress Financial Corp.
On May 7, 1997, the Company received a non-binding proposal from Congress
Financial Corp. ("Congress Financial"), a commercial credit institution, for a
revolving credit facility and term loan facility.
On July 18, 1997, the Company received a commitment letter from Congress
Financial, subject to satisfaction of certain conditions and completion of
documentation, for a revolving credit facility and term loan facility of up to
$4.1 million and $0.9 million, respectively, and a $2.0 million capital
equipment acquisition facility, based on certain limitations and covenants.
Allowable borrowings would be based on available accounts receivable and the
cost of equipment, and would be secured by all of the Company's assets. The
Company expects to complete negotiations on the new borrowing facility before
the expiration of the forbearance agreement relating to its existing credit
facility. Although the Company believes it will successfully accomplish the
refinancing, the commitment letter contains conditions to refinancing, and if
the refinancing were not effected, the Company would be obliged to seek
alternative sources of financing. There can be no assurance that such
alternative sources of financing will be available or, if they are available,
that the
24
<PAGE> 25
terms of such alternative financing would be acceptable to the Company. Failure
of the Company to secure bank credit would significantly impair the ability of
the Company to continue as a going concern.
Contingencies
The Company is a defendant in numerous lawsuits alleging violations of
securities and other laws in connection with the Company's prior reported
financial results and certain other related matters. See "Item 3 -- Legal
Proceedings." The Company is currently negotiating the settlement of these
suits, and believes that such lawsuits will be settled substantially in
accordance with the description contained in "Item 3 -- Legal Proceedings." The
Company believes that such settlements will not have a material adverse impact
on its liquidity. As of March 31, 1997, the Company has recorded a provision for
the potential settlement of the Centennial Securities Litigation of $20.0
million, representing the cash portion of the potential settlement, together
with an amount equal to 37% of the estimated market capitalization of the
Company. The cash portion ($1,475,000) of the potential settlement is included
in accounts payable and accrued expenses and the Common Stock portion
($18,525,000) is included in additional paid-in capital. However, there can be
no assurance that the Company will be successful in negotiating the settlements
described in Item 3, or that the claims against Lawrence J. Ramaekers, the
Company's interim Chief Executive Officer, in connection with the February 25
Securities Litigation, as to which the Company may have indemnification
obligations will be settled, and such inability to settle pending litigation
could have a material adverse affect on the Company's liquidity, business,
financial condition and results of operations.
Advent Technology Management, Inc. ("ATM") has purported to exercise an
alleged option to acquire one million shares of the Company's Common Stock in
exchange for certain shares of common stock of WebSecure, Inc. (the
"Securities") which were in the possession of the Company and which ATM asserts
to be the property of ATM. ATM has presented documents to the Company purporting
to show the acknowledgement of Emanuel Pinez as then Chairman and Chief
Executive Officer of the Company to an arrangement whereby the Company was
holding the Securities for the account of ATM and whereby ATM was given the
option to exchange the Securities for 409,600 shares of the Company's Common
Stock, and purporting to show the acknowledgement of James M. Murphy as then
Chief Financial Officer of the Company that the Securities were held for the
account of ATM. The records of the Company do not indicate that the alleged
arrangement was ever disclosed to the Company's Board of Directors or recorded
in its financial records. To the contrary, the Securities were at all times
reflected in the financial records of the Company as the property of the Company
and were in part sold by the Company. The Company does not believe that the
arrangement was valid or that the alleged option is enforceable.
IMPACT OF INFLATION
The Company believes that the impact of inflation on its operations is not
significant.
SEASONALITY
The Company generally does not experience seasonality with respect to the
sale of its products; however, the Company has experienced reduced sales to
certain customers in European countries during the months of July and August.
DIVIDENDS
The Company has never paid cash dividends. The Company currently intends to
retain all future earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's credit agreement with its bank prohibits the payment of cash dividends
without the bank's consent.
RISK FACTORS
Losses in Prior Periods; Liquidity and Financing Risks. The Company has
experienced significant losses from operations during fiscal 1994, fiscal 1995,
fiscal 1996 and fiscal 1997. The Company has taken measures
25
<PAGE> 26
since the firing of its former Chief Executive Officer in February 1997 to
reduce those losses, including appointing a turnaround specialist, reducing
various expenses and implementing new cost controls. If cost savings are not
achieved or revenues are not increased, the operating plan for the Company could
include further cost reductions. If cost savings are not achieved, revenues are
not increased or bank financing were not available, it would significantly
impair the ability of the Company to continue as a going concern. The Company
believes that its present cash balances, anticipated financing from Congress
Financial, and anticipated future cash flows will be sufficient to fund future
operations. Although the Company has received a commitment letter from Congress
Financial regarding the proposed refinancing, and believes that the refinancing
with Congress Financial will be consummated, the refinancing is subject to
certain conditions. The Company can make no assurances that measures taken to
date or to be taken in the future will be sufficient to stem losses or that
future financing will be available to the Company or, if available, on terms
that will be satisfactory to the Company.
Dependence on Major Customers; Concentration of Credit Risk. Bay Networks
and a subsidiary of Philips accounted for approximately 32% and 22%,
respectively, of the Company's sales for fiscal 1997. Bay Networks and Philips
accounted for 16% and 12%, respectively, of the Company's sales for the fiscal
1996. The loss of, or a significant curtailment of purchases by either of these
customers, or any other significant customer of the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Substantially all of the Company's sales to Philips have
been in connection with Philips' sales of screen phones to a single customer.
Except for certain orders presently in dispute, the Company has fulfilled all
purchase orders with Philips, and the Company believes that it will not receive
additional orders from Philips pursuant to the screen phone program. The
industries served by the Company are characterized by frequent mergers,
consolidations, acquisitions, corporate restructuring and changes in management,
and the Company has from time to time experienced reductions in purchase orders
from customers as a result of such events. There can be no assurance that such
events involving customers of the Company will not result in a significant
reduction in the level of sales by the Company to such customers or the
termination of the Company's relationship with such customers. In addition, the
percentage of the Company's sales to individual customers may fluctuate from
period to period. Customer orders can be canceled and volume levels can be
changed or delayed. The timely replacement of canceled, delayed, or reduced
orders with new customers cannot be assured. These risks are exacerbated because
a majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change and product obsolescence. The
electronics industry is also subject to economic cycles and has in the past
experienced, and is likely in the future to experience, fluctuations in demand.
The Company anticipates that a significant portion of its sales will continue
for the foreseeable future to be concentrated in a small number of customers in
the electronics industry.
Need to Respond to Rapid Technological Change; Historical Single Product
Concentration. The markets for the Company's products are characterized by
rapid technological change, evolving industry standards and rapid product
obsolescence. Rapid technological development substantially shortens product
life cycles, and the Company's growth and future success will depend upon its
ability, on a timely basis, to develop and introduce new products, to enhance
existing products and to adapt products for various industrial applications and
equipment platforms, as well as upon customer acceptance of these products,
enhancements and adaptations. The Company, having more limited resources than
many of its competitors, focuses its development efforts at any given time to a
relatively narrow scope of development projects. There can be no assurance that
the Company will select the correct projects for development or that the
Company's development efforts will be successful. In addition, no assurance can
be given that the Company will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products,
that new products and product enhancements will meet the requirements of the
marketplace and achieve market acceptance, or that the Company's current or
future products will conform to applicable industry standards. Any inability of
the Company to introduce on a timely basis new products or enhancements that
contribute to profitable sales would have a material adverse effect on the
Company's business, financial condition and results of operations.
26
<PAGE> 27
PC cards and related services constitutes approximately 100%, 98% and 86%
of the Company's sales for fiscal 1997, 1996 and 1995, respectively. The market
for PC cards is still developing and there can be no assurance that computing
and electronic equipment that utilize PC cards will not be modified to render
the Company's PC cards obsolete or otherwise have the effect of reducing demand
for the Company's PC cards. In addition, the Company faces intense competition
from competitors that have greater financial, marketing and technological
resources than the Company, which competition may reduce demand for the
Company's PC cards. Decreased demand for the Company's PC cards as a result of
technological change, competition or other factors would have a material adverse
effect on the Company's business, financial condition and results of operations.
Competition. Each of the markets in which the Company competes is
intensely competitive. The Company competes with manufacturers of PC cards and
related products, including SanDisk Corporation and Smart Modular Technologies,
Inc., as well as with electronic component manufacturers who also manufacture PC
cards, including Advanced Micro Devices, Inc., Epson America, Inc., Intel
Corporation and Mitsubishi Electric Corporation. In connection with its NOMAD
System, the Company may choose to compete with products from QUALCOMM
Incorporated ("QUALCOMM"), Rockwell International Corporation ("Rockwell"),
CADEC Systems, Inc. ("CADEC") and HighwayMaster Communications, Inc.
("HighwayMaster"). QUALCOMM and HighwayMaster offer a bundled system comprised
of equipment, applications software and communications services to truck fleet
operators. Others, such as CADEC and Rockwell, offer bundled equipment and
software. Centennial's NOMAD System product is intended to become a standard
platform for sale to VARs and systems integrators developing their own on-board
applications. Though Centennial does not anticipate competing with the above
companies, they may become competitors if they choose to sell their equipment
unbundled from their applications software and communications services. Certain
of these competitors also supply the Company with raw materials, including
electronic components, which are occasionally subject to industrywide
allocation. These competitors may have the ability to manufacture products at
lower costs than the Company as a result of their higher levels of integration.
In addition, many of the Company's competitors or potential competitors have
greater name recognition, a larger installed base of customers, more extensive
engineering, manufacturing, marketing, distribution and support capabilities and
greater financial, technological and personnel resources than the Company. The
Company expects competition to increase in the future from existing competitors
and from other companies that may enter the Company's existing or future markets
with similar or alternative products that may be less costly or provide
additional features. The Company believes that its ability to compete
successfully depends on a number of factors, including product quality and
performance, order turnaround, the provision of competitive design capabilities,
timely response to advances in technology, adequate manufacturing capacity,
production efficiency, timing of new product introductions by the Company, its
customers and its competitors, the number and nature of the Company's
competitors in a given market, price and general market and economic conditions.
In addition, market conditions may lead to intensified price competition for the
Company's products and services, resulting in lower prices and gross margins,
which could materially and adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will compete successfully in the future.
Fluctuations in Quarterly Results. The Company's results of operations may
be subject to quarterly fluctuations due to a number of factors, including the
timing of receipt and delivery of significant orders for the Company's products,
competitive pricing pressures, increases in raw material costs, costs associated
with the expansion of operations, changes in customer and product mix,
production difficulties, quality of the Company's products, write-downs or
writeoffs of investments in other companies, exchange rate fluctuations and
market acceptance of new or enhanced versions of the Company's products, as well
as other factors, some of which are beyond the Company's control. Additionally,
as is the case with many high technology companies, a significant portion of the
Company's orders and shipments typically occurs in the last few weeks of a
quarter. As a result, revenues for a quarter are not predictable, and the
Company's revenues may shift from one quarter to the next, having a significant
effect on reported results.
The trading price of the Company's Common Stock may fluctuate widely in
response to, among other things, quarter-to-quarter operating results, industry
conditions, awards of orders to the Company or its
27
<PAGE> 28
competitors, new product or product development announcements by the Company or
its competitors and changes in earnings estimates by analysts. There can be no
assurance that the Company's future performance will meet the expectations of
analysts or investors. In addition, the volatility of the stock markets may
cause wide fluctuations in trading prices of securities of high technology
companies.
Raw Material Shortages and Dependence on Single Source Suppliers. The
Company has from time to time experienced shortages in the supply of computer
memory chips and other electronic components used to manufacture PC cards. The
Company expects that such supply shortages may continue, particularly with
respect to computer memory chips and other electronic components used in
products targeted at high-growth market segments. Occasionally, certain memory
chips important to the Company's products are on industry-wide allocation by
suppliers. Any such shortages could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company purchases certain key components from single source vendors for
which alternative sources are not currently available. The Company does not
maintain long-term supply agreements with any of its vendors. The inability to
develop alternative sources for these single source components or to obtain
sufficient quantities of components could result in delays or reductions in
product shipments, or higher prices for these components, or both, any of which
could materially and adversely affect the Company's business, financial
condition and results of operations. No assurance can be given that one or more
of the Company's vendors will not reduce supplies to the Company.
Risks Associated with Commercialization of the NOMAD System. The Company
announced the development of the NOMAD System in October 1996. The Company has
only recently begun initial marketing efforts related to the NOMAD System, no
full-function prototype of the system has been developed, and no products have
yet been sold. There can be no assurance that field testing, marketing and
deployment of this system, or the development of a system prototype, will be
completed or successful. In addition, the Company can provide no assurance that
it will choose to or be able to provide the financial resources necessary to
complete a product prototype or to bring the product to market. The success of
the NOMAD System is also dependent upon numerous factors which are beyond the
control of the Company, including the continued interest of the U.S. government
and the transportation industry in the system, the successful deployment of
related technologies, marketplace acceptance of the system and other factors. In
addition, there can be no assurance that competitors of the Company will not
develop competing or alternate technologies that may be preferred by the
Company's potential customers or that evolving industry or government standards
will not render the NOMAD System obsolete. In addition, the development and
marketing of the NOMAD System will require the investment of substantial
resources by the Company, and no assurance can be given that such investment
will be recovered.
Dependence on Key Personnel. The Company's success depends to a
significant degree upon the efforts and abilities of members of its senior
management and other key personnel, including technical personnel. The loss of
any of these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's business
also depends upon its ability to continue to attract and retain senior managers
and skilled technical employees. The Company is currently conducting an
executive search for a permanent Chief Executive Officer and Chief Financial
Officer. Failure to attract and retain such senior personnel could materially
and adversely affect the Company's business, financial condition and results of
operations.
Need to Maintain Quality Control Standards and Deliver Products on a Timely
Basis. Many of the Company's products and services must meet exacting OEM
specifications. As a result, the Company must adopt and adhere to stringent
quality control standards for its products and manufacturing processes. There
can be no assurance that the quality of the Company's products and services will
meet customer requirements in the future. If quality problems occur, the Company
could experience increased costs, rescheduling or cancellations of orders and
shipments, delays in collecting accounts receivable, increases in product
returns and reductions in new purchase orders, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
28
<PAGE> 29
The Company believes its ability to deliver product orders rapidly
represents an important competitive advantage. However, there can be no
assurance that future delays or interruptions in production caused by problems
with product quality, supply shortages, facilities expansion, equipment failure,
the subcontracting of a portion of production, availability of trade credit,
human error or other factors, some of which may be beyond the control of the
Company, will not result in the failure to meet delivery schedules. Any such
failure could harm the Company's reputation in the marketplace and have a
material adverse effect on the Company's business, financial condition and
results of operations.
Protection of Proprietary Information. The Company's products require
technical know-how to engineer and manufacture. To the extent proprietary
technology is involved, the Company relies on trade secrets that it seeks to
protect, in part, through confidentiality agreements with certain employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to,
or independently developed by, existing or potential competitors of the Company.
The Company generally does not seek to protect its proprietary information
through patents or registered trademarks, although it may seek to do so in the
future. There can be no assurance that the Company's products will not infringe
on patents held by others. The Company may be involved from time to time in
litigation to determine the enforceability, scope and validity of its rights.
Litigation could result in substantial cost to the Company and could divert the
attention and time of the Company's management and technical personnel from the
operations of the Company.
The Company currently licenses certain proprietary and patented technology
from third parties. There can be no assurance that the Company will be able to
continue to license such technology, that such licenses will be or remain
exclusive or that any patented technology licensed by the Company will provide
meaningful protection from competitors. In the event that a competitor's
products were to infringe on patents licensed by the Company, it would be costly
for the Company to enforce its rights in an infringement action and such an
action would divert funds and management resources from the Company's
operations.
Risks of Acquisitions and Investments in Other Companies. The Company has
terminated its earlier program of acquiring interests in companies and related
technologies, and has written-off or provided valuation reserves for many such
investments. However, the Company may determine that it is in the best interests
to acquire or invest in other companies in the future. There can be no assurance
that the companies in which the Company has invested or may invest will develop
successful products or technologies beneficial to the Company or that such
investments will be economically justified. In addition, if companies in which
the Company has invested are not successful, the Company would be required to
write-off or write-down further such investments, which would result in the
Company recognizing an expense in the period in which such adjustment occurs.
Risks of International Operations. During the nine months ended March 31,
1997 and the fiscal year ended June 30, 1996, the Company derived approximately
8% and 12%, respectively, of its sales from outside the United States. The
Company's international operations subject the Company to the risks of doing
business abroad, including currency fluctuations, export duties, import controls
and trade barriers, restrictions on the transfer of funds, greater difficulty in
accounts receivable collection, burdens of complying with a wide variety of
foreign laws and, in certain parts of the world, political instability.
Environmental Compliance. The Company is subject to a variety of
environmental regulations relating to the use, storage and disposal of hazardous
chemicals used during its manufacturing processes. Any failure by the Company to
comply with present and future regulations could subject the Company to
significant liabilities. In addition, such regulations could restrict the
Company's ability to expand its facilities or could require the Company to
acquire costly equipment or to incur other significant expenses in order to
comply with environmental regulations.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -------------------------
1997 1996 1995
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 57 $ 6,182 $ 970
Available-for-sale securities............................ -- 4,932 --
Trade accounts receivable................................ 6,263 11,635 2,933
Less allowances.................................. (692) (375) (131)
--------- -------- --------
5,571 11,260 2,802
Accounts receivable from affiliates...................... 676
Recoverable income taxes................................. 7,356 3,142 775
Inventories.............................................. 7,794 8,248 2,181
Notes receivable from affiliate.......................... 4,129 -- --
Other notes receivable................................... -- 1,809 768
Other current assets..................................... 1,630 1,444 741
--------- -------- --------
Total current assets....................................... 27,213 37,017 8,237
Equipment and leasehold improvements....................... 4,023 2,609 1,149
Less accumulated depreciation and amortization........... (936) (576) (226)
--------- -------- --------
3,087 2,033 923
Investments................................................ 5,089 1,783 --
Other assets............................................... 566 299 390
Investment in affiliate.................................... 15,243 -- --
--------- -------- --------
Total assets............................................... $ 51,198 $ 41,132 $ 9,550
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit notes................................... $ 10,090 $ 4,684 $ 1,153
Obligations under capital leases......................... 671 336 103
Accounts payable and accrued expenses.................... 11,883 3,836 3,865
--------- -------- --------
Total current liabilities.................................. 22,644 8,856 5,121
Long-term obligations under capital leases................. -- 367 162
Contingencies (Note 17)....................................
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized, none issued............................... -- -- --
Common Stock, $.01 par value; 50,000,000 shares
authorized, 17,745,000 issued and outstanding at March
31, 1997, 16,632,000 shares at June 30, 1996 and
11,182,000 shares at June 30, 1995.................... 177 165 110
Additional paid-in capital................................. 82,240 42,712 10,843
Accumulated deficit........................................ (53,630) (10,968) (6,686)
Foreign currency translation of equity investment.......... (233) -- --
--------- -------- --------
Total stockholders' equity................................. 28,554 31,909 4,267
--------- -------- --------
Total liabilities and stockholders' equity................. $ 51,198 $ 41,132 $ 9,550
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE> 31
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
------------------------ ----------------------------------------
1997 1996 1996 1995 1994
-------- ----------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Sales.............................. $ 28,263 $21,768 $ 33,412 $ 8,982 $ 7,801
Costs and expenses:
Cost of goods sold............... 24,453 21,018 29,778 11,575 6,508
Engineering costs................ 1,061 1,126 1,434 753 567
Selling, general and
administrative expenses....... 7,318 2,705 3,803 2,442 2,083
Loss on investment activities.... 14,096 69 2,662 -- --
Special investigation costs...... 3,673 -- -- -- --
Provision for settlement of
shareholder litigation........ 20,000 -- -- -- --
Net interest expense............. 391 174 17 64 486
-------- ------- ------- ------- -------
Total costs and expenses.... 70,992 25,092 37,694 14,834 9,644
-------- ------- ------- ------- -------
Loss before income tax credit and
equity in earnings of
affiliate........................ (42,729) (3,324) (4,282) (5,852) (1,843)
Equity in earnings of affiliate.... 67 -- -- -- --
-------- ------- ------- ------- -------
Loss before income tax credit...... (42,662) (3,324) (4,282) (5,852) (1,843)
Income tax credit.................. -- -- -- -- (171)
-------- ------- ------- ------- -------
Net loss.................... $(42,662) $(3,324) $ (4,282) $ (5,852) $ (1,672)
======== ======= ======= ======= =======
Net loss per share................. $ (2.46) $ (.26) $ (.31) $ (.63) $ (.19)
Weighted average shares
outstanding...................... 17,367 12,678 13,632 9,363 9,027
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE> 32
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996 (EACH RESTATED)
AND THE NINE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS FOREIGN TOTAL
--------------- PAID-IN (ACCUMULATED CURRENCY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) TRANSLATION EQUITY
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993...................... 6,027 $ 60 $ 146 $ 838 $ 1,044
Contributed capital in connection with bridge
financing................................... 248 248
Proceeds from certain related party
transactions (Note 15)...................... 31 31
Proceeds from public offering, net of issuance
costs of $943............................... 3,000 30 4,634 4,664
Net loss...................................... (1,672) (1,672)
------ ----- -------- --------- ----- ---------
Balance at June 30, 1994...................... 9,027 90 5,059 (834) 4,315
Proceeds from certain related party
transactions (Note 15)...................... 653 653
Exercise of options........................... 79 149 149
Exercise of warrants.......................... 1626 16 3,793 3809
Compensation from option grants............... 53 53
Private placement............................. 450 4 1,136 1,140
Net loss...................................... (5,852) (5,852)
------ ----- -------- --------- ----- ---------
Balance at June 30, 1995...................... 11,182 110 10,843 (6,686) 4,267
Proceeds from certain related party
transactions (Note 15)...................... 3,091 3,091
Exercise of options........................... 382 4 695 699
Exercise of warrants.......................... 2,217 22 5,172 5,194
Compensation from option grants............... 20 20
Proceeds from public offering, net of issuance
costs of $2,730............................. 2,850 29 22,891 22,920
Net loss...................................... (4,282) (4,282)
------ ----- -------- --------- ----- ---------
Balance at June 30, 1996...................... 16,631 165 42,712 (10,968) 31,909
Proceeds from certain related party
transactions (Note 15)...................... 2,254 2,254
Exercise of options........................... 281 3 3,539 3,542
Exercise of warrants.......................... 172 2 516 518
Compensation from option grants............... 34 34
Issuance of Common Stock in connection with
acquisition of affiliates................... 275 3 4,822 4,825
Issuance of Common Stock in connection with
investments................................. 386 4 9,838 9,842
Foreign currency translation of equity
investment.................................. $(233) (233)
Estimated fair market value of shares to be
issued in connection with shareholder
litigation.................................. 18,525 18,525
Net loss...................................... (42,662) (42,662)
------ ----- -------- --------- ----- ---------
Balance at March 31, 1997..................... 17,745 $ 177 $ 82,240 $ (53,630) $(233) $ 28,554
====== ===== ======== ========= ===== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 33
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
-------- ------------ ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(42,662) $ (3,324) $ (4,282) $ (5,852) $ (1,672)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for settlement of shareholder litigation.......... 20,000 -- -- -- --
Depreciation and amortization............................... 831 346 471 281 176
Equity in earnings of affiliate............................. (67)
Provision for loss on accounts receivable................... 400 309 425 171 49
Provision for losses on sale of equipment................... 318
Provision for loss on note receivable....................... 100 271 871 -- --
Provision for loss on investments........................... 8,027 -- 690 -- --
Discount on bridge financing................................ -- -- -- -- 248
Other non-cash items........................................ 34 (49) 19 53 55
Change in operating assets and liabilities:
Accounts receivable....................................... 5,289 (5,427) (8,883) (1,693) (599)
Accounts receivable from affiliate........................ (676)
Inventories............................................... 454 (5,000) (6,067) (600) 676
Notes receivable.......................................... 1,509 (1,406) (2,040) (841) --
Notes receivable from affiliate........................... (4,129) -- -- -- --
Recoverable income taxes.................................. (4,214) 166 (2,366) (604) (171)
Other assets.............................................. (582) (217) (807) (487) (5)
Accounts payable and accrued expenses..................... 6,572 (1,125) (9) 3,072 (817)
Income taxes payable...................................... -- -- (20) (96) (341)
-------- -------- -------- -------- --------
Net cash used in operating activities................. (8,796) (15,456) (21,998) (6,596) (2,401)
Cash flows from investing activities:
Capital expenditures........................................ (2,074) (1,276) (1,459) (583) (332)
Purchase of available-for-sale securities................... (27,250) -- (8,914) -- --
Proceeds from sale of available-for-sale securities......... 32,182 -- 3,981 -- --
Purchase of investments..................................... (1,291) (762) (2,272) -- --
Acquisition of affiliates................................... (10,351) -- -- -- --
-------- -------- -------- -------- --------
Net cash used in investing activities................. (8,784) (2,038) (8,664) (583) (332)
Cash flows from financing activities:
Net borrowings under line of credit......................... 5,406 (1,153) 3,531 1,153 (54)
Proceeds from equipment lease financing..................... 250 702 691 320 --
Payments on equipment lease financing....................... (282) (175) (252) (56) --
Proceeds from exercise of stock options..................... 3,542 697 699 149 --
Proceeds from exercise of warrants.......................... 518 5,079 5,194 3,809 --
Net proceeds from public offerings of Common Stock.......... 21,699 22,920 4,662
Net proceeds from private placement......................... 1,140 --
Proceeds from certain related party transactions............ 2,254 1,956 3,091 653 31
Proceeds from bridge financing.............................. -- -- -- -- 550
Repayment of bridge financing............................... -- -- -- -- (550)
Payments on notes payable................................... -- -- -- -- (925)
Foreign currency translation of equity investment........... (233) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities............. 11,455 28,805 35,874 7,168 3,714
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents.......... (6,125) 11,311 5,212 (11) 981
Cash and cash equivalents at beginning of period.............. 6,182 970 970 981 --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................... $ 57 $ 12,281 $ 6,182 $ 970 $ 981
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 535 $ 273 $ 342 $ 71 $ 156
======== ======== ======== ======== ========
Income taxes.............................................. $ 4,151 $ 598 $ 2,601 $ 716 $ 286
======== ======== ======== ======== ========
Non-cash transactions:
During fiscal 1997, the Company issued Common Stock in
connection with the acquisition of affiliates and in
connection with the purchase of investments having a
fair market value at the dates of issuance of $4,825 and
$9,842, respectively.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 34
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CHANGE IN FISCAL YEAR
Basis of Presentation
The consolidated financial statements of Centennial Technologies, Inc. (the
"Company") include the accounts of the Company and all wholly owned
subsidiaries. Investments in companies in which ownership interests range from
20 to 50 percent and the Company exercises significant influence over operating
and financial policies are accounted for using the equity method. The Company's
investment in Century Electronics Manufacturing, Inc. ("Century"), of which it
had a 67% equity ownership position at March 31, 1997, has been accounted for
using the equity method because the Company had a plan of disposition of a
portion of the investment in place prior to March 31, 1997 and the transaction
closed on June 30, 1997. Due to the significance of the Company's investment in
the investee's capitalization and on the basis of the complementary nature of
the Company's products and related development plans, the Company is accounting
for its 12% investment in ViA, Inc. using the equity method. See Note 9. Other
investments are accounted for using the cost method. All significant
intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to prior years' consolidated financial
statements to conform to the fiscal 1997 presentation.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and settlement of
liabilities in the normal course. The Company has experienced significant losses
from operations and has taken measures to reduce those losses, including
reducing various expenses and implementing new cost controls. If cost savings
are not achieved or revenues are not increased, or bank financing were not
available, it would significantly impair the ability of the Company to continue
as a going concern.
The Company is a defendant in certain litigation, as more fully described
in Note 17. No assurance can be given that the settlement of litigation will
result in an outcome which would not significantly impair the ability of the
Company to continue as a going concern.
Change in Fiscal Year
On March 24, 1997 the Company's Board of Directors voted to change the
fiscal year end from June 30 to March 31. See Note 2. All references to fiscal
1997 in the accompanying financial statements relate to the nine months ended
March 31, 1997. References to fiscal 1996, 1995 and 1994 relate to the
respective years ended June 30.
