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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended May 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-7736
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TAB PRODUCTS CO.
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(Exact name of Registrant as specified in its charter)
Delaware 94-1190862
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1400 Page Mill Rd., Palo Alto, California 94304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number - including area code (415) 852-2400
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Securities registered pursuant to Section 12(b) of the Act:
Common stock, $.01 par value American Stock Exchange
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(Title of Each Class) (Name of Exchange On Which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[ X ] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of July 31, 1996 was approximately $18,996,435. Shares of common
stock held by each officer and director and by each person or group who owns 5%
or more of the outstanding common stock have been excluded in that such persons
or groups may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of July 31,
1996 was 4,851,951.
This report, including all exhibits and attachments, contains 57 pages. The
index to exhibits is located on pages 13-14.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, which will be filed within 120 days
after the end of the Registrant's fiscal year, for the Annual Meeting of
Stockholders ("Proxy Statement") to be held on October 17, 1996, are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
The Registrant is engaged in a single industry segment that manufactures and
markets office filing and furniture systems. The Registrant was incorporated in
February, 1954 and subsequently reorganized as a corporation under Delaware law
in September, 1986.
PRINCIPAL PRODUCTS AND COMPETITION
The Registrant markets numerous products used in offices and computer
facilities. The primary business approach to the market is to provide office
efficiency solutions by integrating all products and services into a systems
solution to solve the particular needs of each customer. A general description
of the Registrant's major product lines and services, utilized in developing the
customer's solution, and the related competitive environment is given below.
The Registrant markets a wide range of filing systems, related filing supplies
and services. The Registrant's filing systems range from individual filing
cabinets and units to large mobile filing systems. These products are often
sold as complete filing systems incorporating color-coded filing systems, custom
filing solutions and records management services. These products and services
offer efficient access to information and a cost effective systems approach for
high density filing applications. As part of the systems solution, the company
also markets TABQUIK, an on-demand color-coded filing system which uses
proprietary software to produce color-coded labels which are applied to folders
using Tab's proprietary automatic applicator. This product is a PC based label
making system which allows customers to generate color-coded labels on demand.
In addition, Tab markets Twinfile, a double-sided filing cabinet that rotates on
a base. Twinfile provides companies with high density filing capacity at an
employee's workstation. It has been designed to be fully integrated with either
panel systems or modular furniture. Tab's services business combines records
management consulting with conversion and installation services, all designed
to assist our customers in their information management needs. Primary
competitive factors in this market are product quality, service and price. The
Registrant believes that its products quality, high level of service and systems
approach to its products and services give it a strong competitive position.
The Registrant markets a line of systems furniture. These products include
wood-trim and designer-trim office panel systems and clustered workcenters with
related hanging components and work surfaces, modular workstations and tables.
These products are directed at the established market for the open office
environment. Primary areas of competition in this market are product design,
quality and price.
The Registrant markets a line of computer-related products. These products
include magnetic media storage units and cabinets, tape storage systems and
computer printout storage systems. The Registrant also markets a wide range of
ergonomic computer furniture which includes data tables and computer
workstations. Primary factors of competition in this market are price and
product quality.
The Registrant markets a complete line of forms processing equipment. These
machines include bursters, decollators and imprinters which are used for the
efficient distribution and processing of computer generated forms.
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The Registrant markets a full range of high speed mailing systems, including
Infoseal(1), a high speed mailing system developed in conjunction with Transkrit
Corp., which uses a proprietary technique for folding and sealing computer
generated mailing pieces. The Registrant believes that it is one of the four
primary competitors in this market. Primary competitive factors are product
quality and customer service.
The Registrant maintains a national field service organization which provides
third party maintenance for optical equipment manufactured by other companies,
and services its installed base of computer-related equipment and forms
equipment.
The business of the Registrant is not seasonal.
(1) InfoSeal and Transkrit are registered trademarks of Transkrit
Corporation.
MARKETING
The Registrant's products are marketed in the United States, Canada, Western
Europe and Australia through its sales branches and independent sales offices
(including a direct sales force of approximately 650 salespeople), and
distributors. In other geographic areas, products are sold exclusively through
independent distributors. The company has three foreign subsidiaries which
market their products and services in Canada, Australia and Western Europe,
while foreign sales in the remainder of the world are conducted through a
Foreign Sales Corporation. Foreign revenues were $30,132,000, $29,383,000 and
$21,707,000 for the years ended May 31, 1996, 1995 and 1994, respectively.
Foreign operating income was $1,045,000, $940,000 and $236,000 for the years
ended May 31, 1996, 1995 and 1994, respectively. Total identifiable assets
(excluding cash) and liabilities in foreign countries were $8,835,000 and
$2,620,000, respectively, at May 31, 1996 compared with $9,039,000 and
$2,647,000 at May 31, 1995. Transactions and exchange gains (losses) included
in earnings, amounted to approximately $(225,000), $191,000 and $(32,000) in
fiscal 1996, 1995 and 1994, respectively.
CUSTOMERS
The Registrant sells its products to many diverse customers including government
agencies, industrial companies, insurance companies and financial services
companies. The Registrant's largest customer is the U.S. Government (including
its agencies and GSA subcontractors). Sales to the U.S. Government, as a
percent of total revenues, were 10%, 9% and 9% for fiscal years 1996, 1995 and
1994, respectively. No other single customer accounted for 10% of consolidated
revenues.
BACKLOG
The backlog of orders at May 31, 1996 and 1995 is not a significant factor in
understanding the business of the Registrant. The nature of the Registrant's
business is such that the value of backlog represents only a small portion of
the on-going revenues of the business. No one order would normally account for
a significant value of backlog.
AVAILABILITY OF RAW MATERIALS
There was no significant change during fiscal 1996 in the source and
availability of raw materials for the Registrant's products. Raw materials are
considered to be widely available. It is not anticipated that the availability
of raw materials will be a significant factor in the Registrant's business.
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INTELLECTUAL PROPERTY
The Registrant holds several patents and trademarks in the United States,
Canada, Western Europe and Australia. The Registrant does not consider any of
its patents to be material to its business. The Registrant relies on a
combination of patents, contractual rights, trademarks, trade secrets and
copyrights to establish or protect its proprietary rights.
RESEARCH AND DEVELOPMENT
The Registrant's research and development activities are primarily related to
the development of new products and the improvement of existing products.
Expenditures for research and development were $.5 million in fiscal year 1996
and $.8 million in fiscal years 1995 and 1994, respectively.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local regulations with respect to the
environment has not had, and is not expected to have, any material effect on the
capital expenditures, earnings or competitive position of the Registrant.
EMPLOYEES
At May 31, 1996, the Registrant employed approximately 988 full-time employees.
None of the company's employees are represented by a collective bargaining unit.
EXECUTIVE OFFICERS
At August 1, 1996 the following individuals were executive officers of the
Registrant:
Name Age Title
JOHN W. PETH 47 Director; Acting President and Chief
Executive Officer; Executive Vice President,
Chief Operating Officer and President - Tab
U.S.
Acting President and Chief Executive Officer since July 15, 1996;
Director, Executive Vice President and Chief Operating Officer since April
1991; President, Tab U.S. since July 1994; Chief Financial Officer from
July 1991 to July 1994 and Office Managing Partner, San Jose Region,
Deloitte & Touche from December 1989 to March 1991.
JAMES A. AYRE 63 Vice President, Canadian and Australian
Operations, and President, Tab Products of
Canada, Limited
Named to current position in January 1994; President, Tab Products of
Canada, Limited since October 1993 and President, Wright Line of
Canada Ltd. from November 1989 to October 1993.
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EXECUTIVE OFFICERS (CONTINUED)
WENDI A. DOWNING 38(1) Vice President, Human Resources
Named to current position in June 1995; Director, Human Resources,
The Upper Deck Co. from August 1993 to March 1995; Vice President,
Corporate Outplacement, Career Focus from August 1991 to July 1993;
Senior Manager, Human Resources, Western Digital Corp. from December
1986 to April 1991.
DAVID H. HASKIN 45 Vice President, Marketing
Named to current position in August 1993, from his prior position of
Director of Market Development since March 1992; Prestige Regional Sales
Manager since January 1990.
JOHN M. PALMER 37 Vice President, Finance and Chief Financial
Officer
Named to current position in July 1994; Vice President, Finance, Tab
Products of Canada, Limited from October 1993 to July 1994; Vice
President, Finance, Wright Line of Canada Ltd. from September 1992 to
October 1993; Controller, Wright Line of Canada Ltd. from January 1986
to September 1992.
THOMAS J. RAUSCHER 41(2) Vice President, Manufacturing and
Distribution
Named to current position in January 1996; Vice President, Operations,
Fisher Hamilton from October 1980 to January 1996.
PATRICIA J. ROBITAILLE 45 Vice President, Information and Business
Systems
Named to current position in March 1994; Senior Project Manager, B.S.S.I.
from November 1993 to February 1994; President, PJR Systems from March 1992
to October 1993; Director, Information Services, Hadson Power Systems from
June 1990 to February 1992.
ROBERT J. SEXTON 62 Treasurer and Secretary
Secretary since March 1991 and Treasurer since July 1982.
JAMES L. ANDERSON 41 Chief Accounting Officer and Controller
Chief Accounting Officer and Controller since October 1993; Assistant
Controller from January 1988 to October 1993.
NANCY R. GREEN 46 Assistant Treasurer and Assistant Secretary
Named to current position in July 1991; Director of Treasury from
October 1990 to July 1991; Cash Manager from February 1984 to
October 1990.
The executive officers of the Registrant are elected each year at the Annual
Organizational Meeting of the Board of Directors, which will be held this year
on October 17, 1996.
(1) Effective June 1995 appointed an executive officer.
(2) Effective January 1996 appointed an executive officer.
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INFLATION
The Registrant does not believe that inflation has had, or will have, a
significant impact on its operations.
ITEM 2. PROPERTIES
The Registrant's Corporate Headquarters is located at 1400 Page Mill Road, Palo
Alto, California. The facility comprises three buildings which total 105,000
square feet. Approximately 36,000 square feet of one of these buildings was
leased to a tenant commencing January 1994 for a ten year period. The buildings
are owned by the Registrant but are subject to land leases from Stanford
University. The land leases expire in 2011 and 2012, at which time both the
land and improvements will revert to Stanford University.
The Registrant owns a 356,000 square foot building located on 14 acres of land
in Mayville, Wisconsin. The Mayville facility serves as a central warehousing,
manufacturing and distribution center. Approximately 200,000 square feet of the
facility is utilized as warehouse space. Approximately 50,000 square feet of
the facility is utilized for the production of paper products (primarily file
folders). Approximately 60,000 square feet is utilized for the production of
panel systems furniture. The Registrant also owns 16 acres of undeveloped land
near the current facility.
