<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarter period ended
November 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
_______ to ________
COMMISSION FILE NUMBER: 1-7736
TAB PRODUCTS CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1190862
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1400 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(650) 852-2400
(REGISTRANT'S TELEPHONE NUMBER - INCLUDING AREA CODE)
NOT APPLICABLE
FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE
LAST REPORT.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding as
of November 30, 1999 - 5,214,589.
This report, including all exhibits and attachments, contains 47 pages.
<PAGE>
TAB PRODUCTS CO.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
ITEM 1 FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets
November 30, 1999 and May 31, 1999 3
Consolidated Condensed Statements of Earnings
Three months and Six months ended November 30,
1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
Six months ended November 30, 1999 and 1998 5
Supplemental Financial Data - Notes 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About
Market Risks 17
PART II. OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders 19
ITEM 6 Exhibits 19
Signatures 20
</TABLE>
2
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(000'S OMITTED EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1999 1999
---------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,587 $ 6,972
Short-term investments 4,262 2,941
Accounts receivable, less allowances of
$1,024 and $936 for doubtful accounts 27,507 26,397
Inventories 7,500 8,834
Prepaid income taxes and other expenses 10,383 6,210
---------------- ---------------
TOTAL CURRENT ASSETS 52,239 51,354
---------------- ---------------
Property, plant and equipment, net of accumulated
depreciation of $36,891 and $43,339 16,870 19,642
Goodwill, net 2,996 3,131
Other assets 3,086 1,201
---------------- ---------------
TOTAL ASSETS $ 75,191 $ 75,328
---------------- ---------------
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,438 $ 3,437
Accounts payable 8,959 7,648
Compensation payable 2,147 2,086
Other accrued liabilities 5,818 11,221
---------------- ---------------
TOTAL CURRENT LIABILITIES 20,362 24,392
---------------- ---------------
Long-term debt 3,195 3,953
---------------- ---------------
Deferred taxes and other non-current liabilities 3,581 3,855
---------------- ---------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK: $.01 par value, authorized
500,000 shares, issued-none - -
COMMON STOCK: $.01 par value, authorized
25,000,000 shares, issued-November 1999-
7,611,116 shares and May 1999-7,606,116 shares 76 76
Additional paid-in capital 15,285 15,255
Deferred compensation (1,424) -
Retained earnings 68,559 63,031
TREASURY STOCK: November 1999-2,396,527 shares
and May 1999-2,578,427 shares (31,114) (32,320)
Accumulated other comprehensive loss (3,329) (2,914)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 48,053 43,128
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 75,191 $ 75,328
---------------- ---------------
---------------- ---------------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(000'S OMITTED EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------------------- -----------------------------------
1999 1998 1999 1998
------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 31,201 $ 38,631 $ 63,195 $ 76,075
------------------- ------------------ ---------------- -----------------
COSTS AND EXPENSES:
Cost of revenues 18,561 24,221 37,805 48,098
Selling, general and administrative 14,591 13,927 28,248 27,091
Research and development 204 206 397 462
------------------- ------------------ ---------------- -----------------
TOTAL COSTS AND EXPENSES 33,356 38,354 66,450 75,651
------------------- ------------------ ---------------- -----------------
OPERATING INCOME (LOSS) (2,155) 277 (3,255) 424
Gain on sale of Field Service Group - - 13,794 -
Interest, net, and other 16 (133) (127) (271)
------------------- ------------------ ---------------- -----------------
Earnings (loss) before income taxes (2,139) 144 10,412 153
Provision (benefit) for income taxes (898) 65 4,373 69
------------------- ------------------ ---------------- -----------------
NET EARNINGS (LOSS) $ (1,241) $ 79 $ 6,039 $ 84
------------------- ------------------ ---------------- -----------------
------------------- ------------------ ---------------- -----------------
Basic net earnings (loss) per share $ (0.24) $ 0.02 $ 1.19 $ 0.02
------------------- ------------------ ---------------- -----------------
------------------- ------------------ ---------------- -----------------
Shares used in computing basic
net earnings (loss) per share 5,113,919 5,114,414 5,069,957 5,143,079
=================== ================== ================ =================
Diluted net earnings (loss) per share $ (0.24) $ 0.02 $ 1.19 $ 0.02
=================== ================== ================ =================
Shares used in computing diluted
net earnings (loss) per share 5,113,919 5,148,532 5,087,374 5,221,761
=================== ================== ================ =================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
TAB PRODUCTS CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
1999 1998
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 6,039 $ 84
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization 2,125 2,458
Gain on sale of Field Service Group (13,794) -
Changes in operating assets and liabilities:
Accounts receivable (1,052) (2,676)
Inventories (870) (1,049)
Prepaid income taxes and other expenses (1,720) (213)
Other assets 570 60
Accounts payable 1,091 2,901
Compensation payable (6) (1,842)
Other accrued liabilities (412) 93
----------------- -----------------
NET CASH REQUIRED BY OPERATING ACTIVITIES (8,029) (184)
----------------- -----------------
INVESTING ACTIVITIES:
Sale of Field Service Group 13,405
Purchase of property, plant and equipment, net (878) (3,239)
Purchases of short-term investments (3,811) (2,961)
Sales of short-term investments 2,490 4,398
----------------- -----------------
NET CASH PROVIDED (REQUIRED) BY INVESTING ACTIVITIES 11,206 (1,802)
----------------- -----------------
FINANCING ACTIVITIES:
Repayment of long-term debt (790) (781)
Cash restricted to collateralize loan (6,000) -
Proceeds from issuance of common stock - 25
Repurchase of Treasury Stock (218) (641)
Dividends paid (511) (513)
----------------- -----------------
NET CASH REQUIRED BY FINANCING ACTIVITIES (7,492) (1,910)
----------------- -----------------
Effect of exchange rate changes on cash (70) (68)
----------------- -----------------
Decrease in cash and cash equivalents (4,385) (3,964)
Cash and cash equivalents at beginning of period 6,972 7,199
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,587 $ 3,235
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
TAB PRODUCTS CO.
SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)
1. BASIS OF PRESENTATION
The Company's unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
and, in the opinion of management, reflect all adjustments (consisting only
of normal recurring adjustments) considered necessary to fairly state the
Company's financial position, results of operations, and cash flows for the
periods presented. These consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
included in the Company's Annual Report Form 10-K for the fiscal year ended
May 31, 1999. No diluted loss per share information for the three months
ended November 30, 1999 has been presented in the accompanying consolidated
condensed statements of earnings since potential common shares from
conversion of stock options are antidilutive. The results of operations for
the six-month period ended November 30, 1999 are not necessarily indicative
of the results to be expected for any subsequent quarter or for the entire
fiscal year ending May 31, 2000. The May 31, 1999 balance sheet was derived
from audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Certain amounts have been reclassified to conform to the current year
presentation.
2. INVENTORY
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, 1999 MAY 31, 1999
------------------------ -----------------------
<S> <C> <C>
Finished goods $ 2,465 $ 2,415
Work in process 242 2,538
Raw materials 4,793 3,881
------------------------ -----------------------
$ 7,500 $ 8,834
------------------------ -----------------------
------------------------ -----------------------
</TABLE>
3. DIVIDENDS
Dividends declared for the six month periods ended November 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
RECORD DATE SHARES OUTSTANDING DIVIDEND PER SHARE
----------- ------------------ ------------------
<S> <C> <C>
Fiscal 2000:
August 25, 1999 5,024,589 $ .05
November 24, 1999 5,214,589 $ .05
Fiscal 1999:
August 25, 1998 5,171,514 $ .05
November 25, 1998 5,084,889 $ .05
</TABLE>
6
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
4. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or chief decision making group, in
deciding how to allocate resources and in assessing performance. The
President and Chief Executive Officer is the Company's chief decision maker.
The Company operates and is managed internally by four geographic operating
segments. The operating segments include United States, Canada, the
Netherlands and Australia. Outside the United States, each operating segment
has a general manager that reports to the Chief Executive Officer. Within the
United States, the Vice Presidents of Operations, Marketing and Sales report
directly to the Chief Executive Officer.
Information about segments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------------------- -------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
United States $ 24,736 $ 30,933 $ 50,496 $ 61,826
Canada 4,288 4,513 8,432 8,520
Netherlands 1,258 2,169 2,235 3,763
Australia 919 1,016 2,032 1,966
---------------- ---------------- ---------------- -----------------
Consolidated Total $ 31,201 $ 38,631 $63,195 $ 76,075
---------------- ---------------- ---------------- -----------------
---------------- ---------------- ---------------- -----------------
Income (Loss) before income taxes:
United States $ (1,812) $ (181) $ 10,910 $ (101)
Canada (432) (179) (648) (536)
Netherlands 190 524 245 871
Australia (85) (20) (95) (81)
---------------- ---------------- ---------------- -----------------
Consolidated Total $ (2,139) $ 144 $ 10,412 $ 153
---------------- ---------------- ---------------- -----------------
---------------- ---------------- ---------------- -----------------
Depreciation and amortization:
United States $ 862 $ 1,118 $ 1,842 $ 2,215
Canada 112 105 221 178
Netherlands 13 12 30 29
Australia 20 19 32 36
---------------- ---------------- ---------------- -----------------
Consolidated Total $ 1,007 $ 1,254 $ 2,125 $ 2,458
---------------- ---------------- ---------------- -----------------
---------------- ---------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1999 MAY 31, 1999
----------------- -----------------
<S> <C> <C>
Long-lived assets:
United States $ 18,917 $ 19,692
Canada 707 786
Netherlands 126 133
Australia 206 232
----------------- -----------------
Consolidated Total $ 19,956 $ 20,843
----------------- -----------------
----------------- -----------------
</TABLE>
Geographic revenues are based on the country from which customers are
invoiced. Income before tax is net sales less operating expenses, interest or
other expenses, but prior to income taxes.
