<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-35791
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EXCEL SWITCHING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3661 04-2992806
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
255 INDEPENDENCE DRIVE
HYANNIS, MA 02601
(508) 862-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MR. ROBERT P. MADONNA
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS
EXCEL SWITCHING CORPORATION
255 INDEPENDENCE DRIVE
HYANNIS, MA 02601
(508) 862-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOHN HESSION, ESQ. CHRISTOPHER STAVROS, PETER B. TARR, ESQ.
TESTA, HURWITZ & ESQ. HALE AND DORR LLP
THIBEAULT, LLP GENERAL COUNSEL 60 STATE STREET
HIGH STREET TOWER EXCEL SWITCHING BOSTON, MASSACHUSETTS
125 HIGH STREET CORPORATION 02109
BOSTON, MASSACHUSETTS 255 INDEPENDENCE DRIVE (617) 526-6000
02110 HYANNIS, MA 02601
(617) 248-7000 (508) 862-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value...... $82,800,000.00 $25,091.00(2)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) This registration fee has been previously paid in full.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 24, 1997
4,500,000 Shares
LOGO
COMMON STOCK
-----------
ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $14 AND $16 PER
SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO
BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 4 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $800,000.
The Company has agreed to pay the expenses of the Selling Stockholder,
other than underwriting discounts and commissions.
(3) The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 675,000 additional Shares at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions,
proceeds to Company and proceeds to the Selling Stockholder will be
$ , $ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Hale and Dorr LLP, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY SECURITIES, INC.
, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
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UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 4
The Company......................... 13
Use of Proceeds..................... 13
Dividend Policy..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................ 24
</TABLE>
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PAGE
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Management............................................................ 37
Certain Transactions.................................................. 44
Principal Stockholders................................................ 45
Description of Capital Stock.......................................... 46
Shares Eligible for Future Sale....................................... 49
Underwriters.......................................................... 51
Legal Matters......................................................... 52
Experts............................................................... 52
Additional Information................................................ 53
Glossary of Terms..................................................... 54
Index to Consolidated Financial Statements............................ F-1
</TABLE>
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The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and with quarterly reports
for the first three quarters of each year containing unaudited consolidated
interim financial information.
----------------
XLDX, LNX, PCX, PPL, CSN, EXNET and EXS are trademarks of the Company. This
Prospectus also includes trademarks and tradenames of companies other than
Excel Switching Corporation.
----------------
Except as set forth in the consolidated financial statements or as otherwise
indicated herein, all information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option; (ii) reflects the filing, on
September 16, 1997, of the Restated Articles of Organization of the Company
increasing the authorized shares of Common Stock, creating a class of
Preferred Stock and providing for the automatic conversion upon the closing of
this offering of the Company's Non-Voting Common Stock into shares of the
Company's Common Stock on a one-for-one basis; and (iii) reflects a two-for-
one split of the Company's capital stock effected on September 16, 1997. See
"Description of Capital Stock," "Underwriters" and Note 5 of Notes to
Consolidated Financial Statements. On December 18, 1996, the Company changed
its fiscal year end from December 31 to the last Saturday in December. All
references to 1996 refer to the year ended December 28, 1996 and all
references to all other years prior to 1996 refer to the year ended December
31. As used in this Prospectus, the "Company" and "Excel" refer to Excel
Switching Corporation and its subsidiaries.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
Excel is a leading provider of open switching platforms for
telecommunications networks worldwide. The Company develops, manufactures,
markets and supports a family of open, programmable, carrier-class switches
that addresses the complex enhanced services and wireless and wireline
infrastructure needs of network providers. Excel's products offer network
providers the flexibility to address multiple market applications and the
scalability to deploy a variety of system capacities. The Company's
programmable switching platforms enable network providers to deliver improved
networking functionality at a lower cost than purchasing, upgrading or
reprogramming traditional, closed, central office switches. The Company's
products are currently deployed in telecommunications networks in approximately
50 countries throughout the world.
Excel offers a family of programmable switching platforms that are designed
with distributed architecture and open software to maximize performance and
provide multiple levels of programmability and redundancy. Excel's open
switching platforms integrate with a wide variety of host computer systems,
operating systems and application development environments. The Company's
product family scales from 512 to 30,720 ports. Using Excel's patented
Programmable Protocol Language ("PPL"), application developers can customize
the switching software to their unique requirements, allowing them to introduce
new services and applications rapidly. As customer requirements evolve, the
Excel platform can be upgraded without requiring extensive and complex
programming changes to the underlying software.
The Company sells to a variety of customers in the worldwide
telecommunications market, including application developers, original equipment
manufacturers ("OEMs") and systems integrators. These customers include Boston
Technology, Inc., Brite Voice Systems, Inc., Ericsson Messaging Systems Inc.,
Glenayre Technologies, Inc., IEX Corporation, MCI Communications Corporation,
Lucent Technologies Inc. (Octel Messaging Division), Phoenix Wireless Group,
Inc., Priority Call Management, Inc., QUALCOMM Incorporated and WorldCom, Inc.
Excel's customers integrate the Company's open, programmable switching
platforms with their product offerings to address a variety of market
applications for network providers, ranging from enhanced services such as
voice messaging, one number services and prepaid debit cards, to wireless and
wireline infrastructure services such as tandem switching, mobile switching
centers and intelligent base station controllers. Network providers which have
installed Excel's products include AT&T Corp., Ameritech Corporation, Bell
Atlantic Corporation, BellSouth Corporation, British Telecommunications plc,
GTE Corporation, MCI Communications Corporation, Nippon Telegraph and Telephone
Corporation, Pacific Bell, Sprint Corporation, Telstra Corporation Ltd., Time
Warner Inc. and WorldCom, Inc.
THE OFFERING
Common Stock offered............. 4,500,000 shares
Common Stock to be outstanding 32,589,600 shares(1)
after the offering..............
Use of proceeds..................
For general corporate purposes, including
working capital, product development,
capital expenditures and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market XLSW
symbol..........................
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------- -----------------
DECEMBER 31,
------------------------------ DECEMBER 28, JUNE 30, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF IN- (UNAUDITED)
COME DATA:
Revenues................ $5,111 $10,033 $20,723 $36,161 $62,050 $27,890 $39,055
Income from operations.. 692 2,892 7,083 8,783 13,570 6,255 12,272
Net income.............. 469 1,396 4,190 5,411 7,901 3,687 7,420
Net income per
share(2)............... $ .01 $ .04 $ .13 $ .16 $ .23 $ .11 $ .22
Weighted average common
and common equivalent
shares outstanding(2).. 31,519 31,954 32,431 32,913 33,787 33,672 34,012
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
----------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: (UNAUDITED)
Working capital.......................................... $21,915 $ 83,890
Total assets............................................. 44,446 106,421
Long-term obligations, less current maturities........... 3,584 3,584
Total stockholders' equity............................... 27,541 89,516
</TABLE>
- -------
(1) Based on shares of Common Stock outstanding as of June 28, 1997. Excludes
(i) 10,808,640 shares of Common Stock issuable upon exercise of options
outstanding as of June 28, 1997, of which options to purchase 6,515,940
shares were then exercisable, and (ii) 3,625,000 shares of Common Stock
reserved for future issuance under the Company's stock plans. See
"Management--Stock Plans" and Note 5 of Notes to Consolidated Financial
Statements.
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(3) Adjusted to reflect the sale of the 4,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $15.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
3
<PAGE>
RISK FACTORS
In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information presented
in this Prospectus before purchasing the shares of Common Stock offered
hereby. This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including but not limited
to the matters set forth below, which could cause actual results to differ
materially from those indicated by such forward-looking statements.
Fluctuations in Results of Operations. The Company's results of operations
have varied significantly in the past and may vary significantly in the
future, on a quarterly and annual basis, as a result of a variety of factors,
many of which are outside the Company's control. These factors include,
without limitation: (i) the timing and size of orders which are received and
can be shipped in any particular period; (ii) the commercial success of the
Company's products; (iii) delays in the introduction of products or product
enhancements by the Company and the Company's ability to introduce new
products and technologies on a timely basis; (iv) the financial stability of
the Company's major customers; (v) the timing of new product introductions or
announcements by the Company or its competitors; (vi) the availability of
adequate supplies of key components and assemblies and the adequacy of third-
party manufacturing capabilities; (vii) the seasonality of the placement of
customer orders; (viii) the timing and nature of selling and marketing
expenses such as tradeshows and advertising campaigns; (ix) the timing of
development expenditures and personnel changes; (x) the publication of
opinions about the Company and its products, or its competitors or their
products, by industry analysts; (xi) customer order deferrals in anticipation
of product enhancements or new product offerings by the Company or its
competitors; and (xii) customer cancellation of orders and the gain or loss of
significant customers, including those due to industry combinations. Moreover,
any downturn in general economic conditions could precipitate significant
reductions in corporate spending for telecommunications infrastructure, which
could result in delays or cancellations of orders for the Company's products.
The Company's expense levels are relatively fixed and are based, in
significant part, on expectations of future revenues. Consequently, if revenue
levels are below expectations, expense levels could be disproportionately high
as a percentage of revenues, and the Company's business, financial condition
and results of operations would be materially adversely affected. The Company
has historically operated with little backlog because its products are
generally shipped within 60 days of acceptance of an order by the Company. As
a result, revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter and on sales by the Company's customers to end
users. See "--Concentration of Customers" and "Business--Customers."
The Company also believes that the purchase of its products generally
involves a significant commitment of a customer's capital resources.
Therefore, any downturn in any customer's business could have a material
adverse effect on the Company's revenues, business, financial condition and
quarterly results of operations. In addition, the Company historically has
recognized a large portion of its revenues from sales booked and shipped in
the last month of a quarter such that the magnitude of quarterly fluctuations
may not become evident until late in, or at the end of, a particular quarter.
Because a number of the Company's individual orders are for significant
amounts, the failure to ship a significant order in a particular quarter could
materially adversely affect revenues and results of operations for such
quarter. To the extent that significant sales occur earlier than expected,
results of operations for subsequent quarters may be materially adversely
affected. Due to these and other factors, the Company's quarterly revenues,
expenses and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of
future performance. There can be no assurance that the Company will be able to
increase its revenues in future periods or be able to sustain its level of
revenues or its rate of revenue growth on a quarterly or annual basis. See "--
Length of Sales Cycle" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Due to all of the foregoing factors, it is possible that in some future
quarter, the Company's results of operations will be below the expectations of
public market analysts and investors. In such event, the market price
4
<PAGE>
of the Company's Common Stock would likely be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Dependence on Relationships with Application Developers, OEMs and Systems
Integrators. The Company sells substantially all of its products to, and
maintains strategic relationships with, application developers, original
equipment manufacturers ("OEMs") and systems integrators which incorporate the
Company's products into their service and product offerings. As a result,
sales of the Company's products are dependent upon the continued market
acceptance of the service and product offerings of the Company's customers.
Although the Company maintains contractual relationships with a substantial
number of its customers, such contracts do not provide for minimum purchase
requirements, nor do they contain provisions requiring the exclusive purchase
of the Company's products. The development of an application or service for
the telecommunications market can involve a substantial amount of time and
expense. The delay or failure of a customer's application development program
incorporating the Company's products could delay or prevent expected sales of
the Company's products. The inability or cessation of customers to integrate
the Company's products into their service and product offerings, product
development delays by application developers and other customers, lack of
market acceptance of the service and product offerings of the Company's
customers or a customer's decision to market products manufactured by a
competitor of the Company, or the manufacture of such products themselves,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Additionally, selling through indirect channels may limit the Company's
information concerning the volume of products sold by the Company's customers
to end users and the Company's contact with its end users. As a result, the
Company's ability to forecast revenues accurately (notwithstanding the
forecasts of its customers), evaluate end-user satisfaction and recognize
emerging end-user requirements may be hindered. See "Business--Sales and
Marketing."
Length of Sales Cycle. The time between the date of initial contact with a
potential customer and large-scale commercialization of a new customer
application or system based on the Company's products is often lengthy,
typically ranging from 12 to 24 months or more, and is subject to delays over
which the Company has little or no control, including customers' budgetary
constraints, customers' internal acceptance reviews, the success and continued
internal support of customers' own development efforts, and the possibility of
cancellation of projects by customers. Although the Company attempts to
develop its products with the goal of shortening the time to market of its
customers' products, the timing of the commercialization of a new customer
application or service based on the Company's products is primarily dependent
on the success and timing of a customer's own internal development program.
Delays can also be caused by late deliveries by other vendors, changes in
implementation priorities and slower than anticipated growth in demand for the
services that the Company's products support. A delay in, or cancellation of,
the sale of the Company's products could have a material adverse effect on the
Company's business, financial condition and results of operations and cause
the Company's results of operations to vary significantly from quarter to
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Concentration of Customers. Approximately 33.1%, 40.6%, 36.7% and 34.6% of
the Company's revenues in 1994, 1995, 1996 and in the first six months of
1997, respectively, were derived from sales to Boston Technology, Inc.,
approximately 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and approximately 10.0% of the Company's
revenues in 1994 were derived from sales to AccessLine Technologies, Inc. In
1994, 1995, 1996 and the first six months of 1997, the Company's five largest
customers accounted for approximately 65.4%, 70.1%, 57.1% and 59.9%,
respectively, of the Company's revenues. Although the Company's largest
customers have varied from period to period, the Company anticipates that its
results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. None of the
Company's customers has entered into a long-term supply agreement requiring
any of them to purchase a minimum amount of product from the Company. There
can be no assurance that the Company's principal customers will continue to
purchase product from the Company at current levels, if at all, or that the
Company will be able to replace such purchases with sales to other customers.
In August 1997, Boston Technology, Inc. announced its intended merger with
Comverse Technologies, Inc. In September 1997,
5
<PAGE>
Octel Communications Corporation, one of the Company's five largest customers
in 1996, was acquired by Lucent Technologies Inc. The Company cannot estimate
the potential impact on its business of these two recently announced
transactions. The loss of one or more major customers could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Customers."
Evolving Market For Telecommunications Services. The Company's future
success will depend on continued growth in the market for telecommunications
services. The global telecommunications marketplace is evolving and it is
difficult to predict its potential size or future growth rate. There can be no
assurance that deregulation and continued improvements and expansions of
infrastructure will continue to cause this market to grow or that increased
regulation will not present barriers to the sales of existing or future
products. There can also be no assurance that telecommunications applications
and infrastructure needs will not emerge for which the Company's products are
not designed. If this market fails to grow or grows more slowly or in a
different direction than the Company currently anticipates, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business--Industry Background."
Concentrated Product Family. The Company currently derives substantially all
of its revenues from its family of open, programmable switching platforms and
expects that this concentration will continue in the foreseeable future. As a
result, any decrease in the overall level of sales of, or the prices for,
open, programmable switching platforms due to product enhancements,
introductions or announcements by the Company's competitors, a decline in the
demand for open, programmable switches, product obsolescence, price
competition, technological change or any other reason could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Risk of New Product Introductions. The Company intends to continue to invest
in product and technology development, including increasing port capacity and
performance, the development of additional related software applications and
tools, the improvement of third-party application integration, and the
continued provision of updated product features and enhancements. There can be
no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of such
new products and enhancements, or that its new products and enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. Announcements of currently planned or other new product offerings
by the Company or its competitors may cause customers to defer or cancel the
purchase of existing Company products. The Company's inability to develop on a
timely basis new products or enhancements to existing products, or the failure
of such new products or enhancements to achieve market acceptance, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "--Rapid Technological Change," "Business--Products
and Technology" and "Business--Research and Product Development."
The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. The introduction of new or enhanced products also requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. There can be no assurance that
the Company will successfully develop, introduce or manage the transition to
new products. Furthermore, products such as those offered by the Company may
contain undetected or unresolved errors when they are first introduced or as
new versions are released. There can be no assurance that despite extensive
testing by the Company, errors will not be found in new products or upgrades
after commencement of commercial shipments, resulting in delays in or loss of
market acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Research and Product
Development."
6
<PAGE>
Rapid Technological Change. The telecommunications equipment market is
subject to rapid technological change, evolving industry standards and
frequent new product introductions and enhancements that may render existing
products obsolete. As a result, the Company's position in this market could
erode rapidly due to unforeseen changes in product features and functions of
competing products. The Company's growth and future results of operations will
depend in part on its ability to respond to these changes by enhancing its
existing products and developing and introducing, on a timely and cost-
effective basis, new products and features to meet or exceed technological
advances in the marketplace. The failure of the Company to respond to rapidly
changing technologies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background" and "Business--Research and Product Development."
Management of Growth and Hiring of Additional Personnel. The Company has
experienced growth in revenues and expansion of its operations which have
placed significant demands on the Company's management, engineering staff and
facilities. The Company has recently hired additional engineering, marketing,
accounting and finance personnel, including its Chief Operating Officer, Vice
President of Marketing and Vice President of Research and Development within
the last 12 months. The Company is also implementing additional financial and
management procedures which the Company believes will address increasing
demands on resources. However, the Company believes that further improvements
in management and operational controls are needed, and will continue to be
needed, to manage any future growth. Continued growth will also require the
Company to hire more engineering, selling and marketing and administrative
personnel, expand customer support capabilities, expand management information
systems and improve its inventory management practices. The Company has at
times experienced, and continues to experience, difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely
competitive and time-consuming process. There can be no assurance that the
Company will be able to attract and retain the necessary personnel to
accomplish its growth strategies or that it will not experience constraints
that will adversely affect its ability to satisfy customer demand in a timely
fashion or to support satisfactorily its customers and operations. If the
Company's management is unable to manage growth effectively, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business--Employees" and "Management--Executive
Officers and Directors."
While the Company believes its current and planned facilities are adequate
to meet its needs through the next 12 months, future growth may require the
Company to obtain additional or alternative facilities. Due to the limited
supply of suitable additional or alternative office and manufacturing space in
the Cape Cod, Massachusetts area, there can be no assurance that such space
can be leased or acquired without substantial required renovations. Relocation
of any segment of the Company's operations may disrupt business and have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the local permitting and variance
procedures for the renovation of buildings or new construction in the Cape Cod
area is more onerous than found in metropolitan areas. Accordingly, there can
be no assurance that the Company will not be required in the future to devote
significant resources to the permitting and renovation of additional
facilities or in relocating some or all of the Company's facilities. See
"Business--Facilities."
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of its President, Chief Executive
Officer and principal stockholder, Robert P. Madonna, and its key management,
engineering, selling and marketing and manufacturing personnel, many of whom
would be difficult to replace. The Company does not have employment contracts
with its key personnel. The loss of the services of any key personnel, the
inability to attract or retain qualified personnel in the future or delays in
hiring required personnel, particularly software engineers, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Employees" and "Management--Executive
Officers and Directors."
Highly Competitive Market. The market for telecommunications products is
highly competitive and subject to rapid technological change. The Company
competes or may compete directly or indirectly with the following categories
of companies: (i) other manufacturers of programmable switches such as Summa
Four, Inc., Redcom Laboratories, Inc. and Harris Corporation; (ii) large,
well-established switch and telecommunications
7
<PAGE>
equipment manufacturers such as Alcatel Alsthom Compagnie Generale
d'Electricite SA, DSC Communications Corporation, Lucent Technologies Inc.,
Northern Telecom Limited, Siemens AG and Telefonaktiebolaget LM Ericsson; and
(iii) to a lesser degree, systems integrators and application developers whose
switches are based on PC card-level products manufactured by companies such as
Aculab Inc., Dialogic Corporation and Natural MicroSystems Corporation. In
addition, several smaller companies have begun to manufacture programmable
switching platforms. Due to the rapidly evolving markets in which the Company
competes, additional competitors with significant market presence and
financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Additionally, there can be
no assurance that one or more of the Company's application developers will not
begin to develop or market products in competition with the Company. Increased
competition could result in price reductions and loss of market share which
would materially adversely affect the Company's business, financial condition
and results of operations. Many of the Company's current and potential
competitors have significantly greater financial, selling and marketing,
technical, manufacturing and other resources than the Company. Some of the
Company's competitors currently offer financing alternatives to their
customers, a service that the Company does not provide. Moreover, the
Company's competitors may also foresee the course of market developments more
accurately than the Company. Although the Company believes it has certain
technological and other advantages over its competitors, realizing and
maintaining such advantages will require a continued high level of investment
by the Company in research and product development, marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be able to make the technological advances necessary to compete
successfully with its existing competitors or with new competitors. See
"Business--Competition."
Dependence on Single and Sole Source Suppliers. The Company purchases many
key components from single or sole source vendors. The inability to develop
alternative sources for these components or to obtain sufficient quantities of
these components could result in delays or reductions in product shipments
which could materially adversely affect the Company's business, financial
condition and results of operations. In the event of a reduction or
interruption of supply, a significant amount of time, in some cases as much as
three to four months, could be required before the Company would begin
receiving adequate supplies from such alternative suppliers. In such event,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the manufacture of certain of
these single or sole source components is extremely complex, and the Company's
reliance on the suppliers of these components exposes the Company to potential
production difficulties and quality variations, which could negatively impact
cost and timely delivery of the Company's products. In particular, the Company
uses a fiber transmitter, a receiver and a fiber driver manufactured by
Hewlett-Packard Company in its EXS product, four power connectors manufactured
by Positronic Industries, Inc. in its EXS, LNX and CSN products, and a power
module manufactured by Lucent Technologies Inc. in its EXS, LNX and CSN
products. Each of these components is available from only one supplier, for
which there is no substitute at this time. If supply of these components
should cease, the Company would be required to redesign its products. No
assurance can be given that supply problems will not occur or, if such
problems do occur, that satisfactory solutions would be available. The Company
does not have long-term contracts with its suppliers and there can be no
assurance that these suppliers will continue to be able to produce these
components or to meet the Company's requirements. Any significant interruption
in the supply, or degradation in the quality, of any such component could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
Although the Company generally requires its customers to submit quarterly
forecasts of their needs, the Company's customers frequently require rapid
delivery after placement of a purchase order. Because the Company does not
maintain significant component inventories, a delay in shipment by a supplier
could lead to lost sales. Lead times for materials and components may vary
significantly and depend on factors such as specific supplier performance,
contract terms and general market demand for components. If orders vary from
forecasts, the Company may experience excess or inadequate inventory of
certain materials and components. While the Company has not experienced
shortages and allocations of these components to date, any shortages in the
future,
8
<PAGE>
including those occasioned by increased sales, could result in delays in
fulfillment of customer orders. Such delays, shortages and allocations could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing."
Dependence on Third-Party Manufacturers. The Company relies on a limited
number of independent manufacturers, some of which are small, privately-held
companies, to provide certain components and assemblies made to the Company's
specifications. These manufacturers substantially complete production of the
Company's products, which are then shipped to the Company for final assembly
and quality control. In the event that any of the Company's subcontractors
were to experience financial, operational, production or quality assurance
difficulties or a catastrophic event that resulted in a reduction or
interruption in supply to the Company, the Company's business, financial
condition and results of operations would be materially adversely affected
until the Company was able to establish sufficient manufacturing capabilities
from alternative sources. There can be no assurance that alternative
manufacturing sources will be able to meet the Company's future requirements
or that existing or alternative sources will continue to be available to the
Company at favorable prices. See "Business--Manufacturing."
Compliance with Regulations and Evolving Industry Standards. The market for
the Company's products is characterized by the need to meet a significant
number of communications regulations and standards, some of which are evolving
as new technologies are deployed. In the United States, the Company's products
must comply with various regulations including those promulgated by the
Federal Communications Commission and standards established by Underwriters
Laboratories and Bell Communications Research. Furthermore, there are
regulations and standards imposed by various foreign countries where the
Company's products are installed. The failure of the Company's products to
comply, or delays in compliance, with the various existing and evolving
industry regulations and standards could delay the introduction of the
Company's products. Moreover, the enactment by federal, state or foreign
governments of new laws or regulations, changes in the interpretation of
existing laws or regulations or a reversal of the trend toward deregulation in
the telecommunications industry could materially adversely affect the
Company's customers, and thereby materially adversely affect the Company's
business, financial condition and results of operations. See "Business--
Industry Background."
Dependence on Proprietary Rights. The Company's success and its ability to
compete is dependent, in part, upon its proprietary rights. The Company relies
primarily on a combination of patent, copyright, trademark and trade secret
laws, as well as confidentiality procedures and contractual restrictions to
establish and protect its proprietary rights. There can be no assurance that
such measures will be adequate to protect the Company's proprietary rights.
Further, the Company may be subject to additional risks as it enters into
transactions in countries where intellectual property laws are not well
developed or are difficult to enforce. Legal protections of the Company's
proprietary rights may be ineffective in such countries. Litigation to defend
and enforce the Company's intellectual property rights could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations, regardless of the final outcome of such litigation. Despite the
Company's efforts to safeguard and maintain its proprietary rights both in the
United States and abroad, there can be no assurance that the Company will be
successful in doing so or that the steps taken by the Company in this regard
will be adequate to deter misappropriation or independent third-party
development of the Company's technology or to prevent an unauthorized third
party from copying or otherwise obtaining and using the Company's products or
technology. There also can be no assurance that others will not independently
develop similar technologies or duplicate any technology developed by the
Company. Any such events could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has entered into agreements with a small number of its customers
requiring the Company to deposit its source code and, on occasion,
manufacturing blueprints, tooling diagrams and production specifications, in
escrow with a third party. These escrow agreements typically provide that
these customers have a non-exclusive right to use such code and other
materials in the event that there is a bankruptcy proceeding by or against the
Company, if the Company ceases to conduct business or if the Company defaults
on its support obligations. The use of such agreements may increase the
likelihood of misappropriation by third parties.
9
<PAGE>
As the number of entrants to the Company's markets increases and the
functionality of the Company's products increases and overlaps with the
products of other companies, the Company may become subject to claims of
infringement or misappropriation of the intellectual property rights of
others. In its distribution agreements, the Company agrees to indemnify its
customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. In certain limited
instances, the amount of such indemnities may be greater than the revenues the
Company may have received from the customer. There can be no assurance that
third parties will not assert infringement or misappropriation claims against
the Company in the future with respect to current or future products. Any
claims or litigation, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company changed its name from Excel Inc. to Excel Switching
Corporation in September 1997. Searches performed on the term Excel have
revealed several registrations and numerous uses of that term, and terms
substantially similar to it, alone and in combination with other terms and
designs. Accordingly, there can be no assurance that third parties will not
assert trademark infringement claims relating to the name Excel in the future.
See "Business--Intellectual Property."
Risks Associated with International Sales. In 1996 and in the first six
months of 1997, sales to customers located outside of the United States
accounted for less than 4.0% of the Company's revenues in each such period.
However, the Company sells its products to application developers, OEMs and
systems integrators located within the United States which market products and
services based on the Company's products worldwide. The Company intends to
expand its operations outside the United States and enter additional
international markets, which will require significant management attention and
financial resources. International sales are subject to a variety of risks,
including difficulties in establishing and managing international distribution
channels, in servicing and supporting products sold outside the United States
and in translating products and related materials into foreign languages.
International operations are also subject to difficulties in collecting
accounts receivable, staffing and managing personnel and enforcing
intellectual property rights. Other factors that can adversely affect
international operations include fluctuations in the value of foreign
currencies and currency exchange rates, changes in import/export duties and
quotas, introduction of tariff or non-tariff barriers and economic or
political changes in international markets. Any inability to obtain foreign
regulatory approvals on a timely basis could have a material adverse effect on
the Company's business, financial condition and results of operations. If the
Company's international sales increase, its revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower levels of sales
which typically occur during the summer months in Europe and other parts of
the world. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Strategy."
Risks Relating to Potential Acquisitions. The Company may, from time to
time, pursue the acquisition of other companies, assets, products and
technologies although the Company has no present commitments or agreements
with respect to any such acquisitions. Acquisitions involve a number of
operating risks that could materially adversely affect the Company's results
of operations, including the diversion of management's attention to assimilate
the operations, products and personnel of the acquired companies, the
amortization of acquired intangible assets, and the potential loss of key
employees of the acquired companies. Furthermore, acquisitions may involve
businesses in which the Company lacks experience. Because management has
limited experience in acquisitions and the Company has no experience in
integrating acquired companies or technologies into its operations, there can
be no assurance that the Company will be able to manage one or more
acquisitions successfully, or that the Company will be able to integrate the
operations, products or personnel gained through any such acquisitions without
a material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds."
10
<PAGE>
Control by Principal Stockholder. Following this offering, Robert P.
Madonna, the Company's President, Chief Executive Officer, Chairman of the
Board and principal stockholder, will beneficially own approximately 85.8% of
the outstanding shares of Common Stock of the Company (83.7% if the
Underwriters' over-allotment option is exercised in full). As a result, Mr.
Madonna will have the ability to elect the Company's directors and to
determine the outcome of corporate actions requiring stockholder approval,
irrespective of how other stockholders of the Company may vote. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company which may be favored by a majority of the
remaining stockholders, or cause a change of control not favored by the
Company's other stockholders. See "Management" and "Principal Stockholders."
No Prior Trading Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after this offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined solely by negotiations between the Company
and the Representatives of the Underwriters and therefore may not be
indicative of prices that will prevail in the trading market after this
offering. The market price of the Company's Common Stock could be subject to
wide fluctuations in response to, and may be adversely affected by, variations
in quarterly results of operations, changes in earnings estimates by analysts,
adverse earnings or other financial or business announcements by the Company
and its customers or competitors and market conditions in the industry, as
well as general economic conditions. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices for many companies' stock and that often have been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." See "Underwriters" for a discussion of the factors to
be considered in determining the initial public offering price.
