<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
STB SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 3674 75-1855896
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
STB SYSTEMS, INC.
1651 NORTH GLENVILLE DRIVE
RICHARDSON, TEXAS 75081
(972) 234-8750
(Address and telephone number of registrant's principal executive offices)
WILLIAM E. OGLE
CHIEF EXECUTIVE OFFICER
STB SYSTEMS, INC.
1651 NORTH GLENVILLE DRIVE
RICHARDSON, TEXAS 75081
(972) 234-8750
(Name, address and telephone number of agent for service of process)
--------------------------
<TABLE>
<S> <C>
COPIES TO:
HARLAN P. COHEN STEVEN L. BERSON
JOHN B. MCKNIGHT GEOFFREY B. HALE
Locke Purnell Rain Harrell WADY H. MILNER
(A Professional Corporation) Wilson Sonsini Goodrich & Rosati
2200 Ross Avenue, Suite 2200 Professional Corporation
Dallas, Texas 75201-6776 650 Page Mill Road
(214) 740-8000 Palo Alto, California 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box:
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.............. 3,450,000(1) $23.56(2) $81,290,625(2) $23,981
</TABLE>
(1) Includes 450,000 shares as to which the Company has granted the Underwriters
an option to cover over-allotments.
(2) Estimated solely for purposes of calculating the registration fee based upon
the closing sales price of a share of Common Stock on February 23, 1998, as
quoted on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
3,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
Of the 3,000,000 shares of Common Stock offered hereby, 2,775,000 shares are
being sold by STB Systems, Inc. ("STB" or the "Company") and 225,000 shares are
being sold by the Selling Shareholders. The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "STBI." On February 24, 1998, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $22.13 per share. See
"Price Range of Common Stock and Dividend Policy."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNTS (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total (3)............................. $ $ $ $
</TABLE>
(1) See "Underwriting," for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of this offering payable by the Company estimated
at $435,000.
(3) The Company and certain Selling Shareholders have granted options to the
Underwriters, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 450,000 additional shares of Common Stock for the purpose
of covering
over-allotments, if any. If the Underwriters exercise such over-allotment
options in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $ , $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1998, at the
office of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial
Center, New York, New York 10281.
-------------------
CIBC OPPENHEIMER
HAMBRECHT & QUIST
HOAK BREEDLOVE WESNESKI & CO.
THE BUCKINGHAM RESEARCH GROUP, INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
[GRAPHICS]
[Inside Front Cover Graphics: Pictured is a PC monitor with colorful
graphics and a multimedia accelerator subsystem overlaid over a background of
the Company's manufacturing operations. Included in the graphics are references
to a number of STB's product functionalities, including "Performance
Acceleration," "3D Acceleration," "2D Acceleration," "Professional
Acceleration," "Multimedia Acceleration" and "Convergence Technologies." Set
forth below the foregoing is a representative set of logos of a number of
product awards won by the Company from various industry publications, followed
by the Company's logo.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY), OR THEIR RESPECTIVE AFFILIATES, MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED BY REFERENCE HEREIN.
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERM "THE COMPANY" OR "STB" WHEN USED IN THIS PROSPECTUS REFERS TO
STB SYSTEMS, INC., A TEXAS CORPORATION, AND ITS CONSOLIDATED SUBSIDIARIES AND
PRIOR AFFILIATES. ALL REFERENCES IN THIS PROSPECTUS TO THE COMMON STOCK OF THE
COMPANY GIVE EFFECT TO A THREE-FOR-TWO STOCK SPLIT OF THE SHARES OF COMMON STOCK
EFFECTED IN THE FORM OF A STOCK DIVIDEND ON FEBRUARY 20, 1998. PROSPECTIVE
INVESTORS ARE URGED TO REVIEW CAREFULLY THE INFORMATION SET FORTH UNDER THE
CAPTION "RISK FACTORS" IN THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"PROSPECTUS" WHEN USED IN THIS DOCUMENT INCLUDES THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN.
THE COMPANY
STB designs, manufactures and sells multimedia subsystems and specialized
technology products, primarily for use in desktop PCs. These products supplement
a PC's central processing unit to enhance multimedia performance and accelerate
the computationally intensive operations and processing requirements necessary
to perform advanced multimedia applications. The Company focuses primarily on
the sale of its products to major OEMs, and works closely with its component
suppliers and OEM customers to develop products that are responsive to
technological trends and consumer demand. STB manufactures substantially all of
its products at its ISO 9002 certified facility in Juarez, Mexico, which the
Company believes enables it to respond more quickly to changing customer needs,
maintain product quality and achieve economies of scale.
The Company's multimedia subsystem product line includes a wide selection of
multimedia accelerator subsystems (also referred to as "graphics add-in cards")
designed primarily for use in mid to high-end PCs. STB's multimedia accelerator
subsystems enable users to take advantage of true-color graphics, 3D and other
video features found in the latest PC operating systems (such as Microsoft
Windows 95 and Windows NT) and in multimedia applications. The Company sells its
multimedia subsystem products to major OEMs and, to a lesser extent, to
commercial customers, such as retailers, distributors and direct-mail companies.
The Company is broadening its relationships with OEMs beyond the sale of
multimedia accelerator subsystems to include the sale of other complementary
multimedia subsystems, such as DVD decoder subsystems, PC/TV convergence
subsystems and sound cards, and is evaluating the production of motherboards
that incorporate multimedia capabilities. Sales of multimedia subsystems to OEMs
represented approximately 85% and 79% of the Company's total net sales for the
1998 first fiscal quarter and the fiscal year ended October 31, 1997,
respectively. STB's OEM and commercial customers include Gateway 2000, Dell,
Compaq, IBM, Best Buy, CompUSA, Tech Data Corporation, Ingram Micro, Inc. and
Merisel, Inc.
STB's specialized technology products include products designed to enable a
single computer to control the display of up to 32 monitors and a recently
introduced line of flat panel display products. These products apply proprietary
software and hardware designs to industry standard components to deliver
solutions tailored to customers' needs. STB sells its specialized technology
products primarily to resellers, the workstation groups of OEMs and corporate
customers for specialized applications in the financial services, hospitality,
factory automation, transportation and emergency response industries. Customers
for STB's specialized technology products include Reuters Limited, Compaq and
LodgeNet Entertainment Corporation.
STB increased unit sales volumes in each year from fiscal 1993 through
fiscal 1997 and revenues from $39.2 million in fiscal 1993 to $199.5 million in
fiscal 1997. The Company has reported nine consecutive quarters of record net
income. STB believes it is currently one of the world's largest independent
suppliers of multimedia accelerator subsystems and multi-monitor products.
The Company's principal offices are located at 1651 North Glenville Drive,
Richardson, Texas 75081 and its telephone number is (972) 234-8750. The
Company's World Wide Web home page is located at "http:\\www.stb.com".
Information contained in the Company's website does not constitute, and shall
not be deemed to constitute, part of this Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company....................... 2,775,000 shares
Common Stock offered by the Selling Shareholders.......... 225,000 shares
Common Stock to be outstanding after
the offering............................................. 13,239,862 shares(1)
Use of proceeds........................................... To reduce indebtedness and for
general
corporate purposes
Nasdaq National Market symbol............................. STBI
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of January 31, 1998. Excludes
(i) 2,014,500 shares of Common Stock reserved for issuance under the
Company's 1995 Long Term Incentive Plan (the "Incentive Plan"), of which
options to purchase 1,881,977 shares of Common Stock were outstanding with a
weighted average exercise price of $8.85 per share, (ii) 225,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan for
Non-Employee Directors (the "Director Plan"), of which options to purchase
56,250 shares of Common Stock were outstanding with a weighted average
exercise price of $5.33 per share, and (iii) 410,570 shares of Common Stock
reserved for issuance under the Company's 1995 Employee Stock Option
Purchase Plan (the "Employee Plan"). The Board of Directors of the Company
proposes to submit for shareholder approval at the next annual meeting of
shareholders a proposal to increase the number of shares of Common Stock to
be reserved for issuance under the Incentive Plan. See "Management--1995
Long Term Incentive Plan."
The STB logo is a registered trademark of the Company. STB owns common law
trademark rights for Channel, Glyder, Lightspeed, Mediator, MVP, Nitro,
Powergraph, Soundrage, STB Vision, Velocity, Video Rage and Wave Up. This
Prospectus also includes trademarks, service marks and tradenames of companies
other than the Company, which are the property of their respective owners.
------------------------
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, THE WORDS "ANTICIPATES," "BELIEVES," "ESTIMATES," "INTENDS,"
"PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS
SET FORTH HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. SUCH
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE CAUTIONARY STATEMENTS SET FORTH
UNDER THE CAPTIONS "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
-------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales................................. $ 39,236 $ 89,836 $ 129,603 $ 180,155 $ 199,485 $ 48,092 $ 78,758
Gross profit.............................. 8,510 16,623 19,474 35,276 50,046 10,633 16,216
Income from operations.................... 786 4,109 3,146 10,376 17,900 3,726 6,219
Net income(1)............................. $ 560 $ 3,521 $ 1,998 $ 6,077 $ 10,770 $ 2,252 $ 3,805
Net income per share (1)(2)(3):
Basic................................... $ 0.10 $ 0.63 $ 0.23 $ 0.60 $ 1.05 $ 0.22 $ 0.36
Diluted................................. $ 0.10 $ 0.63 $ 0.23 $ 0.59 $ 0.97 $ 0.21 $ 0.33
Weighted average shares outstanding
(1)(2)(3):
Basic................................... 5,625 5,625 8,818 10,159 10,298 10,159 10,462
Diluted................................. 5,625 5,625 8,851 10,309 11,147 10,731 11,389
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 31,
1998
-----------
ACTUAL
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................................................ $ 35,801
Total assets............................................................................................... 115,767
Short-term borrowings, including current portion of long-term liabilities.................................. 23,589
Long-term liabilities, net of current portion.............................................................. 2,538
Total shareholders' equity................................................................................. 47,363
<CAPTION>
AS
ADJUSTED(4)
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................................................ $ 93,478
Total assets............................................................................................... 150,444
Short-term borrowings, including current portion of long-term liabilities.................................. 589
Long-term liabilities, net of current portion.............................................................. 2,538
Total shareholders' equity................................................................................. 105,040
</TABLE>
- ------------------------------
(1) Prior to the Company's initial public offering in February 1995, the Company
had been treated for federal and certain state income tax purposes as an S
corporation. As a result, the income of the Company for federal and certain
state income tax purposes was included in the income tax returns of the
Company's shareholders (the "Founding Shareholders"). Accordingly, prior to
February 21, 1995, no recognition of federal and certain state income taxes
was included in the Company's net income and net income per share.
Therefore, net income and net income per share for fiscal years 1993 through
1995 are not comparable to net income and net income per share for fiscal
years 1996 and 1997 or the three months ended January 31, 1997 and 1998. See
Note 1 of Notes to Consolidated Financial Statements.
(2) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), for the
fiscal year ended October 31, 1998, which requires the restatement of all
periods presented in the Company's Consolidated Financial Statements
included in this Prospectus and incorporated by reference herein. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."
(3) Adjusted to reflect a three-for-two stock split effected in the form of a
stock dividend on February 20, 1998. Share and per share amounts have been
retroactively adjusted to reflect the stock split. See Note 1 of Notes to
Consolidated Financial Statements.
(4) Adjusted to reflect the sale of 2,775,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom (assuming a public offering price of $22.13 per share). See "Use
of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, THE FOLLOWING FACTORS WHICH MAY AFFECT THE COMPANY'S CURRENT POSITION
AND FUTURE PROSPECTS, SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES. THE USE OF THE WORDS "ANTICIPATES," "BELIEVES,"
"ESTIMATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF FACTORS SET FORTH HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE CAUTIONARY STATEMENTS
SET FORTH BELOW AND UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
POTENTIAL FOR FLUCTUATING OPERATING RESULTS; SEASONALITY
The Company's results of operations have fluctuated significantly in the
past and are expected to continue to fluctuate in the future as a result of a
number of factors, many of which are beyond the Company's control. These factors
include, but are not limited to: the timely introduction by the Company of new
or enhanced products and the market acceptance of these products; the Company's
ability to introduce and market products in accordance with its OEM customers'
design requirements and design cycles; changes in demand for functionality of
the Company's products and the products of its OEM customers; the gain or loss
of significant OEM customers; the volume and timing of significant customer
orders received during the period; the availability, pricing and timeliness of
component delivery for the Company's products; increased competition from
existing competitors and new entrants to the market; the timing of new product
announcements or product introductions by the Company's competitors; product
obsolescence, management of product transitions and unanticipated delays or
problems in the introduction or production of products by the Company or its OEM
customers; product reviews and other media coverage; anticipated and
unanticipated decreases in average selling prices of the Company's products;
changes in the mix of products sold by its OEM and other customers; changes in
the pricing policies of the Company, its suppliers and customers; management of
inventory by the Company and its customers; changes in the Company's sales
channel mix or in the sourcing strategies of its OEM customers; and product
returns or price protection charges by customers. Because a significant portion
of the Company's business has been and is expected to continue to be derived
from orders placed by a limited number of larger OEM customers, any gain or loss
or variations in the timing of such orders can cause significant fluctuations in
the Company's operating results. Anticipated orders from customers may fail to
materialize and delivery schedules may be deferred or canceled for a number of
reasons, including changes in specific customer requirements. The volume and
timing of orders received during a quarter are difficult to forecast. Customers
generally order on an as-needed basis. Consequently, the Company operates with a
relatively small backlog. Moreover, as is common in the PC industry, a
disproportionate percentage of the Company's net sales in any quarter have
historically been, and are expected in the future to be, generated in the last
month of a quarter. As a result, a shortfall in sales in any quarter as compared
to expectations may not be identifiable until near the end of the quarter.
The Company's gross profit margins are affected by a number of factors,
including sales channel mix, product mix, pricing pressures, the availability
and cost of components from the Company's suppliers, level of absorption of
fixed manufacturing costs, product cycles and general economic conditions.
Moreover, the Company operates its own manufacturing facility. As a result, the
Company incurs relatively high fixed overhead and labor costs compared with
those of its competitors that outsource their manufacturing requirements. Any
failure to generate the level of product revenues needed to absorb such fixed
overhead and labor costs will have a material adverse effect on the Company's
business, financial condition and
6
<PAGE>
results of operations. In addition, the Company has experienced in the past and
may experience in the future excess demand for its products from its OEM
customers and has elected in the past and may elect in the future to pay its
employees overtime and purchase components on the spot market at prices higher
than would have been available if the Company had purchased such components in
advance in order to meet its production requirements. Such activities have
resulted in the past and may result in the future in lower gross margins for the
additional products being manufactured. The Company's markets are characterized
by intense competition and its products typically have a limited life cycle
(usually six to nine months) and declining average unit selling prices over
time. Accordingly, the Company's margins may decline from current levels with
respect to its existing product lines. In addition, the Company's margins may be
adversely affected by shortages in the availability of key components for the
Company's products, as well as by fluctuations in the value of certain foreign
currencies.
The Company's expenditures for research and development, selling and
marketing, and general and administrative functions are based in part on future
revenue projections. The Company may be unable to adjust spending in a timely
manner in response to any unanticipated declines in revenues. Any failure to
adjust spending in a timely manner may have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's quarterly results are also subject to seasonal fluctuations,
with generally weaker fiscal third quarter results. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Selected
Quarterly Operating Results and Seasonality."
As a result of the factors listed above and other factors, the Company
believes that period-to-period comparisons of its operating results must not be
relied upon as an indication of future performance. It is likely that in some
future period the Company's operating results or business outlook will be below
the expectations of securities analysts or investors, which would likely result
in a significant reduction in the market price for the Company's Common Stock.
DEPENDENCE ON SUPPLIERS
The Company has in the past and expects in the future to obtain several of
the components used in its products from single or limited sources and, in
instances in which component manufacturers have not or do not allocate a
sufficient supply of components to meet the Company's needs, the Company has
obtained in the past and may obtain in the future such components from
distributors or on the spot market at a higher cost. The Company has no
guaranteed supply arrangements with any of its suppliers, and there can be no
assurance that current suppliers will be able to meet the Company's current or
future component requirements. From time to time, the Company has relied and, in
the future, expects to rely, substantially upon a limited number of sole source
suppliers for multimedia controller chips, which can, in large part, determine
the performance of a multimedia subsystem. In the event that the Company
experiences difficulty obtaining a particular multimedia controller chip, the
Company could be forced to pay higher prices for comparable multimedia
controller chips, alter product designs to use alternative and potentially
inferior components, reduce its production of the related product, or delay
product shipment schedules. The Company believes that with respect to its
current single and limited source components, it generally could obtain similar
components from other sources but likely would be required to pay significantly
more for such products, alter product designs to use alternative components
(which would cause significant delays and could require product recertification
from the Company's OEM customers) or reduce its production of the related
products; however, no assurance can be given with respect to the availability of
alternative sources for single and limited source components in future products.
The Company has from time to time experienced difficulty meeting certain product
shipment dates to customers as a result of various causes, including component
delivery delays, component availability shortages, system compatability
difficulties and supplier product quality deficiencies, which in some instances
has resulted in impaired margins, reduced production volumes, strained customer
relations and a loss of business. In addition, software drivers, which are
essential to the performance of substantially all of the Company's
7
<PAGE>
products, are included with some of these single and limited source components.
The Company has from time to time experienced product delivery delays due to the
inadequacy or the incompatibility of software drivers provided by component
suppliers or developed internally by the Company. The Company expects that
component delivery delays, component shortages, system compatability
difficulties, supplier product quality deficiencies and software driver problems
will continue to occur in the future, and such delays or problems could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, in an effort to counter actual or perceived
component shortages, the Company may overpurchase certain components. Excess
inventory resulting from such overpurchases, obsolescence or a decline in the
market value of such inventory, could result in inventory write-offs, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Significant increases in the prices of components, such as controller chips
or memory chips, have occurred from time to time, and the Company has not always
been able to increase its products' prices accordingly. Worldwide shortages of
controller chips or memory chips and international tariff disputes have resulted
from time to time in substantial component cost increases that have had a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such price increases will
not take place in the future, or that such price increases will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company relies upon its suppliers to continue to develop, introduce and
manufacture controller chips, memory chips and other components in sufficient
volumes to satisfy the Company's requirements. These components must compare
favorably in terms of functionality, performance and price with competitive
offerings from other manufacturers, including competitors of the Company that
have internally developed computer chips or manufacturing expertise. Any failure
by the Company to continue to obtain components from its suppliers that are
competitive in terms of functionality, performance and price with the components
that are available to its competitors would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Suppliers."
CUSTOMER CONCENTRATION; DEPENDENCE ON PC MARKET
The Company's three largest OEM customers accounted for approximately 76% of
net sales during the 1998 first fiscal quarter, with Gateway 2000, Inc.
("Gateway 2000"), Dell Computer Corporation ("Dell") and Compaq Computer
Corporation ("Compaq") accounting for approximately 40%, 32% and 4%,
respectively, of the Company's net sales for such period. The Company's three
largest OEM customers accounted for approximately 66% of net sales in fiscal
year 1997, with Gateway 2000, Dell and Compaq accounting for approximately 35%,
20% and 11%, respectively, of the Company's net sales for such period.
Historically, Gateway 2000 has been the Company's largest customer, while Dell
and Compaq have become more significant customers in recent periods. The
Company's other significant customers have changed from period to period. See
"Business--Sales and Marketing--Sales."
The Company has no long-term commitments or contracts with any of its
customers. Any reduction of business from Gateway 2000, Dell or Compaq or the
loss of Gateway 2000, Dell or Compaq as a major customer would have a material
adverse effect on the Company's business, financial condition and results of
operations. Due to their purchasing power, the Company's OEM customers are able
to exert significant pressure on the prices of the Company's products, which
could impair the Company's gross profit margins and have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company believes that its future prospects will largely depend
from time to time upon the success of a limited number of key component
suppliers (currently, its graphics controller chip suppliers) and a few major
OEM customers (currently, Gateway 2000, Dell and Compaq). Because a limited
number of major OEMs currently ship the majority of the PCs produced, the number
of potential customers that the Company can target is currently limited. There
can be no assurance that the Company will be successful in maintaining its
existing relationships with its major OEM customers or in securing additional
major OEM customers and there can be no assurance that the Company will be able
to retain or
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increase the volume or profitability of products currently manufactured by the
Company for such customers. Any failure by the Company to retain its existing
OEM customers, or establish profitable relationships with additional major OEM
customers, or to maintain and increase the volume and profitability of the
products manufactured for such customers would have a material adverse effect on
the Company's business, financial condition and results of operations.
While a number of the Company's OEM customers have achieved strong PC sales
in recent periods, such customers, and the PC industry in general, are subject
to dynamic competitive conditions. In order for the Company's products to
maintain unit volumes at or above historical levels, leading OEMs must select
the Company's products for design into their products, and the Company must
successfully identify new product opportunities and complete the design of its
products and sell those products. There can be no assurance that (i) the Company
can successfully identify new product opportunities and develop and bring to
market in a timely fashion such new products, (ii) the Company can successfully
achieve the design win for incorporation into OEM products, (iii) that such
OEMs' products will gain market acceptance or (iv) technologies developed by
others will not render the products of the Company (or its OEM customers)
non-competitive or obsolete. The loss of sales by the Company's OEM customers to
other OEMs or a decrease in the popularity of desktop PCs that incorporate the
Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON MULTIMEDIA ACCELERATOR SUBSYSTEM MARKET; MIGRATION TO MOTHERBOARDS
A substantial majority of the Company's net sales is derived from the sale
of multimedia accelerator subsystems. According to Jon Peddie Associates, an
independent industry research firm, approximately 69% of all graphics controller
chips manufactured in the twelve month period ended September 30, 1997 were
incorporated onto multimedia accelerator subsystems, and approximately 31% were
incorporated onto motherboards. Generally, multimedia accelerator subsystems are
used in higher-end PCs offering the latest technology and performance features.
However, as a given functionality becomes technologically stable and widely
accepted by PC users, it typically migrates to the PC motherboard. The Company
expects this trend to continue with respect to the functionality provided by
many of its current products, notably, in the near term, with respect to its
low-end multimedia accelerator subsystems. In this regard, the MMX instruction
set from Intel Corporation ("Intel") and the expanded capabilities provided by
the Direct X Applications Programming Interfaces ("APIs") from Microsoft
Corporation ("Microsoft") have increased the capability of its operating systems
to control display features that have traditionally been performed by multimedia
accelerator subsystems. In addition, single chip solutions are currently
available that provide 16-bit sound functionality for implementation directly
onto PC motherboards. As a result of this tendency of technology to migrate to
the PC motherboard, the Company's prospects are largely dependent on its ability
to continue to develop products that incorporate new and rapidly evolving
technologies that manufacturers have not yet fully incorporated onto PC
motherboards and to develop PC motherboard products that incorporate multimedia
accelerator subsystems and other features demanded by the PC motherboard market.
In response to this trend of migration, the Company is now actively seeking
orders from OEMs for PC motherboards that incorporate STB's graphics circuitry,
but there can be no assurance that the Company will secure any such order or
that, if it secures any such order, it could produce such PC motherboards in
profitable quantities, if at all. The Company has no prior experience designing,
developing or marketing PC motherboards, and there can be no assurance that the
Company will be successful in developing this business. While the Company
believes that a market will continue to exist in the near term for add-in
subsystems that provide advanced functionalities and offer flexible systems
configuration, there can be no assurance that the incorporation of multimedia
functions onto PC motherboards will not have a material adverse effect on the
market for the Company's add-in subsystems. In addition, OEMs may choose to
develop multimedia accelerator subsystems internally rather than purchase such
products from external suppliers. An increase in the number or percentage of PCs
that incorporate graphics circuitry on the motherboard at the expense of add-in
multimedia accelerator subsystems, an increase in the number or percentage of
multimedia accelerator subsystems manufactured
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internally by OEMs, or a decrease in PC sales volumes could effectively shrink
the market for the Company's current products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Industry."
LIMITED PRODUCT LIFE CYCLE; RAPID TECHNOLOGICAL CHANGE; MANAGEMENT OF PRODUCT
TRANSITIONS
The market for the Company's products is characterized by short product life
cycles, evolving industry standards and frequent introductions of new products.
The Company's major OEM customers typically introduce new system configurations
as often as twice per year, and the life cycles of the Company's multimedia
accelerator subsystems typically range from six to nine months. The Company's
failure to successfully introduce new products within a given product cycle
could have a material adverse effect on the Company's business, financial
condition and results of operations for that cycle and possibly for subsequent
cycles. Any such failure could also impair the Company's brand name, reputation
and relationships with its OEM customers and have a longer term material adverse
effect on the Company's business, financial condition and results of operations.
The Company submits most of its products for compatibility and performance
testing to the Microsoft Windows Hardware Quality Lab ("WHQL"). WHQL
certification typically requires up to several weeks to complete and entitles
the Company to claim that a particular product is "Designed for Microsoft
Windows". The Company's OEM customers typically require the Company's products
to be Designed for Microsoft Windows prior to making volume purchases. There can
be no assurance that the Company will receive WHQL certification for any
particular future product in a timely fashion, and any failure to receive WHQL
certification could have a material adverse effect on the Company's business,
financial condition and results of operations.
The PC industry in general, and the market for the Company's multimedia
subsystem products in particular, is characterized by rapidly changing
technologies, evolving industry standards, rapid changes in customer
requirements and fierce price competition. The Company's prospects depend upon
market acceptance of its existing products, its ability to enhance its existing
products, and its ability to continually develop and introduce new products and
features to meet changing customer requirements. Each new product cycle presents
new opportunities for current or prospective competitors of the Company to gain
market share. The Company's competitors include manufacturers of products that
directly compete with the Company's products, as well as competitors that can
produce products that have a similar functionality to the Company's products.
For instance, Intel has added new functionalities, such as the MMX instruction
set, to its controller chips to enhance the power of the central processing unit
(the "CPU") to manage the display features of a PC. Similarly, Microsoft is
introducing new versions of its operating systems with features, such as the
Direct 3D API, that increase the capability of its operating systems to control
a PC's display features. Moreover, Intel's recently completed acquisition of
Chips and Technologies, Inc. as well as Intel's introduction of the i740
graphics controller chip could accelerate migration of graphics functionality to
the motherboard or onto the CPU. The introduction of products embodying new
technologies and the emergence of new industry standards and practices can
significantly impair the average selling prices of the Company's multimedia
subsystem and other products, or render such products unmarketable or obsolete.
In the event that the Company's products are unable to support or interface with
these new products, standards and technologies in a timely manner, demand for
the Company's products could be reduced significantly, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Because of the short product life cycles and the long lead times for many
components used in the Company's products, the Company may not be able to
quickly reduce its production or inventory levels in response to unexpected
shortfalls in sales or, conversely, to increase production in response to
unexpected demand. There can be no assurance of the continued acceptance of the
Company's existing products or that the Company will be successful in enhancing
its existing products or identifying, developing, manufacturing or marketing new
products, such as PC motherboards and the recently introduced flat panel display
products. Delays in developing new products or product enhancements or the
failure of such
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products or product enhancements to gain market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Sales of individual products and product lines are typically characterized
by declines in unit volumes, pricing and margins towards the end of the
product's life cycle, the precise timing of which may be difficult to predict.
As new products are planned and introduced, the Company attempts to monitor
closely the inventory of older products (and older components) and to phase out
their manufacture in a controlled manner. Nevertheless, the Company has
experienced from time to time in the past, and expects to experience from time
to time in the future, unexpected reductions in sales of older products as
customers anticipate new products. These reductions have in the past and may in
the future give rise to additional charges for obsolete or excess inventory,
returns of older products by retailers or commercial distributors or substantial
price protection claims. The Company's failure to successfully manage product
transitions could have a material adverse effect on its business, financial
condition and results of operations.
COMPETITION
The market for the Company's products is intensely competitive and the
Company expects competition to increase. The Company competes with independent
manufacturers of brand name multimedia subsystem products, as well as contract
manufacturers and certain OEM manufacturing operations that produce multimedia
subsystem products. The Company's major competitors in the multimedia subsystems
market include Diamond Multimedia Systems, Inc., ATI Technologies, Inc., Matrox
Graphics, Inc., ELSA GmbH, AccelGraphics, Inc., Creative Labs, Inc., CEI, Inc.,
Number Nine Visual Technology Corporation, and Hauppauge ComputerWorks, Inc. In
the specialized technology product market, the Company's major competitors
include Colorgraphic Communication Corporation, Datapath Ltd. and Appian
Graphics Corp.
In addition to its major competitors, certain of the Company's suppliers
sell graphics controller chips directly to OEMs for use in internally produced
multimedia accelerator subsystems, other multimedia subsystems or on
motherboards. If one or more of the Company's significant OEM customers were to
commence or increase internal production of multimedia accelerator subsystems or
other multimedia subsystems, the Company's business, financial condition and
results of operations could be materially adversely affected. Furthermore,
several major OEMs currently integrate graphics controller chips on the
motherboard of their PCs. If one or more of the Company's major OEM customers
begin to incorporate graphics controller chips or other controller chips onto
motherboards rather than incorporating the Company's products, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "--Dependence on Multimedia Accelerator Subsystem
Market; Migration to Motherboards."
The Company expects Intel to continue to invest heavily in research and
development and new manufacturing facilities in order to maintain its position
as one of the largest manufacturers of motherboards, and to promote its product
offerings through extensive advertising campaigns designed to increase brand
loyalty by PC users. Intel may, in the future, develop multimedia-enabled
motherboards using its i740 3D graphics processor, which could directly compete
with motherboard products that the Company may develop. In addition, Intel
exerts significant influence over the 3D graphics industry due to the widespread
acceptance of its microprocessor architecture and its development of new
interface architectures such as the Advanced Graphics Port ("AGP") bus. Any
significant modifications by Intel to the AGP or future graphics interface
architectures could render the Company's products obsolete, incompatible or less
competitive. Any broad-scale introduction of multimedia-enabled motherboards or
significant modifications to the graphics interface bus by Intel which the
Company is unable to access, and which consequently render the Company's
products less competitive or reduces their potential market, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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The Company competes in its markets on the basis of a number of factors,
including the price, performance, reliability and compatibility of its products,
its ability to reach the market quickly with new products, its ability to meet
customer delivery and reliability requirements, the quality of its technical
support and its ability to develop and maintain relationships with customers and
suppliers. Many of the Company's competitors and potential competitors have
greater financial, marketing, manufacturing and technical resources than the
Company. In addition, some of the Company's competitors manufacture their own
controller chips, which provide these competitors with a significant advantage
over the Company when their internally produced controller chips cost less or
maintain higher price/performance levels than the controller chips available to
the Company from independent suppliers. Furthermore, while the Company believes
it is the only supplier of brand name multimedia accelerator subsystems that
manufactures its own products, some of the Company's competitors internally
manufacture other multimedia subsystems, such as sound cards and PC/TV cards.
The rapid pace of change in the industry and in the markets in which the Company
competes places a premium on the knowledge and experience of a company's
management, engineers and other personnel, and their ability to continuously
develop, enhance and transition new products. The Company believes that
increasing its hardware and software engineering staff is an important factor to
its future competitiveness. See "Business--Competition."
PRODUCT CONCENTRATION
Historically, a substantial majority of the Company's net sales have been
derived from sales of multimedia accelerator subsystems and, from time to time,
a substantial majority of the Company's net sales in a given fiscal quarter have
been derived from the sale of a single or a limited number of multimedia
accelerator subsystems. Factors that increase the probability of a single or a
limited number of products accounting for a substantial majority of sales during
a given fiscal quarter may include one or more of the following factors: the
development and timely introduction of new or enhanced products by the Company
that meet OEM design requirements and design cycles and achieve wide market
acceptance; the selection of key components (such as multimedia controller
chips) at the design stage that provide the Company's products with distinct
advantages compared with the key components available to its competitors; the
availability of key components (such as multimedia controller chips) in
sufficient quantities to meet production schedules once the Company commences
manufacturing its products; favorable product reviews and other media coverage;
the volume and timing of significant customer orders received during the period;
and product obsolescence, maturation, or mismanagement of product transitions by
the Company's competitors. Because the market for the Company's products is
characterized by short product life cycles, evolving industry standards and
frequent introductions of new products, however, the Company's product offerings
may change significantly from quarter to quarter. There can be no assurance that
a product which was an industry leader and a major source of revenue and gross
profit in one fiscal quarter will not be rendered less competitive or obsolete
in a subsequent fiscal quarter. Moreover, in any given quarter, one or more of
the Company's competitors may introduce an industry dominating product for one
or more of the same factors noted above. Accordingly, the Company's future
prospects largely depend upon its ability to continuously develop and introduce
new products that generate sufficient net sales to replace net sales from
existing products as they mature. Any inability to develop and introduce new
products that compete favorably in the marketplace and meet customer demand in
future fiscal periods will have a material adverse effect on the Company's
business, financial condition and results of operations.
SINGLE MANUFACTURING FACILITY
The Company's sole manufacturing facility is located in Juarez, Mexico. The
Company recently relocated a portion of its manufacturing operations to an
adjacent, larger building, thus expanding the overall facility square footage,
and transitioned to new or reconfigured manufacturing equipment. Since the
Company is substantially dependent on this single manufacturing facility, any
disruption of the Company's manufacturing operations at this facility would have
a material adverse effect on the
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Company's business, financial condition and results of operations. Such
disruption could result from various factors, including difficulties in
attracting and retaining qualified manufacturing employees, difficulties
associated with the transition to new, reconfigured or upgraded manufacturing
equipment, a labor dispute, human error, governmental or political risks or a
natural disaster such as an earthquake, tornado, fire or flood. In addition, in
comparison to those of its competitors that do not maintain their own
manufacturing facilities, the Company incurs higher relative fixed overhead and
labor costs as a result of operating its own manufacturing facility. Any failure
to generate the level of product revenues needed to absorb these overhead and
labor costs would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Manufacturing."
MANAGEMENT OF GROWTH
The Company has recently experienced rapid growth and consequently has
increased its expenditures in a number of areas and made certain long-term
commitments (such as the expansion of production lines at its Juarez
manufacturing facility and the forthcoming relocation of its corporate
headquarters to a larger facility in Richardson, Texas), a number of which would
be difficult to reduce quickly in the event of a reduction in the rate of growth
or a decrease in the Company's business. In the event that the Company
experiences further growth, such growth will place additional strain on the
Company's management and operations, including its sales, customer support,
research and development, and finance and administrative operations and require
larger quantities of components, additional personnel and manufacturing
equipment and improved operating, financial and administrative controls, any of
which could require significant additional capital expenditures. The Company may
experience difficulty securing adequate quantities of components or additional
manufacturing equipment, attracting or retaining skilled personnel, improving
infrastructure and management information systems or overcoming other
difficulties associated with growth. In addition, gross profit margins derived
from initial orders with new OEM customers are frequently lower than the
Company's typical gross profit margins, which could reduce the Company's overall
gross profit margin. There can be no assurance that the Company will be able to
manage future changes in the size of its business successfully or that
difficulties in doing so will not have a material adverse effect on the
Company's business, financial condition and results of operations.
CHANGE IN PRODUCT OR SALES CHANNEL MIX
The Company offers two broad categories of products: multimedia subsystems
that are primarily sold to major OEMs and, to a lesser degree, to commercial
customers, and specialized technology products that are primarily sold to
resellers, the workstation groups of OEMs and corporate customers in certain
industries. Sales of multimedia accelerator subsystems to OEMs, which currently
account for a substantial majority of the Company's net sales of OEM multimedia
subsystems, are characterized by relatively high unit volumes and relatively low
gross profit margins. Sales of the Company's multimedia subsystems to the
commercial market are characterized by relatively modest volumes and moderate
gross profit margins. Sales of the Company's specialized technology products are
characterized by relatively low unit volumes and relatively high gross profit
margins. The Company's net sales to OEMs, the commercial market and specialized
technology customers represented approximately 85%, 9% and 5% of the Company's
total net sales in the 1998 first fiscal quarter, and approximately 79%, 12% and
8% of the Company's total net sales in fiscal year 1997. Shifts in the mix of
products sold or in the sales channels into which such products are sold could
have a material adverse effect on the Company's business, financial condition
and results of operations. In particular, a decrease in sales of multimedia
subsystems to the commercial market or in sales of specialized technology
products could result in a disproportionately greater decrease in the Company's
gross profit margin because sales of multimedia subsystems in the commercial
market and sales of specialized technology products currently have higher gross
profit margins than sales of multimedia subsystem products to the Company's OEM
customers. On the other hand, any decrease in the volume of multimedia
subsystems sold to the Company's OEM customers would significantly reduce total
net sales, which would also have a material adverse effect on the Company's
business, financial condition and results
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of operations. See "Business--Products" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
ENTRY INTO NEW PRODUCT MARKETS
While the Company's business historically has focused primarily on the
design, manufacture and sale of multimedia accelerator subsystems, the Company
commenced commercial shipments of its DVD decoder subsystems in the 1997 third
fiscal quarter and its flat panel display products in the 1998 first fiscal
quarter. Further, as a substantial number of PCs incorporate graphics circuitry
on the motherboard (particularly in lower cost PCs), the Company is now actively
soliciting orders for such motherboards from OEMs and, in the event that the
Company secures any orders, the Company plans to undertake the design,
manufacture and sale of motherboards incorporating the Company's multimedia
accelerator subsystem capabilities. See "Business--Products." There are numerous
risks inherent in the entry into new product markets, including the reallocation
of limited management, engineering and capital resources to unproven product
ventures, a greater likelihood of encountering technical problems and a greater
likelihood that the Company's new products (or the PCs into which they are
incorporated) will not gain market acceptance. In addition, a new product line,
like the Company's line of flat panel display products, requires significant
investment in long-lead time inventories as well as certain manufacturing
equipment. The failure of one or more of such products, or any adverse effect
such new products may have upon the Company's reputation in its core multimedia
accelerator subsystem business as a result of such failure, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
The Company's success depends in part upon its proprietary technology,
including, in particular, its software drivers and utilities and its hardware
designs. The Company primarily relies upon copyright and trade secret laws and
agreements with its suppliers and customers to protect its proprietary
technology, and occasionally seeks patent protection on selected inventions. The
Company generally also enters into non-disclosure agreements with persons to
whom it reveals its proprietary information, such as OEMs that the Company works
with, concerning future products. There can be no assurance that the Company's
present protective measures will be adequate to prevent misappropriation of its
technology or independent third party development of the same or similar
technology. Many foreign jurisdictions offer less protection of intellectual
property rights than the United States, and there can be no assurance that the
protection provided to the Company's proprietary technology by the laws of the
United States or foreign jurisdictions will be sufficient to protect the
Company's technology.
The Company has in the past and may in the future find it necessary or
desirable to procure licenses from third parties relating to current or future
products or technologies; however, there can be no assurance that the Company
will continue to be able to obtain such licenses or other rights or, if it is
able to obtain them, that it will be able to do so on commercially acceptable
terms. The Company could be placed at a disadvantage if its competitors obtain
licenses with lower royalty fee payments or other terms more favorable than
those received by the Company. If the Company or its suppliers or customers were
unable to obtain licenses relating to current or future products or
technologies, the Company could be forced to market products without certain
technological features. The Company's inability to obtain licenses necessary to
use certain technology or its inability to obtain such licenses on competitive
terms could have a material adverse effect on the Company's business, financial
condition and results of operations.
It is common in the PC industry for companies to assert intellectual
property infringement claims against other companies. As a consequence, the
Company indemnifies some OEM customers in certain respects against intellectual
property claims relating to its products. Several OEM customers recently sent
the Company notices of potential indemnity claims based upon a notice of
infringement such OEM customers had received from a patent owner relating to the
asserted infringement of his patent. Subsequently, the patent owner filed patent
infringement lawsuits in the U.S. and elsewhere against several
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of such OEM customers and a number of other major PC systems manufacturers. The
Company provides multimedia subsystems to its OEM customers for use in such OEM
customers' products that are alleged to infringe on the patent owner's rights.
Based upon the Company's preliminary evaluation of the patent, it does not
believe the infringement claims are meritorious as to its products sold to its
customers. However, pursuant to such indemnity agreements or in the event the
Company is directly sued, the Company may be required to dedicate significant
management time and expense to defending itself or assisting its OEM customers
in their defense of this or other infringement claims, whether meritorious or
not, which could have a material adverse effect on the Company's business,
financial condition and results of operations. If this or another intellectual
property claim were to be brought against the Company, or one or more of its OEM
customers, and the Company, or one or more of its OEM customers, were found to
be infringing upon the rights of others, the Company could be required to pay
infringement damages, pay licensing fees, modify its products so that they are
not infringing or discontinue offering products that were found to be
infringing, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Intellectual Property."
If an intellectual property claim were to be brought against one or more of
the Company's suppliers and the supplier were found to be infringing upon the
rights of others, the supplier could be enjoined from further shipments of its
products to the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's prospects depend largely upon the services of its management,
sales, marketing and engineering personnel. While the Company has entered into
employment agreements with a number of its officers and key personnel, the loss
of the services of one or more of such personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
The prospects of the Company also depend on its ability to retain its key
management, sales, marketing and engineering personnel and to attract other
personnel to satisfy the Company's current and future needs. There is
substantial competition for skilled personnel in the PC industry (and, in
particular, multimedia hardware and software engineers), and the failure to
retain key personnel or to attract additional personnel to satisfy the Company's
needs could have a material adverse effect on the Company's business, financial
condition and results of operations.
POTENTIAL FUTURE ACQUISITIONS
The Company has in the past pursued, and may in the future pursue,
acquisitions of product lines, technologies or businesses. Future acquisitions
by the Company may result in the use of significant amounts of cash, potentially
dilutive issuances of equity securities, incurrence of debt and amortization
expenses related to goodwill and other intangible assets, each of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products acquired, the diversion of management's attention from other business
concerns, the risks of entering markets in which the Company has limited or no
prior experience, and the potential loss of key employees. There are currently
no negotiations, commitments or agreements with respect to any acquisition. In
the event that an acquisition does occur, such acquisition may have a material
adverse effect on the Company's business, financial condition and results of
operations.
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INTERNATIONAL OPERATIONS
Substantially all of the Company's manufacturing operations are carried out
in Juarez, Mexico. The Company's export sales (which primarily consist of
European sales) were approximately 26% and 27% of net sales in the 1998 first
fiscal quarter and fiscal year 1997, respectively. The Company is subject to the
general risks of conducting business internationally, including unexpected
changes in regulatory requirements, fluctuations in currency exchange rates,
delays resulting from difficulty in obtaining export licenses for certain
technology, state imposed restrictions on the repatriation of funds, tariffs and
other barriers and the restrictions and burdens of complying with a variety of
foreign laws. In addition, the Company is subject to general geopolitical risks,
such as political instability and changes in diplomatic and trade relationships,
in connection with its international operations. Although to date the Company
has not experienced any material adverse effects on its business, financial
condition or results of operations as a result of such factors, there can be no
assurance that such factors will not have such effects in the future, or require
the Company to modify its business practices. The Company currently sells its
products at prices denominated in U.S. dollars, and an increase in the value of
the U.S. dollar relative to foreign currencies could make the Company's products
more expensive and potentially less competitive in foreign markets. The Company
expects to sell a portion of its products in the future at prices denominated in
other currencies and will therefore increase its currency exposure risk. In
addition, a substantial portion of the Company's manufacturing labor costs are
paid in Mexican pesos. Any decrease in the value of the U.S. dollar relative to
the Mexican peso would increase the Company's manufacturing costs, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing" and "--Sales and
Marketing."
PRICE PROTECTION AND STOCK ROTATION RISKS
As is common practice in its industry, the Company's arrangements with its
commercial customers generally allow such customers, in the event of a price
decrease, credit equal to the difference between the price originally paid and
the new decreased price on units in the customers' inventories on the date of
the price decrease. In addition, commercial customers generally have the right
to return slow-moving or excess inventory for product credit equal to an agreed
upon percentage of shipments within specified time periods. While the Company
establishes reserves to cover these practices, there can be no assurance that
these reserves will be sufficient or that any future price protection claims or
returns will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-- Sales and
Marketing--Sales" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of local, state, federal and foreign
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations and have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL LIABILITY CLAIMS
The Company's purchase agreements with its major OEM customers typically
contain provisions that require the Company to indemnify the OEM customer and
any end-users for potential product liability claims. Although the Company has
not experienced product liability claims to date, there can be no assurance that
the Company will not become subject to such claims in the future. A successful
product liability claim against the Company could have a material adverse effect
on its business, financial condition and results of operations.
16
<PAGE>
HEADQUARTERS RELOCATION
The Company recently commenced construction of a new 210,000 square foot
headquarters facility near its current location in Richardson, Texas and it is
anticipated that this facility will be completed by December 1998. In connection
with the transition to its new headquarters, the Company may experience
interruptions in certain aspects of its operations, including but not limited
to, those relating to its various engineering, sales and administrative
functions. There can be no assurance that any such interruptions, or other
consequences arising out of the Company's transition to its new headquarters,
will not have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, pursuant to the terms of its
new headquarters lease, the Company will incur additional occupancy expense. The
amount of this additional occupancy expense will be dependent on prevailing
interest rates. Moreover, the Company will bear the economic risk upon the sale
of such facility. If this facility is sold for less than the amount of the
underlying debt on the facility then outstanding, the Company would be required
to cover any shortfall, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Properties."
YEAR 2000 COMPLIANCE
The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administration functions, and also
includes software programs in its products. To the extent that these software
applications contain code that is unable to appropriately interpret the upcoming
calendar year 2000, some level of modification or possible replacement of such
source code or applications will be necessary. The Company is still analyzing
its software applications and, to the extent they are not fully year 2000
compliant, the costs necessary to update software or potential systems
interruptions may have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, there can be no
assurance that the Company's customers and suppliers are or will be year 2000
compliant. The failure of the Company's customers and suppliers to achieve year
2000 compliance could have a material adverse effect on the Company's business,
financial condition and results of operations.
NO INTENTION TO PAY DIVIDENDS
Since the Company's initial public offering in February 1995, it has not
declared or paid any cash dividends on its Common Stock or other securities, and
does not anticipate paying any cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in its business. The decision to
pay dividends in the future will be at the discretion of the Board of Directors
and will depend, among other things, upon future earnings, operations, capital
requirements, restrictions in financing agreements, the general financial
condition of the Company and general business conditions. The Company's existing
Revolving Credit Facility (as defined below) prohibits the Company from paying
cash dividends. See "Price Range of Common Stock and Dividend Policy."
NEED FOR ADDITIONAL CAPITAL
The Company requires substantial working capital to fund its business,
particularly to finance its inventory and accounts receivable and for capital
expenditures. The Company believes that the net proceeds from this offering,
together with its existing capital resources and anticipated funds from
operations, will be sufficient to meet the Company's capital requirements
through at least the next twelve months, although the Company could be required,
or could elect, to raise additional capital during such period. The Company's
future capital requirements will depend on many factors, including the rate of
revenue growth, if any; the Company's financial condition; any need to expand
the Company's manufacturing capacity; the timing and extent of spending to
support research and development programs; the expansion of selling and
marketing and administrative activities; the timing of new product
17
<PAGE>
introductions and product enhancements; and the level of market acceptance of
the Company's products. The Company expects that it may need to raise additional
equity or debt financing in the future, although it is not currently negotiating
for additional financing and does not have any plans to obtain additional
financing following this offering. There can be no assurance that additional
equity or debt financing, if required, will be available on acceptable terms or
at all. If the Company is unable to obtain such additional capital, the Company
may be required to reduce the scope of its planned product development,
manufacturing expansion or selling and marketing activities, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event that the Company does raise additional
equity financing, the investors in this offering and the Company's existing
shareholders could experience substantial dilution. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
ANTI-TAKEOVER MEASURES
The Company is a Texas corporation and is therefore subject to the
provisions of the Texas Business Corporation Act, including the terms of the
Texas Business Combination Law ("TBCL") that became effective on September 1,
1997. In general, the TBCL prohibits a Texas "issuing public corporation" (such
as the Company) from engaging in a "business combination" with any shareholder
who is a beneficial owner of 20% or more of the corporation's outstanding stock
for a period of three years after such shareholder's acquisition of a 20%
ownership interest, unless: (i) the board of directors of the corporation
approves the transaction or the shareholder's acquisition of shares prior to the
acquisition or (ii) two-thirds of the unaffiliated shareholders of the
corporation approve the transaction at a shareholders' meeting. The TBCL may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company. The Company is subject to the terms of the
TBCL, unless its shareholders or directors take action electing not to be
governed by its terms (which action is not currently contemplated). The Company
is also a party to certain agreements that could be deemed to have an
anti-takeover effect. See "Description of Capital Stock--Anti-Takeover Matters."
The Company's Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the Company's shareholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of preferred stock which may be issued in the future. While the
Company has no present intention to issue shares of preferred stock, such
issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, such preferred stock may have other rights,
including economic rights senior to the Common Stock, and as a result, the
issuance thereof could have a material adverse effect on the market value of the
Common Stock. See "Description of Capital Stock--Anti-Takeover Matters."
STOCK PRICE VOLATILITY
The trading price of the Company's Common Stock has in the past and may in
the future be subject to wide fluctuations in response to factors such as actual
or anticipated variations in the Company's operating results; announcements of
technological innovations by the Company or its competitors; new products,
contracts or OEM design wins by the Company or its competitors; developments
with respect to patents, copyrights or proprietary rights; changes in
recommendations or financial estimates by securities analysts; conditions and
trends in the PC and technology industries; adoption of new accounting standards
affecting the Company's industry; general market conditions and other factors.
Further, the stock market has experienced in recent months and may continue in
the future to experience extreme price and volume fluctuations that particularly
affect the market prices of equity securities of high technology companies and
that often are unrelated or disproportionate to the operating performance of
such companies. The trading
18
<PAGE>
prices of many high technology companies' stocks have recently been at or near
historical highs and reflect price to earnings ratios that are substantially
above historical levels. There can be no assurance that these trading prices and
price to earnings ratios will be sustained. These broad market fluctuations, as
well as general economic, political and market conditions, may adversely affect
the market price of the Company's Common Stock. In the past, following periods
of volatility in the market price of a company's stock, securities class action
litigation has often been instituted against the issuing company. There can be
no assurance that such litigation will not occur in the future with respect to
the Company. Such litigation could result in substantial costs and would at a
minimum divert management's attention and resources, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any adverse determination in such litigation could also subject the
Company to significant liabilities. See "Price Range of Common Stock and
Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing shareholders and option holders could
adversely affect the prevailing market price of the Common Stock. Upon
completion of this offering, the Company will have outstanding an aggregate of
13,239,862 shares of Common Stock, assuming no exercise of stock options after
January 31, 1998. In addition to the 2,775,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option) there
will be 10,464,862 shares of Common Stock outstanding, substantially all of
which will be freely tradeable. The executive officers and directors of the
Company and the Selling Shareholders will, upon completion of this offering, own
a total of (i) 2,713,034 shares, or 20.5% of the Common Stock outstanding
(assuming no exercise of the Underwriters' over-allotment option) or (ii)
2,488,034 shares, or 18.5% of the Common Stock outstanding (assuming the
Underwriters' over-allotment option is exercised in full). The Company, the
Company's executive officers and directors and the Selling Shareholders have
agreed that they will not, for a period of 90 days after the date of the
Prospectus, offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock now owned or
hereafter acquired directly by such person or with respect to which such person
has or hereafter acquires the power of disposition without the prior written
consent of CIBC Oppenheimer Corp., except for the shares of Common Stock offered
in connection with this offering and, with respect to the Company, pursuant to
stock option or purchase plans described in this Prospectus. Upon expiration of
these restrictions, the Company's executive officers and directors and the
Selling Shareholders will be free to sell the shares beneficially owned by them,
subject to compliance with the Securities Act of 1933, as amended (the
"Securities Act"), including Rule 144 promulgated thereunder, and the terms of
the Right of First Refusal Agreement, to which certain of such shares are
subject. A substantial portion of the shares held by such beneficial owners may
be sold into the public market effectively free of any significant restrictions.
See "Certain Transactions--Right of First Refusal" and "Shares Eligible for
Future Sale."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,775,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $22.13 per share are estimated to be $57.7 million ($62.4 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated offering expenses.
Of the net proceeds, approximately $28.0 million will be used to repay
indebtedness outstanding under the Company's secured revolving credit facility
(the "Revolving Credit Facility"). At January 31, 1998, approximately $23.0
million was outstanding under the Revolving Credit Facility, which amount and
additional indebtedness incurred subsequent to that date was incurred for
general working capital purposes. The Revolving Credit Facility bears interest
at LIBOR plus 175 basis points (7.367% at January 31, 1998) and matures on
November 21, 1999. The Company expects that the balance of the proceeds from
this offering, approximately $29.7 million, will be used for general corporate
purposes. Pending application of the net proceeds as described above, the
Company intends to invest such proceeds in short-term, investment grade,
interest-bearing securities. The Company will not receive any proceeds from the
sale of the shares by the Selling Shareholders (including any shares sold by the
Selling Shareholders in connection with the exercise of the Underwriters'
over-allotment option.)
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "STBI" since February 14, 1995, the date of its initial public
offering. The table below sets forth, for the fiscal quarters indicated, the
high and low sale prices for the Common Stock, as reported by the Nasdaq
National Market. The prices have been adjusted to reflect the three-for-two
stock split of the Common Stock effected in the form of a stock dividend on
February 20, 1998.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended October 31, 1996
First quarter...................................................................... $ 5.44 $ 3.28
Second quarter..................................................................... $ 5.00 $ 3.61
Third quarter...................................................................... $ 8.22 $ 4.56
Fourth quarter..................................................................... $ 11.50 $ 5.44
Fiscal Year Ended October 31, 1997
First quarter...................................................................... $ 15.94 $ 8.44
Second quarter..................................................................... $ 16.11 $ 9.67
Third quarter...................................................................... $ 19.92 $ 11.39
Fourth quarter..................................................................... $ 30.50 $ 18.00
Fiscal Year Ended October 31, 1998
First quarter...................................................................... $ 22.67 $ 13.33
Second quarter (through February 24, 1998)......................................... $ 26.33 $ 18.33
</TABLE>
On February 24, 1998, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $22.13 per share.
The Company intends to retain any future earnings for use in its business
and does not intend to pay cash dividends in the foreseeable future. The payment
of future dividends, if any, will be at the discretion of the Company's Board of
Directors and will depend, among other things, upon future earnings, operations,
capital requirements, restrictions in future financing agreements, the general
financial condition of the Company and general business conditions. The
Company's Revolving Credit Facility prohibits the Company from paying cash
dividends.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and short-term borrowings
of the Company (i) as of January 31, 1998, and (ii) as adjusted to give effect
to the receipt by the Company of the net proceeds from the sale of the 2,775,000
shares of Common Stock offered by the Company hereby at an assumed public
offering price of $22.13 per share, after deducting the underwriting discount
and estimated offering expenses. This table should be read in conjunction with
the Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term borrowings including current portion of long-term liabilities.................. $ 23,589 $ 589
--------- -----------
--------- -----------
Long-term liabilities, net of current portion............................................. $ 2,538 $ 2,538
--------- -----------
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; no shares outstanding..... -- --
Common Stock, $.01 par value, 25,000,000 shares authorized; 10,464,897 shares issued
(actual); 13,239,897 shares issued (as adjusted)(1)(2)................................ 105 133
Treasury Stock, at cost................................................................. (245) (245)
Additional paid-in capital.............................................................. 25,453 83,102
Retained earnings....................................................................... 22,050 22,050
--------- -----------
Total shareholders' equity............................................................ 47,363 105,040
--------- -----------
Total capitalization................................................................ $ 49,901 $ 107,578
--------- -----------
--------- -----------
</TABLE>
- ------------------------------
(1) Assumes that the three-for-two stock split of the Company's Common Stock
effected in the form of a stock dividend on February 20, 1998 had occurred
on January 31, 1998. Excludes (i) 2,014,500 shares of Common Stock reserved
for issuance under the Incentive Plan, of which options to purchase
1,881,977 shares of Common Stock were outstanding as of January 31, 1998
with a weighted average exercise price of $8.85 per share, (ii) 225,000
shares of Common Stock reserved for issuance under the Director Plan, of
which options to purchase 56,250 shares of Common Stock were outstanding as
of January 31, 1998 with a weighted average exercise price of $5.33 per
share, and (iii) 410,570 shares of Common Stock reserved for issuance under
the Employee Plan. The Board of Directors of the Company proposes to submit
for shareholder approval at the next annual meeting of shareholders a
proposal to increase the number of shares of Common Stock to be reserved for
issuance under the Incentive Plan. See "Management--1995 Long Term Incentive
Plan."
(2) Common Stock share numbers are inclusive of shares of treasury stock.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for each
of the three years in the period ended October 31, 1997 and consolidated balance
sheet data at October 31, 1996 and 1997 are derived from the Company's
Consolidated Financial Statements that were audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included elsewhere in this
Prospectus and is incorporated by reference herein. The selected consolidated
statements of operations data for the years ended October 31, 1993 and 1994 and
the consolidated balance sheet data at October 31, 1993, 1994 and 1995 have been
derived from audited financial statements not included or incorporated by
reference herein. The consolidated balance sheet data as of January 31, 1998 and
the consolidated statements of operations data for the three months ended
January 31, 1997 and 1998 are derived from unaudited consolidated interim
financial statements included elsewhere in this Prospectus. The unaudited
consolidated interim financial statements have been prepared by the Company on a
basis consistent with the audited financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations for such periods. Historical results are not
necessarily indicative of results to be expected in any future period.
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements, including the Notes thereto, "Managements Discussion and
Analysis of Financial Condition and Results of Operations", and the other
financial information included or incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY
FISCAL YEAR ENDED OCTOBER 31, 31,
---------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $39,236 $89,836 $129,603 $180,155 $199,485 $48,092 $78,758
Cost of sales................................... 30,726 73,213 110,129 144,879 149,439 37,459 62,542
------- ------- -------- -------- -------- ------- -------
Gross profit.................................... 8,510 16,623 19,474 35,276 50,046 10,633 16,216
------- ------- -------- -------- -------- ------- -------
Operating expenses:
Research and development...................... 1,079 1,795 2,719 4,428 6,740 1,238 2,338
Sales and marketing........................... 3,835 5,529 7,437 10,986 14,788 3,286 4,424
General and administrative.................... 2,810 5,190 6,172 9,486 10,618 2,383 3,235
------- ------- -------- -------- -------- ------- -------
Total operating expenses.......................... 7,724 12,514 16,328 24,900 32,146 6,907 9,997
------- ------- -------- -------- -------- ------- -------
Income from operations.......................... 786 4,109 3,146 10,376 17,900 3,726 6,219
Interest expense, net........................... 226 588 818 1,113 1,649 376 518
------- ------- -------- -------- -------- ------- -------
Income before income taxes...................... 560 3,521 2,328 9,263 16,251 3,350 5,701
Provision for income taxes(1)................... -- -- 330 3,186 5,481 1,098 1,896
------- ------- -------- -------- -------- ------- -------
Net income(1)................................... $ 560 $ 3,521 $ 1,998 $ 6,077 $ 10,770 $ 2,252 $ 3,805
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Net income per share(1)(2)(3):
Basic......................................... $ 0.10 $ 0.63 $ 0.23 $ 0.60 $ 1.05 $ 0.22 $ 0.36
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Diluted....................................... $ 0.10 $ 0.63 $ 0.23 $ 0.59 $ 0.97 $ 0.21 $ 0.33
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Weighted average shares outstanding(1)(2)(3):
Basic......................................... 5,625 5,625 8,818 10,159 10,298 10,159 10,462
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Diluted....................................... 5,625 5,625 8,851 10,309 11,147 10,731 11,389
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF OCTOBER 31, JANUARY 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $ 1,480 $ 4,373 $ 21,621 $ 25,192 $ 31,361 $ 35,801
Total assets................................................ 14,777 23,651 57,539 65,629 109,554 115,767
Short-term borrowings, including current portion of
long-term liabilities..................................... 3,679 6,793 12,138 12,465 22,687 23,589
Long-term liabilities, net of current portion............... 38 2,440 2,258 1,276 3,111 2,538
Total shareholders' equity.................................. 2,088 4,196 23,362 29,597 43,462 47,363
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
- ------------------------------
(1) Prior to the Company's initial public offering in February 1995, the Company
had been treated for federal and certain state income tax purposes as an S
corporation. As a result, the income of the Company for federal and certain
state income tax purposes was included in the income tax returns of the
Founding Shareholders. Accordingly, prior to February 21, 1995, no
recognition of federal and certain state income taxes was included in the
Company's net income and net income per share. Therefore, net income and net
income per share for fiscal years 1993 through 1995 are not comparable to
net income and net income per share for fiscal years 1996 and 1997 or the
three months ended January 31, 1997 and 1998. See Note 1 of Notes to
Consolidated Financial Statements.
(2) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (FAS 128), for the fiscal
year ended October 31, 1998, which requires the restatement of all periods
presented in the Company's Consolidated Financial Statements included in
this Prospectus and incorporated by reference herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."
(3) Adjusted to reflect a three-for-two stock split effected in the form of a
stock dividend on February 20, 1998. Share and per share amounts have been
retroactively adjusted to reflect the stock split. See Note 1 of Notes to
Consolidated Financial Statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. THE USE OF THE WORDS "ANTICIPATES,"
"BELIEVES," "ESTIMATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF FACTORS SET FORTH HEREIN AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO,
THE CAUTIONARY STATEMENTS SET FORTH BELOW AND UNDER THE CAPTIONS "RISK FACTORS"
AND "BUSINESS" HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
OVERVIEW
STB designs, manufactures and sells multimedia subsystem and specialized
technology products, primarily for use in desktop PCs. These products supplement
a PC's CPU to enhance multimedia performance and accelerate the computationally
intensive operations and processing requirements necessary to perform advanced
multimedia applications. The Company focuses primarily on the sale of its
products to major OEMs and works closely with its component suppliers and OEM
customers to develop products that are responsive to technological trends and
consumer demand. STB manufactures substantially all of its products at its ISO
9002 certified facility in Juarez, Mexico, which the Company believes enables it
to respond more quickly to changing customer needs, maintain product quality and
achieve economies of scale.
The Company currently sells multimedia subsystems and specialized technology
products. The Company's multimedia subsystem product line includes a wide
selection of multimedia accelerator subsystems (also referred to as "graphics
add-in cards") designed primarily for use in mid to high-end PCs as well as
several complementary products, including DVD decoder subsystems, PC/TV
convergence subsystems and sound cards. STB's specialized technology products
include products designed to enable a single computer to control the display of
up to 32 monitors and a recently introduced line of flat panel display products.
The Company sells its products to OEM customers, the commercial market and
the specialized technology market. The Company sells its multimedia subsystems
primarily to major OEMs and, to a lesser extent, the commercial market. The
Company's OEM customers accounted for approximately 85%, 79% and 81% of total
net sales for the 1998 first fiscal quarter, fiscal year 1997 and fiscal year
1996, respectively. The Company's three largest OEM customers accounted in the
aggregate for approximately 76%, 66% and 59% of the Company's total net sales
for the 1998 first fiscal quarter, fiscal year 1997 and fiscal year 1996,
respectively. Sales of multimedia subsystems to the commercial market accounted
for approximately 9%, 12% and 11% of total net sales for the 1998 first fiscal
quarter, fiscal year 1997 and fiscal year 1996, respectively, and sales of
specialized technology products accounted for approximately 5%, 8% and 6% of
total net sales for the 1998 first fiscal quarter, fiscal year 1997 and fiscal
year 1996, respectively. The balance of total net sales was derived primarily
from third party contract assembly services, which comprised approximately 1%,
1% and 2% of total net sales for the 1998 first fiscal quarter, fiscal year 1997
and fiscal year 1996, respectively. Export sales of the Company's products,
which are made through all of the Company's sales channels, were 26% of net
sales in the 1998 first fiscal quarter as compared to 27% in fiscal year 1997
and 20% in fiscal year 1996. The Company has no long-term commitments or
contracts with any of its customers and the loss of any of the Company's key
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors-- Customer
Concentration; Dependence on PC Market."