The Registrant owns a 45,000 square foot building located on 4 acres of land in
Lomira, Wisconsin. The facility is used for the manufacture of TAB-TRAC mobile
filing storage units, plastic injection molded parts and other light
manufacturing and assembly operations. The Registrant owns a 45,000 square foot
building in Horicon, Wisconsin. Both the Lomira and the Horicon facilities are
located near the Mayville facility.
The Registrant owns two manufacturing buildings located on 16 acres of land in
Turlock, California. One building is a 67,000 square foot paper products plant
which is used for the manufacture of file folders and the attachment of
color-coded labeling systems. The other building consists of 104,000 square
feet and is used for the manufacture of the Registrant's Forms Equipment product
line and as the headquarters for the Registrant's national field service
operations.
The Registrant leases office space for its sales and service branches in
numerous cities throughout the United States, Canada, Western Europe and
Australia, most of which are in major metropolitan areas. Tab Products of
Canada, Limited leases 70,500 square feet of office space in two buildings in
Toronto, Canada which expire in October 2000 and May 1997. Tab Products
(Europa) B.V. leases a 9,000 square foot building in Amsterdam, Netherlands
which expires in August 2001. Tab Products Pty Ltd leases a 22,000 square foot
building in St. Leonards, Australia which expires in June 2000. These buildings
serve as general office, sales and warehouse facilities.
The Registrant leased a 118,000 square foot building in San Jose, California,
which was being subleased. The lease and sublease expired in November 1995.
In management's opinion, all buildings, machinery and equipment are in good
condition and are maintained and repaired on a basis consistent with sound
operations. The properties and equipment are deemed adequate and suitable for
their purposes.
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ITEM 3. LEGAL PROCEEDINGS
The Registrant is not involved in any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year ended May 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
TAB Per Share Common Stock Dividends
and Price Ranges
Dividends Price Range Per Share
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Fiscal 1996 1995 1996 1995
Quarter ---- ---- ---- ----
Ended High Low High Low
- ----- ---- --- ---- ---
August 31 $.05 $.05 $ 6 7/16 $5 1/4 $10 $8 1/2
November 30 .05 .05 6 3/4 5 3/8 8 7/8 8 1/4
February 29/28 .05 .05 7 6 1/4 8 3/4 6 1/8
May 31 .05 .05 7 11/16 5 7/8 7 1/8 5 3/4
The company's stock is traded on the American Stock Exchange (AMEX) and its
trading symbol is TBP. At May 31, 1996, the company had approximately 1,000
holders of record and approximately 4,000 beneficial owners of Tab Products Co.
stock.
The company's loan covenants contain certain restrictions on the payment of
dividends-see Note 4 of Notes to Consolidated Financial Statements on page 26 of
this Form 10-K.
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ITEM 6. SELECTED FINANCIAL DATA
Tab Products Co.
Consolidated Selected Financial Data, Five Years Ended May 31
<TABLE>
<CAPTION>
(In thousands of dollars, except share and ratio data)
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $152,698 $149,951 $140,122 $126,966 $128,364
Earnings before
income taxes 4,887 2,157 3,796 3,333 2,655
Earnings before
cumulative effect of
accounting changes 2,761 1,219 2,176 1,868 1,465
Net earnings 2,761 1,219 2,176 1,057 1,465
Current assets 48,715 51,333 53,577 47,593 49,679
Working capital 27,424 30,082 30,879 30,562 32,813
Net cash provided by
operating activities 11,344 8,109 4,257 7,411 6,112
Purchases of property
plant and equipment,
net 2,825 1,946 2,678 3,991 3,757
Depreciation and
amortization 3,601 3,783 3,284 3,338 3,127
Long-term debt, non-current 14,141 18,733 23,041 16,620 18,235
Stockholders' equity 41,462 39,828 38,652 37,617 37,289
Total assets 79,127 81,649 86,161 73,043 73,428
Earnings per share before
cumulative effect of
accounting changes .57 .25 .45 .39 .26
Net earnings per share .57 .25 .45 .22 .26
Book value per share 8.55 8.21 8.01 7.86 7.94
Dividends per share .20 .20 .20 .40 .40
Current ratio 2.3 2.4 2.4 2.8 2.9
Return on average equity 7% 3% 6% 3% 3%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At May 31, 1996 the company had cash and short-term investments of $11.7
million, an increase of $3.3 million from the $8.4 millon at May 31, 1995.
Working capital at May 31, 1996 was $27.4 million, a decrease of $2.7 million
from the working capital of $30.1 million reported a year earlier. The current
ratio of 2.3 at May 31, 1996 decreased slightly from the current ratio of 2.4 at
May 31, 1995. Management believes that the company's cash and cash equivalents,
available credit facilities and operational cash flows will adequately finance
anticipated growth, capital expenditures and debt obligations for the
foreseeable future.
During fiscal 1996 net cash provided from operating activities was $11.3
million, an increase of $3.2 million compared to the $8.1 million generated in
fiscal 1995. The higher level of cash was provided from several sources.
Accounts receivable at May 31, 1996 was $23.9 million, a decrease of $.8 million
from the accounts receivable of $24.7 million at May 31, 1995, due to lower
days sales outstanding at May 31, 1996 as compared to May 31, 1995. Inventories
at May 31, 1996 were $11.3 million, a decrease of $3.3 million from the
inventories of $14.6 million at May 31, 1995. The decrease in inventories is a
result of focused efforts to reduce the company's overall investment in
inventory. Prepaid income taxes and other expenses at May 31, 1996 were $1.9
million, a decrease of $1.8 million from the $3.7 million reported May 31, 1995,
primarily as a result of lower prepaid income taxes.
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Accounts payable at May 31, 1996 was $5.8 million, a decrease of $1.5 million
from the accounts payable of $7.3 million at May 31, 1995. Accounts payable was
lower at May 31, 1996 as a result of the inventory reduction and its impact on
supplier purchases.
During fiscal 1996, the company invested approximately $2.8 million in property,
plant and equipment which primarily represented investments in tooling and
production equipment, and management information systems. At May 31, 1996 the
company had no material commitments outstanding for capital expenditures.
Capital expenditures for fiscal 1997, which will consist of investments in
property, plant and equipment, are expected to be in the range of $3.0 million
to $3.5 million.
At May 31, 1996, the company had $14.1 million of long-term debt outstanding
which bears interest at rates ranging from 6.9% to 9.0%.
In fiscal 1996 the company made $4,092,000 in debt repayments. The repayments
included $3,312,000 in scheduled repayments of debt and a prepayment of $780,000
of debt.
The company also has available an unsecured revolving line of credit of $10
million with a bank, as of May 31, 1996, which expires October 31, 1996.
Subsequent to May 31, 1996 the company extended this unsecured revolving line
of credit through October 31, 1998. The credit line does not require
compensating balances and there were no borrowings under the line at
May 31, 1996.
RESULTS OF OPERATIONS
TOTAL REVENUES - Total revenues for fiscal 1996 of $152.7 million were $2.8
million or 2% higher than the $149.9 million in fiscal 1995. The increased
revenues were attributable to price increases and higher unit volumes.
Revenues in fiscal 1995 of $149.9 million were $9.8 million or 7% higher than
the $140.1 million in fiscal 1994. Approximately $7.2 million of the increase
was related to the Datafile business acquired in October 1993. In addition,
revenues from the company's domestic commercial business increased by $1.5
million and revenues from domestic government sales in the U.S. increased
approximately $1.1 million. These revenue increases were primarily attributable
to increased unit sales. During fiscal 1995 the company increased list prices
in major product categories, but the timing of such increases had minimal effect
on fiscal 1995 results.
International revenues were 20%, 20% and 15% of consolidated revenues in fiscal
1996, 1995 and 1994, respectively.
COST OF REVENUES - Cost of revenues, as a percentage of revenues, for fiscal
1996, 1995 and 1994 was 60.9%, 61.7% and 60.6%, respectively. The decrease in
the percentage for fiscal 1996 was due primarily to increased list prices and a
concentrated effort on reducing product costs. The increase in the percentage
for fiscal 1995 was due primarily to increased product costs in the U.S.
operations. The company increased list prices during the latter part of fiscal
1995 but due to the timing of such increases they had little effect on
operations in fiscal 1995.
OPERATING EXPENSES - Operating expenses, as a percentage of revenues, for fiscal
1996, 1995 and 1994 were 34.9%, 35.6% and 35.5%, respectively. Total operating
expenses for fiscal 1996 were $53.2 million, a decrease of $.2 million as
compared to total operating expenses of $53.4 million in fiscal 1995. Total
operating expenses decreased as a percentage of revenues primarily as a result
of increased revenues.
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Operating expenses increased in fiscal 1995 by $3.6 million over fiscal 1994.
The increase in operating expenses was attributable to $2.8 million in
incremental operating expenses from the Datafile operation acquired in October,
1993, $.4 million additional commissions on increased revenues and $.4 million
of higher marketing program expenses in our Datafile operations.
INTEREST EXPENSE - Interest expense, net for fiscal 1996 was $323,000 lower than
the net interest expense for fiscal 1995 primarily because of decreased levels
of long-term debt due to normal debt repayments and prepayment of debt. Net
interest expense for fiscal 1995 was $202,000 higher than net interest expense
for fiscal 1994 because of an increased level of long-term debt related to the
Datafile acquisition in October, 1993.