Shares Eligible for Future Sale. Sales of substantial amounts of shares of
the Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. In addition to the
4,500,000 shares offered hereby (5,175,000 shares if the over-allotment option
is exercised in full), approximately 144,000 additional shares of Common Stock
outstanding as of August 30, 1997, which are not subject to 180-day lock-up
agreements (the "Lock-Up Agreements") with the representatives of the
Underwriters, will be eligible for sale in the public market in accordance
with Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act"), on the date of this Prospectus. Upon expiration of the Lock-Up
Agreements, 180 days after the date of this Prospectus, approximately
27,945,600 additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
At August 30, 1997, approximately 6,731,940 shares of Common Stock were issued
or issuable pursuant to vested options under the Company's stock program, of
which approximately 55,800 shares are not subject to Lock-up Agreements with
the Underwriters and will be eligible for sale in the public market in
accordance with Rule 701 under the Securities Act beginning 90 days after the
date of this Prospectus. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act approximately 180 days after
the date of this Prospectus to register up to 10,870,840 shares of Common
Stock subject to outstanding stock options granted pursuant to the Company's
stock option program as of August 30, 1997, including the 6,731,940 shares of
Common Stock subject to options vested as of August 30, 1997, and 3,625,000
shares of Common Stock issuable pursuant to the Company's 1997 stock plans.
Such registration statements are expected to become effective upon filing. At
such time, approximately 7,358,610 shares of Common Stock issuable upon the
exercise of options granted as of August 30, 1997 and covered by these
registration statements will be vested and eligible for sale in the public
market upon the exercise of underlying options to the extent not previously
sold pursuant to Rule 701. See "Shares Eligible for Future Sale" and
"Underwriters."
Immediate and Substantial Dilution. Purchasers of shares of Common Stock
offered hereby will suffer an immediate and substantial dilution in the net
tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution."
11
<PAGE>
Potential Adverse Effects of Anti-Takeover Provisions; Availability of
Preferred Stock for Issuance. The Company's Restated Articles of Organization
and Restated By-Laws contain provisions that may make it more difficult for a
third party to acquire, or discourage acquisition bids for, the Company.
Moreover, the Company is subject to an anti-takeover provision of the
Massachusetts General Laws which prohibits, subject to certain exceptions, a
holder of 5% or more of the outstanding voting stock of the Company from
engaging in certain activities with the Company, including a merger, stock or
asset sale. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock. In
addition, shares of the Company's Preferred Stock may be issued in the future
without further stockholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of any holders of Preferred Stock
that may be issued in the future. The issuance of Preferred Stock or of rights
to purchase Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue any
shares of Preferred Stock. See "Description of Capital Stock--Massachusetts
Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects" and "--
Preferred Stock."
12
<PAGE>
THE COMPANY
The Company was incorporated in Massachusetts in January 1988 under the name
Excel Inc. and changed its name to Excel Switching Corporation in September
1997. The Company's principal executive offices are located at 255
Independence Drive, Hyannis, Massachusetts, 02601 and its telephone number is
(508) 862-3000. As used in this Prospectus, the "Company" and "Excel" refer to
Excel Switching Corporation and its subsidiaries.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,500,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$61,975,000, assuming an initial public offering price of $15.00 per share and
after deducting estimated underwriting discounts and commissions and offering
expenses. The Company expects to use the net proceeds for general corporate
purposes, including working capital, product development and capital
expenditures. A portion of the net proceeds may also be used for the
acquisition of other companies, assets, products and technologies that are
complementary to those of the Company, although the Company has no commitments
or agreements with respect to any such acquisitions, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending such uses,
the net proceeds of this offering will be invested in investment grade,
interest-bearing securities.
DIVIDEND POLICY
The Company does not expect to pay cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain all of its future
earnings, if any, for use in the operation of the business. In addition, the
Company's credit facility restricts the Company's payment of cash dividends.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 28,
1997 (i) on an actual basis and (ii) as adjusted to give effect to the sale of
the 4,500,000 shares of Common Stock offered by the Company hereby, at an
assumed initial public offering price of $15.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 28, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED, IN
THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Long-term obligations, less current maturities............ $ 3,584 $ 3,584
------- -------
Stockholders' equity:(1)
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 28,089,600 shares issued and outstanding
actual; 100,000,000 shares authorized, 32,589,600
shares issued and outstanding as adjusted(2)........... 281 326
Additional paid-in capital.............................. 1,007 62,937
Deferred compensation................................... (517) (517)
Retained earnings....................................... 26,770 26,770
------- -------
Total stockholders' equity............................ 27,541 89,516
------- -------
Total capitalization................................ $31,125 $93,100
======= =======
</TABLE>
(1) Gives effect to the filing of the Restated Articles of Organization of the
Company on September 16, 1997.
(2) Excludes (i) 10,808,640 shares of Common Stock issuable upon exercise of
stock options outstanding as of June 28, 1997, of which options to
purchase 6,515,940 shares were then exercisable, and (ii) 3,625,000 shares
of Common Stock reserved for future issuance under the Company's stock
plans. See "Management--Stock Plans" and Note 5 of Notes to Consolidated
Financial Statements.
14
<PAGE>
DILUTION
The net tangible book value of the Company as of June 28, 1997 was
approximately $27,541,000 or $.98 per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the total number of
shares of Common Stock outstanding. After giving effect to the sale of the
4,500,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $15.00 per share, and after deducting
estimated underwriting discounts and commissions and offering expenses), the
net tangible book value of the Company as of June 28, 1997 would have been
$89,516,000 or $2.75 per share. This represents an immediate increase in the
net tangible book value of $1.77 per share to existing stockholders and an
immediate dilution of $12.25 per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Net tangible book value per share before the offering....... $ .98
Increase in net tangible book value per share attributable
to new investors........................................... 1.77
-----
Net tangible book value per share after the offering.......... 2.75
------
Dilution per share to new investors........................... $12.25
======
</TABLE>
The following table summarizes, as of June 28, 1997, the difference between
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by the new investors (at an assumed initial public
offering price of $15.00 per share before deduction of estimated underwriting
discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------ ------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 28,089,600 86.2% $ 5,740 0.0% $ -- (/1/)
New investors........... 4,500,000 13.8 67,500,000 100.0 15.00
---------- ----- ----------- -----
Total................. 32,589,600 100.0% $67,505,740 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The average price per share paid by existing stockholders is $.0002.
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options outstanding at June 28, 1997. As of
June 28, 1997, there were options outstanding to purchase 10,808,640 shares of
Common Stock at a weighted average exercise price of $1.45 per share and
3,625,000 shares reserved for future issuance under the Company's stock plans.
To the extent any of these options are exercised, there will be further
dilution to new investors. See "Management--Stock Plans" and Note 5 of Notes
to Consolidated Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations, included elsewhere in this Prospectus. The selected
consolidated statements of income data set forth below for the three years in
the period ended December 28, 1996 and the selected consolidated balance sheet
data at December 31, 1995 and December 28, 1996 are derived from consolidated
financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, which are included elsewhere in this
Prospectus. The selected consolidated statements of income data for the two
years in the period ended December 31, 1993 and the selected consolidated
balance sheet data at December 31, 1992, 1993 and 1994 are derived from
consolidated financial statements of the Company audited by Arthur Andersen
LLP which are not included in this Prospectus. The selected consolidated
financial data for the six months ended June 30, 1996 and June 28, 1997 are
derived from the Company's unaudited Consolidated Financial Statements
included elsewhere in this Prospectus. The unaudited Consolidated Financial
Statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such periods. Results for the six months ended June 28, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 27, 1997 or any other future fiscal year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED,
----------------------------------------------- ------------------
DECEMBER 31,
---------------------------------- DECEMBER 28, JUNE 30, JUNE 28,
1992 1993 1994 1995 1996 1996 1997
----------------- ------- ------- ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF IN-
COME DATA:
Revenues................ $ 5,111 $10,033 $20,723 $36,161 $62,050 $27,890 $39,055
Cost of revenues........ 1,435 2,945 7,074 12,100 24,312 11,150 12,033
------- ------- ------- ------- ------- ------- -------
Gross profit.......... 3,676 7,088 13,649 24,061 37,738 16,740 27,022
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Engineering, research
and development....... 1,360 1,862 3,301 8,117 11,121 4,994 6,017
Selling and marketing.. 99 140 362 2,923 6,621 2,816 4,882
General and administra-
tive.................. 1,525 2,194 2,903 4,238 6,426 2,675 3,851
------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 2,984 4,196 6,566 15,278 24,168 10,485 14,750
------- ------- ------- ------- ------- ------- -------
Income from opera-
tions................ 692 2,892 7,083 8,783 13,570 6,255 12,272
Other income (expense).. (29) (681) (4) 38 (384) (101) 94
------- ------- ------- ------- ------- ------- -------
Income before
provision for income
taxes................ 663 2,211 7,079 8,821 13,186 6,154 12,366
Provision for income
taxes.................. 194 815 2,889 3,410 5,285 2,467 4,946
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 469 $ 1,396 $ 4,190 $ 5,411 $ 7,901 $ 3,687 $ 7,420
======= ======= ======= ======= ======= ======= =======
Net income per
share(1)............... $ .01 $ .04 $ .13 $ .16 $ .23 $ .11 $ .22
======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding(1).. 31,519 31,954 32,431 32,913 33,787 33,672 34,012
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- DECEMBER 28, JUNE 28,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------- ------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 656 $2,323 $5,906 $10,238 $14,960 $21,915
Total assets............ 2,277 5,483 9,973 22,683 34,772 44,446
Long-term obligations,
less current maturi-
ties................... -- -- -- 3,537 3,837 3,584
Total stockholders' eq-
uity................... 739 2,255 6,471 12,125 20,086 27,541
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The following discussion contains certain trend
analysis and other statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual results or events may differ materially. In evaluating such statements,
prospective investors should specifically consider the risk factors set forth
below and identified elsewhere in this Prospectus, particularly the matters
set forth under the caption "Risk Factors," which could cause actual results
to differ materially from those indicated by such forward-looking statements.
OVERVIEW
The Company has been profitable since it was founded in 1988 and has
financed its operations principally through cash generated from operations.
The Company has experienced significant revenue growth resulting, in part,
from the increasing acceptance of programmable switching as a means of
addressing the enhanced services and wireless and wireline infrastructure
needs of network providers. The Company designed and shipped its first
programmable switching product, the XLDX, during the fourth quarter of 1988,
to Boston Technology, Inc. ("BTI"). The Company subsequently expanded its
product offering to include a family of open, programmable switching
platforms. The LNX and PCX switching platforms were introduced in 1991 and
have been subsequently enhanced. The Company introduced the EXS switching
system in 1995 and the CSN switching platform in 1996. Through June 28, 1997,
the Company's revenues have been derived from sales to application developers,
OEMs and systems integrators.
During the early years of the Company's operations, revenues from BTI
represented substantially all of the Company's annual revenues. The Company
has continued to establish customer relationships with other application
developers, OEMs and systems integrators, penetrate new markets, and improve
the capacity, functionality and features of its family of products. Currently,
the Company sells its products to over 100 customers in a variety of segments
of the global telecommunications industry. During 1996 and the first six
months of 1997, BTI represented approximately 36.7% and 34.6%, respectively,
of the Company's revenues.
The Company's products are sold through its direct sales force primarily to
application developers, OEMs and systems integrators which incorporate the
Company's products into their service and product offerings. The Company sells
each of its switching platforms with a varying combination of network
interface line cards and service resource cards that are specified by customer
and application requirements. The Company's switching platforms range in list
price from approximately $21,000 to $275,000 depending upon the platform type,
number and type of network interface line and service resource cards. The
Company's EXS switching systems range in list price from approximately
$500,000 to $4,500,000. The Company also sells additional network interface
line cards and service resource cards that allow customers to expand capacity
and functionality and provide for redundancy of their installed systems.
Revenues from product sales are recognized upon shipment, at which time the
Company provides an estimate of anticipated post sale support, warranty costs
and sales returns. The increase in the reserve for sales returns can be
attributed to the volume increase in sales, the timing and significance of new
product introductions and the increased complexity of the uses of the
Company's equipment. In addition, the Company estimates reserves to adjust for
the realizability of accounts receivable and inventory. While the Company
believes its estimates for post sale support, warranty costs, sales returns
and the realizability of accounts receivable and inventory are adequate,
actual results could differ from those estimates.
Revenues from sales of software development tools and services such as
technical support, training and product maintenance have not been significant
to date. The Company has not capitalized any software development costs and
all research and development costs have been expensed as incurred.
The Company's profitability is influenced by a number of factors, including
pricing, cost of materials, product and technological advancements from
research and development efforts and the expansion of its operations. The
Company anticipates the addition of personnel and related infrastructure as it
seeks to increase revenues, and to meet other strategic goals such as
developing new products and technologies, broadening
17
<PAGE>
strategic partnerships with, and incorporating new applications for, its
customers, entering new markets and expanding internationally. The Company
anticipates that engineering, research and development expenses will increase
in absolute dollars, and may increase as a percentage of revenues, as the
Company pursues engineering efforts to provide enhanced functionality to its
products, increase port capacity and develop additional software features.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain items reflected in the Company's Consolidated
Statements of Income:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------- -----------------
DECEMBER 31,
-------------- DECEMBER 28, JUNE 30, JUNE 28,
1994 1995 1996 1996 1997
------ ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................ 34.1 33.5 39.2 40.0 30.8
------ ------ ----- ----- -----
Gross profit.................. 65.9 66.5 60.8 60.0 69.2
Operating expenses:
Engineering, research and de-
velopment..................... 15.9 22.4 17.9 17.9 15.4
Selling and marketing.......... 1.8 8.1 10.7 10.1 12.5
General and administrative..... 14.0 11.7 10.3 9.6 9.9
------ ------ ----- ----- -----
Total operating expenses...... 31.7 42.2 38.9 37.6 37.8
------ ------ ----- ----- -----
Income from operations........ 34.2 24.3 21.9 22.4 31.4
Other income (expense).......... -- .1 (.6) (.3) .2
------ ------ ----- ----- -----
Income before provision for
income taxes................. 34.2 24.4 21.3 22.1 31.6
Provision for income taxes...... 14.0 9.4 8.5 8.9 12.6
------ ------ ----- ----- -----
Net income...................... 20.2% 15.0% 12.8% 13.2% 19.0%
====== ====== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 28, 1997
Revenues. The Company's revenues consist of sales, primarily in the United
States, of its open, programmable switching platforms and related network
interface line cards and service resource cards. Revenues increased 40.0% from
$27.9 million in the first six months of 1996 to $39.1 million for the
comparable period in 1997. This increase resulted from the introduction of new
or expanded offerings by existing customers incorporating the Company's
products, the expansion of customers' existing markets and the introduction of
new applications by new and existing customers. In addition, revenues
increased due to increased market penetration resulting from the efforts of
the Company's expanded selling and marketing organizations.
Revenues from the Company's five largest customers represented approximately
53.8% and 59.9% of the Company's revenues for the first six months of 1996 and
1997, respectively. BTI represented approximately 37.6% and 34.6% of the
Company's revenues for these same periods, respectively. Although the
Company's largest customers have varied from period to period, the Company
believes that revenues derived from current and potential large customers will
continue to represent a significant proportion of revenues, and that its
results of operations in any given period will continue to depend to a
significant extent upon sales to a limited number of customers. There can be
no assurance that the Company's principal customers will continue to purchase
product at current levels, if at all.
Gross Profit. Cost of revenues consists primarily of the cost of purchased
components and subassemblies, contract manufacturing costs, labor and overhead
relating to material procurement, final assembly, testing and quality control,
and warranty and post sale support costs. Cost of revenues increased 7.9% from
$11.2 million in the first six months of 1996 to $12.0 million for the
comparable period in 1997. Gross margin increased from 60.0% in the first six
months of 1996 to 69.2% in the first six months of 1997. The increase in gross
margin was primarily attributable to lower component prices, changes in
product mix and increased manufacturing efficiencies as the Company increased
its production volume, all of which the Company estimates represents
18
<PAGE>
approximately half of the gross margin increase from 1996 to 1997. In
addition, gross margins for the first six months of 1996 were impacted by the
introduction of the EXS switching system and related technology which resulted
in valuation adjustments of certain existing inventory components, which the
Company estimates represents the other half of the gross margin increase from
1996 to 1997.
Warranty and post sales support costs were approximately $516,000 and $1.1
million for the six months ended June 30, 1996 and June 28, 1997,
respectively. The increase in these costs is primarily attributable to the
Company's growing customer base and increasing sales volume.
Engineering, Research and Development. Engineering, research and development
costs consist primarily of compensation and related costs of engineering and
development personnel, materials and supplies consumed in prototype
development, related facility costs and depreciation of engineering and test
equipment. All research and development costs, including software development
costs, have been expensed as incurred. Engineering, research and development
costs increased 20.5% from $5.0 million in the first six months of 1996 to
$6.0 million for the comparable period in 1997. As a percentage of revenues,
these costs were 17.9% and 15.4%, respectively, in such periods. The increase
in engineering, research and development costs in absolute dollars was
primarily attributable to an increase in engineering and research personnel
partially offset by significant decreases in the consumption of prototype
supplies and materials. Engineering and research personnel increased from 47
employees at the end of the second quarter of 1996 to 95 employees at the end
of the same period in 1997.
Selling and Marketing. Selling and marketing costs consist primarily of
compensation and related costs for sales, marketing and customer support
personnel, travel and advertising, trade show and other promotional
activities. Selling and marketing costs increased 73.4% from $2.8 million in
the first six months of 1996 to $4.9 million for the comparable period in
1997. As a percentage of revenues, these costs were 10.1% and 12.5%,
respectively, in such periods. The increase in selling and marketing costs in
absolute dollars was primarily attributable to an increase in sales, marketing
and customer support personnel from 43 employees at the end of the second
quarter of 1996 to 54 employees at the end of the same period in 1997. In
addition, trade show and promotional activities in the first six months of
1997 contributed to this increase.
General and Administrative. General and administrative costs include
compensation and related costs of management and administrative personnel,
professional services, costs to implement and maintain manufacturing and
management information systems and other general corporate expenses. General
and administrative costs increased 44.0% from $2.7 million in the first six
months of 1996 to $3.9 million for the comparable period in 1997. As a
percentage of revenues, these costs were 9.6% and 9.9%, respectively, in such
periods. The increase in general and administrative costs was primarily
attributable to an increase in general and administrative personnel from 30
employees at the end of the second quarter of 1996 to 38 employees at the end
of the same period in 1997. In addition, expenditures for professional
services contributed to the increase in general and administrative costs.
Other Income (Expense). Other income (expense), which primarily includes
interest income and interest expense, was ($101,000) and $94,000 for the first
six months of 1996 and 1997, respectively.
Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 40.1% and 40.0% for the first six months of 1996 and
1997, respectively.
YEARS 1994, 1995 AND 1996
Revenues. Revenues increased 74.5% from $20.7 million in 1994 to $36.2
million in 1995 and increased 71.6% to $62.1 million in 1996. The increases
resulted, in part, from the Company's continuing efforts to enhance the
scalability, performance, capacity and functionality of its products through
the modification and introduction of features and products, including the
introduction of the EXS switching system in 1995 and the CSN switching
platform in 1996. The increase in revenues in each of the years also resulted
from the introduction of new or expanded offerings by existing customers
incorporating the Company's products, the introduction of new applications by
new and existing customers and the expansion of the Company's selling and
marketing efforts.
Revenues from the Company's five largest customers represented approximately
65.4%, 70.1% and 57.1% of the Company's revenues for 1994, 1995 and 1996,
respectively. During 1994, 1995 and 1996, BTI represented
19
<PAGE>
approximately 33.1%, 40.6% and 36.7%, respectively, of the Company's revenues.
Additionally, 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and 10.0% of the Company's revenues in 1994
were derived from sales to AccessLine Technologies, Inc.
Gross Profit. Cost of revenues increased from $7.1 million in 1994 to $12.1
million in 1995 and to $24.3 million in 1996. The gross margin increased from
65.9% in 1994 to 66.5% in 1995 and decreased to 60.8% in 1996. The increase in
gross margin in 1995 was attributable primarily to greater manufacturing
efficiencies achieved in producing larger volumes in the same manufacturing
facility. The decrease in gross margin in 1996 resulted primarily from the
introduction of the EXS switching system and related technology, which
resulted in valuation adjustments of certain existing inventory components.
Increased warranty and related support costs also contributed to the decline
in gross margin. In addition, gross margin was negatively impacted by the
Company's relocation of its manufacturing operations in November 1995, the
subsequent expansion of this facility in 1996 and increased compensation and
related costs associated with the Company's efforts to strengthen its
manufacturing infrastructure.
Warranty and post sales support costs were approximately $90,000, $155,000
and $1.3 million for the years ended December 31, 1994, December 31, 1995 and
December 28, 1996, respectively. The increase in these costs in 1996 is
primarily related to the increase in support costs associated with the
Company's growing customer base and increasing sales volume and an increase in
warranty costs related to introductions of new products and technologies.
Engineering, Research and Development. Engineering, research and development
costs increased from $3.3 million in 1994 to $8.1 million in 1995 and to $11.1
million in 1996. As a percentage of revenues, engineering, research and
development expenses were 15.9%, 22.4% and 17.9% for 1994, 1995 and 1996,
respectively. The increases in engineering, research and development costs in
absolute dollars were primarily attributable to continuing efforts to expand
the Company's research and development infrastructure. Engineering, research
and development personnel increased from 28 employees at the end of 1994 to 38
employees at the end of 1995 and to 68 employees at the end of 1996. Increases
also resulted from the timing and amount of the consumption of materials used
for prototypes in the development process. The Company's relocation in 1995 to
a larger facility and capital investments made in 1995 and 1996 in engineering
and test equipment resulted in increased occupancy costs and depreciation
expenses for both years.
Selling and Marketing. Selling and marketing costs increased from $362,000
in 1994 to $2.9 million in 1995 and to $6.6 million in 1996. As a percentage
of revenues, these costs were 1.8%, 8.1% and 10.7% for 1994, 1995 and 1996,
respectively. The increase in selling and marketing costs reflects the
expansion of the Company's sales, marketing and customer support personnel
from seven employees at the end of 1994 to 28 employees at the end of 1995 and
to 51 employees at the end of 1996. During 1995 and 1996, the Company's
expanded efforts to market and promote its products through trade shows,
advertising, public relations and other promotional activities also resulted
in increased selling and marketing costs. The Company's relocation in 1995 and
the opening of four sales offices in 1996 resulted in increased occupancy
costs in 1995 and 1996.
General and Administrative. General and administrative costs increased from
$2.9 million in 1994 to $4.2 million in 1995 and to $6.4 million in 1996. As a
percentage of revenues, these costs were 14.0%, 11.7% and 10.3% for 1994, 1995
and 1996, respectively. The increase in general and administrative costs in
absolute dollars resulted primarily from an increase in general and
administrative personnel from six employees at the end of 1994 to 21 employees
at the end of 1995 and to 35 employees at the end of 1996. The Company's
efforts to expand and strengthen the administrative infrastructure included
the additions of a Chief Financial Officer, Chief Operating Officer and other
personnel in the areas of finance, human resources and purchasing. Beginning
in 1995 and continuing in 1996, the Company made significant investments in
its manufacturing and management information systems, including the
implementation of its enterprise resource planning system. The Company's
relocation to larger facilities in 1995 resulted in increased occupancy and
depreciation costs in 1995 and 1996.
Other Income (Expense). Other income (expense) was ($4,000), $38,000 and
($384,000) for 1994, 1995 and 1996, respectively.
Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 40.8%, 38.7% and 40.1% for 1994, 1995 and 1996,
respectively.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly financial
information for the six quarters in the period ended June 28, 1997 in dollars
and as a percentage of revenues. This information is derived from unaudited
consolidated financial statements and has been prepared on the same basis as
the Company's Consolidated Financial Statements which appear elsewhere in this
Prospectus. In the opinion of the Company's management, this information
reflects all adjustments, (consisting only of normal recurring adjustments),
necessary for a fair presentation of the information when read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
The results for any quarter are not necessarily indicative of future quarterly
results of operations, and the Company believes that period-to-period
comparisons should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 28, MARCH 29, JUNE 28,
1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $12,222 $15,668 $16,439 $17,721 $18,518 $20,537
Cost of revenues........ 4,751 6,399 6,406 6,756 5,860 6,173
------- ------- ------- ------- ------- -------
Gross profit........... 7,471 9,269 10,033 10,965 12,658 14,364
------- ------- ------- ------- ------- -------
Operating expenses:
Engineering, research
and development....... 2,702 2,292 2,772 3,355 2,942 3,075
Selling and marketing.. 1,064 1,752 1,677 2,128 2,297 2,585
General and
administrative........ 1,164 1,511 1,898 1,853 1,959 1,892
------- ------- ------- ------- ------- -------
Total operating
expenses.............. 4,930 5,555 6,347 7,336 7,198 7,552
------- ------- ------- ------- ------- -------
Income from
operations............ 2,541 3,714 3,686 3,629 5,460 6,812
Other income (expense).. (15) (86) (136) (147) 44 50
------- ------- ------- ------- ------- -------
Income before provision
for income taxes...... 2,526 3,628 3,550 3,482 5,504 6,862
Provision for income
taxes.................. 1,013 1,454 1,424 1,394 2,201 2,745
------- ------- ------- ------- ------- -------
Net income.............. $ 1,513 $ 2,174 $ 2,126 $ 2,088 $ 3,303 $ 4,117
======= ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF REVENUES
----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 28, MARCH 29, JUNE 28,
1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 38.9 40.8 39.0 38.1 31.7 30.1
------- ------- ------- ------- ------- -------
Gross profit........... 61.1 59.2 61.0 61.9 68.3 69.9
------- ------- ------- ------- ------- -------
Operating expenses:
Engineering, research
and development....... 22.1 14.6 16.9 18.9 15.9 15.0
Selling and marketing.. 8.7 11.2 10.2 12.0 12.4 12.5
General and
administrative........ 9.5 9.6 11.5 10.5 10.5 9.2
------- ------- ------- ------- ------- -------
Total operating
expenses.............. 40.3 35.4 38.6 41.4 38.8 36.7
------- ------- ------- ------- ------- -------
Income from
operations............ 20.8 23.8 22.4 20.5 29.5 33.2
Other income (expense).. (.1) (.6) (.8) (.8) .2 .2
------- ------- ------- ------- ------- -------
Income before provision
for income taxes...... 20.7 23.2 21.6 19.7 29.7 33.4
Provision for income
taxes.................. 8.3 9.3 8.7 7.9 11.9 13.4
------- ------- ------- ------- ------- -------
Net income.............. 12.4% 13.9% 12.9% 11.8% 17.8% 20.0%
======= ======= ======= ======= ======= =======
</TABLE>
The Company has experienced significant fluctuations in revenues, expenses
and results of operations from quarter to quarter, and such fluctuations are
likely to continue. The Company typically receives more product orders and
generates greater revenues in the fourth quarter. During the last several
years, revenues in the first quarter have typically been lower than those
recorded in the preceding fourth quarter. The Company believes that this
concentration of order placements in specific quarterly periods is due to
customers' buying patterns and budgeting cycles. A significant portion of the
Company's revenues have been generated from a limited number of customers and
it is difficult to predict the timing of future orders and shipments to these
and other customers.
21
<PAGE>
The Company anticipates that its results of operations in any given period
will continue to depend to a significant extent upon sales to a small number
of customers.
The Company has also experienced significant variations in its quarterly
gross margins, particularly during 1996. This fluctuation was caused by
several factors. During 1996, the introduction of the EXS switching system and
related technology resulted in valuation adjustments of certain inventory
components. The relocation and subsequent expansion of the Company's
manufacturing facility and the development of manufacturing infrastructure
also resulted in quarterly increases in occupancy and overhead costs.
The Company's expenditures for engineering, research and development have
varied from quarter to quarter primarily as a result of the timing and number
of additions of personnel and related compensation costs, and the amount,
timing and significance of prototype supplies and materials consumed in
product prototype development and testing. The Company's selling and marketing
and general and administrative expenses have generally increased on a
quarterly basis primarily as a result of the timing and number of additions in
personnel and compensation and related costs and the timing, number and
significance of specific marketing and sales activities such as trade shows
and other promotional activities. The relocation of the Company's facilities
resulted in increased occupancy costs in 1996 and 1997.
Overall, operating expenses vary with the number, timing and significance of
additional product and product enhancement introductions by the Company and
its competitors, increased competition, the gain of significant customers or
the reduction in orders from customers, the hiring of personnel and general
economic conditions. All of the above factors are difficult for the Company to
forecast and these or other factors may have a material adverse effect on the
Company's business, financial condition and results of operations for one
quarter or a series of quarters. Customers can cancel or reschedule shipments,
and development or production difficulties could delay shipments. Only a small
portion of the Company's operating expenses vary with revenues in the short
term and there would likely be a material adverse effect on the Company's
business, financial condition and results of operations if revenues are lower
than expected.
Based on all of the foregoing, the Company believes that quarterly revenues
and results of operations are likely to vary significantly in the future and
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors--Fluctuations in Results of Operations."
RECENT RESULTS OF OPERATIONS
The following table shows certain unaudited consolidated financial data for
the quarters and nine months ended September 30, 1996 and September 27, 1997.
The Company believes that this information reflects all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented. The operating
results for any period are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
NINE MONTHS
QUARTER ENDED ENDED
--------------- ---------------
SEPT. SEPT. SEPT. SEPT.