Sales of multimedia accelerator subsystems and other multimedia subsystems
to OEMs have typically been characterized by relatively high unit volumes and
relatively low gross profit margins. Sales of multimedia subsystem products to
the commercial market are characterized by relatively modest unit volumes and
moderate gross profit margins. Sales of the Company's specialized technology
products are characterized by relatively low unit volumes and relatively high
gross profit margins. Shifts in the mix of
24
<PAGE>
products sold or in the sales channels into which such products are sold could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors-- Change in Product Mix or Sales
Channel." In addition, a substantial majority of the Company's net sales have
been derived from sales of multimedia accelerator subsystems and, from time to
time, a substantial majority of the Company's net sales in a given fiscal
quarter have been derived from the sale of a single or a limited number of
multimedia accelerator subsystems. See "Risk Factors--Product Concentration."
The markets for the Company's products in general, and its multimedia
accelerator subsystems in particular, are characterized by short product life
cycles, evolving industry standards and frequent introductions of new products.
See "Risk Factors--Limited Product Life Cycle; Rapid Technological Change;
Management of Product Introductions."
The Company recognizes revenue upon shipment of its products. For products
sold through the commercial channel, the Company generally allows returns in the
form of stock rotation and price protection in the form of credits. The
Company's current stock rotation policies permit a commercial channel customer
to return approximately 10% of products purchased within the previous 90 days if
the customer has placed an order for other Company products of equal or greater
value. The Company also provides price protection to commercial channel
customers in the form of credits for price reductions on products remaining in
customer inventories at the time of the price reduction. The Company maintains
reserves related to these sales programs, which it believes are adequate. See
"Risk Factors--Price Protection and Stock Rotations."
The Company has no guaranteed supply arrangements with any of its suppliers.
The Company obtains most of the primary components for its current products,
consisting mainly of controller chips and memory chips, directly from the
component manufacturers. The prices of such components can change significantly
from time to time. In the past, the Company has experienced, and may in the
future experience, increases in its unit component costs without being able to
increase the price of the products incorporating such components. Such an
increase in component costs could impair the Company's gross profit margins and
results of operations. In particular, occasional worldwide shortages of memory
and controller chips and international tariff disputes have in the past resulted
in substantial component cost increases that have had a material adverse effect
on the Company's gross profit margins and its results of operations. In recent
periods, a decline in the price of memory chips, together with improved
inventory management practices and other factors, has contributed to improved
gross profit margins. The Company's total gross profit margins and gross profits
will likely continue to fluctuate from period to period as a result of the
Company's product mix, sales channel mix, component costs and competitive
pricing pressures on the Company's products. See "Risk Factors--Dependence on
Suppliers" and "--Change in Product or Sales Channel Mix."
In recent periods, the Company's business has been strongly influenced by
the following trends: the growth of the PC market in general; the ability of
several major PC manufacturers to expand their respective market shares of the
PC market in general; the Company's ability to establish and expand OEM
relationships with several of these major PC manufacturers; the expansion of the
market for multimedia subsystems and, in particular, the market for multimedia
accelerator subsystems; the ability of the Company to identify and source key
components, such as graphics controller chips, that enable the Company's
products to compete effectively with its competitors; and the Company's ability
to design, develop and manufacture successive generations of multimedia
accelerator subsystems that secure design wins with major OEM customers and
achieve wide market acceptance. Although the Company is currently attempting to
diversify its product offerings, expand its existing OEM customer relationships,
establish new OEM customer relationships and expand sales into the commercial
market, there can be no assurance that the Company will be successful with
respect to any of these efforts. The failure by the Company to further diversify
its product offerings and to expand its distribution channels could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Customer Concentration; Dependence on
PC Market," "--Dependence on Multimedia Accelerator Market;
25
<PAGE>
Migration to Motherboards," "--Dependence on Suppliers" and "--Limited Product
Life Cycle; Rapid Technological Change; Management of Product Transitions."
During the fiscal quarter ended April 30, 1997, the Company acquired all of
the outstanding shares of Symmetric Simulation Systems, Inc. ("Symmetric"), a
designer and builder of high-end 3D graphics acceleration subsystems used in
applications such as computer-aided design, product visualization, architectural
walk-throughs and multimedia authoring. The Company believes that the Symmetric
product line complements the Company's existing products and enables the Company
to market products to the high-end 3D market. See Note 3 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's Consolidated
Statements of Operations as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 85.0 80.4 74.9 77.9 79.4
----- ----- ----- ----- -----
Gross profit...................................... 15.0 19.6 25.1 22.1 20.6
----- ----- ----- ----- -----
Operating expenses:
Research and development........................ 2.1 2.4 3.4 2.6 3.0
Sales and marketing............................. 5.7 6.1 7.4 6.8 5.6
General and administrative...................... 4.8 5.3 5.3 5.0 4.1
----- ----- ----- ----- -----
Total operating expenses.......................... 12.6 13.8 16.1 14.4 12.7
----- ----- ----- ----- -----
Income from operations............................ 2.4 5.8 9.0 7.7 7.9
Interest expense, net............................. 0.6 0.6 0.8 0.7 0.7
----- ----- ----- ----- -----
Income before income taxes........................ 1.8 5.2 8.2 7.0 7.2
Provision for income taxes(1)..................... 0.3 1.8 2.8 2.3 2.4
----- ----- ----- ----- -----
Net income........................................ 1.5% 3.4% 5.4% 4.7% 4.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------------------
(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes. See Note 1 of Notes to Consolidated Financial
Statements.
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
NET SALES. Net sales increased to $78.8 million in the 1998 first fiscal
quarter from $48.1 million in the 1997 first fiscal quarter, representing an
increase of 63.8%. Unit volume for the 1998 first fiscal quarter increased by
64.6% over the 1997 first fiscal quarter, while the Company's average unit
selling prices remained essentially unchanged. OEM channel sales increased to
approximately $66.2 million in the 1998 first fiscal quarter from $34.7 million
in the 1997 first fiscal quarter, representing an increase of 90.9%. Sales
growth in the OEM channel was primarily the result of increased demand for the
Company's Velocity 128 multimedia accelerator. See "Risk Factors--Product
Concentration." Commercial channel sales decreased to $7.4 million in the 1998
first fiscal quarter from $9.4 million in the 1997 first fiscal quarter, a
decrease of 21.5%, primarily due to limited controller chip availability for the
Velocity 128 multimedia accelerator resulting from unexpected OEM product demand
increases. Sales in the specialized technology market increased to $4.1 million
in the 1998 first fiscal quarter from $2.7 million in the 1997 first fiscal
quarter, or 53.3%, which was primarily a result of increased sales to OEM
customers for financial services workstations.
26
<PAGE>
GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost
of sales primarily consists of the cost of materials and manufacturing costs
associated with the production of the Company's products. Gross profit increased
to $16.2 million in the 1998 first quarter from $10.6 million in the 1997 first
quarter, representing an increase of 52.5%. During the period, gross profit as a
percentage of net sales decreased to 20.6% in the 1998 first fiscal quarter from
22.1% in the 1997 first fiscal quarter. The increase in the amount of gross
profit resulted primarily from increases in sales volumes of the Company's
products (and, in particular, the Company's Velocity 128 multimedia
accelerator), partially offset by decreasing unit prices. The decrease in gross
profit as a percentage of net sales resulted primarily from (i) an increase in
the percentage of sales to the OEM market, which typically is characterized by
lower gross profit margins, and (ii) increased component costs due to a
temporary shortage in memory component supply resulting from higher product
demand and (iii) increased overtime labor costs caused by the higher rates of
production necessary to meet increased product demand. These increases were
partially offset by the economies of scale resulting from higher production
volumes and increased operating efficiencies. Gross margins are expected to
continue to fluctuate as a result of sales channel, product mix and other
factors. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality" and "--Dependence on Suppliers."
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
primarily consist of compensation and associated expenses relating to
engineering personnel, development tool expenses, prototyping expenses and
product enhancement expenses. Research and development expenses increased to
$2.3 million in the 1998 first fiscal quarter from $1.2 million in the 1997
first fiscal quarter, representing an increase of 88.9%. Research and
development expenses as a percentage of net sales increased to 3.0% in the 1998
first fiscal quarter from 2.6% in the 1997 first fiscal quarter. The increase in
research and development expenses on a dollar and percentage basis resulted from
increased staffing at the Company's corporate headquarters and at each of the
design centers in Houston, Texas; Eugene, Oregon; and the recently established
design center in Belfast, Northern Ireland. Other expenses associated with the
development of new products, increased expenses associated with software and
driver development also contributed to the increase in research and development
expenses.
SALES AND MARKETING EXPENSES. Sales and marketing expenses primarily
consist of personnel and related overhead expenses for sales, marketing and
customer support activities, promotional and advertising expenses, and
commissions paid to independent sales representatives. Sales and marketing
expenses increased to $4.4 million in the 1998 first fiscal quarter from $3.3
million in the 1997 first fiscal quarter, representing an increase of 34.6%.
Sales and marketing expenses as a percentage of net sales decreased to 5.6% in
the 1998 first fiscal quarter from 6.8% in the 1997 first fiscal quarter,
primarily due to increases in net sales at a rate faster than that of sales and
marketing expenses. The increase in sales and marketing expenses resulted
primarily from additional staffing and commissions paid as a result of higher
sales, partially offset by decreases in commissions paid to independent sales
representatives. Increased expenses for advertising and promotional programs in
the commercial channel, the specialized technology channel and the international
market also contributed to the increased expenses.
27
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily consist of personnel and related overhead expenses for management,
finance, management information systems activities, legal and human resources,
as well as expenses associated with occupancy and other general operating
expenses. General and administrative expenses increased to $3.2 million in the
1998 first fiscal quarter from $2.4 million in the 1997 first fiscal quarter,
representing an increase of 35.8%. General and administrative expenses as a
percentage of net sales decreased to 4.1% in the 1998 first fiscal quarter from
5.0% in the 1997 first fiscal quarter. The increase in the amount of general and
administrative expenses was primarily due to increased expenses associated with
the Company's growth, including increased staffing, occupancy and other general
operating expenses. Increased employee profit sharing, as a result of higher
earnings, also contributed to the increase in general and administrative
expenses. The Company recently commenced construction of a new headquarters
facility that it plans to occupy in the 1999 first fiscal quarter. The terms of
the lease relating to the new headquarters facility provide for increased
occupancy expense from current levels and are subject to adjustment based on
prevailing interest rates. See "--Liquidity and Capital Resources."
INTEREST EXPENSE, NET. Interest expense, net primarily consists of the
interest expense associated with the Company's Revolving Credit Facility,
Mezzanine Facility (as defined below) and capital leases, offset partially by
the interest income earned on the Company's cash and cash equivalents. Interest
expense, net increased to approximately $518,000 in the 1998 first fiscal
quarter from approximately $376,000 in the 1997 first fiscal quarter,
representing an increase of 37.8%. The increase in the amount of interest
expense, net was primarily related to an increase in the average total debt and
obligations under capital leases outstanding during the 1998 first fiscal
quarter compared to the 1997 first fiscal quarter.
FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996
NET SALES. Net sales increased to $199.5 million in fiscal year 1997 from
$180.2 million in fiscal year 1996, representing an increase of 10.7%. Unit
volume for fiscal year 1997 increased by 27.4% over fiscal year 1996, while the
Company's average unit selling prices continued to decline primarily as a result
of declines in component costs. OEM channel sales increased to $153.5 million in
fiscal year 1997 from approximately $145.5 million in fiscal year 1996,
representing an increase of 5.5%. Sales growth in the OEM channel was primarily
the result of increased sales to existing customers. Commercial channel sales
increased to $23.9 million in fiscal year 1997 from $19.8 million in fiscal year
1996, representing an increase of 20.8%. This moderate increase in sales to the
commercial channel primarily resulted from increased sales to existing
customers. Sales in the specialized technology market increased to $15.2 million
in fiscal year 1997 from $10.9 million in fiscal year 1996, representing an
increase of 38.9%. This increase was primarily due to increased sales to
existing customers, as well as recent sales of products to the workstation
groups of certain OEM customers.
GROSS PROFIT. Gross profit increased to $50.0 million in fiscal year 1997
from $35.3 million in fiscal year 1996, representing an increase of 41.9%. For
the period, gross profit as a percentage of net sales increased to 25.1% in
fiscal year 1997 from 19.6% in fiscal year 1996. The increase in the amount of
gross profit primarily resulted from increases in sales volumes of the Company's
products, partially offset by declining average selling prices. The increase in
gross profit margin resulted primarily from increased sales of higher margin
specialized technology products and, to a lesser degree, increased sales to the
commercial channel. In addition, declines in component costs, economies of scale
resulting from higher production volumes and greater manufacturing efficiencies
with respect to the manufacture and sale of the Company's multimedia accelerator
subsystems, partially offset by decreasing unit prices, also contributed to the
increase in gross profit margin.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $6.7 million in fiscal year 1997 from $4.4 million in fiscal year
1996, representing an increase of 52.2%. This increase primarily resulted from
additional engineering staffing at the Company's headquarters in Richardson,
28
<PAGE>
Texas, as well as its design centers in Houston, Texas and Eugene, Oregon.
During 1997, the Company expanded its research and development efforts by
establishing and staffing a design center in Belfast, Northern Ireland. Expenses
associated with new product development, software development and continued
enhancement and support of the Company's existing products also contributed to
the increase. Research and development expenses as a percentage of net sales
increased to 3.4% in fiscal year 1997 from 2.4% in fiscal year 1996.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$14.8 million in fiscal year 1997 from $11.0 million in fiscal year 1996,
representing an increase of 34.6%. Sales and marketing expenses as a percentage
of net sales increased to 7.4% in fiscal year 1997 from 6.1% in fiscal year
1996. Sales and marketing expenses increased primarily due to additional
staffing and commissions paid as a result of the Company's growth and higher
sales levels, and increased travel and operating costs. Increased trade show
expenses, and increased advertising and promotional expenses in the commercial
channel, the specialized technology market and the international market also
contributed to the overall increase in sales and marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $10.6 million in fiscal year 1997 from $9.5 million in fiscal year
1996, representing an increase of 11.9%. For fiscal year 1997 and fiscal year
1996, general and administrative expenses as a percentage of net sales remained
unchanged at 5.3%. The absolute dollar increase in general and administrative
expenses was primarily due to increased expenses associated with the Company's
growth, including increased staffing and related expenses and data processing
costs, partially offset by an increase in the allocation of certain costs
related to the Juarez manufacturing operation to cost of goods sold. Facility
expansion at the Company's headquarters and related occupancy costs, including
rent and insurance, also contributed to the overall absolute increase in general
and administrative expenses. As a result of the increase in operating income,
the expenses associated with the Company's profit sharing plan also increased.
INTEREST EXPENSE, NET. Interest expense, net increased to $1.6 million in
fiscal year 1997 from $1.1 million in fiscal year 1996, representing an increase
of 48.2%. This increase was primarily a result of higher average total debt
outstanding during fiscal 1997 compared to fiscal 1996.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
NET SALES. Net sales increased to $180.2 million in fiscal year 1996 from
$129.6 million in fiscal year 1995, representing an increase of 39.0%. This
increase in revenues was achieved primarily as a result of a 58.0% increase in
unit volume shipments, and despite a significant decrease in the average unit
sales price of the Company's products. This increase also resulted from
continuing growth in sales of the Company's products to established OEM
customers, as well as to new OEM customers. The Company also experienced
continued growth in the commercial channel from sales of the Company's products
to new commercial customers and increased sales to established customers. Sales
in the specialized technology market experienced moderate growth, primarily as a
result of increased sales to existing customers.
GROSS PROFIT. Gross profit increased to $35.3 million in fiscal year 1996
from $19.5 million in fiscal year 1995, representing an increase of 81.1%. Gross
profit margin increased to 19.6% in fiscal year 1996 from 15.0% in fiscal year
1995. The increase in the amount of gross profit primarily resulted from
increases in sales volumes of the Company's products, partially offset by
declining average selling prices. The increase in gross profit margin primarily
resulted from economies of scale resulting from higher production volumes, as
well as from lower memory chip prices. Increased sales of higher margin products
sold in the commercial channel and increased specialized technology product
sales also contributed to the increase in gross profit margin.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $4.4 million in fiscal year 1996 from $2.7 million in fiscal year
1995, representing an increase of 62.9%. Research and
29
<PAGE>
development expenses as a percentage of net sales increased to 2.4% in fiscal
year 1996 from 2.1% in fiscal year 1995. The absolute dollar increase in
research and development expenses primarily resulted from additional staffing
and related expenses associated with new product development, software
development and continued enhancement and support of the Company's existing
products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$11.0 million in fiscal year 1996 from $7.4 million in fiscal year 1995,
representing an increase of 47.7%. Sales and marketing expenses as a percentage
of net sales increased to 6.1% in fiscal year 1996 from 5.7% in fiscal year
1995. The absolute dollar increase in sales and marketing expenses largely
resulted from additions to the Company's domestic and international sales forces
and increased commissions paid for higher sales levels. Increased trade show
expenses, advertising and promotional efforts to support the higher sales levels
in the commercial and specialized technology product sales also contributed to
the increase.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $9.5 million in fiscal year 1996 from $6.2 million in fiscal year
1995, representing an increase of 53.7%. General and administrative expenses as
a percentage of net sales increased to 5.3% in fiscal year 1996 from 4.8% in
fiscal year 1995. The increase in general and administrative expenses was
largely due to increased occupancy costs, insurance expenses, and personnel,
legal and data processing expenses associated with the Company's growth.
INTEREST EXPENSE, NET. Interest expense, net increased to $1.1 million in
fiscal year 1996 from approximately $818,000 in fiscal year 1995, representing
an increase of 36.1%. This increase was primarily a result of higher average
total debt outstanding during fiscal 1996 compared to fiscal 1995.
30
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS AND SEASONALITY
The following tables set forth certain unaudited statements of operations
data for each of the eight quarters in the two year period ended January 31,
1998, as well as the percentage of the Company's net sales represented by each
item. The unaudited financial information has been prepared on the same basis as
the audited financial statements contained or incorporated by reference herein
and includes all adjustments (consisting only of normal recurring adjustments)
that the Company considers necessary for a fair presentation of such
information. The following information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The Company believes that quarter-to-quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
--------------------------------- --------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31,
1996 1996 1996 1997 1997 1997 1997
----------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 44,592 $ 42,537 $ 48,122 $ 48,092 $ 48,700 $ 42,019 $ 60,674
Cost of sales............................. 36,189 33,921 37,126 37,459 36,922 29,594 45,463
----------- --------- --------- --------- ----------- --------- ---------
Gross profit.............................. 8,403 8,616 10,996 10,633 11,778 12,425 15,211
Operating expenses........................ 6,075 6,243 7,487 6,907 7,601 8,267 9,371
----------- --------- --------- --------- ----------- --------- ---------
Income from operations.................... 2,328 2,373 3,509 3,726 4,177 4,158 5,840
Interest expense, net..................... 278 271 244 376 383 426 465
Provision for income taxes................ 699 722 1,134 1,098 1,376 1,263 1,745
----------- --------- --------- --------- ----------- --------- ---------
Net income................................ $ 1,351 $ 1,380 $ 2,131 $ 2,252 $ 2,418 $ 2,469 $ 3,630
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Net income per share(1)(2):
Basic................................... $ 0.13 $ 0.14 $ 0.21 $ 0.22 $ 0.24 $ 0.24 $ 0.35
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Diluted................................. $ 0.13 $ 0.13 $ 0.20 $ 0.21 $ 0.22 $ 0.22 $ 0.31
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Weighted average shares outstanding(1)(2):
Basic................................... 10,125 10,130 10,144 10,159 10,249 10,353 10,429
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Diluted................................. 10,125 10,331 10,540 10,731 11,051 11,230 11,571
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
FISCAL
1998
---------
JAN. 31,
1998
---------
<S> <C>
Net sales................................. $ 78,758
Cost of sales............................. 62,542
---------
Gross profit.............................. 16,216
Operating expenses........................ 9,997
---------
Income from operations.................... 6,219
Interest expense, net..................... 518
Provision for income taxes................ 1,896
---------
Net income................................ $ 3,805
---------
---------
Net income per share(1)(2):
Basic................................... $ 0.36
---------
---------
Diluted................................. $ 0.33
---------
---------
Weighted average shares outstanding(1)(2):
Basic................................... 10,462
---------
---------
Diluted................................. 11,389
---------
---------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
QUARTER ENDED
--------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31,
1996 1996 1996 1997 1997 1997
------------ ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 81.2 79.7 77.1 77.9 75.8 70.4
----- ----- ----- ----- ----- -----
Gross profit............................... 18.8 20.3 22.9 22.1 24.2 29.6
Operating expenses......................... 13.6 14.7 15.6 14.4 15.6 19.7
----- ----- ----- ----- ----- -----
Income from operations..................... 5.2 5.6 7.3 7.7 8.6 9.9
Interest expense, net...................... 0.6 0.6 0.5 0.7 0.8 1.0
Provision for income taxes................. 1.6 1.7 2.4 2.3 2.8 3.0
----- ----- ----- ----- ----- -----
Net income................................. 3.0% 3.3% 4.4% 4.7% 5.0% 5.9%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
OCT. 31, JAN. 31,
1997 1998
------------ ------------
<S> <C> <C>
Net sales.................................. 100.0% 100.0%
Cost of sales.............................. 74.9 79.4
----- -----
Gross profit............................... 25.1 20.6
Operating expenses......................... 15.4 12.7
----- -----
Income from operations..................... 9.7 7.9
Interest expense, net...................... 0.8 0.7
Provision for income taxes................. 2.9 2.4
----- -----
Net income................................. 6.0% 4.8%
----- -----
----- -----
</TABLE>
- ------------------------------
(1) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (FAS 128), for the fiscal
year ended October 31, 1998, which requires the restatement of all periods
presented in the Company's Consolidated Financial Statements included in
this Prospectus and incorporated by reference herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."
(2) Adjusted to reflect a three-for-two stock split effected in the form of a
stock dividend on February 20, 1998. Share and per share amounts have been
retroactively adjusted to reflect the stock split. See Note 1 of Notes to
Consolidated Financial Statements.
31
<PAGE>
The Company's quarterly operating results vary significantly depending on a
number of factors, including, but not limited to: the timely introduction by the
Company of new or enhanced products and the market's acceptance of these
products; the Company's ability to introduce and market products in accordance
with its OEM customers' design requirements and design cycles; changes in demand
for functionality of the Company's products and the products of its OEM
customers; the gain or loss of significant OEM customers; the volume and timing
of significant customer orders received during the period; the availability,
pricing and timeliness of component delivery for the Company's products;
increased competition from existing competitors and new entrants to the market;
the timing of new product announcements or product introductions by the
Company's competitors; product obsolescence, management of product transitions
and unanticipated delays or problems in the introduction or production of
products by the Company or its OEM customers; product reviews and other media
coverage; anticipated and unanticipated decreases in average selling prices of
the Company's products; changes in the mix of products sold by the Company's OEM
and other customers; changes in the pricing policies of the Company, its
suppliers and customers; management of inventory by the Company and its
customers; changes in the Company's sales channel mix or in the sourcing
strategies of its OEM customers; and product returns or price protection charges
by the Company's customers. Because the timing of these factors may vary, the
results of any particular quarter may not be indicative of results for the full
year or any future period. In addition, the PC market generally experiences
weaker sales during the summer months. Although the Company has experienced
sales growth for each year since fiscal year 1990, there can be no assurance
that this growth will continue on a quarterly or annual basis. It is likely that
in some future period the Company's operating results or business outlook will
be below the expectations of securities analysts or investors, which would
likely result in a significant reduction in the market price of the Company's
Common Stock. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs are for financing
inventory and accounts receivable and for manufacturing and other equipment
expenditures. The Company has generally financed these capital and liquidity
needs and its operations through a combination of cash generated from
operations, trade credit from vendors, bank borrowings and the net proceeds from
its initial public offering. As a result of the Company's rapid growth in recent
years, its capital requirements have increased substantially. Future growth, if
any, will require additional capital, particularly to support increased working
capital needs, staffing requirements, promotional expenses, and manufacturing
facilities and equipment requirements.
Cash used in operating activities of $3.9 million in fiscal year 1997 was
primarily attributable to increases in inventory and accounts receivable as a
result of higher sales, partially offset by increases in net income and accounts
payable. Cash used in operating activities was approximately $462,000 in the
1998 first fiscal quarter, which resulted largely from increases in inventory
and accounts receivable as a result of higher sales, partially offset by
increases in net income and accounts payable. At October 31, 1997, the Company's
working capital was $31.4 million, compared to $35.8 million at January 31,
1998. Cash and cash equivalents was $3.9 million and $3.4 million at October 31,
1997 and January 31, 1998, respectively.
The Company invested $9.6 million in capital equipment in fiscal 1997, and
an additional $442,000 during the 1998 first fiscal quarter. The Company's
investment in equipment is primarily attributable to manufacturing equipment
additions and upgrades of existing equipment to support the increased demand for
and complexity of the Company's products. During the 1998 first fiscal quarter,
the Company completed a move to a new 137,000 square foot manufacturing facility
in Juarez, Mexico, immediately adjacent to its previous facility. The Company
has retained one-half of its previous facility for expansion, with an option to
occupy, vacate or sublease the remaining half. During the 1997 fourth fiscal
quarter, the Company installed two new high-speed surface-mount technology
("SMT") assembly lines at its new
32
<PAGE>
facility, at a total cost of approximately $6.3 million. This equipment was
financed by two separate operating leases. During the 1996 fourth fiscal
quarter, the Company installed four additional SMT assembly lines, at an
approximate total cost of $4.2 million. This equipment was also financed through
operating lease financing arrangements. The Company's aggregate obligations
under all such equipment lease financing arrangements totaled approximately $9.5
million at October 31, 1997 and approximately $9.1 million at January 31, 1998.
The Company expects that additional capital expenditures for similar types of
equipment may be necessary to support additional future customer demand and
production requirements, although there can be no assurance in this regard.
The Company has a $40.0 million Revolving Credit Facility, as well as a $3.0
million term loan (the "Mezzanine Facility"). As of January 31, 1998, the
Company had $23.0 million and $2.9 million outstanding under the Revolving
Credit Facility and the Mezzanine Facility, respectively. The principal amount
outstanding under the Revolving Credit Facility bears interest at LIBOR plus 175
basis points (7.367% at January 31, 1998). The principal amount outstanding
under the Mezzanine Facility bears interest at LIBOR plus 250 basis points
(8.126% at January 31, 1998) and is payable in 60 monthly installments of
principal and interest, which began on November 1, 1997. Availability under the
Revolving Credit Facility is calculated using formulas based on eligible
accounts receivable as defined by the Revolving Credit Facility Agreement. The
indebtedness under the Revolving Credit Facility matures on November 21, 1999
and the indebtedness under the Mezzanine Facility matures on November 1, 2002.
In December 1997, the Company entered into a five year agreement to
construct and lease a new corporate headquarters in Richardson, Texas.
Construction on the 210,000 square foot facility began in December 1997, and the
total cost is estimated to be approximately $22.8 million (including land). The
lessor has agreed to fund the cost of the land and construction of the building
(subject to reductions based on certain conditions in the lease agreement). The
Company plans to occupy the facility during the 1999 first fiscal quarter with
rental payments commencing upon occupancy. The Company estimates that its
monthly rent for this facility will be approximately $225,000 for the four year
period following completion of the facility. This amount is in excess of the
current facilities expense, as local rental rates have increased and the Company
is increasing the square footage of its corporate headquarters. The lease
agreement also provides that the amount of lease payments are subject to
adjustment based upon prevailing interest rates. As a consequence, an increase
in prevailing interest rates will increase the Company's facilities expense. The
Company is currently exploring strategies to hedge this interest rate exposure.
The Company is also seeking opportunities to sublease that portion of its new
headquarters facility which the Company does not expect to utilize immediately
following its occupancy of the new facility. The monthly rent currently paid for
the Company's headquarters facility will be eliminated with the move to the new
facility. At the end of the lease for the new facility, the Company may elect to
either renew the lease, pay off the underlying debt on the facility or cause the
building to be sold. In the event of a sale, the proceeds will be used to retire
the underlying debt with any excess to be paid to the Company. The Company is
responsible for any outstanding balance due on the underlying obligation after
the sale of the facility. See "Risk Factors-- Headquarters Relocation."
From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement the Company's business. Any such
transactions, if consummated, may use a portion of the Company's working capital
or require the issuance of securities which may result in further dilution to
the Company's shareholders. See "Risk Factors--Potential Future Acquisitions."
The Company believes that the net proceeds from the sale of the Common Stock
offered by the Company hereby, together with existing capital resources and
anticipated funds from operations, will satisfy the Company's anticipated
capital requirements for at least the next twelve months. After such period,
depending on its financial condition and results of operations, the Company may
require additional equity or debt financing to meet its capital requirements.
There can be no assurance that additional financing will be available when
required, or, if available, that such financing can be obtained on terms
satisfactory to the Company.
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RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair market value of the
Company's stock at the date of the grant over the amount the employee must pay
to acquire such stock.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128"), was issued. FAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS") for
entities with publicly held common stock or potential common stock. FAS 128
simplifies the standards for computing EPS previously found in Accounting
Principles Board Opinion No. 15, "Earnings per Share" ("APB 15"), and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the statement of operations for all
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. FAS 128 requires restatement of
all prior-period EPS data presented. The Company adopted FAS 128 as of and for
the year ended October 31, 1998.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"), was issued. FAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. It mandates that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt FAS 130 in the year ending October 31,
1999. Reclassification of financial statements for earlier periods provided for
comparative purposes is required upon adoption.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("FAS
131"), was issued. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. FAS 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company will adopt FAS 131 in the year
ending October 31, 1999.
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<PAGE>
BUSINESS
INTRODUCTION
STB designs, manufactures and sells multimedia subsystems and specialized
technology products, primarily for use in desktop PCs. These products supplement
a PC's central processing unit to enhance multimedia performance and accelerate
the computationally intensive operations and processing requirements necessary
to perform advanced multimedia applications. The Company focuses primarily on
the sale of its products to major OEMs, and works closely with its component
suppliers and OEM customers to develop products that are responsive to
technological trends and consumer demand. STB manufactures substantially all of
its products at its ISO 9002 certified facility in Juarez, Mexico, which the
Company believes enables it to respond more quickly to changing customer needs,
maintain product quality and achieve economies of scale.
The Company's multimedia subsystem product line includes a wide selection of
multimedia accelerator subsystems (also referred to as "graphics add-in cards")
designed primarily for use in mid to high-end PCs. STB's multimedia accelerator
subsystems enable users to take advantage of true-color graphics, 3D and other
video features found in the latest PC operating systems (such as Microsoft
Windows 95 and Windows NT) and in multimedia applications. The Company sells its
multimedia subsystem products to major OEMs and, to a lesser extent, to
commercial customers, such as retailers, distributors and direct-mail companies.
The Company is broadening its relationships with OEMs beyond the sale of
multimedia accelerator subsystems to include the sale of other complementary
multimedia subsystems, such as DVD decoder subsystems, PC/TV convergence
subsystems and sound cards, and is evaluating the production of motherboards
that incorporate multimedia capabilities. Sales of multimedia subsystems to OEMs
represented approximately 85% and 79% of the Company's total net sales for the
1998 first fiscal quarter and the fiscal year ended October 31, 1997,
respectively. STB's OEM and commercial customers include Gateway 2000, Dell,
Compaq, International Business Machines Corporation ("IBM"), Best Buy Co., Inc.
("Best Buy"), CompUSA Inc. ("CompUSA"), Tech Data Corporation, Ingram Micro,
Inc. and Merisel, Inc.
STB's specialized technology products include products designed to enable a
single computer to control the display of up to 32 monitors and a recently
introduced line of flat panel display products. These products apply proprietary
software and hardware designs to industry standard components to deliver
solutions tailored to customers' needs. STB sells its specialized technology
products primarily to resellers, the workstation groups of OEMs and corporate
customers for specialized applications in the financial services, hospitality,
factory automation, transportation and emergency response industries. Customers
for STB's specialized technology products include Reuters Limited, Compaq and
LodgeNet Entertainment Corporation.
INDUSTRY
According to Dataquest, an estimated 97.3 million PCs will be shipped
worldwide in 1998, compared to 83.1 million units in 1997 and 70.9 million units
in 1996. A substantial portion of the PCs shipped in recent periods incorporate
high performance Intel Pentium, Pentium Pro and Pentium II processors and
support multimedia functionality, including CD-ROM storage and playback,
high-resolution graphics, digital video and audio and, in most systems, hardware
3D acceleration and telecommunications. The evolution of these
multimedia-enabled PCs has been driven by the proliferation of high performance
hardware, operating systems like Microsoft Windows 95 and Windows NT, the
popularity of the Internet and the growth in the number of consumer and business
applications featuring greater use of graphics, video and sound.
The PC market continually demands more sophisticated multimedia products as
new technologies evolve and enter the mainstream. Intel's incorporation of the
MMX extended instruction set in its microprocessors, as well as its recent
introduction and support of the Accelerated Graphics Port ("AGP"),
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<PAGE>
reflect the demand for higher CPU multimedia functionality and better
integration between the CPU and the multimedia subsystem. These architectural
enhancements, in combination with evolving digital standards such as MPEG-2
decompression, Dolby Digital audio and DVD storage, are establishing the PC as
the enabling platform for digital television, video teleconferencing and other
emerging multimedia capabilities.
Multimedia applications typically place substantial processing demands on a
PC's CPU, often degrading system performance. The processing burden on the CPU
can be reduced by offloading the computationally intensive multimedia processing
functions to specialized graphics and other multimedia subsystems. This allows
the PC's CPU to address other functions and improves the PC's overall
performance. Offloading multimedia processing functions can be achieved either
through the placement of subsystems on the motherboard or the use of add-in
subsystems. Motherboard implementations are typically less expensive, but
currently most motherboards provide lower levels of functionality and
performance than multimedia subsystems. Currently, add-in subsystems are more
expensive, but generally support higher levels of functionality and provide a
higher degree of flexibility in PC configuration because PC manufacturers can
stabilize their motherboard configurations and add multimedia subsystems that
suit end-user demands. Consequently, PC manufacturers can more rapidly integrate
new technologies into their product lines and meet a range of price and
performance requirements.
Historically, PC manufacturers have continuously introduced more powerful
PCs while maintaining relatively constant prices. Recently, PC manufacturers
introduced PCs at lower price points, in particular below $1,000. OEMs are able
to meet some of the cost requirements for the lower cost PC market by reducing
the complexity of their products. To this end, OEMs have begun to integrate
functionality previously provided by separate subsystems, including multimedia
accelerator subsystems onto the motherboard.
The accelerating pace of technological advancement and the demand by
consumers for more functionality have required OEMs to deliver technological
innovation to the market more quickly. Consequently, PC manufacturers must
introduce new PC models to the market more frequently. Accelerating
time-to-market demands have made it more difficult for OEMs to devote the
resources necessary for the timely internal development of multimedia subsystems
incorporating the latest innovations. Furthermore, many OEMs are expanding their
product lines in response to consumer demand for a broader range of price and
performance options. As a result, OEMs are seeking to expand their product lines
by outsourcing their multimedia subsystem development needs to those suppliers
able to meet their time-to-market and performance requirements with high
quality, cost-effective solutions.
SOLUTION
STB delivers to its customers innovative multimedia subsystems and
specialized technology products designed to meet increasing performance
requirements at cost-effective prices and on a timely basis. By working closely
with component suppliers and OEM customers, the Company is able to develop
innovative products that are responsive to product development trends and
consumer demands. As OEM customers communicate desired features for next
generation products, STB uses its close supplier relationships and its technical
and marketing expertise to determine the most appropriate components to meet
required price and performance specifications. By maintaining direct control
over production, the Company can control quality and costs and respond quickly
to changing customer needs. The Company believes that the combination of its
strong relationships with leading-edge graphics controller chip suppliers and
its OEM customers, coupled with software and hardware design expertise and
in-house manufacturing capabilities, enables the Company to deliver to its
customers a time-to-market advantage over competing solutions.
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STRATEGY
The Company's goal is to become the leading supplier of multimedia
accelerator subsystems and certain other multimedia subsystems for PCs. The
major elements of the Company's strategy are as follows:
- CONTINUED FOCUS ON OEM CUSTOMERS AND OEM SALES CHANNEL. The Company
focuses on its OEM customers, and, in particular, several of the largest
OEMs, as evidenced by significant increases in net sales within this
channel and the proportion of net sales within this channel during the
past several years. During fiscal year 1997, approximately 79% of the
Company's net sales were realized through its OEM channel, with Gateway
2000, Dell and Compaq accounting for 35%, 20% and 11% of net sales,
respectively. The Company believes that by developing and maintaining
close relationships with leading PC OEMs, it is better able to anticipate
the demands of its OEM customers, understand market trends and accelerate
product development to address the requirements of its customers.
- CONTINUED FOCUS ON MULTIMEDIA ACCELERATOR SUBSYSTEM MARKET AND OTHER
EMERGING MULTIMEDIA OPPORTUNITIES. The Company intends to continue to
focus its efforts on the multimedia accelerator subsystem market, where it
has consistently demonstrated its ability to introduce multimedia
accelerator subsystems designed to satisfy rapidly evolving and
increasingly demanding performance standards. Furthermore, the Company
intends to leverage its strong relationships with leading-edge graphics
controller chip suppliers and its OEM customers, its software and hardware
expertise, and its in-house manufacturing capabilities to become the
provider of choice to OEMs for other multimedia subsystem products such as
DVD decoder subsystems, PC/TV convergence products and sound cards. In
addition, the Company is actively soliciting orders for motherboards that
incorporate graphics circuitry. In the event that the Company secures an
order, the Company will undertake to design, develop and manufacture
motherboards that deliver multimedia capabilities.
- VALUE-ADDED ENGINEERING EXPERTISE. The Company's experienced software and
hardware engineers provide STB with industry-leading design expertise. The
Company intends to apply its engineering expertise to respond more quickly
to customer requirements, anticipate trends and advances in its industry
and expand its product line to take advantage of new technology
applications. During the past several years, the Company's products have
won industry awards from numerous publications including PC MAGAZINE, PC
WORLD, WINDOWS MAGAZINE, PC PROFESSIONAL and PC COMPUTING.
- CONTROL OF MANUFACTURING. The Company believes that it is the only major
independent supplier of multimedia accelerator subsystems that
manufactures all of its own products rather than outsourcing its
manufacturing operations. The Company believes that having its own
manufacturing facility incorporating automated SMT in Juarez, Mexico
enables it to maintain lower manufacturing costs, meet expedited customer
delivery schedules, adjust quickly to changes in product orders, achieve
shorter production cycles and accommodate modified or unusual design
specifications, while at the same time ensuring product quality and
reliability. The Company is in the process of expanding its Juarez plant
to increase its production capacity.
- SELECTIVE PURSUIT OF ADDITIONAL SALES CHANNELS. In addition to expanding
its OEM sales channel, the Company intends to continue its efforts to
further penetrate the commercial market. The Company believes that its
experience in meeting the standards that its OEM customers demand better
positions the Company to provide competitive products in the commercial
market. The Company believes that increasing awareness of the STB brand
name, due in part to its penetration into the OEM sales channel, has
strengthened its position in the commercial market. The Company also seeks
to leverage its expertise acquired by developing and manufacturing
multimedia subsystem products in order to develop and manufacture its
specialized technology products. The Company believes it is one of the
world's largest suppliers of specialized technology products and intends
to
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continue marketing these products to current customers, as well as to new
customers in the same and other targeted industries.
- CONTROLLER CHIP INDEPENDENCE. Unlike some of its competitors, the Company
designs its products after evaluating controller chips produced or under
development by a number of leading suppliers. The selection of a
controller chip is based on competitive factors including performance,
cost, compatibility and reliability of supply. The Company believes that
outsourcing rather than internally designing, developing and manufacturing
controller chips allows it to consistently develop products incorporating
the latest technological advances. Moreover, similar to some of the
reasons driving the Company's OEM customers to purchase subsystems from
the Company, STB is able to leverage the substantial expenditures made by
developers of controller chips, achieve component flexibility and decrease
the time and expense required to develop new products.
PRODUCTS
The Company divides its products into two categories: multimedia subsystem
products and specialized technology products. From its entry-level to its most
sophisticated products, the Company offers its customers products that enhance
the graphics, video and audio capabilities for an increasingly broad range of PC
configurations and applications.
MULTIMEDIA SUBSYSTEM PRODUCTS
The Company's multimedia subsystem products include a full range of
multimedia accelerator subsystems at various price points, as well as other
multimedia subsystem products.
MULTIMEDIA ACCELERATOR SUBSYSTEMS. Substantially all of the Company's
multimedia accelerator subsystems are capable of displaying full-motion video
images on a PC. A typical multimedia accelerator subsystem consists of a printed
circuit board configured with a graphics controller chip, memory chips and
software drivers and utilities. The Company believes that optimal graphics
enhancement and video display require custom software and hardware design that
maximize the performance and features of a PC system. The Company distinguishes
its products from those of its competitors through its proprietary software
drivers and utilities and through the hardware design of its multimedia
accelerator subsystems. The Company incorporates its proprietary STB Vision
software utility on many of its multimedia accelerator subsystem products. STB
Vision supports various chipsets, with a consistent interface that supports
multiple languages, including English, German, French, Dutch, Polish, Japanese,
Italian and Spanish, and enhances the performance of a multimedia accelerator
subsystem.
The Company's multimedia accelerator subsystem product line is comprised of
products with varying degrees of performance based on display speed, resolution,
color depth and 2D/3D capability. The display speed of a multimedia accelerator
subsystem is determined primarily by the graphics controller chip and software
drivers, while display resolution and color depth are determined primarily by
the amount of display memory. The Company offers a wide array of multimedia
accelerator subsystems that are compatible with the bus architectures prevalent
in today's market.
By offering a complete line of multimedia accelerator subsystems, the
Company can better establish and build relationships with OEMs. The Company
currently offers a high-end professional multimedia accelerator subsystem
product line that features a choice of several types of rasterization engines
(devices that generate a 2D image from a 3D geometrical model) from 3Dlabs Inc.,
Ltd. ("3Dlabs"), memory ranging from 8MB to 40MB and separate geometry
co-processors. This product line is optimized to support the Windows NT
operating system and OpenGL 3D graphics and is targeted at customers with the
most demanding 3D requirements, such as simulation, 3D modeling and animation
development.
The Company also offers multimedia accelerator subsystem products targeted
at mainstream customers. The top of STB's mainstream product line is the
Velocity 128, which has 4MB of Synchronous
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Graphics RAM ("SGRAM") and incorporates the NVIDIA Corporation ("NVIDIA") RIVA
128 graphics controller chip. The Company offers a number of mid-range products,
including products with 2D and 3D graphics capability, which generally contain
from 1MB to 4MB of EDO or Synchronous DRAM ("SDRAM") memory. For fiscal year
1997, approximately 63% of the multimedia accelerator subsystems shipped by the
Company had hardware-assisted 3D capability and in the 1998 first fiscal quarter
approximately 89% of the multimedia accelerator subsystems shipped by the
Company had hardware-assisted 3D capability.
OTHER MULTIMEDIA SUBSYSTEM PRODUCTS. In addition to multimedia accelerator
subsystems, the Company offers complementary multimedia subsystem products that
incorporate various emerging technologies.
- DVD DECODER SUBSYSTEMS. During the 1997 third fiscal quarter, STB began
shipping to OEMs products designed to enable the use of DVD drives in PCs.
The DVD is a 5 1/4-inch diameter disk that looks almost identical to the
CD-ROM. However, due to advances in recording technology, the capacity for
the DVD is greater than 4,770 megabytes, as compared to 680 megabytes on
the CD-ROM. Full motion video and audio data that is recorded on the DVD
is compressed using the MPEG-2 standard, and the audio data is digital
data using Dolby Digital processing. This video and audio data must be
processed as it goes from the DVD drive to the PC memory. STB provides the
DVD decoder subsystem that is required to process this data. At least one
of STB's first two DVD decoder subsystem products, DVD Theater and Impact
DVD, is used by Gateway 2000, Dell and Compaq. Since the drive mechanism
for the DVD is very similar to current CD-ROM drives, the cost of these
high-capacity drives will likely approach that of the CD-ROM drives during
late 1998. Since DVD drives can read current CD-ROMs, industry analyst
International Data Corporation ("IDC") predicts that the DVD will begin
replacing the CD-ROM during 1998 and will gain market share relative to
the CD-ROM over the coming years. According to IDC, approximately 2.3
million DVD drives were sold into the PC market in 1997 and approximately
83.8 million units will be sold into the PC market in the year 2000.
- PC/TV CONVERGENCE SUBSYSTEMS. The Company's PC/TV convergence subsystems
are capable of receiving analog television broadcasts or cable
transmissions and producing a full-motion television display on a PC
monitor. One important feature of these products is that they allow users
to access Intel Intercast, which broadcasts within an analog television
transmission signal and provides Internet-like information to supplement
television programs. These products are sold through the Company's OEM
channel and through commercial retailers such as Best Buy and CompUSA. The
Company's Video Rage II television tuner/multimedia accelerator is used in
Gateway 2000's Destination PC/TV product line.
- SOUND CARDS. A sound card, or "audio adapter add-in board," converts
digital audio information into high-fidelity, stereo-quality sound. A
sound card incorporates an audio controller chip, memory chips and
software drivers and utilities in configurations designed to produce high
quality sound. The Company began shipping sound card products in July 1996
in response to OEM customer demand for this additional product offering.
The Company believes that its sound cards complement its multimedia
accelerator subsystem products.
The Company anticipates that its multimedia subsystem product line will
continue to evolve based upon its assessment of strategic multimedia
opportunities and the continuing demand for new generations of video and audio
solutions from OEMs and end-users. The Company's multimedia subsystem products
tend to have relatively short life cycles, reflecting the dynamic nature of
technological development within the PC industry. Historically, OEMs have
introduced new system configurations as often as twice a year, and the Company
must design, develop, manufacture and deliver its new products to comply with
OEMs' schedules. The life cycle for a multimedia accelerator subsystem typically
is six to nine months (plus a few additional months of sales for certain
products in the commercial market).
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A substantial number of PCs incorporate graphics circuitry on the
motherboard, particularly in lower cost PCs. The Company is actively soliciting
orders for such motherboards from OEMs and, in the event that the Company
secures an order, the Company will undertake to design, develop and manufacture
motherboards that deliver multimedia capabilities. There can be no assurance
that the Company will obtain any such orders or, if it does secure any orders,
such products can be produced in profitable quantities, if at all. The Company
anticipates that it will continue to expend efforts with respect to motherboards
and other potential products. See "Risk Factors--Entry Into New Product
Markets."
The Company's current major multimedia accelerator subsystems and other
multimedia subsystem products include the following:
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION STATUS
<S> <C> <C>
PROFESSIONAL 3D MULTIMEDIA ACCELERATOR SUBSYSTEMS
Glyder MP High performance professional 3D multimedia accelerator Shipping
subsystem with dual 3Dlabs GLINT MX graphics processors
and GAMMA geometry co-processor using 8MB of VRAM and
32MB of DRAM
Glyder MX High performance professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs GLINT MX graphics processor and
GAMMA co-processor using 8MB of VRAM and from 8MB to 32MB
of DRAM
Glyder TX Gold Mid-range professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs GLINT TX graphics processor with
8MB of VRAM plus 8MB of DRAM
Glyder Max - II Entry-level professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs Permedia II graphics processor
with 8MB of SGRAM
3D MULTIMEDIA ACCELERATOR SUBSYSTEMS
Velocity 128 Upper mid-range multimedia accelerator subsystem with 128 Shipping
bit architecture with an NVIDIA RIVA 128 graphics
processor using 4MB of 128 bit SGRAM
Velocity 3D Upper mid-range multimedia accelerator subsystem with an Mature
S3 ViRGE VX graphics processor using 4MB or 8MB of EDO
RAM
Nitro 3D Mid-range multimedia accelerator subsystem with an S3 Shipping
ViRGE GX graphics processor using either 2MB or 4MB of
SDRAM
Powergraph 64 3D Entry-level multimedia accelerator subsystem with an S3 Mature
ViRGE graphics processor using either 2MB or 4MB of SDRAM
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION STATUS
<S> <C> <C>
2D MULTIMEDIA ACCELERATOR SUBSYSTEMS
Lightspeed 128 Mid-range multimedia accelerator subsystem with a Tseng Mature
Labs ET6000 graphics processor using 2 or 2.25 MB of
SDRAM
Nitro 64 Video Entry level multimedia accelerator subsystem with a Mature
Cirrus Logic CL5446 graphics processor using either 1 MB
or 2MB of EDO DRAM
Powergraph 64 Video Entry level multimedia accelerator subsystem with an S3 Mature
Trio V2 graphics processor using either 1 MB or 2MB of
EDO DRAM
DVD DECODER SUBSYSTEMS
DVD Theater An all hardware DVD solution using an IBM Shipping
Microelectronics MPEG decoder chip
Impact DVD A hybrid hardware/software DVD solution using a Chromatic Shipping
Research Mpact M1 media processor supporting software for
MPEG-2 and Dolby Digital audio decoding
PC/TV CONVERGENCE SUBSYSTEMS
Video Rage II 3D multimedia accelerator subsystem using STB's "Hub" Shipping
architecture with television tuner, TV output and
optional DVD module (similar to DVD Theater)
TV-PCI TV tuner adapter with the capability of receiving cable Shipping
or over-the-air analog television broadcasts
SOUND CARDS
Wave Up Audio wavetable, upgrade card for incorporation on Shipping
certain Intel-logic motherboards
</TABLE>
SPECIALIZED TECHNOLOGY PRODUCTS
The Company's specialized technology products apply proprietary software and
hardware designs to industry standard components to deliver tailored solutions
for specific problems, and are characterized by significantly lower unit sales
volumes and relatively higher unit prices and gross profit margins than the
Company's multimedia subsystem products. The Company's specialized technology
products are sold primarily to resellers, the workstation groups of OEMs and
corporate customers for specialized applications in a number of industries,
including the financial services, hospitality, factory automation,
transportation and emergency response industries. The Company's specialized
technology products include products designed to enable a single computer to
control the display of up to 32 monitors. The Company believes it is currently
one of the world's largest suppliers of specialized technology products. In
addition, STB also recently introduced a line of flat panel display products.
The Company offers two families of multi-monitor multimedia accelerator
subsystem products distinguished by the resolution of the monitors with which
they are designed to be used. The MVP family of products is used with
high-resolution monitors, and the Channel family is used with low-resolution,
television-type monitors. An important component that the Company incorporates
into the MVP family of products is its "virtual screen" software driver (which
enables multiple monitors to act as a single screen, displaying numerous
"windows" of information through only one computer) and its Mediator utility
(which
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enables the user to control the placement of applications on the available
displays). Several financial institutions presently employ this capability in
their trading rooms, where large amounts of information must be continuously
available to traders. The Company has made several technological advances to its
existing MVP product line, including the introduction of full motion digital
video scalers, live video/TV tuner input ports (based on the PCI bus standard)
and new video graphics drivers and utilities. Channel products are used in
applications, such as airport arrival and departure displays, where lower cost
and larger display size are more important than clarity of display. Channel
products are also used to facilitate the selection of on-demand programming for
hotel room televisions.
The Company began shipping the Galileo 15, its first flat panel display
product, during the first fiscal quarter of 1998. The Galileo 15 is a 15-inch,
thin film transistor ("TFT") display. This flat panel display product consists
of (i) a multimedia accelerator subsystem that includes special circuitry to
transmit graphics and video data to digital flat panels, (ii) a receiver card to
receive the transmitted information, (iii) STB's custom driver and utility
software to allow the display subsystem to work with Windows NT and Windows 9X
and (iv) the flat panel display housed in STB's proprietary housing and mounting
system. Flat panel display products offer several advantages over cathode ray
tube ("CRT") glass monitors. In particular, flat panel display products are much
thinner, (two to six inches thick as compared to the foot or more required for
CRTs), generate less heat than CRTs and cause less strain on the user's eyes.
Flat panel display systems are currently three to five times more expensive than
an equivalent CRT system but are expected to decline in price in 1998 and 1999.
The Company also recently introduced several specialized technology products
that incorporate digital video features that meet the MPEG-2 decompression
standard and in some cases incorporate a multimedia accelerator subsystem. These
products, some of which have multi-monitor control capability, enable
applications such as video-on-demand, storing video data for viewing at a later
time and receiving MPEG-2 encoded material over direct broadcast satellite or
advanced technology cable. There can be no assurance that such products can be
produced in profitable quantities, if at all. See "Risk Factors--Entry Into New
Product Markets."
Listed below are the principal industries and applications for the Company's
specialized technology products:
<TABLE>
<CAPTION>
INDUSTRY APPLICATION
<S> <C>
Financial services Support of simultaneous display of multiple data sources on multiple
monitors from a single PC for use by financial traders
Hospitality Control of display on hotel room televisions to allow guests to view
movie choices, review bill prior to checking out and obtain other
information
Factory automation Dual-monitor graphical man-machine interface for factory machinery
Transportation Flight arrival and departure information
Emergency response "911" emergency call center displays to allow the operator to follow
multiple calls simultaneously, plus view a map of the emergency
location on a separate monitor
</TABLE>
In addition, on occasion, STB provides contract assembly services for third
parties, adding incremental gross profit and contributing to the absorption of
overhead by increasing utilization of manufacturing capacity. Revenues from
these contract assembly services constituted approximately 1% of the Company's
net sales in fiscal year 1997.
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DESIGN AND DEVELOPMENT
The timely development and introduction of new products is essential to
meeting the performance requirements of OEM customers and reinforcing the
Company's competitive position in its other sales channels. The Company works
closely with its suppliers and OEM customers to develop new products that
satisfy specific OEM product requirements, such as performance and display
features. The Company's software and hardware engineers design, develop and test
the new product prototypes, selecting the most appropriate graphics controller
chips, memory chips and other components for the Company's products. The
Company's design and development personnel have enabled STB to repeatedly
deliver the latest technologies to the OEM market.
In order to achieve customer acceptance for its products, the Company must
ensure that its products can function properly in a variety of PC system
configurations and with most popular commercial application software and
operating systems. In addition to ensuring that the Company's products work in a
variety of configurations and with most applications, STB's compatibility lab
also compares the test performance of the Company's products against that of
competitors' products. STB submits most of its products for compatibility and
performance testing to Microsoft's WHQL. WHQL certification typically requires
up to several weeks to complete and entitles the Company to claim that a
particular product is "Designed for Microsoft Windows." The Company's OEM
customers typically require the Company's products to be Designed for Microsoft
Windows prior to making volume purchases. STB also sends product prototypes to
OEM customers for performance and compatibility testing and to the Federal
Communications Commission (the "FCC") and the Cenelec branch of the European
Economic Community (the "EEC") for "CE Certification." See "--Government
Regulations." After any necessary modifications are made to a product, it is
released for production.
The Company believes that the strength of its engineering resources is
critical to its competitiveness. The Company has substantially increased its
engineering and technical resources, so that as of January 31, 1998 it had a
total engineering staff of 92, including 16 hardware engineers and 43 software
engineers. The Company also has established software engineering centers in
Houston, Texas; Eugene, Oregon; and Belfast, Northern Ireland and plans to open
a software engineering center in Austin, Texas in the 1998 second fiscal
quarter. The Company's engineering resources are critical to its strength in
responding quickly to customer requirements, anticipating trends and advances in
its industry and expanding its product line to access new technologies and
applications. See "Products" and "Risk Factors--Dependence on Key Personnel."
The Company has won numerous awards from recognized industry magazines,
including PC MAGAZINE, PC WORLD, WINDOWS MAGAZINE, PC PROFESSIONAL AND PC
COMPUTING. STB's Velocity 128 product has received greater recognition from
industry publications than any other product in Company history. The Velocity
128 recently won the PC MAGAZINE Editor's Choice award for business computing,
primarily as a result of its versatility, with outstanding performance in 3D
graphics plus video acceleration. In addition, PC Computing gave the Velocity
128 its five star award, plus the prestigious Most Valuable Product award for
the best product of its class for 1997. In addition to the excellent results in
the U.S. trade press, the Velocity 128 has won awards in graphics subsystem
reviews from PC WELT in Germany, PC ACHAT and WINDOWS NEWS in France, COMPUTER
BUYER and PERSONAL COMPUTER WORLD in the U.K., and CHIP in Italy.
SUPPLIERS
The Company believes its close relationships with its component suppliers
are essential to producing low-cost, innovative products and maintaining short
design-to-market cycles. The Company's primary products, multimedia accelerator
subsystems, are printed circuit boards that contain a number of components,
including a graphics controller chip, memory chips, logic chips, capacitors and
resistors. The graphics controller chip, which regulates the information that is
displayed on the PC monitor, and the memory chip, which stores graphics
information for display, are the most important components in
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determining the functions and manufacturing cost of a multimedia accelerator.
The Company's other multimedia subsystem products generally contain components
comparable to those found on an STB multimedia accelerator subsystem but with
different types of controller chips.
The Company purchases various types of controller chips directly from sole
suppliers, including S3, Incorporated ("S3"), Cirrus Logic, Inc., 3Dlabs, NVIDIA
and IBM. These controller chips typically include related software drivers,
which the Company's software engineers often enhance for use in STB products. In
addition to controller chips and their related software drivers, several other
components that are used in the Company's products are obtained from single or
limited sources. The Company has no guaranteed supply arrangements with any of
its suppliers, and there can be no assurance that current suppliers will be able
to meet its requirements. While the Company believes that with respect to its
single and limited source components it could, in most cases, obtain similar
products from other resources, it likely would be required to pay significantly
more for such products, alter product designs to use alternative products or
reduce or delay its production of the related products. As a result of delays in
the delivery of components, lack of available components or the lack of
compatible software drivers from component vendors, the Company has in the past
experienced difficulty meeting its own scheduled shipment dates to customers,
and such difficulties are likely to recur. See "Risk Factors--Dependence on
Suppliers."
The Company purchases memory chips from a number of manufacturers, including
IBM, Mosel Vitelic, Hyundai Electronics Industries Co., Ltd., Samsung
Electronics Co., Ltd. and Toshiba Corporation. Memory chips are less expensive
if purchased directly from the manufacturer, but manufacturers sometimes do not
produce sufficient quantities of memory chips to satisfy market demand. In times
of restricted supply of memory chips, manufacturers have in the past, and may in
the future, allocate the sale of their memory chips to customers based, among
other factors, upon purchase volumes and the customer's creditworthiness. The
Company's ability to purchase memory chips from distributors, and possibly on
the spot market, provides an alternative, but more costly, source of supply if
the Company cannot obtain necessary supplies from memory chip manufacturers. See
"Risk Factors--Dependence on Suppliers."
The Company's unit component costs tend to be volatile, and a significant
increase or decrease in unit component costs may have a significant effect on
the Company's results of operations. The Company may experience component cost
increases in the future, which could have a negative effect upon gross profit
margins and gross profits. See "Risk Factors--Dependence on Suppliers."
MANUFACTURING
STB considers its ability to manufacture high quality products at a low cost
to be critical to its competitiveness. STB began manufacturing at its facility
in Juarez, Mexico in 1988 and presently conducts substantially all of its
manufacturing operations at this ISO 9002 certified facility. STB believes that
by operating its own manufacturing facility, it is able to respond quickly to
changing customer needs and control product quality. By locating its
manufacturing facility in Juarez, Mexico, the Company benefits from low labor
and shipping costs, as well as proximity to its headquarters in Richardson,
Texas. The Company has increased its manufacturing capacity in Mexico to
approximately 500,000 boards per month, depending on product mix and complexity.
This increase in manufacturing capacity has been achieved primarily through the
addition of new high-volume automated SMT equipment capable of manufacturing
double-sided products, as well as through existing equipment upgrades. The
Company believes that the addition of this equipment has increased not only its
manufacturing capacity but also the speed and efficiency of its manufacturing
operations. With this additional equipment, the Company believes its
manufacturing capacity is sufficient for its current level of operations.
Nevertheless, the Company is currently installing additional high-volume
automated SMT equipment to add manufacturing capacity with capabilities to
manufacture double-sided circuit boards. In addition, the Company recently
relocated a portion of its manufacturing operations to a larger facility
adjacent to its present manufacturing facility,
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which should provide the Company with the ability to further increase its
manufacturing capacity, if necessary. See "Properties" and "Risk
Factors--Management of Growth" and "Risk Factors--Single Manufacturing
Facility."
The Company emphasizes a comprehensive quality control program at each step
in the manufacturing process. The manufacturing process involves both automated
and manual placement and soldering of components onto the circuit board. After
final assembly is completed, each product unit undergoes an elevated temperature
burn-in, a process simulating a PC environment in which the product is placed in
an oven and connected to an electrical source for several hours. After each
product has been burned-in, it is placed through a series of diagnostic tests to
detect defects. The Company believes its comprehensive testing procedures
contribute significantly to its ability to satisfy customers' stringent product
performance and reliability requirements. The Company offers a limited warranty
ranging from 15 to 39 months on multimedia subsystems sold to OEMs, a five-year
limited warranty on its specialized technology products and a limited lifetime
warranty on multimedia subsystems sold to commercial customers.
While the Company conducts substantially all of its manufacturing operations
at its facility in Juarez, Mexico, it also maintains a smaller facility at its
Richardson, Texas headquarters to develop and test prototypes and for first-run
testing of new products. The Company also maintains a separate facility in
Richardson, Texas for technical support and product repair. In addition, the
Company burns-in and functionally tests a small portion of its products
assembled in Mexico at its Richardson, Texas facilities.
SALES AND MARKETING
SALES. The Company presently sells its products in North America, most
countries in Europe and certain countries in the Pacific Rim. U.S. sales
accounted for approximately 74% and 73% of the Company's net sales in the 1998
first fiscal quarter and fiscal year 1997, respectively.
The Company organizes its Richardson, Texas based North American sales force
on the basis of its three sales channels. The OEM sales force provides direct
sales coverage of selected OEMs. The commercial market sales force focuses on
marketing and sales to retailers, distributors and direct mail companies, and
also coordinates the efforts of the Company's independent sales representatives
for the commercial channel. The specialized technology sales force coordinates
its efforts with the Company's engineering staff to create interest among
prospects and customers and to determine product features.
The Company's North American sales force generally operates in tandem with
the Company's independent sales representative network in the commercial market.
These sales representatives typically are retained based on relationships they
have with potential customers. The Company believes that the services of
independent sales representatives are important for obtaining and maintaining
relationships with certain commercial customers. The Company's independent sales
representatives generally do not sell products that compete with those products
they handle for the Company. In general, the Company does not utilize
independent sales representatives for its OEM or specialized technology
products.
The Company's European sales force, headquartered in London, is responsible
for OEM, commercial and specialized technology product sales in the region. The
European sales force has greater direct sales coverage responsibility than the
North American sales force because STB employs fewer European independent sales
representatives. The Company's marketing and sales efforts for countries outside
of North America and Europe are coordinated from STB's Richardson, Texas
offices.
The Company's net sales to OEMs, the commercial market and specialized
technology customers represented approximately 85%, 9% and 5% of the Company's
total net sales in the 1998 first fiscal quarter, and approximately 79%, 12% and
8% of the Company's total net sales in fiscal year 1997. The Company's top three
customers accounted for approximately 76% of net sales during the 1998 first
fiscal quarter, with Gateway 2000, Dell and Compaq accounting for approximately
40%, 32% and 4%, respectively, of the Company's net sales for such period. The
Company's top three customers accounted
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for approximately 66% of net sales during fiscal year 1997, with Gateway 2000,
Dell and Compaq accounting for approximately 35%, 20% and 11%, respectively, of
the Company's net sales for such period. In the commercial segment, the Company
recently has increased its marketing efforts in the distribution segment of the
commercial market. The Company attributes the recent increase in its commercial
channel sales to its increased focus on distributors. The Company sells products
to the commercial market through specialty retailers, such as Best Buy and
CompUSA, and commercial distributors, such as Tech Data Corporation, Ingram
Micro, Inc. and Merisel, Inc. The Company sells its specialized technology
products primarily to resellers, the workstation groups of OEMs and corporate
customers in the financial services, hospitality, factory automation,
transportation and emergency response industries, which include customers such
as Reuters Limited, Compaq and LodgeNet Entertainment Corporation.