INCOME TAXES - Income taxes, as a percentage of pre-tax earnings, were 43.5%,
43.5% and 42.7% for fiscal 1996, 1995 and 1994, respectively. Income taxes, as
a percentage of pre-tax earnings, for fiscal 1996 remained unchanged from fiscal
1995. The higher percentage for fiscal 1995, as compared to fiscal 1994 is
primarily due to the lower level of pre-tax earnings relative to the amount of
non-deductible goodwill amortization.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The company's financial statements included with this Form 10-K are set forth
under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors," "Executive Compensation and Other
Matters" and "Certain Relationships and Related Transactions" which appear in
the Registrant's Proxy Statement are incorporated herein by reference. For
information with respect to the executive officers of the Registrant, see
"Executive Officers" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information related to executive compensation which appears in the
Registrant's Proxy Statement in the section entitled "Executive Compensation and
Other Matters" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Stock Ownership of Certain Beneficial Owners and
Management" which appears in the Registrant's Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions" which
appears in the Registrant's Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report:
Page Number
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1. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 18
Consolidated Statements of Earnings for the
three years ended May 31, 1996 19
Consolidated Balance Sheets at May 31, 1996
and 1995 20
Consolidated Statements of Stockholders'
Equity for the three years ended May 31, 1996 21
Consolidated Statements of Cash Flows for
the three years ended May 31, 1996 22
Statement of Accounting Policies 23-24
Notes to Consolidated Financial Statements 25-32
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report 33
Financial Statement Schedule for the three years
ended May 31, 1996:
Schedule II Valuation and Qualifying Accounts 34
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3. EXHIBITS:
2.1 Purchase Agreement By and Among Wright Line Inc., Applied
Power Inc. and Tab Products Co. (Exhibit filed with Form 10-Q for
the quarter ended August 31, 1993)(2)
3.1 Certificate of Incorporation (Exhibit 3.1 of 1993 Form 10-K)(2)
3.2 Amended and Restated ByLaws (Exhibit 3.2 of 1994 Form 10-K)(2)
10.1 Registrants 1981 Incentive Stock Option Plan (Exhibit 10 of the
1983 Form 10-K)(1),(2)
10.2 Amended 1981 Incentive Stock Option Plan (Exhibit 10 of the 1987
Form 10-K)(1),(2)
10.3 1991 Stock Option Plan (Exhibit 10.1 of the 1991 Form 10-K)(1),(2)
10.4 Employment Agreement between John W. Peth and the Registrant dated
March 21, 1991 (Exhibit 10.2 of the 1991 Form 10-K)(1),(2)
10.5 Agreement between John W. Peth and the Registrant dated August 28,
1991 (Exhibit 10.3 of the 1991 Form 10-K)(1),(2)
10.6 Agreement between Michael A. Dering and the Registrant dated May
15, 1989 (Exhibit 10.4 of the 1991 Form 10-K)(1),(2)
10.7 Amendment to Agreement between Michael A. Dering and the Registrant
dated August 28, 1991 (Exhibit 10.5 of the 1991 Form 10-K)(1),(2)
10.8 Common Stock Purchase Agreement (Exhibit 10.2 of the 1992 Form 10-
K)(2)
10.9 Promissory Note dated October 28, 1991 (Exhibit 10.3
of the 1992 Form 10-K)(2)
10.10 Bank of America Business Loan Agreement dated October 24, 1991
(Exhibit 10.4 of the 1992 Form 10-K)(2)
10.11 Note Agreement of Tab Products Co. dated as of March 20, 1992 in
the aggregate principal amount of $15,000,000 (Exhibit 10.5 of the
1992 Form 10-K)(2)
10.12 Bank of America Revision Agreement dated March 20, 1992 (Exhibit
10.6 of the 1992 Form 10-K)(2)
10.13 Agreement for Purchase and Sale of Assets (Exhibit 10.7 of the 1992
Form 10-K)(2)
10.14 Amendment dated September 15, 1992 to Business Loan Agreement dated
October 24, 1991 (Exhibit 10.14 filed with the 1993 Form 10-K)(2)
10.15 Business Loan Agreement dated August 20, 1993 (Exhibit 10.15 filed
with the 1993 Form 10-K)(2)
10.16 Amendment dated July 27, 1993 to Note Agreement of Tab Products Co.
dated as of March 20, 1992 (Exhibit 10.16 filed with the 1993 Form
10-K)(2)
10.17 Bank of America Business Loan Agreement dated August 20, 1993
(Exhibit 10.17 filed with Form 10-Q for the quarter ended
August 31, 1993)(2)
10.18 Bank of America Amendment No. 1 dated October 6, 1993 to Business
Loan Agreement (Exhibit 10.18 filed with Form 10-Q for the quarter
ended August 31, 1993)(2)
10.19 Bank of America Amendment No. 2 dated October 13, 1993 to
Business Loan Agreement (Exhibit 10.19 filed with Form 10-Q for the
quarter ended August 31, 1993)(2)
10.20 Note Agreement of Tab Products Co. dated October 7, 1993(Exhibit
10.20 filed with Form 10-Q for the quarter ended August 31,
1993)(2)
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10.21 Letter dated October 7, 1993 amending the Prudential Note Agreement
dated March 20, 1992 (Exhibit 10.21 filed with Form 10-Q for the
quarter ended August 31, 1993)(2)
10.22 Bank of America Amendment No. 3 dated December 3, 1993 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.22 filed with Form
10-Q for the quarter ended February 28, 1994)(2)
10.23 Bank of America Amendment No. 4 dated February 9, 1994 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.23 filed with Form
10-Q for the quarter ended February 28, 1994)(2)
10.24 Bank of America Amendment No. 5 dated February 28, 1994 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.24 filed with Form
10-Q for the quarter ended February 28, 1994)(2)
10.25 Bank of America Amendment No. 6 dated March 30, 1994 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.25 filed with Form
10-Q for the quarter ended February 28, 1994)(2)
10.26 Bank of America Amendment No. 7 dated April 5, 1994 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.26 filed with Form
10-Q for the quarter ended February 28, 1994)(2)
10.27 Letter dated October 27, 1993 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.27 filed with the 1994
Form 10-K)(2)
10.28 Bank of America Amendment No. 8 dated May 9, 1994 to Business Loan
Agreement dated August 20, 1993 (Exhibit 10.28 filed with the 1994
Form 10-K)(2)
10.29 Bank of America Amendment No. 9 to Business Loan Agreement dated
August 20, 1993 (Exhibit 10.29 filed with the 1994 Form 10-K)(2)
10.30 Bank of America Amendment No. 10 dated August 8, 1994 to Business
Loan Agreement dated August 20, 1993(Exhibit 10.30 filed with the
1994 Form 10-K)(2)
10.31 Bank of America Amendment No. 11 dated August 22, 1994 to Business
Loan Agreement dated August 20, 1993 (Exhibit 10.31 filed with the
1994 Form 10-K)(2)
10.32 Letter dated June 15, 1995 amending the Prudential Note Agreement
dated March 20, 1992 (Exhibit 10.32 filed with the 1995 Form
10-K)(2)
10.33 Letter dated July 21, 1995 amending the Prudential Note Agreement
dated March 20, 1992 (Exhibit 10.33 filed with the 1995 Form
10-K)(2)
10.34 Bank of America Business Loan Agreement dated December 7, 1995
(Exhibit 10.34 filed with Form 10-Q for the quarter ended November
30, 1995)(2)
10.35 Letter dated December 13, 1995 amending the Prudential Note
Agreement dated March 20, 1992 (Exhibit 10.35 filed with Form 10-Q
for the quarter ended November 30, 1995)(2)
10.36 Bank of America Business Loan Agreement dated August 26, 1996(2)
10.37 Letter dated August 20, 1996 amending the Prudential Note Agreement
dated March 20, 1992(2)
23.1 Independent Auditors' Consent
27 Financial Data Schedule
(1) Compensatory Plan or Arrangement
(2) Incorporated by reference from the noted previously filed
document.
14
<PAGE>
B. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended May 31, 1996.
C. EXHIBITS: See Item 14(A)(3) above.
D. FINANCIAL STATEMENT SCHEDULE: See Item 14(A)(2) above.
15
<PAGE>
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
and State of California, on this twenty-eighth day of August, 1996.
TAB PRODUCTS CO.
/s/ John W. Peth
---------------------------
John W. Peth
Acting President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name and Title Date
- -------------- ----
/s/ Hans A. Wolf August 28, 1996
- -------------------------------------------------- ---------------
Hans A. Wolf, Chairman of the Board
/s/ John W. Peth August 28, 1996
- -------------------------------------------------- ---------------
John W. Peth, Director; Acting President and Chief
Executive Office
/s/ John M. Palmer August 28, 1996
- -------------------------------------------------- ---------------
John M. Palmer, Vice President, Finance and Chief
Financial Officer
/s/ James L. Anderson August 28, 1996
- -------------------------------------------------- ---------------
James L. Anderson, Controller and Chief
Accounting Officer
/s/ Robert R. Augsburger August 28, 1996
- -------------------------------------------------- ---------------
Robert R. Augsburger, Director
/s/ William E. Ayer August 28, 1996
- -------------------------------------------------- ---------------
Dr. William E. Ayer, Director
/s/ Robert S. Cecil August 28, 1996
- -------------------------------------------------- ---------------
Robert S. Cecil, Director
16
<PAGE>
TAB PRODUCTS CO.
FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
FORM 10-K ITEM 14
YEARS ENDED MAY 31, 1996, 1995 AND 1994
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
DELOITTE &
TOUCHE LLP
- -----------
[LOGO]
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF TAB PRODUCTS CO.:
We have audited the accompanying consolidated balance sheets of Tab Products Co.
