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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 14, 2000
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SYS
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(Exact Name of Registrant as Specified in Charter)
California 0-4169 95-2467354
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
9620 Chesapeake Drive, Suite 201, San Diego, CA 92123
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (858) 715-5500
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(none)
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENT
On February 24, 2000, the Company entered into a Letter of Intent (LOI)
with Mr. Guadolupe Torres, the Chairman and principal shareholder, of Systems
Integration & Research, Inc. (SIR) to acquire all of his shares. This LOI is
included as exhibit 1 to this 8-K. The remaining shares are held by an Employee
Stock Ownership Plan (ESOP).
SIR is a profitable Arlington, Virginia based defense contractor with
revenues of approximately $14 million annually. SIR has about 200 employees,
which includes a strong management team, based primarily in offices on the East
Coast. SIR also has an office in San Diego. As with SYS, the majority of SIR's
contracts are with the U.S. Navy.
The purchase price will consist of cash, SYS common stock and SYS
convertible preferred stock and the assumption of certain debts in exchange for
SIR's stock and as generally provided for in the LOI and to be specifically
described and set forth in one or more definitive agreements to be executed by
the parties. Mr. Torres will receive a $2,000,000 cash payment at closing, a
$500,000 subordinated note, principal and interest due one year after closing, a
non-compete payment of $500,000 payable over three years and a seat on the Board
of Directors of SYS. SYS will also issue to Mr. Torres shares of SYS's common
stock in installments of $500,000 per year over a four-year period. These shares
will be issued within 60 days of SYS's fiscal year end and will be based on the
greater of the average daily stock price of the Company's common stock over the
last three months of the fiscal year or the Company's ESOP appraisal. SYS shall
purchase the SIR ESOP stock using SYS convertible preferred stock and assume the
SIR ESOP's note.
SYS will provide employment contracts for key employees in exchange for
non-compete agreements. Mr. Torres will provide the list of SIR key employees.
The parties anticipate that, subject to completion of satisfactory due
diligence by SYS and completion of the definitive agreements, closing of the
transaction contemplated in the definitive agreements shall occur expeditiously
after the definitive agreements are executed. The definitive agreements shall be
executed no later than July 7, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.
SYS
(Registrant)
Date: March 14, 2000 By: /s/ Michael W. Fink
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Michael W. Fink, Secretary
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Exhibit 99.1
February 24, 2000
Mr. Guadolupe Torres
Chairman
Systems Integration and Research, Inc.
2100 Washington Boulevard, Suite 100
Arlington, Virginia 22204
RE: LETTER OF INTENT - PROPOSED ACQUISITION BY SYS
Dear Mr. Torres:
Please let this memorandum of understanding serve as a Letter of Intent
to express the intentions of the parties concerning a proposed transaction
whereby SYS, a California corporation (the "Buyer"), will acquire all of the
issued and outstanding capital stock (the "SIR Stock") of Systems Integration
and Research, Inc., a Virginia corporation, (the "Target Company"). The purchase
price will consist of cash, Buyer common stock and Buyer convertible preferred
stock and the assumption of certain debts in exchange for the Target Company's
stock and all as generally provided for below and to be specifically described
and set forth in one or more definitive agreements (the "Definitive Agreements")
to be executed by the parties.
We understand, from our prior discussions and the information you have
provided pursuant to the Non-Disclosure Agreement, that all of the issued and
outstanding SIR Stock is held exclusively by two stockholders, that is about 70%
of the SIR Stock (the "Founder Stock") is owned by Lou Torres (the "Founder
Seller") and about 30% of the SIR Stock (the "Plan Stock") is held by the Target
Company's Employee Stock Ownership Plan (the "Plan Seller") (both, as the
"Sellers"). Founder Seller's stock may be held by two or more individuals at
closing.
The parties anticipate that, subject to completion of satisfactory due
diligence by Buyer, closing (the "Closing") of the transaction contemplated in
the Definitive Agreements shall occur expeditiously after the Definitive
Agreements are executed. The Definitive Agreements shall be executed no later
than July 7, 2000.
In executing this Letter of Intent, the Buyer and the Target Company
acknowledge and confirm their intentions expressed herein with respect to the
proposed transaction, but (except for the provisions of Paragraphs 3 and 8
hereof which are intended to be legally binding and enforceable) this Letter of
Intent is not intended to constitute a contract nor an offer to enter into a
contract, nor to be binding upon any of the parties, or to create any legal
obligation or rights within any jurisdiction.
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Mr. Guadolupe Torres Proposed Acquisition By SYS
In the event the parties fail to execute the Definitive Agreements July
7, 2000, regardless of the cause or reason, then this Letter of Intent, except
for Paragraph 8, shall terminate automatically and become null and void and of
no force or effect as to its intent without liability on the part of any party,
and without further action by the parties or any one of them.
