FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, 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 1-14120
BLONDER TONGUE LABORATORIES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1611421
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Jake Brown Road, Old Bridge, New Jersey 08857
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 679-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
- ----------------------------- ------------------------------------
Common Stock, Par Value $.001 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant (computed by using the closing stock price on March 19, 1997, as
reported by the American Stock Exchange): $20,323,969.
Number of shares of common stock, par value $.001, outstanding as of
March 19, 1997: 8,211,608.
Documents incorporated by reference:
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on April 24, 1997 (which is expected to be
filed with the Commission not later than 120 days after the end of the
registrant's last fiscal year) are incorporated by reference into Part III of
this report.
The Exhibit Index appears on page 21.
<PAGE>
Forward-Looking Statements
In addition to historical information, this Annual Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the sections entitled Item 1 - Business, Item 3 - Legal
Proceedings, and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. The words "believe", "expect",
"anticipate", "project" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. Blonder Tongue undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission.
PART I
ITEM 1. BUSINESS
Introduction
Blonder Tongue Laboratories, Inc. (the "Company") is a designer,
manufacturer and supplier of a comprehensive line of electronics and systems
equipment for the non-franchised cable television industry, commonly referred to
as the private cable industry ("Private Cable") and the franchised cable
industry ("CATV") which now potentially includes the regional and long distance
telephone service providers. The Company's products are used in the acquisition,
conversion, distribution and protection of television signals transmitted via
satellite, coaxial cable, terrestrial broadcast, terrestrial multi-channel,
multi-point distribution systems and low power television. These products are
sold to customers which provide an array of communications services, including
television, to single family dwellings, multiple dwelling units ("MDU")
consisting mainly of apartment complexes and condominiums, the lodging industry
("Lodging") consisting mainly of hotels, motels and resorts, and other
facilities such as schools, hospitals, prisons and marinas. The Company's
products are also used in surveillance systems ranging in complexity from simple
in-home monitoring systems to advanced business security systems with hundreds
of cameras.
Blonder Tongue's product line can be separated, according to function,
into the following categories: (i) headend products used by a system operator
for signal acquisition, processing and manipulation for further transmission
("Headend Products"), (ii) distribution products used to permit signals to
travel to their ultimate destination in a home, apartment unit, hotel room,
office or other terminal location ("Distribution Products"), (iii) subscriber
products used to control access to programming at the subscriber's location and
to split and amplify incoming signals for transmission to multiple sites and for
multiple television sets within a site ("Subscriber Products"), and (iv)
microwave products used to transmit the output of Headend Products to multiple
locations using point-to-point communication links in the 13 GHz (for CATV) and
18 GHz (for Private Cable) range of frequencies ("Microwave Products").
The Company's principal customers are system integrators which design,
package, install and in most instances operate the cable system.
-2-
<PAGE>
Industry Overview
The television signal distribution industry is dominated by broadcast
television and CATV. Private Cable, wireless cable and direct broadcast
satellite, although smaller in market size, are becoming more significant
players and are growing more rapidly. The regional telephone companies and long
distance carriers are also emerging as television providers, through telephone
lines, coaxial cable, fiber optics and/or wireless transmission. Recently
enacted governmental deregulation of the communications industry has eliminated
many remaining barriers to entry by alternative service providers, fostering an
environment of greater competition and change.
CATV service is typically provided through a coaxial cable network or a
combination of optical fiber and coaxial cable that originates from a central
headend and is carried to the subscriber's television set on telephone poles or
underground along utility rights-of-way. Since the installation and maintenance
of this network requires substantial initial and ongoing investment, a local
governmental body typically awards a CATV operator rights to provide cable
service to a defined geographic area. These rights or franchises were awarded on
an exclusive basis prior to the adoption of the Telecommunications Act of 1996.
Presently, additional franchises within geographical areas are encouraged, in
order to increase competition. In contrast, Private Cable operates within the
boundaries of private property, does not require any governmental license or
franchise (other than the FCC license for transmission of television signals in
the 18 GHz frequency band), and does not need access to public or private
rights-of-way to deliver service. In Private Cable, television signals are
acquired and transmitted from property to property via wireless transmission or
using common carrier services (i.e. fiber networks operated by telephone service
providers) rather than coaxial cable.
The traditional CATV customer is a homeowner who is likely to remain in
the same home as a long-term subscriber. For a wide variety of reasons,
including the transient nature of apartment dwellers and the high cost of
replacing lost or damaged set-top converters in apartment units when the tenants
change, CATV has failed to adequately service the MDU market. This failure,
together with the ability of Private Cable operators to link multiple properties
to a central headend system, have greatly expanded the potential market for
Private Cable. Present franchise cable operators recognizing the competition of
private cable, anticipating direct competition by telephone service providers,
and faced with employing even more costly in-house converters (i.e. as digital
service is added) realize the vulnerability of the set top concept and the need
to expand services to retain subscribers.
CATV
Many CATV operators and telephone service providers are building fiber
optic networks with alternative combinations of fiber optic and coaxial cable to
deliver television signal programming data and phone services on one drop cable.
CATV's deployment of fiber optic trunk has been completed in only 10% to 20% of
existing systems. Deployment of the latest technology is in the test system
stage. The system architecture being employed to accomplish the combined
provision of television and telephone service is either hybrid fiber coax
("HFC") or fiber to the curb ("FTTC"). In HFC systems, fiber optic trunk lines
connect to nodes which feed 200 to 400 subscribers, using coaxial cable. In FTTC
systems fiber optic cable is used deeper into the network, with as few as 4 to 8
subscribers fed by coaxial cable from each node. In either case, extensive
rebuilding of a CATV system is required to provide the services anticipated.
Consequently, not only are the regional and long distance telephone service
providers faced with enormous capital expenditures to enter the video signal
delivery business, but CATV is faced with similar expenditures to compete with
them (or to discourage them from entering the race) to be the provider of the
information superhighway.
The Company believes that most major metropolitan areas will eventually
have complex networks of one or two independent operators interconnecting the
homes and private cable operators will have large
-3-
<PAGE>
networks interconnecting many multi-dwelling complexes. All these networks are
potential users of Blonder Tongue Headend and interdiction products.
MDU
Until February, 1991, the ability of Private Cable operators to
penetrate the MDU market was substantially limited by FCC rules which
specifically prohibited the Private Cable operator from using coaxial cable
connections between properties. CATV operators had a significant competitive
advantage because they could connect properties within their franchised areas
with coaxial cable. In an effort to level the playing field, the FCC designated
special frequency bands enabling Private Cable operators to link multiple
properties to one central headend system via microwave signal transmission,
thereby spreading the cost of headend electronics over multiple MDUs and a wider
potential subscriber base. This new 18 GHz service is wide enough to support the
transmission of 72 channels of television programming, has been the catalyst
fueling the growth and product investment of MDU system operators, and has
caused a substantial increase in the demand for quality Headend Products. In
addition, provisions of the Telecommunications Act of 1996, adopted in February,
1996, now permit Private Cable system operators to use coaxial cable connections
between adjacent properties where no access to public rights-of-way are
required. Further, fiber optic networks built by regional and long distance
telephone service providers, which are common carriers, could be used by Private
Cable system integrators as interconnects.
Through the use of Microwave Products and common carrier fiber optic
networks, Private Cable operators can target geographic areas with multiple
properties, many of which would not otherwise have been considered economically
feasible, for inclusion as part of an extensive Private Cable network. In the
past, properties with 100 to 200 subscribers, could not financially justify more
than 15 to 20 channels, but can now be linked to a central headend and justify a
high channel carrier service of 60 channels or more. This allows Private Cable
operators to supply a wide variety of programming at a price which is
competitive with CATV.
The economic feasibility of a Private Cable system depends on
controlling the headend cost and spreading that cost over as many subscribers as
possible using microwave links to multiple MDUs. Electronic equipment providing
the best possible performance-to-cost ratio is key to successfully providing for
the needs of Private Cable operators. The Company believes that its products are
cost-effective and competitive with the products of other companies supplying
the CATV industry, in terms of quality, number of channels and price.
Lodging
Until the early 1990's, one system integrator dominated the Lodging
market and manufactured much of its own equipment. During the last several
years, other Private Cable integrators have successfully entered and expanded
the Lodging market by offering systems with more channels, video-on-demand and
interactivity. These systems have been well received in the market, as property
owners have sought additional revenues and guests have demanded increased
in-room conveniences. The integrators leading this market evolution rely upon
outside suppliers for their system electronics and are Blonder Tongue customers.
These companies and others offer Lodging establishments VCR-based systems which
provide true video-on-demand movies with a large selection of titles. To meet
these demands, the typical Lodging system headend will include as many as 20 to
40 receivers and as many as 60 to 80 modulators, and will be capable of
providing the guest with more channels free-to-guest, video-on-demand for a
broad selection of movie titles and even interactive services such as remote
check-out and concierge services. This is in contrast to the systems which
preceded them which had typically 10 to 12 receivers and modulators and provided
6 to 10 channels free-to-guest and 2 to 5 channels of VCR-based movies running
at published scheduled times.
There is a trend to substitute video file servers for VCRs, which the
Company believes will eventually replace VCR's in video-on-demand systems. The
timing and speed of this transition is dependent on availability of lower cost
servers.
-4-
<PAGE>
Most of the systems with video-on-demand service are in larger hotels,
where the economics of high channel capacity systems are more easily justified.
The conversion of hotel pay-per-view systems into video-on-demand is increasing.
Smaller hotels and motels have had limited video-on-demand penetration to date,
principally because of the headend cost associated with each system and the
limited revenues generated by the smaller number of rooms.
International
For much of the world, television service is in its infancy, but is
expected to rapidly expand as technological advancement reduces the cost to
consumers. In addition, economic development in Latin America and Asia has
allowed first time construction of integrated delivery systems which utilize a
variety of electronics and broadband hardware. The pace of growth is difficult
to predict, but as more alternatives become available and television service
becomes increasingly affordable, it is likely that more equipment will be placed
in the field.
Additional Considerations
The technological revolution taking place in the communications
industry, which includes direct broadcast satellite, is providing digital
television to an increasing number of homes. Wireless cable systems also utilize
digital compression to provide channel capacity which is competitive with CATV
and other television delivery systems. In addition, franchised cable companies
and telephone companies, as stated earlier, are building fiber optic networks to
offer video data and telephony. There is also the possibility of convergence of
data and video communications, wherein computer and television systems merge and
the computer monitor replaces the television screen. While it is not possible to
predict with certainty which technology will be dominant in the future, it is
clear that digitized video and advances in the ability to compress the digitized
video signal make both digital television and the convergence of computer,
telephone and television systems technically possible.
Since United States television sets are analog (not digital), direct
satellite television and other digitally compressed programming requires Headend
Products or expensive set-top decoding receivers to convert the digitally
transmitted satellite signals back to analog. The replacement of all television
sets with digital sets will be costly and take many years to evolve. The Company
believes that for many years to come, program providers will be required to
deliver an analog television signal on standard channels to subscribers'
television sets using Headend Products at some distribution point in their
networks or employ decoding receivers at each television set. Headend Products
are the heart of Blonder Tongue's business and except for systems deploying
digital decoders at each television set (which is very expensive), the Company
believes VideoMask(TM) is an ideal product for a system operator to use to
control access to the multitude of programming that will be available. In the
completely digital environment which may develop over the long term, all analog
Headend Products will need to be replaced with pure digital products. The
Company and all other suppliers to Private Cable, CATV and the television
industry generally will need to design and manufacture new products for that
environment.
Products
Blonder Tongue's products can be separated, according to function, into
the four broad categories described below:
o Headend Products used by a system operator for signal acquisition,
processing and manipulation for further transmission. Among the
products offered by the Company in this category are satellite
receivers (digital and analog), integrated receiver/decoders,
demodulators, modulators, antennas and antenna mounts, amplifiers,
equalizers, and processors. The headend of a television signal
distribution system is the "brain" of the system, the central location
where the multi-channel
-5-
<PAGE>
signal is initially received, converted and allocated to specific
channels for distribution. In some cases, where the signal is
transmitted in encrypted form or digitized and compressed, the receiver
will also be required to decode the signal. Blonder Tongue is a
licensee of General Instrument Corporation's VideoCipher(R) and
DigiCipher(R) encryption technologies and EchoStar Communication
Corp.'s digital technologies and integrates their decoders into
integrated receiver/decoder products, where required. The Company is
negotiating with additional companies which are delivering digital
television signal transmission to acquire licenses to incorporate their
proprietary digital decoders into the Company's receivers. The Company
estimates that Headend Products accounted for approximately 90% of the
Company's revenues in 1994 and 1995 and 84% of revenues in 1996.
o Distribution Products used to permit signals to travel from the
headend to their ultimate destination in a home, apartment unit, hotel
room, office or other terminal location along a distribution network of
fiber optic or coaxial cable. Among the products offered by the Company
in this category are line extenders, broadband amplifiers, directional
taps, splitters and wall taps. In CATV systems, the distribution
products are either mounted on exterior telephone poles or encased in
pedestals, vaults or other security devices. In Private Cable systems
the distribution system is typically enclosed within the walls of the
building (if a single structure) or added to an existing structure
using various techniques to hide the coaxial cable and devices. The
non-passive devices within this category are designed to ensure that
the signal distributed from the headend is of sufficient strength when
it arrives at its final destination to provide high quality audio/video
images.
o Subscriber Products used to control access to programming at the
subscriber's location and to split and amplify incoming signals for
transmission to multiple sites and multiple television sets within a
site. Among the products offered by the Company in this category are
addressable interdiction devices, splitters, couplers and multiplexers.
The Company believes that the most significant product within this
category is its new VideoMask(TM) addressable signal jammer, licensed
from Philips Electronics North America Corporation and its affiliate
Philips Broadband Networks, Inc. in August 1995 under certain
non-exclusive technology and patent license agreements (the "Philips
License Agreements"), which limits, through jamming of particular
channels, the availability of programs to subscribers. Interdiction
products such as VideoMask(TM) enable an integrator to control
subscriber access to premium channels and other enhanced services
through a computer located off-premises. Such interdiction products
eliminate the necessity of an operator having to make a service call to
install or remove passive traps and eliminates the costs associated
with damage or loss of set-top converters in the subscribers'
locations. While it is not possible to predict the market acceptance
for this product, the Company believes the potential is substantial in
the MDU market. Moreover, the product could be sold to the CATV
industry as an alternative to set-top converters and is a viable option
for telephone companies which may seek a cost effective way to compete
with CATV.
o Microwave Products used to transmit the output of a cable system
headend to multiple locations using point-to-point communication links
in the 13 GHz (for CATV) and 18 GHz (for Private Cable) range of
frequencies. Among the products offered by the Company in this category
are power amplifiers, repeaters, receivers, transmitters and compatible
accessories. These products convert the headend output up to the
microwave band and transmit this signal using parabolic antennas. At
each receiver site, a parabolic antenna-receiver combination converts
the signal back to normal VHF frequencies for distribution to
subscribers at the receiver site. The Company believes that this class
of products will be a major catalyst for growth in the Private Cable
MDU market and will be a strategic element in developing the Company's
CATV market penetration.
The Company will modify its products to meet specific customer
requirements. Typically, these modifications are minor and do not materially
alter the functionality of the products. Thus the inability of the
-6-
<PAGE>
customer to accept such products does not generally result in the Company being
otherwise unable to sell such products to other customers.
Research and Product Development
The markets served by Blonder Tongue are characterized by technological
change, new product introductions, and evolving industry standards. To compete
effectively in this environment, the Company must engage in continuous research
and development in order to (i) create new products, (ii) expand the frequency
range of existing products in order to accommodate customer demand for greater
channel capacity, (iii) license new technology (such as digital satellite
receiver decoders), and (iv) acquire products incorporating technology which
could not otherwise be developed quickly enough using internal resources, to
suit the dynamics of the evolving marketplace. Research and development projects
are often initially undertaken at the request of and in an effort to address the
particular needs of its customers and customer prospects with the expectation or
promise of substantial future orders from such customers or customer prospects.
Additional research and development efforts are also continuously underway for
the purpose of enhancing product quality and engineering to lower production
costs. For the acquisition of new technologies, the Company may rely upon
technology licenses from third parties when the Company believes that it can
obtain such technology more quickly and/or cost-effectively from such third
parties than the Company could otherwise develop on its own, or when the desired
technology is proprietary to a third party. There were 20 employees in the
research and development department of the Company at December 31, 1996.
Marketing and Sales
Blonder Tongue markets and sells its products worldwide to Private
Cable integrators, which accounted for approximately 80% of the Company's
revenues for fiscal years 1994, 1995 and 1996 to regional and long distance
telephone service providers, and to CATV integrators. Sales are made through a
network of approximately 15 independent sales representatives with 20 offices
throughout the United States and Canada, through numerous domestic and
international stocking distributors, and directly to certain large end-users
through the Company's sales force.
The Company has contractual relationships with numerous independent
sales representatives and distributors. Such agreements are generally terminable
upon thirty days written notice by either party.
The Company maintains its own sales staff of approximately 23
employees, which currently includes four salespersons (one salesperson in each
of Cincinnati, Ohio, Timonium, Maryland, Plano, Texas and Moreno, California)
and 19 sales-support personnel at the Company headquarters in Old Bridge, New
Jersey.
The Company's standard customer payment terms are 2%-10, net 30 days.
From time to time where the Company determines that circumstances warrant, such
as when a customer agrees to commit to a large blanket purchase order, the
Company extends payment terms beyond its standard payment terms.
The Company has several marketing programs to support the sale and
distribution of its products. Blonder Tongue participates in industry trade
shows and conferences. The Company also publishes technical articles in trade
and technical journals, distributes sales and product literature and has an
active public relations plan to ensure complete coverage of Blonder Tongue's
products and technology by editors of trade journals. The Company provides
system design engineering for its customers, maintains extensive ongoing
communications with many OEM customers and provides one-on-one demonstrations
and technical seminars to potential new customers. Blonder Tongue supplies sales
and applications support, product literature and training to its sales
representatives and distributors. The management of the Company travels
extensively, identifying customer needs and meeting potential customers.
-7-
<PAGE>
The Company had approximately $34,209,000 and $3,248,000 in purchase
orders as of December 31, 1995 and December 31, 1996, respectively. At December
31, 1995 the outstanding purchase orders included orders from ICS aggregating
$25,068,000, of which only approximately $700,000 was actually shipped in 1996,
with the balance of the orders being cancelled. All of the purchase orders
outstanding as of December 31, 1996 are expected to be shipped prior to December
31, 1997. The outstanding purchase orders as of December 31, 1996 do not include
any amount for shipments anticipated as of December 31, 1996 under the Company's
contract with Pacific Bell, due to the nature of the contract. The purchase
orders are for the future delivery of products and are subject to cancellation
by the customer.
Customers
Blonder Tongue has a broad customer base, which in 1996 consisted of
more than 1,000 active accounts. Approximately 42%, 46% and 39% of the Company's
revenues in fiscal years 1994, 1995 and 1996, respectively, were derived from
sales of products to the Company's five largest customers. In 1996 sales to
LodgeNet Entertainment Corporation accounted for approximately 17% of the
Company's revenues. Sales to the five largest customers consisted principally of
Headend Products. There can be no assurance that any sales to these entities,
individually or as a group, will reach or exceed historical levels in any future
period. However, the Company anticipates that these customers will continue to
account for a significant portion of the Company's revenues in future periods,
although none of them is obligated to purchase any specified amount of products
(beyond outstanding purchase orders) or to provide the Company with binding
forecasts of product purchases for any future period.
The complement of leading customers may shift as the most efficient and
better financed integrators grow more rapidly than others. The Company believes
that many integrators will grow rapidly, and as such the Company's success will
depend in part on the viability of those customers and on the Company's ability
to maintain its position in the overall marketplace by shifting its emphasis to
those customers with the greatest growth and growth prospects. Any substantial
decrease or delay in sales to one or more of the Company's leading customers,
the financial failure of any of these entities, or the Company's inability to
develop and maintain solid relationships with the integrators which may replace
the present leading customers, would have a material adverse effect on the
Company's results of operations and financial condition.
The Company's revenues are derived primarily from customers in the
continental United States, however, the Company also derives revenues from
customers outside the continental United States, primarily in underdeveloped
countries. Television service is in its infancy in many international markets,
particularly Latin America and Asia, creating opportunity for those participants
who offer quality products at a competitive price. Sales to customers outside of
the United States represented approximately 11%, 9% and 5% of the Company's
revenues in fiscal years 1994, 1995 and 1996, respectively. All of the Company's
transactions with customers located outside of the continental United States are
denominated in U.S. dollars, therefore, the Company has no material foreign
currency transactions.
Manufacturing and Suppliers
Blonder Tongue's manufacturing operations are located at the Company's
headquarters in Old Bridge, New Jersey. The Company's manufacturing operations
are vertically integrated and consist principally of the assembly and testing of
electronic assemblies built from fabricated parts, printed circuit boards and
electronic devices and the fabrication from raw sheet metal of chassis and
cabinets for such assemblies. Management continues to implement a significant
number of changes to the manufacturing process to increase production volume and
reduce product cost, including logistics modifications on the factory floor, an
increased use of surface mount, axial lead and radial lead robotics to place
electronic components on printed circuit boards, a continuing program of circuit
board redesign to make more products compatible with robotic insertion equipment
and an increased integration in machining and fabrication. All of these efforts
are consistent with
-8-
<PAGE>
and part of the Company's strategy to provide its customers with products with a
high performance-to-cost ratio.
Outside contractors supply standard components and etch printed circuit
boards to the Company's specifications. While the Company generally purchases
electronic parts which do not have a unique source, certain electronic component
parts used within the Company's products are available from a limited number of
suppliers and can be subject to temporary shortages because of general economic
conditions and the demand and supply for such component parts. If the Company
were to experience a temporary shortage of any given electronic part, the
Company believes that alternative parts could be obtained or system design
changes implemented. However, in such situations the Company may experience
temporary reductions in its ability to ship products affected by the component
shortage. The Company purchases several products from sole suppliers for which
alternative sources are not available, such as the VideoCipher(R) and
DigiCipher(R) encryption systems manufactured by General Instrument Corporation,
which are standard encryption methodology employed on U.S. C-Band and Ku-Band
transponders and EchoStar digital satellite receiver decoders, which are
specifically designed to work with the DISH Network(TM). An inability to timely
obtain sufficient quantities of these components could have a material adverse
effect on the Company's operating results. The Company does not have a supply
agreement with General Instrument Corporation or any other supplier. The Company
submits purchase orders to its suppliers on an as-needed basis.
Blonder Tongue maintains a quality assurance program which tests
samples of component parts purchased, as well as its finished products, on an
ongoing basis and also conducts tests throughout the manufacturing process using
commercially available and in-house built testing systems that incorporate
proprietary procedures. Blonder Tongue performs final product tests on 100% of
its products prior to shipment to customers.
Competition
All aspects of the Company's business are highly competitive. The
Company competes with national, regional and local manufacturers and
distributors, including companies larger than Blonder Tongue which have
substantially greater resources. Various manufacturers who are suppliers to the
Company sell directly as well as through distributors into the CATV and Private
Cable marketplaces. Because of the convergence of the cable, telecommunications
and computer industries and rapid technological development, new competitors may
seek to enter the principal markets served by the Company. Many of these
potential competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than Blonder Tongue. The
Company expects that direct and indirect competition will increase in the
future. Additional competition could result in price reductions, loss of market
share and delays in the timing of customer orders. The principal methods of
competition are product differentiation, performance and quality, price and
terms, service, and technical and administrative support.
Intellectual Property
The Company currently holds 11 United States patents and 4 foreign
patents covering a wide range of electronic systems and circuits. None of these
patents, however, are considered material to the Company's present operations
because they do not relate to high volume applications. Because of the rapidly
evolving nature of the Private Cable and CATV industries, the Company believes
that its market position as a leading supplier to Private Cable derives
primarily from its ability to develop a continuous stream of new products which
are designed to meet its customers' needs and which have a high
performance-to-cost ratio.
The Company is a licensee of Philips Electronics North America
Corporation and its affiliate Philips Broadband Networks, Inc., Cable Home
Communications Corp., a subsidiary of General Instrument Corporation ("GI"),
Houston Tracker Systems, Inc., a subsidiary of EchoStar Communications Corp.
("EchoStar"), and several smaller software development companies.
-9-
<PAGE>
Under the Philips License Agreements, the Company is granted a
non-exclusive license for a term which expires in 2010, concurrently with the
last to expire of the relevant patents. The Philips License Agreements provide
for the payment by the Company of a one-time license fee and for the payment by
the Company of royalties based upon unit sales of licensed products.
The Company is a licensee of GI relating to GI's VideoCipher(R)
encryption technology and is also a party to a private label agreement with GI
relating to its DigiCipher(R) technology. Under the VideoCipher(R) license
agreement, the Company is granted a non-exclusive license under certain
proprietary know-how, to design and manufacture certain licensed products to be
compatible with the VideoCipher(R) commercial descrambler module for a term of
ten years, expiring in August, 2000. The VideoCipher(R) license agreement
provides for the payment by the Company of a one-time license fee for the
Company's first model of licensed product and additional one-time license fees
for each additional model of licensed product. The VideoCipher(R) license
agreement also provides for the payment by the Company of royalties based upon
unit sales of licensed products. Under the DigiCipher(R) private label
agreement, the Company is granted the non-exclusive right to sell DigiCipher(R)
II integrated receiver decoders bearing the Blonder Tongue name for use in the
commercial market for a term expiring in December, 1997. The DigiCipher(R)
private label agreement provides for the payment by the Company of a one-time
license fee for the Company's first model of licensed product and additional
one-time license fees for each additional model of licensed product.
In November 1996, the Company entered into a license agreement with
EchoStar, pursuant to which the Company is licensed to manufacture and sell
digital satellite receiver systems which are compatible with digital programming
transmitted by EchoStar's DISH Network(TM), for use in the commercial market.
The agreement is for a term of five years, expiring in November, 2001. The
EchoStar license agreement provides for the payment by the Company of a one-time
license fee and for the payment of royalties based upon unit sales of licensed
products.
During 1996, the Company also entered into several software development
and license agreements for specifically designed controller and interface
software necessary for the operation of the Company's Video Central(TM) remote
interdiction control system, which is used for remote operation of VideoMask(TM)
signal jammers installed at subscriber locations. These licenses are perpetual
and require the payment of a one-time license fee and in one case additional
payments, the aggregate of which are not material.
The Company relies on a combination of contractual rights and trade
secret laws to protect its proprietary technology and know-how. There can be no
assurance that the Company will be able to protect its technology and know-how
or that third parties will not be able to develop similar technology and
know-how independently. Therefore, existing and potential competitors may be
able to develop products that are competitive with the Company's products and
such competition could adversely affect the prices for the Company's products or
the Company's market share. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining its leadership position.
Regulation
Private Cable (estimated by the Company to represent approximately 80%
of its business), while in some cases subject to certain FCC licensing
requirements, is not presently burdened with extensive government regulations.
CATV operators (estimated by the Company to represent approximately 20% of its
business) had been subject to extensive government regulation pursuant to the
Cable Television Consumer Protection and Competition Act of 1992, which among
other things provided for rate rollbacks for basic tier cable service, further
rate reductions under certain circumstances and limitations on future rate
increases. The Telecommunications Act of 1996, enacted early last year, will
deregulate many aspects of CATV system operation and open the door to
competition among cable operators and telephone companies in each of their
-10-
<PAGE>
respective industries. The Company believes that this legislation will increase
the base of potential customers for the Company's products.
Environmental Regulations
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
processes. The Company did not incur in 1996 and does not anticipate incurring
in 1997 material capital expenditures for compliance with federal, state and
local environmental laws and regulations. There can be no assurance, however,
that changes in environmental regulations will not result in the need for
additional capital expenditures or otherwise impose additional financial burdens
on the Company. Further, such regulations could restrict the Company's ability
to expand its operations. Any failure by the Company to obtain required permits
for, control the use of, or adequately restrict the discharge of, hazardous
substances under present or future regulations could subject the Company to
substantial liability or could cause its manufacturing operations to be
suspended.
The Company presently holds a permit from the New Jersey Department of
Environmental Protection ("NJDEP"), Division of Environmental Quality, Air
Pollution Control Program relating to its operation of certain process
equipment, which permit expires in June, 2001. The Company has held such a
permit for this equipment on a substantially continuous basis since
approximately April, 1989. The Company also has authorization under the New
Jersey Pollution Discharge Elimination System/Discharge to Surface Waters
General Industrial Stormwater Permit, Permit No. NJ0088315. This permit will
expire November 1, 1997. The Company anticipates that such permit will be
renewed.
Employees
The Company employs approximately 481 persons, including 365 in
manufacturing, 20 in research and development, 17 in quality assurance, 34 in
production services, 23 in sales and marketing, and 22 in a general and
administrative capacity. 307 of the Company's employees are members of the
International Brotherhood of Electrical Workers Union, Local 2066, which has a
three year labor agreement with the Company expiring in February, 1999.
ITEM 2. PROPERTIES
The Company's principal manufacturing, engineering, sales and
administrative facilities, consist of one building totalling approximately
130,000 square feet located on approximately 20 acres of land in Old Bridge, New
Jersey (the "Old Bridge Facility"). The Company also leases approximately 8,100
square feet of space in San Diego, California for which it pays base rent of
approximately $4,100 per month. In 1995, the Company's Board of Directors
adopted resolutions authorizing the consolidation of the Company's operations
from California to the Old Bridge facility. The Company concluded this
consolidation prior to the end of 1996. The Company will continue to incur
charges for rent in San Diego through June 30, 1997, the expiration date of the
lease. The Company has sublet the San Diego facility in an effort to mitigate
such expense.
Management believes that the Old Bridge Facility is adequate to support
the Company's anticipated needs in 1997. Subject to compliance with applicable
zoning and building codes, the Old Bridge real property is large enough to
double the size of the plant to accommodate expansion of the Company's
operations should the need arise.
-11-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On October 18, 1996, the Company was served with a complaint in a
lawsuit filed by Scientific-Atlanta, Inc., in the United States District Court
for the Northern District of Georgia alleging patent infringement by the
Company's VideoMask(TM) interdiction product. The complaint requests an
unspecified amount of damages and injunctive relief. On November 13, 1996 a
procedural default (unrelated to the merits of the case) was entered against the
Company due to the late filing of the Company's answer. Motions have been made
and briefed regarding the setting aside of that entry and the Company is
presently awaiting the Court's ruling. The Company's outside patent counsel has
advised the Company that the equities of the case, public policy and multiple
meritorious defenses weigh in favor of setting the entry aside. Although the
outcome of any litigation cannot be predicted with certainty, the Company
believes the complaint is without merit and that the ultimate disposition of
this matter will not have a material effect on the Company's business.