and its subsidiaries as of May 31, 1996 and 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tab Products Co. and its
subsidiaries as of May 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Jose, California
June 27, 1996
18
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
Revenues $ 152,698,000 $ 149,951,000 $ 140,122,000
--------------------------------------------------
Costs and expenses:
Cost of revenues 93,025,000 92,503,000 84,890,000
Selling, general and administrative 52,726,000 52,561,000 48,907,000
Research and development 502,000 849,000 850,000
--------------------------------------------------
Total costs and expenses 146,253,000 145,913,000 134,647,000
--------------------------------------------------
Operating income 6,445,000 4,038,000 5,475,000
Interest, net (1,558,000) (1,881,000) (1,679,000)
--------------------------------------------------
Earnings before income taxes 4,887,000 2,157,000 3,796,000
Provision for income taxes 2,126,000 938,000 1,620,000
--------------------------------------------------
Net earnings $ 2,761,000 $ 1,219,000 $ 2,176,000
--------------------------------------------------
--------------------------------------------------
Earnings per common and
equivalent shares $ .57 $ .25 $ .45
Average common and equivalent
shares outstanding 4,853,991 4,845,273 4,809,623
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
19
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31
-----------------------------------
ASSETS 1996 1995
-----------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,331,000 $ 6,753,000
Short-term investments 2,322,000 1,600,000
Accounts receivable, less allowances for doubtful
accounts of $620,000 and $708,000 23,898,000 24,692,000
Inventories 11,313,000 14,584,000
Prepaid income taxes and other expenses 1,851,000 3,704,000
-----------------------------------
Total current assets 48,715,000 51,333,000
Property, plant and equipment, net 20,800,000 21,652,000
Goodwill, net 4,777,000 5,241,000
Other assets 4,835,000 3,423,000
-----------------------------------
$ 79,127,000 $ 81,649,000
-----------------------------------
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,813,000 $ 3,313,000
Accounts payable 5,823,000 7,292,000
Commissions payable 3,553,000 2,918,000
Other accrued liabilities 8,102,000 7,728,000
-----------------------------------
Total current liabilities 21,291,000 21,251,000
-----------------------------------
Long-term debt 14,141,000 18,733,000
-----------------------------------
Deferred taxes and other non-current liabilities 2,233,000 1,837,000
-----------------------------------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized - 500,000, shares,
issued - none
Common stock, $.01 par value, authorized - 25,000,000 shares,
issued - 1996 and 1995 - 7,284,178 shares 73,000 73,000
Additional paid-in capital 12,705,000 12,705,000
Retained earnings 59,689,000 57,898,000
Treasury stock, 1996 and 1995 - 2,432,227 shares (31,365,000) (31,365,000)
Cumulative translation adjustment 360,000 517,000
-----------------------------------
Total stockholders' equity 41,462,000 39,828,000
-----------------------------------
$ 79,127,000 $ 81,649,000
-----------------------------------
-----------------------------------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
20
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER OF ADDITIONAL CUMULATIVE
SHARES PAID-IN RETAINED TREASURY TRANSLATION
OUTSTANDING AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 1, 1993 4,785,680 $ 72,000 $ 12,143,000 $ 56,435,000 $ (31,365,000) $ 332,000
Net earnings 2,176,000
Dividends, $.20 per share (962,000)
Translation adjustment (541,000)
Common stock issued to
company's Tax
Deferred Savings Plan 42,454 1,000 361,000
---------------------------------------------------------------------------------------
BALANCES, MAY 31, 1994 4,828,134 73,000 12,504,000 57,649,000 (31,365,000) (209,000)
Net earnings 1,219,000
Dividends, $.20 per share (970,000)
Translation adjustment 726,000
Common stock issued to
company's Tax
Deferred Savings Plan 21,317 182,000
Stock options exercised
and tax benefit on disqualified
common stock dispositions 2,500 19,000
---------------------------------------------------------------------------------------
BALANCES, MAY 31, 1995 4,851,951 73,000 12,705,000 57,898,000 (31,365,000) 517,000
Net earnings 2,761,000
Dividends, $.20 per share (970,000)
Translation adjustment (157,000)
---------------------------------------------------------------------------------------
BALANCES, MAY 31, 1996 4,851,951 $ 73,000 $ 12,705,000 $ 59,689,000 $ (31,365,000) $ 360,000
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
21
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,761,000 $ 1,219,000 $ 2,176,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
of property, plant and equipment 3,601,000 3,783,000 3,284,000
Deferred income taxes and other liabilities 396,000 67,000 (5,000)
Common stock issued to tax deferred
savings plan 182,000 362,000
Other (12,000) (16,000) 105,000
Changes in operating assets and liabilities,
net of effect of acquisition:
Accounts receivable 882,000 6,879,000 (4,770,000)
Inventories 3,271,000 (765,000) (1,000,000)
Prepaid income taxes and other expenses 1,853,000 (278,000) 1,191,000
Goodwill and other assets (948,000) 444,000 (275,000)
Accounts payable (1,469,000) (2,975,000) 1,965,000
Commissions payable 635,000 (484,000) 605,000
Other accrued liabilities 374,000 53,000 619,000
------------------------------------------------
Net cash provided by operating activities 11,344,000 8,109,000 4,257,000
------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net (2,825,000) (1,946,000) (2,678,000)
Purchase of short-term investments (5,998,000) (101,000) (2,394,000)
Sales of short-term investments 5,276,000 895,000 1,982,000
Purchase of Datafile (7,486,000)
Investment in building for lease (2,495,000)
------------------------------------------------
Net cash required by investing activities (3,547,000) (1,152,000) (13,071,000)
------------------------------------------------
FINANCING ACTIVITIES
Issuance of debt 9,275,000
Repayment of debt (4,092,000) (2,349,000) (1,615,000)
Proceeds from issuance of common stock 18,000
Dividends paid (970,000) (970,000) (962,000)
------------------------------------------------
Net cash provided (required)
by financing activities (5,062,000) (3,301,000) 6,698,000
------------------------------------------------
Effect of exchange rate changes on cash (157,000) 726,000 (541,000)
------------------------------------------------
Increase (decrease) in cash and
cash equivalents 2,578,000 4,382,000 (2,657,000)
Cash and cash equivalents at
beginning of year 6,753,000 2,371,000 5,028,000
------------------------------------------------
Cash and cash equivalents at end of year $ 9,331,000 $ 6,753,000 $ 2,371,000
------------------------------------------------
------------------------------------------------
</TABLE>
See accompanying Statement of Accounting Policies and Notes to Consolidated
Financial Statements.
22
<PAGE>
TAB PRODUCTS CO.
STATEMENT OF ACCOUNTING POLICIES
The company's significant accounting policies are summarized below to assist the
reader in reviewing the financial statements and other data contained in this
report.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the company and its subsidiaries, all of which are wholly-owned.
Intercompany transactions have been eliminated in consolidation.
ESTIMATES The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Such estimates
include the allowance for doubtful accounts, warranty and obligations for
postretirement healthcare and pension benefits. Actual results could differ
from those estimates.
TRANSLATION OF FOREIGN CURRENCIES The assets and liabilities of the company's
Canadian, Australian and European subsidiaries are translated into U. S. dollars
at current exchange rates and revenue and expense items are translated at
average rates of exchange prevailing during the year. Resulting translation
adjustments are accumulated in a separate component of stockholders' equity.
Other foreign currency transaction gains and losses are included in net
earnings.
CASH AND CASH EQUIVALENTS are highly liquid investments purchased with an
original maturity of three months or less.
SHORT-TERM INVESTMENTS represent debt securities which are stated at fair
value. The difference between amortized cost (cost adjusted for amortization
of premiums and accretion of discounts which are recognized as adjustments to
interest income) and fair value representing unrealized holding gains or losses,
if material, are recorded as a separate component of stockholders' equity until
realized. While the company's intent is to hold debt securities to maturity,
they are classified as available-for-sale because the sale of such securities
may be required prior to maturity. Any gains and losses on the sale of debt
securities are determined on a specific identification basis.
INVENTORIES are valued at the lower of cost or market. Cost of merchandise
inventories purchased for resale is determined on the last-in, first-out (LIFO)
method for domestic inventories, which was approximately $1,977,000 at May 31,
1996 ($2,751,000 at May 31, 1995). Cost of the remainder of the inventories is
determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT, including significant improvements to existing
facilities are stated at cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets, which are as
follows: Land improvements 10-30 years; buildings 20-50 years; machinery and
equipment 3-15 years; furniture and fixtures 3-10 years; field service spare
parts 3-5 years.
23
<PAGE>
TAB PRODUCTS CO.
STATEMENT OF ACCOUNTING POLICIES
Leasehold improvements are amortized over the shorter of their useful lives or
the term of the lease.
GOODWILL represents the excess of the purchase price over the estimated fair
value of net assets of acquired businesses. Goodwill is being amortized on a
straight-line basis over periods not exceeding 25 years. Goodwill amortization
amounted to $464,000, $432,000 and $384,000 in fiscal 1996, 1995 and 1994,
respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS The company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of,"
effective June 1, 1995. The adoption of this statement had no effect on the
company's financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." The new standard defines
a fair value method of accounting for stock options and other equity
instruments. Under this method, compensation cost is measured based on the
fair value of the stock award when granted and is recognized as expense over
the service period, which is usually the vesting period. This standard will
be effective for the company beginning in fiscal 1997 and requires
measurement of awards made beginning in fiscal year 1996. The new standard
permits companies to continue to account for equity transactions with
employees under existing accounting rules, but requires disclosure in a note
to the financial statements of the pro forma net income and earnings per
share as if the company had applied the new method of accounting. The company
intends to implement these disclosure requirements for its employee stock
plans. As a result, adoption of the new standard will not impact reported
net earnings.
REVENUE RECOGNITION Revenues on product sales are recognized upon product
shipment. Related installation revenues are recognized when installation is
complete. Equipment service revenues are recognized ratably over the
contractual period or as the services are performed.
EARNINGS PER SHARE is computed using the average number of common and dilutive
common equivalent shares outstanding.
STOCKHOLDERS' EQUITY Shares of the company which are repurchased are treated as
Treasury stock and are accounted for under the cost method.
INCOME TAXES Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting, in accordance with SFAS
No. 109.
FAIR VALUE OF FINANCIAL INSTRUMENTS The company believes that the carrying
amount for cash and cash equivalents, short-term investments, accounts
receivables, accounts payable and long-term debt approximated fair value as of
May 31, 1996.
CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially
subject the company to a concentration of credit risk principally consist of
cash and cash equivalents, short-term investments and trade accounts
receivable. The company places its cash and cash equivalents and short-term
investments with what it believes are high credit quality financial
institutions. The company sells its products primarily to companies in North
America and Europe. The company maintains reserves for potential credit
losses, but historically has not experienced any significant losses related to
individual customers or groups of customers in any particular industry or
geographic area.
24
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SHORT-TERM INVESTMENTS
During fiscal 1995, the company adopted statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). There was no cumulative effect as a result of
adopting SFAS 115. The company's investments have been classified as
available-for-sale securities. The amortized costs of available-for-sale
securities at May 31, 1996 and May 31, 1995 are presented in the table which
follows. Available-for-sale securities are classified as current assets and
mature generally within six months. For each category of investment securities
the fair market value approximates amortized cost.
MAY 31
------------------------------------
1996 1995
------------------------------------
Corporate obligations $ 999,000
U.S. Government obligations $ 2,322,000 601,000
------------------------------------
$ 2,322,000 $ 1,600,000
------------------------------------
------------------------------------
2. INVENTORIES MAY 31
------------------------------------
1996 1995
------------------------------------
Finished goods $ 7,421,000 $ 8,914,000
Work in process 516,000 653,000
Raw materials 3,376,000 5,017,000
------------------------------------
$ 11,313,000 $ 14,584,000
------------------------------------
------------------------------------
If the inventories for which the LIFO method is used were valued under the FIFO
method, such inventories would have been higher by $1,410,000 at May 31, 1996
and $1,465,000 at May 31, 1995. The liquidation of certain LIFO inventory had no
significant impact on earnings in 1996, 1995 and 1994.
3. PROPERTY, PLANT AND EQUIPMENT MAY 31
------------------------------
1996 1995
------------------------------
Land and improvements $ 990,000 $ 981,000
Buildings and improvements 18,638,000 18,645,000
Machinery and equipment 16,424,000 16,606,000
Furniture and fixtures 15,475,000 15,212,000
Leasehold improvements 259,000 864,000
Field service spare parts 2,264,000 2,590,000
------------------------------
54,050,000 54,898,000
Less accumulated depreciation and amortization (33,250,000) (33,246,000)
------------------------------
$ 20,800,000 $ 21,652,000
------------------------------
------------------------------
25
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT AND CREDIT LINE MAY 31
------------------------------------
1996 1995
------------------------------------
Unsecured term loans $ 16,000,000 $ 19,000,000
Unsecured term loans from bank 1,954,000 3,046,000
------------------------------------
Total debt 17,954,000 22,046,000
Less current portion (3,813,000) (3,313,000)
------------------------------------
Long-term debt $ 14,141,000 $ 18,733,000
------------------------------------
------------------------------------
The company has $16,000,000 of unsecured term loans outstanding; $11,500,000 at
8.7% with principal payments through fiscal 2001 and $4,500,000 at 6.9% with
principal payments through fiscal 2003. The company also has a $1,954,000
unsecured term loan outstanding from a bank with principal payments through
fiscal 2003. Interest on the bank loan is at the bank's reference rate (8.25%
at May 31, 1996) plus .75%. The company at its discretion, can select other
interest rate methods for this bank loan. These interest rate methods include a
fixed rate option, long-term rate option and an offshore rate option. The term
loans contain restrictions with respect to certain payments (including
dividends), additional debt, creation of liens and guarantees and maintenance of
minimum quick assets, quick ratio and stockholders' equity.