2. RESTATEMENT OF FINANCIAL STATEMENTS
On February 11, 1997, the Company announced that it had commenced a special
investigation into certain apparent financial and management irregularities and
that its previously published financial statements and related financial
disclosures could no longer be relied upon. On June 12, 1997, the Company
announced the completion of the financial review associated with the special
investigation, including condensed restated financial information, as well as
the financial results for the periods ended March 31, 1997. The Company had
previously changed its fiscal year end to March 31, in order to accelerate the
receipt of certain tax refunds and in order to complete audited financial
statements for the entire periods under review as quickly as possible. The
accompanying financial statements give effect to the adjustments arising from
the special investigation.
Cumulative adjustments to the Company's previously reported results of
operations through December 31, 1996 consist of reductions of sales totaling
$21.2 million; increases to cost of sales associated with inventory adjustments
totaling $8.8 million; and write-offs of investments in and advances to several
companies totaling $15.8 million. Additional increases in costs and expenses
include adjustments to plant and equipment, miscellaneous assets, investment in
Century, accrued liabilities and warranty reserves for a net
34
<PAGE> 35
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate amount of $2.4 million. Netted against these adjustments is an
aggregate amount of $8.1 million in reductions to income taxes, representing
reversals of previously reported tax provisions.
The following table sets forth the effects of these adjustments on the
Company's financial position and results of operations (in thousands except per
share data):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 31, -------------------------------
1996 1996 1995 1994
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales:
As previously reported.......................... $ 30,192 $37,848 $12,445 $ 8,213
As adjusted..................................... 17,370 33,412 8,982 7,801
Cost of goods sold:
As previously reported.......................... 17,978 23,636 6,833 4,523
As adjusted..................................... 15,582 29,778 11,575 6,508
Net income (loss):
As previously reported.......................... 5,805 4,902 874 464
As adjusted..................................... (16,221) (4,282) (5,852) (1,672)
Net income (loss) per share:
As previously reported.......................... .33 .34 .08 .07
As adjusted..................................... (.94) (.31) (.63) (.19)
Total assets:
As previously reported.......................... 89,952 55,782 18,199 7,553
As adjusted..................................... 58,320 41,132 9,550 5,203
Total stockholders' equity:
As previously reported.......................... 70,874 46,045 12,445 6,419
As adjusted..................................... 36,611 31,909 4,267 4,315
</TABLE>
35
<PAGE> 36
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the summary of restatement adjustments (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 31, -------------------------------
1996 1996 1995 1994
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Adjustments attributable to Centennial
Technologies, Inc.:
Reversal of invalid sales transactions............ $ (5,283) $(3,714) $(3,455) $ (413)
Reversal of bill and hold sales transactions...... (6,432) -- -- --
Reclassification of purchasing agency
arrangement..................................... (968) (585) -- --
Additional accounts receivable adjustments........ (239) (136) (9) --
-------- ------- ------- -------
Total adjustments to sales........................ (12,922) (4,435) (3,464) (413)
Corrections to inventory pricing and physical
counts.......................................... (1,336) (2,202) (4,560) (1,410)
Restoration of inventory related to bill and hold
sales transactions.............................. 3,435 -- -- --
Additional provisions for inventory
obsolescence.................................... (925) (1,351) (78) (381)
Reversal of certain additions to capital
equipment, net of related depreciation, which
were not bona fide.............................. (72) (2,266) (223) (177)
Provision for losses on investment activities..... (10,811) (1,496) -- --
Pre-acquisition advances to subsidiary............ (2,385) (1,101) -- --
Other adjustments, net............................ (568) 399 1,043 (211)
Reversal of provisions for income taxes........... 3,788 3,268 556 455
-------- ------- ------- -------
Total adjustments to net income (loss)............ (21,796) $(9,184) $(6,726) $(2,137)
======= ======= =======
Adjustments attributable to Century Electronics
Manufacturing, Inc.............................. (358)
--------
Total adjustments to net income (loss)............ $(22,154)
========
</TABLE>
As outlined in the criminal indictment of Centennial's former Chief
Executive Officer, the Company's sales figures were inflated in previous
periods. This inflation was achieved by various means, including shipping empty
PC card housings; billing customers for non-existent products; using the
delivery of non-product materials to generate shipping documents, which were
then used to create fictitious invoices; and the payment of these invoices with
funds apparently provided by the Company's former Chief Executive Officer.
Reported revenue figures have also been corrected to exclude bill and hold
transactions which did not meet revenue recognition criteria for the periods in
which they were recorded, and to reclassify transactions related to a purchasing
agency contract with an affiliated company.
Adjustments to the Company's physical inventory balances are attributable
to prior manipulation of physical counts, the inclusion of empty PC card
housings in the Company's finished goods balances, various pricing errors and
manipulations, and the Company's prior failure to adequately reflect actual
usage information in providing reserves for inventory obsolescence.
The Company has also reduced or written off the carrying value of several
of its investments in and advances to related technology companies. With regard
to the Company's advances to its recently acquired subsidiaries, Intelligent
Truck Project, Inc. and Fleet.Net, Inc., the Company has recorded a charge of
$3.5 million, equal to advances to these companies between April 1996 and
December 31, 1996 previously characterized as prepaid technology license fees,
as costs and expenses in the periods in which those advances were made. The
Company has also recorded valuation reserves and related accruals amounting to
$5.8 million related to several of its loans to and/or investments in technology
companies. In addition, the Company has
36
<PAGE> 37
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reached agreements to settle claims related to its investments in Infos
International, Inc. and P.G. Technologies, Inc. and has recorded a full
write-off of its investments in these entities of $6.0 million and $0.5 million,
respectively.
3. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES
Industry Segment
The Company operates in a single industry segment: the design and
manufacture of high-technology memory chip based products used in industrial and
commercial applications.
Revenue Recognition
Revenue from product sales is recognized at time of shipment.
Warranty Costs
The Company offers a limited warranty, ranging from one to two years, on
materials and workmanship for certain of its products. Costs relating to product
warranty are generally accrued at time of shipment. In addition, on sales to
certain wholesalers, the Company offers a stock rotation policy under which the
Company accepts returns on certain merchandise within two months of shipping for
merchandise or credit toward future orders, and accepts returns after two months
but within six months of shipping for merchandise credit minus a 15% restocking
charge. The Company has not experienced material costs associated with its
warranty and restocking policy.
Research and Development Costs
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
has no requirements for compensating balances.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade receivables. If any
of the Company's major customers fail to pay the Company on a timely basis, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
For fiscal 1997, two customers accounted for approximately 54% of the
Company's sales. At March 31, 1997, these customers accounted for approximately
$3.0 million, or 54% of the Company's net accounts receivable balance.
For fiscal 1996, two customers accounted for approximately 28% of the
Company's sales. At June 30, 1996, these two customers accounted for
approximately $4.7 million, or 42% of the Company's net accounts receivable
balance.
For the nine months ended March 31, 1996, two customers accounted for
approximately 25% of the Company's sales. At March 31, 1996, these customers
accounted for approximately $1.8 million, or 23% of the Company's accounts
receivable balance.
37
<PAGE> 38
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No one customer or group of related customers accounts for more than 10% of
the Company's sales in fiscal 1995 and 1994.
Approximately 8%, 12%, 19% and 22% of the Company's sales in fiscal 1997,
1996, 1995 and 1994, respectively, were outside the United States, primarily in
several Western European countries, Israel and Canada. No one area comprised
more than 10% of the Company's sales.
A substantial portion of the Company's assets are associated with Century
Electronics Manufacturing, Inc., ("Century"). See Note 8. Any material adverse
change in the business of Century could have a material adverse effect on the
Company's business, financial condition and results of operations.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, available-for-sale securities, accounts receivable, notes
receivable, accounts payable and other accrued expenses, the carrying amounts
approximate fair value due to their short maturities. Long-term notes
receivable, investments and notes payable are carried at amounts that
approximate fair value.
Inventories
Inventories are stated on a first-in, first-out basis at the lower of cost
or market.
Equipment and Leasehold Improvements
Equipment is stated at cost. Major renewals and improvements are
capitalized while repair and maintenance charges are expensed when incurred.
Depreciation is provided over the estimated useful life of the respective
assets, ranging from three to ten years, on a straight-line basis. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the related assets. When assets are sold or retired,
their cost and related accumulated depreciation are removed from the accounts.
Any gain or loss is included in the determination of net income.
Income Taxes
The Company accounts for income taxes by the liability method. Under the
liability method, deferred taxes are determined based on the difference between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
Earnings Per Share
Primary earnings per share data are based on outstanding Common Stock and
Common Stock assumed to be outstanding to reflect the dilutive effects of stock
options and warrants using the treasury stock method. Since all periods
presented in these financial statements reflect losses, such common stock
equivalents have been excluded, as they are anti-dilutive.
Stock Split
The Company effected a two-for-one stock split of its outstanding shares of
Common Stock in the form of a stock dividend in November 1996. All references in
the accompanying consolidated financial statements to number of shares, weighted
average number of shares outstanding and related prices, per share amounts, and
stock plan data reflect this split on a retroactive basis.
38
<PAGE> 39
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
During fiscal 1996, the Company began a strategy of making investments,
financed through a combination of cash and common stock, in technology companies
for the expressed purpose of market development for its PC card business as well
as investment gain. Management has decided to focus its financial resources on
its core business, and to suspend new investment activities. The Company has
written down its portfolio of investments based on an individual assessment of
their future viability.
4. AVAILABLE-FOR-SALE SECURITIES
The Company, in accordance with Statement of Financial Accounting Standards
No. 115, classifies its securities as available-for-sale and are stated at
amortized cost plus accrued interest, which approximate fair market value. Gross
unrealized losses on the securities available-for-sale are not reported as a
separate component of stockholders' equity due to their immateriality. Dividend
and interest income, including amortization of premium and discount arising at
acquisition, are included in income. Available-for-sale securities are
classified as current assets, as they are held to fund current operations.
Available-for-sale securities at June 30, 1996 consist of mortgage
backed-securities with an amortized cost and fair market cost of $4.9 million.
There were no available-for-sale securities at March 31, 1997 or at June 30,
1995. Gross realized gains and losses are immaterial to the Company's operating
results.
5. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1997 1996 1995
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Raw material, primarily electronic components............... $ 3,995 $4,967 $1,143
Work in process............................................. 1,387 882 460
Finished goods.............................................. 2,412 2,399 578
------- ------ ------
$ 7,794 $8,248 $2,181
======= ====== ======
</TABLE>
The Company maintains levels of inventories that it believes are necessary
based upon assumptions concerning its growth, mix of sales and availability of
raw materials. Changes in those underlying assumptions could affect management's
estimates of inventory valuation.
6. NOTES RECEIVABLE
During fiscal 1996, the Company advanced funds to affiliated and
unaffiliated companies, which generally develop technologies complimentary to
that of the Company. At June 30, 1996, the notes receivable balance due from
these companies was approximately $2,680,000. At June 30, 1996, the Company had
a $871,000 reserve against the outstanding note receivable balance. During
fiscal 1997, loans for $2,295,000 were made, loans of $3,689,000 were repaid,
$115,000 was written off and $200,000 was converted into the common stock of the
investee. During fiscal 1997, the Company provided for an additional $100,000
reserve, such that all notes receivable are fully reserved.
39
<PAGE> 40
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
MARCH 31,
1997 1996 1995
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Equipment................................................... $ 2,809 $1,401 $ 747
Equipment under capital leases.............................. 1,214 1,012 320
Leasehold improvements...................................... -- 196 82
------- ------ ------
4,023 2,609 1,149
Accumulated depreciation and amortization................... 936 576 227
------- ------ ------
$ 3,087 $2,033 $ 923
======= ====== ======
</TABLE>
During fiscal 1997, the Company wrote off $80,000 of net book value of
leasehold improvements in connection with its move to new facilities.
Depreciation expense for fiscal 1997, 1996, 1995 and 1994 was approximately
$702,000, $348,000, $152,000, and $59,000, respectively. Depreciation expense
for the nine months ended March 31, 1996 was approximately $240,000.
8. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.
In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").
Pursuant to a joint venture agreement executed in May, 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital into its 51%
owned contract manufacturing joint venture in Thailand. The Company's joint
venture partner's initial capital contribution was $3.7 million.
On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.
On March 14, 1997, Century entered into an agreement in principal with the
Company, whereby Century agreed to redeem a portion of its shares in exchange
for $1.3 million in cash and a $6.0 million subordinated debenture, reducing the
Company's equity ownership position to 45%. The debentures bear interest at a
rate of 6% and mature in ten years. Under certain conditions, the debentures
will be convertible into the capital stock of an entity with which Century may
merge. In addition, the Company agreed to contribute to Century its interest in
the Thailand joint venture. Century also agreed to repay an 8.5% note payable to
Centennial in the amount of $4.1 million and to take the necessary steps to
remove all outstanding guarantees of third-party indebtedness.
On June 30, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the
40
<PAGE> 41
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
underlying equipment to Century for $0.5 million in cash and a $1.9 million 9%
promissory note due December 1998. See Note 8 of Notes to Unaudited Consolidated
Financial Statements.
The following table presents summary financial information for Century (in
thousands):
<TABLE>
<CAPTION>
BALANCE SHEET DATA
MARCH 31, 1997
<S> <C>
Current assets..................................................... $36,043
Goodwill........................................................... 14,044
Total assets....................................................... 62,550
Current liabilities................................................ 32,295
Working capital.................................................... 3,748
Stockholders' equity............................................... 22,035
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
FROM DATES OF ACQUISITION TO MARCH 31, 1997
<S> <C>
Sales.............................................................. $44,346
Gross margin....................................................... 3,908
Net income......................................................... 224
</TABLE>
The Company had sales to Century of $120,000 during the period. Century is
amortizing goodwill over a 10-year period.
9. OTHER INVESTMENTS
ViA, Inc.
In December 1996, the Company issued 156,000 unregistered shares of its
Common Stock in exchange for a 12% interest in ViA, Inc. a privately held
technology company that designs, develops, and markets miniature communication
and computing products. Due to the significance of the Company's investment to
ViA's total capitalization and on the basis of the complementary nature of the
companies' products and related development plans, Centennial is accounting for
this investment using the equity method, and is amortizing the purchase price in
excess of its interest in the investee's underlying net assets, which excess
amounted to $5.0 million, over 60 months. The Company has recorded this
amortization, as well as its share of the investee's losses since the date of
the investment, for an aggregate amount of $585,000 as loss on investment
activities.
Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas,
Inc.
On December 13, 1996, the Company completed merger agreements with
Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas, Inc.
(collectively, "ITP/Fleet.Net") agreeing to exchange 792,960 shares of Common
Stock of the Company for all of the outstanding common stock of the acquired
businesses. Subsequent to the Company's February announcement of financial
irregularities, the principal shareholder of ITP/Fleet.Net filed suit, alleging,
among other things, breach of representations and warranties as to the financial
statements of Centennial. On March 4, 1997, the Company and the principal
shareholder of ITP/Fleet.Net entered into a memorandum of understanding pursuant
to which the companies would unwind the merger agreements. The parties were
unable to reach mutually satisfactory terms to complete the unwinding and on May
15, 1997 agreed to complete the merger and exchange mutual releases of certain
claims. Based on the material uncertainties surrounding the value of
consideration on the original merger date, which uncertainties were not resolved
until the execution of a settlement and mutual release agreement, the Company
has recorded the merger and corresponding issuance of Common Stock as of May 15,
1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997, certain
of which were previously
41
<PAGE> 42
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
characterized as advance payments for technology license arrangements, have been
included in loss on investment activities in the periods the advances were made.
The merger will be recorded using purchase accounting, and the excess
(approximately $3.0 million) of the purchase price over the fair value of assets
acquired will be written off as of the agreement date (May 15, 1997) because of
the uncertainties related to the future operations of ITP/Fleet.Net.
Infos International, Inc.
During fiscal 1997, the Company acquired a 38% interest in Infos
International, Inc., a supplier of intelligent hand held data collection
equipment for route and shop floor accounting. The purchase price amounted to
approximately $3.0 million in cash and 230,000 shares of Centennial Common Stock
having a fair market value of $3.9 million at date of acquisition. On May 14,
1997, the Company and shareholders of Infos reached an agreement in principal
whereby the Company would return its shares of Infos in exchange for the shares
of Centennial Common Stock issued and a three year warrant to acquire shares of
Infos equal to up to 15% of the then outstanding common stock of Infos with
certain limitations. The parties have also agreed to exchange mutual releases of
any claims arising from the original acquisition agreement. Since Infos is a
privately-held company, there is no available market information in order to
ascribe value to the warrants, and current financial information is not
presently available. Accordingly, the full amount of the investment cost ($7.0
million) has been written off. The recorded loss of $6.0 million reflects the
use by Infos of $1.0 million of the original cash proceeds to repay an
obligation of that amount due to Centennial from an Infos subsidiary,
Information Capture Corporation ("ICC"). This obligation originally arose in
fiscal 1995, prior to Infos acquiring ICC, in connection with a sales
transaction that was determined in the Company's special investigation not to be
bona fide. The effect of the adjustment is to reflect $1.0 million of the
investment cost as a reduction of sales and net income in fiscal 1995 and the
remainder as loss on investment activities in fiscal 1997.
Industrial Imaging, Inc.
The Company purchased for $730,000 in cash and conversion of $200,000 of
notes a minority interest in a corporation now known as Industrial Imaging, Inc.
which designs, manufactures and markets automated optical vision and individual
imaging systems for inspection and identification of defects in printed circuit
boards. In addition, effective April 1, 1996 and expiring June 30, 1997, the
Company agreed to provide procurement services and buy material using the
Company's credit arrangements for a service fee of $200,000. Purchases
aggregating $1.4 million were made on behalf of the investee and were initially
reflected by the Company as sales with an equivalent amount of cost of goods
sold. Such sales have been reversed in connection with the Company's financial
review. During fiscal 1997, the Company determined that the investee was unable
to repay the Company for the material purchased, and also determined that the
value of the equity investment was permanently impaired. The Company has agreed
to convert its accounts receivable into common stock of the investee and has
recorded a valuation reserve equal to the carrying value of the investment.
WebSecure, Inc.
During fiscal 1996 the Company purchased for $569,000 a minority interest
in WebSecure, Inc., a corporation which provides Internet services. The former
president and a shareholder of WebSecure was a Director of the Company from
February 1994 through November 1995. In connection with WebSecure's initial
public offering, the Company realized a gain of $1.2 million from the sale of a
portion of its investment. The remaining investment, having a cost of $560,000,
has been fully reserved on the basis that its value appears to have been
permanently impaired. In addition, the Company has deferred recognition of the
gain pending final resolution of certain litigation described in Note 17.
42
<PAGE> 43
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Investments
During fiscal 1996, the Company purchased for $250,000 a minority interest
in a corporation which designs, manufactures and markets small form factor
computer hard drives. This technology, when and if implemented, could be used to
increase the speed and processing capabilities of PC Cards. During fiscal 1997,
the Company increased its investment by $164,000. This investment is accounted
for using the cost method.
During fiscal 1997 and 1996, the Company made investments aggregating
$860,000 in development stage businesses that have not yet reached commercial
viability. Such investments have been fully reserved as of March 31, 1997, net
of certain offsets included in accounts payable and accrued expenses.
During fiscal 1996, the Company purchased for $250,000 a minority interest
in a holding company of various technology-related corporations and loaned to
the investee an additional $1.0 million. The Company believes that the initial
investment objectives were not bona fide, and that the investment has been
permanently impaired. Accordingly, these investments have been reflected in loss
on investment activities in fiscal 1996, excluding $250,000 that was repaid by
the investee in January 1997.
During fiscal 1996, the Company purchased a minority interest for $396,500
in a corporation that develops, manufactures and markets products for vehicle
and fleet management. In addition, the Company loaned $100,000 to the investee.
The carrying cost of this investment and loan was written off in fiscal 1996 and
the shares were returned to the investee in May 1997 pursuant to a settlement
and mutual release agreement.
During fiscal 1994, the Company exchanged 27,000 shares of the Company's
Common Stock for all the outstanding shares of a company located in the United
Kingdom. The acquisition was accounted for as a pooling of interests.
10. DEBT
Note Payable
The Company has a revolving line of credit agreement with a bank that
limits borrowings to a percentage of receivables and inventories and contains
certain covenants relating to the Company's net worth and indebtedness, among
others. This credit agreement is collateralized by substantially all the assets
of the Company. On February 14, 1997, the Company received a notice of default
and on March 18, 1997 entered into a forbearance agreement whereby the bank
agreed to continue to extend credit under certain conditions. The forbearance
agreement has been subsequently extended to July 31, 1997. The defaulted credit
agreement bears interest at the bank's prime interest rate (8.25% and 9.0% at
June 30, 1996 and 1995, respectively). The forbearance agreement sets the
interest rate at 9.5%. The Company is currently negotiating financing
arrangements with a new lender. See Note 18. At March 31, 1997, June 30, 1996
and 1995, the Company had utilized approximately $10.1 million, $4.7 million and
$1.2 million, respectively, under these credit agreements.
Proposal from Congress Financial Corp.
On May 7, 1997, the Company received a non-binding proposal from Congress
Financial Corp. ("Congress Financial"), a commercial credit institution, for a
revolving credit facility and term loan facility.
On July 18, 1997, the Company received a commitment letter from Congress
Financial, subject to satisfaction of certain conditions and completion of
documentation, for a revolving credit facility and term loan facility of up to
$4.1 million and $0.9 million, respectively, and a $2.0 million capital
equipment acquisition facility, based on certain limitations and covenants.
Allowable borrowings would be based on available accounts receivable and the
cost of equipment, and would be secured by all of the Company's assets. The
Company expects to complete negotiations on the new borrowing facility before
the expiration of the
43
<PAGE> 44
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
forbearance agreement relating to its existing credit facility. Although the
Company believes it will successfully accomplish the refinancing, the commitment
letter contains conditions to refinancing, and if the refinancing were not
effected, the Company would be obliged to seek alternative sources of financing.
There can be no assurance that such alternative sources of financing will be
available.
Capital Leases
The Company leases certain equipment under three year lease financing
agreements with the bank that is currently providing the Company with its line
of credit. These lease arrangements have been accounted for as financing
transactions. The subject equipment is recorded as an asset for financial
statement purposes, and is being depreciated accordingly. These equipment leases
were included in the aforementioned notice of default and forbearance agreement
and, accordingly, have been classified as current liabilities at March 31, 1997.
The Company leases its facilities under operating leases with renewal
options, which expire at various dates through 2001. Under certain leases, the
Company is obligated to pay its pro-rata share of operational and maintenance
costs.
At March 31, 1997, the minimum annual rental commitments under
non-cancelable lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending March 31,
1998................................................................ $ 671 $ 427
1999................................................................ -- 242
2000................................................................ -- 231
2001................................................................ -- 233
2002................................................................ -- 238
----- -------
Total minimum lease payments........................................ $ 671 $ 1,371
===== =======
</TABLE>
Rental expense under operating leases totaled approximately $312,000,
$396,000, $330,000 and $229,000 in fiscal 1997, 1996, 1995 and 1994,
respectively. Rental expense for the nine months ended March 31, 1996 was
$285,000.
11. INCOME TAXES
The loss before income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
----------- ---------------------------
1997 1996 1995 1994
----------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S............................................ $ (42,104) $(4,052) $(5,668) $(1,695)
Foreign........................................ (558) (230) (184) 23
--------- ------- ------- -------
$ (42,662) $(4,282) $(5,852) $(1,672)
========= ======= ======= =======
</TABLE>
44
<PAGE> 45
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to loss before income taxes as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
----------- -------------------------
1997 1996 1995 1994
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Tax benefit at U.S. statutory rates............ (34.0)% (34.0)% (34.0)% (34.0)%
State taxes net of federal benefit............. (6.1) (6.1) (6.1) (6.1)
Change in valuation allowance.................. 39.8 57.2 40.1 30.9
Valuation allowance related to stock options... -- (18.1) -- --
Other.......................................... 0.3 1.0 -- --
----- ----- ----- -----
--% --% --% (9.2)%
===== ===== ===== =====
</TABLE>
The components of deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts......................... $ 95 $ 92 $ 49
Notes receivable reserve................................ 391 351 --
Inventory reserve and capitalization.................... 1,065 982 144
Investment reserve...................................... 5,235 503 --
Accrued expenses........................................ 139 42 6
Equipment, net.......................................... 276 209 4
Net operating losses.................................... 15,497 3,438 2,901
--------- -------- --------
22,698 5,617 3,104
Less valuation allowance................................ (22,698) (5,617) (3,104)
--------- -------- --------
Net deferred taxes...................................... $ -- $ -- $ --
========= ======== ========
</TABLE>
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are comprised
principally of net operating losses and reserves. Management has considered the
Company's history of losses and concluded that there is insufficient evidence
that it is more likely than not that the Company will generate future taxable
income prior to the expiration of these net operating losses in 2010.
Accordingly, the deferred tax assets have been fully reserved.
At March 31, 1997, the Company had federal net operating loss carryforwards
of approximately $17.7 million available to offset future taxable income
expiring in 2010 through 2012. Approximately $2.1 million of the Company's net
operating loss is attributable to the exercise of stock options which, when
utilized, will be credited to additional paid-in capital. Additionally, the
Company has a net operating loss of approximately $1.2 million available to
offset future taxable income in foreign jurisdictions.
45
<PAGE> 46
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Trade accounts payable..................................... $ 4,766 $2,865 $3,303
Deferred gain on sale of securities........................ 1,200 -- --
Accrued special investigation costs........................ 2,033 -- --
Cash portion of settlement of shareholder litigation....... 1,475 -- --
Other accrued expenses..................................... 2,409 811 562
------- ------ ------
Total accounts payable and accrued expenses...... $11,883 $3,676 $3,865
======= ====== ======
</TABLE>
Accrued special investigation costs represent professional and legal fees
in connection with the completion of the Company's special investigation,
certain refinancing activities, and legal fees associated with the pending
shareholder litigation. See Note 17.
13. STOCKHOLDERS' EQUITY
In April 1994, the Company completed the initial public offering of
3,000,000 shares of its Common Stock and warrants to purchase 2,000,000 shares
of redeemable Common Stock (the "Redeemable Warrants"). The offering resulted in
the proceeds to the Company of approximately $4,664,000. Each Redeemable Warrant
enabled the holder to purchase three shares of Common Stock for $3.60 per share.
In connection with the Company's initial public offering, the Company issued
warrants to the representative of the underwriters (the "Representative's
Warrants") to purchase 600,000 shares of Common Stock for the offering at an
average price of $3.075 per share.
The Redeemable Warrants were redeemable by the Company, in whole or in
part, at $.10 per Redeemable Warrant, provided that the closing price of the
Common Stock as quoted on the American Stock Exchange equaled or exceeded $3.00
per share for 10 consecutive trading days. If any Redeemable Warrant called for
redemption were not exercised, it would have ceased to be exercisable and the
holder would have only been entitled to the redemption price of the Redeemable
Warrant.
In fiscal 1995, Redeemable Warrants to purchase 1,436,176 shares of the
Company's Common Stock were exercised, resulting in net proceeds to the Company
of approximately $3.2 million. In fiscal 1996, Redeemable Warrants to purchase
2,013,794 shares of the Company's Common Stock were exercised, resulting in net
proceeds to the Company of approximately $4.6 million. At June 30, 1996, none of
the Redeemable Warrants were outstanding.
In fiscal 1995, Representative's Warrants to purchase 189,900 shares of the
Company's Common Stock were exercised, resulting in net proceeds to the Company
of approximately $569,000. In fiscal 1996, Representative's Warrants to purchase
203,100 shares of the Company's Common Stock were exercised, resulting in net
proceeds to the Company of approximately $603,000. In fiscal 1997,
Representative's Warrants to purchase 172,000 shares of the Company's Common
Stock were exercised, resulting is net proceeds to the Company of approximately
$518,000. At March 31, 1997, none of the Representative's Warrants were
outstanding.
In fiscal 1995, the Company sold 450,000 shares of Common Stock at $2.92
per share to unaffiliated third parties, resulting in net proceeds to the
Company of approximately $1,140,000.
In March 19, 1996, the Company conducted a public offering of 1,350,000
shares of its Common Stock resulting in net proceeds to the Company of
approximately $20.9 million. In April 1996, the underwriters
46
<PAGE> 47
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercised their option to purchase 75,000 shares of Common Stock to cover
over-allotments, resulting in net proceeds to the Company of approximately $1.2
million.