7
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
5. NET EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net earnings by the
weighted average common shares outstanding for the period while diluted
earnings per share also includes the dilutive impact of stock options. No
diluted loss per share information for the three months ended November 30,
1999 has been presented since potential common shares from conversion of
stock options are antidilutive with respect to income from operations. Basic
and diluted earnings per share for the quarters and six-months ended November
30, 1999 and 1998, respectively, are calculated as follows (in thousands,
except share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------------------------- ------------------------------------
1999 1998 1999 1998
------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) $ (1,241) $ 79 $ 6,039 $ 84
------------------- ----------------- ----------------- -----------------
BASIC:
Weighted average common shares
outstanding used in computing
basic net earnings per share 5,113,919 5,114,414 5,069,957 5,143,079
------------------- ----------------- ----------------- -----------------
BASIC NET EARNINGS (LOSS) PER SHARE $ (0.24) $ 0.02 $ 1.19 $ 0.02
------------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- -----------------
DILUTED:
Weighted average common shares
outstanding 5,113,919 5,114,414 5,069,957 5,143,079
Dilutive options outstanding - 34,118 17,417 78,682
------------------- ----------------- ----------------- -----------------
Shares used in computing diluted
net earnings per share 5,113,919 5,148,532 5,087,374 5,221,761
------------------- ----------------- ----------------- -----------------
DILUTED NET EARNINGS (LOSS) PER SHARE $ (0.24) $ 0.02 $ 1.19 $ 0.02
------------------- ----------------- ----------------- -----------------
------------------- ----------------- ----------------- -----------------
</TABLE>
6. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------------------- -----------------------------------
1999 1998 1999 1998
------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (1,241) $ 79 $ 6,039 $ 84
Foreign currency translation (442) 30 (415) (407)
------------------- ------------------ ---------------- -----------------
Comprehensive income (loss) $ (1,683) $ 109 $ 5,624 $ (323)
------------------- ------------------ ---------------- -----------------
------------------- ------------------ ---------------- -----------------
</TABLE>
Accumulated other comprehensive income (loss), net of tax, presented on the
accompanying consolidated condensed balance sheets consists of the following
(in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1999 1999
------------------------ ------------------------
<S> <C> <C>
Foreign currency translation $ (948) $ (533)
Minimum pension liability (2,381) (2,381)
------------------------ ------------------------
Accumulated other comprehensive loss $ (3,329) $ (2,914)
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
8
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TAB PRODUCTS CO., NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCK REPURCHASE
During the three and six months ended November 30, 1999, the Company
repurchased 30,000 and 33,100 shares of Common Stock under the Company's
authorized repurchase program at a cost of $196,000 and $218,000,
respectively. As of November 30, 1999, the Company intends to repurchase an
additional 266,900 shares in the future to the extent such purchases are
consistent with the Company's investment objectives.
8. LEVERAGED STOCK PURCHASE PLAN
In October 1999, the Company implemented a Stock Purchase and Stock
Bonus Plan (Plan) with certain executive officers and key employees of the
Company. The Plan allows an employee to borrow funds from the Company to
acquire a specified number of common shares. An equivalent number of shares
of common stock was also granted to each individual. The stock grant vests
after three years. All of the certificates are held by the Company as
collateral against the note receivable. The note and accrued interest will be
forgiven after three years, if the employee continues employment with the
Company during that period. The Company used 215,000 shares of Treasury Stock
to implement the Plan. The note receivable and deferred compensation related
to the stock grant are offset in Stockholders' Equity.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Under SFAS No. 133, entities are
required to carry all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of a derivative instrument depends
on whether it has been designated and qualifies as part of a hedging
relationship and, if so, the reason for holding it. This statement will be
effective for all annual and interim periods beginning after June 15, 2000.
The effect of adopting the Standard is currently being evaluated, but is not
expected to have a material effect on the Company's financial position or
results of operations.
10. EVENTS SUBSEQUENT TO NOVEMBER 30, 1999
Effective October 5, 1999, the Company announced a definitive agreement
to sell its corporate headquarters buildings and the associated land leases
at Stanford Research Park to Eagle Ridge Partners, a real estate investment
group. The agreement was finalized on December 8, 1999 and will close
effective February 15, 2000, subject to satisfaction of standard closing
conditions. The gross sales price is $18 million and will result in a gain
for the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report, including without limitation the following section
regarding Management's Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, regarding the Company and
its business, financial condition, results of operations and prospects. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"foreseeable," "estimates," and similar expressions or variations of such
words are intended to identify forward-looking statements. Additionally,
statements concerning future matters such as the development of new products,
enhancements or technologies, possible changes in legislation and other
statements regarding matters that are not historical are forward-looking
statements.
Although forward-looking statements in this report reflect the good
faith judgment of the Company's management, such statements can only be based
on facts and factors currently known by the Company. Consequently,
forward-looking statements are inherently subject to risks and uncertainties
and actual results and outcomes may differ
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
materially from the results and outcomes discussed in the forward-looking
statements. Factors that could cause or contribute to such differences in
results and outcomes include without limitation those discussed in "Business
Environment and Risk Factors" as well as those discussed elsewhere in this
report. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report, which attempt to advise interested
parties of the risks and factors that may affect the Company's business,
financial condition, results of operations and prospects.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company.
FINANCIAL CONDITION
Pursuant to the Agreement for Purchase and Sale of Assets (the
"Agreement"), by and between the Company and Bell & Howell Document
Management Products Company, a wholly-owned subsidiary of Bell & Howell
Company ("Bell & Howell"), the Company has sold its Field Service Group to
Bell & Howell. The Company's Field Service Group consisted of assets that
include existing service contracts and certain related tangible and
intangible assets and certain liabilities. The price of the Purchased Assets,
as defined in the Agreement, consisted of an initial cash payment from Bell &
Howell to the Company of $11,200,000, the assumption of liabilities and
obligations of the Company valued at $5,900,000 and a final payment of
$2,200,000 paid in August 1999 based on final adjustments to certain accounts
attributable to the Field Service Group. The sale was effective as of June 1,
1999. In order for the Company to obtain consent for the sale from one of its
lenders, the Company placed a portion of the cash payment received from Bell
& Howell in a restricted bank account and pledged the funds as collateral for
the existing loan. In exchange for the pledge of collateral the lender
modified the covenants of the loan and approved the sale transaction.
On June 22, 1999, the Company announced the consolidation of its paper
manufacturing operations to its main plant located in Mayville, Wisconsin. In
the second quarter of fiscal year 2000, the Company closed its paper
manufacturing facility located in Turlock, California and transferred the
inventory and equipment to Mayville. As a result of the consolidation, the
Company recorded a pre-tax charge of approximately $435,000 in the first
quarter of fiscal year 2000.
Effective October 5, 1999, the Company announced a definitive agreement
to sell its corporate headquarters buildings and the associated land leases
at Stanford Research Park to Eagle Ridge Partners, a real estate investment
group. The agreement was finalized on December 8, 1999 and will close
effective February 15, 2000, subject to satisfaction of standard closing
conditions. The gross sales price is $18 million and will result in a gain
for the Company.
At November 30, 1999 the Company had cash and short-term investments of
$6.8 million, a decrease of $3.1 million from the $9.9 million at May 31,
1999. The decrease in cash resulted from operating losses, tax payments,
capital expenditures, repayment of debt, repurchase of stock and dividends
paid. The Company's working capital position at November 30, 1999 was $31.9
million as compared with $27.0 million at May 31, 1999. The current ratio of
2.6 at November 30, 1999 was higher than the current ratio of 2.1 reported
for May 31, 1999. The increase in working capital and current ratio is the
result of the sale of the Field Service Group. Accounts receivable increased
$1.1 million from $26.4 million on May 31, 1999 to $27.5 million on November
30, 1999. As part of the sale of the Field Service Group, the accounts
receivable related to that operation as of the date of the sale of $4.0
million were retained by the Company and collection of these receivables is
the Company's responsibility. As of November 30, 1999 $3.3 million of that
balance had been collected. Accounts receivable increased $2.5 million due to
product shipments associated with professional services projects which cannot
be fully collected until the services are complete. Inventories at November
30, 1999 were $7.5 million as compared to $8.8 million at May 31, 1999. The
decrease in inventory levels is due to Field Service inventories which were
included in the sale.
In order for the Company to obtain consent for the sale of the Field
Service Group from one of its lenders, the Company chose to place a portion
of the cash payment received from the sale in a restricted bank account and
pledge the funds as collateral for the existing loan. The funds are
classified as other current assets and other non-current assets based on
classification of the collateralized debt. Other current assets increased
$4.2 million from $6.2 million at May
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
31, 1999 to $10.4 million at November 30, 1999 and other non-current assets
increased $1.9 million from $1.2 million at May 31, 1999 to $3.1 million at
November 30, 1999 primarily due to the collateralization.
Current liabilities decreased $4.0 million from $24.4 million at May 31,
1999 to $20.4 million at November 30, 1999. Significant transactions which
affect current liabilities include the transfer of deferred revenue to Bell &
Howell of $5.4 million as a result of the sale of the Field Service Group.
Management believes that the Company's cash and cash equivalents, available
credit facilities and operational cash flow will adequately finance
anticipated growth, capital expenditures and debt obligations for the
foreseeable future.
Investments in property, plant and equipment, which were primarily
focused on enterprise management information systems and associated
infrastructure investments, were $0.4 million and $0.9 million for the three
months and six months ended November 30, 1999. Capital expenditures to
support operations for fiscal 2000 are expected to total approximately $3.0
million, which includes approximately $1.0 million to relocate the Company's
headquarters.
At November 30, 1999, the Company had $6.6 million of debt outstanding
which bears interest at rates ranging from 6.9% to 8.7%. For the six months
ended November 30, 1999, the Company made $0.8 million in scheduled debt
repayments.
In July 1999, the Company approved a new authorization to repurchase up
to 300,000 shares of Common Stock from time to time at prevailing market
prices. The authorization is effective until July 2000. During the three and
six months ended November 30, 1999, the Company repurchased 30,000 and 33,100
shares of Common Stock under the Company's authorized repurchase program at a
cost of $196,000 and $218,000, respectively. As of November 30, 1999, the
Company intends to repurchase the remaining 266,900 shares in the future to
the extent such purchases are consistent with the Company's investment
objectives.
For the six month period ended November 30, 1999 and 1998, the Company
paid cash dividends of $511,000 and $513,000, respectively.
The Company has an unsecured revolving line of credit of $15 million
with a bank which expires on October 31, 2000. The credit line does not
require compensating balances and there were no borrowings outstanding under
the line of credit at November 30, 1999. Effective January 29, 1999, the
Company entered into a master lease agreement with a technology equipment
leasing company for a total lease line of $0.5 million. As of November 30,
1999, the Company utilized the line to lease computer equipment with a cost
of $0.1 million. The lease is classified as an operating lease.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
For comparative purposes, the following unaudited pro forma consolidated
condensed statement of operations for the three and six months ended November
30, 1998 is presented as if the sale of the Field Service Group had occurred
on June 1, 1998.