The Company generally allows returns in the form of stock rotations only of
products sold to commercial customers such as distributors and retailers. The
Company's current stock rotation policies typically permit a commercial channel
customer to return approximately 10% of the products purchased from STB within
the previous 90 days if it concurrently places an order for other STB products
of equal or greater value. The Company usually is able to resell returned
products. In addition, the Company typically provides price protection to
commercial customers in the form of credits for price reductions on products
remaining in customer inventories at the time price protection is granted. See
"Risk Factors--Stock Rotation and Price Protection Risks" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
The Company currently sells all its products at prices denominated in U.S.
dollars, but expects to sell its products in other currencies in the future,
thereby increasing its currency exposure risk. Additionally, a substantial
portion of the Company's manufacturing labor costs are incurred in Mexican
pesos. See "Risk Factors--International Operations."
MARKETING. STB promotes its products to OEM customers and specialized
technology customers primarily through the efforts of the Company's sales force.
The Company believes such direct promotion enables it to develop products that
are more in line with its customers' requirements and market trends. The Company
supplements these efforts by promoting its products at industry trade shows. The
Company's commercial channel marketing efforts include advertising in recognized
industry trade magazines and cooperative promotional efforts with retailers and
commercial distributors.
TECHNICAL SUPPORT
The Company believes that providing technical support to its customers is
essential to its ongoing competitiveness. The Company maintains a toll-free
telephone line in the U.S. to provide technical support for purchasers of its
specialized technology products as well as for purchasers of its multimedia
subsystems sold in the commercial market. STB also maintains electronic bulletin
board systems in Richardson, Texas and London, England to provide customers with
new software drivers and utilities that update the capabilities of the Company's
products. The Company's technical support group provides the software on disk at
a nominal charge to customers who are unable to obtain updates through the
electronic bulletin board system. STB provides software driver and utility
updates for its products to maintain compatibility with new versions of
software, increasing their useful life. The Company also prepares user manuals
and other product documentation that it believes are informative and easy to
understand.
COMPETITION
The market for the Company's products is intensely competitive and the
Company expects competition to increase. The Company competes with independent
manufacturers of brand name multimedia subsystem products, as well as contract
manufacturers and certain OEM manufacturing operations that produce multimedia
subsystem products. The Company's major competitors in the multimedia subsystems
market include Diamond Multimedia Systems, Inc., ATI Technologies, Inc., Matrox
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Graphics, Inc., ELSA GmbH, AccelGraphics, Inc., Creative Labs, Inc., CEI, Inc.,
Number Nine Visual Technology Corporation, and Hauppauge Computer Works, Inc. In
the specialized technology product market, the Company's major competitors
include Colorgraphic Communication Corporation, Datapath Ltd., and Appian
Graphics Corp.
In addition to its major competitors, certain of the Company's suppliers
sell graphics controller chips directly to OEMs for use in internally produced
multimedia accelerator subsystems, other multimedia subsystems or on
motherboards. If one or more of the Company's significant OEM customers were to
commence or increase internal production of multimedia accelerator subsystems or
other multimedia subsystems, the Company's business, financial condition and
results of operations could be materially adversely affected. Furthermore,
several major OEMs currently integrate graphics controller chips on the
motherboard of their PCs. If one or more of the Company's major OEM customers
begins to incorporate graphics controller chips or other controller chips onto
motherboards rather than incorporating the Company's products, the Company's
business, financial condition and results of could be operations materially
adversely affected. See "Risk Factors--Dependence on Multimedia Accelerator
Market; Migration to Motherboards."
The Company competes in its markets on the basis of a number of factors,
including the compatibility, reliability, price and performance of its products,
its ability to reach the market quickly with new products, its ability to meet
customer delivery and reliability requirements, the quality of its technical
support and its ability to develop and maintain relationships with customers and
suppliers. Many of the Company's competitors and potential competitors have
greater financial, marketing, manufacturing and technical resources than the
Company. In addition, some of the Company's competitors manufacture their own
controller chips, which provides these competitors with a significant advantage
over the Company when the internally produced controller chips cost less or
maintain higher price and performance levels than the controller chips available
to the Company from independent suppliers. Furthermore, while the Company
believes it is the only supplier of brand name multimedia accelerator subsystems
that manufactures its own products, some of STB's competitors internally
manufacture other multimedia subsystems, such as sound cards and PC/TV cards.
The rapid pace of change in the industry and markets in which the Company
competes places a premium on the knowledge and experience of a company's
management, engineers and other personnel, and their ability to continuously
develop, enhance and transition new products. The Company has continued to
increase its engineering resources and believes that its ability to continue
adding new engineers to its staff in the future will affect its competitiveness.
See "Risk Factors-- Competition."
INTELLECTUAL PROPERTY
The Company's success depends in part upon its proprietary technology,
including, in particular, its software drivers and utilities and its hardware
designs. The Company primarily relies upon copyright, trademark and trade secret
laws to protect its proprietary technology, and occasionally seeks patent
protection on selected inventions. The Company generally also enters into
nondisclosure agreements with persons to whom it reveals its proprietary
information, such as OEMs that the Company works with, concerning future
products. There can be no assurance that the Company's present protective
measures will be adequate to prevent misappropriation of its technology or
independent third party development of the same or similar technology. Many
foreign jurisdictions offer less protection of intellectual property rights than
the United States, and there can be no assurance that the protection provided to
the Company's proprietary technology by the laws of the United States or foreign
jurisdictions will be sufficient to protect the Company's technology. See "Risk
Factors--Proprietary Technology; Intellectual Property Infringement Claims."
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that the rapid pace of
technological change in the multimedia accelerator market will cause other
factors to be more significant in maintaining the Company's competitive
position. These factors include the technical expertise, knowledge and
innovative
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skill of the Company's management and technical personnel, name recognition,
timeliness and quality of support services provided by the Company and its
ability to rapidly develop, produce, enhance and market innovative products.
STB generally enters into nondisclosure agreements with suppliers of
components for its products in connection with discussions regarding forthcoming
features of those components. The Company also commonly enters into source code
licensing agreements with suppliers of components that the Company desires to
incorporate into its products.
The Company has pending certain utility and design patent applications on
its flat panel PC monitor products. The Company also has a United States
trademark registration for the STB logo, and claims common law trademark rights
with respect to certain other trademarks.
It is common in the computer industry for companies to assert intellectual
property infringement claims against other companies. As a consequence, the
Company indemnifies some of its OEM customers in certain respects against
intellectual property claims relating to STB's products used by these OEM
customers. If an intellectual property claim were brought against an OEM
customer or the Company and an OEM customer or the Company was found to be
infringing upon the rights of others, the Company could be required to pay
infringement damages, pay licensing fees, modify its products so that they are
not infringing or discontinue offering products that were found to be
infringing, any of which could materially adversely affect the Company and its
results of operations. In addition, the assertion of such claims against one or
more of the Company's vendors could adversely affect the availability from those
vendors of components used by the Company.
Based upon the Company's contractual indemnity of certain of its OEM
customers, several of such customers recently sent the Company notices of
potential indemnity claims as a result of a notice of infringement these OEM
customers had received from a patent owner relating to the asserted infringement
of his patent. Subsequently, the patent owner filed patent infringement lawsuits
in the United States and elsewhere against several of such OEM customers and a
number of other major PC systems manufacturers. The Company provides multimedia
subsystems to such OEM customers for use in their products that are alleged to
infringe on such patent owner's rights. Based upon the Company's preliminary
evaluation of the patent, it does not believe the infringement claims are
meritorious. See "Risk Factors-- Proprietary Technology; Intellectual Property
Infringement Claims."
LEGAL PROCEEDINGS
The Company is a party from time to time to certain legal proceedings
arising in the ordinary course of its business. Although the amount of any
liability that could arise with respect to these proceedings cannot be predicted
accurately, the Company believes any liability that might result from any
existing claims will not have a material adverse effect on the financial
position of the Company.
GOVERNMENT REGULATIONS
The Company's business is regulated by federal, state, local and foreign
authorities. Products produced by the Company are subject to approval by the FCC
and the EEC to assure that they do not interfere with the frequencies of other
consumer electronics products. The Company installs certain filter circuitry on
its products to prevent them from disturbing other frequencies in compliance
with FCC and EEC regulations. To date, regulations applicable to the Company's
business have had no material adverse effect on the Company's business,
financial condition and results of operations. Although historically the Company
has not experienced material delays in obtaining FCC or EEC approval for any of
its products, occasional government budget constraints have caused delays in
obtaining required approval for certain of the Company's products. The Company
believes that any delay in obtaining such approvals could, in turn, result in
delays in making certain shipments on a timely basis and have a material adverse
effect on the Company's business, financial condition and results of operations.
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The Company's relationships with its employees at its Mexican manufacturing
facility are regulated by the Mexican Federal Labor Law, which contains detailed
provisions regarding minimum employment conditions and specifies rights that
must be provided to all employees in Mexico. Other Mexican federal laws require
employers to make contributions to the Mexican Social Security System and to
establish and make regular contributions, in specified amounts, to individual
retirement savings and housing accounts at a commercial bank for all employees.
In addition, Mexican federal law requires the payment of substantial severance
amounts, relative to employees' wages, in the event of the termination of a
Mexican employee. Although Mexican laws governing employment relationships are
extensive, aggregate labor costs at the Company's Mexican facility are less than
labor costs would be at a similar facility in the United States. There can be no
assurance, however, that these laws will not be amended or supplemented in the
future to increase the compensation required to be paid to Mexican employees or
the costs of compliance with such laws or that any such change would not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's Mexican manufacturing operations are subject to regulation by
various Mexican environmental agencies. In order to ensure compliance, the
Company regularly monitors changes in Mexican environmental laws, and
representatives of environmental agencies periodically inspect the Company's
Mexican facility.
BACKLOG
As of January 31, 1998, the Company's backlog was approximately $43.9
million, as compared to approximately $21.2 million at January 31, 1997. The
Company includes in its backlog accepted purchase orders with respect to which a
delivery schedule has been specified for product shipment within 60 days. The
Company's business is characterized by short-term order and shipment schedules,
and backlog tends to fluctuate substantially from month to month. Generally,
orders constituting backlog are subject to changes in delivery schedule or to
cancellation at the option of the purchaser. The Company's agreements with its
customers typically specify penalties for cancellation of orders within 60 days
prior to shipment. Other factors, including the Company's inability to obtain
components in sufficient quantities, may result in delays in shipment or
cancellation of orders included in backlog. See "Risk Factors--Dependence on
Suppliers." Therefore, although backlog is useful for scheduling production,
backlog as of any particular date should not be considered a reliable measure of
sales for the current or any future period.
EMPLOYEES
As of January 31, 1998, the Company employed 2,689 individuals, of whom
2,282 were employed in operations, 92 in engineering, 76 in sales and marketing
and 239 in administration and finance. Included in the foregoing figures are
2,363 employees in Mexico. Competition for personnel in the PC industry is
intense. The Company believes that its future success will depend in part on its
ability to continue to attract and retain highly skilled technical, marketing
and management personnel. None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement. The Company
believes that its relations with its employees are good. See "Risk
Factors--Dependence on Key Personnel; Need for Additional Personnel" and
"--Single Manufacturing Facility."
PROPERTIES
The Company leases a 68,400 square foot facility in Richardson, Texas
(16,200 square feet of which are subleased to the Company pursuant to a sublease
that commenced November 1, 1996 and expires October 31, 1998) that serves as its
headquarters and as a site for product development and testing. The Company also
leases an approximately 21,100 square foot facility located near its
headquarters in Richardson, Texas that is used for technical support, product
development and product repair. The foregoing leases both expire in December
1998.
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The Company recently commenced construction of a new 210,000 square foot
headquarters facility in Richardson, Texas to address recent and anticipated
growth requirements. The Company expects that this facility will be completed in
December 1998. At that time, the various operations conducted at its current
facilities in Richardson will be consolidated at the new facility. See "Risk
Factors--Headquarters Relocation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company currently leases a 79,100 square foot manufacturing facility in
Juarez, Mexico, and recently undertook occupancy of a new 136,800 square foot
manufacturing facility under lease on an adjacent site that provides increased
space and improved layout for manufacturing operations, as well as options to
acquire additional space. The term of the new lease will expire in November 2007
(plus four optional renewal periods of five years each). The Company has
negotiated an extension of its current lease covering the 79,100 square foot
Juarez facility to extend the lease on one-half of the space through June 30,
1998 and through December 31, 1999 for the remainder of the space. See
"Business-- Manufacturing."
Additionally, the Company leases 6,900 square feet of storage space in El
Paso, Texas, under a lease expiring in March 1998. The Company anticipates
replacing this storage space with a 20,800 square foot packaging and shipping
facility, also in El Paso, under a lease expiring in April 2003. The Company
also leases a software development office in Houston, Texas under a lease
expiring in May 1999, a software development office in Eugene, Oregon under a
lease expiring in February 2000, a software development office in Belfast,
Northern Ireland under a lease expiring in April 2006, and sales offices in
London, Paris and Austin under leases expiring in September 2012, December 2004
and April 1998, respectively. The Company also maintains product inventories in
various locations under bonded warehouse arrangements in order to permit the
timely delivery of certain products to nearby customers.
The Company believes that its existing facilities are well maintained and in
good operating condition and, following completion of construction of the
Company's new headquarters facility, are adequate for its present and
anticipated levels of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information concerning the directors and executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
William E. Ogle(1)................. 51 Chief Executive Officer and Chairman of the Board of
Directors
Randall D. Eisenbach............... 47 Executive Vice President, Chief Operating Officer, Assistant
Secretary and Director
James L. Hopkins................... 52 Chief Financial Officer, Vice President of Strategic
Marketing and Director
J. Shane Long...................... 31 Vice President of Sales and Marketing and Director
Bryan F. Keyes..................... 49 Vice President of Administration and General Counsel
James J. Byrne(1)(2)(3)............ 61 Director
Dennis G. Sabo(1).................. 49 Director
Lawrence E. Wesneski(1)(2)(3)...... 50 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option Committee
WILLIAM E. OGLE is a co-founder of the Company and has served as Chief
Executive Officer since 1981 and Chairman of the Board since 1985. Prior to
founding the Company, Mr. Ogle co-founded Sundance Sales, Inc., a manufacturer's
sales representative organization selling a broad variety of electronic
components, and served as President of that company from 1978 to 1983.
RANDALL D. EISENBACH has served as a director of the Company since December
1994, as Executive Vice President and Chief Operating Officer of the Company
since December 1993 and as Assistant Secretary since December 1994. From August
1990 to December 1993, Mr. Eisenbach served as Director of Operations of the
Company. From November 1985 to December 1993, Mr. Eisenbach served as Director
of Manufacturing for the Company.
JAMES L. HOPKINS has served as a director and as Chief Financial Officer and
Vice President of Strategic Marketing of the Company since December 1994. Mr.
Hopkins' present responsibilities include directing European sales and
marketing, managing specialized technology products and planning financial
strategy. From 1987 through December 1994, Mr. Hopkins was active as general
partner of H&H Management Systems, a consulting firm owned by Mr. Hopkins and
his wife. H&H Management Systems, through Mr. Hopkins, provided a broad spectrum
of consulting services to the Company from March 1990 through December 1994. Mr.
Hopkins' responsibilities to the Company pursuant to STB's arrangement with H&H
Management Systems were substantially identical to Mr. Hopkins' current
responsibilities as an officer of the Company. Mr. Hopkins also served as an
advisory director to the Company from 1992 until his election as a director in
December 1994.
J. SHANE LONG has served as Vice President of Sales and Marketing of the
Company since November 1994. Mr. Long served as National Sales Manager of the
Company from November 1992 to October 1994 and as Western Area Sales Manager
from July 1992 to October 1992. From January 1991 to July 1992, Mr. Long served
as a field sales employee for Quad State Sales, a manufacturer's representative
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company specializing in the sale of high-technology products. Mr. Long was
elected a director of the Company following the completion of the Company's IPO.
BRYAN F. KEYES has served as Vice President of Administration and General
Counsel of the Company since November 1997. Prior to such date, Mr. Keyes served
as Director of Legal and Finance of the Company since April 1993 and as
Secretary and Treasurer since December 1994. Mr. Keyes is responsible for all
legal matters and various administrative activities. From November 1992 to April
1993, Mr. Keyes was self-employed as a financial consultant. From January 1988
to November 1992, Mr. Keyes served as Vice President of Finance and
Administration for Trammell Crow Distribution Corporation, a national
warehousing and logistics company. From 1972 to 1987, Mr. Keyes was employed by
Coopers & Lybrand, where he was a partner from 1980 to 1987. Mr. Keyes is a
member of the American Institute of Certified Public Accountants, the Texas
Society of CPAs and the State Bar of Texas.
JAMES J. BYRNE has been a director of the Company since February 1995. Mr.
Byrne has served as Managing Partner of Byrne Technology Partners, Ltd. since
January 1996. This firm provides professional services for strategic alliances
and mergers within the computer industry and offers technology consulting
services for corporate re-engineering. From April 1990 to its sale in March
1995, Mr. Byrne served as President of Harris Adacom Corporation, a company
formed from the merger of the data communications division of Harris Corp. and
Adacom Inc., which was engaged in network systems and services. From December
1986 to April 1990, Mr. Byrne was the Vice President and General Manager of the
data communications division of Harris Corp. Mr. Byrne serves on the board of
directors of Lennox International, Inc., a manufacturer of heating, ventilation
and air conditioning systems and is also a member of the national board of
directors of the American Electronics Association (AEA). He is also a member of
the Advisory Council of the University of Texas School of Engineering and
Computer Science.
DENNIS G. SABO has been a director of the Company since April 1997. He has
served as the President and Chief Executive Officer of Arithmos, Inc., a
privately held company engaged in the development of integrated circuits and
technology for LCD flat panel displays since March 1996. From 1990 through
February 1996, Mr. Sabo served as the Senior Vice President of graphics
accelerator products for S3, a designer and manufacturer of integrated circuits,
where he was involved in the early development and introduction of "Windows
Accelerators." Prior to being employed by S3, Mr. Sabo held management positions
in the field of integrated circuit design technology for approximately 20 years.
LAWRENCE E. WESNESKI has been a director of the Company since February 1995.
He has served as President and Chief Executive Officer of Hoak Breedlove
Wesneski & Co. since August 1996. Hoak Breedlove Wesneski & Co. will participate
as a co-manager of the underwriting syndicate in connection with the offering
contemplated hereby. See "Underwriting." Prior to August 1996, Mr. Wesneski was
President of BW Securities, Inc., which provided certain financial advisory
services to the Company. From January 1987 to the present, Mr. Wesneski has
served as President and Managing Director of Breedlove Wesneski & Co., a private
merchant banking firm. From 1987 to 1995, Mr. Wesneski served as an advisory
director to the Company. Mr. Wesneski serves on the board of directors of TSC
Communications Corp., an independent operator of private pay telephones,
Advanced Technical Products Corp., a defense products manufacturing company, and
David's Supermarkets, Inc., a company that operates a regional chain of grocery
stores. Mr. Wesneski also serves as the Vice Chairman of David's Supermarkets,
Inc.
Directors of the Company are elected annually by the shareholders and hold
office until their respective successors are elected and qualified. All
executive officers are elected annually by the Board of Directors to serve until
the next annual meeting of the Board of Directors and until their respective
successors are chosen and qualified.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock Option Committee.
AUDIT COMMITTEE. The Audit Committee annually recommends to the Board of
Directors an accounting firm to serve as the Company's independent public
accountants, consults with the Company's independent public accountants and with
personnel from the internal audit and financial staffs with respect to corporate
accounting, reporting and internal control practices and reviews and approves
transactions with parties affiliated with the Company.
COMPENSATION COMMITTEE. The Compensation Committee approves annual salary,
bonus and sales commission levels for executive officers, oversees
administration of the Company's employment agreements and administers the
Company's Profit Sharing Plan.
STOCK OPTION COMMITTEE. The Stock Option Committee administers the
Company's Incentive Plan and Employee Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following information summarizes annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended October 31,
1997, 1996 and 1995, of the Chief Executive Officer and the other four most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(3)
-------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1)(2) (#) ($)(4)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William E. Ogle.................................... 1997 $ 260,000 $ 169,240 -- $ 3,562
Chairman and Chief Executive Officer 1996 $ 200,000 $ 96,741 90,000 $ 1,974
1995 $ 175,000 $ 79,814 121,500 $ 2,685
Randall D. Eisenbach............................... 1997 $ 210,000 $ 137,604 -- $ 3,500
Executive Vice President and 1996 $ 177,770 $ 83,197 90,000 $ 1,746
Chief Operating Officer 1995 $ 150,000 $ 28,275 94,500 $ 8,148
James L. Hopkins(5)(6)............................. 1997 $ 250,461 $ 135,995 -- $ 3,300
Chief Financial Officer and Vice 1996 $ 162,066 $ 60,463 90,000 $ 1,250
President of Strategic Marketing 1995 $ 108,199 $ 7,701 69,750 $ 1,917
J. Shane Long(7)................................... 1997 $ 257,271 $ 103,445 -- $ 2,933
Vice President of Sales and Marketing 1996 $ 212,993 $ 55,626 90,000 $ 1,150
1995 $ 153,349 $ 20,393 69,750 $ 975
Bryan F. Keyes..................................... 1997 $ 110,000 $ 26,281 -- $ 1,696
Vice President of Administration 1996 $ 97,767 $ 27,540 18,000 $ 712
and General Counsel 1995 $ 91,267 $ 18,678 18,000 $ 400
</TABLE>
- ------------------------
(1) The Company's current Profit Sharing Plan became effective upon the
consummation of the Company's initial public offering, and amounts reported
as bonus for fiscal year 1995 include certain payments that were made
pursuant to the former Profit Sharing Plan prior to such consummation.
Except for the percentage of pretax income allocated to the Profit Sharing
Plan and
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the relative amounts allocated among participants, the former Profit Sharing
Plan was substantially identical to the Company's current Profit Sharing
Plan.
(2) None of the Named Executive Officers received any perquisites or other
personal benefits in fiscal year 1995, fiscal year 1996 or fiscal year 1997
that in the aggregate exceeded the lesser of $50,000 or 10% of such Named
Executive Officer's salary and bonus for such year.
(3) In the 1998 first fiscal quarter, the Company granted to Messrs. Ogle,
Eisenbach, Hopkins, Long and Keyes options to purchase 20,000, 20,000
20,000, 20,000 and 5,000 shares of Common Stock, respectively, pursuant to
the Company's 1995 Long Term Incentive Plan.
(4) Reflects for fiscal year 1996 matching contributions made by the Company
pursuant to its 401(k) Savings Plan to Messrs. Ogle, Eisenbach, Hopkins,
Long and Keyes in the amounts of $1,974, $1,746, $1,250, $1,150 and $712,
respectively, and for fiscal year 1997 matching contributions made by the
Company pursuant to its 401(k) Savings Plan to Messrs. Ogle, Eisenbach,
Hopkins, Long and Keyes in the amounts of $3,562, $3,500, $3,300, $2,933 and
$1,696, respectively.
(5) Salary amount includes for fiscal year 1995 (beginning January 1, 1995, when
Mr. Hopkins was first compensated as an officer of the Company) $91,667 paid
as base salary and $16,532 paid as sales commissions, for fiscal 1996
$125,000 paid as base salary and $37,065 paid as sales commissions, and for
fiscal year 1997 $180,000 paid as base salary and $70,461 paid as sales
commissions.
(6) Included in the bonus amount for Mr. Hopkins is profit sharing of $115,995
and a bonus of $20,000 for fiscal year 1997.
(7) Salary amount includes for fiscal year 1995, $97,500 paid as base salary and
$55,849 paid as sales commissions, for fiscal year 1996, $115,000 paid as
base salary and $97,993 paid as sales commissions, and for fiscal year 1997,
$160,093 paid as base salary and $97,178 paid as sales commissions.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Named Executive Officers during fiscal year
1997. In the 1998 first fiscal quarter, the Company granted to the Named
Executive Officers 85,000 stock options under the Incentive Plan with an
exercise price of $15.08, which expire on December 18, 2007.
OPTION EXERCISES AND HOLDINGS
The following table shows information concerning the number and estimated
value of unexercised options held by the Named Executive Officers at fiscal year
1997 year-end:
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON YEAR-END(#) AT FISCAL YEAR-END($)(1)
EXERCISE VALUE -------------------------- --------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Ogle..................... -- -- 66,600 144,900 868,830 1,744,342
Randall D. Eisenbach................ 22,500 483,000 33,300 128,700 394,393 1,513,567
James L. Hopkins.................... 15,000 337,500 30,900 113,850 360,222 1,301,982
J. Shane Long....................... 22,500 217,800 23,400 113,850 253,357 1,301,997
Bryan F. Keyes...................... 7,200 160,800 3,600 25,200 42,260 322,904
</TABLE>
- ------------------------
(1) Based on the last sale price of $19.58 of the Company's Common Stock on the
Nasdaq National Market on October 31, 1997. The exercise prices of the
options in this table ranged from $5.33 to $9.78 per share.
1995 LONG TERM INCENTIVE PLAN
The Board of Directors proposes to amend the STB Systems, Inc. 1995 Long
Term Incentive Plan (the "Incentive Plan") to increase the maximum aggregate
number of shares of Common Stock with respect to which options, restricted
shares and rights granted without accompanying options may be granted pursuant
to the Incentive Plan from 2,250,000 to 2,700,000. The Board of Directors
believes that the use of long term incentives based on the value of the
Company's Common Stock is necessary to attract and retain key executives and
other key employees and consultants, motivate such personnel to achieve
long-range goals and provide compensation opportunities that are competitive
with those offered by other corporations. The proposed amendment will be voted
on by the shareholders of the Company at the next annual meeting of the
Company's shareholders.
SCOPE. The Incentive Plan authorizes the grant of incentive stock options
and non-qualified stock options to purchase Common Stock, stock appreciation
rights, restricted stock and performance units, to key executives and other key
employees of the Company, including officers of the Company and its
subsidiaries. The Incentive Plan also authorizes the grant of non-qualified
stock options to consultants and independent contractors of the Company
(collectively referred to as "Non-Employee Participants"). The purpose of the
Incentive Plan is to attract and retain key employees, consultants and
independent contractors, to motivate them to achieve long-range goals and to
further identify their interests with those of the other shareholders of the
Company.
The Incentive Plan authorizes the award of 2,250,000 shares of Common Stock,
to be used for stock options, stock appreciation rights or restricted stock. The
proposed amendment would increase the number of shares of Common Stock available
for award under the Incentive Plan to 2,700,000. If an award made under the
Incentive Plan expires, terminates or is forfeited or settled in cash, without
issuance of
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<PAGE>
shares of Common Stock covered by the award, those shares will be available for
future awards under the Incentive Plan. The Incentive Plan will terminate on
December 31, 2004.
ADMINISTRATION. The Incentive Plan may be administered by the Board of
Directors or, if directed by the Board of Directors, the Stock Option Committee
or any successor thereto of the Board of Directors of the Company (the Board of
Directors or, if applicable, the Stock Option Committee is referred to herein as
the "Stock Option Committee"). Subject to the provisions of the Incentive Plan,
the Stock Option Committee will have authority to select employees and
Non-Employee Participants to receive awards, to determine the time or times of
receipt, to determine the types of awards and the number of shares covered by
the awards, to establish the terms, conditions and provisions of such awards, to
determine the value of performance units and to accelerate or extend the
exercisability of outstanding awards. In making such award determinations, the
Stock Option Committee may take into account the nature of services rendered by
the employee, his or her present and potential contribution to the Company's
growth and success and such other factors as the Stock Option Committee deems
relevant. The Stock Option Committee is authorized to accelerate or extend the
period of exercisability of awards after they have been granted, to interpret
the Incentive Plan, to establish, amend, and rescind any rules and regulations
relating to the Incentive Plan, to determine the terms and provisions of any
agreements made pursuant to the Incentive Plan, and to make all other
determinations that may be necessary or advisable for the administration of the
Incentive Plan.
ELIGIBILITY. Executives and other key full-time employees of the Company
and its subsidiaries may be selected by the Stock Option Committee to receive
awards under the Incentive Plan. The Company estimates that approximately 10
executives and approximately 120 other employees are currently eligible to
receive awards under the Incentive Plan. The Incentive Plan provides that no
more than 250,000 shares of Common Stock may be subject to awards granted per
year to any one employee participating in the Incentive Plan. In the discretion
of the Stock Option Committee, an eligible employee may receive an award in the
form of a stock option, stock appreciation right, restricted stock award or
performance unit or any combination thereof, and more than one award may be
granted to an eligible employee.
Non-Employee Participants may be selected by the Stock Option Committee to
receive non-qualified stock options under the Incentive Plan.
STOCK OPTIONS. The Incentive Plan authorizes the award of both incentive
stock options (the "ISOs") and nonqualified stock options. Under the Incentive
Plan, an option may be exercised at any time during the exercise period
established by the Stock Option Committee, except that: (i) no option may be
exercised more than 90 days after employment with the Company and its
subsidiaries terminates by reason other than death, disability or authorized
leave of absence for military or government service; and (ii) no option may be
exercised more than 12 months after employment with the Company and its
subsidiaries terminates by reason of death or disability. The aggregate fair
market value (determined at the time of the award) of the Common Stock with
respect to which ISOs are exercisable for the first time by any employee during
any calendar year may not exceed $100,000. The term of each option is determined
by the Stock Option Committee and such term may be extended by the Stock Option
Committee, provided that the term may not exceed ten years from the date of
grant. The exercise price of options is determined by the Stock Option
Committee, but the exercise price of ISOs cannot be less than the fair market
value of the Common Stock on the date of the grant. The exercise price of
options may be paid in cash or, with the Stock Option Committee's approval, in
shares of Common Stock. Grants of options do not entitle any optionee to any
rights as a shareholder, and such rights will accrue only as to shares actually
purchased through the exercise of an option.
Under the Incentive Plan, a holder of non-qualified stock options is
permitted to make gifts or other non-compensated transfers of options and rights
among a limited class of permitted transferees, consisting of family members or
trusts or partnerships for family members.
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<PAGE>
STOCK APPRECIATION RIGHTS. The Incentive Plan authorizes the grant of both
primary stock appreciation rights (the "SARs") and additional SARs. Primary SARs
may be granted either separately or in tandem with options. Primary SARs entitle
the holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock at the time of exercise of the SAR and the
option price (or deemed option price in the event of an SAR that is not granted
in tandem with an option), multiplied by the number of shares of Common Stock
subject to the option or deemed option as to which the SAR is being exercised
(subject to the terms and conditions of the option or deemed option). An SAR may
be exercised at any time when the option to which it relates may be exercised
and will terminate no later than the date on which the right to exercise the
tandem option (or deemed option) terminates (or is deemed to terminate). The
participating employee has the discretion to determine whether the exercise of
an SAR will be settled in cash, in Common Stock (valued at its fair market value
at the time of exercise) or in a combination of the two. The exercise of an SAR
requires the surrender of the tandem option, if any, and the exercise of a stock
option requires the surrender of the tandem SAR, if any.
Additional SARs may be granted only in tandem with stock options and entitle
the holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock on the date of exercise of the related option
and the option price, multiplied by the number of shares of Common Stock subject
to the option as to which the SAR is being exercised (subject to the terms and
conditions of the option), multiplied by a percentage factor ranging from 10% to
100% (as determined either by the Stock Option Committee at the date of grant or
by the formula established by the Stock Option Committee at the date of grant).
If an SAR, or the corresponding option with which the SAR was awarded, is
not exercised prior the date that it ceases to be exercisable, then such SAR
generally shall be deemed exercised as of such date and shall be paid to the
employee in cash. No SAR may be exercised more than 90 days after employment
with the Company and its subsidiaries terminates by reason other than death,
disability or authorized leave of absence for military or government service. No
SAR may be exercised more than 12 months after the holder's employment with the
Company and its subsidiaries terminates by reason of death or disability.
RESTRICTED STOCK. Restricted stock awards are grants of Common Stock made
to employees subject to a required period of employment following the award (the
"Restricted Period") and any other conditions established by the Stock Option
Committee. An employee will become the holder of shares of restricted stock,
free of all restrictions, if he or she completes the Restricted Period and
satisfies any other conditions; otherwise, the shares will be forfeited. Under
the Incentive Plan, the Restricted Period may not be more than ten years. The
employee will have the right to vote the shares of restricted stock and, unless
the Stock Option Committee determines otherwise, will have the right to receive
dividends on the shares during the Restricted Period. The employee may not sell,
pledge or otherwise encumber or dispose of restricted stock until the conditions
imposed by the Stock Option Committee have been satisfied. The Stock Option
Committee may accelerate the termination of the Restricted Period or waive any
other conditions with respect to any restricted stock.
PERFORMANCE UNITS. Performance units are awards that entitle the holders to
receive a specified value for the units at the end of a performance period
established by the Stock Option Committee if performance measures established by
the Stock Option Committee at the beginning of the performance period are met.
Although the performance measures and performance period will be determined by
the Stock Option Committee at the time of the award of performance units, they
may be subject to such later revision as the Stock Option Committee deems
appropriate to reflect significant events or changes. If the employment of a
holder of a performance unit with the Company or a subsidiary terminates by
reason of death, disability or retirement, then the Company will pay the
employee or his or her beneficiary or estate the amount of the performance unit
earned as of the date of termination. If the employment of a holder of a
performance unit with the Company or a subsidiary terminates for any other
reason, then the performance units held by such holder will automatically be
forfeited.
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<PAGE>
ADJUSTMENTS. In the event of any change in the outstanding shares of Common
Stock by reason of any stock dividend, split, spinoff, recapitalization, merger,
consolidation, combination, exchange of shares or other similar change, the
aggregate number of shares with respect to which awards may be made under the
Incentive Plan, and the terms and the number of shares of any outstanding
option, SAR, performance unit or restricted stock, may be equitably adjusted by
the Stock Option Committee at its sole discretion.
BUSINESS COMBINATIONS. Unless provision is otherwise made in the terms of
the award granted by the Stock Option Committee, or by the terms of the
agreement with respect to the business combination, in the event of a change in
control of the Company (as defined in the Incentive Plan), all outstanding stock
options, stock appreciation rights, restricted stock and performance units shall
terminate, provided that the holders of any options or SARs may exercise such
awards to the extent then vested immediately prior to any such event and the
holders of any performance units shall be entitled to the then vested values of
such units as of such date.
TERMINATION AND AMENDMENT. The Incentive Plan may be suspended, terminated
or amended by the Board of Directors, provided that, in the absence of
shareholder approval, no amendment of the Incentive Plan or action of the Board
of Directors may materially increase the total number of shares of Common Stock
with respect to which awards may be made under the Incentive Plan (except as
discussed in "Adjustments" above), change the exercise price of a stock option
or the base price of an SAR, materially modify the requirements as to
eligibility for participation in the Incentive Plan or materially increase the
benefits accruing to participants under the Incentive Plan. No amendment,
suspension or termination of the Incentive Plan may alter or impair any option,
SAR, share of restricted stock or performance unit previously awarded under the
Incentive Plan without the consent of the holder thereof.
OPTION GRANTS. No options were granted to the Named Executive Officers
during fiscal 1997. All current employees of the Company as a group (15
persons), excluding the Named Executive Officers, who did not receive any
options during fiscal 1997, received grants of 137,625 stock options in fiscal
1997 under the Incentive Plan with an average exercise price of $15.25. These
stock options have expiration dates ranging from January 1, 2007 to October 6,
2007. In the 1998 first fiscal quarter, the Company granted to the Named
Executive Officers 85,000 stock options under the Incentive Plan with an
exercise price of $15.08, which expire on December 18, 2007.
FEDERAL INCOME TAX CONSEQUENCES. The following summary of the federal
income tax consequences of the Incentive Plan is not comprehensive and is based
on current income tax laws, regulations and rulings.
INCENTIVE STOCK OPTIONS. An optionee does not recognize income on the grant
of an ISO. Subject to the effect of the alternative minimum tax, discussed
below, if an optionee exercises an ISO in accordance with the terms of the
option and does not dispose of the shares acquired within two years from the
date of the grant of the option nor within one year from the date of exercise,
the optionee will not realize any income by reason of the exercise and the
Company will be allowed no deduction by reason of the grant or exercise. The
optionee's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his gain or loss will be the difference between the amount realized on
the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term, mid-term or short-term capital gain,
58
<PAGE>
depending upon the holding period of the shares, provided the optionee holds the
shares as a capital asset at the time of Early Disposition. If an optionee
disposes of such shares for less than his basis in the shares, the difference
between the amount realized and his basis will be a long-term or short-term
capital loss, depending upon the holding period of the shares, provided the
optionee holds the shares as a capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the ISO is
exercised over the exercise price for the shares is an amount included in an
optionee's alternative minimum taxable income (the "Stock Option Preference").
NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options do not qualify for
the special tax treatment accorded to ISOs under the Internal Revenue Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes ordinary income upon the exercise of a non-qualified
option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of the exercise
price.
As a result of the optionee's exercise of a non-qualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will be taken
in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a nonqualified stock option over the exercise price is not an item of tax
preference.
STOCK APPRECIATION RIGHTS. Recipients of SARs do not recognize income upon
the grant of such an award. When a participant elects to receive payment under
an SAR, he recognizes ordinary income in an amount equal to the cash and/or fair
market value of shares received, and the Company is entitled to a deduction
equal to such amount.
RESTRICTED STOCK; PERFORMANCE UNITS. Grantees of restricted stock and
performance units do not recognize income at the time of the grant of such stock
or units. However, when shares of restricted stock become free from any
restrictions or when performance units are paid, grantees recognize ordinary
income in an amount equal to the cash and the fair market value of the stock on
the date all restrictions are satisfied. Alteratively, the grantee of restricted
stock may elect to recognize income upon the grant of the stock and not at the
time the restrictions lapse.
TAXATION OF PREFERENCE ITEMS. Section 55 of the Internal Revenue Code
imposes an alternative minimum tax equal to the excess, if any, of (i) 26% of
the optionee's "alternative minimum taxable income" that does not exceed
$175,000, plus 28% of his "alternative minimum taxable income" in excess of
$175,000, over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any items of tax preference to the optionee's adjusted gross income and then
subtracting certain allowable deductions and an exemption amount. The exemption
amount is $33,750 for single taxpayers, $45,000 for married taxpayers filing
jointly, and $22,500 for married taxpayers filing separately. However, these
exemption amounts are phased out beginning at certain levels of alternative
minimum taxable income.
CHANGE OF CONTROL. If there is an acceleration of the vesting of benefits
and/or an acceleration of the exercisability of stock options upon a Change of
Control (as defined in the Incentive Plan), all or a portion of the accelerated
benefits may constitute "excess parachute payments" under Section 280G of the
Internal Revenue Code. The employee receiving an excess parachute payment incurs
an excise tax of 20% of the amount of the payment in excess of the employee's
average annual compensation over the five calendar years preceding the year of
the Change of Control, and the Company is not entitled to a deduction for such
payment.
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NON-EMPLOYEE DIRECTOR PLAN
In 1995, the Company adopted the Stock Option Plan for Non-Employee
Directors (the "Director Plan"). The purpose of the Director Plan is to provide
present and prospective non-employee directors of the Company with the
opportunity to obtain equity ownership interests in the Company through the
exercise of stock options and thereby secure for the Company's shareholders the
benefits associated with stock ownership by those who will oversee the Company's
future growth and success.
ELIGIBILITY. Each member of the Board of Directors of the Company who is
not an employee of the Company or any subsidiary or affiliate of the Company
("Non-Employee Directors") is eligible to receive a grant of stock options under
the Director Plan. The Company currently has three Non-Employee Directors, each
of whom is eligible to receive awards under the Director Plan. The eligible
status of a Non-Employee Director will terminate as to future stock option
grants at the time the individual ceases to be a director, or the individual
becomes an employee of the Company, or any subsidiary or affiliate of the
Company.
ADMINISTRATION. The Director Plan is administered by the Board of Directors
of the Company. The Board of Directors has full power to administer and
interpret the Director Plan to carry out its purpose. It is expected that the
Board of Directors will designate from time to time Company personnel to assist
it in carrying out its responsibilities under the Director Plan.
OPTIONS; EXERCISE PRICE; VESTING. Options to purchase 22,500 and 33,750
shares of Common Stock were granted to Messrs. Byrne and Wesneski, respectively,
upon their election as directors immediately following completion of the
Company's initial public offering. These options are exercisable at $5.33 per
share and will vest equally over the five year period from the date of grant.
Under the Director Plan, the Board of Directors may, at its discretion, award
options, determine the timing of such awards, the number of shares of Common
Stock covered by each option (subject to the maximum share limitation described
below) and the vesting provisions for each option. However, Messrs. Byrne and
Wesneski are not eligible for such grants until their initial options have fully
vested. In addition, all options become immediately exercisable in the event of
a "Business Combination" as described in the Director Plan. The maximum number
of shares available for grant and issuance under the Director Plan is 225,000.
Also under the Director Plan the Board of Directors may provide for the
substitution of the securities of another corporation for the securities of the
Company underlying outstanding options granted pursuant to the Director Plan in
the event of "Business Combinations" as described in the Director Plan.
In the case of events such as stock dividends, stock splits,
recapitalizations, or other changes in the Company's capitalization, an
automatic adjustment will be made to the number of unexercised options, the
purchase price of unexercised options, and the aggregate number of shares that
is available for option grants under the Director Plan. The automatic adjustment
is designed to ensure that the Non-Employee Directors maintain the same
proportionate position after the particular event as before the event.
An option granted under the Director Plan may be evidenced by a written
instrument describing the terms and conditions of the grant. Except as described
below, options are not assignable or transferable by the Non-Employee Director,
other than by will or the laws of descent and distribution. A Non-Employee
Director may make gifts or other non-compensated transfers of options among a
limited class of permitted transferees, who are family members or trusts or
partnerships for family members. Options may be exercised by the delivery of
cash or shares of Common Stock or any combination of such forms of payment.
TERM OF PLAN AND OPTION. Unless terminated earlier by the Board of
Directors, the Director Plan will terminate on December 31, 2004. Options
granted prior to such termination date continue to be exercisable in accordance
with the terms of the Director Plan. Each option granted under the Director Plan
will automatically expire on the earlier of ten years from the date the option
is granted or six months after the Non-Employee Director ceases to be a director
of the Company.
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AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may amend,
terminate, or modify the Director Plan at any time without shareholder approval,
including amendments necessary to conform with Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"), unless the particular amendment or
modification requires shareholder approval under Section 16 of the Exchange Act,
the Internal Revenue Code, under the rules and regulations of the exchange or
system on which the Common Stock is listed or reported, or pursuant to other
applicable laws, rules or regulations.
FEDERAL INCOME TAX CONSEQUENCES. A Non-Employee Director who is granted a
stock option under the Director Plan will not recognize taxable income at the
time of the grant, but will generally recognize income upon the exercise of the
stock option. The amount of income recognized upon the exercise of the stock
option will be measured by the excess, if any, of the fair market value of the
shares of Common Stock at the time of exercise over the exercise price. The
Company will generally be entitled to a corresponding deduction for the amount
of income recognized by the Non-Employee Director.
PROFIT SHARING INCENTIVE PLAN
Under the Company's Profit Sharing Incentive Plan (the "Profit Sharing
Plan"), which is administered by the Compensation Committee, the Company
reserves each fiscal quarter an amount equal to 7% of its income before income
taxes (as calculated prior to profit sharing expense) (the "Reserve") for the
payment of cash bonuses to the Company's employees. Of the total amount of the
Reserve, approximately 43% is allocated to the Executive Incentive Program and
the remaining 57% is allocated to the Employee Incentive Program. In addition to
the Company's Profit Sharing Plan, the Compensation Committee designates each
year those eligible employees who shall share in the Management Incentive
Program. The Compensation Committee seeks to designate those employees who make
the greatest contribution to the Company's overall effective management to share
in the Management Incentive Program. Once designated to share in the Management
Incentive Program, a participant receives a quarterly award based on a specified
percentage of that employee's base salary, determined as a percentage of the
Company's actual operating income compared to the budgeted operating income for
the quarter. Most of the Company's executive officers currently share in the
Executive Incentive Program or the Management Incentive Program, with the
balance of the employees sharing in the Employee Incentive Program.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with each of Messrs. Ogle,
Eisenbach, Hopkins and Long. Each agreement has a term extending through October
31, 1998, and automatically renews for an additional year on each subsequent
October 31, subject to the right of the Company or the employee to terminate the
agreement with a 30-day notice prior to the date of renewal. Under the
agreements, Messrs. Ogle, Eisenbach, Hopkins and Long will receive base annual
salaries in fiscal year 1998 of $275,000, $230,000, $190,800 and $169,600,
respectively, and each is eligible to receive incentive compensation under the
Company's Profit Sharing Plan. The agreements with Messrs. Hopkins and Long also
provide for the payment of sales commissions, the amounts of which are subject
to annual adjustment by the Compensation Committee. Each agreement provides for
a severance payment if the agreement is terminated under certain circumstances
(including termination of an agreement during the period immediately preceding a
renewal date). The amounts of the severance payments are as follows: Mr. Ogle
would receive two times the sum of his base annual salary and annualized
incentive compensation; Mr. Eisenbach would receive the sum of his base annual
salary and annualized incentive compensation; each of Mr. Hopkins and Mr. Long
would receive the sum of his base annual salary, annualized incentive
compensation and annualized sales commissions. If an agreement is terminated
under certain circumstances within twelve months after a change in control of
the Company, such agreement also provides for a parachute payment in an amount
that is two times the severance payment. For purposes of calculating severance
and parachute payments, the employee's base annual salary is equal to the
employee's then current base annual salary; the annualized incentive
compensation is four times the
61
<PAGE>
average of the amount earned in the eight full quarters preceding the
termination; and the annualized sales commissions is twelve times the average of
the amount earned in the 24 full months preceding the termination. Except in the
event of a termination that requires payment of a parachute payment, Messrs.
Ogle, Eisenbach, Hopkins and Long also agree not to participate, in any manner,
during the term of their respective agreements and for two years thereafter, in
the development, manufacture or sale of graphics adapters for desktop PCs or in
any other business in which the Company may be engaged at the time of
termination of employment.
COMPENSATION OF DIRECTORS
Prior to its initial public offering, the Company paid each director a fee
of $1,000 per meeting and paid advisory director fees of $1,000 per meeting to
Messrs. Eisenbach, Hopkins and Wesneski. Following the Company's initial public
offering, the Company stopped paying directors fees for their services as
directors, although the Company continues to reimburse directors for all
expenses incurred in connection with their activities as directors. Non-Employee
Directors of the Company are entitled to receive certain stock option awards
under the Company's Stock Option Plan for Non-Employee Directors.
COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before the Company's initial public offering, decisions concerning
compensation, including decisions concerning compensation for fiscal year 1995,
were made by the Company's Board of Directors. At the time such decisions were
made concerning compensation for fiscal 1995, the Board of Directors consisted
of Mr. Ogle, Mr. Mark S. Sims and Mr. William D. Balthaser, Jr. Mr. Eisenbach
also participated in deliberations concerning such compensation. Each of Messrs.
Ogle, Eisenbach, Balthaser and Sims served as officers of the Company during
fiscal year 1995. In March 1995, the Company's Board of Directors appointed a
Compensation Committee comprised of Messrs. Byrne and Wesneski and a Stock
Option Committee comprised of Messrs. Byrne and Wesneski, the Company's
independent directors.
Lawrence E. Wesneski, a director of the Company, serves as President and
Chief Executive Officer of Hoak Breedlove Wesneski & Co., and owns a portion of
the equity securities of Hoak Breedlove Wesneski & Co. (BW Securities, Inc.
("BWS") acquired substantially all of the assets of Hoak Securities Corporation
in August 1996. Subsequent to this acquisition, the name of BWS was changed to
"Hoak Breedlove Wesneski & Co.") Mr. Wesneski serves as President of Breedlove
Wesneski & Co. ("BWC") and served as President of BWS, and at one time owned a
portion of the equity of BWC and BWS. The Company paid BWC and its affiliates
$132,550 and $56,200 in fiscal years 1995 and 1996, respectively, for the
performance of certain services relating to the arrangement of credit facilities
for the Company. Hoak Breedlove Wesneski & Co. will participate as a co-manager
of the underwriting syndicate in connection with the offering contemplated
hereby and, as a result, will receive certain underwriting compensation upon
completion of the offering.
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<PAGE>
CERTAIN TRANSACTIONS
RIGHT OF FIRST REFUSAL. The Company and Messrs. Ogle, Sims and Balthaser
entered into a Right of First Refusal Agreement (the "Right of First Refusal
Agreement") which provides that if Mr. Ogle, Mr. Sims or Mr. Balthaser proposes
to sell any shares of Common Stock registered in his name as of the date of the
closing of the Company's initial public offering, then the Company will have a
right of first refusal to purchase such shares on terms similar to those
proposed. If the Company does not exercise its right to purchase all or a
portion of the shares of Common Stock proposed to be sold by either Mr. Sims or
Mr. Balthaser, then Mr. Ogle will have a right of first refusal to purchase
those shares of Common Stock that the Company does not wish to purchase. Mr.
Ogle will not participate in any decision by the Company to exercise its right
of first refusal to purchase shares proposed to be sold by Mr. Ogle, Mr. Sims or
Mr. Balthaser. If the foregoing rights of first refusal are not independently or
collectively fully exercised, then the shares not purchased may be sold in
accordance with the proposed terms of sale. Notwithstanding the foregoing, the
Right of First Refusal Agreement does not restrict the ability of Messrs. Ogle,
Sims or Balthaser to sell shares of Common Stock in the public market pursuant
to Rule 144 promulgated under the Securities Act.
TAX AGREEMENT. As of December 16, 1994, the Company, on the one hand, and
the Founding Shareholders, on the other (the "parties"), entered into a Tax
Allocation and Indemnification Agreement (the "Tax Agreement") relating to their
respective income tax liabilities. Since the Company became fully subject to
corporate income taxation as a C corporation after its status as an S
corporation terminated prior to the initial public offering, the reallocation of
income and deductions between the period during which the Company was treated as
an S corporation and a period during which the Company was subject to corporate
income taxation as a C corporation may increase the taxable income of one party
in one period while decreasing that of another party in another period. The Tax
Agreement generally provides that the Founding Shareholders will be indemnified
by the Company with respect to income taxes (plus interest and penalties)
arising due to taxable income shifted from a C corporation taxable year to a
taxable year in which the Company was an S corporation, and that the Company
will be indemnified by the Founding Shareholders with respect to income taxes
(plus interest and penalties) arising due to taxable income shifted from an S
corporation taxable year to a C corporation taxable year; provided, however,
that only in the case of the Founding Shareholders' obligation to indemnify the
Company, such obligation shall be reduced by an amount equal to the federal or
state tax benefit (if any) derived by the Company due to the shift of taxable
income from a taxable year in which the Company was an S corporation to a C
corporation taxable year and shall not exceed the amount, if any, by which (i)
the amount of the reduction in the liability for taxes and interest thereon of a
Founding Shareholder that results from the shifting of S corporation taxable
income to a C corporation taxable year of the Company, exceeds (ii) all
reasonable costs incurred by the Founding Shareholder reasonably attributable to
securing such reduction in liability for taxes. The Company will also be
indemnified by the Founding Shareholders for any federal or state taxes that
arise because the Company's status as an S corporation was ineffective, revoked
or terminated prior to the termination of the Company's S corporation status.
Any payment made by the Company to the Founding Shareholders pursuant to the Tax
Agreement may be considered by the Internal Revenue Service or the state taxing
authorities to be nondeductible by the Company for income tax purposes.
SELLING SHAREHOLDER AGREEMENT. The Company has agreed to indemnify the
Selling Shareholders for any losses, claims, damages or liabilities they may
incur in connection with this offering, including their respective
indemnification and contribution obligations owed to the Underwriters pursuant
to the terms of the Underwriting Agreement by and among the Company, the Selling
Shareholders and the Underwriters. See "Underwriting."
FUTURE TRANSACTIONS. The Company has adopted a policy that all transactions
between the Company and related parties are subject to approval by a majority of
all disinterested directors and must be on terms no less favorable than those
that could be obtained from unrelated third parties.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of January 31, 1998, and after
completion of the offering, by (i) each person known by the Company to
beneficially own more than 5% of the outstanding shares of the Common Stock,
(ii) each of the Named Executive Officers of the Company, (iii) each director of
the Company, (iv) all directors and executive officers of the Company as a group
and (v) each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
----------------------- NUMBER OF -----------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ----------------------------------------------------- ---------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William E. Ogle(2)(3)(4)(5)(9)....................... 1,662,937 15.8% 75,000 1,587,937 11.9%
William D. Balthaser, Jr.(4)(5)(9)................... 667,499 6.4% 75,000 592,499 4.5%
Mark S. Sims(4)(5)(9)................................ 675,165 6.5% 75,000 600,165 4.5%
Randall D. Eisenbach(2).............................. 56,787 * -- 56,787 *
James L. Hopkins(2)(3)............................... 48,576 * -- 48,576 *
J. Shane Long(2)..................................... 37,350 * -- 37,350 *
Bryan F. Keyes(2)(3)................................. 10,071 * -- 10,071 *
James J. Byrne(2).................................... 15,750 * -- 15,750 *
Dennis G. Sabo....................................... -0- * -- -0- *
Lawrence E. Wesneski(2)(6)........................... 31,500 * -- 31,500 *
Invesco PLC(7)....................................... 695,175 6.6% -- 695,175 5.3%
Norwest Corporation(8)............................... 590,071 5.6% -- 590,071 4.5%
Directors and executive officers
as a group (8 persons)(2).......................... 1,862,971 17.4% 1,787,971 13.2%
</TABLE>
- ------------------------------
* Less than 1%
(1) Unless otherwise indicated, to the knowledge of the Company, all shares are
owned directly and the owner has sole voting and investment power.
(2) Includes options to purchase 90,900, 52,200, 44,850, 37,350, 8,550, 13,500,
20,250 and 267,600 shares of Common Stock granted to Messrs. Ogle,
Eisenbach, Hopkins, Long, Keyes, Byrne, Wesneski, and all directors and
executive officers as a group, respectively, that are exercisable within 60
days of January 31, 1998. Does not include options to purchase 150,600,
139,800, 129,900, 129,900, 27,750, 9,000, 13,500 and 600,450 shares of
Common Stock granted to Messrs. Ogle, Eisenbach, Hopkins, Long, Keyes,
Byrne, Wesneski and all directors and executive officers as a group,
respectively, that are not exercisable within 60 days of January 31, 1998.
(3) Includes for William E. Ogle 12,375 shares held by him pursuant to an
Individual Retirement Account and 7,911 shares held by him pursuant to the
Company's 401(k) Savings Plan. Includes for James L. Hopkins 1,476 shares
held by him pursuant to the Company's 401(k) Savings Plan and for Bryan F.
Keyes 396 shares held by him pursuant to the Company's 401(k) Savings Plan.
(4) Messrs. Ogle, Balthaser and Sims are parties to a Right of First Refusal
Agreement pursuant to which either the Company or Mr. Ogle have the right to
purchase the shares of Messrs. Ogle, Balthaser or Sims under certain
circumstances. See "Certain Transactions--Right of First Refusal."
(5) The address of each of Messrs. Ogle, Balthaser and Sims is 1651 North
Glenville Drive, Richardson, Texas 75081.
(6) Includes 11,250 shares held by Twin Lakes Partners, L.P. ("Twin Lakes"). Mr.
Wesneski is the sole general partner of Twin Lakes.
(7) Shares are held by various affiliates of Invesco PLC as a group. The address
of Invesco PLC is 11 Devonshire Square, London EC2 4YR, England. Information
with respect to such beneficial ownership was obtained from a Schedule 13G
filed with the Securities and Exchange Commission.
(8) The address of Norwest Corporation is Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479. Information with respect to such beneficial
ownership was obtained from a Schedule 13G filed with the Securities and
Exchange Commission.
(9) Messrs. Ogle, Balthaser and Sims have granted the Underwriters an
over-allotment option, exercisable not later than 30 days after the date of
this Prospectus, to purchase an aggregate of 225,000 shares of Common Stock
at the public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. See "Underwriting." If the Underwriters
exercise the option in full, Mr. Ogle will sell an additional 75,000 shares,
resulting in his ownership of 1,512,937 shares (11.0%), Mr. Balthaser will
sell an additional 75,000 shares, resulting in his ownership of 517,499
shares (3.8%), Mr. Sims will sell an additional 75,000 shares, resulting in
his ownership of 525,165 shares (3.9%), and all directors and executive
officers as a group will own 1,703,800 shares (12.7%) after the closing of
the offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $0.01 par value per share ("Common Stock"), and 2,000,000 shares
of Preferred Stock, $0.01 par value per share ("Preferred Stock"), issuable in
series.
COMMON STOCK
The holders of shares of Common Stock have no preemptive rights to maintain
their respective percentage ownership interests in the Company or other
subscription or conversion rights for other securities of the Company. Shares of
Common Stock are not redeemable or subject to further calls or assessments. The
shares of Common Stock to be outstanding after completion of the offering,
including the shares of Common Stock offered by this Prospectus, when paid for
and issued, will be fully paid and nonassessable. Each holder of Common Stock is
entitled to one vote per share of Common Stock which that person holds. The
Company's Amended and Restated Articles of Incorporation prohibit cumulative
voting. Holders of Common Stock are entitled to receive such dividends, if any,
as may be declared by the Board of Directors of the Company out of funds legally
available therefor and are entitled to share ratably in the net assets available
for distribution to such holders upon liquidation, dissolution and winding up of
the Company.
PREFERRED STOCK
The Board of Directors of the Company may issue Preferred Stock in one or
more series and may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. Immediately following completion of
the offering, no Preferred Stock will be outstanding, and the Company currently
has no plans to issue any Preferred Stock.
It is not possible to state the actual effect of the issuance of Preferred
Stock upon the rights of holders of the Common Stock until the Board of
Directors of the Company determines the specific rights of the holders of such
Preferred Stock. However, among other effects, the issuance of Preferred Stock
might restrict dividends on the Common Stock, dilute the voting power of the
Common Stock, impair the liquidation rights of the Common Stock and delay or
prevent a change in control of the Company without further action by the
Company's shareholders.
LIMITATIONS ON DIRECTOR LIABILITY
The Amended and Restated Articles of Incorporation of the Company provide
that directors of the Company will not be liable to the Company or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except for (i) a breach of the director's duty of
loyalty to the Company or the Company's shareholders, (ii) an act or omission
not in good faith that constitutes a breach of a duty of the director to the
Company or an act or omission that involves intentional misconduct or a knowing
violation of the law, (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, or (iv) an act or omission for which
the liability of a director is expressly provided by an applicable statute.
TRADING MARKET, TRANSFER AGENT AND REGISTRAR
The Common Stock is listed on the Nasdaq National Market under the symbol
STBI. The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
65
<PAGE>
ANTI-TAKEOVER MEASURES
As a Texas corporation, the Company is subject to the provisions of the TBCL
that became effective on September 1, 1997. In general, the TBCL prohibits a
Texas "issuing public corporation" (such as the Company) from engaging in a
"business combination" with any shareholder who is a beneficial owner of 20% or
more of the corporation's outstanding stock for a period of three years after
such shareholder's acquisition of a 20% ownership interest, unless: (i) the
board of directors of the corporation approves the transaction or the
shareholder's acquisition of shares prior to the acquisition or (ii) two-thirds
of the unaffiliated shareholders of the corporation approve the transaction at a
shareholders' meeting. The TBCL may have the effect of inhibiting a
non-negotiated merger or other business combination involving the Company. The
Company is subject to the terms of the TBCL, unless its shareholders or
directors take action electing not to be governed by its terms (which action is
not currently contemplated).
The Company is also a party to certain agreements that could be deemed to
have an anti-takeover effect. The Right of First Refusal Agreement imposes
restrictions on the transferability of the shares held by the Founding
Shareholders. These restrictions could make the acquisition of control of the
Company more difficult, and could therefore be deemed to have an anti-takeover
effect. See "Certain Transactions-- Right of First Refusal." The Employment
Agreements to which the Company is a party with each of Messrs. Ogle, Eisenbach,
Hopkins and Long impose certain parachute payment obligations on the Company in
the event the employment of any such executive officer is terminated within a
certain time period following a change in control of the Company. These
restrictions could also be deemed to have an anti-takeover effect. See
"Management--Employment Agreements."
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding an
aggregate of 13,239,862 shares of Common Stock, assuming no exercise of stock
options after January 31, 1998. In addition to the 2,775,000 shares of Common
Stock offered hereby (assuming no exercise of the Underwriters' over-allotment
option) there will be 10,464,862 shares of Common Stock outstanding,
substantially all of which will be freely tradeable. The executive officers and
directors of the Company and the Selling Shareholders will, upon completion of
this offering, own a total of (i) 2,713,034 shares, or 20.5% of the Common Stock
outstanding (assuming no exercise of the Underwriters' over-allotment option) or
(ii) 2,488,034 shares, or 18.5% of the Common Stock outstanding (assuming the
Underwriters' over-allotment option is exercised in full).
The Company, the Company's executive officers and directors and the Selling
Shareholders have agreed that they will not, for a period of 90 days after the
date of the Prospectus, offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common Stock now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition without the prior
written consent of CIBC Oppenheimer Corp., except for the shares of Common Stock
offered in connection with this offering and, with respect to the Company,
pursuant to stock option or purchase plans described in this Prospectus. Upon
expiration of these restrictions, the Company's executive officers and directors
and the Selling Shareholders will be free to sell the shares beneficially owned
by them, subject to compliance with the Securities Act, including Rule 144
promulgated thereunder, and the terms of the Right of First Refusal Agreement,
to which certain of such shares are subject.
In general, under Rule 144(d) as currently in effect, beginning 90 days
after the date of this Prospectus, a person (or persons whose shares are
aggregated), including an affiliate of the Company who has beneficially owned
"restricted securities" for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of the Common Stock (approximately 132,397 shares
immediately after this offering, assuming no exercise of the Underwriters'
over-allotment option) or (ii) the average weekly trading volume of the
Company's Common Stock on the Nasdaq National Market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission pursuant to Rule 144 (or, if no such notice is required, the date
of receipt of the order to execute the transaction by the broker or the date of
execution of the transaction directly with a market maker). Sales pursuant to
Rule 144(d) also are subject to certain other requirements relating to manner of
sale, notice of sale provisions, notice requirements and the availability of
current public information about the Company. Based on the number of shares
outstanding as of January 31, 1998, 1,520,371 shares of Common Stock will be
eligible for sale pursuant to the terms of Rule 144(d) (assuming no exercise of
the Underwriters' over-allotment exercise). A person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the three months immediately preceding the sale of the Common
Stock is entitled pursuant to Rule 144(k) to sell "restricted securities" that
were purchased from the Company (or an affiliate) at least two years previously
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company and the Selling Shareholders have
severally agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom CIBC Oppenheimer Corp.,
Hambrecht & Quist LLC, Hoak Breedlove Wesneski & Co. and The Buckingham Research
Group, Incorporated are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders, the
respective number of shares of Common Stock set forth opposite the name of each
such Underwriter:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
CIBC Oppenheimer Corp......................................................
Hambrecht & Quist LLC......................................................
Hoak Breedlove Wesneski & Co...............................................
The Buckingham Research Group, Incorporated................................
-----------------
Total.................................................................... 3,000,000
-----------------
-----------------
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover page of this Prospectus and
in part to certain securities dealers at such price less a concession of not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession of not in excess of $ per share to certain other
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered pursuant to this Prospectus (other
than those covered by the over-allotment option described below) if any are
taken.