Regardless of the validity or the successful assertion of the claims set forth
in the Scientific complaint or infringement claims made by others, the Company
could incur significant costs and diversion of resources with respect to the
defense thereof which could have a material adverse effect on the Company's
financial condition and results of operations. Damages for violation of third
party proprietary rights could be substantial, in some instances are trebled,
and could have a material adverse effect on the Company financial condition and
results of operations. If the Company is unsuccessful in setting aside the entry
of default on the procedural matter or in defending the lawsuit filed by
Scientific or any other claims or actions are asserted against the Company or
its customers, the Company may seek to obtain a license under third party's
intellectual property rights. There can be no assurance, however, that under
such circumstances, a license would be available under reasonable terms or at
all. The failure to obtain a license to a third party's intellectual property
rights on commercially reasonable terms could have a material adverse effect on
the Company's results of operations and financial condition.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 1996 through the solicitation of proxies or
otherwise.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock has been traded on the American Stock
Exchange since the Company's initial public offering on December 14, 1995. The
following table sets forth for the fiscal quarters indicated, the high and low
sale prices for the Company's Common Stock on the American Stock Exchange.
Market Information
Fiscal year ended December 31, 1995: High Low
----- ----
Fourth Quarter (December 14-31, 1995)............ 10 5/8 9 1/2
Fiscal year ended December 31, 1996 High Low
----- ----
First Quarter ................................... 13 3/4 9
Second Quarter................................... 19 1/2 9 7/8
Third Quarter ................................... 15 7 3/4
Fourth Quarter .................................. 10 7/8 8 1/8
The Company's Common Stock is traded on the American Stock Exchange
under the symbol "BDR".
Holders
As of March 19, 1997, the Company had approximately 101 holders of
record of the Common Stock. Since a portion of the Company's common stock is
held in "street" or nominee name, the Company is unable to determine the exact
number of beneficial holders.
Dividends
The Company currently anticipates that it will retain all of its
earnings to finance the operation and expansion of its business, and therefore
does not intend to pay dividends on its Common Stock in the foreseeable future.
Other than in connection with certain S Corporation distributions, the Company
has never declared or paid any cash dividends on its Common Stock. Any
determination to pay dividends in the future is at the discretion of the
Company's Board of Directors and will depend upon the Company's financial
condition, results of operations, capital requirements, limitations contained in
loan agreements and such other factors as the Board of Directors deems relevant.
The Company's loan agreement with CoreStates Bank prohibits the payment of
dividends by the Company on its Common Stock, unless at the time of and after
giving effect to any proposed dividend payment, the Company is not in default
under the loan agreement and is in compliance with certain financial covenants
relating to, among other things, working capital, tangible net worth and debt
service coverage.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of earnings data presented below
for each of the years ended December 31, 1994, 1995 and 1996, and the selected
consolidated balance sheet data as of December 31, 1995 and 1996 are derived
from, and are qualified by reference to, the audited consolidated financial
statements of the Company and notes thereto included elsewhere in this Form
10-K. The selected consolidated statement of
-13-
<PAGE>
earnings data for the years ended December 31, 1992 and 1993 and the selected
consolidated balance sheet data as of December 31, 1992, 1993 and 1994 are
derived from audited consolidated financial statements not included herein. The
data set forth below is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, notes
thereto and other financial and statistical information appearing elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands, except per share data)
Consolidated Statement of Earnings Data:
<S> <C> <C> <C> <C> <C>
Net sales ............................................ $ 22,681 $ 24,136 $ 35,804 $ 51,982 $ 48,862
Cost of goods sold ................................... 14,257 14,472 21,791 32,528 30,613
-------- -------- -------- -------- --------
Gross profit ....................................... 8,424 9,664 14,013 19,454 18,249
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative ................ 6,050 5,565 7,060 9,791 9,135
Research and development ........................... 722 963 1,477 2,011 1,972
-------- -------- -------- -------- --------
Total operating expenses ........................... 6,772 6,528 8,537 11,802 11,107
-------- -------- -------- -------- --------
Earnings (loss) from operations ...................... 1,652 3,136 5,476 7,652 7,142
Interest expense ..................................... 180 183 439 1,296 658
Other (income) expense, net .......................... 207 (15) (89) (60) --
-------- -------- -------- -------- --------
Earnings (loss) before income taxes .................. $ 1,265 $ 2,968 $ 5,126 $ 6,416 $ 6,484
Provisions for income taxes .......................... 2,601
--------
Net earnings ......................................... $ 3,883
========
Net earnings per share ............................... $ 0.47
Weighted average shares outstanding .................. 8,300
Pro Forma Data:
Pro forma provision for income taxes(1) .............. 506 1,187 2,050 2,566
-------- ------- ------- -------
Pro forma net earnings ............................... $ 759 $ 1,781 $ 3,076 $ 3,850
======== ======= ======= =======
Pro forma net earnings per share ..................... $ 0.09 $ 0.23 $ 0.48 $ 0.64
Weighted average shares outstanding(2) ............... 8,097 7,772 6,475 6,054
Other Data:
S Corporation distributions declared ................. $ -- $ 964 $ 4,425 $ 7,896 $ --
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Working capital ...................................... $ 3,124 $ 3,920 $ 5,786 $ 14,407 $ 23,015
Total assets ......................................... 7,273 11,197 15,832 31,804 36,165
Long-term debt (including current maturities) ........ 406 1,552 5,196 2,145 6,347
Stockholders' equity ................................. 2,702 4,204 3,509 19,740 25,576
</TABLE>
- ------------------
(1) On December 11, 1995, the Company's status as an S Corporation terminated
and as a result the Company is now subject to corporate income taxes.
Accordingly, pro forma net earnings reflect a pro forma adjustment for
income taxes which would have been recorded had the Company been a C
Corporation.
(2) Weighted average shares are based on shares outstanding for the respective
period, adjusted as required by SAB 83. Supplemental pro forma weighted
average shares outstanding are based on the weighted average number of
shares of common stock and common stock equivalents used in the calculation
of pro forma earnings per share, plus the estimated number of shares
(621,000 and 592,000 at December 31, 1994 and 1995, respectively) that would
need to be sold by the Company in order to fund the estimated cash
distribution to stockholders of $5,895,000 paid out of the net proceeds of
the offering. Supplemental pro forma earnings per share was $0.43 and $0.58
at December 31, 1994 and 1995, respectively. See Note 1(m) of notes to the
Company's consolidated financial statements.
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's historical
results of operations and liquidity and capital resources should be read in
conjunction with "Selected Consolidated Financial Data" and the consolidated
financial statements of the Company and notes thereto appearing elsewhere
herein.
Overview
The Company was incorporated in November, 1988, under the laws of
Delaware as GPS Acquisition Corp. for the purpose of acquiring the business of
Blonder-Tongue Laboratories, Inc., a New Jersey corporation which was founded in
1950 by Ben H. Tongue and Isaac S. Blonder (the "former Blonder-Tongue") to
design, manufacture and supply a line of electronics and systems equipment
principally for the Private Cable industry. Following the acquisition, the
Company changed its name to Blonder Tongue Laboratories, Inc.
The Company's success is due in part to management's efforts to
leverage the Company's reputation by broadening its product line to offer
one-stop shop convenience to Private Cable and CATV system integrators and to
deliver products having a high performance-to-cost ratio. The Company has
experienced significant growth since the acquisition of the former
Blonder-Tongue, both internally and through strategic acquisitions.
In December 1995, the Company successfully concluded an initial public
offering of 2,200,000 shares of its Common Stock. Thereafter, in January 1996,
the Company's underwriters exercised their over-allotment option, as a result of
which an additional 181,735 shares of the Company's Common Stock were sold. The
proceeds received by the Company from the sale of its Common Stock in the
offering (including shares sold pursuant to the over-allotment option), net of
expenses of the offering and certain S Corporation distributions to the
Company's principal stockholders, was approximately $14,045,000. These funds
were used to acquire the Company's Old Bridge Facility and to reduce the
Company's outstanding bank debt. The Company has further enhanced its liquidity
through a long-term loan secured by a mortgage against the Old Bridge Facility.
Results of Operations
The following table sets forth, for the fiscal periods indicated,
certain consolidated statement of earnings data as a percentage of net sales:
Year Ended December 31,
---------------------------------
1994 1995 1996
---- ---- ----
Net sales................................ 100.0% 100.0% 100.0%
Costs of goods sold...................... 60.9 62.6 62.7
Gross profit............................. 39.1 37.4 37.3
Selling expenses......................... 9.0 9.3 9.8
General and administrative expenses...... 10.8 9.5 8.9
Research and development expenses........ 4.1 3.9 4.0
Earnings from operations................. 15.3 14.7 14.6
Other expense, net....................... 1.0 2.4 1.3
Earnings before income taxes............. 14.3 12.3 13.3
-15-
<PAGE>
1996 Compared with 1995
Net Sales. Net sales decreased $3,120,000, or 6.0%, to $48,862,000 in
1996 from $51,982,000 in 1995. International sales accounted for $2,655,000
(5.4% of total sales) for 1996 compared to $4,809,000 (9.3% of total sales) for
1995. Net sales included approximately $2,939,000 of VideoMask(TM) interdiction
equipment. Net sales also included $2,192,000 under the Company's agreement to
supply interdiction equipment to Pacific Bell.
Sales in the lodging market remained strong during 1996 but MDU sales
were impacted by the uncertainty surrounding the installation of private cable
systems in properties under contract to Interactive Cable Systems, Inc. ("ICS"),
one of the Company's largest customers in 1995. Net sales to ICS were
approximately $684,000 in 1996 compared to approximately $9,266,000 in 1995. It
is anticipated that these properties will be upgraded in future time periods
either by ICS or by other private cable operators, although no assurances in
this regard can be given. Approximately $655,000 of accounts receivable
outstanding at December 31, 1996 was due from ICS for more than 60 days,
compared with approximately $933,000 outstanding for more than 60 days at
December 31, 1995.
Longer than anticipated accelerated life testing of the Company's, new
VideoMask(TM) interdiction product delayed production until early March, 1996.
Thereafter, volume interdiction sales were further delayed due to the inability
of ICS to complete the installation of private cable systems in properties under
contract to them and the shift in demand to other users of interdiction whose
requirements were for product configurations not yet in production. Volume
interdiction sales may be affected due to uncertainties relating to the pending
Scientific-Atlanta litigation. See Item 3 - Legal Proceedings.
Cost of Goods Sold. Cost of goods sold decreased to $30,613,000 in 1996
from $32,528,000 in 1995 but increased as a percentage of sales to 62.7% from
62.6%. The increase as a percentage of sales was caused primarily by a greater
proportion of sales during the period being comprised of lower margin products.
Reconfiguration costs and low volume production of VideoMask(TM) during 1996
affected gross margins of the product. As VideoMask(TM) volume increases,
margins on such products should improve, although there can be no assurance that
additional delays will not occur or that volume will increase.
Selling Expenses. Selling expenses decreased to $4,780,000 in 1996 from
$4,824,000 in 1995, primarily due to decreased costs incurred for commissions as
a result of the termination of certain sales representatives offset by increased
expenditures for marketing materials, royalties related to certain license
agreements and increased operational costs of the BTI sales office along with
additional costs incurred in connection with the closure of such office.
General and Administrative Expenses. General and administrative
expenses decreased to $4,355,000 in 1996 from $4,967,000 for 1995 and also
decreased as a percentage of sales to 8.9% in 1996 from 9.5% in 1995. The
$612,000 decrease can be attributed to a reduction in rent expense, net of
increased depreciation, as a result of the Company's purchase of its
manufacturing facility located in Old Bridge, New Jersey and a decline in
salaries due to a reduction in personnel, offset by an increase in expenditures
for professional services and insurance.
Research and Development Expenses. Research and development expenses
decreased 1.9% to $1,972,000 in 1996 from $2,011,000 in 1995, primarily due to a
decrease in consulting services incurred, which were primarily attributable to
the development of the VideoMask(TM) interdiction product line during 1995 and
the first half of 1996, offset by an increase in purchased materials for
research and development. Research and development expenses increased as a
percentage of sales to 4.0% from 3.9%.
-16-
<PAGE>
Operating Income. Operating income decreased 6.7% to $7,142,000 in
1996 from $7,652,000 in 1995. Operating income as a percentage of sales
decreased to 14.6% in 1996 from 14.7% in 1995.
Interest and Other Expenses. Other expenses, net, decreased to $658,000
in 1996 from $1,236,000 in 1995. These expenses in 1996 consisted of interest
expense in the amount of $658,000. Other expenses in 1995 consisted of interest
expense of $1,296,000, offset by $60,000 of other income. The reduction in
interest expense is primarily attributed to reduced borrowings under the
Company's credit line.
Income Taxes. The Company with the consent of its stockholders elected
to be taxed as an S Corporation for federal income tax purposes since its
organization. As a consequence, the taxable net earnings of the Company were
taxed as income to the Company's stockholders in proportion to their individual
stockholdings, and the payment of federal income taxes on such proportionate
share of the Company's taxable earnings is the personal obligation of each
stockholder. The Company's status as an S Corporation terminated on December 11,
1995, and as a result the Company is now a C Corporation for income tax
purposes. As a C Corporation, the Company is currently taxed at a combined
effective rate of approximately 40% based upon current federal and state income
tax regulations. Had the Company been taxable as a C Corporation for the entire
year of 1995, pro forma income taxes and pro forma net earnings after taxes for
the year ended December 31, 1995 would have been $2,566,000 and $3,850,000,
respectively, compared with a provision for income taxes and net earnings after
taxes for the year ended December 31, 1996 of $2,601,000 and $3,883,000,
respectively.
1995 Compared with 1994
Net Sales. Net sales increased $16,178,000, or 45.2%, to $51,982,000 in
1995 from $35,804,000 in 1994. International sales accounted for $4,809,000
(9.3% of total sales) in 1995 compared to $4,034,000 (11.3% of total sales) in
1994. The increase in sales primarily reflected increased demand for the
Company's Headend Products in the MDU market and relatively strong sustained
sales to the Lodging market.
Cost of Goods Sold. Cost of goods sold increased to $32,528,000 in 1995
from $21,791,000 in 1994 and also increased as a percentage of sales to 62.6%
from 60.9%. The increase was caused primarily by changes in product mix and
discounts afforded to certain high volume customers, the impact of which was
mitigated by a reduction of factory overhead costs as a percentage of labor
costs.
Selling Expenses. Selling expenses increased to $4,824,000 in 1995 from
$3,210,000 in 1994 and increased as a percentage of sales to 9.3% from 9.0%. The
increase was primarily due to increased costs incurred for advertising,
marketing materials, travel and trade shows.
General and Administrative Expenses. General and administrative
expenses increased to $4,967,000 in 1995 from $3,850,000 in 1994 but decreased
as a percentage of sales to 9.5% in 1995 from 10.8% in 1994. The $1,117,000
increase can be attributed primarily to increased expenditures for professional
services and general expenses which rose due to the increase in sales volume.
Research and Development Expenses. Research and development expenses
increased 36.2% to $2,011,000 in 1995 from $1,477,000 in 1994, primarily due to
an increase in purchased engineering services, but decreased as a percentage of
sales to 3.9% from 4.1%. The Company anticipates continuing to increase its
research and development expenditures.
Operating Income. Operating income increased 39.7% to $7,652,000 in
1995 from $5,476,000 in 1994. Operating income as a percentage of sales
decreased to 14.7% in 1995 from 15.3% in 1994.
-17-
<PAGE>
Interest and Other Expenses. Other expenses, net, increased to
$1,236,000 in 1995 from $350,000 in 1994. These expenses in 1995 consisted of
interest expense in the amount of $1,296,000, offset by $60,000 of other income.
Other expenses in 1994 consisted of interest expense of $439,000, offset by
$89,000 of other income. The increase in interest expense in 1995 was the result
of increased borrowings under the Company's line of credit and the incurrence of
approximately $4,250,000 of additional term indebtedness during the third and
fourth quarters of 1994, relating to certain S Corporation distributions to the
stockholders and the purchase of shares of Common Stock from a stockholder.
Income Taxes. The Company with the consent of its stockholders elected
to be taxed as an S Corporation for federal income tax purposes since its
organization. As a consequence, the taxable net earnings of the Company were
taxed as income to the Company's stockholders in proportion to their individual
stockholdings, and the payment of federal income taxes on such proportionate
share of the Company's taxable earnings is the personal obligation of each
stockholder. The Company's status as an S Corporation terminated on December 11,
1995, and as a result the Company is now a C Corporation for income tax
purposes. As a C Corporation, the Company is currently taxed at a combined
effective rate of approximately 40% based upon current federal and state income
tax regulations. Had the Company been taxable as a C Corporation in 1994 and for
the entire year of 1995, pro forma income taxes for the year ended December 31,
1994 and 1995 would have been $2,050,000 and $2,566,000, respectively, and the
pro forma net earnings after taxes for such periods would have been $3,076,000
and $3,850,000, respectively.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the results
of operations of the Company. Fourth quarter sales in 1996 were slightly
impacted by fewer production days. The Company expects sales each year in the
fourth quarter to be impacted by fewer production days.
Liquidity and Capital Resources
As of December 31, 1996 and 1995, the Company's working capital was
$23,015,000 and $14,407,000, respectively. The increase in working capital is
attributable to a $2,638,000 increase in inventory, a $3,003,000 decrease in
accounts payable and a $1,176,000 reclassification of the revolving line of
credit as a long-term liability due to its maturity date extending beyond one
year. In addition, the Company received a $1,606,000 equity capital infusion as
a result of the exercise by the Company's underwriters of their over-allotment
option in connection with the Company's initial public offering of Common Stock
and proceeds from a $2,800,000 loan secured by a mortgage against the Company's
principal office/manufacturing facility located in Old Bridge, New Jersey. These
additional proceeds were applied against the outstanding balance under the
Company's revolving line of credit. Historically, the Company has satisfied its
cash requirements primarily from net cash provided by operating activities and
from borrowings under its line of credit.
The Company's net cash used in operating activities for the period
ended December 31, 1996 was $534,000, including $2,638,000 to fund the increase
in inventory, compared to cash provided by operating activities for the period
ended December 31, 1995, which was $495,000. Cash flows from operating
activities have been negative, due primarily to the increase in inventory of
$2,638,000, and a reduction in accounts payable of $3,003,000.
Cash used in investing activities was $1,963,000. $492,000 was utilized
for fees associated with the acquisition of certain license agreements, and
$1,471,000 of which is attributable to capital expenditures for new equipment.
The Company purchased several high speed robotic insertion machines which are
used primarily in the manufacture of circuit boards for the Company's new
VideoMask(TM) product line and the balance was used for the purchase of other
automated assembly and test equipment. The Company does not have any present
plans or commitments for material capital expenditures for fiscal year 1997.
-18-
<PAGE>
Cash provided by financing activities was $3,360,000 for the period
ended December 31, 1996, comprised primarily of debt proceeds, net of
repayments, of $3,026,000, net proceeds from the Company's sale of an additional
181,735 shares of Common Stock pursuant to an over-allotment option relating to
the Company's initial public offering of $1,606,000 and an additional $261,000
relating to the exercise of stock options.
On September 26, 1996, the Company executed a new $15 million revolving
line of credit with a bank on which funds may be borrowed at the bank's prime
rate (8.25% at December 31, 1996) or LIBOR plus .95% (6.58% at December 31,
1996) for a specified period of time at the election of the Company. As of
December 31, 1996, the Company had drawn down $1,176,000 at the bank's prime
rate under the line of credit for working capital needs. The line of credit is
collateralized by a security interest in all of the Company's assets. The
agreement contains restrictions that require the Company to maintain certain
financial ratios. In addition, the Company obtained a $10 million acquisition
loan commitment which may be drawn upon by the Company to finance acquisitions
in accordance with certain terms. At December 31, 1996, there was no balance
outstanding under the acquisition loan commitment. The line of credit and the
acquisition loan commitment expire on June 30, 1998.
On May 24, 1996, the Company borrowed $2.8 million from its bank for a
ten-year term. The loan bears interest at the fixed rate of 7.25% through May
1999 and may be negotiated to another fixed rate or remain variable for the
remaining seven years of the loan. The term loan is secured by a mortgage
against the Company's manufacturing and administrative facility located in Old
Bridge, New Jersey.
The Company currently anticipates that the cash generated from
operations, existing cash balances and amounts available under its existing or a
replacement line of credit, will be sufficient to satisfy its foreseeable
working capital needs.
Additional Factors That May Affect Future Results and Market Price of Stock
Blonder Tongue's business operates in a rapidly changing environment
that involves a number of risks, some of which are beyond the Company's control.
The following discussion highlights some of these risks which are not otherwise
addressed elsewhere in this Annual Report. There can be no assurance that the
Company will anticipate the evolution of industry standards in Private Cable or
the communications industry generally, changes in the market and customer needs,
or that technologies and applications under development by the Company will be
successfully developed, or if they are successfully developed, that they will
achieve market acceptance. The competition to attract and retain highly-skilled
engineering, manufacturing, marketing and managerial personnel is intense.
Capital spending by cable operators for constructing, rebuilding, maintaining or
upgrading their systems (upon which the Company's sales and profitability are
dependent) is dependent on a variety of factors, including access to financing,
demand for their cable services, availability of alternative video delivery
technologies, and general economic conditions. Factors such as announcements of
technological innovations or new products by the Company, its competitors or
third parties, quarterly variations in the Company's actual or anticipated
results of operations, market conditions for emerging growth stocks or cable
industry stocks in general, or the failure of revenues or earnings in any
quarter to meet the investment community's expectations, may cause the market
price of the Company's Common Stock to fluctuate significantly. The stock price
may also be affected by broader market trends unrelated to the Company's
performance.
Effect of New Accounting Pronouncements
In October, 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company adopted this pronouncement by making the
required pro forma footnote disclosures only. Therefore, the adoption of SFAS
No. 123 did not have an effect on the Company's results of operations or
financial condition.
-19-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the consolidated financial statements
and notes thereto of the Company which are attached hereto beginning on page 25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10 through 13. Incorporated by Reference
The information called for by Item 10 "Directors and Executive Officers
of the Registrant", Item 11 "Executive Compensation", Item 12 "Security
Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain
Relationships and Related Transactions" is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held April 24, 1997, which definitive proxy statement is
expected to be filed with the Commission not later than 120 days after the end
of the fiscal year to which this report relates. Note that the sections in the
definitive proxy statement entitled "Report of Compensation Committee on
Executive Compensation Policies" and "Comparative Stock Performance" pursuant to
S-K Item 402(a)(9) are not deemed "soliciting material" or "filed" as part of
this report.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Supplementary Data.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants, BDO Seidman, LLP....................................26
Consolidated Balance Sheets as of December 31, 1995 and 1996 ...........................................27
Consolidated Statements of Earnings for the Years Ended December 31, 1994, 1995 and 1996................28
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994,
1995 and 1996 .........................................................................................29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 .............30
Notes to Consolidated Financial Statements..............................................................31
</TABLE>
(a)(2) Financial Statement Schedules.
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
-20-
<PAGE>
(a)(3) Exhibits
The exhibits are listed in the Index to Exhibits appearing below and
are filed herewith or are incorporated by reference to exhibits previously filed
with the Commission.
(b) No reports on Form 8-K were filed in the quarter ended December 31,
1996.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit # Description Sequential Page Number
--------- ----------- ----------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit
Tongue Laboratories, Inc. 3.1 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
3.2 Restated Bylaws of Blonder Tongue Laboratories, Incorporated by reference from Exhibit
Inc. 3.2 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
4.1 Specimen of stock certificate Incorporated by reference from Exhibit
4.1 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.1 Agreement of Sale between Blonder Tongue Incorporated by reference from Exhibit
Laboratories, Inc. and American Real Estate 10.2 to Registrant's S-1 Registration
Investment and Development Co. and Statement No. 33-98070 originally filed
Amendment. October 12, 1995, as amended.
10.2 Consulting Agreement, dated January 1, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.3 to Registrant's S-1 Registration
James H. Williams. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.3 Key Employee Salary Bonus Plan. Incorporated by reference from Exhibit
10.4 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.4 1994 Incentive Stock Option Plan. Incorporated by reference from Exhibit
10.5 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.5 1995 Long Term Incentive Plan. Incorporated by reference from Exhibit
10.6 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.6 1996 Director Option Plan. Incorporated by reference from Exhibit
10.7 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
-21-
<PAGE>
Exhibit # Description Sequential Page Number
--------- ----------- ----------------------
10.7 Second Amended and Restated Loan Agreement, Incorporated by reference from Exhibit
dated as of September 26, 1996, between Blonder 10.1 to Registrant's Quarterly Report on
Tongue Laboratories, Inc. and CoreStates Bank, Form 10-Q for the period ended
N.A., successor to Meridian Bank. September 30, 1996, filed November 14,
1996.
10.8 Employment Agreement, dated August 1, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.9 to Registrant's S-1 Registration
Daniel J. Altiere. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.9 Form of Indemnification Agreement entered into Incorporated by reference from Exhibit
by Blonder Tongue Laboratories, Inc. in favor of 10.10 to Registrant's S-1 Registration
each of its Directors and Officers. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.10 VideoCipher(R)IICM Commercial Descrambler Incorporated by reference from Exhibit
Module Master Purchase and License Agreement, 10.11 to Registrant's S-1 Registration
dated August 23, 1990, between Blonder Tongue Statement No. 33-98070 originally filed
Laboratories, Inc. and Cable/Home October 12, 1995, as amended.
Communication Corp.
+ 10.11 Patent License Agreement, dated August 21, Incorporated by reference from Exhibit
1995, between Blonder Tongue Laboratories, Inc. 10.12 to Registrant's S-1 Registration
and Philips Electronics North America Statement No. 33-98070 originally filed
Corporation. October 12, 1995, as amended.
+ 10.12 Interdiction Technology License Agreement, dated Incorporated by reference from Exhibit
August 21, 1995, between Blonder Tongue 10.13 to Registrant's S-1 Registration
Laboratories, Inc. and Philips Broadband Statement No. 33-98070 originally filed
Networks, Inc. October 12, 1995, as amended.
10.13 Promissory Note dated December 19, 1995 from Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of 10.13 to Registrant's Annual Report on
James H. Williams. Form 10-K for fiscal year ended December 31,
1995, filed March 21, 1996.
10.14 Promissory Note dated December 19, 1995 from Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of 10.14 to Registrant's Annual Report on
Robert J. Palle, Jr. Form 10-K for fiscal year ended
December 31, 1995, filed March 21, 1996.
10.15 Promissory Note dated December 19, 1995 from Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of 10.15 to Registrant's Annual Report on
James A. Luksch. Form 10-K for fiscal year ended
December 31, 1995, filed March 21, 1996.
10.16 Stock Purchase Agreement, dated July 22, 1993, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.17 to S-1 Registration Statement No.
James A. Luksch. 33-98070 originally filed October 12,
1995, as amended.
-22-
<PAGE>
Exhibit # Description Sequential Page Number
--------- ----------- ----------------------
10.17 Promissory Note, dated July 22, 1995 from Incorporated by reference from Exhibit
James A. Luksch in favor of Blonder Tongue 10.18 to S-1 Registration Statement No.
Laboratories, Inc. 33-98070 originally filed October 12,
1995, as amended.
10.18 Special Bonus Agreement, dated July 22, 1993, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.19 to S-1 Registration Statement No.
James A. Luksch. 33-98070 originally filed October 12,
1995, as amended.
10.19 Letter Agreement, dated April 26, 1995 between Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. and James A. 10.20 to S-1 Registration Statement No.
Luksch. 33-98070 originally filed October 12,
1995, as amended.
10.20 401(k) Savings & Investment Retirement Plan. Incorporated by reference from Exhibit
10.21 to S-1 Registration Statement No.
33-98070 originally filed October 12,
1995, as amended.
10.21 Bargaining Unit Pension Plan. Incorporated by reference from Exhibit
10.22 to S-1 Registration Statement No.
33-98070 originally filed October 12,
1995, as amended.
10.22 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc., 10.22 to Registrant's Annual Report on
Meridian Bank and James A. Luksch Form 10-K for fiscal year ended
December 31, 1995, filed March 21, 1996.
10.23 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc., 10.23 to Registrant's Annual Report on
Meridian Bank and Robert J. Palle, Jr. Form 10-K for fiscal year ended
December 31, 1995, filed March 21, 1996.
10.24 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc., 10.24 to Registrant's Annual Report on
Meridian Bank and James H. Williams Form 10-K for fiscal year ended
December 31, 1995, filed March 21, 1996.
10.25 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc. 10.25 to Registrant's Annual Report on
and James A. Luksch for the benefit of any Form 10-K for fiscal year ended
lender. December 31, 1995, filed March 21,
1996.
10.26 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc. 10.26 to Registrant's Annual Report on
and Robert J. Palle, Jr. for the benefit of any Form 10-K for fiscal year ended
lender. December 31, 1995, filed March 21,
1996.
-23-
<PAGE>
Exhibit # Description Sequential Page Number
--------- ----------- ----------------------
10.27 Subordination Agreement dated December 19, Incorporated by reference from Exhibit
1995 among Blonder Tongue Laboratories, Inc. 10.27 to Registrant's Annual Report on
and James H. Williams for the benefit of any Form 10-K for fiscal year ended
lender. December 31, 1995, filed March 21,
1996.
10.28 Mortgage, Assignment of Leases, and Security Incorporated by reference from Exhibit
Agreement dated May 23, 1996 by Blonder 10.2 to Registrant's Quarterly Report on
Tongue Laboratories, Inc. in favor of CoreStates Form 10-Q for the period ended June 30,
Bank, N.A., successor to Meridian Bank. 1996, filed August 14, 1996.
10.29 Real Estate Loan Note dated May 23, 1996 from Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of 10.3 to Registrant's Quarterly Report on
CoreStates Bank, N.A., successor to Meridian Form 10-Q for the period ended June 30,
Bank. 1996, filed August 14, 1996.
10.29(a) Allonge the Real Estate Loan Note, dated Incorporated by reference from Exhibit
September 26, 1996 from Blonder Tongue 10.3 to Registrant's Quarterly Report on
Laboratories, Inc., in favor of CoreStates Bank, Form 10-Q for the period ended
N.A., successor to Meridian Bank. September 30, 1996, filed November 14,
1996.
10.30 Second Amended and Restated Line of Credit Incorporated by reference from Exhibit
Note dated September 26, 1996 from Blonder 10.2 to Registrant's Quarterly Report on
Tongue Laboratories, Inc. in favor of CoreStates Form 10-Q for the period ended
Bank, N.A., successor to Meridian Bank. September 30, 1996, filed November 14,
1996.
++10.31 License Agreement dated November 12, 1996 Filed on Page 47 herein.
between Blonder Tongue Laboratories, Inc. and
Houston Tracker Systems, Inc.
11 Statement Regarding Computation of Per Share Filed on page 140 herein.
Earnings.
21 Subsidiaries of Blonder Tongue Laboratories, Inc. Filed on page 141 herein.
23 Consent of BDO Seidman, LLP Filed on page 142 herein.
27 Financial Data Schedule Electronic filing only.
</TABLE>
- ------------------------------
+ Certain portions of exhibit have been afforded confidential treatment by
the Securities and Exchange Commission.
++ Certain portions of exhibit are the subject of a request for confidential
treatment and have been filed separately with the Securities and Exchange
Commission.
(d) Financial Statement Schedules:
Report of BDO Seidman, LLP on financial statement schedule.
The following financial statement schedule is included on page 45 of this
Annual Report on Form 10-K:
Schedule II. Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the applicable instructions
or are inapplicable and therefore have been omitted.