TAB PRODUCTS CO.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, 1998
---------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------------- ----------------- ---------------
<S> <C> <C> <C>
REVENUES $ 38,631 $ (3,703) $ 34,928
------------------- ----------------- ---------------
COSTS AND EXPENSES:
Cost of revenues 24,221 (3,352) 20,869
Selling, general and administrative 13,927 13,927
Research and development 206 206
------------------- ----------------- ---------------
TOTAL COSTS AND EXPENSES 38,354 (3,352) 35,002
------------------- ----------------- ---------------
OPERATING INCOME (LOSS) 277 (351) (74)
Interest, net, and other (133) (133)
------------------- ----------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES 144 (351) (207)
Provision (benefit) for income taxes 65 (147) (82)
------------------- ----------------- ---------------
NET EARNINGS (LOSS) $ 79 $ (204) $ (125)
------------------- ----------------- ---------------
------------------- ----------------- ---------------
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30, 1998
---------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------------- ----------------- ---------------
<S> <C> <C> <C>
REVENUES $ 76,075 $ (7,181) $ 68,894
------------------- ----------------- ---------------
COSTS AND EXPENSES:
Cost of revenues 48,098 (6,592) 41,506
Selling, general and administrative 27,091 27,091
Research and development 462 462
------------------- ----------------- ---------------
TOTAL COSTS AND EXPENSES 75,651 (6,592) 69,059
------------------- ----------------- ---------------
OPERATING INCOME (LOSS) 424 (589) (165)
Interest, net, and other (271) (271)
------------------- ----------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES 153 (589) (436)
Provision (benefit) for income taxes 69 (247) (178)
------------------- ----------------- ---------------
NET EARNINGS (LOSS) $ 84 $ (342) $ (258)
------------------- ----------------- ---------------
------------------- ----------------- ---------------
</TABLE>
Certain amounts have been reclassified to conform to the current year
presentation.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
REVENUES for the second quarter of fiscal 2000 amounted to $31.2 million,
down $3.7 million or 10.6% from the $34.9 million pro forma revenue reported
in the second quarter of fiscal 1999. Revenues for the six months ended
November 30, 1999 were $63.2 million, down $5.7 million or 8.3% from pro
forma revenues of $68.9 million reported in the first six months of the prior
fiscal year. The Company experienced lower sales in manufactured products
through its Branch channel. Sales from international operations were lower by
$1.6 million, primarily in Europe.
BACKLOG of orders has historically not been a significant factor in
understanding the business of the Company because the order-to-ship cycle was
primarily completed within 30 to 60 days and revenue is generally recognized
upon product shipment. The Branch channel shift to projects with large
customers has created a lengthening order-to-execution period and a resultant
increase in backlog which is reflected in a lengthening order to revenue
period. The Company's order booking to invoice ratio ("book-to-bill") in the
third and fourth quarters of fiscal year 1999 were below previous quarters at
.84:1.0 resulting in declining backlog and product shipments. The
book-to-bill ratio in the first six months of fiscal 2000 improved to
1.13:1.0, but the carry-over effect of the lower third and fourth quarter
order volumes impacted the first and second quarter revenues and
profitability.
COST OF REVENUE, as a percentage of revenues, was 59.5% for the second
quarter of fiscal 2000 as compared to the 59.8% pro forma cost of revenue
reported in the second quarter of fiscal 1999. Cost of revenues for the
second quarter was $18.6 million as compared to the $20.9 million pro forma
amount reported in the comparable quarter of fiscal 1999. For the six months
ended November 30, 1999 cost of revenues was 59.8% as compared to 60.3% pro
forma cost of revenue in the first six months of the prior fiscal year. The
decrease in cost of revenues as a percentage of revenue was primarily due to
sales mix.
OPERATING EXPENSES were $14.8 million or 47.4% of total revenues for the
second quarter of fiscal 2000 as compared to $14.1 million or 40.5% of total
pro forma revenues for the second quarter of fiscal 1999. For the six months
ended November 30, 1999, operating expenses were $28.6 million or 45.3% of
total revenues as compared to $27.6 million or 40.0% of total pro forma
revenues for the prior fiscal year. The increase in operating expenses as a
percentage of revenues was primarily driven by increased sales compensation
programs and strategic corporate finance expenses.
INTEREST, NET, AND OTHER was $16,000 in net income in the second quarter of
fiscal 2000 as compared to $133,000 in net expense in the second quarter of
fiscal 1999. For the six months ended November 30, 1999 interest, net, and
other was $127,000 as compared to $271,000 in the prior fiscal year. The
increase for the three and six months ended November 30, 1999 was primarily
due to interest earned on the cash proceeds from the Field Service Group sale
and reduction of interest expense due to scheduled principle repayments.
NET LOSS PER SHARE for the three months ended November 30, 1999 was $0.24 for
both basic and diluted shares compared to a pro forma loss per share of $0.02
for both basic and diluted shares for the three months ended November 30,
1998. For the six months ended November 30, 1999 and 1998, equivalent
earnings per share were $1.19 and $0.05 loss, respectively, for both basic
and diluted shares.
EVENTS SUBSEQUENT TO NOVEMBER 30, 1999
Effective October 5, 1999, the Company announced a definitive agreement
to sell its corporate headquarters buildings and the associated land leases
at Stanford Research Park to Eagle Ridge Partners, a real estate investment
group. The agreement was finalized on December 8, 1999 and will close
effective February 15, 2000. The gross sales price is $18 million and will
result in a gain for the Company.
Due to the implementation of its Year 2000 compliance program, the
Company to date has not experienced any significant disruptions to its
operations. Additionally, the Company to date has no reported issues with its
products which could be affected by Year 2000. The Company believes that any
worst case Year 2000 problems could still arise and such problems would
probably relate to the systems of third parties.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Under SFAS No. 133, entities are
required to carry all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of a derivative instrument depends
on whether it has been designated and qualifies as part of a hedging
relationship and, if so, the reason for holding it. This statement will be
effective for all annual and interim periods beginning after June 15, 2000.
The effect of adopting the Standard is currently being evaluated, but is not
expected to have a material effect on the Company's financial position or
results of operations.
BUSINESS ENVIRONMENT AND RISK FACTORS
The Company's future operating results may be affected by various trends
and factors which the Company must successfully manage in order to achieve
favorable operating results. In addition, there are trends and factors beyond
the Company's control which affect its operations. Such trends and factors
include, but are not limited to, adverse changes in general economic
conditions or conditions in the specific markets for the Company's products,
governmental regulation, fluctuations in foreign exchange rates, and other
factors, including those listed below.
DISTRIBUTION CHANNELS
The Company is currently pursuing a strategy to refine and expand its
distribution channels. The Branch direct sales strategy has been shifted to
focus on projects with larger customers that bundle products and services as
a way of providing value-added solutions to the Company's customers. This has
resulted in a turnover in the Branch channel and additional training time
which in turn has resulted and may continue to result in lower Branch channel
sales.
The Company is also expanding its call center operations and direct
replenishment business through this efficient distribution method. In
conjunction with handling inbound sales activity an initiative is underway to
generate sales through the use of outbound telemarketing.
In June 1998, the Company notified its existing independent distributors
(indirect channel) that effective June 1, 1999 the existing distributor
contract would be canceled. A new contract was offered that eliminated the
exclusive territory rights in the existing contract with other material terms
and conditions remaining substantially the same. By February 1999,
approximately one third of the current independent distributors adopted the
new contract. In March 1999, the Company proposed an alternative contract
that allowed the independent distributors exclusivity on existing and
designated customers, but eliminated exclusivity on a territory basis. The
Company believes the removal of exclusivity is crucial to the Company's
ability to serve its larger nationwide customers where an independent's
resources cannot support the customer's professional services, technology and
project management needs. Approximately 98% of the current independent
distributors signed the revised contract. The signed distributors represent
approximately 99% of the total sales for this channel. The Company is also
seeking to expand its indirect distribution with the addition of dealers in
Branch territories to focus on small to mid-size customers.
These changes in distribution may disrupt the selling process of the
Company resulting in lower sales. Additionally, the sales cycle for larger
scale projects is substantially longer than the Company's historical
sales-to-delivery cycle resulting in additional working capital requirements.
Market penetration of larger customers may not happen as quickly as
anticipated and may result in higher selling costs.
RETAINING AND ATTRACTING QUALIFIED PERSONNEL
The Company's future performance may depend in significant part upon
attracting and retaining key senior management, sales, manufacturing,
marketing and technical support personnel. Competition for such personnel is
intense and the inability to retain its current key personnel or to attract,
assimilate or retain other highly qualified personnel in the future on a
timely basis could have a material adverse effect on the Company's business,
results of operations and financial condition.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
THE TREND TOWARD DIGITAL TECHNOLOGIES
Recent market research indicates there may be an accelerated move to
digital technologies, such as imaging, by large paper intensive
organizations. This trend could weaken demand for our paper-based records
management supplies and records storage products. If we fail to match the
changing market with new document management products and services in the
digital arena, our business and prospects could be materially adversely
affected.
FLUCTUATIONS IN OPERATING RESULTS
Factors affecting the Company's operating results and gross margins
include the volume of product sales, competitive pricing pressures, the
ability of the Company to match supply with demand, changes in product and
customer mix, market acceptance of new or enhanced versions of the Company's
products and services, changes in the channels through which the Company's
products and services are distributed, timing of new product announcements
and introductions by the Company and its competitors, fluctuations in product
costs, variations in manufacturing cycle times, fluctuations in manufacturing
utilization, the ability of the Company to achieve manufacturing volumes with
its new and existing products, exchange rate fluctuations, a change in the
Company's effective tax rate and changes in general economic conditions. All
of these factors are difficult to forecast and these or other factors can
materially affect the Company's quarterly or annual operating results or
gross margins. Period to period comparisons of our operating results and
gross margins may not be meaningful and you should not rely on them as an
indication of future performance.
COMPETITION
The Company expects competition to increase in the future from existing
competitors and from other companies that may enter the Company's existing or
future markets with similar or alternative document management solutions that
may be less costly or provide additional features. Such competition could
result in lower gross margins in the future, if the Company's average selling
prices decrease faster than its costs and could result in lost sales.
DEPENDENCE ON SOLE SOURCE SUPPLIERS
The Company purchases several critical components from single or sole
source vendors for which alternative sources are not currently developed.
Development of alternative suppliers would require a significant amount of
time to qualify in the case of certain of the Company's components. The
Company does not maintain long-term supply agreements with any of these
vendors. The inability to develop alternative sources for these single or
sole source components or to obtain sufficient quantities of these components
could result in delays or reductions in product shipments.