The Company and the Selling Shareholders have granted options to the
Underwriters, exercisable for up to 30 days after the date of this Prospectus,
to purchase from the Company and such Selling Shareholders up to an aggregate of
450,000 additional shares of Common Stock to cover over-allotments, if any, at
the public offering price less the underwriting discount set forth on the cover
page of this Prospectus. If the Underwriters exercise such option to purchase
any of the additional 450,000 additional shares of Common Stock to cover
over-allotments, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them represents with respect to the
3,000,000 shares of Common Stock offered pursuant to this Prospectus. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered pursuant to this
Prospectus. The Company and such Selling Shareholders will be obligated,
pursuant to the over-allotment option, to sell shares of Common Stock to the
Underwriters to the extent such over-allotment options are exercised.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act pursuant to
which such persons may bid for or purchase shares of Common Stock for the
purpose of stabilizing the market price for shares of Common Stock. The
Underwriters also may create a short position for the account of the
Underwriters by selling more shares in connection with this offering than they
are committed to purchase from the Company and the Selling Shareholders, and in
such case may purchase shares of Common Stock in the open market
68
<PAGE>
following completion of this offering to cover all or a portion of the shares of
Common Stock or by exercising the Underwriters' over-allotment option referred
to above. In addition, CIBC Oppenheimer Corp., on behalf of the Underwriters,
may impose "penalty bids" under contractual arrangements with the other
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in this offering) for the account of the other Underwriters, the selling
concession with respect to shares of Common Stock that are distributed in this
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the shares of Common Stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including, without limitation,
liabilities under the Securities Act, and to contribute to certain payments the
Underwriters may be required to make in respect thereof.
The Representatives of the Underwriters do not intend to confirm sales of
the Common Stock in this offering to any account over which any of the
Representatives exercise discretionary control.
The Company and all of its officers, directors and Selling Shareholders have
agreed not to offer, sell, contract to sell, pledge or grant any option to
purchase or otherwise transfer or dispose of shares of Common Stock of the
Company or any security convertible into or exchangeable or exercisable for, or
warrants, options or rights to acquire any shares of Common Stock (other than
shares issuable upon exercise of outstanding options) for 90 days after the date
of this Prospectus without the prior written consent of CIBC Oppenheimer Corp.,
subject to certain limited exceptions. See "Shares Eligible for Future Sale."
Lawrence E. Wesneski, a director of the Company, is President and Chief
Executive Officer of Hoak Breedlove Wesneski & Co., an NASD member firm that
will participate as a co-manager of the underwriting syndicate in connection
with this offering. This offering will be conducted in accordance with the rules
of the NASD relating to the participation by member firms in offerings of
securities of affiliated entities. Hoak Breedlove Wesneski & Co. will not
directly participate in the determination of the offering price of the Common
Stock offered hereby.
BWS, a predecessor of Hoak Breedlove Wesneski & Co., provided certain
financial advisory services to STB prior to August 1996. Hoak Breedlove Wesneski
& Co. has not provided any financial advisory or other services to the Company
during the period from August 1996 to the present. During fiscal year 1997, Mr.
Wesneski, individually, did not receive any compensation from the Company in
excess of that paid to the Company's other Non-Employee Directors. Neither Hoak
Breedlove Wesneski & Co. nor Mr. Wesneski nor any other affiliate of Mr.
Wesneski has received or will receive any compensation from the Company in
connection with the offering contemplated hereby other than that typically
afforded managers of an underwriting syndicate.
69
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Locke Purnell Rain Harrell (A
Professional Corporation), Dallas, Texas. Certain legal matters relating to the
offering will be passed upon for the several Underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of October 31, 1996 and 1997 and for each of the
three years in the period ended October 31, 1997 included in this Prospectus and
the financial statement schedule incorporated in this Registration Statement by
reference to STB Systems, Inc.'s Annual Report on Form 10-K for the year ended
October 31, 1997, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
70
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") (File No. 001-25540) are incorporated by
reference in this Prospectus: (i) the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1997 and (ii) the Company's Current Report on
Form 8-K filed on February 25, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated herein by reference and to be a part hereof from
the respective dates of filing of such documents.
Any statement contained in a document incorporated or deemed incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the Registration Statement of which it is a part to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or such Registration Statement.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to each
person, including a beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Bryan F.
Keyes, the Corporate Secretary of the Company, at 1651 North Glenville Drive,
Richardson, Texas 75081, Telephone: (972) 234-8750.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission in Washington, D.C., under the
Securities Act, with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the shares offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any agreement,
contract or other document referred to herein or therein are not necessarily
complete, but contain a summary of the material terms of such agreements,
contracts or other documents, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy and information statements and other information with the Commission.
Reports, registration statements, proxy statements and other information filed
by the Company with the Commission can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048,
upon payment of the charges prescribed therefor by the Commission. These
reports, registration statements, proxy statements and other information may be
obtained from the web site that the Commission maintains at
"http://www.sec.gov".
71
<PAGE>
STB SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets as of October 31, 1996 and 1997.............................................. F-3
Consolidated Statements of Operations for the Years Ended October 31, 1995, 1996
and 1997............................................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended October 31, 1995, 1996 and
1997................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1995, 1996
and 1997............................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets as of October 31, 1997 and January 31, 1998.................................. F-19
Consolidated Statements of Operations for the Three Months Ended January 31, 1997 and 1998............... F-20
Consolidated Statements of Cash Flows for the Three Months Ended January 31, 1997 and 1998............... F-21
Notes to Consolidated Interim Financial Statements....................................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of STB Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the consolidated financial
position of STB Systems, Inc. and subsidiaries at October 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
December 8, 1997, except
as to Notes 1 and 11, which
are as of February 20, 1998
F-2
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................ $ 3,420 $ 3,869
Accounts receivable--trade, net of allowance for doubtful accounts of $332 and $465,
respectively........................................................................... 28,032 47,208
Inventories, net......................................................................... 27,148 41,295
Other current assets..................................................................... 1,348 1,970
--------- ----------
Total current assets................................................................... 59,948 94,342
Property and equipment, net................................................................ 5,231 12,348
Other assets............................................................................... 450 2,864
--------- ----------
Total assets........................................................................... $ 65,629 $ 109,554
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt.......................................................................... $ 11,760 $ 21,520
Accounts payable--trade.................................................................. 19,538 36,801
Accrued wages, commissions and bonuses................................................... 1,144 1,466
Other accrued liabilities................................................................ 1,609 2,027
Current portion of long-term liabilities................................................. 705 1,167
--------- ----------
Total current liabilities.............................................................. 34,756 62,981
--------- ----------
Long-term Liabilities:
Long-term notes payable.................................................................. 1,000 500
Obligations under capital leases and other long-term liabilities......................... 276 2,611
--------- ----------
Total long-term liabilities............................................................ 1,276 3,111
--------- ----------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 10,155,596 and 10,452,473
shares issued, respectively............................................................ 102 105
Additional paid-in capital............................................................... 22,261 25,357
Retained earnings........................................................................ 7,479 18,245
--------- ----------
29,842 43,707
Treasury stock, 35 shares, at cost....................................................... (245) (245)
--------- ----------
Total shareholders' equity............................................................... 29,597 43,462
--------- ----------
Total liabilities and shareholders' equity............................................. $ 65,629 $ 109,554
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................................ $ 129,603 $ 180,155 $ 199,485
Cost of sales............................................................ 110,129 144,879 149,439
---------- ------------ ------------
Gross profit............................................................. 19,474 35,276 50,046
---------- ------------ ------------
Operating expenses:
Research and development............................................... 2,719 4,428 6,740
Sales and marketing.................................................... 7,437 10,986 14,788
General and administrative............................................. 6,172 9,486 10,618
---------- ------------ ------------
Total operating expenses................................................. 16,328 24,900 32,146
---------- ------------ ------------
Income from operations................................................... 3,146 10,376 17,900
Interest expense, net.................................................... 818 1,113 1,649
---------- ------------ ------------
Income before income taxes............................................... 2,328 9,263 16,251
Provision for income taxes............................................... 330 3,186 5,481
---------- ------------ ------------
Net income............................................................... $ 1,998 $ 6,077 $ 10,770
---------- ------------ ------------
---------- ------------ ------------
Net income per share:
Basic.................................................................. $ 0.23 $ 0.60 $ 1.05
---------- ------------ ------------
---------- ------------ ------------
Diluted................................................................ $ 0.23 $ 0.59 $ 0.97
---------- ------------ ------------
---------- ------------ ------------
Weighted average shares outstanding:
Basic.................................................................. 8,818,151 10,158,803 10,297,929
---------- ------------ ------------
---------- ------------ ------------
Diluted................................................................ 8,851,227 10,309,256 11,146,602
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------- PAID-IN RETAINED ----------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------------ ----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994................ 5,625,000 $ 56 $ 471 $ 3,914 35 $ (245) $ 4,196
Dividends declared..................... (851) (851)
Establishment of deferred tax asset.... 455 455
Distribution of S Corporation
earnings............................. (4,122) (4,122)
Net proceeds from initial public
offering............................. 4,500,000 45 21,633 21,678
Cumulative translation gain............ 8 8
Net income............................. 1,998 1,998
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1995................ 10,125,000 101 22,104 1,402 35 (245) 23,362
Issuance of common stock............... 30,596 1 157 158
Net income............................. 6,077 6,077
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1996................ 10,155,596 102 22,261 7,479 35 (245) 29,597
Issuance of common stock............... 231,830 2 1,219 1,221
Investment in Subsidiary............... 65,047 1 949 950
Cumulative translation gain............ (4) (4)
Tax benefit from exercise of stock
options.............................. 928 928
Net income............................. 10,770 10,770
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1997................ 10,452,473 105 $ 25,357 $ 18,245 35 $ (245) $ 43,462
--
--
------------ --- ----------- --------- --------- ---------
------------ --- ----------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,998 $ 6,077 $ 10,770
Adjustments to reconcile net income to net cash flow from operating
activities:
Depreciation and amortization............................................... 733 1,252 2,550
Changes in assets and liabilities:
Accounts receivable--trade................................................ (9,542) (7,397) (18,506)
Inventories, net.......................................................... (17,923) 727 (13,652)
Other current assets...................................................... (347) (479) (621)
Other assets.............................................................. 2 151 (763)
Accounts payable--trade................................................... 9,029 1,807 15,543
Accrued wages, commissions, and bonuses................................... (182) 585 322
Other accrued liabilities................................................. 453 817 419
--------- --------- ---------
Net cash provided by (used in) operating activities..................... (15,779) 3,540 (3,938)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........................................... (2,470) (3,086) (9,580)
Investment in subsidiary...................................................... -- -- (236)
--------- --------- ---------
Net cash used in investing activities................................... (2,470) (3,086) (9,816)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on (payments of) short-term debt................................... 4,727 (351) 9,760
Payments of Founding Shareholder Notes........................................ (1,340) -- --
Borrowings on (payments of) long-term debt.................................... 436 (1,003) 2,297
Issuance of common stock, net of issue costs.................................. 21,678 158 1,218
Distribution of S Corporation earnings........................................ (2,082) -- --
Payment of dividends.......................................................... (1,285) -- --
Tax benefit from exercise of stock options.................................... -- -- 928
--------- --------- ---------
Net cash provided by (used in) financing activities......................... 22,134 (1,196) 14,203
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................ 3,885 (742) 449
Cash and cash equivalents at beginning of period................................ 277 4,162 3,420
--------- --------- ---------
Cash and cash equivalents at end of period...................................... $ 4,162 $ 3,420 $ 3,869
--------- --------- ---------
--------- --------- ---------
</TABLE>
Supplemental disclosure of cash flow information:
-- Cash paid for interest in 1995, 1996 and 1997 was $1,023, $1,243, and
$1,640, respectively.
-- Cash paid for income taxes in 1995, 1996 and 1997 was $507, $2,775 and
$4,375 respectively.
For additional disclosure of non-cash investing and financing activities, see
Note 3, Acquisition.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
STB Systems, Inc. develops, manufactures and sells a wide selection of
multimedia accelerators, other multimedia subsystem products and specialized
technology products designed for use in mid-range and high-end personal
computers ("PCs"). STB Assembly, Inc. is a wholly owned subsidiary and provides
manufacturing services to STB Systems, Inc. Symmetric Simulation Systems, Inc.
(see Note 3), also a wholly owned subsidiary of STB Systems, Inc., designs
high-end 3D graphics acceleration products.
PRINCIPLES OF CONSOLIDATION. In conjunction with the Stock Offering (see
Note 2), STB Assembly, Inc. became a wholly owned subsidiary of STB Systems,
Inc. Consequently, the accompanying financial statements include the
consolidated accounts of STB Systems, Inc., STB Assembly, Inc. and Symmetric
Simulation Systems, Inc. (see Note 3), (collectively referred to as the
"Company"; see also Note 2). STB Assembly, Inc. has two majority owned
subsidiaries, STB de Mexico S.A. de C.V. ("STB de Mexico") and Maquilados
Continentales de Chihuahua ("MCC"). STB de Mexico is a Mexican corporation
operated as a maquiladora and performs assembly services for STB Systems, Inc.
As of December 1992, MCC became an inactive entity. All significant intercompany
accounts and transactions have been eliminated in consolidation. Minority
interests in the subsidiaries are insignificant for financial reporting
purposes.
MANAGEMENT ESTIMATES. In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from those
estimates.
CASH AND CASH EQUIVALENTS. Cash equivalents are short-term, highly liquid
investments that are both readily convertible to known amounts of cash and so
near to their maturity that they present insignificant risk of changes in value
because of changes in interest rates. Investments with initial maturities of
three months or less qualify as cash equivalents.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. The Company recognizes revenue
from product sales upon shipment. Sales to original equipment manufacturers
("OEMs") account for a significant portion of the Company's sales. The Company
offers its OEM customers a limited warranty for a period of typically 15 to 36
months. Costs associated with the warranty program are accrued when revenue is
recognized and are determined on the basis of estimated future costs to fulfill
the warranty commitment.
Stock rotation returns, under specified conditions, are allowed to certain
retail customers for recently purchased products, provided an equivalent dollar
amount of other products is purchased at the time of the return. Also, in the
event the Company reduces its selling prices, certain retail customers receive
price protection credit for the difference between the original purchase price
of product remaining in specified levels of their inventories and the Company's
reduced price for such products. Sales adjustments resulting from stock rotation
returns and price protection programs are made as determined by management and
have historically been minor. Management's estimates of the costs associated
with the price protection and stock rotation programs are based on the Company's
historical experience with such arrangements and its evaluation of exposure at
each balance sheet date resulting from these policies. The Company's sales are
presented net of stock rotation returns and price adjustments.
The Company participates in cooperative advertising programs with certain
distributors. These programs are used by the Company to reimburse distributors
for certain forms of advertising. In general, the programs allow distributors
credits up to a specified percentage of net purchases. The Company's costs
F-7
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
associated with these programs are estimated and accrued at the time of sale and
are included in sales and marketing expenses.
INVENTORIES. Inventories are valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis using a moving weighted average
methodology.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed for financial statement purposes using an accelerated
method over the estimated useful lives of the assets, which range from three to
five years. Amortization of assets recorded under capital leases is included in
depreciation expense. Depreciation and amortization expense for each of the
years ended October 31, 1995, 1996 and 1997 was $733,000, $1,252,000 and
$2,550,000, respectively.
RESEARCH AND DEVELOPMENT. Research and development costs are charged to
expense as incurred.
INCOME TAXES. Effective February 21, 1995 and in connection with the
Company's initial public offering ("Stock Offering"), the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) on a prospective basis (see Note 2). Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities measured using estimated tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled.
Prior to the Stock Offering (see Note 2), the Company had been treated for
federal and certain state income tax purposes as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, the
income of the Company for federal and certain state income tax purposes was
included in the income tax returns of the individual shareholders ("Founding
Shareholders"). Accordingly, prior to February 21, 1995, no recognition of
federal and certain state income taxes has been given in the accompanying
financial statements. Prior to the conversion to C Corporation status, in
connection with the Stock Offering, the Company paid dividends to its
shareholders in an amount equal to the taxable earnings of the Company
multiplied by the current personal income tax rate.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123) was issued. This statement requires the fair value of stock options
and other stock-based compensation issued to employees to either be included as
compensation expense in the statement of operations, or the pro forma effect on
net income and earnings per share of such compensation expense to be disclosed
in the footnotes to the Company's financial statements commencing with the
Company's 1997 fiscal year. Accordingly, the Company has adopted SFAS 123 on a
disclosure basis only.
FINANCIAL INSTRUMENTS. As of October 31, 1996 and 1997 the fair values of
the Company's revolving credit balance and the fair values of the Company's
fixed-rate debt approximates the related carrying values.
STOCK SPLITS. During fiscal 1997, the Company declared a three-for-two
split of the Company's common stock. The stock split was effected in the form of
a stock dividend on July 17, 1997, and resulted in the issuance of 3,454,011
additional shares. Share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the stock split.
F-8
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 27, 1998, the Company declared a three-for-two split of the
Company's common stock. The stock split will be effected in the form of a stock
dividend on February 20, 1998, to shareholders of record on February 11, 1998.
Shares and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect the stock split.
EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board issued FAS No. 128, "Earnings per Share", (SFAS 128). The Company has
adopted SFAS 128, which establishes standards for computing and presenting
earnings per share (EPS), in the first quarter of fiscal 1998. This statement
requires dual presentation of basic and diluted EPS on the face of the income
statement for entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
the effect of potentially dilutive securities while diluted EPS reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised, converted into or resulted in the issuance of
common stock. SFAS 128 requires restatement of EPS for prior periods.
Accordingly, EPS data for all periods presented has been restated to reflect the
computation of EPS in accordance with the provisions of SFAS 128.
FOREIGN CURRENCY TRANSLATION. The U.S. dollar is the functional currency
for the Company's foreign operations. Gains and losses on the translation into
U.S. dollars of amounts denominated in foreign currencies are included in net
income.
NOTE 2--STOCK SPLIT, REORGANIZATION AND STOCK OFFERING
Effective December 20, 1994, the Company consummated a common stock split at
a ratio of 8,333 to one which resulted in common stock with $.01 par value,
20,000,000 shares authorized, 5,625,000 shares issued and outstanding prior to
the Stock Offering (see below). The stock split, which was effected in the form
of a stock dividend, has been given retroactive effect in the accompanying
financial statements.
STB Systems, Inc. entered into a Share Exchange Agreement on December 16,
1994 with the shareholders of STB Assembly, Inc., providing for the issuance of
STB Systems, Inc. common stock in exchange for the outstanding common stock of
STB Assembly, Inc. on a one-for-333 basis immediately prior to consummation of
the Stock Offering. For purposes of these consolidated financial statements,
these shares are treated as outstanding for all periods presented. As STB
Systems, Inc. and STB Assembly, Inc. were under common control, there was no
change in basis for financial reporting purposes as a result of the Share
Exchange Agreement. As a result of the reorganization, STB Assembly, Inc. became
a wholly-owned subsidiary of STB Systems, Inc. Effective February 21, 1995, STB
Systems, Inc. terminated its S Corporation status and became a C Corporation and
as a result, the Company became subject to all federal and state taxes pursuant
to the C Corporation rules of the Internal Revenue Code.
On December 16, 1994, the Board of Directors of the Company authorized an
initial public offering of the Company's common stock ("Stock Offering").
Accordingly, the Company filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission for the sale of common stock. On February 14,
1995, 4,500,000 shares of common stock were offered to the public at a price of
$5.33 per share. Proceeds from the Company's Stock Offering totaled $24,000,000,
net of $2,322,000 of Stock Offering expenses. The Company's stock is listed on
the NASDAQ National Market under the symbol "STBI".
F-9
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITION
During the quarter ended April 30, 1997, STB Systems, Inc. acquired all of
the outstanding shares of Symmetric Simulation Systems, Inc. ("Symmetric").
Symmetric designs and builds high-end 3D graphics acceleration products for use
in applications such as computer-aided design, product visualization and
animation. This transaction was accounted for as a purchase, in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". As
consideration, the Company issued 65,047 shares of stock at a fair market value
of $950,000 and cash in the amount of $236,000. As a result of the acquisition,
the Company recorded goodwill in the amount of $1,648,000, which is included in
other assets and is being amortized on a straight line basis over seven years.
Unamortized goodwill at October 31, 1997 was $1,548,000.
Pro forma results of operations data has not been included in these
financial statements as they are not material to the year ended October 31,
1997. The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Working capital, other than cash.................................................... $ 1,166
Property, plant and equipment....................................................... 89
Other assets........................................................................ 4
Goodwill............................................................................ 1,648
Other liabilities................................................................... (1,720)
---------
Purchase price, net of cash received................................................ $ 1,187
---------
---------
</TABLE>
NOTE 4--INVENTORIES
Inventories at October 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 10,667 $ 22,416
Work-in-process......................................................... 14,358 13,416
Finished goods.......................................................... 2,123 5,463
--------- ---------
Inventories, net........................................................ $ 27,148 $ 41,295
--------- ---------
--------- ---------
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment at October 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Furniture and equipment.................................................. $ 8,614 $ 16,485
Leasehold improvements................................................... 628 746
--------- ---------
9,242 17,231
Less: accumulated depreciation........................................... (4,011) (4,883)
--------- ---------
Property and equipment, net.............................................. $ 5,231 $ 12,348
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--SHORT TERM DEBT AND NOTES PAYABLE TO RELATED PARTIES
On January 5, 1996, the Company increased its borrowing capacity under its
revolving credit facility ("Revolving Credit Facility") from $13,000,000 to
$25,000,000. The Revolving Credit Facility is with a bank, payable upon demand,
with interest at prime plus .75% (9.25% at October 31, 1997). Outstanding
balances under the Revolving Credit Facility were $11,760,000 and $21,520,000,
at October 31, 1996 and 1997, respectively. All indebtedness under the Revolving
Credit Facility matures on November 1, 1999.
Availability under the Revolving Credit Facility is subject to limitations
determined by the Company's borrowing base, which is calculated based on
eligible accounts receivable and inventory, as defined in the Revolving Credit
Facility agreement.
Subsequent to the balance sheet date, the Company entered into a new credit
agreement with a bank, increasing its borrowing capacity from $25,000,000 to
$30,000,000 on a new Revolving Credit Facility. All debt under the existing
facility was repaid with the increased capacity expected to be used to support
increased working capital needs. The new Revolving Credit Facility bears
interest at Libor plus 175 basis points (7.406% at October 31, 1997). In
addition, the Company will incur a fee on the unused portion of the commitment,
at an annual rate of .375%, payable quarterly, in arrears. All indebtedness
under the new Revolving Credit Facility matures on November 21, 1999. In
connection with the new Revolving Credit Facility, the Company incurred line of
credit fees in the amount of $76,000 in the first quarter of fiscal 1998.
NOTE 7--LONG-TERM LIABILITIES
Long-term liabilities at October 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Mezzanine Facility, interest at prime plus .75%, (prime plus 3% prior to
January 5, 1996) payable in monthly installments of interest only
through November 1, 1995 and principal and interest from December 1,
1995 through November 1,1999, collateralized by certain assets of the
Company................................................................ $ 1,500 $ 1,000
Other loans, interest at 9.8%, payable in monthly installments of
principal and interest through July 1997, collateralized by certain
assets of the Company.................................................. 4 --
Obligations under capital leases......................................... 477 3,278
--------- ---------
1,981 4,278
Less: current portion.................................................... (705) (1,167)
--------- ---------
Long-term liabilities.................................................... $ 1,276 $ 3,111
--------- ---------
--------- ---------
</TABLE>
In connection with the new Revolving Credit Facility, the Mezzanine Facility
of $1,000,000 was repaid in full subsequent to the balance sheet date. In
addition to the new Revolving Credit Facility, the Company entered into a long
term loan agreement ("Term Loan") in the amount of $3,000,000 which is
structured as a sale/leaseback transaction and is included in obligations under
capital leases. The Term Loan is collateralized by certain assets of the
Company, and bears interest at the rate of Libor plus 250 basis points (8.156%
at October 31, 1997). The Term Loan is payable in monthly installments of
principal and interest over five years.
F-11
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM LIABILITIES (CONTINUED)
The Company leases certain equipment under capital leases. Future minimum
lease payments under capital leases and the present value of the minimum capital
lease payments at October 31, 1997 are (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1998 $ 845
1999 786
2000 754
2001 690
2002 690
------
3,765
Less: amount representing interest............................................. (487)
------
Present value of the minimum capital lease payments............................ $ 3,278
------
------
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various noncancelable
operating lease agreements extending through 2002. Rental expense for each of
the years ended October 31, 1995, 1996 and 1997 was $773,000, $856,000, and
$2,136,000, respectively. In the first quarter of fiscal 1998 the Company moved
its manufacturing operations to a new 137,000 square foot facility in Juarez,
Mexico. Future minimum lease payments for the new facility are included in the
table below.
At October 31, 1997, future minimum lease payments for such operating leases
are (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1998 $ 3,976
1999 3,345
2000 2,202
2001 2,180
2002 2,169
-------------
Total $ 13,872
-------------
-------------
</TABLE>
The Company installed two new high speed surface-mount assembly lines at its
new facility in Juarez, Mexico during the fourth quarter of fiscal 1997, at a
total cost of $6.3 million. The equipment was financed by two separate operating
leases. The first of the two lines was placed in service in September 1997 and
the financing was arranged prior to fiscal year end. The second line was placed
in service late in the fourth quarter of fiscal 1997, therefore, the financing
of this lease was not finalized until December 1997. For purposes of this
footnote, the minimum lease payments have been included for both leases. Under
the operating lease arrangements, the Company must make 60 monthly payments of
$60,775 and $53,691, respectively.
In December 1997, the Company entered into a five year agreement to
construct and lease a new corporate headquarters. Construction on the 210,000
square foot facility began in December 1997, and the total cost is estimated to
be approximately $22.8 million (including land). The lessor has agreed to fund
the cost of the land and construction of the building (subject to reductions
based on certain conditions in the
F-12
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
lease agreement). The Company plans to occupy the facility during the first
fiscal quarter of 1999 with rental payments commencing upon occupancy. Upon
completion of the initial five year term, the Company has the option to renew
the lease for an additional five years, payoff the underlying debt or cause the
building to be sold.
NOTE 9--MAJOR CUSTOMERS
Sales to major customers, as a percentage of net sales, were as follows for
each of the years ended October 31:
<TABLE>
<CAPTION>
CUSTOMER 1995 1996 1997
- ----------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
A...................................................................... 42% 47% 35%
B...................................................................... -- 8% 20%
C...................................................................... -- -- 11%
D...................................................................... 10% -- --
</TABLE>
Net sales to customers within the United States and to customers in foreign
countries were as follows for each of the years ended October 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States...................................................... $ 98,742 $ 144,761 $ 144,665
Europe............................................................. 30,000 32,654 42,510
Other.............................................................. 861 2,740 12,310
---------- ---------- ----------
$ 129,603 $ 180,155 $ 199,485
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 10--EMPLOYEE BENEFIT PLAN AND PROFIT SHARING PLAN
The Company has a 401(K) plan for all full-time employees. During the
period, the Company modified the plan contribution amount. The new plan provides
for the Company to make contributions of up to 50% of the amount of an
employee's contribution, but not more than 2% of an employee's total cash
compensation. Prior to the change, the Company made contributions of up to 25%
of the amount of an employee's contribution, up to 1% of the employee's total
cash compensation. The Company incurred expense of $34,000, $43,000 and $149,000
for the years ended October 31, 1995, 1996 and 1997, respectively, for its
contributions to this plan.
The Company's profit sharing plan provides for a portion of the Company's
income before taxes to be paid as additional compensation to participants in
this plan. Concurrent with the Stock Offering, the profit sharing percentage was
reduced from 25% to 10%. Employees meeting eligibility requirements participate
in the plan. The Company incurred compensation expense of $503,000, $991,000 and
$1,464,000 in the years ended October 31, 1995, 1996 and 1997, respectively, as
a result of the Company's obligations under the profit sharing plan.
NOTE 11--EARNINGS PER SHARE
Basic net income per share has been computed in accordance with SFAS 128
using the weighted average number of common shares outstanding after giving
retroactive effect to the three-for-two stock splits effected in July 1997 and
February 1998. The provision and disclosure requirements for SFAS 128
F-13
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--EARNINGS PER SHARE (CONTINUED)
were required to be adopted for interim and annual periods ending after December
15, 1997, with restatement of EPS for all prior periods.
Diluted net income per share gives effect to all dilutive potential common
shares that were outstanding during the periods.
The following table sets forth a reconciliation of the numerator and
denominator used in the basic and diluted EPS computation for the years ended
October 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net income (in thousands)...................................... $ 1,998 $ 6,077 $ 10,770
---------- ------------ ------------
---------- ------------ ------------
Basic:
Weighted average number of shares outstanding used in the
basic net income per share calculation..................... 8,818,151 10,158,803 10,297,929
---------- ------------ ------------
---------- ------------ ------------
Net income per share......................................... $ 0.23 $ 0.60 $ 1.05
---------- ------------ ------------
---------- ------------ ------------
Diluted:
Weighted average number of shares outstanding................ 8,818,151 10,158,803 10,297,929
Additional weighted average shares from assumed exercise of
dilutive stock options, net of shares assumed to be
repurchased with exercise proceeds......................... 33,076 150,453 848,673
---------- ------------ ------------
Weighted average shares used in the diluted net income per
share calculation.......................................... 8,851,227 10,309,256 11,146,602
---------- ------------ ------------
---------- ------------ ------------
Net income per share......................................... $ 0.23 $ 0.59 $ 0.97
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
Options to purchase 10,500 shares of common stock at an exercise price of
$24.92 per share were outstanding during the period but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. The options will expire in
September 2007.
NOTE 12--CHANGE IN S CORPORATION STATUS AND INCOME TAXES
Immediately preceding the Stock Offering (see Note 2), STB Systems, Inc.
terminated its S Corporation status, and accordingly, the Company is subject to
federal and state income taxes.
The Company paid cash distributions to its Founding Shareholders in the
aggregate amount of $1,285,000 for the fiscal year ended October 31, 1995.
Following the Stock Offering, the Company made final distributions of the
Company's undistributed S Corporation earnings to its Founding Shareholders.
Such undistributed S Corporation earnings aggregated $4,100,000. The Company
paid approximately one-half of the undistributed S Corporation earnings from the
proceeds of the Stock Offering, and the remainder in the form of Founding
Shareholder Notes. As of October 31, 1997, these notes had been repaid in full.
As a result of the termination of STB Systems, Inc.'s S Corporation status,
the Company is required to provide deferred income taxes for cumulative
temporary differences between income for financial and income tax reporting
purposes at the date of termination. A deferred tax asset of $455,000 was
recorded at the date of change in tax status resulting primarily from differing
methods of recognizing inventory reserves and bad debt allowances for financial
and income tax reporting purposes. The deferred tax assets
F-14
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--CHANGE IN S CORPORATION STATUS AND INCOME TAXES (CONTINUED)
at October 31 are composed of the following and included in other current assets
in the consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Bad debt reserves............................................................ $ 153 $ 113 $ 163
Inventory reserves........................................................... 340 476 490
Depreciation................................................................. 55 62 87
Various expense accruals..................................................... 80 408 216
Stock Option tax benefit..................................................... -- -- 903
--------- --------- ---------
Deferred tax asset........................................................... $ 628 $ 1,059 $ 1,859
--------- --------- ---------
--------- --------- ---------
</TABLE>
PROVISION FOR INCOME TAXES. The components of the income tax provision for
the C Corporation period for the years ended October 31, 1995, 1996 and 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current Provision:
Federal.................................................................... $ 485 $ 3,468 $ 5,018
State...................................................................... 18 81 95
Foreign.................................................................... -- 68 265
--------- --------- ---------
503 3,617 5,378
--------- --------- ---------
Deferred (benefit)expense
Federal.................................................................... (173) (431) (800)
Effect of stock option exercises........................................... -- -- 903
--------- --------- ---------
(173) (431) 103
--------- --------- ---------
Provision for income taxes................................................... $ 330 $ 3,186 $ 5,481
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of taxes based on the federal statutory rate and the
provision for income taxes is summarized as follows for the years ended October
31:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at the federal statutory rate.............................. 34.0% 34.0% 35.0%
S Corporation earnings.................................................. (17.5%) -- --
State income taxes, net of federal benefit.............................. 0.5% 0.6% 0.4%
Foreign tax credit, net................................................. -- (.1%) (1.6%)
R&D credit.............................................................. (3.4%) (1.5%) (1.9%)
Other, net.............................................................. .6% 1.4% 1.8%
--------- --------- ---------
Provision for income taxes.............................................. 14.2% 34.4% 33.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 13--RELATED PARTY TRANSACTIONS
In July 1993, the Company entered into an agreement with a financial
consulting firm to provide advisory services and arrange certain credit
facilities for the Company. The president of this firm, who is
F-15
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS (CONTINUED)
also an equity holder in the firm, serves as a member of the Company's board of
directors. The Company incurred costs of $58,000 for the year ended October 31,
1996, related to these services.
In April 1994, this financial consulting firm agreed to provide certain
advisory services, including services relating to the Stock Offering. A flat fee
of $150,000 was paid to the firm in connection with the Stock Offering. The
Company recognized costs of $133,000 with respect to these services in 1995.
A business consulting firm has provided consulting services to the Company
since March 1990, for which the Company incurred fees of $21,000 in 1995. A
general partner in this consulting firm is an officer of the Company and a
member of the Company's board of directors.
NOTE 14--STOCK PLANS
The Company's 1995 Long Term Incentive Plan provides for the granting of
incentive stock options and non-qualified stock options to purchase common
stock, stock appreciation rights, restricted stock and performance units to key
executives and other key employees of the Company. In April 1997, the plan
increased its number of authorized shares of common stock to be used for stock
options, stock appreciation rights, or restricted stock from 1,912,500 to
2,250,000. All options vest at the rate of 20% per year on each of the first
five anniversaries of the date of grant. At October 31, 1997, options to
purchase 332,547 shares were exercisable. The plan will terminate on December
31, 2004. Stock option activity during fiscal 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES RANGE PER SHARE EXERCISE PRICE
---------- --------------- -----------------
<S> <C> <C> <C>
Balance at October 31, 1994...................................... -- -- --
Granted........................................................ 1,086,750 $ 5.33--$ 6.17 $ 5.36
Terminated..................................................... (99,000) $ 5.33--$ 6.11 $ 5.42
Exercised...................................................... -- -- --
---------- --------------- ------
Balance at October 31, 1995...................................... 987,750 $ 5.33--$ 6.17 $ 5.35
---------- --------------- ------
Granted........................................................ 916,875 $ 4.11--$10.39 $ 8.43
Terminated..................................................... (73,125) $ 4.61--$ 5.33 $ 5.05
Exercised...................................................... (24,750) $ 5.33--$ 5.33 $ 5.33
---------- --------------- ------
Balance at October 31, 1996...................................... 1,806,750 $ 4.11--$10.39 $ 6.93
---------- --------------- ------
Granted........................................................ 137,625 $ 8.67--$25.67 $ 15.25
Terminated..................................................... (31,500) $ 5.33--$ 7.67 $ 6.92
Exercised...................................................... (198,225) $ 4.11--$10.39 $ 5.45
---------- --------------- ------
Balance at October 31, 1997...................................... 1,714,650 $ 4.11--$25.67 $ 7.77
---------- --------------- ------
</TABLE>
F-16
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at October 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
EXERCISE REMAINING AVERAGE AVERAGE
PRICE SHARES CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OUTSTANDING LIFE PRICE OF SHARES PRICE
- -------------------------------------------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 4.11--$ 6.00.............................. 889,276 7.5 $ 5.27 196,048 $ 5.31
$ 6.01--$ 9.00.............................. 74,175 8.4 $ 6.82 13,425 $ 6.33
$ 9.01--$13.50.............................. 652,950 9.0 $ 9.90 123,074 $ 9.79
$13.51--$20.25.............................. 77,625 9.4 $ 14.90 -- --
$20.26--$25.67.............................. 20,625 9.9 $ 24.41 -- --
--
----------- ----------- ----------- -----
1,714,651 8.2 $ 7.77 332,547 $ 7.01
----------- -----------
----------- -----------
</TABLE>
The fair value of each option was estimated on the date of grant based on
the Black-Sholes option pricing model assuming, among other things, no dividend
yield, a risk free interest rate of 6.0%, expected volatility of 71% and
expected life of 4 years. The weighted average grant date fair value for options
granted during the fiscal years ended October 31, 1996 and 1997 was $4.89 and
$8.89, respectively. Had the Company recorded compensation expense based on the
fair value at the date of grant for its stock options under SFAS 123, the
Company's income would have been reduced to the pro forma amounts indicated
below, net of taxes:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
As Reported:
Net income (in thousands).............................................. $ 6,077 $ 10,770
--------- ---------
--------- ---------
Net income per share:
Basic.................................................................. $ 0.60 $ 1.05
--------- ---------
--------- ---------
Diluted................................................................ $ 0.59 $ 0.97
--------- ---------
--------- ---------
Pro Forma:
Net income (in thousands).............................................. $ 6,000 $ 10,127
--------- ---------
--------- ---------
Net income per share:
Basic.................................................................. $ 0.59 $ 0.98
--------- ---------
--------- ---------
Diluted................................................................ $ 0.58 $ 0.91
--------- ---------
--------- ---------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. The 1995 Employee Stock Option Purchase Plan
provides a method whereby eligible employees may purchase common stock through
voluntary payroll deductions, not to exceed 10% of the employee's base salary.
Payroll deductions are made over a twelve month period. At the end of the
deduction period, employees will have a subsequent twelve month period during
which they may either exercise their options in whole or in part, or withdraw
their funds with interest at a rate determined by the Stock Option Committee.
The purchase price under the plan will be determined by the Stock Option
Committee, however, the option price will not be less than 85% of the fair
market value of the common stock on the date the option is granted or, such
price will not be less than 85% of the fair market
F-17
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--STOCK PLANS (CONTINUED)
value of the Common Stock on the date the option is exercised. As of October 31,
1997, 39,430 shares have been issued under this plan.
NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 44,905 $ 44,592 $ 42,537 $ 48,122 $ 48,092 $ 48,700 $ 42,019 $ 60,674
Gross profit............. 7,262 8,403 8,616 10,996 10,633 11,778 12,425 15,211
Net income............... 1,214 1,351 1,380 2,131 2,252 2,418 2,469 3,630
Net income per share:
Basic.................. $ 0.12 $ 0.13 $ 0.14 $ 0.21 $ 0.22 $ 0.24 $ 0.24 $ 0.35
Diluted................ $ 0.12 $ 0.13 $ 0.13 $ 0.20 $ 0.21 $ 0.22 $ 0.22 $ 0.31
</TABLE>
F-18
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................. $ 3,869 $ 3,391
Accounts receivable -- trade, net of allowance for doubtful accounts of $465 and $548,
respectively........................................................................ 47,208 49,806
Inventories, net...................................................................... 41,295 45,811
Other current assets.................................................................. 1,970 2,659
----------- -----------
Total current assets................................................................ 94,342 101,667
Property and equipment, net............................................................. 12,348 12,130
Other assets............................................................................ 2,864 1,970
----------- -----------
Total assets........................................................................ $ 109,554 $ 115,767
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt....................................................................... $ 21,520 $ 23,000
Accounts payable--trade............................................................... 36,801 38,938
Accrued wages, commissions and bonuses................................................ 1,466 936
Other accrued liabilities............................................................. 2,027 2,403
Current portion of long-term liabilities.............................................. 1,167 589
----------- -----------
Total current liabilities........................................................... 62,981 65,866
----------- -----------
----------- -----------
Long-term Liabilities:
Long-term notes payable............................................................... 500 --
Obligations under capital leases and other long-term liabilities...................... 2,611 2,538
----------- -----------
Total long-term liabilities......................................................... 3,111 2,538
----------- -----------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding.............. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 10,452,473 and 10,464,897
shares issued, respectively......................................................... 105 105
Additional paid-in capital............................................................ 25,357 25,453
Retained earnings 18,245 22,050
----------- -----------
43,707 47,608
Treasury stock, 35 shares, at cost.................................................... (245) (245)
----------- -----------
Total shareholders' equity............................................................ 43,462 47,363
Total liabilities and shareholders' equity.......................................... $ 109,554 $ 115,767
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 48,092 $ 78,758
Cost of sales......................................................................... 37,459 62,542
------------ ------------
Gross profit.......................................................................... 10,633 16,216
------------ ------------
Operating expenses:
Research and development............................................................ 1,238 2,338
Sales and marketing................................................................. 3,286 4,424
General and administrative.......................................................... 2,383 3,235
------------ ------------
Total operating expenses.............................................................. 6,907 9,997
------------ ------------
Income from operations................................................................ 3,726 6,219
Interest expense, net................................................................. 376 518
------------ ------------
Income before income taxes............................................................ 3,350 5,701
Provision for income taxes............................................................ 1,098 1,896
------------ ------------
Net income............................................................................ $ 2,252 $ 3,805
------------ ------------
------------ ------------
Net income per share:
Basic............................................................................... $ 0.22 $ 0.36
------------ ------------
------------ ------------
Diluted............................................................................. $ 0.21 $ 0.33
------------ ------------
------------ ------------
Weighted average shares outstanding:
Basic............................................................................... 10,158,549 10,461,695
------------ ------------
------------ ------------
Diluted............................................................................. 10,730,624 11,388,554
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 2,252 $ 3,805
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization............................................................ 420 660
Changes in assets and liabilities:
Accounts receivable--trade............................................................. 667 (2,598)
Inventories............................................................................ 457 (4,516)
Other current assets................................................................... (260) (689)
Other assets........................................................................... 33 894
Accounts payable--trade................................................................ (4,483) 2,136
Accrued wages, commissions, and bonuses................................................ (109) (530)
Other accrued liabilities.............................................................. 365 376
--------- ---------
Net cash used in operating activities................................................ (658) (462)
--------- ---------
Cash flows from investing activities--
Purchases of property and equipment........................................................ (1,085) (442)
--------- ---------
Cash flows from financing activities:
Borrowings on short-term debt.............................................................. 2,145 1,480
Payments on long-term debt................................................................. (185) (1,150)
Issuance of common stock, net of issue costs............................................... 99 96
--------- ---------
Net cash provided by financing activities................................................ 2,059 426
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 316 (478)
Cash and cash equivalents at beginning of period............................................. 3,420 3,869
--------- ---------
Cash and cash equivalents at end of period................................................... $ 3,736 $ 3,391
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE>
STB SYSTEMS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
STB Systems, Inc. develops, manufactures and sells a wide selection of
multimedia accelerator subsystems, other multimedia subsystem products and
specialized technology products for use in mid-range and high-end personal
computers ("PCs"). STB Assembly, Inc. is a wholly-owned subsidiary and provides
manufacturing services to STB Systems, Inc. Symmetric Simulation Systems, Inc.,
also a wholly-owned subsidiary of STB Systems, Inc., designs high-end 3D
graphics acceleration products for use in applications such as computer-aided
design, product visualization and animation.
The accompanying financial statements include the consolidated accounts of
STB Systems, Inc., STB Assembly, Inc. and Symmetric Simulation Systems, Inc.,
(collectively referred to as the "Company"). STB Assembly, Inc. has two majority
owned subsidiaries, STB de Mexico S.A. de C.V. ("STB de Mexico") and Maquilados
Continentales de Ciudad Juarez, S.A. de C.V. ("MCC"). STB de Mexico is a Mexican
corporation operated as a maquiladora that performs assembly services for STB
Systems, Inc. MCC entered into an agreement in January 1990 to provide
subcontract manufacturing services for STB Systems, Inc. As of December 1992,
MCC became an inactive entity. All significant intercompany accounts and
transactions have been eliminated in consolidation. Minority interests in the
subsidiaries are insignificant for financial reporting purposes.
In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings per Share", (SFAS 128). The Company has adopted SFAS 128, which
establishes standards for computing and presenting earnings per share (EPS).
This statement requires dual presentation of basic and diluted EPS on the face
of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, converted into or resulted in
the issuance of common stock. The provision and disclosure requirements of SFAS
128 were required to be adopted for interim and annual periods ending after
December 15, 1997, with restatement of EPS for prior periods. Accordingly, EPS
data for all periods has been restated to reflect the computation of EPS in
accordance with the provisions of SFAS 128.
The financial information presented herein should be read in conjunction
with the Company's annual consolidated financial statements for the year ended
October 31, 1997. The foregoing unaudited interim consolidated financial
statements reflect all adjustments (all of which are of a normal recurring
nature) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. The results for the interim
periods are not necessarily indicative of the results to be expected for the
year.
NOTE 2--INVENTORIES
Inventories at October 31, 1997 and January 31, 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1997
--------------- ---------------
<S> <C> <C>
Raw materials........................................................ $ 22,416 $ 23,789
Work-in-process...................................................... 13,416 15,236
Finished goods....................................................... 5,463 6,786
------- -------
Totals............................................................. $ 41,295 $ 45,811
------- -------
</TABLE>
F-22
<PAGE>
STB SYSTEMS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--SHORT TERM DEBT
In November 1997, the Company entered into a new credit agreement with a
bank, increasing its borrowing capacity to $30,000,000 from $25,000,000. The new
revolving credit facility ("Revolving Credit Facility") bears interest at Libor
plus 175 basis points (7.367% at January 31, 1998). Availability under the
Revolving Credit Facility is subject to limitation determined by the Company's
borrowing base, which is calculated based on eligible accounts receivable as
defined in the Revolving Credit Facility Agreement. In January 1998, the Company
increased its borrowing capacity under its Revolving Credit Facility to
$40,000,000 from $30,000,000.
NOTE 4--STOCK SPLIT
On January 27, 1998, the Company declared a three-for-two split of the
Company's common stock. The stock split will be effected in the form of a stock
dividend on February 20, 1998, to shareholders of record on February 11, 1998.
Share and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect the stock split.
NOTE 5--EARNINGS PER SHARE
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted EPS computations at January 31:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Net income (in thousands)................................................... $ 2,252 $ 3,805
------------ ------------
------------ ------------
Weighted average shares outstanding......................................... 10,158,549 10,461,695
------------ ------------
------------ ------------
Basic net income per share.................................................. $ 0.22 $ 0.36
------------ ------------
------------ ------------
Weighted average shares outstanding......................................... 10,158,549 10,461,695
Additional weighted average shares from assumed exercise of dilutive stock
options, net of shares assumed to be repurchased with exercise proceeds... 572,075 926,859
------------ ------------
Dilutive weighted average shares outstanding................................ 10,730,624 11,388,554
------------ ------------
------------ ------------
Diluted net income per share................................................ $ 0.21 $ 0.33
------------ ------------
------------ ------------
</TABLE>
Options to purchase 20,625 shares of common stock ranging in price from
$21.27 to $25.67 per share were outstanding during the first quarter of fiscal
1998 but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. The options will expire in 2007.
F-23
<PAGE>
[Inside Back Cover Graphics: Collage of images, including several of the
Company's products, a racing motorcyclist, 3D mechanical drawing renderings and
a PC monitor screen displaying a web browser with a page from the Company's
world wide web site.
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDER, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Price Range of Common Stock and Dividend Policy........................... 20
Capitalization............................................................ 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 24
Business.................................................................. 35
Management................................................................ 51
Certain Transactions...................................................... 63
Principal and Selling Shareholders........................................ 64
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 67
Underwriting.............................................................. 68
Legal Matters............................................................. 70
Experts................................................................... 70
Incorporation of Certain
Documents by Reference.................................................. 71
Additional Information.................................................... 71
Index to Consolidated Financial Statements................................ F-1
</TABLE>
3,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
CIBC OPPENHEIMER
HAMBRECHT & QUIST
HOAK BREEDLOVE WESNESKI & CO.
THE BUCKINGHAM RESEARCH GROUP,
INCORPORATED
, 1998
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table indicates the expenses expected to be incurred in
connection with the offering described in this Registration Statement, all of
which will be paid by the Company:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 23,980
NASD Filing Fee........................................................... 8,715
Transfer Agent and Registrar Fees......................................... 2,500
Blue Sky Fees (including counsel fees).................................... 5,000
Accountants' Services and Expenses........................................ 75,000
Legal Services and Expenses............................................... 75,000
Printing and Engraving Fees............................................... 125,000
Miscellaneous............................................................. 119,805
---------
TOTAL................................................................. $ 435,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act permits a corporation
to indemnify certain persons, including officers and directors and former
officers and directors, and to purchase insurance with respect to liability
arising out of their capacity or status as officers and directors. Such law
provides further that the indemnification permitted thereunder will not be
deemed exclusive of any other rights to which officers and directors may be
entitled under the corporation's articles of incorporation, bylaws, any
agreement or otherwise.
Article Eleven of the Company's Amended and Restated Articles of
Incorporation provides as follows:
The corporation shall indemnify any person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding (as hereinafter
defined) because the person (a) is or was a director or officer of the
corporation or (b) while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the
fullest extent that a corporation may grant indemnification to a person
serving in such capacity under the Texas Business Corporation Act, as the
same exists or may hereafter be amended.
Such right shall be a contract right and shall include the right to be
paid by the corporation for all expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or
may hereafter be amended. If a claim for indemnification or advancement of
expenses under the corporation's articles of incorporation is not paid in
full by the corporation within 90 days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expenses of prosecuting such claim. It shall be a defense to any
such action that such indemnification or advancement of costs of defense is
not permitted under the Texas Business Corporation Act, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors or any committee thereof,
special legal counsel, or shareholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement
of costs of defense to, the claimant is permissible in the circumstances nor
an actual determination by the corporation (including its Board of Directors
or any committee thereof, special legal counsel, or shareholders) that such
indemnification or
II-1
<PAGE>
advancement is not permissible shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible.
The corporation additionally may indemnify any person covered by the
grant of mandatory indemnification contained above to such further extent as
is permitted by law and may indemnify any other person to the fullest extent
permitted by law.
As used herein, the term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such an action,
suit or proceeding and any inquiry or investigation that could lead to such
an action, suit or proceeding.
In addition, Article IX of the Company's Amended and Restated Bylaws
provides for such indemnification of officers and directors within the limits
set forth in the Articles of Incorporation and applicable provisions of Texas
law.
Article Twelve of the Company's Amended and Restated Articles of
Incorporation further includes a provision eliminating the monetary liability of
a director to the Company or its shareholders for an act or omission in the
director's capacity as a director to the fullest extent permitted by Texas law.
The Company is also a party to Indemnification Agreements with each of its
directors and executive officers. Pursuant to such agreements, the Company
indemnifies such indemnitees against all liability and reasonable expenses to
the fullest extent permitted by applicable law. The Company has also purchased
director and officer liability insurance in order to limit its exposure to
liability for indemnification of its directors and executive officers.
On July 17, 1997, the Company effected a three-for-two stock split in the
form of a stock dividend. This stock split was not subject to the registration
provisions of the Securities Act because it did not involve an offer or sale of
securities. All of the information regarding the Company's securities set forth
herein has been adjusted to give effect to the stock split.
On February 20, 1998, the Company effected a three-for-two stock split in
the form of a stock dividend. This stock split was not subject to the
registration provisions of the Securities Act because it did not involve an
offer or sale of securities. All of the information regarding the Company's
securities set forth herein has been adjusted to give effect to the stock split.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits
<TABLE>
<C> <S>
+1.1 Underwriting Agreement by and among the Company, the Selling Shareholders and the
Underwriters
3.2 Articles of Amendment to Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1997)
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
3.2 Articles of Amendment to Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1997)
3.3 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (Registration No.
33-87612))
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.1 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (Registration No. 33-87612))
4.2 Amended and Restated Articles of Incorporation and Bylaws of the Company (see
Exhibits 3.1, 3.2 and 3.3 above)
4.3 Right of First Refusal Agreement dated December 16, 1994 by and among the Company
and Messrs. Ogle, Balthaser and Sims (incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-1 (Registration No. 33-87612))
+5.1 Opinion of Locke Purnell Rain Harrell
*10.1 Employment Agreement dated November 1, 1996 by and between the Company and William
E. Ogle (incorporated by reference to Exhibit 10.42 to the Company's
Registration Statement on Form S-1 (Registration No. 333-14313))
*10.2 Employment Agreement dated November 1, 1996 by and between the Company and Randall
D. Eisenbach (incorporated by reference to Exhibit 10.43 to the Company's
Registration Statement on Form S-1 (Registration No. 333-14313))
*10.3 Employment Agreement dated November 1, 1996 by and between the Company and James
L. Hopkins (incorporated by reference to Exhibit 10.44 to the Company's
Registration Statement on Form S-1 (Registration No. 333-14313))
*10.4 Employment Agreement dated November 1, 1996 by and between the Company and J.
Shane Long (incorporated by reference to Exhibit 10.45 to the Company's
Registration Statement on Form S-1 (Registration No. 333-14313))
*10.5 Indemnification Agreement dated February 8, 1995 by and between William E. Ogle
and the Company (incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
*10.6 Indemnification Agreement dated February 8, 1995 by and between Randall D.
Eisenbach and the Company (incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (Registration No. 33-87612))
*10.7 Indemnification Agreement dated February 8, 1995 by and between James L. Hopkins
and the Company (incorporated by reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
*10.8 Indemnification Agreement dated February 8, 1995 by and between J. Shane Long and
the Company (incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
*10.9 Indemnification Agreement dated February 8, 1995 by and between James J. Byrne and
the Company (incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
*10.10 Indemnification Agreement dated February 8, 1995 by and between Lawrence E.
Wesneski and the Company (incorporated by reference to Exhibit 10.29 to the
Company's Registration Statement on Form S-1 (Registration No. 33-87612))
+*10.11 Indemnification Agreement by and between Dennis G. Sabo and the Company
+*10.12 Indemnification Agreement by and between Bryan F. Keyes and the Company
*10.13 Indemnification Agreement dated February 8, 1995 by and between Mark S. Sims and
the Company (incorporated by reference to Exhibit 10.26 to the Company's
Registration Statement on Form S-1 (Registration No. 33-87612))
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.14 Indemnification Agreement dated February 8, 1995 by and between William D.
Balthaser Jr. and the Company (incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1 (Registration No. 33-87612))
*10.15 Company's Amended and Restated 1995 Long Term Incentive Plan (incorporated by
reference to Appendix A of the Company's definitive Proxy Statement for the 1997
Annual Meeting of Shareholders)
*10.16 Company's Amended and Restated Stock Option Plan for Non-Employee Directors
(incorporated by reference to Appendix B of the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders)
*10.17 STB Systems, Inc. 1995 Employee Stock Option Purchase Plan (as amended)
(incorporated by reference to Exhibit 10.38 to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1996)
*10.18 Amended and Restated Profit Sharing Incentive Plan (incorporated by reference to
Exhibit 10.47 to the Company's Registration Statement on Form S-1 (Registration
No. 333-14313))
10.19 Lease Agreement dated December 6, 1988 by and between STB de Mexico S.A. de C.V.
(formerly known as Industrias Fronterizas de Chihuahua, S.A. de C.V.) (a
subsidiary of the Company, as lessee) and oomplejo Industrial Fuentes, S.A. de
C.V (as lessor), including an Agreement for Modification dated February 25, 1994
by and between the same parties (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1 (Registration No. 33-87612))
10.20 Modification Agreement dated October 4, 1996 by and between STB de Mexico, S.A. de
C.V. and Complejo Industrial Fuentes, S.A. de C.V. (relating to the Lease
Agreement filed as Exhibit 10.1 hereto) (incorporated by reference to Exhibit
10.46 to the Company's Registration Statement on Form S-1 (Registration No.
333-14313))
10.21 Lease Contract dated October 4, 1996 by and between STB de Mexico, S.A. de C.V.
(as lessee) and Complejo Industrial Fuentes, S.A. de C.V. (as lessor)
(incorporated by reference to Exhibit 10.41 to the Company's Registration
Statement on Form S-1 (Registration No. 333-14313))
10.22 Amendment to Lease Agreement dated January 30, 1997, by and between STB de Mexico,
S.A. de C.V. (as lessee) and Complejo Industrial Fuentes, S.A. de C.V.
(incorporated by reference to Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1997)
10.23 Lease Agreement, as amended, dated July 8, 1986 by and between the Company (as
lessee) and Central Park Associates, Ltd. (as lessor) (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-1
(Registration No. 33-87612))
10.24 Lease Agreement dated June, 1995, by and between the Company (as lessee) and
Springcreek Place, Ltd. (as lessor) (incorporated by reference to Exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1995)
10.25 Addendum to Lease Agreement dated March 7, 1996 by and between the Company (as
lessee) and Springcreek Place, Ltd. (as lessor) (incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996)
10.26 Second Addendum to Lease Agreement dated March 7, 1996, by and between the Company
(as lessee) and Springcreek Place, Ltd. (as lessor) (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1997)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.27 Sublease Agreement dated August 1996 by and between ADC Telecommunications, Inc.
(as sublessor) and the Company (as sublessee) (incorporated by reference to
Exhibit 10.40 to the Company's Registration Statement on Form S-1 (Registration
No. 333-14313))
10.28 Tax Allocation and Indemnification Agreement dated December 16, 1994 by and among
the Company and Messrs. Ogle, Balthaser and Sims (incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement on Form S-1 (Registration
No. 33-87612))
10.29 Purchase Agreement dated December 17, 1996, by and between the Company and Gateway
2000, Inc. (incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997)
10.30 Lease Agreement by and between the Company and Banc One Leasing Corporation dated
October 30, 1996, together with related attachments (incorporated by reference
to Exhibit 10.48 to the Company's Registration Statement on Form S-1
(Registration No. 333-14313))
10.31 Participation Agreement dated as of November 14, 1997 among Asset XVII Holdings
Company, L.L.C., as lessor, STB Systems, Inc., as lessee and Bank One, Texas,
N.A., as lender (incorporated by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997)
10.32 Lease and Development Agreement dated as of November 14, 1997 among Asset XVII
Holdings Company, L.L.C., as lessor, and STB Systems, Inc., as lessee
(incorporated by reference to Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1997)
10.33 Limited Notice to Proceed No. 1 dated as of December 18, 1997 executed by STB
Systems, Inc. and Austin Commercial, Inc. (incorporated by reference to Exhibit
10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1997)
10.34 Credit Agreement dated as of November 21, 1997 between STB Systems, Inc., and Bank
One, Texas, N.A. (incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997)
+10.35 First Amendment To Credit Agreement dated as of January 30, 1998 by and among the
Company, Bank One, Texas, N.A. and the Original Lenders as therein defined
+10.36 Lease Schedule No. 1000063250 dated as of October 31, 1997 to Master Lease
Agreement dated October 30, 1996 between Banc One Leasing Corporation and the
Company
+10.37 Lease Schedule No. 1000063259 dated as of October 31, 1997 to Master Lease
Agreement dated October 30, 1996 between Banc One Leasing Corporation and the
Company
+10.38 Lease Schedule No. 1000063905 dated as of December 15, 1997 to Master Lease
Agreement dated October 30, 1996 between Banc One Leasing Corporation and the
Company
+10.39 Master Lease Amendment dated as of October 31, 1997 to Master Lease Agreement
dated October 30, 1996 between Banc One Leasing Corporation and the Company
+10.40 Selling Shareholder Agreement between the Company and each of Messrs. Ogle,
Balthaser and Sims
21 Subsidiaries of the Company
(a) STB Assembly, Inc., a Texas corporation
(b) STB de Mexico, S.A. de C.V., a Mexican corporation
(c) Maquilados Continentales de Chihuahua, a Mexican corporation (an inactive
shell corporation)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
(d) Symmetric Simulation Systems, Inc.
+23 Consent of Price Waterhouse LLP
+24 Powers of Attorney (included on first signature page)
+27 Financial Data Schedule
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement.
+ Filed herewith.
(b) Financial Statement Schedule (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended October 31, 1997)
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it
was declared effective.
II-6
<PAGE>
(5) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on February 24, 1998.
<TABLE>
<S> <C> <C>
STB SYSTEMS, INC.
By: /s/ WILLIAM E. OGLE
-----------------------------------------
William E. Ogle
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William E. Ogle and Bryan F. Keyes, and
each of them, such individual's true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for such individual and in
his or her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any registration statement related to the offering contemplated by this
registration statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
hereto, and all documents in connection therewith, with the Securities and
Exchange Commission and any state or other securities authority, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully and to intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
/s/ WILLIAM E. OGLE Directors and Chief
- ------------------------------ Executive Officer February 24, 1998
William E. Ogle (Principal Executive
Officer)
Executive Vice President,
/s/ RANDALL D. EISENBACH Chief Operating Officer,
- ------------------------------ Assistant Secretary and February 24, 1998
Randall D. Eisenbach Director
Chief Financial Officer,
/s/ JAMES L. HOPKINS Vice President of
- ------------------------------ Strategic Marketing and February 24, 1998
James L. Hopkins Director
Vice President of
Administration and
/s/ BRYAN F. KEYES General Counsel,
- ------------------------------ Secretary and Treasurer February 24, 1998
Bryan F. Keyes (Principal Financial and
Accounting Officer)
II-8
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ J. SHANE LONG Vice President of Sales
- ------------------------------ and Marketing and February 24, 1998
J. Shane Long Director
/s/ JAMES J. BYRNE
- ------------------------------ Director February 24, 1998
James J. Byrne
/s/ DENNIS G. SABO
- ------------------------------ Director February 24, 1998
Dennis G. Sabo
/s/ LAWRENCE E. WESNESKI
- ------------------------------ Director February 24, 1998
Lawrence E. Wesneski
II-9
<PAGE>
STB SYSTEMS, INC.
3,000,000 SHARES
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
March __, 1998
CIBC Oppenheimer Corp.
Hambrecht & Quist LLC
Hoak Breedlove Wesneski & Co.
The Buckingham Research Group, Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 19281
On behalf of the Several
Underwriters named in
Schedule I attached hereto
Ladies/Gentlemen:
STB Systems, Inc., a Texas corporation (the "Company"), and each person
listed under the caption "Selling Shareholders" on Schedule II to this Agreement
(individually, a "Selling Shareholder" and collectively the "Selling
Shareholders") propose to sell to you and the other underwriters named in
Schedule I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives, an aggregate of 3,000,000 shares of the Company's common stock,
$0.01 par value (the "Common Stock"), of which 2,775,000 shares are to be issued
and sold by the Company (the "Company Firm Shares") and 225,000 shares are to be
sold by the Selling Shareholders (the "Selling Shareholder Firm Shares"). The
Company Firm Shares and the Selling Shareholder Firm Shares are hereinafter
referred to collectively as the "Firm Shares." In addition, the Company and the
Selling Shareholders propose to grant to the Underwriters the option to purchase
up to an aggregate of 450,000 shares of Common Stock (collectively, the "Option
Shares") for the purpose of covering over-allotments in connection with the sale
of the Firm Shares. Of the total of 450,000 Option Shares, the Company proposes
to grant to the Underwriters the option to purchase up to an aggregate of
225,000 shares (the "Company Option Shares") and (ii) and each of the three
Selling Shareholders, severally and not jointly, proposes to grant to the
Underwriters the option to purchase up to an aggregate of 75,000 shares
(individually, the "Selling Shareholder Option Shares"). The Company Firm
Shares and the Company Option Shares are hereinafter called the "Company Shares"
and the Selling Shareholder Shares and the Selling Shareholder Option Shares of
each Selling Shareholder are hereinafter referred to collectively as the
"Selling Shareholder Shares." The Company Shares and the Selling Shareholder
Shares are hereinafter referred to collectively as the "Shares."
<PAGE>
1. SALE AND PURCHASE OF THE SHARES
.