-24-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants, BDO Seidman, LLP.............................................26
Consolidated Balance Sheets as of December 31, 1995 and 1996 ....................................................27
Consolidated Statements of Earnings for the Years Ended December 31, 1994, 1995 and 1996.........................28
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 ............29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 ......................30
Notes to Consolidated Financial Statements.......................................................................31
</TABLE>
-25-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Blonder Tongue
Laboratories, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Blonder
Tongue Laboratories, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Woodbridge, New Jersey
March 3, 1997
-26-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1996
------- -------
Assets (Note 4)
Current assets:
<S> <C> <C>
Cash .................................................................... $ 477 $ 1,340
Accounts receivable, net of allowance for doubtful
accounts of $205 and $280, respectively ............................... 9,155 8,987
Inventories (Note 2) .................................................... 13,390 16,028
Other current assets .................................................... 906 403
Deferred income taxes (Note 12) ......................................... 137 534
------- -------
Total current assets ........................................ 24,065 27,292
Property, plant and equipment, net of accumulated
depreciation and amortization (Note 3) ................................ 6,486 7,161
Other assets .............................................................. 1,253 1,712
------- -------
$31,804 $36,165
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4) ....................................... $ 2,709 $ --
Current portion of long-term debt (Note 4) .............................. 221 445
Accounts payable ........................................................ 4,630 1,627
Accrued compensation .................................................... 843 993
Other accrued expenses .................................................. 729 589
Income taxes (Note 12) .................................................. 526 623
------- -------
Total current liabilities ................................... 9,658 4,277
------- -------
Deferred income taxes (Note 12) ........................................... 482 410
Revolving line of credit (Note 4) ......................................... -- 1,176
Long-term debt, including related party debt of $1,591
in 1996 and 1995 (Note 4) ............................................. 1,924 4,726
Commitments and contingencies (Notes 5, 6 and 7) .......................... -- --
Stockholders' equity (Notes 9, 10 and 11):
Preferred stock, $.001 par value; authorized 5,000,000 shares;
no shares outstanding ................................................. -- --
Common stock, $.001 par value; authorized 25,000,000 shares, 7,919,285
shares issued and outstanding at December 31, 1995 and 8,193,509 shares
issued and outstanding at December 31, 1996 ........................... 8 8
Paid-in capital ......................................................... 19,546 21,499
Retained earnings ....................................................... 186 4,069
------- -------
Total stockholders' equity .................................. 19,740 25,576
------- -------
$31,804 $36,165
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-27-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales ........................................ $ 35,804 $ 51,982 $ 48,862
Cost of goods sold ............................... 21,791 32,528 30,613
-------- -------- --------
Gross profit ................................. 14,013 19,454 18,249
-------- -------- --------
Operating expenses:
Selling expenses ............................. 3,210 4,824 4,780
General and administrative ................... 3,850 4,967 4,355
Research and development ..................... 1,477 2,011 1,972
-------- -------- --------
8,537 11,802 11,107
-------- -------- --------
Earnings from operations ......................... 5,476 7,652 7,142
-------- -------- --------
Other income (expense):
Interest expense ............................. (439) (1,296) (658)
Other income ................................. 89 60 --
-------- -------- --------
(350) (1,236) (658)
-------- -------- --------
Earnings before income taxes ..................... 5,126 6,416 6,484
Provision for income taxes (Note 12) ............. 92 884 2,601
-------- -------- --------
Net earnings ................................. $ 5,034 $ 5,532 $ 3,883
======== ======== ========
Net earnings per share ........................... $ 0.47
========
Weighted average shares outstanding .............. 8,300
========
Pro forma data (Note 1):
Historical earnings before income taxes ...... $ 5,126 $ 6,416
Pro forma provision for income taxes (Note 12) 2,050 2,566
-------- --------
Net earnings ............................. $ 3,076 $ 3,850
======== ========
Pro forma net earnings per share ................. $ 0.48 $ 0.64
======== ========
Weighted average shares outstanding .............. 6,475 6,054
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-28-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Note
Common Stock Receivable
---------------------- From Sale of
Paid-in Retained Common
Shares Amount Capital Earnings Stock Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ..................... 7,312 $ 7 $ 1,107 $ 4,002 $ (912) $ 4,204
Purchase and retirement of
treasury stock ............................. (1,659) (1) (50) (1,949) -- (2,000)
Collection of note receivable ................ -- -- -- -- 304 304
Distributions to stockholders ................ -- -- -- (4,425) -- (4,425)
Options granted pursuant to
acquisition (Note 10) ...................... -- -- 342 -- -- 342
Capital contribution ......................... -- -- 50 -- -- 50
Net earnings ................................. -- -- -- 5,034 -- 5,034
-------- -------- -------- -------- -------- --------
Balance at December 31, 1994 ................... 5,653 6 1,449 2,662 (608) 3,509
Collection of note receivable ................ -- -- -- -- 608 608
S Corporation net earnings ................... -- -- -- 5,346 -- 5,346
Distributions to stockholders ................ -- -- -- (7,896) -- (7,896)
Issuance and simultaneous
purchase and retirement of
treasury stock pursuant to
acquisition (Note 10) ........................ 66 -- (347) -- -- (347)
Reclassification of S Corporation
retained earnings .......................... -- -- 112 (112) -- --
Proceeds from sale of stock .................. 2,200 2 19,285 -- -- 19,287
Costs of initial public offering ............. -- -- (953) -- -- (953)
C Corporation net earnings ................... -- -- -- 186 -- 186
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 ................... 7,919 8 19,546 186 -- 19,740
Proceeds from sale of stock .................. 182 -- 1,606 -- -- 1,606
Proceeds from exercise of stock
options .................................... 84 -- 261 -- -- 261
Issuance of common stock in
exchange for investment .................... 8 -- 86 -- -- 86
Net earnings ................................. -- -- -- 3,883 -- 3,883
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 ................... 8,193 $ 8 $ 21,499 $ 4,069 $ -- $ 25,576
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-29-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1994 1995 1996
-------- -------- --------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net earnings .................................................................. $ 5,034 $ 5,532 $ 3,883
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Depreciation and amortization ............................................. 242 431 1,099
Provision for doubtful accounts ........................................... 147 58 135
Deferred income taxes ..................................................... -- 345 (469)
Non cash compensation expense ............................................. 304 304 --
Changes in operating assets and liabilities:
Accounts receivable ..................................................... (1,299) (4,727) 33
Inventories ............................................................. (2,037) (5,129) (2,638)
Other current assets .................................................... (455) (384) 503
Other assets ............................................................ 44 (7) (184)
Income taxes ............................................................ (71) 526 97
Accounts payable and accrued expenses ................................... (343) 3,546 (2,993)
-------- -------- --------
Net cash provided by (used in) operating activities .................... 1,566 495 (534)
Cash Flows From Investing Activities:
Capital expenditures .......................................................... (579) (5,502) (1,471)
Acquisitions of licenses ...................................................... -- (600) (492)
-------- -------- --------
Net cash used in investing activities .................................. (579) (6,102) (1,963)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving line of credit .................... 1,068 (532) (1,533)
Borrowings from stockholders .................................................. -- 1,591 --
Proceeds from long-term debt .................................................. 4,250 5,000 3,422
Repayments of long-term debt .................................................. (606) (9,642) (396)
Proceeds from sale of common stock ............................................ -- 18,334 1,606
Proceeds from exercise of stock options ....................................... -- -- 261
Purchase and retirement of treasury stock ..................................... (2,000) (347) --
Collection of note receivable from sale of common stock ....................... -- 304 --
Distributions paid to stockholders ............................................ (3,393) (9,126) --
Capital contribution (Note 1(b)) .............................................. 50 -- --
-------- -------- --------
Net cash (used in) provided by financing activities .................... (631) 5,582 3,360
-------- -------- --------
Net Increase (Decrease) In Cash ................................................. 356 (25) 863
Cash, beginning of period ....................................................... 146 502 477
-------- -------- --------
Cash, end of period ............................................................. $ 502 $ 477 $ 1,340
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for interest ........................................................ $ 395 $ 1,329 $ 650
Cash paid for income taxes .................................................... 187 29 2,681
======== ======== ========
Non-cash transactions:
Issuance of common stock in exchange for investment ........................... $ -- $ -- $ 86
Options granted pursuant to acquisition ....................................... 342 -- --
Accrued dividends ............................................................. 1,230 -- --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-30-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
(a) Company and Basis of Presentation
Blonder Tongue Laboratories, Inc. (the "Company") is a manufacturer of
television and satellite signal distribution equipment supplied to the private
cable television and broadcast industries. The consolidated financial statements
include the accounts of Blonder Tongue Laboratories, Inc. and subsidiaries as
discussed below. Significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Reorganization and Recapitalization
On December 11, 1995, the Company acquired Blonder Tongue International,
Inc. (BTI). BTI was an S Corporation formed in 1994 by the stockholders of the
Company. The acquisition was consummated by contribution of BTI's shares to the
Company. The acquisition was accounted for at historical cost similar to a
pooling of interests, due to the common control exercised over the entities by
related parties. The 1994 accompanying consolidated financial statements have
been restated. As a result of the acquisition of BTI, the S Corporation
elections for both BTI and the Company automatically terminated on December 11,
1995. See Note 12.
In September 1996, BTI closed its sales office located in Barcelona, Spain.
The closure did not have a material impact on the Company's operating results.
On October 3, 1995, the Board of Directors and stockholders approved the
following actions in connection with the Company's initial public offering,
which actions were implemented on December 11, 1995:
Authorized capital consisting of 25 million shares of $.001 par value common
stock and 5 million shares of $.001 par value preferred stock. The preferred
stock may be issued in one or more series with such rights, preferences and
limitations as the Board of Directors of the Company may determine.
Declared a 2,011 for 1 stock split for the common stock. The consolidated
financial statements reflect the impact of the stock split for all periods
presented.
(c) Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation generally on the straight-line method based upon estimated useful
lives of 3 to 5 years for office equipment, 5 to 7 years for furniture and
fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building
improvements and 40 years for the manufacturing and administrative office
facility.
(e) Income Taxes
Prior to December 11, 1995, the Company was treated as an S Corporation
under provisions of the Internal Revenue Code. Under these provisions, all
earnings and losses of the Company were reported on the federal income tax
returns of the stockholders. Accordingly, no provisions had been made for
federal income taxes. In January, 1994, the Company elected to be taxed as a
small business corporation in the state of New Jersey. The consolidated
financial statements for those respective periods, reflect state income tax
provisions only.
-31-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
income taxes are provided for temporary differences in the recognition of
certain income and expenses for financial and tax reporting purposes. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
(f) Intangible Assets
Intangible assets totaling $1,241 and $1,706 as of December 31, 1995 and
1996, respectively, consist of goodwill, prepaid licensing fees, acquired patent
rights and deferred offering costs, and are carried at cost less accumulated
amortization. Amortization is computed utilizing the straight-line method over
the estimated useful life of the respective asset, 3 to 15 years. Amortization
expense was $19, $52 and $303 for 1994, 1995 and 1996, respectively. The
deferred offering costs were charged against the proceeds of the initial public
offering.
(g) Long-Lived Assets
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), was adopted as of January 1, 1996. SFAS 121 standardized the
accounting practices for the recognition and measurement of impairment losses on
certain long-lived assets. The adoption of SFAS 121 was not material to the
results of operations or financial position.
(h) Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity of less than three
months at purchase to be cash equivalents. The Company did not have any cash
equivalents at December 31, 1994, 1995 and 1996.
(i) Research and Development
Research and development expenditures for the Company's projects are
expenses as incurred.
(j) Revenue Recognition
The Company records revenues when products are shipped. Customers do not
have a right to return products shipped.
(k) Earnings Per Share
Earnings per share are based on the weighted average number of common stock
and common stock equivalent shares outstanding during the year. Common stock
equivalent shares consist of the dilutive effect of unissued shares under
options computed using the treasury stock method.
(l) Pro Forma Presentations
The pro forma income tax provision has been calculated as if the Company
were taxable as a C Corporation under the Internal Revenue Code for all periods
presented.
(m) Pro Forma Earnings Per Share
Pro forma net earnings per share is based on the weighted average number of
common stock shares and common stock equivalent shares outstanding during each
period, as adjusted for the effects of the application of
-32-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 83 (53
shares for all periods). Pursuant to SAB No. 83, options granted within one year
of the initial public offering which have an exercise price less than the
initial public offering price are treated as outstanding for all periods
presented. Pro forma net earnings per share is computed using the treasury stock
method, under which the number of shares outstanding reflects an assumed use of
the proceeds from the assumed exercise of such options to repurchase shares of
the Company's common stock at the initial public offering price.
Supplemental pro forma net earnings per share was $.43 and $.58 at December
31, 1994 and 1995, respectively. Supplemental pro forma net earnings per share
is based on the weighted average number of shares of common stock and common
stock equivalents used in the calculation of pro forma earnings per share (6,475
and 6,054 at December 31, 1994 and 1995, respectively) plus the estimated number
of shares (621 and 592 at December 31, 1994 and 1995, respectively) that would
need to be sold by the Company in order to fund the cash distribution of $5,895
paid out of the net proceeds of the initial public offering.
(n) Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately 65% of the Company's employees are covered by a three year
collective bargaining agreement, which expires in February, 1999.
The Company estimates that Headend products accounted for approximately 90%
of the Company's revenues in 1994 and 1995 and 84% of revenues in 1996. Any
substantial decrease in sales of Headend products could have a material adverse
effect on the Company's results of operations and financial condition.
The Company purchases several products from sole suppliers for which
alternative sources are not available, such as the VideoCipher(R) and
DigiCipher(R) encryption systems manufactured by General Instrument Corporation,
which are standard encryption methodology employed on U.S. C-Band and Ku-Band
transponders and EchoStar digital satellite receiver decoders, which are
specifically designed to work with the DISH Network(TM). An inability to timely
obtain sufficient quantities of these components could have a material adverse
effect on the Company's operating results. The Company does not have a supply
agreement with General Instrument Corporation or any other supplier. The Company
submits purchase orders to its suppliers on an as-needed basis.
(o) Effect of New Accounting Pronouncements
In October, 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." The Company adopted this pronouncement by making the required pro
forma note disclosures only. Therefore, the adoption of SFAS No. 123 did not
have an effect on the Company's results of operations or financial condition.
(p) Reclassifications
Certain prior year reclassifications have been made to conform to 1996
classifications.
-33-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 2 - Inventories
Inventories are summarized as follows:
December 31,
-------------------------
1995 1996
------- -------
Raw materials.............................. $ 7,293 $ 7,746
Work in process............................ 2,786 2,451
Finished goods............................. 3,311 5,831
------- -------
$13,390 $16,028
======= =======
Note 3 - Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
December 31,
---------------------
1995 1996
------- -------
Land............................................... $ 1,000 $ 1,000
Building........................................... 3,361 3,361
Machinery and equipment............................ 2,307 3,457
Furniture and fixtures............................. 285 292
Office equipment................................... 330 596
Building improvements.............................. 341 389
------- -------
7,624 9,095
Less: Accumulated depreciation and amortization... (1,138) (1,934)
------- -------
$ 6,486 $ 7,161
======= =======
Note 4 - Debt
On May 24, 1996, the Company borrowed $2.8 million for a ten year term
secured by a mortgage against the Company's manufacturing and administrative
facility located in Old Bridge, New Jersey. The interest rate is fixed at 7.25%
for three years and may be negotiated to another fixed rate or remain variable
for the remaining seven years of the mortgage.
On September 26, 1996, the Company executed a new $15 million line of credit
with a bank on which funds may be borrowed at the bank's prime rate (8.25% at
December 31, 1996) or at LIBOR plus .95% (6.58% at December 31, 1996) for a
specified period of time at the election of the Company. As of December 31,
1996, the Company had drawn down $1,176 under the line of credit for working
capital needs. The line of credit is collateralized by a security interest in
all of the Company's assets. The agreement contains restrictions that require
the Company to maintain certain financial ratios. In addition, the Company
obtained a $10 million acquisition loan commitment which may be tendered to the
bank to finance acquisitions in accordance with certain terms. The line of
credit and the acquisition loan commitment expire on June 30, 1998.
The average amount outstanding on the line of credit during 1996 was $2,550
at a weighted average interest rate of 8.20%. The maximum outstanding under this
facility was $5,576 in 1996. The Company had $13.8
-34-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
million available under the line of credit at December 31, 1996. There was no
balance outstanding under the acquisition loan commitment.
The average amount outstanding on the line of credit during 1995 was $7,639
at a weighted average interest rate of 10%. The maximum amount outstanding under
this facility was $10,398 in 1995. The Company had $7.4 million available under
the line of credit at December 31, 1995.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
-------- -------
<S> <C> <C>
Term loan with a bank bearing interest at prime rate less
2%, payable in quarterly installments through June, 1998...... $ 523 285
Term loan with a bank bearing interest at 7.25%, payable
in monthly installments....................................... -- 2,691
Term loans with stockholders bearing interest at prime, due
December 19, 1998(a).......................................... 1,591 1,591
Capital leases (Note 5)....................................... 31 604
-------- -------
2,145 5,171
Less: Current portion........................................ (221) (445)
-------- -------
$ 1,924 $ 4,726
======== =======
</TABLE>
(a) $1,591 of the S Corporation distributions made after September 30, 1995 was
lent back to the Company by the principal stockholders on an unsecured basis for
a term of three years at an interest rate equal to the rate on the Company's
line of credit. These loan agreements with the stockholders provide for payments
of accrued interest on a monthly basis with the principal balance due in
December 1998.
The fair value of the debt approximates the recorded value based on the
borrowing rates currently available for loans with similar terms and maturities.
Annual maturities of long-term debt at December 31, 1996 are:
1997...................... $ 445
1998...................... 2,003
1999...................... 314
2000...................... 319
2001...................... 276
Thereafter................ 1,814
-------
$ 5,171
=======
-35-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 5 - Commitments and Contingencies
Leases
The Company leases certain factory and automotive equipment under
noncancellable operating leases expiring at various dates through June, 2001.
The Company also leased its facility and was generally obligated under the
facility leases to pay additional amounts based on real estate taxes, utilities,
insurance and common area maintenance charges. The Company leased its primary
manufacturing and administrative office facility from a partnership whose only
operations consist of leasing this facility to the Company. The Company had a
49% interest in the partnership and the remaining 51% interest in the
partnership was held by an unrelated third party. The Company accounted for its
interest in the partnership using the equity method. Lease payments to this
partnership were approximately $592 and $605 in 1994 and 1995, respectively.
In 1995, the Company entered into an agreement to purchase the remaining 51%
interest of the partnership and thereby acquired the manufacturing and
administrative office facility for $633 in cash plus the payment of two
mortgages in the amount of $3,728. The Company made these payments from the
proceeds of the offering and accounted for the purchase of the partnership
interest as an acquisition of the building since it owns the building outright
upon purchase of the remaining partnership interest.
Future minimum rental payments, required for all noncancellable leases are as
follows:
Capital Operating
------- ---------
1997............................................... $149 $194
1998............................................... 149 140
1999............................................... 139 95
2000............................................... 139 21
2001............................................... 90 --
---- ----
Total future minimum lease payments................ 666 $450
====
Less: amounts representing interest............... (62)
----
Present value of minimum lease payments............ $604
====
Property, plant and equipment included capitalized leases of $266, less
accumulated amortization of $94, at December 31, 1995, and $648, less
accumulated amortization of $32, at December 31, 1996.
Rent expense, net of sublease income was $607, $709 and $77 for the years
ended December 31, 1994, 1995 and 1996 respectively. Rent expense was $685, $725
and $79 for the years ended December 31, 1994, 1995 and 1996, respectively.
Litigation
On October 18, 1996, the Company was served with a complaint in a lawsuit
filed by Scientific-Atlanta, Inc., in the United States District Court for the
Northern District of Georgia alleging patent infringement by the Company's
VideoMaskTM interdiction product. The complaint requests an unspecified amount
of damages and injunctive relief. On November 13, 1996 a procedural default
(unrelated to the merits of the case) was entered against the Company due to the
late filing of the Company's answer. Motions have been made and briefed
regarding the setting aside of that entry and the Company is presently awaiting
the Court's ruling. The Company's outside patent counsel has advised the Company
that the equities of the case, public policy and multiple meritorious defenses
weigh in favor of setting the entry aside. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes the
complaint is without merit and that the ultimate
-36-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
disposition of this matter will not have a material effect on the Company's
business. Accordingly, no provision for this matter has been recorded in the
financial statements.
Note 6 - Benefit Plans
Defined Contribution Plan
The Company has a defined contribution plan covering all full time non-union
employees qualified under Section 401(k) of the Internal Revenue Code, in which
the Company matches a portion of an employees' salary deferral. The Company's
contributions to this plan were $28, $46 and $54 for the years ended December
31, 1994, 1995 and 1996, respectively.
Defined Benefit Pension Plan
Substantially all union employees who meet certain requirements of age,
length of service and hours worked per year are covered by a Company sponsored
non-contributory defined benefit pension plan. Benefits paid to retirees are
based upon age at retirement and years of credited service. Net pension expense
for this plan includes the following components:
December 31,
-----------------------------
1994 1995 1996
---- ---- ----
Service cost ............................... $ 36 $ 54 $ 78
Interest cost .............................. 39 42 49
Actual return on plan assets ............... 7 (78) (63)
Net amortization and deferral .............. (47) 51 29
---- ---- ----
Net pension expense ........................ $ 35 $ 69 $ 93
==== ==== ====
The funded status of the plan and the amounts recorded in the Company's
consolidated balance sheets are as follows:
December 31,
-------------
1995 1996
----- -----
Actuarial present value of benefit obligations:
Vested benefit obligation ........................ $ 518 $ 553
===== =====
Accumulated benefit obligation ................... $ 556 $ 644
===== =====
Projected benefit obligation ........................ 603 716
Plan assets at fair value ........................... 469 681
----- -----
Projected benefit obligation in excess of plan assets (134) (35)
Unrecognized net gain ............................... 174 201
Unrecognized net transition liability ............... (109) (99)
----- -----
(Accrued) prepaid pension costs ..................... $ (69) $ 67
===== =====
Key economic assumptions used in these determinations were:
December 31,
-------------
1995 1996
----- -----
Discount rate....................................... 7.5% 7.5%
Expected long-term rate of return................... 7.0% 7.0%
-37-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 7 - Related Party Transactions
On July 22, 1993, the Company issued a $912 note to a stockholder, who is
also the Company's President, Chief Executive Officer and Chairman of the Board,
pertaining to the purchase of 2,040 shares of common stock. Principal payments
on this note are due annually through July, 1996 with interest at 3.62%. Upon
completion of the offering, the final payment of this note was prepaid.
In addition, the Company had a special bonus agreement whereby the
stockholder was paid net after-tax bonuses of $291, $281 and $272 over a three
year period due annually, through July, 1996.
On January 1, 1995, the Company entered in a consulting and non-competition
agreement for a period of five years with a director, who is also the largest
stockholder. During this period, the director shall provide consulting services
on various operational and financial issues and shall be paid at an annual rate
of $130 not to exceed $150. The director also agrees to keep all Company
information confidential and will not compete directly or indirectly with the
Company for the term of the agreement and for a period of two years thereafter.
Note 8 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable.
The Company maintains cash balances at several banks located in the
northeastern United States. As part of its cash management process, the Company
periodically reviews the relative credit standing of these banks.
Credit risk with respect to trade accounts receivable is concentrated with
ten of the Company's customers. These customers accounted for approximately 65%
and 61% of the Company's outstanding trade accounts receivable at December 31,
1995 and 1996, respectively. These customers are distributors of
telecommunications and private cable television components, and providers of
private cable television service. The Company performs ongoing credit
evaluations of its customers' financial condition, uses credit insurance and
requires collateral, such as letters of credit, to mitigate its credit risk. The
deterioration of the financial condition of one or more of its major customers
could adversely impact the Company's operations.
For the year ended December 31, 1996, the Company's largest customer
accounted for approximately 17% of the Company's sales. At December 31, 1996,
this customer accounted for approximately 20% of the Company's outstanding trade
accounts receivable. Management believes these amounts to be collectible. A
different customer accounted for approximately 18% of the Company's sales in
1995 while a third customer accounted for approximately 12% of the Company's
sales in 1994.
Note 9 - Stockholders' Equity
In December 1995, the Company sold in a public offering 2,200 shares of
Common Stock at a price of $9.50 per share which generated net proceeds of
approximately $18,334. The proceeds were used to repay bank debt outstanding,
purchase the manufacturing facility, make certain S Corporation distributions
and for working capital.
In January 1996, an additional 182 shares of Common Stock were sold at a
price of $9.50 per share pursuant to the exercise of the underwriters'
over-allotment option which generated net proceeds of approximately $1,606. In
addition, the Company received approximately $261 from the exercise of stock
options throughout the year. These proceeds were used for working capital.
-38-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 10 - Acquisition
In 1993, the Company acquired the assets of MAR Associates, a company engaged
in research, development, manufacturing, and sales of electronic components used
in low power television transmission and microwave-link signal transmission. The
purchase price of $360 was paid in cash and the assumption of certain
liabilities. Additionally, the Company agreed to grant the former owners options
to purchase 132 shares of the Company's stock, for a nominal amount, contingent
upon the acquired company's meeting certain performance targets. In October,
1994, the acquired company met the performance requirements, and the Company
granted the stock options and recorded goodwill of $342 as additional
consideration. The options were valued at the estimated fair market value at
date of grant. In March 1995, the former owners, notified the Company of their
intention to exercise the options by tendering the cash required under the
purchase agreement. However, the former stockholders did not execute the
stockholders agreement required by the purchase agreement until October 10,
1995. Upon execution of the agreement, the Company issued 132 shares of common
stock and simultaneously therewith repurchased and retired 66 shares of the
common stock for an aggregate purchase price of $347 ($5.31 per share).
Note 11 - Stock Option Plan
In 1994, the Company established the 1994 Incentive Stock Option Plan (the
"1994 Plan"). The 1994 Plan provides for the granting of Incentive Stock Options
to purchase shares of the Company's common stock to officers and key employees
at a price not less than the fair market value at the date of grant as
determined by the compensation committee of the Board of Directors. The maximum
number of shares available for issuance under the plan was 298. Options become
exercisable as determined by the compensation committee of the Board of
Directors at the date of grant. Options expire ten years from the date of grant.
Also, in 1994, the Company granted non-qualified options for 6 shares to an
employee of an affiliated company ("BTI"). These options expired during 1996 as
a result of the termination of the employee.
In October 1995, the Company's Board of Directors and Stockholders approved
the 1995 Long Term Incentive Plan (the "1995 Plan"). The 1995 Plan provides for
the granting of Incentive Stock Options and restricted stock awards to purchase
shares of the Company's common stock to officers and key employees at a price
not less than the fair market value at the date of grant as determined by the
compensation committee of the Board of Directors. The maximum number of shares
available for issuance under the plan was 250. The options granted under the
plan expire 10 years from the date of grant and vest one-third each year
commencing on the first anniversary of the date of grant. Options granted to
individuals who own more than 10% of the voting stock of the Company are granted
at 110% of the fair market value at the date of grant and expire 5 years from
the date of grant. No restricted stock awards have been issued as of December
31, 1996. In February 1997, the Board of Directors approved an increase in the
number of shares available for issuance under the plan to 500. This proposed
increase will be subject to approval of the Company's stockholders at the
Company's Annual Meeting of Stockholders in April 1997.
In December, 1995, the stockholders of the Company approved the adoption of
the Company's 1996 Director Option Plan (the "1996 Plan"). Under the 1996 Plan,
directors who within the preceding 12 months have not been employed by the
Company and have not served as a consultant to the Company where annual
compensation exceeds $100, are eligible to receive options to purchase .5 shares
of the Company's common stock for each year of service on the Board. The
exercise price for such shares is the fair market value thereof on the date of
grant (which is December 31 of each year) and the options are subject to a
one-year vesting requirement. The options will be exercisable, in whole or in
part, during the second through sixth years from the date of grant. Under the
1996 Plan the grant of options is automatic to each eligible director serving on
December 31 of any year provided the director had served in such capacity since
June 30 of such year. A maximum of 25 shares may be awarded under the 1996 Plan
which expires January 2, 2006.
-39-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
In 1996, the Board of Directors granted a non-qualified option for 10 shares
to an individual, who is not an employee of the Company. The option is
exercisable at $10.25 and expires in 2006.
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Average Average Average
1994 Exercise 1995 Exercise 1996 Exercise
Plan (#) Price ($) Plan (#) Price ($) Plan (#) Price ($)
-------------------------------------------------------------------------------------------
Shares under option:
Outstanding at
January 1, 1994
<S> <C> <C> <C> <C> <C> <C>
Granted 170,607 2.57 -- --
Exercised
Canceled
Outstanding at
December 31, 1994 170,607 2.57 -- --
Granted 98,169 4.33 -- --
Exercised
Canceled
Outstanding at
December 31, 1995 268,776 3.21 - -
Granted 34,000 10.38 226,500 9.72 1,500 8.50
Exercised (84,156) 3.10 - -
Canceled (6,033) 4.33 (1,500) 9.63 -
Outstanding at
December 31, 1996 212,587 4.36 225,000 9.72 1,500 8.50
Options exercisable at
December 31, 1996 113,489 2.77 -- -- -- --
Weighted-average fair
value of options granted
during 1995 $1.37 -- --
Weighted-average fair
value of options granted
during 1996 $6.36 $6.27 $5.53
</TABLE>
-40-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------------------------
Number of Weighted-
Options Average Weighted- Number
Range of Exercise Outstanding at Remaining Average Exercise Exercisable at Weighted-Average
Prices ($) 12/31/96 Contractual Life Price ($) 12/31/96 Exercise Price ($)
- ----------------------------------------------------------------------------------------------------------------------
1994 Plan:
<S> <C> <C> <C> <C> <C>
2.57 112,107 8.7 years 2.57 100,301 2.57
4.33 66,480 8.4 4.33 13,188 4.33
9.38 to 10.59 34,000 5.6 10.38 - -
------- -------
2.57 to 10.59 212,587 8.1 4.36 113,489 2.77
======= =======
1995 Plan:
9.38 to 10.59 225,000 9.5 9.72 -- --
=======
1996 Plan:
8.50 1,500 6.0 8.50 -- --
=====
</TABLE>
The Corporation has adopted the disclosures only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost been recognized for the stock option
plans been determined based on the fair value at the date of grant consistent
with the provisions of SFAS No. 123, the Corporation's net earnings and net
earnings per share would have been reduced to the pro forma amounts indicated
below:
December 31,
--------------------
1995(a) 1996
------- ----
Net earnings - as reported $3,850 $3,883
Net earnings - pro forma 3,827 3,686
Net earnings per share - as reported 0.64 0.47
Net earnings per share - pro forma 0.63 0.44
(a) 1995 net earnings and net earnings per share are presented on a pro forma
basis. See Note 1.
The fair market value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: expected volatility of 65%, risk-free interest rate
of 6.45%; expected lives of 6 years; and no dividend yield.
Note 12 - Income Taxes
Prior to December 11, 1995, with the consent of its stockholders, the Company
elected to be treated as an S Corporation under the provisions of the Internal
Revenue Code. Under these provisions, all earnings and losses of the Company
were reported on the federal income tax returns of the stockholders.