NEW PROCESSES AND PRODUCTS AND MANUFACTURING VOLUMES
On June 22, 1999, the Company announced the consolidation of its paper
manufacturing operations to its main plant located in Mayville, Wisconsin. In
the second quarter of fiscal year 2000, the Company closed its paper
manufacturing facility located in Turlock, California and transferred the
inventory and equipment to Mayville.
There can be no assurance that the Company's manufacturing facilities
will achieve or maintain acceptable manufacturing volumes in the future. The
inability of the Company to achieve planned volumes from its manufacturing
facilities could have an adverse effect on the Company's business, financial
condition and results of operations. Any problems experienced by the Company
in its current or future transitions to new processes and products or the
consolidation of its manufacturing operations could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Recent market research indicates there may be an accelerated move to
digital technologies, such as imaging, by large paper intensive
organizations. This trend could result in a weakening of demand for the
Company's paper-based records management supplies and records storage
products. Failure of the Company to match the changing market with new
document management products and services in the digital arena could
materially adversely affect the Company's business, results of operations,
financial condition and prospects.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
BACKLOG
The backlog of orders has historically not been a significant factor in
understanding the business of the Company because the order-to-ship cycle was
primarily completed within 30 to 60 days and revenue is generally recognized
upon product shipment. The shift in the branch channel sales strategy to seek
projects with large customers has created a lengthening order-to-execution
period. Additionally, the professional services component of project sales is
recognized as revenue when the project is completed resulting in a longer
order-to-revenue cycle. Due to this shift in Branch sales strategy the
Company may experience the need for additional working capital to support the
longer order-to-collection cycle being experienced.
The Company's order booking to invoice ratio ("book-to-bill") in the
third and fourth quarters of fiscal year 1999 were below previous quarters at
.84:1.0 resulting in declining backlog and product shipments. The
book-to-bill ratio in the first half of fiscal 2000 improved to 1.13:1.0;
however, the carry-over effect of the lower third and fourth quarter order
volumes impacted the first half of fiscal 2000 revenues and profitability.
Orders from the independent distributor channel have begun to rebound with
98% of the dealers signing the new dealer agreement. We cannot assure that
the Company's book-to-bill ratio will continue at this rate.
GOVERNMENT SALES
Government revenues primarily expose the Company to risks from
reductions in budget allocations to support regulation and administrative
offices. The current reinventing government initiative opens opportunities to
help the government streamline workflow processes, reduce paperwork and
increase customer service which may provide short-term opportunities for the
Company. However, the long-term effect of a government initiative to
streamline processes could negatively impact the Company's revenue.
PATENTS, PROPRIETARY RIGHTS AND RELATED LITIGATION
The Company relies on a combination of patents, trademarks, copyright
and trade secret laws, confidentiality procedures and licensing arrangements
to protect its intellectual property rights. The Company has been notified in
the past and the Company may be notified in the future of claims that they
may be infringing upon patents or other intellectual property rights owned by
third parties. There can be no assurance that in the future any patents held
by the Company will not be invalidated, that patents will be issued for any
of the Company's pending applications or that any claims allowed from
existing or pending patents will be of sufficient scope or strength or be
issued in the primary countries where the Company's products can be sold to
provide meaningful protection or any commercial advantage to the Company.
Additionally, competitors of the Company may be able to design around the
Company's patents.
EURO CONVERSION
In January 1999, certain member countries of the European Union
established permanent, fixed conversion rates between their existing
currencies and the European Union's common currency (the Euro). The
transition period for the introduction of the Euro is scheduled to phase in
over a period ending January 1, 2002, with the existing currency being
completely removed from circulation on July 1, 2002. The timing of phasing
out all uses of the existing currencies will comply with the legal
requirements and also be scheduled to facilitate optimal coordination with
the plans of our vendors, distributors and customers. Work related to the
introduction of the Euro and the phasing out of the other currencies includes
converting information technology systems; recalculating currency risk; and
taking action, if needed, regarding continuity of contracts; and modifying
our processes for preparing tax, accounting, payroll and customer records.
Management believes the introduction of the Euro and the phasing out of the
other currencies will not have a material impact on the Company's
Consolidated Condensed Financial Statements.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 21% and 23%,
respectively, of the Company's total revenues in the second quarter of fiscal
years 2000 and 1999. Fluctuations in currencies could adversely affect the
Company's business, financial condition and results of operations. In
addition, gains and losses on the conversion to United States dollars of
accounts receivable, accounts payable and other monetary assets and
liabilities arising from international operations may contribute to
fluctuations in the Company's results of operations. Because sales of the
Company's
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
BUSINESS ENVIRONMENT AND RISK FACTORS (CONTINUED)
products have been denominated to date primarily in United States dollars,
increases in the value of the United States dollar could increase the price
of the Company's products so that they become relatively more expensive to
customers in the local currency of a particular country, leading to a
reduction in sales and profitability in that country. The Company is subject
to the risks of conducting business internationally, including foreign
government regulation and general geopolitical risks such as political and
economic instability, potential hostilities and changes in diplomatic and
trade relationships. Manufacturing and sales of the Company's products may
also be materially adversely affected by factors such as unexpected changes
in, or imposition of, regulatory requirements, tariffs, import and export
restrictions and other barriers and restrictions, longer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences, the burdens of complying with a variety of foreign laws and
other factors beyond the Company's control. In addition, the laws of certain
foreign countries in which the Company's products are or may be developed,
manufactured or sold, may not protect the Company's intellectual property
rights to the same extent as do the laws of the United States and thus make
piracy of the Company's products a more likely possibility. There can be no
assurance that these factors will not have a material adverse effect on the
Company's business, financial condition or results of operations.
MANAGEMENT OF GROWTH
The Company has increased its expense levels to support its planned
growth. The Company expects to continue to increase its operating expenses by
hiring additional personnel to support expected growth, increased marketing
efforts and additional research and development activities. If the Company
does not achieve increased levels of revenues commensurate with these
increased levels of operating expenses, or if the Company's revenues decrease
or do not meet the Company's expectations for a particular period, the
Company's business, financial condition and results of operations will be
materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company is exposed to market risk related to fluctuations in
interest rates and in foreign currency exchange rates.
The Company's exposure to market risk due to fluctuations in interest
rates relates primarily to its short-term investment portfolio, which
consists of corporate debt securities, which are classified as
available-for-sale and were reported at an aggregate fair value of $4.3
million as of November 30, 1999. These available-for-sale securities are
subject to interest rate risk in as much as their fair value will fall, if
market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10% from the levels prevailing at November 30,
1999, the fair value of the portfolio would not decline by a material amount.
The Company does not use derivative financial instruments to mitigate the
risks inherent in these securities. However, the Company does attempt to
reduce such risks by typically limiting the maturity date of such securities
to no more than nine months, placing its investments with high credit quality
issuers and limiting the amount of credit exposure with any one issuer. In
addition, the Company believes that it currently has the ability to hold
these investments until maturity, and therefore, believes that reductions in
the value of such securities attributable to short-term fluctuations in
interest rates would not materially affect the financial position, results of
operations or cash flows of the Company.
The Company's exposure to market risk due to fluctuations in foreign
currency exchange rates relates primarily to the intercompany balance with
its Canadian subsidiary. Although the Company transacts business with various
foreign countries, settlement amounts are usually based on local currency.
Transaction gains or losses have not been significant in the past and there
is no hedging activity on Canadian dollars or other currencies. Based on the
intercompany balance of $1.0 million at November 30, 1999, a hypothetical 10%
adverse change in Canadian dollars against U.S. dollars would not result in a
material foreign exchange loss. Consequently, the Company does not expect
that reductions in the value of such intercompany balances or of other
accounts denominated in foreign currencies, resulting from even a sudden or
significant fluctuation in foreign exchange rates, would have a direct
material impact on the Company's financial position, results of operations or
cash flows.
17
<PAGE>
Notwithstanding the foregoing analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of certain
of the Company's investments and accounts, the indirect effects of such
fluctuations could have a material adverse effect on the Company's business,
financial condition and results of operations. For example, international
demand for the Company's products could be affected by foreign currency
exchange rates. In addition, interest rate fluctuations may affect the buying
patterns of the Company's customers. Furthermore, interest rate and currency
exchange rate fluctuations have broad influence on the general condition of
the U.S., foreign and global economies, which could materially and adversely
affect the Company.
18
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The company held its annual meeting of stockholders
on October 7, 1999.
(b) All of management's nominees as listed in the proxy
statement were elected.
(c) The votes for each Director are indicated below:
<TABLE>
<CAPTION>
Director For Withheld Authority
-------------------- -------------------- --------------------------
<S> <C> <C>
R. R. Augsburger 4,305,382 249,278
K. S. Hanson 4,477,742 76,918
P. C. Kantz 4,456,412 98,248
J. K. Myers 4,479,918 74,742
H. A. Wolf 4,316,525 238,135
</TABLE>
(d) The company's appointment of Deloitte & Touche LLP as
the independent accountants for the fiscal year
ending May 31, 2000 was approved. The vote is
indicated below:
<TABLE>
<S> <C>
For 4,443,000
Against 65,051
Abstain 46,609
Non-Vote 0
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
<TABLE>
<S> <C> <C>
(a) 10.1 Form of Tab Products Co. Stock Purchase Agreement relating to
the Leveraged Stock Purchase Program between the Company and
certain executive officers and key employees (1)
10.2 Bank of America Amendment No. 3 dated September 24, 1999 to
Business Loan Agreement dated November 1, 1998
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
---------------------------------
(1) Compensatory Plan or Arrangement
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TAB PRODUCTS CO.
(Registrant)
Date: January 14, 2000 /s/ David J. Davis
---------------------------------------
David J. Davis, Senior Vice
President, Operations and Chief
Financial Officer
Date: January 14, 2000 /s/ William R. Kinzie
---------------------------------------
William R. Kinzie, Corporate
Controller and Chief Accounting
Officer
20
<PAGE>
TAB PRODUCTS CO.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made as of
___________________, 1999, by and between Tab Products Co., a Delaware
corporation (the "COMPANY"), and ______________________ (the "PURCHASER").
WITNESSETH:
WHEREAS, the Purchaser is an employee of the Company.
WHEREAS, the Purchaser desires to purchase from the Company and the
Company desires to sell to the Purchaser certain shares of the Common Stock
of the Company, par value $0.01 (the "COMMON STOCK").
WHEREAS, the shares of Common Stock issuable upon the closing of
such purchase and sale have been duly registered pursuant to an effective
Form S-8 Registration Statement under the Securities Act of 1933.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
PURCHASE AND SALE OF SHARES.