The company has an unsecured revolving line of credit of $10 million with a
bank, as of May 31, 1996, which expires October 31, 1996. Subsequent to May 31,
1996 the company extended this unsecured revolving line of credit through
October 31, 1998. Borrowings are available at the bank's reference rate (8.25%
at May 31, 1996) or at certain rate options, such as fixed rate, long-term rate
and offshore rate options which may be lower. The company had no borrowings
outstanding under this line as of May 31, 1996.
Required principal payments of long-term debt are payable as follows: Year
ending May 31, 1997--$3,813,000; 1998--$3,313,000; 1999--$3,437,000; 2000 -
$3,437,000; 2001--$1,937,000; and thereafter $2,017,000.
Cash paid for interest which approximates interest expense was $1,850,000,
$2,150,000 and $1,924,000 for fiscal 1996, 1995 and 1994, respectively.
5. Other Accrued Liabilities MAY 31
-----------------------------------
1996 1995
-----------------------------------
Payroll and related benefits $ 2,106,000 $ 2,191,000
Deferred service contract income 2,115,000 2,159,000
Dividends 243,000 243,000
Amount due to independent sales reps 955,000 615,000
Other 2,683,000 2,520,000
-----------------------------------
$ 8,102,000 $ 7,728,000
-----------------------------------
-----------------------------------
26
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES
Earnings before income taxes and the provision for income taxes are comprised of
the following for the years ended May 31:
1996 1995 1994
----------------------------------------
EARNINGS BEFORE INCOME TAXES:
Domestic $ 3,785,000 $ 1,479,000 $ 3,402,000
Foreign 1,102,000 678,000 394,000
----------------------------------------
$ 4,887,000 $ 2,157,000 $ 3,796,000
----------------------------------------
----------------------------------------
PROVISION (CREDIT) FOR INCOME TAXES:
Current:
Federal $ 942,000 $ (19,000) $ 947,000
State 229,000 37,000 84,000
Foreign 568,000 239,000 64,000
----------------------------------------
1,739,000 257,000 1,095,000
----------------------------------------
DEFERRED:
Federal 354,000 544,000 365,000
State 31,000 145,000 167,000
Foreign 2,000 (8,000) (7,000)
----------------------------------------
387,000 681,000 525,000
----------------------------------------
$ 2,126,000 $ 938,000 $ 1,620,000
----------------------------------------
----------------------------------------
THE FOLLOWING IS A RECONCILIATION OF THE EFFECTIVE INCOME TAX RATES, FOR
FINANCIAL STATEMENT PURPOSES:
PERCENTAGE OF PRE-TAX EARNINGS
--------------------------------
1996 1995 1994
--------------------------------
United States statutory rate 35.0 34.0 34.0
State income taxes, net of
federal income tax benefit 3.5 5.6 6.6
Non-deductible goodwill 3.6 8.1 3.7
Foreign tax credit (3.3)
Other 1.4 (0.9) (1.6)
--------------------------------
Effective tax rate 43.5 43.5 42.7
--------------------------------
--------------------------------
27
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating losses
and tax credit carryforwards. The tax effects of significant items comprising
the company's net deferred tax liabilities are as follows:
MAY 31
---------------------------------
1996 1995
---------------------------------
DEFERRED TAX ASSETS
Postretirement benefit obligation $ 502,000 $ 515,000
Reserves not currently deductible 1,047,000 773,000
Vacation accrual 382,000 384,000
Allowance for doubtful accounts 205,000 233,000
Operating loss carryforwards 120,000 209,000
Other 219,000 267,000
---------------------------------
2,475,000 2,381,000
---------------------------------
DEFERRED TAX LIABILTIES
Differences between book and
tax basis of property (1,737,000) (1,462,000)
Pension contribution (1,439,000) (1,244,000)
Other (150,000) (139,000)
---------------------------------
(3,326,000) (2,845,000)
----------------------------------
Net deferred tax liabilities $ (851,000) $ (464,000)
----------------------------------
----------------------------------
MAY 31
----------------------------------
1996 1995
----------------------------------
NET DEFERRED TAX ASSETS (LIABILITIES) WERE
COMPRISED OF THE FOLLOWING
Current assets $ 301,000 $ 330,000
Non-current liabilties (1,152,000) (794,000)
----------------------------------
Net deferred tax liabilities $ (851,000) $ (464,000)
----------------------------------
----------------------------------
The company has not provided for income taxes on undistributed earnings of
certain foreign subsidiaries which the company intends to reinvest indefinitely.
Cash payments for income taxes were: $700,000, $780,000 and $1,000,000 in 1996,
1995 and 1994, respectively.
28
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. EMPLOYEE BENEFIT PLANS
The company maintains a defined benefit pension plan for substantially all
domestic employees. Plan benefits are based on compensation and length of
service and provide for normal retirement at age 65. The company's policy is to
make annual contributions to the pension plan between the ERISA minimum and the
maximum tax deductible amount allowed.
The plan's assets are invested in short-term money market instruments, fixed
income securities and common stock.
Net pension cost was $782,000, $603,000 and $400,000 for fiscal years 1996, 1995
and 1994, respectively, and included the following components.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
Cost of benefits earned $ 641,000 $ 581,000 $ 546,000
Interest cost on projected benefit obligation 1,378,000 1,256,000 1,122,000
Actual return on plan assets (4,579,000) (1,042,000) 48,000
Amortization of initial unrecognized
net obligation 22,000 22,000 22,000
Unrecognized prior service cost 19,000 19,000 24,000
Deferred gain (loss) 3,301,000 (233,000) (1,362,000)
--------------------------------------------------
Net pension cost $ 782,000 $ 603,000 $ 400,000
--------------------------------------------------
--------------------------------------------------
</TABLE>
THE FOLLOWING TABLE SETS FORTH THE PLAN'S FUNDED STATUS:
<TABLE>
<CAPTION>
MAY 31
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Pension plan assets at market value $ 20,465,000 $ 14,621,000
--------------------------------
Less present value of projected benefit obligation:
Vested 15,635,000 13,886,000
Non-vested 850,000 718,000
Effect of projected future compensation levels 2,183,000 1,875,000
--------------------------------
Projected benefit obligation 18,668,000 16,479,000
--------------------------------
Excess (deficiency) of plan assets over projected
benefit obligation 1,797,000 (1,858,000)
Prior service cost 248,000 267,000
Unrecognized net obligation at date of initial
application, amortized over 20 years 245,000 267,000
Unrecognized net loss, 1,324,000 3,807,000
--------------------------------
Prepaid pension expense $ 3,614,000 $ 2,483,000
--------------------------------
--------------------------------
</TABLE>
The weighted average discount rate and long-term rate of compensation increase
used in determining the actuarial present value of the projected benefit
obligations were 8.25% and 5%, respectively, at year end 1996 and 8.5% and 5%,
respectively, at year end 1995. The expected long-term rate of return on plan
assets for fiscal 1997 is 9.5%, the same as fiscal 1996.
The company also provides a 401(k) Plan (tax deferred savings plan) for its
domestic employees. The plan provides that the company make contributions in
either cash or common stock, at its option, equal to 50% of minimum
contributions made by participating employees. The plan also provides for
additional company contributions up to a maximum of 75% of participating
employees' minimum contributions, for each fiscal year in which net earnings are
5% or more of revenues. Company contributions charged to earnings were
$419,000, $360,000 and $362,000 for fiscal 1996, 1995 and 1994, respectively.
29
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company has a plan that provides certain health care benefits for all of its
retired employees who meet certain age and service requirements while working
for the company. Generally, company-provided health care benefit coverage is
coordinated with Medicare upon the retiree reaching the age of 65.
Net postretirement benefit cost was $178,000, $180,000 and $148,000 for fiscal
years 1996, 1995 and 1994, respectively. The company's postretirement health
care plans are not funded.
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
<TABLE>
<CAPTION>
MAY 31
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Retirees $ 1,259,000 $ 1,321,000
Fully eligible active plan participants 142,000 112,000
Other active plan participants 218,000 244,000
--------------------------------
Total accumulated postretirement benefit obligation 1,619,000 1,677,000
Unrecognized prior service costs 87,000 97,000
Unrecognized net loss (439,000) (499,000)
--------------------------------
Accrued postretirement benefit cost $ 1,267,000 $ 1,275,000
--------------------------------
--------------------------------
</TABLE>
NET POSTRETIREMENT BENEFIT COSTS CONSISTED OF THE FOLLOWING COMPONENTS:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Service cost $ 33,000 $ 29,000 $ 25,000
----------------------------------------
Interest cost on accumulated postretirement
benefit obligation 132,000 139,000 123,000
Net amortization and deferrals 13,000 12,000
----------------------------------------
Net postretirement benefit costs $ 178,000 $ 180,000 $ 148,000
----------------------------------------
----------------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of June 1, 1995 was 11.0% decreasing
linearly each successive year until it reaches 5% in 2002, after which it will
remain constant. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of year end 1996 and net postretirement health care cost
for fiscal year 1996 by approximately 2%. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 8.25% for
fiscal 1996 and 8.5% for fiscal 1995.
30
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK OPTION PLAN
Options under the company's Stock Option Plan may be granted to officers and key
employees at prices not lower than the fair market value on the date of grant
for incentive stock options and not lower than 85% of the fair market value for
nonqualified options. Options generally become exercisable in four equal annual
installments commencing one year from the date of grant. Options expire, if not
exercised, within ten years from the date of grant.
In June, 1995 the company canceled stock options to purchase 776,500 shares of
the company's common stock at prices ranging from $6.38 to $13.50 and exchanged
them for options to purchase 576,500 shares of the Company's common stock at the
then current market value of $6.00 per share with new vesting periods. The
vesting for exchanged options is 50% on the first anniversary of the grant, and
25% on each of the second and third anniversaries.