On the basis of the representations, warranties and agreements contained
in, and subject to the terms and conditions of, this Agreement:
(a) Each of the Company and the Selling Shareholders agrees, severally and
not jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholders, at $_____ per share (the "Initial Price"), the respective number
of Company Firm Shares and Selling Shareholder Firm Shares set forth opposite
the names of the Company and the Selling Shareholders on Schedule II to this
Agreement. The obligation of each Underwriter to the Company and to each
Selling Shareholder shall be to purchase from the Company or such Selling
Shareholder that number of Company Firm Shares or Selling Shareholder Firm
Shares, as the case may be, which (after adjustment by the Representatives to
eliminate fractions) is in the same proportion to the number of Company Firm
Shares or Selling Shareholder Firm Shares, as the case may be, set forth
opposite the name of the Company or such Selling Shareholder in Schedule II
hereto as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I to this Agreement (subject to adjustment as provided
in Section 10 hereto) bears to the total number of Firm Shares to be sold by the
Company and the Selling Shareholders pursuant to this Agreement.
(b) For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Shares, the Company and each of the Selling
Shareholders, severally and not jointly, hereby grants to the several
Underwriters an option to purchase, severally and not jointly, all or any part
of the Option Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (after adjustment by
the Representatives to eliminate fractions) of the total number of Option Shares
to be purchased by the Underwriters as such Underwriter is purchasing of the
Firm Shares. Such option may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters and may be exercised in whole or in
part at any time on or before 12:00 noon, New York City time, on the business
day before the Firm Shares Closing Date (as defined below), and only once
thereafter within 30 days after the date of this Agreement, in each case upon
written or telegraphic notice, or verbal or telephonic notice confirmed by
written or telegraphic notice, by the Representatives to the Company no later
than 12:00 noon, New York City time, on the business day before the Firm Shares
Closing Date or at least two business days before the Option Shares Closing Date
(as defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase.
2. DELIVERY AND PAYMENT.
Delivery by the Company and the Selling Shareholders of the Firm Shares to
the Representatives for the respective accounts of the several Underwriters, and
payment of the purchase price by certified or official bank check or checks
payable (or wire transfer or transfers) in New York Clearing House funds (or
similar next day funds) to the Company and the Custodian (as hereinafter
defined) or the benefit of the Selling Shareholders, shall take place at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page
Mill Road, Palo Alto, California 94304, at 6:00 a.m., local time, on the third
business day following the date of this Agreement, or at such time on such other
date, not later than 10 business days after the date of this Agreement, as shall
be agreed upon by the Company and the Representatives (such time and date of
[2]
<PAGE>
delivery and payment are called the "Firm Shares Closing Date"); provided,
however, that if the Company has not made available to the Representatives
copies of the Prospectus (as defined below) within the time provided in Section
6.I.(d) hereof, the Closing Date shall be postponed until the second full
business day following delivery of copies of the Prospectus to the
Representatives.
In the event the option with respect to the Option Shares is exercised,
delivery by the Company of the Option Shares to the Representatives for the
respective accounts of the Underwriters and payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
funds (or similar next day funds) to the Company shall take place at the offices
of Wilson Sonsini Goodrich & Rosati, Professional Corporation, specified above
at the time and on the date (which may be the same date as, but in no event
shall be earlier than, the Firm Shares Closing Date) specified in the notice
referred to in Section 1(b) (such time and date of delivery and payment are
called the "Option Shares Closing Date"). The Firm Shares Closing Date and the
Option Shares Closing Date are called, individually, a "Closing Date" and,
together, the "Closing Dates."
The certificates in negotiable form for the Selling Shareholder Firm Shares
have been placed in custody under the Custody Agreement (as defined below) and
this Agreement. Each Selling Shareholder agrees that the certificates for the
Selling Shareholder Firm Shares of such Selling Shareholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Shareholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of such
Selling Shareholder hereunder shall not be terminated by the act of such Selling
Shareholder or by operation of law, whether by the death or incapacity of such
Selling Shareholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Shareholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Shareholder Firm Shares hereunder,
the Selling Shareholder Firm Shares to be sold by such Selling Shareholder
shall, except as specifically provided herein or in the Custody Agreement, be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death or
other event.
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or, in the case of Option
Shares, on the day of notice of exercise of the option as described in
Section 1(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares or the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
[3]
<PAGE>
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING.
The Company has prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Securities Act Rules") adopted by the
Securities and Exchange Commission (the "Commission"), a registration statement
on Form S-3 (No. 333-_______), including a prospectus subject to completion
relating to the Shares, and has filed with the Commission the registration
statement and such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Securities Act Rules as may have been required to
the date of this Agreement. Copies of such registration statement and
amendments and of each related prospectus subject to completion (the
"preliminary prospectuses"), including all documents incorporated by reference
therein, and of any abbreviated registration statement pursuant to Rule 462(b)
of the Securities Act Rules have heretofore been delivered by the Company to
you. The Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-3 under the Securities Act.
The registration statement as amended at the time and on the date it became
effective (the "Effective Date"), including all exhibits and information, if
any, deemed to be part of the registration statement pursuant to Rule 424(a),
Rule 430A and Rule 434 of the Securities Act Rules, is called the "Registration
Statement" (except that if any amendment to the Registration Statement, or any
abbreviated registration statement deemed to be part of the Registration
Statement pursuant to Rule 462(b) of the Securities Act Rules, shall be filed
after the Effective Date, the term "Registration Statement" shall also mean
(from and after the effectiveness of such amendment or such abbreviated
registration statement) such Registration Statement as so amended. The term
"Prospectus" means the prospectus included in the Registration Statement at the
time of effectiveness (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) or Rule 434 of the Securities
Act Rules, the information deemed to be a part of the Registration Statement at
the time it became effective pursuant to Rule 430A(b) or Rule 434(d), as the
case may be, of the Securities Act Rules), except that if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares which differs from the prospectus on file with the
Commission at the time the registration statement became or becomes, as the case
may be, effective (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424 of the Securities Act Rules), the
term "Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use. Any reference to the
Registration Statement or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of the Registration Statement or the
Prospectus, as the case may be, and any reference to any amendment or supplement
to the Registration Statement or the Prospectus shall be deemed to refer to and
include any documents filed after such date under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
in this Agreement, the term "Incorporated Documents" means the documents which
at the time are incorporated by reference in the Registration Statement, the
Prospectus or any amendment or supplement thereto.
The Company and the Selling Shareholders understand that the Underwriters
propose to make a public offering of the Shares, as set forth in and pursuant to
the Prospectus, as soon after the Effective Date and the date of this Agreement
as the Representatives deem advisable. The Company and the Selling Shareholders
hereby confirm that the Underwriters and dealers have been authorized to
distribute or cause to be distributed
[4]
<PAGE>
each preliminary prospectus and are authorized to distribute the Prospectus
(as from time to time amended or supplemented if the Company furnishes
amendments or supplements thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
I. The Company hereby represents and warrants to each Underwriter and
each Selling Shareholder as follows:
(a) The Registration Statement was declared effective under the Securities
Act by the Commission at [__:00 _.m. on March _, 1998. On the Effective Date
the Registration Statement complied, and on the date of the Prospectus, on the
date any post-effective amendment to the Registration Statement shall become
effective, on the date any supplement or amendment to the Prospectus is filed
with the Commission and on each Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will comply, in all
material respects, with the applicable provisions of the Securities Act and the
Securities Act Rules; the Registration Statement did not, as of the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to above
neither the Registration Statement nor the Prospectus, nor any amendment thereof
or supplement thereto, will contain any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the Registration Statement or any amendment thereto or pursuant to
Rule 424(a) of the Securities Act Rules) and when any amendment thereof or
supplement thereto was first filed with the Commission, such preliminary
prospectus as amended or supplemented complied in all material respects with the
applicable provisions of the Securities Act and the Securities Act Rules and did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph shall apply to
information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by any Underwriter
through the Representatives specifically for inclusion therein or written
information provided to the Representatives by any Selling Shareholder in such
Selling Shareholder's capacity as such specifically for inclusion therein. The
Company makes no representation or warranty as to (i) the last paragraph on the
outside front cover page of the Prospectus, (ii) the paragraphs with respect to
stabilization and passive market making on the inside front cover page of the
Prospectus and (iii) the statements contained in the third and fifth paragraphs
under the caption "Underwriting" in any preliminary prospectus and in the
Prospectus. The Company and each of the Selling Shareholders acknowledge that
the statements referred to in the previous sentence constitute the only
information furnished in writing by the Representatives on behalf of the several
Underwriters specifically for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus or any Incorporated Document. The
Commission has not issued any order preventing or suspending the use of any
preliminary prospectus.
The Incorporated Documents heretofore filed, when they were filed (or, if
any amendment with respect to any such document was filed, when such amendment
was filed), conformed in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder (the "Exchange Act Rules"); any further Incorporated Documents so
filed will, when they are filed, conform in all material respects with the
requirements of the Exchange Act and the Exchange Act Rules; no
[5]
<PAGE>
such document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and no such further amendment will contain 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.
(b) The consolidated financial statements (including all notes and
schedules thereto) of the Company included or incorporated by reference in
the Registration Statement and the Prospectus comply with the requirements of
the Securities Act and the Securities Act Rules and present fairly on a
consolidated basis the financial position, the results of operations and cash
flows and the shareholders' equity and deficit and the other information
purported to be shown therein of the Company at the respective dates and for
the respective periods to which they apply; and such financial statements
have been prepared in conformity with generally accepted accounting
principles, consistently applied throughout the periods involved except as
may be otherwise stated therein, and all adjustments necessary for a fair
presentation of the results for such periods have been made; and the other
financial and statistical information and data included or incorporated by
reference in the Registration Statement and the Prospectus present fairly the
information shown therein and have been prepared on a basis consistent with
such financial statements and the books and records of the Company.
(c) Price Waterhouse LLP, whose reports are included or incorporated by
reference in the Registration Statement, are and, during the periods covered by
their reports, were independent public accountants as required by the Securities
Act and the Securities Act Rules.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Texas. Each of STB
Assembly, Inc., a Texas corporation, ("STB Assembly"), STB de Mexico, S.A. de
C.V., a Mexican corporation ("STB Mexico"), Maquilados Continentales de
Chihuahua, a Mexican corporation ("Maquilados Continentales"), Symmetric
Simulation Systems, Inc., a Texas corporation ("Symmetric") (collectively, the
"subsidiaries"), has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus. Neither the Company nor any of its subsidiaries
owns, directly or indirectly, any interest in, or controls, directly or
indirectly, any corporation, partnership, joint venture, association or other
business organization other than as disclosed in the Registration Statement and
the Prospectus. Each of the Company and its subsidiaries is duly qualified and
in good standing as a foreign corporation in each jurisdiction in which the
character or location of their assets or properties (owned, leased or licensed)
or the nature of their business makes such qualification necessary except for
such jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets or properties, business, results of operations or
condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise. As of the date hereof, all of the issued and
outstanding shares of capital stock of each of its subsidiaries are owned,
directly or indirectly, by the Company free and clear of any pledge, lien,
encumbrance, security interest, restriction, claim, equitable interest or other
defect in title. All of the issued and outstanding shares of capital stock of
each subsidiary have been validly authorized and issued and are fully paid and
non-assessable, and there are outstanding no other equity or other securities or
any securities convertible into capital stock of any subsidiary, nor are there
any rights to acquire capital stock or other equity securities of any subidiary.
The Company does not own or control, directly or indirectly, any corporation,
association or other entity other than STB Assembly, STB Mexico, Maquilados
Continentales and Symmetric,
[6]
<PAGE>
all of which are listed on Exhibit 21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1997.
(e) Neither the Company nor any of its subsidiaries owns, leases or
licenses any asset or property or conducts any business outside the United
States of America that is required to be disclosed in the Registration Statement
and the Prospectus other than as disclosed in the Registration Statement and the
Prospectus. Each of the Company and its subsidiaries has the requisite
corporate power and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity domestic or
foreign ("Permits"), to own, lease and license their assets and properties and
conduct their businesses as now being conducted and as described in the
Registration Statement and the Prospectus, except where the lack of such Permit
would not have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries considered as one enterprise; no such Permit
contains a materially burdensome restriction other than as disclosed in the
Registration Statement and the Prospectus; the Company and its subsidiaries have
fulfilled and performed in all material respects their obligations with respect
to such Permits and, to the knowledge of the Company, no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or any other material impairment of the rights of the holder
thereof; and the Company has the requisite corporate power and authority, and
such authorizations, approvals, consents, orders, licenses, certificates and
permits to enter into, deliver and perform this Agreement and to issue and sell
the Shares (except as may be required under the Securities Act, the Exchange
Act, under state and foreign Blue Sky laws and from the National Association of
Securities Dealers, Inc. (the "NASD").
(f) The Company or its subsidiaries owns each of the patents and patent
applications referred to in the Registration Statement and the Prospectus under
the caption "Business -- Intellectual Property" (the "Patents and Patent
Applications") and, except as disclosed in the Registration Statement and the
Prospectus, (i) each of the Company and its subsidiaries owns or possesses, or
could obtain ownership or possession of (on terms not materially adverse to the
consolidated financial position, shareholders' equity, results of operations of
the Company and its subsidiaries considered as one enterprise) adequate and
enforceable rights to use all other patent applications, patents, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar rights and proprietary
knowledge (collectively with the Patents and Patent Applications, the
"Intangibles") necessary for the conduct of their businesses as described in the
Registration Statement and the Prospectus and (ii) neither the Company nor any
subsidiary has infringed, is infringing, or has received any notice of
infringement of any Intangible of any other person other than patents or
trademarks, and neither the Company nor any subsidiary has received any notice
of infringement of, or to the knowledge of the Company, has infringed or is
infringing, any patents or trademarks of any other person that, if the subject
of an unfavorable decision, ruling or finding, could reasonably be expected to
have a material adverse effect upon the assets or properties, business, results
of operations, prospects or condition (financial or otherwise) of the Company
and its subsidiaries considered as one enterprise and the Company knows of any
basis therefor. The expiration of any Intangibles would not have a material
adverse effect on the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries considered as one enterprise.
(g) Each of the Company and its subsidiaries has good and marketable title
in fee simple to each of the items of real property and good title to each of
the items of personal property which are reflected in the financial statements
referred to in Section 4.I.(b) or are referred to in the Registration Statement
and the
[7]
<PAGE>
Prospectus as being owned by them, and valid and enforceable leasehold
interests in each of the items of real and personal property which are
referred to in the Registration Statement and the Prospectus as being leased
by them (except as the enforcement of such leasehold interests may be limited
by bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium or other similar laws relating to or affecting
creditors' rights generally and by general principles of equity, regardless
of whether considered in a proceeding in equity or at law), in each case free
and clear of any pledge, lien, encumbrance, security interest, restriction,
claim, equitable interest or other defect in title, other than those
described in the Registration Statement and the Prospectus and those which do
not and will not have a material adverse effect upon the assets or
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries considered as
one enterprise.
(h) The Company and its subsidiaries carry, or are covered by, insurance
in such amounts and covering such risks as is generally deemed adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses in
similar industries.
(i) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board pending
or, to the knowledge of the Company, threatened (and neither the Company nor any
subsidiary knows of any basis therefor) against, or involving the assets,
properties or business of, the Company or any subsidiary or, to the knowledge of
the Company, any of their respective officers or directors that could be
reasonably likely to affect materially and adversely the value or the operation
of any such assets or properties or the business, results of operations,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries considered as one enterprise.
(j) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as described therein,
there has not been any material adverse change in the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company and its subsidiaries considered as one enterprise, whether or not
arising from transactions in the ordinary course of business; there has not been
any material change in the capital stock or material increase in the short-term
or long-term debt of the Company and its subsidiaries considered as one
enterprise nor has the Company or any subsidiary sustained any material loss or
interference with its assets, businesses or properties (whether owned or leased)
from fire, explosion, earthquake, flood, wind or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree; and since the date of the latest
balance sheet included in the Registration Statement and the Prospectus, except
as reflected therein, neither the Company nor any subsidiary has undertaken any
liability or obligation, direct or contingent, except for liabilities or
obligations undertaken in the ordinary course of business.
(k) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus (or any Incorporated
Document) or any or to be filed as an exhibit to the Registration Statement (or
any Incorporated Document) that is not described or filed as required by the
Securities Act Rules or the Exchange Act or the Exchange Act Rules. Each
agreement listed in the Exhibits to the Registration Statement (or any
Incorporated Document) is either (i) in full force and effect and is valid and
enforceable by the Company or its subsidiaries, as the case may be, in
accordance with its terms, assuming the due authorization, execution and
delivery thereof by each of the other parties thereto and except as the
enforcement of such agreement may be limited by bankruptcy, insolvency,
reorganization, arrangement,
[8]
<PAGE>
fraudulent conveyance, moratorium or other similar laws relating to or
affecting creditors' rights generally and by general principles of equity
(regardless of whether considered in a proceeding in equity or at law) or
(ii) has expired by its terms. Neither the Company nor any subsidiary, nor
to the knowledge of the Company, any other party is in material default in
the observance or performance of any term or obligation to be performed by it
under any such agreement, and no event has occurred which with notice or
lapse of time or both would constitute such a material default, in any such
case which material default or event would have a material adverse effect on
the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise. No material default exists, and no event has
occurred which with notice or lapse of time or both would constitute a
material default, in the due performance and observance of any material term,
covenant or condition, by the Company or any subsidiary, as the case may be,
under any such agreement or any other bond, debenture, note or other evidence
of indebtedness, or any lease, contract, indenture, mortgage, deed of trust,
loan agreement, license or other material agreement or instrument to which
the Company or any subsidiary, as the case may be, is a party or by which it
or its properties or businesses may be bound or affected, which default or
event would have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and its subsidiaries considered as one enterprise.
(l) Each of the Company and its subsidiaries is not in violation of any
term or provision of its charter, bylaws or other organizational documents.
Neither the Company nor any subsidiary is in violation of any term or provision
of any franchise, license, permit, judgment, decree, order, statute, rule or
regulation, where the consequences of such violation would have a material
adverse effect on the assets or properties, business, results of operations, or
condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise.
(m) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation of any of the transactions contemplated hereby
(including, without limitation, the issuance and sale of the Company Firm Shares
by the Company or the sale of the Selling Shareholder Firm Shares) will
(i) violate any provision of the charter, bylaws or other organizational
documents of the Company or any of its subsidiaries, or (ii) give rise to a
right to terminate or accelerate the due date of any payment due under, or
conflict with or result in a material breach of any term or provision of, or
constitute a material default (or an event which with notice or lapse of time or
both would constitute a material default) under, or require any consent or
waiver under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or any subsidiary
pursuant to the terms of, any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, license or other material agreement or instrument, to which the
Company or any subsidiary is a party or by which they or any of their properties
is bound, or (iii) result in the material violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation applicable to the
Company or any subsidiary (except for such consents or waivers which have
already been obtained and are in full force and effect).
(n) The Company and each subsidiary is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any subsidiary would have any liability; neither the
Company nor any subsidiary has incurred or expects to incur liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and
[9]
<PAGE>
published interpretations thereunder (the "Internal Revenue Code"); and each
"pension plan" for which the Company or any subsidiary would have any
liability that is intended to be qualified under Section 401(a) of the
Internal Revenue Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the
loss of such qualification.
(o) The authorized, issued and outstanding capital stock of the Company on
(i) an actual basis (prior to the sale of the Company Firm Shares), and (ii) on
an as adjusted basis (after giving effect to the sale of the Company Firm
Shares) is as set forth under the caption "Capitalization" in the Prospectus
(including the assumptions set forth in the introductory paragraph to the table
and the footnote to the table) as of the date specified therein. All of the
issued and outstanding securities of the Company and its subsidiaries have been
duly and validly issued and are fully paid (and, in the case of any equity
securities, nonassessable) and were issued and sold in compliance with (or, as
of the date hereof, all such issuances and sales have been brought into
compliance with) all applicable United States federal and state securities laws,
and none of them was issued in violation of any preemptive right, co-sale right,
registration right, right of first refusal or other similar right that, as of
the date hereof, has not been legally and validly waived by each holder of such
rights. The Company Shares, when sold pursuant to this Agreement, will be duly
and validly issued, fully paid and nonassessable, will be free and clear of any
pledge, lien, encumbrance, security interest, restriction, claim, equitable
interest or other defect in title, and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
securityholders exists with respect to any of such Shares or the issue and sale
thereof by the Company and the sale thereof by the Selling Shareholders pursuant
to this Agreement. As of the date hereof, there are no shares of convertible
preferred stock outstanding of the Company or outstanding options, convertible
notes and warrants of the Company except for any stock options exercisable for
the Company's Common Stock only. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment, plan or arrangement to
issue, any capital stock of the Company or any subsidiary or any security
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any subsidiary. The Company's Preferred Stock (the "Preferred
Stock") and Common Stock described under the caption "Description of Capital
Stock" and the Shares conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(p) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as described or referred
to therein, neither the Company nor any subsidiary has (i) issued any securities
or incurred any liability or obligation that is material to the Company and its
subsidiaries considered as one enterprise, direct or contingent, for borrowed
money, (ii) entered into any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions in the ordinary
course of business, or (iii) declared or paid any dividend or made any
distribution on any shares of its capital stock or redeemed, purchased or
otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares
of its capital stock.
(q) All necessary corporate action has been duly and validly taken by the
Company to authorize the execution, delivery and performance of this Agreement
and the issuance and sale of the Company Shares. This Agreement has been duly
and validly authorized, executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against it,
in accordance with its terms, except as the enforcement hereof may be limited by
(i) bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other similar laws relating to or affecting creditors' rights
generally and by general principles of equity (regardless of whether considered
in a proceeding in equity or at law) and
[10]
<PAGE>
(ii) the extent to which the rights to indemnity or contribution under this
Agreement may be limited by federal and state securities laws or the public
policy underlying such laws.
(r) Neither the Company nor any subsidiary is involved in any labor
dispute nor, to the knowledge of the Company, is any such dispute threatened,
which dispute would have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company and its subsidiaries considered as one enterprise.
(s) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any
subsidiary (or, to the knowledge of the Company, any of its predecessors in
interest) at, upon or from any of the property now or previously owned or leased
by the Company or any subsidiary, in violation of any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit, except for any violation or remedial action which
would not have, or could not be reasonably likely to have, individually or in
the aggregate with all such violations and remedial actions, a material adverse
effect on the assets or properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise; there has been no material spill, discharge, leak,
emission, injection, escape, dumping or release of any kind onto such property
or into the environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due to or caused
by the Company or any subsidiary or with respect to which the Company or any
subsidiary has knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would not be
reasonably likely to have, individually or in the aggregate with all such
spills, discharges, leaks, emissions, injections, escapes, dumpings and
releases, a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries considered as one enterprise; and the terms
"hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes"
shall have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(t) No transaction has occurred between or among the Company or any
subsidiary and any of their officers, directors or five percent shareholders or
any affiliate or affiliates of any such officer, director or five percent
shareholder that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(u) Neither the Company nor any subsidiary has taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of any of the Shares.
(v) The Company and each of its subsidiaries has duly filed with the
appropriate taxing authorities all Tax Returns (as hereinafter defined) required
to be filed through the date of this Agreement by any of them, or have received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by them to the extent that the same are material to the
Company and its subsidiaries considered as one enterprise and have become due.
The term "Tax Returns" means any return supplied by the Company or any
subsidiary to, or any assessment received from, a taxing authority in the United
States, Mexico or elsewhere.
[11]
<PAGE>
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(aa) Neither the Company nor any subsidiary, nor, to the knowledge of the
Company, any affiliate of the Company or any subsidiary or any other person
acting on its or their behalf has directly or indirectly (i) used any corporate
funds for any unlawful payment to any foreign or domestic governmental or
judicial officials or employees, (ii) made any unlawful payment (including any
bribe, rebate, payoff, kickback or influence payment) to any person or entity,
private or public, whether in the form of cash, property, services or otherwise,
(iii) violated or is in violation of any provision of federal or state laws
relating to corruption of governmental officials or representatives, including
the Foreign Corrupt Practices Act of 1977 and similar laws, (iv) established or
maintained any fund of monies or other assets for the purposes specified in
clauses (i) or (ii) above or (v) made any false or fictitious entry on the books
or records of the Company or any subsidiary relating to any payment referred to
in clauses (i) or (ii) above.
(bb) The Company is not and, upon sale of the Shares to be issued and sold
in accordance herewith and the application of the net proceeds to the Company of
such sale as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the rules
and regulations thereunder.
(cc) The Shares have been duly authorized for quotation on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market, subject to official notice of issuance. The Company has duly filed a
Nasdaq National Market Notification Form for Listing of Additional Shares and
has filed or will file a Form 10-C with respect to the sale and issuance of the
Shares in accordance with the rules and regulations of the NASD and the
Commission.
(dd) The Company has complied with all of the requirements and filed the
required forms as specified in Florida Statutes Section 517.075.
(ee) The Company has duly filed on a timely basis with the Commission all
reports, registration statements and other documents required by the Securities
Act, the Securities Act Rules, the Exchange Act and the Exchange Act Rules. All
of such reports, registration statements and other documents, when they were
filed with the Commission, conformed in all material respects to the
requirements of the Securities Act, the Securities Act Rules, the Exchange Act
and the Exchange Act Rules, as appropriate. None of such reports, registration
statements or other documents contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(ff) Each of the Company's officers and directors and each of Selling
Shareholders has agreed in writing that they will not, for a period of 90 days
after the date of the Prospectus (the "Lock-up Period"), offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares
[12]
<PAGE>
of Common Stock or any securities convertible into or exchangeable for shares
of Common Stock (collectively, "Securities") now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by
this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, or (iii) with the prior written consent of
CIBC Oppenheimer Corp. The foregoing restriction has been expressly agreed
to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person has
also agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided
to counsel for the Underwriters true, accurate and complete copies of all of
the agreements pursuant to which its officers and directors and the Selling
Shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers or
directors or the Selling Shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of CIBC
Oppenheimer Corp.
II. Each Selling Shareholder, severally and not jointly and only as to
himself, represents and warrants and agrees with each Underwriter, the Company
and each other Selling Shareholder that:
(a) Such Selling Shareholder is on the date hereof the sole lawful owner
of the Shares to be sold by it pursuant to this Agreement; such Selling
Shareholder, at all times prior to each applicable Closing Date, shall be the
sole lawful owner of the Shares to be sold by it pursuant to this Agreement, and
has, and on such Closing Date will have, valid marketable title to the Shares to
be sold by it pursuant to this Agreement, free and clear of any pledge, lien,
encumbrance, security interest, restriction, claim, equitable interest or other
defect in title and, upon the delivery of and payment for the Shares to be sold
by such Selling Shareholder as contemplated in this Agreement, each of the
Underwriters will receive valid marketable title to the Shares purchased by it
from such Selling Shareholder, free and clear of any pledge, lien, encumbrance,
security interest, restriction, claim, equitable interest or other defect in
title; and there are no outstanding options, warrants, rights or other
agreements or arrangements requiring such Selling Shareholder at any time to
transfer any Shares to be sold by it to the several Underwriters pursuant to
this Agreement, except pursuant to the terms of this Agreement.
(b) Such Selling Shareholder has on the date hereof and, on each
applicable Closing Date will have, full legal right, power and authority to
enter into and to perform its obligations under this Agreement and to sell,
transfer, assign and deliver the Shares to be sold by such Selling Shareholder
to the several Underwriters pursuant to this Agreement; if such Selling
Shareholder is not a natural person, such Selling Shareholder has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization and this Agreement has been duly authorized by
such Selling Shareholder by all necessary action (corporate, partnership or
otherwise); this Agreement has been duly executed and delivered by or on behalf
of such Selling Shareholder and is a valid and binding obligation of such
Selling
[13]
<PAGE>
Shareholder, enforceable against such Selling Shareholder in accordance with
its terms, except as the enforcement hereof may be limited by (i) bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or
other similar laws relating to or affecting creditors' rights generally and
by general principles of equity (regardless of whether considered in a
proceeding in equity or at law) and (ii) the extent to which the rights to
indemnity or contribution under this Agreement may be limited by federal and
state securities laws or the public policy underlying such laws; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach of or a default under any bond,
debenture, note or other evidence of indebtedness, or any lease, contract,
indenture, mortgage, deed of trust, loan agreement, license or other material
agreement or instrument to which such Selling Shareholder is a party or by
which its properties or businesses or the Shares to be sold by such Selling
Shareholder hereunder may be bound or affected or, to the best of such
Selling Shareholder's knowledge, result in any violation of any applicable
law, order, rule, regulation, writ, injunction or decree of any court or
governmental agency or body having jurisdiction over such Selling Shareholder
or, if such Selling Shareholder is other than a natural person, result in the
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Shareholder.
(c) Such Selling Shareholder has duly authorized (if applicable), executed
and delivered, in the form heretofore furnished to the Representatives, an
irrevocable Power of Attorney (the "Power of Attorney") appointing James L.
Hopkins and Bryan F. Keyes as attorneys-in-fact (collectively, the "Attorneys"
and individually, an "Attorney") and a Letter of Transmittal and Custody
Agreement (the "Custody Agreement") with ChaseMellon Shareholder Services,
L.L.C., as custodian (the "Custodian"), (ii) such Selling Shareholder has full
right, power and authority to sell, transfer, assign and deliver the Shares to
be sold by such Selling Shareholder pursuant to this Agreement and such Custody
Agreement; if such Selling Shareholder is not a natural person, such Selling
Shareholder's Custody Agreement has been duly authorized by such Selling
Shareholder by all necessary action (corporate, partnership or otherwise); such
Selling Shareholder's Custody Agreement has been duly executed and delivered by
or on behalf of such Selling Shareholder and is a valid and binding obligation
of such Selling Shareholder, enforceable against such Selling Shareholder in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other similar laws relating to or affecting creditors' rights
generally and by general principles of equity (regardless of whether considered
in a proceeding in equity or at law); and the performance of such Selling
Shareholder's Custody Agreement and the consummation of the transactions therein
contemplated will not result in a breach of or a default under any bond,
debenture, note or other evidence of indebtedness, or any lease, contract,
indenture, mortgage, deed of trust, loan agreement, license or other material
agreement or instrument to which such Selling Shareholder is a party or by
which its properties or businesses or the Shares to be sold by such Selling
Shareholder hereunder may be bound or affected or, to the best of such Selling
Shareholder's knowledge, result in any violation of any applicable law, order,
rule, regulation, writ, injunction or decree of any court or governmental agency
or body having jurisdiction over such Selling Shareholder or, if such Selling
Shareholder is other than a natural person, result in the violation of any
provisions of the charter, bylaws or other organizational documents of such
Selling Shareholder.
(d) Each Attorney-in-Fact, acting alone, has been duly authorized to
execute and deliver this Agreement and the certificate referenced in Section
5(f) hereof on behalf of the Selling Shareholder that appointed him as
Attorney-in-Fact, to determine the purchase price to be paid by the several
Underwriters to such Selling Shareholder as provided in Section 1(a) hereof,
to authorize the delivery to the several Underwriters of the Shares to be
sold by each Selling Shareholder, against payment therefor, to duly endorse
[14]
<PAGE>
(in blank or otherwise) the certificate or certificates representing such
Shares or a stock power or powers with respect thereto, to accept payment
therefor, and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement. This Agreement has been duly executed and
delivered by or on behalf of such Selling Shareholder.
(e) The appointment of the Attorney-in-Fact by each Selling Shareholder is
irrevocable; and the obligations of such Selling Shareholder pursuant to this
Agreement shall not be terminated except as provided in this Agreement and such
Selling Shareholder's Custody Agreement, by any act of such Selling Shareholder,
by operation of law or otherwise, whether in the case of an individual Selling
Shareholder by the death or incapacity of such Selling Shareholder, or by the
occurrence of any other event.
(f) The Attorney-in-Fact has received from each Selling Shareholder, and
immediately upon receipt therefrom, delivered to the Custodian a certificate or
certificates in negotiable form evidencing the Shares to be sold by each Selling
Shareholder pursuant to such Selling Shareholders' Custody Agreement and this
Agreement; such Custody Agreement and the authority of the Custodian thereunder
are irrevocable and are not subject to termination by such Selling Shareholder,
except as provided in such Custody Agreement, or by operation of law, whether by
the death or incapacity of such Selling Shareholder (if such Selling Shareholder
is an individual), the death or incapacity of any trustee or executor or the
termination of any trust or estate (if such Selling Shareholder is a trust or
estate), the dissolution or liquidation of any corporation, partnership or other
organization (if such Selling Shareholder is a corporation, partnership or other
organization), or the occurrence of any other event. If any event referred to
in the preceding sentence should occur before the delivery of the Shares to the
several Underwriters hereunder, certificates for such Shares shall be delivered
by the Custodian, on behalf of such Selling Shareholder in accordance with the
terms and conditions of this Agreement and such Selling Shareholder's Custody
Agreement, and any action taken by the Custodian pursuant to such Selling
Shareholder's Custody Agreement shall be as valid as if such event had not
occurred, whether or not the Custodian, the Custody Attorney-in-Fact, or any one
of them, shall have received notice of such event.
(g) No transaction has occurred between such Selling Shareholder and the
Company or any subsidiary that is required to be described in and is not
described in the Registration Statement and the Prospectus; such Selling
Shareholder has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Shares other
than a preliminary prospectus or the Prospectus; such Selling Shareholder is not
prompted to sell the Shares to be sold by such Selling Shareholder hereunder by
any information concerning the Company or any of its subsidiaries that is not
set forth in the Registration Statement, any preliminary prospectus or the
Prospectus; such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which will reasonably be
expected to constitute, stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of any of the Shares.
(h) Such Selling Shareholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right, registration right, right of
first refusal or other similar right to purchase any of the Shares to be sold to
the several Underwriters by the Company or any other Selling Shareholder
pursuant to this Agreement; and such Selling Shareholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities of the Company or any subsidiary, other than those described in the
Registration Statement and the Prospectus.
[15]
<PAGE>
(i) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Internal Revenue Code of 1986, as amended,
such Selling Shareholder will deliver to the Representatives on or prior to each
applicable Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department Regulations in lieu thereof).
(j) Such Selling Shareholder hereby repeats and confirms as if set forth
herein each of the representations, warranties and agreements made by such
Selling Shareholder in its Custody Agreement and agrees that such
representations, warranties and agreements are made hereby for the benefit of,
and may be relied upon by, (i) the Representatives, the Underwriters and Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, as counsel to the
Underwriters, (ii) the Company and Lock Purnell Rain Harrell, as counsel to the
Company, (iii) __________, as counsel to the Selling Shareholders and (iii) each
other Selling Shareholder.
(k) Such Selling Shareholder will review the Prospectus and will comply
with all agreements and satisfy all conditions on its part to be complied with
or satisfied pursuant to this Agreement on or prior to each applicable Closing
Date; and will advise one of its Attorneys and CIBC Oppenheimer Corp. prior to
each applicable Closing Date if any statement to be made on behalf of such
Selling Shareholder in the certificate contemplated by Section 5(f) would be
inaccurate if made as of the applicable Closing Date.
(l) Each Selling Shareholder will not, during the Lock-Up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such Selling Shareholder or with respect to which such Selling Shareholder has
or hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to partners or shareholders of
such Selling Shareholder, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of CIBC Oppenheimer Corp. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the Selling
Shareholder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such Selling
Shareholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Shareholder except in compliance with this restriction.
(m) Certificates in negotiable form for all Shares to be sold by such
Selling Shareholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Shareholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
III. In addition to the representations and warranties set forth in Section
4.II. hereof, William E. Ogle, in his individual capacity as a Selling
Shareholder and not as an officer or director of the Company, severally and not
jointly and only as to himself, represents and warrants and agrees with each
Underwriter, the Company and each other Selling Shareholder that
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<PAGE>
(a) He has read the Registration Statement and the Prospectus and, to the
best of his knowledge: (i) the Registration Statement did not, as of the
Effective Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and (ii) the Prospectus did not, as of
each applicable Closing Date, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) He is not aware that any of the representations and warranties of the
Company set forth in Section 4.I. above is untrue or inaccurate in any material
respect.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS.
The obligations of the Underwriters under this Agreement are several and
not joint. The respective obligations of the Underwriters to purchase the
Shares are subject to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6.I.(a) hereof.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been issued or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the Commission, and any requests for additional information on the part of
the Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the satisfaction of the
Representatives.
(c) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any material adverse change, or any development involving a
prospective material adverse change, in or affecting the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company and its subsidiaries considered as one enterprise not
contemplated by the Prospectus, which in your reasonable judgment, as
Representatives of the several Underwriters, would materially and adversely
affect the market for the Shares, or (ii) any event or development relating to
or involving the Company or any of its subsidiaries or any officer or director
of the Company or any of its subsidiaries which makes any statement made in
the Prospectus untrue or which, in the opinion of the Company and its counsel
or the Underwriters and their counsel, requires the making of any addition to
or change in the Prospectus in order to state a material fact required by the
Securities Act or any other law to be stated therein, or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, if amending or supplementing the Prospectus
to reflect such event or development would, in your reasonable judgment, as
Representatives of the several Underwriters, materially and adversely affect
the market for the Shares.
(d) The representations and warranties of the Company and the Selling
Shareholders contained in this Agreement and in the certificates delivered
pursuant to Sections 5(e) and 5(f) shall be true, correct and complete in all
material respects when made and on and as of each Closing Date as if made on
such date and each of the Company and the Selling Shareholders shall have
performed all covenants and agreements and
[17]
<PAGE>
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it at or before such Closing Date.
(e) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
signed by the Company's (i) Chairman of the Board and Chief Executive Officer,
(ii) Chief Financial Officer and Vice President of Strategic Marketing and (iii)
Vice President of Administration and General Counsel,to the effect that, and the
Representatives shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the applicable
Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the applicable Closing Date;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Securities Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto (and the Incorporated Documents, when such Incorporated
Documents became effective or were filed with the Commission), contained
all material information required to be included therein by the Securities
Act and the Securities Act Rules (or the Exchange Act and the Exchange Act
Rules, as the case may be), and in all material respects conformed to the
requirements of the Securities Act and the Securities Act Rules (or the
Exchange Act Rules, as the case may be), the Registration Statement, and
any amendment or supplement thereto, did not and does 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, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
and, since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business,
(c) any obligation, direct or contingent, that is material to the Company
and its subsidiaries considered as one enterprise, incurred by the Company
or its subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness
of the Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries
which has been sustained or will have been
[18]
<PAGE>
sustained which has a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(f) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, of
each Selling Shareholder (or, if such Selling Shareholder is not a natural
person, an authorized officer thereof) to the effect that the representations
and warranties of such Selling Shareholder in this Agreement are true, correct
and complete in all material respects on and as of such Closing Date with the
same effect as if made on such Closing Date and such Selling Shareholder has
performed all covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by such Selling Shareholder
at or prior to such Closing Date.
(g) The Representatives shall have received at the time this Agreement is
executed and on each Closing Date a letter or letters signed by Price Waterhouse
LLP, addressed to the Company and the Representatives and dated, respectively,
the date of this Agreement and each such Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Securities Act and the Securities Act
Rules, that the response to Item 10 of the Registration Statement is correct
insofar as it relates to them and stating in effect that:
(i) in their opinion the audited consolidated financial statements
and financial statement schedules included in the Registration Statement
and the Prospectus and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the Securities Act Rules;
(ii) on the basis of carrying out certain procedures (but not an
examination in accordance with generally accepted auditing standards) which
would not necessarily reveal matters of significance with respect to the
comments set forth in such letter, a reading of the minutes of the meetings
of the shareholders and directors of the Company and its subsidiaries, and
inquiries of certain officials of the Company who have responsibility for
financial and accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to the date of the latest audited
financial statements, nothing came to their attention which caused them to
believe that:
(iii) There were, at a specified date not more than five business
days prior to the date of the letter, any increases in the long-term
liabilities of the Company and its subsidiaries considered as one
enterprise, any increases in the capital stock of the Company or, as of the
latest month-end for which financial statements are available, any
decreases in working capital or shareholders' equity of the Company and its
subsidiaries considered as one enterprise, as compared with the amounts
shown on the January 31, 1998 consolidated balance sheet included in the
Registration Statement and the Prospectus, or (B) for the period from
February 1, 1998 to the latest month-end for which financial statements are
available, there was any decrease in total net sales, any increase in
losses before provision for income taxes or any decrease in income before
provision for income taxes as compared with the corresponding amounts in
the corresponding period in the quarter ended January 31, 1998 included in
the Registration Statement and the Prospectus, except for those increases
or decreases set forth in the letter, in which case the Company shall
deliver to the Representatives a letter containing
[19]
<PAGE>
an explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by the Representatives; and
(iv) They have performed certain other procedures as a result of
which they determined that certain information of an accounting, financial
or statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of the
Company) set forth in the Registration Statement and the Prospectus and
reasonably specified by the Representatives agrees with the accounting
records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (g) are to such documents as amended and supplemented at the date
of the letter.
(h) The Representatives shall have received on each Closing Date from
Locke Purnell Rain Harrell, counsel for the Company, an opinion, addressed to
the Representatives and dated such Closing Date, and stating in effect that:
(i) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Texas. The
Company is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its businesses
makes such qualification necessary, except for such jurisdictions where the
failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise.
(ii) Each of STB Assembly and Symmetric has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of California. Each of STB Assembly and Symmetric is duly qualified
and in good standing as a foreign corporation in each jurisdiction in which
the character or location of its assets or properties (owned, leased or
licensed) or the nature of its businesses makes such qualification
necessary, except for such jurisdictions where the failure to so qualify
would not have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise. All the outstanding shares of capital stock STB Assembly and
Symmetric have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, are
wholly-owned by the Company, free and clear of any pledge, lien,
encumbrance, security interest, restriction, claim, equitable interest or
other defect in title.
(iii) To the best of such counsel's knowledge, neither the Company
nor any of its subsidiaries owns, directly or indirectly, any interest in,
or controls, directly or indirectly, any corporation, partnership, joint
venture, association or other business organization other than as disclosed
in the Registration Statement and the Prospectus.
(iv) The Company has the requisite corporate power and authority to
own, lease and license its assets and properties and conduct its business
as described in the Registration Statement and the Prospectus.
[20]
<PAGE>
(v) No consent, approval, authorization, permit, or other order of,
or registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official or any financial
institution is required on the part of the Company (except such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares or in connection with the clearance of the terms
of the underwriting arrangements by the NASD, as to which such counsel need
not express an opinion) for the execution, delivery and performance of this
Agreement by the Company or the consummation of the transactions
contemplated hereby.
(vi) The Company has the requisite corporate power and authority to
enter into this Agreement and to issue, sell and deliver the Company Firm
Shares to be sold by it to the several Underwriters as provided herein; all
necessary corporate action has been duly and validly taken by the Company
to authorize the execution, delivery and performance of this Agreement;
this Agreement has been duly authorized, executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company.
(vii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization"; all of the outstanding shares of Common Stock (including
the Selling Shareholder Firm Shares) have been, and the Company Firm
Shares, upon issuance and delivery and payment therefor in the manner
described herein, will be, duly authorized, validly issued, fully-paid and
nonassessable.
(viii) The authorized capital stock of the Company conforms in all
material respects as to legal matters to the descriptions thereof contained
in the Prospectus under the caption "Description of Capital Stock".
(ix) The form of certificate evidencing the Shares conforms to the
requirements of the Texas Business Corporation Act.
(x) The Company Firm Shares to be issued and sold to the several
Underwriters by the Company under this Agreement have been duly authorized
and, when issued and delivered to the several Underwriters against payment
therefor in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable and free of any preemptive right, co-
sale right, registration right, right of first refusal or other similar
right contained in the Articles of Incorporation or Bylaws of the Company
or any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement,
license or other material agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or by which their
properties are bound (collectively, the "Reviewed Documents") to which the
Company or any of its subsidiaries is a party or by which they or any of
their properties is bound.
(xi) To such counsel's knowledge, except as described in the
Registration Statement and the Prospectus (and any Incorporated Document),
there are no outstanding options, warrants or other rights calling for the
issuance of, and, to the knowledge of such counsel, there is no agreement,
plan or arrangement to issue, any shares of capital stock of the Company or
any security convertible into, exchangeable or exercisable for capital
stock of the Company.
[21]
<PAGE>
(xii) Except as described in the Registration Statement and the
Prospectus (and any Incorporated Document), to the best of such counsel's
knowledge, there is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or overtly threatened against, or involving the assets, properties
or businesses of, the Company or any of its subsidiaries, or any of their
respective officers, directors or five percent shareholders which if
determined adversely could have a material adverse effect upon the assets
or properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise.
(xiii) To such counsel's knowledge, there is no bond, debenture,
note or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, license or other material
agreement or instrument that is required to be described in the
Registration Statement or the Prospectus (or any Incorporated Document) or
to be filed as an exhibit to the Registration Statement (or any
Incorporated Document) that is not described or filed as required, as the
case may be.
(xiv) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including the issuance and sale of the Company Firm
Shares by the Company to the several Underwriters) will (i) conflict with
the Articles of Incorporation or Bylaws of the Company or (ii) conflict
with or result in a material breach or violation of, or constitute a
material default (or an event that with the passage of time, notice of or
both would constitute a material default) under, or result in the
imposition of any lien, charge or encumbrance upon any properties or assets
of the Company or any of its subsidiaries pursuant to, the terms of any
Reviewed Document or (iii) result in any material violation of (A) any
applicable law, rule or regulation of the United States of America, the
State of Texas (other than the bylaws and rules of the NASD or any state
securities or Blue Sky laws applicable to the offering and sale of the
Shares, as to which such counsel need not express an opinion) or (B) any
order, decree or judgment known to such counsel to be applicable to the
Company or any of its subsidiaries of any United States federal, state or
local governmental authority or any court, regulatory body, administrative
agency, governmental body or arbitrator.
(xv) The Registration Statement and the Prospectus and each amendment
or supplement thereto (except for the financial statements and notes and
schedules and other financial and statistical data included therein, as to
which such counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Securities Act and the
Securities Act Rules; and each of the Incorporated Documents (except for
the financial statements and notes and schedules and other financial and
statistical data included therein, as to which such counsel need not
express any opinion) complied when filed pursuant to the Exchange Act as to
form in all material respects with the requirements of the Securities Act
and the Securities Act Rules and the Exchange Act and the Exchange Act
Rules.
(xvi) The Registration Statement has become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the best of such counsel's
knowledge, are threatened or contemplated.
[22]
<PAGE>
(xvii) To the knowledge of such counsel, except as set forth in the
Registration Statement and the Prospectus (or any Incorporated Document),
no holders of Common Stock or other securities of the Company have
registration rights with respect thereto and, except as set forth in the
Registration Statement and the Prospectus (or any Incorporated Document),
all holders of securities of the Company having rights to registration of
shares of Common Stock, or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated hereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to
file the Registration Statement, or have included Common Stock in the
Registration Statement pursuant to the exercise of such rights.
To the extent deemed advisable by such counsel, they may rely as to matters
of fact on certificates of responsible officers of the Company and its
subsidiaries, the Selling Shareholders, and public officials, and may deliver
the opinions of other counsel satisfactory to the Representatives as to matters
which are governed by laws other than the laws of the States of Texas and New
York and the federal laws of the United States in place of the opinions required
above from such counsel, but only to the extent such replaced opinions relate
solely to matters governed by such other laws. Copies of such certificates and
other opinions shall be addressed to and furnished to the Representatives and
furnished to counsel for the Underwriters.
In addition, such counsel shall state that such counsel has participated in
conferences with representatives of the Representatives and with representatives
of the Company and its independent public accountants concerning the
Registration Statement and the Prospectus and have considered the matters
required to be stated therein and the statements contained therein, although
such counsel has not independently verified and is not passing upon the
accuracy, completeness or fairness of such statements (except as specified in
the foregoing opinion). Based upon and subject to the foregoing, nothing has
come to the attention of such counsel that leads such counsel to believe that
the Registration Statement at the time it became effective, and any Incorporated
Document, when such documents became effective or were filed with the Commission
(except with respect to the financial statements and notes and schedules thereto
and other financial and statistical data, as to which such counsel need make no
comment) contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (and any Incorporated Document)
(except with respect to the financial statements and notes and schedules thereto
and other financial and statistical data, as to which such counsel need make no
comment) at the time it was first provided to the Underwriters for use in
connection with the offering of the Shares or at the date of such counsel's
opinion contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(i) The Representatives shall have received on each Closing Date from
__________, Mexican counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and stating in effect that:
(i) Each of STB Mexico and Maquilados Continentales been duly
organized and is validly existing as a corporation in good standing under
the laws of Mexico. Each of STB Mexico and Maquilados Continentales is
duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its assets or properties
(owned, leased or licensed) or the nature of its businesses makes such
qualification necessary, except for such jurisdictions where the failure to
so qualify would not have a material adverse effect on the assets or
properties, business,
[23]
<PAGE>
results of operations, prospects or condition (financial or otherwise) of
the Company and its subsidiaries considered as one enterprise.
(ii) The consummation of any of the transactions contemplated hereby
(including the issuance and sale of the Company Shares by the Company to
the several Underwriters) will not (i) conflict with the organizational
documents of STB Mexico or Maquilados Continentales or (ii) conflict with
or result in a material breach or violation of, or constitute a material
default (or an event that with the passage of time, notice of or both would
constitute a material default) under, or result in the imposition of any
lien, charge or encumbrance upon any properties or assets of STB Mexico or
Maquilados Continentales pursuant to, the terms of any bond, debenture,
note or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, license or other material
agreement or instrument known to such counsel to which STB Mexico or
Maquilados Continentales is a party or by which they or any of their
properties is bound or (iii) result in any material violation of (A) any
applicable law, rule or regulation of any court or any governmental agency
or body having jurisdiction over STB Mexico or Maquilados Continentales or
(B) any order, decree or judgment applicable to STB Mexico or Maquilados
Continentales of any governmental authority or any court, regulatory body,
administrative agency, governmental body or arbitrator.
(iii) Except as described in the Registration Statement and the
Prospectus (or any Incorporated Document), to the best of such counsel's
knowledge, there is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or overtly threatened against, or involving the assets, properties
or businesses of, STB Mexico or Maquilados Continentales, or any of their
respective officers or directors which if determined adversely could have a
material adverse effect upon the assets or properties, business, results of
operations or condition (financial or otherwise) of the Company and its
subsidiaries considered as one enterprise.
To the extent deemed advisable by such counsel, they may rely as to matters
of fact on certificates of responsible officers of STB Mexico and
Maquilados Continentales and public officials. Copies of such certificates
and other opinions shall be addressed to and furnished to the
Representatives and furnished to counsel for the Underwriters.
(j) The Representatives shall have received on each Closing Date from
_________, counsel to the Selling Shareholders, an opinion, addressed to the
Representatives and dated such Closing Date, and stating in effect that:
(i) This Agreement is a valid and binding obligation of each Selling
Shareholder, enforceable against such Selling Shareholder in accordance
with its terms, except as the enforcement hereof may be limited by
(i) bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium or other similar laws relating to or affecting
creditors' rights generally and by general principles of equity (regardless
of whether considered in a proceeding in equity or at law) and (ii) the
extent to which rights to indemnity or contribution under this Agreement
may be limited by federal and state securities laws or the public policy
underlying such laws; and to the best of such counsel's knowledge, the
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach of or a default under any
bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan
[24]
<PAGE>
agreement, license or other material agreement or instrument known to such
counsel to which such Selling Shareholder is a party or by which his
properties or businesses or the Shares to be sold by such Selling
Shareholder hereunder may be bound or affected or result in any violation
of any law, order, rule, regulation, writ, injunction or decree of any
court or governmental agency or body known to such counsel that is
applicable to the sale of the Shares by such Selling Shareholder to the
several Underwriters pursuant to this Agreement.
(ii) The Custody Agreement of each Selling Shareholder is a valid and
binding obligation of such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium or other similar laws
relating to or affecting creditors' rights generally and by general
principles of equity (regardless of whether considered in a proceeding in
equity or at law); and, to such counsel's knowledge, the performance of
each Selling Shareholder's Custody Agreement and the consummation of the
transactions therein contemplated will not result in a breach of or a
default under any bond, debenture, note or other evidence of indebtedness,
or any lease, contract, indenture, mortgage, deed of trust, loan agreement,
license or other material agreement or instrument known to such counsel to
which such Selling Shareholder is a party or by which his properties or
businesses or the Shares to be sold by such Selling Shareholder hereunder
may be bound or affected or result in any violation of any law, order,
rule, regulation, writ, injunction or decree of any court or governmental
agency or body known to such counsel that is applicable to the transactions
contemplated by such Selling Shareholder's Custody Agreement.
(iii) No consent, approval, authorization, permit or order of any
court or governmental agency or body or, to the knowledge of such counsel,
any financial institution is required to be obtained by any Selling
Shareholder for the execution, delivery and performance of this Agreement
or its Custody Agreement or the sale by such Selling Shareholder of the
Shares to be sold by him hereunder, except such as have been obtained under
the Securities Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of such
Shares by the several Underwriters (as to which such counsel need not make
any comment) and such as may be required under the rules of the NASD with
respect to the underwriting arrangements reflected in this Agreement (as to
which such counsel need not make any comment).
(iv) Each Selling Shareholder has valid and marketable title to the
Shares to be sold by it to the several Underwriters pursuant to this
Agreement, free and clear of any pledge, lien, encumbrance, security
interest, restriction, claim, equitable interest or other defect in title
other than pursuant to this Agreement; each Selling Shareholder has full
right, power and authority to sell, assign, transfer and deliver the Shares
to be sold by such Selling Shareholder hereunder, and, upon the delivery of
and payment for the Shares to be sold by such Selling Shareholder to the
several Underwriters pursuant to this Agreement, each of the Underwriters
will receive valid and marketable title to the Shares purchased by it from
such Selling Shareholder, free and clear of any pledge, lien, encumbrance,
security interest, restriction, claim, equitable interest or other defect
in title.
(k) All proceedings taken in connection with the sale of the Firm Shares
and the Option Shares as herein contemplated shall be satisfactory in form and
substance to the Representatives and their counsel and the Underwriters shall
have received from Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
a favorable opinion, addressed to the Representatives and dated such Closing
Date, with respect to the Shares,
[25]
<PAGE>
the Registration Statement and the Prospectus, and such other related matters
as the Representatives may request, and the Company and the Selling
Shareholders shall have furnished to Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters.
(l) The Representatives shall have received on each Closing Date a
certificate, including exhibits thereto, addressed to the Representatives and
dated such Closing Date, of the Secretary or an Assistant Secretary of the
Company, signed in such officer's capacity as such officer, as to (i) its
organizational documents, (ii) its board of directors and shareholders actions
authorizing (A) the preparation, execution and filing of the Registration
Statement, (B) the execution and delivery of this Agreement and the Custody
Agreements, (C) the performance of the transactions contemplated by this
Agreement, the Custody Agreements, the Registration Statement and the Prospectus
and (D) the offering of the Shares and (iii) the incumbency of the person or
persons authorized to execute and deliver the Registration Statement, this
Agreement, the Custody Agreements and any other documents contemplated by the
offering of the Shares.
(m) The Representatives shall have received on each Closing Date,
certificates of the Secretaries of State (or other relevant authorities) where
the Company and each of its subsidiaries is incorporated and doing business
as to the good standing of the Company and each of its subsidiaries, listing all
charter documents on file, qualification of the Company to do business as a
foreign corporation, payment of taxes and filing of annual reports. In
addition, the Representatives shall have received copies of all charter
documents of the Company and each of its subsidiaries certified by the Secretary
of State (or other relevant authorities) of the jurisdiction of incorporation of
each of the Company and each subsidiary.
(n) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives, and dated such Closing Date, of
an executive officer of the Company to the effect that the signer of such
certificate has reviewed and understands the provisions of Section 517.075 of
the Florida Statutes, and represents that the Company has complied, and at all
times will comply, with all provisions of Section 517.075 and further, that as
of such Closing Date, neither the Company nor any of its affiliates does
business with the Government of Cuba or with any person or affiliate located in
Cuba.
6. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
I. The Company covenants and agrees with each of the Selling Shareholders
and each of the several Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Securities Act Rules as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Securities
Act Rules, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to
[26]
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subparagraph (1) or (4) of Rule 424(b) of the Securities Act Rules or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; the Company
shall promptly advise the Representatives (i) of any request by the Commission
for any amendment of the Registration Statement or the Prospectus or for any
additional information, (ii) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement
or the institution or threatening of any proceeding for that purpose and (iii)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose. The Company
shall not file any amendment of the Registration Statement or supplement to
the Prospectus unless the Company has furnished the Representatives a copy for
their review prior to filing and shall not file any such proposed amendment or
supplement to which the Representatives shall reasonably object. The Company
shall use its best efforts to prevent the issuance of any such stop order and,
if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is required
to be delivered under the Securities Act and the Securities Act Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Securities Act or the Securities
Act Rules, the Company promptly shall prepare and file with the Commission,
subject to the second sentence of paragraph (a) of this Section 6.I., an
amendment or supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
(c) The Company shall make generally available to its security holders and
to the Representatives as soon as practicable, but not later than 45 days after
the end of the twelve month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs (or 90 days thereafter if
such 12-month period coincides with the Company's fiscal year), an earnings
statement (which need not be audited) of the Company and its consolidated
subsidiaries, covering such twelve month period, which shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 of the Securities
Act Rules.
(d) The Company shall furnish to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement
(including all exhibits thereto and amendments thereof) and to each other
Underwriter a copy of the Registration Statement (without exhibits thereto) and
all amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the Securities
Act Rules, as many copies of any preliminary prospectus and the Prospectus and
any amendments thereof and amendments thereto as the Representatives may
reasonably request; provided, however, that the Company shall use reasonable
efforts to furnish copies of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434 no later than the first full business day following
the first day that Shares are traded.
(e) The Company shall cooperate with the Representatives and their counsel
in endeavoring to qualify the Shares for offer and sale under the laws of such
jurisdictions as the Representatives may designate and shall maintain such
qualifications in effect so long as required for the distribution of the Shares;
provided, however, that the Company shall not be required in connection
therewith, as a condition thereof, to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
[27]
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(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Representatives, and to each other Underwriter who
may so request in writing, copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock and to furnish to the
Representatives a copy of each annual or other report it shall be required to
file with the Commission. During such five-year period, if the Company shall
continue to have active subsidiaries, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the Company and
its subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Registration Statement and the Prospectus. The Company will take such steps
as shall be necessary to ensure that neither the Company nor any Subsidiary
shall become an "investment company" within the meaning of the Investment
Company Act and the rules and regulations thereunder.
(h) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(i) Without the prior written consent of CIBC Oppenheimer Corp., for a
period of 90 days after the date of this Agreement, the Company shall not issue,
sell or register with the Commission, or otherwise dispose of, directly or
indirectly, any equity securities of the Company (or any securities convertible
into or exercisable or exchangeable for equity securities of the Company),
except for (i) the issuance of the Shares pursuant to the Registration
Statement, (ii) the issuance of shares pursuant to the exercise of outstanding
options or the grant or issuance of options under the Company's existing stock
option plans and (iii) the issuance of shares upon the exercise of warrants
outstanding on the date hereof.
(j) The Shares to be purchased on such Closing Date by the several
Underwriters shall have been approved for quotation on The Nasdaq National
Market subject to notice of official issuance and, on or before completion of
the transactions contemplated herein, the Company shall have made all filings
required under applicable securities laws and by The Nasdaq National Market
(including any required registration under the Exchange Act).
II. Each of the Selling Shareholders, severally and not jointly, covenants
and agrees with the Company, each other Selling Shareholder and the several
Underwriters as follows:
(a) The Company agrees with each of the Selling Shareholders and the
several Underwriters to pay, or reimburse if paid by the Representatives,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses of the Company and the Selling
Shareholders incident to the public offering of the Shares and the performance
of the obligations of the Company under this Agreement including those relating
to (i) the preparation, printing, filing and distribution of the Registration
Statement (including the exhibits thereto), each preliminary prospectus, the
Prospectus, all amendments and supplements to the Registration Statement and the
Prospectus, and the printing, filing and distribution of this Agreement;
(ii) the preparation and delivery of certificates for the Shares to the
Underwriters; (iii) the registration or qualification of the Shares for offer
and sale under the securities or Blue Sky laws of the various jurisdictions
referred to in Section 6.I.(e), including the fees and disbursements of
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counsel for the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and shipment of
preliminary and supplementary Blue Sky memoranda; (iv) the furnishing
(including costs of shipping and mailing) to the Representatives and to the
Underwriters of copies of each preliminary prospectus, the Prospectus and all
amendments or supplements to the Prospectus, and of the several documents
required by this Section to be so furnished, as may be reasonably requested
for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (v) the filing fees of
the NASD in connection with its review of the terms of the public offering and
the fees and disbursements of counsel to the Underwriters incurred in
connection therewith; (vi) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 6.I.(i); and (vii) inclusion of
the Shares for quotation in The Nasdaq National Market. Subject to the
provisions of Section 7, the Underwriters agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the
Company pursuant to the preceding sentence, including, without limitation, the
fees and disbursements of counsel for the Underwriters; provided, however,
that in the event that the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Shareholder to perform any agreement on their
respective parts to be performed hereunder, or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 9(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 9(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of counsel for the Underwriters) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(b) Any additional expenses incurred as a result of the sale of the Shares
by the Selling Shareholders will be borne collectively by the Company and the
Selling Shareholders. The provisions of this Section 6.II.(b) are intended to
relieve the Underwriters from the payment of the expenses and costs which the
Selling Shareholders and the Company hereby agree to pay, but shall not affect
any agreement which the Selling Shareholders and the Company may make, or may
have made, for the sharing of any of such expenses and costs. Such agreements
shall not impair the obligations of the Company and the Selling Shareholders
hereunder to the several Underwriters.
(c) In addition to its other obligations under Section 7(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 7(a)
hereof, it will reimburse the Underwriters on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
[29]
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(d) In addition to its other obligations under Section 7(b) hereof, each
Selling Shareholder agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 7(b) hereof, he will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Shareholders's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to such Selling
Shareholder together with interest, compounded daily, determined on the basis of
the Prime Rate. Any such interim reimbursement payments which are not made to
the Underwriters within thirty days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(e) In addition to their other obligations under Section 7(c) hereof, the
Underwriters severally and not jointly agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 7(c) hereof, they will reimburse the Company and each
Selling Shareholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Shareholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Shareholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(f) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 6.II.(c) and 6.II.(d)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 6.II.(c) and 6.II.(d)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(c) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8 hereof.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
and all losses, claims, damages and liabilities, joint or several (including any
[30]
<PAGE>
reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which such Underwriter or such person may become
subject under the Securities Act, the Exchange Act or other federal or state
law or regulation, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities arise out of
or are based upon (i) any breach of any representation, warranty, agreement
or covenant of the Company herein contained or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any 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 will
reimburse each Underwriter and each such person for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter or such
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages or liabilities arising from the sale of the Shares to
any person by such Underwriter if such untrue statement or omission or
alleged untrue statement or omission was made in such preliminary prospectus,
the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein; and, provided further, that the indemnity
agreement provided in this Section 7(a) with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or expenses based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Securities Act
and the Securities Act Rules (provided that copies of the Prospectus shall
have been provided to such Underwriter in a timely fashion by the Company in
compliance with Section 6.I.(d). This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Selling Shareholder (to the extent set forth below), severally
and not jointly, agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which such Underwriter or such person may become subject under the
Securities Act, the Exchange Act or other federal or state law or regulation, at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages or liabilities arise out of or are based upon (i) any
breach of any representation, warranty, agreement or covenant of the Selling
Shareholder herein contained or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, and only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with information
furnished in writing to the Company by such Selling Shareholder specifically for
use therein, and will reimburse each Underwriter and each such person for any
legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such person in connection with investigating, defending,
settling,
[31]
<PAGE>
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the indemnity agreement provided in this
Section 7(b) with respect to any preliminary prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or expenses based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the
Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected has not been sent or given to such
person within the time required by the Securities Act and the Securities Act
Rules (provided that copies of the Prospectus shall have been provided to
such Underwriter in a timely fashion by the Company in compliance with
Section 6.I.(d)); and provided further, that such Selling Shareholder shall
only be liable under this paragraph for an amount equal to the initial public
offering price of the Shares sold by such Selling Shareholder to the
Underwriters pursuant to this Agreement minus the amount of the underwriting
discount paid thereon to the Underwriters by such Selling Shareholder
pursuant to this Agreement. This indemnity agreement will be in addition to
any liability which the Company or the Selling Shareholders may otherwise
have.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholders, each person, if any, who
controls the Company or any Selling Shareholder within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, each director of the
Company, and each officer of the Company who signs the Registration Statement,
to the same extent as the foregoing indemnity from the Company and the Selling
Shareholders to each Underwriter, but only insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained or (ii)any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement thereto,
contained in any written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in therein; provided,
however, that the obligation of each Underwriter to indemnify the Company and
the Selling Shareholders (including any controlling person, director or officer
thereof) shall be limited to an amount equal to the initial public offering
price of the Company Firm Shares sold by the Company to the Underwriters
pursuant to this Agreement minus the amount of the underwriting discount paid
thereon to the Underwriters by the Company pursuant to this Agreement, or, with
respect to a Selling Shareholder, an amount equal to the initial public offering
price of the Shares sold by such Selling Shareholder to the Underwriters
pursuant to this Agreement minus the amount of the underwriting discount paid
thereon to the Underwriters by such Selling Shareholder pursuant to this
Agreement.