14. STOCK OPTION PLANS
Under the Company's 1994 Stock Option Plan (the "Plan"), incentive and
non-qualified stock options may be granted to employees, officers, directors and
consultants of the Company. The Company initially reserved 750,000 shares of
Common Stock for issuance under the Plan. During fiscal 1997, the amount
reserved for issuance was increased to 1,500,000 shares. The Board of Directors
intends to seek approval at the earliest opportunity to increase the number of
shares of Common Stock authorized for issuance under the Plan to 3,000,000
shares to give effect to the two-for-one stock split effected in November 1996.
These options generally vest over a three-year period and expire after 10 years.
On December 6, 1994, the Company's stockholders adopted a formula stock
option plan (the "Formula Plan"), which is designed to provide certain
incentives to non-employee directors. Under the Formula Plan, options will be
granted pursuant to a formula that determines the timing, pricing and amount of
the option awards using objective criteria. The Company has reserved 180,000
shares of Common Stock for issuance under the Formula Plan. The exercise price
of the options granted to a non-employee director upon election as a director
was 85% of the fair market value of the shares of Common Stock on the date of
the grant. During fiscal 1997, the Formula Plan was amended to provide that
options are granted at fair market value. These options vest and are exercisable
on the date of grant and expire after 10 years. All other options granted under
the Formula Plan vest and are exercisable one year from the date of the grant.
During fiscal 1995, pursuant to the Formula Plan, non-employee directors were
granted options aggregating 105,000 shares of Common Stock of the Company at
prices ranging from $2.33 to $5.95 per share. During fiscal 1996, non-employee
directors were granted options to purchase 18,000 shares of the Company's Common
Stock at prices ranging from $7.52 to $8.07 per share. During fiscal 1997,
non-employee directors were granted options to purchase 21,000 shares at prices
ranging from $12.89 to $29.38.
In addition, during fiscal 1997, the Company granted options to acquire
850,000 shares outside of the Company's stock option plans, exercisable at
$20.53 or $24.66 per share, of which 700,000 options were granted to four
directors (two of whom are no longer directors) and the balance to employees of
the Company; the vesting period for these options range from one-third
immediately upon grant to three years, and the options expire in ten years.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in fiscal 97 and has applied APB Opinion 25 and related
Interpretations in accounting for its plans. Compensation costs of $34,000,
$20,000 and $53,000 has been recognized for the nine months ended March 31,
1997, fiscal 96 and fiscal 95, respectively. No compensation cost was recognized
for the nine months ended March 31, 1996. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates as calculated in accordance with SFAS 123, the Company's net
loss and net loss per share for the nine months ended March 31, 1997 and for
fiscal 1996 would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
NET LOSS NET LOSS
------- NET LOSS ------- NET LOSS
(IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
As Reported.......................... $(42,662) $ (2.46) $ (4,282) $(.31)
Pro forma............................ $(48,591) $ (2.80) $ (5,014) $(.37)
</TABLE>
47
<PAGE> 48
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 5 years, expected volatility of 55.0%, no
dividends and a risk-free interest rate of 6.2% and 5.9% for the nine months
ended March 31, 1997 and fiscal 1996, respectively.
A summary of the status of the Company's stock option plans as of December
31, 1996, 1995 and 1994 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------ -----------------------
AVERAGE PRICE AVERAGE PRICE AVERAGE PRICE
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
--------- ------------- -------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period......... 986,200 848,800 0
Granted....................... 1,075,100 $ 21.78 659,800 $7.77 981,900 $1.91
Exercised..................... (281,100) $ 12.60 (382,400) $1.85 (79,500) $1.92
Cancelled..................... (600) $2.77 (140,000) $3.85 (53,600) $1.75
--------- ------ -------- ----- ------- -----
Outstanding at period end..... 1,779,600 $ 14.26 986,200 $5.59 848,800 $1.92
Options exercisable at March
31, 1997.................... 569,330 152,500 155,000
Fair value of options granted
during the year............. $ 11.79 $4.21
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.75-$2.77 253,300 7.5 years $ 1.83 127,500 $ 1.87
$ 6.40-$13.88 605,400 9 years $ 8.21 322,478 $ 7.85
$ 20.50-$29.38 920,900 9.25 years $21.67 119,352 $20.98
$ 1.75-$29.38 1,779,600 8.75 years $14.26 569,330 $ 9.26
</TABLE>
Subsequent to March 31, 1997, the exercise price of options granted on
October 1, 1996 to purchase approximately 488,000 shares of Common Stock were
repriced from $20.53 to $2.30, and the vesting period for exercise of such
options was extended.
15. RELATED PARTY TRANSACTIONS
During fiscal 1997, 1996, 1995 and 1994, the Company rendered invoices for
non-existent products to certain businesses which appear to have been under the
control or influence of Centennial's former Chief Executive Officer. These sale
transactions have been reversed in connection with the restatement of the
Company's financial statements. See Note 2. In certain instances, these invoices
were paid with funds that appear to have originated from the former Chief
Executive Officer. The proceeds to the Company related to these transactions,
which amounted to $2,254,000 in fiscal 1997, $3,091,000 in fiscal 1996, $653,000
in fiscal 1995 and $31,000 in fiscal 1994, have been reflected in the
accompanying financial statements as additional paid-in-capital.
During fiscal 1996, the Company advanced approximately $514,000 to five
executive officers of the Company. At June 30, 1996, the balance due from these
executives was approximately $202,000. These demand loans bear interest at 9%
per annum and have been classified as other current assets in the accompanying
consolidated financial statements. In August 1996, notes aggregating $170,000
plus interest were repaid. In June 1997, the Company agreed to forgive the
remaining $32,000.
48
<PAGE> 49
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SAVINGS PLAN
In fiscal 1994, the Company established a 401(k) Savings Plan under which
substantially all U.S. employees may voluntarily defer a portion of their
compensation and the Company may elect to match a portion of the employee
deferral. The Company has made no contributions to this plan.
17. CONTINGENCIES
Class Action Litigation. Since the Company's announcement on February 11,
1997 that it was undertaking an inquiry into the accuracy of its prior reported
financial results, and that preliminary information had raised questions as to
whether reported results contained material misstatements, approximately 35
purported class action lawsuits have been filed in or transferred to the United
States District Court for the District of Massachusetts. These complaints assert
claims against the Company under Section 10(b) of the Securities Exchange Act of
1934 (the "1934 Act") and Rule 10b-5 promulgated thereunder, and related state
law claims of fraud, deceit and negligent misrepresentation. The complaints also
assert claims against some or all of the Company's Board of Directors, and some
complaints assert claims against certain of the Company's nondirector officers,
under Section 20(a) of the 1934 Act, as well as the same state law claims
asserted against the Company. The Company's independent accountants, Coopers &
Lybrand, L.L.P. ("Coopers & Lybrand"), the Company's lead underwriter for its
March 1996 subsequent public offering, Needham & Company, Inc., and a financial
advisory subscription company, Cabot Heritage Corporation, have also been named
in some of the suits. These class action lawsuits were purportedly brought by
and on behalf of purchasers of the Company's Common Stock between the Company's
initial public offering on April 12, 1994 and February 10, 1997 (the "Centennial
Securities Litigation").
On February 20, 1997, the Company received a subpoena from the United
States Department of Justice ("DOJ") to produce documents in connection with a
grand jury investigation regarding various irregularities in the Company's
previous press releases and financial statements. The DOJ also requested certain
information regarding some of the Company's former officers, certain stock
transactions by the Company's former Chief Executive Officer, and correspondence
with the Company's auditors. The Company has not been notified by the DOJ that
it is a target or subject of this investigation.
On and after February 26, 1997, four Complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased the Company's Common Stock on
February 25, 1997. The Complaint also names the Company's Interim Chief
Executive Officer, Lawrence J. Ramaekers, and alleges violations of Sections
10(b) and 20(a) of the 1934 Act (the "February 25 Securities Litigation").
In mid-February 1997, the Company was notified that the Boston District
Office of the SEC was conducting an investigation of the Company. The SEC has
requested that the Company provide the SEC with certain documents concerning the
Company's public reports and financial statements. The SEC indicated that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations have occurred, or as a reflection upon the merits of the
securities involved or upon any person who effected transactions in such
securities. The Company is cooperating with the SEC in connection with this
investigation, the outcome of which cannot yet be determined.
On and after March 26, 1997, several complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased stock of WebSecure, Inc.
("WebSecure") between December 5, 1996 and February 27, 1997 (the "WebSecure
Complaints"). The WebSecure Complaints assert claims against WebSecure, certain
officers, directors and underwriters of WebSecure, and the Company. Claims
against the Company include alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "1933 Act") (the "WebSecure Securities Litigation").
49
<PAGE> 50
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's common stock seeking recovery for certain
alleged breach of fiduciary duties, alleged gross negligence alleged breach of
contract and alleged insider trading by members of the Company's Board of
Directors between August 21, 1996 and February 10, 1997 (the "Derivative
Litigation").
On June 18, 1997, the Company announced that it had reached an agreement in
principle to settle the Centennial Securities Litigation, the February 25
Securities Litigation and the Derivative Litigation. This agreement in principle
contemplates that the Company and certain of its officers and directors would be
released from liability arising from the allegations included in these suits. In
return, the Company would agree to pay to the plaintiffs in the Centennial
Securities Litigation and the February 25 Securities Litigation the proceeds, if
any, of any recovery from the Company's directors and officers liability
insurance policies, and an additional $1.45 million in cash. The Company would
also agree to issue to these plaintiffs 37% of the Company's Common Stock. The
Company also expects to adopt certain agreed upon corporate governance policies
and procedures. The plaintiffs would retain their claims against the Company's
former Chief Executive Officer, Emanuel Pinez, and the Company's former Chief
Financial Officer, James M. Murphy.
The plaintiffs in the February 25 Securities Litigation have not yet
reached an agreement with the Company's Interim Chief Executive Officer,
Lawrence J. Ramaekers, regarding their alleged claims against him. These
plaintiffs have agreed in principle to release the Company from any direct
liability related to those alleged claims. In the agreement under which Mr.
Ramaekers is providing services to the Company, the Company agreed to provide
Mr. Ramaekers with the same indemnification as is applicable to other officers
of the Company pursuant to the Company's By-Laws. The Company has agreed to
indemnify, hold harmless, and defend Mr. Ramaekers from and against certain
claims arising out of his engagement with the Company.
On June 19, 1997, the Company announced that it had reached an agreement in
principle to settle the WebSecure Securities Litigation. The agreement in
principle contemplates that the Company and certain of its officers and
directors would be released from any and all liability arising from the
allegations included in the WebSecure Securities Litigation in return for the
issuance to the WebSecure Securities Litigation class of 345,000 shares of the
Company's Common Stock and the payment to the class of up to $50,000 for notice
and administrative costs.
As of March 31, 1997, the Company has recorded a provision for the
potential settlement of the Centennial Securities Litigation of $20.0 million,
representing the cash portion of the potential settlement, together with an
amount equal to 37% of the estimated market capitalization of the Company. The
cash portion ($1,475,000) of the potential settlement is included in accounts
payable and accrued expenses and the Common Stock portion ($18,525,000) is
included in additional paid-in capital.
A number of material terms remain to be negotiated regarding the Centennial
Securities Litigation, the February 25 Securities Litigation, the Derivative
Litigation, and the WebSecure Securities Litigation. A binding commitment to the
terms described above, as well as resolution of other currently unresolved
material terms, must await the execution of final settlement agreements.
Furthermore, any settlement agreement must be submitted to the Court for review
and approval and, thereafter, presented to class members for consideration. If a
sufficiently large number of class members opt not to participate in the
settlement agreement, the agreement may be withdrawn. No assurance can be given
that the parties will be able to reach such final settlement agreements, that
any such agreements, if reached, will be approved by tff he Court, or that, if
such approval is obtained, that a material number of class members will not
decline to participate in the settlement.
Advent Technology Management, Inc. ("ATM") has purported to exercise an
alleged option to acquire one million shares of the Company's Common Stock in
exchange for certain shares of common stock of WebSecure, Inc. (the
"Securities") which were in the possession of the Company and which ATM asserts
to be the property of ATM. ATM has presented documents to the Company purporting
to show the acknowledgement of Emanuel Pinez as then Chairman and Chief
Executive Officer of the Company to an
50
<PAGE> 51
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arrangement whereby the Company was holding the Securities for the account of
ATM and whereby ATM was given the option to exchange the Securities for 409,600
shares of the Company's Common Stock, and purporting to show the acknowledgement
of James M. Murphy as then Chief Financial Officer of the Company that the
Securities were held for the account of ATM. The records of the Company do not
indicate that the alleged arrangement was ever disclosed to the Company's Board
of Directors or recorded in its financial records. To the contrary, the
Securities were at all times reflected in the financial records of the Company
as the property of the Company and were in part sold by the Company. The Company
does not believe that the arrangement was valid or that the alleged option is
enforceable.
51
<PAGE> 52
CENTENNIAL TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND FISCAL 1996 AND 1995
(UNAUDITED)
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ---------------------------------------- ------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Accounts receivable allowance
Nine months ended March 31, 1997...... $375 $ 400 $ 83 $ 692
Fiscal 1996...... 131 425 181 375
Fiscal 1995...... 100 171 140 131
Notes receivable reserve
Nine months ended March 31, 1997...... $871 $ 100 $ 971
Fiscal 1996...... 0 871 871
Fiscal 1995...... 0 0 0
Investment reserve
Nine months ended March 31, 1997...... $646 $8,023 $8,669
Fiscal 1996...... 0 646 646
Fiscal 1995...... 0 0 0
</TABLE>
52
<PAGE> 53
CENTURY ELECTRONICS MANUFACTURING, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 413
Restricted cash.................................................................. 3,790
Accounts receivable, net of allowances of $32.................................... 13,279
Inventories...................................................................... 16,966
Other current assets............................................................. 1,595
-------
Total current assets............................................................... 36,043
Property, plant and equipment, less accumulated depreciation of $527............... 12,446
Goodwill........................................................................... 14,044
Other assets....................................................................... 17
-------
Total assets....................................................................... $62,550
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and bank overdraft facility........................................ $ 1,015
Notes payable to affiliate....................................................... 4,129
Obligations under capital leases................................................. 1,879
Accounts payable and accrued expenses............................................ 24,156
Accounts payable to affiliate.................................................... 676
Income taxes payable............................................................. 440
-------
Total current liabilities........................................................ 32,295
Mortgage notes payable............................................................. 1,871
Long-term obligations under capital leases......................................... 2,679
Minority interest.................................................................. 3,670
Stockholders' equity:
Common Stock, $.01 par value; 20,000,000 shares Authorized, 11,568,963 shares
issued and outstanding........................................................ 116
Additional paid-in capital......................................................... 22,042
Retained earnings.................................................................. 224
Foreign currency translation....................................................... (347)
-------
Total stockholders' equity......................................................... 22,035
-------
Total liabilities and stockholders' equity......................................... $62,550
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
53
<PAGE> 54
CENTURY ELECTRONICS MANUFACTURING, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<S> <C>
Sales.............................................................................. $44,346
Cost of goods sold................................................................. 40,438
-------
Gross margin............................................................. 3,908
Selling, general and administrative expenses....................................... 3,140
-------
Operating profit......................................................... 768
Net interest expense............................................................... 110
-------
Income before income taxes and minority interest in loss of subsidiary............. 658
Interest in loss of subsidiary attributable minority owner......................... 80
-------
Income before income taxes......................................................... 738
Provision for income taxes......................................................... 514
-------
Net income......................................................................... $ 224
=======
Net income per share............................................................... $ .02
Weighted average shares outstanding................................................ 9,178
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
54
<PAGE> 55
CENTURY ELECTRONIC MANUFACTURING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL PAID-IN RETAINED FOREIGN CURRENCY TOTAL STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION EQUITY
------ ------ ------------------ -------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in
connection with
acquisition of
subsidiaries.......... 11,569 $116 $ 22,042 $22,158
Foreign currency
translation........... $ (347) (347)
Net income.............. $224 224
------ ---- ------- ---- ----- -------
11,569 $116 $ 22,042 $224 $ (347) $22,035
====== ==== ======= ==== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
55
<PAGE> 56
CENTURY ELECTRONICS MANUFACTURING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 224
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization................................................... 2,212
Minority interest............................................................... 80
Other non-cash items............................................................ (140)
Change in operating assets and liabilities:
Accounts receivable.......................................................... (3,800)
Inventories.................................................................. (6,102)
Other assets................................................................. (670)
Accounts payable and accrued expenses........................................ 4,079
Income taxes payable......................................................... 440
Accounts payable to affiliate................................................ 676
--------
Net cash used in operating activities................................... (3,001)
Cash flows from investing activities:
Capital expenditures............................................................ (5,157)
Funds designated for plant expansion............................................ (3,790)
Funds contributed by joint venture affiliate.................................... 3,750
Acquisition of businesses, less cash acquired................................... (6,471)
--------
Net cash used in investing activities................................... (11,668)
Cash flows from financing activities:
Net borrowings under bank overdraft facilities.................................. 392
Proceeds from equipment lease financing......................................... 3,648
Payments on equipment lease financing........................................... (1,114)
Net proceeds from issuance of shares to affiliate............................... 8,374
Proceeds from notes payable to affiliate........................................ 4,129
Foreign currency translation.................................................... (347)
--------
Net cash provided by financing activities............................... 15,082
--------
Net increase in cash.............................................................. 413
Cash and cash equivalents at beginning of period.................................. --
--------
Cash and cash equivalents at end of period........................................ $ 413
========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................................................... $ 190
========
Income taxes................................................................. $ --
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
56
<PAGE> 57
CENTURY ELECTRONICS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Century Electronics Manufacturing, Inc. ("Century" or the "Company") was
formed during fiscal 1997 by Centennial Technologies, Inc. ("Centennial").
The consolidated financial statements of the Company include the accounts
of the Company and all wholly-owned subsidiaries. On March 14, 1997, Centennial
agreed to contribute its interest in its Thailand joint venture to Century and,
accordingly, the accompanying financial statements retroactively include the
accounts of Thailand on a combined basis. All significant intercompany balances
and transactions have been eliminated.
Industry Segment
The Company operates in a single industry segment: contract manufacturing
of high-technology electronics products.
Revenue Recognition
Revenue from product sales is recognized at time of shipment.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
has no requirements for compensating balances.
Restricted Cash
The Company classifies cash held in Thailand by its Thailand joint venture
as cash designated for use by the joint venture and, therefore, as restricted
cash.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade receivables. If any
of the Company's major customers fail to pay the Company on a timely basis, it
could have a material adverse effect on the Company's financial conditions and
results of operations.
During the periods presented from date of acquisition, two customers
accounted for approximately 81% of the Company's sales. At March 31, 1997, these
customers accounted for approximately $8.7 million, or 65% of the Company's
accounts receivable balance.
Approximately 48% of the Company's sales were outside the United States,
primarily in several Western European countries and Israel.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and other accrued expenses,
the carrying amounts approximate fair value due to their short maturities. Notes
payable are carried at amounts that approximate fair value.
Inventories
Inventories are stated on a first-in, first-out (FIFO) basis at the lower
of cost or market.
57
<PAGE> 58
CENTURY ELECTRONICS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Major renewals and
improvements are capitalized while repair and maintenance charges are expensed
when incurred. Depreciation is provided over the estimated useful life of the
respective assets, ranging from three to ten years, on a straight-line basis.
Leasehold improvements are amortized over the lesser of the term of the lease or
the estimated useful life of the related assets. When assets are sold or
retired, their cost and related accumulated depreciation are removed from the
accounts. Any gain or loss is included in the determination of net income.
Goodwill
Goodwill arising from the excess of the purchase price over the fair market
value of tangible assets acquired is being amortized over ten years. It is the
Company's policy to evaluate periodically the carrying value of its intangible
assets and adjustments are made if necessary.
Income Taxes
The Company accounts for income taxes by the liability method. Under the
liability method, deferred taxes are determined based on the difference between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
Earnings Per Share
Primary earnings per share data are based on the average number of
outstanding shares of Common Stock.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. BUSINESS ACQUISITIONS
Design Circuits, Inc.
On July 10, 1996, Centennial acquired a majority interest in Design
Circuits, Inc. ("DCI"), a contract manufacturing business which provides
customized, integrated manufacturing services to original equipment
manufacturers, for approximately $3.2 million in cash, 250,000 shares of
Centennial common stock and the assumption of certain liabilities. The
acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated to tangible assets, based on their fair market
values, and to goodwill.
The Company allocated the purchase price as follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................. $ 5,262
Equipment....................................................... 1,665
Other noncurrent assets......................................... 22
Goodwill........................................................ 9,425
Liabilities assumed............................................. (4,403)
-------
$11,971
=======
</TABLE>
In addition, approximately $2.5 million was recorded by Centennial as
minority interest for the proportionate share of equity held by DCI minority
shareholders.
58
<PAGE> 59
CENTURY ELECTRONICS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1996, Centennial and the minority shareholders of DCI exchanged
their DCI shares for shares of the Company's common stock. The minority
shareholders of DCI received 1,542,828 shares of the Company's common stock in
exchange for their shares of DCI.
Triax Technology Group Limited
On November 5, 1996, the Company acquired Triax Technology Group Limited
("Triax"), a contract manufacturing business located in the United Kingdom for
approximately $4.2 million in cash, 2,239,500 shares of its common stock, and
the assumption of certain liabilities. Centennial also contributed 25,000 shares
of its common stock as a finder's fee. The Company accounted for the transaction
using the purchase method of accounting. The purchase price was allocated to
tangible assets, based on their fair market values, and to goodwill.
The Company allocated the purchase price as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................. $ 16,779
Property, plant and equipment.................................. 6,152
Other noncurrent assets........................................ 505
Goodwill....................................................... 6,299
Liabilities assumed............................................ (20,193)
--------
$ 9,542
========
</TABLE>
In addition, approximately $3.1 million was recorded by Centennial as
minority interest for the proportionate share of equity held by Triax minority
shareholders. Furthermore, Centennial recorded an increase in minority interest
of $1.5 million, which reflected the former DCI minority shareholders'
proportionate interest in the Triax transaction.
Thailand Joint Venture
Pursuant to a joint venture agreement entered into in May, 1996, Centennial
invested $1,250,000 during fiscal 1997 as its initial capital contribution into
its 51% owned contract manufacturing joint venture in Thailand. Centennial's
joint venture partner's initial capital contribution was $3,750,000.
Pro Forma Financial Data
Presented below are pro forma financial data for fiscal 1997 and the year
ended June 30, 1996 reflecting the impact of the acquisitions on the Company's
financial results as if they had occurred as of the beginning of the respective
period (in 000's except for per share data):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Sales.................................................. $54,719 $34,517
Net income (loss)...................................... 240 (2,395)
Net income per share (loss)............................ .02 (.21)
</TABLE>
C. REFINANCING TRANSACTION WITH CENTENNIAL TECHNOLOGIES, INC.
On March 14, 1997, the Company entered into an agreement in principal with
Centennial to redeem a portion of its Century shares in exchange for $1.25
million in cash and a $6.0 million subordinated debenture, reducing Centennial's
equity ownership position to 45%. The debenture bears interest at 6% per annum
and matures in 10 years. Under certain conditions, the debenture will be
convertible into common stock of an entity with which Century may merge. In
addition, Centennial agreed to contribute to Century its interest in the
Thailand joint venture. Century also agreed to repay its 8.5% note payable to
Centennial in the amount
59
<PAGE> 60
CENTURY ELECTRONICS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $4.1 million and to take the necessary steps to remove all outstanding
guarantees of third-party indebtedness.
On June 30, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the underlying equipment to
Century for $0.5 million in cash and a $1.9 million promissory note due December
1998 bearing interest at 9% per annum.
D. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Raw material, primarily electronic components................. $12,177
Work in process............................................... 4,789
Finished goods................................................ --
-------
$16,966
=======
</TABLE>
E. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Equipment..................................................... $ 3,609
Equipment under capital leases................................ 6,030
Leasehold improvements........................................ 688
-------
Land and building............................................. 2,646
-------
12,973
Accumulated depreciation and amortization..................... 527
-------
$12,446
=======
</TABLE>
Depreciation expense for fiscal 1997 was approximately $527,000.
F. DEBT
Mortgage
The Company has a $1,871,000 mortgage secured by land and building and
certain endowment insurance policies. The mortgage bears interest at 12% and is
repayable in September 2007 in a balloon payment.
Capital Leases
The Company leases certain equipment under lease financing agreements.
These lease arrangements have been accounted for as financing transactions. The
subject equipment is recorded as an asset for financial statement purposes, and
is being depreciated accordingly.
60
<PAGE> 61
CENTURY ELECTRONICS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1997, the minimum annual rental commitments under
non-cancelable lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
Year ending March 31,
1998......................................................... $2,174 $143
1999......................................................... 2,123
2000......................................................... 780
------ ----
Total minimum lease payments................................... 5,077 $143
====
Less amounts representing interest............................. (519)
------
Present value of future minimum lease payments................. 4,558
Less current portion........................................... (1,879)
------
$2,679
======
</TABLE>
Rental expense under operating leases totaled approximately $184,000 in
fiscal 1997.
G. INCOME TAXES
Income before income taxes consisted of the following (in thousands):
<TABLE>
<S> <C>
U.S.............................................................. $ (280)
Foreign.......................................................... 1,018
------
$ 738
======
</TABLE>
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<S> <C>
Federal........................................................... $ 60
State............................................................. 14
Foreign........................................................... 440
----
$514
====
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before taxes as follows:
<TABLE>
<S> <C>
Federal tax expense at statutory rate............................. 34.0%
State income taxes, net of federal benefit........................ 1.3
Non-deductible expenses........................................... 46.8
Difference in tax rates of foreign jurisdictions.................. 16.3
Valuation allowance and other..................................... (28.8)
-----
69.6%
=====
</TABLE>
As of March 31, 1997, the Company had a Federal net operating loss ("NOL")
carryforward of approximately $5,218,000, which will expire at various dates
through 2012. The NOL relates to an acquired business, and occurred prior to
such acquisition. Accordingly, realization of the NOL, if any, will be first
applied as a reduction of goodwill.
61
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors of the Company are elected annually and hold office until the
next Annual Meeting of Stockholders and until their successors have been elected
and qualified.
The following table sets forth the Directors of the Company, the age of
each Director, the year each Directors was elected as a Director, and the
positions and offices currently held by each Director with the Company. For
information about the ownership of the Company's Common Stock held by each
Director, see "Item 12 -- Security Ownership of Certain Beneficial Owners and
Management."
<TABLE>
<CAPTION>
YEAR NOMINEE
FIRST BECAME
NAME AGE DIRECTOR POSITION AND OFFICES WITH THE COMPANY
- ----------------------- --- ------------ ----------------------------------------------
<S> <C> <C> <C>
John J. McDonald....... 38 1995 President, Vice President of Sales and
Marketing and Director
John J. Shields........ 58 1996 Vice Chairman of the Board of Directors
J.P. Luc Beaubien...... 42 1994 Director
William M. Kinch....... 65 1995 Director
Emanuel Pinez.......... 59 1987 Director
William J. Shea........ 49 1996 Director
</TABLE>
BACKGROUND
The following is a brief summary of the background of each Director of the
Company:
John J. McDonald, President, Vice President of Sales and Marketing, and
Director. Mr. McDonald has served as President of the Company since August
1996, as Vice President of Sales and Marketing since June 1992, and as a
Director since November 1995. From 1989 to 1992, Mr. McDonald served as a sales
representative and interim sales manager for Bell Microproducts, Inc., a
publicly traded distributor of electronic components to original equipment
manufacturers ("OEMs"). Mr. McDonald holds a Bachelor of Science degree in
Business Administration in Marketing from American International College.
John J. Shields, Vice Chairman and Director. Mr. Shields has served as a
Director of the Company since April 1996 and as Vice Chairman of the Board of
Directors of the Company since August 1996. From 1993 to present, Mr. Shields
has served as President and Chief Executive Officer of King's Point Holdings,
Inc., a company principally engaged in venture capital, technical consulting and
cranberry cultivation. From 1990 to 1993, Mr. Shields served as President and
Chief Executive Officer of Computervision Corporation, a publicly traded company
that provides computer-aided design solutions for complex mechanical and
electrical systems, Mr. Shields currently serves as a Director of Ionics, Inc.,
a publicly traded company principally engaged in water purification. Mr. Shields
is a graduate of the School of Industrial Management of Worcester Polytechnic
Institute, a graduate of the Program in Management Development of the Harvard
University Graduate School of Business Administration, and received an Honorary
Ph.D. from Worcester Polytechnic Institute.