30, 27, 30, 27,
1996 1997 1996 1997
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Revenues....................................... $16,439 $23,570 $44,329 $62,625
Income from operations......................... 3,686 8,298 9,941 20,570
Net income..................................... 2,126 5,151 5,813 12,571
Net income per share........................... $ .06 $ .15 $ .17 $ .37
Weighted average common and common equivalent
shares out-
standing...................................... 33,827 34,028 33,779 34,025
</TABLE>
22
<PAGE>
The consolidated financial data for the quarter ended September 27, 1997 set
forth above is generally consistent with the trends discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash provided by operations.
During 1994, 1995 and 1996, cash provided by operating activities totaled
$2.2 million, $1.2 million and $7.3 million, respectively. The decrease in
1995 was primarily the result of increases in accounts receivable and
inventory levels partially offset by increases in net income, accounts payable
and accrued expenses. The increase in 1996 was primarily attributable to
increases in net income, accrued expenses and accrued income taxes, partially
offset by an increase in deferred income taxes and a decrease in accounts
payable. Cash provided by operating activities for the first six months of
1996 and 1997 was $212,000 and $9.7 million, respectively. The increase in the
1997 period was primarily attributable to an increase in net income and a
decrease in inventories.
The Company's investing activities consumed $940,000, $4.1 million and $4.1
million in 1994, 1995 and 1996, respectively. During the first six months of
1996 and 1997, investing activities consumed $2.5 million and $2.3 million,
respectively. The majority of these expenditures reflect the acquisition,
renovation and expansion of the Company's facilities and the purchase of
capital equipment.
During 1995, the Company purchased and renovated two buildings and related
land for approximately $3.2 million. These acquisitions and renovations were
financed, in part, by the proceeds from a $2.6 million secured loan from a
bank. This loan requires monthly principal and interest payments of
approximately $26,000 through April 2010. Interest accrues at the bank's prime
rate plus .75%. This loan is secured by the two buildings and related land
having a carrying value of approximately $3.1 million at June 28, 1997.
In 1995, the Company entered into a building lease which requires monthly
payments ranging from approximately $12,000 to $14,000 through July 2000. The
lease can be extended through July 2005 and includes a purchase option
exercisable, beginning in August 1998, for $875,000. The Company intends to
exercise this option as early as possible, and accordingly, has reflected this
lease as a capital transaction.
On June 30, 1997, the Company purchased property to be used for the
construction of an additional building. The purchase price of $575,000 and the
estimated construction costs of $3.6 million will be financed, in part, by a
$2.1 million Real Estate Promissory Note with a bank, of which $460,000 has
been advanced to the Company to date. Borrowings under this note shall bear
interest at prime (8.5% at June 28, 1997) plus .25% and are secured by the
property and certain other assets. Monthly payments of interest are required
beginning in July 1997. Beginning in July 1998, monthly payments of principal
and interest will be made over a period of fifteen years.
The Company's unsecured line of credit arrangement with a bank provides up
to $10.0 million in credit availability. Borrowings under this agreement are
limited to 75% of eligible accounts receivable plus 50% of certain
inventories. Borrowings under this agreement bear interest, at the Company's
discretion, at either the bank's base rate (8.5% at June 28, 1997) or the
Eurodollar rate (5.7% at June 28, 1997) plus 2.5%. The agreement requires the
Company to comply with certain financial covenants, including a debt-to-
tangible net worth ratio and a minimum profitability covenant. The agreement
also restricts the Company's ability to pay cash dividends. The Company was in
compliance with these covenants as of June 28, 1997. During the first six
months of 1996, the Company borrowed $2.3 million against this line of credit.
There were no amounts outstanding under this line of credit at December 28,
1996 or June 28, 1997.
At June 28, 1997, the Company's principal sources of liquidity consisted of
cash, cash equivalents and short-term investments of approximately $12.2
million, working capital of approximately $21.9 million and $10.0 million of
funds available under the bank line of credit. The Company believes that the
net proceeds of this offering, together with available funds and cash
generated from operations, will be sufficient to meet the Company's working
capital requirements for at least the foreseeable future. The Company plans to
finance its long-term capital needs with the net proceeds of this offering,
together with available borrowings and cash flow from operations. To the
extent that such funds are insufficient to finance the Company's activities,
the Company may have to raise working capital through the issuance of
additional equity or debt securities. There can be no assurance that
additional financing will be available on acceptable terms.
23
<PAGE>
BUSINESS
Excel is a leading provider of open switching platforms for
telecommunications networks worldwide. The Company develops, manufactures,
markets and supports a family of open, programmable, carrier-class switches
that addresses the complex enhanced services and wireless and wireline
infrastructure needs of network providers. Excel's products offer network
providers the flexibility to address multiple market applications and the
scalability to deploy a variety of system capacities. The Company's
programmable switching platforms enable network providers to deliver improved
networking functionality at a lower cost than purchasing, upgrading or
reprogramming traditional, closed, central office switches. The Company's
products are currently deployed in telecommunications networks in
approximately 50 countries throughout the world.
Excel offers a family of programmable switching platforms that are designed
with distributed architecture and open software to maximize performance and
provide multiple levels of programmability and redundancy. Excel's open
switching platforms integrate with a wide variety of host computer systems,
operating systems and application development environments. The Company's
product family scales from 512 to 30,720 ports. Using Excel's patented
Programmable Protocol Language ("PPL"), application developers can customize
the switching software to their unique requirements, allowing them to
introduce new services and applications rapidly. As customer requirements
evolve, the Excel platform can be upgraded without requiring extensive and
complex programming changes to the underlying software.
The Company sells to a variety of customers in the worldwide
telecommunications market, including application developers, original
equipment manufacturers ("OEMs") and systems integrators. These customers
include Boston Technology, Inc., Brite Voice Systems, Inc., Ericsson Messaging
Systems Inc., Glenayre Technologies Inc., IEX Corporation, MCI Communications
Corporation, Lucent Technologies Inc. (Octel Messaging Division), Phoenix
Wireless Group, Inc., Priority Call Management, Inc., QUALCOMM Incorporated
and WorldCom, Inc. Excel's customers integrate the Company's open,
programmable switching platforms with their product offerings to address a
variety of market applications for network providers, ranging from enhanced
services such as voice messaging, one number services and prepaid debit cards,
to wireless and wireline infrastructure services such as tandem switching,
mobile switching centers and intelligent base station controllers. Network
providers which have installed Excel's products include AT&T Corp., Ameritech
Corporation, Bell Atlantic Corporation, BellSouth Corporation, British
Telecommunications plc, GTE Corporation, MCI Communications Corporation,
Nippon Telegraph and Telephone Corporation, Pacific Bell, Sprint Corporation,
Telstra Corporation Ltd., Time Warner Inc. and WorldCom, Inc.
INDUSTRY BACKGROUND
Global deregulation and technological advances have led to significant
change in the worldwide telecommunications market. Increased
telecommunications service demand coupled with the advent of new carriers are
creating an intensely competitive environment for network providers. In the
United States, competition exists among the Regional Bell Operating Companies
("RBOCs"), Interexchange Carriers ("IXCs"), Local Exchange Carriers ("LECs"),
Competitive Local Exchange Carriers ("CLECs"), wireless carriers and cable
television broadcasters. Internationally, established network providers
("PTTs") are facing competition from emerging alternative wireless and
wireline carriers. Increasing competitive pressures in the United States and
internationally are forcing network providers to lower infrastructure costs,
increase network flexibility and offer new and enhanced services. These
challenges require network providers to deploy new services rapidly and cost-
effectively, while protecting their existing infrastructure investment.
Functionality of the core telecommunications switching infrastructure has
not developed as quickly as network providers demand. Traditional
telecommunications switches are designed for specific uses, and as a result,
are time-consuming and expensive to modify for new applications. These
traditional, closed switches do not provide the scalability, flexibility or
cost-effectiveness to address the requirements of enhanced services or
wireless and wireline infrastructure. In addition, traditional switches are
not compatible among vendors nor are they easily adaptable to different
international network signaling requirements.
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<PAGE>
Enhanced Services
The evolving telecommunications environment is increasingly forcing network
providers to differentiate their offerings. As network providers strive to
capture or maintain market share and stimulate usage, they must offer as
standard features many enhanced services that were once offered as premium
applications. Enhanced services include such diverse telephony applications as
voice messaging, one number services, paging, e-mail, fax messaging, unified
messaging, voice recognition dialing, prepaid debit cards and conference
bridging. Once deployed, enhanced services enable network providers to
increase revenues through subscription fees and greater network utilization.
Open, programmable switches address an emerging market for enhanced services
as application developers, OEMs and systems integrators increasingly are able
to develop applications that were once controlled by closed switch vendors.
Systems designed by traditional switch vendors are not easily modified for
enhanced services. Using open, programmable switching platforms, network
providers are able to implement applications cost-effectively today that can
scale as customer demand increases over time, while protecting their existing
investment in legacy switches.
Wireless Infrastructure
Deregulation, increased consumer demand, increased competition for
subscribers and price/performance improvements in service have led to rapid
growth in the wireless infrastructure market. The wireless infrastructure
market includes traditional cellular systems, emerging personal communication
services ("PCS"), wireless local loop and mobile satellite systems. Wireless
infrastructure equipment for these markets needs to address both high and low
mobility wireless networks and accommodate analog and emerging digital
standards such as CDMA, GSM and PCS-1900. Network providers are seeking
solutions that will allow them to meet today's market demands cost-effectively
while scaling to meet future requirements. According to an industry source,
the worldwide cellular and PCS subscriber base is expected to grow
approximately 20% per year to reach 300 million users by the year 2000.
Network providers also are seeking an alternative to the expensive and
traditional infrastructure of the telephone network to address the local loop.
As widespread replacement or installation of copper wireline remains
prohibitively expensive, the market for wireless systems to provide basic
telephone service has emerged.
Open, programmable switches provide the speed, scalability and cost-
effectiveness that wireless network providers are seeking. Programmable
switches enable wireless network providers to prototype, test and deploy new
wireless services in a rapid timeframe. Open, programmable switches can scale
incrementally as the wireless subscriber base expands or demands more
services, allowing wireless network providers to make cost-effective initial
infrastructure investments. In addition, open, programmable switches enable
wireless network providers to add enhanced services to their networks using
the same infrastructure platform.
Wireline Infrastructure
Traditional switching technology has not kept pace with the new applications
and service requirements generated by the rapid growth and competitive changes
within the global telecommunications markets. New entrants, such as CLECs,
long distance resellers and emerging international network providers, do not
wish to invest in or incur the high operating costs of traditional,
inflexible, single-purpose switching equipment. Many of these new network
providers must initially compete with incumbent RBOCs, LECs, IXCs and PTTs for
subscribers based upon lower prices and improved services. In addition, many
existing network providers are expanding into new markets, such as the RBOCs
entering the long distance market and the IXCs entering the local exchange
market. To compete in these new markets, incumbent providers must add cost-
effective switches to their current networking infrastructure.
Using open, programmable switching platforms, network providers can build
flexible, cost-effective wireline infrastructures which can be adapted to
their specific service requirements. With open, programmable switching
platforms, network providers can scale their networks as they add subscribers
and implement new and enhanced services using the same infrastructure. Open,
programmable switches have recently been implemented in tandem switching, one-
plus dialing, international call-back services and international gateway.
25
<PAGE>
Initial Programmable Switching Products
Several companies market switching products aimed at addressing the
limitations of traditional, closed switches. However, the initial switching
products designed to address this opportunity have not satisfied the
requirements of network providers. Initial products positioned as open,
programmable switches have been configurable, but have lacked the
programmability, openness, flexibility and scalability needed to address a
wide range of enhanced services and wireless and wireline infrastructure
requirements. The Company believes that network providers are demanding
telecommunications switches that are truly open and programmable, thereby
enabling them rapidly and cost-effectively to meet their enhanced services and
infrastructure requirements.
THE EXCEL SOLUTION
Excel has developed open, programmable switching platforms that allow
network providers to offer cost-effective, scalable and flexible enhanced
services and wireless and wireline communications with a time-to-market
advantage over conventional switching platforms. The Company's integrated
hardware and software solutions are designed to offer the following benefits:
Open Programmability. The Company's product architecture is designed to be
open at multiple software programming levels, including the protocol, call
control, digital signal processing, resource provisioning and application
levels. Using these programmability features, network providers can rapidly
integrate applications with non-standard and international protocol
variations and offer customized services to their end-users. Excel's
switching platforms offer complete programmability, rather than
configurability, from the host computer. They are designed to be truly
open, allowing customers to control their own applications, and to have the
capability to modify any function of the software within the platform at
any level, time or geographic location.
Rapid Time-to-Market. The Company's products are designed to allow
application developers to offer network providers new services more quickly
than with conventional switching platforms. Excel's open programmability
facilitates rapid deployment of these services in domestic and
international markets by integrating rapidly with various signaling
protocols and global network standards.
Flexibility. The Company's switching platforms can be programmed by a
customer to be used for a wide-range of enhanced services and wireless and
wireline infrastructure applications.
Scalability. The distributed and modular nature of Excel's switching
platforms allows network providers to expand their networks easily as the
subscriber base increases. Excel's switching platforms can scale from 512
to 2,048 ports within the individual chassis and total system capacity can
be expanded to 30,720 ports through the use of Excel's patented fiber optic
expansion network, EXNET. In addition, network providers can migrate across
the Company's product family without undertaking expensive and time
consuming modifications to the host platform.
Distributed Architecture. The Company's products are designed with
distributed architecture utilizing its patented Selective Space Switching
technology and a fiber optic expansion network. These designs increase
reliability and allow linear growth in performance as resources are added.
Cost-Effective. Excel's products offer increased capacity, performance and
functionality for a lower initial investment and reduced operational costs
than traditional, closed switches.
Redundancy and Reliability. The Company's carrier-class products are
designed to meet the high redundancy and reliability requirements demanded
by network providers. The redundant features of the Company's products
ensure that critical applications remain operational.
26
<PAGE>
STRATEGY
Excel's objective is to be a leader in open, programmable switching
platforms for telecommunications networks worldwide. The key elements of the
Company's strategy are to:
Focus on Open Telecommunications Technology. Since its inception, the
Company has focused on developing, manufacturing and selling truly open,
software-based programmable switching platforms. Openness is the ability to
modify easily and rapidly any function of the software within the switching
platform at any level, time or geographic location. All of the Company's
products have been originally designed, rather than reengineered, to be
open. To date, the Company has focused on enhancing its open architecture
within the switching platforms. The Company is now focusing its research
and development efforts to extend to applications the same level of
openness established in its switching platforms. Excel believes this effort
will allow application developers to accelerate the introduction of their
products and services.
Maintain and Strengthen Relationships with Application Developers, OEMs and
Systems Integrators. Excel has built a market leadership position through
its relationships with application developers, OEMs and systems
integrators. The Company has worked with over 100 application developers,
OEMs and systems integrators which market a wide variety of products and
services based on the Company's technology. The Company believes that these
relationships improve its understanding of the requirements of network
providers and generate demand for a variety of market applications. The
Company intends to strengthen its current relationships and develop new
relationships with application developers, OEMs and systems integrators to
increase the number and scope of applications which incorporate the
Company's products.
Provide Superior Customer Service and Support. The Company believes that
providing a high level of service and support is a competitive advantage in
developing key customer relationships. Excel focuses its customer support
services on helping customers to integrate Excel's products into their
applications rapidly. The Company's open, programmable software allows it
to help its customers make detailed, on site platform modifications,
without significant involvement of research and development resources.
Expand Existing Markets and Enter Emerging Markets. Excel seeks to increase
its market share through further collaboration with existing customers and
increased penetration of existing applications markets. In addition, the
Company is focusing on emerging geographic and product markets by
developing new application developer, OEM and systems integrator
relationships and expanding its sales and marketing efforts to
international markets.
Establish Open, Programmable Switching as an Industry Standard. The Company
intends to leverage its market leadership position to establish open,
programmable switching platforms as a standard in the telecommunications
industry. The Company is working directly with network providers to
accelerate the adoption of open, programmable switching into the core
telecommunications infrastructure.
PRODUCTS AND TECHNOLOGY
PRODUCTS
The Company offers a family of open, programmable switching products for
application developers, OEMs and systems integrators. The Company's product
family consists of four switching products: the LNX, a 2,048 port switching
platform; the CSN, a 1,024 port switching platform; the PCX, a 512 port
switching platform; and the EXS, a 30,720 port switching system. All of the
Company's products can be used in a wide range of enhanced services and
wireless and wireline infrastructure applications.
All of Excel's products share a common software architecture, allowing any
specific application to run on any platform, and are designed with multiple
levels of redundancy. The LNX and CSN switching platforms share a set of
common card components which include network interface line cards such as T1,
E1 and J1 interfaces, and service resource cards such as multi-function
Digital Signal Processors, Primary Rate ISDN, SS7 and DASS2. Excel's network
interface line cards provide direct connectivity to, and ease of integration
with, a variety of international signaling protocols. The service resource
cards provide customers with a range of common
27
<PAGE>
channel signaling and switching applications, offering network providers the
ability to control their applications and the flexibility to expand to other
services or signaling protocols as needed. Multiple cards can be installed on
a single chassis to manage various signaling and call control capabilities or
to provide fault tolerant configurations. In addition, the Company offers
network interface line cards and service resource cards separately to allow
customers to upgrade previously deployed switching platforms.
EXCEL PRODUCT FAMILY
<TABLE>
<CAPTION>
CURRENT CURRENT YEAR
MAXIMUM LIST PRICE FIRST
PRODUCT PORT CAPACITY DESCRIPTION RANGE SHIPPED
- -------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
LNX 2,048 --High capacity, 20-card switch in 1991
small chassis $68,000
--Redundant options for all
modules to
--Full compliance for central
office environment $275,000
- -------------------------------------------------------------------------------
CSN 1,024 --Midrange capacity, 8-card switch 1996
in compact chassis $47,000
--Same redundant options and cards
as LNX to
--Full compliance for central
office environment $95,000
- -------------------------------------------------------------------------------
PCX 512 --Stand-alone solution for 1991
customer premises equipment $21,000
environment to
--Integrates with standard voice
processing resources $49,000
- -------------------------------------------------------------------------------
EXS 30,720 --Designed to use LNX and CSN $500,000 1995
nodes as building blocks to
--EXNET 1.2 Gbps fiber optic
expansion network $4,500,000
</TABLE>
- -------------------------------------------------------------------------------
LNX
The LNX is a 2,048 port, non-blocking, open, programmable switching platform
which provides high performance and fault tolerance in a small chassis. With
all modules supporting redundant configurations, the LNX is designed for
central office environments requiring a high level of reliability and ease of
maintainability. The LNX can operate as a stand-alone switch or as a node in
Excel's patented EXS switching system, currently supporting scalability up to
30,720 non-blocking ports. The LNX consists of the 2,048 port matrix card
residing in a 20-slot chassis, a host interface and a fully configurable
combination of network interface line and service resource cards. All LNX
cards can be replaced while the system is operating ("hot-swappable"),
providing ease of maintenance and upgrading without interruption of service.
The predecessor to the LNX, the XLDX, is a 1,536 port programmable platform
first installed in a central office environment in 1988. XLDX systems are
still supported by the Company for customers with an XLDX installed base.
CSN
The CSN is a 1,024 port, non-blocking, open, programmable switching platform
that provides the same features and scalability as the LNX but in a more
compact chassis. The CSN utilizes the same common elements of network line
interfaces, service resources, common channel signaling packet engines and
host interfaces as the LNX, with the same reliability features such as hot-
swappability and full redundancy. The CSN is well suited for wireless
applications where space constraints dictate the need for carrier-class
switching within a compact chassis.
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<PAGE>
PCX
The PCX is a PC-based, 512 port, non-blocking, open, programmable switching
platform that supports the same programmable features and shares the same
hardware and software architecture as the LNX and CSN platforms. The PCX is
designed for the customer premises equipment marketplace to provide a total
solution in a small chassis, addressing the needs of midrange switching
applications. With its PC-based platform, the PCX can support an internal host
processor as well as internal voice processing resources. The PCX enables
application developers to combine Excel's programmable switching features with
industry-standard voice processing technology for a single, stand-alone
solution.
EXS
The EXS is an open, non-blocking system comprised of LNX and CSN
programmable switching platforms distributed across EXNET, the Company's fiber
optic expansion network. The current EXNET network can support up to 30,720
ports, encompassing any combination of LNXs and CSNs. The patented EXS
architecture is designed to allow further expansion beyond the current 30,720
ports. Parallel EXNET fiber networks can also be used to create fully
redundant systems to ensure maximum availability and fault tolerance.
Because each EXS node is a self-contained LNX or CSN switching platform,
processing power can scale linearly as the system is expanded. Individual LNX
or CSN nodes can be isolated and serviced without the entire system being
brought out-of-service, providing ease of maintenance. Since each node can
operate and process calls independently, total system reliability and
availability is increased.
TECHNOLOGY
Selective Space Switching Technology
A unique aspect of Excel's distributed architecture is its patented
Selective Space Switching technology which allows the platform's internal bus
to switch traffic between any input or output port, DSP, packet engine
resource or EXNET Controller without losing critical port capacity. Unlike
traditional switches, with Selective Space Switching technology, available
port capacity is not compromised as additional modules are added. When
resource modules are added, the platform's switching capacity increases, and
its full non-blocking switch port capacity is retained.
Open Software Technology
Unlike traditional, proprietary switches, Excel's programmable platforms
share a common, open, software architecture designed to be programmable by
third parties. The open programmability of Excel's switching platforms is
based on its Application Programming Interface ("API") and its patented
Programmable Protocol Language ("PPL").
The API is a message-based protocol designed for communication between the
programmable switching platform and the application software located on a host
computer. Excel's open API allows the application software to access call
processing control, configuration, maintenance and alarm reporting functions
within the switch at a level that is not currently available in competitive
products. Excel's API is compatible across the Company's product family.
Excel's PPL is a patented technology that provides an easy and convenient
mechanism for developers and operators to implement modifications at multiple
programming levels without having to write complex software code. Protocols
are developed and modified using a graphical user interface development
environment, requiring the user to have only limited software programming
experience. With PPL, support personnel can easily effect detailed changes to
the switching software on site without using expensive equipment or requiring
additional technical personnel. These benefits provide increased software
maintainability while reducing development costs and eliminating customized
work for Excel and its customers. Using its PPL technology, Excel is
continually working with its customers to provide additional domestic and
international network interfaces.
29
<PAGE>
CUSTOMERS
The Company has sold its products to over 100 customers in a variety of
segments of the telecommunications industry. The Company's customers include
application developers, OEMs and systems integrators. Approximately 33.1%,
40.6% and 36.7% of the Company's revenues in 1994, 1995 and 1996,
respectively, were derived from sales to Boston Technology, Inc.,
approximately 11.4% of the Company's revenues in 1995 were derived from sales
to Ericsson Messaging Systems Inc. and approximately 10.0% of the Company's
revenues in 1994 were derived from sales to AccessLine Technologies, Inc. The
twenty largest revenue-producing customers in 1996 or in the first six months
of 1997 were:
AccessLine Technologies, Inc. Magellan Network Systems, Inc.
AETHOS Communications Systems, Inc. MCI Communications Corporation
Boston Communications Group, Inc. Open Development Corporation
Boston Technology, Inc. Phoenix Wireless Group, Inc.
Brite Voice Systems, Inc. Priority Call Management, Inc.
Ericsson Messaging Systems Inc. QUALCOMM Incorporated
EX-EL Enterprises, Ltd. Technology Control Systems Inc.
Glenayre Technologies, Inc. Telegroup Inc.
IEX Corporation Telos Engineering Limited
Innovative Telecom Corporation Transaction Network Services,
InterExchange Inc. Inc.
Lucent Technologies Inc.(Octel XNT Systems, Inc.
Messaging Division) USA Global Link
WorldCom, Inc.
The primary end-users of the Company's products are public network
providers, including RBOCs, IXCs, LECs, CLECs, wireless carriers and PTTs. The
Company's products also are used by a number of large corporations to satisfy
specific telecommunications requirements. Representative network providers
which have installed the Company's products include:
UNITED STATES AND CANADA
------------------------
ALLTEL Corporation Contel Corporation Sprint Corporation
AT&T Corp. Cox Communications, Inc. Telegroup Inc.
Ameritech Corporation Frontier of Rochester Teleport Communications
Bell Atlantic Link USA International, Group Inc.
Corporation Inc. Time Warner Inc.
Bell Canada MCI Communications USFI, Inc.
BellSouth Corporation Corporation WorldCom, Inc.
Citizens Utilities Co. Pacific Bell
SBC Communications Inc.
AUSTRALIA AND ASIA SOUTH AND CENTRAL AMERICA EUROPE AND MIDDLE EAST
- ------------------ ------------------------- ----------------------
DDI Corp. (Japan) BelgaCom
Hong Kong Telecom CSL BellSouth Cellular S.A. British
Limited (Chile) Telecommunications plc
Hutchinson Companhia Telefonica E-Plus Mobilfunk GmbH
Telecommunications Ltd. Brasil Central PTT Telecom Netherlands
(China) TelCel, S.A. (Venezuela) Mercury One-2-One
Malaysian Resources Telecommunications of (United Kingdom)
Corporation Bhd Jamaica Limited Telia AB
New World Telephone Ltd. Telefonos de Mexico, General Directorate of
(China) S.A. de C.V. PTT (Turkey)
Nippon Telegraph and
Telephone Corporation
PakTel Ltd
TelecomAsia (Thailand)
Telekom Malaysia
Telstra Corporation Ltd.
30
<PAGE>
The following case studies describe the manner in which the Company's three
largest revenue-producing customers in 1996 use the Company's products in
their applications and services:
Boston Technology, Inc. ("BTI"), a customer since 1988, uses Excel's
products to deliver a variety of enhanced services software and systems to the
telecommunications industry. Excel's products provide the base switching
platform for BTI's enhanced services applications such as call answering,
voice and unified messaging and pre-paid calling card. The Company's switching
products, when integrated with BTI's applications, act as an intelligent front
end that efficiently distributes advanced messaging traffic. The open
programmability and distributed architecture of Excel's products allow BTI to
customize and enhance its applications rapidly while providing it with the
ability to scale capacity from entry level systems to large cluster
configurations required by major network providers. The ease of use of PPL has
allowed BTI to design cost-effectively and implement enhanced services
applications for both wireless and wireline network providers in more than 13
countries worldwide. The Company's open platform architecture assists BTI in
working with other Excel customers to increase BTI's application offerings for
network providers. In August 1997, BTI announced its intended merger with
Comverse Technologies, Inc.
QUALCOMM Incorporated ("QUALCOMM") provides advanced communications systems
and products based upon its proprietary CDMA (code division multiple access)
digital wireless technology. QUALCOMM uses the Company's switching platforms
in its Intelligent Base Station Controller ("IBSC") products, which manage
numerous base station transceiver subsystems and connect wireless subscribers
to the public wireline network. The IBSCs have become the intelligent nodes of
a distributed wireless network. Excel's open products, with their distributed
architecture and programmable software, provide QUALCOMM with a cost-effective
and flexible switching solution. QUALCOMM uses the Company's products to
provide a CDMA infrastructure solution for digital cellular, PCS and wireless
local loop networks.
Priority Call Management, Inc. ("PCM") is a developer of network-based
platforms that enable wireless and wireline network service providers as well
as Fortune 1000 companies to create and offer one number prepaid calling and
enhanced messaging solutions. PCM utilizes the Company's full range of
products to deliver pre-paid calling card, pre-paid cellular, international
call-back and voice messaging services, among other enhanced services. The
Company's engineers have worked closely with PCM in the pre- and post-sales
engineering phases to provide the proper training and technical support
required to integrate the Company's switching platforms with PCM's
applications.
CUSTOMER SERVICE, SUPPORT AND TRAINING
The Company believes that the responsiveness and expertise of its customer
service personnel is essential to developing and maintaining long-term
relationships with its customers which require uninterrupted operation of the
Company's products.
The Company provides pre- and post-sales engineering services and has a
technical assistance center which provides support and service by telephone.
The Company offers a variety of engineering services such as customer
application design review, protocol development, product training, performance
testing and field support. The Company has a fully-equipped training facility
and provides a wide range of training courses to its customers, both on and
off site. The Company also has a fully-equipped applications lab with call
traffic load capabilities where customers can test and verify new applications
or enhancements to existing applications. The Company's technical assistance
center provides telephone support and service on a 24-hour, seven-day-a-week
basis. To ensure that the Company is providing quality support services, the
Company has instituted a formal customer satisfaction program which involves
senior management review and regularly scheduled customer support surveys. In
addition, Company personnel meet regularly with customers to discuss product
quality and customer satisfaction.
The Company provides a product warranty on its hardware products which
generally covers a period of 14 months from shipment. This warranty coverage
includes technical assistance, as well as product repair or product
replacement, depending upon the circumstances of the warranty claim. Although
the Company charges fees for certain support and services, to date, revenues
from such fees have been immaterial.
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<PAGE>
SALES AND MARKETING
The Company sells its products primarily to application developers, OEMs and
systems integrators which incorporate the Company's products into their
service and product offerings. The Company's principal marketing activities
are to identify customers which could benefit from the Company's products,
identify new markets for the Company's products and increase sales to existing
customers.