Accordingly, no provision for federal income taxes had been made. In January
1994, the Company elected to be taxed as a small business corporation in the
State of New Jersey. The consolidated financial statements for those respective
periods, reflect state income tax provisions only.
The provision for income taxes was $92 for the year ended December 31, 1994.
The provision for income taxes for the period January 1 through December 10,
1995 was $177 as the Company was still treated as an S Corporation. On December
11, 1995, the Company's S election was terminated and, accordingly, the Company
-41-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
was subject to Federal income taxes. Upon termination of the S election, the
Company recorded a $587 charge related to net deferred tax liabilities. The pro
forma income taxes represent the taxes that would have been reported as Federal,
State and local income taxes had the Company accounted for its income taxes
under FAS 109 as a C Corporation. The effective rate utilized for all periods
presented was 40%.
The following summarizes the provision for income taxes:
Year Ended December 31,
-----------------------------------------
(pro forma) (actual)
1994 1995 1995 1996
------- ------- ------- -------
Current:
Federal ....................... $ 1,574 $ 2,082 $ 279 $ 2,372
State and local ............... 464 613 260 698
------- ------- ------- -------
2,038 2,695 539 3,070
Deferred ......................... 12 (129) 345 (469)
------- ------- ------- -------
Provision for income taxes ....... $ 2,050 $ 2,566 $ 884 $ 2,601
======= ======= ======= =======
The provision for income taxes on adjusted historical income differs from the
amounts computed by applying the applicable Federal statutory rates due to the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(pro forma) (actual)
1994 1995 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Provision for Federal income taxes at the statutory rate . $ 1,743 $ 2,181 $ 2,181 $ 2,205
State and local income taxes, net of Federal benefit ..... 308 385 191 391
S Corporation earnings not subject to Federal income taxes -- -- (2,075) --
Recording of net deferred taxes for conversion to C
Corporation .............................................. -- -- 587 --
Research and development credits ......................... (26) (26) (2) (28)
Other, net ............................................... 25 26 2 33
------- ------- ------- -------
Provision for income taxes ............................... $ 2,050 $ 2,566 $ 884 $ 2,601
======= ======= ======= =======
</TABLE>
Upon the completion of the offering, the Company declared a distribution
equal to the 1995 taxable S Corporation income which was paid from the proceeds
of the offering. At the date of the termination, the Company had approximately
$1,760 of previously untaxed income as a result of change in tax accounting
methods. The Company recorded a tax liability for the taxes due (which is
payable over 6 years) resulting from this change. The estimated tax liability
was approximately $704 (using an effective rate of 40%).
-42-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
-------------------
1995 1996
----- -----
Deferred tax assets:
Allowance for doubtful accounts ................. $ 82 $ 112
Inventory ....................................... 262 384
Accrued Vacation ................................ -- 99
Other ........................................... 87 125
----- -----
Total deferred tax assets ..................... 431 720
----- -----
Deferred tax liabilities:
Tax accounting method ........................... (476) (247)
Depreciation .................................... (300) (349)
----- -----
Total deferred tax liabilities ................ (776) (596)
----- -----
$(345) $ 124
===== =====
Note 13 - Export Sales
The Company exports its products to countries in North and South America,
Europe, and Asia. The Company's export sales were approximately 11% in 1994, 9%
in 1995, and 5% in 1996. In 1994, the Company's export sales were concentrated
to customers in Asia and North and South America and in 1995 and 1996 to
customers in North and South America.
Note 14 - Quarterly financial information - unaudited
<TABLE>
<CAPTION>
1995 Quarters 1996 Quarters
---------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $11,864 $15,394 $11,328 $13,396 $11,572 $11,693 $13,154 $12,443
Gross profit 4,542 5,860 3,953 5,099 3,957 4,540 5,020 4,732
Pro forma net earnings 980 1,478 551 841
Pro forma net earnings per share 0.16 0.25 0.09 0.14
Net earnings 590 807 1,253 1,233
Net earnings per share 0.07 0.10 0.15 0.15
</TABLE>
The 1995 quarterly results are presented on a pro forma basis as if the Company
were a C corporation under the Internal Revenue Code for the entire period. See
Note 1.
-43-
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
The audits referred to in our report dated March 3, 1997 relating to the
consolidated financial statements of Blonder Tongue Laboratories, Inc. and
subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit
of the financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
March 3, 1997
-44-
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged Charged
Allowance for Doubtful Beginning to to Other Deductions Balance at
Accounts of Period Expenses Accounts Write-Offs End of Period
-------- --------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996: $205 $135 - ($60) $280
Year ended December 31, 1995: $147 $75 - ($17) $205
Year ended December 31, 1994: $95 $81 - ($29) $147
</TABLE>
-45-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BLONDER TONGUE LABORATORIES, INC.,
Date: March 25, 1997 By: /s/ JAMES A. LUKSCH
------------------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ PETER PUGIELLI
-----------------------------------------------
Peter Pugielli, Senior Vice President - Finance
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ JAMES A. LUKSCH Director, President and March 25, 1997
- --------------------------- Chief Executive Officer
James A. Luksch (Principal Executive Officer)
/s/ PETER PUGIELLI Senior Vice President, March 25, 1997
- --------------------------- Chief Financial Officer,
Peter Pugielli Treasurer and Assistant
Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ ROBERT J. PALLE, JR. Director, Executive Vice March 25, 1997
- --------------------------- President and Chief Operating
Robert J. Palle, Jr. Officer
/s/ JAMES H. WILLIAMS Director March 25, 1997
- ---------------------------
James H. Williams
/s/ JAMES F. WILLIAMS Director March 25, 1997
- ---------------------------
James F. Williams
/s/ ROBERT B. MAYER Director March 25, 1997
- ---------------------------
Robert B. Mayer
/s/ JOHN E. DWIGHT Director March 25, 1997
- ---------------------------
John E. Dwight
-46-
CONFIDENTIAL - THIS AGREEMENT AND ALL EXHIBITS ARE CONFIDENTIAL
AND PROPRIETARY TO HOUSTON TRACKER SYSTEMS, INC. AND BLONDER
TONGUE LABORATORIES, INC. AND THEIR RESPECTIVE AFFILIATES
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of this
12th day of November, 1996, by and between Houston Tracker Systems, Inc.
("HTS"), with its principal place of business at 90 Inverness Circle East,
Englewood, Colorado 80112, and Blonder Tongue Laboratories, Inc. and its
Affiliates ("Licensee"), with a place of business at One Jake Brown Road, Old
Bridge, New Jersey, 08857.
RECITALS
A. HTS, an affiliated company of EchoStar Satellite Corporation
("EchoStar"), has developed a proprietary Digital Satellite Receiver System (as
defined in Section 1.1.10) for use in connection with the Dish Network, a
digital direct broadcast satellite services network owned and operated by
EchoStar (the "HTS System", as defined in Section 1.1.13).
B. In connection with the Dish Network, HTS and its licensees will
distribute Digital Satellite Receiver Systems and other related consumer
electronics equipment.
C. Licensee desires to obtain certain non-exclusive rights to HTS'
Technology (as defined in Section 1.1.23) related to the HTS System in order to
manufacture the Products (as defined in Section 1.1.19), and to market and
distribute a Digital Satellite Receiver System solely for use in the Commercial
Market (as defined in Section 1.1.6) that is compatible with the HTS System to
customers in the Territory (as defined in Section 1.1.25).
D. HTS is willing to grant a non-exclusive license to Licensee with
respect to such Technology subject to the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1.0 DEFINITIONS
1.1 Definitions. In addition to any other defined terms in this
Agreement and except as otherwise expressly provided for in this Agreement, the
following terms shall have the following meaning:
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
1.1.1 "Accessories" means an antenna, LNB, feedhorn, feedarm
and related components.
1.1.2 "Affiliate" means any person or entity controlling,
controlled by or under common control with Licensee, HTS, or EchoStar, as the
case may be.
1.1.3 "Commercial HTS System" means an HTS System which is
composed of the Commercial Hardware and the Commercial Software.
1.1.4 "Commercial Hardware" means the hardware portion of an
HTS System, for use in commercial applications for sale to the Commercial
Market, which meets the Specifications set forth in Exhibit E, as the same may
be modified or revised upon written notification by HTS in accordance with
Section 1.1.22 below.
1.1.5 "Commercial Hardware Kit" means *
all of which meet the
applicable Specifications set forth in Exhibit E.
1.1.6 "Commercial Market" means more than ten (10) residences
sharing signals from not more than two (2) satellite antennas per orbital slot
from which such residences receive programming; provided however that
notwithstanding the foregoing, (i) hotels, motels, prisons, hospitals and
schools which employ a shared signal distribution system, are intended to fall
within the definition of "Commercial Market" for purposes of this Agreement, and
(ii) apartment/condominium properties which (a) are comprised of more than ten
residences and (b) employ a shared signal distribution system, are intended to
fall within the definition of "Commercial Market" for purposes of this
Agreement.
1.1.7 "Commercial Software" means certain software developed
by HTS for use in conjunction with the HTS System in commercial applications for
sale to the Commercial Market and which will be embedded in microprocessor chips
installed in HTS' commercial HTS System and which will meet the performance
parameters and criteria described in Exhibit B attached hereto.
1.1.8 Intentionally Left Blank
1.1.9 Intentionally Left Blank
1.1.10 "Digital Satellite Receiver System" means a receiver/
decoder, whether stand alone or incorporated into another product (e.g. a
television or VCR) with or
-2-
<PAGE>
without Accessories, which incorporates the Technology and is capable of
receiving satellite transmitted signals delivered in the 12.2 ghz to 12.7 ghz
frequency band.
1.1.11 Intentionally left blank.
1.1.12 "HTS' Marks" means any trademark, service mark or trade
name owned by HTS, its Affiliates or for which HTS has the right to grant a
sublicense, as listed on Exhibit C, as such list may change from time to time in
HTS' discretion.
1.1.13 "HTS System" means a Digital Satellite Receiver System
which receives, decodes and descrambles satellite transmitted signals from
EchoStar's or its Affiliates' DBS satellite(s).
1.1.14 "Intellectual Property" means all patents, copyrights,
design rights, trademarks, service marks, trade secrets, know-how and any other
intellectual or industrial property rights (whether registered or unregistered)
and all applications for the same owned or controlled by HTS or Licensee, as the
case may be, anywhere in the world.
1.1.15 "Key Components" means those components of the Product
listed in attached Exhibit D.
1.1.16 "License" means the rights granted to Licensee by HTS
under this Agreement, as specified in Section 2.1.1 below.
1.1.17 "Location(s)" means the place or places where Licensee
owns, controls, or subcontracts a factory in which Licensee or its Permitted
Subcontractors will manufacture and assemble the Products, and where Licensee
conducts Product development on the Products.
1.1.18 "Permitted Subcontractor" shall have the meaning given
to such term in Section 2.1.3 below.
1.1.19 "Products" means HTS Systems incorporating the
Specifications and manufactured by or for Licensee for resale to the Commercial
Market in the Territory.
1.1.20 "Qualified Manufacturer" means a manufacturer of
television system electronics approved by HTS in writing, which desires to
purchase Commercial Hardware Kits for the purpose of manufacturing digital
satellite receiver systems.
1.1.21 "Qualified Vendor" means a supplier of Key Components
from which Licensee may purchase Key Components. The current list of Qualified
Vendors is set forth in attached Exhibit D, as such list may change from time to
time in HTS' discretion.
1.1.22 "Specifications" means the functional and operational
aspects of the HTS System which must be incorporated in the Products and which
provide compatibility of the
-3-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
Products to the HTS System, as set forth in attached Exhibit E with respect to
the Commercial HTS System, as such Specifications may change from time to time
in HTS' sole discretion upon not less than ninety (90) days prior written notice
to Licensee.
1.1.23 "Technology" means HTS' unique and proprietary portions
of the Specifications as identified in Exhibit F, attached hereto.
1.1.24 "Term" means the duration of this Agreement as
specified in Section 10.1 hereof.
1.1.25 "Territory" means the United States of America,
together with all of its possessions.
1.1.26 *
1.1.27 "Manufacturing Package" means a full and complete set
of all documentation which is required for the manufacture of Products, which
shall include schematic drawings, parts list, vendor lists, mechanical
drawings, test procedures, assembly procedures, and test equipment list;
provided, however, that in no event shall HTS be required to provide more
extensive documentation than is required for its own (or through a
subcontractor) manufacture of a Commercial HTS System.
2.0 GRANT OF LICENSE
2.1 License
2.1.1 Subject to the terms of this Agreement, including,
without limitation, payment of the License Fee (as defined hereinafter) and, to
the extent required, Royalty Payments (as defined hereinafter), HTS hereby
grants to Licensee a limited, nonexclusive, non-transferable, indivisible
license under HTS' Intellectual Property rights to use the proprietary portions
of Specifications and the Technology, including but not limited to the object
code (but not the source code), and to use and purchase Key Components for the
Commercial Software listed on Exhibit B, exclusively for the purpose of
manufacturing and assembling and, to the extent provided in Section 2.1.3 below,
subcontract manufacturing, the Products and of selling the Products in the
Territory solely for ultimate use by customers in the Commercial Market (the
"License"). Licensee shall use its commercially reasonable efforts to market and
sell the Products in the Territory for use by customers in the Commercial
Market. The parties agree and acknowledge that the License does not include the
right to manufacture, subcontract manufacture, market or sell Product in any
market other than the Commercial Market, or
-4-
<PAGE>
otherwise incorporate features for use by consumers outside the Commercial
Market, (except to the extent of those features which are common to Products
sold and/or marketed to both the consumer market and the Commercial Market), and
the Product shall be marketed solely for use in the Commercial Market.
2.1.2 Licensee shall not use all or any part of the Technology
for the purpose of manufacturing, or having manufactured, any other Digital
Satellite Receiver Systems not used in conjunction with the Dish Network or for
any purpose not expressly set forth in this Agreement. Nothing in this Agreement
is intended to impair, limit or otherwise interfere with Licensee's independent
royalty-free right to manufacture and sell digital satellite receiver systems
which do not incorporate the Technology.
2.1.3 Licensee has no right under this Agreement to grant
sublicenses with respect to the License or any of the Technology, without the
prior written consent of HTS. Licensee may subcontract the manufacture of
Products upon HTS' prior written approval of the subcontract manufacturer
suggested by Licensee, which approval shall not be unreasonably withheld.
Attached hereto as Exhibit G is a current list of approved subcontract
manufacturers of the Product (the "Permitted Subcontractors"). Permitted
Subcontractors may be added to Exhibit G from time to time through the approval
process set forth in this Section 2.1.3. Any Permitted Subcontractor will be
required by Licensee to sign a license agreement, a trademark license agreement
and a non-disclosure agreement with HTS upon terms acceptable to HTS, in its
sole discretion, prior to release of any information related to the
Specifications or the Technology to any Permitted Subcontractor. The license
agreement shall authorize the Permitted Subcontractor to use the Technology and
the Specifications for the sole purpose of subcontract manufacturing for
Licensee. If a Permitted Subcontractor breaches any provision of any of those
agreements with HTS or if HTS deems a Permitted Subcontractor unacceptable to
HTS for any other reasonable cause, such Permitted Subcontractor shall, upon 120
days prior written notice to Licensee and such Permitted Subcontractor, be
deleted from the list in Exhibit G, and Licensee shall following the passage of
such 120 days, no longer permit such Permitted Subcontractor to subcontract
manufacture the Products; provided, however, that such Permitted Subcontractor
shall nevertheless be permitted to complete the manufacture of any Products
which at such time constitute work-in-process for the benefit of Licensee and
such Permitted Subcontractor shall be permitted to otherwise build-out all
remaining inventory of raw materials acquired by such Permitted Subcontractor
for the purpose of manufacturing Products for Licensee. If it is determined that
Licensee willfully or negligently encouraged or colluded with any Permitted
Subcontractor to violate the terms of the license, trademark license or non-
disclosure agreement signed by a Permitted Subcontractor, then in addition to
any other rights to which HTS may be entitled contractually, at law or in
equity, HTS shall have the right to terminate this License Agreement as if
Licensee had breached this License Agreement. Licensee shall not OEM manufacture
the Products for any others without HTS' prior written consent.
2.1.4 Licensee acknowledges and understands that HTS may,
subject to the limitations set forth in Section 7.6 herein, at any time permit
others to manufacture Digital Satellite Receiver Systems for HTS or for third
parties for use in the Commercial Market or
-5-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
otherwise, or HTS may manufacture Digital Satellite Receiver Systems for use in
the Commercial Market itself. Licensee further acknowledges and understands that
HTS may, subject to the limitations set forth in Section 7.6 herein, at any time
license or sublicense the Technology, in whole or in part, related to the
Products for use in the Commercial Market. Licensee also acknowledges and
understands that, subject to the limitations set forth in Section 7.6 herein,
HTS may, and may permit others to, distribute and sell Digital Satellite
Receiver Systems for use in the Commercial Market through any channel of
distribution in the Territory.
2.1.5 At all times during the Term after Licensee begins
manufacturing the Products, at regular intervals sufficient to permit HTS to
provide usage authorization on a timely basis to purchasers of Products, upon
HTS' reasonable request, Licensee shall provide HTS with a report which at a
minimum sets forth the number of Products manufactured and the number of
Products shipped during the preceding month, including the serial number of each
Product and the serial number or other identification number of each Smart Card
which accompanies each Product.
2.1.6 HTS will use reasonable efforts to implement and
maintain reasonable procedures and protocols designed to encourage customers in
the Commercial Market to purchase Commercial HTS Systems, including without
limitation by (i) maintaining separate databases for customers and equipment
used in the Commercial Market as against customers and equipment used in the
consumer market, and (ii) limiting access to and availability of special pricing
promotions on consumer HTS Systems only to purchasers of such equipment for home
use in the consumer market; provided, however that nothing herein shall be
construed as prohibiting or otherwise restricting in any manner, HTS from
offering * on HTS Systems intended for the Commercial Market (or a particular
segment thereof) except that if HTS offers HTS Systems intended for the multiple
dwelling unit segment of the Commercial Market for sale at * on a generalized
basis, * will provide to * such
* of the Commercial Market) as may be agreed
upon between HTS and Licensee so that *
* by this Agreement, except that * will be due from HTS to
Licensee unless HTS can reasonably expect to * through programming revenues
within a commercially reasonable time frame and provided that
* shall be provided in * and (iii) restricting the
* in the Commercial Market, to authorizations
for equipment installed in a *
provided, however, that HTS may where it deems necessary in its reasonable
judgment, permit such authorizations in * . For purposes of this Section 2.1.6,
"generalized basis" shall mean the offering for sale of HTS Systems * for an
aggregate of not less than * during any period of at least * .
-6-
<PAGE>
2.2 Trademark License Agreement. Contemporaneously with the execution
of this Agreement, Licensee shall enter into a Trademark License Agreement with
HTS, in the form attached hereto as Exhibit H. Licensee agrees and acknowledges
that HTS' Marks are proprietary to HTS. Licensee shall ensure that its Permitted
Subcontractors and Permitted Sublicensees shall comply with each of the material
terms and conditions of the Trademark License Agreement as if it were a party
thereto. Licensee shall (i) monitor the use of the HTS Marks by all Permitted
Subcontractors and Permitted Sublicensees, and (ii) immediately inform HTS in
writing of any known or suspected misuse of the HTS Marks by a Permitted
Subcontractor or Permitted Sublicensee. In the event such Permitted
Subcontractor or Permitted Sublicensee breaches any of the material terms and
conditions of the Trademark License Agreement, HTS may terminate such Permitted
Subcontractor or Permitted Sublicensee, in the manner set forth in Section 2.1.3
above.
2.3 Exclusive License to Manufacture and Sell Commercial Hardware Kits
Subject to the payment of applicable Royalty Payments, HTS hereby grants to
Licensee a limited, non-transferable, indivisible license (which license shall
be an exclusive license for a period of three years from the date of this
Agreement and thereafter for the remainder of the term of this Agreement, shall
be a non-exclusive license) under HTS' Intellectual Property rights to use the
Specifications and the Technology and to use and purchase Key Components,
including but not limited to the Commercial Software, for the purpose of
manufacturing and assembling and, to the extent provided in Section 2.1.3 above,
subcontract manufacturing, Commercial Hardware Kits and of selling the
Commercial Hardware Kits in the Territory to Qualified Manufacturers (the "Kit
License"); provided, however that HTS and its Affiliates shall be permitted to
manufacture and sell Commercial Hardware Kits in competition with Licensee.
3.0 SUPPLY OF TECHNOLOGY, SPECIFICATIONS AND TECHNICAL
ASSISTANCE
3.1 (a) Technical Information and Specifications. Attached hereto as
Exhibits E are the Specifications which must be incorporated into the Products
for the HTS System. Within approximately thirty (30) days following execution of
this Agreement, HTS will begin supplying and continue to supply as developed,
Licensee with all of the information, data and other items described in Exhibit
I, provided however, that any delay in HTS' provision of all or any portion of
the information required by Exhibit I beyond thirty days after the date hereof
will automatically extend the time for compliance by Licensee with any
applicable performance dates (including payment dates) set forth in this
Agreement by such additional time as equals the delay in HTS' provision of all
of the information required by Exhibit I. Notwithstanding the foregoing, HTS has
no obligation to Licensee to make available any information as to which it is
now, or at any time hereafter may be, under obligation to any Government or to
any third party not to disclose. The provision of updates and/or changes to
Specifications by HTS to Licensee hereunder shall occur on a periodic basis of
not more than once per month (unless provided more frequently by HTS at its
discretion), at such time as HTS reasonably considers
-7-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
necessary for Licensee to effectively carry out the manufacturing, assembly and
testing activities contemplated hereunder; provided however, that HTS shall not
be required to provide any new Specifications to Licensee during any period in
which Licensee is in default under this Agreement or the Trademark License
Agreement.
(b) Licensee acknowledges and agrees that the Specifications
and Technology licensed to Licensee hereunder represent a Commercial Market
version of the current generation of consumer Digital Satellite Receiver Systems
manufactured by HTS (known as "Able" version), and that, subject to the
provisions of Section 3.2 below, HTS is not required to provide Licensee with
any updates to the Specifications and Technology to provide compatibility to
future generations of consumer Digital Satellite Receiver Systems to be
manufactured by HTS, including without limitation the "Baker" or "Charlie"
designs.
3.2 If, as and when HTS develops further generations of the consumer
versions of the HTS System hardware and the HTS System software (eg. BAKER and
CHARLIE), upon the request of Licensee, which request may be made at any time
after the Maturity Date (defined below), HTS agrees, at the sole option of HTS
within a reasonable time following Licensee's request (i) at HTS' sole cost and
expense, to modify such new generations of HTS System consumer hardware and
consumer software (ii) on a time and materials basis at the standard rates
generally charged by HTS to its customers for such services, to modify such new
generations of HTS System consumer hardware and consumer software, or (iii) if
HTS so determines, to permit Licensee's employees or consultants, as the case
may be, to have access at reasonable times to such of HTS' proprietary
information, data and product samples at HTS location and under HTS'
supervision, as is necessary for Licensee to modify, at Licensee's expense
(including payment to HTS, at the standard rates generally charged by HTS to its
customers for such services, for the time of personnel of HTS or its Affiliates
in the supervision and/or assistance of Licensee's efforts) such new generation
of HTS System consumer hardware and consumer software, in all cases, so that the
same are acceptable as commercial versions for manufacture, sale, use and
exploitation by Licensee for the Commercial Market, pursuant to the License
granted under this Agreement. Whether Licensee or HTS (either at cost or no cost
to Licensee) perform the modifications to the consumer hardware and/or consumer
software to create commercial market versions thereof (the "New Commercial
Generations"), such New Commercial Generations shall be the sole proprietary
property of HTS, but shall be available to Licensee without the payment of
additional license fees or royalty fees (other than those otherwise provided for
in section 7.2.1), as part of the licensed works pursuant to Section 2.1.2
hereof. HTS and Licensee agree that if the New Commercial Generations are
developed pursuant to clauses (ii) or (iii) described above, that HTS may
incorporate such New Commercial Generations into its own Commercial Hardware and
Commercial Software, but that HTS will not make any such New Commercial
Generations available to any * until * after the first to occur of (i) *
incorporating any such New Commercial Generation, or (ii) * after * of the New
Commercial Generation of the consumer software.
-8-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
For purposes of this Agreement, the term "Maturity Date" shall mean * as of
which the number of Commercial HTS Systems sold (or otherwise distributed *) by
Licensee, HTS and each of their respective Affiliates, in the aggregate, * .
3.3 Technical Support During the one-year period commencing on the
date of this Agreement, Licensee may request, and HTS shall provide, subject to
the availability of adequate human resources at such cost as the parties shall
agree, but in no event at a cost in excess of HTS standard rates therefor, a
reasonable amount of technical assistance relating to the manufacture of the
Products. Whenever practical, HTS will provide technical assistance by phone or
at HTS' facility; however, the parties hereto acknowledge that a certain amount
of such assistance may be required to be rendered at Licensee's facility in Old
Bridge, New Jersey. In the event HTS personnel must travel to Licensee's
Location or other Locations to provide technical assistance, Licensee
understands and acknowledges that such technical assistance provided by HTS is
subject to the reasonable availability of HTS' employees and their ability to
obtain all appropriate visas and licenses, if applicable, to travel to and
perform the technical assistance at Licensee's Location or other Locations.
3.3 Product Sales to HTS During the term of this Agreement, HTS and
its Affiliates shall be entitled to purchase for use and resale from Licensee
and its Affiliates all products and services manufactured or offered by Licensee
and its Affiliates, at prices which are no less favorable than the most
favorable prices offered from time to time to any of Licensee's distributors,
based upon purchases of similar quantities upon comparable terms.
3.4 Delivery of HTS System Within 5 days following the execution of
this Agreement, HTS shall deliver to Licensee, at no cost to Licensee, one
complete working unit of the HTS System, together with an active smart card.
4.0 QUALITY CONTROL
4.1 Manufacture of Products
4.1.1 Licensee undertakes and agrees to incorporate the
Specifications in manufacture of the Products and agrees to comply with any and
all industry and governmental standards and regulations which may apply to the
manufacture or sale of the Products (collectively "Laws"), including, without
limitation, import, export, shipment and product safety standards. Licensee
shall be solely responsible for awareness of, and compliance with, Laws. Neither
this nor any other provision of this Agreement, nor the furnishing by HTS of any
advice with respect to compliance with any Laws, shall be construed as
obligating HTS to advise Licensee regarding compliance with any Laws. Licensee
may make feature or other changes to the Products which do not adversely affect
the fit, form, function or performance of the HTS System, without HTS' consent;
provided, however, that to the extent that such feature or other
-9-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
changes so developed by Licensee constitute derivative works (in which Licensee
is entitled to ownership under applicable laws relating to intellectual
property) to the Commercial Software or Commercial Hardware, HTS shall be
immediately entitled, upon its request, to a royalty-free license (but without
the right to sublicense, except to an OEM manufacturer which manufactures goods
for HTS under the HTS Marks) to use and incorporate into the Products, such new
features and changes developed by Licensee, subject to the restrictions
applicable to independently developed Intellectual Property under section 5.3.2
below, provided further that HTS shall not under any circumstances make such
features or other changes available to any *
Any other changes shall be made only upon receiving the prior
written consent of HTS, which consent shall not be unreasonably withheld.
Licensee agrees that in the manufacture of the Products pursuant to this
Agreement, manufacturing operations shall at all times be conducted to ensure
that the Products manufactured by Licensee or Permitted Subcontractors shall be
in strict conformance with the Specifications.
4.1.2 Licensee agrees to individually mark all Products
manufactured by Licensee pursuant to this Agreement with a clear, distinct and
conspicuous designation of the country of manufacture and/or assembly origin in
accordance with applicable laws.
4.1.3 Licensee will, at Licensee's sole cost and expense,
comply with all import laws, rules and regulations relating to shipments to
Licensee of machinery, equipment, parts, components and materials required or
used in the manufacture, assembly and testing of the Products.
4.2 Location(s): Inspection of Location(s) and Products
4.2.1 The Products will be manufactured, assembled and tested
only at the Location(s) operated by Licensee or by a Permitted Subcontractor
listed in Exhibit G in accordance with commercially acceptable standards.
4.2.2 Licensee will permit HTS to enter Location(s) upon
reasonable prior notice during normal business hours to inspect the facilities,
equipment and materials used in manufacturing, assembling and testing the
Products, to check operations and methods, and to take with them samples of the
Products as provided in Section 4.2.3 and samples of the materials and supplies
used in manufacturing, assembling and testing the Products. HTS' inspection
right is intended only as a tool to aid HTS in monitoring Licensee's performance
under this Agreement and shall not be construed as constituting any warranty, or
certification of compliance or performance by HTS.
4.2.3 (a) Licensee shall, at Licensee's sole cost and expense,
provide HTS up to five (5) (as determined by HTS) production intent (pre-pilot)
samples of each model of the
-10-
<PAGE>
Products prior to its full-scale manufacture by Licensee. Licensee also shall,
at Licensee's cost, provide HTS up to five (5) (as determined by HTS) production
samples of each model of the Products prior to its full-scale manufacture by
Licensee. Written test procedures and test plans that will be used to determine
conformity of the Products to the Specifications ("Test Procedures and Plan"),
shall be developed by HTS and shall be delivered to Licensee and attached hereto
as Exhibit J within fifteen (15) days after the date of this Agreement. Prior to
first commercial shipment from the site of manufacture, of any Product which
differs in more than an inconsequential fashion as determined by HTS in its
reasonable judgment, from Product previously manufactured, Licensee shall, at
Licensee's sole cost and expense, provide HTS with up to five (5) (as determined
by HTS) production samples which incorporate the change.
(b) In the event the failure rate of the Products in
the field is ever at a level HTS considers reasonably problematic, consistent
with industry standards, Licensee shall, at Licensee's sole cost and expense,
provide HTS with such number of Product units which exhibit the failure, as HTS
may reasonably request. If HTS reasonably determines that any of Licensee's
samples fail to meet the quality and performance standards in the Test
Procedures and Plan, then Licensee shall promptly correct the problem before
continuing manufacture of the Products. The examination by HTS of conformity of
the Products to the Test Procedures and Plan shall not be construed as
constituting a certification or warranty. Licensee shall not be authorized to
refer to HTS' examination in connection with sale of the Products as a
certification or warranty by HTS. HTS shall have no liability whatsoever arising
from its examination of the Products.
4.2.4 (a) Licensee shall maintain a quality control program
which monitors compliance with the Test Procedures and Plan referred to in
Section 4.2.3 above, and with any and all applicable Laws, governmental
standards, regulations or certifications. All work undertaken by Licensee shall
be performed in accordance with Licensee's established quality control
procedures and guidelines, which Licensee shall provide to HTS for HTS' review,
at HTS request.
(b) Prior to shipment from Location(s), each Product
shall be factory tested by Licensee or its Permitted Subcontractors to the Test
Procedures and Plan, and Licensee shall submit to HTS, upon request of HTS,
complete certified test results. Upon reasonable prior notice, Licensee will
permit HTS to have access to all such records for Licensee and its Permitted
Subcontractors at Licensee Location(s) during normal business hours upon
reasonable prior notice.