THE FOLLOWING TABLE SUMMARIZES THE CHANGES IN OPTIONS FOR THE THREE YEARS ENDED
MAY 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 858,500 $ 6.38-$ 13.50 868,875 $ 7.38-$ 13.50 762,875 $ 10.00-$ 13.50
Granted 722,000 6.00- 7.62 30,000 6.38- 8.25 206,500 7.38- 11.00
Exercised (2,500) 7.38
Cancelled (894,250) 6.38- 13.50 (37,875) 7.38- 11.88 (100,500) 10.50- 13.12
--------- -------- ---------
Outstanding,
end of year 686,250 $ 6.00-$ 7.62 858,500 $ 6.38-$ 13.50 868,875 $ 7.38-$ 13.50
--------- -------- ---------
--------- -------- ---------
</TABLE>
At May 31, 1996, 3,750 outstanding options were exercisable and options for
335,781 shares were available for future grant.
During fiscal 1996, the company adopted the Tab Products Co. 1996 Outside
Directors Stock Option Plan. The Board of Directors, at their meeting on April
18, 1996, authorized 150,000 shares be reserved for grant for this proposed
plan, subject to stockholder approval at the Annual Stockholders' Meeting on
October 17, 1996. No options have been granted under this plan.
9. COMMITMENTS AND CONTINGENCIES
The company and its subsidiaries are obligated under leases of certain
office and warehouse facilities expiring at various dates through 2012. The
future minimum rental payments under these lease agreements at May 31, 1996 are
as follows.
1997 $ 1,804,000
1998 1,165,000
1999 659,000
2000 514,000
2001 233,000
Thereafter 315,000
------------
$ 4,690,000
------------
------------
Total rentals charged to expense amounted to $2,802,000 in 1996, $2,561,000 in
1995 and $2,672,000 in 1994.
31
<PAGE>
TAB PRODUCTS CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. MAJOR CUSTOMER
Revenues derived from the U.S. Government were 10%, 9% and 9% of total revenues
in fiscal 1996, 1995 and 1994, respectively.
11. FOREIGN SUBSIDIARIES
The company has three foreign subsidiaries which market their products in
Canada, Australia and Western Europe, while foreign sales in the remainder of
the world are conducted through a Foreign Sales Corporation.
Foreign revenues were $30,132,000, $29,383,000 and $21,707,000 for the years
ended May 31, 1996, 1995 and 1994, respectively. Foreign operating income was
$1,045,000, $940,000 and $236,000 for the years ended May 31, 1996, 1995 and
1994, respectively.
Total identifiable assets (excluding cash) and liabilities in foreign countries
were $8,835,000 and $2,620,000, respectively, at May 31, 1996 compared with
$9,039,000 and $2,647,000 at May 31, 1995.
Transaction and exchange gains (losses) included in earnings, amounted to
approximately $(225,000), $191,000 and $(32,000) in fiscal 1996, 1995 and 1994,
respectively.
12. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA
-----------------------------------------------------------------------
Fiscal Quarter GROSS NET EARNINGS (LOSS)
Ended REVENUES PROFIT(1) EARNINGS (LOSS) PER SHARE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
AUGUST 31 $ 37,414 $ 14,591 $ 593 $ .12
NOVEMBER 30 38,862 15,370 826 .17
FEBRUARY 29 37,674 14,678 723 .15
MAY 31 38,748 15,034 619 .13
-----------------------------------------------------------------------
$ 152,698 $ 59,673 $ 2,761 $ .57
-----------------------------------------------------------------------
-----------------------------------------------------------------------
1995
AUGUST 31 $ 36,614 $ 14,328 $ 485 $ .10
NOVEMBER 30 38,351 14,987 721 .15
FEBRUARY 28 38,023 14,766 544 .11
MAY 31 36,963 13,367 (531)(2) (.11)
-----------------------------------------------------------------------
$ 149,951 $ 57,448 $ 1,219 $ .25
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
(1) Revenues less cost of revenues.
(2) The fiscal 1995 fourth quarter net earnings were impacted primarily by
sales mix and increased product cost during the quarter. The company
increased list prices on major product lines during the fourth quarter to
offset the effects of the increased product costs. The timing of such
price increases had little effect on fourth quarter operating results.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Tab Products Co.:
We have audited the consolidated financial statements of TAB Products Co. and
its subsidiaries as of May 31, 1996 and 1995, and for each of the three years in
the period ended May 31, 1996, and have issued our report thereon dated June 27,
1996; such financial statements and report are included in your fiscal 1996
Annual Report to Stockholders. Our audits also included the consolidated
financial statement schedule of Tab Products Co., listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
June 27, 1996
33
<PAGE>
TAB PRODUCTS CO.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Uncollectible
Balance at Charged to Accounts Balance at
Beginning Costs and Charged to End
Allowance for Doubtful Accounts Receivable of Period Expenses Reserve of Period
- ------------------------------------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Year ended May 31, 1996 $ 708,000 $ 187,000 $ 275,000 $ 620,000
Year ended May 31, 1995 $ 711,000 $ 221,000 $ 224,000 $ 708,000
Year ended May 31, 1994 $ 606,000 $ 218,000 $ 113,000 $ 711,000
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK OF AMERICA BUSINESS LOAN AGREEMENT
NATIONAL TRUST AND SAVINGS ASSOCIATION
- --------------------------------------------------------------------------------
This Agreement dated as of August 26, 1996, is between Bank of America National
Trust and Savings Association (the "Bank") and Tab Products Co. (the
"Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 1 Commitment") is Ten Million Dollars ($10,000,000).
(b) This is a revolving line of credit with a within line facility for letters
of credit. During the availability period, the Borrower may repay
principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit plus the outstanding amounts of any letters of credit,
including amounts drawn on letters of credit and not yet reimbursed, to
exceed the Facility 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and November 1, 1998 (the "Facility No. 1 Expiration Date")
unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 1, 1996, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Facility No. 1 Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Facility No. 1 Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the last day of each
interest period, and on the first day each month during the interest period. At
the end of any interest period, the interest rate will revert to the rate based
on the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
-1-
<PAGE>
1.6 FIXED RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Fixed Rate, subject
to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the Borrower
agree will apply to the portion during the applicable interest period.
(b) The interest period during which the Fixed Rate will be in effect will be
no shorter than 30 days and no longer than 180 days.
(c) Each Fixed Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any portion of the
principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already bearing
interest at the Fixed Rate will not be converted to a different rate during
its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the certificate of
deposit market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such portion.
1.7 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate,
subject to the following requirements:
(a) The "Offshore Rate" means the interest rate the Bank and the Borrower agree
will apply to the portion during the applicable interest period.
(b) The interest period during which the Offshore Rate will be in effect will
be no shorter than 30 days and no longer than 180 days. The last day of
the interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
(c) Each Offshore Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already bearing
interest at the Offshore Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such
portion.
-2-
<PAGE>
(g) The Bank will have no obligation to accept an election for an Offshore Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of an Offshore Rate portion are not
available in the offshore dollar inter-bank markets; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
1.8 LETTERS OF CREDIT. This line of credit may be used for financing:
(i) standby letters of credit with a maximum maturity of 365 days but
not to extend beyond the Facility No. 1 Expiration Date.
(ii) The amount of letters of credit outstanding at any one time,
(including amounts drawn on letters of credit and not yet
reimbursed), may not exceed Two Million Dollars ($2,000,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement. The amount
will bear interest and be due as described elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay and make
the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit for the
Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
1.9 FOREIGN EXCHANGE FACILITY.
(a) During the availability period, the Bank at its discretion may enter into
spot and forward foreign exchange contracts with the Borrower. The foreign
exchange contract limit will be Four Million U.S. Dollars (U.S.
$4,000,000), and the settlement limit will be One Million U.S. Dollars
(U.S. $1,000,000). The "foreign exchange contract limit" is the maximum
limit on the net difference between the total foreign exchange contracts
outstanding less the total foreign exchange contracts for which the
Borrower has already compensated the Bank. The "settlement limit" is the
maximum limit on the gross total amount of all sale and purchase contracts
on which delivery is to be effected and settlement allowed on any one
banking day.
(b) The Bank shall not be required to pay the Borrower or deliver any foreign
currency to the Borrower under any foreign exchange contract until the Bank
receives evidence satisfactory to it that the Borrower has paid the Bank
the required U.S. Dollars in immediately available funds or delivered the
required foreign currency to the Bank under such foreign exchange contract.
The Bank shall not be liable for interest or other damages caused by any
such failure to pay or deliver or any such delay in payment or delivery.
(c) The Borrower will pay the Bank on demand the Bank's then standard foreign
exchange contract fees for each contract.
-3-
<PAGE>
(d) Foreign exchange contracts will be in form and substance satisfactory to
the Bank.
(e) No foreign exchange contracts will mature later than one hundred eighty
(180) days after the Facility No. 1 Expiration Date.
(f) The Borrower understands the risks of, and is financially able to bear any
losses resulting from, entering into foreign exchange contracts. The Bank
shall not be liable for any loss suffered by the Borrower as a result of
the Borrower's foreign exchange trading. The Borrower will enter into each
foreign exchange contract in reliance only upon the Borrower's own
judgment. The Borrower acknowledges that in entering into foreign exchange
contracts with the Borrower, the Bank is not acting as a fiduciary. The
Borrower understands that neither the Bank nor the Borrower has any
obligation to enter into any particular foreign exchange contract with the
other.
(g) The Borrower hereby requests the Bank to rely upon and execute the
Borrower's telephonic instructions regarding foreign exchange contracts,
and the Borrower agrees that the Bank shall incur no liability for its acts
or omissions which result from interruption of communications,
misunderstood communications or instructions from unauthorized persons,
unless caused by the willful misconduct of the Bank or its officers or
employees. The Borrower agrees to protect the Bank and hold it harmless
from any and all loss, damage, claim, expense (including the reasonable
fees of outside counsel and the allocated costs of staff counsel) or
inconvenience, however arising, which the Bank suffers or incurs or might
suffer or incur, based on or arising out of said acts or omissions.
(h) The Borrower agrees to promptly review all confirmations sent to the
Borrower by the Bank. The Borrower understands that these confirmations
are not legal contracts but only evidence of the valid and binding oral
contract which the Borrower has already entered into with the Bank. The
Borrower agrees to promptly execute and return to the Bank confirmations
which accurately reflect the terms of a foreign exchange contract, and
immediately contact the Bank if the Borrower believes a confirmation is not
accurate. In the event of a conflict, inconsistency or ambiguity between
the provisions of this Agreement and the provisions of a confirmation, the
provisions of this Agreement will prevail.