The sale of the Company's products is a multi-step and interdisciplinary
process which can typically range from 12 to 24 months or more from initial
customer contact to large-scale commercialization of a customer's application
or service based on the Company's products. The initial evaluation stage,
typically three to six months, is primarily the role of the Company's sales
and marketing personnel, and members of the Company's senior management, and
involves educating potential customers on the functionality and benefits
derived from using the Company's products. The next stage, which can involve
members of both the Company's customer support and research and development
organizations, involves providing the customer with the required training and
technical support to integrate the Company's products into a new application
or service. This stage of the sales process is generally the longest and is
dependent upon an application or service provider's own internal application
or service development program.
The Company sells to its customers through its own sales force, from its
headquarters, as well as from sales offices in California, Georgia, New York,
Ohio and Texas. The Company currently has no offices outside the United
States, but is exploring the establishment of foreign sales offices within the
next 12 months in Europe and the Far East, including in Hong Kong. To date,
the Company has no firm commitments to establish such international sales
offices and there can be no assurance that the Company will actually open any
foreign offices. In addition, the Company maintains an inside sales group,
located at its headquarters, which is responsible for platform configuration
and price quotations, order administration and telephone sales activities. In
order to create awareness, market demand and sales opportunities, the Company
engages in a number of marketing activities which include exhibiting products
and customer applications at industry trade shows, advertising in selected
publications aimed at targeted markets, public relations activities with trade
and business press, publication of technical articles and the distribution of
sales literature, technical specifications and documentation.
RESEARCH AND PRODUCT DEVELOPMENT
Management believes that the Company's success will depend on its ability to
develop and introduce in a timely fashion new products and enhancements to its
existing products. The Company has in the past made, and intends to continue
to make, significant investments in product and technological development.
Extensive product development input is obtained through customers and the
Company's monitoring of end-user needs and changes in the marketplace.
The Company is focusing its development efforts on providing enhanced
functionality to its products including increased port capacity and
performance, the development of additional related software applications and
tools and the improvement of third-party application integration. The software
applications under development are being designed to enable customers to
shorten their application development cycle thereby improving time-to-market
and reducing initial investment in research and development.
There can be no assurance that the Company will not experience difficulties
that could delay or prevent the successful development, introduction or
marketing of such new products and enhancements, or that its new products and
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. Announcements of currently planned or other new
product offerings by the Company or its competitors may cause customers to
defer or cancel the purchase of existing Company products. The Company's
inability to develop on a timely basis new products or enhancements to
existing products, or the failure of such new products or enhancements to
achieve market acceptance, could have a material adverse effect on the
Company's business, financial condition and results of operations.
32
<PAGE>
The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends. The introduction of new or enhanced products also requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. There can be no assurance that
the Company will successfully develop, introduce or manage the transition to
new products. Furthermore, products such as those offered by the Company may
contain undetected or unresolved errors when they are first introduced or as
new versions are released. There can be no assurance that despite extensive
testing by the Company, errors will not be found in new products or upgrades
after commencement of commercial shipments, resulting in delays in or loss of
market acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Risk of New Product
Introductions" and "Risk Factors--Rapid Technological Change."
The Company's engineering, research and development expenditures totaled
approximately $3.3 million, $8.1 million, $11.1 million and $6.0 million in
1994, 1995, 1996 and the first six months of 1997, respectively. The Company
performs its research and product development activities at its principal
offices in Hyannis, Massachusetts.
MANUFACTURING
The Company's manufacturing operations consist primarily of materials
planning and procurement, final assembly, testing and quality control. The
Company uses several independent manufacturers to provide certain printed
circuit boards, chassis and subassemblies. The Company's manufacturing process
enables it to configure its products to meet a wide variety of individual
customer requirements. The Company has been recommended for International
Standard Organization (ISO) 9001 registration and has achieved the 9002
registration for quality assurance in production, installation and service.
The Company plans to strengthen manufacturing capability both in its existing
facilities and through expansion of activities with independent manufacturers.
Future growth of the Company will require extension of existing internal and
external manufacturing resources, hiring of additional technical personnel,
improved coordination of supplier relationships with the Company's inventory
ordering and management practices, and expansion of information systems to
accommodate planned growth across these areas. See "Risk Factors--Management
of Growth and Hiring of Additional Personnel."
Although the Company generally uses standard parts and components for its
products, many key components are purchased from sole or single source vendors
for which alternative sources are not currently available. In particular, the
Company uses a fiber transmitter, a receiver and a fiber driver manufactured
by Hewlett-Packard Company in its EXS product, four power connectors
manufactured by Positronic Industries, Inc. in its EXS, LNX and CSN products,
and a power module manufactured by Lucent Technologies Inc. in its EXS, LNX
and CSN products. If supply of these components should cease, the Company
would be required to redesign its products. Each of these components is
available from only one supplier, for which there is no substitute at this
time. While working closely with some well-established vendors, the Company
has no supply commitments from its vendors and generally purchases components
on a purchase order basis as opposed to entering into long term procurement
agreements with vendors. To date, the Company has generally been able to
obtain adequate supplies in a timely matter from vendors or, when necessary,
to meet production needs from alternative vendors. The Company believes that,
in most cases, alternate vendors can be identified if current vendors are
unable to fulfill needs. However, delays or failure to identify an alternate
vendor, if required, or a reduction or interruption in supply, or a
significant increase in the price of components would materially and adversely
affect the Company's business, financial condition and results of operations
and could impact customer relationships. See "Risk Factors--Dependence on
Single and Sole Source Suppliers."
COMPETITION
The markets in which the Company competes are characterized by intense
competition, with a large number of suppliers providing different types of
products to different segments of the markets. The Company currently
33
<PAGE>
competes principally on the basis of: (i) the breadth of its products'
features and benefits; (ii) the flexibility, scalability, quality, ease of
use, reliability and cost effectiveness of its products; and (iii) the
Company's reputation and the depth of its expertise, customer service and
support. While the Company believes that it currently competes favorably
overall with respect to these factors, there can be no assurance that the
Company will be able to continue to do so.
The Company competes or may compete directly or indirectly with the
following categories of companies: (i) other manufacturers of programmable
switches such as Summa Four, Inc., Redcom Laboratories, Inc. and Harris
Corporation; (ii) large, well-established switch and telecommunications
equipment manufacturers such as Alcatel Alsthom Compagnie Generale
d'Electricite SA, DSC Communications Corporation, Lucent Technologies Inc.,
Northern Telecom Limited, Siemens AG and Telefonaktiebolaget LM Ericsson; and
(iii) to a lesser degree, systems integrators and application developers whose
switches are based on PC card-level products manufactured by companies such as
Aculab Inc., Dialogic Corporation and Natural MicroSystems Corporation. In
addition, several smaller companies have begun recently to manufacture
programmable switching platforms. Due to the rapidly evolving markets in which
the Company competes, additional competitors with significant market presence
and financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Additionally, there can be
no assurance that one or more of the Company's application developers will not
begin to develop or market products in competition with the Company.
Many of the Company's current and potential competitors have significantly
greater financial, selling and marketing, technical, manufacturing and other
resources than the Company. As a result, these competitors may be able to
devote greater resources to the development, promotion, sale and support of
their products than the Company. The Company, however, does not believe any of
its competitors are currently dominant in its industry segment. Some of the
Company's competitors currently offer financing alternatives to their
customers, a service that the Company does not provide at this time. The
Company has no current intention to offer such financing alternatives to its
customers in the foreseeable future. Moreover, these companies may introduce
additional products that are competitive with those of the Company or enter
into strategic relationships to offer complete solutions which the Company
does not currently offer. There can be no assurance that the Company's
products would compete effectively with such products.
The Company believes that its open, programmable switching platform, with
the Company's patented Selective Space Switching technology and Programmable
Protocol Language, offers its customers a competitive advantage for flexible,
scaleable and cost-effective switching capabilities. Although the Company
believes these technological features represent advantages over its
competitors, maintaining these advantages will require continued investment by
the Company in research and development, selling and marketing and customer
service and support. In addition, as the Company enters new markets,
distribution channels, technical requirements and levels and bases of
competition may be different than those in the Company's current markets.
There can be no assurance that the Company will be able to compete
successfully against either current or potential competitors in the future.
See "Risk Factors--Highly Competitive Market."
INTELLECTUAL PROPERTY
The Company relies upon a combination of patent, copyright and trademark and
trade secret laws as well as confidentiality procedures and contractual
restrictions to establish and protect its proprietary rights. The Company has
also entered into confidentiality and invention assignment agreements with its
employees and consultants and enters into non-disclosure agreements with its
suppliers, distributors and customers so as to limit access to and disclosure
of its proprietary information. There can be no assurance such measures will
be adequate to deter and prevent misappropriation of the Company's
technologies or independent third-party development of similar technologies.
The laws of certain foreign countries in which the Company's products are or
may be developed, manufactured or sold may not protect the Company's products
or intellectual property rights to the same extent as do the laws of the
United States and thus make the possibility of piracy of the Company's
technology and products more likely.
34
<PAGE>
As of August 30, 1997, a total of nine U.S. patents have been issued to the
Company. The Company has a total of 11 U.S. patent applications and 58
international and foreign national patent applications pending. The issued
patents cover various aspects of: (i) the architecture and division of call
processing responsibility in the Company's PCX product; (ii) the design and
internal construction of a rack-mountable chassis used with the Company's PCX
product; (iii) the architecture of certain communications resource and I/O
cards which may be used in conjunction with any of the Company's family of
programmable switching platforms relating to the Company's Selective Space
Switching technology; (iv) the PPL software which may be used, in conjunction
with any of the Company's family of programmable switching platforms, to
create or modify applications or communications protocols; (v) a line card
redundancy arrangement for use in conjunction with the Company's LNX and CSN
products; and (vi) the architecture of the Company's fiber optic expansion
network, EXNET. The U.S. patents will expire at various times between the
years 2008 and 2014. The Company also has seven U.S. trademark applications
pending.
The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to the Company. Although the Company has from time to time received
communications from third parties asserting that the Company's products
infringe or may infringe proprietary rights of third parties, the Company
believes that none of such claims, if determined adversely to the Company,
would have a material adverse effect on the Company's business, financial
condition or results of operations. In its distribution agreements, the
Company agrees to indemnify its customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of
third parties. In certain limited instances, the amount of such indemnities
may be greater than the revenues the Company may have received from the
customer. In the event of litigation to determine the validity of any third-
party claims, such litigation, whether or not determined in favor of the
Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel. In the event of
an adverse ruling in such litigation, the Company might be required to
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses from third
parties. There can be no assurance that licenses from third parties would be
available on reasonable commercial terms, if at all. In the event of a
successful claim against the Company and the failure of the Company to develop
or license a substitute technology, the Company's business, financial
condition and results of operations would be materially adversely affected.
The Company changed its name from Excel Inc. to Excel Switching Corporation in
September 1997. Searches performed on the term Excel have revealed several
registrations and numerous uses of that term, and terms substantially similar
to it, alone and in combination with other terms and designs. Accordingly,
there can be no assurance that third parties will not assert trademark
infringement claims relating to the name Excel Switching Corporation in the
future. See "Risk Factors--Dependence on Proprietary Rights."
EMPLOYEES
As of August 30, 1997, the Company employed 252 persons, including 97 in
engineering, research and development, 24 in customer service and support, 35
in selling and marketing, 52 in manufacturing and 44 in finance and
administration. None of the Company's employees is represented by a collective
bargaining arrangement, and the Company believes that its relations with its
employees are good. The Company expects to hire additional engineering, sales
and marketing personnel over the next 12 to 18 months to accommodate planned
domestic and international expansion. The hiring of additional personnel will
place additional demands on management's ability to assimilate, direct and
supervise a growing work force. There can be no assurance that the Company
will be successful in assimilating this growth in personnel. See "Risk
Factors--Management of Growth and Hiring of Additional Personnel."
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, engineering, customer support and
product development personnel. The loss of any of the key management or
technical personnel could have a material adverse effect on the Company. The
Company believes that its future success will depend in large part upon its
ability to attract and retain highly-skilled
35
<PAGE>
managerial, sales, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel. Competition for qualified personnel in the
Company's industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Key Personnel" and "Risk Factors--Management of Growth
and Hiring of Additional Personnel."
FACILITIES
The Company's headquarters total approximately 98,250 square feet and are
located in four buildings in Hyannis, Massachusetts. Two of the buildings,
totaling approximately 55,500 square feet, are owned by the Company and house
the engineering, sales, marketing and administrative functions of the Company.
These buildings are subject to a mortgage of approximately $2.4 million as of
June 28, 1997. The third building, approximately 25,750 square feet, is leased
by the Company and houses the manufacturing and manufacturing support
functions of the Company. The lease expires in July 2000, but contains an
option for an additional five-year term. An option to purchase this building
may be exercised at any time after August 1998. The Company intends to
exercise this option and, accordingly, has recorded this lease as a capital
transaction. The fourth building, approximately 17,000 square feet, is leased
by the Company until March 31, 1998 as temporary office space for research and
development activities. The Company also leases sales offices in San Jose and
San Diego, California; Atlanta, Georgia; White Plains, New York; Cleveland,
Ohio; and Grapevine, Texas. The Company intends to expand the capabilities and
size of these offices and open additional offices, both domestically and
internationally, as needs arise.
The Company significantly increased manufacturing capacity in the fourth
quarter of 1995 through the relocation of the facility to its current location
and the expansion of its manufacturing facility in 1996. Although the Company
anticipates that it will not require additional manufacturing space for at
least the next 12 months, the Company's business, financial condition and
results of operations could be materially adversely affected if it does not
expand manufacturing capacity as required.
The Company has also recently completed the purchase of additional property
to be used in the construction of a building, expected to be completed in
1998, adding approximately 46,000 square feet of space for engineering
activities. The Company believes that its current facilities and planned
expansions are adequate to meet its needs through the next 12 months. However,
due to the limited supply of suitable additional or alternative office and
manufacturing space in the Hyannis, Massachusetts area, there can be no
assurance that the Company will not be required, in the future, to invest
heavily in the renovation of space in the Hyannis vicinity or in relocating
the Company's headquarters. See "Risk Factors--Management of Growth and Hiring
of Additional Personnel" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert P. Madonna....... 37 President, Chief Executive Officer and Chairman of the Board
David C. Brajczewski.... 38 Vice President, Research and Development
Robert J. Buttel........ 49 Vice President, Advanced Technology
James W. Carroll........ 37 Vice President, Engineering
Stephen S. Galliker..... 50 Vice President, Finance and Administration, and Chief Financial Officer
Russell M. Levesque..... 37 Director of Product Management
Robert C. Panoff........ 50 Vice President, Marketing
Robert W. Ross.......... 48 Vice President, Sales
Christopher Stavros..... 44 Vice President, General Counsel, Director and Clerk
Gadi Tamari............. 52 Chief Operating Officer
</TABLE>
Robert P. Madonna founded the Company in January 1988 and has served as its
Chief Executive Officer, President and a Director since that time. Mr. Madonna
was elected Chairman of the Board of Directors in September 1997. Mr. Madonna
also served as the Company's Treasurer until June 1996 and Clerk until May
1997. From August 1984 to October 1987, Mr. Madonna was Director of Hardware
Engineering for Lan-Tel, Inc., a developer and manufacturer of PBX voice and
data switches. From January 1983 to July 1984, Mr. Madonna was a principal
engineer at American Science and Engineering, Inc., a manufacturer of CAT scan
imaging technology.
David C. Brajczewski joined the Company in April 1997 as Vice President,
Research and Development. From September 1988 to April 1997, Mr. Brajczewski
was employed by the Otis Elevator Company, a supplier of elevator systems and
a division of United Technologies Corporation, as part of its engineering
management team. From September 1987 to September 1988, Mr. Brajczewski was a
Project Engineer at Microtechnologies, Inc., a designer of microprocessor and
PC-based test and control systems. From May 1986 to September 1987, Mr.
Brajczewski was an Electrical Engineer at Lan-Tel, Inc.
Robert J. Buttel joined the Company in May 1989 as a design engineer. Prior
to his current position as Vice President, Advanced Technology, a position Mr.
Buttel has held since April 1997, Mr. Buttel held several positions at Excel
including Vice President, Research and Development, Vice President of
Engineering, Director of Hardware Development, Director of Software
Development and Manager of Manufacturing. From December 1985 to March 1989,
Mr. Buttel was employed by GTECH Holdings Corporation, a supplier of
computerized, on-line lottery products and services. While at GTECH, Mr.
Buttel held several positions including Design Engineer, Manager of Firmware
and Research and Development Engineer. From July 1984 to December 1985, Mr.
Buttel was a design engineer at Lan-Tel, Inc.
James W. Carroll joined the Company in August 1995 as Director of Corporate
Quality. Since November 1996, Mr. Carroll has served as Vice President,
Engineering. From December 1993 to August 1995 and from November 1990 to May
1992, Mr. Carroll was employed by Boston Technology, Inc., a designer and
manufacturer of central office enhanced services. From December 1993 to August
1995, Mr. Carroll was Manager of Operations and Customer Service Quality
Assurance and from November 1990 to May 1992, he was Senior Supplier, Quality
Assurance. From May 1992 to December 1993, Mr. Carroll was employed by Brite
Voice Systems, Inc., a manufacturer of voice processing systems. At Brite
Voice, Mr. Carroll was Director of Quality until March 1993 and Director of
Research and Development until December 1993.
Stephen S. Galliker joined the Company in July 1996 as Chief Financial
Officer and was elected Vice President, Finance and Administration in
September 1997. From September 1992 to June 1996, Mr. Galliker was employed by
Ultracision, Inc., a developer and manufacturer of ultrasonically powered
surgical instruments. At
37
<PAGE>
Ultracision, Inc., Mr. Galliker was Chief Financial Officer and Vice President
of Finance until November 1995 and Chief Operating Officer from December 1995
to June 1996. From June 1989 to September 1992, Mr. Galliker was Senior Vice
President, Operations/Finance and Chief Financial Officer at Tylink
Corporation, a manufacturer of high speed telecommunications equipment. Mr.
Galliker is a Certified Public Accountant.
Russell M. Levesque joined the Company in May 1992 as Director of Software.
Since June 1995, Mr. Levesque has served as the Company's Director of Product
Management. From July 1986 to April 1992, Mr. Levesque served as Software
Engineering Manager at Imaging Technologies, Inc., a manufacturer of image
processing hardware and software products for the image inspection and image
analysis markets.
Robert C. Panoff joined the Company in January 1997 as Vice President,
Marketing. From February 1986 to December 1996, Mr. Panoff was employed by
Natural MicroSystems Corporation, a designer and manufacturer of PC-based call
processing hardware and software components where he held several positions
including Vice President and General Manager of the European group from 1994
through 1996, Vice President of New Business Development from 1990 to 1994,
Vice President, Sales and Marketing from 1987 to 1990 and Vice President,
Marketing from 1986 to 1987.
Robert W. Ross joined the Company in February 1995 as Director of Sales and
became Vice President, Sales in August 1996. From June 1994 to January 1995,
Mr. Ross was a Director of Telecommunications Sales for Switchcraft, a
division of Raytheon Company and a supplier of components for the audio/video,
telecommunications, computer, medical, military, appliance, transportation and
instrumentation industries. From January 1994 to June 1994, Mr. Ross was
Regional Vice President of Sales for a division of Augat, Inc., a manufacturer
of telecommunications equipment. From September 1982 to October 1993, Mr. Ross
was employed by ADC Telecommunications, Inc., a manufacturer and designer of
transmission, networking and connectivity products. During his tenure at ADC,
Mr. Ross held several different positions, including National Sales Manager
and Regional Sales Manager for the NYNEX region.
Christopher Stavros joined the Company in August 1995 as General Counsel and
was elected a director in December 1995 and Vice President in September 1997.
From January 1992 to August 1995, Mr. Stavros was a member of the law firm of
DeVito, Pransky and Stavros, P.A. Prior to 1992, Mr. Stavros maintained his
own private practice concentrating in small business and general corporate law
in Boston, Massachusetts.
Gadi Tamari joined the Company in November 1996 as Chief Operating Officer.
From February 1990 until joining Excel, Mr. Tamari was a consultant to various
telecommunications companies based in both Israel and the United States. In
addition to his work as a consultant, from February 1996 to October 1996, Mr.
Tamari was President of ALNO Networks USA, an importer and distributor of
household goods. From February 1988 to January 1990, Mr. Tamari served as
Director of East Coast Operations at Credence Systems Corporation, a designer
and manufacturer of automatic test equipment for digital and mixed signal
semiconductors. From September 1986 to January 1988, Mr. Tamari was Vice
President, Operations at Lan-Tel, Inc.
The Company has received commitments from three individuals, Edward L.
Breslow, William J. Cadogan and John Loughlin, to serve as members of the
Board of Directors of the Company, with terms to commence upon the date of
this Prospectus. Each of these individuals would be considered an "independent
director" having no employment or other business relationship with the
Company. It is anticipated that two or more of these individuals will serve,
at least initially, on each of the Audit and Compensation Committees of the
Board of Directors of the Company. The following is summarized biographical
information about these individuals:
Edward L. Breslow, age 50, has been Vice President, Corporate Business
Development of EMC Corporation since December 1988. EMC Corporation is a
supplier of enterprise-wide intelligent information storage and retrieval
solutions. Prior to joining EMC Corporation, Mr. Breslow held various
financial management positions at Bose Corporation, a consumer electronics
company, and Texas Instruments, Inc., a diversified technology company.
38
<PAGE>
William J. Cadogan, age 49, is currently Chairman of the Board, President
and Chief Executive Officer of ADC Telecommunications, Inc., a
telecommunications company. Mr. Cadogan was elected Chairman in February 1994
and President and Chief Executive Officer in July 1991. From 1987 until 1991,
Mr. Cadogan was Vice President -- Private Network Marketing, Vice President --
Product Development and Senior Vice President of the Telecom Group at ADC.
Prior to joining ADC, Mr. Cadogan was General Manager of Business Development
at the International Telecommunications Satellite Organization. Mr. Cadogan is
also a director of Pentair Corporation and Banta Corporation.
John Loughlin, age 46, has been a human resources consultant providing
staffing and human resource services to technology and financial services
clients, including the Company, since 1986. From 1981 to 1986, Mr. Loughlin
served as Director of Human Resources at American Science & Engineering, Inc.
The Company's By-laws provide for the Company's Board of Directors to be
comprised of as many directors as are designated from time to time by the
Board of Directors or by the stockholders of the Company but, in any event,
not less than three at any time the Company has more than two stockholders.
The Board is currently comprised of two members. Each director holds office
until his successor is duly elected and qualified, or until his earlier death,
resignation or removal.
Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors, and serve until their successors have
been duly elected and qualified. There are no family relationships among any
of the executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
In September 1997 the Board of Directors established a Compensation
Committee and an Audit Committee. The Compensation Committee will make
recommendations concerning the salaries and incentive compensation of
management and key employees of the Company and administers the Company's
stock plans. The Audit Committee will be responsible for reviewing the results
and scope of audits and other services provided by the Company's independent
public accountants and reviewing the Company's internal controls. Upon
completion of this offering, the members of the Audit Committee will be
Messrs. Breslow, Cadogan and Loughlin, each an independent and disinterested
director of the Company.
DIRECTOR COMPENSATION
Following the consummation of this offering, non-employee directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors. No director who is an employee of the
Company will receive separate compensation for services rendered as a
director. Mr. Loughlin received nominal consideration for service as a
consultant to the Company in 1997. Non-employee directors are also eligible
for participation in the Company's 1997 Non-Employee Director Stock Option
Plan. See "Management--Stock Plans."
39
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information with
respect to the compensation paid to or accrued by the Company for services
rendered during the fiscal year ended December 28, 1996 by the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers whose annual salary and bonus for the fiscal year ended December 28,
1996 exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION(2)
--------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(3) OPTIONS (#)
- --------------------------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Robert P. Madonna
President, Chief Execu-
tive Officer and
Chairman of the Board of
Directors............... $240,773 $ 69,000 $9,300 --
Robert J. Buttel
Vice President, Advanced
Technology............. 95,446 20,000 8,140 --
Stephen S. Galliker(4)
Vice President, Finance
and Administration, and
Chief Financial Offi-
cer..................... 67,993(5) 10,000 4,836 300,000
Russell M. Levesque
Director of Product Man-
agement................ 97,928 25,000 8,779 --
Robert W. Ross
Vice President, Sales... 83,296 123,924(6) 9,300 60,000
Christopher Stavros
Vice President, General
Counsel and Clerk....... 128,077 16,800 9,298 --
Gadi Tamari(7)
Chief Operating Offi-
cer.................... 39,135(8) 2,200 -- 600,000
</TABLE>
- --------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executive Officers
which are available generally to all salaried employees of the Company and
certain perquisites and other personal benefits, securities or property
received by the Named Executive Officers which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this
table.
(2) Represents stock options granted during the fiscal year ended December 28,
1996. The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
1996.
(3) Represents contributions made by the Company to the Named Executive
Officer under the Company's 401(k) plan.
(4) Mr. Galliker joined the Company in July 1996.
(5) Mr. Galliker would have earned a total annual salary of $140,000 had he
been employed as an executive officer of the Company for the entire fiscal
year ended December 28, 1996.
(6) Includes commissions earned during the fiscal year ended December 28, 1996.
(7) Mr. Tamari joined the Company in November 1996.
(8) Mr. Tamari would have earned a total annual salary of $175,000 had he been
employed as an executive officer of the Company for the entire fiscal year
ended December 28, 1996.
40
<PAGE>
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 28, 1996 to the Named
Executive Officers. The Company did not grant any stock appreciation rights
("SARs") during the fiscal year ended December 28, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
------------------------------------------------ --------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR(1) SHARE DATE 5% 10%
- ---- ---------- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Madonna....... -- -- -- -- -- --
Robert J. Buttel........ -- -- -- -- -- --
Stephen S. Galliker..... 300,000(3) 15.0% $2.33 07/16/06 $ 440,258 $1,115,699
Russell M. Levesque..... -- -- -- -- -- --
Robert W. Ross.......... 60,000(4) 3.0 4.50 09/27/06 169,802 430,310
Christopher Stavros..... -- -- -- -- -- --
Gadi Tamari............. 600,000(3) 30.0 5.00 11/20/06 1,886,684 4,781,227
</TABLE>
- --------
(1) Based on an aggregate of 1,997,500 shares subject to options granted to
employees of the Company in 1996.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date, and are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock. The gains shown
are net of the option exercise price, but do not include deductions for
federal or state income taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares. The actual
gains, if any, on the stock option exercises will depend on the future
performance of the Common Stock, the optionholder's continued employment
through the option period and the date on which the options are exercised.
(3) Options granted will vest and become exercisable over five years in the
following installments: 20% of the total options granted will vest each
year on the anniversary of the respective dates of grant in 1997, 1998,
1999, 2000 and 2001.
(4) Options granted will vest and become exercisable over five years in the
following installments: 10% of the total options granted will vest on the
anniversary of the date of grant in each of 1997 and 1998, 20% of the
total options granted will vest on the anniversary of the date of grant in
each of 1999 and 2000 and the remaining 40% of the total options granted
will vest on the anniversary of the date of grant in 2001.
41
<PAGE>
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive
Officers as of December 28, 1996. No SARs or stock options were exercised
during the fiscal year ended December 28, 1996 by any Named Executive Officer.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Madonna........... -- -- -- --
Robert J. Buttel............ 1,397,280 -- $20,956,894 --
Stephen S. Galliker......... -- 300,000 -- $3,799,995
Russell M. Levesque......... 546,000 204,000 8,153,357 3,020,900
Robert W. Ross.............. 21,600 98,400 316,800 1,193,199
Christopher Stavros......... 300,000 150,000 4,399,995 2,199,998
Gadi Tamari................. -- 600,000 -- 6,000,000
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of December 28,
1996. Accordingly, as permitted by the rules of the Securities and
Exchange Commission, these values have been calculated on the basis of an
assumed initial public offering price of $15.00 per share, less the
applicable exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to September 1997, the Company had no separate compensation committee
or other board committee performing equivalent functions, and these functions
were performed by the Company's Board of Directors which consisted of Robert
P. Madonna, the Company's President, Chief Executive Officer, Chairman of the
Board and principal stockholder, and Christopher Stavros, Vice President and
General Counsel of the Company.
STOCK PLANS
Stock Option Program. Until September 1997, the Company had an informal
stock option program under which selected employees were granted non-qualified
options to purchase shares of Non-Voting Common Stock. The primary purpose of
this program had been to provide long-term incentives to the Company's
selected employees and to further align their interests with those of the
Company. The selection of the participants, the determination of the number of
shares of Common Stock offered to each participant, the terms of the
repurchase rights for each participant and other terms of sale had been made
by the Company's President, Chief Executive Officer and principal stockholder,
Robert P. Madonna, and Christopher Stavros, Vice President and General
Counsel. Options granted under this informal plan are generally exercisable
within ten years of the original grant date and generally vest over a period
of five years from the date of grant. As of August 30, 1997, options to
purchase 11,240,840 shares of Common Stock, at a weighted average exercise
price of $1.49 per share, have been granted under this program, of which
options to purchase 144,000 shares of Common Stock have been exercised and
options to purchase 226,000 shares of Common Stock have been cancelled. The
Board of Directors voted to terminate this program as of the date of this
Prospectus.
1997 Stock Option Plan. The Company's 1997 Stock Option Plan (the "1997
Plan") was adopted by the Board of Directors and approved by the Company's
sole voting stockholder in September 1997. Under the terms of the 1997 Plan,
the Company is authorized to grant incentive ("ISO") and non-qualified stock
options (collectively, "Stock Options") to officers and other employees of and
consultants to the Company. The aggregate number of shares of Common Stock
which may be issued pursuant to the Plan is 3,000,000.