4.3 Key Components and Qualified Vendors
4.3.1 Licensee acknowledges and agrees that it is solely
responsible for the purchase of all parts, components and materials necessary
for manufacture of the Products,
-11-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
including, without limitation, any tooling and test equipment, and any and all
other costs associated with manufacture, assembly, testing, labeling and
packaging of the Products, except as HTS may otherwise request and the parties
may agree to in advance in writing. Licensee shall only purchase Key Components
from Qualified Vendors designated in writing by HTS, as such Qualified Vendors
may change from time to time in HTS' reasonable discretion. HTS shall make
commercially reasonable efforts to arrange with all of such Qualified Vendors
for Licensee to purchase parts, components and materials necessary for the
manufacture of the Products at prices that are at least as favorable as the
prices for such parts, components and materials which are paid by HTS for
similar quantities upon comparable terms. If Licensee shall locate a vendor
which is capable of supplying Key Components at competitive prices, the identity
of such vendor shall be submitted to HTS for written approval as a Qualified
Vendor, which approval shall not be unreasonably delayed or denied.
4.3.2 Licensee shall purchase its requirements of Smart Cards
as well as Flash Rom (pre-programmed with locked software bootstrap) directly
from HTS at a price which HTS represents and warrants is and will at all times
be the most favorable price offered from time to time or at any time by HTS for
such products to its best customers in the Commercial Market purchasing similar
quantities on similar payment and other material terms and shall in no event be
higher than * HTS' price to Licensee for Smart Cards as of the date hereof is *
which price HTS represents and warrants is in conformity with the foregoing
pricing parameters.
4.3.3 The parties shall pursue joint procurement efforts
related to parts and components necessary to manufacture the Products, as well
as Accessories. The parties acknowledge that joint procurement efforts may be
beneficial to both parties in achieving economies of scale which the parties may
otherwise be unable to realize through separate procurement efforts. The parties
shall negotiate in good faith an equitable sharing of costs and liabilities
associated with such efforts.
4.3.4 HTS agrees to * to Licensee
for use in the Commercial Market, *
from time to
time or at any time to any * based upon
purchases of
similar quantities upon comparable terms, with such * and
* as are
otherwise made available to * ,
based upon purchase of similar quantities upon comparable terms.
-12-
<PAGE>
5.0 USE OF TECHNOLOGY AND CONFIDENTIAL AND PROPRIETARY
INFORMATION
5.1 Confidential Information
5.1.1 Licensee understands and agrees that the Technology,
including without limitation all proprietary portions of the Specifications, and
information provided by HTS to Licensee or otherwise obtained by Licensee
relating to the HTS System and the business or operations of HTS and its
Affiliates (except as set forth below in Section 5.1.3), ("HTS Confidential
Information") is proprietary to HTS, and will be treated by Licensee, its
Affiliates, employees, agents and Permitted Subcontractors in a confidential
manner. Licensee represents and agrees that it will only use HTS Confidential
Information as expressly permitted under the terms and conditions of this
Agreement, or as otherwise permitted in writing in advance by HTS. Licensee may
only disclose HTS Confidential Information to those of Licensee's officers,
directors and employees who have a need to know HTS Confidential Information in
connection with carrying out Licensee's obligations under this Agreement.
Licensee shall not disclose HTS Confidential Information to any others, or allow
any others to use HTS Confidential Information during the Term or at any time
thereafter, without the prior written consent of HTS. Licensee represents and
agrees that it shall use its best efforts to protect the confidential nature of
HTS Confidential Information, and in all events shall use at least the same
degree of care as it uses to protect its own confidential and proprietary
information. Further, Licensee acknowledges and understands that HTS
Confidential Information would be useful to HTS' competitors, and would cause
damage to HTS' current and prospective business if disclosed without the prior
written consent of HTS or in violation of this Agreement.
5.1.2 HTS understands and agrees that information provided by
Licensee to HTS or otherwise obtained by HTS relating to the business or
operations of Licensee (except as set forth below in Section 5.1.3) ("Licensee
Confidential Information") is proprietary to Licensee and will be treated by
HTS, its Affiliates, employees, and agents in a confidential manner. HTS
represents and agrees that it will only use Licensee Confidential Information as
expressly permitted under the terms and conditions of this Agreement, or as
otherwise permitted in writing in advance by Licensee. HTS may only disclose
Licensee Confidential Information to those of HTS' officers, directors and
employees who have a need to know Licensee Confidential Information in
connection with carrying out HTS' obligations under this Agreement. HTS shall
not disclose Licensee Confidential Information, during the Term or at any time
thereafter, without the prior written consent of Licensee. HTS represents and
agrees that it shall use its best efforts to protect the confidential nature of
Licensee Confidential Information, and in all events shall use at least the same
degree of care as it uses to protect its own confidential and proprietary
information. Further, HTS acknowledges and understands that Licensee
Confidential Information would be useful to Licensee's competitors, and would
cause damage to Licensee's
-13-
<PAGE>
current and prospective business if disclosed without the prior written consent
of Licensee or in violation of this Agreement.
5.1.3 Notwithstanding any provision to the contrary in this
Section 5, HTS Confidential Information and Licensee Confidential Information
(collectively referred to as the "Confidential Information") shall not include
any information which is (for the purpose of this Section 5, HTS and Licensee as
the case may be, are referred to as the "Recipient" or the "Discloser"):
(i) already in or comes into the public domain other
than through disclosure by the Recipient;
(ii) independently developed or known by the
Recipient, as evidenced by written documentation compiled by the Recipient prior
to receipt by the Recipient of any of the Confidential Information;
(iii) disclosed to a third party without similar
restrictions;
(iv) received by the Recipient from a third party
without restriction and without breach of this Agreement;
(v) is not marked "confidential", "proprietary" or
with a marking of like import, and if disclosed orally, is not so identified;
(vi) is required to be disclosed by federal, state or
other laws, or by a court of competent jurisdiction.
The burden of proof in proving the presence of an
exclusion to the requirement to maintain the confidential nature of the
Confidential Information shall be on the party asserting the exclusion.
5.1.4 The Recipient's confidentiality obligation shall include
not making more copies of the Confidential Information than is reasonably
necessary for fulfilling its obligations under this Agreement and security
backup purposes, without the prior written consent of the Discloser. The
original and all copies or other reproductions of the Confidential Information
shall contain markings of "Confidential", "Proprietary" or like import, and
together with all materials created or fabricated by the Recipient, including,
without limitation, evaluations, based on the Confidential Information, are
owned by and are the exclusive property of the Discloser, and shall be returned
by the Recipient to the Discloser immediately upon request by the Discloser or
termination or expiration of this Agreement.
5.1.5 Except as expressly set forth in this Agreement, this
Agreement shall not be construed as granting or conferring any interests or
rights, by license or otherwise, in any of the Confidential Information,
including, without limitation, any patent or patent application
-14-
<PAGE>
or any copyright heretofore or hereafter granted or filed in which the Discloser
now has or subsequently may obtain any right, title or interest or any other
intellectual property rights.
5.1.6 The Recipient recognizes that the unauthorized use or
disclosure by the Recipient, its Affiliates, its employees, agents or Permitted
Subcontractors of any of the Confidential Information would cause irreparable
injury and damage to the Discloser. The Recipient agrees that the Discloser
shall, in addition to and not in limitation of, any other legal or equitable
remedies and damages, be entitled to injunctive relief (without the necessity of
posting or filing a bond or other security) to restrain the threatened or actual
violation hereof by the Recipient, its Affiliates, its employees, agents and
Permitted Subcontractors. All of the provisions of this Agreement which protect
the Confidential Information, including, without limitation, Licensee's
obligations to protect the Technology, shall survive the termination or
expiration of this Agreement.
5.1.7 Recipient shall be obligated to maintain the
Confidential Information in confidence for a period of three (3) years after
disclosure by the Discloser.
5.2 Use of Technology
5.2.1 Except as necessary for Licensee to specifically perform
its obligations under this Agreement, Licensee shall not reverse engineer any
software provided in binary form, including, but not limited to, the interface
software and the object code of the conditional access task of the Technology.
However, Licensee shall not be obligated to use any code provided by HTS in the
design or manufacture of the Product except as detailed in the Key Components as
detailed in Exhibit D and Licensee shall in any event ensure compliance with the
Specifications as set forth in Exhibit E. Subject to Section 5.3 and as
otherwise set forth in this Agreement, Licensee shall not use any Technology,
Key Components or Exhibit I information in any other products without HTS' prior
written consent.
5.2.2 Licensee shall not, without the prior written consent of
HTS, which consent shall not be unreasonably withheld use the Technology at any
location other than the Location(s).
5.3 Cross-Licensing of Developments.
5.3.1 Independently Developed Intellectual Property. Any
Intellectual Property owned or independently developed by a party relating to
Digital Satellite Receiver Systems shall be owned by such party. Subject to
Section 3.1(b), upon request by a party, the party that has developed
Intellectual Property related to Digital Satellite Receiver Systems for the
Commercial Market will license the other to use the other party's Intellectual
Property at no cost to such party, but only for use in the HTS System. If a
party desires to use the other Party's Intellectual Property in any other
products, it may only do so with the prior written consent of the other party,
and on such reasonable terms as the other party may require.
-15-
<PAGE>
5.3.2 Third Party Intellectual Property. A party
shall have no rights to any intellectual property developed by a third party for
or in conjunction with the other party. Each party understands and acknowledges
that it may be restricted from being permitted to use any intellectual property
developed by a third party for or in conjunction with the other party,
including, but not limited to, intellectual property with regard to Digital
Satellite Receiver Systems.
5.4 U.S. Export and Other Laws
Licensee understands and acknowledges that HTS' obligations to
Licensee under this Agreement, including, without limitation, any and all
obligations of HTS to provide the Specifications (including the Technology), any
technical assistance, any media in which any of the foregoing is contained and
related technical data (collectively referred to as the "Data") are subject to
HTS' ability to do so without violation of any applicable Laws, including
without limitation the terms of any applicable U.S. export licenses issued in
connection with the furnishing of the Data to Licensee under this Agreement. In
the event HTS' obligations would conflict with any law, regulation or export
license, HTS shall be excused from performance of such obligations to the extent
required for compliance therewith. Licensee agrees to comply with all applicable
Laws, including without limitation the terms of any U.S. export licenses or
regulations affecting use or disposition of technical data or the product
thereof, or any know-how, technical information, manufacturing or test
equipment, components or software supplied by HTS under this Agreement. Licensee
represents and warrants that it will comply in all respects with the export and
re-export restrictions set forth in any applicable U.S. export licenses with
respect to any item used in manufacture of the Products and will otherwise
comply with any and all applicable U.S. export and re-export laws and
regulations and any other applicable Laws in effect from time to time. Licensee
shall cooperate with HTS in making application for and securing any required
export licenses, approvals or other authorizations and shall prepare, execute
and deliver all documents that may be required in connection therewith.
6.0 TRADEMARKS
6.1 HTS' Marks. The rights and obligations of the parties hereto with
respect to HTS' Marks shall be in addition to, and not in lieu of, the rights
and obligations of the parties as set forth in the Trademark License Agreement
attached hereto as Exhibit H. Licensee expressly acknowledges and understands
that, as between HTS and Licensee, HTS and its Affiliates have the absolute
ownership of, or right to allow Licensee to use, HTS' Marks.
6.1.1 Licensee may only affix its own brand name on the
Products. Licensee, at HTS' request, shall also affix such of HTS' Marks as
specified in Exhibit B on or in connection with the Products, including, but not
limited to, on the receiver, antenna and packaging, and on the electronic screen
guide in accordance with the usage guidelines for HTS' Marks (which shall
include a minimum size requirement for HTS' Marks) as set forth in attached
Exhibit K, as such guidelines may change from time to time in HTS' sole
discretion.
-16-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
Licensee agrees not to use any of HTS' Marks on the Products in any manner
inconsistent with the Trademark License Agreement, the usage guidelines for HTS'
Marks or without the prior written consent of HTS. Further, Licensee shall not
use any of HTS' Marks on any other product manufactured by Licensee, without the
prior written consent of HTS, which consent HTS may withhold in its sole
discretion. If HTS permits Licensee to use any of HTS' Marks, use by Licensee
shall be in accordance with the terms and conditions of the Trademark License
Agreement, HTS' trademark usage guidelines and this Agreement. Licensee
expressly acknowledges and understands that HTS and its Affiliates have the
absolute ownership of, or right to allow Licensee to use, HTS' Marks.
6.1.2 Licensee agrees that it will not in any way dispute the
validity of any of HTS' Marks or registrations of HTS' Marks, nor the sole
proprietary right of HTS and its Affiliates thereto, nor the right of HTS and
its Affiliates to use or license the use of HTS' Marks in the Territory or
elsewhere, either during the Term or at any time thereafter.
6.1.3 Licensee further agrees not to perform, either during
the Term or at any time thereafter, any act or deed either of commission or of
omission which is inconsistent with HTS' or its Affiliates' proprietary rights
in and to HTS' Marks, whether or not HTS' Marks are registered.
7.0 PAYMENTS AND ROYALTIES
7.1 License Fee.
7.1.1 License Fee. Licensee shall pay to HTS the sum of * as a
License Fee, * of which shall be paid immediately following the execution of
this Agreement, and the balance of which shall be payable by Licensee * after
delivery by HTS to Licensee of all of the information and materials required to
be provided under Exhibits E, F, I, J and the Manufacturing Package
(collectively, the "Deliverables"). If HTS does not deliver the Deliverables on
or before * or such later date as Licensee shall determine, then Licensee may
terminate this Agreement, the portion of the License Fee previously paid
hereunder shall be repaid to Licensee and this Agreement shall thereupon be of
no further force or effect.
7.2 Royalty Payments
7.2.1 (a) In consideration of the Technology furnished by HTS
to Licensee, and for other good and valuable consideration hereunder, as a
condition for maintaining the license granted under this Agreement to
manufacture and sell such products, commencing with the
-17-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
* Digital Satellite Receiver System manufactured and sold by Licensee which
is activated to receive, decode and decrypt satellite transmitted signals from
any of EchoStar's or its Affiliate's DBS Satellites, Licensee shall pay to HTS a
royalty equal to * per unit ("Affiliated Royalty Payment").
(b) In the event Licensee manufactures and sells Commercial
Hardware Kits as contemplated by Section 2.3 herein, Licensee, as a condition
for maintaining the Kit License, shall pay to HTS a royalty equal * for each
Commercial Hardware Kit manufactured and sold by Licensee (the "Kit Royalty
Payment").
7.2.2 The Affiliated Royalty Payments and the Kit Royalty
Payments (together, the "Royalty Payments") shall be paid by Licensee by the
last day of the month following the month of sale by Licensee to its customer.
Royalty Payments shall be paid by Licensee in U.S. dollars via wire transfer to
an account designated by HTS.
7.2.3 Licensee acknowledges and understands that manufacture
of the Products requires compliance with MPEG II, DVB and other industry
standard technologies and the use of a range of other third party intellectual
property rights. HTS represents and warrants that attached as Exhibit L hereto,
is a list of persons, entities or technology known to HTS, which is not covered
by this License Agreement, but for which Licensee may need to obtain rights in
order to manufacture or sell the Products. Except as set forth on Exhibit L, HTS
represents and warrants that it has no knowledge of and has received no notice
from any third party claiming that HTS is infringing or has infringed on any
proprietary rights of any third party. Licensee acknowledges and understands it,
and not HTS, is responsible for determining those entities with which it must
negotiate and enter into licensing agreements, for negotiating license rights
from all those third parties and for paying (and represents and warrants that it
will pay as and when due), any and all applicable license fees (other than the
License Fee and Royalty Payments which are payable to HTS under this Agreement)
to any and all entities to which a royalty or license fee is required to be paid
for Digital Satellite Receiver Systems sold by Licensee. Nothing in this Section
7.2.3 or Exhibit L hereto shall be construed by Licensee or any third party as
an admission by HTS or any Affiliate thereof that any company listed in Exhibit
L has valid or exclusive proprietary rights to any particular technology which
may be available for licensing by Licensee.
7.2.4 Licensee acknowledges that the License granted herein
does not include, and Licensee shall have no rights with respect to the
electronic programming guide (EPG) used in the HTS system.
7.3 License Report. On or before the twentieth (20th) day of
each month during the term of this Agreement Licensee shall provide to HTS a
report which at a minimum accurately sets forth the number of units manufactured
and sold by Licensee during the preceding month,
-18-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
and such other information reasonably required by HTS from time to time to
confirm the accuracy of any Royalty Payments due under Section 7.2.1 (the
"License Report").
On or before the twentieth (20th) day of each month during the
term of this Agreement HTS shall provide to Licensee a report which at a minimum
accurately sets forth the number of units manufactured and sold by Licensee
which are activated to receive, decode and decrypt satellite transmitted signals
from any of EchoStar's or its Affiliates DBS Satellites during the preceding
month, and such other information reasonably required by Licensee from time to
time to confirm the accuracy of any Affiliated Royalty Payment due under Section
7.2.1(a) (the "Confirmation Report").
7.4 Audit. During the Term, each of Licensee and HTS shall have the
right to inspect and audit, upon reasonable prior written notice to the other
party, such of the books and records of such other party or excerpts therefrom
as may be necessary to verify that the Royalty Payments are being properly
calculated and paid as required by Section 7.2, and in order to confirm
compliance by Licensee or HTS, as the case may be, with any other of its
obligations or covenants under this Agreement (an "Audit"). Any Audit conducted
by HTS or Licensee shall be during normal business hours and in such a manner so
as not to unreasonably disrupt the routine business operations of the party
being audited. If during the course of an Audit the auditing party uncovers that
the party being audited has failed to make Royalty Payments or made any
underpayment with respect to any Royalty Payments made or overstated the Royalty
Payments due, in any such case, in an amount in excess of 10% of the Royalty
Payments properly determined to be due, the party owing payment shall pay, in
addition to the unpaid or underpaid Royalty Payments or reimbursement of
overcharged Royalty Payments, interest on such unpaid, underpaid, or overcharged
Royalty Payments as set forth in Section 7.5 below and the reasonable costs and
expenses incurred by the auditing party in connection with such Audit. A party's
acceptance of any Royalty Payment shall not preclude the other party from
questioning the accuracy of any License Report, Confirmation Report, or Royalty
Payment at any time. Subject to Section 5.1.3, the information contained in any
License Report, Confirmation Report, and any Audit shall be Licensee
Confidential Information under Section 5.1.2.
7.5 Late Payments. Any amounts owed but unpaid within 10 business days
after the due date thereof under this Agreement shall incur interest at the
lesser of 1.5% per month or the maximum amount permitted by law.
7.6 Preferred Royalty Payments. HTS agrees that any license granted
with respect to the Technology and other rights granted hereunder to any * for
exploitation in the Commercial Market, shall be granted upon terms and
conditions which provide no more favorable License Fees and Royalty Payments,
than those payable by Licensee hereunder.
-19-
<PAGE>
8.0 REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations, Warranties and Covenants of Licensee. Licensee
represents, warrants and covenants, as follows, which representations,
warranties and covenants shall survive the execution of this Agreement and shall
be continuing covenants during the entire term of this Agreement:
8.1.1 Licensee has the right and authority to enter into this
Agreement and the execution, delivery and performance by Licensee of this
Agreement have been duly authorized by all requisite corporate action and will
not violate any provision of Licensee' articles of incorporation or bylaws, or
any provision of any agreement by which Licensee is bound or affected.
8.1.2 Licensee acknowledges the applicability of U.S. export
control regulations which prohibit the export, re-export or diversion of certain
products and technology to certain countries, will comply with those
regulations, and will not export or re-export any of the Data, the Technology or
Products, in the form received, or as modified or incorporated into other
equipment, except as authorized by such regulations.
8.1.3 Licensee is not, nor at any time will it be, in
violation of any applicable Law by entering into and undertaking the performance
of this Agreement and in performing its obligations pursuant to this Agreement.
Licensee agrees to comply with any and all applicable Laws.
8.1.4 Licensee shall pay, as and when due, any and all
applicable MPEG II, DVB, programming guide and other royalties and applicable
license fees to any and all applicable entities to which a royalty or license
fee is required to be paid in connection with manufacture or distribution of the
Products.
8.1.5 Licensee has the necessary technical knowledge,
practical experience and capacity to manufacture, assemble and test the Products
under the License granted hereunder.
8.1.6 Licensee shall provide to HTS such adequate assurances
as HTS may require from time to time in order to ensure that the requirements of
this Section 8.1 have been met, and will continue to be met on an ongoing basis,
by Licensee.
8.2 Representations, Warranties and Covenants of HTS. HTS represents,
warrants and covenants as follows, which representations, warranties and
covenants shall survive the execution of this Agreement:
8.2.1 HTS has the right and authority to enter into this
Agreement and the execution, delivery and performance by HTS of this Agreement
have been duly authorized by all requisite corporate action and will not violate
any provision of HTS' articles of incorporation or bylaws, or any provision of
any agreement by which HTS is bound or affected.
-20-
<PAGE>
8.2.2 Except with respect to the specific portions of the
Technology and Intellectual Property listed on Exhibit L hereto, as to which HTS
makes no warranty or representation whatsoever, HTS is the beneficial owner or
licensee of Intellectual Property created independently by it, and such
Intellectual Property is not subject to any covenant or other restriction
preventing or limiting HTS' right to license it to Licensee as contemplated by
this Agreement. Notwithstanding the above, no warranty whatsoever is given for
any Third Party Intellectual Property (as defined in Section 11.2.1) or industry
specific technology used in the manufacture of the Products, including, without
limitation, the requirement to make payment of applicable royalties or other
license fees to others.
8.2.3 HTS has not violated any non-disclosure or other
agreements known to HTS, in any of its business or developmental activities in
connection with the Technology.
8.2.4 The Products will function according to the
Specifications, provided that Licensee manufactures the Products in strict
conformance to the Specifications, and except as prevented by Licensee design or
features incorporated by Licensee beyond the Specifications.
8.2.5 Except as otherwise expressly stated in this Agreement,
HTS makes no other representations or warranties, either express or implied,
statutory or otherwise, and all such warranties are hereby excluded except to
the extent such exclusion is absolutely prohibited by law.
8.2.6 Except with respect to the specific portions of the
Technology and Intellectual Property listed on Exhibit L hereto, as to which HTS
makes no warranty or representation whatsoever, HTS is the exclusive legal owner
of or has the right to sublicensee to Licensee the Technology and such
Technology is not the subject of any pending or overtly threatened in writing,
claims or demands by any third party alleging any proprietary interest therein
or alleging that the Technology infringes on any rights (legal or otherwise) of
any other person or entity.
8.2.7 HTS' existing Commercial HTS System functions according
to the Specifications set forth in Exhibit E.
8.2.8 HTS shall provide to Licensee such adequate assurances
as Licensee may require from time to time in order to ensure that the
requirements of this Section 8.2 have been met, and will continue to be met on
an ongoing basis, by HTS.
8.2.9 HTS has adopted and will publicly offer and implement
the marketing program for the Commercial Market more fully described on Exhibit
A attached hereto, subject, however to HTS right in its reasonable business
judgment to modify such marketing plan and offerings as required to accommodate
(i) changes in the market (ii) legal rights of third parties, or (iii) legal or
regulatory requirements of any governmental authority; provided, however, that
such modifications which are within the control of HTS shall not be implemented
for the primary
-21-
<PAGE>
purpose of unreasonably interfering with the benefits intended to be afforded to
Licensee pursuant to this Agreement.
8.2.10 The Deliverables to be provided by HTS to Licensee
under Section 7.1 of this Agreement, will contain all of the information
necessary to manufacture the HTS System.
9.0 WARRANTY
HTS and its Affiliates make absolutely no warranties, either express or
implied, with respect to the Products, the quality or availability of
programming, data or other information for use in conjunction with Products, or
any other matters covered by this Agreement, except as specifically provided in
this Agreement. Except as otherwise specifically set forth herein, HTS and its
Affiliates shall have no exposure to Licensee in the event of any satellite or
uplink failure, or for any other event resulting in impairment of the value of
the Products ("Failure Event"). In no event is any warranty from HTS to Licensee
(other than the warranty relating to security breaches of the Smart Card)
intended to, or shall any such warranty be construed as, extending to any direct
or indirect purchaser of Products from Licensee.
9.1 HTS' Warranty on Smart Cards
9.1.1 HTS warrants that any Smart Cards purchased from HTS
shall be free from defects in materials and workmanship for a period of ninety
(90) days after the Smart Card is activated for program reception (the "Smart
Card Warranty Period"). Licensee shall return defective Smart Cards purchased
from HTS at Licensee's expense. If the Smart Card is verified as having failed
during the Smart Card Warranty Period, and the Smart Card is returned to HTS by
Licensee within sixty (60) days after expiration of the Smart Card Warranty
Period and the Smart Card is confirmed as defective by HTS, HTS, at its option,
shall repair and return or replace and return conforming Smart Cards to Licensee
at no charge to Licensee, or refund Licensee the purchase price of such
defective Smart Cards. If (i) there is a security breach with respect to the
Smart Cards, and (ii) HTS or one of its Affiliates decides in its sole
discretion to replace the Smart Cards affected by the security breach with new
Smart Cards, then HTS shall provide such an exchange at no cost for all affected
Smart Cards sold by Licensee in receivers sold to its customers or otherwise and
in Licensee's inventory. Except as provided in this Section 9.1.1, HTS and its
Affiliates shall have no liability to Licensee or any third party as a result of
any security breach of a Smart Card or an HTS System generally.
9.1.2 THE LIMITED WARRANTY PROVIDED BY HTS FOR SMART CARDS IN
SECTION 9.1.1 ABOVE IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OF FITNESS FOR A
PARTICULAR USE OR PURPOSE. IN NO EVENT SHALL HTS BE LIABLE FOR ANY INDIRECT,
EXEMPLARY, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF USE)
ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE OR PERFORMANCE OF ANY SMART
CARDS AND REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED UPON
-22-
<PAGE>
BREACH OF WARRANTY OR CONTRACT, NEGLIGENCE, STRICT LIABILITY OR ANY
OTHER LEGAL THEORY.
9.2 Licensee's Warranty and Service Obligations
9.2.1 Licensee shall extend to the purchaser of the Products,
and to the end use consumer, its standard warranty which must be competitive
with the warranty on similar products offered generally in the industry;
provided however, that Licensee shall not be required to offer a warranty
relating to the Smart Card beyond the warranty relating thereto offered by HTS
hereunder.
9.2.2 Licensee shall provide consumers with timely service and
repair for the Products for a period of one (1) year following expiration or
termination of this Agreement. Licensee shall maintain quality standards
consistent with or exceeding industry standards and such standards as Licensee
administers for any other similar Licensee branded consumer electronics product.
10.0 TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the date hereof and shall
continue in effect for a period of five (5) years, unless otherwise terminated
in accordance with the terms of this Agreement (the "Term") as set forth below.
10.1.1 Termination by Licensee. Licensee may terminate this
Agreement at any time in case of: (i) a breach of a representation, warranty,
covenant or agreement of HTS hereunder; or (ii) any other just cause provided,
however that HTS shall have sixty (60) days following written notice from
Licensee of such default by HTS, to cure such default. Upon HTS' failure to cure
such default within such time period, Licensee may terminate this Agreement
immediately upon written notice to HTS. Except as otherwise provided elsewhere
herein or as otherwise determined under applicable law or in equity, Licensee
shall not be entitled to any partial or complete refund of the License Fee,
Royalty Payments, or any other amounts paid to HTS pursuant to this Agreement.
10.1.2 Termination by HTS. HTS may terminate this Agreement
upon written notice to Licensee at any time in case of: (i) Licensee default in
its obligation to pay the License Fee or any Royalty Payments required to be
paid hereunder; (ii) a breach of any material representation, warranty,
obligation, covenant or agreement of Licensee hereunder which is not cured
within sixty (60) days after receipt by licensee of written notice hereof from
HTS; (iii) Licensee being acquired by or if Licensee merges with a third party
which is a Dish(TM) Competitor; (iv) Licensee's intentional falsification of any
material records or reports hereunder; (v) Licensee's failure to comply with any
applicable Laws in cases where such failure is likely
-23-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
to have a material adverse effect on HTS; (vi) a defect rate in excess of * is
associated with performance of the Product in the field unless such failure is a
result of defective Smart Cards or defects in Products which are manufactured by
Licensee in accordance with the Specifications; (vii) Licensee fails to commence
full-scale manufacture of the Products (either directly or through a Permitted
Subcontractor) within six months after the parties have agreed in writing that
the Commercial HTS System meets the Specifications; (viii) Licensee fails to
manufacture a minimum of at least * units of Product in any * period commencing
one (1) month after the first calendar month in which Licensee manufactures at
least * units of Product under this Agreement, unless Licensee can reasonably
demonstrate that market demand for Products is lower than * units per * period
and that Licensee is manufacturing Products in quantities sufficient to satisfy
market demand; provided, however, that Licensee shall have sixty (60) days
following written notice from HTS of such default by Licensee to cure such
default (with the exception of Section 10.1.2(i) above, in which case Licensee
shall have thirty (30) days, Section 10.1.2(iii) and (iv) above, in which case
Licensee shall have no right to cure, and Section 10.1.2(vi), in which case
Licensee shall have sixty (60) days to correct workmanship problems and up to
ninety (90) days to correct problems that require a change in a semiconductor or
in imbedded software). In the event of Licensee's failure to cure such default
within such time period, HTS may terminate this Agreement at any time thereafter
immediately upon written notice to Licensee. In the event of a termination of
this Agreement by HTS under the terms of this Section 10.1.2, HTS shall be
entitled to, in addition to, and not in limitation of, any other rights and
remedies it may have under this Agreement, at law or in equity, immediate
payment by Licensee of any and all unpaid Royalty Payments required to be paid
under Section 7.2 of this Agreement. In no event will Licensee be entitled to
any partial or complete refund of the License Fee, Royalty Payments, or any
other amounts paid to HTS pursuant to this Agreement if termination properly
occurs pursuant to this Section 10.1.
10.1.3 Payment of Certain Costs. If either party is required
to resort to the courts to enforce the payment or other obligations of the other
party hereunder, the party succeeding on the merits of the case in such
litigation shall be entitled to receive all costs and expenses (including
reasonable attorneys fees) incurred in connection with the recovery thereof.
10.2 Termination of License. In the event: (i) this Agreement is
terminated or expires pursuant to Section 10; or (ii) HTS loses its right, title
or interest in any of the Technology: (a) the License granted hereunder shall
terminate; (b) all Confidential Information shall be returned to the Discloser;
and (c) Licensee shall cease using the Technology, including, without
limitation, to manufacture the Products; provided, however, that notwithstanding
the termination of this Agreement or the rights granted hereunder, Licensee
shall be permitted to sell all of its remaining inventory of Products, build out
and sell its remaining raw materials inventory of components into finished
Products and otherwise build and sell such additional Products as are necessary
to fulfill all then-existing firm purchase orders for Products from Licensee's
-24-
<PAGE>
customers, except that if this Agreement is terminated for cause then Licensee's
right to build and sell such additional Products as are necessary to fulfill all
then existing firm purchase orders for products from its customers shall only
apply to such firm orders as are shipped within 90 days after the date of such
termination.