(i) The Borrower agrees that the Bank may electronically record all telephonic
conversations with the Borrower relating to foreign exchange contracts and
that such tape recordings may be submitted in evidence to any court or in
any other proceedings relating to such contracts. The Borrower agrees that
in the event of a conflict, inconsistency or ambiguity between the terms of
a foreign exchange contract as reflected in a tape recording and the terms
stated on a confirmation, the terms reflected in the tape recording shall
control.
(j) Any sum owed to the Bank under a foreign exchange contract may, at the
option of the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described elsewhere
in this Agreement. The Borrower hereby authorized the Bank to debit the
Borrower's account with the Bank for payments due from the Borrower to the
Bank with respect to any foreign exchange contract.
(k) In addition to any other rights or remedies which the Bank may have under
this Agreement or otherwise, upon the occurrence of an event of default
under this Agreement, the Bank may:
(i) Suspend performance of its obligations to the Borrower under any
foreign exchange contract;
(ii) Declare all foreign exchange contracts, interest and any other
amounts which are payable by the Borrower to the Bank immediately
due and payable; and
(iii) Without notice to the Borrower, close out any or all foreign
exchange contracts or positions of the Borrower with the Bank.
-4-
<PAGE>
The Bank shall not be under any obligation to exercise any such rights or
remedies or to exercise them at a time or in a manner beneficial to the
Borrower. The Borrower shall be liable for any amounts owing to the Bank
after exercise of any such rights and remedies.
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS
2.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the Borrower
a term loan in the original principal amount of Two Million Five Hundred
Thousand Dollars ($2,500,000). This term loan is currently subject to the terms
and conditions of Facility No. 2 of the Business Loan Agreement dated December
7, 1995. As of the date of this Agreement, the term loan shall be deemed to be
outstanding as Facility No. 2 under this Agreement, and shall be subject to all
the terms and conditions stated in this Agreement.
2.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate plus 0.50
percentage point.
2.3 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on August 1, 1996,
and then monthly thereafter and upon payment on full of the principal of
the loan.
(b) The Borrower will repay principal in 73 successive monthly installments of
Twenty-Six Thousand Forty-One and 67/100 Dollars ($26,041.67) starting
August 1, 1996. On August 1, 2002, the Borrower will repay the remaining
principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under Paragraph 2.3(b).
2.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the loan bear
interest at the rate(s) described below during an interest period agreed to by
the Bank and the Borrower. Each interest rate is a rate per year. Interest
will be paid on the last day of each interest period, and on the first day each
month during the interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the portion.
2.5 FIXED RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Fixed Rate, subject to the
same requirements set forth in subparagraphs (a) through (f) of Paragraph 1.6
(except for purposes of this Facility No. 2, the term "loan" is substituted for
the term "line of credit" in subparagraphs (d) and (e) of Paragraph 1.6).
2.6 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Long Term Rate, subject to
the following requirements:
(a) The interest period during which the Long Term Rate will be in effect will
be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(d) Any portion of the principal balance of the loan already bearing interest
at the Long Term Rate will not be converted to a different rate during its
interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The
-5-
<PAGE>
notice must be received by the Bank at least 5 banking days in advance of
the prepayment. All prepayments of principal on the Long Term Rate portion
will be applied on the most remote principal installment or installments
then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all accrued
interest on the amount of the prepayment and the prepayment fee described
below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it
remained outstanding until the applicable Original Payment Date,
using the Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would
accrue for that Prepaid Installment if it were reinvested from
the date of prepayment through the Original Payment Date, using
the following rate:
(A) If the Original Payment Date is more than 5 years after the
date of prepayment: the Treasury Rate plus one-quarter of
one percentage point;
(B) If the Original Payment Date is 5 years or less after the
date of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date
of prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the prepayment fee for that
Prepaid Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by the
Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid Installment
in the Money Market from the date of prepayment through the Original
Payment Date.
"Original Payment Dates" means the dates on which principal of the Long
Term Rate portion would have been paid if there had been no prepayment.
If a portion of the principal would have been paid later than the end of
the interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the Long
Term Rate portion which would have been paid on a single Original Payment
Date.
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect the
compounding, accrual basis, or other costs of the Long Term Rate portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be based on
information from either the Telerate or Reuters information services, THE
WALL STREET JOURNAL, or other information sources the Bank deems
appropriate.
2.7 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Offshore Rate, subject to the
same requirements set forth in subparagraphs (a) through (g) of
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Paragraph 1.7 (except for purposes of this Facility No. 2, the term "loan" is
substituted for the term "line of credit" in subparagraphs (d) and (e) of
Paragraph 1.7).
3. FEES AND EXPENSES
3.1 PERIODIC FEE. The Borrower agrees to pay a Thirty-Seven Thousand Five
Hundred Dollar ($37,500) fee due on November 1, 1996 and a Thirty-Seven Thousand
Five Hundred Dollar ($37,500) fee due on November 1, 1997.
3.2 EXPENSES. The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
4.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
4.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or for
the designation of optional interest rates given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower,
or any other individual designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14934-03755, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this Agreement.
4.4 DIRECT DEBIT.
(a) The Borrower agrees that interest and principal payments and any fees will
be deducted automatically on the due date from checking account number
14934-03755.
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
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4.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California and dealing in offshore dollars. All
payments and disbursements which would be due on a day which is not a banking
day will be due on the next banking day. All payments received on a day which
is not a banking day will be applied to the credit on the next banking day.
4.6 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
4.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
4.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate for Facility No. 1 and
at the Bank's Reference Rate plus 0.50 percentage point for Facility No. 2.
This may result in compounding of interest.
4.9 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.0 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
5. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
5.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
5.2 OTHER ITEMS. Any other items that the Bank reasonably requires.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
6.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
6.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
6.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
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6.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
6.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
6.6 FINANCIAL INFORMATION. All financial and other information that has been
or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
6.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
6.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
6.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
6.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
6.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
6.12 ERISA PLANS.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 to ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
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(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
6.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
7.1 USE OF PROCEEDS (FACILITY NO. 1). To use the proceeds of Facility No.
1 only for working capital.
7.2 FINANCIAL INFORMATION. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be
audited (with an unqualified opinion) by a Certified Public Accountant
("CPA") acceptable to the Bank. The statements shall be prepared on a
consolidated basis and must include a supplemental consolidating
schedule detailing the assets, liabilities, income and expenses of
each subsidiary, domestic or foreign, of the Borrower.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated and consolidating
basis.
(c) Within the periods provided in (a) and (b) above, a compliance
certificate of the Borrower signed by an authorized officer of the
Borrower setting forth the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all
financial covenants at the end of the period covered by the financial
statements then being furnished.
(d) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q Quarterly
Report and Form 8-K Current Report within 15 days after the date of
filing with the Securities and Exchange Commission.
7.3 QUICK ASSETS. To maintain on a consolidated basis as of the end of
each quarterly accounting period quick assets in excess of current liabilities
by at least Ten Million Dollars ($10,000,000).
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities not classified as long-term investments. "Current
liabilities" includes all debt outstanding to the Bank except the long-term
portion of debt under Facility No. 2 of this Agreement.
7.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis as of the end of each quarterly accounting period a ratio of
total liabilities to tangible net worth not exceeding 1.35:1.0.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
"Total liabilities" means the sum of current liabilities plus long term
liabilities including deferred taxes.
7.5 FIXED CHARGE COVERAGE RATIO. To maintain on a consolidated basis a
fixed charge coverage ratio of at least 1.15:1.0.
"Fixed charge coverage ratio" means the ratio of cash flow to fixed charges.
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"Fixed charges" means the sum of (i) the principal payments on debt (including,
without limitation, prepayments and regularly scheduled payments of the Senior
Notes and the Senior Guaranteed Notes (both as defined below) and regularly
scheduled payments (but not prepayments) of debt to the Bank), (ii) interest
expense, and (iii) capital lease expense.
"Cash flow" means (a) the sum of (i) net income after taxes, (ii) depreciation,
(iii) amortization, (iv) interest expense, and (v) net proceeds received by the
Borrower resulting from its issuance of any equity securities after the date of
this Agreement (including, without limitation, proceeds resulting from the
exercise of their options by the holders of options to purchase the Borrower's
shares), LESS (b) the sum of (i) any amounts paid by the Borrower to purchase,
redeem or otherwise acquire any of its shares and (ii) dividends paid by the
Borrower.
"Senior Notes" means the Borrower's 8.73% senior promissory note(s) in the
original principal amount of Fifteen Million Dollars ($15,000,000) due March 20,
2001, authorized by and subject to the terms and conditions of that certain Note
Agreement executed as of March 20, 1992, by the Borrower in favor of The
Prudential Insurance Company of America ("Prudential"), as now in effect and as
hereafter amended or restated (the "Note Agreement").
"Senior Guaranteed Notes" means the Borrower's 6.90% senior promissory note(s)
in the original principal amount of Five Million Dollars ($5,000,000) due
September 20, 2002, authorized by and subject to the terms and conditions of
that certain Note Agreement executed as of October 7, 1993, by the Borrower in
favor of Prudential, as now in effect and as hereafter amended or restated (the
"Guaranteed Note Agreement").
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters.
7.6 LIMITATION ON LOSSES. Not incur on a consolidated basis a net loss
before taxes and extraordinary items in any two (2) consecutive quarterly
accounting periods after the quarterly accounting period ending May 31 of 1996.
7.7 PROFITABILITY. To maintain on a consolidated basis a positive net
income before taxes and extraordinary items and a positive net income after
taxes and extraordinary items (i) as of the end of each quarterly accounting
period on a fiscal year-to-date basis and (ii) for each annual accounting
period.
7.8 OTHER DEBTS. Not to have outstanding or incur any direct or
contingent debts (other than those to the Bank), or become liable for the debts
of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts in existence on the date of this Agreement disclosed in writing
to the Bank in the Borrower's financial statement dated May 31, 1996.
(e) Additional debts for business purposes which do not exceed a total
principal amount of Five Hundred Thousand Dollars ($500,000)
outstanding at any one time.
(f) Contingent debts of the Borrower under its guaranty in the amount of
Two Hundred Thousand U.S. Dollars (U.S. $200,000) in favor of the
Australian and New Zealand Banking Company guarantying debt of Tab
Products PTY Ltd.
7.9 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
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(c) Liens outstanding on the date of this Agreement disclosed in writing
to the Bank.
(d) Additional purchase money security interests in personal property
acquired after the date of this Agreement if the total principal
amount of debts secured by such liens does not exceed Five Hundred
Thousand Dollars ($500,000) at any one time.
7.10 CAPITAL EXPENDITURES. Not to spend (including the total amount of any
capital leases) more than Three Million Five Hundred Thousand Dollars
($3,500,000) in any single fiscal year to acquire fixed or capital assets.