42
<PAGE>
The 1997 Plan will be administered by the Compensation Committee of the
Board of Directors, which is expected to consist of two disinterested
directors. Subject to the provisions of the 1997 Plan, the Compensation
Committee has the authority to select the optionees and determine the terms of
the stock options granted under the 1997 Plan, including: (i) the time or
times at which stock options may be granted; (ii) whether the stock option
granted will be an ISO or a non-qualified stock option; (iii) the number of
shares subject to each stock option; (iv) when the stock option becomes
exercisable; (v) the exercise price of the stock option, which in the case of
an ISO cannot be less than the fair market value of the Common Stock as of the
date of grant, or not less than 110% of the fair market value in the case of
ISO's granted to an employee or officer holding 10% or more of the voting
stock of the Company; (vi) the duration of the stock option; and (vii) the
time, manner and form of payment upon exercise of a Stock Option. A Stock
Option is not transferable by the recipient except by will or by the laws of
descent and distribution, or in the case of non-qualified stock options, only
to the extent set forth in the agreement relating to such option or pursuant
to a valid domestic relations order. Generally, no ISO may be exercised more
than 90 days following termination of employment and no stock options may be
exercised following termination of employment for cause. However, in the event
that termination is due to death or disability, the stock option is
exercisable for a maximum of 180 days after such termination. The term of the
1997 Plan is ten years, unless sooner terminated by vote of the Board of
Directors. To date, no stock options have been granted pursuant to the 1997
Plan.
1997 Non-Employee Director Stock Option Plan. The Company's 1997 Non-
Employee Director Stock Option Plan (the "Director Option Plan") was adopted
by the Board of Directors and approved by the Company's sole voting
stockholder in September 1997. The Director Option Plan provides for the grant
of options to purchase a maximum of 225,000 shares of Common Stock of the
Company to non-employee directors of the Company.
The Director Option Plan is administered by the Compensation Committee of
the Board of Directors. Under the Director Option Plan, each non-employee
director who (i) is a member of the Board of Directors on September 16, 1997
(the "Approval Date") shall be automatically granted on the Approval Date, or
(ii) first becomes a member of the Board of Directors shall be granted on the
date such person first becomes a non-employee director, an option to purchase
30,000 shares of Common Stock. In addition, each non-employee director will be
automatically granted an option to purchase 15,000 shares of Common Stock for
each of the two years following the date such person first became a non-
employee director, through December 1999. Options granted upon election to the
Board under the Director Option Plan will vest as to one third of the total
shares underlying the option immediately upon grant and one third of the total
shares underlying the option on the anniversary of the date of grant for each
of the following two years, provided that the optionee has continuously served
as a director through such vesting dates. All other options granted under the
Director Option Plan will vest at a rate of one third of the total shares
underlying the option per year over a period of three years provided that the
optionee has continuously served as a director through such vesting dates. The
optionee may forfeit a portion of his or her exercise rights with respect to
options vesting in any fiscal year unless the optionee attends at least 75% of
the Board meetings held in that year. All options granted under the Director
Option Plan will have an exercise price equal to the fair market value of the
Common Stock on the date of grant and a term of ten years from the date of
grant. Options may not be transferred except by will or by the laws of descent
and distribution or pursuant to a domestic relations order. If the optionee
ceases to be a member of the Board for any reason other than death or
disability, any unvested options immediately terminate and become void and any
unexercised portion of an option which is then vested may be exercised at any
time prior to the scheduled expiration date of the option. However, if an
optionee ceases to serve as a director of the Company due to death or
disability, all unvested options become fully vested and are exercisable for a
period of one year thereafter and any options that are vested and exercisable
when the optionee ceases to serve as a director are exercisable at any time
until the scheduled expiration date of the option. The term of the Director
Option Plan is ten years, unless sooner terminated by vote of the Board of
Directors. Upon joining the Board, each of Messrs. Breslow, Cadogan and
Loughlin will be granted options for the purchase of 30,000 shares of Common
Stock at an exercise price equal to the initial public offering price.
43
<PAGE>
1997 Employee Stock Purchase Plan. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") was adopted by the Board of Directors and approved
by the Company's sole voting stockholder in September 1997. The 1997 Purchase
Plan provides for the issuance of a maximum of 400,000 shares of Common Stock
pursuant to the exercise of nontransferable options granted to participating
employees.
The 1997 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
are eligible to participate in the 1997 Purchase Plan. Employees who would own
5% or more of the total combined voting power or value of the Company's stock
immediately after the grant and non-employee directors may not participate in
the 1997 Purchase Plan. To participate in the 1997 Purchase Plan, an employee
must authorize the Company to deduct an amount (not less than one percent nor
more than ten percent of a participant's total cash compensation) from his or
her pay during six-month payment periods (the "Payment Period"). The first
Payment Period will commence upon the initial offering of the Company's Common
Stock to the public and will end on June 30, 1998. Thereafter, the Payment
Periods will commence on January 1 and July 1 of each year, but in no case
shall an employee be entitled to purchase more than 500 shares in any one
Payment Period. The exercise price for the option granted in each Payment
Period is 85% of the lesser of the market price of the Common Stock on the
first or last business day of the Payment Period. If an employee is not a
participant on the last day of the Payment Period, such employee is not
entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded. Options granted under the
1997 Purchase Plan may not be transferred or assigned. An employee's rights
under the 1997 Purchase Plan terminate upon his or her voluntary withdrawal
from the plan at any time or upon termination of employment. No options have
been granted to date under the 1997 Purchase Plan.
401(K) PLAN
The Company has a Section 401(k) Retirement Savings Plan (the "401(k)
Plan"). The 401(k) Plan is a tax-qualified plan covering Company employees who
are over 21 years of age. Under the 401(k) Plan, participants may elect to
defer a portion of their compensation, subject to certain limitations. In
addition, at the discretion of the Board of Directors, the Company may make
profit sharing contributions into the 401(k) Plan for all eligible employees.
During 1996, the Company contributed $534,000 to the 401(k) Plan.
CERTAIN TRANSACTIONS
During December 1991, Mr. Madonna, the Company's President, Chief Executive
Officer, Chairman of the Board and principal stockholder, loaned $300,000 to
the Company under a demand note bearing interest at a rate of 10% per annum.
In December 1993, Mr. Madonna loaned an additional $300,000 to the Company
under a demand note bearing interest at a rate of 6% per annum. At December
31, 1994, the Company had paid in full the principal amount of such loans plus
interest to Mr. Madonna.
The Company has adopted a policy that all transactions between the Company
and its officers, directors, principal stockholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 30, 1997 and as adjusted
to reflect the sale of the shares offered hereby by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer of the
Company, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated below, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law. The address of each person listed below is c/o
Excel Switching Corporation, 255 Independence Drive, Hyannis, Massachusetts
02601.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)(9)
----------------------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------------ ---------------------- ----------
<S> <C> <C> <C> <C>
Robert P. Madonna(2)............... 27,945,600 99.5% 27,945,600 85.8%
Robert J. Buttel(3)................ 1,397,280 4.7 1,397,280 4.1
Russell M. Levesque(4)............. 606,000 2.1 606,000 1.8
Christopher Stavros(5)............. 450,000 1.6 450,000 1.4
Robert W. Ross(6).................. 37,200 * 37,200 *
Stephen S. Galliker(7)............. 60,000 * 60,000 *
Gadi Tamari........................ 0 * 0 *
All executive officers and
directors as a group
(10 persons)(8)................... 30,514,080 99.5% 30,514,080 86.8%
</TABLE>
- --------
*Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes: (i) 28,089,600 shares of Common Stock outstanding as of
August 30, 1997; and (ii) shares issuable pursuant to options held by the
respective person which may be exercised within 60 days after August 30,
1997, as set forth below. The number of shares of Common Stock deemed
outstanding after this offering includes an additional 4,500,000 shares of
Common Stock being offered for sale by the Company in this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to the shares.
(2) Includes 4,191,840 shares of Common Stock held by the Madonna Family
Limited Partnership of which Mr. Madonna is both a general and a limited
partner.
(3) Consists of 1,397,280 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 30,
1997.
(4) Consists of 606,000 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 30,
1997.
(5) Consists of 450,000 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 30,
1997.
(6) Consists of 37,200 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 30,
1997.
(7) Consists of 60,000 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August
30,1997.
(8) Includes 2,568,480 shares of Common Stock issuable upon the exercise of
stock options, which options are exercisable within 60 days of August 30,
1997.
(9) The above table assumes no exercise of the over-allotment option to
purchase up to an aggregate of 675,000 shares of Common Stock from the
Selling Stockholder, Robert Madonna. If the Underwriters exercise their
over-allotment option in full, the number of shares sold, the number of
shares beneficially owned and the percentage of ownership after the
offering for Mr. Madonna, the sole Selling Stockholder, would be: 675,000,
27,270,600 and 83.7%, respectively.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock of
the Company will consist of 100,000,000 shares of Common Stock, $.01 par value
per share, and 10,000,000 shares of Preferred Stock, $.01 par value per share.
The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Restated Articles of
Organization (the "Charter") and Restated By-laws (the "By-laws"), filed as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
As of August 30, 1997, there were 28,089,600 shares of Common Stock
outstanding held by two stockholders of record. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
4,500,000 shares of Common Stock offered by the Company hereby, there will be
32,589,600 shares of Common Stock outstanding upon the closing of this
offering. In addition, as of August 30, 1997, there were outstanding stock
options for the purchase of a total of 10,870,840 shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to vote in such
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities of the Company, subject to the prior rights of any
outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights, nor are they entitled to the
benefit of any sinking fund. The outstanding shares of Common Stock are, and
the shares offered by the Company in this offering will be, when issued and
paid for, validly issued, fully paid and nonassessable. The rights, powers,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of up to 10,000,000 shares of Preferred Stock, in one
or more series. Each such series of Preferred Stock shall have such number of
shares, designations, preferences, voting powers, qualifications and special
or relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights. There are no shares of Preferred Stock currently
outstanding.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to the rights of holders of any Preferred Stock issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of Common
Stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of Preferred Stock.
46
<PAGE>
MASSACHUSETTS LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER
EFFECTS
Because the Company will have more than 200 stockholders of record after the
offering, it will be subject to Chapter 110F of the Massachusetts General
Laws, an anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
the interested stockholder obtains the approval of the Board of Directors
prior to becoming an interested stockholder, (ii) the interested stockholder
acquires 90% of the outstanding voting stock of the corporation (excluding
shares held by certain affiliates of the corporation) at the time it becomes
an interested stockholder, or (iii) the business combination is approved by
both the Board of Directors and the holders of two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder). An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 5% or more of the outstanding voting stock of the corporation. A
"business combination" includes a merger, a stock or asset sale, and certain
other transactions resulting in a financial benefit to the interested
stockholders. By a vote of a majority of its stockholders, the Company has
elected not to be governed by Chapter 110F, but such amendment will not be
effective for twelve months and will not apply to a business combination with
any person who became an interested stockholder prior to the adoption of the
amendment. Prior to the adoption of the amendment, no person became an
interested stockholder with respect to the Company.
The By-laws include a provision excluding the Company from the applicability
of Massachusetts General Laws Chapter 110D, entitled "Regulation of Control
Share Acquisitions." Under Chapter 110D, any stockholder of a corporation
subject to this statute who acquires 20% or more of the outstanding voting
stock of a corporation may not vote such stock unless the stockholders holding
a majority of the outstanding voting stock (excluding the interested shares)
of the corporation so authorize. The Board of Directors may amend the By-laws
at any time to subject the Company to this statute prospectively.
The By-laws also require that a stockholder seeking to have any business
conducted at a meeting of stockholders give notice to the Company not less
than 90 and not more than 120 days prior to the scheduled meeting, provided in
certain circumstances that a ten-day notice rule applies. The notice from the
stockholders must describe the proposed business to be brought before the
meeting and include information about the stockholder making the proposal, any
beneficial owner on whose behalf the proposal is made and any other
stockholder known to be supporting the proposal. The By-laws require the
Company to call a special stockholders meeting at the request of stockholders
holding at least 40% of the voting power of the Company.
The Charter provides that shares of the Company's Preferred Stock may be
issued in the future without stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. See "Description of Capital Stock--Preferred
Stock."
Chapter 156B of the Massachusetts General Laws, Section 50A, generally
requires that publicly held Massachusetts corporations have a classified board
of directors consisting of three classes as nearly equal in size as possible,
unless those corporations elect to opt out of the statutes coverage. By vote
of the Board of Directors, the Company has elected to opt out of the
requirements of the classified board provisions of Section 50A.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The By-laws provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Massachusetts
law, as it now exists or may in the future be amended, against all expenses
and liabilities reasonably incurred in connection with the service for or on
behalf of the Company. In addition, the Charter provides that the directors of
the Company will not be personally liable for monetary
47
<PAGE>
damages to the Company for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to the Company or its stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 32,589,600 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 4,500,000 shares (5,175,000 shares if the over-allotment
option is exercised in full) to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased
by affiliates of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 28,089,600 shares of Common Stock outstanding upon completion
of this offering are deemed "Restricted Shares" under Rule 144 or Rule 701
under the Securities Act. Subject to the lock-up agreements described below
(the "Lock-up Agreements"), approximately 144,000 of such Restricted Shares
will be eligible for sale in the public market pursuant to Rule 144(k) on the
date of this Prospectus. Upon expiration of the Lock-up Agreements, 180 days
after the date of this Prospectus, an additional 27,945,600 shares of Common
Stock will be eligible for sale in the public market pursuant to Rule 144
under the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an Affiliate, who has beneficially owned Restricted
Shares for at least one year is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock (approximately 325,896
shares immediately after this offering) or (ii) the average weekly trading
volume in the Common Stock in the over-the-counter market during the four
calendar weeks preceding the date on which notice of such sale is filed,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, Affiliates must
comply with the restrictions and requirements of Rule 144, other than the one-
year holding period requirement, in order to sell shares of Common Stock which
are not restricted securities. Under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale and who has beneficially owned Restricted Shares for at least two years
may resell such shares without compliance with the foregoing requirements. In
meeting the one and two year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate. The one and two year holding periods described above do not
begin to run until the full purchase price or other consideration is paid by
the person acquiring the Restricted Shares from the issuer or an Affiliate.
Rule 701 provides that currently outstanding shares of Common Stock acquired
under the Company's employee compensation plans may be resold by persons,
other than Affiliates, beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by Affiliates
under Rule 144 without compliance with its one-year minimum holding period,
subject to certain limitations.
OPTIONS
Rule 701 also provides that the shares of Common Stock acquired upon the
exercise of currently outstanding options issued under the Company's stock
plans may be resold by persons, other than Affiliates, beginning 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144, without compliance with its one-
year minimum holding period, subject to certain limitations. At August 30,
1997, approximately 6,731,940 shares of Common Stock were issued or issuable
pursuant to vested options under the Company's stock program, of which
approximately 55,800 shares are not subject to Lock-up Agreements with the
Underwriters and will be eligible for sale in the public market in accordance
with Rule 701 under the Securities Act beginning 90 days after the date of
this Prospectus.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act, approximately 180 days after the date of this
Prospectus, to register up to 10,870,840 shares of Common Stock subject to
outstanding stock options granted pursuant to the Company's stock option
program as of August 30, 1997, including the 6,731,940 shares of Common Stock
subject to options vested as of August 30, 1997, and 3,625,000 shares of
Common Stock issuable pursuant to the Company's 1997 stock plans. Such
registration statements are expected to become effective upon filing. At such
time, approximately 7,358,610 shares of Common Stock issuable upon the
exercise of options granted as of August 30, 1997 and covered by these
registration statements will be vested and eligible for sale in the public
market upon the exercise of underlying options to the extent not previously
sold pursuant to Rule 701.
49
<PAGE>
LOCK-UP AGREEMENTS
Subject to certain limited exceptions, the Company, the executive officers
and directors, the Selling Stockholder and certain other securityholders have
agreed not to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) without the prior written consent of Morgan
Stanley & Co. Incorporated for a period of 180 days from the date of this
Prospectus. In addition, for a period of 180 days from the date of this
Prospectus, except as required by law, the Company has agreed that its Board
of Directors will not consent to any offer for sale, sale or other
disposition, or any transaction which is designed or could be expected, to
result in, the disposition by any person, directly or indirectly, of any
shares of Common Stock without the prior written consent of Morgan Stanley &
Co. Incorporated. See "Underwriters."
REGISTRATION RIGHTS
No securityholders of the Company are entitled to require the Company to
register any securities of the Company under the Securities Act.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made as to the effect, if any, that
market sales of shares of Common Stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for the
Common Stock. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely effect prevailing market prices
for the Common Stock and could impair the Company's future ability to obtain
capital through an offering of equity securities.
50
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus, the Underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC and NationsBanc
Montgomery Securities, Inc. are acting as Representatives (the
"Underwriters"), have severally agreed to purchase, and the Company has agreed
to sell to them, the respective number of shares of Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Hambrecht & Quist LLC..............................................
NationsBanc Montgomery Securities, Inc. ...........................
---------
Total........................................................ 4,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to
take and pay for all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, this offering price and other
selling terms may from time to time be varied by the Underwriters.
Mr. Madonna, the Selling Stockholder, has granted the Underwriters an
option, exercisable for 30 days from the date of the Prospectus, to purchase
up to an additional 675,000 shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option to purchase solely for
the purpose of covering over-allotments, if any, made in connection with this
offering. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered by the Underwriters hereby.
The Underwriters have reserved up to 225,000 shares of the Common Stock
offered hereby for sale at the public offering price to certain employees,
consultants and other persons associated with the Company. The number of
shares of Common Stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
Subject to certain limited exceptions, the Company and the executive
officers and directors of the Company, the Selling Stockholder and certain
other securityholders have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not (a) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are then owned by
such person or are thereafter acquired), or (b) enter into any swap or other
arrangement that transfers
51
<PAGE>
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transactions described in clause (a) or
(b) of this paragraph is to be settled by delivery of such Common Stock or
such other securities, in cash or otherwise for a period of 180 days after the
date of this Prospectus.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives of the
Underwriters. Among the factors to be considered in determining the initial
public offering price are the future prospects of the Company and its industry
in general, net revenues, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
certain other ratios, and market prices of securities and certain financial
operating information of companies engaged in activities similar to those of
the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements and Financial Statement Schedule of
the Company as of December 31, 1995 and December 28, 1996 and for the three
years in the period ended December 28, 1996 included in this Prospectus and
elsewhere included in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
The statements in this Prospectus relating to patent matters under the
caption "Risk Factors--Dependence on Proprietary Rights" and "Business--
Intellectual Property" have been reviewed and approved by the Company's patent
counsel, Cesari and McKenna, LLP. The statements are included herein in
reliance upon the review and approval by such firm as experts in patent law.
52
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement may be inspected without charge at
the principal office of the Commission in Washington, D.C. and copies of all
or any part of which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can also be obtained at prescribed
rates by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.
53
<PAGE>
GLOSSARY OF TERMS
CDMA (Code Division Multiple A new form of digital cellular telephone
Access)............................ service. CDMA works by spreading signals
across a broad frequency spectrum and
assigning a unique code to each signal.
Central Office or Central Office
Switch............................. A term commonly used to describe the
location of the switching equipment that
is used to re-direct telephone calls.
CLEC (Competitive Local Exchange
Carrier)........................... A company that provides customers with an
alternative to the local telephone
company for a wide range of services,
including private line, special access,
switched access, local dial tone and
enhanced services. CLECs are also
referred to in the industry as
Competitive Access Providers.
Conference Bridging................ A telecommunications service which
permits calls from several diverse
locations to be connected together for a
conference call.
DASS2.............................. A message-based signaling system to
provide multi-line interconnection.
DSP (Digital Signal Processor)..... A microprocessor that acts upon digital
signals in a more powerful and efficient
manner than that provided by conventional
microprocessors.
DSS (Distributed Switching
System)............................ A switching regime that processes
incoming calls from widely dispersed
locations and routes them to different,
widely dispersed locations.
E-1................................ The European equivalent of the North
American T-1 telecommunication signal
which allows for the transmission of
simultaneous voice conversations.
GSM (Groupe Speciale Mobile)....... A new digital European cellular phone
system that will allow European travelers
to use a single cellular phone in many
European countries.
International Call Back............ A process whereby a call that originates
in a foreign country is not completed,
and effectively re-dialed from the United
States at significantly lower rates than
those prevailing in the foreign country.
ISDN (Integrated Services Digital
Network)........................... A means of transmitting both voice and
data simultaneously over the same line.
Primary rate ISDN consists of 24 channels
operating at 64 Kbps, thereby producing a
transmission capability of 1.5 Mbps.
ISO (International Standards
Organization)...................... ISO is the International Standards
Organization responsible for outlining
requirements for the quality system of an
organization.
IXC (InterExchange Carrier)........ A long distance telephone company, as
contrasted to the LEC--the Local Exchange
Carrier. AT&T, MCI, Sprint and all long
distance carriers are commonly called
IXCs.
54
<PAGE>
J-1................................ Excel term for the Japanese equivalent of
the E-1 telecommunication interface.
LEC (Local Exchange Carrier)....... A company providing local telephone
services, also referred to in the
industry as a "local exchange telephone
company." These include the RBOCs, GTE
and more than 1,000 other independent
carriers.
Line Cards......................... A plug-in component that operates certain
features associated with telephone
equipment.
PCS (Personal Communications
Services).......................... Digital wireless communications services
which use a microcell technology and
operate at a higher speed and frequency
than cellular systems.
Port............................... An entrance to or exit from a switch or a
network. The interface between a process
or program and a communications or
transmission facility. A point in the
computer or telephone system where data
may be accessed.
Prepaid Debit Card................. A debit (calling) card which allows the
purchaser to purchase, in advance, a
given amount of long distance minutes.
Upon completion of the call, the card is
debited the number of minutes actually
used. Also called a "prepaid calling
card."
PTT (Postal Telephone and
Telegraph)......................... Companies, usually controlled by
government agencies, which provide
telephone and telecommunication services
in foreign countries.
RBOC (Regional Bell Operating
Company)........................... Any of the regional companies created by
the AT&T divestiture to take over
ownership of the Bell operating companies
within their region. They are Ameritech,
Bell Atlantic, BellSouth, Pacific
Telesis, SBC Communications and US West.
SS7 (Signaling System 7)........... All telephone systems require signaling,
which is the transmission of electrical
signals to and from the user's premises
and to the telephone company central
office. Signals serve the three basic
functions of supervising, alerting and
addressing. Supervising consists of
monitoring the status of a line or
circuit to see if it is busy, idle or
requesting service. Alerting consists of
indicating the arrival of an incoming
call. Addressing consists of transmitting
routing and destination signals over the
network.
Switch............................. A switch connects all originating call
locations with the final destination of
the call or with other intermediate
switches. Switches consist of a hardware
platform having ports connecting to
incoming and outgoing lines. Switches can
be tandem and/or digital. Tandem switches
connect trunks to each other and pass the
calls to desired destinations. Digital
switches employ a sequence of binary
encoded pulses along the connection.
55
<PAGE>
T-1................................ A North American standard
telecommunications industry signal formal
which allows for the transmission of 24
simultaneous voice conversations.
Unified Messaging.................. An integrated messaging service providing
voice, fax, electronic mail, image and
video via a local area network.
56
<PAGE>
EXCEL SWITCHING CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excel Switching Corporation:
We have audited the accompanying consolidated balance sheets of Excel
Switching Corporation (a Massachusetts corporation formerly known as Excel
Inc.) and subsidiaries as of December 31, 1995 and December 28, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 28, 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 financial position of Excel
Switching Corporation and subsidiaries as of December 31, 1995 and December
28, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 3, 1997
F-2
<PAGE>
EXCEL SWITCHING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28, JUNE 28,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 770 $ 4,069 $ 9,225
Marketable securities.................. -- -- 3,001
Accounts receivable, net of reserves of
$653, $979 and $1,150 in 1995, 1996
and 1997, respectively................ 8,308 10,329 12,339
Inventories............................ 6,949 7,358 5,714
Prepaid taxes.......................... 401 -- --
Deferred tax asset..................... 507 3,761 4,819
Prepaid expenses....................... 161 292 138
------- ------- -------
Total current assets............... 17,096 25,809 35,236
------- ------- -------
Property and equipment:
Buildings.............................. 3,735 3,925 4,014
Test equipment......................... 962 3,400 4,052
Office equipment, furniture and fix-
tures................................. 649 1,836 2,339
Land................................... 576 576 576
Building improvements.................. 255 493 504
Assets under capital lease............. -- 489 489
------- ------- -------
6,177 10,719 11,974
Less--Accumulated depreciation and am-
ortization............................ 590 1,756 2,764
------- ------- -------
5,587 8,963 9,210
------- ------- -------
$22,683 $34,772 $44,446
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term obliga-
tions................................. $ 261 $ 499 $ 508
Accounts payable....................... 4,369 1,896 3,137
Accrued expenses....................... 1,931 5,807 8,366
Accrued income taxes................... 297 2,647 1,310
------- ------- -------
Total current liabilities.......... 6,858 10,849 13,321
------- ------- -------
Deferred income taxes.................... 163 -- --
------- ------- -------
Long-term obligations, less current matu-
rities.................................. 3,537 3,837 3,584
------- ------- -------
Commitments (Note 6)
Stockholders' Equity:
Preferred stock, $.01 par value--
Authorized--10,000,000 shares; no
shares issued and outstanding....... -- -- --
Common stock, $.01 par value (Note
5(a))--
Authorized--100,000,000 shares
Issued and outstanding--28,089,600
shares.............................. 281 281 281
Additional paid-in capital............. 667 647 1,007
Deferred compensation.................. (272) (192) (517)
Retained earnings...................... 11,449 19,350 26,770
------- ------- -------
Total stockholders' equity......... 12,125 20,086 27,541
------- ------- -------
$22,683 $34,772 $44,446
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
EXCEL SWITCHING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------ -------------------
DECEMBER 31,
---------------- DECEMBER 28, JUNE 30, JUNE 28,
1994 1995 1996 1996 1997
------- ------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................... $20,723 $36,161 $62,050 $27,890 $39,055
Cost of revenues........... 7,074 12,100 24,312 11,150 12,033
------- ------- ------- ------- -------
Gross profit........... 13,649 24,061 37,738 16,740 27,022
------- ------- ------- ------- -------
Operating expenses:
Engineering, research and
development............. 3,301 8,117 11,121 4,994 6,017
Selling and marketing.... 362 2,923 6,621 2,816 4,882
General and administra-
tive.................... 2,903 4,238 6,426 2,675 3,851
------- ------- ------- ------- -------
Total operating ex-
penses................ 6,566 15,278 24,168 10,485 14,750
------- ------- ------- ------- -------
Income from opera-
tions................. 7,083 8,783 13,570 6,255 12,272
------- ------- ------- ------- -------
Other income (expense):
Interest income and other
expense, net............ 43 110 111 55 286
Interest expense......... (47) (72) (495) (156) (192)
------- ------- ------- ------- -------
Total other income (ex-
pense)................ (4) 38 (384) (101) 94
------- ------- ------- ------- -------
Income before provision
for income taxes...... 7,079 8,821 13,186 6,154 12,366
Provision for income tax-
es........................ 2,889 3,410 5,285 2,467 4,946
------- ------- ------- ------- -------
Net income................. $ 4,190 $ 5,411 $ 7,901 $ 3,687 $ 7,420
======= ======= ======= ======= =======
Net income per share....... $ .13 $ .16 $ .23 $ .11 $ .22
======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding............... 32,431 32,913 33,787 33,672 34,012
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
EXCEL SWITCHING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER OF $.01 PAR PAID-IN DEFERRED RETAINED
SHARES VALUE CAPITAL COMPENSATION EARNINGS TOTAL
---------- -------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 27,945,600 $280 $ 251 $(126) $ 1,849 $ 2,254
Compensation
associated with the
grant of stock
options.............. -- -- -- 27 -- 27
Net income............ -- -- -- -- 4,190 4,190
---------- ---- ------ ----- ------- -------
Balance, December 31,
1994................... 27,945,600 280 251 (99) 6,039 6,471
Compensation
associated with the
grant of stock
options.............. -- -- 432 (189) -- 243
Forfeiture of stock
options with deferred
compensation......... -- -- (16) 16 -- --
Exercise of stock op-
tions................ 144,000 1 -- -- (1) --
Net income............ -- -- -- -- 5,411 5,411
---------- ---- ------ ----- ------- -------
Balance, December 31,
1995................... 28,089,600 281 667 (272) 11,449 12,125
Compensation
associated with the
grant of stock
options.............. -- -- -- 73 -- 73
Forfeiture of stock
options with deferred
compensation......... -- -- (20) 7 -- (13)
Net income............ -- -- -- -- 7,901 7,901
---------- ---- ------ ----- ------- -------
Balance, December 28,
1996................... 28,089,600 281 647 (192) 19,350 20,086
Compensation
associated with the
grant of stock
options.............. -- -- 360 (325) -- 35
Net income............ -- -- -- -- 7,420 7,420
---------- ---- ------ ----- ------- -------
Balance, June 28, 1997
(unaudited)............ 28,089,600 $281 $1,007 $(517) $26,770 $27,541
========== ==== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
EXCEL SWITCHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------ -------------------
DECEMBER 31,
---------------- DECEMBER 28, JUNE 30, JUNE 28,
1994 1995 1996 1996 1997
------- ------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income................ $ 4,190 $ 5,411 $ 7,901 $ 3,687 $ 7,420
Adjustments to reconcile
net income to net cash
provided by operating
activities--
Depreciation and amorti-
zation................. 443 560 1,166 335 1,008
Loss on disposal of
property and equip-
ment................... -- 95 -- -- --
Deferred income taxes... (304) (487) (3,417) (120) (1,058)
Compensation expense
associated with the
grant of stock options,
net of forfeitures..... 27 243 60 36 35
Changes in assets and
liabilities--
Accounts receivable... (2,847) (3,928) (2,020) (1,165) (2,010)
Inventories........... (327) (3,760) (409) (6,446) 1,644
Prepaid taxes......... -- (401) 401 (180) --
Prepaid expenses...... 2 (123) (132) 16 154
Accounts payable...... 1,297 2,419 (2,473) 2,544 1,241
Accrued expenses...... (158) 1,198 3,877 1,802 2,558
Accrued income taxes.. (130) (55) 2,350 (297) (1,337)
------- ------- ------- ------- -------
Net cash provided by
operating
activities......... 2,193 1,172 7,304 212 9,655
------- ------- ------- ------- -------
Cash Flows From Investing
Activities:
Purchases of property and
equipment, net........... (940) (4,096) (4,601) (2,541) (1,255)
Purchases of marketable
securities, net.......... -- -- -- -- (3,001)
Proceeds from sale of
property and equipment... -- -- 548 -- --
------- ------- ------- ------- -------
Net cash used in
investing
activities......... (940) (4,096) (4,053) (2,541) (4,256)
------- ------- ------- ------- -------
Cash Flows From Financing
Activities:
Proceeds from issuance of
long-term obligations.... -- 2,740 649 160 --
Proceeds from line of
credit, net.............. -- -- -- 2,300 --
Payments on long-term ob-
ligations................ -- (53) (601) (143) (243)
Payments on notes payable
to stockholder........... (600) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities......... (600) 2,687 48 2,317 (243)
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.. 653 (237) 3,299 (12) 5,156
Cash and cash equivalents,
beginning of period........ 354 1,007 770 770 4,069
------- ------- ------- ------- -------
Cash and cash equivalents,
end of period.............. $ 1,007 $ 770 $ 4,069 $ 758 $ 9,225
======= ======= ======= ======= =======
Supplemental disclosure of
cash flow information:
Cash paid during the year
for:
Interest.................. $ 48 $ 119 $ 490 $ 104 $ 187
Taxes..................... $ 3,429 $ 4,353 $ 5,951 $ 3,122 $ 7,286
Supplemental disclosure of
noncash investing and
financing activities:
Acquisition of property
and equipment under
capital lease
obligations.............. $ -- $ 1,112 $ 489 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Excel Switching Corporation (the Company), formerly known as Excel Inc., was
incorporated in Massachusetts in January 1988 and is a provider of open
switching platforms for telecommunications networks worldwide. The Company
develops, manufactures, markets and supports a family of open, programmable,
carrier-class switches that addresses the complex enhanced services and
wireless and wireline infrastructure needs of network providers. The Company
sells to a variety of customers in the worldwide telecommunications market,
including application developers, original equipment manufacturers (OEMs) and
systems integrators.