At present, on the basis of the information made available to us, we
believe that an agreement can be reached upon the following general terms and
conditions.
1. ACQUISITION OF SIR STOCK HELD BY SELLERS. The Sellers shall each
simultaneously transfer all right, title, and interest to their respective SIR
Stock to the Buyer in exchange for the Buyer's payment of certain sums as
follows:
a. ACQUISITION OF FOUNDER'S STOCK. Buyer shall purchase
the Founder's Stock for $3,000,000 cash plus Performance Shares
described in 1.c. and 1.d. below. The cash payments shall be as
follows:
i. $2,000,000 cash payment at closing. This
amount may be reduced to adjust for tax
savings should the Seller's shares be
purchased by the Buyer's ESOP.
ii. $500,000 subordinated note, principal and
interest due one year after Closing. Note will
be subordinated to bank credit line and senior
debt. In the event that all or a portion of
this note is paid through the ESOP, the term
of the note will be reduced to 11 months.
iii. $500,000 payment for a non-compete agreement
payable $100,000 in year one, $150,000 in year
two and $250,000 in year three.
iv. Founder Seller shall have the option of
serving on the Buyer's Board of Directors for
a minimum period that will match the term of
the non-compete agreement in Section 1.a.iii
above;
b. ACQUISITION OF PLAN STOCK. Buyer shall purchase the
Plan Stock using Buyer's Convertible Preferred Stock and assume the
Plan Seller's note. Total consideration to the Plan Seller will be
determined by the Plan appraisal. All parties acknowledge that the Plan
and the Target Company are parties to a certain loan secured by the
shares of the Target Company issued to and held by the Plan and said
loan shall remain an outstanding obligation.
c. SELLER'S PERFORMANCE SHARES. Buyer will issue
additional shares of Buyer's Common Stock to Founding Seller in
installments of $500,000 per year over a four-year period. Such shares
shall be issued within 60 days of the Buyer's fiscal year end and will
be based on the greater of the average daily stock price of the Buyer's
common stock over the last three months of the fiscal year or the
Buyer's ESOP appraised value. For example; if at the end of year two,
the average daily stock price of the seller's common stock over the
last three months
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Mr. Guadolupe Torres Proposed Acquisition By SYS
of its fiscal year equaled two dollars per share ($2.00), the Buyer
would issue 250,000 shares of common stock to the Seller.
d. KEY MANAGEMENT PERFORMANCE SHARES. Buyer will issue
additional shares of Buyer's Common Stock to Key Management personnel
in the minimum amount of $500,000 payable in common stock of the Buyer
over a four year period following closing based on the attainment of
specific, mutually agreed upon operating objectives. These performance
shares will be included in the contracts discussed in Section 1.e.
below.
e. NON-COMPETE AGREEMENTS AND EMPLOYMENT CONTRACTS. In
addition, Linda Gagnon and other key employees will each execute an
agreement not to compete with the Buyer for a period of three (3) years
from and after the last date of their employment with the Target
Company. In exchange for the agreements not to compete, Buyer shall
provide employment contracts to these key employees. Founder Seller
shall provide the list of key Target Company employees. The non-compete
agreements and employment contracts will be further defined in the
Definitive Agreements.
2. ACCESS AND INFORMATION. In connection with the preparation of the
Definitive Agreements and consummating the transaction, the Sellers shall
provide full and complete access regarding the Target Company and the Target
Company's outstanding contracts, marketing initiatives, outstanding contract
backlog, files, books, properties, contracts, financial data, operating data,
joint venture agreements, and all other pertinent records so as to enable the
Buyer and its legal counsel, accountants, and other authorized representatives
during normal business hours as well as other reasonable times to fully conduct
its due diligence review of the assets and business of the Target Company and
all related information to the Buyer.
3. EXCLUSIVITY. Upon the execution of this Letter of Intent by the
parties, the Target Company and the Sellers agree that they will not prior to
July 7,2000, negotiate, through affiliates or otherwise, with any other entity
or individual with respect to, or effect, the transaction contemplated in this
Letter of Intent.
4. DEFINITIVE AGREEMENTS. Promptly hereafter the Buyer's counsel shall
commence preparation of a draft of the Definitive Agreements to be entered into
by the Sellers and the Buyer, which will contain the detailed terms and
conditions governing the transaction, as well as certain mutually agreed upon
representations, warranties and indemnifications by the Buyer and the Sellers.
The Buyer and the Sellers and their respective counsel will promptly proceed to
negotiate and finalize the specific terms and related other documents to the
mutual satisfaction of the Buyer and the Sellers, all as intended by this Letter
of Intent.
5. ORDINARY COURSE OF BUSINESS. The Target Company will operate and
maintain its assets, properties, and business, administer its accounts, solicit
government contracts, service existing government contracts, and maintain its
existing contract backlog during the period from the date hereof through the
Closing, in the ordinary
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Mr. Guadolupe Torres Proposed Acquisition By SYS
course of business, and in accordance with past practice and, as long as the
Buyer shall not participate in or influence the day-to-day operations of the
Target Company, the Buyer shall be given access to and information about such
day-to-day operations until Closing.