J.P. Luc Beaubien, Director. Mr. Beaubien has served as a Director of the
Company since January 1994. Since 1987, Mr. Beaubien has worked as a Principal
for the Boston Agent, a Boston-based venture consulting firm. From September
1992 to July 1996, Mr. Beaubien also served as Chairman of the Board and Chief
Financial Officer of Broadband Networks, Inc., a manufacturer of analog fiber
optic equipment. From August 1994 to January 1996, Mr. Beaubien was also a
general partner of Zero Stage Capital V Limited Partnership, a venture capital
firm. Mr. Beaubien holds a Bachelor of Electrical Engineering degree from
62
<PAGE> 63
McGill University and a Master's of Science degree in Business Administration
from the Sloan School of Management at the Massachusetts Institute of
Technology.
William M. Kinch, Director. Mr. Kinch has served as a director of the
Company since July 1995. He is the founder and President of Kinch Associates,
Inc., an international trade and consulting firm. From July 1989 to August 1996,
Mr. Kinch served as Chairman of the Board of Directors of Inoac USA, Inc., a
trading and investment subsidiary of a Japanese company. He also served as
Chairman of the Board of Directors of Woodbridge Inoac, Inc., an affiliated
manufacturer of auto parts. Mr. Kinch holds a Bachelor of Science degree in
Civil Engineering and a Master's degree in Business Administration from
Northeastern University.
Emanuel Pinez, Director. Mr. Pinez has served as a director of the Company
since 1987. From 1994 to February 1997, Mr. Pinez served as Chief Executive
Officer, Secretary and Chairman of the Board of Directors of the Company until
the Board of Directors terminated Mr. Pinez's employment on February 10, 1997.
Mr. Pinez was previously employed by Camwill, S.A., a Swiss corporation, which,
according to Mr. Pinez, contracted out Mr. Pinez's management services to
corporate clients, including the Company. Mr. Pinez is currently under
indictment by the Office of the U.S. Attorney for the District of Massachusetts.
William J. Shea, Director. Mr. Shea has served as a director of the
Company since August 1996. Mr. Shea resigned as Vice Chairman, Chief Financial
Officer and Treasurer of BankBoston Corporation in July 1997. Prior to joining
BankBoston in January 1993, Mr. Shea served in various capacities for the public
accounting firm of Coopers & Lybrand L.L.P. during the preceding 19 years, most
recently as Vice Chairman and Senior Partner. Mr. Shea serves as a Director of
Geerlings & Wade, a publicly traded wine distribution company. He holds a
Bachelor of Arts and Master's degree in Economics from Northeastern University.
EXECUTIVE OFFICERS AND MANAGEMENT OF THE COMPANY
The executive officers and management of the Company, their ages and positions
held in the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------- --- --------------------------------------------------
<S> <C> <C>
Lawrence J. Ramaekers.... 59 Interim Chief Executive Officer
John J. McDonald......... 38 President and Vice President of Sales and
Marketing
Eugene M. Bullis......... 52 Interim Chief Financial Officer
Donald R. Peck........... 39 Treasurer
David E. Merry, Jr. ..... 34 Vice President of Engineering
</TABLE>
Executive officers are elected by and serve at the pleasure of the Board of
Directors. The following is a brief summary of the background of each executive
officer of the Company, with the exception of Mr. McDonald, whose background is
summarized above:
Lawrence J. Ramaekers, Interim Chief Executive Officer. Mr. Ramaekers has
served as the Company's Interim Chief Executive Officer since February 1997. Mr.
Ramaekers is a Principal in Jay Alix & Associates, a consulting firm
specializing in turnaround situations and crisis management. In connection with
Mr. Ramaekers' activities on behalf of Jay Alix & Associates, Mr. Ramaekers is
asked to assist in rehabilitating distressed businesses. From 1990 to 1992, Mr.
Ramaekers performed the function of chief operating officer of Cardinal
Industries, Inc. ("Cardinal"), an operator of mobile home facilities, during
which time certain affiliates of Cardinal filed for protection from creditors
under bankruptcy laws.
Eugene M. Bullis, Interim Chief Financial Officer. Mr. Bullis has served
as the Company's Interim Chief Financial Officer since February 1997. Mr. Bullis
is associated with Jay Alix & Associates in connection with his services on
behalf of the Company. During the five years prior to February 1997, Mr. Bullis
has operated as an independent financial consultant and interim executive,
performing services for various clients, including, primarily, Eastman Kodak
Company and NYNEX Corporation.
Donald R. Peck, Treasurer. Mr. Peck has served as the Company's Treasurer
and also as its General Counsel since September 1996. From September 1986 to
August 1996, Mr. Peck was an attorney at the law
63
<PAGE> 64
firm of Nutter, McClennen & Fish, L.L.P. He holds a Bachelor of Science degree
in Business Administration from the University of Rhode Island and a Juris
Doctor degree from Cornell Law School.
David E. Merry, Jr., Vice President of Engineering. Mr. Merry has served
as the Company's Vice President of Engineering since February 1997. From
February 1996 to February 1997, Mr. Merry served as Test and Applications
Engineering Manager at the Company. From May 1994 to February 1996, Mr. Merry
held a series of technical positions at Wyle Electronics, a distributor of
electronic components. Prior to joining Wyle, Mr. Merry served as Test and
Applications Manager for Logue, McDonald, a manufacturer of automated test
equipment. Mr. Merry holds a Bachelor of Science degree in Electronic
Engineering from the Ohio Institute of Technology.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
executive officers and Directors, and persons who beneficially own more than 10%
of the Company's common stock, to file initial reports of ownership of Form 3
and reports of changes in ownership on Form 4 with the Securities and Exchange
Commission (the "Commission") and any national securities exchange on which the
Company's securities are registered. Executive officers, Directors and greater
than 10% beneficial owners are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and Directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than 10% beneficial owners were
complied with for fiscal 1997, other than (i) the failure to file a Form 4 to
report the grant to John J. Shields of an option to purchase 50,000 shares of
Common Stock in October 1996, which Form 4 was filed in March 1997; and (ii) the
failure to file a Form 4 to report the grant to John J. McDonald of an option to
purchase 217,500 shares of Common Stock in October 1996, which Form 4 was filed
in March 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Mr. Ramaekers, the
Company's Interim Chief Executive Officer, and Mr. Pinez, the Company's former
Chief Executive Officer, with respect to services rendered to the Company during
the fiscal 1997, fiscal 1996 and fiscal 1995 and the other executive officers
who earned in excess of $100,000 in salary and bonus during fiscal 1997 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITION YEARS SALARY (5) BONUS
----------------------------------------------------- ----- ------------- --------
<S> <C> <C> <C>
Lawrence J. Ramaekers................................ 1997 $ 155,396 --
Interim Chief Executive Officer(1) 1996 -- --
1995 -- --
Emanuel Pinez........................................ 1997 150,000 --
Former Chief Executive Officer(2) 1996 154,038 --
1995 123,066 $15,000
John J. McDonald..................................... 1997 111,569 --
President and Vice President of Sales and
Marketing(3) 1996 117,981 23,220
1995 110,000 --
James M. Murphy...................................... 1997 99,500 --
Former Chief Financial Officer(4) 1996 105,961 --
1995 100,000 --
Eugene M. Bullis..................................... 1997 170,280 --
Interim Chief Financial Officer(1) 1996 -- --
1995 -- --
</TABLE>
64
<PAGE> 65
- ---------------
(1) The Company pays the compensation of Mr. Ramaekers, the Interim Chief
Executive Officer of the Company, and Eugene M. Bullis, the Interim Chief
Financial Officer of the Company, to Jay Alix & Associates which employs Mr.
Ramaekers and contracts with Mr. Bullis, and contracts out their management
services to corporations, including the Company. In addition, the Company
has agreed to grant Jay Alix & Associates an option to purchase up to
200,000 shares of its Common Stock at a strike price set at the lowest
average price for any 30-day period during the six month period immediately
following the resumption in trading of the Company's Common Stock.
(2) In February 1997, the Company's Board of Directors terminated Mr. Pinez as
Chief Executive Officer of the Company. Mr. Pinez received an annual car
allowance from the Company of approximately $1,159, $2,408 and $1,400 in
fiscal 1997, fiscal 1996 and fiscal 1995, respectively. On October 24, 1996,
the Company granted Mr. Pinez a stock option to purchase 360,000 shares of
Common Stock at an exercise price of $24.66 per share. One-third of the
stock option vested and became exercisable immediately, and the other
two-thirds was to vest and become exercisable ratably annually over the
following two years. Mr. Pinez exercised his vested option to purchase
120,000 shares at $24.66 per share on December 19, 1996. The remaining stock
options have not been exercised and have now lapsed following Mr. Pinez's
termination.
(3) Mr. McDonald received an annual car allowance from the Company of
approximately $5,400, $7,200 and $7,200 in fiscal 1997, fiscal 1996 and
fiscal 1995. On October 1, 1996, the Company granted Mr. McDonald a stock
option to purchase 217,500 shares of Common Stock at an exercise price of
$20.53 per share. One-third of the stock option vested and became
exercisable immediately, and the other two thirds will vest and become
exercisable ratably annually over the next two years. On April 19, 1996, the
Company granted Mr. McDonald two separate options to purchase, in the
aggregate, an additional 100,000 shares of Common Stock at an exercise price
of $8.74 per share that are exercisable until April 18, 2000. These options
have and will vest and became and will become exercisable over three years
beginning April 19, 1997. On October 11, 1995, the Company granted Mr.
McDonald a stock option to purchase 100,000 shares of Common Stock at an
exercise price of $6.41 per share that is exercisable until October 10,
1999. These options became fully vested and exercisable on October 11, 1996.
(4) In February 1997, the Company's Board of Directors relieved Mr. Murphy of
his duties as Chief Financial Officer. In March 1997, the Company's Board of
Directors terminated Mr. Murphy's employment with the Company. On October 1,
1996, the Company granted Mr. Murphy a stock option to purchase 72,500
shares of Common Stock at an exercise price of $20.53 per share. One-third
of the stock option vested and became exercisable immediately, and the other
two thirds was to vest and become exercisable ratably annually over the next
two years. These stock options have now lapsed following Mr. Murphy's
termination. On October 11, 1995, the Company granted Mr. Murphy a stock
option to purchase 40,000 shares of Common Stock at an exercise price of
$6.41 per share. These stock options have also lapsed following Mr. Murphy's
termination.
(5) The amounts for fiscal 1997 reflect the nine months ended March 31, 1997.
65
<PAGE> 66
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(2) FISCAL PERIOD(3) ($/SH) DATE 5% 10%
- -------------------------- ---------- ------------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence J. Ramaekers..... 0 N/A N/A N/A N/A N/A
Emanuel Pinez(4).......... 360,000 34.2% 24.655 5/11/97 Expired Expired
John J. McDonald(5)....... 217,500 20.6% 20.53 9/30/05 $2,808,190 $7,116,498
James M. Murphy(6)........ 72,500 6.9% 20.53 6/14/97 Expired Expired
Eugene M. Bullis.......... 0 N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Amounts reported in these columns represent hypothetical amounts that may be
realized upon exercise of the options immediately prior to the expiration of
their term assuming the specified compounded rates of appreciation on the
Company's Common Stock over the term of the options as prescribed by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) The Company intends to register the shares of Common Stock underlying its
1994 Stock Option Plan (the "Plan") and 1994 Formula Stock Option Plan (the
"Formula Plan").
(3) In fiscal 1997, options to purchase up to 1,054,100 shares of Common Stock
were granted under the Plan to Company employees, including executive
officers, and options to purchase 21,000 shares of Common Stock were granted
under the Formula Plan to non-employee directors. In fiscal 1997, 124,000
were exercised and 600 were canceled.
(4) The option was granted on October 24, 1996 with options to purchase 120,000
shares of Common Stock becoming vested and exercisable immediately, and with
additional 120,000 options becoming vested and exercisable on each of
October 24, 1997 and 1998. Mr. Pinez exercised his vested option to purchase
120,000 shares of Common Stock on December 19, 1996. The remainder of the
option was forfeited in May 1997, 90 days following the Company's
termination of Mr. Pinez.
(5) The option was granted on October 1, 1996 with options to purchase 72,500
shares of Common Stock becoming vested and exercisable immediately, and with
an additional 72,500 options becoming vested and exercisable on each of
October 1, 1997 and 1998. Subsequent to March 31, 1997, the exercise price
of the option was adjusted to $2.30, and the vesting period was extended,
with options to purchase 72,500 becoming vested and exercisable on October
1, 1997, and with an additional 72,500 options become vested and exercisable
on each of October 1, 1998 and 1999.
(6) The option was granted on October 1, 1996 with options to purchase 24,166
shares of Common Stock becoming vested and exercisable immediately, and with
an additional 24,166 and 24,167 options becoming vested and exercisable on
October 1, 1997 and 1998, respectively. This option was forfeited in June
1997, 90 days following the Company's termination of Mr. Murphy.
66
<PAGE> 67
AGGREGATED OPTIONS EXERCISED IN FISCAL 1997 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY- OPTIONS(1)
SHARES ACQUIRED VALUE END EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Lawrence J. Ramaekers.......... 0 $ 0 0/0 $ 0/$0
Emanuel Pinez.................. 120,000 2,478,900 0/240,000 0/0
John J. McDonald............... 0 0 174,300/245,900 3,150/1,575
James M. Murphy................ 0 0 142,499/75,001 183,750/0
Eugene M. Bullis............... 0 0 0/0 0/0
</TABLE>
- ---------------
(1) In-the-money options are those options for which the fair market value of
the underlying share of Common Stock is greater than the exercise price of
the option. The fair market value of the Company's Common Stock underlying
the options as of March 31, 1997 was $3.50 per share, based on information
reported by certain internet-based bulletin board services purporting to
monitor trading activities. The Company is unable to verify the accuracy or
completeness of such information.
COMPENSATION OF DIRECTORS DURING FISCAL 1997
From April 12, 1994, the date of the Company's initial public offering,
until July 1996, each non-employee director has been compensated $1,000 per year
for a full year of service and $250 for each Board of Directors meeting
attended. Since 1996, each non-employee director has been compensated at a rate
of $500 for each Board of Directors meeting attended. J.P. Luc Beaubien, William
M. Kinch, William J. Shea and John J. Shields, non-employee directors of the
Company, each received $6,000, $6,000, $4,250 and $4,500 respectively, from the
Company as compensation for their services to the Company as a director during
fiscal 1997. James M. Murphy received $500 for his attendance at a Board of
Directors meeting between the time the Company terminated his employment and the
date he resigned from the Board of Directors. On August 1, 1996, William J. Shea
received a non-qualified option to purchase up to 15,000 shares of Common Stock
at a price of $12.89 per share exercisable at any time between November 1, 1997
and November 6, 2001. On October 1, 1996, John J. Shields received a
non-qualified option to purchase up to 50,000 shares of Common Stock at a price
of $20.53 per share, of which 16,666 shares became vested and exercisable
immediately, and 16,666 and 16,667 shares will become vested and exercisable on
October 1, 1997 and 1998, respectively. Mr. Shields may exercise these options
upon vesting through September 30, 2005. On November 7, 1996, J.P. Luc Beaubien
and William M. Kinch each received a non-qualified option to purchase up to
3,000 shares of Common Stock at a price of $29.38 per share exercisable at any
time between November 1, 1997 and November 6, 2001.
J.P. Luc Beaubien received $46,971 in consulting fees in connection with
services rendered to the Company during fiscal 1997. William M. Kinch received
$68,000 in consulting fees and $39,847 in expense reimbursements during fiscal
1997. See Item 13 -- "Certain Relationships and Transactions."
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<PAGE> 68
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1997, the number and
percentage ownership of the Company's Common Stock by (i) all persons known by
the Company to be the beneficial owner of more than five percent (5%) of the
outstanding Common Stock, (ii) each Named Executive Officer (as defined herein)
and Director, and (iii) all Directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) CLASS
-------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Lawrence J. Ramaekers................................... -- --
John J. McDonald........................................ 252,680 1.4%
Eugene M. Bullis........................................ -- --
Donald R. Peck(3)....................................... 555 *
David E. Merry, Jr...................................... -- --
J.P. Luc Beaubien....................................... 22,100 *
John J. Shields......................................... 31,666 *
William M. Kinch(4)..................................... 21,960 *
Emanuel Pinez(5)........................................ 338,735 1.8%
William J. Shea(6)...................................... 40,700 *
All directors and executive officers as a group (10
persons).............................................. 708,396 3.9%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for all of these individuals, with the exception of Emanuel
Pinez, is Centennial Technologies, Inc., 7 Lopez Road, Wilmington,
Massachusetts 01887. The address for Emanuel Pinez is c/o Thomas R. Kiley,
Esq., Cosgrove, Eisenberg & Kiley, P.C., One International Place, Boston,
Massachusetts 02110.
(2) Pursuant to the rules of the Commission, shares of Common Stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(3) Includes 555 shares held in trust for the benefit of Mr. Peck's children;
Mr. Peck is neither a trustee nor a beneficiary of such trust.
(4) Includes 5,300 shares held jointly by Mr. Kinch and his wife, and 460 shares
held by Mr. Kinch's wife.
(5) The Company is unable to ascertain whether Mr. Pinez has any beneficial
ownership of any additional shares of Common Stock. The shares listed here
are those indicated in the records of the Company's stock transfer agent in
the name of "Emanuel Pinez."
(6) Includes 25,200 shares held by Mr. Shea's wife, and 500 shares held by Mr.
Shea's son.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
During fiscal 1995, the Company loaned John J. McDonald, President of the
Company, a total of $31,500. As of July 15, 1997, this entire loan remained
outstanding. However, Mr. McDonald and the Company have reached an agreement
whereby this loan will be forgiven should Mr. McDonald remain employed by the
Company after August 31, 1997.
William J. Shea, who has served as a Director of the Company since August
1996, resigned in July 1997 as the Vice-Chairman, Chief Financial Officer and
Treasurer of BankBoston Corporation ("BankBoston"). In November 1995, the
Company renewed its revolving line of credit with BankBoston, pursuant to which
the Company could borrow up to the lesser of (i) $7.5 million, or (ii) an amount
based on the Company's eligible accounts receivable and inventory. In November
1996, the Company increased its revolving and term facilities with BankBoston,
pursuant to which the Company could borrow up to (i) $25 million, or (ii) an
amount based on the Company's eligible accounts receivable and inventory. These
credit agreements are collateralized by substantially all of the assets of the
Company. In addition, the Company is required to comply with certain
68
<PAGE> 69
covenants relating to the Company's net worth and indebtedness, among others. In
February 1997, BankBoston issued a notice of default with regard to the
Company's borrowings under the credit facilities. From February 1997 through
June 1997, BankBoston and the Company executed three forbearance agreements by
which BankBoston agreed not to proceed on exercising its rights with regard to
its collateral. See "Item 7 -- Liquidity and Capital Resources."
Transactions with William M. Kinch
The Company has contracted with Kinch Associates, Inc. of which William M.
Kinch, a director of the Company, is a principal, for consulting services,
principally in the areas of manufacturing development and procurement
activities. During fiscal 1997, the Company paid Kinch Associates $68,000 for
services provided by Mr. Kinch and $39,847 for expense reimbursements.
Transactions with J.P. Luc Beaubien
The Company has contracted with the Boston Agent, of which J.P. Luc
Beaubien, a director of the Company, is a principal, for consulting services,
principally in the ares of investment activities. During fiscal 1997, the
Company paid the Boston Agent $46,971 for services provided by Mr. Beaubien.
Transactions with WebSecure, Inc.
As of March 31, 1997, the Company held a minority interest in WebSecure,
Inc., a provider of Internet services ("WebSecure"). John J. Shields, Vice
Chairman of the Board of Directors of the Company, served as Chairman of the
Board of Directors of WebSecure from April 1996 to November 1996.
In November 1995, the Company purchased 350,000 shares of common stock of
WebSecure for $10,000. In November 1995, the Company guaranteed the payment
obligations of WebSecure under a lease for offices of WebSecure, and in
September 1996, guaranteed the payment obligations of WebSecure under a lease
for capital equipment. The aggregate rental payments under both leases totaled
approximately $950,000 as of September 10, 1996. The Company has not made any
payments in connection with these guarantees. On April 8, 1996, the Company
purchased 139,750 shares of common stock of WebSecure for $559,000 in connection
with a private placement of WebSecure in which WebSecure raised $2,000,000.
In April 1996, WebSecure granted a non-qualified stock option to John J.
Shields to purchase 100,000 shares of WebSecure's common stock at an exercise
price of $4.00 per share, exercisable between April 30, 1997 and April 29, 2000.
Such option was forfeited when Mr. Shields terminated his relationship with
WebSecure in November 1996.
During fiscal 1996, the Company from time to time made loans to WebSecure,
which loans bear interest at the rate of 9% per annum and are due on demand.
These loans were repaid out of a portion of the proceeds of the initial public
offering of WebSecure, and the aforementioned guarantees were terminated.
In connection with WebSecure's initial public offering, the Company
realized a gain of $1.2 million from the sale of a portion of its investment.
The remaining investment, having a cost of $560,000, has been fully reserved on
the Company's financial statements. In addition, the Company has deferred
recognition of the gain pending final resolution of certain litigation described
in Note 17 of Notes to Unaudited Consolidated Financial Statements.
Transactions with Triple I Corporation (Currently Industrial Imaging, Inc.)
As of March 31, 1997, the Company held a minority interest in Triple I
Corporation, a then privately-held manufacturer of optical equipment ("Triple
I"). Emanuel Pinez, the former Chief Executive Officer, Secretary and Chairman
of the Board of Directors of the Company, served as a director of Triple I from
February to August 1996. Mr. A. Uri Levy, who served as President of the Company
from February 1995 to August 1996, as Chief Operating Officer of the Company
from September 1994 to August 1996, and as a director of the Company from
December 1994 to August 1996, served as a Director of Triple I.
69
<PAGE> 70
As of June 30, 1996, the Company owned 700,000 shares of the common stock
of Triple I. During fiscal 1996, the Company purchased a total of 500,000 shares
of common stock of Triple 1 for $500,000. In addition, on June 17, 1996, the
Company purchased 200,000 shares of common stock of Triple I in consideration of
the cancellation of a $200,000 promissory note from Triple I, described below.
In November 1995, the Company loaned $95,000 to Triple I, which was
evidenced by a promissory note that bore interest at the rate of 10% per annum
and matured on May 14, 1997. This promissory note was repaid in full on February
8, 1996. In connection with this loan, Triple I issued to the Company warrants
to purchase 95,000 shares of common stock of Triple I, exercisable until
November 13, 1998.
In March 1996, the Company entered into an agreement with Triple I whereby,
in consideration of a lump sum payment of $200,000 to the Company, the Company
agreed to purchase certain components for Triple I, subject to fully
reimbursement from Triple I of the cost of the components within ten days
following the sale by Triple I of the products containing the components
purchased by the Company. The term of the agreement runs through June 30, 1997.
Cumulative purchases under this arrangement amounted to $1.4 million.
In May 1996, the Company loaned $200,000 to Triple I, which was evidenced
by a promissory note that bore interest at the rate of 10% per annum and matured
on May 17, 1997. This promissory note was canceled on June 17, 1996 in
consideration of the issuance of 200,000 shares of common stock of Triple I to
the Company.
During fiscal 1997, Triple I defaulted on certain of its payment
obligations and the Company determined that Triple I was unable to repay the
Company for the material purchased, and also determined that the value of the
equity investment was permanently impaired. On May 20, 1997, the Company agreed
to convert its accounts receivable into common stock of Industrial Imaging, and
has recorded a valuation reserve equal to the carrying value of the investment
as of March 31, 1997.
Transactions with Infos International, Inc.
During fiscal 1997, the Company acquired a 38% interest in Infos
International, Inc., a supplier of intelligent hand held data collection
equipment for route and shop floor accounting. The President of Infos, Thomas J.
Kinch, is the brother of William M. Kinch, a director of the Company. The
purchase price amounted to approximately $3.0 million in cash and 230,000 shares
of Centennial Common Stock having a market value of $3.9 million at date of
acquisition. On May 14, 1997, the Company and shareholders of Infos reached an
agreement in principal whereby the Company would return its shares of Infos in
exchange for the shares of Centennial Common Stock issued and a three-year
warrant to acquire shares of Infos equal to up to 15% of the then outstanding
common stock of Infos with certain limitations. The parties have also agreed to
exchange mutual releases of any claims arising from the original acquisition
agreement. Since Infos is a privately-held company, there is no available market
information in order to ascribe value to the warrants, and current financial
information is not presently available. Accordingly, the full amount of the
investment cost $7.0 million has been written off. The recorded loss of $6.0
million reflects the use by Infos of $1.0 million of the original cash proceeds
to repay an obligation of that amount due to Centennial from an Infos
subsidiary, Information Capture Corporation ("ICC"). This obligation originally
arose in fiscal 1995, prior to Infos' acquisition of ICC, in connection with a
sales transaction that was determined in the Company's financial review not to
be bona fide. The effect of the adjustment is to reflect $1.0 million of the
investment cost as a reduction of sales and net income in fiscal 1995, and the
remainder as loss on investment activities in fiscal 1997.
Infos has contracted with Century Electronics Manufacturing, Inc., an
affiliate of the Company, for contract manufacturing services in connection with
Infos' products. Century has made payments to Infos suppliers in connection with
initial inventory stocking and test equipment in the amount of $329,000 and has
accounts receivable for product shipments of approximately $321,000 at March 31,
1997, representing invoices for all products shipped during fiscal 1997.
70
<PAGE> 71
ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The financial statements required to be filed
by Item 8 are as follows:
<TABLE>
<CAPTION>
CENTENNIAL TECHNOLOGIES, INC: PAGE
----
<S> <C>
Consolidated Balance Sheets as of March 31, 1997 and June 30, 1996 (Unaudited)... 30
Consolidated Statements of Operations for the nine month fiscal periods ended
March 31, 1997 and 1996 and for the twelve month fiscal years ended June 30,
1996, 1995 and 1994 (Unaudited)................................................. 31
Consolidated Statements of Stockholders' Equity for the nine month fiscal period
ended
March 31, 1997 and for the twelve month fiscal years ended June 30, 1996, 1995
and 1994 (Unaudited)............................................................ 32
Consolidated Statements of Cash Flows for the nine month fiscal periods ended
March 31, 1997 and 1996 and for the twelve month fiscal years ended June 30,
1996, 1995 and 1994 (Unaudited)................................................. 33
Notes to (Unaudited) Consolidated Financial Statements........................... 34
CENTURY ELECTRONICS MANUFACTURING, INC.
Consolidated Balance Sheet as of March 31, 1997 (Unaudited)...................... 53
Consolidated Statement of Operations for the nine month fiscal periods ended
March 31, 1997 (Unaudited)..................................................... 54
Consolidated Statement of Stockholders' Equity for the nine month fiscal period
ended
March 31, 1997 (Unaudited)..................................................... 55
Consolidated Statement of Cash Flows for the nine month fiscal period ended March
31, 1997 (Unaudited)............................................................ 56
Notes to (Unaudited) Consolidated Financial Statements........................... 57
</TABLE>
(a)(2) Financial Statement Schedules. The financial statement schedule
required to be filed herewith is included in Item 8 of this report.
(a)(3) Exhibits.