(d) The Company and the Selling Shareholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of liability for which they each shall
be responsible pursuant to Section 7(a) and Section 7(b) hereof.
(e) Any party that proposes to assert the right to be indemnified under
this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Sections 7(a), 7(b) or 7(c) shall be available to any party who shall fail to
give notice as provided in this Section 7(e) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
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it from any liability that it may have to any indemnified party for contribution
or indemnification otherwise than under this Section. In case any such action,
suit or proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as provided below
and except for the reasonable costs of investigation subsequently incurred by
such indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its separate counsel in any such action,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (ii) the indemnified
party shall have reasonably concluded that there may be a conflict of interest
between the indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
(f) The provisions of this Section 7 and of Section 8 hereto relating to
the indemnification and contribution obligations of the Company and the Selling
Shareholders to the Underwriters and of the Underwriters to the Company and the
Selling Shareholders supersede the indemnification and contribution provisions
contained in any registration rights or other agreements or instruments between
the Company and any of their respective securityholders.
8. CONTRIBUTION.
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Section 7(a), 7(b) or 7(c) is due in
accordance with its terms but for any reason is held to be unavailable from the
indemnifying party, the Company, the Selling Shareholders and the Underwriters
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting any contribution received
by the Company from persons other than the Underwriters, such as the Selling
Shareholders, persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who may also be liable for contribution) to which
the Company, the Selling Shareholders and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares or, if such allocation
is not permitted by applicable law or indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 7 hereof, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the Company
and the Selling Shareholders on the one hand and the Underwriters on the other
in connection with the untrue statements or omissions or alleged untrue
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling Shareholders
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and the Underwriters shall be deemed to be in the same proportion as (i) the
total proceeds from the offering (net of underwriting discounts but before
deducting expenses) received by the Company and the Selling Shareholders, as
set forth in the table on the cover page of the Prospectus, bear to (ii) the
underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the
Company, the Selling Shareholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact related to information supplied by the Company, the Selling
Shareholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in
no case shall any Underwriter (except as may be provided in the Agreement
Among Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, (ii) the Company shall be liable and responsible for any amount in
excess of such underwriting discount, (iii) in no case shall a Selling
Shareholder be liable or responsible for any amount in excess of the total
proceeds received by such Selling Shareholder from the sale of the Shares
sold by such Selling Shareholder to the Underwriters (net of underwriting
discounts) and (iv) no Selling Shareholder shall be required to contribute
any amount under this Section 8 unless the losses, claims, damages,
liabilities and expenses which are the subject hereof arise out of or are
based on statements included in a preliminary prospectus, the Registration
Statement or the Prospectus, any amendment or supplement thereto, or not
included therein, on the basis of information furnished in writing to the
Company by such Selling Shareholder specifically for use therein; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each person, if any, who controls the
Company or a Selling Shareholder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company or such
Selling Shareholder, as the case may be, subject in each case to clauses (i),
(ii), (iii) and (iv) in the immediately preceding sentence of this Section 8.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this Section. No party shall
be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in proportion to their
respective underwriting commitments and not joint.
The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of Sections 7 and 8 hereof, and are fully informed regarding said
provisions. They further acknowledge that the provisions of Sections 7 and 8
hereof fairly allocate the risks in light of the ability of the parties to
investigate the Company and their businesses in order to assure that adequate
disclosure is
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made in the Registration Statement and the Prospectus as required by the
Securities Act and the Exchange Act. The parties are advised that federal or
state public policy, as interpreted by the courts in certain jurisdictions,
may be contrary to certain of the provisions of Sections 7 and 8 hereof, and
the parties hereto hereby expressly waive and relinquish any right or ability
to assert such public policy as a defense to a claim under Sections 7 or 8
hereof and further agree not to attempt to assert any such defense.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 9:30 A.M.,
New York time, on the first full business day following the effective date of
the Registration Statement, or (ii) the time of the initial public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the initial public offering shall mean the time of the
release by you, for publication, of the first newspaper advertisement relating
to the Shares, or the time at which the Shares are first generally offered by
the Underwriters to the public by letter, telephone, telegram or telecopy,
whichever shall first occur. By giving notice as set forth in Section 11 before
the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company, may prevent this Agreement from becoming
effective without liability of any party to any other party, except as provided
in Sections 6.II.(a), 7 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Shareholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries considered as one enterprise from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (ii) if additional material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company or any of
its subsidiaries shall have sustained a loss by strike, fire, flood, wind
earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (iv) if there
shall have been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (i) above, the Company shall, in
accordance with the provisions of Section 6.II.(b) hereof, reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder, including, but not limited to, the costs and expenses set
forth in Section 6.II.(a). Any
[35]
<PAGE>
termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in
Sections 7 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 9 you shall promptly notify
the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
No Underwriter who shall have failed or refused to purchase the Shares
agreed to be purchased by it under this Agreement, without some reason
sufficient hereunder to justify cancellation or termination of its obligations
under this Agreement, shall be relieved of liability to the Company, the Selling
Shareholders or to the other Underwriters for damages occasioned by its failure
or refusal.
10. SUBSTITUTION OF UNDERWRITERS.
If one or more of the Underwriters shall fail (other than for a reason
sufficient to justify the cancellation or termination of this Agreement under
Section 9) to purchase and make payment for on any Closing Date the Shares
agreed to be purchased on such Closing Date by such Underwriter or Underwriters,
the Representatives shall use diligent efforts to find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case within 24 hours after notification of the
defaulting underwriter and upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting Underwriters
on such Closing Date shall not exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then each of the
non-defaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, however, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant
to this Section 10 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting Underwriters
on such Closing Date shall exceed 10% of the Shares that all the Underwriters
are obligated to purchase on such Closing Date, then the Company shall be
entitled to an additional business day within which it may, but is not obligated
to, find one or more substitute underwriters reasonably satisfactory to the
Representatives to purchase such Shares upon the terms set forth in this
Agreement.
In any such case, either the Representatives or the Company shall have the
right to postpone the applicable Closing Date for a period of not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or the
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for
[36]
<PAGE>
the purchase of the Shares that the defaulting Underwriters agreed to
purchase, this Agreement shall terminate with respect to the Shares to be
purchased on such Closing Date without liability on the part of any
nondefaulting Underwriter to the Company or the Selling Shareholders and
without liability on the part of the Company and the Selling Shareholders to
any nondefaulting Underwriter, except in both cases as provided in Sections
6.II., 7, 8 and 9. The provisions of this Section shall not in any way
affect the liability of any defaulting Underwriter to the Company, the
Selling Shareholders or the nondefaulting Underwriters arising out of such
default. A substitute underwriter hereunder shall become an Underwriter for
all purposes of this Agreement.
11. MISCELLANEOUS.
The respective agreements, representations, warranties, indemnities and
other statements of the Company or its officers, the Selling Shareholders and of
the Underwriters set forth in or made pursuant to this Agreement shall remain in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter, any Selling Shareholder, the Company, or any of the officers,
directors or controlling persons referred to in Sections 7 and 8 hereof, and
shall survive delivery of and payment for the Shares. The provisions of
Sections 7, 8 and 9 shall survive the termination or cancellation of this
Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company, the Selling Shareholders and their respective successors and
assigns, and, to the extent expressed herein, for the benefit of persons
controlling any of the Underwriters, the Company or the Selling Shareholders,
and directors and officers of the Company, the Selling Shareholders, if any, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered or by facsimile or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, CIBC Oppenheimer Corp., Oppenheimer
Tower, World Financial Center, New York, New York 10281; telephone number
(212) 667-7000; facsimile number (212) 667-5851; Attention: Stanley B.
Stern; (b) if to the Company, to STB Systems, Inc., 1651 North Glenville
Drive, Richardson, Texas 75081; telephone number (972) 234-8750; facsimile
number (972) 680-7153; Attention: Bryan F. Keyes; and (c) if to a Selling
Shareholder, to the address set forth in their respective Custody Agreements.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the choice of law or
conflicts of laws principles thereof.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
[37]
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
us by signing and returning to us seven counterparts of this Agreement.
Very truly yours,
STB SYSTEMS, INC.
By:
-------------------------------------
William E. Ogle
Chairman of the Board
SELLING SHAREHOLDERS
By:
-------------------------------------
As Attorney-in-Fact acting on
behalf of each of the Selling
Shareholders named in Schedule II
to this Agreement
Confirmed:
CIBC OPPENHEIMER CORP.
HAMBRECHT & QUIST LLC
HOAK BREEDLOVE WESNESKI & CO.
THE BUCKINGHAM RESEARCH GROUP, INCORPORATED
Acting severally on behalf of
themselves and as representatives of the several
Underwriters named in Schedule I to this Agreement.
By CIBC Oppenheimer Corp.
By:
-------------------------------
Stanley B. Stern
Managing Director
[38]
<PAGE>
SCHEDULE I
<TABLE>
NUMBER OF
FIRM SHARES TO
NAME BE PURCHASED
- ---------------------------------------------------- --------------
<S> <C>
CIBC Oppenheimer Corp. . . . . . . . . . . . . . .
Hambrecht & Quist LLC. . . . . . . . . . . . . . .
Hoak Breedlove Wesneski & Co.. . . . . . . . . . .
The Buckingham Research Group, Incorporated. . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . 3,000,000
---------
---------
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
NUMBER OF OPTION
SHARES TO BE SOLD IF
NUMBER OF FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------------- --------------------
<S> <C> <C>
COMPANY. . . . . . . . . . . . . . . 2,275,000 225,000
SELLING SHAREHOLDERS:
William F. Ogle . . . . . . . . 75,000 75,000
William D. Balthaser, Jr. . . . 75,000 75,000
Mark S. Sims. . . . . . . . . . 75,000 75,000
--------- -------
Total. . . . . . . . . . . 3,000,000 450,000
--------- -------
--------- -------
</TABLE>
<PAGE>
[Locke Purnell Rain Harrell Letterhead]
(214) 740-8675
February 25, 1998
STB Systems, Inc.
1651 North Glenville Drive
Richardson, Texas 75081
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for STB Systems, Inc., a Texas corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of an aggregate of 3,450,000 shares of the
Company's Common Stock, $.01 par value per share (such shares or such
different number of shares as may be registered pursuant to the referenced
Registration Statement, the "Securities"). We have examined such documents
and questions of law as we have deemed necessary or advisable for purposes of
this opinion.
Based upon the foregoing, we are of the opinion that the Securities,
when issued and delivered against payment of the purchase price therefor as
described in the above referenced Registration Statement (as amended, the
"Registration Statement"), will be legally issued, fully paid and
nonassessable.
The opinion expressed above is limited in all respects to the laws of
the State of Texas and the federal laws of the United States of America, each
as presently in effect.
This letter is furnished by us as counsel to you in connection with the
above referenced public offering and is solely for your benefit and not for
the benefit of any other person. This letter may not be relied upon by you
for any other purpose or relied upon or furnished to any other person without
our prior written consent.
<PAGE>
STB Systems, Inc.
February 25, 1998
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the prospectus
contained therein under the caption "Legal Matters." In giving this consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations
of the Securities and Exchange Commission promulgated thereunder.
Respectfully submitted,
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
By: /s/ John B. McKnight
--------------------
John B. McKnight
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of ________________, is by and between STB
Systems, Inc., a Texas corporation (the "Company"), and Dennis G. Sabo
("Indemnitee").
W I T N E S S E T H :
WHEREAS, the Company desires to have qualified directors serving on its
Board of Directors who are willing to make decisions that in their judgment are
in the Company's best interest without any undue threat of personal liability;
WHEREAS, the Company's Amended and Restated Articles of Incorporation
("Articles of Incorporation") and the Company's Amended and Restated Bylaws
("Bylaws") require indemnification of each director or officer of the Company in
his capacity as a director or officer and, if serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, in each of those capacities, against any and
all liability and reasonable expense that may be incurred by him in connection
with or resulting from (a) any threatened, pending, or completed action, suit,
or proceeding whether civil, criminal, administrative, arbitrative, or
investigative (collectively, a "Proceeding"), (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, to the fullest extent permitted by the Texas Business Corporation
Act ("Act"), as the same exists or may be hereafter amended;
WHEREAS, the Company desires to grant to Indemnitee the maximum
indemnification for any Loss (hereinafter defined) permitted by the Articles of
Incorporation and Bylaws;
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy, and reliability of the protection afforded to persons intended to be
protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce Indemnitee
to serve or to continue serving, as a director of the Company, the Company has
agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's consent to serve or
continuing to serve in the position of director of the Company, the parties
hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company shall indemnify Indemnitee in
his capacity as director, director nominee, and/or officer of the Company, as
the case may be, and, if serving at the request of the Company as a director,
director nominee, officer, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, trust partnership, joint venture,
sole proprietorship, employee benefit plan, or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that
may be incurred by Indemnitee in connection with or resulting from (a) any
Proceeding, (b) an appeal in such a
<PAGE>
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, all to the fullest extent permitted by Article 2.02-1 of the Act.
All indemnity obligations and/or liabilities of the Company hereunder shall
be without limit and without regard to the cause or causes thereof or the
negligence or gross negligence of any person or persons (expressly including
Indemnitee), whether such negligence or gross negligence of Indemnitee be
sole, joint or concurrent, active, or passive.
2. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, director nominee or officer of the Company, shall be retroactive to
the date Indemnitee first became a director, director nominee or officer
covering all periods of service from time to time, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending, or completed Proceeding, any appeal in a Proceeding, and
any inquiry or investigation that could lead to a Proceeding, by reason of
the fact that Indemnitee was serving, or had consented to serve, in any
capacity referred to herein.
3. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnitee of notice of any claim against Indemnitee or the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the assertion
of any such claim or the commencement thereof; but the omission so to notify
the Company will not relieve it from any liability under this Agreement
unless such delay in notification actually prejudiced the Company (and then
only to the extent the Company was actually prejudiced thereby) and in
addition, the Company shall not be relieved from any liability which it may
have to Indemnitee otherwise than under this Agreement. With respect to any
such Proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof with counsel
satisfactory to Indemnitee, provided that, notwithstanding the Company's
assumption of such defense, Indemnitee shall have the right to retain
separate counsel and the Company shall pay all reasonable fees and expenses
of such counsel and all other reasonable expenses of Indemnitee in
connection with such Proceeding. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company
or as to which Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Company and Indemnitee in the conduct of
the defense of such action.
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company
nor Indemnitee will unreasonably withhold their consent to any proposed
settlement.
-2-
<PAGE>
4. ADVANCES OF EXPENSES. Reasonable expenses (other than judgments,
penalties, fines and settlements) incurred by Indemnitee that are subject to
indemnification under this Agreement (and not paid, reimbursed or advanced by
others) shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding within 30 days after the Company receives a
written request by Indemnitee accompanied by substantiating documentation of
such expenses, a written affirmation by Indemnitee of his good faith belief
that he has met the standard of conduct necessary for indemnification under
this Agreement, and a written undertaking by or on behalf of Indemnitee to
repay the amount paid or reimbursed if it is ultimately determined that he
has not met those standards or that such reasonable expenses do not
constitute a Loss. The written undertaking described above shall be an
unlimited general obligation of Indemnitee and shall not be secured. Such
undertaking shall be without reference to the financial ability of Indemnitee
to make repayment.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION: PROCEDURE
UPON APPLICATION. Upon the written request of Indemnitee to be indemnified
pursuant to this Agreement (other than pursuant to Section 4 hereof), the
Company shall cause the Reviewing Party (hereinafter defined) to determine,
within 45 days, whether or not the Indemnitee has met the relevant standards
for indemnification required by this Agreement. The termination of a
Proceeding by judgment, order, settlement, or conviction, or on a plea of
nolo contendere or its equivalent, shall not of itself create a presumption
that Indemnitee did not meet the requirements for indemnification required by
this Agreement. If a determination of indemnification is to be made by
Independent Legal Counsel (hereinafter defined), such Independent Legal
Counsel shall render its written opinion to the Company and Indemnitee as to
what extent Indemnitee will be permitted to be indemnified. The Company
shall pay the reasonable fees of Independent Legal Counsel and indemnify and
hold harmless such Indemnitee against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to the engagement of Independent Legal Counsel pursuant hereto and the
written opinion of such Independent Legal Counsel.
6. DEFINITIONS. The terms defined in this Section 6 shall, for
purposes of this Agreement have the indicated meanings:
(a) "Loss" shall mean any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expense
(including attorneys' fees) actually incurred by Indemnitee, after
realization of or giving effect to all insurance, bonding, indemnification
and other payments or recoveries actually received by or for the benefit of
Indemnitee, directly or indirectly.
(b) "Reviewing Party" means, if a Change in Control (hereinafter
defined) has not occurred (or if a Change in Control has occurred and such
Change in Control has been approved by a majority of the Board of Directors
of the Company who were directors of the Company immediately prior to such
Change in Control), (i) a majority of a quorum of directors of the Company
who at the time of voting upon a determination of indemnification are
neither officers or employees of the Company or members of the immediate
family of an officer or employee of the Company ("Interested Parties") nor
parties to that particular Proceeding to which Indemnitee is seeking
indemnification; or (ii) Independent Legal Counsel selected by a majority
of a quorum of directors who at the
-3-
<PAGE>
time of selecting such Independent Legal Counsel are neither Interested
Parties nor parties to that particular Proceeding to which Indemnitee
is seeking indemnification, or if such a quorum cannot be obtained, by
a majority vote of a committee of the Board of Directors of the Company
designated to select such Independent Legal Counsel by a majority vote
of all directors of the Company, consisting solely of two or more
directors who at the time of such selection are neither Interested
Parties nor parties in that particular Proceeding to which Indemnitee
is seeking indemnification, or if such a quorum cannot be obtained and
such a committee cannot be established, by a majority vote of all
directors of the Company. "Reviewing Party" means if a Change in
Control has occurred, Independent Legal Counsel selected in the manner
set forth in (ii) above.
(c) "Change in Control" shall mean an event which shall be deemed to
have occurred if: (i) a merger or consolidation of the Company with or
into another corporation occurs in which the Company shall not be the
surviving corporation (for purposes of this definition, the Company shall
not be deemed the surviving corporation in any such transaction if, as the
result thereof, it becomes a wholly-owned subsidiary of another
corporation); (ii) a dissolution of the Company occurs; (iii) a transfer of
all or substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more other
persons or entities occurs; (iv) if any "person" or "group" as those terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than Excluded Persons, becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities; or (v) during any period of two consecutive years commencing on
or after April 1, 1995, individuals who at the beginning of the period
constituted the Board cease for any reason to constitute at least a
majority, unless the election of each director who was not a director at
the beginning of the period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period. The term "Excluded Persons"
means each of William E. Ogle, William D. Balthaser, Jr., and Mark S. Sims,
and any person, entity, or group under the control of any of them, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company.
(d) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 6(b) hereof, who shall not have
otherwise performed services for Indemnitee, the Company, any person that
controls the Company or any of the directors of the Company, within five
years preceding the time of such selection (other than in connection with
seeking indemnification under this Agreement). Independent Legal Counsel
shall not be any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement, nor shall Independent Legal Counsel be any
person who has been sanctioned or censured for ethical violations of
applicable standards of professional conduct.
7. ENFORCEABILITY. The right to indemnification or advances as provided
by this Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proof that indemnification is not appropriate shall
be on the Company. Neither the
-4-
<PAGE>
failure of the Company (including its Board of Directors or Independent Legal
Counsel) to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because Indemnitee
has met the applicable standard of conduct, nor an actual determination by
the Company (including its Board of Directors or Independent Legal Counsel)
that Indemnitee has not met such an applicable standard of conduct, shall be
a defense to the action or create a presumption that Indemnitee has not met
the applicable standard of conduct.
8. PARTIAL INDEMNITY; EXPENSES. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or
a portion of the expenses, judgments, fines, and penalties, but not for the
total amount thereof, the Company shall indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Proceedings relating in whole or
in part to an event subject to indemnification hereunder or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against expenses incurred for any Loss in connection
with such Proceeding, issue or matter, as the case may be.
9. REPAYMENT OF EXPENSES. Indemnitee shall reimburse the Company for
all reasonable expenses paid by the Company in defending any Proceeding
against Indemnitee in the event and only to the extent that it shall be
ultimately determined that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of this Agreement.
10. CONSIDERATION. The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to consent to serve, to serve,
and/or to continue serving as a director, and acknowledges that Indemnitee is
relying upon this Agreement in consenting to serve and serving in such
capacity.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
other agreement, vote of shareholders, as a matter of law, or otherwise.
12. SUBROGATION. If a payment is made under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the right
of recovery of such Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights.
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision thereof shall be held to be invalid or unenforceable for any reason
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereto.
14. NOTICE. Any notice, consent, or other communication to be given
under this Agreement by any party to any other party shall be in writing and
shall be either (a) personally delivered, (b) mailed by registered or
certified mail, postage prepaid with return receipt requested, (c) delivered
by overnight express delivery service or same-day local courier service, or
(d)
-5-
<PAGE>
delivered by telex or facsimile transmission to the address set forth beneath
the signature of the parties below, or at such other address as may be
designated by the parties from time to time in accordance with this Section.
Notices delivered personally, by overnight express delivery service, or by
local courier service shall be deemed given as of actual receipt. Mailed
notices shall be deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission shall be deemed upon receipt by
the sender of the answerback (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
15. GOVERNING LAW: BINDING EFFECT; AMENDMENT AND TERMINATION:
REIMBURSEMENT.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas, without giving effect to Texas
principles of conflicts of laws.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors, and assigns, and shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representation,
and assigns and to the benefit of the Company, its successors, and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
STB SYSTEMS, INC.
---------------------------------------
William E. Ogle, Chairman of the Board,
President and Chief Executive Officer
Address of STB Systems, Inc.
1651 North Glenville Drive, Suite 210
Richardson, Texas 75085-0957
Facsimile: (214) 437-9631
---------------------------------------
Dennis G. Sabo, INDEMNITEE
Address of Indemnitee:
---------------------------------------
---------------------------------------
Facsimile:
-----------------------------
-7-
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of ________________, is by and between STB
Systems, Inc., a Texas corporation (the "Company"), and Bryan F. Keyes
("Indemnitee").
W I T N E S S E T H :
WHEREAS, the Company desires to have the service of qualified officers and
directors who are willing to make decisions that in their judgment are in the
Company's best interest without any undue threat of personal liability;
WHEREAS, the Company's Amended and Restated Articles of Incorporation
("Articles of Incorporation") and the Company's Amended and Restated Bylaws
("Bylaws") require indemnification of each director or officer of the Company in
his capacity as a director or officer and, if serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, in each of those capacities, against any and
all liability and reasonable expense that may be incurred by him in connection
with or resulting from (a) any threatened, pending, or completed action, suit,
or proceeding whether civil, criminal, administrative, arbitrative, or
investigative (collectively, a "Proceeding"), (b) an appeal in such a
Proceeding, or (c) any inquiry or investigation that could lead to such a
Proceeding, to the fullest extent permitted by the Texas Business Corporation
Act ("Act"), as the same exists or may be hereafter amended;
WHEREAS, the Company desires to grant to Indemnitee the maximum
indemnification for any Loss (hereinafter defined) permitted by the Articles
of Incorporation and Bylaws;
WHEREAS, developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment, and enforcement of statutory, charter, and bylaw
indemnification provisions generally have raised questions concerning the
adequacy, and reliability of the protection afforded to persons intended to
be protected thereunder; and
WHEREAS, in order to resolve such questions and thereby induce
Indemnitee to serve or to continue serving, as an officer and/or director of
the Company, the Company has agreed to enter into this Agreement with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's consent to serve or
continuing to serve in the position of an officer and/or director of the
Company, the parties hereto agree as follows:
<PAGE>
1. INDEMNITY OF INDEMNITEE. The Company shall indemnify Indemnitee in
his capacity as director, director nominee, and/or officer of the Company, as
the case may be, and, if serving at the request of the Company as a director,
director nominee, officer, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, trust partnership, joint venture,
sole proprietorship, employee benefit plan, or other enterprise, in each of
those capacities, against any and all liability and reasonable expense that
may be incurred by Indemnitee in connection with or resulting from (a) any
Proceeding, (b) an appeal in such a Proceeding, or (c) any inquiry or
investigation that could lead to such a Proceeding, all to the fullest extent
permitted by Article 2.02-1 of the Act. All indemnity obligations and/or
liabilities of the Company hereunder shall be without limit and without
regard to the cause or causes thereof or the negligence or gross negligence
of any person or persons (expressly including Indemnitee), whether such
negligence or gross negligence of Indemnitee be sole, joint or concurrent,
active, or passive.
2. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, director nominee or officer of the Company, shall be retroactive to
the date Indemnitee first became a director, director nominee or officer
covering all periods of service from time to time, and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending, or completed Proceeding, any appeal in a Proceeding, and
any inquiry or investigation that could lead to a Proceeding, by reason of
the fact that Indemnitee was serving, or had consented to serve, in any
capacity referred to herein.
3. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnitee of notice of any claim against Indemnitee or the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the assertion
of any such claim or the commencement thereof; but the omission so to notify
the Company will not relieve it from any liability under this Agreement
unless such delay in notification actually prejudiced the Company (and then
only to the extent the Company was actually prejudiced thereby) and in
addition, the Company shall not be relieved from any liability which it may
have to Indemnitee otherwise than under this Agreement. With respect to any
such Proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof with counsel
satisfactory to Indemnitee, provided that, notwithstanding the Company's
assumption of such defense, Indemnitee shall have the right to retain
separate counsel and the Company shall pay all reasonable fees and expenses
of such counsel and all other reasonable expenses of Indemnitee in
connection with such Proceeding. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company
or as to which Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Company and Indemnitee in the conduct of
the defense of such action.
-2-
<PAGE>
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company
nor Indemnitee will unreasonably withhold their consent to any proposed
settlement.
4. ADVANCES OF EXPENSES. Reasonable expenses (other than judgments,
penalties, fines and settlements) incurred by Indemnitee that are subject to
indemnification under this Agreement (and not paid, reimbursed or advanced by
others) shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding within 30 days after the Company receives a
written request by Indemnitee accompanied by substantiating documentation of
such expenses, a written affirmation by Indemnitee of his good faith belief
that he has met the standard of conduct necessary for indemnification under
this Agreement, and a written undertaking by or on behalf of Indemnitee to
repay the amount paid or reimbursed if it is ultimately determined that he
has not met those standards or that such reasonable expenses do not
constitute a Loss. The written undertaking described above shall be an
unlimited general obligation of Indemnitee and shall not be secured. Such
undertaking shall be without reference to the financial ability of Indemnitee
to make repayment.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION: PROCEDURE
UPON APPLICATION. Upon the written request of Indemnitee to be indemnified
pursuant to this Agreement (other than pursuant to Section 4 hereof), the
Company shall cause the Reviewing Party (hereinafter defined) to determine,
within 45 days, whether or not the Indemnitee has met the relevant standards
for indemnification required by this Agreement. The termination of a
Proceeding by judgment, order, settlement, or conviction, or on a plea of
nolo contendere or its equivalent, shall not of itself create a presumption
that Indemnitee did not meet the requirements for indemnification required by
this Agreement. If a determination of indemnification is to be made by
Independent Legal Counsel (hereinafter defined), such Independent Legal
Counsel shall render its written opinion to the Company and Indemnitee as to
what extent Indemnitee will be permitted to be indemnified. The Company
shall pay the reasonable fees of Independent Legal Counsel and indemnify and
hold harmless such Indemnitee against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to the engagement of Independent Legal Counsel pursuant hereto and the
written opinion of such Independent Legal Counsel.
6. DEFINITIONS. The terms defined in this Section 6 shall, for
purposes of this Agreement have the indicated meanings:
(a) "Loss" shall mean any and all judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expense
(including attorneys' fees) actually incurred by Indemnitee, after
realization of or giving effect to all insurance, bonding, indemnification
and other payments or recoveries actually received by or for the benefit of
Indemnitee, directly or indirectly.
(b) "Reviewing Party" means, if a Change in Control (hereinafter
defined) has not occurred (or if a Change in Control has occurred and such
Change in Control has
-3-
<PAGE>
been approved by a majority of the Board of Directors of the Company
who were directors of the Company immediately prior to such Change
in Control), (i) a majority of a quorum of directors of the Company
who at the time of voting upon a determination of indemnification are
neither officers or employees of the Company or members of the immediate
family of an officer or employee of the Company ("Interested Parties") nor
parties to that particular Proceeding to which Indemnitee is seeking
indemnification; or (ii) Independent Legal Counsel selected by a majority
of a quorum of directors who at the time of selecting such Independent
Legal Counsel are neither Interested Parties nor parties to that
particular Proceeding to which Indemnitee is seeking indemnification,
or if such a quorum cannot be obtained, by a majority vote of a
committee of the Board of Directors of the Company designated to select
such Independent Legal Counsel by a majority vote of all directors of
the Company, consisting solely of two or more directors who at the time
of such selection are neither Interested Parties nor parties in that
particular Proceeding to which Indemnitee is seeking indemnification,
or if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors of the Company.
"Reviewing Party" means if a Change in Control has occurred,
Independent Legal Counsel selected in the manner set forth in (ii)
above.
(c) "Change in Control" shall mean an event which shall be deemed to
have occurred if: (i) a merger or consolidation of the Company with or
into another corporation occurs in which the Company shall not be the
surviving corporation (for purposes of this definition, the Company shall
not be deemed the surviving corporation in any such transaction if, as the
result thereof, it becomes a wholly-owned subsidiary of another
corporation); (ii) a dissolution of the Company occurs; (iii) a transfer of
all or substantially all of the assets or shares of stock of the Company in
one transaction or a series of related transactions to one or more other
persons or entities occurs; (iv) if any "person" or "group" as those terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than Excluded Persons, becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities; or (v) during any period of two consecutive years commencing on
or after April 1, 1995, individuals who at the beginning of the period
constituted the Board cease for any reason to constitute at least a
majority, unless the election of each director who was not a director at
the beginning of the period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period. The term "Excluded Persons"
means each of William E. Ogle, William D. Balthaser, Jr., and Mark S. Sims,
and any person, entity, or group under the control of any of them, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company.
(d) "Independent Legal Counsel" shall mean an attorney, selected in
accordance with the provisions of Section 6(b) hereof, who shall not have
otherwise performed services for Indemnitee, the Company, any person that
controls the Company or any of the directors of the Company, within five
years preceding the time of such selection (other than in connection with
seeking indemnification under this Agreement). Independent Legal Counsel
shall not be any person who, under the applicable standards of professional
-4-
<PAGE>
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement, nor shall Independent Legal Counsel be any
person who has been sanctioned or censured for ethical violations of
applicable standards of professional conduct.
7. ENFORCEABILITY. The right to indemnification or advances as
provided by this Agreement shall be enforceable by Indemnitee in any court of
competent jurisdiction. The burden of proof that indemnification is not
appropriate shall be on the Company. Neither the failure of the Company
(including its Board of Directors or Independent Legal Counsel) to have made
a determination prior to the commencement of such action that indemnification
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Company (including
its Board of Directors or Independent Legal Counsel) that Indemnitee has not
met such an applicable standard of conduct, shall be a defense to the action
or create a presumption that Indemnitee has not met the applicable standard
of conduct.
8. PARTIAL INDEMNITY; EXPENSES. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or
a portion of the expenses, judgments, fines, and penalties, but not for the
total amount thereof, the Company shall indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all Proceedings relating in whole or
in part to an event subject to indemnification hereunder or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against expenses incurred for any Loss in connection
with such Proceeding, issue or matter, as the case may be.
9. REPAYMENT OF EXPENSES. Indemnitee shall reimburse the Company for
all reasonable expenses paid by the Company in defending any Proceeding
against Indemnitee in the event and only to the extent that it shall be
ultimately determined that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of this Agreement.
10. CONSIDERATION. The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Indemnitee to consent to serve, to serve,
and/or to continue serving as an officer and/or director, and acknowledges
that Indemnitee is relying upon this Agreement in consenting to serve and
serving in such capacity.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
other agreement, vote of shareholders, as a matter of law, or otherwise.
12. SUBROGATION. If a payment is made under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the right
of recovery of such Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights.
-5-
<PAGE>
13. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision thereof shall be held to be invalid or unenforceable for any reason
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereto.
14. NOTICE. Any notice, consent, or other communication to be given
under this Agreement by any party to any other party shall be in writing and
shall be either (a) personally delivered, (b) mailed by registered or
certified mail, postage prepaid with return receipt requested, (c) delivered
by overnight express delivery service or same-day local courier service, or
(d) delivered by telex or facsimile transmission to the address set forth
beneath the signature of the parties below, or at such other address as may
be designated by the parties from time to time in accordance with this
Section. Notices delivered personally, by overnight express delivery
service, or by local courier service shall be deemed given as of actual
receipt. Mailed notices shall be deemed given three business days after
mailing. Notices delivered by telex or facsimile transmission shall be
deemed upon receipt by the sender of the answerback (in the case of a telex)
or transmission confirmation (in the case of a facsimile transmission).
15. GOVERNING LAW: BINDING EFFECT; AMENDMENT AND TERMINATION:
REIMBURSEMENT.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas, without giving effect to Texas
principles of conflicts of laws.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors, and assigns, and shall inure to the benefit of
Indemnitee, his heirs, executors, administrators, personal representation,
and assigns and to the benefit of the Company, its successors, and assigns.
(c) No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
(d) If Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Indemnitee for all of Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
STB SYSTEMS, INC.
By:
---------------------------------------
William E. Ogle, Chairman of the Board,
President and Chief Executive Officer
Address of STB Systems, Inc.
1651 North Glenville Drive, Suite 210
Richardson, Texas 75085-0957
Facsimile: (214) 437-9631
--------------------------------------------
Bryan F. Keyes, INDEMNITEE
Address of Indemnitee:
--------------------------------------------
--------------------------------------------
Facsimile:
----------------------------------
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<PAGE>
[EXECUTION]
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
made as of January 30,1998 by and among STB Systems, Inc., a Texas corporation
(herein called "Borrower"), Bank One, Texas, N.A., individually and as agent
(herein called "Agent") and the Lenders referred to in the Original Credit
Agreement described below ("Original Lenders").
WITNESSETH:
WHEREAS, Borrower and Lenders have entered into that certain Credit
Agreement dated as of November 21, 1997 (the "Original Agreement"), for the
purposes and consideration therein expressed, pursuant to which Lenders became
obligated to make loans to Borrower as therein provided; and
WHEREAS, Borrower and Lenders desire to amend the Original Agreement to
increase the commitment amount, add an additional Lender and amend certain other
terms and provisions thereof;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" means this First Amendment to Credit Agreement.
"AMENDMENT DOCUMENTS" means this Amendment and the Renewal Notes.
<PAGE>
"CREDIT AGREEMENT" means the Original Agreement as amended hereby.
"LENDERS" means, collectively, the Original Lenders and Comerica Bank-
California.
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. The definition of "COMMITMENT" in Section 1.1. of the Original
Agreement is hereby amended in its entirety to read as follows:
"'COMMITMENT' means the amount of $40,000,000."
Section 2.2. The definition of "MAJORITY LENDERS" in Section 1.1 of the
Original Agreement is hereby amended in its entirety to read as follows:
"'MAJORITY LENDERS' means Lenders whose aggregate Percentage Shares
equal or exceed seventy-five percent (75 %)."
Section 2.3. COMMITMENT FEES. Subsection 2.5(a)(ii) of the Original
Agreement is hereby amended in its entirety to read as follows:
"(ii) In consideration of the commitment of each Lender except for Bank
One, to make Loans, Borrower will pay to Agent for the account of each such
Lender, a commitment fee determined on a daily basis by applying a rate of
twenty-five basis points (0.25%) per annum to each such Lender's Percentage
Share of the unused portion of the Commitment on each day during the
Commitment Period, determined for each such day by deducting from the
amount of the Commitment at the end of such day the Facility Usage. This
commitment fee shall be due and payable in arrears on the tenth day of each
Fiscal Quarter for the immediately preceding Fiscal Quarter and at the end
of the Commitment Period.
ARTICLE III.
ASSIGNMENT AND ACCEPTANCE
Bank One and Sanwa (in this article, Bank One and Sanwa are collectively
called "Assignors") and Comerica Bank - California ("Assignee"), hereby agree as
follows:
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<PAGE>
Section 3.1. Assignors hereby sell and assign to Assignee, without recourse
and without representation or warranty except as expressly set forth herein, and
Assignee hereby purchases and assumes from Assignors, an interest in and to
Assignors' rights and obligations under the Credit Agreement and the other Loan
Documents as of the date hereof equal to the percentage interest specified on
Annex I hereto of ALL OUTSTANDING RIGHTS AND OBLIGATIONS under the Credit
Agreement and the other Loan Documents. After giving effect to such sale and
assignment, Assignee's and Assignors' Percentage Shares of the Commitment and
the amount of Assignee's and Assignors' Percentage Share of Outstanding Loans
will be as set forth on Annex I hereto.
Section 3.2. Bank One, with respect to the interests assigned by it
hereunder (a) represents and warrants that with respect to the interests
assigned by it hereunder, it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear of any
adverse claim; (b) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant thereto; (c)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Restricted Person or the performance or
observance by any Restricted Person of any of its obligations under the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(d) delivers herewith the Note held by Bank One and requests that Agent exchange
such Note for new Notes payable to the order of Assignee in an amount equal to
the Percentage Share of the Commitment assumed by Assignee pursuant hereto and
to Bank One in an amount equal to the Percentage Share of the Commitment
retained by the Bank One as specified on Annex I.
Section 3.3. Sanwa, with respect to the interests assigned by it hereunder
(a) represents and warrants that with respect to the interests assigned by it
hereunder, it is the legal and beneficial owner of the interest being assigned
by it hereunder and that such interest is free and clear of any adverse claim;
(b) makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or any
other instrument or document furnished pursuant thereto; (c) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Restricted Person or the performance or observance by
any Restricted Person of any of its obligations under the Loan Documents or any
other instrument or document furnished pursuant thereto; and (d) delivers
herewith the Note held by Sanwa and requests that Agent exchange such Note for
new Notes payable to the order of Assignee in an amount equal to the Percentage
Share of the Commitment assumed by Assignee pursuant hereto and to Sanwa in an
amount equal to the Percentage Share of the Commitment retained by the Sanwa as
specified on Annex I.
Section 3.4. Assignee (a) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 6.2 thereof and such other
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<PAGE>
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Amendment; (b) agrees that it will,
independently and without reliance upon Agent, Assignors or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (c) confirms that it is an Eligible Transferee; (d)
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers and discretion under the Credit Agreement as are delegated
to Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (e) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (f) delivers
herewith any U.S. Internal Revenue Service or other forms required under Section
3.6(d).
Section 3.5. Upon such acceptance and recording by Agent, (a) Assignee
shall be a party to the Credit Agreement and, to the extent provided in this
Amendment, have the rights and obligations of a Lender thereunder and (b)
Assignors shall, to the extent provided in this Article, relinquish their rights
and be released from their obligations under the Credit Agreement.
Section 3.6. Upon such acceptance and recording by Agent, from and after
the effective date of this Amendment, Agent shall make all payments under the
Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to Assignee. Assignors and Assignee shall
make all appropriate adjustments in payments under the Credit Agreement and the
Notes for periods prior to the effective date of this Amendment directly between
themselves.
ARTICLE IV.
CONDITIONS OF EFFECTIVENESS
Section 4.1. EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written when, and only when all of the following have been
satisfied:
(a) DOCUMENTS. Agent shall have received, at Agent's office, and
executed by, if applicable, Lenders, Borrower and/or Guarantors, all of the
following documents in form and substance satisfactory to Agent:
(i) this Amendment;
(ii) the Notes with appropriate insertions, in the form
attached hereto as Exhibit A, payable to the order of each Lender on
or before the Maturity Date (such Notes herein called the "Renewal
Notes"), in a principal amount equal to the amount set out in Annex I
hereto;
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<PAGE>
(iii) Consents of Guarantors in a form satisfactory to Agent;
(iv) the written opinion of Borrower's counsel dated as of the
date of this Amendment, addressed to Agent, to the effect that this
Amendment and each Renewal Note has been duly authorized, executed and
delivered by Borrower and that the Credit Agreement and each Renewal
Note constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with their terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency and
similar laws and to general principles of equity);
(v) a certificate of the Secretary of Borrower dated the date
of this Amendment certifying that (A) attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of
Borrower authorizing the execution, delivery and performance of this
Amendment and each Renewal Note and certifying the names and true
signatures of the officers of Borrower authorized to sign this
Amendment and each Renewal Note and (B) all of the representations and
warranties set forth in Article V hereof are true and correct at and
as of the time of such effectiveness; and
(vi) such other supporting documents as Agent may reasonably
request.
(b) FEES. Agent shall have received, for the benefit of Lenders, an
additional facility fee in the amount of $20,000.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to induce
each Lender to enter into this Amendment, Borrower represents and warrants as to
itself and each Restricted Person, to Lenders that:
(a) All representations and warranties contained in Article V of the
Original Agreement are true on and as of the date hereof (except to the
extent that the facts upon which such representations are based have been
changed by transactions and events expressly permitted by the Credit
Agreement.
(b) Borrower is duly authorized to execute and deliver this Amendment
and each Renewal Note and is and will continue to be duly authorized to
borrow monies and to perform its obligations under the Credit Agreement.
Each Restricted Person has duly taken all corporate action necessary to
authorize the execution and delivery of this
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<PAGE>
Amendment and each Renewal Note and to authorize the performance of the
obligations hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment and each
Renewal Note, the performance by Borrower of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby do not and will not conflict with any provision of law, statute,
rule or regulation or of the articles of incorporation and bylaws of
Borrower, or of any material agreement, judgment, license, order or permit
applicable to or binding upon Borrower, or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Borrower.
Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by Borrower
of this Amendment and each Renewal Note or to consummate the transactions
contemplated hereby and thereby.
(d) When duly executed and delivered, each of this Amendment, the
Credit Agreement and the Renewal Notes will be a legal and binding
obligation of Borrower, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency and similar laws applying to creditors'
rights generally and by principles of equity applying to creditors' rights
generally.
(e) The Consolidated financial statements of Borrower dated as of
October 31, 1997 fairly present the Consolidated financial position at such
dates and the Consolidated statement of operations and the changes in
Consolidated financial position for the periods ending on such dates for
Borrower. Copies of such financial statements have heretofore been
delivered to Agent. Since October 31, 1997, no material adverse change has
occurred in the financial condition or businesses or in the Consolidated
financial condition or businesses of Borrower.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. RATIFICATION OF AGREEMENTS. The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. The Loan Documents, as
they may be amended or affected by the various Amendment Documents, are hereby
ratified and confirmed in all respects. Any reference to the Credit Agreement in
any Loan Document shall be deemed to be a reference to the Original Agreement as
hereby amended. Any reference to the Notes in any other Loan Document shall be
deemed to be a reference to the Renewal Notes issued and delivered pursuant to
this Amendment. Any reference to Lenders in any other Loan Document shall be
deemed to be a reference to the Lenders signatory hereto. The execution,
delivery and effectiveness of this Amendment and the Renewal Notes shall not,
except as expressly provided herein or therein,
6
<PAGE>
operate as a waiver of any right, power or remedy of Lenders under the Credit
Agreement, the Notes, or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or any other Loan Document.
Section 6.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans and the issuance and delivery of
the Renewal Notes, and shall further survive until all of the Obligations are
paid in full. All statements and agreements contained in any certificate or
instrument delivered by Borrower any Restricted Person hereunder or under the
Credit Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.
Section 6.3. LOAN DOCUMENTS. This Amendment and each Renewal Note are each
a Loan Document, and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 6.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
Section 6.5. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
STB SYSTEMS, INC.
Borrower
By: /s/ James L. Hopkins
--------------------------------
Name: James L. Hopkins
Title: Vice President, Chief
Financial Officer
BANK ONE, TEXAS, N.A.
Agent and Lender
By: ILLEGIBLE
--------------------------------
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION
Lender
By: ILLEGIBLE
--------------------------------
Name:
Title:
COMERICA BANK-CALIFORNIA
Lender
By: ILLEGIBLE
--------------------------------
Name:
Title:
<PAGE>
ANNEX I
<TABLE>
<S> <C>
Percentage Share assigned by Bank One: 12.5%
Amount assigned by Bank One: $5,000,000
Percentage Share assigned by Sanwa: 12.5%
Amount assigned by Sanwa: $5,000,000
Assignee's Percentage Share: 25%
Amount of Assignee's Percentage Share: $10,000,000
Assignee's Commitment: $10,000,000
Principal amount of Note payable to Assignee: $10,000,000
Principal amount of Note payable to Bank One: $15,000,000
Principal amount of Note payable to Sanwa: $15,000,000
</TABLE>
<PAGE>
LEASE SCHEDULE NO. 1000063250 dated as of October 31, 1997 LEASE
(Used Equipment)
Master Lease Agreement dated 10/30/96
Lessor: Banc One Leasing Corporation
Lessee: STB Systems, Inc.
1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease
Agreement identified above, as amended from time to time ("Master Lease"),
between Lessee and Lessor. Capitalized terms defined in the Master Lease will
have the same meanings when used in this Schedule.
2. LEASE; EQUIPMENT DESCRIPTION. Lessor leases to Lessee, and Lessee leases
from Lessor, all of the property ("Equipment") described in Schedule A-l
attached hereto (and Lessee represents that all Equipment is USED unless
specifically identified as new) on Schedule A-l.
3. LESSOR'S COST OF EQUIPMENT.
<TABLE>
<S> <C>
Equipment Cost to Lessor: $3,000,000.00
Set-Up/Filing Fee: $ 0.00
Miscellaneous: $ 0.00
Sales Tax: $ 0.00
Lessor's Cost (total): $3,000,000.00
</TABLE>
4. LEASE TERM. The Lease Term of this Schedule shall be SIXTY (60) MONTHS and
shall commence on NOVEMBER 1, 1997 ("Commencement Date").
5. RENT/FEES. There shall be added to each rent or other payment described
below all applicable Taxes as in effect from time to time.
(a) As rent for the Equipment during the Lease Term, Lessee shall pay to Lessor
MONTHLY rent with each such periodic rent payment being in the amount of
$56,939.19. The first rent payment in the Lease Term shall be paid in ARREARS
and all subsequent rent payments shall be paid on the same day of each MONTH
thereafter.
(b) Lessee shall pay Lessor a Set-Up/Filing Fee of $0.00 which has been included
in the above Lessor's Cost of the Equipment.
(c) Security Deposit: $ ZERO. On the Acceptance Date, Lessee shall pay Lessor
said Security Deposit which shall be held in accordance with paragraph 11 below.
6. RENT ADJUSTMENT. Within 15 days after each scheduled Rent Payment Date in
the Lease Term, Lessor shall calculate the Payment Adjustment for such Rent
Payment Date (the "Adjustment Date"). With the next scheduled Rent Payment in
the Lease Term (or within 15 days after the last scheduled Rent Payment in the
Lease Term) (a) if on the Adjustment Date the Adjusted Rate is greater than the
Initial Rate, then Lessee shall pay to Lessor the Payment Adjustment, or (b)
if on the Adjustment Date the Adjusted Rate is less than the Initial Rate, then
Lessor shall pay to Lessee the Payment Adjustment (which amount may be credited
by Lessee toward the Rent
Page 1
<PAGE>
Payment then due). For the purposes of this paragraph, the following terms
shall have the following meanings:
(a) "Adjustment Date" shall mean the scheduled Rent Payment Date in the
Lease Term for which the Payment Adjustment is being calculated.
(b) "Adjusted Rate" shall mean LIBOR plus 250 basis points as of the
Adjustment Date.
(c) "Contract Receivable" shall mean the remaining principal outstanding
just prior to application of the Rent Payment due on the Adjustment Date,
as shown on the books and records of the Lessor.
(d) "Initial Rate" shall mean 8.1250%.
(e) "LIBOR" shall mean the one month rate of interest at which deposits in
U.S. dollars are offered to major banks in the London Interbank market as
published in the Wall Street Journal on the Adjustment Date.
(f) "Payment Adjustment* shall mean the Rate Differential multiplied by the
Contract Receivable.
(g) "Rate Differential" shall mean the absolute value of the difference
between the Initial Rate and the Adjusted Rate.
7. TITLE TO EQUIPMENT; QUIET POSSESSION. Lessee agrees that Lessor is the
lawful owner of the Equipment and that good and marketable title to the
Equipment shall remain with Lessor at all times. Lessee at its sole expense
will protect and defend Lessor's good and marketable title to the Equipment
against all claims and demands whatsoever except for Liens created directly
by Lessor. Lessee shall have no right, title or interest in any of the
Equipment except the right to peacefully and quietly hold and use the
Equipment in accordance with the terms of the Lease during the Lease Term
unless and until an event of default shall occur.
8. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a)
reaffirms all of the terms and conditions of the Master Lease and agrees that
the Master Lease remains in full force and effect; (b) agrees that the
Equipment is and will be used at all times solely for commercial purposes,
and not for personal, family or household purposes; and (c) incorporates all
of the terms and conditions of the Master Lease as if fully set forth in this
Schedule.
9. CONDITIONS. No lease of Equipment under this Schedule shall be binding on
Lessor, and Lessor shall have no obligation to purchase the Equipment covered
hereby, unless: (a) Lessor has received evidence of all required insurance;
(b) in Lessor's sole judgment, there has been no material adverse change in
the financial condition or business of Lessee or any guarantor; (c) Lessee
has signed and delivered to Lessor this Schedule, which must be satisfactory
to Lessor, and Lessor has signed and accepted this Schedule; (d) no change in
the Code or any regulation thereunder, which in Lessor's sole judgment would
adversely affect the economics to Lessor of the lease transaction, shall have
occurred or shall appear to be imminent; (e) Lessor has received, in form and
substance satisfactory to Lessor, such other documents and information as
Lessor shall reasonably request (including, without limitation, Political
Risk Insurance described below in this Schedule); (f) STB DE MEXICO, S.A. DE
C.V. shall execute and deliver to Lessor a guaranty which must be
satisfactory in form and substance to Lessor (such satisfaction to be
evidenced by Lessor's signature thereon) and (g) Lessee has satisfied all
other reasonable conditions established by Lessor. Notwithstanding anything
to the contrary above in this paragraph, if Lessor executes and delivers the
Schedule to Lessee and if Lessor pays all of the suppliers of the Equipment
the full
Page 2
<PAGE>
Lessor's Cost of the Equipment (the date as of which both of said events shall
have occurred will be called the "Funding Date"), then except as otherwise
specified in writing by Lessor to Lessee before said Funding Date, all
conditions to the Schedule being binding on Lessor will be deemed satisfied.
10. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor any
additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Schedule including, without limitation, Uniform Commercial
Code financing statements which Lessor is authorized to file with the
appropriate filing officers. Lessee hereby irrevocably appoints Lessor
as Lessee's attorney-in-fact with full power and authority in the place of
Lessee and in the name of Lessee to prepare, sign, amend, file or record any
Uniform Commercial Code financing statements or other documents deemed desirable
by Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
11. SECURITY DEPOSIT: As collateral for Lessee's obligations under the Lease,
Lessee hereby grants to Lessor a security interest in the sums specified in this
Schedule as a "Security Deposit". At its option, Lessor may apply all or any
part of said Security Deposit to cure any default of Lessee under the Lease. If
upon final termination of this Schedule, Lessee has fulfilled all of the terms
and conditions hereof, then Lessor shall pay to Lessee upon Lessee's written
request any remaining balance of the Security Deposit for this Schedule, without
interest.
12. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a)
Lessee is a corporation duly organized, validly existing and in good standing
under the laws of the state of its organization; (b) Lessee has full power,
authority and legal right to sign, deliver and perform the Master Lease, this
Schedule and all related documents and such actions have been duly authorized
by all necessary corporate action; and (c) the Master Lease, this Schedule and
each related document has been duly signed and delivered by Lessee and each such
document constitutes a legal, valid and binding obligation of Lessee enforceable
in accordance with its terms, except to the extent enforcement is limited by
State and Federal laws regarding bankruptcy, insolvency or debt reorganization
or other similar laws of general application or the application of principles of
equity.
13. SUBLEASE. Notwithstanding anything to the contrary in the Master Lease,
with respect to this Schedule, Lessor consents to the sublease or bailment of
the Equipment described in this Schedule by Lessee as sublessor or bailor to
STB DE MEXICO, S.A. DE C.V. as sublessee or bailee pursuant to the terms and
conditions of a Gratuitous Bailment Agreement and to the location of the
Equipment covered by the Schedule in the City of Ciudad Juarez, State of
Chihuahua, Mexico; provided, that the Gratuitous Bailment Agreement must be
satisfactory in form and substance to Lessor (such satisfaction to be
evidenced by Lessor's signature thereon).
14. POLITICAL RISK INSURANCE. As used herein, "Political Risk Insurance"
shall mean a policy of insurance issued by National Union Fire Insurance
Company of Pittsburgh, PA ("Insurance Company") which insures Lessee and
Lessor (or Lessor's assignee) against risks of expropriation or deprivation
of the Equipment by the government of the United Mexican States ("Political
Loss") as set forth in such policy of insurance. Lessee acknowledges that it
has reviewed a copy of the Political Risk Insurance policy.
(a) With respect to this Schedule, Lessee shall be required to carry
Political Risk Insurance as an additional requirement under Section 8 of
the Master Lease and Lessee shall pay the premiums for the Political Risk
Insurance that Lessor requires hereunder.
Page 3
<PAGE>
(b) If a Political Loss occurs, such event shall be deemed a Casualty Loss
under Section 9 of the Master Lease; provided, that (1) Lessee agrees to
continue to pay rent and perform its other obligations under this Schedule
and the Master Lease until the eariler of the date that the Insurance
Company pays the amounts due under the Political Risk Insurance or the date
that Lessor has exhausted its rights and remedies under the Political Risk
Insurance; (2) Lessor agrees that it will pursue with reasonable diligence
its rights against the Insurance Company under the Political Risk
Insurance; and (3) notwithstanding anything to the contrary in Section 9 of
the Master Lease as it relates to this Schedule, within thirty (30) days of
the earlier of the date that the Insurance Company pays the amounts due
under the Political Risk Insurance or the date that Lessor has exhausted
its rights and remedies under the Political Risk Insurance, Lessee shall
pay to Lessor the Stipulated Loss Value of the Equipment affected by the
Political Loss less the aggregate of the amount that the Insurance Company
has paid to Lessor under the Political Risk Insurance and the amount that
the United Mexican States has paid to Lessor as a result of the Political
Loss plus the reasonable expenses incurred by Lessor to collect such
amounts from the Insurance Company and the United Mexican States.
15. SECURlTY AGREEMENT. In additions to the conditions set forth in paragraph
9 of this Schedule, Lessee shall also execute and deliver to Lessor a security
agreement ("Security Agreement") whereby Lessee grants Lessor a first priority
security interest in all equipment, accounts, general intangibles, chattel paper
and inventory of Lessee now or hereafter acquired by Lessee and located in the
United States of America, which Security Agreement will be satisfactory in form
and substance to Lessor, in order to secure all present and future obligations
of Lessee under all present and future Schedules to the Master Lease and the
Master Lease.
16. AMENDMENT OF PURCHASE OPTION AND RETURN OPTION.
(a) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elects to exercise its option to purchase the
Equipment at the end of the Lease Term (which option is described in Section
23(c) of the Master Lease), then, notwithstanding anything to the contrary in
this Schedule or the Master Lease, the provisions of Section 23(d) of the Master
Lease for determining Fair Market Value for purposes of this purchase option
shall not apply and the purchase price of the Equipment at the end of the Lease
Term shall be equal to the FIXED PRICE stated below plus all Taxes (excluding
income taxes on Lessor's gains on such sale), costs and expenses incurred or
paid by Lessor in connection with such sale plus all accrued and unpaid amounts
then due and payable with respect to the Equipment or this Schedule.
Fixed Price: TEN PERCENT (10%) of the above Lessor's Cost of the
Equipment
(b) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elects to exercise its option to return the
Equipment at the end of the Lease Term (which option is described in Section
23(b) of the Master Lease), then Lessee shall return the Equipment in full
compliance with Section 23(b) of the Master Lease and with all other return and
maintenance requirements of this Schedule and there shall be a rent adjustment
as provided below in this subparagraph (b). The scheduled expiration date of the
Lease Term specified in this Schedule will be referred to as the "Termination
Date".
(1) If the Actual Sale Proceeds as determined pursuant to subparagraph (c)
of this paragraph are less than the Fixed Price, then (A) Lessor shall
retain the Actual Sale Proceeds and (B) Lessee shall pay to Lessor the
difference between the Fixed Price and such Actual Sale Proceeds on
the Termination Date, PROVIDED, THAT the amount
Page 4
<PAGE>
of said deficiency payable by Lessee to Lessor shall not exceed nine
percent (9%) of the above Lessor's Cost of the Equipment; or
(2) If the Actual Sale Proceeds as determined pursuant to subparagraph (c)
of this paragraph equal or exceed the Fixed Price, then Lessor shall
retain the entire Actual Sale Proceeds.
(3) In all events, Lessee shall pay all Taxes (excluding income taxes on
Lessor's gains on such sale), costs and expenses incurred or paid by
Lessor in connection with any such sale plus all accrued and unpaid
amounts due and payable with respect to the Equipment or this Schedule
up to the date of any such sale.
(4) If for any reason whatsoever Lessee fails to return the Equipment in
full compliance with Section 23(b) of the Master Lease and with all
other return and maintenance requirements of this Schedule on or
before the Termination Date, then Lessee shall be deemed to have
elected to purchase Equipment pursuant to subparagraph (a) of this
paragraph.
Unless othewise expressly agreed by Lessor in writing, during the 90-day period
prior to the Termination Date, Lessee shall, and Lessor may, solicit offers to
purchase the Equipment from prospective purchasers. Neither Lessee nor third
parties affiliated with the Lessee may bid to purchase the Equipment. Lessor may
bid to purchase the Equipment.
(c) If one or more such offers to purchase the Equipment are received
under subparagraph (b) of this paragraph, then the Equipment shall be sold by
Lessor to the highest bidder within ten (10) days after the Termination Date and
the Actual Sale Proceeds shall equal the purchase price actually received by
Lessor after deducting all reasonable selling expenses. If no such offers to
purchase the Equipment are received or if the Equipment is not sold for any
reason, then the Actual Sale Proceeds shall be deemed to be zero and Lessee
shall pay the Fixed Price to Lessor pursuant to clause (1) of subparagraph (b)
of this paragraph plus all accrued and unpaid amounts due and payable with
respect to the Equipment or this Schedule up to the date of any such payment. If
Lessor subsequently sells the Equipment, then the purchase price actually
received by Lessor, after deducting all reasonable selling expenses, shall be
distributed as follows: first, to Lessor in an amount equal to the Fixed Price
less the payment made by Lessee pursuant to clause (1) of subparagraph (b) of
this paragraph; second, to Lessee, to the extent of its payment to Lessor
pursuant to clause (1) of subparagraph (b) of this paragraph; and lastly, the
remainder to Lessor.
(d) Lessor shall, upon receipt of the purchase price of the Equipment
under this paragraph, convey title to the Equipment to the purchaser by a bill
of sale, which transfer shall be "AS-IS, WHERE IS", with all faults, without
recourse to Lessor and without any representation or warranty of any kind
whatsoever by Lessor, express or implied.
17. TAX BENEFIT. Solely for purposes of this Schedule and its Equipment, it is
the intention of the parties that Lessor shall not be entitled to such
deductions, credits and other tax benefits as are provided by federal, state,
and local income tax law to an owner of the Equipment and Section 10 of the
Master Lease is deleted. NOTWITHSTANDING ANYTHlNG TO THE CONTRARY IN THE
MASTER LEASE OR THIS SCHEDULE, LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES OF
THIS SCHEDULE OR THE TRANSACTlONS CONTEMPLATED HEREBY.
18. GOVERNING DOCUMENT. In the event of any conflict between the terms of the
Master Lease and the terms of this Schedule as each is amended by its addenda,
the terms of this
Page 5
<PAGE>
Schedule shall control.
19. SAVINGS CLAUSES. (a) If any court or other judicial authority determines
that this Schedule is a loan transaction or a conditional sale transaction,
then Lessor and Lessee agree: (1) that the original principal amount financed
pursuant to this Schedule is the Lessor's Cost set forth in paragraph 3 of this
Schedule; and (2) that Lessee shall pay said principal amount, together with
interest at the Initial Rate set forth in paragraph 6 of this Schedule (subject
to adjustment as set forth in paragraph 6 of this Schedule), by paying all
rentals and other amounts due under the Schedule plus the Fixed Price set forth
in paragraph 16 of this Schedule.
(b) If any court or other judicial authority determines that this Schedule
is a loan transaction or a conditional sale transaction, then as collateral
security for payment and performance of all Secured Obligations (defined below)
and to induce Lessor to extend credit from time to time to Lessee (under the
Master Lease or otherwise), Lessee hereby grants to Lessor a first priority
security interest in all of Lessee's right, title and interest in the Equipment,
whether now existing or hereafter acquired, and in all Proceeds (defined below),
and Lessee, at its sole expense, will protect and defend Lessor's first priority
security interest in the Equipment against all claims and demands whatsoever.
Lessee agrees that Lessor shall have all rights of a secured party under the
applicable Uniform Commercial Code. "Secured Obligations" means (1) all payments
and other obligations of Lessee under or in connection with this Schedule, and
(2) all payments and other obligations of Lessee (whether now existing or
hereafter incurred) under or in connection with the Master Lease and all present
and future Lease Schedules thereto, and (3) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or BANC ONE CORPORATION. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
proceeds of insurance, indemnities and/or warranties.
20. POST FUNDING CONDITIONS. (a) Lessee agrees that Lessor shall have the
right to inspect all of the Equipment upon five (5) days advance notice to
Lessee within sixty (60) of the Commencement Date of this Schedule (the "Initial
Inspection"). All reasonable out-of-pocket costs and expenses incurred by
Lessor in connection with the Initial Inspection shall be paid by Lessee.
Lessor shall use the Initial Inspection to verify the condition of the
Equipment and to determine the OLV of the Equipment. "OLV" shall mean the
amount which would be paid for an item of property by an informed and willing
buyer and user of the property (other than a used equipment or scrap dealer)
and an informed and willing seller neither under a compulsion to buy or sell.