NUMBER OF SHARES AND PURCHASE PRICE. The Purchaser agrees to purchase from
the Company, and, subject to Section 1.5, the Company agrees to sell and
issue to the Purchaser _____________ shares of Common Stock (the "SHARES")
for an aggregate purchase price of $_____________ (the "PURCHASE PRICE"),
representing a price of $________ per Share, which price is equal to the
closing sale price of a share of Common Stock as reported on the American
Stock Exchange on the date of this Agreement.
PAYMENT OF PURCHASE PRICE. This Agreement, as executed and delivered by the
Purchaser, shall be accompanied by payment of the aggregate purchase price as
follows:
CASH. Cash or a check payable to the Company in the amount of $_____________,
representing an amount equal to the aggregate par value of the Shares
purchased hereby.
PROMISSORY NOTE. The Purchaser's promissory note in the form of the
Promissory Note and Pledge Agreement attached hereto as EXHIBIT A (the
"NOTE") in the principal amount of $_______________. The Note shall be a full
recourse note, with principal and interest payable three (3) years after the
date of this Agreement, subject to acceleration or discharge as set forth in
the Note. Interest on the principal balance of the Note shall be compounded
annually and shall be at the minimum rate necessary to avoid imputed interest
pursuant to all applicable provisions of the Internal Revenue Code. The Note
shall be secured by the Shares and by additional shares of Common Stock
awarded to the Purchaser pursuant to a restricted stock bonus effective as of
<PAGE>
the date of this Agreement (the "BONUS Shares"). At any time the Company is
subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, the Note
shall comply with such applicable regulations, and the Purchaser shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as otherwise provided in the
Note, the Purchaser shall pay the unpaid principal balance of the Note and
any accrued but unpaid interest thereon upon termination of the Purchaser's
employment with the Company for any reason, with or without cause.
CLOSING. The closing of the purchase shall occur at the offices of the
Company on the date of this Agreement.
CERTIFICATE REGISTRATION. The certificate for the Shares shall be registered
in the name of the Purchaser.
RESTRICTIONS ON SALE OF SHARES. The sale of the Shares to the Purchaser shall
be subject to compliance with all applicable requirements of federal, state
or foreign law with respect to such securities. The Shares shall not be
issued if their sale and issuance would constitute a violation of any
applicable federal, state or foreign securities laws or other law or
regulations or the requirements of any stock exchange or market system upon
which the Common Stock may then be listed. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance
and sale of any shares subject to the Purchase Right shall relieve the
Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As
a condition to the sale and issuance of the Shares, the Company may require
the Purchaser to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and
to make any representation or warranty with respect thereto as may be
requested by the Company.
ESCROW.
As security for the Purchaser's obligations under the Note, the
Purchaser agrees to deliver to and deposit with an agent designated by the
Company the certificates evidencing the Shares and the Bonus Shares, together
with two originals of an Assignment Separate from Certificate duly endorsed
(with date and number of shares blank) in the form attached hereto as EXHIBIT
B, to be held by the agent under the terms and conditions of the Joint Escrow
Instructions attached hereto as EXHIBIT C (the "ESCROW").
ADJUSTMENT TO SHARES SUBJECT TO AGREEMENT.
If, from time to time, there is any stock dividend or liquidating
dividend of cash and/or property, stock split, reverse stock split,
recapitalization, combination, reclassification or other similar change in
the character or amount of any of the outstanding securities of the Company,
then, in such event any and all new, substituted or additional securities or
other
<PAGE>
property to which the Purchaser is entitled by reason of his ownership of the
Shares will be immediately subject to the provisions of this Agreement and
the Escrow on the same basis as all Shares originally purchased hereunder,
and will be included in the term "Shares" for all purposes of this Agreement
and the Escrow with the same force and effect as the Shares presently subject
thereto.
RIGHTS AS A STOCKHOLDER.
Subject to the provisions of this Agreement, the Note and the Escrow,
the Purchaser shall exercise all rights and privileges of a stockholder of
the Company with respect to the Shares.
EMPLOYMENT MATTERS.
The Purchaser understands and acknowledges that, except as otherwise
provided in a separate, written employment agreement between the Company and
the Purchaser, the Purchaser's employment is "at will" and is for no
specified term. Nothing in this Agreement shall confer upon the Purchaser any
right to continued employment by the Company or interfere in any way with any
right of the Company to terminate the Purchaser's employment at any time.
TAX WITHHOLDING.
At the time this Agreement is executed, or at any time thereafter as
requested by the Company, the Purchaser hereby authorizes withholding from
payroll and any other amounts payable to the Purchaser, and otherwise agrees
to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Company, if any,
which arise in connection with the Shares acquired pursuant to this Agreement.
MISCELLANEOUS PROVISIONS.
FURTHER INSTRUMENTS. The parties agree to execute such further instruments
and to take such further action as may reasonably be necessary to carry out
the intent of this Agreement.
BINDING EFFECT. Subject to the restrictions on transfer set forth herein,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
NOTICES. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, with
postage and fees prepaid, addressed to the other party at the address shown
below that party's signature or at such other address as such party may
designate in writing from time to time to the other party.
INTEGRATED AGREEMENT. This Agreement, together with the Note, the Escrow and
exhibits thereto, constitute the entire understanding and agreement of the
Purchaser and the Company
<PAGE>
with respect to the subject matter contained herein or therein and supersedes
any prior agreements, understandings, restrictions, representations, or
warranties between the Purchaser and the Company with respect to such subject
matter other than those as set forth or provided for herein or therein.
WAIVER. No failure on the part of any party to exercise or delay in
exercising any right hereunder will be deemed a waiver thereof, nor will any
such failure or delay, or any single or partial exercise of any such right,
preclude any further or other exercise of such right or any other right.
APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
INTERPRETATION. All questions of interpretation concerning this Agreement
will be determined by the Company's Board of Directors (the "BOARD") or by a
duly appointed committee of the Board having such powers as specified by the
Board. All determinations by the Board or such committee will be final and
binding upon all persons having an interest in this Agreement. Any officer of
the Company will have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right,
obligation, or election.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TAB PRODUCTS CO.
By:
Title:
Address: 1400 Page Mill Road
Palo Alto, CA 94304
PURCHASER
Signature
Purchaser's Address:
<PAGE>
EXHIBIT A
FORM OF
PROMISSORY NOTE AND PLEDGE AGREEMENT
<PAGE>
PROMISSORY NOTE
AND PLEDGE AGREEMENT
$ ___________ Date: ________________________
Palo Alto, California
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to Tab
Products Co., a Delaware corporation (the "Company"), or order, at its
principal office (now located in Palo Alto, California), or such other place
as the Company shall designate, the principal sum of
_____________________________ Dollars ($__________) together with interest
thereon from the date hereof at the rate of ______________ percent (_____%)
per annum, compounded annually. Principal and interest shall be payable on
the date and in the manner set forth below.
PAYMENT OF PRINCIPAL AND INTEREST. Except as otherwise provided below, the
entire sum of unpaid principal and accrued but unpaid interest shall be due
and payable on the third anniversary of the date of this Note (the "Maturity
Date"). Notwithstanding the foregoing, except in the event that the payment
of principal and interest is forgiven in accordance with paragraph 2 below,
the entire sum of unpaid principal and accrued but unpaid interest shall be
immediately due and payable upon termination of Borrower's employment with
the Company for any reason, with or without cause. Principal and interest are
payable in lawful money of the United States of America. The undersigned may
prepay any amount due hereunder, without premium or penalty.
FORGIVENESS OF PRINCIPAL AND INTEREST. The Company shall forgive the entire
sum of unpaid principal and accrued but unpaid interest under this Note
effective upon the first to occur of: (a) the Maturity Date if Borrower's
employment with the Company has not terminated prior to the Maturity Date or
(b) the date of termination of Borrower's employment with the Company or its
successor if, following a "Change in Control" (as defined below) and prior to
the Maturity Date, either (i) Borrower's employment with the Company or its
successor is terminated by such employer for any reason other than "Cause"
(as defined below) or (ii) Borrower resigns from employment with such
employer for "Good Reason" (as defined below) within sixty (60) days after
the event constituting Good Reason. For the purposes of this Note, the
following terms shall have their respective meanings set forth below:
"CHANGE IN CONTROL" means the occurrence of any of the following events:
Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting
securities.
A merger or consolidation of the Company with any other corporation, other
than a merger or
<PAGE>
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.
The complete liquidation of the Company.
The sale or disposition by the Company of all or substantially all of the
Company's assets.
There occurs a change in the Board of Directors of the Company within a
two-year period, as a result of which fewer than a majority of the Directors
are Incumbent Directors. For purposes of this Note, an Incumbent Director is
any director who is either:
a director of the Company as of the date of this Note; or
a director who is appointed or nominated for election to the Board of
Directors of the Company by the Board of Directors or its nominating
committee and whose nomination or appointment is approved by with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such appointment or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company).
"CAUSE" means any of the following:
Borrower's theft, dishonesty, or intentional falsification of any employment
or Company records;
Borrower's improper disclosure of the Company's confidential or proprietary
information;
Any action by Borrower that Borrower knew or should have known could have a
material detrimental effect on the Company's reputation or business;
Borrower's failure or inability to perform any reasonable assigned duties
after written notice from the Company to Borrower of, and a reasonable
opportunity to cure, such failure or inability; or
Borrower's conviction (including any plea of guilty or nolo contendere) for
any criminal act that impairs his ability to perform his duties for the
Company.
"GOOD REASON" means any of the following:
Without Borrower's express written consent, the assignment to Borrower of any
significant duties or the significant reduction of Borrower's duties, either
of which is materially inconsistent with Borrower's position with the Company
and responsibilities in effect immediately prior to such assignment, or the
removal of Borrower from such position and responsibilities, which is not
effected for Borrower's death or Disability (as defined below) or for Cause;
<PAGE>
Without Borrower's express written consent, a substantial reduction, without
good business reasons, of the facilities and perquisites (including office
space and location) available to Borrower immediately prior to such reduction;
Any reduction by the Company in an amount greater than 10% in the base salary
and/or prospective bonus of Borrower as in effect immediately prior to such
reduction, other than a reduction applied generally to executive officers of
the Company;
Any reduction by the Company in the kind or level of employee benefits to
which the Employee is entitled immediately prior to such reduction, other
than a reduction applied generally to executive officers of the Company;
The relocation of Borrower to a facility or a location more than forty (40)
miles from Borrower's then present location, without Borrower's express
written consent; or
The failure of the Company to obtain the assumption by any successor to the
Company of the terms of any "Change in Control Agreement" or similar
agreement to which the Company and Borrower are parties as of the date of any
Change in Control.