<TABLE>
<CAPTION>
ITEM
NO. DESCRIPTION LOCATION
- ------ --------------------------------------------------------------------- ---------------
SEE NOTE:
<S> <C> <C> <C>
3.1 -- Certificate of Amendment to the Certificate of Incorporation......... (2)
3.2 -- By-Laws.............................................................. (6)
3.3 -- Shareholder Voting Agreement between Centennial Technologies, Inc.
and the Shareholders who are a party thereto, dated November 27, Filed
1996................................................................. herewith
4.1 -- Specimen Stock Certificate........................................... (6)
4.2 -- Form of Warrant Agreement between the Company and American Securities
Transfer, Incorporated (includes Specimen Warrant Certificate)....... (6)
10.1 -- Revolving Credit and Security Agreement between the Company and The
First National Bank of Boston, dated September 14, 1994.............. (4)
10.2 -- $3,000,000 Revolving Credit Note, dated September 14, 1994, by NCT in
favor of The First National Bank of Boston for the benefit of the
Company.............................................................. (4)
10.3 -- Unlimited Guaranty, dated September 14, 1994, by NCT in favor of The
First National Bank of Boston for the benefit of the Company......... (4)
10.4 -- Affiliate Subordination Agreement, dated September 14, 1994, executed
in favor of The First National Bank of Boston by the Company, NCT and
Emanuel Pinez........................................................ (4)
10.5 -- Amendment No. 1 dated as of November 8, 1995 to the Revolving Credit
and Security Agreement between the Company and The First National
Bank of Boston....................................................... (1)
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
ITEM
NO. DESCRIPTION LOCATION
- ------ --------------------------------------------------------------------- ---------------
SEE NOTE:
<S> <C> <C> <C>
10.6 -- Forbearance Agreement and Amendment by and between The First National
Bank of Boston, BancBoston Leasing Inc., Centennial Technologies,
Inc., NCT, Inc., Century Electronics Manufacturing, Inc. and Design Filed
Circuits, Inc., dated as of March 18, 1997........................... herewith
10.7 -- Lease Agreement between the Company and 37 Manning Road Limited
Partnership, dated November 6, 1992 and amended on November 29,
1992................................................................. (6)
10.8 -- Lease Agreement between the Company and 4 Point Interiors, dated June
28, 1993 ("California Lease")........................................ (6)
10.9 -- Amendment to the California Lease, dated June 25, 1993............... (6)
10.10 -- Form of the Company's Domestic Distributor Agreement between the
Company and its domestic distributors................................ (6)
10.11 -- Form of the Company's Agreement with its Manufacturer's
Representatives...................................................... (6)
10.12 -- Purchase Agreement between Triple I Corporation and Centennial Filed
Technologies, Inc., dated March 31, 1996............................. herewith
10.13 -- Investment and Stockholders Agreement by and between Centennial Filed
Technologies, Inc. and ViA, Inc., dated November 27, 1996............ herewith
10.14 -- 1994 Stock Option Plan, as amended................................... (2)
10.15 -- 1994 Formula Stock Option Plan, as amended........................... (2)
10.16 -- Indemnification Agreement dated April 11, 1994 between Emanuel Pinez
and the Company...................................................... (6)
10.17 -- Employment Agreement between the Company and John J. McDonald, dated
October 20, 1995..................................................... (1)
10.18 -- Key Employee Agreement between Centennial Technologies, Inc. and Filed
Donald R. Peck, dated February 1, 1997............................... herewith
10.19 -- Agreement to Provide Interim Management and Consulting Services
between Centennial Technologies, Inc. and Jay Alix & Associates, Filed
dated February 17, 1997.............................................. herewith
Filed
21 -- List of the Company's subsidiaries................................... herewith
</TABLE>
(1) Incorporated by reference to the similarly numbered exhibit to the
Company's Form S-3 Registration Statement (No. 333-1008) declared effective by
the Securities and Exchange Commission (the "Commission") on March 19, 1996.
(2) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-KSB filed with the Commission on October 13,
1995.
(3) Incorporated by reference to the similarly numbered exhibit to the
Company's Post-Effective Amendment No. 2 to its Form SB-2 Registration Statement
(No. 33-74862-NY) filed with the Commission on February 1, 1995.
(4) Incorporated by reference to the similarly numbered exhibit to the
Company's Post-Effective Amendment No. 1 to its Form SB-2 Registration Statement
(No. 33-74862-NY) originally filed with the Commission on December 22, 1994.
(5) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-KSB filed with the Commission on September
25, 1994.
(6) Incorporated by reference to the similarly numbered exhibit to the
Company's Form SB-2 Registration Statement (No. 33-74862-NY) declared effective
by the Commission on April 12, 1994.
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<PAGE> 73
(b) Reports on Form 8-K. The following reports on Form 8-K were filed by
the Company during the last quarter of the period covered by this report.
(1) A report on Form 8-K was filed on January 2, 1997, reporting on the
acquisition of Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart
Traveler Plazas, Inc.
(2) A report on Form 8-K was filed on February 19, 1997, reporting that the
filing of the Form 10-Q for the Company's second fiscal quarter ended December
31, 1996 would be delayed, in light of the investigation seeking to verify the
financial information of the Company.
73
<PAGE> 74
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CENTENNIAL TECHNOLOGIES, INC.
Dated: July 22, 1997 By: /s/ LAWRENCE J. RAMAEKERS
------------------------------------
Lawrence J. Ramaekers
Interim Chief Executive Officer
IN ACCORDANCE WITH THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ---------------------------------------- ------------------------------------ --------------
<C> <S> <C>
/s/ LAWRENCE J. RAMAEKERS Interim Chief Executive Officer July 22, 1997
- ----------------------------------------
Lawrence J. Ramaekers
/s/ JOHN J. SHIELDS Vice Chairman of the Board July 22, 1997
- ----------------------------------------
John J. Shields
/s/ JOHN J. MCDONALD President and Director July 22, 1997
- ----------------------------------------
John J. McDonald
/s/ J.P. LUC BEAUBIEN Director July 22, 1997
- ----------------------------------------
J.P. Luc Beaubien
/s/ WILLIAM M. KINCH Director July 22, 1997
- ----------------------------------------
William M. Kinch
/s/ WILLIAM J. SHEA Director July 22, 1997
- ----------------------------------------
William J. Shea
/s/ EUGENE M. BULLIS Interim Chief Financial Officer July 22, 1997
- ---------------------------------------- (Principal financial and
Eugene M. Bullis accounting officer)
</TABLE>
74
<PAGE> 1
SHAREHOLDER VOTING AGREEMENT
AGREEMENT, Made and entered into as of the 6th day of December,
1996, by each person identified as a "Shareholder" on the signature page(s) to
this Agreement (collectively, the "Shareholders") for the benefit of Centennial
Technologies, Inc., a Delaware corporation ("Centennial").
WHEREAS, Centennial has entered into an Investment and
Stockholders Agreement, dated November 27, 1996 (the "Purchase Agreement"), with
VIA, Inc, a Minnesota corporation (the "Company"), pursuant to which Centennial
has agreed to acquire eleven thousand and eighty nine (11,089) shares of the
Company's common stock (the "Shares"); and
WHEREAS, The Shareholders own in the aggregate approximately
twenty-six percent (26%) of the outstanding shares of the capital stock of the
Company; and
WHEREAS, the execution and delivery of this Agreement by each of
the Shareholders is a condition to the commitment of Centennial to purchase the
Shares pursuant to the Purchase Agreement; and
WHEREAS, the Shareholders desire that Centennial consummate the
transactions contemplated by the Purchase Agreement and are willing to enter
into this Agreement as an inducement to Centennial to complete the purchase of
the Shares.
NOW, THEREFORE, in consideration of the premises, as an
inducement to Centennial to complete the purchase of the Shares, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Shareholders agree as follows:
1. VOTING AGREEMENT. Each Shareholder hereby agrees, on
behalf of such Shareholder and any person to whom such Shareholder transfers any
shares of Company stock owned by such Shareholder, to vote all shares of Company
stock now or hereafter owned by such Shareholder and take such other actions
(whether in such Shareholder's capacity as a shareholder, director, or officer
of the Company) as are reasonably requested by Centennial to ensure the presence
on the Company's Board of Directors (the "Board of Directors") at all times of
at least one (1) person designated by Centennial.
2. LIMITATION. Each Shareholder shall retain at all times
the right to vote such person's shares of Company stock, in that Shareholder's
sole discretion, (i) on all matters, other than those set forth in section 1
which are at any time and from time to time presented for a vote to the
Company's shareholders generally and (ii) on
<PAGE> 2
the matters set forth in section 1 at any time when Centennial's right to direct
the voting of such shares is not in effect.
3. CONDITIONAL IRREVOCABLE PROXIES. To secure each
Shareholder's obligation to vote that Shareholder's shares of Company stock in
accordance with the provisions of this Agreement, each Shareholder hereby
appoints Emanuel Pinez as his true and lawful proxy and attorney, with full
power of substitution, to vote all of that Shareholder's shares of Company
stock, in such proxy's sole discretion, for the election of directors as set
forth in section 1(a) and for the other matters described in section 1 (if and
only if) such Shareholder fails to comply with the provisions of section 1. The
proxies and powers granted by each Shareholder pursuant to this section 3 are
coupled with an interest and are given to secure the performance of such
Shareholder's duties to Centennial under this Agreement. Such proxies will be
irrevocable for the term of this Agreement and will survive the death,
incompetency and disability of any Shareholder or other holder of such
Shareholder's shares of Company stock and the merger and dissolution of any
Shareholder that is a corporation.
4. TRANSFER OF SHARES. No shares of Company stock owned by
any Shareholder shall be transferred unless and until the transferee executes an
instrument acknowledging and agreeing that the shares being acquired are subject
to the voting restrictions and/or irrevocable proxies set forth in this
Agreement.
5. LEGEND. Each certificate evidencing shares of Company
stock owned by any Shareholder and subject to the provisions of section 1 of
this Agreement and each certificate issued in exchange for or upon the transfer
of any such shares during the term of this Agreement will be stamped or
otherwise imprinted with a legend (the "Legend") in substantially the following
form or to the following effect:
"The securities represented by this certificate are subject to a
shareholder voting agreement dated as of December 6th, 1996, by and
among the original holder of such securities and other shareholders of
the issuer of such securities and to a conditional irrevocable proxy
granted pursuant to such agreement. A copy of such agreement will be
furnished without charge by the issuer of the securities represented by
this certificate to the holder hereof upon such holder's written
request."
6. TERM. This Agreement shall terminate and cease to be
effective, and the Legend will be removed from all certificates at the earlier
of
(a) such time as the Company makes a sale of shares of its
capital stock pursuant to a registration statement filed
with and declared
-2-
<PAGE> 3
effective by the federal Securities and Exchange
Commission pursuant to Section 5 of the federal
Securities Act of 1933; or
(b) the fourth (4th) anniversary of the date of this
Agreement; or
(c) the date Centennial owns less than five percent (5%) of
the Company's outstanding capital stock.
7. MISCELLANEOUS PROVISIONS.
(a) BINDING EFFECT. This Agreement shall constitute a valid
and binding agreement among the Shareholders and Centennial, any
subsequent holders of shares of Company stock now or hereafter owned by
the Shareholders and their respective successors and assigns.
(b) REMEDIES. Centennial shall be entitled to specific
enforcement of their rights under this Agreement, to recover damages by
reason of any breach of any provision hereof and to exercise all other
rights existing in their favor. The Shareholders agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that Centennial may, in their sole
discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order
to enforce or prevent any violations of the provisions of this
Agreement.
(c) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and
valid under applicable law but if any provision of this Agreement is
held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality
or unenforceability will not affect any other provision or any other
jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(d) ENTIRE AGREEMENT. This Agreement embodies the complete
agreement and understanding among the parties hereto with respect to the
subject matter hereof and supercedes and preempts any prior
understandings, agreements or representation, by or among the parties,
written or oral, which may have related to the subject matter hereof in
any way.
(e) COUNTERPARTS. This Agreement may be executed on separate
counterparts, each of which will be an original and all of which taken
together will constitute all and the same agreement.
-3-
<PAGE> 4
(f) GOVERNING LAW. All questions concerning this Agreement
will be governed by and interpreted in accordance with the internal law,
not the law of conflicts, of the state of Minnesota.
IN WITNESS WHEREOF, the Shareholders have executed this
Agreement for the benefit of Centennial on the date set forth in the first
paragraph.
----------------------------------------
James L. Carroll
----------------------------------------
Wendell L. Carroll
----------------------------------------
David W. Carroll
Consent of the Company
----------------------
The Company hereby acknowledges receipt of a copy of the foregoing
shareholder voting agreement and agrees to comply with the provisions of
section 5 of such agreement.
VIA, INC.
By
------------------------------------
Its
------------------------------------
-4-
<PAGE> 1
FORBEARANCE AGREEMENT AND AMENDMENT
-----------------------------------
This Forbearance Agreement and Amendment (hereinafter, this
"AGREEMENT") is entered into as of March 18, 1997 by and between:
The First National Bank of Boston (hereinafter, the "BANK"), a national
banking association, having a principal place of business at 100
Federal Street, Boston, Massachusetts;
BancBoston Leasing Inc. (hereinafter, "BBL"), a Massachusetts
corporation having a principal place of business at 100 Federal Street,
Boston, Massachusetts;
Centennial Technologies, Inc. (hereinafter, the "BORROWER"), a
corporation organized under the laws of the State of Delaware, having a
principal place of business at 37 Manning Road, Billerica,
Massachusetts;
NCT, Inc. (hereinafter, "NCT"), a corporation organized under the laws
of the Commonwealth of Massachusetts, having a principal place of
business at 37 Manning Road, Billerica, Massachusetts;
Century Electronics Manufacturing, Inc. (f/k/a Century Industries,
Inc.) (hereinafter, "CENTURY"), a corporation organized under the laws
of the State of Delaware, having a principal place of business at 37
Manning Road, Billerica, Massachusetts; and
Design Circuits, Inc. (hereinafter "DCI"), a corporation organized
under the laws of the Commonwealth of Massachusetts, having a principal
place of business at 374 Turnpike Road, Southborough, Massachusetts
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
WITNESSETH:
-----------
1. BACKGROUND. On September 14, 1994, the Bank and the Borrower entered
into a Revolving Credit and Security Agreement, pursuant to which the
Bank agreed, subject to the terms therein contained, to make certain
revolving credit loans to the Borrower. The Revolving Credit and
Security Agreement was thereafter amended by a certain Amendment No. 1
and Waiver dated as of November 8, 1995 and by a certain Amendment No.
2 dated as of November 12, 1996 (the Revolving Credit and Security
Agreement as so amended shall hereinafter be referred to as the "LOAN
AGREEMENT"). The Borrower's obligations to the Bank are secured by a
first priority perfected security interest in and to all of the
Borrower's personal property, including,
<PAGE> 2
without limitation, all of the Borrower's accounts, inventory,
equipment, general intangibles, patents, trademarks, copyrights, key
man life insurance policies, and securities (including the stock of NCT
and Century owned by the Borrower) (collectively, the "COLLATERAL").
In addition, the obligations of the Borrower to the Bank have been
unconditionally guaranteed by each of NCT, Century and DCI
(collectively, the "GUARANTORS"). To secure their respective guaranties
(each, a "GUARANTY" and collectively, the "GUARANTIES"), each of the
Guarantors has granted the Bank a security interest in and to all of
their respective personal property, including, without limitation, all
of their accounts, inventory, equipment, general intangibles, patents,
trademarks, copyrights, and securities (including the stock of DCI
owned by Century) (collectively, the "GUARANTOR ASSETS").
Further, on October 6, 1994, BBL entered into a Master Lease Agreement
(together with all schedules thereto, the "MASTER LEASE AGREEMENT" with
the Borrower, pursuant to which BBL leases certain personal property to
the Borrower. The obligations of the Borrower under the Master Lease
Agreement are secured by, among other things, a security interest in
and to all of the Collateral.
Various Events of Default have arisen under the Loan Agreement and the
Master Lease Agreement and the Borrower and the Guarantors have
requested that the Bank and BBL forbear from exercising their rights
and remedies on account of such defaults. The Bank and BBL are willing
to so forbear BUT ONLY upon the terms and conditions set forth herein.
2. DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the same meaning herein as in the Loan Agreement.
3. OUTSTANDING OBLIGATIONS.
a. The Borrower and each of the Guarantors (individually, each an
"OBLIGOR" and collectively, the "OBLIGORS") acknowledge and
agree that they are jointly and severally obligated to the
Bank to pay the Obligations and that as of March 18, 1997, the
Obligations consist of:
<TABLE>
<S> <C>
Principal: $8,356,729.49
Interest through March 18, 1997: $ 34,360.16,
</TABLE>
plus interest hereafter accruing, costs, and expenses,
including, without limitation, attorneys' fees, consultants'
fees, and commercial finance examination fees.
-2-
<PAGE> 3
b. The Borrower acknowledges and agrees that SCHEDULE 1 hereto
accurately reflects the original cost of the property subject
to the Master Lease Agreement and schedules thereto, which is
presently owned by BBL.
c. The Obligors further acknowledge and agree that none of them
have any offsets, defenses, or counterclaims (i) against the
Bank with respect to the Loan Agreement, the Guaranties , the
other Loan Documents, or otherwise, or (ii) against BBL with
respect to the Master Lease Agreement, or otherwise, and to
the extent that any such offsets, defenses or counterclaims
may exist, the Obligors each hereby WAIVE and RELEASE same.
The Obligors shall execute and deliver to the Bank and BBL
such releases as the Bank or BBL may request to confirm the
foregoing.
d. The Obligors each ratify and confirm that their respective
obligations to the Bank (as modified hereby), including,
without limitation, those under the Loan Agreement and the
Guaranties, are secured by the Collateral and the Guarantor
Assets.
e. The Borrower ratifies and confirms that its obligations to BBL
are secured by the Collateral.
4. FORBEARANCE BY BANK. The Bank and BBL will each forebear from
exercising their respective rights and remedies upon default under the
Loan Documents and the Master Lease Agreement, as applicable, until the
earlier of (i) April 18, 1997, or (ii) the occurrence of a Termination
Event (the period commencing on the date hereof and ending on the
earlier of (i) or (ii) above shall hereinafter be referred to as the
"FORBEARANCE PERIOD"):
5. AMENDMENTS TO LOAN DOCUMENTS. From and after the date hereof, the Loan
Documents are hereby amended as follows (which amendments shall survive
the expiration of the Forbearance Period):
a. Section 1.1 of the Loan Agreement is hereby amended by
deleting the definition of "Borrowing Base" in its entirety
and substituting the following in its stead:
BORROWING BASE. on any date of determination thereof, the
least of
(a) $10,750,000, MINUS the aggregate face amount of all
outstanding letters of credit, in the amounts originally
issued or as reduced pursuant to their terms, which are either
outstanding or which have been drawn and paid by the bank but
not reimbursed by the borrower, or
-3-
<PAGE> 4
(b) The sum of (i) 80% of eligible accounts and (ii) the
lesser of (A) 35% of eligible inventory and (B) $5,500,000 (or
such lesser percentages or amounts as the Bank may in its
reasonable discretion determine from time to time upon thirty
days' written notice to the Borrower) and (iii) the lesser of
(A) $1,125,000.00 or (B) the amount of the federal income tax
refund payable to the Borrower for tax years ending prior to
February 28, 1997, MINUS the sum of (i) $2,000,000 and (ii)
the aggregate face amount of all outstanding letters of
credit, in the amounts originally issued or as reduced
pursuant to their terms, which are either outstanding or which
have been drawn and paid by the Bank but not reimbursed by the
Borrower, or
(c) 175% of the then outstanding trade payables of the
Borrower.
b. Section 1.1 of the Loan Agreement is hereby amended by
deleting the definition of "Maximum Commitment" in its
entirety and substituting the following in its stead:
Maximum Commitment. $10,750,000 or any lesser amount,
including zero, resulting from a termination or reduction of
such amount in accordance with the terms of this agreement.
c. Section 1.1 of the Loan Agreement is hereby amended by
deleting the definition of "Maximum Overdraft Amount."
d. Section 1.1 of the Loan Agreement is hereby amended by adding
the following at the end of the definition of "Security
Documents":
and the Intercompany Note and the Investment Pledge.
e. Section 1.1 of the Loan Agreement is hereby amended by adding
the following at the end of clause (iii) of the definition of
"Subsidiary Guarantees" after the words "in favor of the
Bank":
, and (iv) the guaranty, dated as of March 18, 1997
made by Centennial Capital Corporation in favor of
the Bank,
f. Section 1.1 of the Loan Agreement is hereby amended by adding
the following at the end of clause (iii) of the definition of
"Subsidiary Security Agreements" after the words "and the
Bank":
and (iv) the pledge agreement dated as of March 18,
1997, between Centennial Capital Corporation and the
Bank,
g. Section 1.1 of the Loan Agreement is hereby amended by adding
the following new definitions:
-4-
<PAGE> 5
INTERCOMPANY NOTE. The Promissory Note payable to the Borrower
from DCI evidencing the indebtedness due from DCI to the
Borrower, together with all modifications and amendments
thereto and restatements thereof.
INVESTMENT PLEDGE. The Pledge Agreement dated March 18, 1997
executed by the Borrower in favor of the Bank, pursuant to
which the borrower has pledged all of its investment
securities to the Bank to secure the obligations, together
with all modifications, amendments, supplements, and
restatements thereto.
TRADE PAYABLES. All liabilities, obligations, and indebtedness
of the Borrower incurred for the purchase of goods and
services.
h. The Loan Agreement is hereby amended by deleting all rights of
the Borrower to select or obtain LIBOR Rate Loans, and, except
with respect to any existing LIBOR Rate Loans, all definitions
and provisions relating thereto are hereby deleted in their
entirety.
i. The Loan Agreement is hereby amended by deleting all
references to the Overdraft Facility, as such facility has not
been, and will not be, established in favor of Triax, and the
Bank is hereby released from all obligations with respect
thereto.
j. The Loan Agreement is hereby amended by deleting Section 2.7
in its entirety and substituting the following in its stead:
SEC. 2.7 INTEREST RATE AND PAYMENT OF INTEREST. So
long as no event of default is continuing, each base
rate loan shall bear interest for the period
commencing with the drawdown date thereof and ending
on the last day of the interest period with respect
thereto at a rate per annum equal to the aggregate of
the base rate and one percent (1%). At the option of
the Bank, after the occurrence of an Event of
Default, amounts payable under any of the loan
documents shall bear interest (compounded monthly and
payable on demand in respect of overdue amounts) at a
rate per annum which is equal the aggregate of the
base rate and four percent (4%) until such amount is
paid in full or (as the case may be) such event of
default has been cured or waived in writing by the
Bank (after as well as before judgment).
The Bank agrees that the foregoing default rate is not
presently in effect and shall not be charged until the earlier
of (i) the occurrence of any Termination Event, or (ii) the
expiration of the Forbearance Period, for periods following
such event.
k. The Loan Agreement is hereby amended by deleting the words
"and for Permitted Acquisitions" appearing in Section 4.16
thereof.
-5-
<PAGE> 6
l. Section 5.1 of the Loan Agreement is hereby amended by adding
the following new subsections:
(k) as and when completed by the Borrower's auditors, restated
financial statements for the period beginning with fiscal year
1994 through the second quarter of fiscal year 1997;
(1) as and when filed with the Internal Revenue Service,
copies of the Borrower's federal income tax returns.
m. The Loan Agreement is hereby amended by deleting clause (iv)
of Section 6.9 thereof which reads "(iv) Investments in
Permitted Acquisitions."
n. Section 7.3 of the Loan Agreement is hereby amended as
follows:
- By deleting the introductory clause of subparagraph
(a) in its entirety and substituting the following in
its stead:
SCHEDULED ACCOUNTS. Deliver to the bank daily:
------------------
- By deleting the provisions of subparagraph (B) in
their entirety and substituting the following in
their stead:
BORROWING BASE CERTIFICATE. Deliver to the bank,
daily, a borrowing base certificate, substantially in
the form of Exhibit 7.3(B) hereto.
- By deleting the provisions of subparagraph (g) in
their entirety and substituting the following in
their stead:
(g) SCHEDULE OF INVENTORY. Deliver to the bank a
schedule of inventory in form and substance
satisfactory to the bank, on Tuesday of each week (as
of the preceding Friday), and at such other intervals
and for such periods as the bank may request,
itemizing and describing the kind, type, and quantity
of inventory and location and the borrower's cost
thereof, and providing such other details as the bank
may require from time to time.
o. Section 9.1 of the Loan Agreement is hereby amended by
deleting subsection (d) thereof in its entirety and replacing
such subsection with the following:
-6-
<PAGE> 7
(d) WITH A COPY TO:
RIEMER & BRAUNSTEIN
THREE CENTER PLAZA
BOSTON, MASSACHUSETTS 02108
ATTENTION: DAVID S. BERMAN, ESQUIRE
TELEPHONE 617-523-9000
TELECOPIER 617-723-6831
6. CONDITIONS TO FORBEARANCE.
a. During the Forbearance Period, and notwithstanding any prior
notice of termination of the Bank's Commitments, after the
Borrower has utilized all cash presently in its possession or
control, the Bank shall, subject to the terms hereof and the
other Loan Documents, make such loans and advances in
accordance with the provisions of Section 2.1(a) of the Loan
Agreement as requested by the Borrower. The Bank shall have no
obligation to issue any Letters of Credit for the account of
the Borrower at any time hereafter.
b. During the Forbearance Period, the Borrower shall make lease
payments to BBL and shall make payments of principal (except
for payments of principal due solely as a result of
acceleration of the Obligations by the Bank) and interest on
the amounts due under the Loan Agreement, in each case as and
when due under the Master Lease Agreement and Loan Documents.
In addition, upon the Borrower's receipt of any federal or
state income tax refunds or proceeds from the sale or other
disposition of any of assets of any Obligor, the Borrower
shall deliver same to the Bank for application to the
Obligations. The entire outstanding balance due under the
Master Lease Agreement and the Loan Agreement shall be due and
payable in full upon the expiration of the Forbearance Period.
c. Upon the execution hereof, Centennial Capital Corporation
shall deliver to the Bank an unconditional guaranty of the
payment and performance of the Obligations in form
satisfactory to the Bank. In addition, to secure such guaranty
and the Obligations, Centennial Capital Corporation shall
execute and deliver to the Bank a pledge agreement and such
other documents as may be necessary to grant the Bank a first
priority perfected security interest in all of its assets.
d. Upon the execution hereof, the Borrower shall deliver to each
of BBL and the Bank a pledge agreement, in form satisfactory
to BBL and the Bank, pursuant to which the Borrower shall
pledge and grant a security interest in all of its "investment
portfolio" (as more Particularly
-7-
<PAGE> 8
described on SCHEDULE 2 hereto) to secure the Obligations and
the Master Lease Agreement.
e. During the Forbearance Period, the Borrower shall deliver to
the Bank weekly, on Tuesday of each week (as of the preceding
Friday), a report to reflect the actual results of operations
compared to those set forth in the projections furnished to
the Bank and annexed hereto as SCHEDULE 3.
f. On or before the date hereof, the Borrower shall furnish to
the Bank copies of its filed tax returns which will reflect
(and confirm the Borrower's representations to the Bank) that
the Borrower is entitled to tax refunds of at least
$3,000,000. The tax returns shall include as the Borrower's
address the address of the lock box at the Bank.
g. In consideration of the Bank's entering into this Agreement,
upon the execution hereof, the Borrower shall pay the Bank the
sum of Ten Thousand and no/100 Dollars ($10,000.00) as a
forbearance fee. Such fee shall be fully earned upon payment
and shall not be subject to refund or rebate under any
circumstances. The forbearance fee shall not be applied in
reduction of the principal, interest or other amounts due in
connection with the loan arrangement.
h. Prior to the effectiveness of this Agreement, DCI shall
execute a lockbox agreement satisfactory to the Bank. The Bank
agrees to hold the lockbox agreement in escrow and not to
implement the lockbox agreement until the earlier of (i) April
11, 1997, or (ii) the termination of the Forbearance Period.
In the event that an agreement reasonably satisfactory to the
Bank is entered into providing for either (x) the sale of the
assets or capital stock of DCI, or (y) the refinancing of DCI,
prior to the occurrence of (i) or (ii) , above, the Bank will
further delay the implementation of the lockbox arrangement
for such further period as the Bank shall deem reasonable in
the circumstances. If implemented, all collections received in
the lockbox shall be applied in reduction of the Obligations
as set forth in the Loan Documents.
i. Upon the execution hereof, DCI shall execute and deliver to
the Borrower a Promissory Note (in form as satisfactory to the
Bank) evidencing the indebtedness due from DCI to the Borrower
(the "INTERCOMPANY NOTE"). The Intercompany Note shall be
collaterally assigned to BBL and the Bank as further security
for the Master Lease Agreement and the Obligations.
j. The Borrower shall cooperate with the Bank's consultants and
shall furnish such information as the consultants may
reasonably request.