10.3 Survival of Certain Obligations. Termination of this Agreement for
any reason shall not terminate any obligation or liability of one party to the
other which logically would be expected to survive termination, or which is
specified in this Agreement to expressly survive termination or which arises by
operation of law, nor preclude or foreclose recovery of damages or additional
remedies available to either party under applicable law, except as otherwise
provided in this Agreement.
11.0 INDEMNITY
11.1 General Indemnity
11.1.1 By Licensee. In addition to the Intellectual Property
indemnity in Section 11.2.1 below, Licensee shall indemnify and hold HTS and its
Affiliates, and any and all of its and their respective officers, directors,
shareholders, employees, agents and representatives, and any and all of its and
their assigns, successors, heirs and legal representatives (collectively the
"HTS Group"), harmless from and against any and all claims, demands, litigation,
settlements, judgments, damages or liabilities incurred by the HTS Group arising
directly or indirectly out of: (i) a breach of any representation, warranty,
obligation or covenant of Licensee hereunder; or (ii) payment of any applicable
license fees or royalties required to be paid to any applicable third party in
connection with the manufacture and sale of the Products; (iii) any claim
whatsoever of products liability with respect to the Products (excluding design
defects as a result of manufacture of the Products in strict conformance with
the Specifications); or (iv) any claim otherwise arising out of or in connection
with Licensee's manufacture or sale of the Products, including, without
limitation, breaches by Licensee of any express or implied warranty, Licensee's
manufacturing defects, or negligence by Licensee in the manufacture of Products.
11.1.2 By HTS. In addition to the Intellectual Property
indemnity in Section 11.2.2 below, HTS shall indemnify and hold Licensee and its
Affiliates, and any and all of its and their respective officers, directors,
shareholders, employees, agents and representatives, and any and all of its and
their assigns, successors, heirs and legal representatives (collectively the
"Licensee Group"), harmless from and against any and all claims, demands,
litigation, settlements, judgments, damages, liabilities, costs and expenses
(including, but not limited to, reasonable attorneys' fees) incurred by the
Licensee Group arising directly or indirectly out of: (i) a breach of any
representation, warranty or covenant of HTS hereunder; or (ii) any claim
whatsoever of product liability with respect to the Products arising out of the
design Specifications (provided that Licensee manufactures the Products in
strict conformance with the Specifications).
-25-
<PAGE>
11.2 Intellectual Property Indemnity
11.2.1 By Licensee.
(a) Subject to the provisions of subsection (d)
below, Licensee, at its own expense, shall defend any suit brought against HTS
insofar as based upon a claim that the Product(s) (including the on-screen guide
and any other features to the extent the same are actually used in the Products)
infringes any third party patent, copyright, trademark, service mark, trade
secret, or other intellectual or industrial property right ("Third Party
Intellectual Property") and shall indemnify and hold harmless HTS against any
final award of damages or costs in such suit. This indemnity is conditional upon
HTS giving Licensee prompt notice in writing of any suit for such infringement,
full authority at Licensee' option to settle or conduct the defense thereof and
full assistance and cooperation in said defense.
(b) No cost or expense shall be incurred on behalf
of Licensee without its prior written consent.
(c) In the event that any Product is in such suit
held to constitute infringement, Licensee at its own election and at its own
expense may either procure for the consumer the rights to continue the use of
the Product, or modify the Product so that it becomes non-infringing.
(d) Licensee shall not be obligated to defend
against, and shall not be liable for Third Party Intellectual Property
infringement arising from compliance with HTS' design, the Specifications, or
HTS' written instruction, except with respect to those persons, entities and
technology listed on Exhibit L hereto. Except with respect to those persons,
entities and technology listed on Exhibit L hereto, HTS shall indemnify Licensee
against any final award of damages or costs for such infringement and shall
reimburse all costs incurred by Licensee, in defending any suit for such
infringement and if HTS does not desire to conduct such defense, then upon
Licensee's request HTS shall give Licensee full authority to conduct the defense
thereof and full assistance and cooperation in such defense.
(e) Licensee's liability under this clause shall be
limited as set forth in Section 11.4 below.
(f) The foregoing states the entire liability of
Licensee in connection with infringement of Third Party Intellectual Property
and except as stated in this clause, Licensee will not be liable for any loss or
damage of whatever kind (including in particular any incidental, indirect,
special or consequential damage) suffered by HTS or any other person in respect
of the infringement of any Third Party Intellectual Property.
-26-
<PAGE>
11.2.2 By HTS.
(a) Except with respect to those persons, entities
and technology listed on Exhibit L hereto, HTS, at its own expense, shall defend
any suit brought against Licensee insofar as based upon a claim that the
Technology (excluding the Key Components), as such, directly or indirectly
infringes any Third Party Intellectual Property and shall indemnify and hold
harmless Licensee against any final award of damages or costs in such suit. This
indemnity is conditional upon Licensee giving HTS prompt notice in writing of
any suit for such infringement, full authority at HTS' option to settle or
conduct the defense thereof and full assistance and cooperation in said defense.
(b) No cost or expense shall be incurred on behalf
of HTS without its written consent.
(c) In the event that the Technology is in such suit
held to constitute infringement, HTS at its own election and at its own expense
may either procure for Licensee the rights to continue the use of the
Technology, or modify the Technology so that it becomes non-infringing.
(d) In addition to the exception set forth in
Section 11.2.2(a) above, HTS shall not be obligated to defend against, and shall
not be liable for: (i) infringement of any Third Party Intellectual Property
claim covering combination of the Technology with any other product, whether or
not supplied by HTS, except as such combinations are explicitly described
herein; or (ii) infringement of any Third Party Intellectual Property arising
from modifications by Licensee of the Specifications or Technology. Licensee
shall indemnify HTS against any final award of damages or costs for such
infringement and shall reimburse all costs incurred by HTS, in defending any
suit for such infringement and if Licensee does not desire to conduct such
defense, then upon HTS' request Licensee shall give HTS full authority to
conduct the defense thereof and full assistance and cooperation in such defense.
(e) HTS liability under this clause shall be limited
as set forth in Section 11.4 below.
(f) The foregoing states the entire liability of HTS
in connection with infringement of Third Party Intellectual Property by the
Technology and except as stated in this clause, HTS will not be liable for any
loss or damage of whatever kind (including in particular any incidental,
indirect, special or consequential damage) suffered by Licensee or any other
person in respect of the infringement of any Third Party Intellectual Property.
11.3 Indemnification Procedure. The party seeking indemnification (the
"Indemnified Party") shall promptly notify the party from whom indemnification
is being sought (the "Indemnifying Party"). The Indemnified Party shall not make
any admission as to liability or agree to any settlement of or compromise any
claim without the prior written consent of the Indemnifying Party. The
Indemnifying Party shall be entitled to have the exclusive conduct of
-27-
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
and/or settle all negotiations and litigation arising from any claim and the
Indemnified Party shall, at the Indemnifying Party request and expense, give the
Indemnifying Party all reasonable assistance in connection with those
negotiations and litigation.
11.4 Limitation of Liability
11.4.1 In no event shall either party be liable, for
indemnification or otherwise, for any indirect, special, exemplary, incidental
or consequential damages (including, but not limited to, loss of use or lost
business, revenue, profits or goodwill) arising out of or in any way connected
with this Agreement, the License granted hereunder, termination or any other
matter related hereto.
11.4.2 Except with respect to (i) specific payments of
royalties occasioned by the manufacture and sale of products contemplated by
this Agreement; or (ii) gross negligence or willful misconduct, the entire
liability of either party to the other pursuant to this Agreement shall not
exceed *
11.4.3 The parties agree that each and every provision of this
Agreement which provides for a limitation of liability, disclaimer of warranties
or exclusion of damages is expressly intended to be severable and independent of
any other provision since they represent separate elements of risk allocation
between the parties and shall be separately enforced. This Section 11 shall
expressly survive the expiration or termination of this Agreement.
12.0 GENERAL
12.1 Notice. Any notice to be given hereunder shall be in writing and
shall be sent by facsimile transmission, or by first class certified mail,
postage prepaid, or by overnight courier service, charges prepaid, to the party
notified, addressed to such party at the following address, or sent by facsimile
to the following fax number, or such other address or fax number as such party
may have substituted by written notice to the other. The sending of such notice
with confirmation of receipt thereof (in the case of facsimile transmission) or
receipt of such notice (in the case of delivery by mail or by overnight courier
service) shall constitute the giving thereof:
If to Licensee: Blonder Tongue Laboratories, Inc.
One Jake Brown Road
Old Bridge, New Jersey 08857
Attn: James A. Luksch, President
Fax No. (908) 679-3259
-28-
<PAGE>
With a copy to: Gary P. Scharmett, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Fax No.: (215) 564-8120
If to HTS: Houston Tracker Systems, Inc.
90 Inverness Circle East
Englewood, Colorado 80112
Attn: James DeFranco
Fax No.: (303) 799-0354
With a copy to: David K. Moskowitz, Senior Vice President
and General Counsel
Fax No.: (303) 799-0354
12.2 Independent Contractors. This Agreement and the transactions
contemplated hereby are not intended to create an agency, partnership or joint
venture relationship between the parties, or confer any benefit on any third
party. All agents and employees of each party shall be deemed to be that party
agents and employees exclusively, and the entire management, direction, and
control thereof shall be vested exclusively in such party. Each party, its
agents and employees, shall not be entitled to any benefits, privileges or
compensation given or extended by the other party to its employees.
12.3 Waiver. The failure or delay of either party to exercise any right
hereunder shall not be deemed to be a waiver of such right, and the delay or
failure of either party to terminate this Agreement for breach or default shall
not be deemed to be a waiver of the right to do so for that or any subsequent
breach or default or for the persistence in a breach or default of a continuing
nature.
12.4 Choice of Law and Jurisdiction. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of Colorado and
the United States of America without giving effect to its conflict of law
provisions.
12.5 Entire Agreement. This Agreement supersedes any previous agreement
or negotiations between the parties hereto, either expressed or implied. It
constitutes the entire agreement between the parties or its subject matter and
shall not be modified or amended except as specifically provided herein.
12.6 Force Majeure. Neither party shall be liable to the other party
for nonperformance or delay in performance of any of its obligations under this
Agreement due to causes reasonably beyond its control or which cause makes
performance a commercial impracticability, including act of God, fire,
explosion, flood, windstorm, earthquake, trade embargoes, strikes, labor
troubles or other industrial disturbances, accidents, governmental regulations,
riots, and insurrections ("Force Majeure"). Upon the occurrence of a Force
-29-
<PAGE>
Majeure condition, the affected party shall immediately notify the other party
with as much detail as possible and shall promptly inform the other party of any
further developments. Immediately after the Force Majeure event is removed or
abates, the affected party shall perform such obligations with all due speed
unless the Agreement is previously terminated in accordance with Section 10.1
hereof. Neither party shall be deemed in default of this Agreement if a delay or
other breach is caused by a Force Majeure event. If a Force Majeure event is
expected to continue for more than three (3) months, either party may terminate
this Agreement by providing thirty (30) days prior written notice to the other
party. Such termination shall be without any continuing liabilities or
obligations on the part of one party to the other of any kind except as
expressly set forth herein.
12.7 Severability. If any term or provision herein, or the application
thereof to any person, entity, or circumstances shall to any extent be invalid
or unenforceable in any pertinent jurisdiction, the remainder hereof shall not
be affected thereby but shall be valid and enforceable as if the invalid term or
provision were not a part hereof.
12.8 Headings. The descriptive headings contained in this Agreement are
included for convenience and reference only and shall not be held to expand,
modify, amplify or aid in the interpretation, construction or meaning of this
Agreement.
12.9 Assignment. HTS may assign its rights and delegate its duties
under this Agreement in whole or in part at any time. Licensee may not assign
any rights or delegate any duties under this Agreement without HTS' prior
written consent, which consent shall not be unreasonably withheld. This
Agreement will bind and inure to the benefit of, the parties and their
respective successors and permitted assigns.
12.10 Confidentiality. The parties acknowledge and agree that the terms
and conditions of this Agreement are confidential and shall be treated in strict
confidence during the Term and at all times thereafter. Notwithstanding the
foregoing, a party may disclose the terms of this Agreement: (i) to those
employees within its respective organization who have a need to know the terms
of this Agreement in order to carry out its obligations under this Agreement;
(ii) to auditors, attorneys and other professional advisors as a part of its
normal reporting requirements; (iii) as may be necessary to enforce or defend an
action which arises out of or in connection with this Agreement; and (iv) as may
be required by applicable law, court or administrative order or by regulation of
applicable governmental agencies.
-30-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized officers or representatives as of the date
first written above.
HOUSTON TRACKER SYSTEMS, INC.
By:______________________________________
Title:___________________________________
BLONDER TONGUE LABORATORIES, INC.
By:______________________________________
Title:___________________________________
-31-
<PAGE>
EXHIBIT LIST
Exhibit A HTS Marketing Plan for Commercial Market (8.2.9)
Exhibit B Performance Parameters and Criteria for Commercial Software (1.1.7)
Exhibit C HTS' Marks to be Placed on the Products (1.1.9)
Exhibit D Key Components and Qualified Vendors (1.1.12) (1.1.21)
Exhibit E Product Specifications for Commercial Hardware (1.1.22)
Exhibit F Technology (1.1.23)
Exhibit G List of Permitted Subcontractors (2.1.3)
Exhibit H Form of Trademark License Agreement (2.2)
Exhibit I Information to be Provided to Licensee by HTS (3.1)
Exhibit J Test Procedures and Plan (4.2.3)
Exhibit K HTS' Trademark Usage Guidelines (6.1.1)
Exhibit L Schedule of Persons, Entities and Technology not Covered by License
Agreement (7.2.3)
<PAGE>
EXHIBIT A
HTS Marketing Plan for Commercial Market
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
*
<PAGE>
EXHIBIT B
Performance Parameters and Criteria for Commercial Software
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
*
<PAGE>
EXHIBIT C
HTS' Marks to be Placed on the Products
<PAGE>
Exhibit C
HTS' Marks to be Placed on the Products
GENERAL APPLICATION
[LOGO]
d-sh
[LOGO] [LOGO]
pms 186 Black or White
[LOGO] [LOGO]
Black White
<PAGE>
Exhibit C
HTS' Marks to be Placed on the Products
DISH APPLICATION
[LOGO]
(dimensions showing placement of logo)
<PAGE>
Exhibit C
HTS' Marks to be Placed on the Products
RECEIVER APPLICATION
Minimum size for
application on receiver
is 1" horizontal
[LOGO]
two color application
on light color
[LOGO]
one color application
on dark color
[LOGO]
two color application
on dark color
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT D
Key Components and Qualified Vendors
o * (Qualified Vendor: HTS or such other Qualified Vendor)
o * (Qualified Vendor: HTS)
o * (Qualified Vendor: HTS)
o * (Qualified Vendor: HTS)
o * (Qualified Vendors: HTS
and * )
<PAGE>
EXHIBIT E
Product Specifications for Commercial Hardware
<PAGE>
User and
Installation
Guide
Commercial
Digital
Receiver
[DISH NETWORK LOGO]
<PAGE>
The lightning flash symbol is intended
to alert you to the potential risk of
personal injury or death or damage to
property or equipment.
[graphic]
[caution graphic]
[attention graphic]
The exclamation point symbol is intended
to alert you to important operation or
maintenance (service) instructions.
TO REDUCE THE RISK OF ELECTRIC SHOCK, DO NOT REMOVE THE COVER FROM THIS
UNIT. NO USER-SERVICABLE PARTS INSIDE. REFER SERVICING TO QUALIFIED SERVICE
PERSONNEL. TO PREVENT FIRE OR SHOCK HAZARD, DO NOT EXPOSE THIS UNIT TO RAIN
OR MOISTURE.
NOTE TO CATV SYSTEM INSTALLER
This reminder is provided to call the CATV System Installer's attention to
Article 820-40 of the NEC that provides guidelines for proper grounding and,
in particular, specifies that the cable ground shall be connected to the
grounding system of the building as close to the point of cable entry as
practical.
Table of Contents
- ------------------------------------------------------------------------------
Introduction................................................... 1
Activation and Assistance...................................... 1
Safety Instructions............................................ 2
The Receiver................................................... 4
Front Panel..................................... 4
Back Panel...................................... 5
Using the Receiver............................................. 7
Start-Up Information............................ 7
Default Menu.................................... 8
Password Entry Menu............................. 8
Main Menu....................................... 9
Channel Change Menu............................. 9
Password Change Menus........................... 10
Diagnostic Tests Menus.......................... 11
Modem Setup Menu................................ 12
System Information.............................. 13
Types of Error Messages......................... 13
Installing the Receiver....................................... 14
Installation Requirements....................... 14
Installing the Receiver in a Rack............... 14
Connecting the Receiver to Your System.......... 15
Appendix...................................................... 18
Limited Warranty................................ 18
Staying Legal................................... 20
FCC Compliance.................................. 20
Radio Inteference............................... 20
Menu Structure.................................. 21
Error Messages.................................. 23
Technical Specifications........................ 24
<PAGE>
Introduction
The commercial digital receiver receives and decodes digital MPEG2 video and
audio signals transmitted via the EchoStar group of satellites. For convenience
of installation, the chassis fits into a standard 19" wide by 1.75" high rack
mount.
The receiver is operated using seven multi-function control buttons and a back
lit liquid crystal display on the receiver front panel. The front panel also
provides a convenient BNC test point connector for a local video monitor.
The receiver rear panel features an industry-standard, coaxial F connector for
video output. The rear panel also provides both a monaural, high impedance audio
output via a coaxial F connector, and a balanced, 600 Ohm stereo output via a
terminal strip.
To ensure long service and high reliability of the receiver in installations
with elevated temperatures, the receiver features a temperature-controlled
cooling fan.
THIS RECEIVER IS NOT DESIGNATED, APPROVED, NOR WARRANTED FOR USE IN ANY
NON-COMMERCIAL ENVIRONMENT, INCLUDING ANY SINGLE FAMILY RESIDENCE OR ANY OTHER
LOCATION, THE PRIMARY PURPOSE OF WHICH IS TO SERVE AS A SINGLE FAMILY
RESIDENTIAL DWELLING.
Activation and Assistance
For information on installing the receiver, see "Installing the Receiver" on
page 14.
Once you have installed the receiver, call 1-800-454-0843 to activate your
account. This will allow viewing of DISH Network(TM) programming.
If you need assistance, call the DISH Network(TM) Service Center at
1-800-454-0837.
For information on the warranty, see "Limited Warranty" on page 18.
<PAGE>
SAFETY INSTRUCTIONS
- --------------------------------------------------------------------------------
[WARNING GRAPHIC]
You should always follow these instructions to help ensure against injury to
yourself and damage to your equipment.
o Read all safety and operating instructions before you operate the receiver.
o Retain all safety and operating instructions for future reference.
o Heed all warnings on the receiver and in the safety and operating
instructions.
o Follow all installation, operating, and use instructions.
o Unplug the receiver from the AC power outlet before cleaning. Use only a damp
cloth for cleaning the exterior of the receiver.
o Do not use accessories or attachments not recommended by EchoStar, as they
may cause hazards, and will void the warranty.
o Do not operate the receiver in high-humidity areas, or expose it to water or
moisture.
o Do not place the receiver on an unstable cart, stand, tripod, bracket, or
table. The receiver may fall, causing serious personal injury and damage to
the receiver. Install the receiver only in a mounting rack designed for 19"
rack-mounted equipment.
o Do not block or cover slots and openings in the receiver. These are provided
for ventilation and protection from overheating. Never place the receiver
near or over a radiator or heat register. Do not place the receiver in an
enclosure such as a cabinet without proper ventilation. Do not mount equipment
in the rack space directly above or below the receiver.
o Operate the receiver using only the type of power source indicated on the
marking label. Unplug the receiver power cord by gripping the plug, not the
cord.
o The receiver is equipped with a three-wire ground-type plug. This plug will
fit only into a ground-type power outlet. If you are unable to insert the plug
into the outlet, contact an electrician to replace the outlet. Do not defeat
the safety purpose of the ground-type plug.
o Route power supply cords so that they are not likely to be walked on or
pinched by items placed upon or against them. Pay particular attention to
cords at plugs, convenience receptacles, and the point where they exit
from the unit.
o Be sure that the outdoor components of the antenna system are grounded in
accordance with local, federal, and National Electrical Code (NEC)
requirements. Pay special attention to NEC Sections 810 and 820. See the
example shown in the following diagram:
[ILLUSTRATION OF GROUNDING PROCEDURE]
Page 2
<PAGE>
o We strongly recommend using an outlet that contains surge suppression or
ground fault protection. For added protection during a lightning storm, or
when the receiver is left unattended and unused for long periods of time,
unplug it from the wall outlet and disconnect the lines between the receiver
and the antenna. This will prevent damage caused by lightning or power line
surges.
o Do not locate the antenna near overhead power lines or other electric light or
power circuits, or where it can fall into such power lines or circuits. When
installing the antenna, take extreme care to avoid touching such power lines
or circuits, as contact with them can be fatal.
o Do not overload wall outlets or extension cords, as this can result in a risk
of fire or electrical shock.
o Never insert objects of any kind into the receiver through openings, as the
objects may touch dangerous voltage points or short out parts. This could
cause fire or electrical shock.
o Do not attempt to service the receiver yourself, as opening or removing covers
(except the SmartCard cover) may expose you to dangerous voltage and will void
the warranty. Refer all servicing to authorized service personnel.
o Unplug the receiver from the wall outlet and refer servicing to authorized
service personnel whenever the following occurs:
o The power supply cord or plug is damaged;
o Liquid has been spilled, or objects have fallen into the receiver;
o The receiver has been exposed to rain or water;
o The receiver has been dropped or the chassis has been damaged;
o The receiver exhibits a distinct change in performance.
o When replacement parts are required, ensure that the service technician uses
replacement parts specified by EchoStar. Unauthorized substitutions may damage
the receiver or cause electrical shock or fire, and will void the warranty.
o Upon completion of any service or repair to the receiver, ask the service
technician to perform safety checks to ensure that the receiver is in proper
operating condition.
Page 3
<PAGE>
THE RECEIVER
- --------------------------------------------------------------------------------
FRONT PANEL
[FRONT PANEL GRAPHIC]
VIDEO TEST POINT
This test point provides 1 V (p-p) video output on a female BNC connector as a
source for a local video monitor. The signal at this test point reflects the
same video level as that of the back panel Video Output.
SMARTCARD SLOT COVER
The receiver comes with the SmartCard already installed. See "Error Messages" on
page 23 for more information about the SmartCard.
[ATTENTION GRAPHIC]
The receiver works only with the SmartCard installed. You must use the SmartCard
that was authorized for your receiver. Do not remove the SmartCard. The Limited
Warranty does not cover replacement of SmartCards that you lose or damage.
LIQUID CRYSTAL DISPLAY (LCD)
This LCD displays all the receiver menus, plus System Information and Error
Messages. See "Using the Receiver" on page 7 for a description of these items.
FRONT PANEL BUTTONS
1 BUTTON
Press the 1 button to choose an option in a menu, or to view a new menu. You can
also press this button to increase the channel, password, or telephone prefix
digit that is highlighted in a menu.
2 BUTTON
Press the 2 button to choose an option in a menu, or to view a new menu. You
can also press this button to decrease the channel, password, or telephone
prefix digit that is highlighted in a menu.
3 BUTTON
Press the 3 button to choose an option in a menu, or to view a new menu. You
can also press this button to move a menu highlight to the next digit (to the
right) of a channel number, password, or telephone prefix.
4 BUTTON
Press the 4 button to choose an option in a menu, or to view a new menu. You can
also press this button to move a menu highlight to the previous digit (to the
left) of a channel number, password, or telephone prefix.
Page 4
<PAGE>
SELECT BUTTON
Press the Select button to enter information or to select a highlighted menu
option.
EXIT BUTTON
Press the Exit button to exit the current menu and view the previous menu.
STANDBY BUTTON
Press the Standby button once to switch the receiver into standby (OFF) mode.
Press the Standby button again to switch the receiver into active (ON) mode.
Note: If you set a password, the Standby button works only if the password has
been entered correctly. If you leave "0000" as the password, then the Standby
button works at any time.
BACK PANEL
[BACK PANEL GRAPHIC]
POWER ENTRY [POWER RECEPTACLE GRAPHIC]
This polarized, 3-pin, IEC-320 series, 60 Hz, fused receptacle operates from 85
to 135 VAC. The fuse type used is 1.6A, 250V slow-blow (5x20 mm size).
COOLING FAN AND VENTILATION SLOTS [COOLING FAN AND
VENTILATION SLOTS GRAPHIC]
This 24 VDC forced-air fan activates when the receiver internal ambient
temperature reaches 97(degree)F (36(degree)C).
[ATTENTION GRAPHIC]
Do not block the Cooling Fan or the receiver ventilation slots (on the back
panel, sides, and top of the receiver). This may overheat the receiver, causing
damage.
AUDIO OUTPUT [AUDIO OUTPUT PANEL GRAPHIC]
The screw terminal strip provides a single stereo, 600 Ohm, balanced Left/Right
audio output pair. The "F" connector provides a mono (left and right audio
combined), high impedance (10K Ohm) output.
Page 5
<PAGE>
VIDEO OUTPUT [VIDEO OUTPUT PANEL GRAPHIC]
The female "F" connector provides a single 75 Ohm, filtered video output. The
signal at this output reflects the same video level as that of the front panel
Video Test Point. The four-pin, mini-DIN output supports Super-VHS video
(S-Video).
RS-485 SERIAL INTERFACE [SERIAL INTERFACE GRAPHIC]
These RJ-11 connectors are reserved for future use. They will provide a serial
interface to allow control and monitoring of the receiver (or receivers) from a
personal computer.
LNB POWER SWITCH [LNB POWER SWITCH GRAPHIC]
Use this switch to turn power ON or OFF to the LNB through the RF Input.
RF INPUT [RF INPUT GRAPHIC]
This female "F" connector receives an IF signal, 950-1450 MHz RF input from the
antenna.
TELEPHONE JACK [TELEPHONE JACK GRAPHIC]
Connect a telephone line to this standard RJ-11 connector, and then connect the
line to an active telephone connection. This connection can be "daisy-chained"
among multiple receivers.
Page 6
<PAGE>
USING THE RECEIVER
- --------------------------------------------------------------------------------
START-UP INFORMATION
When you plug the receiver power cord into a power outlet the receiver
automatically turns ON, and displays the following start-up information on the
front panel LCD.
COPYRIGHT [Copyright 1996 EchoStar
Communications Corp.]
followed by:
[All Rights Reserved
1-800-454-0837]
The receiver displays the above information for a few seconds.
Note: The receiver also displays this information when you switch it out of
Standby (OFF) mode by pressing the Standby button.
DIAGNOSTIC TESTS IN PROGRESS [Diagnostics in Progress
Testing Main Unit . . .]
The receiver displays this message while it does the diagnostic tests. The
receiver updates the message to show which test is being done. If there is a
failure in a diagnostic test, the receiver displays a failure message such as
the following:
[POWER ON DIAG FAILURE
MODEM: No Dial Tone]
The name of the failed test and an error description appear at the bottom of
this message. The receiver also displays the [D check mark] symbol in the upper
left corner of the Default Menu. See "Default Menu" on page 8.
Note: To clear such a failure message from the receiver display and the [D check
mark] symbol from the Default Menu, press the Exit button. You should then use
the Diagnostic Tests Menu to run the appropriate diagnostic test. See
"Diagnostic Tests Menu" on page 11.
SIGNAL ACQUISITION [ACQUIRING SIGNAL]
The receiver briefly displays this message while it acquires the satellite
signal.
Note: The receiver also displays this message if it loses the satellite signal.
See "Error Messages" on page 23 for more information.
TUNING ACQUISITION [ACQUISITION IN PROGRESS
WAIT, OR (1) Ch Up (2) Ch Down]
If the receiver cannot acquire a channel, it displays this menu. Press the 1 or
2 button to tune the receiver to another channel. If the receiver cannot acquire
that channel, it will display this menu.
Page 7
<PAGE>
STANDBY MESSAGE [IN STANDBY MODE]
The receiver displays this message when the receiver power cord is plugged in
and the receiver is in Standby (OFF) mode. Press the Standby button to take the
receiver out of Standby mode. Press the Standby button again to put the receiver
into Standby mode.
DEFAULT MENU [D check mark] ESPN2 LOCKED 96%]
[1 Main Menu 2 Sys info]
The receiver displays this menu when the receiver power cord is plugged in and
the receiver is ON (that is, not in Standby [OFF] mode), unless you are using
another menu. If you press the Exit button while using the Main Menu or the
Password menus, or displaying System Information, the receiver displays this
menu. Also, when you are using another menu, if the receiver detects no front
panel button presses in three minutes, it displays this menu.
This menu shows the current channel number and name. It shows the
locked/unlocked status of the currently tuned channel, and the current signal
strength, expressed as a percentage from 0% to 99% and updated every few
seconds. If there was a failure in the most recently run power up diagnostic
test, the receiver displays the [D check mark] symbol in the upper left corner
of this menu.
You have two options:
o Press the 1 button to display the Main Menu.
Note: If you set a password, the receiver displays the Password Entry Menu. You
must enter the password to access the Main Menu. If you leave "0000" as the
password, the receiver bypasses the Password Entry Menu.
o Press the 2 button to display System Information. You do not have to enter the
password.
PASSWORD ENTRY MENU [ENTER PASSWORD: 0***
1 # Up 2 # Down 3 Next# 4 Prv#]
Note: The default password is "0000". If you wish, you may leave this as the
password. Then, the receiver bypasses this menu.
To enter the password, do the following:
1. Press the 1 button to increase, or the 2 button to decrease the first digit
of the password.
Note: The receiver automatically places the highlight on the first digit of
the password. The receiver displays an asterisk (*) for each password digit
that is not highlighted. You may press the 1 or 2 button repeatedly to scroll
from 0 to 9, or 9 to 0, "wrapping" from 9 back to 0, or from 0 back to 9.
2. Press the 3 button to move the highlight to the next password digit to the
right. Press the 1 or 2 button to select the number for this digit.
3. Repeat step 2 for the third and fourth digits of the password.
Note: Press the 4 button to move the highlight to the previous password digit
(to the left). Press the 3 or 4 button repeatedly to scroll to the right or
left, "wrapping" from the last digit back to the first digit, or from the
first digit back to the last digit.
4. Press the Select button to enter the password and display the Main Menu.
Note: Press the Exit button to cancel this procedure and display the Default
Menu.
Note: If you enter an incorrect password, the receiver displays the password
Incorrect Menu.
Page 8
<PAGE>
MAIN MENU [MAIN MENU 1 Channel #
2 Ch. Pwd. 3 Diag 4 Modem]
If you enter the correct password in the Password Entry Menu, or if you leave
"0000" as the password, the receiver displays this menu.
You have the following options:
o Press the 1 button to display the Channel Change Menu.
o Press the 2 button to display the Change Password Menus.
o Press the 3 button to display the Diagnostic Tests Menu.
o Press the 4 button to display the Modem Setup Menu.