Certain components used in the manufacture of the Company's products are
currently available only from single or sole source suppliers. In addition,
the Company relies on a limited number of third parties to manufacture certain
other components and subassemblies. Shortages resulting from a change in
arrangements with these suppliers and manufacturers could cause delays in
manufacturing and product shipments and possible deferral or cancellation of
customer orders.
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described below and elsewhere in these notes
to consolidated financial statements.
(a) Principles of Consolidation
These financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated.
(b) Interim Financial Statements
The accompanying consolidated financial statements as of June 28, 1997 and
for the six-month periods ended June 30, 1996 and June 28, 1997 are unaudited,
but in the opinion of management, include all adjustments consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading. Results for the six months ended June 28, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 27, 1997.
(c) Change in Fiscal Year-End
During 1996, the Company elected to change its fiscal year-end from December
31 to the last Saturday in December. In the accompanying financial statements
"1994" refers to the year ended December 31, 1994; "1995" refers to the year
ended December 31, 1995; and "1996" refers to the year ended December 28,
1996.
(d) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
The market for telecommunications equipment in which the Company operates
can be characterized as rapidly changing due to several factors including:
technological advancements, the introduction of new products
F-7
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
and services by the Company and its competitors and the increasing demands
placed on equipment in worldwide telecommunications networks. Significant
assets and liabilities with reported amounts based on estimates include:
accounts receivable, inventory and accrued expenses for post sale support
costs, warranty costs and sales returns. While the Company believes its
estimates are adequate, actual results could differ from those estimates.
(e) Revenue Recognition
Revenue from product sales is recognized at the time of shipment to the
customer at which time transfer of ownership occurs. The Company provides for
anticipated product returns, post sale support and warranty costs at the time
of product shipment.
(f) Cash, Cash Equivalents and Marketable Securities
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, investments for
which the Company has the positive intent and ability to hold to maturity,
consisting of cash equivalents and marketable securities, are reported at
amortized cost, which approximates fair market value. Cash equivalents are
highly liquid investments with original maturities of three months or less.
Marketable securities are investment-grade securities with original maturities
of greater than three months but less than one year. To date, the Company has
not recorded any realized gains or losses. Cash, cash equivalents and
marketable securities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28,
1995 1996 1997
---- ------ --------
<S> <C> <C> <C>
Cash and cash equivalents--
Cash............................................... $770 $4,016 $ 485
Time deposits...................................... -- 53 7,051
Money markets...................................... -- -- 1,689
---- ------ ------
Total cash and cash equivalents.................. $770 $4,069 $9,225
==== ====== ======
Marketable securities--
Time deposits with banks........................... $-- $ -- $2,001
U.S. Government and Agency securities.............. -- -- 1,000
---- ------ ------
Total marketable securities...................... $-- $ -- $3,001
==== ====== ======
</TABLE>
(g) Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Work-in-process and finished goods consist of materials, labor and
manufacturing overhead. Inventories at December 31, 1995, December 28, 1996
and June 28, 1997, consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Raw materials...................................... $2,769 $3,585 $1,543
Work-in-process.................................... 3,726 2,988 3,635
Finished goods..................................... 454 785 536
------ ------ ------
$6,949 $7,358 $5,714
====== ====== ======
</TABLE>
F-8
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(h) Depreciation and Amortization
The Company provides for depreciation and amortization using both straight-
line and accelerated methods by charges to operations in amounts that allocate
the cost of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
DESCRIPTION USEFUL LIVES
----------- -------------
<S> <C>
Buildings........................... 40 years
Test equipment...................... 2-5 years
Office equipment and fixtures....... 2-7 years
Building improvements............... 7-40 years
Assets under capital lease.......... 3 years
</TABLE>
(i) Research and Development and Software Development Costs
Research and development costs have been charged to operations as incurred.
Capitalization of computer software costs begin upon the establishment of
technological feasibility. Because the Company believes its current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
(j) Concentrations of Credit Risk
Financial instruments that subject the Company to significant concentrations
of credit risk consist primarily of cash, cash equivalents, marketable
securities and trade accounts receivable. The Company's investments are in
financial instruments with high credit ratings. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom the
Company makes significant sales. One customer accounted for approximately 33%,
34% and 25% of accounts receivable at December 31, 1995, December 28, 1996 and
June 28, 1997, respectively (see Note 8). To control credit risk, the Company
performs regular credit evaluations of its customers' financial condition and
maintains allowances for potential credit losses.
(k) Fair Value of Financial Instruments
The carrying amounts of the Company's cash, cash equivalents and accounts
receivable and accounts payable approximate fair value due to the short-term
nature of these instruments. The carrying amounts of debt issued pursuant to
agreements with banks approximate fair value as the interest rates on these
instruments fluctuate with market interest rates.
(l) Net Income per Share
Net income per share was determined by dividing net income by the weighted
average common and common equivalent shares outstanding during the period.
Common equivalent shares consist of common stock options and have been
included in the calculation to the extent their effect is dilutive, except
that pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83 (SAB 83), common equivalent shares issued during the twelve months
preceding the proposed date of the Registration Statement relating to an
initial public offering have been included in the net income per share
computations using the Treasury Stock method as if they were outstanding for
all periods.
F-9
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock. This statement is effective for fiscal
years ending after December 15, 1997, and early adoption is not permitted.
When adopted, the statement will require restatement of prior years' earnings
per share. The Company will adopt this statement for its fiscal year ending
December 27, 1997.
Pro forma calculations of basic and diluted earnings per share, as required
by SFAS No. 128, are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------
JUNE 30, JUNE 28,
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income.......................... $ 4,190 $ 5,411 $ 7,901 $ 3,687 $ 7,420
======= ======= ======= ======= =======
Weighted average common shares out-
standing........................... 27,946 27,962 28,090 28,090 28,090
Common equivalent shares in
accordance with
SAB 83............................. 1,090 1,090 1,090 1,090 1,090
------- ------- ------- ------- -------
Basic weighted average shares out-
standing........................... 29,036 29,052 29,180 29,180 29,180
Weighted average common equivalent
shares............................. 3,395 3,861 4,607 4,492 4,832
------- ------- ------- ------- -------
Diluted weighted average shares out-
standing........................... 32,431 32,913 33,787 33,672 34,012
======= ======= ======= ======= =======
Basic earnings per share............ $ .14 $ .19 $ .27 $ .13 $ .25
Diluted earnings per share.......... $ .13 $ .16 $ .23 $ .11 $ .22
</TABLE>
(m) Reclassifications
Certain reclassifications have been made to prior-year financial statements
to conform with the current-year presentation.
(n) New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires disclosure of all components of comprehensive income on
an annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis
for each reportable segment of an enterprise. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. Unless impracticable,
companies would be required to restate prior period information upon adoption.
F-10
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1995 and
December 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Mortgage and Security Agreement............................. $2,424 $2,485
Capital lease obligation--building.......................... 1,083 997
Promissory note payable to a bank........................... 291 435
Capital lease obligation--equipment......................... -- 419
------ ------
3,798 4,336
Less--Current maturities.................................... 261 499
------ ------
$3,537 $3,837
====== ======
</TABLE>
On April 21, 1995, the Company entered into a $2,600,000 Mortgage and
Security Agreement with a bank to finance the purchase of two buildings and
related land. The agreement requires monthly principal and interest payments
of approximately $26,000 through April 2010. Interest accrues at prime (8.5%
at June 28, 1997) plus .75%. The mortgage is collateralized by the two
buildings and related land, which have a carrying value of approximately
$3,100,000 at June 28, 1997. The Company is subject to certain restrictive
covenants under this agreement.
In 1995, the Company entered into a building lease that requires monthly
payments ranging from approximately $12,000 to $14,000 through July 2000. In
addition, the lease includes a bargain purchase option exercisable in August
1998 for $875,000. The Company intends to exercise this option and,
accordingly, has recorded this lease as a capital lease obligation. The
present value of the remaining lease payments and the purchase price have been
recognized as the capital lease obligation using an effective rate of 8.3%.
During 1996, the Company entered into an agreement with a leasing company,
which provided for the sale and leaseback of certain equipment that had a net
book value of approximately $474,000. Proceeds to the Company in connection
with this sale were approximately $548,000. The resulting gain has been
deferred and will be recognized ratably over the lease term. Under the terms
of the agreement, the Company is required to make thirty-six monthly
installments of approximately $16,000. The present value of the lease payments
has been recognized as a capital lease obligation using an effective rate of
9%.
On June 30, 1997, the Company purchased property to be used for the
construction of an additional building. The purchase price of $575,000 and the
estimated construction costs of $3,600,000 will be financed, in part, by a
$2,100,000 Real Estate Promissory Note with a bank. In connection with the
purchase, the bank advanced $460,000 under this note. The remaining funds will
be advanced as construction milestones are attained. Borrowings under this
note shall bear interest at prime (8.5% at June 28, 1997) plus .25% and are
secured by the property and certain other assets. Twelve monthly payments of
interest only are required beginning in July 1997. Thereafter, monthly
payments of principal and interest will be made over a period of fifteen
years.
On August 1, 1996, the Company entered into a promissory note with a bank
for $489,000, the proceeds of which were used to fund leasehold improvements
and to retire a 1995 promissory note with the same bank in the original amount
of $300,000. Borrowings under this new note require monthly principal payments
of approximately $14,000 plus interest at prime (8.5% at June 28, 1997) plus
1% through August 1999.
F-11
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Future maturities of long-term obligations as of December 28, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
BANK CAPITAL
OBLIGATIONS LEASES TOTAL
----------- ------- ------
<S> <C> <C> <C>
1997.......................................... $ 266 $ 341 $ 607
1998.......................................... 276 1,154 1,430
1999.......................................... 232 96 328
2000.......................................... 133 -- 133
2001.......................................... 146 -- 146
Thereafter.................................... 1,867 -- 1,867
------ ------ ------
2,920 1,591 4,511
Less--Amount representing interest............ -- 175 175
------ ------ ------
Total long-term obligations................... $2,920 $1,416 $4,336
====== ====== ======
</TABLE>
(3) LINE-OF-CREDIT ARRANGEMENT
The Company has an unsecured line-of-credit arrangement with a bank, which
provides up to $10,000,000 in financing. Borrowings under this line are
limited to 75% of eligible accounts receivable and 50% of certain inventories,
as defined, and bear interest at either the bank's base rate (8.5% at June 28,
1997) or the Eurodollar rate (5.7% at June 28, 1997) plus 2.5%. The Company is
required to comply with certain restrictive covenants under this agreement.
There were no borrowings outstanding under this agreement at December 31,
1995, December 28, 1996 or June 28, 1997.
(4) INCOME TAXES
The Company provides for income taxes under SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, a deferred tax asset or liability is
determined based on the difference between the financial statement and tax
bases of assets and liabilities, as measured by the enacted tax rates expected
to be in effect when the differences reverse.
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Current--
Federal........................................ $2,462 $3,054 $ 6,731
State.......................................... 731 843 1,971
------ ------ -------
3,193 3,897 8,702
------ ------ -------
Deferred (prepaid)--
Federal........................................ (226) (363) (2,904)
State.......................................... (78) (124) (513)
------ ------ -------
(304) (487) (3,417)
------ ------ -------
Total provision.............................. $2,889 $3,410 $ 5,285
====== ====== =======
</TABLE>
F-12
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Income tax provision at federal statutory rate............. 34% 34% 34%
Increase (decrease) in tax resulting from--
State tax provision, net of federal benefit.............. 6 6 6
Research and development tax credit...................... (2) (1) --
Other.................................................... 3 -- --
--- --- ---
Effective tax rate..................................... 41% 39% 40%
=== === ===
</TABLE>
The approximate income tax effect of each type of temporary difference
composing the net deferred tax asset at December 31, 1995 and December 28,
1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Difference in inventory accounting method................. $(468) $ (275)
Nondeductible reserves.................................... 302 1,427
Nondeductible accruals.................................... 341 2,674
Property and equipment.................................... 85 137
Other temporary differences............................... 84 (202)
----- ------
Net deferred tax asset.................................. $ 344 $3,761
===== ======
</TABLE>
(5) STOCKHOLDERS' EQUITY
(a) Authorized and Outstanding Common Stock
As of December 31, 1995, December 28, 1996 and June 28, 1997, the Company
has 27,945,600 shares of voting and 144,000 shares of nonvoting common stock
outstanding.
On September 19, 1996, the Company increased its authorized shares of no par
value common stock from 10,000,000 shares to 30,000,000 shares with 15,000,000
shares being designated as voting and 15,000,000 shares as nonvoting.
On September 16, 1997, the Company restated its Articles of Organization to
provide for authorized common stock of 100,000,000 shares, with a $.01 par
value, 85,000,000 of which are designated as voting shares and 15,000,000 of
which are designated as nonvoting shares. The accompanying consolidated
financial statements have been retroactively restated for this change. Upon
the effective date of the Registration Statement relating to the Company's
initial public offering of common stock described in this prospectus, all
authorized and outstanding shares of nonvoting common stock will be
automatically converted, on a one-for-one basis, into shares of voting common
stock.
(b) Preferred Stock
In September 1997, the Board of Directors and sole voting stockholder
authorized 10,000,000 shares of $.01 par value preferred stock. The Board of
Directors will have the authority to issue such shares in one or more series
and to fix the relative rights and preferences without further vote or action
by the stockholders. Currently, the Board has no plans to issue any shares of
preferred stock.
F-13
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(c) Stock Split
On September 19, 1996, the Company declared a three-for-one split of the
shares of common stock. On September 16, 1997, the Company declared a two-for-
one split of the shares of common stock. All share and per share amounts for
all periods presented have been adjusted to reflect these splits.
(d) Stock Options
The Company has granted nonqualified stock options to purchase shares of its
nonvoting common stock at exercise prices generally determined to be at fair
market value by the Company's Board of Directors on the date of grant. Options
are generally exercisable within 10 years of the original date of grant and
vest over a period of up to five years from the date of grant. In some
instances, options have been granted at exercise prices below the fair market
value on the date of grant. The difference, if any, between the fair market
value of shares of the Company's nonvoting common stock, as determined by the
Company's Board of Directors, and the exercise price of the option is
recognized as compensation expense over the vesting term. During 1994, 1995
and 1996, the Company recognized net compensation expense of $27,000, $243,000
and $60,000, respectively.
Effective with the automatic conversion of the Company's nonvoting shares
into shares of voting common stock, shares issuable upon exercise of these
options will be voting common stock. Stock option activity for the three years
in the period ended December 28, 1996 and for the six-month period ended June
28, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Outstanding, December 31, 1993...................... 5,709,840 $0.002
Granted........................................... 930,000 0.167
---------- ------
Outstanding, December 31, 1994...................... 6,639,840 0.025
Granted........................................... 1,491,000 0.333
Exercised......................................... (144,000) 0.002
Forfeited......................................... (96,000) 0.002
---------- ------
Outstanding, December 31, 1995...................... 7,890,840 0.084
Granted........................................... 1,997,500 4.250
Forfeited......................................... (30,000) 0.333
---------- ------
Outstanding, December 28, 1996...................... 9,858,340 0.927
Granted........................................... 1,050,300 6.551
Forfeited......................................... (100,000) 3.850
---------- ------
Outstanding, June 28, 1997.......................... 10,808,640 $1.447
========== ======
</TABLE>
Subsequent to June 28, 1997, the Company issued options to purchase a total
of 363,200 shares of common stock at exercise prices ranging from $6.00 to
$14.50.
F-14
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following tables summarize information about stock options outstanding
at June 28, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING REMAINING AVERAGE
AT JUNE 28, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE
------------------------ ------------ ------------ ---------
<S> <C> <C> <C>
$ 0.002......................... 5,469,840 6.4 $ 0.002
0.167......................... 930,000 7.4 0.167
0.333......................... 1,461,000 8.2 0.333
1.00-2.333......................... 324,000 9.0 2.235
4.50- 5.00......................... 1,573,500 9.3 4.691
6.00- 7.00......................... 952,800 9.6 6.307
7.50- 8.50......................... 61,100 9.8 8.196
9.50-11.50......................... 36,400 9.9 10.199
---------- -------
10,808,640 $ 1.447
========== =======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
----------------------------
WEIGHTED
NUMBER AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
--------------- ------------ ---------------
<S> <C> <C>
$0.002..................................... 5,355,840 $ 0.002
0.167..................................... 566,400 0.167
0.333..................................... 591,300 0.333
1.000..................................... 2,400 1.000
--------- -------
Exercisable, June 28, 1997................... 6,515,940 $ 0.047
========= =======
Exercisable, December 28, 1996............... 6,356,940 $ 0.046
========= =======
Exercisable, December 31, 1995............... 5,840,040 $ 0.029
========= =======
Exercisable, December 31, 1994............... 5,433,840 $ 0.012
========= =======
</TABLE>
(e) Fair Value of Stock Options
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statement of income or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
F-15
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net income (in thousands)--
As reported...................... $5,411 $7,901
Pro forma........................ $5,317 $7,456
Net income per share--
As reported...................... $ .16 $ .23
Pro forma........................ $ .16 $ .22
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period: dividend yield of 0.0% for all periods;
volatility of 56.6% for all periods; risk-free interest rates of 6.0% to 6.5%
for options granted during 1995 and 5.9% to 6.8% for options granted during
1996; and a weighted average expected option term of 7.5 years for all
periods. The weighted average fair value per share of options granted during
1995 and 1996 was $0.97 and $5.64, respectively.
(f) Stock Option Plans
In September 1997, the Company's Board of Directors and sole voting
stockholder adopted the 1997 Stock Option Plan (1997 Plan). Under the terms of
the 1997 Plan, incentive and nonqualified stock options may be granted to
employees and consultants to purchase an aggregate of 3,000,000 shares of
common stock. No options have been granted under the 1997 Plan.
The Company's Non-Employee Director Stock Option Plan (Director Option Plan)
was adopted by the Board of Directors and sole voting stockholder in
(September 1997). The Director Option Plan provides for the grant of options
to purchase an aggregate 225,000 shares of common stock to non-employee
directors of the Company. Each such director will be granted an option to
purchase 30,000 shares upon election. In addition, each such director will be
automatically granted an option to purchase 15,000 shares in each of the two
years following the date such person becomes a director. These options will
vest 1/3 on grant date, 1/3 one year from grant date, and 1/3 two years from
grant date. Upon the closing of the public offering three directors will be
elected and receive the options as described above. The exercise price of the
options will be the fair market value on the date of grant.
(g) Employee Stock Purchase Plan
In September 1997, the Company's Board of Directors and sole voting
stockholder approved the 1997 Employee Stock Purchase Plan pursuant to which a
maximum of 400,000 shares of common stock may be issued to participating
employees in semiannual grants at a price equal to 85% of fair market value,
as defined.
F-16
<PAGE>
EXCEL SWITCHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 28, 1996
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) COMMITMENTS
The Company leases certain equipment and office facilities under
noncancelable operating leases, which expire at various dates through
September 2001. Future minimum lease payments required under these leases at
December 28, 1996 are approximately as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1997....................................... $ 958
1998....................................... 318
1999....................................... 113
2000....................................... 96
2001....................................... 45
------
$1,530
======
</TABLE>
Total rent expense under these agreements for 1994, 1995 and 1996 was
approximately $134,000, $193,000 and $1,062,000, respectively.
(7) EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) retirement savings plan covering all
employees. Under this plan, participants may elect to defer a portion of their
compensation, subject to certain limitations. In addition, the Company, at the
discretion of the Board of Directors, may make profit sharing contributions
into the plan. During 1994, 1995 and 1996, the Company made contributions of
approximately $160,000, $209,000 and $534,000, respectively.
(8) SIGNIFICANT CUSTOMERS
Sales to significant customers as a percentage of the Company's total
revenues were as follows:
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
-----------------
JUNE 30, JUNE 28,
1994 1995 1996 1996 1997
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Customer A............................... 33% 41% 37% 38% 35%
Customer B............................... -- 11% -- -- --
Customer C............................... 10% -- -- -- --
</TABLE>
(9) ACCRUED EXPENSES
Accrued expenses at December 31, 1995, December 28, 1996, and June 28, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 28,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Accrued payroll and benefits....................... $ 666 $1,322 $2,438
Accrued sales returns.............................. 578 1,243 2,381
Accrued post sales support and warranty............ 235 1,225 1,550
Accrued other...................................... 362 1,041 781
Accrued professional fees.......................... 90 624 633
Accrued marketing.................................. -- 352 583
------ ------ ------
$1,931 $5,807 $8,366
====== ====== ======
</TABLE>
F-17
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC Registration fee................................................ 25,091
NASD filing fee..................................................... 8,780
Nasdaq National Market listing fee.................................. 50,000
Printing and engraving expenses..................................... 125,000
Legal fees and expenses............................................. 300,000
Accounting fees and expenses........................................ 200,000
Blue Sky fees and expenses (including legal fees)................... 10,000
Transfer agent and registrar fees and expenses...................... 10,000
Miscellaneous....................................................... 71,129
--------
Total............................................................. $800,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is required by its Restated By-laws and the Restated Articles of
Organization generally to indemnify any director, officer or employee against
all expenses and liabilities reasonably incurred by or imposed upon such
person in connection with any legal action in which such person is involved by
reason of such person's position with the Company unless such person shall
have been finally adjudicated in any action, suit or proceeding not to have
acted in good faith in the reasonable belief that such person's action was in
the best interests of the Company. The Company may pay expenses incurred by
any such person in defending a civil or criminal action or proceeding in
advance of the final disposition of such action upon the Company's receipt of
the undertaking of such person to repay such amount if such person shall be
adjudicated not to be entitled to indemnification.
The Company's Restated Articles of Incorporation include a provision
limiting the personal liability of a director of the Company to its
stockholders for monetary damages for breaches of their fiduciary duty except
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section
sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act. Reference is made to the form of Underwriting
Agreement filed as Exhibit 1.1 hereto.
The Company maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has sold and issued the following securities during the past
three years:
(1) As of August 30, 1997, the Company has issued options to purchase an
aggregate of 5,531,000 shares of Common Stock to employees at a weighted
average exercise price of $3.03 per share of which 144,000 shares have been
issued upon the exercise of such options.
II-1
<PAGE>
(2) On September 19, 1996, the Company's Board of Directors authorized a
three-for-one stock split in the form of a stock dividend on the Common
Stock. On September 16, 1997, the Company's Board of Directors authorized a
subsequent two-for-one stock split in the form of a stock dividend on the
Common Stock. All of the share information in this Registration Statement
reflects such stock splits.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act of 1993, as amended (the "Securities Act"), set forth in
Sections 2(3), 4(2) or Rule 701 thereof relative to sales by an issuer not
involving any public offering or the rules and regulations thereunder. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Restated Articles of Organization of the Company.
3.2 --Restated By-laws of the Company.
4.1 --Specimen certificate representing the Common Stock.
5.1+ --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --1997 Stock Option Plan.
10.2 --1997 Non-Employee Director Stock Option Plan.
10.3 --1997 Employee Stock Purchase Plan.
10.4 --Form of Stock Option Agreement of the Company used under Stock
Option Program.
10.5+ --Lease dated as of July 27, 1995 between the Company and
Independence Park, Inc., as amended.
10.6+ --Purchase and Resale Agreement dated as of May 27, 1994 between
the Company and Boston Technology, Inc.
10.7+ --Credit Agreement and Promissory Note dated as of December 21,
1995 between the Company and The First National Bank of Boston,
as amended.
10.8+ --Mortgage and Security Agreement and Real Estate Promissory Note
dated as of April 21, 1995 between the Company and Cape Cod Bank
and Trust Company.
10.9 --Loan Agreement, Real Estate Promissory Note and Security
Agreement dated as of June 30, 1997 between the Company and Cape
Cod Bank and Trust Company.
11.1 --Statement re: computation of earnings per share.
23.1+ --Consent of Arthur Andersen LLP.
23.2+ --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1).
23.3 --Consent of Cesari and McKenna, LLP.
24.1 --Power of Attorney (see page II-4).
27.1 --Financial Statement Schedule.
99.1 --Consent of Edward L. Breslow, to be named a director.
99.2 --Consent of William J. Cadogan, to be named a director.
99.3 --Consent of John Loughlin, to be named a director.
</TABLE>
- --------
+Filed herewith.
II-2
<PAGE>
(b) Financial Statement Schedule:
Report of Independent Public Accountants
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (i) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (ii) that for
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (iii) that for the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Hyannis, Massachusetts on October
24, 1997.
Excel Switching Corporation
/s/ Robert P. Madonna
By: _________________________________
ROBERT P. MADONNA
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND CHAIRMAN OF
THE BOARD OF DIRECTORS
POWER OF ATTORNEY AND SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE(S) DATE
Chief Executive
* Officer, President October 24,
- ------------------------------------- (Principal 1997
ROBERT P. MADONNA Executive Officer)
and Chairman of the
Board of Directors
Chief Financial
* Officer (Principal October 24,
- ------------------------------------- Financial Officer 1997
STEPHEN S. GALLIKER and Principal
Accounting Officer)
* Director, Vice
- ------------------------------------- President and October 24,
CHRISTOPHER STAVROS General Counsel 1997
/s/ Robert P. Madonna
*By: ________________________________ October 24,
ROBERT P. MADONNA, 1997
AS ATTORNEY-IN-FACT
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excel Switching Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Excel Switching Corporation and
subsidiaries included in this Form S-1 and have issued our report thereon
dated March 3, 1997. Our audit was made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The schedule
listed in Item 16(b) is the responsibility of the Company's management and is
presented for the purpose of complying with Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects, the financial data
required to be set forth therein, in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 3, 1997
S-1
<PAGE>
SCHEDULE II
EXCEL SWITCHING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR
DOUBTFUL BALANCE CHARGED TO BALANCE
ACCOUNTS BEGINNING COST DEDUCTIONS END OF
- ------------- OF PERIOD OR EXPENSE (WRITEOFFS) PERIOD
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1994................................ 220,000 155,000 (109,000) 266,000
1995................................ 266,000 387,000 0 653,000
1996................................ 653,000 497,000 (171,000) 979,000
June 28, 1997 (unaudited)........... 979,000 184,000 (13,000) 1,150,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Restated Articles of Organization of the Company.
3.2 --Restated By-laws of the Company.
4.1 --Specimen certificate representing the Common Stock.
5.1+ --Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1 --1997 Stock Option Plan.