7.11 LOANS TO OFFICERS. Not to make any loans, advances or other
extensions of credit to any of the Borrower's executives, officers, or directors
or shareholders (or any relatives of any of the foregoing), except in the
aggregate amount not to exceed One Million Dollars ($1,000,000).
7.12 LOANS TO SUBSIDIARIES. Not to make any loans or advances to any of
the Borrower's subsidiaries, except loans or advances in existence on the date
of this Agreement disclosed in writing to the Bank in the Borrower's financial
statement dated May 31, 1996.
7.13 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw
any additional advances on its revolving line of credit, for a period of at
least 30 consecutive days in each line-year. "Line-year" means the period
between November 1, 1996 and November 1, 1997, and each subsequent one-year
period (if any).
7.14 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the Borrower
(or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and
any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
7.15 BOOKS AND RECORDS. To maintain adequate books and records.
7.16 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
7.17 COMPLIANCE WITH LAWS. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
7.18 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
7.19 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
7.20 COOPERATION. To take any action requested by the Bank to carry out
the intent of this Agreement.
7.21 INSURANCE. To maintain insurance as is usual for the business it is
in.
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7.22 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate,
or other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(g) voluntarily suspend its business for more than 5 days in any 30 day
period.
7.23 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 or
ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
8. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property or
operation or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
9. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. With respect to Paragraphs 9.1, 9.4, 9.5,
9.6, 9.9 and 9.11, the Bank agrees that it will not have the right to exercise
its rights under the immediately preceding sentence unless the Borrower has
failed to cure such event of default in a manner acceptable to the Bank within 5
days of its occurrence (for Paragraphs 9.1, 9.4 and 9.5) or within 5 banking
days of the Borrower's receipt of notice of such event of default (for
Paragraphs 9.6, 9.9 and 9.11). If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
9.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.
9.2 FALSE INFORMATION. The Borrower has given the Bank false or
misleading information or representations.
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9.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any
guarantor), or the Borrower (or any guarantor) makes a general assignment for
the benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against the Borrower (or any guarantor) is dismissed within a
period of 30 days after the filing; provided, however, that the Bank will not be
obligated to extend any additional credit to the Borrower during that period.
9.4 RECEIVERS. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
9.5 JUDGMENTS. Any judgments or arbitration awards are entered against
the Borrower (or any guarantor), or the Borrower (or any guarantor) enters into
any settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess of any
insurance coverage.
9.6 GOVERNMENT ACTION. Any government authority takes action that the
Bank believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
9.7 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the loan, including, without limitation, any material adverse
change evidenced by the comparison of the Borrower's CPA-audited annual
financial statements dated as of May 31, 1996, to the Borrower's draft financial
statements for such period as previously submitted to the Bank.
9.8 CROSS-DEFAULT. Any default occurs and has not been cured or waived in
a manner acceptable to the Bank under any agreement in connection with any
credit the Borrower (or any guarantor) has obtained from anyone else or which
the Borrower (or any guarantor) has guaranteed.
9.9 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet
the condition of, or fails to perform any obligation under any other agreement
the Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
9.10 ERISA PLANS. The occurrence of any one or more of the following
events with respect to the Borrower, provided such event or events could
reasonable be expected, in the judgment of the Bank, to subject the Borrower to
any tax, penalty or liability (or any combination of the foregoing) which, in
the aggregate, could have a material adverse effect on the financial condition
of the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of
such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the Borrower's full or partial withdrawal from a Plan.
9.11 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article.
9.12 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document required by this
Agreement is violated or no longer in effect.
9.13 DEBTS OF SUBSIDIARIES. Any subsidiary of the Borrower has outstanding
or incurs any direst or contingent debts (other than those to the Bank), or
becomes liable for the debts of others without the Bank's written consent. This
does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
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(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank in the Borrower's consolidated
financial statement dated May 31, 1996.
(e) Contingent debts of Tab Canada under a guaranty in the maximum amount
of Five Million Dollars ($5,000,000) in favor of Prudential.
(f) Debts of Tab Products PTY Ltd. owed to the Australian and New Zealand
Banking Company in the maximum amount of Two Hundred Thousand U.S.
Dollars (U.S. $200,000).
9.14 PRUDENTIAL DOCUMENTS. The Borrower fails to promptly provide the Bank
with copies of any extensions, amendments, revisions renewals, or restatements
of the Senior Notes, Senior Guaranteed Notes, Note Agreement or Guaranteed Note
Agreement, within 30 days from the date of any such extensions, amendments,
revisions, renewals, or restatements.
9.15 FINANCIAL COVENANTS. Any financial covenant under any loan or other
agreement executed by the Borrower evidencing indebtedness permitted in
Paragraph 7.8 is more restrictive than any financial covenant under this
Agreement.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
10.2 CALIFORNIA LAW. This Agreement is governed by California law.
10.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that is may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
10.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modification of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute
of limitations. The arbitrators will
-15-
<PAGE>
have the authority to decide whether any such claim or controversy is
barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank
must consent to submission of the claim or controversy to arbitration.
If both parties do not consent to arbitration, the controversy or
claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a
panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored
proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be
an active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment int he court that
appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to the
Bank which is secured by real property located in California at the
time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both the
Borrower and the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
10.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
10.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank of all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
-16-
<PAGE>
10.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of in-
house counsel.
10.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
10.9 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing.
10.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
10.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business
Loan Agreement entered into as of December 7, 1995, between the Bank and the
Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.
-17-
<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
[Logo]
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION TAB PRODUCTS CO.
X /s/ Chris P. Giannotti X /s/ John M. Palmer
--------------------------------- -------------------------------
By: Chris P. Giannotti By: John M. Palmer
Title: Vice President Title: Chief Financial Officer
X /s/ Robert J. Sexton
-------------------------------
By: Robert J. Sexton
Title: Treasurer and Secretary
Address where notices to the Bank Address where notices to the
are to be sent: Borrower are to be sent:
Palo Alto Commercial Banking Office #1493
530 Lytton Avenue 1400 Page Mill Road
Palo Alto, CA 94301 Palo Alto, CA 94304
<PAGE>
[LETTERHEAD]
August 20, 1996
Tab Products Co.
Tab Canada Limited
1400 Page Mill Road
Palo Alto, California 94304
Ladies and Gentlemen:
Reference is made to the Note agreement between Tab Products Co. (the
"Company") and The Prudential Insurance Company of America ("Prudential") dated
as of (i) March 20, 1992 (the "1992 Agreement"), pursuant to which the Company
issued and sold and Prudential purchased the Company's 8.73% Senior Notes due
March 20, 2001 in the principal amount of $15,000,000 and (ii) October 7, 1993
(the "1993 Agreement"), pursuant to which the Company issued and sold and
Prudential purchased the Company's 6.90% Senior Guaranteed Notes due September
20, 2002. The 1992 Agreement and the 1993 Agreement are together referred to as
the "Agreements," and each as an "Agreement." Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the applicable
Agreement.
Pursuant to the request of the Company and the provisions of paragraph 11C
of each Agreement, Prudential and the Company agree with respect to each
Agreement as follows:
1. Paragraph 6A is deleted from each Agreement.
2. Paragraph 6L of each Agreement is hereby amended and restated in its
entirety to read as follows:
"6L. FIXED CHARGE COVERAGE. Permit its Fixed Charge Coverage
Ratio, calculated at the end of each fiscal quarter for the period of
four consecutive fiscal quarters then ended, to be less than 1.15 to
1.00."
<PAGE>
Tab Products Co.
Tab Canada Limited
August 20, 1996
Page 2
3. Amend and restate in its entirety the defined term "Fixed Charge
Coverage Ratio" appearing in paragraph 10B of each Agreement as
follows:
"FIXED CHARGE COVERAGE RATIO" shall mean, with respect to the
applicable measurement period, the ratio of (i) the sum of (A)
Consolidated Net Earnings, PLUS (B) depreciation and amortization
expense, PLUS (C) the items specified in clauses (ii) and (iii) in the
definition of "Fixed Charges," PLUS (D) net cash proceeds received by
the Company after the date of this Agreement from the issuance of any
equity securities, including from exercise of options to purchase or
otherwise acquire shares of the Company's common stock, LESS (E) all
Restricted Payments to (ii) Fixed Charges, in each case as paid or
accrued during such period."
If you agree with the foregoing, please sign below and have Tab Canada
Limited sign below, and return a copy of this letter to the undersigned,
whereupon this letter shall become a binding agreement between the Company and
Prudential amending the 1992 Agreement and the 1993 Agreement in the manner and
to the extent herein provided. Except as otherwise set forth herein and in
prior written amendments, the 1992 Agreement and the 1993 Agreement shall each
continue unmodified and in full force and effect.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By /s/ Jeffrey L. Dickson
------------------------
Vice President
<PAGE>
Tab Products Co.
Tab Canada Limited
August 20, 1996
Page 3
ACCEPTED AND AGREED
TAB PRODUCTS CO.
By /s/ Robert J. Sexton
------------------------------
Name: Robert J. Sexton
Title: Treasurer & Secretary
The undersigned, as a guarantor of the 6.90% Notes pursuant to its Guaranty
thereof dated October 7, 1993, expressly agrees with and consents to the
amendments set forth in this letter and confirms that its Guaranty remains in
full force and effect as originally executed and is expressly reaffirmed hereby.
TAB CANADA LIMITED
By /s/ John W. Peth
------------------------------
Its SECRETARY
-----------------------------
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-11914, 33-11838 and 33-45071 of Tab Products Co. on Form S-8 of our
reports dated June 27, 1996, appearing in the Annual Report on Form 10-K of
Tab Products Co. for the fiscal year ended May 31, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
August 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 9,331
<SECURITIES> 2,322
<RECEIVABLES> 24,518
<ALLOWANCES> 620
<INVENTORY> 11,313<F1>
<CURRENT-ASSETS> 48,715
<PP&E> 54,050
<DEPRECIATION> 33,250
<TOTAL-ASSETS> 79,127
<CURRENT-LIABILITIES> 21,291
<BONDS> 14,141
0
0
<COMMON> 41,102
<OTHER-SE> 360
<TOTAL-LIABILITY-AND-EQUITY> 79,127
<SALES> 143,373
<TOTAL-REVENUES> 152,698
<CGS> 84,010
<TOTAL-COSTS> 93,025
<OTHER-EXPENSES> 53,228
<LOSS-PROVISION> 188
<INTEREST-EXPENSE> 1,558
<INCOME-PRETAX> 4,887
<INCOME-TAX> 2,126
<INCOME-CONTINUING> 2,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,761
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<FN>
<F1>INVENTORY DETAIL AT MAY 31, 1996 WAS FINISHED GOODS $7,421, WORK IN PROCESS
$516 AND RAW MATERIAL $3,376.
</FN>
</TABLE>