"DISABILITY" means that Borrower is unable to perform his duties as an
employee of the Company as the result of his incapacity due to physical or
mental illness for 120 days (not necessarily consecutive) in any one year
period. Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate
Borrower's employment. In the event that Borrower resumes the performance of
substantially all of his duties as an employee of the Company before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.
APPLICATION OF PAYMENT. Each payment shall be credited first to interest then
due and the remainder to principal. Should interest not be paid when due
hereunder, it shall be added to the principal and thereafter bear like
interest as the principal, provided such unpaid interest so compounded shall
not exceed an amount equal to simple interest on the unpaid principal at the
maximum rate permitted by law.
ACCELERATION. The Company may at its option accelerate, in whole or in part,
the maturity of the outstanding principal balance due on this Note and any
accrued interest thereon upon the occurrence of any of the following events:
A default in the payment of principal and/or interest when due.
A sale of the Pledged Stock (as defined below).
Such acceleration is reasonably necessary for the Company to comply with any
regulations promulgated by the Board of Governors of the Federal Reserve
System affecting the extension of credit in connection with the Company's
securities.
Any such acceleration may be automatically effectuated by the Company by
making an
<PAGE>
entry to such effect in its records, in which event the unpaid balance on
this Note shall become immediately due and payable without demand or notice.
SECURED NOTE. As security for the full and timely payment of this Note,
Borrower hereby assigns, conveys, grants, pledges and transfers to and
creates in favor of the Company a security interest in _________________
shares of the common stock of the Company (the "Pledged Stock"), of which
______________ such shares were purchased by Borrower pursuant to the terms
of a Stock Purchase Agreement of even date herewith between the Company and
Borrower and ____________ such shares were acquired pursuant to a Restricted
Stock Bonus Agreement of even date herewith between the Company and Borrower.
Upon execution of this Note, Borrower shall deliver all certificates
representing the Pledged Stock to the agent (the "Agent") for the Company
pursuant to the Joint Escrow Instructions of even date herewith between the
Company and Borrower. The Agent shall hold the Pledged Stock solely for the
benefit of the Company to perfect the security interest granted hereunder.
RECOURSE NOTE. Notwithstanding the foregoing, Borrower acknowledges that this
Note is a full recourse note and that Borrower is liable for full payment of
this Note without regard to the value at any time or from time to time of the
Pledged Stock. In the event of any default in the payment of this Note, the
Company shall have and may exercise any and all remedies of a secured party
under the California Commercial Code, and any other remedies available at law
or in equity, with respect to the Pledged Stock. Borrower (a) acknowledges
that state or federal securities laws may restrict the public sale of
securities, and may require private sales at prices or on terms less
favorable to the seller than public sales and (b) agrees that where the
Company, in its sole discretion, determines that a private sale is
appropriate, such sale shall be deemed to have been made in a commercially
reasonable manner.
WAIVER. Borrower waives demand, presentment, notice of protest, notice of
demand, dishonor, diligence in collection and notice of intention to
accelerate maturity. Borrower waives to the full extent permitted by law all
rights to plead any statute of limitations as a defense to any action
hereunder. The failure of the Company to exercise any of the rights created
hereby, or to promptly enforce any of the provisions of this Note, shall not
constitute a waiver of the right to exercise such rights or to enforce any
such provisions.
COSTS AND ATTORNEYS' FEES. In the event the Company incurs any costs or fees
in order to enforce payment of this Note or any portion thereof, the
undersigned agrees to pay to the Company, in addition to such amounts as are
owed pursuant to this Note, such costs and fees, including, without
limitation, a reasonable sum for attorneys' fees.
SUCCESSORS AND ASSIGNS. As used herein, Borrower includes the successors,
assigns and distributees of Borrower. As used herein, the Company includes
the successors, assigns and distributees of the Company, as well as a holder
in due course of this Note.
SEVERABILITY. Each provision of this Note shall be severable from every other
provision of this Note for the purpose of determining the legal
enforceability of any specific provision.
<PAGE>
GOVERNING LAW. This Note is made under and shall be construed in accordance
with the laws of the State of California, without regard to the conflict of
law provisions thereof.
BORROWER:
Signature
Name Printed
Address
<PAGE>
EXHIBIT B
FORM OF
ASSIGNMENT SEPARATE FROM CERTIFICATE
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned does hereby sell, assign and
transfer unto _____________________________________ (_____________) shares of
the ______________ Capital Stock of TAB PRODUCTS CO. standing in the
undersigned's name on the books of said corporation represented by
Certificate No.______________ herewith and does hereby irrevocably constitute
and appoint ________________________________ Attorney to transfer the said
stock on the books of said corporation with full power of substitution in the
premises.
Dated: _________________________
Signature
<PAGE>
EXHIBIT C
FORM OF
JOINT ESCROW INSTRUCTIONS
<PAGE>
TAB PRODUCTS CO.
JOINT ESCROW INSTRUCTIONS
These Joint Escrow Instructions are entered into as of ____________,
1999.
RECITALS
___________________________ (the "PURCHASER") purchased _____________
shares (the "PURCHASED SHARES") of the Common Stock of Tab Products Co., a
Delaware corporation (the "COMPANY"), pursuant to the terms and conditions of
the Stock Purchase Agreement between the Purchaser and the Company, a copy of
which is attached hereto as ATTACHMENT 1 (the "PURCHASE AGREEMENT") and
incorporated by reference herein.
In payment of a portion of the purchase price of the Purchased Shares,
the Purchaser has delivered the Purchaser's executed Promissory Note and
Pledge Agreement, a copy of which is attached hereto as ATTACHMENT 2 (the
"NOTE") and incorporated by reference herein.
The Purchaser was granted as a bonus _______________ shares (the "BONUS
SHARES") of the Common Stock of the Company pursuant to the terms and
conditions of the Restricted Stock Bonus Agreement between the Purchaser and
the Company, a copy of which is attached hereto as ATTACHMENT 3 (the "BONUS
AGREEMENT") and incorporated by reference herein.
The Company and the Purchaser desire to appoint _______________________,
Secretary of the Company, as their agent (the "AGENT") with respect to
certain certificate(s) evidencing the Purchased Shares and the Bonus Shares
(together, the "PLEDGED STOCK").
ESCROW INSTRUCTIONS
The Company and the Purchaser hereby authorize and direct the Agent to
hold the documents and certificate(s) delivered to the Agent pursuant to
these Escrow Instructions and to take the following actions with respect
thereto, and the Company and the Purchaser hereby agree as follows:
The Purchaser hereby delivers and/or agrees to deliver to the Agent the
Purchaser's certificate(s) evidencing the Pledged Stock and two originals of
an Assignment Separate From Certificate in the form attached as EXHIBIT B to
the Purchase Agreement executed in blank with respect to each such
certificate. The Purchaser irrevocably authorizes the Company to deposit with
the Agent any certificate(s) evidencing shares of the Company's Common Stock
acquired by the Purchaser pursuant to the Purchase Agreement or the Bonus
Agreement which the Company may from time to time issue to the Purchaser
during the term of these Escrow Instructions.
The provisions of these Escrow Instructions shall apply for so long as the
Bonus Stock is subject to the Unvested Share Reacquisition Right set forth in
the Bonus Agreement (the "REACQUISITION RIGHT") or the Company has a security
interest in the Pledged Stock pursuant to
<PAGE>
the Note. Upon termination of both the Company's Reacquisition Right and full
payment by the Purchaser of all indebtedness under the Note, this escrow
shall terminate.
In the event the Company shall automatically exercise its Reacquisition
Right, the Company shall give to the Purchaser and the Agent a written notice
(the "REACQUISITION NOTICE") which states (a) the terms and conditions of
such reacquisition, determined in accordance with the provisions of the Bonus
Agreement, and (b) a time and date for a closing hereunder at the principal
office of the Company. The Purchaser and the Company hereby irrevocably
authorize and direct the Agent to close the transaction contemplated by the
Reacquisition Notice in accordance with the terms of the Reacquisition
Notice. At the closing, the Agent shall deliver the certificate(s) evidencing
the shares of Bonus Stock to be transferred to the Company. The balance of
any such shares of Bonus Stock shall be retained by the Agent and held in
accordance with these Escrow Instructions.
As security for the full repayment of the Note, the Purchaser has
granted (and hereby confirms) to the Company a security interest in the
Pledged Stock, together with any stock subscription rights, liquidating
dividends, stock dividends, new securities of any type whatsoever, or any
other property which the Company is or may be entitled to receive as a result
of the Purchaser's ownership of the Pledged Stock. Notwithstanding anything
herein to the contrary, the Agent holds the certificate(s) representing the
Pledged Stock as the Company's agent to perfect the Company's security
interest in the Pledged Stock, and not as an escrow holder for Purchaser and
the Company. Nothing herein shall be construed to permit the Purchaser any
control over the Pledged Stock while so held, the right to direct disposal of
the Pledged Stock, or any other right inconsistent with the Agent's
possession of the certificate(s) as perfecting the Company's security
interest. In the event the Purchaser fails to make any payment under the
Note, or otherwise defaults in any obligation due the Company, the Agent
shall deliver the certificate(s) to the Company, or take such other action as
the Company, as a secured creditor under the California Commercial Code,
shall direct. The Purchaser acknowledges that state or federal securities
laws may restrict the public sale of the Pledged Stock, and may require
private sales at prices or on terms less favorable to the seller than public
sales. The Purchaser agrees that where the Company, in its sole discretion,
determines that a private sale is appropriate, such sale shall be deemed to
have been made in a commercially reasonable manner.
The Company may at any time release some or all of the Pledged Stock
from the provisions of these Escrow Instructions by giving written notice to
the Purchaser and the Agent directing delivery to the Purchaser of the shares
of Pledged Stock to be released. If the Purchaser satisfies the preconditions
set forth below, the Company shall give to the Purchaser and the Agent
written notice directing delivery to the Purchaser of the shares of Pledged
Stock to be released. The Agent shall use its best efforts to cause the
certificate(s) evidencing the Pledged Stock held by the Agent to be delivered
to the Purchaser pursuant to such notice within ten (10) days from receipt of
such notice. As preconditions to any such release, the Company shall require
that the fair market value of the Pledged Stock to remain in this escrow (as
determined by the closing price of the Pledged Stock on as reported on such
securities exchange or market system on which the shares of the same class as
the Pledged Stock is listed on the date of such notice) satisfies the
applicable conditions, if any, of Regulation U, as promulgated by the Board
<PAGE>
of Governors of the Federal Reserve System, or other comparable law or
regulation.