-8-
<PAGE> 9
The Bank shall not require its consultants to undertake an
on-site audit of the books and records of Triax Technology
Group Ltd. ("Triax") during the Forbearance Period only
(reserving the right to undertake such on-site audit at any
time thereafter) as long as (i) the audit of Triax undertaken
by Coopers & Lybrand is promptly furnished to the Bank and its
consultants, and (ii) the information contained therein is
reasonably satisfactory to the Bank and its consultants, and
(iii) the Borrower and Triax promptly respond to any inquiries
made and furnish any information requested by the Bank and its
consultants. All reasonable costs and expenses of the Bank's
consultants shall be paid by the Borrower within five (5)
business days of delivery to the Borrower of a detailed
itemization of the Bank's consultant's expenses. Any payment
by the Borrower shall be without prejudice to the Borrower's
right to thereafter object to the reasonableness of such costs
and expenses.
k. During the Forbearance Period, the Commitment Fee set forth in
Section 2.3 of the Loan Agreement shall not accrue and the
Borrower shall not be obligated to pay same.
l. During the Forbearance Period, except as otherwise
specifically provided herein, the Obligors shall continue to
comply with all of the other terms and conditions of the Loan
Documents and the Master Lease Agreement.
m. Upon the execution hereof, the Borrower shall pay all
reasonable costs and expenses, including, without limitation,
reasonable attorneys' fees, consultants' fees, and commercial
finance examination fees, which have been incurred by the Bank
and BBL in connection with its loan and lease arrangements
with the Borrower.
7. TERMINATION EVENTS. The occurrence of any of the following shall
constitute a "TERMINATION EVENT" within the meaning of the within
Agreement:
a. The failure of the Borrower or any Guarantor to make any lease
payment or payment of principal, interest, or other amounts
due to BBL or the Bank under this Forbearance Agreement when
due.
b. The occurrence of any Default or Event of Default after the
date hereof under the Master Lease Agreement or any of the
Loan Documents (provided that, the failure of the Borrower to
comply with the provisions of Sections 5.7 through 5.10 of the
Loan Agreement during the Forbearance Period shall not
constitute a Termination Event).
-9-
<PAGE> 10
c. The failure by any Obligor to satisfy all of the terms and
conditions of this Agreement as and when due.
d. The determination by the Bank that any representation or
warranty made to the Bank by any Obligor in connection with
this Forbearance Agreement was not true, correct and accurate
in any material respect when made or given.
e. The failure of the Borrower to operate its business
substantially in accordance with, or the failure of the
Borrower to substantially achieve the results set forth in,
the projections furnished to the Bank on March 3, 1997.
f. The failure of the Obligors, on or before March 25, 1997, to
furnish the Bank with evidence of their respective corporate
resolutions authorizing their entering into this Agreement and
all other documents ancillary hereto.
For purposes of this Section 7, the Bank acknowledges that any event of
default PRESENTLY EXISTING by virtue of the Borrower's failure to comply with
the financial covenants set forth in Section 5.7 through 5.10 of the Loan
Agreement and the failure of Emanuel Pinez to control the Borrower's management
shall not constitute a basis for the declaration of a Termination Event
hereunder; provided that the Bank is not waiving any rights upon any further
breach of such provisions after expiration of the Forbearance Period.
Upon the occurrence of any Termination Event, the Bank may immediately
cease making loans and advances to the Borrower and the Bank and BBL may
exercise any or all of their rights and remedies on default to which the Bank or
BBL is, or to which the Bank or BBL would be entitled against any Obligor on
account of or in respect of the Loan Documents or the Master Lease Agreement.
8. ADDITIONAL REPRESENTATIONS AND WARRANTIES. As a partial inducement for
BBL and the Bank to enter into the within Agreement, the Obligors hereby warrant
and represent to the Bank and to BBL that:
a. Each of the Obligors is a validly existing corporation in good
standing under the laws of the state of its incorporation;
b. The execution and delivery of this Agreement and all
documents, instruments, and agreements executed and delivered
incidental hereto will be duly authorized by all necessary
corporate action;
-10-
<PAGE> 11
c. The persons executing this Agreement and all documents,
instruments, and agreements executed incidental hereto on
behalf of each of the Obligors will be duly authorized to do
so;
d. This Agreement and all documents, instruments, and agreements
executed incidental hereto constitute the valid and binding
obligations of the Obligors each enforceable in accordance
with their terms; and
e. There is no indebtedness due from Century to the Borrower.
9. GENERAL.
a. This Agreement shall be binding upon each Obligor and such
Obligor's successors and assigns and shall enure to the
benefit of BBL, the Bank and BBL's and the Bank's successors
and assigns. In the event that BBL or the Bank assigns or
transfers its rights under this Agreement, the assignee shall
thereupon succeed to and become vested with all rights,
powers, privileges, and duties of BBL or the Bank hereunder
and BBL or the Bank shall thereupon be discharged and relieved
from its duties and obligations hereunder.
b. Any determination that any provision of this Agreement or any
application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity,
legality, or enforceability of such provision in any other
instance, or the validity, legality, or enforceability of any
other provision of this Agreement.
c. No delay or omission by BBL or the Bank in exercising or
enforcing any of BBL's or the Bank's rights and remedies shall
operate as, or constitute, a waiver thereof. No waiver by BBL
or the Bank of any of BBL's or the Bank's rights and remedies
on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver.
d. This Agreement and all other documents, instruments, and
agreements executed in connection herewith incorporate all
discussions and negotiations between the Obligors, BBL and the
Bank, either express or implied, concerning the matters
included herein and in such other instruments, any custom,
usage, or course of dealings to the contrary notwithstanding.
No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the
provisions hereof. No modification, amendment, or waiver of
any provision of this Agreement or of any provision of any
other agreement between any Obligor and BBL or the Bank shall
be effective unless executed in
-11-
<PAGE> 12
writing by the party to be charged with such modification,
amendment and waiver, and if such party be BBL or the Bank,
then by a duly authorized officer thereof.
e. Except as modified hereby, all terms and conditions of the
Master Lease Agreement, Loan Agreement, the Guaranties, and
other Loan Documents remain in full force and effect. The Bank
and BBL are not hereby waiving any Defaults, Events of Default
or rights and remedies which exist under the Master Lease
Agreement or the Loan Documents and the Bank and BBL reserve
the right upon expiration of the Forbearance Period to
undertake such action as a result of such Defaults and Events
of Default as the Bank or BBL may determine. In particular,
without limiting the generality of the foregoing, the Bank and
BBL have not waived any Defaults or Events of Default, or the
respective rights and remedies of the Bank and/or BBL arising
as a result thereof, which may have occurred as a result of
any misrepresentation made by or on behalf of any one or more
of the Obligors.
f. This Agreement and all rights and obligations hereunder,
including matters of construction, validity, and performance,
shall be governed by the laws of The Commonwealth of
Massachusetts. The Obligors each submit to the jurisdiction of
the Courts of said Commonwealth for all purposes with respect
to this Agreement and the Obligors' relationship with the Bank
and BBL.
g. Each Obligor makes the following waiver knowingly,
voluntarily, and intentionally, and understands that the Bank
and BBL, in entering into the within Forbearance Agreement, is
relying thereon. EACH OBLIGOR, TO THE EXTENT OTHERWISE
ENTITLED THERETO, HEREBY IRREVOCABLY WAIVES ANY PRESENT OR
FUTURE RIGHT OF THAT OBLIGOR TO A JURY IN ANY TRIAL OF ANY
CASE OR CONTROVERSY IN WHICH THE BANK OR BBL IS OR BECOMES A
PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR
AGAINST THE BANK OR BBL OR IN WHICH THE BANK OR BBL IS JOINED
AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF,
OR IS IN RESPECT OF, ANY RELATIONSHIP BETWEEN THE BORROWER OR
ANY SUCH PERSON AND THE BANK OR BBL.
h. Each Obligor shall execute such instruments and documents as
BBL and the Bank may from time to time request in connection
with the Master Lease Agreement, Loan Agreement, the
Guaranties, the Loan Documents, the within Agreement and the
arrangements contemplated hereby.
-12-
<PAGE> 13
It is intended that this Agreement take effect as a sealed instrument.
CENTENNIAL TECHNOLOGIES, INC. DESIGN CIRCUITS, INC.
By: By:
------------------------------ -------------------------------
Print Name: Print Name:
---------------------- -----------------------
Title: Title:
--------------------------- ----------------------------
CENTURY ELECTRONICS NCT, INC.
MANUFACTURING, INC.
By: By:
------------------------------ -------------------------------
Print Name: Print Name:
---------------------- -----------------------
Title: Title:
--------------------------- ----------------------------
AGREED AND ACCEPTED BY:
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------
Print Name:
----------------------
Title:
---------------------------
BANCBOSTON LEASING INC.
By:
------------------------------
Print Name:
----------------------
Title:
---------------------------
-13-
<PAGE> 1
TRIPLE I CORPORATION
One Lowell Research Center
847 Rogers Street
Lowell, Massachusetts 01852
March 31, 1996
James M. Murphy, Chief Financial Officer
Centennial Technologies
37 Manning Road
Billerica, Massachusetts 01821
Re: Purchase Agreement
------------------
Dear Mr. Pinez:
This letter serves as written expression of the agreement between Triple
I Corporation ("Triple I") and Centennial Technologies, Inc. ("Centennial"),
whereby Centennial will purchase for Triple I, subject to full reimbursement
from Triple I, components to be used in the manufacture of Triple I products
("Agreement"). This Agreement shall run for a period of March 31, 1996 until
June 30, 1997, and is renewable upon mutual written consent of the parties prior
to the termination of the Agreement.
Upon receipt of a written purchase order from Triple I ("Triple I
Purchase Order"), Centennial agrees to purchase the requested components from
the stated vendor on Centennial's account using Centennial's purchasing system.
Triple I shall negotiate the terms, prices and delivery dates with the vendors
prior to forwarding the Triple I Purchase Order to Centennial, and reflect such
terms in the Triple I Purchase Order. Centennial shall place the orders with the
vendor in a timely manner, according to the terms and conditions stated in the
Triple I's Purchase Order, and forward copies of the documents evidencing the
order ("Centennial Purchase Order") to Triple I.
Centennial shall receive the components at its place of business and
notify Triple I of the receipt within one (1) business day of receipt. Triple I
shall be required to transport the components to its place of business from
Centennial at the sole expense of Triple I.
Centennial shall pay the vendor the cost of the components in a timely
manner. Triple I shall pay Centennial for the components within ten (10) days of
receipt of full payment to Triple I for the sale of the machine within which the
components were installed (the "Due Date"). Centennial agrees to reduce Triple
I's outstanding balance with Centennial accordingly as payment for the
components is received from Triple I. At the times Triple I pays Centennial for
the components, Triple I shall provide Centennial with evidence of the dates on
which Triple I
<PAGE> 2
James M. Murphy, Chief Financial Officer
Re: Purchase Agreement
March 31, 1996
Page 2
received full payment for the sale of the machine within which the components
were installed.
If any payment for components due Centennial hereunder is not received
by Centennial from Triple I within three (3) business days after the Due Date,
then Centennial at any time thereafter may attempt to collect said overdue
payment, through legal proceedings or otherwise, and Triple I will pay all of
Centennial's reasonable legal fees and costs and expenses of collection incurred
in connection with Centennial's attempts to collect said overdue payment. In the
event that any such payment for components is not received by Centennial within
five (5) business days of the Due Date, Centennial, at its option, may assess to
Triple I a late payment fee equal to five percent (5%) of the overdue payment,
payable to Centennial with the overdue payment.
The parties have agreed that Centennial will purchase for Triple I,
subject to full reimbursement from Triple I, components necessary to manufacture
twenty (20) systems, estimated at $3,000,000. By this letter, Centennial
presently authorizes the purchases of components on Centennial's account up to a
total of $750,000 due at any one time. The $750,000 limit may be increased upon
prior written consent of Centennial.
In consideration of Centennial's purchasing services to be provided to
Triple I hereunder, Triple I shall pay to Centennial a one-time fee of $200,000.
No other fees or interest shall be due. Triple I will pay the $200,000 fee in
full in cash on or before May 31, 1996. Centennial acknowledges that Triple I
has granted a prior security interest to its principal lender and that
Centennial has not requested or received any security interest under this
Agreement.
The parties agree that Centennial may terminate this Agreement, at its
sole discretion, if Triple I shall take any voluntary action or be the subject
of any involuntary action seeking bankruptcy, insolvency administration,
receivership or any such similar action without obtaining dismissal of such
action within sixty (60) days after the taking thereof.
No delay or failure by Centennial to exercise any right hereunder, and
no partial or single exercise of any such right, shall constitute a waiver of
that or any other right, unless otherwise expressly provided herein.
This Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, successors and assigns.
<PAGE> 3
James M. Murphy, Chief Financial Officer
Re: Purchase Agreement
March 31, 1996
Page 3
The parties have requested that the law firm of O'Connor, Broude &
Aronson prepare this document. The parties acknowledge that they have been
advised to review this Agreement with their own legal counsel and other advisors
of their choosing and that prior to entering into this Agreement, they have had
the opportunity to review this Agreement with their attorney and other advisors
and have not asked (or relied upon) O'Connor, Broude & Aronson to represent them
in this matter.
By the signatures below, the undersigned agree that this Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof, that it may be changed only by a written agreement signed by the
parties, and agree to abide by the terms herein.
TRIPLE I CORPORATION
By:
------------------------------------
Bryan Gleason
Chief Financial Officer
CENTENNIAL TECHNOLOGIES, INC.
By:
------------------------------------
James M. Murphy
Chief Financial Officer
<PAGE> 1
INVESTMENT AND STOCKHOLDERS AGREEMENT
BY AND BETWEEN
CENTENNIAL TECHNOLOGIES, INC.
AND
VIA, INC.
NOVEMBER 27, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
1. Terms of Purchase ............................................ 1
1.1 Purchase of Shares ................................... 1
1.2 Purchase Price ....................................... 1
1.3 Closing .............................................. 2
2. Representations and Warranties of ViA ........................ 2
2.1 Capitalization of ViA ................................ 2
2.2 Organization of ViA .................................. 3
2.3 Merger Agreement ..................................... 3
2.4 Authorization ........................................ 3
2.5 Subsidiaries of ViA .................................. 4
2.6 Audited Financial Statements ......................... 4
2.7 Tax Matters .......................................... 5
2.8 Title to Properties .................................. 5
2.9 Agreements, Contracts, Licenses and Commitments ...... 6
2.10 Required Consents, No Default ........................ 6
2.11 Litigation ........................................... 6
2.12 Intangible Property .................................. 6
2.13 Governmental Consents ................................ 7
2.14 Compliance with Agreements and Laws .................. 7
2.15 Employee Relations ................................... 7
2.16 Indebtedness to and from Officers, Directors and
Stockholders ........................................ 7
2.17 Insurance of Properties .............................. 7
2.18 Guarantees, Warranties and Discounts ................. 8
2.19 Restricted Securities ................................ 8
2.20 Legends .............................................. 8
3. Affirmative Covenants ........................................ 9
3.1 Maintenance of Records ............................... 9
3.2 Maintenance of Properties ............................ 9
3.3 Conduct of Business .................................. 9
3.4 Maintenance of Insurance ............................. 9
3.5 Compliance With Laws ................................. 9
3.6 Right of Inspection .................................. 10
3.7 Reporting Requirements ............................... 10
3.8 Payment of Taxes and Claims .......................... 11
3.9 Maintenance of Existence ............................. 11
3.10 Payment of Other Obligations ......................... 11
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<PAGE> 3
4. Representations and Warranties of Centennial ................. 12
4.1 Organization and Related Matters ..................... 12
4.2 Authorization of Agreement ........................... 12
4.3 Capitalization of Centennial ......................... 12
4.4 Financial Representations ............................ 12
4.5 Cooperation .......................................... 12
4.6 Investment Intent .................................... 13
4.7 No Brokers or Finders ................................ 13
5. Opinions of Counsel .......................................... 13
6. Indemnification .............................................. 14
6.1 Indemnification by ViA ............................... 14
6.2 Indemnification by Centennial ........................ 14
6.3 Conditions of Indemnification ........................ 14
6.4 Conditions to Indemnification ........................ 14
6.5 Payment for Indemnification .......................... 15
6.6 Survival of Indemnification .......................... 15
6.7 Intent of Parties .................................... 15
7. Registration Rights .......................................... 15
7.1 Registration of Shares ............................... 15
7.2 Compliance with Securities Rules and Regulations ..... 16
7.3 Obligations of ViA ................................... 16
7.4 Indemnification ...................................... 17
8. Future Sales of Shares of Capital Stock of ViA ............... 18
8.1 Participation Right of Centennial .................... 18
9. General ...................................................... 18
9.1 Survival of Representations, Warranties and
Covenants ........................................... 18
9.2 Press Releases ....................................... 18
9.3 Payment of Expenses .................................. 18
9.4 Governing Law ........................................ 18
9.5 Notices .............................................. 19
9.6 Successors and Assigns ............................... 19
9.7 Headings ............................................. 20
9.8 Counterparts ......................................... 20
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<PAGE> 4
9.9 Waiver ............................................... 20
9.10 Entire Agreement ..................................... 20
9.11 Additional Actions ................................... 20
9.12 Remedies ............................................. 20
TABLE OF SCHEDULES AND EXHIBITS
-------------------------------
No. Title
- --- -----
1.3 Shareholder Voting Agreement
2.1 The ViA Shareholders
2.6 Adverse Changes and Undisclosed Liabilities
2.7 Powers of Attorney
2.9 Agreements, Contracts, Licenses and Commitments
2.11 Litigation
2.12 Intangible Property
2.16 Indebtedness to and from Officers, Directors and Stockholders
2.18 Registration Rights Agreement
5(a) Opinion of Counsel to ViA, Inc.
5(b) Opinion of Counsel to Centennial Technologies, Inc.
iii
<PAGE> 5
INVESTMENT AND STOCKHOLDERS AGREEMENT
This Investment and Stockholders Agreement (the "Agreement") made as of
the 27th day of November, 1996, by and between Centennial Technologies, Inc., a
Delaware corporation having its principal place of business at 37 Manning Road,
Billerica, Massachusetts 01821 ("Centennial") and ViA, Inc., a Minnesota
corporation having its principal place of business at 11 Bridge Square,
Northfield, MN 55057 ("ViA").
RECITALS
--------
WHEREAS, ViA has authorized 25,000,000 shares of common stock (the
"Common Stock") and 1,000,000 shares of preferred stock, of which 10,840 shares
of common stock are currently issued and outstanding, and of which ViA is
obligated to issue an additional 70,481 shares of common stock as of November
26, 1996, which is the effective date of the Merger Agreement referred to in
section 2.3 below, and of which no shares of preferred stock are outstanding;
and
WHEREAS, Centennial wishes to acquire from ViA and ViA wishes to
transfer to Centennial 11,089 shares of authorized but unissued ViA Common
Stock, after which Centennial will own twelve percent (12%) of the then
outstanding ViA Common Stock, in exchange for which Centennial shall pay the
Purchase Price (as defined herein) on the terms and conditions set forth below.
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the mutual promises and the representations, warranties and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. TERMS OF PURCHASE.
1.1 PURCHASE OF SHARES. Subject to the terms, provisions and
conditions of this Agreement and upon the basis of the representations,
warranties and covenants made herein, at the Closing (as defined below) ViA
shall sell, assign and transfer to Centennial eleven thousand eighty-nine
(11,089) shares of ViA Common Stock (the "ViA Shares") which shall constitute
twelve percent (12%) of the then outstanding capital stock of ViA. At the
Closing, ViA shall deliver a certificate or certificates representing the ViA
Shares in exchange for which Centennial shall pay the Purchase Price as set
forth in Section 1.2 herein.
1.2 PURCHASE PRICE. At the Closing, Centennial shall provide ViA
an aggregate payment of a combination of cash and shares of Centennial's common
stock ("Centennial Shares") with a combined value of no less than five million
dollars ($5,000,000), such combination to be determined at the sole discretion
of Centennial. For such purposes, Centennial Shares shall be deemed to have a
value equal to that necessary for ViA to
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<PAGE> 6
receive on the Closing Date (as defined below) $5,000,000 from Lehman Brothers
Finance, S.A. ("Lehman") pursuant to a fully hedged financing transaction of a
term of at least four (4) months utilizing the Centennial Shares or the value
thereof (the "Financing"), which $5,000,000 shall be net of all net interest,
costs, liabilities and expenses incurred by ViA relating to or in connection
with the Financing or the failure thereof.
1.3 CLOSING. The closing (the "Closing") of the purchase of the
ViA Shares under this Agreement shall take place at the offices of Centennial in
Billerica, Massachusetts and at the offices of ViA in Northfield, Minnesota, on
or before the 6th day of December, 1996. The date of the Closing is hereinafter
referred to as the Closing Date. All proceedings to be taken and all documents
to be executed and delivered by all parties at the Closing shall be deemed to
have been taken and executed simultaneously, and no proceedings shall be deemed
to have been taken nor any documents executed or delivered until all have been
taken, executed and delivered, except as set forth below. All that the parties
hereto contemplate needs to be completed and executed at the time of the Closing
to effect fully this Agreement are the following:
(a) ViA shall deliver to Centennial certificates representing
the ViA Shares, and, in exchange therefor, Centennial shall deliver to ViA a
certificate or certificates representing the Centennial Shares.
(b) The parties shall deliver to each other the appropriate
Opinion of Counsel described in Section 5 of this Agreement.
(c) ViA shall deliver an executed Shareholder Voting Agreement
substantially in the form attached hereto as EXHIBIT 1.3.
In addition, the obligations of each party hereunder to close this
transaction shall be subject to the fulfillment of the condition that on or
before December 6, 1996, the Financing shall have been consummated to ViA's
reasonable satisfaction. The failure to fulfill this condition to ViA's
reasonable satisfaction on or before December 6, 1996 shall render this
Agreement null and void.
2. REPRESENTATIONS AND WARRANTIES OF ViA.
ViA represents and warrants to Centennial, upon which representations
and warranties Centennial relies, and which representations and warranties shall
survive the Closing for a period of one (1) year, notwithstanding any
investigation of the affairs of ViA by Centennial, as follows:
2.1 CAPITALIZATION OF ViA. ViA's authorized capital stock consists
of 25,000,000 shares of common stock, and 1,000,000 shares of preferred stock,
of which 10,840 shares of common stock are currently issued and of which ViA is
obligated to issue an
2
<PAGE> 7
additional 70,481 shares of common stock as of November 26, 1996, the effective
date of the Merger Agreement, which are held of record and beneficially as shown
on the attached SCHEDULE 2.1 (the "ViA Shareholders"). All such issued and
outstanding ViA Shares have been and on the Closing Date will be duly and
validly issued and are, or will be on the Closing Date, fully paid and
nonassessable. Except as disclosed on the attached SCHEDULE 2.1, there are not,
and on the Closing Date there will not be, outstanding (i) any options, warrants
or other rights to purchase from ViA any ViA Common Stock; (ii) any securities
convertible into or exchangeable for shares of any ViA Common Stock; or (iii)
any other agreements, arrangements, understandings or commitments of any kind
for the issuance of additional shares of ViA Common Stock, or options, warrants
or other securities of ViA.
2.2 ORGANIZATION OF ViA. ViA is a corporation, duly organized,
validly existing and in good standing under the laws of Minnesota, and has all
requisite power and authority (corporate and other) to own its properties and to
carry on its business as now being conducted. ViA is duly qualified to do
business and is in good standing in all jurisdictions in which its ownership of
property or the character of its business requires such qualification and where
failure to be so qualified would have a material adverse effect on ViA.
Certified copies of the Certificate of Incorporation, as amended and by-laws of
ViA, as amended to date, shall be delivered to Centennial, and shall be complete
and correct, and no amendments shall have been made thereto or have been
authorized since the date hereof.
2.3 MERGER AGREEMENT. Pursuant to a Contribution and Exchange
Agreement by and among Key Information Delivery, Inc. and the members and
shareholders of Key Idea Development, LLC and Key Information Delivery, Inc.
(the "Merger Agreement"), all of the members of Key Idea Development, LLC, a
Minnesota limited liability corporation ("Key Idea"), contributed all of their
members' capital to Key Information Delivery, Inc., a Minnesota corporation
("Key Information"), in exchange for shares of Common Stock in Key Information.
The name of Key Information was changed to ViA on November 26, 1996. The Merger
Agreement, and all other agreements related thereto, were duly and validly
authorized, executed and delivered by each of the parties thereto, and
constitute valid and legally binding obligations, enforceable by and against the
parties in accordance with their respective terms. All documents required to be
filed in order to effect the terms of the Merger Agreement either have been
filed or will be filed within thirty (30) days of the Closing Date with the
appropriate governmental agencies. ViA, Key Information and Key Idea are
sometimes collectively referred to herein as the "ViA Corporations."
2.4 AUTHORIZATION. This Agreement has been duly and validly
executed and delivered by ViA. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the transactions
contemplated hereby to which ViA is a party constitute the valid and legally
binding obligations of ViA, enforceable against it in accordance with their
respective terms except insofar as enforceability may be
3
<PAGE> 8
limited by bankruptcy, insolvency, or similar laws affecting the rights of
creditors and general equitable principles. The execution, delivery and
performance of this Agreement and the agreements provided for herein by ViA, and
the consummation by ViA of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both:
(a) violate the provisions of any law, rule or regulation applicable to ViA; (b)
violate the provisions of the Certificate of Incorporation, charter documents or
by-laws of ViA; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any indebtedness, contract,
lease, license, permit, lien, charge or encumbrance upon the properties or
assets of ViA pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which ViA is a party or by which ViA or any of its
predecessors is or may be bound.
2.5 SUBSIDIARIES OF ViA. Except for Key Idea, ViA has no
subsidiaries, and ViA owns or holds of record and or beneficially no shares of
any class of capital stock of any other corporations or business enterprise.
"Subsidiary" shall mean any corporation, partnership, joint venture or other
entity in which ViA has, directly or indirectly, an equity interest representing
50% or more of the capital stock thereof or other equity interests therein.
2.6 AUDITED FINANCIAL STATEMENTS.
(a) FINANCIAL STATEMENTS. ViA has delivered to Centennial true
and complete copies of audited combined financial statements of Key Information
and Key Idea as of June 30, 1996 and 1995 (the "1996 Financial Statements") and
before December 6, 1996 will deliver to Centennial unaudited interim financial
statements of Key Information and Key Idea for the period July 1, 1996 to
September 30, 1996 (the "Interim Financial Statements"). The 1996 Financial
Statements and Interim Financial Statements are collectively referred to as the
"Financial Statements." All such Financial Statements are in accordance with the
books and records of the ViA Corporations and (i) present fairly and correctly
the combined financial position of Key Information and Key Idea as of the
respective dates and for the respective periods indicated, (ii) include all
required material adjustments, and (iii) have been prepared in accordance with
generally accepted accounting principles ("GAAP"), applied on a basis consistent
with prior periods and practices. From September 30, 1996 through the Closing
Date, the ViA Corporations have not and shall not change their accounting
practices and procedures.
(b) NO ADVERSE CHANGES OR UNDISCLOSED LIABILITIES. Except as
set forth on SCHEDULE 2.6, since September 30, 1996, and except for the
transactions contemplated by the Merger Agreement, there has not occurred or
arisen, whether or not in the ordinary course of business: (i) any material
adverse change in the assets, financial condition, operations, prospects or
business of any of the ViA Corporations, or (ii) any event, condition or set of
facts of any character known to the ViA Corporations which
4
<PAGE> 9
might materially and adversely affect the results of operations, assets,
financial condition, prospects or business of any of the ViA Corporations.
Except as set forth on Schedule 2.6, the ViA Corporations have had no material
liabilities or obligations, fixed, accrued, contingent or otherwise, which are
not fully reflected or provided for on, or disclosed in the notes to, the
Financial Statements except (i) liabilities and obligations incurred in the
ordinary course of business since September 30, 1996, none of which individually
or in the aggregate has been or is materially adverse to the assets, operations,
financial condition, prospects or business of the ViA Corporations, and (ii)
liabilities and obligations permitted or contemplated by this Agreement.