6. OTHER PROVISIONS. The Definitive Agreements will also provide, among
other things, for the following: (i) the Sellers and the Target Company shall
warrant that there has been no material adverse change in the financial
condition, underlying contracts or operations of the Target Company's business;
and (ii) there are no pending or threatened litigation or adverse city, county,
state, or federal regulatory or environmental matters that have not been
disclosed to the Company.
7. CONDITIONS TO CLOSING. The transaction shall be subject to and
conditioned upon the following:
a. Completion, execution and delivery by the parties of
the Definitive Agreements on or before July 7, 2000.
b. Approval of the transaction by the Trustees of the Plan
Stock;
c. Receipt by the Buyer, prior to the Closing Date, of such
approvals and other consents deemed necessary or
appropriate from any governmental authorities, and from
any private third parties to permit the consummation of
the transaction contemplated herein;
d. Satisfactory due diligence review by the Buyer of the
status of the Target Company's employment relationship
and compensation agreements with such key employees as
the Buyer deems necessary;
e. Satisfactory due diligence review by the Buyer of the
status of the Target Company's government contracts,
government contract backlog, and marketing initiatives
and the Target Company's continued prospect of
maintaining these arrangements;
f. No material adverse changes not otherwise disclosed in
detail in writing to the Buyer prior to execution of the
Definitive Agreements shall have occurred with, in or to
the businesses of the Target Company after the date of
the last audited financial statement, in the results of
the operations, business, assets, liabilities, or
affairs of the Target Company.
g. Buyer's approval of pre-closing audit by Buyer's accounting
firm.
h. No dividends, bonuses or other out-of-the-ordinary
payments to officers or shareholders of the Target
Company to be paid unless approved and agreed by Buyer.
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Mr. Guadolupe Torres Proposed Acquisition By SYS
i. Buyer to satisfy Sellers that financing is available.
j. Seller is responsible for any transaction related fees,
expenses and commissions if retained by seller or Target
Company.
8. CONFIDENTIALITY. It is agreed by both the Buyer and Seller that any
information concerning the business or operations of the businesses disclosed to
either party or its counsels, accountants, representatives or financial
institutions prior to or after the date of this Letter of Intent shall be
treated as confidential, unless such information is of public record or
knowledge or becomes available to either party on a non-confidential basis from
a source other than one of the parties to this Letter of Intent or their
representatives. The parties shall not use such information for any purpose
other than for evaluating the transaction between the Target Company and the
Buyer.
In the event that the parties fail to execute the Definitive Agreements
by July 7, 2000, each party shall promptly redeliver to the other party all
confidential information concerning the other party and neither party shall
retain any copies, extracts or other reproductions, in whole or in part, of such
confidential information.
The Target Company, the Sellers, and the Buyer agree that prior to
Closing, no party hereto will make any public disclosure of this proposed
transaction without the prior consent of the other, except as otherwise legally
required. However, both parties acknowledge that the Buyer is subject to certain
disclosure obligations under the SECURITIES EXCHANGE ACT OF 1934 and the Target
Company and the Sellers agree to cooperate and provide Buyer with all
information, including required financial statements, needed by Buyer thereby.
The Target Company and the Sellers, and each of them, warrant and agree
that the parties executing this Letter of Intent have the full authority and
power to execute this Letter of Intent on behalf of any party which they
represent.
9. DUE DILIGENCE. Notwithstanding anything contained to the contrary
herein, the Target Company and the Sellers acknowledge and agree that the Buyer
shall conduct usual and customary operational, financial and legal due diligence
and examine and investigate the business, government contracts, government
contract backlog, Target Company employment relationships, and assets of the
Target Company from the date hereof until Closing, with consummation of the
proposed transaction being subject to the Buyer being completely satisfied with
the results of said investigation.
10. GOODWILL. Buyer recognizes the value and good reputation of the
Target Company's name, logo, trademarks and copyrights, is honored to be
associated with them, and fully intends to capitalize on their continued use.
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Mr. Guadolupe Torres Proposed Acquisition By SYS
If this Letter properly sets forth our mutually agreeable understanding
with respect to the above matters, please so indicate by executing both
originals of this Letter of Intent in the space provided below, and return one
such original to me at your earliest convenience.
ACCEPTED AND AGREED TO ON BEHALF OF SYSTEMS INTEGRATION AND RESEARCH, INC.:
By: /s/ Guadolupe Torres
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Guadolupe Torres
Date: February 24, 2000
ACCEPTED AND AGREED TO ON BEHALF OF SYS:
By: /s/ W. Gerald Newmin
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W. Gerald Newmin
Date: February 24, 2000