(b) If as a result of the Initial Inspection Lessor determines that the
OLV of the Equipment is less than the Lessor's Cost of the Equipment, then
Lessor shall have the right to perform an appraisal to determine the OLV of
the collateral described in the Security Agreement ("Collateral"). "Equipment
& Collateral Value" means the total of the OLV of the Collateral (less the
principal amount of all obligations secured by the Collateral other than
obligations due and payable to Lessor under the Master Lease and its
Schedules) plus the OLV of the Equipment. If the Equipment & Collateral Value
is less than the Lessor's Cost of the Equipment, then Lessor shall have the
right to demand one of the following and Lessee agrees that it shall comply
with the terms and conditions of such demand:
(1) Within twenty (20) days of Lessor's demand, Lessee shall pay to
Lessor, an amount equal to the Lessor's Cost of the Equipment minus the
Equipment & Collateral Value and, upon Lessor's receipt of such payment,
Lessor agrees apply such payment to Lessee's obligations under this
Schedule and to prepare a new rent payment schedule in order to reamortize
Lessee's obligations under this Schedule over the remaining Lease Term; or
Page 6
<PAGE>
(2) Within twenty (20) days of Lessor's demand, Lessee shall grant Lessor
a first priority security interest in additional collateral that has a
verifiable OLV equal to the Lessor's Cost of the Equipment minus the
Equipment & Collateral Value, and Lessee shall pay all out-of-pocket costs
and expenses of completing lien searches and of filing or recording Uniform
Commercial Code financing statements and other documents which Lessor is
authorized to file with the appropriate filing officers.
(c) If Lessor makes any demand under subparagraph (b) of this paragraph,
then Lessee may request, and Lessor agrees to consider, a reduction of the Lease
Term as an alternative to Lessee complying with such demand; provided, that
Lessee acknowledges Lessor retains sole and unfettered discretion to approve or
disapprove the request and to determine the extent of the reduction of the Lease
Term. If for any reason there is no final decision by Lessor regarding Lessee's
request within the twenty (20) days after Lessor's demand under subparagraph (b)
of this paragraph, then Lessee shall comply with the terms of such demand. If
Lessor and Lessee agree upon a reduction of the Lease Term as an alternative to
Lessee complying with Lessor's demand under subparagraph (b) of this paragraph,
then Lessor shall prepare a new rent payment schedule in order to re-amortize
Lessee's obligations under this Schedule over the reduced Lease Term.
21. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has
received a copy of, and approved, the purchase orders or purchase contracts for
the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE HAS
RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS IN
GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL
APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUlPMENT FOR
PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE
UNCONDITIONLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE
EQUIPMENT.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE
AGREES THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE.
Banc One Leasing Corporation STB Systems, Inc.
(Lessor) (Lessee)
By: /s/ Anthony Park By: /s/ [ILLEGIBLE]
------------------------------ ----------------------------
Title: Funding Authority Title: COO
--------------------------- -------------------------
Witness: /s/ Craig [ILLEGIBLE]
-----------------------
Lessor's Acceptance Date: October 31, 1997
Page 7
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCATION: Vicente Guerro,
No. 7407
Cuidad Juarez,
Chihuahua, Mexico
<TABLE>
<CAPTION>
EQUIPMENT DESCRIPTION IN-SERVICE DATE ACQUIRED VALUE VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OMSCO ASSEMBLY LINE - 80 FT. 12/02/88 $11,966.40 $0.00
SECTIONAL TRANSPORTER 12/02/08 $1,994.40 $0.00
VOLTAGE REGULATOR 12/02/88 $997.20 $0.00
SUPERDIP IC TRIM-FORMER 01/23/89 $5,069.50 $0.00
MOUNTZ-HI0Z SCREW GUN 05/05/89 $251.44 $0.00
MOUNTZ-HIOZ SCREW GUN 05/05/89 $251.44 $0.00
MOUNTZ-HIOZ SCREW GUN O5/O5/89 $251.44 $0.00
MOUNTZ-HI0Z SCREW GUN O5/O5/89 $251.44 $0.00
MOUNTZ-HI0Z SCREW GUN 05/05/89 $251.44 $0.00
MOUNTZ-HIOZ SCREW GUN 05/05/89 $251.44 $0.00
MOUNTZ-HIOZ SCREW GUN 05/05/89 $251.43 $0.00
DELTECH DRYER HG1OO 03/07/89 $1,832.85 $0.00
10E3 AIR COMPR ADDITION 03/07/89 $l,086.20 $0.00
31D5 HOT AIR NOZZLE 05/04/89 $177.25 $0.00
CONVEYOR W/18" WIDE BELT 03/27/89 $2,539.40 $0.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-l is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-l EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HOLLIS SOLDERWAVE MACHINE 03/22/89 $866.67 $0.00
BK1127 BURN IN OVEN 05/04/89 $3,385.07 $0.00
BK1127 BURN IN OVEN 05/04/89 $3,385.07 $0.00
BK1127 BURN IN OVEN 05/04/89 $3,385.07 $0.00
BK1108 BURN IN OVEN 05/04/89 $3,385.04 $0.00
BK1108 BURN IN OVEN 05/04/89 $3,385.04 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
NJE POWER SUPPLY MK 1000 05/04/89 $1,148.50 $0.00
CONVEYER BELT 2MT 5OO-V3N 06/30/92 $831.25 $0.00
SMT REPLACEMENT MACHINE 08/24/92 $11,300.00 $0.00
NEUMATIC SCREWDRIVER 09/01/92 $635.50 $0-00
PALLET JACK 27 X 48 09/18/92 $629.27 $0.00
8MM TAPE FEEDER W/BASE 10/14/92 $584.40 $0.00
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BaSE 11/12/92 $539.60 $8.44
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
8MM TAPE FEEDER W/BASE 11/12/92 $539.60 $8.44
FM101 PACK & PLACE 11/06/92 $3,177.50 $49.65
FM1O1 PACK & PLACE 11/06/92 $3,177.50 $49.65
STENCIL PRINTER 12/02/92 $1,000.00 $31.25
KL-12 PICK AND PLACE 11/25/92 $13,423.50 $419.49
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
8MM TAPE FEEDER W/BASE 11/19/92 $539.60 $16.87
6 PORT MULTIPLEXOR 01/06/93 $750.00 $35.16
ECRONO PACK 229 SOLDER 11/19/92 $5,300.00 $165.63
HG-6000 HOT GAS REWORK 02/26/93 $2,500.00 $195.32
SMT-4090 PICK AND PLACE 01/15/93 $12,750.00 $597.66
SMT45OOA STENCIL PRINTER 01/01/93 $2,866.50 $134.37
SMRO-0252 I/R REFLOW OVEN 01/01/93 $14,000.00 $656.25
12" CONDUCTIVE BELTING 03/04/93 $1,894.61 $148.02
PLACEMENT 560 SYSTEM 08/31/93 $74,300.00 $44,115.62
PLACEMENT 560 SYSTEM 08/31/93 $63,450.00 $37,673.39
PLACEMENT 560 SYSTEM 11/18/93 $68,804.10 $43,002.57
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TDK RX-4A SMC PLACEMENT 11/23/93 $83,459.70 $18,256.81
I/R SMT REFLOW SYSTEM 11/15/93 $10,190.29 $2,069.91
4459A REFLOW SYSTEM 12/08/93 $10,190.29 $2,229.13
TDK FA SMC PLACEMENT SYS 02/28/94 $71,860.20 $19,087.86
SULLAIR 25 HP COMPRESSOR 01/20/94 $7,394.56 $1,848.64
SMT REFLOW SYSTEM 03/21/94 $10,367.06 $2,915.74
SARATOGA ROTATIVE CONVEY0 03/23/94 $4,000.00 $1,125.00
MPM ASP-24 SCREEN PRINTER 03/10/94 $30,649.65 $8,141.32
MPM ASP-24 SCREEN PRINTER 03/10/94 $30,671.83 $8,147.20
PIONEER AIR DRYER 03/23/94 $2,138.00 $601.31
MR. GOODAIRE FILTER SYSTEM 03/23/94 $2,597.00 $730.40
1O HP AIR COMPRESSOR 04/22/94 $1,000.00 $296.88
20 HP AIR COMPRESSOR 04/22/94 $1,000.00 $296.88
REFRIGERANT DRYER 04/22/94 $1,000.00 $296.88
ELECTROVERT 229 ECONOPAC 05/17/94 $3,025.00 $945.31
UNIFORM TAPER MACHINE 07/08/94 $3,485.00 $1,143.52
HELLER 715 AXIAL PREFORME 06/03/94 $2,250.00 $703.13
HELLER D277 DIP FOMER 06/03/94 $1,650.00 $515.63
229/15/F ECONO PAK 07/08/94 $8,878.46 $2,913.25
UMSCO CHAIN CONVEYOR 07/18/94 $6,735.45 $2,315.32
UMSCO CHAIN CONVEYOR 07/18/94 $6,735.45 $2,315.32
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
WELDOTRON SHRINK WRAP MAC 06/27/94 $14,800.00 $4,856.25
CF-9 TAPED RADIAL LEAD 07/06/94 $5,000.00 $1,640.63
CONVERTIBLE DIP LEAD FORM 08/08/94 $2,595.00 $892.04
CONVERTIBLE DIP LEAD FORM 08/08/94 $2,543.10 $913.93
UNIFORM TAPER MACHINE 07/13/94 $3,485.00 $1,143.52
343-3180 SCREW DRIVER 06/23/94 $373.39 $122.52
343-3180 SCREW DRIVER 06/23/94 $373.39 $112.52
343-3180 SCREW DRIVER 06/23/94 $373.39 $112.52
343-3180 SCREW DRIVER 06/23/94 $457.38 $150.07
CX-4240 FLAT PACK MOUNTER 07/15/94 $70,000.00 $22,968.75
METCAL SOLDERING STATION 08/16/94 $552.02 $1,998.39
METCAL SOLDERING STATION 08/16/94 $552.02 $198.39
METCAL SOLDERING STATION 08/16/94 $552.03 $198.39
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.80 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
BURN IN BOARD 08/19/94 $239.81 $86.18
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ECONOPAK 229 WAVE SOLDER 05/14/94 $5,876.76 $1,744.67
TDK FA SMC PLACEMENT SYS 02/09/94 $45,065.59 $11,266.39
ASTEY ET2008 SHRINK TUNNEL 09/12/94 $7,500.00 $2,695.31
SULLAIR AIR COMPRESSOR 08/26/94 $11,688.00 $4,200.38
END DRIVE BELT Q4-12-600 09/14/94 $5,407.02 $1,943.13
END DRIVE BELT Q4-12-600 09/14/94 $5,407.02 $1,943.13
PIONEER AIR DRYER 09/12/94 $6,417.00 $2,306.11
ELECTOVERT 229 WAVE SOLD 11/09/94 $5,000.00 $1,953.13
CONVERTIBLE DIP LEAD FORM 01/19/95 $2,543.10 $1,112.61
CONVERTIBLE DIP LEAD FORM 01/19/95 $2,543.10 $1,112.61
ZEVATECH PM57OL PLACEMENT SYSTEM 01/01/95 $83,821.69 $78,582.83
W/LASER ALIGN
TDK AVIMOUNT MAIN UNIT 0l/01/95 $176,542.82 $74,479.01
BURN IN OVEN 01/01/95 $2,637.50 $1,112.70
BURN IN OVEN 01/01/95 $2,637.50 $1,112.70
M001 MANTIS HEAD ASSEMBLY 01/17/95 $1,935.50 $846.78
M001 MANTIS HEAD ASSEMBLY 01/17/95 $1,935.50 $846.78
CHAIN CONVEYOR SERIES 15' LONG 05/01/95 $5,900.00 $2,857.81
TP6/1 MANUAL CUT-BEND AXIAL COMPS. 04/10/95 $1,201.93 $563.41
TP6/1 MANUAL CUT-BEND AXIAL COMPS. 04/10/95 $1,201.93 $563.41
TDK MODEL RX-4A TYPE RX-4260, HIGH 07/19/95 $63,641.60 $33,809.60
SPEED PLACEMENT SYSTEM
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TDK MODEL RX-4A TYPE RX-4260, HIGH 07/19/95 $63,641.60 $33,809.60
SPEED PLACEMENT SYSTEM
FUJI MODEL GSP-I-4000 AUT0MATIC 07/19/95 $21,041.61 $11,178.36
STENCIL PRINTING MACHINE
HOT REWORK SYSTEM 06/12/95 $2,654.98 $1,327.49
HOT REWORK SYSTEM 06/12/95 $2,654.98 $1,327.49
ASM PLACEMENT SYSTEM 06/16/95 $142,369.80 $73,409.43
ASM PLACEMENT SYSTEM 06/16/95 $142,369.80 $73,409.43
ASM PLACEMENT SYSTEM 06/16/95 $142,369.81 $73,409.43
ASM PLACEMENT SYSTEM 06/16/95 $142,369.81 $73,409.43
ASM PLACEMENT SYSTEM 06/16/95 $142,369.81 $73,409.43
10X MAGNIFICATI0N LENS 06/13/95 $401.00 $200.50
10X MAGNIFICATI0N LENS 06/13/95 $401.00 $200.50
10X MAGNIFICATI0N LENS 06/13/95 $401.00 $200.50
MANIXTHICKNESS DEPOSITION 07/06/95 $4,972.00 $2,563.69
MEASUREMENT SYSTEM
DOLLY 10/23/95 $1,314.42 $759.90
ECONOPAK II SMT MACHINE 02/16/96 $17,500.00 $11,241.32
TECHPRO REPAIR SYSTEM W/TEMP
CONTROL 03/22/96 $3,120.15 $2,054.38
RESEARCH 4459 REFLOW OVEN 04/22/96 $18,402.93 $12,412.40
RESEARCH 4470 REFLOW OVEN 05/09/96 $17,510.40 $11,810.40
RESEARCH 4470 REFLOW OVEN 05/09/96 $17,510.40 $11,810.40
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TDK SURFACE MOUNT LINE 05/01/96 $159,218.28 $107,389.42
3MS45 MOTORIZED EDGER 05/15/96 $3,897.17 $2,628.57
BGA-221-WSC ASSEMBLY AND REWORK 06/27/96 $25,650.96 $18,124.90
SYSTEM
TDK MODEL CR-2, TYPE CR-2000,
OV/IR 05/23/96 $7,380.36 $5,096.43
ADHESIVE CURING MACHINE
TDK RX-4A CHIP COMPONENT MOUNTING 04/15/96 $70,000.00 $46,089,41
MACHINE
MOTORIZED OLAMEF TP6/1 08/08/96 $3,381.74 $2,443.83
P.C.T. BARE BOARD LOADER 03/04/96 $6,167.00 $3,961.45
P.C.T. BARE BOARD LOADER 03/04/96 $6,167.00 $3,961.45
3' CONVEYOR 08/08/96 $1,870.00 $1,351.38
6' CONVEYOR W/ DC DRIVE
CONTROLLER 08/08/96 $3,670.00 $2,652.15
TDK VC-5 AUTOMATIC RADIAL LEAD 06/19/96 $124,702.13 $88,144.19
COMPONENT SWQUENCE/INSERTION MACHINE
MODEL IP2330 2' OAL BOARD
INVERTER 07/26/96 $11,950.00 $8,635.74
RTX-113 X-RAY MACHINE 10/15/96 $39,635.00 $29,915.49
MODEL 2000 STENCIL CLEANER 09/30/96 $27,175.93 $20,511.69
TDK RX-11 MAIN UNIT 09/27/96 $291,700.00 $220,167.67
PIONEER REFRIGERATED DRYER 11/01/96 $5,438.00 $4,191.80
SULLAIR INTAKE FILTER 11/01/96 $18,566.25 $14,311.49
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
---------------------------------------------
Date: 10/31/97
-------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1988 ELECTROVERT EPK 9 LV 16" DUAL 11/01/96 $26,835.50 $20,685.70
WAVE MACHINE
VIP-98N REFLOW OVEN 11/23/96 $64,683.13 $51,207.48
VIP-98N REFLOW OVEN 11/23/96 $64,683.13 $51,207.47
1992 VITRONICS OVEN MODEL #772 12/05/96 $15,597.55 $12,348.06
TERADYNE Z1805-1 MULTISCAN II BOARD 12/31/96 $84,921.09 $68,998.38
TEST SYSTEM
ZVSC-49 VARIABLE SPEED TURRET 12/12/96 $6,721.00 $5,320.80
MILLING MACHINE
KH-2200 VIDEO INSPECTION, 01/06/97 $33,259.00 $27,022.94
MEASUREMENT, & DOCUMENTATION SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 02/25/97 $56,322.00 $48,108.37
SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 03/11/97 $56,322.00 $48,108.38
SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 03/11/97 $56,322.00 $48,108.38
SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 03/21/97 $56,322.00 $49,281.75
SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 03/21/97 $56,322.00 $49,281.75
SYSTEM
TRITRON IV ML SMT CLEANER-WESTECK 02/10/97 $55,000.00 $45,833.34
WESTKLEEN MODEL
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RX-11 CHIP COMPONENTS MOUNTING MACHINE 03/20/97 $291,170.00 $254,773.75
MAESTRO 4M CB CUTTER 04/02/97 $9,236.10 $8,081.59
IR 500 CLV REFLOW OVEN 03/12/97 $42,833.00 $36,586.53
IR 500 CLV REFLOW OVEN 03/12/97 $42,833.00 $36,586.53
TERADYNE Z1805-1 MS FINAL ASSEMBLY 04/09/97 $56,322.00 $49,281.75
SYSTEM
TERADYNE Z1805-1 MS FINAL ASSEMBLY 04/09/97 $56,322.00 $49,281.75
SYSTEM
ELECTROVERT ECONOPAK WAVE SOLDER 03/13/97 $30,000.00 $25,625.00
MACHINE W/SPRAY FLUXER
ELECTROVERT ECONOPAK WAVE SOLDER 03/13/97 $25,000.00 $21,354.17
MACHINE W/FOAM FLUXER
OLAMEF R-PR/4-AS AUTO CUT-FOAM 01/01/97 $6,151.35 $4,997.97
W/STRAIGHT CUT
TDK RX4260 PLACEMENT MACHINE 01/01/97 $50,200.00 $40,787.50
THERMO FL0 8 CONVENTION OVEN 01/01/97 $66,420.00 $53,966.25
CYBERSENTRY 2 INCLINE SOLDER PASTE 01/01/97 $81,008.89 $65,819.73
INSPECTION SYSTEM
WAVE SOLDER OPTIMIZER 04/30/97 $5,981.00 $5,357.98
1990 ELECTROVERT ECONOPAK II SMT 05/27/97 $28,000.00 $25,666.67
HP 54610B 500 MHZ OSCILLOSCOPE 08/08/97 $4,317.71 $4,137.81
HP 54610B 500 MHZ OSCILLOSCOBE 08/08/97 $4,317.71 $4,137.81
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HP 54610B 500 MHZ OSCILLOSCOPE 08/08/97 $4,317.70 $4,137.80
SONOFLUX 95OOR RETROFIT W/TITANIUM 09/23/97 $19,400.00 $19,400.00
CF9 BASE.120 RADIAL COMPONENT LEAD 09/11/97 $11,480.77 $11,241.59
FORMER W/DIE SET
PCR1500 SULLAIR CONTAMINANT REMOVAL 07/15/97 $4,633.37 $4,343.79
SYSTEM
R5OOA PIONEER REFRIGERATED DRYER 08/11/97 $5,630.00 $5,395.42
R5OOA PIONEER REFRIGERATED DRYER 08/11/97 $5,630.00 $5,395.42
R50OA PIONEER REFRIGERATED DRYER 08/11/97 $5,630.00 $5,278.13
LS20-100H SULLAIR AIR COMPRESSOR 08/27/97 $20,145.04 $19,725.35
40' ELECTRIC CONVEYOR SYSTEM 06/25/97 $3,000.00 $2,812.50
3HP VACUUM PUMP 09/19/97 $2,862.00 $2,862.00
3HP VACUUM PUMP 09/19/97 $2,862.00 $2,862.00
3HP VACUUM PUMP 09/19/97 $2,862.00 $2,862.00
3HP VACUUM PUMP 09/17/97 $2,896.00 $2,896.00
THERMA FL0 10 REFLOW OVEN SYSTEM 07/30/97 $79,119.00 $75,822.38
NU/CLEAN POLY SMT 318 WASHER MACHINE 09/03/97 $88,242.00 $86,403.63
3000-2 BASIS PREFORM MACHINE 09/11/97 $2,210.00 $2,163.96
T3700-1 HEAVY DUTY LEAD SHEAR 09/11/97 $2,920.00 $2,859.17
MACHINE
VERSA 12"W X 31'L CONVEYOR BELT 09/23/97 $2,705.85 $2,705.85
VERSA 12"W X 31'L CONVEYOR BELT 09/23/97 $2,705.85 $2,705.85
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
VERSA 12"W X 61'L CONVEYOR BELT 09/23/97 $4,310.85 $4,310.85
VERSA 12"W X 61'L CONVEYOR BELT 09/23/97 $4,3l0.85 $4,310.85
-----------------------------
TOTAL $4,603,817.61 $2,999,215.12
-----------------------------
-----------------------------
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS0
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063250
and constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
-----------------------------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------------------
Date: 10/31/97
--------------------------------------------
<PAGE>
LEASE SCHEDULE NO. 1000063259 dated as of October 31, 1997 LEASE
(New Equipment)
Master Lease Agreement dated 10/30/96
Lessor: Banc One Leasing Corporation
Lessee: STB Systems, Inc.
1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease
Agreement identified above, as amended from time to time ("Master Lease"),
between Lessee and Lessor. Capitalized terms defined in the Master Lease will
have the same meanings when used in this Schedule.
2. LEASE; EQUIPMENT DESCRIPTION. Lessor leases to Lessee, and Lessee leases
from Lessor, all of the property ("Equipment") described in Schedule A-l
attached hereto (and Lessee represents that all Equipment is NEW unless
specifically identified as used) on Schedule A-1.
3. LESSOR'S COST OF EQUIPMENT.
<TABLE>
<S> <C>
Equipment Cost to Lessor: $3,201,726.26
Set-Up/Filing Fee: $ 375.00
Miscellaneous: $ 0.00
Sales Tax: $ 0.00
Lessor's Cost (total): $3,202,101.26
</TABLE>
4. LEASE TERM. The Lease Term of this Schedule shall be SIXTY (60) MONTHS and
shall commence on NOVEMBER 1,1997 ("Commencement Date").
5. RENT/FEES. There shall be added to each rent or other payment described
below all applicable Taxes as in effect from time to time.
(a) As rent for the Equipment during the Lease Term, Lessee shall pay to
Lessor MONTHLY rent will each such periodic rent payment being in the amount of
$60,775.02. The first rent payment in the Lease Term shall be paid in ARREARS
and all subsequent rent payments shall be paid on the same day of each MONTH
thereafter.
(b) Lessee shall pay Lessor a Set-Up/Filing Fee of $375.00 which has been
included in the above Lessor's Cost of the Equipment.
(c) Security Deposit: $ ZERO On the Acceptance Date, Lessee shall pay Lessor
said Security Deposit which shall be held in accordance with paragraph 11 below.
6. RENT ADJUSTMENT. Within 15 days after each scheduled Rent Payment Date
in the Lease Term, Lessor shall calculate the Payment Adjustment for such
Rent Payment Date (the "Adjustment Date"). With the next scheduled Rent
Payment in the Lease Term (or within 15 days after the last scheduled Rent
Payment in the Lease Term) (a) if on the Adjustment Date the Adjusted Rate is
greater than the Initial Rate, then Lessee shall pay to Lessor the Payment
Adjustment, or (b) if on the Adjustment Date the Adjusted Rate is less than
the Initial Rate, then Lessor shall pay to
Page 1
<PAGE>
Lessee the Payment Adjustment (which amount may be credited by Lessee toward the
Rent Payment then due). For the purposes of this paragraph, the following terms
shall have the following meanings:
(a) "Adjustment Date" shall mean the scheduled Rent Payment Date in the
Lease Term for which the Payment Adjustment is being calculated.
(b) "Adjusted Rate" shall mean LIBOR plus 250 basis points as of the
Adjustment Date.
(c) "Contract Receivable" shall mean the remaining principal outstanding
just prior to application of the Rent Payment due on the Adjustment Date,
as shown on the books and records of the Lessor.
(d) "Initial Rate" shall mean 8.1250%.
(e) "LIBOR" shall mean the one month rate of interest at which deposits in
U.S. dollars are offered to major banks in the London Interbank market as
published in the Wall Street Journal on the Adjustment Date.
(f) "Payment Adjustment" shall mean the Rate Differential multiplied by the
Contract Receivable.
(g) "Rate Differential" shall mean the absolute value of the difference
between the Initial Rate and the Adjusted Rate.
7. TITLE TO EQUIPMENT; QUIET POSSESSION. Lessee agrees that Lessor is the
lawful owner of the Equipment and that good and marketable title to the
Equipment shall remain with Lessor at all times. Lessee at its sole expense will
protect and defend Lessor's good and marketable title to the Equipment against
all claims and demands whatsoever except for Liens created directly by Lessor.
Lessee shall have no right, title or interest in any of the Equipment except the
right to peacefully and quietly hold and use the Equipment in accordance with
the terms of the Lease during the Lease Term unless and until an event of
default shall occur.
8. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms
all of the terms and conditions of the Master Lease and agrees that the Master
Lease remains in full force and effect; (b) agrees that the Equipment is and
will be used at all times solely for commercial purposes, and not for personal,
family or household purposes; and (c) incorporates all of the terms and
conditions of the Master Lease as if fully set forth in this Schedule.
9. CONDITIONS. No lease of Equipment under this Schedule shall be binding on
Lessor, and Lessor have no obligation to purchase the Equipment covered hereby,
unless: (a) Lessor has received evidence of all required insurance; (b) in
Lessor's sole judgment, there has been no material adverse change in the
financial condition or business of Lessee or any guarantor; (c) Lessee has
signed and delivered to Lessor this Schedule, which must be satisfactory to
Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the
Code or any regulation thereunder, which in Lessor's sole judgment would
adversely affect the economics to Lessor of the lease transaction, shall have
occurred or shall appear to be imminent; (e) Lessor has received, in form and
substance satisfactory to Lessor, such other documents and information as Lessor
shall reasonably request (including, without limitation, Political Risk
Insurance described below in this Schedule); (f) STB DE MEXICO, S.A. DE C. V.
shall execute and deliver to Lessor a guaranty which must be satisfactory in
form and substance to Lessor (such satisfaction to be evidenced by Lessor's
Page 2
<PAGE>
signature thereon) and (g) Lessee has satisfied all other reasonable conditions
established by Lessor. Notwithstanding anything to the contrary above in this
paragraph, if Lessor executes and delivers the Schedule to Lessee and if Lessor
pays all of the suppliers of the Equipment the full Lessor's Cost of the
Equipment (the date as of which both of said events shall have occurred will be
called the "Funding Date"), then except as otherwise specified in writing by
Lessor to Lessee before said Funding Date, all conditions to the Schedule being
binding on Lessor will be deemed satisfied.
10. OTHER DOCUMENTS; EXPENSES: Lessee agrees to sign and deliver to Lessor any
additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Schedule including, without limitation, Uniform Commercial
Code financing statements which Lessor is authorized to file with the
appropriate filing officers. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact with full power and authority in the place of Lessee
and in the name of Lessee to prepare, sign, amend, file or record any Uniform
Commercial Code financing statements or other documents deemed desirable by
Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
11. SECURITY DEPOSIT: As collateral for Lessee's obligations under the Lease,
Lessee hereby grants to Lessor a security interest in the sums specified in this
Schedule as a "Security Deposit". At its option, Lessor may apply all or any
part of said Security Deposit to cure any default of Lessee under the Lease. If
upon final termination of this Schedule, Lessee has fulfilled all of the terms
and conditions hereof, then Lessor shall pay to Lessee upon Lessee's written
request any remaining balance of the Security Deposit for this Schedule, without
interest.
12. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a)
Lessee is a corporation duly organized, validly existing and in good standing
under the laws of the state of its organization; (b) Lessee has full power,
authority and legal right to sign, deliver and perform the Master Lease, this
Schedule and all related documents and such actions have been duly authorized by
all necessary corporate action; and (c) the Master Lease, this Schedule and each
related document has been duly signed and delivered by Lessee and each such
document constitutes a legal, valid and binding obligation of Lessee enforceable
in accordance with its terms, except to the extent enforcement is limited by
State and Federal laws regarding bankruptcy, insolvency or debt reorganization
or other similar laws of general application or the application of principles of
equity.
13. SUBLEASE. Notwithstanding anything to the contrary in the Master Lease,
with respect to this Schedule, Lessor consents to the sublease or bailment of
the Equipment described in this Schedule by Lessee as sublessor or bailor to STB
DE MEXICO, S.A. DE C. V. as sublessee or bailee pursuant to the terms and
conditions of a Gratuitous Bailment Agreement and to the location of the
Equipment covered by the Schedule in the City of Ciudad Juarez, State of
Chihuahua, Mexico; provided, that the Gratuitous Bailment Agreement must be
satisfactory in form and substance to Lessor (such satisfaction to be evidenced
by Lessor's signature thereon).
14. POLITICAL RISK INSURANCE. As used herein, "Political Risk Insurance"
shall mean a policy of insurance issued by National Union Fire Insurance Company
of Pittsburgh, PA ("Insurance Company") which insures Lessee and Lessor (or
Lessor's assignee) against risks of expropriation or deprivation of the
Equipment by the government of the United Mexican States ("Political Loss") as
set forth in such policy of insurance. Lessee acknowledges that it has reviewed
a copy of the Political Risk Insurance policy.
Page 3
<PAGE>
(a) With respect to this Schedule, Lessee shall be required to carry
Political Risk Insurance as an additional requirement under Section 8 of
the Master Lease and Lessee shall pay the premiums for the Political Risk
Insurance that Lessor requires hereunder.
(b) If a Political Loss occurs, such event shall be deemed a Casualty Loss
under Section 9 of the Master Lease; provided, that (1) Lessee agrees to
continue to pay rent and perform its other obligations under this Schedule
and the Master Lease until the earlier of the date that the Insurance
Company pays the amounts due under the Political Risk Insurance or the date
that Lessor has exhausted its rights and remedies under the Political Risk
Insurance; (2) Lessor agrees that it will pursue with reasonable diligence
its rights against the Insurance Company under the Political Risk
Insurance; and (3) notwithstanding anything to the contrary in Section 9 of
the Master Lease as it relates to this Schedule, within thirty (30) days of
the earlier of the date that the Insurance Company pays the amounts due
under the Political Risk Insurance or the date that Lessor has exhausted
its rights and remedies under the Political Risk Insurance, Lessee shall
pay to Lessor the Stipulated Loss Value of the Equipment affected by the
Political Loss less the aggregate of the amount that the Insurance Company
has paid to Lessor under the Political Risk Insurance and the amount that
the United Mexican States has paid to Lessor as a result of the Political
Loss plus the reasonable expenses incurred by Lessor to collect such
amounts from the Insurance Company and the United Mexican States.
15. CANCELLATION OPTION. So long as no event of default has occurred and
continues under the Master Lease or any Schedule thereto AND so long as Lessee
gives Lessor written notice of its election under this paragraph at least 90
days, but no more than 180 days, prior to the Cancellation Date (as defined
below), Lessee may, subject the provisions of this paragraph, elect to cancel
this Schedule and return all of the Equipment. Lessee may not cancel the
Schedule under the terms of this paragraph UNLESS AND UNTIL all of the following
conditions have been satisfied in full on or before the Cancellation Date:
(a) Lessee shall pay to Lessor on the applicable Cancellation Date a return
and remarketing fee equal to the Cancellation Value (as defined below); AND
(b) Lessee shall return all, but not less than all, of the Equipment to
Lessor on the Cancellation Date in full compliance with subsection 23(b) of
the Master Lease and with all other return and maintenance requirements of
this Schedule.
"Cancellation Value" means the total of the following: (i) all rent, Taxes
and all other amounts then due and payable by Lessee under this Schedule and
Master Lease to the extent it relates to this Schedule; (ii) an amount equal
to FIFTY-SIX PERCENT (56%) of the Lessor's Cost of the Equipment stated above
in this Schedule; and (iii) sales and other Taxes due in connection with
Lessor's receipt of the above amounts. "Cancellation Date" means the
scheduled rent payment date in the 24th MONTH OF THE LEASE TERM.
16. AMENDMENT OF PURCHASE OPTION AND RETURN OPTION.
(a) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elects to exercise its option to purchase the
Equipment at the end of the Lease Term (which option is described in Section
23(c) of the Master Lease), then, notwithstanding anything to the contrary in
this Schedule or the Master Lease, the provisions of Section 23(d) of the Master
Lease for determining Fair Market Value for purposes of this purchase option
shall not apply and the purchase price of the Equipment at the end of the Lease
Term shall be equal to the FIXED PRICE
Page 4
<PAGE>
stated below plus all Taxes (excluding income taxes on Lessor's gains on such
sale), costs and expenses incurred or paid by Lessor in connection with such
sale plus all accrued and unpaid amounts then due and payable with respect to
the Equipment or this Schedule.
Fixed Price: TEN PERCENT (10%) of the above Lessor's Cost of the
Equipment
(b) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elect to exercise its option to return the Equipment
at the end of the Lease Term (which option is described in Section 23(b) of the
Master Lease), then Lessee shall return the Equipment in full compliance with
Section 23(b) of the Master Lease and with all other return and maintenance
requirements of this Schedule and there shall be a rent adjustment as provided
below in this subparagraph (b). The scheduled expiration date of the Lease Term
specified in this Schedule will be referred to as the "Termination Date".
(1) If the Actual Sale Proceeds as determined pursuant to subparagraph (c)
of this paragraph are less than the Fixed Price, then (A) Lessor shall
retain the Actual Sale Proceeds and (B) Lessee shall pay to Lessor the
difference between the Fixed Price and such Actual Sale Proceeds on
the Termination Date, PROVIDED, THAT the amount of said deficiency
payable by Lessee to Lessor shall not EXCEED NINE PERCENT (9%) of the
above Lessor's Cost of the Equipment; or
(2) If the Actual Sale Proceeds as determined pursuant to subparagraph (c)
of this paragraph equal or exceed the Fixed Price, then Lessor shall
retain the entire Actual Sale Proceeds.
(3) In all events, Lessee shall pay all Taxes (excluding income taxes on
Lessor's gains on such sale), costs and expenses incurred or paid by
Lessor in connection with any such sale plus all accrued and unpaid
amounts due and payable with respect to the Equipment or this Schedule
up to the date of any such sale.
(4) If for any reason whatsoever Lessee fails to return the Equipment in
full compliance with Section 23(b) of the Master Lease and with all
other return and maintenance requirements of this Schedule on or
before the Termination Date, then Lessee shall be deemed to have
elected to purchase Equipment pursuant to subparagraph (a) of this
paragraph.
Unless otherwise expressly agreed by Lessor in writing, during the 90-day period
prior to the Termination Date, Lessee shall, and Lessor may, solicit offers to
purchase the Equipment from prospective purchasers. Neither Lessee nor third
parties affiliated with the Lessee may bid to purchase the Equipment. Lessor may
bid to purchase the Equipment.
(c) If one or more such offers to purchase the Equipment are received
under subparagraph (b) of this paragraph, then the Equipment shall be sold by
Lessor to the highest bidder within ten (10) days after the Termination Date and
the Actual Sale Proceeds shall equal the purchase price actually received by
Lessor after deducting all reasonable selling expenses. If no such offers to
purchase the Equipment are received or if the Equipment is not sold for any
reason, then the Actual Sale Proceeds shall be deemed to be zero and Lessee
shall pay the Fixed Price to Lessor pursuant to clause (1) of subparagraph (b)
of this paragraph plus all accrued and unpaid amounts due and payable with
respect to the Equipment or this Schedule up to the date of any such payment. If
Lessor subsequently sells the Equipment, then the purchase price actually
received by Lessor, after deducting all reasonable selling expenses, shall be
distributed as follows: first, to
Page 5
<PAGE>
Lessor in an amount equal to the Fixed Price less the payment made by Lessee
pursuant to clause (1) of subparagraph (b) of this paragraph; second, to Lessee,
to the extent of its payment to Lessor pursuant to clause (1) of subparagraph
(b) of this paragraph; and lastly, the remainder to Lessor.
(d) Lessor shall, upon receipt of the purchase price of the Equipment
under this paragraph, convey title to the Equipment to the purchaser by a bill
of sale, which transfer shall be "AS-IS, WHERE IS", with all faults, without
recourse to Lessor and without any representation or warranty of any kind
whatsoever by Lessor, express or implied.
17. TAX BENEFIT. Solely for purposes of this Schedule and its Equipment, it is
the intention of the parties that Lessor shall not be entitled to such
deductions, credits and other tax benefits as are provided by federal, state,
and local income tax law to an owner of the Equipment and Section 10 of the
Master Lease is deleted. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE
MASTER LEASE OR THIS SCHEDULE, LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES OF
THIS SCHEDULE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18. GOVERNING DOCUMENT. In the event of any conflict between the terms of the
Master Lease and the terms of this Schedule as each is amended by its addenda,
the terms of this Schedule shall control.
19. SAVINGS CLAUSES. (a) If any court or other judicial authority determines
that this Schedule is a loan transaction or a conditional sale transaction, then
Lessor and Lessee agree: (1) that the original principal amount financed
pursuant to this Schedule is the Lessor's Cost set forth in paragraph 3 of this
Schedule; and (2) that Lessee shall pay said principal amount, together with
interest at the Initial Rate set forth in paragraph 6 of this Schedule (subject
to adjustment as set forth in paragraph 6 of this Schedule), by paying all
rentals and other amounts due under the Schedule plus the Fixed Price set forth
in paragraph 16 of this Schedule.
(b) If any court or other judicial authority determines that this Schedule
is a loan transaction or a conditional sale transaction, then as collateral
security for payment and performance of all Secured Obligations (defined below)
and to induce Lessor to extend credit from time to time to Lessee (under the
Master Lease or otherwise), Lessee hereby grants to Lessor a first priority
security interest in all of Lessee's right, title and interest in the Equipment,
whether now existing or hereafter acquired, and in all Proceeds (defined below),
and Lessee, at its sole expense, will protect and defend Lessor's first priority
security interest in the Equipment against all claims and demands whatsoever.
Lessee agrees that Lessor shall have all rights of a secured party under the
applicable Uniform Commercial Code. "Secured Obligations" means (1) all payments
and other obligations of Lessee under or in connection with this Schedule, and
(2) all payments and other obligations of Lessee (whether now existing or
hereafter incurred) under or in connection with the Master Lease and all present
and future Lease Schedules thereto, and (3) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or BANC ONE CORPORATION. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
proceeds of insurance, indemnities and/or warranties.
20. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has
received a copy of, and approved, the purchase orders or purchase contracts for
the Equipment. AS BETWEEN LESSEE AND LESSOR,
Page 6
<PAGE>
LESSEE AGREES THAT: (a) LESSEE HAS RECEIVED, INSPECTED AND APPROVED ALL OF
THE EQUIPMENT; (b) ALL EQUIPMENT IS IN GOOD WORKING ORDER AND COMPLIES WITH
ALL PURCHASE ORDERS OR CONTRACTS AND ALL APPLICABLE SPECIFICATIONS; (c)
LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR PURPOSES OF THE LEASE "AS-IS,
WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE UNCONDITIONALLY WAIVES ANY RIGHT
THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES
THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE.
Banc One Leasing Corporation STB Systems, Inc.
(Lessor) (Lessee)
By: /s/ Anthony Park By: /s/ [ILLEGIBLE]
-------------------------------- --------------------------
Title: Funding Authority Title: [ILLEGIBLE]
---------------------------- -----------------------
Witness: /s/ [ILLEGIBLE]
----------------------
Lessor's Acceptance Date: October 31, 1997
Page 7
<PAGE>
BANE ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
- ----------- -------------------------------------------------------------------
- ----------- -------------------------------------------------------------------
*ALL PROPERTY DESCRIBED IN THE INVOICES IDENTIFIED BELOW, WHICH
PROPERTY MAY BE GENERALLY DESCRIBED AS MANUFACTURING AND COMPUTER
EQUIPMENT."
LOCATION: VINCENTE GUERRERO 7470
CIUDAD JUAREZ, CHIHUAHUA, MEXICO
COST: $3,201,726.26
<TABLE>
<CAPTION>
Vendor Invoice # Amount
<S> <C> <C>
CONVEYOR TECHNOLOGIES 436 $36,050.00
GEO. S. THOMPSON CO., INC. 1026694-04 $20,145.04
CEO. S. THOMPSON CO., INC. 1026694-05 $38,504.00
GEO. S. THOMPSON CO., INC. 1026694-01 $5,630.00
GEO. S. THOMPSON CO., INC 1026694-03 $11,260.00
GEO. S. THOMPSON CO., INC. 1026694-02 $4,633.37
MPM CORPORATION 83645 $75,147.38
MPM CORPORATION 83790 $175,343.87
NICOLET IMAGING SYSTEMS 97-08502 $66,487.50
NICOLET IMAGING SYSTEMS 97-08525 $66,487.50
RESEARCH, INC. 181107 $79,119.00
RESEARCH, INC. 181545 $79,119.00
RESEARCH, INC. 181607 $79,119.00
TECHNICAL DEVICES COMPANY 99333 $88,242.00
CONVEYORS & MATERIALS HANDLING, INC. C1515 $16,303.75
ELECTROVERT 11220411 $71,875.40
ELECTROVERT 11222715 $15,975.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS,
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063259 and
constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
- ----------------------------------------------------
By: /s/ [ILLEGIBLE]
------------------------------------------------
Date: 10/31/97
----------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-l EQUIPMENT LEASED HEREUNDER
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION PAGE 2
- ----------- -------------------------------------------------------------------
- ----------- -------------------------------------------------------------------
<S> <C> <C>
ELECTROVERT 11221017 $7,478.22
ELECTROVERT 11219378 $584.23
UNIVERSAL 92026243 $386,400.00
UNIVERSAL 92026194 $386,400.00
UNIVERSAL 92026192 $386,400.00
UNIVERSAL 92026193 $386,400.00
UNIVERSAL 92026718 $113,316.40
UNIVERSAL 92030012 $85,578.40
UNIVERSAL 92029529 $100,059.20
UNIVERSAL 92031366 $332,442.00
TREK INDUSTRIES P070297 $82,156.00
PROCESS CONTROL TECHNOLOGIES, INC. 4402 $5,070.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS,
REPAIRS, IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000063259 and
constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
- --------------------------------------------------------
By: /s/ [ILLEGIBLE]
----------------------------------------------------
Date: 10/31/97
--------------------------------------------------
<PAGE>
CORPORATE GUARANTY
Dated October 31, 1997
Lessee Name: STB Systems, Inc.
Master Lease Agreement Dated October 30, 1996
Equipment Cost: Up To $8,000,000.00
1. For valuable consideration, the receipt of which is hereby acknowledged,
STB DE MEXICO, S.A. DE C.V. (hereinafter called the "undersigned" or
"Guarantor") guarantees to BANC ONE LEASING CORPORATION (hereinafter called
"Lessor") the full and prompt performance by the lessee identified above
(hereinafter called "Lessee") of all obligations which Lessee now has or may
hereafter have to Lessor, including but not limited to obligations under
equipment leases and promissory notes executed in connection with anticipated
equipment leases (including but not limited to all present and future lease
schedules and promissory notes under the Master Lease identified above, with a
total original equipment cost to the Lessor of up to the amount of the Equipment
Cost set forth above), and unconditionally guarantee the prompt payment when due
(whether at scheduled maturity, upon acceleration or otherwise) of any and all
sums, indebtedness and liabilities of whatsoever nature, due or to become due,
direct or indirect, absolute or contingent, now or hereafter at any time owed or
contracted by Lessee to Lessor, and all costs and expenses of and incidental to
collection of any of the foregoing, including reasonable attorneys' fees (all of
the foregoing hereinafter called "Obligations"). It is the undersigned's
express intention that this guaranty in addition to covering all present
Obligations of Lessee to Lessor, shall extend to all future Obligations of
Lessee to Lessor, whether or not such Obligations are reduced or entirely
extinguished and thereafter increased or are reincurred, whether or not such
Obligations are related to the Master Lease identified above, whether or not
such Obligations exceed the Equipment Cost identified above, and whether or not
such Obligations are specifically contemplated by the undersigned, Lessee, and
Lessor as of the date hereof.
2. This is an absolute and unconditional guarantee of payment and not of
collection. Lessor shall not be required, as a condition of the liability of
the undersigned, to resort to, enforce or exhaust any of its remedies against
the Lessee or any other party who may be liable for payment on any Obligation or
to resort to, marshall, enforce or exhaust any of its remedies against any
leased property or any property given or held as security for this Guaranty or
any Obligation.
3. The undersigned hereby waive and grant to Lessor, without notice to the
undersigned and without in any way affecting the liability of the undersigned,
the right at any time and from time to time, to extend other and additional
credit, leases, loans or financial accommodations to Lessee apart from the
Obligations, to deal in any manner as it shall see fit with any Obligation of
Lessee to Lessor and with any leased property or security for such Obligation,
including, but not limited to, (i) accepting partial payments on account of any
Obligation, (ii) granting extensions or renewals of all or any part of any
Obligation, (iii) releasing, surrendering, exchanging, dealing with, abstaining
from taking, taking, abstaining from perfecting, perfecting, or accepting
substitutes for any or all leased property or security which it holds or may
hold for any Obligation, (iv) modifying, waiving, supplementing or otherwise
changing any of the terms, conditions or provisions contained in any Obligation
and (v) the addition or release of any other party or person liable hereon,
liable on the Obligations or liable on any other guaranty executed to guarantee
any of Lessee's Obligations. The
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<PAGE>
undersigned jointly and severally hereby agree that any and all settlements,
compromises, compositions, accounts stated and agreed balances made in good
faith between Lessor and Lessee shall be binding upon the undersigned.
4. Every right, power and discretion herein granted to Lessor shall be for
the benefit of the successors or assigns of Lessor and of any transferee or
assignee of any Obligation covered by this Guaranty, and in the event any such
Obligation shall be transferred or assigned, every reference herein to Lessor
shall be construed to mean, as to such Obligation, the transferee or assignee
thereof. This Guaranty shall be binding upon each of the undersigned's
executors, administrators, heirs, successors and assigns.
5. This Guaranty shall continue in force for so long as Lessee shall be
obligated to Lessor, and thereafter until Lessor shall have actually received
written notice of the termination hereof from the undersigned, it being
contemplated that Lessee may borrow, lease, repay and subsequently borrow money
from or lease property from, or become obligated to, Lessor from time to time,
and the undersigned, not having given notice of the termination hereof as herein
provided for, shall be deemed to have permitted this Guaranty to remain in full
force and effect for the purpose of inducing Lessor to make further leases or
loans to Lessee; provided, however, no notice of termination of this Guaranty
shall affect in any manner the rights of Lessor arising under this Guaranty with
respect to the following: (a) any Obligation incurred by Lessee in connection
with the Master Lease identified above with a total equipment cost of no more
than the amount of the Total Equipment Cost set forth above, whether such
obligation is in the form of a lease or a promissory note; or (b) any Obligation
incurred by Lessee prior to receipt by Lessor of written notice of termination
or any Obligation incurred after receipt of such written notice pursuant to a
written agreement entered into by Lessor prior to receipt of such notice. The
undersigned expressly waive notice of the incurring by Lessee of any Obligation
to Lessor. The undersigned also waive presentment, demand of payment, protest,
notice of dishonor or nonpayment of or nonperformance of any Obligation.
6. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Lessee or any other person primarily or
contingently liable on any Obligation of Lessee, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with respect
to any leased property or any property constituting collateral or security for
this Guaranty or any other guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of Lessor or any other creditor
which the undersigned now has or hereafter acquires, whether such claim or right
arises in equity, under contract or statute, at common law, or otherwise.
7. Lessor's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time paid
on account of the Obligations which thereafter shall be required to be restored
or returned by Lessor upon the bankruptcy, insolvency or reorganization of the
Lessee, the undersigned, or any other person, or as a result of any other fact
or circumstance, all as though such amount had not been paid.
8. The undersigned jointly and severally agree to pay to Lessor all costs
and expenses, including reasonable attorneys' fees, incurred by Lessor in the
enforcement or attempted enforcement of this Guaranty, whether or not suit is
filed in connection therewith, or in the exercise by Lessor of any right,
privilege, power or remedy conferred by this Guaranty.
Page 2
<PAGE>
9. The undersigned represent and warrant that they have relied
exclusively on their own independent investigation of Lessee, the leased
property and the collateral for their decision to guarantee Lessee's
Obligations now existing or thereafter arising. The undersigned agree that
they have sufficient knowledge of the Lessee, the leased property, and the
collateral to make an informed decision about this Guaranty, and that Lessor
has no duty or obligation to disclose any information in its possession or
control about Lessee, the leased property, and the collateral to the
undersigned. The undersigned warrant to Lessor that they have adequate means
to obtain from the Lessee on a continuing basis information concerning the
financial condition of the Lessee and that they are not relying on Lessor to
provide such information either now or in the future.
10. As long as any indebtedness under any of the Obligations remains unpaid
or any credit is available to Lessee under any of the Obligations, the
undersigned agree to furnish to Lessor: (a) annual financial statements setting
forth the financial condition and results of operation of the undersigned
(financial statements shall include balance sheet, income statement, changes in
financial position and all notes thereto) within 120 days of the end of each
fiscal year of the undersigned; (b) quarterly financial statements setting
forth the financial condition and results of operation of the undersigned within
60 days of the end of each of the first three fiscal quarters of the
undersigned: and (c) such other financial information as Lessor may from time to
time request including, without limitation, financial reports filed by the
undersigned with federal or state regulatory agencies.
11. No postponement or delay on the part of Lessor in the enforcement of any
right hereunder shall constitute a waiver of such right. The failure of any
person or entity to sign this Guaranty shall not discharge the liability of any
of the undersigned.
12. GUARANTOR HEREBY EXPRESSLY WAIVES THE BENEFITS ESTABLISHED BY
ARTICLES 2709, 2710 AND 2712 OF THE CIVIL CODE FOR THE STATE OF CHIHUAHUA.
LIKEWISE, GUARANTOR EXPRESSLY WAIVES THE BENEFITS ESTABLISHED IN ARTICLES
2738, 2739, 2740, 2742 AND 2743 OF THE CIVIL CODE FOR THE STATE OF CHIHUAHUA,
AUTHORIZING LESSOR WITHOUT NOTICE OR DEMAND AND WITHOUT LIABILITY TO THE TERMS
OF PARAGRAPHS 1, 2, 3, 4, 5, 6, 7, AND 8 OF THIS GUARANTY.
13. Any and all amounts required to be paid by the undersigned hereunder
shall be paid in lawful money of the United States of America strictly in
accordance with the terms and provisions of the Obligations, without set-off or
counterclaim and without deduction for and free and clear of any and all taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature now or hereafter imposed, levied, collected,
withheld or assessed with respect to the Obligations or this Guaranty or the
proceeds to the holder hereof by the country identified below or any other
country or any political subdivision or taxing authority or other agency
thereof or therein other than the United States of America or any of its
political subdivisions ("Foreign Taxes"). If any Foreign Taxes are required to
be deducted or withheld from any amounts payable to Lessor under this Guaranty,
such amount payable shall be increased to yield to Lessor (after payment of all
Foreign Taxes) the amount specified to be paid hereunder, reduced by the
amount of any foreign tax credit actually received and used by Lessor under the
income tax laws of the United States resulting from the payment of such Foreign
Taxes. Whenever any Foreign Tax is paid by the undersigned on behalf of Lessor,
as promptly as possible thereafter the undersigned shall send Lessor an official
receipt showing payment thereof, together with such additional documentary
evidence as may be required from time to time by Lessor. The obligation of the
undersigned hereunder to make payments in lawful money of the United States of
America shall not
Page 3
<PAGE>
be discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than United States Dollars
EXCEPT TO THE EXTENT that any such tender or recovery shall comply with
mandatory laws of the United Mexican States which provide for payment of
obligations in the currency of the United Mexican States; provided, that any
such payment in currency of the United Mexican States shall be made at the
then current legal exchange rate in the United Mexican States if mandatory
laws of the United Mexican States require Lessor to accept such legal
exchange rate or, if permitted by the laws of the United Mexican States, at
the then current market exchange rate that results in the effective receipt
by Lessor of the full amount of United States Dollars expressed to be payable
hereunder.
Undersigned's Country of Organization: United Mexican States
14. For purposes of this Guaranty and the resolution of disputes hereunder,
the parties irrevocably submit and consent to, and waive any objection to, the
jurisdiction and venue of the state or federal courts located in Dallas County,
Texas it being acknowledged and agreed that the subject matter of the Lease is
located in Dallas County, Texas. Venue for the enforcement of any obligations
contained herein shall lie in Dallas County, Texas and the parties hereby waive
the right to be sued elsewhere. The undesigned further agree that final judgment
against it in any such legal action, suit or proceeding shall be conclusive and
may be enforced in any other jurisdiction, within or outside the United States
of America, by suit on the judgment, a certified or exemplified copy of which
shall be conclusive evidence of the fact and amount of its liability.
15. This Guaranty contains the entire agreement of the parties and supersedes
all prior agreements and understandings, oral or written, with respect to the
subject matter hereof. This Guaranty is not intended to replace or supersede any
other guaranty which the undersigned have entered into or may enter into in the
future. The undersigned may enter into additional guaranties in the future which
may or may not refer to the Master Lease identified above and such guaranties
are not intended to replace or supersede this Guaranty unless specifically
provided in that additional guaranty. The interpretation, construction and
validity of this guaranty shall be governed by the laws of the State of Ohio in
the United States of America.
[The next page is the signature page.]
Page 4
<PAGE>
ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY ANY PARTY AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT
OF, IN CONNECTION WITH OR IN ANY WAY RELATED TO THIS GUARANTY.
Undersigned/Guarantor
STB DE MEXICO, S.A. DE C.V.
(Name of Guarantor)
By: /s/ [ILLEGIBLE]
---------------------------------
Title:
------------------------------
Witness:
----------------------------
ACKNOWLEDGED BY:
STB SYSTEMS, INC. BANC ONE LEASING CORPORATION
(Lessee) (Lessor)
BY: /s/ [ILLEGIBLE] By: /s/ Anthony Park
------------------------------ -----------------------------
Title: /s/ COO Title: Funding Authority
--------------------------- --------------------------
Page 5
<PAGE>
SECURITY AGREEMENT
Lessee: STB Systems, Inc.
Master Lease Agreement Dated: 10-30-96
Equipment Cost: $8,000,000.00
This Agreement is made as of October 31, 1997 by and between Banc One
Leasing Corporation ("Banc One Leasing"), with Banc One Leasing's mailing
address being at 1111 Polaris Parkway, Suite A3 (OH1-1085), Columbus, Ohio 43240
and Debtor(s) identified below (individually and collectively, the "Debtor").
Debtor means: STB Systems, Inc.
1. GRANT OF SECURITY INTEREST. For valuable consideration, receipt of
which is hereby acknowledged, Debtor grants, pledges and assigns to Banc One
Leasing a security interest in all of Debtor's respective right, title and
interest, purchase money as appropriate, in and to the property described
below, now or hereafter arising or acquired, wherever located, together with
any and all additions, accessions, parts, accessories, substitutions and
replacements thereof, now or hereafter installed in, affixed to or used in
connection with said property, in all products and proceeds thereof, cash and
non-cash, including, but not limited to, proceeds of notes, checks,
instruments, indemnity proceeds, or any insurance on such and any refund or
rebate of premiums on such, and all books, records, ledger cards, files,
correspondence, computer program, tapes, disks and related data processing
software, owned by Debtor or in which it has an interest that at any time
evidences or contains information relating thereto or is otherwise necessary
or helpful in the collection thereof or realization thereupon ("Collateral"),
to secure the prompt payment and complete performance of the Obligations (as
hereinafter defined); provided, however, that the Collateral shall not
include any Hazardous Materials (as hereinafter defined), except for any
Hazardous Materials (a) which are and/or hereafter will be handled, stored
and contained in accordance with all applicable Hazardous Materials Laws (as
hereinafter defined) and (b) which either (i) are and/or will be hereafter
used or useful in the ordinary course of business of Debtor or (ii) have a
resale or salvage value which exceeds the cost of disposing of such Hazardous
Materials.
The Collateral in which this security interest is granted is all of the
Debtor's property described in EXHIBIT A attached hereto (and such terms as are
used in Exhibit A shall be used in their broadest definitions and shall include,
without limitation, the definitions of such terms as are found in the Uniform
Commercial Code that governs security interests in any such property).
2. SECURED OBLIGATIONS. This Agreement secures the full and prompt
performance by the lessee identified above (hereinafter called "Lessee") and any
Debtor of all obligations which Debtor or Lessee now have or may hereafter have
to Banc One Leasing, including, but not limited to, obligations under equipment
leases, promissory notes, loan agreements and guaranties executed in connection
with equipment leases, promissory notes or loan agreements (including but not
limited to all present and future leases, promissory notes and guaranties under
the Master Lease Agreement identified above, with a total original equipment
cost to Banc One Leasing of up to the amount of the Equipment Cost set forth
above), and secures the prompt payment when due (whether at scheduled maturity,
upon acceleration or otherwise) of any and all sums, indebtedness, obligations
and liabilities of whatsoever nature, due or to become due, direct or indirect,
absolute or contingent, now or hereafter at any time owed or contracted by
Lessee or Debtor to Banc One Leasing, and all costs and expenses of and
incidental to collection of any of the foregoing, including reasonable
attorneys' fees (all of the foregoing hereinafter called "Obligations"). It is
Debtor's express intention that this Agreement and the continuing security
interest granted hereby, in addition to covering all present Obligations of
Lessee and Debtor to Banc One, shall extend to all future Obligations of Lessee
and Debtor to Banc One, whether or not such Obligations are reduced or entirely
extinguished and thereafter increased or are reincurred, whether or not such
Obligations are related to the above Master Lease Agreement, whether or not such
Obligations exceed the Equipment Cost identified above, and whether or not such
Obligations are specifically contemplated by Debtor and Banc One as of the date
hereof. The absence
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<PAGE>
of any reference to this Agreement in any documents, instruments or agreements
evidencing or relating to any Obligations secured hereby shall not limit or be
construed to limit the scope of this Agreement.
3. LOCATION(S) OF COLLATERAL. The Collateral will be kept at the
location(s) set forth in EXHIBIT B attached hereto ("Location").
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Debtor represents, warrants,
covenants and agrees as follows:
(a) Debtor is and will continue to be (or, with respect to after acquired
property, will be when acquired), the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, mortgage, charge or
encumbrance except for the security interest created by this Agreement and/or
any other prior security agreement delivered by Debtor to Banc One Leasing and
any Permitted Lien approved by Banc One Leasing's signature on EXHIBIT C
attached hereto ("Permitted Liens"). Except as previously disclosed to Banc One
Leasing in writing on Exhibit C as to Permitted Liens, no effective Uniform
Commercial Code ("UCC") financing statement or other instrument covering all or
any part of the Collateral is on file in any recording office, except those in
favor of Banc One Leasing;
(b) Debtor will join with Banc One Leasing in executing such financing
statements, security agreements or other instruments in form satisfactory to
Banc One Leasing upon Banc One Leasing's request and, in the event for any
reason the law of any jurisdiction becomes or is applicable to the Collateral
or any part thereof, or to any Obligation owed to Banc One Leasing, Debtor
agrees to execute and deliver all such instruments and to do all of such
other things as may be reasonably necessary or appropriate to preserve,
protect and enforce the security interest and lien of Banc One Leasing under
the law of such jurisdiction to the extent such security interest would be
protected under that jurisdiction's UCC and will pay all expenses of filing
and releasing same in all public offices wherever filing is deemed necessary
or desired by Banc One Leasing;
(c) The Collateral will not be attached or affixed to real estate in
such a manner that it would become a fixture thereto or an accession to other
goods without prior disclosure, notification to and approval by Banc One
Leasing in addition to the execution of an owner/mortgagee/landlord
release/waiver in favor of Banc One Leasing;
(d) Debtor at its sole expense shall keep each item of Collateral
insured against all risks of loss or damage from every cause whatsoever for
an amount not less than the greater of the full replacement value or the
original cost of acquiring such item of Collateral. Debtor at its sole
expense shall carry public liability and property damage insurance in amounts
satisfactory to Banc One Leasing protecting Debtor and Banc One Leasing from
liabilities for injuries to persons and damage to property of others relating
in any way to the Collateral. Debtor at its sole expense shall carry
environmental risk insurance should any of the collateral include Hazardous
Materials. All insurers shall be reasonably satisfactory to Banc One
Leasing. Debtor shall deliver to Banc One Leasing satisfactory evidence of
such coverage. Proceeds of any insurance covering damage or loss of the
Collateral shall be payable to Banc One Leasing as loss payee and shall, at
Banc One Leasing's option, be applied toward (a) the replacement, restoration
or repair of the Collateral, or (b) payment of the obligations of Debtor
under the Obligations. Proceeds of any public liability or property insurance
shall be payable first to Banc One Leasing as additional insured to the
extent of its liability, then to Debtor. Debtor hereby appoints Banc One
Leasing as Debtor's attorney-in-fact with full power and authority in the
place of Debtor and in the name of Debtor or Banc One Leasing to make claim
for, receive payment of, and sign and endorse all documents, checks or drafts
for loss or damage under any such policy. Each insurance policy will require
that the insurer give Banc One Leasing at least 30 days prior written notice
of any cancellation of such policy and will require that Banc One Leasing's
interests be continued insured regardless of any act, error, omission,
neglect or misrepresentation of Debtor. The insurance maintained by Debtor
shall be primary without any right of contribution from insurance which may
be maintained by Banc One Leasing. If Debtor does not keep the Collateral
insured as required herein and/or fails to supply Banc One Leasing with
evidence of that insurance, Banc One Leasing shall have the right, in its
sole discretion, to obtain insurance in amounts sufficient to fully protect
its interest, without notifying Debtor. Debtor agrees that Banc One Leasing
shall have
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<PAGE>
the right, in its sole discretion, to determine the manner in which Debtor
shall reimburse Banc One Leasing for the premium for such insurance, including
but not limited to (a) requiring Debtor to immediately reimburse Banc One
Leasing for the premium and other costs it incurs or (b) adding that amount
directly to the principal balance of any of the Obligations. Debtor will pay
interest on any amount added to the principal balance at the highest rate set
forth in any of such Obligation(s);
(e) Debtor will pay promptly when due all taxes, assessments and
governmental charges upon or against Debtor, the Collateral or the property
or operations of Debtor, in each case before same becomes delinquent and
before penalties accrue thereon, unless and to the extent that same are being
contested in good faith by appropriate proceedings. At its option, Banc One
Leasing may discharge taxes, liens or security interests or other
encumbrances at any time placed on the Collateral and may pay for maintenance
and preservation of the Collateral, all at Debtor's expense;
(f) Debtor agrees it will, at its sole expense: (a) repair and maintain
the Collateral in good condition and working order and supply and install all
replacement parts or other devices when required to so maintain the
Collateral or when required by applicable law or regulation, which parts or
devices shall automatically become part of the Collateral; (b) use and
operate the Collateral in a careful manner in the normal course of its
business and only for the purposes for which it was designed in accordance
with the manufacturer's warranty requirements, and comply with all laws and
regulations relating to the Collateral, and obtain all permits or licenses
necessary to install, use or operate the Collateral; and (c) make no
alterations, additions, subtractions, upgrades or improvements to the
Collateral without Banc One Leasing's prior written consent, but any such
alterations, additions, upgrades or improvements shall automatically become
part of the Collateral. The Collateral will not be used or located outside
of the United States.
(g) Debtor will, in the event of appropriation or taking of all or any
part of the Collateral, give Banc One Leasing prompt written notice thereof.