10.2 --1997 Non-Employee Director Stock Option Plan.
10.3 --1997 Employee Stock Purchase Plan.
10.4 --Form of Stock Option Agreement of the Company used under Stock
Option Program.
10.5+ --Lease dated as of July 27, 1995 between the Company and
Independence Park, Inc., as amended.
10.6+ --Purchase and Resale Agreement dated as of May 27, 1994 between
the Company and Boston Technology, Inc.
10.7+ --Credit Agreement and Promissory Note dated as of December 21,
1995 between the Company and The First National Bank of Boston,
as amended.
10.8+ --Mortgage and Security Agreement and Real Estate Promissory Note
dated April 21, 1995 between the Company and Cape Cod Bank and
Trust Company.
10.9 --Loan Agreement, Real Estate Promissory Note and Security
Agreement dated as of June 30, 1997 between the Company and Cape
Cod Bank and Trust Company.
11.1 --Statement re: computation of earnings per share.
23.1+ --Consent of Arthur Andersen LLP.
23.2+ --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1).
23.3 --Consent of Cesari and McKenna, LLP.
24.1 --Power of Attorney (see page II-4).
27.1 --Financial Statement Schedule.
99.1 --Consent of Edward L. Breslow, to be named a director.
99.2 --Consent of William J. Cadogan, to be named a director.
99.3 --Consent of John Loughlin, to be named a director.
</TABLE>
- --------
+ Filed herewith
<PAGE>
Exhibit 5.1
-----------
[LETTERHEAD OF TESTA, HURWITZ & THIBEAULT, LLP APPEARS HERE]
October 21, 1997
Excel Switching Corporation
255 Independence Drive
Hyannis, MA 02601
Re: Registration Statement on Form S-1
Relating to 5,175,000 Shares of Common Stock
--------------------------------------------
Ladies and Gentlemen:
This opinion relates to an aggregate of 5,175,000 shares of Common Stock,
$.01 par value per share (the "Common Stock"), of Excel Switching Corporation
(the "Company"), which are the subject matter of a Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on even date herewith
(the "Registration Statement").
The 5,175,000 shares of Common Stock covered by the Registration Statement
consist of 4,500,000 shares being sold by the Company and 675,000 shares subject
to an over-allotment option granted by a selling stockholder of the Company to
the underwriters named in the prospectus (the "Prospectus") included in the
Registration Statement.
Based upon such investigation as we have deemed necessary, we are of the
opinion that the shares of Common Stock being sold by the selling stockholder
have been legally issued and are fully paid and non-assessable and that when the
4,500,000 shares of Common Stock to be sold by the Company pursuant to the
Prospectus have been issued and paid for in accordance with the terms described
in the Prospectus, such shares of Common Stock will have been validly issued and
will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault, LLP
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE>
EXHIBIT 10.5
LEASE
1. PARTIES
Independence Park, Inc., a Massachusetts Corporation, whose address is P.O.
Box 1776, Barnstable (Hyannis) Barnstable County Massachusetts 02601,
hereinafter called "Landlord" which expression shall include its successors and
assigns where the context so admits does hereby lease to Excel, Inc., whose
address is 41 Meetinghouse Lane, Sagamore Beach, MA 02652 hereinafter called
"TENANT" which expression shall include its successors where the context so
admits, and the TENANT hereby leases from the Landlord the following described
premises:
2. PREMISES
The "demised premises" consists of certain land with the buildings thereon
known and numbered as Plant 5, Town of Barnstable assessors map 295, Parcel 12,
Barnstable (Hyannis) Barnstable County, Massachusetts described on exhibit A
attached hereto and incorporated herein. The said building is of one (1) story
concrete block construction with rubberized flat roof and contains 26,370 square
feet of floor space inclusive.
3. TERM
The term of this lease shall be five (5) years with one five (5) year
option period.
4. RENT
Lease rates Year Dollar amount/Sq.Ft.
1 $5.60
2 $5.75
3 $6.00
4 $6.50
5 $6.50
OPTION
6 $7.00
7 $7.00 +CPI
8 year 7+CPI
9 year 8+CPI
10 year 9+CPI
All rates are "triple Net"
5. UTILITIES AND REPAIRS
A. Tenant shall pay as they become due, all bills for electricity,
gas and other utilities that are furnished to the demised premises. Landlord
agrees to provide utility service to the premises and operable services for heat
light and water as of the time of commencement of
<PAGE>
-2-
the lease. Tenant acknowledges that a sewer installation betterment fee and
sewer user fee will be its responsibility.
In addition to the above, Tenant agrees to pay the paving costs
for asphalt of new parking area, all build-out costs (interior) and sewer hook
up charges.
B. Tenant agrees to keep the Premises, including without limitation
the exterior and structure of all improvements thereon and all heating,
plumbing, electrical, air conditioning, mechanical and other fixtures and
equipment therein in the same order condition and repair as they are in as of
the commencement date or may be put in during the term, reasonable use and wear
and tear excepted, to take good care of all lawns and planted areas and to
provide reasonable landscaping along either side of the entrance drive and to
keep in good repair and clean and neat and free of snow and ice all surface
roadways, walks and parking and loading areas, and to make all repairs and
replacements and to do all other work necessary for the foregoing purposes
whether the same may be ordinary or extraordinary, foreseen or unforeseen. It is
further understood that tenant will keep the premises in suitable tenant-like
and efficient and usable condition considering the nature of the premises and
the use reasonably made thereof, and in good and tenant-like repair.
C. Tenant will make all repairs, alterations additions or
replacements to the premises required by law or ordinance or any order or
regulation of any public authority to keep the premises equipped with all safety
appliances so required; and to comply with the orders and regulations of any
governmental authorities except that tenant may defer compliance so long as the
validity of any such law ordinance order or regulation shall be contested by
tenant in good faith and by appropriate legal proceedings if tenant first gives
the landlord appropriate assurance against loss cost or expenses on account
thereof. Landlord shall make all repairs, alterations, additions or replacements
to the premises required by any law or ordinance or any order or regulation of
any public authority of any violation that exists or occurred prior to
commencement of this lease.
D. Tenant shall upon commencement of this lease assure that all
utilities are in tenants name. Landlord shall deliver the building, including
but not limited to the roof, utility services heating sprinkler, electrical and
plumbing operating and in good order, repair and condition, and free from all
previous tenants.
E. Landlord has agreed that immediately upon the signing hereof, it
shall provide engineering, site work and necessary permits and/or waivers of
Park regulations to provide for a minimum of 40 additional parking spaces at the
rear of the building, to provide a four foot chain link fence to separate said
additional parking areas from those of the current Auburn Wire location, and to
insure that all air-conditioning units are fully functional.
F. Tenant either by itself or through its agents, hereby agrees that
it shall not go onto the roof without the landlord and Building Maintenance
Service Company, Inc.'s written authorization, and any transgressor shall bear
the costs of the damages done to the roof associated with such transgression. If
tenant however requests that any work be done to the roof to allow for needed
additional equipment and/or openings for ventilation ductwork or similar
<PAGE>
-3-
purposes the tenant shall request landlord's permission to do so and landlords
permission shall not be unreasonably withheld. It is further understood that
tenant shall consult the installer and manufacturers representative to insure
that the integrity of the roof shall not be impaired. The cost of any such work
so performed on the roof shall be the sole responsibility of the tenant.
6. REAL ESTATE TAXES
Tenant shall pay to landlord as additional rent all real estate taxes
attributable to the demised premises for the term of this lease. Such payment
shall be due within five days prior to the date said taxes are due and payable
without penalty or interest, or within ten days following tenants receipt of
town tax bill whichever is later. Landlord agrees to deliver to the tenant a
copy of the most recent real estate tax bill prior to the execution of this
lease.
7. USE OF LEASED PREMISES
Tenant may use the demised premises for storage, warehousing, manufacturing
office space and related uses.
8. COMPLIANCE WITH LAWS
Tenant agrees that no use of the demised premises will be made which will
constitute a legal nuisance, or be contrary to any law or municipal bylaw or
ordinance in force in the Town of Barnstable. Landlord warrants, to the best of
its knowledge, that the property is in compliance with all applicable government
rule and regulations.
9. FIRE INSURANCE
Tenant shall not permit any use of the demised premises which will make
voidable any insurance on the demised premises. Tenant shall maintain fire and
extended liability in minimum amounts so as to avoid coinsurance in responsible
companies qualified to do business in Massachusetts and in good standing, and
the policies shall be noncancellable without ten days notice to landlord and
Tenant agrees to pay the reasonable cost of said insurance coverage relating to
the term of this lease within thirty days following receipt of the invoices
therefore,
Tenant agrees to maintain fire and extended liability coverage with respect
to its property located in or upon the demised premises and to hold the landlord
harmless of and from any loss, claim or liability resulting from loss or damage
covered by said insurance.
10. ALTERATIONS/ADDITIONS
Tenant shall not make any structural alterations or additions to the
demised premises without landlord's prior written consent, but may make interior
nonstructural alterations. All such nonstructural alterations shall be at
Tenant's expense. Tenant shall not permit any mechanics liens or similar liens
to remain upon the demised premises for labor and materials furnished to tenant
or claimed to have been furnished to tenant in connection with work of any
character performed or claimed to have been performed at the direction of tenant
and shall, after
<PAGE>
-4-
notice thereof, cause any such lien to be released of record forthwith without
cost to the Landlord.
11. ASSIGNMENT/SUBLEASING
Tenant shall not assign this Lease or sublet the whole or any part of the
demised premises without Landlord's prior written consent which consent shall
not be unreasonably withheld or delayed. Notwithstanding such consent to
subletting Tenant shall remain liable to Landlord for the payment of all rent
and for the full performance of the covenants and conditions of this Lease.
12. LANDLORD'S ACCESS
Landlord or agents of Landlord may, at reasonable times and except for
emergencies, upon at least 24 hours prior written notice, enter to view the
demised premises and to make repairs and alterations as so required herein to
do, and at any time within six (6) months before the expiration of the term may
show the demised premises to others and may affix to suitable part of the
premises, a notice for letting or selling the premises or property of which the
premises are a part and keep the same so affixed without hindrance or
molestation.
13. INDEMNIFICATION AND LIABILITY
Tenant agrees to hold Landlord harmless and indemnified from and against
all bodily and personal injury, losses, claims or damages to any person or
property while in the demised premises (unless occasioned by the act or
negligence of Landlord, its employees, agents, licensees, lessees, or
contractors or by a default by Landlord under this Lease), and from against all
bodily and personal injury, loss, claims, or damage to any person or property
outside of the demised premises, which is wholly occasioned by any act or
negligence of Tenant, its employees, agents, licensees, lessees or contractors,
or by a default by Tenant under this Lease.
14. TENANT'S LIABILITY INSURANCE
To the extent to same is not covered by the insurance provided pursuant to
"9" Tenant shall maintain with respect to the demised premises Comprehensive
public liability insurance in the amount of Five Million ($5,000,000.00) Dollars
in responsible companies qualified to do business in Massachusetts and in good
standing therein insuring the Landlord as well as Tenant against injury to
persons or damage to property as herein provided. Tenant shall deposit with
Landlord certificates for such insurance at or prior to commencement of the
term, and thereafter within ten (10) days prior to the expiration of any such
policies. All such insurance certificates shall provide that such policies
shall not be canceled without at least ten (10) days prior written notice to
each assured named therein.
15. FIRE CASUALTY/EMINENT DOMAIN
Should a substantial portion of the demised premises be damaged by fire or
other casualty, or be taken be eminent domain, Landlord may elect to terminate
this Lease. With such
<PAGE>
-5-
fire, casualty or taking renders the demised premises substantially unsuitable
for their intended use, a just and proportionate abatement of rent shall be
made, and Tenant may elect to terminate this Lease if:
(a) Landlord fails to give written notice within thirty (30) days
of said damage or taking of intention to restore the demised premises, or
(b) Landlord fails to restore the demised premises to a condition
suitable for their intended use within ninety (90) days of said damage or
taking.
Landlord reserves, and Tenant grants to Landlord, all rights which Tenant
may have for damages or injury to the demised premises for taking by eminent
domain, except for damage to Tenant's fixtures, property or equipment and
relocation expenses.
16. DEFAULT AND BANKRUPTCY
In the event that:
(a) Tenant shall fail in the payment of any installment of rent or
other sum herein specified and such default shall continue for fourteen
(14) days after written notice thereof, or
(b) Tenant shall default in the observance or performance of any
other of Tenant's covenants, agreements or obligations hereunder and such
default shall not be corrected within thirty (30) days after written notice
thereof (or, if such default is not capable of being corrected within
thirty (30) days, Tenant shall not have commenced to correct such default
and duly prosecuted the same to completion within thirty (30) days); or
(c) Tenant shall be declared bankrupt or insolvent according to law;
The Landlord shall have the right thereafter, while such default continues, to
re-enter and take complete possession of the demised premises, to declare the
term of this Lease ended, and remove Tenant's effects without prejudice to any
remedies which might be otherwise used for arrears of rent or other default.
Tenant shall indemnify Landlord monthly against all loss of rent and other
payments which Landlord may incur by reason of such termination during the
residue of the term including costs of collection and reasonable attorney's
fees. The foregoing rights are nonexclusive and Landlord may avail itself of
any other right available to it at law or in equity and such rights shall be
cumulative and nonexclusive.
17. NOTICE
Any notice from Landlord to Tenant relating to the demised premises or to
the occupancy thereof, shall be deemed duly served, if mailed registered or
certified mail, return receipt requested, postage prepaid addressed to Tenant at
255 Independence Dr., Hyannis Ma.
<PAGE>
-6-
Any notice from Tenant to Landlord relating to the demised premises, shall
be deemed duly served, if mailed to Landlord by registered or certified mail,
return receipt requested, postage prepaid, addressed to Landlord at P.O. Box
1776, Barnstable (Hyannis), Barnstable County, Massachusetts 02601, Attention
Paul Lorusso. All rent and other payments shall be sent to Landlord at such
address.
18. SURRENDER
Tenant shall at the expiration or other termination of this Lease remove
all Tenant's goods and effects from the demised premises. Tenant shall deliver
to Landlord the demised premises and all keys and locks thereto, in the
condition the same are now in, damage by fire, other casualty, taking and
reasonable wear and tear, excepted.
19. SIGNS
Tenant shall have the right to affix signs of reasonable size at the
entrance to the demised premises, and may remove signs upon leaving provided
premises are returned to its condition prior to sign installation. Tenant may
also install a sign on the ladder sign located at the entrance to Perseverance
Way.
20. COSTS
Wherever in this Lease, Landlord or Tenant are required to perform any act
to observe any covenant, in the absence of an express provision to the contrary,
such performance and observance shall be at the cost and expense of the party so
required.
21. QUIET POSSESSION
Landlord warrants that so long as Tenant conforms to the terms and
provisions of this Lease the Tenant shall have full, uninterrupted quiet
possession of the entirety of the demised premises for the use specified in "7"
for the term of this lease and any extensions thereof, Landlord further warrants
that Tenant's quiet possession will remain in full force and effect even should
Landlord mortgage or sell the premises.
22. OPTION TO PURCHASE
Tenant and Landlord agree that after the third year of this lease
agreement, Tenant has the right to purchase the premises for a total price of
$973,000.00. Said option to purchase shall be for the duration of this lease or
any option period hereunder. Landlord agrees to credit the Tenant a total of
$98,000.00 toward the above referenced purchase price at the time Tenant
exercises its option to purchase.
23 OPTION TO BUY OUT REMAINING TERM OF LEASE
Landlord and Tenant agree that at any time after the expiration of three
years from the date of the signing hereof, whether under the initial five year
term hereof, or under any optional lease term granted hereunder, Tenant shall
have the right, upon written notice given to Landlord
<PAGE>
-7-
at least thirty days in advance of the end of any lease year to "buy out " of
this lease, by tendering to the Landlord, together with said notice, an amount
of money equal to one additional full year's rent. For purposes of this "buy
out" provision, the amount of money so tendered shall be the same as the total
amount of rent due for the year of the giving of said notice: for example, if
notice of intent to terminate is tendered by Tenant to Landlord in year 4 of
this lease, in addition to the rent due for the remainder of year 4, Tenant
shall pay an additional amount of money equal to the rent due under this lease
for year 4.
Landlord and Tenant agree that Tenant's right to not exercise its five year
option granted hereunder, shall entitle Landlord to "buy out" compensation.
TIME
Time is of the essence of this agreement.
24. Tenant shall be allowed to file a notice of lease at the appropriate
Registry of Deeds.
EXECUTED as a sealed instrument this 27th day of July 1995.
<PAGE>
-8-
LANDLORD, Independence Park, Inc.,
By: /s/ Paul Lorusso
______________________________
Paul Lorusso, President
Commonwealth of Massachusetts
Barnstable. SS. 1995
Then personally appeared the said Paul Lorusso as aforesaid and
acknowledged the foregoing instrument to be his free act and Deed.
_______________________________
Notary Public
My commission expires:
TENANT Excel, Inc.,
By: /s/ Robert P. Madonna
______________________________
Commonwealth of Massachusetts
Then personally appeared the said and acknowledged the foregoing to be his
free act and deed.
_______________________________
Notary Public
My commission expires:
<PAGE>
-9-
FIRST AMENDMENT TO LEASE
Reference is hereby made to a Lease, dated July 27, 1995, by and between
EXCEL, INC., as tenant, and INDEPENDENCE PARK, INC. as landlord.
The parties to said Lease do hereby agree to amend said lease as follows:
"4. RENT"
The rental amounts payable by tenant in said lease shall be increased,
for the twelve month period beginning November 1, 1995 and ending with the
payment due October 1, 1996, by adding to the Dollar amount /Sq.Ft.
calculation the total sum of $2024.00/per month. Beginning November 1,
1996, the rental shall be paid in accordance with said lease as first
written.
In all other respects said Lease shall remain in full force and effect for
the term thereof.
In witness hereto, the parties do hereunder set their hands and seals this
_____ day of October, 1995.
EXCEL INC. INDEPENDENCE PARK INC.,
/s/ Robert P. Madonna /s/ Paul Lorusso
_______________________________ ____________________________________
Paul Lorusso, President
<PAGE>
Exhibit A
- ---------
Exhibit A depicts an assessor's map of a portion of Barnstable County,
Massachusetts, including parcel 12, the parcel of land subject to the lease
between the Company and Independence Park, Inc. The map shows the outline of the
building leased by the Company, the dimensions of parcel 12 and the dimensions
of certain other surrounding parcels not leased to the Company pursuant to the
subject lease.
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EXHIBIT 10.6
PURCHASE AND RESALE AGREEMENT
This Agreement is entered into by and between EXCEL, INC., a corporation
organized under the laws of the Commonwealth of Massachusetts, with its usual
place of business at 355 Old Plymouth Road, Sagamore Beach, Massachusetts
(hereinafter called "Excel") and
BOSTON TECHNOLOGY, INC., whose address is, 100 Quannapowitt Parkway
Wakefield Ma.(hereinafter called "BTI"). This agreement shall constitute the
entire agreement between the parties and shall supersede any and all previous
agreements with respect to the subject matter hereof.
1. EQUIPMENT PURCHASE AND SOFTWARE LICENSE
a. BTI agrees to purchase and by its acceptance, Excel agrees to sell
and/or license (as applicable), on the terms set forth below, the equipment and
spare parts together with all applicable Software, as that term is further
defined below (collectively referred to as the "Products") listed on the
attached Exhibit I or listed on any of BTI's purchase orders referencing this
Agreement ("Purchase Orders").
b. This Agreement shall not constitute an obligation of BTI to purchase
and/or license any Product(s) unless either (a) implemented by Purchase Orders
issued by BTI, or (b) Otherwise required by Exhibit II.
c. The parties agree that each of BTI's Purchase Orders shall be only an
offer to enter into a contract. Subject to the parameters of Exhibit II, BTI may
revoke, amend or modify each Purchase Order at any time prior to Excel's
acceptance of same.
d. Within five (5) days of receipt of a Purchase Order, Excel shall issue
a Sales Order or similar notice acknowledging its acceptance or rejection of
BTI's Purchase Order and advising BTI of Excel's delivery schedule. Excel's
failure to issue a Sales Order or similar notice within said five (5) day time
period shall constitute Excel's acceptance of BTI's Purchase Order.
2. PRICES
a. The prices, license fees, and other charges for the Products are set
forth in Excel's price list as attached as Exhibits I and II of this Agreement,
prices to be amended from time to time. Any change in prices will become
effective ninety (90) days after Excel has delivered notice of such change to
BTI in writing, and all orders accepted by Excel at expiration of said ninety
day notice period shall be invoiced at the new price.
Excel agrees that it shall, for all sales of its equipment to BTI , limit
said price increases to 15 % per year, for two years, which period shall begin
to run on upon the signing hereof.
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Notwithstanding the above, BTI shall be entitled to rely on those prices in
effect on Exhibits I and II at the time it gives written quotes to its
customers. Any increase in such prices made in accordance with the previous
paragraph will not apply to Purchase Orders subsequently issued by BTI in
connection with such quotes, provided Purchase Order issuance occurs not later
than six months after the corresponding quote. BTI must furnish to Excel copies
of any such quotes in order for this paragraph to become binding upon Excel.
b. Purchase Orders accepted by Excel shall not be subject to such price
increases before the end of said ninety (90) day period. All prices expressed
and all payments made must be in U.S. dollars. The prices shown are F.O.B.
Excel's plant.
c. Prices are exclusive of all federal, state, local, municipal, or other
excise, sales, use, occupation, or similar taxes now in force or enacted in the
future, all of which shall be paid by BTI exclusive of Excel's income taxes. BTI
shall not be responsible for any tax levied or based upon the income of Excel.
Excel may invoice BTI for any such taxes and remit any payments made on such
invoice directly to the appropriate taxing authorities. It shall be BTI's
responsibility to provide written proof, satisfactory to Excel of any applicable
tax exemptions.
d. The prices for Products contained herein, with applicable discounts
and with any increase permitted hereunder, shall be at least as favorable as
these prices and discounts offered by Excel to any of its other customers for
comparable Products. If Excel at any time extends to any other customer lower
prices or higher discounts for any Products, then Excel shall promptly notify
BTI in writing and extend such favorable prices or discounts to BTI as of the
date such prices or discounts were first offered to any other customer of Excel.
If, after the effective date of a resulting price decrease, BTI shall have
overpaid for affected Products at the preexisting price, then the amount of the
overpayment shall be allowed as a credit against the price of Products on an
existing Purchase Order for which payment has not been made.
Notwithstanding the above, EXCEL may, at its sole option and discretion,
provide more favorable pricing or greater discounts to third parties purchasing
limited numbers of systems (i) for Product evaluation, testing, developmental or
beta site installations, or (ii) as an inducement to a third party to order
Products in quantity, without triggering this provision.
3. PAYMENT
a. Payment for Products is due on or before the date specified on Excel's
invoice, that is, net thirty (30) days after receipt of Product or invoice
whichever is later.
b. All balances due Excel by BTI not paid within thirty (30) days after
due date shall accrue a late payment fee equal to 1.5% per month on such unpaid
amounts together with all costs and expenses including reasonable attorney's
fees incurred by Excel in collecting such overdue amounts. Any payment made by
BTI to Excel shall first be applied to the late payment fees and costs and
expenses incurred in collection and then to the oldest invoice due, regardless
of any contrary instructions received from BTI.
4. DELIVERY
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a. Excel's normal delivery schedule is ninety (90) days after receipt and
acceptance of an order. This delivery schedule is expressly conditioned upon the
accuracy of the Product purchase forecast and volume purchase commitments
supplied to Excel by BTI in Exhibit II to this Agreement. Should BTI desire to
shorten (or lengthen) said delivery schedule, Excel shall use reasonable efforts
to comply with BTI'S request. Excel shall, within two (2) business days of such
request, notify BTI if additional charges are required to facilitate any
expedited delivery. BTI shall have 24 hours from said notification to elect to
proceed with expedited delivery at the specified additional cost or to proceed
under the normal delivery schedule at the original price.
b. Excel will not assume any liability in connection with shipment for
any loss or damage caused by any carrier. Upon request, shipments will be
insured at the BTI's expense, and BTI shall be responsible for making claims
with carriers, insurers, warehousemen, and others for its and/or their
misdelivery, nondelivery, loss, damage or delay.
c. BTI may inspect and test all Products at reasonable times during and
after manufacture. If any such inspection or test is to be made on Excel's
premises, BTI shall first give Excel 10 days notice in writing of its desire to
make such inspection. Excel shall provide reasonable facilities and assistance
for the safety and convenience of BTI's inspectors in such manner that shall not
unreasonably hinder or delay Excel's performance. All Products shall be received
subject to BTI's inspection, testing, approval and acceptance at its premises,
notwithstanding any inspection or testing at Excel's premises or any prior
payment for such Products. Products rejected by BTI as not conforming to the
relevant Purchase Order or to Excel's or BTI's Specifications (as applicable)
may be returned to Excel at BTI's risk and expense and shall not be replaced by
Excel without BTI's written authorization.
5. SHIPMENT, RISK OF LOSS, TITLE
a. All Products shall be packaged, marked and otherwise prepared for
shipment by Excel in suitable containers in accordance with BTI's packing and
shipping specifications for such Products, or if no such specifications are
given to Excel, in accordance with sound commercial practices. Excel shall mark
on such containers all necessary handling, loading and shipping instructions. An
itemized packing list shall be included with each shipment. Bills of lading
shall be mailed to BTI in triplicate. BTI agrees to assume any additional
packaging costs incurred by Excel in complying with BTI'S packaging
specifications.
b. All Products under this Agreement shall be delivered to BTI F.O.B.
Excel's plant and delivery of Products to the common carrier or a licensed
trucker of BTI'S choice, shall constitute delivery to BTI.
c. Title and risk of loss for the Product shall pass to BTI upon delivery
to the common carrier or licensed trucker of BTI's choice.
d. Excel will not assume any liability in connection with shipment for
any loss or damage caused by any carrier. Upon request, shipments will be
insured at BTI's expense, and BTI shall be responsible for making claims with
carriers, insurers, warehousemen, and others for its and/or their misdelivery,
non-delivery, loss, damage or delay.
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e. All transportation, rigging, and similar costs and charges shall be
paid by BTI. Excel may, however, invoice BTI for any such charges and remit
payments directly to the shipper.
6. ADDITIONAL ORDERS
Intentionally Deleted
7. SOFTWARE LICENSE AND SUBLICENSE
a. Definitions
As used in this Agreement:
"Programs" or "Software" shall mean all computer programs in machine
readable form furnished by Excel as a Licensor and all Sublicensed Programs (as
that term is defined below) furnished by Excel as a Sublicensor to BTI and
further described in Exhibit I of this Agreement and any Supplement thereto,
including related supporting materials iii machine readable, printed or other
form, and any other updates, improvements or revisions which are furnished by
Excel to BTI;
"Sublicensed Programs" shall mean any Programs which are owned by a third
party and sublicensed under Agreement by Excel to BTI;
"Designated Equipment" shall mean a single LNX, PCX, or XLDX, designated
with a single Excel system serial number and all associated equipment, produced
or supplied by Excel.
"Documentation" shall mean any written and or printed materials that may
accompany the Products, Software or Programs, or may be furnished by Excel to
BTI subsequent to BTI'S receipt of said Products, Software or Programs.
"Product Specifications" shall mean the specifications for the Products
which have been developed by Excel or BTI (as the case may be.)
b. License and Sublicense
Subject to the terms and conditions of this Agreements Excel hereby grants,
and BTI hereby accepts, a perpetual, worldwide, non-terminable, non-exclusive
license (in the case of Programs proprietary to Excel) or sublicense (in the
case of Programs owned by third parties), to use, and/or distribute directly or
through a sublicensee or a succession of sublicensees to an end user to use
(i.e. BTI and successive end-users may assign their sublicense to use), each
Program and Sublicensed Program in connection with the Designated Equipment (and
no other Excel base unit) except for EXCEL equipment replacing Designated
Equipment) on which such Program and Sublicensed Program is first installed and
as the same may be connected with any associated hardware and software, whether
from Excel, BTI or a third party. The price established in this Agreement for a
Program and/or Sublicensed Program shall be the only consideration due in
connection with that Program and/or Sublicensed Program. BTI agrees that the
owner of
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Sublicensed Programs shall, with respect to those Sublicensed Programs, have the
right to enforce the terms and conditions of this sublicense against BTI. BTI's
rights to license and sublicense hereunder shall terminate upon the termination
of this Agreement, provided that (i) the termination of such rights shall not
affect licenses and sublicenses previously granted by BTI, (ii) such termination
will not affect BTI's right to grant licenses and sublicenses with respect to
Products accepted and paid for by BTI at the time of such termination, and (iii)
BTI shall have the limited right to retain and use the Products to the extent
necessary and to fulfill BTI's obligations to support existing license and
sublicenses.
c. Title to Programs
Title to and ownership of the Programs, including all patents, copyrights,
trade secrets, and proprietary property rights applicable thereto, shall at all
times remain solely and exclusively with Excel or the owner of a Sublicensed
Program, as the case may be, and BTI shall not take any action inconsistent with
such title and ownership. BTI acknowledges Excel's representation that the
Software is "Restricted Computer Software" as that term is defined in Subpart
227.471 of the Department of Defense Federal Acquisition Regulation Supplement
(DFARS).