2.7 TAX MATTERS.
(a) The ViA Corporations and their predecessors have paid,
and, as to any of the following which are payable after the Closing Date and
determinable as of the Closing Date, the ViA Corporations and their predecessors
have properly reserved against in accordance with GAAP, all income taxes,
capital gains taxes, withholding taxes, capital taxes, sales and use taxes,
goods and services taxes, business taxes, ad valorem taxes, property taxes,
excise taxes, customs and import duties, imposts, rates, levies, assessments and
fees, and all other taxes of every kind, character or description, including all
interest, fines, and penalties relating thereto, imposed by any governmental or
quasi-governmental authority, domestic or foreign, whether federal, provincial,
state, territorial or municipal (collectively the "Taxes") required to be paid
by the ViA Corporations or their predecessors for all periods prior to the
Closing Date. No outstanding assessments, reassessments, notices of
determination, or notices of any kind whatsoever exist. The ViA Corporations and
their predecessors have duly filed or caused to be filed all reports, returns
and other documents relating to or covering all such Taxes, which are due or
required to be filed at or prior to the date of Closing; and
(b) No action, suit, proceeding, audit, investigation or claim
is pending or, to the knowledge of ViA, are threatened with respect to any Taxes
for which any of the ViA Corporations or their predecessors are liable, nor has
any deficiency or claim for any Taxes been proposed or asserted. No waiver of
any statute of limitations with respect to any taxation year has been executed
by the ViA Corporations or their predecessors; and no agreement, waiver or
consent providing for an extension of time with respect to the assessment,
reassessment or other determination of any Taxes against the ViA Corporations or
their predecessors, and no power of attorney granted by the ViA Corporations or
their predecessors with respect to any matters relating to Taxes is currently in
force, except as provided in SCHEDULE 2.7.
2.8 TITLE TO PROPERTIES. ViA has good and marketable title to all
of the properties and assets reflected in the Financial Statements or acquired
since September 30, 1996, except properties and assets disposed of in the
ordinary course of business since September 30, 1996.
5
<PAGE> 10
2.9 AGREEMENTS, CONTRACTS, LICENSES AND COMMITMENTS. Except as set
forth on SCHEDULE 2.9, ViA is not, and none of the ViA Corporations at the time
of the execution of the Merger Agreement were, a party to or liable in
connection with any oral or written agreement or arrangement for the sale of any
of the assets of the ViA Corporations, for the licensing of rights regarding any
of the assets or property of the ViA Corporations, for the grant of any
preferential rights to purchase any of the assets, property or rights of the ViA
Corporations, or requiring the consent of any party for the transfer and
assignment of such assets, property or rights of the ViA Corporations.
2.10 REQUIRED CONSENTS, NO DEFAULT. Neither the execution and
delivery of this Agreement nor compliance by ViA with its terms and provisions
will require the affirmative consent, approval, order or authorization of or any
registration, declaration or filing with any third party or governmental
authority that will not be received prior to the Closing Date. ViA is not, and
none of the ViA Corporations at the time of the execution of the Merger
Agreement were in default under or in violation of any provision of their
Certificates of Incorporation, charter documents or by-laws. ViA is not in
default under or in violation of any provision of any indenture, mortgage,
lease, loan or other agreement to which it or any of its predecessors is a party
or is bound or to which any of their properties are subject, except such
defaults which in the aggregate are not materially adverse to the business or
financial condition of ViA.
2.11 LITIGATION. Except as provided in SCHEDULE 2.11, (a) there is
no action, suit or proceeding to which any of the ViA Corporations is a party
(either as a plaintiff or defendant) pending or, to the best knowledge of ViA,
threatened before any court or governmental agency, authority, body or
arbitrator except where such action, suit or proceeding could not reasonably be
expected to have a material adverse effect on the business, properties,
prospects, or financial condition of ViA taken as a whole, and, to the best
knowledge of ViA, there is no basis for any such action, suit or proceeding; (b)
neither the ViA Corporations nor, to the best knowledge of the parties hereto,
any officer, director or employee of the ViA Corporations, have been permanently
or temporarily enjoined by any order, judgment or decree of any court or any
governmental agency, authority or body from engaging in or continuing any
conduct or practice in connection with the business, assets, or properties of
the ViA Corporations; and (c) there is not in existence on the date hereof any
order, judgment or decree of any court, tribunal or agency enjoining or
requiring the ViA Corporations to take any action of any kind with respect to
their business, assets or properties.
2.12 INTANGIBLE PROPERTY. ViA (a) owns or has the adequate right to
use all patents, trademarks, service marks, trade names, copyrights, licenses
and rights with respect to the foregoing used in the conduct of its business as
now conducted without, to its knowledge, infringing upon or otherwise acting
adversely to the right or claimed right of any person under or with respect to
any of the foregoing, (b) except as set forth in SCHEDULE 2.12, is not obligated
or under any liability to make any payments of a material nature by way of
royalties, fees or otherwise to any owner of, licensor of, or
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<PAGE> 11
other claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise, (c) owns or has adequate right to use all
trade secrets, including know-how, customer lists, inventions, designs,
processes, computer programs and technical data necessary to the development,
operation and sale of all products and services sold or proposed to be sold by
it, and (d) to its knowledge, is not using any confidential information or trade
secrets of others.
2.13 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of or registration, qualification, designation, declaration or
filing with, any governmental authority is required to be obtained or made by
any of the ViA Corporations in connection with the execution and delivery of
this Agreement or the sale and delivery of the ViA Shares, as contemplated by
this Agreement, except such filings as shall have been made prior to and shall
be effective on and as of the Closing.
2.14 COMPLIANCE WITH AGREEMENTS AND LAWS. ViA has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, provincial and local authorities necessary to conduct the
businesses of the ViA Corporations as currently conducted (collectively, the
"Permits"). The businesses of the ViA Corporations as conducted through the date
hereof have not violated any federal, provincial, local or foreign laws,
regulations or orders (including, but not limited to, any of the foregoing
relating to employment discrimination, occupational safety, environmental
protection, hazardous waste, conservation, or corrupt practices), the
enforcement of which would have a material adverse effect on the businesses,
prospects or operations of ViA.
2.15 EMPLOYEE RELATIONS. There are no pending labor strike or
other material labor trouble affecting ViA.
2.16 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND STOCKHOLDERS.
Except as provided in SCHEDULE 2.16, ViA is not, and on the Closing Date will
not be, indebted, directly or indirectly, to any person who is an officer,
director or stockholder of ViA, or any affiliate of any such person in any
amount whatsoever other than for salaries for services rendered or reimbursable
business expenses, all of which have been reflected on the Financial Statements,
and no such officer, director, stockholder or affiliate is indebted to ViA. In
addition, ViA is not a party to any agreement or arrangement whereby it engages
in a transaction of any kind with any affiliate except on terms and conditions
no less favorable to ViA than would be customary for such transactions between
unaffiliated parties or upon terms and conditions on which similar transactions
with others could fairly be expected to be entered into.
2.17 INSURANCE OF PROPERTIES. All of the properties and operations
of ViA are adequately insured, by financially sound and reputable insurers,
against loss or damage of the kinds and in amounts customarily insured against
by such persons, and ViA
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<PAGE> 12
carries, with such insurers in customary amounts, such other insurance,
including larceny, embezzlement or other criminal misappropriation insurance and
business interruption insurance, as is usually carried by companies of
established reputation engaged in the same or a similar business similarly
situated.
2.18 GUARANTEES, WARRANTIES AND DISCOUNTS. Except as disclosed in
the Financial Statements:
(a) Except as set forth on SCHEDULE 2.18, none of the ViA
Corporations are a party to or bound by any agreement of guarantee,
indemnification, assumption or endorsement or any other like commitment of any
material obligations, liabilities (contingent or otherwise) or indebtedness of
any person with respect to or in connection with the businesses of the ViA
Corporations; and
(b) The ViA Corporations have not given any guarantee or
warranty with respect to any of the products sold or the services provided by
it, except warranties made in the ordinary course of its business and in the
form of the standard written warranty of the ViA Corporations and except for
warranties implied by law.
2.19 RESTRICTED SECURITIES. ViA understands that the shares of
Centennial's common stock it is receiving under this Agreement are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from Centennial in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"Act") only in certain limited circumstances. In this regard, ViA represents
that it is familiar with Rule 144 promulgated under the Act, as such Rule is
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
2.20 LEGENDS. It is understood that the certificates evidencing
Centennial's common stock to be transferred to ViA under this Agreement may bear
one or all of the following legends or their substantial equivalent:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
UNLESS (A) A REGISTRATION STATEMENT IS IN EFFECT WITH RESPECT TO SUCH
SECURITIES UNDER THE ACT OR THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED, OR (B) THE SECURITIES
ARE SOLD PURSUANT TO RULE 144 PROMULGATED UNDER THE ACT."
(b) Any legend required by state securities laws.
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The legend referred to in clause (a) above shall be removed by
Centennial from any certificate at such time as the holder of the shares
represented by the certificate delivers an opinion of counsel reasonably
satisfactory to Centennial to the effect that such legend is not required in
order to establish compliance with any provisions of the Act (or its equivalent
in effect at such time), and provided further that Centennial has received from
the holder a written representation that (i) such holder is not an affiliate of
Centennial and has not been an affiliate during the preceding three months, (ii)
such holder has beneficially owned the shares represented by the certificate for
a period of at least three (3) years (or such shorter period as may be required
by Rule 144(k) as in effect at such time), and (iii) such holder otherwise
satisfies the requirements of Rule 144(k) (or its equivalent in effect at such
time) with respect to such shares.
3. AFFIRMATIVE COVENANTS.
So long as Centennial or any of its successors or assigns owns of record
or beneficially holds any ViA Common Stock, ViA shall, and any other
subsidiaries acquired by any of it after the date of this Agreement, shall:
3.1 MAINTENANCE OF RECORDS. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, subject to year end adjustments.
3.2 MAINTENANCE OF PROPERTIES. Maintain, keep, and preserve all of
its properties (tangible and intangible) necessary or useful in the proper
conduct of its businesses in good working order and condition, ordinary wear and
tear excepted, and maintain in full force and effect all rights, patents,
licenses, permits and privileges necessary for the proper conduct of its
businesses.
3.3 CONDUCT OF BUSINESS. Continue to engage in the same general
type of businesses as conducted by it on the date of this Agreement or, in the
case of any subsidiary acquired after the date of this Agreement, the same
general type of business as conducted by it on the date of acquisition.
3.4 MAINTENANCE OF INSURANCE. Maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof.
3.5 COMPLIANCE WITH LAWS. Comply in all material respects with
applicable laws, rules, regulations, and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or upon its property,
noncompliance with which would have a material and adverse effect on its
business and operations.
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<PAGE> 14
3.6 RIGHT OF INSPECTION. At any reasonable time and from time to
time, permit Centennial or any agent or representative thereof to examine and
make copies of and abstracts from the records, books of account and such other
documents of, and visit the properties of ViA and any after-acquired
subsidiaries and to discuss the affairs, finances, and accounts of ViA and any
after-acquired subsidiaries with any of its officers, directors and independent
accountants so long as said activities do not unreasonably disrupt their
businesses. Centennial shall maintain all information obtained by it during its
investigation of ViA and otherwise obtained in accordance with this Section 3.6
as confidential information and shall not use such information for its own
purposes (other than to evaluate such business or to enable it to carry out its
obligation under this agreement) to any extent whatsoever; provided, however,
the foregoing obligations of confidentiality and restrictions on use shall not
apply to information (a) known to Centennial prior to its disclosure by ViA, (b)
independently developed by Centennial, (c) acquired by Centennial from others,
provided that such other persons by disclosing such information have not
violated any confidentiality obligations owed to ViA, (d) known to the public,
or (e) required to be disclosed by governmental officials.
3.7 REPORTING REQUIREMENTS. Furnish to Centennial:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and
in any event within forty-five (45) days after the end of each quarter ending
September 30, December 31 and March 31, unaudited consolidated balance sheets of
ViA and any after-acquired subsidiary and, for the period commencing at the
beginning of the then current fiscal year through the end of most recently
completed fiscal quarter, unaudited statements of operations and changes in
financial position of ViA or any after-acquired subsidiary, all prepared in
accordance with GAAP consistently applied, subject to year end adjustments, and
certified by an officer of ViA;
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in
any event within ninety (90) days after the end of each fiscal year, a copy of
the audited consolidated annual financial reports for such fiscal year,
including a balance sheet of ViA and any after-acquired subsidiary as of the end
of such fiscal year and statements of income and retained earnings of ViA and
any after-acquired subsidiary for such fiscal year, and a statement of cash flow
of ViA and any after-acquired subsidiary for such fiscal year, all in reasonable
detail and stating in comparative form the respective figures for the
corresponding date and period in the prior fiscal year and all prepared in
accordance with GAAP consistently applied and certified by independent
accountants to the reasonable satisfaction of Centennial;
(c) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any court or
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, affecting ViA or any after-acquired subsidiary, which, if
determined adversely to ViA
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<PAGE> 15
or any after-acquired subsidiary, could have a material adverse effect on the
financial condition, properties, or operations of ViA or any after-acquired
subsidiary; and
(d) GENERAL INFORMATION. Such other information respecting the
condition or operations, financial or otherwise, receivables, inventory,
machinery or equipment of ViA or any after-acquired subsidiaries as Centennial
may from time to time reasonably request.
3.8 PAYMENT OF TAXES AND CLAIMS. Pay when due all taxes,
assessments, governmental charges or levies imposed upon it or its income for
services, labor, materials and supplies, in each of such cases which, if unpaid,
might become a lien or charge upon any of its properties or assets; but ViA and
any after-acquired subsidiary shall not be required to pay any such tax,
assessment, charge, levy or claim so long as: (1) the validity thereof shall be
contested in good faith by appropriate proceedings; (2) no proceedings in
foreclosure or for the sale of any property of ViA or any after-acquired
subsidiary on account of any such tax, assessment, charge, levy of claim shall
have been commenced (or such proceedings shall have been stayed pending the
disposition of such contest of validity); (3) ViA and any after-acquired
subsidiary shall have set aside on their books adequate reserves with respect
thereto; and (4) such tax, assessment, charge, levy or claim shall not have
caused a material, adverse effect on the financial condition of ViA or any
after-acquired subsidiary.
3.9 MAINTENANCE OF EXISTENCE. Preserve and maintain its corporate
existence and good corporate standing in the jurisdictions of its incorporation,
and qualify and remain qualified as a foreign corporation in each jurisdiction
in which such qualification is required and in which the failure to be so
qualified would have a material adverse effect on the businesses, operations or
financial statements of ViA or any after-acquired subsidiary.
3.10 PAYMENT OF OTHER OBLIGATIONS. Punctually and promptly make all
payments and perform all other obligations which may be required of ViA and any
after-acquired subsidiary with respect to any indebtedness (whether for money
borrowed, goods purchased, services rendered or however such indebtedness may
otherwise arise) owing to persons, firms or corporations, including, without
limitation, indebtedness which may be secured by a security interest in the
assets of ViA or any after-acquired subsidiary or the property of ViA or any
after-acquired subsidiary, and all obligations under the terms of any lease in
which ViA or any after-acquired subsidiary is the lessee. The provisions of this
section shall not preclude ViA or any after-acquired subsidiary from contesting
in good faith and diligently defending against any such indebtedness or
obligation.
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4. REPRESENTATIONS AND WARRANTIES OF CENTENNIAL.
Centennial represents and warrants to ViA, upon which representations
and warranties ViA relies and which representations and warranties shall survive
Closing for a period of one (1) year as follows:
4.1 ORGANIZATION AND RELATED MATTERS. Centennial is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby.
4.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance of this Agreement by Centennial have been duly and validly
authorized and approved by the Board of Directors of Centennial and no other
proceedings on the part of Centennial are necessary to authorize the execution,
delivery and performance of this Agreement by Centennial including the issuance
by Centennial of the Centennial Shares. Neither the execution, delivery and
performance of this Agreement and the consummation by Centennial, nor compliance
with the terms and provisions of this Agreement by Centennial, will conflict
with or result in a breach of any of the terms, conditions or provisions of the
Certificate of Incorporation or bylaws of Centennial.
4.3 CAPITALIZATION OF CENTENNIAL. As of September 30, 1996,
Centennial's authorized capital stock consisted of 15,000,000 shares of
Centennial Common Stock, $.01 par value per share, of which 8,522,375 shares
were issued and outstanding; and 1,000,000 shares of Preferred Stock, $.01 par
value per share, none of which are outstanding. On November 12, 1996, Centennial
filed a Certificate of Amendment to its Certificate of Incorporation to increase
its number of authorized shares of Common Stock from 15,000,000 to 50,000,000
shares. All such issued and outstanding shares of Common Stock have been and on
the Closing Date will be duly and validly issued and are, or will be on such
date, fully paid and non-assessable.
4.4 FINANCIAL REPRESENTATIONS. Centennial has delivered or, before
Closing, will deliver to the ViA, true and complete copies of its Annual Report
on Form 10-K for the fiscal year ended June 30, 1996 (the "Report") which was
duly filed with the U. S. Securities and Exchange Commission. The Report and the
financial statements contained therein are in accordance with the books and
records of Centennial, and (i) present fairly the financial position of
Centennial as of the dates and for the periods indicated, (ii) include all
required material adjustments, and (iii) have been prepared in accordance with
GAAP applied on a basis consistent with prior periods and practices.
4.5 COOPERATION. Centennial shall execute all documents, and
perform all such other acts, as are reasonably requested by ViA and Lehman to
maintain the Financing until the shares of Centennial common stock issued
pursuant to section 1.2 hereof, if any, may be sold in accordance with Rule 144.
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<PAGE> 17
4.6 INVESTMENT INTENT. The shares of ViA common stock being
acquired by Centennial are being purchased for investment for Centennial's own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof. Centennial understands that such Shares
have not been registered under the Securities Act or any state securities laws
by reason of their contemplated issuance in transactions exempt from the
registration requirements of the Securities Act pursuant to section 4(2) thereof
and applicable state securities laws, and that the reliance of ViA and others
upon these exemptions is predicated in part upon this representation by
Centennial. Centennial further understands that the ViA Shares may not be
transferred or resold without (i) registration under the Securities Act and any
applicable state securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws. The ViA Shares shall
incorporate a legend substantially in the form set forth in Section 2.20(a) of
this Agreement.
Centennial understands that an exemption from such registration is not
presently available pursuant to Rule 144 promulgated under the Securities Act by
the Securities and Exchange Commission (the "Commission") and that in any event
Centennial may not sell any securities pursuant to Rule 144 prior to the
expiration of a two-year period after such Investor has acquired such
securities. Centennial understands that any sales pursuant to Rule 144 can be
made only in full compliance with the provisions of Rule 144.
4.7 NO BROKERS OR FINDERS. No person, firm or corporation has or
will have as a result of any act or omission by Centennial, any right, interest
or valid claim against ViA for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this agreement. Centennial will indemnify and hold
ViA harmless against any and all liability with respect to any such commission,
fee or other compensation which may be payable or determined to be payable as a
result of the actions of such Investor in connection with the transactions
contemplated by this Agreement.
5. OPINIONS OF COUNSEL.
As soon as practicable after the Closing Date, ViA shall deliver to
Centennial an opinion from Dorsey & Whitney, LLP, counsel to ViA, dated as of
the Closing Date, in the form and substance satisfactory to Centennial, as to
the matters set forth in EXHIBIT 5(a). As soon as practicable after the Closing
Date, Centennial shall deliver to ViA an opinion from O'Connor, Brodie &
Aronson, counsel to Centennial, dated as of the Closing Date, in the form and
substance satisfactory to ViA, as to the matters set forth in EXHIBIT 5(b).
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6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY ViA. Subject to the limitations set forth
in section 6.3, ViA agrees to indemnify Centennial with respect to, and hold
Centennial harmless from, and reimburse Centennial for, any out-of-pocket loss,
liabilities, costs or expense (including, but not limited to, reasonable legal
fees) which Centennial may directly or indirectly incur or suffer by reason of,
or which results, arises out of or is based upon (a) the inaccuracy of any
representation or warranty made by ViA in this Agreement, or (b) the failure of
ViA to comply with any of its covenants under this Agreement.
6.2 INDEMNIFICATION BY CENTENNIAL. Subject to the limitations set
forth in section 6.3, Centennial agrees to indemnify ViA with respect to, and
hold ViA harmless from, and reimburse ViA for any out-of-pocket losses,
liabilities, interest, costs or expenses (including, but not limited to,
reasonable legal fees) (the "Losses") which ViA may directly or indirectly incur
or suffer by reason of, or which results, arises out of or is based upon (a) the
inaccuracy of any representation or warranty made by Centennial in this
Agreement, (b) the failure of Centennial to comply with any of its covenants
under this Agreement, and (c) the Financing or the failure thereof, or ViA's
inability to arrange with Lehman (on terms at least as favorable as the
Financing) substitute or continued financing covering the period commencing on
the Closing Date and ending two (2) years thereafter. It is expressly agreed
that any losses incurred in connection with the Financing, including prepayment
penalties, fees, extra interest charges or the cost of refinancing the same in
the event of early foreclosure of the same shall give rise to the indemnity
contemplated by this section 6.2(c). In the event of any foreclosure by Lehman
with respect to the Centennial Shares, Centennial shall indemnify ViA by making
a payment to ViA in cash for any Losses. In the event ViA is unable to secure
comparable financing at the end of the term of the Financing, ViA shall return
the Centennial Shares and any other cash value derived therefrom on the
Financing thereof, and Centennial shall reimburse ViA in cash $5 million and any
other additional Losses incurred.
6.3 CONDITIONS OF INDEMNIFICATION. It is agreed and understood
between Centennial and ViA that the obligations under this Section 6 to
indemnify and hold harmless from any loss, cost, liability or expense described
in Sections 6.1 and 6.2 (a) and (b) shall only become operative after, and to
the extent that, the total amount of all claims for indemnification hereunder
exceeds Fifty Thousand Dollars ($50,000).
6.4 CONDITIONS TO INDEMNIFICATION. The obligations and liabilities
of the parties hereunder with respect to its indemnities pursuant to this
Section, resulting from any claim or other assertion of liability by third
parties, shall be subject to the following terms and conditions:
(a) The Indemnified Party must give the other party or
parties, as the case may be (the "Indemnifying Party"), prompt notice of (i) any
claim or potential claim, (ii) the commencement of any action or proceeding, or
(iii) the occurrence of any
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other event the Indemnified Party reasonably believes shall give rise to the
events specified in clauses (i) and (ii) and the indemnification rights under
this Section, provided, however, that failure to give such notice promptly shall
not affect the liability of the Indemnifying Party under this Agreement unless
the failure to give such notice promptly adversely affects the Indemnified
Party's ability to defend itself against the claim giving rise to Indemnified
Party's claim for indemnification or to cure the default giving rise to such
claim.
(b) If the Indemnifying Party within reasonable time after
notice of a claim hereunder fails to defend such claim, the Indemnified Party
shall be entitled to undertake the defense, compromise or settlement of such
claim at the reasonable expense of and for the account and risk of the
Indemnifying Party subject to the right of the Indemnifying Party to cooperate
in the defense of such claim at any time prior to the settlement, compromise or
final determination thereof.
(c) The Indemnifying Party will not, without Indemnified
Party's written consent, settle or compromise any claim (to the extent notice
was given as provided in Section 6.4(a) above), or consent to any entry or
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party of a release from all
liability with respect to such claim, provided, however, that should the
Indemnified Party assume the control of the defense of a claim pursuant to
Section 6.4(b), the Indemnified Party shall have the authority to settle or
compromise any claim or consent to any entry of judgment, without the
Indemnifying Party's prior consent.
6.5 PAYMENT FOR INDEMNIFICATION. The Indemnifying Party shall pay
to the Indemnified Party the amount of established claims for indemnification
within fifteen (15) days after the establishment thereof (the "Due Date") in
cash or by certified check.
6.6 SURVIVAL OF INDEMNIFICATION. The indemnification provided in
this Section 6 shall survive the Closing Date for those representations,
warranties and covenants of the parties contained herein or in any schedule or
certificate delivered hereunder, to the extent not waived by the other party.
6.7 INTENT OF PARTIES. Any remedies of the parties shall be
cumulative and not exclusive. Specifically, but not by way of limitation, the
parties make no attempt to limit any claims based on common law fraud or other
similar remedies.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION OF SHARES. For so long as Centennial owns at
least five percent (5%) of the outstanding shares of ViA, and until the fourth
anniversary of the date of this Agreement, each time ViA shall determine to
proceed with the actual preparation and filing of a registration statement under
the Securities Act of 1933 (the "Securities
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Act") in connection with the proposed offer and sale for money of any of its
securities by it or any of its security holders on a form that permits the
inclusion of shares by selling security holders, ViA will give written notice of
its determination to Centennial. Upon the written request of Centennial given
within 30 days after receipt of any such notice from ViA, ViA will, except as
herein provided, cause all such shares of common stock that Centennial has
requested be registered, to be included in such registration statement, all to
the extent requisite to permit the sale or other disposition by Centennial of
such shares to be registered; provided, however, that nothing herein shall
prevent ViA from, at any time, abandoning or delaying any such registration
initiated by it. If any registration pursuant to this section shall be
underwritten in whole or in part, ViA may require that the shares requested for
inclusion pursuant to this section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. In the event that, in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the shares
originally covered by a request for registration would reduce the number of
shares to be offered by ViA or interfere with the successful marketing of the
shares of stock offered by ViA, the number of shares otherwise to be included in
the underwritten public offering may be reduced pro rata among the holders
thereof requesting such registration, other than those certain shareholders who
are parties to or beneficiaries of the Registration Rights Agreement referred to
in SCHEDULE 2.18. Those shares which are thus excluded from the underwritten
public offering shall be withheld from the market by the holders thereof for a
period, not to exceed 90 days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
7.2 COMPLIANCE WITH SECURITIES RULES AND REGULATIONS. In
connection with any registration referred to in this Section 8, ViA shall comply
with all applicable rules and regulations of the Securities and Exchange
Commission, or of any similar federal commission, including the Rules and
Regulations under the Act, and shall make available to its security holders, as
soon as practicable, an earnings statement (which need not be audited) covering
a period of at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the registration statement, which
earnings statement will satisfy the provisions of Section 11(a) of the Act.
7.3 OBLIGATIONS OF ViA. ViA agrees to furnish to Centennial, at
the sole expense of ViA, such number of prospectuses conforming to the
requirements of the Act or any similar federal statute, and the Rules and
Regulations thereunder, relating to the shares subject thereto as may from time
to time be reasonably requested by Centennial. Further, ViA shall, at their own
expense in connection with any registration under this Section 8:
(a) Notify Centennial, at any time when a prospectus relating
to the ViA Common Stock is required to be delivered under the Act, of the
happening of any event which ViA, in its best judgment, believes would make a
supplement to, or an
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amendment of, such prospectus necessary or appropriate, and, at the request of
Centennial, prepare and furnish thereto a reasonable number of copies of any
supplement to, or any amendment of, such prospectus that may be necessary so
that, as thereafter delivered to the purchasers of the ViA Common Stock, such
prospectus shall not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and
(b) Use its best efforts to register or qualify the securities
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as Centennial shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable Centennial,
or any underwriter which may offer such shares for Centennial, to consummate the
disposition thereof in such jurisdictions, during a period of six months
subsequent to the effective date of such registration statement; provided,
however, that in no event shall ViA be obligated to qualify to do business in
any jurisdiction where it is not then so qualified or to take any action which
would subject it to the service of process in suits other than those arising out
of the offer of sale of the securities covered by such registration statement in
any jurisdiction where it is not then so subject.
7.4 INDEMNIFICATION. In the event of the registration of any ViA
Common Stock owned by Centennial, ViA shall indemnify Centennial, and shall hold
Centennial harmless against any losses, claims, damages or liabilities, joint or
several, to which Centennial may become subject under the Act or any similar
federal statute, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or are based upon, any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which the ViA Common Stock is registered under
the Act or similar federal statute, any final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse Centennial upon a good faith mutual agreement of the parties for
any legal or any other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided however, that to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, an actual or alleged untrue statement
or omission made in such registration statement, final prospectus, amendment or
supplement in reliance upon, and in conformity with, written information
furnished to ViA through an instrument duly executed by Centennial specifically
for use in the preparation thereof, ViA shall not be so liable to Centennial.
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8. FUTURE SALES OF SHARES OF CAPITAL STOCK OF ViA.