To facilitate the exercise of the Reacquisition Right, the exercise of
the Company's rights as a secured party, and the performance of these
instructions, the Purchaser does hereby constitute and appoint the Agent as
the Purchaser's attorney-in-fact and agent for the term of this escrow to
execute with respect to such securities all stock certificates, stock
assignments, or other instruments which shall be necessary or appropriate to
make such securities negotiable and complete any transaction herein
contemplated, including the Company's exercise of its rights as a secured
party. The Purchaser understands that such appointment is coupled with an
interest and is irrevocable. Subject to the provisions of these Escrow
Instructions, the Purchaser shall exercise all rights and privileges of a
stockholder of the Company while the Pledged Stock is held by the Agent;
provided, however, the Purchaser may not sell, transfer, dispose of, or in
any manner encumber any shares of the Pledged Stock while such shares of
Pledged Stock are held by Agent hereunder.
If at the time of termination of this escrow, the Agent shall have in
its possession any documents, securities, or other property belonging to the
Purchaser, the Agent shall deliver all of same to the Purchaser and shall be
discharged of all further obligations hereunder.
The Agent's duties hereunder may be altered, amended, modified, or
revoked only by a writing signed by the Company and the Purchaser, and
approved by the Agent.
The Agent shall not be personally liable for any act the Agent may do or
omit to do hereunder as escrow agent, agent for the Company, or attorney in
fact for the Purchaser while acting in good faith and in the exercise of the
Agent's own good judgment, and any act done or omitted by the Agent pursuant
to the advice of the Agent's own attorneys shall be conclusive evidence of
such good faith.
The Agent is hereby expressly authorized to disregard any and all
warnings by any of the parties hereto or by any other person, firm,
corporation, or other entity, excepting only orders or process of courts of
law, and is hereby expressly authorized to comply with and obey orders,
judgments, or decrees of any court. In the event the Agent obeys or complies
with any such order, judgment, or decree of any court, the Agent shall not be
liable to any of the parties hereto or to any other person, firm,
corporation, or other entity by reason of such compliance notwithstanding
that any such order, judgment, or decree shall be subsequently reversed,
modified, annulled, set aside, vacated, or found to have been entered without
jurisdiction.
The Agent shall not be liable in any respect on account of the identity,
authorities, or rights of the parties executing or delivering or purporting
to execute or deliver any agreements or documents called for by the Purchase
Agreement or any documents or papers deposited or called for hereunder.
The Agent shall not be liable for the barring of any rights under the
statute of limitations with respect to these Escrow Instructions or any
documents deposited with the Agent.
<PAGE>
By signing these Escrow Instructions, the Agent becomes a party hereto
only for the purpose of said Escrow Instructions. The Agent shall not be
considered a party to the Purchase Agreement or the Bonus Agreement or to any
documents or agreements called for by the Purchase Agreement or the Bonus
Agreement.
The Agent may resign from the Agent's duties hereunder at any time upon
written notice to the Company and the Purchaser and delivery of all documents
and certificates held in this escrow to the successor escrow agent. If a
successor escrow agent has not been appointed within thirty (30) days, the
Agent may deliver all such documents and certificates to the Company, at
which time, all further responsibilities and duties of the Agent shall cease.
If prior to the termination of these Escrow Instructions the Agent shall
resign or otherwise cease to operate as escrow agent, a successor escrow
agent shall be designated by the Board of Directors of the Company. The Board
of Directors of the Company may, at any time, substitute another party in the
Agent's place as escrow agent hereunder, and the Purchaser hereby expressly
accepts such substitution.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to the Company, to:
Tab Products Co.
1400 Page Mill Road
Palo Alto, CA 94304
Attn: Chief Financial Officer
if to the Purchaser, to the address set forth below the
Purchaser's signature below.
if to the Agent, to:
Corporate Secretary
Tab Products Co
1400 Page Mill Road
Palo Alto, CA 94304
The provisions of these Escrow Instructions shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
These Escrow Instructions shall be governed, to the fullest extent
possible, by the laws contained in the California Commercial Code, including
any regulations or judicial interpretations with respect thereto. To the
extent that any matter is not governed by the laws contained in the
California Commercial Code, such matter shall be governed by the laws of the
State of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
<PAGE>
These Escrow Instructions, the Note, the Purchase Agreement and the
Bonus Agreement contain the entire understanding of the Company and the
Purchaser with respect to the subject matter contained herein, and there are
no other contracts, agreements, understandings, representations, warranties,
or covenants with respect to the subject matter contained herein.
IN WITNESS WHEREOF, the Company and the Purchaser have executed these
Escrow Instructions as of the date first above written.
TAB PRODUCTS CO.
a Delaware corporation
By:
Title:
PURCHASER:
Signature
Address
ESCROW AGENT:
Secretary, Tab Products Co.
<PAGE>
TAB PRODUCTS CO.
RESTRICTED STOCK BONUS AGREEMENT
THIS RESTRICTED STOCK BONUS AGREEMENT (the "AGREEMENT") is made as of
__________________, 1999, by and between Tab Products Co., a Delaware
corporation (the "COMPANY"), and ________________________ (the "THE
EMPLOYEE").
WITNESSETH:
WHEREAS, the Employee is an employee of the Company and has entered into
that certain Stock Purchase Agreement (the "PURCHASE AGREEMENT") of even date
herewith between the Company and the Employee .
WHEREAS, the Employee has delivered to the Company the Employee's
Promissory Note and Pledge Agreement (the "NOTE") of even date herewith in
partial payment for the shares of Common Stock of the Company purchased by
the Employee pursuant to the Purchase Agreement.
WHEREAS, the Company desires to issue and the Employee desires to
acquire certain additional shares of the Common Stock of the Company on the
terms and conditions set forth below.
WHEREAS, the Employee and the Company intend that any and all shares
acquired by the Employee pursuant to this Agreement shall be pledged by the
Employee as additional security for the performance of the Employee's
obligations under the Note.
WHEREAS, the shares of Common Stock issuable pursuant to this Agreement
have been duly registered pursuant to an effective Form S-8 Registration
Statement under the Securities Act of 1933.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
GRANT OF SHARES.
GRANT. On the date of this Agreement, the Employee will acquire and the
Company will issue, subject to the provisions of Section 1.3 and this
Section, ___________________ shares of the Common Stock of the Company (the
"SHARES") in consideration for the Employee's prior services with the
Company. As a condition to the issuance and delivery of the Shares, the
Employee shall execute and deliver to the Company contemporaneously with the
execution of this Agreement (a) the Purchase Agreement, (b) the Note, (c) two
additional originals of an Assignment Separate from Certificate duly endorsed
(with date and number of shares blank) in the form attached as EXHIBIT B to
the Purchase Agreement, and (d) the Joint Escrow Instructions in the form
attached as EXHIBIT C to the Purchase Agreement.
CERTIFICATE REGISTRATION. The certificate for the Shares shall be registered
in the name of the
<PAGE>
Employee.
RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding any other provision of
this Agreement to the contrary, no Shares shall be issued if the issuance or
delivery of such shares would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Shares may
then be listed. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance of the Shares hereunder shall
relieve the Company of any liability in respect of the failure to issue such
shares as to which such requisite authority shall not have been obtained. As
a condition to the issuance and delivery of the Shares, the Company may
require the Employee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and
to make any representation or warranty with respect thereto as may be
requested by the Company.
VESTING AND UNVESTED SHARE REACQUISITION RIGHT.
VESTING. Provided that the Employee's employment with the Company has not
terminated prior to the relevant date below, the Shares shall vest in full
(the "VESTED SHARES") on the earlier of:
the third anniversary of the date of this Agreement, or
the date of the closing of a Change in Control (as defined below).
UNVESTED SHARE REACQUISITION RIGHT. If the Employee ceases to be an employee
of the Company, the Company shall automatically reacquire from the Employee
on the date of such termination of employment all Shares which have not
become Vested Shares (the "UNVESTED SHARES") as of such date, and the
Employee shall not be entitled to any payment therefor (the "UNVESTED SHARE
REACQUISITION RIGHT").
OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event (as
defined below), any and all new, substituted or additional securities or
other property to which the Employee is entitled by reason of his ownership
of Unvested Shares shall be immediately subject to the Unvested Share
Reacquisition Right and included in the terms "Shares" and "Unvested Shares"
for all purposes of the Unvested Share Reacquisition Right.
PARACHUTE PAYMENTS. In the event that any benefit received or to be received
by the Employee pursuant to this Agreement or otherwise (collectively, the
"PAYMENTS") would result in a "parachute payment" as described in section
280G of the Internal Revenue Code of 1986, as amended (the "CODE"), and would
be subject to the excise tax imposed by section 4999 of the Code or any
similar or successor provision, then notwithstanding the other provisions of
this Agreement, the amount of such Payments will not exceed the amount which
produces the greatest after-tax benefit to the Employee. For purposes of the
foregoing, the greatest after-tax benefit will be determined within thirty
(30) days of the occurrence of such Payments to the Employee, in the
Employee's sole and absolute discretion. If no such determination is made by
the Employee within thirty (30) days of the occurrence of the Payments, the
Company will make
<PAGE>
such determination in a fair and equitable manner.
CERTAIN DEFINITIONS.
For the purposes of this Section 2, the term "COMPANY" shall include any
successor to the Company.
"CHANGE IN CONTROL" means the occurrence of any of the following events:
Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
total voting power represented by the Company's then outstanding voting
securities.
A merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation.
The complete liquidation of the Company.
The sale or disposition by the Company of all or substantially all of the
Company's assets.
There occurs a change in the Board of Directors of the Company within a
two-year period, as a result of which fewer than a majority of the Directors
are Incumbent Directors. For purposes of this Agreement, an Incumbent
Director is any director who is either:
a director of the Company as of the date of this Agreement; or
a director who is appointed or nominated for election to the Board of
Directors of the Company by the Board of Directors or its nominating
committee and whose nomination or appointment is approved by with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such appointment or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company).
"OWNERSHIP CHANGE EVENT" means the occurrence of any of the following with
respect to the Company: (i) the direct or indirect sale or exchange by the
stockholders of all or substantially all of the stock of the Company; (ii) a
merger or consolidation in which the Company is a party; (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the
Company; or (iv) a liquidation or dissolution of the Company.
ASSIGNMENT OF RIGHTS.
The Company may assign its rights under Section 2 hereof at any time,
whether or
<PAGE>
not any event has occurred which permits the Company to exercise
such rights, to one or more persons, who will have the right to so exercise
such rights in his, her or their own names and for his, her or their own
account.