Banc One Leasing shall be entitled to receive directly, and Debtor shall
promptly pay over to Banc One Leasing, any awards or other amounts payable
with respect to such condemnation, requisition or other taking and in its
sole discretion may apply the proceeds as it deems best without regard to
whether an Event of Default has or has not occurred;
(h) At least thirty (30) days prior to the occurrence of the event,
Debtor will deliver to Banc One Leasing written notice of any addition change
in Debtor's name, identity or legal structure;
(i) Debtor will defend the Collateral against all claims and demands of
all persons at any time claiming the same or an interest therein;
(j) Debtor will from time to time execute and deliver to Banc One Leasing
such lists, descriptions and designations of Collateral as Banc One Leasing
may require to identify the nature, extent and location of the Collateral;
(k) Debtor is in material compliance with all Federal, State and local
laws, statutes, ordinances, regulations, rulings and interpretations relating
to industrial hygiene, public health or safety, environmental conditions, the
protection of the environment, the release, discharge, emission or disposal
to air, water, land or ground water, the withdrawal or use of ground water or
the use, handling, disposal, treatment, storage or management of or exposure
to Hazardous Materials ("Hazardous Materials Laws"), the violation of which
would have a material effect on its business, its financial condition or the
Collateral. The term "Hazardous Materials" means any flammable materials,
explosives, radioactive materials, pollutants, toxic substances, hazardous
water, hazardous materials, hazardous substances, polychlorinated biphenyls,
asbestos, urea formaldehyde, petroleum (including its derivatives,
by-products or other hydrocarbons) or related materials or other controlled,
prohibited or regulated substances or materials, including, without
limitation, any substances defined or listed as or included in the definition
of "hazardous substance", "hazardous wastes", "hazardous materials",
"pollutants" or "toxic substances" under any Hazardous Materials Laws. Debtor
has not received any written or oral communication or notice from any
judicial or governmental entity nor is it aware of any investigation by any
agency for any violation of any Hazardous Materials Law;
Page 3
<PAGE>
(i) All representations, warranties, covenants and agreements set forth
herein and all information furnished by Debtor concerning the Collateral or
otherwise in connection with the Obligations, shall be at the time same is
furnished, accurate, correct and complete in all material respects as of the
date hereof, on the date upon which Debtor acquires any of the Collateral or any
rights therein not presently acquired or existing and shall continue until the
Obligations are paid in full.
5. APPOINTMENT OF ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints
Banc One Leasing or its designee as Debtor's attorney in fact, with full
authority in the place instead of Debtor, from time to time in Banc One
Leasing's discretion prior to, upon, during, and after an Event of Default,
to take any action and to execute any instrument which Banc One Leasing may
deem necessary or advisable to accomplish the purposes of this Agreement,
including without limitation, (a) to perfect and continue to perfect the
security interests created by this Agreement; (b) to ask, demand, collect or
sue for, recover, compound, receive and give acquittance in receipts for any
monies due or become due under or in respect for any Collateral; (c) to
receive, endorse and collect any drafts or other instruments, documents and
chattel paper, in connection with the Collateral; and (d) to file any claims
or take any action or institute any proceeding which Banc One Leasing may
deem necessary or desirable for the collection of any Collateral or otherwise
to enforce the rights of Banc One Leasing in the Collateral.
6. EVENTS OF DEFAULT. The following events shall be "Events of Default
under this Agreement: (a) default by Debtor in performance of any covenant or
agreement herein; (b) any warranty, representation or statement made or
furnished to Banc One Leasing by or on behalf of Debtor in connection with
this Agreement or to induce Banc One Leasing to make a loan or extend other
credit to Debtor, proving to have been false in any material respect when
made or furnished; (c) default by Debtor or any other obligor in performance
of any covenant or agreement contained in any Obligation; (d) default by
Debtor of any other obligor in performance of any covenant or agreement
contained in any letter or agreement executed in conjunction with any
Obligation; (e) death, dissolution, termination of existence, insolvency,
business failure, appointment of a receiver of any part of the property of,
assignment for the benefit of creditors by or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Debtor or
any guarantor or surety for Debtor; (f) any uninsured loss, theft, damage or
destruction of the Collateral; (g) the making of any levy, seizure or
attachment of any Collateral; (h) refusal to surrender the Collateral as
herein above provided; or (i) if Banc One Leasing shall for any reason deem
itself insecure as to the prospect of payment of any Obligation.
7. RIGHTS UPON DEFAULT. If any Event of Default shall occur, then:
(a) Banc One Leasing may, at its option and without notice, declare the
unpaid balance of any or all of the Obligations immediately due and payable
and this Agreement and any or all of the Obligations in default;
(b) All payments received by Debtor under or in connection with any of
the Collateral shall be held by Debtor in trust for Banc One Leasing, shall
be segregated from other funds of Debtor and shall forthwith upon receipt by
Debtor be turned over to Banc One Leasing in the same form as received by
Debtor (duly endorsed by Debtor to Banc One Leasing, if required). Any and
all such payments so received by Banc One Leasing (whether from Debtor or
otherwise) may, in the sole discretion of Banc One Leasing, be held by Banc
One Leasing, or then or at any time thereafter be applied in whole or in part
by Banc One Leasing against, all or any part of the Obligations in such order
as Banc One Leasing may elect;
(c) Banc One Leasing shall have the rights and remedies of a secured
party under this Agreement, under any other instrument or agreement securing,
evidencing or relating to the Obligations and under the UCC as adopted in the
state where Banc One Leasing's principal office is located or other
applicable laws. Without limiting the generality of the foregoing, Banc One
Leasing shall have the right to take possession of the Collateral in full or
in part and for that purpose Banc One Leasing may enter upon any premises on
which the Collateral may be situated and remove the Collateral therefrom;
(d) Without demand of performance or other demand, advertisement or
notice of any kind (except the notice(s) specified below regarding the time
and place of public sale or disposition or time after which a private sale or
disposition is to occur) to Debtor, any Obligor or any other person or entity
(all and each of
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<PAGE>
which demands, advertisements and/or notices are hereby expressly waived),
Banc One Leasing may forthwith collect, receive, appropriate and realize upon
the Collateral, in full or in any part thereof, may abandon, not claim or not
take possession of any Collateral, and/or may forthwith sell, lease, assign,
give an option or options to purchase or sell or otherwise dispose of and
deliver the Collateral (or contract to do so), or any part thereof, in one or
more parcels at public or private sale(s) at any of Banc One Leasing's
offices or elsewhere at such price(s) as Banc One Leasing may determine, for
cash or on credit or for future delivery without assumption of any credit
risk. Banc One Leasing shall have the right upon any public sale(s), and, to
the extent permitted by law, upon any such private sale(s), to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption of Debtor;
(e) Debtor, at Banc One Leasing's request, will assemble the Collateral
and it available to Banc Leasing at such place(s) as Banc One Leasing may
reasonably select, whether at Debtor's place(s) of business and/or the
Location of Collateral or elsewhere. Debtor further agrees to allow Banc One
Leasing to use or occupy Debtor's place(s) of business and/or Location of
Collateral, without charge, for the purpose of effecting Banc One Leasing's
remedies in respect to the Collateral;
(f) Banc One Leasing shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all
of the Collateral or in any way relating to the rights of Banc One Leasing
hereunder, including attorneys' fees and legal expenses, to the payment in
whole or in part of the Obligations, in such order as Banc One Leasing may
elect, and only after or applying over such net proceeds and after the
payment by Banc One Leasing of any other amount required by any provision of
law, need Banc One Leasing account for the surplus, if any, to Debtor;
(g) To the extent permitted by applicable law, Debtor waives all claims,
damages and demands against Banc One Leasing arising out of the repossession,
retention, sale or disposition of the Collateral;
(h) Debtor agrees that Banc One Leasing need not give more than ten (10)
calendar days' notice, addressed to Debtor at Debtor's mailing address set
forth above, of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters; and
(i) Debtor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Banc One Leasing is entitled.
8. PROCESSING OF COLLATERAL AFTER AN EVENT OF DEFAULT. Debtor hereby
agrees that Banc One Leasing or its designee may do whatever Banc One Leasing
in its sole discretion deems to be commercially reasonable to prepare any
Collateral for disposition and to dispose of any Collateral, including
without limitation operating any of Debtor's manufacturing or other processes
relating to the Collateral and using patents, copyrights, trademarks, trade
names, trade secrets, rights under manufacturer's warranties, and the like
relating to or affecting such processes or the Collateral and disposition
thereof, and that Debtor shall not do anything which would restrict Banc One
Leasing's right so to act. Banc One Leasing may transfer Collateral into its
name or that of a nominee and receive the dividends, royalties or income
thereof. Banc One Leasing shall have no duty as to the collection or
protection of the Collateral or any income therefrom, nor as the preservation
of rights against prior parties, not as to the preservation of any right
pertaining thereto.
9. CONSTRUCTION OF RIGHTS AND REMEDIES AND WAIVER OF NOTICE AND
CONSENT. Unless otherwise expressly provided herein, (a) any right or remedy
of Banc One Leasing may be pursued without notice to or further consent of
Debtor, both of which Debtor hereby expressly waives; (b) each right or
remedy is distinct from but cumulative to each other right or remedy and may
be exercised independently of concurrently with, or successively to any other
right and remedy; (c) no extension(s) of time and/or modification(s) of
amortization of any Obligation shall release the liability of or bar the
availability of any right or remedy against Debtor, and Banc One Leasing
shall not be required to commence proceedings against Debtor or to extend
time for payment or otherwise to modify amortization of any Obligation; and
(d) Banc One Leasing has the right to proceed at its election against any or
all of the Collateral, against all such property together or against
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<PAGE>
any items thereof from time to time, and not action against any item(s) of
property shall bar subsequent actions against any other item(s) of property.
10. EXTENSIONS AND COMPROMISES. With respect to any Collateral or any
Obligation, Debtor assents to all extensions or postponements to the time of
payment thereof or any other indulgence in connection therewith, to each
substitution, exchange or release of Collateral, to the release of any party
primarily or secondarily liable, to the acceptance of partial payment thereof
or to the settlement or compromise thereof, all in such matter and such time
or times as Banc One Leasing may deem advisable. No forbearance in exercising
any right or remedy on any one or more occasions shall operate as a waiver
thereof on any future occasion; and no single or partial exercise of any
right or remedy shall preclude any other exercise thereof or the exercise of
any other right or remedy.
11. INDEMNITY AND EXPENSES. (a) Debtor agrees to indemnify Banc One
Leasing from any and all claims, losses and liabilities growing out of or
resulting from this Agreement; (b) Debtor will upon demand pay or reimburse
Banc One Leasing, as the case may be, the amount of any and all expenses,
including fees and disbursements of counsel, experts and agents, which Banc
One Leasing may incur in connection with, (i) the administration of this
Agreement; (ii) the custody, preservation, use or operation of, or the sale
of, collections from, or other realization upon any Collateral; (iii) the
exercise or enforcement of any of the rights of Banc One Leasing hereunder;
or (iv) the failure by Debtor to perform or observe any of the provisions
hereof. Upon Debtor's failure to promptly pay any said amount, Banc One
Leasing may add said amount to the principal amount owed on any Obligation
and charge interest on the same at the rate of interest as set forth in said
Obligation; (c) Debtor shall fully and promptly pay, perform, discharge,
defend, indemnify and hold harmless Banc One Leasing from any and all claims,
orders, demands, causes of action, proceedings, judgments, or suits and all
liabilities, losses, costs or expenses (including, without limitation,
technical consultant fees, court cost, expenses paid to third parties and
reasonable legal fees) and damages arising out of, or as a result of (i) any
release, discharge, deposit, dump, spill, leak or placement of any Hazardous
Material into or on any Collateral or property owned, leased, rented or used
by Debtor (the "Property") at any time; (ii) any contamination of the soil or
ground water of the Property or damage to the environment and natural
resources of the Property or the result of actions whether arising under any
Hazardous Materials Law, or common law; or (iii) any toxic, explosive or
otherwise dangerous Hazardous Materials which have been buried beneath or
concealed with the Property. The indemnities set forth in this paragraph
shall survive termination of this Agreement and shall be effective for the
full dollar amount of any said cost, expense, etc., regardless of the actual
dollar amount of any Obligation(s).
12. MISCELLANEOUS. (a) Any notice, statement, request, demand, consent,
or other document required to be given hereunder (any of which may be
referred to as "notice") by either party shall be in writing and shall be
delivered personally or by certified or registered mail, postage prepaid,
return receipt requested, to the last known address of said party. When
personally delivered, any notice shall be deemed given when actually
received. Except as otherwise provided herein, a notice shall be deemed given
when mailed. Any mailed notice given pursuant to this section shall be deemed
reasonable and shall be effective, regardless of whether actually received;
The annual financial statements required by Section 17(a) of the Master Lease
shall be audited by certified public accountants reasonably acceptable to
Lessor;(b) this Agreement shall be construed and interpreted under the laws
of the state of Ohio; (c) this Agreement shall be binding upon Debtor,
Debtor's personal representatives, heirs, successors and assigns, as the case
may be, and shall be binding upon the inure to the benefit of Banc One
Leasing and its successors and assigns. Debtor cannot assign this Agreement;
(d) this Agreement may be amended, but only by a written amendment signed by
Banc One Leasing and Debtor; (e) if any provisions of this Agreement or the
application of any provision to any party or circumstance shall, to any
extent, be adjudged invalid or unenforceable, the application of the
remainder of such provision to such party or circumstance, the application of
such provision to other parties or circumstances, and the application of the
remainder of this Agreement shall not be affected thereby; (f) the headings
contained in this Agreement have been inserted for convenience of reference
only and are not to be used to interpreting this Agreement; (g) where
appropriate, the number of all words in this Agreement shall be both singular
and plural and the gender of all pronouns shall be masculine, feminine,
neuter, or any combination thereof; (h) a carbon, photographic or other
reproduction of this Agreement or a financing statement shall be sufficient
as a financing statement and may be filed as such whenever necessary or
desirable, in Banc One Leasing's opinion, to perfect the security interest
granted by this Agreement; (i) Banc
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<PAGE>
One Leasing may correct patent errors herein, may fill in any blank spaces
herein and may date this Agreement; (j) if more than one signer executes this
instrument, the word "Debtor" as used herein shall be deemed to include all
such signers, and all of the warranties, representations, covenants and
obligations hereof shall be joint and several of and for all such signers;
(k) this Agreement shall take effect when signed by Debtor, and (l) time is
of the essence of all requirements of Debtor hereunder.
ALL PARTIES TO THIS AGREEMENT, INCLUDING DEBTOR AND BANC ONE LEASING,
IRREVOCABLY CONSENT TO THE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL
COURT IN FRANKLIN COUNTY, OHIO, AND WAIVE ALL RIGHTS TO TRIAL BY JURY, IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANY OTHER
PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION WITH OR IN ANY
WAY RELATED TO THIS AGREEMENT.
STB Systems, Inc.
(Debtor)
By: /s/ [ILLEGIBLE]
--------------------------------
Title: COO
------------------------------
Witness: /s/ Craig [ILLEGIBLE]
----------------------------
Address:
----------------------------
----------------------------
Accepted and Agreed to:
Banc One Leasing Corporation
By: /s/ Anthony Park
--------------------------------
Title: Funding Authority
------------------------------
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<PAGE>
EXHIBIT A
Description of Collateral
All of the property of STB Systems, Inc. ("Debtor") described below, now or at
any time hereafter owned or acquired by Debtor, wherever located, whether in
possession of Debtor, warehousemen, bailees or any other person and whether
located on Debtor's premises or elsewhere and all replacements, substitutions,
attachments, accessions and additions to any such property of Debtor
(collectively, "Collateral"), together with whatever is received or receivable
when any of the Collateral is or proceeds thereof are sold, leased, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including, without limitation, (a) all cash and non-cash proceeds
and products of any of the foregoing, including all monies and deposit accounts,
and (b) all accounts, chattel paper, instruments, general intangibles and rights
to payment of every kind now or at any time hereafter arising out of any such
sale, lease, collection, exchange or other disposition of any of the foregoing.
All equipment, tools, machinery, furnishings, furniture, and other goods
and fixtures (and all manufacturer's manuals and maintenance books and records
relating to any of the foregoing) and all improvements, replacements,
substitutions, attachments, accessions and additions thereto.
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<PAGE>
EXHIBIT B
Permitted Locations of Collateral
1651 NORTH GLENVILLE
SUITE 210
RICHARDSON, TX 75081
ONE CYPRESSWOOD BLDG.
9950 CYPRESSWOOD DR.
HOUSTON, TX
1800 N. GLENVILLE
SUITE 136,100 AND 102
RICHARDSON, TX 75081
1580 VALLEY RIVER DR.
SUITE 250
EUGENE, OREGON 94701
50 WALTER JONES BLVD., UNIT 111
EL PASO, TEXAS 78758
22098 RUTLAND DRIVE #11O
AUSTIN, TX 78758
1400 CAVALIER
CHESAPEAKE, VA 23323
1900 E. 4TH STREET
SIOUX CITY, IA 51101
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<PAGE>
EXHIBIT C
Permitted Liens
Permitted Liens shall include only the security interests identified as
the 28 UCC financing statements described on Attachment #1 (consisting of 6
pages of a Capital Commerce Reporter, Inc. UCC lien search with an order date
of October 28, 1997), said Attachment #1 being attached hereto and made a
part hereof;
provided, that the security interest in favor of SANWA BUSINESS CREDIT
CORPORATION, Chicago, IL, identified by UCC filing # 236811 dated
December 16, 1993, as such UCC filing relates to the Collateral
described in the Security Agreement ("Banc One Security Agreement") to
which this Exhibit C is attached, must be released or subordinated
within 60 days of the date of the Banc One Security Agreement.
Permitted Liens Approved Only if Signed by Banc One Leasing:
Banc One Leasing Corporation
By: /s/ Anthony Park
-------------------------------
Title: Funding Authority
----------------------------
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<PAGE>
LEASE SCHEDULE NO. 1000063905 dated as of December 15, 1997 LEASE
(New Equipment)
Master Lease Agreement dated October 30, 1996
Lessor: Banc One Leasing Corporation
Lessee: STB Systems, Inc.
1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease
Agreement identified above, as amended from time to time ("Master Lease"),
between Lessee and Lessor. Capitalized terms defined in the Master Lease will
have the same meanings when used in this Schedule.
2. LEASE; EQUIPMENT DESCRIPTION. Lessor leases to Lessee, and Lessee leases
from Lessor, all of the property ("Equipment") described in SCHEDULE A-1
attached hereto (and Lessee represents that all Equipment is NEW unless
specifically identified as used) on Schedule A-1.
3. LESSOR'S COST OF EQUIPMENT.
<TABLE>
<S> <C>
Equipment Cost to Lessor: $3,116,686.35
Miscellaneous: $0
Lessor's Cost (total): $3,116,686.35
</TABLE>
4. LEASE TERM. The Lease Term of this Schedule shall be SIXTY (60) MONTHS and
shall commence on DECEMBER 15, 1997 ("Commencement Date").
5. RENT.
(a) As rent for the Equipment during the Lease Term, Lessee shall pay to Lessor
MONTHLY rent with each such periodic rent payment being in the amount of
$53,690.72. The first rent payment in the Lease Term shall be paid in ARREARS
and all subsequent rent payments shall be paid on the same day of each MONTH
thereafter.
(b) There shall be added to each rent or other payment described in this
Schedule all applicable Taxes as in effect from time to time.
6. FEES.
(a) Lessee shall pay Lessor a Set-Up/Filing Fee of $375.00 which shall be due
and payable on the Acceptance Date.
(b) Security Deposit: $ __ZERO __. On the Acceptance Date, Lessee shall pay
Lessor said Security Deposit which shall be held in accordance with paragraph 11
below.
7. TITLE TO EQUIPMENT; QUIET POSSESSION. Lessee agrees that Lessor is the
lawful owner of the Equipment and that good and marketable title to the
Equipment shall remain with Lessor at all times. Lessee at its sole expense will
protect and defend Lessor's good and marketable title to the Equipment against
all claims and demands whatsoever except for Liens created directly by Lessor.
Lessee shall have no right, title or interest in any of the Equipment except the
right to
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<PAGE>
peacefully and quietly hold and use the Equipment in accordance with the terms
of the Lease during the Lease Term unless and until an event of default shall
occur.
8. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms
all of the terms and conditions of the Master Lease and agrees that the Master
Lease remains in full force and effect; (b) agrees that the Equipment is and
will be used at all times solely for commercial purposes, and not for personal,
family or household purposes; and (c) incorporates all of the terms and
conditions of the Master Lease as if fully set forth in this Schedule.
9. CONDITIONS. No lease of Equipment under this Schedule shall be binding on
Lessor, and Lessor shall have no obligation to purchase the Equipment covered
hereby, unless: (a) Lessor has received evidence of all required insurance; (b)
in Lessor's sole judgment, there has been no material adverse change in the
financial condition or business of Lessee or any guarantor; (c) Lessee has
signed and delivered to Lessor this Schedule, which must be satisfactory to
Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the
Code or any regulation thereunder, which in Lessors sole judgment would
adversely affect the economics to Lessor of the lease transaction, shall have
occurred or shall appear to be imminent; (e) Lessor has received, in form and
substance satisfactory to Lessor, such other documents and information as Lessor
shall reasonably request (including, without limitation, Political Risk
Insurance described below in this Schedule); (f) STB DE MEXICO, S.A. DE C. V.
shall execute and deliver to Lessor a guaranty which must be satisfactory in
form and substance to Lessor (such satisfaction to be evidenced by Lessor's
signature thereon); (g) the sublease or bailment of the Equipment described
below in this Schedule by Lessee as sublessor or bailor to STB DE MEXICO, S.A.
DE C. V. shall be executed and delivered to Lessor; and (h) Lessee has satisfied
all other reasonable conditions established by Lessor. Notwithstanding anything
to the contrary above in this paragraph, if Lessor executes and delivers
the Schedule to Lessee and if Lessor pays all of the suppliers of the Equipment
the full Lessor's Cost of the Equipment (the date as of which both of said
events shall have occurred will be called the "Funding Date"), then except as
otherwise specified in writing by Lessor to Lessee before said Funding Date, all
conditions to the Schedule being binding on Lessor will be deemed satisfied.
10. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor any
additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Schedule including, without limitation, Uniform Commercial
Code financing statements which Lessor is authorized to file with the
appropriate filing officers. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact with full power and authority in the place of Lessee
and in the name of Lessee to prepare, sign, amend, file or record any Uniform
Commercial Code financing statements or other documents deemed desirable by
Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
11. SECURITY DEPOSIT: As collateral for Lessee's obligations under the Lease,
Lessee hereby grants to Lessor a security interest in the sums specified in this
Schedule as a "Security Deposit". At its option, Lessor may apply all or any
part of said Security Deposit to cure any default of Lessee under the Lease. If
upon final termination of this Schedule, Lessee has fulfilled all of the terms
and conditions hereof, then Lessor shall pay to Lessee upon Lessee's written
request any remaining balance of the Security Deposit for this Schedule, without
interest.
12. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a)
Lessee is a corporation duly organized, validly existing and in good standing
under the laws of the state of its organization; (b) Lessee has full power,
authority and legal right to sign, deliver and perform the
Page 2
<PAGE>
Master Lease, this Schedule and all related documents and such actions have been
duly authorized by all necessary corporate action; and (c) the Master Lease,
this Schedule and each related document has been duly signed and delivered by
Lessee and each such document constitutes a legal, valid and binding obligation
of Lessee enforceable in accordance with its terms, except to the extent
enforcement is limited by State and Federal laws regarding bankruptcy,
insolvency or debt reorganization or other similar laws of general application
or the application of principles of equity.
13. SUBLEASE. Notwithstanding anything to the contrary in the Master Lease,
with respect to this Schedule, Lessor consents to the sublease or bailment of
the Equipment described in this Schedule by Lessee as sublessor or bailor to STB
DE MEXICO, S.A. DE C. V. as sublessee or bailee pursuant to the terms and
conditions of a Gratuitous Bailment Agreement and to the location of the
Equipment covered by the Schedule in the City of Ciudad Juarez, State of
Chihuahua, Mexico; provided, that the Gratuitous Bailment Agreement must be
satisfactory in form and substance to Lessor (such satisfaction to be evidenced
by Lessor's signature thereon).
14. POLITICAL RISK INSURANCE. As used herein, "Political Risk Insurance" shall
mean a policy of insurance issued by National Union Fire Insurance Company of
Pittsburgh, PA ("Insurance Company") which insures Lessee and Lessor (or
Lessor's assignee) against risks of expropriation or deprivation of the
Equipment by the government of the United Mexican States ("Political Loss")
as set forth in such policy of insurance. Lessee acknowledges that it has
reviewed a copy of the Political Risk Insurance policy.
(a) With respect to this Schedule, Lessee shall be required to carry
Political Risk Insurance as an additional requirement under Section 8 of
the Master Lease and Lessee shall pay the premiums for the Political Risk
Insurance that Lessor requires hereunder.
(b) If a Political Loss occurs, such event shall be deemed a Casualty Loss
under Section 9 of the Master Lease; provided, that (1) Lessee agrees to
continue to pay rent and perform its other obligations under this Schedule
and the Master Lease until the earlier of the date that the Insurance
Company pays the amounts due under the Political Risk Insurance or the date
that Lessor has exhausted its rights and remedies under the Political Risk
Insurance; (2) Lessor agrees that it will pursue with reasonable diligence
its rights against the Insurance Company under the Political Risk
Insurance; and (3) notwithstanding anything to the contrary in Section 9 of
the Master Lease as it relates to this Schedule, within thirty (30) days of
the earlier of the date that the Insurance Company pays the amounts due
under the Political Risk Insurance or the date that Lessor has exhausted
its rights and remedies under the Political Risk Insurance, Lessee shall
pay to Lessor the Stipulated Loss Value of the Equipment affected by the
Political Loss less the aggregate of the amount that the Insurance Company
has paid to Lessor under the Political Risk Insurance and the amount that
the United Mexican States has paid to Lessor as a result of the Political
Loss plus the reasonable expenses incurred by Lessor to collect such
amounts from the Insurance Company and the United Mexican States.
15. CANCELLATION OPTION. So long as no event of default has occurred and
continues under the Master Lease or any Schedule thereto AND so long as Lessee
gives Lessor written notice of its election under this paragraph at least 90
days, but no more than 180 days, prior to the Cancellation Date (as defined
below), Lessee may, subject the provisions of this paragraph, elect to cancel
this Schedule and return all of the Equipment. Lessee may not cancel the
Schedule under the terms of this paragraph UNLESS AND UNTIL all of the following
conditions have been satisfied in full on or before the Cancellation Date:
(a) Lessee shall pay to Lessor on the applicable Cancellation Date a return
and remarketing
Page 3
<PAGE>
fee equal to the Cancellation Value (as defined below); AND
(b) Lessee shall return all, but not less than all, of the Equipment to
Lessor on the Cancellation Date in full compliance with subsection 23(b) of
the Master Lease and with all other return and maintenance requirements of
this Schedule.
"Cancellation Value" means the total of the following: (i) all rent, Taxes and
all other amounts then due and payable by Lessee under this Schedule and Master
Lease to the extent it relates to this Schedule; plus (ii) an amount equal to
SIXTY-ONE PERCENT (61%) of the Lessor's Cost of the Equipment stated above in
this Schedule; plus (iii) sales and other Taxes due in connection with Lessor's
receipt of the above amounts. "Cancellation Date" means the scheduled rent
payment date in the 24TH MONTH OF THE LEASE TERM.
16. AMENDMENT OF PURCHASE OPTION AND RETURN OPTION.
(a) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elects to exercise its option to purchase the
Equipment at the end of the Lease Term (which option is described in Section
23(c) of the Master Lease), then, notwithstanding anything to the contrary in
this Schedule or the Master Lease, the provisions of Section 23(d) of the
Master Lease for determining Fair Market Value for purposes of this purchase
option shall not apply and the purchase price of the Equipment at the end of
the Lease Term shall be equal to the FIXED PRICE stated below plus all Taxes
(excluding income taxes on Lessor's gains on such sale), costs and expenses
incurred or paid by Lessor in connection with such sale plus all accrued and
unpaid amounts then due and payable with respect to the Equipment or this
Schedule.
Fixed Price: TWENTY-FIVE PERCENT (25%) of the above Lessor's Cost of
the Equipment
(b) Solely for purposes of this Schedule and its Equipment, Lessor and
Lessee agree that if Lessee elects to exercise its option to return the
Equipment at the end of the Lease Term (which option is described in Section
23(b) of the Master Lease), then Lessee shall return the Equipment in full
compliance with Section 23(b) of the Master Lease and with all other return and
maintenance requirements of this Schedule and there shall be a rent adjustment
as provided below in this subparagraph (b). The scheduled expiration date of the
Lease Term specified in this Schedule will be referred to as the "Termination
Date".
(1) If the Actual Sale Proceeds as determined pursuant to subparagraph
(c) of this paragraph are less than the Fixed Price, then (A)
Lessor shall retain the Actual Sale Proceeds and (B) Lessee shall
pay to Lessor the difference between the Fixed Price and such
Actual Sale Proceeds on the Termination Date, PROVIDED, THAT the
amount of said deficiency payable by Lessee to Lessor shall not
exceed TWENTY-FOUR PERCENT (24%) of the above Lessor's Cost of the
Equipment; or
(2) If the Actual Sale Proceeds as determined pursuant to subparagraph
(c) of this paragraph equal or exceed the Fixed Price, then Lessor
shall retain the entire Actual Sale Proceeds.
(3) In all events, Lessee shall pay all Taxes (excluding income taxes
on Lessor's gains on such sale), costs and expenses incurred or
paid by Lessor in connection with any such sale plus all accrued
and unpaid amounts due and payable with respect to the Equipment or
this Schedule up to the date of any such sale.
(4) If for any reason whatsoever Lessee fails to return the Equipment
in full compliance
Page 4
<PAGE>
with Section 23(b) of the Master Lease and with all other return and
maintenance requirements of this Schedule on or before the
Termination Date, then Lessee shall be deemed to have elected to
purchase Equipment pursuant to subparagraph (a) of this paragraph.
Unless otherwise expressly agreed by Lessor in writing, during the 90-day period
prior to the Termination Date, Lessee shall, and Lessor may, solicit offers to
purchase the Equipment from prospective purchasers. Neither Lessee nor third
parties affiliated with the Lessee may bid to purchase the Equipment. Lessor may
bid to purchase the Equipment.
(c) If one or more such offers to purchase the Equipment are received
under subparagraph (b) of this paragraph, then the Equipment shall be sold by
Lessor to the highest bidder within ten (10) days after the Termination Date and
the Actual Sale Proceeds shall equal the purchase price actually received by
Lessor after deducting all reasonable selling expenses. If no such offers to
purchase the Equipment are received or if the Equipment is not sold for any
reason, then the Actual Sale Proceeds shall be deemed to be zero and Lessee
shall pay the Fixed Price to Lessor pursuant to clause (1) of subparagraph (b)
of this paragraph plus all accrued and unpaid amounts due and payable with
respect to the Equipment or this Schedule up to the date of any such payment. If
Lessor subsequently sells the Equipment, then the purchase price actually
received by Lessor, after deducting all reasonable selling expenses, shall be
distributed as follows: first, to Lessor in an amount equal to the Fixed Price
less the payment made by Lessee pursuant to clause (1) of subparagraph (b) of
this paragraph; second, to Lessee, to the extent of its payment to Lessor
pursuant to clause (1) of subparagraph (b) of this paragraph; and lastly, the
remainder to Lessor.
(d) Lessor shall, upon receipt of the purchase price of the Equipment
under this paragraph, convey title to the Equipment to the purchaser by a bill
of sale, which transfer shall be "AS-IS, WHERE IS", with all faults, without
recourse to Lessor and without any representation or warranty of any kind
whatsoever by Lessor, express or implied.
17. TAX BENEFIT. Solely for purposes of this Schedule and its Equipment, it is
the intention of the parties that Lessor shall not be entitled to such
deductions, credits and other tax benefits as are provided by federal, state,
and local income tax law to an owner of the Equipment and Section 10 of the
Master Lease is deleted. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE MASTER
LEASE OR THIS SCHEDULE, LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES OF THIS
SCHEDULE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18. GOVERNING DOCUMENT. In the event of any conflict between the terms of the
Master Lease and the terms of this Schedule as each is amended by its addenda,
the terms of this Schedule shall control.
19. SAVINGS CLAUSES. (a) If any court or other judicial authority determines
that this Schedule is a loan transaction or a conditional sale transaction, then
Lessor and Lessee agree: (1) that the original principal amount financed
pursuant to this Schedule is the Lessor's Cost set forth in paragraph 3 of this
Schedule; and (2) that Lessee shall pay said principal amount, together with
interest at the per annum rate of 8.62%, by paying all rentals and other amounts
due under the Schedule plus the Fixed Price set forth in paragraph 16 of this
Schedule.
(b) If any court or other judicial authority determines that this Schedule
is a loan transaction or a conditional sale transaction, then as collateral
security for payment and performance of all Secured Obligations (defined below)
and to induce Lessor to extend credit from time to time to Lessee (under the
Master Lease or otherwise), Lessee hereby grants to Lessor a first priority
security interest in all of Lessee's right, title and interest in the Equipment,
whether now existing or
Page 5
<PAGE>
hereafter acquired, and in all Proceeds (defined below), and Lessee, at its sole
expense, will protect and defend Lessor's first priority security interest in
the Equipment against all claims and demands whatsoever. Lessee agrees that
Lessor shall have all rights of a secured party under the applicable Uniform
Commercial Code. "Secured Obligations" means (1) all payments and other
obligations of Lessee under or in connection with this Schedule, and (2) all
payments and other obligations of Lessee (whether now existing or hereafter
incurred) under or in connection with the Master Lease and all present and
future Lease Schedules thereto, and (3) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or BANC ONE CORPORATION. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
proceeds of insurance, indemnities and/or warranties.
20. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (i) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has
received a copy of, and approved, the purchase orders or purchase contracts for
the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (a) LESSEE HAS
RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (b) ALL EQUIPMENT IS IN
GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL
APPLICABLE SPECIFICATIONS; (c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR
PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (d) LESSEE
UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF
THE EQUIPMENT.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE
AGREES THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR
REGARDING THE EQUIPMENT OR THIS SCHEDULE.
Bane One Leasing Corporation STB Systems, Inc.
(Lessor) (Lessee)
By: /s/ Anthony Park By: /s/ J. Hopkins
--------------------------- -----------------------------
Title: Funding Authority Title: Vice President
------------------------ --------------------------
Witness: Craig [ILLEGIBLE]
------------------------
Lessor's Acceptance Date: December 19, 1997
Page 6
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-l EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCATION: VINCENTE GUERRO NO. 7407
CUIDAD JUAREZ
CHIHUAHUA, MEXICO
COST: $3,116,686.35
<TABLE>
<CAPTION>
VENDOR INVOICE AMOUNT
<S> <C> <C>
RESEARCH INC. 181107 $79,119.00
RESEARCH INC. 181545 $79,119.00
MPM 86801 $253,038.23
PROCESS CONTROL TECHNOLOGIES, INC. 4402 $8,450.00
TECHNICAL DEVICES COMPANY 99333 $88,242.00
UNIVERSAL 92034846 $3,160.00
UNIVERSAL 92035981 $17,299.98
UNIVERSAL 92035980 $6,391.54
UNIVERSAL 92034548 $25,780.00
UNIVERSAL 92034549 $171,950.00
UNIVERSAL 92038369 $18,410.00
UNIVERSAL 92040055 $1,688.00
UNIVERSAL 92040650 $3,376.00
UNIVERSAL (DISCOUNT) 92040055 ($405.12)
92040650
UNIVERSAL (DISCOUNT) 92034549 ($17,291.20)
92034548
92038369
UNIVERSAL (DISCOUNT) 92035980 ($505.60)
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-l is attached to and made a part of Lease Number 1000063905 and
constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
- -----------------------------------------------------------
By: /s/ J. Hopkins
--------------------------------------------------------
Date: 12/17/97
------------------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-l EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
UNIVERSAL (DISCOUNT) 92035981 ($1,368.80)
UNIVERSAL 92032370 $14,628.00
UNIVERSAL 92032369 $13,781.60
UNIVERSAL 92032367 $42,568.40
UNIVERSAL 92032368 $14,168.00
UNIVERSAL 92032612 $84,356.99
UNIVERSAL 92032371 $391,837.39
UNIVERSAL 92032613 $357,486.32
UNIVERSAL 92031367 $400,420.50
UNIVERSAL 92032372 $391,837.40
UNIVERSAL 92036562 $391,837.40
UNIVERSAL 92041011 $25,079.20
UNIVERSAL 92041012 $32,255.20
UNIVERSAL 92044393 $8,004.21
UNIVERSAL (DISCOUNT) 92044393 ($632.00)
UNIVERSAL 92029818 $1,203.18
UNIVERSAL 92029817 $525.53
UNIVERSAL 92026711 $19,761.60
UNIVERSAL 92026712 $6,900.00
UNIVERSAL 92026713 $6,026.00
UNIVERSAL 92026714 $4,940.40
UNIVERSAL 92026715 $13,800.00
UNIVERSAL 92026716 $14,628.00
UNIVERSAL 92027171 $14,168.00
UNIVERSAL 92033014 $2,400.00
UNIVERSAL 92037722 $2,400.00
UNIVERSAL 92028259 $2,714.00
UNIVERSAL 92028258 $2,714.00
UNIVERSAL 92027821 $23,138.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-l is attached to and made a part of Lease Number 1000063905 and
constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
- -----------------------------------------------------------
By: /s/ J. Hopkins
--------------------------------------------------------
Date: 12/17/97
------------------------------------------------------
<PAGE>
BANC ONE LEASING CORPORATION
SCHEDULE A-l EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
UNIVERSAL 92028261 $3,036.00
UNIVERSAL 92028257 $10,810.00
UNIVERSAL 92029530 $21,040.00
UNIVERSAL 92035212 $62,400.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-l is attached to and made a part of Lease Number 1000063905 and
constitutes a true and accurate description of the equipment.
Lessee:
STB SYSTEMS, INC.
- -----------------------------------------------------------
By: /s/ J. Hopkins
--------------------------------------------------------
Date: 12/17/97
------------------------------------------------------
<PAGE>
MASTER LEASE AMENDMENT
Dated As Of October 31, 1997
Reference is made to the Master Lease Agreement dated as of October 3O,
1996 together with its Master Lease Addendum dated as of October 30, 1996
(collectively, the "Master Lease") by and between Banc One Leasing Corporation
("Lessor") and STB Systems, Inc. ("Lessee"). This Amendment modifies the terms
and conditions of the Master Lease. Unless otherwise defined herein, capitalized
terms defined in the Master Lease shall have the same meaning when used herein.
For good and valuable consideration, receipt of which is hereby
acknowledged, and in order to induce the execution of additional Schedules to
the Master Lease, Lessor and Lessee hereby agree as follows:
1. Lessee represents and warrants that its sole subsidiary as of the date
of this Amendment is STB de Mexico, S.A. de C. V. As used below, "Other
Subsidiary" shall mean any direct or indirect subsidiary of Lessee other than
STB de Mexico, S.A. de C. V.
2. So long as any obligations remain outstanding under any present or
future Schedule to the Master Lease, Lessee agrees that it shall arrange for
each Other Subsidiary to execute and deliver to Lessor a valid, binding and
enforceable guarantee of all obligations of Lessee under any present of future
Schedule to the Master Lease; provided, that each such guarantee shall be
absolute and unconditional and each such guarantee (together with all corporate
proceedings relating thereto) shall be satisfactory in form and substance to
Lessor.
3. Except as expressly amended by this Amendment and other written
instruments signed by the party to be bound, the Master Lease remains unchanged
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first referenced above.
STB SYSTEMS, INC. BANC ONE LEASING CORPORATION
(Lessee) (Lessor)
By: /s/ J. Hopkins By: /s/ Anthony Park
------------------------------- -------------------------------
Title: Vice President Title: Funding Authority
---------------------------- ----------------------------
<PAGE>
CORPORATE GUARANTY
Dated December___, 1997
Lessee Name: STB Systems, Inc.
Master Lease Agreement Dated October 30, 1996
Equipment Cost: Up To $3,117,379.35
1. For valuable consideration, the receipt of which is hereby
acknowledged, STB DE MEXICO, S.A. DE C.V. (hereinafter called the "undersigned"
or "Guarantor") guarantees to BANC ONE LEASING CORPORATION (hereinafter called
"Lessor") the full and prompt performance by the lessee identified above
(hereinafter called "Lessee") of all obligations which Lessee now has or may
hereafter have to Lessor, including but not limited to obligations under
equipment leases and promissory notes executed in connection with anticipated
equipment leases (including but not limited to all present and future lease
schedules and promissory notes under the Master Lease identified above, with a
total original equipment cost to the Lessor of up to the amount of the Equipment
Cost set forth above), and unconditionally guarantee the prompt payment when due
(whether at scheduled maturity, upon acceleration or otherwise) of any and all
sums, indebtedness and liabilities of whatsoever nature, due or to become due,
direct or indirect, absolute or contingent, now or hereafter at any time owed or
contracted by Lessee to Lessor, and all costs and expenses of and incidental to
collection of any of the foregoing, including reasonable attorneys' fees (all of
the foregoing hereinafter called "Obligations"). It is the undersigned's express
intention that this guaranty in addition to covering all present Obligations of
Lessee to Lessor, shall extend to all future Obligations of Lessee to Lessor,
whether or not such Obligations are reduced or entirely extinguished and
thereafter increased or are reincurred, whether or not such Obligations are
related to the Master Lease identified above, whether or not such Obligations
exceed the Equipment Cost identified above, and whether or not such Obligations
are specifically contemplated by the undersigned, Lessee, and Lessor as of the
date hereof.
2. This is an absolute and unconditional guarantee of payment and not of
collection. Lessor shall not be required, as a condition of the liability of
the undersigned, to resort to, enforce or exhaust any of its remedies against
the Lessee or any other party who may be liable for payment on any Obligation or
to resort to, marshall, enforce or exhaust any of its remedies against any
leased property or any property given or held as security for this Guaranty or
any Obligation.
3. The undersigned hereby waive and grant to Lessor, without notice to
the undersigned and without in any way affecting the liability of the
undersigned, the right at any time and from time to time, to extend other and
additional credit, leases, loans or financial accommodations to Lessee apart
from the Obligations, to deal in any manner as it shall see fit with any
Obligation of Lessee to Lessor and with any leased property or security for such
Obligation, including, but not limited to, (i) accepting partial payments on
account of any Obligation, (ii) granting extensions or renewals of all or any
part of any Obligation, (iii) releasing, surrendering, exchanging, dealing with,
abstaining from taking, taking, abstaining from perfecting, perfecting, or
accepting substitutes for any or all leased property or security which it holds
or may hold for any Obligation, (iv) modifying, waiving, supplementing or
otherwise changing any of the terms, conditions or provisions contained in any
Obligation and (v) the addition or release of any other party or person liable
hereon, liable on the Obligations or liable on any other guaranty executed to
guarantee any of Lessee's Obligations. The undersigned jointly and severally
hereby agree that any and all settlements, compromises,
Page 1
<PAGE>
compositions, accounts stated and agreed balances made in good faith between
Lessor and Lessee shall be binding upon the undersigned.
4. Every right, power and discretion herein granted to Lessor shall be
for the benefit of the successors or assigns of Lessor and of any transferee or
assignee of any Obligation covered by this Guaranty, and in the event any such
Obligation shall be transferred or assigned, every reference herein to Lessor
shall be construed to mean, as to such Obligation, the transferee or assignee
thereof. This Guaranty shall be binding upon each of the undersigned's
executors, administrators, heirs, successors and assigns.
5. This Guaranty shall continue in force for so long as Lessee shall be
obligated to Lessor, and thereafter until Lessor shall have actually received
written notice of the termination hereof from the undersigned, it being
contemplated that Lessee may borrow, lease, repay and subsequently borrow money
from or lease property from, or become obligated to, Lessor from time to time,
and the undersigned, not having given notice of the termination hereof as herein
provided for, shall be deemed to have permitted this Guaranty to remain in full
force and effect for the purpose of inducing Lessor to make further leases or
loans to Lessee; provided, however, no notice of termination of this Guaranty
shall affect in any manner the rights of Lessor arising under this Guaranty with
respect to the following: (a) any Obligation incurred by Lessee in connection
with the Master Lease identified above with a total equipment cost of no more
than the amount of the Total Equipment Cost set forth above, whether such
obligation is in the form of a lease or a promissory note; or (b) any Obligation
incurred by Lessee prior to receipt by Lessor of written notice of termination
or any Obligation incurred after receipt of such written notice pursuant to a
written agreement entered into by Lessor prior to receipt of such notice. The
undersigned expressly waive notice of the incurring by Lessee of any Obligation
to Lessor. The undersigned also waive presentment, demand of payment, protest,
notice of dishonor or nonpayment of or nonperformance of any Obligation.
6. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Lessee or any other person primarily or
contingently liable on any Obligation of Lessee, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with respect
to any leased property or any property constituting collateral or security for
this Guaranty or any other guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of Lessor or any other creditor
which the undersigned now has or hereafter acquires, whether such claim or right
arises in equity, under contract or statute, at common law, or otherwise.
7. Lessor's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time paid
on account of the Obligations which thereafter shall be required to be restored
or returned by Lessor upon the bankruptcy, insolvency or reorganization of the
Lessee, the undersigned, or any other person, or as a result of any other fact
or circumstance, all as though such amount had not been paid.
8. The undersigned jointly and severally agree to pay to Lessor all costs
and expenses, including reasonable attorneys' fees, incurred by Lessor in the
enforcement or attempted enforcement of this Guaranty, whether or not suit is
filed in connection therewith, or in the exercise by Lessor of any right,
privilege, power or remedy conferred by this Guaranty.
9. The undersigned represent and warrant that they have relied
exclusively on their own independent investigation of Lessee, the leased
property and the collateral for their decision to
Page 2
<PAGE>
guarantee Lessee's Obligations now existing or thereafter arising. The
undersigned agree that they have sufficient knowledge of the Lessee, the leased
property, and the collateral to make an informed decision about this Guaranty,
and that Lessor has no duty or obligation to disclose any information in its
possession or control about Lessee, the leased property, and the collateral to
the undersigned. The undersigned warrant to Lessor that they have adequate means
to obtain from the Lessee on a continuing basis information concerning the
financial condition of the Lessee and that they are not relying on Lessor to
provide such information either now or in the future.
10. As long as any indebtedness under any of the Obligations remains
unpaid or any credit is available to Lessee under any of the Obligations, the
undersigned agree to furnish to Lessor: (a) annual financial statements setting
forth the financial condition and results of operation of the undersigned
(financial statements shall include balance sheet, income statement, changes in
financial position and all notes thereto) within 120 days of the end of each
fiscal year of the undersigned; (b) quarterly financial statements setting forth
the financial condition and results of operation of the undersigned within 60
days of the end of each of the first three fiscal quarters of the undersigned;
and (c) such other financial information as Lessor may from time to time request
including, without limitation, financial reports filed by the undersigned with
federal or state regulatory agencies.
11. No postponement or delay on the part of Lessor in the enforcement of
any right hereunder shall constitute a waiver of such right. The failure of any
person or entity to sign this Guaranty shall not discharge the liability of any
of the undersigned.
12. GUARANTOR HEREBY EXPRESSLY WAIVES THE BENEFITS ESTABLISHED BY ARTICLES
2709, 2710 AND 2712 OF THE CIVIL CODE FOR THE STATE OF CHIHUAHUA. LIKEWISE,
GUARANTOR EXPRESSLY WAIVES THE BENEFITS ESTABLISHED IN ARTICLES 2738, 2739,
2740, 2742 AND 2743 OF THE CIVIL CODE FOR THE STATE OF CHIHUAHUA, AUTHORIZING
LESSOR WITHOUT NOTICE OR DEMAND AND WITHOUT LIABILITY TO THE TERMS OF PARAGRAPHS
1,2,3,4,5,6,7, AND 8 OF THIS GUARANTY.
13. Any and all amounts required to be paid by the undersigned hereunder
shall be paid in lawful money of the United States of America strictly in
accordance with the terms and provisions of the Obligations, without set-off or
counterclaim and without deduction for and free and clear of any and all taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature now or hereafter imposed, levied, collected,
withheld or assessed with respect to the Obligations or this Guaranty or the
proceeds to the holder hereof by the country identified below or any other
country or any political subdivision or taxing authority or other agency thereof
or therein other than the United States of America or any of its political
subdivisions ("Foreign Taxes"). If any Foreign Taxes are required to be deducted
or withheld from any amounts payable to Lessor under this Guaranty, such amount
payable shall be increased to yield to Lessor (after payment of all Foreign
Taxes) the amount specified to be paid hereunder, reduced by the amount of any
foreign tax credit actually received and used by Lessor under the income tax
laws of the United States resulting from the payment of such Foreign Taxes.
Whenever any Foreign Tax is paid by the undersigned on behalf of Lessor, as
promptly as possible thereafter the undersigned shall send Lessor an official
receipt showing payment thereof, together with such additional documentary
evidence as may be required from time to time by Lessor. The obligation of the
undersigned hereunder to make payments in lawful money of the United States of
America shall not be discharged or satisfied by any tender or recovery pursuant
to any judgment expressed in or converted into any currency other than United
States Dollars EXCEPT TO THE EXTENT that any such tender or recovery shall
comply with mandatory laws of the United Mexican States which provide for
Page 3
<PAGE>
payment of obligations in the currency of the United Mexican States; provided,
that any such payment in currency of the United Mexican States shall be made at
the then current legal exchange rate in the United Mexican States if mandatory
laws of the United Mexican States require Lessor to accept such legal exchange
rate or, if permitted by the laws of the United Mexican States, at the then
current market exchange rate that results in the effective receipt by Lessor of
the full amount of United States Dollars expressed to be payable hereunder.
Undersigned's Country of Organization: United Mexican States
14. For purposes of this Guaranty and the resolution of disputes
hereunder, the parties irrevocably submit and consent to, and waive any
objection to, the jurisdiction and venue of the state or federal courts located
in Dallas County, Texas it being acknowledged and agreed that the subject matter
of the Lease is located in Dallas County, Texas. Venue for the enforcement of
any obligations contained herein shall lie in Dallas County, Texas and the
parties hereby waive the right to be sued elsewhere. The undersigned further
agree that final judgment against it in any such legal action, suit or
proceeding shall be conclusive and may be enforced in any other jurisdiction,
within or outside the United States of America, by suit on the judgment, a
certified or exemplified copy of which shall be conclusive evidence of the fact
and amount of its liability.
15. This Guaranty contains the entire agreement of the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Guaranty is not intended to replace
or supersede any other guaranty which the undersigned have entered into or may
enter into in the future. The undersigned may enter into additional guaranties
in the future which may or may not refer to the Master Lease identified above
and such guaranties are not intended to replace or supersede this Guaranty
unless specifically provided in that additional guaranty. The interpretation,
construction and validity of this guaranty shall be governed by the laws
of the State of Ohio in the United States of America.
[The next page is the signature page.]
Page 4
<PAGE>
ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS GUARANTY.
Undersigned/Guarantor:
STB DE MEXICO, S.A. DE C.V.
(Name of Guarantor)
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Chief Advisor
--------------------------------
Witness: /s/ Craig [ILLEGIBLE]
------------------------------
ACKNOWLEDGED BY:
STB SYSTEMS, INC. BANC ONE LEASING CORPORATION
(Lessee) (Lessor)
By: By: /s/ Anthony Park
-------------------------------- --------------------------------
Title: Title Funding Authority
----------------------------- -----------------------------
Page 5
<PAGE>
MAINTENANCE AND RETURN ADDENDUM
Lease Schedule No: 1000063905 Master Lease Agreement Date: 10-30-96
Lessee Name: STB SYSTEMS, INC.
Reference is made to the Master Lease Agreement identified above ("Master
Lease") and to the Lease Schedule identified above ("Schedule"), which are by
and between Banc One Leasing Corporation ("Lessor") and the lessee identified
above ("Lessee"). As used herein: "Lease" shall mean the Schedule and the
Master Lease to the extent that it relates to the Schedule; and "Equipment"
shall mean the equipment covered by the Schedule. This Addendum modifies the
terms and conditions of the Lease. Unless otherwise defined herein, capitalized
terms defined in the Lease shall have the same meaning when used herein.
As part of the valuable consideration to induce the execution of the Lease
by the parties thereto, Lessor and Lessee hereby agree as follows:
1. PHYSICAL CONDITION. In addition to all other terms and conditions of
the Lease relating to maintenance, service, repair and return of the Equipment,
Lessee agrees to comply with the following terms and conditions:
(a) Lessee agrees to maintain, service and repair the Equipment in
accordance with the original manufacturer's recommendations and manual.
Written records of the maintenance, service and repair will be kept, dated,
and signed by the appropriate officer or manager of Lessee.
(b) Lessee shall cause the Equipment to be operated in accordance with any
applicable manufacturer's manuals or instructions within its normal
capacity and without abuse, by competent and duly qualified personnel and
strictly in accordance with all applicable government laws and regulations.
(c) Replacement parts for the Equipment must be purchased from sources
approved by the original manufacturer. Copies of all purchase orders for
such replacement parts are to be filed in the Equipment file.
(d) At the time of the return of the Equipment, the Equipment must: be
fully operational and able to perform as originally intended without
repair, or rebuild; be able to meet or exceed manufacturer's performance
specifications for such Equipment; and be free of any contamination from
any source or substance as provided by applicable industry standards and by
all applicable Federal, state and local government laws and regulations.
Page 1 of 3
<PAGE>
(e) At the time of the return of the Equipment, all parts, mechanisms,
components, devices and operating accessions for the Equipment (including,
but not limited to, the current version of any applicable software in
Lessee's possession which is for the use or operation of the Equipment)
shall also be returned to Lessor.
2. INSPECTION. In addition to its right to inspect the Equipment,
Lessor may also inspect the records regarding the maintenance, service and
repair of the Equipment. If, after any inspection of any Equipment or the
records for any Equipment by Lessor or its agent, Lessor determines that
discrepancies exist as they pertain to the condition, maintenance, service or
repair of the Equipment, then Lessor will communicate these discrepancies to
Lessee in writing. Lessee shall have 30 days to repair or correct these
discrepancies at Lessee's sole expense. Lessee will pay all expenses for a
re-inspection by Lessor or its agent if corrective measures are required.
3. REMOVAL, PACKAGING, TRANSPORTATION. In addition to all other terms
and conditions of the Lease as it relates to the return of the Equipment, Lessee
agrees to comply with the following terms and conditions:
(a) When returning any Equipment, any special transportation devices,
which were provided with the Equipment when originally delivered must be
used. De-installation and packing is to be undertaken by the original
manufacturer or by a company that is acceptable to Lessor and Lessee and
shall be done in accordance with the manufacturer's specifications. The
Equipment shall be certified for resale by the manufacturer at Lessee's
expense.
(b) Boxing, banding and labeling of all components and documents,
including but not limited to service manuals, service and repair records
and descriptive brochures, must be done in a conscientious and meticulous
manner so as to facilitate the efficient reinstallation of the Equipment.
(c) All lock keys are to be wired together and secured to a major external
component of the Equipment.
4. NOTICE. The notice required from Lessee pursuant to Section 23(a) of
the Master Lease shall be given at least 120 days, but no more than 180
days, prior to the expiration of the Lease Term of the schedule.
Page 2 of 3
<PAGE>
Except as expressly amended by this Addendum, the Lease remains unchanged
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
the date referenced above.
Lessor:
BANC ONE LEASING CORPORATION
- -----------------------------------------------------------
By: /s/ Anthony Park
-------------------------------------------------------
Title: Funding Authority
----------------------------------------------------
Lessee:
STB SYSTEMS, INC.
- -----------------------------------------------------------
By: /s/ J. Hopkins
-------------------------------------------------------
Title: Vice President
----------------------------------------------------
Page 3 of 3
<PAGE>
SELLING SHAREHOLDER AGREEMENT
This Selling Shareholder Agreement (this "Agreement") dated as of ________,
is between STB SYSTEMS, INC., a Texas corporation (the "Company"), and each of
William E. Ogle, William D. Balthaser, Jr. and Mark S. Sims (collectively, the
"Selling Shareholders").
WHEREAS, the Company expects to undertake a public offering (the
"Offering") of certain shares of its Common Stock, of which approximately
2,775,000 shares will comprise the portion to be offered by the Company and
approximately 225,000 shares will comprise the portion to be offered by the
Selling Shareholders (it being understood that the Company and the Selling
Shareholders will each further grant an option to sell approximately 225,000
and 225,000 additional shares, respectively, to cover the underwriters'
overallotment option);
WHEREAS, pursuant to the proposed terms of the Underwriting Agreement (the
"Underwriting Agreement") by and among the Company, the underwriters
participating in the Offering (the "Underwriters") and the Selling
Shareholders, the Underwriters are requiring that the Selling Shareholders
indemnify them against certain losses, claims, damages or liabilities arising
out of or based upon the contents of the Registration Statement relating to
the Offering or certain representations of the Selling Shareholders included
in the Underwriting Agreement;
WHEREAS, the Selling Shareholders have indicated to the Company that a
precondition to their participation in the Offering is the Company's
indemnification of the Selling Shareholders for any losses, claims, damages
or liabilities arising out of the Offering, including the indemnification
and contribution obligations owed to the Underwriters under the Underwriting
Agreement;
WHEREAS, the Board of Directors has given extensive consideration to the
contents of this Agreement and has determined that it is in the best
interests of the Company and its shareholders as a whole that the Company
indemnify the Selling Shareholders as requested, because the Board of
Directors believes that (i) the sale of shares by each of the Selling
Shareholders through a registered public offering will provide for a more
orderly sale of such stock to the public than would occur if such
shareholders were to sell such shares under Rule 144 (including consideration
that the market price for the Company's Common Stock is more likely to be
adversely affected by sales of stock under Rule 144 than through a registered
public offering), (ii) the sale of the shares by the Selling Shareholders
would increase the amount of Common Stock publicly held by persons not
affiliated with the Company, (iii) the Underwriters will be able to place the
shares to be sold by the Selling Shareholders with purchasers, such as
institutional investors, that the Company desires, (iv) the Selling
Shareholders would agree to execute a "lock-up agreement" with the
Underwriters, which would enhance the Company's ability to complete
negotiations with the Underwriters, as well as the Offering itself, and
facilitate a calm aftermarket in the Company's stock and (v) the inclusion of
the Selling Shareholders' shares in the Offering will improve the terms upon
which all shares will be sold in the Offering.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth in this Agreement, the parties agree as follows:
<PAGE>
1. INDEMNITY. The Company agrees to indemnify each Selling Shareholder
for all losses, claims, damages or liabilities arising out of the offer and
sale of shares in the Offering (in such Selling Shareholder's capacity as
such), including any losses, claims, damages or liabilities arising out of the
Selling Shareholders' indemnification and contribution obligations owed to the
Underwriters under the Underwriting Agreement. In the event that a claim for
indemnification arises hereunder otherwise than as a result of a claim made
against a Selling Shareholder under the terms of the Underwriting Agreement,
such Selling Shareholder shall immediately notify the Company and the Company
shall at its expense be entitled to assume the defense of any action, suit or
proceeding against, or investigation or inquiry of, such Selling Shareholder;
provided, that in the event the Company assumes such defense, any legal or
other expenses subsequently incurred by such Selling Shareholder in connection
with the defense of the action, suit or proceeding shall be borne by such
Selling Shareholder and the Company shall not be responsible therefor. In the
event that a claim for indemnification arises hereunder as a result of a claim
made against a Selling Shareholder under the Underwriting Agreement, the
Company shall pay to the Selling Shareholder any amount for indemnification or
contribution in accordance with the terms of the Underwriting Agreement at
the same time as such Selling Shareholder is obligated to pay any such amount
to any Underwriter. The right to indemnification as provided by this
Agreement shall be enforceable by any Selling Shareholder in any court of
competent jurisdiction.
2. SUBROGATION. If the Company makes any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Selling Shareholders to whom payment is made, who
shall execute all papers required and shall do everything that may be
necessary to secure such rights.
3. SEVERABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any such
provision shall be held to be invalid or unenforceable for any reason such
invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
4. NOTICE. Any notice, consent or other communication to be given under
this Agreement by any party to any other party shall be in writing and shall
be (a) personally delivered, (b) mailed by registered or certified mail,
postage prepaid with return receipt requested, (c) delivered by overnight
express delivery service or same-day local courier service or (d) delivered
by telex or facsimile transmission to the address set forth beneath the
signature of the parties below or at such other address as may be designated
by the parties from time to time in accordance with this Section. Notices
delivered personally, by overnight express delivery service or by local
courier service shall be deemed given as of actual receipt. Mailed notices
shall be deemed given three business days after mailing. Notices delivered by
telex or facsimile transmission shall be deemed given upon receipt by the
sender of the answerback (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
5. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Texas.
6. BINDING EFFECT; SUCCESSORS. This Agreement shall be binding upon
each Selling Shareholder and upon the Company, its successors and assigns and
shall inure to the benefit of each Selling Shareholder, its heirs, executors,
administrators, personal representatives and assigns and to the benefit of
the Company, its successors and assigns.
7. AMENDMENT. No amendment, modification, termination or cancellation
of this Agreement shall be effective unless in writing signed by both parties
hereto.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
STB SYSTEMS, INC.
By:
--------------------------------
Randall D. Eisenbach, Executive
Vice President and Chief Operating
Officer
1651 North Glenville Drive
Richardson, Texas 75081
Facsimile: (972) 437-9631
------------------------------------
William E. Ogle
c/o STB Systems, Inc.
1651 North Glenville Drive
Richardson, Texas 75081
Facsimile: (972) 437-9631
------------------------------------
William D. Balthaser, Jr.
c/o STB Systems, Inc.
1651 North Glenville Drive
Richardson, Texas 75081
Facsimile: (972) 437-9631
------------------------------------
Mark S. Sims
c/o STB Systems, Inc.
1651 North Glenville Drive
Richardson, Texas 75081
Facsimile: (972) 437-9631
-3-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
December 8, 1997, except as to Notes 1 and 11 which are as of February 20, 1998,
which appears in the 1997 Annual Report to Shareholders of STB Systems, Inc.,
which is incorporated by reference in STB Systems, Inc.'s Annual Report on Form
10-K for the year ended October 31, 1997. We also consent to the incorporation
by reference of our report on the Financial Statement Schedule, which appears in
such Annual Report on Form 10-K. We also consent to the references to us under
the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Dallas, Texas
February 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1998
<PERIOD-START> NOV-01-1996 NOV-01-1997
<PERIOD-END> OCT-31-1997 JAN-31-1998
<CASH> 3,869 3,391
<SECURITIES> 0 0
<RECEIVABLES> 47,673 50,354
<ALLOWANCES> 465 548
<INVENTORY> 41,295 45,811
<CURRENT-ASSETS> 94,342 101,667
<PP&E> 17,231 17,613
<DEPRECIATION> 4,883 5,483
<TOTAL-ASSETS> 109,554 115,767
<CURRENT-LIABILITIES> 62,981 65,866
<BONDS> 0 0
0 0
0 0
<COMMON> 105 105
<OTHER-SE> 43,357 47,258
<TOTAL-LIABILITY-AND-EQUITY> 109,554 115,767
<SALES> 199,485 78,758
<TOTAL-REVENUES> 199,485 78,758
<CGS> 149,439 62,542
<TOTAL-COSTS> 149,439 62,542
<OTHER-EXPENSES> 32,146 9,997
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,649 518
<INCOME-PRETAX> 16,251 5,701
<INCOME-TAX> 5,481 1,896
<INCOME-CONTINUING> 10,770 3,805
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,770 3,805
<EPS-PRIMARY> 1.05 .36 <F1><F2>
<EPS-DILUTED> .97 .33 <F2>
<FN>
<F1> Adjusted to reflect a three-for-two stock split of the Company's common
stock on February 20, 1998.
<F2> EPS figures represent Basic earnings per share as defined by SFAS 128.
</FN>
</TABLE>