8.1 PARTICIPATION RIGHT OF CENTENNIAL. For so long as Centennial
owns any ViA Common Stock, if ViA shall sell any additional securities, then ViA
shall, within ten (10) days of such sale of its securities (other than debt
securities with no equity feature), offer to Centennial by written notice the
right, for a period of thirty (30) days, to purchase a number of additional
securities that would allow Centennial to preserve Centennial's equity interest
in ViA (the "Participation Securities") at an amount equal pro rata to the price
or other consideration paid to ViA for such additional securities; provided,
however, that the participation rights of Centennial pursuant to this Section
8.1 shall not apply to securities issued: (i) as a stock dividend or upon any
subdivision of shares of such common stock, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of such common stock; and (ii) pursuant to a firm commitment underwritten public
offering, or any securities issued thereafter. ViA's written notice to
Centennial shall describe the securities sold by ViA and specify the number,
price and payment terms. Centennial may, in its sole discretion, accept ViA's
offer to purchase any or all of the Participation Securities prior to the
expiration of the aforesaid thirty (30) day period, in which event ViA shall
promptly sell and Centennial shall buy, upon the terms specified, such number of
the Participation Securities as Centennial shall agree to purchase.
9. GENERAL.
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of the parties contained herein or in
any schedule or certificate delivered hereunder shall survive the Closing Date
and shall remain in full force and effect and shall be unaffected by any
investigation made by the parties hereunder. All covenants and agreements
contained herein which are to be performed or fulfilled after the Closing Date
shall survive and remain in full force and effect.
9.2 PRESS RELEASES. Unless approved in advance by Centennial, ViA
shall not issue any press release or written statement for general circulation
relating to the transactions contemplated hereby, except as required by law in
the opinion of their counsel.
9.3 PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereby are consummated, Centennial shall pay its own expenses and
ViA shall pay its own expenses in connection with the negotiation,
authorization, preparation, execution and performance of this Agreement,
including, without limitation, all fees and expenses of investment banking
firms, agents, representatives, counsel and accountants.
9.4 GOVERNING LAW. This Agreement shall be governed in all
respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the
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Commonwealth of Massachusetts in which it has been executed and in which it has
a situs, without regard to its conflict of laws provisions. If any provision of
this Agreement shall be held invalid by a court with jurisdiction over the
parties to this Agreement, then and in that event such provision shall be
deleted from the Agreement, which shall then be construed to give effect to the
remaining provisions thereof. ViA and Centennial consent to the jurisdiction of
the courts of the Commonwealth of Massachusetts, and any federal court located
therein, and to the appropriateness of the venue of such courts, in connection
with any dispute which may arise pursuant to this Agreement or is related to the
transactions contemplated hereby.
9.5 NOTICES. Any payments, notices or other communications
required or permitted hereunder shall be given in writing and deemed to have
been properly given if and when delivered personally or sent by registered,
certified or overnight mail, return receipt requested, postage prepaid,
addressed as follows:
if to Centennial: Centennial Technologies, Inc.
37 Manning Road
Billerica, Massachusetts 01821
Attention: Emanuel Pinez, Chief
Executive Officer
with a copy to: Centennial Technologies, Inc.
37 Manning Road
Billerica, Massachusetts 01821
Attention: Donald R. Peck, General
Counsel
if to ViA: ViA, Inc.
11 Bridge Square
Northfield, MN 55057
Attention: James L. Carroll, President
with a copy to: Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
Attention: Thomas O. Martin
or such other address as shall be furnished in writing by any party, and any
such payment, notice or communication shall be deemed to have been made or given
three business days after the date so mailed (except that a notice of change of
address shall not be deemed to have been given until received by the addressee)
or on the date of actual receipt, whichever first occurs.
9.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective successors,
assigns, heirs, executors, administrators and legal representatives, provided,
however, that ViA shall
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not assign any of its rights or delegate any of its obligations hereunder to any
party without the prior written consent of Centennial.
9.7 HEADINGS. The descriptive headings of the Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall be considered one and the same
agreement.
9.9 WAIVER. The failure of any party to this Agreement at any time
or times to require performance of any provision hereof shall in no manner
affect such party's right at a later time to enforce the same. No waiver by any
party of any condition, or of the breach of any term, covenant, representation
or warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or the breach of any other term, covenant, representation or warranty
of this Agreement.
9.10 ENTIRE AGREEMENT. This Agreement and the Voting Agreement
among Centennial, James L. Carroll and David W. Carroll contains the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, and supersedes all prior agreements and understandings, whether written
or oral, among the parties hereto with respect to the subject matter of this
Agreement.
9.11 ADDITIONAL ACTIONS. Centennial and ViA agree to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this Agreement.
9.12 REMEDIES. The parties hereto acknowledge that a remedy at law
may be inadequate as to any actual breach of this Agreement, and that in the
case of any actual breach of this Agreement the non-breaching party shall be
entitled to preliminary and permanent injunctions or other equitable remedies
(in additional legal remedies) in any court of competent jurisdiction in
accordance with this Agreement.
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IN WITNESS WHEREOF, this Agreement has been signed by duly authorized
officers of Centennial Technologies, Inc. and ViA Inc., as of the day and year
first above written.
CENTENNIAL TECHNOLOGIES, INC.
By:
----------------------------------------
Donald R. Peck
Treasurer
VIA, INC.
By:
----------------------------------------
James L. Carroll
President
21
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--------------------------
KEY EMPLOYEE AGREEMENT
--------------------------
To: Donald R. Peck As of February 1, 1997
6 Doran Farm Lane
Lexington, Massachusetts 02173
The undersigned, Centennial Technologies, Inc., a Delaware corporation
(the "Company"), hereby agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as the Treasurer and General Counsel of the
Company or in a comparable position with similar responsibilities, as designated
by the Company's Board of Directors, and shall perform such functions as are
customarily associated with such capacity from time to time at the Company's
headquarters or such place or places as are appropriate and necessary in
connection with such employment.
1.2 You will, to the best of your ability, devote your full time
and best efforts to the performance of your duties hereunder and the business
and affairs of the Company. You agree to perform such duties consistent with
your position as may be lawfully and reasonably assigned to you by the Company's
Board of Directors from time to time. Such duties may include similar
responsibilities with companies in which the Company has a majority ownership
interest.
1.3 You will duly, punctually and faithfully perform and
observe any and all lawful rules and regulations which the Company may now or
shall hereafter establish governing the conduct of its business.
2. TERM OF EMPLOYMENT.
2.1 The initial term of this Agreement shall be for one year,
subject to earlier termination in accordance with Section 2.2 hereof.
Thereafter, this Agreement may be renewed upon the written agreement of you and
the Company.
2.2 The Company shall have the right to terminate your
employment at any time either (a) immediately without prior written notice for
"cause" (as defined herein), or (b) upon at least ten (10) days' written notice
without cause. If the Company terminates your employment for cause, the Company
shall be obligated to pay you an amount equal to your salary and vacation pay
which is accrued and unpaid up to the
<PAGE> 2
date of such termination. If the Company terminates your employment without
cause, the Company shall be obligated to pay you your Base Salary (as defined in
EXHIBIT A attached hereto) for a period of time equal to the greater of (i) six
months, or (ii) that period of time which commences on the date of such
termination and ends with the expiration in the initial term of employment set
forth in Section 2.1 (the "Severance Period"). The Company shall also continue
in full force and effect for the Severance Period all health and insurance
benefits that you enjoyed at the time of your termination without cause, and all
other benefits which applicable law requires to be continued. Should you
continue to be employed by the Company beyond the term of this Agreement without
a mutually agreed upon renewal or modification of this Agreement, a six month
severance provision for termination without cause as described above shall
apply.
2.3 For purposes of Section 2.2 hereof, the term "cause" shall
mean the following: (i) your involvement in any felony crime, material
arrestable criminal offense (excluding road traffic offenses for which a fine or
non-custodial penalty is imposed), or any crime in connection with your
employment with the Company (including theft of Company assets); or (ii)
material insubordination or your unreasonable failure to take actions permitted
by law and necessary to implement strategies or policies of the Company and
which are consistent with your positions and duties, following written warning
of such material insubordination or unreasonable failure; or (iii) drunkenness
or use of any drug or narcotic which adversely affects your job performance; or
(iv) any knowing or intentional misrepresentation of significant information
important to the operating condition of the Company; or (v) acting in material
breach or contravention of any non-competition, non-disclosure or
non-solicitation covenants hereof.
3. COMPENSATION. You shall receive the compensation and benefits
set forth on Exhibit A hereto ("Compensation") for all services to be rendered
by you hereunder and for your transfer of property rights, if any, pursuant to
an agreement relating to proprietary information and inventions of even date
herewith attached hereto and made a part hereof as EXHIBIT C between you and the
Company (the "Proprietary Information and Inventions Agreement"). If you remain
as a full-time employee of the Company until at least August 31, 1997, the
Company will pay you, in a lump-sum payment within two (2) weeks following such
date, a "stay bonus" equal to six (6) months' Base Salary.
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except for any outside employments and directorships
currently held by you as listed on EXHIBIT B hereto, if any, and except with the
prior written consent of the Company's Board of Directors (which approval shall
not be unreasonably withheld), you will not during the term of this Agreement
undertake or engage in any other employment, occupation or business enterprise
other than one in which you are an inactive investor.
-2-
<PAGE> 3
4.2 You hereby agree that, except as disclosed on EXHIBIT B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than one
percent (1%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in any line of business
engaged in or under demonstrable development by the Company (such firm,
corporation, partnership, trust, association, or other organization being
hereinafter referred to as a "Prohibited Enterprise"). You hereby represent that
you are not presently engaged in any of the foregoing capacities described in
(a) through (i) in any Prohibited Enterprise.
5. FORMER EMPLOYERS.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training and
experience comparable to your own, all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement attached hereto as EXHIBIT C and incorporated herein.
7. [NOT USED].
8. REMEDIES. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 9, 10 and 11 of this
Agreement (as modified by Section 12, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of this Agreement or the
Proprietary Information and Inventions Agreement would be inadequate and you
therefore agree that the Company shall be entitled to injunctive relief in case
of any such breach or threatened breach.
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<PAGE> 4
9. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law or by a further written agreement by the parties
hereto.
10. CONFIDENTIALITY. You agree to keep confidential, except as the
Company may otherwise consent in writing, and, except for the Company's benefit,
not to disclose or make any use of at any time either during or subsequent to
your employment, any trade secrets, confidential information, knowledge, data or
other information of the Company relating to products, processes, know-how,
techniques, methods, designs, formulas, test data, customer lists, business
plans, marketing plans and strategies, pricing strategies, or other subject
matter pertaining to any business of the Company or any of its affiliates, which
you may produce, obtain, or otherwise acquire during the course of your
employment, except as herein provided. You further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
11. ARBITRATION. Any dispute concerning this Agreement including,
but not limited to, its existence, validity, interpretation, performance or
non-performance, arising before or after termination or expiration of this
Agreement, shall be settled by a single arbitrator in Boston, Massachusetts, in
accordance with the expedited procedures of the commercial rules then in effect
of the American Arbitration Association. Judgment upon any award may be entered
in the highest court, state or federal, having jurisdiction.
12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case
any one or more of the provisions contained in this Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other provisions
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. MOREOVER, IT
IS THE INTENT OF THE PARTIES THAT if any one or more of the provisions contained
in this Agreement is or becomes or is deemed invalid, illegal or unenforceable
or in case any provision shall for any reason be held to be excessively broad as
to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
-4-
<PAGE> 5
13. NOTICES. Any notice which the Company is required to or may
desire to give you shall be given by personal delivery or registered or
certified mail, return receipt requested, addressed to you at your address of
record with the Company, or at such other place as you may from time to time
designate in writing. Any notice which you are required or may desire to give to
the Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing with a copy to Paul D. Broude, Esquire, O'Connor, Broude &
Aronson, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154. The date
of personal delivery or the date of mailing of any notice under this Section 13
shall be deemed to be the date of delivery thereof.
14. WAIVERS. No waiver of any right under this Agreement shall be
deemed effective unless contained in a writing signed by the party charged with
such waiver, and no waiver of any right arising from any breach or failure to
perform shall be deemed to be a waiver of any future such right or of any other
right arising under this Agreement. If either party should waive any breach of
any provision of this Agreement, such party shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
15. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, including
Exhibits A, B and C hereto, is the entire agreement of the parties with respect
to the subject matter hereof, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement shall
be effective only if evidenced by a written instrument executed by the parties
hereto, upon authorization of the Company's Board of Directors.
16. HEADINGS. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
17. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed
under Massachusetts law, without regard to its conflict of laws principles.
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<PAGE> 6
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
CENTENNIAL TECHNOLOGIES, INC.
By:
------------------------------------
Lawrence J. Ramaekers
Interim Chief Executive Officer
Accepted and Agreed:
- -------------------------------
Donald R. Peck
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<PAGE> 7
EXHIBIT A
---------
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
DONALD R. PECK
1. TERM. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until January 31, 1998.
2. COMPENSATION. Your Base Salary shall be $150,000 per annum, payable in
accordance with the payroll policies established by the Company.
3. STOCK OPTIONS. Upon acceptance of this Agreement, you shall be granted
an incentive stock option to purchase 150,000 shares of the common
stock of the Company pursuant to the Company's 1994 Stock Option Plan
at the fair market value determined by the Company's Board of
Directors. These incentive stock options shall vest one-third on
October 1, 1997, one-third on October 1, 1998, and one-third on October
1, 1999. These stock options will replace your existing 15,000 options
granted on September 5, 1996 at an exercise price of $16.815, and you
agree to execute all documents reasonably necessary to effect this
cancellation of your prior options. In the event of a sale or
acquisition of substantially all of the stock or assets of the Company,
the Company shall give you thirty (30) days notice of such an event and
advise you that any of your then outstanding options shall be
immediately exercisable before the event takes place, whether or not by
their terms the stock options are then vested. In the event you are
terminated involuntarily for any reason other than for "cause" as
defined in section 2.3 of this Agreement after a change in the majority
of the Board of Directors of the Company, fifty percent (50%) of any
options which on such date have not vested shall be and become fully
vested.
4. VACATION. You shall be entitled to 4 weeks paid vacation per year. You
will be allowed to carry over unused vacation entitlement to future
periods or at your option receive compensation equivalent to the unused
vacation entitlement at your then current salary.
5. OTHER BENEFITS. You shall be eligible for participation in any health,
group insurance plan, or pension insurance and benefits plan that may
be established by the Company or which the Company is required to
maintain by law. You shall also be eligible to receive other benefits
that are provided to the executive officers of the Company from time to
time.
A-1
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EXHIBIT B
---------
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
DONALD R. PECK
None
B-1
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EXHIBIT C
---------
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: Centennial Technologies, Inc. As of February 1, 1997
37 Manning Road
Billerica, Massachusetts 01821
The undersigned, in consideration of and as a condition of my services
to you and/or to companies which you own, control, or are affiliated with or
their successors in business (collectively, the "Company"), hereby agrees as
follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as the
Company may otherwise consent in writing, and, except for the Company's benefit,
not to disclose or make any use of at any time either during or subsequent to my
employment with the Company, any Inventions (as hereinafter defined), trade
secrets, confidential information, knowledge, data or other information of the
Company relating to products, processes, know-how, designs, formulas, test data,
customer lists, business plans, marketing plans and strategies, pricing
strategies, or other subject matter pertaining to any business of the Company or
any of its affiliates, which I may produce, obtain, or otherwise acquire during
the course of my employment, except as herein provided. I further agree not to
deliver, reproduce or in any way allow any such trade secrets, confidential
information, knowledge, data or other information, or any documentation relating
thereto, to be delivered to or used by any third parties without specific
direction or consent of a duly authorized representative of the Company.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data which I may obtain or produce during the course of
my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
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3. ASSIGNMENT OF INVENTIONS.
3.1 I hereby acknowledge and agree that the Company is the owner
of all Inventions. In order to protect the Company's rights to such Inventions,
by executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company, which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company or its affiliates, or result from or are suggested by
any task assigned to me or any work performed by me for or on behalf of the
Company or its affiliates.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time during the term
of this Agreement not using any of the Company's equipment, supplies,
facilities, or trade secret information ("Personal Invention") is excluded from
this Agreement provided such Personal Invention (a) does not relate to the
actual or demonstrably anticipated business, research and development of the
Company, and (b) does not result, directly or indirectly, from any work
performed by me for the Company.
4. DISCLOSURE OF INVENTIONS. I agree that in connection with any
Invention, I will promptly disclose such Invention to the Company in order to
permit the Company to enforce its property rights to such Invention in
accordance with this Agreement. My disclosure shall be received in confidence by
the Company.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment with the
Company in every reasonable way to obtain for its own benefit patents and
copyrights for Inventions in any and all countries. Such patents and copyrights
shall be and remain the sole and exclusive property of the Company or its
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments
C-2
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of such applications, assignments of patents or copyrights upon issuance, as the
Company may determine necessary or desirable to protect the Company's or its
nominee's interest in Inventions, and/or to use in obtaining patents or
copyrights in any and all countries and to vest title thereto in the Company or
its nominee to any of the foregoing.
6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all Inventions made by me (in the form of notes,
sketches, drawings, flowcharts and other records as may be specified by the
Company), which records shall be available to and remain the sole property of
the Company at all times.
7. PRIOR INVENTIONS. It is understood that all Personal Inventions,
if any, whether patented or unpatented, which I made prior to my association
with the Company, are excluded from this Agreement. To preclude any possible
uncertainty, I have set forth on Schedule A attached hereto a complete list of
all of my prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to
time may have agreements with other persons or with the U.S. Government or
agencies thereof, which impose obligations or restrictions on the Company
regarding Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. TRADE SECRETS OF OTHERS. I represent that my performance of all
the terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep confidential proprietary information, knowledge
or data acquired by me in confidence or in trust prior to my services to the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous client, employer or others. I agree not to enter into any agreement
either written or oral in conflict herewith.
10. MODIFICATION. I agree that any subsequent change or changes in
my duties, salary or compensation or in any Employment Agreement between the
Company and me, shall not affect the validity or scope of this Agreement.
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<PAGE> 12
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. WAIVERS. If either party should waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
16. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed
under Massachusetts law, excluding its conflict of law principles.
DONALD R. PECK
-----------------------------------------------
C-4
<PAGE> 13
Accepted and Agreed:
CENTENNIAL TECHNOLOGIES, INC.
By:
-------------------------------------------------------
Lawrence J. Ramaekers, Interim Chief Executive Officer
C-5
<PAGE> 14
SCHEDULE A
----------
(to Exhibit C)
PERSONAL INVENTIONS
OF
DONALD R. PECK
C-6
<PAGE> 1
February 17, 1997
Mr. John J. Shields
Vice Chairman
Centennial Technologies, Inc.
37 Manning Road
Billerica, MA 01821
Re: Agreement to provide interim management and consulting services
Dear Jack:
This letter outlines the understanding between Jay Alix & Associates, a Michigan
corporation ("JA&A") and Centennial Technologies, Inc. (the "Company") of the
objectives, tasks, work product and fees for the engagement of JA&A to provide
interim management services to the Company.
OBJECTIVES
- ----------
- - To serve as interim CEO of the Company and assist the Board in
determining the Company's financial condition
- - To serve as interim CFO
TASKS
- -----
- - To assist the Company in developing operating plans, cash flow forecasts
and control procedures with which to manage the Company.
- - Manage the Company operations.
- - Interview management employees and review available reports.
- - Develop information for the secured lender and negotiate toward revised
loan agreements.
- - Assist in such other matters as may be mutually agreed upon.
WORK PRODUCT
- ------------
Our work product will be in the form of:
- - Information to be discussed with you and others, as you may direct.
- - Written reports and analysis worksheets to support our suggestions as we
deem necessary or as you may request.
<PAGE> 2
Mr. John J. Shields
February 17, 1997
Page 2
STAFFING
- --------
Lawrence J. Ramaekers will be the principal responsible for the overall
engagement. He will be assisted by a staff of consultants at various levels, all
of whom have a wide range of skills and abilities related to this type of
assignment. In addition, we have relationships with and periodically retain
independent contractors with specialized skills and abilities to assist us.
TIMING, FEES AND EXPENSES
- -------------------------
We will commence this engagement immediately upon receipt of a signed engagement
letter and retainer.
Hourly Fees
- -----------
This engagement will be staffed with professionals at various levels as the
tasks require. For purposes of semi-monthly billings, our fees will be based on
the hours charged at our hourly rates which are:
<TABLE>
<S> <C>
Principals $430 - $475
Senior Associates $300 - $325
Associates $235 - $260
Accountants and Consultants $ 90 - $160
</TABLE>
Expenses
- --------
We will require a retainer of $100,000 to be applied against the time charges,
excluding expenses, specific to the engagement. We will submit semi-monthly
invoices for services rendered and expenses incurred as described above, and we
will offset such invoices against the retainer. Payment will be due upon receipt
of the invoices to replenish the retainer to the agreed upon amount. Any
unearned portion of the retainer will be returned to you at the termination of
the engagement.
In addition to the fees set forth above, the Company shall pay directly or
reimburse JA&A upon receipt of periodic billings, for all reasonable
out-of-pocket expenses incurred in connection with this assignment such as
travel, lodging, postage, telephone and facsimile charges.
<PAGE> 3
Mr. John J. Shields
February 17, 1997
Page 3
Additional Consideration
- ------------------------
JA&A is granted options to purchase 200,000 shares of Company stock at a strike
price set at the lowest average price for any 30-day period during the six-month
period immediately following the resumption in trading of the Company's stock.
Exercise period shall be three years after the end of JA&A's engagement.
RELATIONSHIP OF THE PARTIES
- ---------------------------
The parties intend that an independent contractor relationship will be created
by this agreement. JA&A is not to be considered an employee or agent of the
Company and the employees of JA&A are not entitled to any of the benefits that
the Company provides for the Company's employees.
The Company also agrees not to solicit or recruit any employees or agents of
JA&A for a period of two years subsequent to the completion and/or termination
of this agreement.
CONFIDENTIALITY
- ---------------
JA&A agrees to keep confidential all information obtained from the Company. JA&A
agrees that neither it nor its directors, officers, principals, employees,
agents or attorneys will disclose to any other person or entity, or use for any
purpose other than specified herein, any information pertaining to the Company
or any affiliate thereof which is either non-public, confidential or proprietary
in nature ("Information") which it obtains or is given access to during the
performance of the services provided hereunder. JA&A also agrees that only those
of its directors, officers, principals, employees, agents and attorneys who have
a need-to-know to perform the services contracted herein and are under an
obligation to maintain the confidentiality of the Information will be given
access to the Information. JA&A may make reasonable disclosures of Information
to third parties in connection with their performance of their obligations and
assignments hereunder. In addition, JA&A will have the right to disclose to
others in the normal course of business its involvement with the Company.
Information includes data, plans, reports, schedules, drawings, accounts,
records, calculations, specifications, flow sheets, computer programs, source or
object codes, results, models, or any work product relating to the business of
the Company, its subsidiaries, distributors, affiliates, vendors, customers,
employees, contractors and consultants.
<PAGE> 4
Mr. John J. Shields
February 17, 1997
Page 4
The Company acknowledges that all advice (written or oral) given by JA&A to the
Company in connection with JA&A's engagement is intended solely for the benefit
and use of the Company (limited to its management) in considering the
transactions to which it relates. The Company agrees that no such advice shall
be used for any other purpose or reproduced, disseminated, quoted or referred to
at any time in any manner or for any purpose other than accomplishing the tasks
and programs referred to herein or in discussions with the Company's lenders or
debt holders, without JA&A's prior approval (which shall not be unreasonably
withheld) except as required by law. This agreement will survive the termination
of the engagement.
FRAMEWORK OF THE ENGAGEMENT
- ---------------------------
The Company acknowledges that it is hiring JA&A purely to assist and advise the
Company in business planning and restructuring. JA&A's engagement shall not
constitute an audit, review or compilation, or any other type of financial
statement reporting engagement that is subject to the rules of the AICPA or
other such state and national professional bodies.
INDEMNIFICATION
- ---------------
In engagements of this nature, it is our practice to receive indemnification.
Accordingly, in consideration of our agreement to act on your behalf in
connection with this engagement, you agree to indemnify, hold harmless, and
defend us (including our principals, employees and agents) from and against all
claims, liabilities, losses, damages and reasonable expenses as they are
incurred, including reasonable legal fees and disbursements of counsel, relating
to or arising out of the engagement, including any legal proceeding in which we
may be required or agree to participate but in which we are not a party. We, our
principals, employees and agents may, but are not required to, engage a single
firm of separate counsel of our choice subject to your consent, which consent
shall not be unreasonably withheld, in connection with any of the matters to
which this indemnification agreement relates. This indemnification agreement
does not apply to actions taken or omitted to be taken by us in bad faith or
from our gross negligence. This agreement will survive the termination of the
engagement.
In addition to the foregoing indemnification, Lawrence J. Ramaekers and Eugene
Bullis shall, along with other JA&A personnel, if any, who serve as officers of
the Company, be individually covered by the same indemnification as is
applicable to other officers of the Company. This agreement will survive the
termination of the engagement.
<PAGE> 5
Mr. John J. Shields
February 17, 1997
Page 5
TERMINATION AND SURVIVAL
- ------------------------
The agreement may be terminated at any time by written notice by one party to
the other; provided, however, that notwithstanding such termination JA&A will be
entitled to any fees and expenses due under the provisions of the agreement.
Such payment obligation shall inure to the benefit of any successor or assignee
of JA&A.
The obligations of the parties under the Indemnification and Confidentiality
sections of this agreement shall survive the termination of the agreement as
well as the other sections of this agreement which expressly provide that they
shall survive termination of this agreement.
GOVERNING LAW
- -------------
This letter agreement is governed by and construed in accordance with the laws
of the State of Delaware with respect to contracts made and to be performed
entirely therein and without regard to choice of law or principles thereof.
CONFLICTS
- ---------
We know of no fact or situation which would represent a conflict of interest for
us with regard to the Company.
SEVERABILITY
- ------------
If any portion of the letter agreement shall be determined to be invalid or
unenforceable, we each agree that the remainder shall be valid and enforceable
to the maximum extent possible.
ENTIRE AGREEMENT
- ----------------
All of the above contains the entire understanding of the parties relating to
the services to be rendered by JA&A and may not be amended or modified in any
respect except in writing signed by the parties.
NOTICES
- -------
All notices required or permitted to be delivered under this letter agreement
shall be sent, if to us, to the address set forth at the head of this letter, to
the attention of Mr. Melvin R. Christiansen, and if to you, to the address for
you set forth above, to the
<PAGE> 6
Mr. John J. Shields
February 17, 1997
Page 6
attention of your General Counsel, or to such other name or address as may be
given in writing to the other party. All notices under the agreement shall be
sufficient if delivered by facsimile or overnight mail. Any notice shall be
deemed to be given only upon actual receipt.
If these terms meet with your approval, please sign and return the enclosed copy
of this proposal and wire transfer the amount to establish the retainer.
We look forward to working with you.
Sincerely yours,
JAY ALIX & ASSOCIATES
Lawrence J. Ramaekers
Principal
Acknowledged and Agreed to:
CENTENNIAL TECHNOLOGIES, INC.
By:
----------------------------------------
Donald R. Peck
Its:
----------------------------------------
Treasurer and General Counsel
Dated:
----------------------------------------
<PAGE> 1
EXHIBIT 21
CENTENNIAL TECHNOLOGIES, INC.
SCHEDULE OF SUBSIDIARIES
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
NAME OF ENTITY LOCATION % OWNERSHIP
- ---------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Centennial Capital Corporation Massachusetts 100%
Centennial Technologies Limited United Kingdom 100%
Centennial Technologies Canada, Inc. Canada 100%
Centennial Technologies (Thailand) Limited Thailand 51%
Century Electronics Manufacturing, Inc. Massachusetts 67%
NCT, Inc. Massachusetts 100%
Subsidiaries of Century Electronics Manufacturing, Inc.
Design Circuits, Inc. Massachusetts 100%
Triax Technology Group Limited United Kingdom 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 6,939
<ALLOWANCES> (692)
<INVENTORY> 7,794
<CURRENT-ASSETS> 27,213
<PP&E> 4,023
<DEPRECIATION> (936)
<TOTAL-ASSETS> 51,198
<CURRENT-LIABILITIES> 22,644
<BONDS> 0
0
0
<COMMON> 177
<OTHER-SE> 28,377
<TOTAL-LIABILITY-AND-EQUITY> 51,198
<SALES> 28,263
<TOTAL-REVENUES> 28,263
<CGS> 24,453
<TOTAL-COSTS> 7,879
<OTHER-EXPENSES> 37,769
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 391
<INCOME-PRETAX> (42,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,662)
<EPS-PRIMARY> (2.46)
<EPS-DILUTED> (2.46)
</TABLE>