ESCROW AND TRANSFER RESTRICTIONS.
As security for the Employee's obligations under the Note, and to ensure the
availability for delivery of the Unvested Shares upon the Company's exercise
of the Unvested Share Reacquisition Right, the Employee agrees to deliver to
and deposit with an agent designated by the Company the certificate or
certificates evidencing the Shares, together with two originals of an
Assignment Separate From Certificate with respect to such certificates duly
endorsed (with date and number of shares blank) in the form attached as
EXHIBIT B to the Purchase Agreement, to be held by the agent under the terms
and conditions of the Joint Escrow Instructions in the form attached as
EXHIBIT C to the Purchase Agreement (the "ESCROW").
The Employee will, during the term of this Agreement, exercise all rights and
privileges of a stockholder of the Company with respect to the Shares
deposited in the Escrow, except that the Employee will not sell, transfer,
pledge, hypothecate or otherwise dispose of any Shares except in accordance
with the terms of this Agreement and the Escrow.
Notwithstanding any other provision of this Agreement to the contrary, other
than pursuant to an Ownership Change Event, neither the Employee nor the
Employee's legal representative shall sell, exchange, transfer, pledge or
otherwise dispose of, including by operation of law, any Unvested Shares, and
any such attempted disposition shall be void.
The Company will not be required (a) to transfer on its books any Shares
which will have been sold or transferred in violation of any of the
provisions set forth in this Agreement or (b) to treat as owner of such
Shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such Shares will have been so transferred.
ADJUSTMENT TO SHARES SUBJECT TO AGREEMENT.
If, from time to time, there is any stock dividend or liquidating
dividend of cash and/or property, stock split, reverse stock split,
recapitalization, combination, reclassification or other similar change in
the character or amount of any of the outstanding securities of the Company,
then, in such event any and all new, substituted or additional securities or
other property to which the Employee is entitled by reason of his ownership
of the Shares will be immediately subject to the provisions of this Agreement
and the Escrow on the same basis as all Shares originally acquired hereunder,
and will be included in the term "Shares" for all purposes of this Agreement
and the Escrow with the same force and effect as the Shares presently subject
thereto.
EMPLOYMENT MATTERS.
The Employee understands and acknowledges that, except as otherwise
provided in a separate, written employment agreement between the Company and
the Employee, the
<PAGE>
Employee's employment is "at will" and is for no specified term. Nothing in
this Agreement shall confer upon the Employee any right to continued
employment by the Company or interfere in any way with any right of the
Company to terminate the Employee's employment at any time.
TAX MATTERS.
TAX WITHHOLDING. At the time that this Agreement is executed, or at any time
thereafter as requested by the Company, the Employee hereby authorizes
withholding from payroll and any other amounts payable to the Employee, and
otherwise agrees to make adequate provision for any sums required to satisfy
the federal, state, local and foreign tax withholding obligations of the
Company, if any, which arise in connection with this Agreement, including,
without limitation, obligations arising upon (a) the transfer of the Shares
to the Employee, or (b) the lapsing of any restriction with respect to any
Shares. The Employee is cautioned that the Company shall have no obligation
to issue a certificate for the Shares or release Shares from any escrow
provided for herein unless the tax withholding obligations of the Company
have been satisfied.
ELECTION UNDER SECTION 83(b) OF THE CODE.
The Employee understands that Section 83 of the Code taxes as ordinary income
the difference between the amount paid for the Shares, if anything, and the
fair market value of the Shares as of the date any restrictions on the Shares
lapse. In this context, "restriction" means the right of the Company to
reacquire the Shares pursuant to the Unvested Share Reacquisition Right
contained in this Agreement. The Employee understands that he or she may
elect to be taxed at the time the Shares are acquired rather than when and as
the Unvested Share Reacquisition Right expires by filing an election under
Section 83(b) of the Code with the Internal Revenue Service no later than
thirty (30) days after the date of acquisition. The Employee understands that
failure to make this filing timely will result in the recognition of ordinary
income by the Employee, as the Unvested Share Reacquisition Right lapses, on
the difference between the purchase price, if anything, and the fair market
value of the Shares at the time such restrictions lapse. The Employee further
understands, however, that if Unvested Shares with respect to which an
election under Section 83(b) has been made are forfeited to the Company
pursuant to its Unvested Share Reacquisition Right, such forfeiture will be
treated as a sale on which there is realized a loss equal to the excess (if
any) of the amount paid (if any) by the Employee for the forfeited shares
over the amount realized (if any) upon their forfeiture. If the Employee has
paid nothing for the forfeited shares and has received no payment upon their
forfeiture, the Employee understands that he will be unable to recognize any
loss on the forfeiture of the Unvested Shares even though the Employee
incurred a tax liability by making an election under Section 83(b).
The Employee understands that he should consult with his tax advisor
regarding the advisability of filing with the Internal Revenue Service an
election under Section 83(b) of the Code, which must be filed no later than
thirty (30) days after the date of his acquisition of the Shares pursuant to
this Agreement. Failure to file an election under Section 83(b), if
appropriate, may result in adverse tax consequences to the Employee. The
Employee acknowledges that he has been advised to consult with a tax advisor
regarding the tax consequences to the Employee of the acquisition of Shares
hereunder. AN ELECTION UNDER SECTION 83(b) MUST BE FILED
<PAGE>
NO LATER THAN 30 DAYS AFTER THE DATE ON WHICH THE EMPLOYEE ACQUIRES THE
SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE EMPLOYEE ACKNOWLEDGES THAT
TIMELY FILING OF A SECTION 83(b) ELECTION IS EMPLOYEE'S SOLE RESPONSIBILITY,
EVEN IF EMPLOYEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH
ELECTION ON HIS BEHALF.
The Employee will notify the Company in writing if the Employee files an
election pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from the Employee evidence of such filing, to claim
a tax deduction for any amount which would otherwise be taxable to the
Employee in the absence of such an election.
LEGENDS.
All certificates representing any Shares subject to the provisions of
this Agreement shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED
SHARE REACQUISITION RIGHT SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND
THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
MISCELLANEOUS PROVISIONS.
FURTHER INSTRUMENTS. The parties hereto agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
BINDING EFFECT. This Agreement will inure to the benefit of the successors
and assigns of the Company and, subject to the restrictions on transfer
herein set forth, be binding upon the Employee and the Employee's heirs,
executors, administrators, successors and assigns; provided, however, that
the Employee may not assign his or her rights under this Agreement without
the Company's prior written consent.
NOTICES. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit
in the United States Post Office, by registered or certified mail, with
postage and fees prepaid, addressed to the other party at the address shown
below that party's signature or at such other address as such party may
designate in writing from time to time to the other party.
INTEGRATED AGREEMENT. This Agreement, together with the Note, the Joint
Escrow Instructions and exhibits thereto, constitute the entire understanding
and agreement of the Employee and the Company with respect to the subject
matter contained herein or therein and supersedes any prior agreements,
understandings, restrictions, representations, or warranties between the
Employee and the Company with respect to such subject matter other than those
as set forth or provided for herein or therein.
<PAGE>
WAIVER. No failure on the part of any party to exercise or delay in
exercising any right hereunder will be deemed a waiver thereof, nor will any
such failure or delay, or any single or partial exercise of any such right,
preclude any further or other exercise of such right or any other right.
APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California
residents entered into and to be performed entirely within the State of
California.
INTERPRETATION. All questions of interpretation concerning this Agreement
will be determined by the Company's Board of Directors (the "BOARD") or by a
duly appointed committee of the Board having such powers as specified by the
Board. All determinations by the Board or such committee will be final and
binding upon all persons having an interest in this Agreement. Any officer of
the Company will have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right,
obligation, or election.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which
will be an original and all of which together will constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TAB PRODUCTS CO.
By:
Address: 1400 Page Mill Road
Palo Alto, CA 94304
EMPLOYEE
Signature
Employee's Address:
<PAGE>
[LOGO] BANK OF AMERICA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDMENT TO DOCUMENTS
AMENDMENT NO. 3 TO BUSINESS LOAN AGREEMENT
This Amendment No. 3 (the "Amendment") dated as of September 24, 1999,
is between Bank of America, N.A. (the "Bank"), formerly Bank of America
National Trust and Savings Association and Tab Products Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of November 1, 1998, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In first Paragraph 9.3 of the Agreement is amended to read in
its entirety as follows:
"9.3 QUICK ASSETS. To maintain on a consolidated basis as of
the end of each quarterly accounting period commencing June 1,
1999, quick assets in excess of current liabilities by at least
Fifteen Million Dollars ($15,000,000)."
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there
is no event which is, or with notice or lapse of time or both would be, a
default under the Agreement except those events, if any, that have been
disclosed in writing to the Bank or waived in writing by the Bank, (b) the
representations and warranties in the Agreement are true as of the date of
this Amendment as if made on the date of this Amendment, (c) this Amendment
is within the Borrower's powers, has been duly authorized, and does not
conflict with any of the Borrower's organizational papers, and (d) this
Amendment does not conflict with any law, agreement, or obligation by which
the Borrower is bound.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA, N.A. Tab Products Co.
X /s/ Chris P. Giannotti X /s/ David J. Davis
- ------------------------------------ ------------------------------------
By: Chris P. Giannotti, By: David J. Davis, SVP,
Vice President Operations and Chief Financial
Officer
X /s/ Robert J. Sexton
------------------------------------
By: Robert J. Sexton
Treasurer and Secretary
- -------------------------------------------------------------------------------
-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 2,587
<SECURITIES> 4,262
<RECEIVABLES> 28,531
<ALLOWANCES> 1,024<F1>
<INVENTORY> 7,500
<CURRENT-ASSETS> 52,239
<PP&E> 53,761
<DEPRECIATION> 36,891
<TOTAL-ASSETS> 75,191
<CURRENT-LIABILITIES> 20,362
<BONDS> 3,195
0
0
<COMMON> 51,382
<OTHER-SE> (3,329)
<TOTAL-LIABILITY-AND-EQUITY> 75,191
<SALES> 55,266
<TOTAL-REVENUES> 63,195
<CGS> 32,815
<TOTAL-COSTS> 37,805
<OTHER-EXPENSES> 28,645
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 10,412
<INCOME-TAX> 4,373
<INCOME-CONTINUING> 6,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,039
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.19
<FN>
<F1>Inventory detail at November 30, 1999 was finished goods $2,465; work in
process $242; raw materials $4,793.
</FN>
</TABLE>