Note: Press the Exit button to exit this menu and display the Default Menu. If
you do this, and if you have set a password, you must reenter the password to
access the Main Menu.
CHANNEL CHANGE MENU [CHANNEL CHANGE MENU
1 Direct Entry 2 Browse]
Note: Access this menu by pressing the 1 button while using the Main Menu.
Use this menu to select the method of changing channels you prefer.
You have the following options:
o Press the 1 button to display the Channel Change Direct Entry Menu.
o Press the 2 button to display the Channel Change Browse Menu.
Note: Press the Exit button to exit this menu and return to the Main Menu.
CHANNEL CHANGE DIRECT ENTRY MENU [142 STANLEY CUP CH: 142
1 #Up 2 #Down 3 Next# 4 Prv#]
Use this menu to view the current channel number and program name, or to tune
the receiver to a new channel using direct entry of the new channel number.
The current channel number appears in the upper left corner, and the current
program name at the top middle of this menu. The new channel number appears at
the upper right corner.
To change the channel, do the following:
1. Press the 1 button to increase, or the 2 button to decrease the first digit
of the new channel number.
Note: The receiver automatically places the highlight on the first digit of
the new channel number. You may press the 1 or 2 button repeatedly to scroll
from 0 to 9, or 9 to 0, "wrapping" from 9 back to 0, or from 0 back to 9.
2. Press the 3 button to move the highlight to the next new channel number digit
to the right. Press the 1 or 2 button to select the number for this digit.
3. Repeat step 2 for the third digit of the new channel number.
Note: Press the 4 button to move the highlight to the previous new channel
number digit (to the left). Press the 3 or 4 button repeatedly to scroll to
the right or left, "wrapping" from the last digit back to the first digit, or
from the first digit back to the last digit.
4. Press the Select button to tune the receiver to the new channel number.
Note: Press the Exit button to cancel this procedure and display the Main Menu.
Page 9
<PAGE>
CHANNEL CHANGE BROWSE MENU [142 ESPN2
1 Ch Up 2 Ch Down]
Use this menu to view the current channel number and name, or to tune the
receiver to a new channel by browsing through the channel numbers.
The current channel number and name appears at the top of this menu.
To change the channel, do the following:
o Press the 1 button to select the next higher channel number. Press the 1
button repeatedly to continue selecting higher channel numbers.
o Press the 2 button to select the next lower channel number. Press the 2 button
repeatedly to continue selecting lower channel numbers.
Press the Select button to tune the receiver to the new channel number.
Note: Press the Exit button to exit this menu and display the Main Menu.
PASSWORD CHANGE MENUS
Note: Access these menus by pressing the 2 button while using the Main Menu.
ENTER CURRENT PASSWORD MENU [ENTER CUR. PASSWORD: 0***
1 #Up 2 #Down 3 Next# 4 Prv#]
Note: The default password is "0000". If you wish, you may leave this as the
password.
In order to change the password, you must first enter the current password using
this menu. Follow the instructions under "Password Entry Menu." Then, press the
Select button to enter the password.
Note: Press the Exit button to cancel this procedure and display the Main Menu.
ENTER NEW PASSWORD MENU [ENTER NEW PASSWORD: 0***
1 #Up 2 #Down 3 Next# 4 Prv#]
Note: The default password is "0000". If you wish, you may leave this as the
password.
If you enter the correct password in the Enter Current Password Menu, the
receiver displays this menu. Enter the new password the same way that you
entered the current password. Then, press the Select button to enter the
password.
Note: Press the Exit button to cancel this procedure and display the Main
Menu.
REENTER PASSWORD MENU [REENTER PASSWORD: 0***
1 #Up 2 #Down 3 Next# 4 Prv#]
Once you enter a new password using the Enter New Password Menu, the receiver
displays this menu. To confirm the new password, reenter it the same way as
before. Then, press the Select button to reenter the password.
Note: If the password you reenter matches the password you entered in the
Enter New Password Menu, the receiver accepts the new password and displays the
Main Menu. If not, the receiver displays the Password Incorrect Menu.
Note: Press the Exit button to cancel this procedure and display the Default
Menu. The password does not change.
Page 10
<PAGE>
PASSWORD INCORRECT MENU [PASSWORD INCORRECT
1 Reenter]
If you enter an incorrect password, or incorrectly reenter a new password, the
receiver displays this menu. Press the 1 button to access the Reenter Password
Menu, which you can use to reenter the password.
Note: There is no limit to the number of times you may try to enter the
password.
Note: Press the Exit button to exit this menu and display the Default Menu. No
password is entered.
DIAGNOSTIC TESTS MENU [DIAGNOSTICS
1 System 2 Signal 3 Modem]
Note: Access this menu by pressing the 3 button while using the Main Menu.
Use this menu to run diagnostic tests on the receiver.
You have the following options:
o Press the 1 button to run the system diagnostic test.
o Press the 2 button to run the signal diagnostic test.
o Press the 3 button to run the modem diagnostic test.
o Press the Exit button to exit this menu and display the Main Menu.
SYSTEM DIAGNOSTIC TEST [SYSTEM TEST PASSED
1 Rerun]
If you run the System Diagnostic Test, the receiver displays this report.
Note: This test also interrupts this TV video with an information message.
If the system passed the test, the word "PASSED" appears in the upper right
corner of this report.
If the system failed the test, the word "FAILED" appears in the upper right
corner, and the error code and name appear at the lower left corner.
You have the following options:
o Press the 1 button to rerun the system diagnostic test. The receiver updates
the "PASSED"/"FAILED" status on this report.
o Press the Exit button to exit this menu and display the Diagnostic Tests Menu.
SIGNAL DIAGNOSTIC TEST [SIGNAL TEST PASSED
1 Rerun]
If you run the Signal Diagnostic Test, the receiver displays this report.
Note: This test also interrupts the TV video with an information message.
If the signal passed the test, the word "PASSED" appears in the upper right
corner of this report.
If the signal failed the test, the word "FAILED" appears in the upper right
corner, and the error code and name appear at the lower left corner.
You have the following options:
o Press the 1 button to rerun the signal diagnostic test. The receiver updates
the "PASSED"/"FAILED" status shown on this report.
o Press the Exit button to exit this menu and display the Diagnostic Tests Menu.
Page 11
<PAGE>
MODEM DIAGNOSTIC TEST MODEM TEST PASSED
1 Rerun
If you run the Modem Diagnostic Test, the receiver displays this report. If the
modem passed the test, the word "PASSED" appears in the upper right corner of
this report. If the modem failed the test, the word "FAILED" appears in the
upper right corner, and the error code and name appear at the lower left corner.
You have the following options:
o Press the 1 button to return the modem diagnostic test. The receiver updates
the "PASSED"/"FAILED" status shown on this report.
o Press the Exit button to exit this menu and display the Diagnostic Test Menu.
MODEM SETUP MENU SELECT PHONE SETTINGS
{arrow} 1 Tone 2 Pulse 3 Prefix
Note: Access this menu by pressing the 4 button while using the Main Menu.
Use this menu to specify a telephone system type (tone or pulse) and/or a
prefix, if such a prefix is required to place an outside telephone call.
You have the following options:
o Press the 1 button to select the tone telephone system type. The
receiver displays the {arrow} symbol next to your selection.
o Press the 2 button to select the pulse or rotary telephone system type. The
receiver displays the {arrow} symbol next to your selection.
o Press the 3 button to display the Telephone Prefix Menu.
o Press the Exit button to exit this menu and display the Main Menu.
TELEPHONE PREFIX MENU PHONE PREFIX: -5
1#Up 2#Down 3Next#
To specify a telephone system prefix, do the following:
1. Press the 1 button to increase, or the 2 button to decrease the first digit
of the prefix. The available characters include the numbers 0 to 9, plus the
dash ("-"). Use the dash ("-") to indicate that no digit is to be specified.
Note: The receiver automatically places the highlight on the first digit of
the prefix. Press the 1 or 2 button repeatedly to scroll from 0 to "-", or
"-" to 0, "wrapping" from "-" back to 0, or from 0 back to "-".
Note: If your telephone prefix has only one digit, you may skip step 2. It
makes no difference whether you place a single-digit prefix in the left or
right position in this submenu.
2. Press the 3 button to move the highlight to the second prefix digit. Press
the 1 or 2 button to select the number for this digit.
Note: Press the 3 button repeatedly to alternate between the first and
second prefix digits.
3. Press the Select button to enter the prefix and display the Modem Setup Menu.
Note: Press the Exit button to cancel this procedure and display the Modem Setup
Menu.
<PAGE>
SYSTEM INFORMATION
Access this information by pressing the 2 button while viewing the Default Menu.
You do not have to enter the password. The receiver displays the receiver
information first.
RECEIVER RECEIVER: R0016824889
1 More
This shows the receiver Conditional Access identification number. You have the
following options:
o Press the 1 button to display SmartCard information.
o Press the Exit button to clear this information and display the Default Menu.
SMARTCARD CARD: S0000134473
1 More DNASP002 REV04
This shows the SmartCard number.
Press the 1 button to display software/hardware information.
SOFTWARE/HARDWARE SW/HW: 100P/AAAA
1 More
This shows the receiver software/hardware identification numbers.
Press the 1 button to display software "bootstrap" information.
BOOTSTRAP BOOTSTRAP: 100B0134
This shows receiver software "bootstrap" identification number.
Note: Press the Exit button to clear this information and display receiver
information.
TYPES OF ERROR MESSAGES
Note: The receiver will display major and minor error messages.
o A major error message indicates a condition that you must correct to allow
the receiver to operate. When the receiver displays such a message, you will
not have access to any menu until you have corrected the condition. The
following is an example of a major error message.
INVALID SMARTCARD
o A minor error message indicates a condition that may degrade, but will not
prevent receiver operation. The receiver displays such an error message at
the time that the error condition occurs. It also displays the error message
when you exit the Default Menu, if the error condition still exists. To clear
a minor error message from the receiver display, press the Exit button, or
wait a few minutes for the receiver to display the Default Menu. The
following is an example of a minor error message:
PROGRAM BLACKED OUT
Note: For explanations of major and minor error messages, see "Error Messages"
on page 23.
<PAGE>
INSTALLING THE RECEIVER
- -------------------------------------------------------------------------------
INSTALLATION REQUIREMENTS
MOUNTING
The receiver is 1.75 inches tall, 19.00 inches wide, and 17.5 inches deep. You
can mount it in a standard rack or on any type of shelf that allows air flow in
through the ventilation slots in the receiver chassis, and out from the cooling
fan on the receiver back panel.
POWER 60 Hz, 110 VAC
WARNING! For safe and reliable operation, the receiver requires a proper
[symbol] ground connection for the third prong of the receiver power cord
plug.
COOLING
Allow at least 3.5 inches (89 mm) of air space above and below the receiver in a
rack mounting. Be sure that air can flow in through the ventilation slots in the
receiver chassis, and out from the cooling fan on the receiver back panel. If
you must install the receiver using 1.75 inches of spacing, install a blower
near the bottom of the rack cabinet to propel rising hot air. Locate air outlets
close to the top of the enclosure to provide natural convection air currents.
The blowers used should provide air movement of 200 ft. 3/min per kilowatt
dissipated.
TOOLS AND MATERIALS
You need the following tools and materials to install the receiver:
o Phillips-head or flat-blade screwdriver
o 75 Ohm coaxial cable and F connectors
o Small-gauge wire for terminal strip connections
o RJ-11 telephone cable
INSTALLING THE RECEIVER IN A RACK
You can mount the receiver in a standard EIA, 24 inch (610 mm) deep, enclosed
rack. Secure the receiver front panel to the rack by inserting four machine
screws, with cup washers, through the four mounting holes in the front panel.
ATTENTION! We recommend that you support the receiver by some means in addition
[GRAPHIC] to the front panel screws. You can use angle support brackets or
rack slides; the size and type will depend on the rack you use. Many
suppliers sell compatible chassis supports, for example:
o Hammond Manufacturing: RASA series adjustable support angles
o AMCO Engineering: CG5 series chassis guides
o Mupac Corporation: 6001900 series slotted chassis supports
<PAGE>
CONNECTING THE RECEIVER TO YOUR SYSTEM
SINGLE VERSUS DUAL OUTPUT LNB
A single-output LNB can support a single receiver, or multiple receivers all
tuned to the same polarity group of channels.
o If you use a single receiver:
Route the LNB coaxial cable to the RF Input on the receiver back panel, and
set the back panel LNB Power Switch to ON.
[RECEIVER BACK PANEL GRAPHIC]
o If you use multiple receivers, one receiver controls 13/18V polarity
switching and thus the group of channels available to all the receivers.
Route the LNB coaxial cable to a signal splitter. Route a coaxial cable from
the signal splitter power passing port to the RF Input on the back panel of
the receiver that you want to control the channel selection. On this
receiver, set the back panel LNB Power Switch to ON. Route cables from the
other signal splitter ports to the other receivers. On all these other
receivers, set the back panel LNB Power Switch to OFF.
[GRAPHIC SHOWING WIRING FOR
MULTIPLE RECEIVERS TO SIGNAL SPLITTER]
Page 15
<PAGE>
A dual output LNB can support multiple receivers, all tuned to different
channels; or two groups of receivers, where the receivers in a group all have
the same polarity group of channels available to them.
o If you want all the receivers to be independently tunable:
Route the LNB coaxial cables to a voltage-controlled, multi-port switch.
Route a coaxial cable from a switch output to the RF Input on the back panel
of each of the receivers. Set the back panel LNB Power Switch to ON for each
receiver.
[GRAPHIC SHOWING WIRING FOR
MULTIPLE RECEIVERS TO MULTI-PORT SWITCH]
o If you want two groups of receivers, where one group has one polarity group
of channels available and the other group has the other polarity group of
channels available:
Route each LNB coaxial cable to a signal splitter. Each signal splitter can
support a group of receivers. For each such group, route a cable from the
signal splitter power passing port to the RF Input on the back panel of the
receiver that you want to control the channel selection. On this receiver,
set the back panel LNB Power Switch to ON. Route cables from the other
signal splitter ports to the other receivers. On all these other receivers,
set the back panel LNB Powsr Switch to OFF.
[GRAPHIC SHOWING WIRING FOR
MULTIPLE RECEIVERS TO MULTIPLE SIGNAL SPLITTERS]
Page 16
<PAGE>
AUDIO CONNECTIONS
Note: If you use multiple receivers, the following instructions apply to each
receiver.
o For unbalanced mono (left and right combined) audio (10,000 Ohm impedance):
Route a coaxial cable from the receiver back panel MONO Audio Output to the
RF modulator audio input.
o For unbalanced stereo audio (600 Ohm impedance):
Route one wire from the left plus terminal, one wire from the right plus
terminal, and two wires from the center ground terminal of the receiver back
panel Audio Output screw terminal strip to the corresponding connections on
an RF modulator or to a stereo encoder.
[GRAPHIC OF AUDIO CONNECTION PANEL ON RECEIVER]
o For balanced stereo audio (600 Ohm impedance):
Route wires from the left plus/minus and right plus/minus terminals of the
receiver back panel Audio Output screw terminal strip to the corresponding
connections on an RF modulator or to a stereo encoder.
[GRAPHIC OF AUDIO CONNECTION PANEL ON RECEIVER]
VIDEO CONNECTIONS
Note: If you use multiple receivers, the following instructions apply to each
receiver.
o For connecting to an RF modulator:
Route a coaxial cable from the receiver back panel COMPOSITE Video Output to
the RF modulator video input.
o For the highest quality video available:
Route a four-pin, mini-DIN cable from the receiver back panel S-VIDEO Video
Output to the S-VIDEO input on the video monitor or VCR.
o For test video:
Route a coaxial cable from the receiver front panel Video Test Point to the
RF modulator video input.
Page 17
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
LIMITED WARRANTY
[ATTENTION GRAPHIC]
This Limited Warranty is a legal document and we recommend that you keep it in a
safe place.
WHAT THE WARRANTY COVERS
This warranty extends only to the original user of the commercial receiver
("you", "your") and is limited to the purchase price of the receiver. EchoStar
Communications Corporation and its affiliated companies ("we", "our", "us")
warrant this receiver against defects in materials or workmanship as follows.
o LABOR For a period of one (1) year from the original date of purchase, if we
determine that the receiver is defective subject to the limitations of this
warranty, we will replace it at no charge for labor. We warrant any such work
done against defects in materials or workmanship for the remaining portion of
the original warranty period.
o PARTS: For a period of one (1) year from the original date of purchase, we
will supply, at no charge, new or rebuilt replacement receivers in exchange
for receivers we determine are defective subject to the limitations of this
warranty. We warrant any such replacement receivers against defects in
materials or workmanship for the remaining portion of the original warranty
period.
WHAT THE WARRANTY DOES NOT COVER
This warranty does not cover the use of this receiver in any non-commercial
environment, including any single family residence or any other location, the
primary purpose of which is to serve as a single family residential dwelling.
This warranty does not cover installation of the commercial receiver. If
applicable, such installation will be warranted under a separate installation
agreement.
This warranty does not cover user instruction, physical setup or adjustment of
any electronic equipment, signal reception problems, loss of use of the
equipment, unused programming charges due to equipment malfunction, or
replacement of SmartCards that you lose or damage.
This warranty doer not cover cosmetic damage, damage due to lightning,
electrical surges, fire, flood, or other acts of God, accident, misuse, abuse,
repair or alteration by other than our factory service, use of accessories or
attachments not recommended by EchoStar, negligence, or imporper or neglected
maintenance.
This warranty does not cover equipment sold AS IS or WITH ALL FAULTS, equipment
removal or reinstallation shipping damage if the equipment was not packed and
shipped in the manner we prescribed nor equipment purchased, serviced, or
operated outside the contiguous United States of America.
Page 18
<PAGE>
LEGAL LIMITATIONS
REPLACEMENT AS PROVIDED UNDER THIS WARRANTY IS YOUR EXCLUSIVE REMEDY. WE SHALL
NOT BE HELD LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR BREACH OF ANY
EXPRESSED OR IMPLIED WARRANTY ON THIS EQUIPMENT, NOR FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM THE USE OF, OR INABILITY TO USE, THIS
EQUIPMENT. UNDER NO CIRCUMSTANCES SHALL OUR LIABILITY, IF ANY, EXCEED THE
PURCHASE PRICE PAID FOR THIS EQUIPMENT. EXCEPT TO THE EXTENT PROHIBITED BY
APPLICABLE LAW, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE ON THIS EQUIPMENT IS LIMITED IN DURATION TO THE DURATION OF
THIS WARRANTY. WE RESERVE THE RIGHT TO REFUSE TO HONOR THIS WARRANTY IF WE
DETERMINE ANY OF THE ABOVE EXCEPTIONS TO HAVE CAUSED THIS EQUIPMENT NOT TO HAVE
PERFORMED PROPERLY. THIS WARRANTY SHALL BE VOID IF ANY FACTORY-APPLIED
IDENTIFICATION MARK, INCLUDING BUT NOT LIMITED TO SERIAL OR CONDITIONAL ACCESS
NUMBERS, HAS BEEN ALTERED OR REMOVED. THIS WARRANTY SHALL ALSO BE VOID IF THE
RECEIVER HAS BEEN OPENED BY AN UNAUTHORIZED PERSON (with the exception of
opening the SmartCard access door on the receiver front panel).
This warranty gives you specific legal rights which may vary from state to
state. Some states do not allow the exclusion or limitations of incidental or
consequential damages, or allow limitations on the duration of an implied
warranty, so those limitations may not apply to you.
OBTAINING WARRANTY SERVICE
1. Call the DISH Network(Trademark) Service Center at 1-800-454-0837 for
information, technical support, or service, or 1-800-454-0843 for account
activation. Have ready the date of purchase and either your customer account
number, the receiver conditional access number, or the SmartCard conditional
access number.
2. A Service Center Representative will assist you. The Representative will
attempt to troubleshoot any problem you may be having. The Representative
will also determine whether your equipment is covered under this warranty.
3. If the Representative determines that you should return your equipment, you
wilt be given a Return Authorization (RA) number. Before shipping any
equipment to us, you must obtain a Return Authorization (RA) number from the
DISH Network(Trademark) Service Center.
4. Returned equipment must be packaged properly, using either the original
shipping materials or the packaging in which the replacement equipment is
shipped, if possible. Follow the instructions given to you by the Customer
Service Representative.
5. Write the RA number in large, clearly visible characters on the outside of
the shipping box that you use to return the equipment. To avoid confusion and
misunderstandings, we will return shipments without an RA number clearly
visible on the outside of the box to you at your expense.
6. If you return the receiver, you must return the SmartCard with the receiver.
If you do not return the SmartCard with the receiver, a fee will be assessed
against your account.
WHAT WE WILL DO
o We will evaluate the equipment you return to us, and verify whether the
equipment is covered under this warranty.
o We will replace equipment that we determine is defective with new or
refurbished equipment, if the defective equipment is covered under this
warranty. This replacement equipment will be shipped at our expense.
o If the defective equipment is not covered under this warranty, we will notify
you. We may assess you a flat rate charge for replacement equipment,
including shipping and insurance.
<PAGE>
STAYING LEGAL
Title 47, Section 605(e)4, United States Code (U.S.C.) makes it a federal crime
to modify this receiver to enable it to receive encrypted (scrambled) television
programming without payment of required subscriptions. Conviction can result in
a fine of up to $500,000 and imprisonment for five years, or both. Any owner of
this receiver who procures or willfully causes its modification is an accessory
to that offense and may be punishable in the same manner. Investigative
authority for violations lies with the Federal Bureau of Investigation (FBI).
FCC COMPLIANCE
ATTENTION! The following text is extracted from FCC regulations as of the
(symbol) publication date of this Guide. Contact the FCC or your local
library for the complete text of the regulations.
This equipment complies with Part 68 of the FCC rules. On the rear panel of this
equipment is a label that contains, among other information, the FCC
registration number and ringer equivalence number (REN) for this equipment. If
requested, this information must be provided to the telephone company .
The REN for this product is 0.0B.
The REN is used to determine the quantity of devices which may be connected to
the telephone line. Excessive RENs on the telephone line may result in the
devices not ringing in response to an incoming call. In most, but not all areas,
the sum of the RENs should not exceed five (5.0). The commercial receiver does
not affect the sum of RENs. To be certain of the number of devices that may be
connected to the line, as determined by the total RENs, contact the telephone
company to determine the maximum REN for the calling area.
This equipment uses the following USOC (Universal Service Order Code) jacks:
RJ-1-C.
An FCC compliant telephone cord and modular plug is provided with this
equipment. This equipment is designed to be connected to the telephone network
or premises wiring using a compatible modular jack which is Part 68 compliant.
This equipment cannot be used on telephone company-provided coin service.
Connection to Party Line Service is subject to state tariffs.
If this equipment causes harm to the telephone network, the telephone company
will notify you in advance that temporary discontinuance of service may be
required. If advance notice is not practical, the telephone company will notify
you as soon as possible. Also, you will be advised of your right to file a
complaint with the FCC if you believe it is necessary.
o Move or realign the antenna or receiving device, such as your broadcast TV
antenna.
o Increase the distance between the receiver and the equipment with the
interference. Change the angle of the receiver relative to the equipment.
o Plug the receiver into a different power outlet, preferably on a different
fuse circuit within your building.
The equipment is hearing-aid compatible.
It is recommended that the customer install an AC surge arrestor in the AC
outlet to which this device is connected. This is to avoid damage to the
equipment caused by local lightning strikes and other electrical surges.
RADIO INTERFERENCE
This equipment has been tested and found to comply with the limits for a Class A
digital device, pursuant to Part 15 of Federal Communications Commission (FCC)
Rules. These limits are designed to provide reasonable protection against
harmful interference when the equipment is operated in a commercial
environment. This equipment generates, uses, and and can radiate radio frequency
energy and, if not installed and used in accordance with the instruction manual,
may cause harmful interference to radio communications. Operation of this
equipment in a residential area is likely to cause harmful interference, in
which case the user will be required to correct the interference at his own
expense.
<PAGE>
MENU STRUCTURE
| Copyright 1996 EchoStar
| Communications Corp.
|
| All Rights Reserved
| 1-800-454-0837
|
|
Diagnostics in Progress
Default | Testing Main Unit . . .
Password |
Bypass | (D) ESPN2 LOCKED 96%
---------------------- (1) Main Menu (2) Sys Info ------------------
| (see next page)
| Default Menu
|
| ENTER PASSWORD: 0***
------ (1)#UIC (2)#Down (3)Next# (4)Prv#
|
|
|
MAIN MENU (1)Channel # ------------ CHANNEL CHANGE MENU
(2)Ch. Pwd. (3)Diag (4)Modem (1)Direct Entry (2) Browse
| | | |
| | | |
| | | | 142 ESPN2
| | | | (1)Ch Up (2)Ch Down
| | | |
| | | |
| | | | 142 STANLEY CUP CH:142
| | | (1)#Up (2)#Down (3)Next# (4)Prv#
| | |
| | |------------------------------------------------
| | (see next page)
| |
| |---------------------- DIAGNOSTICS
| (1)System (2)Signal (3)Modem
ENTER CUR. PASSWORD: 0***
(1)#Up (2)#Down (3)Next# (4)Prv# SYSTEM TEXT PASSED
(1)Rerun
ENTER NEW PASSWORD: 0***
(1)#Up (2)#Down (3)Next# (4)Prv# SIGNAL TEXT PASSED
(1)Rerun
REENTER PASSWORD: 0***
(1)#Up (2)#Down (3)Next# (4)Prv# MODEM TEXT PASSED
(1)Rerun
PASSWORD INCORRECT
(1)Reenter
<PAGE>
MENU STRUCTURE, CONTINUED
(D) ESPN2 LOCKED 96%
(1) Main Menu (2)Sys Info ------ RECEIVER: R0016824889
Default Menu | (1)More
|
| CARD: S0000134473
| (1)More DNASP002 REV04
|
| SW/HW: 100P/AAAA
| (1)More
|
| BOOTSTRP: 100B0134
MAIN MENU (1)Channel #
(2)Ch. Pwd. (3)Diag (4)Modem
|
|
|
|
SELECT PHONE SETTINGS
--(1)Tone (2)Pulse (3)Prefix ---------PHONE PREFIX: 5
(1)#Up (2)#Down (3)Next#
<PAGE>
ERROR MESSAGES
Note: A major error message indicates a condition that you must correct to allow
the receiver to operate. When the receiver displays such a message, you will not
have access to any menu until you have corrected the condition. A minor error
message indicates a condition that may degrade, but will not prevent receiver
operation. To clear a minor error message from the receiver display, press the
Exit button, or wait a few minutes for the receiver to display the Default Menu.
MAJOR ERROR MESSAGES
o INVALID SMARTCARD
The receiver displays this message when a SmartCard not authorized for use with
the receiver is inserted. Insert the proper SmartCard.
o SMARTCARD NOT INSERTED
The receiver displays this message when no SmartCard is inserted. Insert the
proper SmartCard.
o SMARTCARD NOT INSERTED CORRECTLY
The receiver displays this message when the SmartCard is inserted upside-down or
backwards. Insert the SmartCard with the arrow up, pointing toward the receiver.
MINOR ERROR MESSAGES
o PROGRAM BLACKED OUT
The receiver displays this message when a program (for example, a sports event)
cannot be viewed in your geographic location. Tune to another channel.
SMARTCARD NOT AUTHORIZED
The receiver displays this message when the receiver has not yet been
authorized. Call 1-800-44-0843 to authorize the receiver.
o NO ACCESS RIGHTS
The receiver displays this message when the stream of authorization signals has
been interrupted. Call 1-800-454-0837 for assistance.
o ACQUIRING SIGNAL
The receiver displays this message when the DISH Network (Trademark) satellite
signal cannot be acquired, such as when the satellite antenna cable is
disconnected or the LNB is not working properly. Check the cable and the LNB.
o LOST SIGNAL
The receiver displays this message when the DISH Network (Trademark) satellite
signal has been acquired, but some other severe error is detected. Run the
Signal Test using the Diagnostic Tests Menu, or check the signal strength shown
on the Default Menu.
o PAY-PER-VIEW CHANNEL
The receiver displays this message when you try to tune the receiver to a
Pay-Per-View channel using the Direct Entry method. If you try to tune the
receiver to a Pay-Per-View channel using the Browse method, the receiver
displays "PPV CHANNEL" instead of the channel name.
o SUBSCRIPTION CHANNEL
The receiver displays this message when you try to tune the receiver to a
subscription channel to which you have not subscribed. To subscribe to the
channel, call 1-800-454-0843.
<PAGE>
TECHNICAL SPECIFICATIONS
- -------------------------------------------------------------------------------
Description Specification
===============================================================================
System Speification
TV system: NTSC
Input symbol rate: 20 Msps
Modulation QPSK
Inner FEC: Convolutional rate 3/4
Outer FEC: Reed Solomon coding (204,188) t=8
Demultiplexing: ISO/IEC 13818-1
Video decoding: ISO/IEC 13818-2 (MP-ML)
Video resolution: 704 pixels x 480 lines x 30 frames/sec
480 pixels x 480 lines x 30 frames/sec
352 pixels x 480 lines x 30 frames/sec
352 pixels x 240 lines x 30 frames/sec
Audio decoding: MPEG 1, layer 1 and 2
- -------------------------------------------------------------------------------
Physical
Dimensions: 19.00" x 17.5" x 1.75" (max)
(482.6 mm x 444.5 mm x 44.4 mm)
Operating temperature: 32 to 122 (degrees) F (0 to 50 (degrees) C)
Note: At high operating temperatures, the
Liquid Crystal Display characters may not be
visible but the receiver continues to
operate.
Storage temperature: -4 to 158 (degrees) F
(-20 to 70 (degrees) C)
Humidity: 0 to 90% RH (non-condensing)
Cooling: Forced-air fan, activated when receiver
internal ambient temperature reaches
97 (degrees) F (36 (degrees) C)
Color: Dark blue/purple front panel; natural steel
finish chassis
Mounting: Standard 1 unit high 19" (482.6 mm)
rack mount
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Description Specification
===============================================================================
FEATURES
Security system: SmartCard receptacle (ISO 7816 compatible)
Serial Interface: EIA-485 Data Terminal Equipment interface
capable of remote receiver operation and
receiver status
Front panel control: 7 button, interactive selection through front
panel display
Front panel display: 2x24 character LCD display with LED back
lighting
Received level indication: Percentage level indication on LCD display
Front Panel Video Test Point Female BNC connector
- -------------------------------------------------------------------------------
TUNER
Input frequency range: 950 to 1450 MHz
Input impedance: 75 Ohm
Connector type: F-type female
Input level: -70 dBm to -30 dBm (per carrier)
Input VSWR: 2.0:1 (max)
LO leakage at input: -60 dBm (typ). -50 dBm (max)
IF band width: 32.0 Mhz at -3 dB: 42.0 MHz at -20 dB
Group delay: 8.0 nsec (p-p) ripple (typ)
Channel selection: PLL frequency synthesizer
(I (superior 2)C)
Frequency step size: 125 KHz
- -------------------------------------------------------------------------------
POWER SUPPLY
Input voltage: 110 +/- 22% VAC single phase
Voltage frequency: 60 Hz +/- 10 Hz
Power Entry: Polarized 3-pin IEC-320 series fused
receptacle
Protection: Externally and internally fused mains
- -------------------------------------------------------------------------------
<PAGE>
Description Specification
----------- -------------
LNB Power Supply
Vertical polarity switching +13.3 Volts +/-7%
Horizontal polarity switching +18.3 Volts +/-7%
Current: 300mA (max)
Protection: Lighting, short circuit
Composite Video Output
Composite Video NTSC, reconstrued from CCIR-656 video data
Connector: "F" female
Level: 1.0 V (p-p) +/-3% into 75 Ohm
Frequency response: +/- 0.6 dB: 100 KHz to 4.2 MHz
Differential Gain: (less than) 3%
Differential Phase: (less than) 3(degrees)
Luma Delay: (less than) 40nS
Line Time Distortion: (less than) 1.5% TILT
Fiels Time Distortion: (less than) 1.5% TILT
S/N ratio: > 55dB (weighted)
Video Test Point (Front Panel)
Composite video: NTSC, reconstructed from CCIR-656
video data
Level: 1.0 V (p-p)into 75 Ohm
Connector: "BNC" female
Super VHS (S-Video) Output
Level: 1.0 V (p-p)
Impedance: 75 Ohm unbalanced, resistive
Connector: 4-pin S-Video mini-DIN
<PAGE>
Description Specification
----------- -------------
Audio Output
Number of channels Two standard
Operating modes: Stereo, Dual Mono, Mono
Impedance: Left & Right Balanced or Unbalanced
600 Ohm; Mono unbalanced 10K Ohm
Output level: Left & Right 0 dBm (2.2. V [p-p] into
600 Ohm balanced load;
Mono 1 V [p-p] into 10K Ohm load
Output connectors: Terminal strip (Left, Right), "F"
connector Mono
Frequency response: 20 Hz to 20KHz +/- 1 dB
Total Harmonic Distortion: (less than) 0.1% at 1 KHz
Dynamic Range: 90 dB
Left/Right Balance: (less than) 0.8 dB
Left/Right Separation: > 50 dB
S.N ratio: 80 dB
Sampling/resolution: 256X over-sampled/16 bits
Remote Computer/Terminal Interface:
Stardard: EIA-485
Baud rate: 9600
Connector type: RJ-11
Internal Modem
Baud rate: 2400 (max)
Signal format: Compatible with V.22bits (2400),
V.22 (1200), Bell 212A (1200),
Bell 103 (300)
Connector: RJ-11
Instruction set: Compatible with Hayes command set
Auto-dialer type: Both pulse and DTMF dialers to be provided
Signal to noise performance: Error rate > 0.00011 for S/N > 14 dB
<PAGE>
Description Specification
----------- -------------
Internal Modem (continued)
Active circuit isolation: 600 Ohm isolation transformer, 1500 VCD
primary to secondary isolation. Off-hook
relay must provide 1500 VDC contact to
coil isolation
Surge suppression: FCC Part 68
Metallic surge: 800 V peak at 10 usec
max. rise time. 560 usec min. decay time
to half crest. Longitudinal surge:
1500 V peak between tip and ring to
ground. 10 usec max. rise time, 160 usec
min. decay time to half crest.
Line interfacing: FCC Part 68
On-hook leakage tip-to-ring greater than
5M Ohm with applied voltage of less than
100 V. Longitudinal balance: 60 dB, 200
to 1000 Hz, 40 dB, 1000 to 4000 Hz.
Off-hook detect: Modem automatically ceases communications
and releases telephone line if a second
telephone is connected to the same line
as detected off-hook.
Agency Approvals
System EDI: FCC Part 15 Class A
Modem: FCC Part 68
Safety: UL approval 1409
ESD: IEC 801-2
<PAGE>
We recommend that you write the following information in the spaces provided
below. You may need to provide this information if you call the DISH
Network(tm) Service Center.
Purchase Location Name:
Purchase Location Telephone Number:
Receiver Serial Number:
Receiver Conditional Access Number:
SmartCard Serial Number:
FCC Ringer ID Number: 0.0B
Copyright(C) 1996, EchoStar Communications Corporation, Englewood, Colorado
80112 All rights reserved.
The information contained herein is subject to change without notice. Revisions
may be issued to advise of such changes and/or additions.
Correspondence regarding this publication should be addressed directly to:
EchoStar Communications Corporation, Technical Publications, 90 Inverness
Circle East, Englewood, Colorado 80112.
Document Number: 123472991-AA Rev. AA
Printed in the United States of America.
All product names, trade names, or corporate names mentioned in this document
are acknowledged to be the proprietary property of the registered owners.
DISH Network(tm) and the DISH logo are trademarks of EchoStar Communications
Corporation.
This product incorporates copyright protection technology that is protected by
U.S. patents and other intellectual property rights. Use of this copyright
protection technology must be authorized by Macrovision, and is intended for
home and other limited Pay-Per-View uses only unless otherwise authorized by
Macrovision. Reverse engineering or disassembly is prohibited.
<PAGE>
[DISH NETWORK LOGO]
For your service needs, call
the DISH Network(tm) Service Center at
1-800-454-0837.
To activate your account, call
1-800-454-0843.
123472991-AA
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT F
Technology
HTS' Unique and Proprietary Portions of the Specifications
The following will be provided in implement to conditional access system. All
such information is UNIQUE and PROPRIETARY. They are to be used in conjunction
with the * operating system.
* :
*
* to indicate the message traffic * and
*
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT G
Permitted Subcontractors
*
<PAGE>
EXHIBIT H
Form of Trademark License Agreement
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is made and
entered into as of the ________ day of November, 1996 by and between EchoStar
Communications Corporation, with its principal place of business at 90 Inverness
Circle East, Englewood, Colorado, 80112 ("EchoStar") and Blonder Tongue
Laboratories, Inc., with its principal place of business at One Jake Brown Road,
Old Bridge, New Jersey 08857 ("Licensee").
A. EchoStar conducts business as, among other things, a
supplier of satellite television receive only ("TVRO") equipment and related
products and services, including direct broadcast satellite products and
services; and
B. Licensee and Echostar are parties to a License Agreement
dated the date hereof (the "License Agreement") pursuant to which Licensee is
licensed to manufacture and sell Products (as defined in the License Agreement).
C. Licensee desires to be permitted to use certain of
EchoStar's trademarks, service marks and trade names as EchoStar, in its sole
discretion, may authorize under a non-exclusive license, to manufacture and
market the Products;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EchoStar hereby grants to Licensee a
non-exclusive, non-transferable, license (the "License") to use the EchoStar
and DISH Trademarks (all of which are set forth on Exhibit A attached hereto)
(the "Trademarks"), and such other Trademarks as EchoStar may from time to time
expressly in writing permit Licensee to use during the term of this Agreement
and no other term or license whatsoever, to affix on the Products and for use in
its advertising and promotional materials in order to market the Products.
Notwithstanding the above, Licensee shall provide to EchoStar, at least ten (10)
days prior to first use, an example of any advertising or promotional materials
in which Licensee intends to use any EchoStar Trademarks. EchoStar may reject
and prohibit Licensee from using such materials, if such materials or the
proposed manner of use thereof are reasonably determined to be non-compliant
with the trademark usage guidelines set forth in Exhibit K of the License
Agreement or are otherwise reasonably determined by EchoStar to be harmful to
EchoStar's reputation. If Licensee fails to provide EchoStar with proposed
advertising or promotional materials at least ten (10) days prior to first use,
EchoStar shall so notify Licensee in writing and Licensee shall cease further
use and dissemination of such promotional materials until such materials shall
have been reviewed and approved by EchoStar; provided however that EchoStar
shall advise Licensee regarding the compliance of such materials within three
days after receipt thereof. No such materials shall indicate that
<PAGE>
any agreement of agency, partnership, joint venture, franchise or exclusive or
non-exclusive manufacturer, distributor or other relationship exists between
Licensee and EchoStar, unless EchoStar and Licensee enter into a separate
written agreement permitting Licensee to do so. This Agreement is not intended,
nor shall it be construed, as creating any agreement of agency, partnership,
joint venture, franchise or exclusive or non-exclusive manufacturer, distributor
or other relationship, or as creating any obligation on the part of EchoStar to
enter into any such agreement with Licensee. Further, this Agreement is not
intended, nor shall it be construed, as providing any rights to Licensee to
manufacture and/or distribute Products; such rights shall evolve from the
License Agreement or other agreements between EchoStar and Licensee. This
License shall be effective until and shall be revoked upon the expiration or
earlier termination of the License Agreement, subject to Licensee's additional
rights thereunder upon termination thereof.
2. Subject to the License Agreement, the License
granted by EchoStar is granted to Licensee only. Except as set forth in the
License Agreement, Licensee has no authority to transfer or grant any sublicense
to any other entity or individual for any reason. Use of Trademarks shall only
be allowed during the term of this Agreement, and Licensee shall immediately
cease using Trademarks upon expiration or termination of this Agreement for any
reason, subject to the License Agreement. Upon expiration or termination of this
Agreement, subject to the License Agreement, at Licensee's option Licensee shall
immediately destroy, any and all advertising and promotional materials in
Licensee's possession with Trademarks on them, and remove all Trademarks from
any Products not purchased by EchoStar; provided, however, that Licensee may
continue to disseminate promotional materials which promote products including
the Product, so long as such promotional materials are stickered to advise
recipients thereof that Licensee no longer sells Products.
3. Licensee expressly recognizes and acknowledges
that the License, as well as any past use of the Trademarks in any manner
whatsoever by Licensee (including but not limited to use on signs, business
cards, or in advertisements), shall not confer upon Licensee any proprietary
rights or interest to any Trademarks including, but not limited to any existing
or future goodwill in the Trademarks. All goodwill in the Trademarks shall inure
to EchoStar's sole benefit. Further, Licensee waives any and all past, present,
or future claims it has or might have to the Trademarks, and acknowledges that
EchoStar has the exclusive rights to own and use the Trademarks, and that
EchoStar retains full ownership of the Trademarks notwithstanding the License
granted herein. While Licensee has no right or authority to do so, in the event
that Licensee has previously, or in the future reserves, files, or registers any
of the Trademarks of EchoStar, Licensee agrees to notify EchoStar immediately,
and immediately upon request of EchoStar, to assign any and all interest to
EchoStar that is obtained through the reservation, filing, or registration of
the Trademarks in the U.S., in the country in which Licensee is located or any
foreign jurisdiction, and hereby acknowledges that any such reservation, filing,
or registration of the Trademarks, whenever occurring, shall be on behalf of and
for the sole benefit of EchoStar, and Licensee waives all claims or rights to
any compensation whatsoever therefor.
<PAGE>
Licensee's obligations in this paragraph shall survive the expiration or
termination of this Agreement.
4. Nothing in this Agreement shall be construed to
bar EchoStar from protecting its right to the exclusive use of its Trademarks
against infringement thereof by any party or parties, including Licensee, either
during the term of this Agreement or following any expiration or termination of
Licensee's right to use the Trademarks pursuant to this Agreement. To the extent
Licensee has knowledge, Licensee will promptly and fully advise EchoStar of any
use of any mark that may appear to infringe EchoStar's Trademarks. Licensee will
also fully cooperate with EchoStar in defense and protection of EchoStar's
Trademarks; provided, however, all reasonable costs and expenses incurred by
Licensee in connection with such cooperation shall be borne by EchoStar.
Similarly, nothing in this Agreement shall be construed to require that EchoStar
take any action to protect its Trademarks in any instance, and EchoStar shall
not be liable to Licensee in any manner whatsoever for failure to take any
action.
5. Any and all disputes, claims or actions that may
arise under or out of this Agreement shall be governed, interpreted and enforced
in accordance with the laws of the State of Colorado. The federal and state
courts in the State of Colorado shall have exclusive jurisdiction to hear and
determine any claims, disputes, actions, or suits which may arise under or out
of this Agreement. Licensee agrees and voluntarily consents to the personal
jurisdiction and venue of such courts for such purposes.
6. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized representatives as of the day and year first
above written.
EchoStar Communications Corporation Blonder Tongue Laboratories, Inc.
By:________________________________ By:______________________________
Its:________________________________ Its:_____________________________
<PAGE>
Exhibit I
Information to be Provided to Licensee by HTS
<TABLE>
<S> <C> <C> <C>
=============================================================================================================
Description
- -------------------------------------------------------------------------------------------------------------
o Data
- -------------------------------------------------------------------------------------------------------------
o Software object code, all except conditional access
- -------------------------------------------------------------------------------------------------------------
o Extended Gerber file (or Gerber file with aperture list)
- -------------------------------------------------------------------------------------------------------------
o Net list in ASCII format (PWB)
- -------------------------------------------------------------------------------------------------------------
o Testing Procedures, Plans and Other documents
- -------------------------------------------------------------------------------------------------------------
o Test streams containing PES, PSI, SI and scrambled data
- -------------------------------------------------------------------------------------------------------------
o Test specifications for all applicable tests (electrical, mechanical, functional)
- -------------------------------------------------------------------------------------------------------------
o Test programs and software, automated testing code and sample test cases,
which is owned by HTS
- -------------------------------------------------------------------------------------------------------------
o Bug list/bug reports
- -------------------------------------------------------------------------------------------------------------
o Test results, software, hardware, mechanical
- -------------------------------------------------------------------------------------------------------------
o Design Documentation/Drawings
- -------------------------------------------------------------------------------------------------------------
o Bill of Materials, including suggested vendors and costing at latest version
- -------------------------------------------------------------------------------------------------------------
o Schematics at latest version
- -------------------------------------------------------------------------------------------------------------
o Hardware and software design specifications/requirements at latest version
- -------------------------------------------------------------------------------------------------------------
o Functional description (theory of operation), including conditional access. (If no
document is available, do lectures/mind-melds.)
- -------------------------------------------------------------------------------------------------------------
o Assembly drawings, fabrication drawings, subassembly prints, piece part drawings
- -------------------------------------------------------------------------------------------------------------
o Antenna LNB requirements/specifications/drawings and suggested sourcing
- -------------------------------------------------------------------------------------------------------------
o Mechanical
- -------------------------------------------------------------------------------------------------------------
o Mechanical drawings at latest version
- -------------------------------------------------------------------------------------------------------------
o IGES files on all mechanical parts and PCBs
- -------------------------------------------------------------------------------------------------------------
o One complete prototype for each model developed by HTS
=============================================================================================================
o HTS reserves the right to deliver the Manufacturing Package in
separate parts. All of the above items will be delivered with
the Manufacturing Package.
</TABLE>
<PAGE>
EXHIBIT J
Test Procedures and Plan
To be provided as part of the Manufacturing Package
<PAGE>
EXHIBIT K
HTS' Trademark Usage Guidelines
LOGO PLACEMENT GUIDELINES SHEET
GENERAL RULES/REQUESTS FOR LOGO PLACEMENT AS GIVEN TO US BY THE PROGRAMMERS
(WHEN I INDICATE "NEXT TO," IT CAN ALSO BE ABOVE AND BELOW)
*COURT TV NEEDS TO GO NEXT TO CNN AND OTHER CNN CHANNELS WITH CNN FN DIRECTLY
NEXT TO OR ABOVE/BELOW CNN -- NOT CATTY CORNER OR DIAGONALLY
*ESPN NEEDS TO GO NEXT TO ESPN2
*NICKELODEON AND NICK AT NITE NEED TO BE NEXT TO EACH OTHER BUT NOT AT AN ANGLE
TO EACH OTHER
*NICK AT NITE'S TV LAND SHOULD GO NEXT TO COMEDY CENTRAL
*THE DISNEY CHANNEL USUALLY GOES NEAR THE TOP AND IS OFTEN A BIT LARGER THAN
THE OTHERS OR IN A BOX TO HIGHLIGHT IT
*THE SUPERSTATIONS (WON, WPIX AND KTLA) MAY NOT BE NEXT TO EACH OTHER OR AT AN
ANGLE TO EACH OTHER
PREMIUM SERVICES
- ----------------
*WHEN USING THE PREMIUM SERVICES, WE NORMALLY GO FROM LEFT TO RIGHT IN ORDER
WITH CINEMAX, HBO AND THEN SHOWTIME WITH THE MOVIE CHANNEL, FLIX AND SUNDANCE
NEXT TO IT, OFTEN IN A BOX TO SHOW THEY'RE A COMBINED PREMIUM SERVICE
INTERNATIONAL SERVICES
- ----------------------
*ANTENNA FIRST, ART NEXT AND THEN RAI
*SPANISH CHANNELS ARE BOXED OR GROUPED TOGETHER WITH MTV FIRST, THEN TELEMUNDO
AND THEN PRIME DEPORTIVA. THEY ARE A PACKAGE AND CAN'T BE SOLD SEPARATELY.
*IN BROADCAST NETWORK PACKAGES, THE PT WEST LOGO MUST GO NEXT TO THE ABC, CBS
AND NBC WEST FEEDS AND THE SAME FOR THE PT EAST LOGO AND THE 3 EAST FEEDS.
<PAGE>
BASIC GUIDELINES FOR ECHOSTAR/DISH NETWORK
- ------------------------------------------
DISH NETWORK (if headline is in all caps)
DISH Network (headline or body copy with caps as indicated)
ECHOSTAR (if headline is in all caps)
EchoStar (headline or body copy with caps as indicated)
Nothing Else Compares.sm (caps as indicated for headline or in
body copy)
"A DISH IN EVERY HOME." (if headline is all caps)
"A Dish in Every Home." (headline or body copy with caps as indicated)
In a list, there is no comma before the "and" (e.g., lions, tigers and bears).
REGISTERED TRADEMARK. TRADEMARK AND SERVICE MARK USAGE
- ------------------------------------------------------
(All sm and tm marks are raised off the baseline as superscript and must be used
the first time only that it appears in any piece)
A "Dish in Every Home." (sm)
DISH Network logo is tm or sm depending upon whether it's software/services (sm)
or hardware (Tm) with tm for the generic hardware and software
DISH Networktm & DISH Networksm (depends on whether it's hardware(tm) or
software/services(sm) with tm when we're speaking about both generically)
EAC(r)
Echonet(r)
Echosphere(r)
EchoStar(r)
EchoStar(r) Revolving Charge Plan
Nothing Else Compares.sm
Smart Cardtm
FrontLoadertm
Houston Tracker Systems(r)
HTStm
Trackertm
Tracker Premiertm
<PAGE>
(DISCLAIMER COPY TO BE USED WHENEVER ANY OF THESE LOGOS ARE USED -- may be
strung together in one copy block)
ESPN and ESPN2 programming subject to change and blackout restrictions, and is
licensed separately for residential and commercial use. ESPN and ESPN2 are
registered trademarks of ESPN, Inc. (c)Disney. HBO and Cinemax are registered
service marks of Home Box Office, a division of Time Warner Entertainment
Company, L.P. Showtime, The Movie Channel and FLIX are service marks of Showtime
Networks Inc., a Viacom Company. Sundance Channel is a trademark of Sundance
Television, Ltd. Sundance Channel L.L.C. authorized user. MTV: Music Television,
MTV: Music Television Latino, VH1 Music First, Nickelodeon/Nick at Nite and Nick
at Nite's TV Land are trademarks of MTV Networks, a division of Viacom
International Inc. Cartoon Network, CNN, CNNI, CNN FN, Headline News, TCM, TBS
Superstation and TNT are registered trademarks of Turner Broadcasting System,
Inc. The Family Channel and The Family Channel logo design are registered
service marks of International Family Entertainment, Inc. Home Shopping Network
is a registered trademark of Home Shopping Network, Inc. All other service marks
and trademarks belong to their respective owners.
Logos are representative of the selection available. (This needs to be added
only when some logos are used or we know some additional stations will be
added soon and we want to cover our bases. Also need when we just use some
logos for some reason.)
(DISCLAIMER COPY TO BE USED WHEN TALKING IN COPY ABOUT OUR MAJOR NETWORK PACKAGE
THAT HAS LIMITED AVAILABILITY.) ABC, CBS, NBC and FOX channels are available
only for homes (1) which cannot receive an acceptable picture from local ABC,
CBS, NBC and FOX affiliates via a conventional rooftop antenna and (2) which
have not subscribed to cable television within the last 90 days.
When we use the words Showtime and/or The Movie Channel in body copy without the
logos present, we need to put an (r) after Showtime and a tm after The Movie
Channel. When we use the Premium Service in copy but don't use their logos, we
still need to use the Showtime/TMC disclaimer but we don't have to use the
HBO/Cinemax disclaimer unless we use their logo(s).
When we use the MTV Latino channel logo, we need to add: MTV: Music Television
Latino, to the regular MTV disclaimer after MTV and before VH1.
<PAGE>
America's Top 40sm (our $19.99 programming package)
America's Top 40 CDsm (our $24.99 programming package)
America's Top 40 Premium Plussm (our $29.99 programming package)
America's Top 40 Deluxe Plussm (our $39.99 programming package)
America's Top 40 Ultimate Plussm (our $49.99 programming package)
DISH-On-Demandsm (pay-per-view)
DISH Pixsm (choose your own programming package)
DISH Network Credit Corporation
DISH CDsm
(Samples of trademark copy)
DISH Network is a service mark of EchoStar Communications Corporation.
(for logo and when written out -- programming and services only)
DISH Network is a trademark of EchoStar Communications Corporation. (for
logo and when written out -- hardware and generically)
EAC is a registered trademark of EchoStar Acceptance Corporation.
Echonet is a registered service mark of Echonet Business Network, Inc.
Echosphere is a registered trademark of Echosphere Corporation.
EchoStar is a registered trademark of Echosphere Corporation.
DISH Network is a trademark and service mark of EchoStar Communications
Corporation. (combining legal copy)
DISH Network is a trademark and DISH-On-Demand is a service mark of EchoStar
Communications Corporation. (combining legal copy)
Houston Tracker Systems is a registered trademark of Houston Tracker
Systems,Inc.
HTS, Excellence By Design, Tracker and Tracker Premier are trademarks of
Houston Tracker Systems, Inc.
(DISCLAIMER/ASTERISK COPY TO BE USED WHENEVER PROGRAMMING PACKAGES AND/OR PRICES
ARE USED)
All prices and packages subject to change without notice. Local and state sales
taxes may apply. Programming is available for single-family dwellings located in
the continental United States and its territories and possessions. Equipment
purchase or lease additional. All DISH Network programming, subscription
programming, programming packages, pay-per-view services, and any other service
that we provide to you, are subject to the terms and conditions of the
residential customer agreement, which is available to you upon request. One-year
America's Top 40 CD package subject to early termination if additional services
ordered are not paid in accordance with agreed-upon terms. Broadcast Networks
are only available to customers in those limited areas not served by local
network affiliates.
(Last sentence is only to be used if we dont talk specifically about our
broadcast network package and/or use the ABC, CBS, NBC, FOX logos. If we do, we
need to add the ABC, etc. copy listed below instead.)
<PAGE>
SPELLINGS AND TERMS FOR ECHOSTAR/DISH NETWORK
big-screen (adj.)
C-band (adj.)
CD-quality (adj.)
CONUS (all caps) -- contiguous United States
cost-effective (adj.)
database
DBS -- Direct Broadcast Satellites
DBS -- Digital Broadcast System (DBS satellites)
dealer base
DISH Network Credit Corporation
DSS -- direct satellite service
DTH -- direct-to-home (adj.)
DVB -- digital video broadcast (European standard like MPEG-2 in U.S.)
18-inch (adj.)
FCC -- Federal Communications Commission
full-featured (adj.)
full-service (adj.)
HDTV -- high-definition television
high-power (adj.)
high-powered (adj.)
high-quality (adj.)
high-tech (adj.)
high-yield (adj.)
in-house (adj.)
IRDs (plural) -- integrated receiver descramblers
Ku-band (adj.)
laserdisc
lineup (1 word)
LNBF -- low noise block converter with integrated feed
long-term (adj.)
low-cost (adj.)
MPEG-2 -- motion pictures expert group (set digital pictures transmission
standard for U.S.)
MPEG-2/DVB compatible
OEM -- original equipment manufacturer
110-volt and 240-volt (adj.)
one-stop (adj.)
on-line (adj.)
on-screen (adj.)
predetermined
real time -- instantly available information
QC -- quality control
remote control (adj.)
RF -- radio frequency
same-day (adj.)
<PAGE>
SBCA -- Satellite Broadcasting and Communications Association
short-term (adj.)
signal-splitting (noun)
single-family (adj.)
startup (1 word)
state-of-the-art (adj.)
surround sound (adj.)
toll-free (adj.)
trade-off (adj.)
TVRO -- television receive only
2-year and two-year (adj.), etc.
UHF -- ultra high frequency
VHF -- very high frequency
videodisc
American Division (of EchoStar -- initial caps)
DIRECTV
DISH Network Credit Corporation
Hughes/Hubbard
International Division (of EchoStar -- initial caps)
Primestar
Satellite Source (no (r) or tm)
The Company (initial cap C in copy when talking about EchoStar)
The Echosphere Group (initial caps)
USSB -- U.S. Satellite Broadcasting
<PAGE>
DISCLAIMER LANGUAGE/GUIDELINES
*All prices and packages subject to change without notice. Local and state sales
taxes may apply. Programming is available for single-family dwellings located in
the continental United States and its territories and possessions. Equipment
purchase or lease additional. All DISH Network programming, subscription
programming, programming packages, pay-per-view services, and any other service
that we provide to you, are subject to the terms and conditions of the
residential customer agreement, which is available to you upon request. One-year
America's Top 40 CD package subject to early termination if additional services
ordered are not paid in accordance with agreed-upon terms. Broadcast Networks
are only available to customers in those limited areas not served by local
network affiliates.
(When the logos of networks are used or the actual names of the networks are
spelled out, you need to replace the last sentence above with:
ABC, CBS, NBC and FOX channels are available only for homes (1) which cannot
receive an acceptable picture from local ABC, CBS, NBC and FOX affiliates via a
conventional rooftop antenna and (2) which have not subscribed to cable
television within the last 90 days.
DISH Network is a trademark and service mark and DlSH-On-Demand is a service
mark of EchoStar Communications Corporation. (Use whichever are shown by logo or
in copy. TM or SM only need to be put in copy the first time it appears. We
don't disclaimer our other services, even if we put an sm next to it. DISH
Network is a TM when we talk about the DISH Network in general terms or about
our hardware. It is an SM whenever we talk about our services only like
programming. TM and SM are raised superscript.)
ESPN and ESPN2 programming subjedt to change and blackout restrictions, and is
licensed separately for residential and commercial use. ESPN and ESPN2 are
registered trademarks of ESPN, Inc. (c)Disney. HBO and Cinemax are registered
service marks of Home Box Office, a division of Time Warner Entertainment
Company, L.P. Showtime, The Movie Channel and FLIX are service marks of Showtime
Networks Inc., a Viacom Company. Sundance is a trademark of Sundance Television,
Ltd. Sundance Channel L.L.C. authorized user. MTV: Music Television, MTV: Music
Television Latino, VH1 Music First, Nickelodeon/Nick at Nite and Nick at Nite's
TV Land are trademarks of MTV Networks, a division of Viacom International Inc.
Cartoon Network, CNN, CNNI, CNN FN, Headline News, TCM, TBS Superstation and TNT
are registered trademarks of Turner Broadcasting System, Inc. The Family Channel
and The Family Channel logo design are registered service marks of International
Family Entertainment, Inc. Home Shopping Network is a registered trademark of
Home Shopping Network, Inc. All other service marks and trademarks belong to
their respective owners.
Note: Disney has the "c" in a completed circle, not in parentheses like above.
When the Spanish channels aren't listed, the MTV: Music Television Latino needs
to be removed from the above language.
<PAGE>
(When multichannel logos are not used but the multichannel Premium Services are
listed in copy by name, you still need to put in Showtime and The Movie Channel
disclaimer and put an SM next to their names in the copy.)
[LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO][LOGO]
[LOGO][LOGO]
<PAGE>
*INFORMATION REDACTED HEREFROM IS CONFIDENTIAL AND HAS BEEN ACCORDINGLY OMITTED
AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
Exhibit L
Schedule of Persons, Entities and Technology not Covered by License
Agreement
o Any and all technology, intellectual property rights of, or obligation
to pay royalties to * or any Affiliate thereof.
o Any and all technology, intellectual property rights or obligation to
pay royalties relating to the *
o Any and all technology, intellectual property rights or obligation to
pay royalties relating to the * and its implementation
by HTS.
o Any and all technology or intellectual property rights of, or
obligation to pay royalties relating to, * any
Affiliate thereof.
o Any and all technology or intellectual property rights of, or
obligation to pay royalties relating to, *
o Any and all technology or intellectual property rights of, or
obligation to pay royalties relating to, *
o United States of America State Department.
o Any and all technology or intellectual property rights or obligation to
pay royalties relating to the Smart Cards and the reading of the Smart
Cards by the Digital Satellite Receiver System.
EXHIBIT 11
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATION
(In Thousands, except per share data)
Year ended December 31,
1994 1995 1996
------ ------ ------
Net earnings ..................................... $3,076(a) $3,850(a) $3,883
------ ------ ------
Weighted average shares outstanding .............. 6,353 5,770 8,144
Options issued within one year of the public
offering net of shares assumed to be
repurchased (SAB No. 83) ......................... 53 53 --
Other options net of shares assumed
to be repurchased ................................ 69 231 156
------ ------ ------
Weighted average shares outstanding
for calculation of earnings per share ............ 6,475 6,054 8,300
------ ------ ------
Earnings per share ............................... $ 0.48(a) $ 0.64(a) $ 0.47
====== ====== ======
(a) Net earnings and net earnings per share are presented on a pro forma
basis as if the Company were a C Corporation under the Internal
Revenue Code for the entire period.
EXHIBIT 21
List of Subsidiaries of Blonder Tongue Laboratories, Inc.
1. Blonder Tongue International, Inc.
2. Vu-Tech Communications, Inc. (79% - owned subsidiary)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Blonder Tongue Laboratories, Inc.
We hereby consent to the incorporation by reference in Registration
No. 333-15039 of Blonder Tongue Laboratories, Inc. on Form S-8 of our report
dated March 3, 1997, relating to the consolidated financial statements and
schedule of Blonder Tongue Laboratories, Inc. incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
BDO Seidman, LLP
Woodbridge, New Jersey
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLONDER
TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND BALANCE SHEET AS AT DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,340
<SECURITIES> 0
<RECEIVABLES> 9,267
<ALLOWANCES> 280
<INVENTORY> 16,028
<CURRENT-ASSETS> 27,292
<PP&E> 9,095
<DEPRECIATION> 1,934
<TOTAL-ASSETS> 36,165
<CURRENT-LIABILITIES> 4,277
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 25,568
<TOTAL-LIABILITY-AND-EQUITY> 36,165
<SALES> 48,862
<TOTAL-REVENUES> 48,862
<CGS> 30,613
<TOTAL-COSTS> 30,613
<OTHER-EXPENSES> 10,972
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 658
<INCOME-PRETAX> 6,484
<INCOME-TAX> 2,601
<INCOME-CONTINUING> 7,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,883
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