BTI agrees to ensure that if any Software or Documentation will be supplied
to a unit or agency of the United States government, whether by BTI or by any of
the users to whom BTI directly or indirectly supplies the same, it may only be
done by written contract in which:
i. If the Software is supplied to the Department of Defense,
(DoD), the government agrees that the Software will be classified as "Commercial
Computer Software" and that the governments acquiring only "restricted rights"
in the Software and Documentation as that term is defined in Clause 252.2277013
(c) (1) of the DFARS and
ii. If the Software is supplied to any unit or agency of the United
States government other than DoD, the government agrees that the governments
rights in the Software and Documentation will be as defined in clause 52.22719
(c) (2) of the FAR.
BTI acknowledges Excel's representation that the Software and Documentation
were developed at private expense and no part of them is in the public domain.
d. Protection of Programs
BTI acknowledges that Excel and/or the respective owners of the Sublicensed
Programs have proprietary interest in the Licensed Programs and the Sublicensed
Programs respectively, and BTI shall hold such programs in complete confidence.
BTI shall not, without the prior written consent of Excel, disclose or otherwise
make available such Programs and Sublicenses Programs in any form to any person
other than BTI's employees and agents and BTI's end-user customers, distributors
and dealers ("BTI's Customers"). The Programs and Sublicensed Programs shall not
be copied (other than for backup purposes) or modified, in whole or in part,
without the prior written consent of Excel, nor shall BTI translate, reverse
engineer, decompile or disassemble the same without the prior written consent of
Excel.
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BTI shall not remove or obscure any copyright, patent, trademark, trade
secret or similar notice affixed to any Program or Sublicensed Program and shall
reproduce and affix such notices or any copies or modifications of the Programs
permitted by Excel. Under no circumstances will the source codes for the
Programs be disclosed by BTI. BTI shall take appropriate action, by instruction,
agreement, or otherwise with respect to any persons permitted access to the
Programs and Sublicensed Programs, in order to enable BTI to satisfy its
obligations hereunder.
e. Terms of License
Should BTI fail to comply with any of the material terms or conditions of
this Agreement, Excel may, upon two (2) days prior written notice to BTI of its
intent to do so, terminate any license granted herein to BTI. Unless so
terminated, each license and sublicense granted in this Agreement for the use of
the Programs and Sublicensed Programs shall remain in force until BTI
discontinues the use of the Programs and Sublicensed Programs on the Designated
Equipment. Within thirty (30) days after the BTI has discontinued the use of the
Programs and Sublicensed Programs or within ten (10) days after Excel has
terminated any license or sublicense thereto, BTI shall destroy or return to
Excel the original and all copies (including partial copies) of such
discontinued or terminated Programs and Sublicensed Programs and certify, in
writing, to Excel that it has done so. The obligations of BTI to protect the
proprietary nature of the Programs and Sublicensed Programs shall survive the
termination of any such license.
f. Injunctive Relief
BTI acknowledges that (i) any unauthorized use or transfer of the Programs
or other information contained in the Programs may substantially diminish the
value to Excel of the trade secrets and proprietary rights that are the subject
of this Agreement and thus irreparably harm Excel, and (ii) if Excel alleges
that BTI has breached any of its obligations under this Agreement, Excel shall,
if such breach is proven, in addition to all other remedies accorded by law, be
entitled to equitable relief (including but not limited to injunctive relief) to
protect its interests.
8. EXPORT CONTROLS
BTI warrants to Excel that it will not resell, transfer or use the Products
obtained from Excel under this Agreement in any way in violation of any laws,
regulations, transactions or export controls, or economic sanctions imposed by
the United States government with regard to any other State, government or
political entity. If BTI intends to export the Products outside the United
States, it is incumbent upon BTI to determine whether an export license will be
required and, if so, to obtain the license from the appropriate authorities in
the United States Commerce or State Department.
In the event that BTI should need any additional information from Excel in
order to obtain said license, BTI shall notify Excel in writing, and Excel
agrees to furnish said information upon satisfactory proof of a legitimate need
therefore.
9. PROGRAM UPDATES AND CHANGES IN PRODUCTS SPECIFICATIONS
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a. Excel shall advise BTI in writing of design modifications to the
Products where such modifications would, without limitation, improve Product
quality, facilitate product sourcing or increase Product reliability. If Excel
determines that said modifications would alter the form, fit or function of the
Products, such that they are no longer functionally equivalent to the Products
they are to replace, Excel shall, upon written request from BTI, deliver to BTI
for a sixty day (60) evaluation period, free of charge, a sample of the Products
so modified. BTI shall have the right to test and inspect such Products, and BTI
shall have the right to disapprove, in writing, any of such proposed
modifications to the Products. Should BTI fail to provide notice of said
disapproval in writing to Excel as prescribed above, Excel shall assume BTI's
consent to the incorporation of such modifications for use by BTI, and shall
invoice BTI for the products so delivered. If BTI disapproves of such
modifications for its use, BTI shall have the right, within sixty days (60) of
such disapproval, to place additional purchase orders for Products without such
modifications, provided that BTI's requested shipping dates for such Products
occur within the succeeding six (6) month period. Upon such disapproval, BTI
shall within ten (10) days, either return the Products so modified to Excel , or
be invoiced for such Products.
Should Excel determine that any of such modifications do not alter the
form, fit, or function of said Products such that they remain functionally
equivalent to the Products they are to replace, Excel shall notify BTI in
writing of said change but shall not be obligated to provide a sample of such
Product to BTI for testing or evaluation.
b. The parties agree that this section 9. a. is not meant to cover
changes made to the Products by Excel to correct errors in the Products that
have been either reported by BTI or discovered by Excel. The parties further
agree that nothing in section 9. a. above should be interpreted as a restriction
on Excel's right to generally commercially distribute the Products with the
design modifications described herein.
c. Excel agrees that any new Products that it develops during the term of
this Agreement and which it makes generally commercially available, shall be
made available to BTI pursuant to the terms and conditions hereof.
10. NOTICES
All notices by either party to the other party under this Agreement shall
be in writing and personally delivered or send by confirmed facsimile with a
copy sent by registered or certified mail, return receipt requested, to the
other party at its address set forth above. The date of personal delivery or the
date of facsimile transmission, as the case may be, shall be deemed to be the
date on which such notice is given.
11. DISTRIBUTION OF PRODUCTS TO UNITED STATES GOVERNMENT
The Products being provided by Excel to BTI under this Agreement are
"Commercial Computer Software" as defined in the U.S. Government DOD FAR
Supplement at 52.227-7013a. As such, the Products, including related
documentation, are provided with restricted rights. BTI, in any dealings with
the U.S. Government, agrees to inform the U.S. Government that the Products are
"Commercial Computer Software" and that the use, duplication, or
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disclosure by the U.S. Government of the Products is subject to the restrictions
as set forth in DOD FAR Supplement at 52.227-7013(b)(3) and in subparagraph
(c)(1)(11) of the Rights in Technical Data and Computer Software clause at
252.227-7013. BTI agrees to work with EXCEL to clearly and properly mark any and
all Products, including related documentation, that are to be delivered to any
branch or agency of the U.S Government with the restricted rights legend set
forth in DOD FAR Supplement at 52.227-7013(b). BTI also agrees to inform all
U.S. Government Contracting Officers, when applicable, that the Products are
commercial software and subject to the restrictions described above.
12. PATENT AND COPYRIGHT INDEMNITY
a. If notified promptly in writing of any action (and all prior claims
relating to such action) brought against BTI based on a claim that any of the
Products supplied to BTI infringes a patent, copyright or trademark, Excel shall
defend such action at its sole expense and pay any costs or damages finally
awarded in such action which are attributable to such claim; provided that Excel
shall have sole control of the defense of any such action and all negotiations
for its settlement or compromise. Notwithstanding the provisions of the previous
sentence, Excel's obligation to defend as stated therein shall not be excused in
the event that BTI engages its own counsel at its own expense, to assist BTI in
determining the relevant issues in, and the merits of, said claims and to
provide general advice with respect to such claims. If an injunction is obtained
against BTI's use of any of the Products by reason of infringement of a patent,
copyright or trademark, or if in Excel's opinion any of the Products hereunder
is likely to become the subject of a successful claim of infringement of a
patent, copyright or trademark, Excel shall, at its option and expense, either
procure for BTI the right to continue using such Product or replace or modify
the same so that it becomes noninfringing or if neither of the foregoing
alternatives are possible, grant BTI a credit for such Product (as depreciated
in the case of equipment over four (4) years) and accept its return.
b. Notwithstanding the foregoing, Excel shall not have any liability to
BTI under the foregoing provision if such infringement or claim is based upon.
1. the use of any of the Products in combination with other
equipment or software which is not furnished by Excel where the Products would
not, by themselves, be infringing.
c. If notified promptly in writing of any action (and all prior claims
relating to such action) brought against Excel based on a claim that any of the
Products that were Manufactured or supplied by Excel in Compliance with BTI'S
written designs, specifications or instructions, or any designs, specifications
or instructions relayed to Excel orally by BTI which are confirmed by Excel in
writing to BTI, ("BTI designed Products") infringes a patent, copyright or
trademark, then BTI shall defend such action at its sole expense and pay costs
or damages finally awarded in such action which are attributable to such claim,
provided however, that BTI shall have sole control of the defense of any such
action and all negotiations for its settlement or compromise. Notwithstanding
the provisions of the previous sentence, BTI'S obligation to defend as stated
therein shall not be excused in the event that Excel engages its own counsel at
its own expense to
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assist Excel in determining the relevant issues in, and merits of, said claims
and to provide general advice with respect to said claims.
d. Notwithstanding the foregoing provisions of Section 12.c. above, BTI
shall not have any liability to Excel if such infringement or claim is based
upon:
1. The use of any of the BTI Designed Products in combination with
other equipment or software which is manufactured or supplied by Excel and is
not in compliance with BTI'S written designs, specifications or instructions
and/or where BTI Designed Products would not, by themselves, be infringing.
e. In no event shall either party's total liability to the other party
under section 12.a. or 12.c. respectively exceed two (2) times the aggregate sum
paid to EXCEL by BTI for the allegedly infringing Products or Programs.
f. The foregoing provision state the entire liability of Excel and BTI
with respect to infringement of patents, trademarks or copyrights by any of the
Products or any part thereof or their operation.
13. LIMITED WARRANTY
a. Products
Excel warrants that the Equipment shall be free of all liens and
encumbrances. Excel further warrants that the Equipment shall conform to Excel's
or BTI's (as applicable) Product Specifications for same and shall be free from
defects in material and workmanship for a period of fourteen (14) months after
the date of shipment to BTI (the Warranty period). Excel's sole obligation with
respect of claims of non compliance or defects made within the Warranty period
described above shall be, at its option, to repair or replace any item which
Excel, in its reasonable judgment, determines to be defective within sixty (60)
days after receipt of thereof. BTI shall obtain a return authorization number
from Excel prior to returning any Equipment to Excel under this warranty. BTI
shall be responsible for all shipping charges for Equipment returned to Excel
for warranty service, and Excel shall pay charges for the return of the
Equipment to BTI. Excel may employ previously utilized parts to make repairs or
replacements, so long as the previously utilized parts are not defective in any
respect and are subject to the same warranty as new parts. All replaced parts
will become the property of Excel on an exchange basis.
All replacements and repairs made during the initial Warranty period shall
carry a warranty equal to the balance of said Warranty period, or ninety days,
whichever is longer. Any repair made under said repair warranty which is made
after the expiration of the initial Warranty period shall, unless covered by the
EXCEL "EXTENDED WARRANTY and SUPPORT PROGRAM," not be further warranted and
should additional repair be necessary, said repair shall be subject to the Out
of Warranty prices as appended hereto in Exhibit VI.
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Excel offers an "Extended Warranty and Support Program" at additional cost,
a copy of which is appended hereto as Exhibit V, as well as an OUT OF WARRANTY
price list, appended hereto as Exhibit VI, covering both repairs replacements
and software upgrades.
Excel further warrants that it shall make available the spare parts listed
in Exhibit I (as such spares may be amended from time to time to account for
technical changes and improvements) for a period of five (5) years from the date
of the last Product shipped hereunder. This provision shall only apply to "LNX"
and "PCX" Products; it shall not apply to "XLDX" Products. All "XLDX" spare
parts will be supplied by EXCEL for the aforementioned period subject to their
availability.
b. Limitations of Warranty
The foregoing limited warranties by Excel shall not apply if:
i. A repair or replacement part is required as a result of causes
other than normal use, including without limitation, repair, maintenance,
alteration or modification of the Products by persons other than Excel or other
authorized personnel (which term includes duly qualified and authorized BTI
personnel); accident, fault or negligence of the BTI or BTI'S customer; operator
error or improper use or misuse of the Products; or causes external to the
Products not caused by Excel, such as, but not limited to, transportation or
fluctuations of humidity or temperature in excess of the specified tolerance
levels of the Products or failure of electrical power, or fire or water damage;
or
ii. The Products are modified by BTI or used with software or
equipment for applications that are beyond the normal or customary business of
BTI; or
iii. BTI's customer's installation site is not maintained in
accordance with Excel's applicable site specification as set forth in the
relevant Product User's Manual.
c. Software
Excel warrants that for fourteen (14) months after shipment, all Software
licensed hereunder will substantially conform to Excel's or BTI's (as
preapproved by Excel) then current published Product Specifications for the
Software. BTI must notify Excel in writing of any defect in the Software, and if
the Software is found to be substantially defective, Excel shall correct such
defect in a manner determined by Excel. Excel will correct any and all service
affecting Software deficiencies or provide an adequate workaround(s) for same.
d. Limitation of Liability and Damages
No action, whether in contract or tort, including negligence arising out of
or in connection with this Agreement, may be brought by either party more than
twenty four (24) months after the cause of action has accrued. This limitation
shall not apply to actions for any breach of the Patent and Copyright provisions
or actions for violations or infringements as provided in Section 12 above, of
Excel's rights relating to the Programs licensed or sublicensed hereunder.
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e. Disclaimers
OTHER THAN THE LIMITED WARRANTY SET FORTH IN THIS SECTION, EXCEL DISCLAIMS
ALL WARRANTIES WITH RESPECT TO THE PRODUCTS (INCLUDING, WITHOUT LIMITATION,
WARRANTIES AS TO MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE), EITHER
EXPRESS OR IMPLIED, AND THE FOREGOING EXPRESS LIMITED WARRANTIES ARE PROVIDED IN
LIEU OF ANY OTHER WARRANTIES ON THE PART OF EXCEL. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER OR ANY OTHER PERSON FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
f. Use of the Equipment in Critical Application
Excel's equipment and Products are manufactured for standard commercial use
and must be carefully considered for use in critical elements in applications or
systems, such as life support systems (e.g.: "911" or "E911" -like systems),
mass transportation or air traffic control systems, where failure of the
Equipment to perform can be reasonably expected to cause failure of the
application or system, to affect the safety or effectiveness of the application
or system. Before using, BTI will determine the suitability of the Equipment for
its intended use.
g. Out of Warranty Service
Unless otherwise specified herein in any appendix, or otherwise in any
service contract, Excel agrees to provide out of warranty service for any of its
Products, in accordance with the Excel "Out of Warranty Price List" appended
hereto as in Exhibit VI.
14. SUPPORT
a. Products supplied to BTI hereunder will ultimately be used by end-
users located outside as well as inside the U.S. In the event that BTI is unable
to resolve problems with the Products during the installation/acceptance process
or is unable to keep the Products in a reliable state during or after the
Warranty period, BTI shall make available at the relevant end-user site or, at
BTI if the problem is capable of remote cure, a person previously trained in the
Excel technical training program. The person shall call Excel at 1-800-541-7002
and request technical support. If after attempting to repair through this
telephone conversation, Excel and BTI are unable to rectify the situation, Excel
will promptly send qualified technical experts to the relevant end-user site who
will rectify the situation. As to end user site consultations which take place
during the Warranty period: (i) if a Product defect caused the problem, EXCEL
will bear the cost of the consultation (U.S. and Canada only) and BTI will bear
the cost of out-of-pocket expenses, (ii) if a Product defect did not cause the
problem, BTI will bear all costs. All end-user site consultations which take
place after the initial Warranty period or the Extended Warranty period, if
applicable, shall be invoiced and paid for in accordance with the Out of
Warranty Price List as appended hereto as Exhibit VI. In addition to the out of
warranty services described
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elsewhere in this Agreement, Excel will continue to provide Product parts and
Software services at reasonable prices after expiration of the relevant
warranty.
b. Excel will provide technical training to BTI's employees as outlined
in Exhibit IV hereto.
15. CHANGES REQUESTED BY BTI
BTI's Procurement department may, from time to time, by written notice to
Excel, request changes in the method of packing or shipment, quantity ordered,
(within the parameters contained in Exhibit II attached hereto,) destinations
and delivery schedules for the Products. If any such change causes a material
increase or decrease in Excel's cost of the Products or delivery schedule
hereunder, an equitable adjustment shall be made to such price or delivery
schedule, or both. Any claim by Excel for adjustment under this Section 15 shall
be deemed waived unless made in writing within twenty (20) days after receipt of
written notice of said change.
In addition, BTI's Procurement Department may from time to time in writing,
request changes in Product Specifications. Upon receipt of such request, EXCEL
shall promptly make an evaluation of the proposed change. If, in EXCEL's sole
discretion, it deems the proposed change reasonable, it shall, as the
information becomes available, notify BTI of the terms, projected delivery times
and minimum Product purchase commitment levels required from BTI in order for
EXCEL to proceed with such modifications. EXCEL reserves to itself the right, in
its sole discretion, to reject any such requests.
16. MANUFACTURING RIGHTS
a. Excel hereby agrees that, within thirty (30) days of the effective
date of this Agreement, it will place in escrow with Data Securities
International, Inc. ("DSI") all materials necessary for BTI to manufacture the
Products, including but not limited to, blueprints, artwork, process sheets,
test procedures, tooling drawings, schematics, computer software source code,
performance specifications and all related documentation. BTI agrees that it
shall pay all fees associated with said deposit in escrow for the entire term of
Escrow.
b. Excel agrees, on an ongoing basis, to promptly provide DSI with any
modifications or improvements of any materials placed in escrow pursuant to this
Section 16. and to notify BTI of any such modifications or improvements
promptly.
c. In the event that any of the release conditions described below (the
"Release Conditions") occurs, then the parties agree that: (1) DSI shall release
to BTI all materials held in escrow; (2) Excel will grant to BTI a royalty-free
license to manufacture such Products; and (3) BTI shall utilize such materials
only to manufacture or otherwise procure Products to satisfy existing Purchase
Orders and forecasted orders as required by Exhibit II, and to support existing
Products already distributed by BTI. BTI further agrees to treat such materials
as the Proprietary Information of Excel subject to the provisions of Section
17.d below.
<PAGE>
-13-
d. For the purpose of this Section 16., the Release Conditions shall mean
one or more of the following events:
(1) Excel commits a material breach of its obligations hereunder and
fails to cure such breach within forty five (45) days of the receipt of notice
from BTI which details such breach; or
(2) Excel fails to continue to do business in the ordinary course,
which failure continues for more than forty five (45) days; or
(3) One of the following circumstances materially affect Excel's
ability to comply with the terms of this Agreement and such condition remains
uncorrected for more than sixty (60) days:
(i) entry of an order for relief by or against Excel under Title 11
of the United States Code;
(ii) the making by Excel of a general Assignment for the benefit of
creditors;
(iii) the appointment of a general receiver of trustee in bankruptcy
of Excel's business or property; or
(iv) action by Excel under any state insolvency or similar law for
the purpose of its bankruptcy, reorganization or liquidation.
17. GENERAL
a. The obligations of Excel under this Agreement shall be subject to the
procurement by, and at the expense of, BTI of any import or export licenses,
documents, permits or clearances required with respect to this Agreement and are
subject to the condition precedent that all necessary approvals from
governmental authorities (including exchange control authorities) have been
obtained. BTI agrees to comply with all laws applicable to BTI as they relate to
the Products, of the United States of America and its states at all times and
shall not take or refrain from taking any action which would result in the
violation of such laws by Excel. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership or employment relationship
between Excel and BTI.
b. If the financial condition of BTI at any time does not justify
continuation of the work called for, or shipment on the terms of payment
originally specified, Excel, in its sole discretion, may require full payment in
advance of delivery.
c. The validity, construction and interpretation of this Agreement and
the rights and duties of the parties hereto shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, excluding its
conflict of law rules.
<PAGE>
-14-
d. BTI agrees it shall protect all such information and hold such
information so provided in accordance with the provisions of the Mutual Non-
Disclosure Agreement between the parties, dated February 3, 1994.
e. This Agreement and the above referenced Non-Disclosure Agreement is
the complete and exclusive statement of this agreement between the parties and
supersedes all prior agreements and communications with respect to the subject
matter herein. Excel makes no representations to BTI except as expressly set
forth herein. Unless otherwise agreed by the parties in writing, the terms of
this Agreement and the said Non-Disclosure Agreement shall apply and govern the
parties' dealings notwithstanding any proposed variations or additions which may
be contained in any Purchase Order or other communications submitted by BTI or
in any Sales Order or similar notice provided by Excel.
f. This Agreement may not be modified, amended or waived in whole or in
part, except by written agreement of the parties hereto. No Excel employee other
than its President, shall have any actual or apparent authority to modify the
terms of this Agreement in any way. Any authorized modifications shall be in
writing and signed by such representative of Excel. Any item or service
furnished by Excel in furtherance of this Agreement, although not specifically
identified herein, shall nevertheless be covered and governed by this Agreement
unless specifically covered by some other written agreement executed by BTI and
an authorized representative of Excel.
g. Either party may assign this Agreement, or any of its rights hereunder
or delegate any of its obligations hereunder, provided such party's transferee
agrees in writing to be bound by all of the provisions of this Agreement and
such writing is provided to the other party within a reasonable period of time
prior to the effective date of such assignment or delegation.
h. Section headings are for descriptive purposes only and shall not
control or alter the meaning of this Agreement.
i. All rights and remedies of either party shall be cumulative and may be
exercised singularly or concurrently. The failure of either party, in any one or
more instances, to enforce any of the terms of this Agreement shall not be
construed as a waiver of future enforcement of that or any other term.
j. If any provisions of this Agreement shall for any reason be held
illegal or unenforceable, such provisions shall be deemed separable from the
remaining provisions of this Agreement and shall in no way affect or impair the
validity or enforceability of the remaining provisions of this Agreement.
k. In the event either party is unable, in its reasonable judgment, to
perform in accordance with this Agreement, due in whole or in part to any cause
beyond the party's control, including without limitation, Acts of God, acts of
the enemy, events of war, embargoes, strikes, lockouts, dispute with workers,
shortage of fuel, unusually severe weather conditions, fires, floods,
earthquakes, and unreasonably dangerous situations, the affected party shall
promptly notify the other party in writing and the date of performance shall be
extended for a period equal
<PAGE>
-15-
to the period of such delay. Notwithstanding the foregoing, if such period of
delay extends beyond ninety (90) days, the other party may, upon written notice
to the affected party, terminate this Agreement with no further liability except
for any payments owed and then due.
18. TERMINATION
This Agreement shall terminate two years from the date of the signing
hereof. Unless otherwise notified in writing by Excel 6 months prior to any
termination date, this Agreement shall be automatically renewed for successive
two year periods.
<PAGE>
-16-
IN WITNESS WHEREOF, the parties hereto have signed this Agreement this 27th
day of May, 1994.
Excel, Inc., BTI,
By: By:
/s/ Robert P. Madonna /s/ Edward P. Maggio, V.P.
- -------------------------------- ------------------------------------
Robert Madonna, President Edward P. Maggio, V.P.
<PAGE>
EXHIBIT 1
Effective March 25, 1994 Excel, Inc
Supersedes: January 28, 1994 LNX 2000 Price List
<TABLE>
<CAPTION>
PART NUMBER MODEL # DESCRIPTION PRICE
<S> <C> <C> <C>
BASE UNIT
00-2200-00 Base Unit: Includes Chassis, 48 VDC Power supply, MX/CPU-2000, Clock SIMM $30,326
Chassis
68-7004-00B Front Air Flow Chassis
68-7004-10B Bottom Air Flow Chassis
Power Supply
68-1115-008 48 VDC Power Supply Card
Matrix/CPU
68-2000-11B MX/CPU-2000 Matrix/CPU-2000 3.X Card
Matrix/CPU I/O Modules
67-1014-40B MX/CPU RS232 I/O Module for 1.544/2.048 Clock SIMM Matrix
67-1014-60B MX CPU RS232 I/O Module for 64 kps Clock SIMM Matrix
67-1019-00B MX/CPU Ethernet I/O Module future release
Clock SIMMS
67-1005-00 Clock SIMM/1.544
67-1005-10 Clock SIMM/2.048
67-1005-20 Clock SIMM/64
Line Cards
68-2005-20B ST1LC-192 Smart T1 Line Card (192 Ports) $11,325
68-2010-02B SE1LC-128 Smart E1 Line Card (128 Ports) 120 Ohm $8,424
68-2010-22B SE1LC-256 Smart E1 Line Card (256 Ports) 120 Ohm $13,024
68-2015-00B SJ1LC-128 Smart J1 Line Card (128 ports) $9,265
67-1015-00B ST1LC 120 Ohm/SJ1LCI/O Module included
68-2010-00B SE1LC-128 Smark E1 Line Card (128 ports) 750hm $8,424
68-2010-20B SE1LC-256 Smark E1 Line Card (256 Ports) 750Ohm $13,024
67-1016-00B SE1LC75 Ohm I/O Module included
Optional Line Card I/O Modules
67-1017-00B ST1LC Redundant I/O Module future release
67-1042-00B SE1LC 120 Ohm Redundant I/O Module future release
67-1043-00B SJ1LC Redundant Standby I/O Module future release
67-1043-00B Redundant Standby I/O Module future release
Service Resource Cards
68-2007-00B MFDSP Multi Function DSP Card (Tone Gen., Tone Rec., Cont., CPA) $4,995
68-2016-00B ISDN PRI-24 ISDN PRI-24 D Channel Engine $12,995
Related Modules
67-1004-00 Quad C31 Module for MFDSP $1,695
67-1010-00 VRAF, Flash for MFDSP future release
67-1006-00 VRAS, SRAM for MFDSP future release
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Software
65-8006-XX LNX Base System Software 3.X $4,995
65-8032-XX ISDN PRI-24 Software 3.X $5,000
65-8022-XX PPL Software 3.X $9,995
65-8041-XX Developers Toolkit $499
Control Software future release
Manuals
08-2003-XX LNX Users Manual 3.X w/current release notes $100
08-8041-XX Developers Toolkit Manual w/current release notes $100
Control Users Manual w/current release notes future release
REDUNDANT ENHANCEMENT
00-2200-10 Redundant Enhancement: Includes 48VDC Power Supply, MX/CPU-2000 Clock SI $22,615
Power Supply
68-1115-00B 48 VDC Power Supply Card
MX/CPU
68-2000-11B MX/CPU-2000 Matrix/CPU-2000 Card
Matrix/CPU/ I/O Modules
67-1014-40B MX/CPU RS232 I/O Module for 1.544/2.048 Clock SIMM Matrix
67-1014-60B MX/CPU RS232 I/O Module for 64 kps Clock SIMM Matrix
MX/CPU Ethernet I/O Module future release
Related Simms
67-1005-00 Clock SIMM/1.544 kps
67-1005-10 Clock SIMM/2.048 kps
67-1005-20 Clock SIMM/64 kps
SPARE PARTS
68-7004-00B LNX Chassis with Front Air Flow $6,600
68-7004-10B LNX Chassis with Bottom Air Flow $6,600
68-2000-11B MX/CPU-2000 Matrix/CPU-2000 3.X Card $17,656
68-1115-00B 48 VDC Power Supply Card $7,325
68-7005-00 Fan Tray Assembly $1,890
67-1015-00B ST1LC/SE1LC 120 Ohm/S1TLC I/O Module $595
67-1016-00B SE1LC 75 Ohm I/O Module $645
67-1017-00B ST1LC Redundant I/O Module future release
67-1042-00B SE1LC 120 Ohm Redundant I/O Module future release
67-1043-00B SJ1LC Redundant I/O Module future release
67-1044-00B Redundant I/O Slave Module future release
67-1014-00B MX/CPU RS232 I/O 1.544/2.048 Clock SIMM Module $595
67-1014-20B MX/CPU RS232 I/O 64 kps Clock SIMM Module $595
MX/CPU Ethernet I/O Module future release
</TABLE>
<PAGE>
Effective January 28, 1994 Excel, Inc
Supersedes: December 13, 1994 PCX 512 Price List
<TABLE>
<CAPTION>
PART NUMBER MODEL # DESCRIPTION PRICE
<S> <C> <C> <C>
Base Units
Chassis
68-7515-00B 20 Slot Industrial AC Chassis $2,500
68-7520-00B 20 Slot Industrial 48 Volt DC Chassis $3,191
Redundant Power Option
66-0001-00 Redundant 48 Volt Power Supply $1,865
Matrix/CPU
68-1200-37 MX/CPU-512 Matrix/CPU-512 Card $6,495
68-1200-17 MX/CPU-96 Matrix/CPU-96 Card $3,495
Related Simms
??-1005-01 Clock Simm/1.544 included
??-1005-11 Clock Simm 2.048 included
Digital Line Cards
8-1205-00 PCST1LC-48 Smart T1 Line Card 48 Ports $3,295
8-1205-20 PCST1LC-96 Smart T1 Line Card 96 Ports $4,995
8-1212-00 PCSE1LC-64 Smart E1 Line Card 64 Ports 75 Ohm $3,625
8-1212-02 PCSE1LC-64 Smart E1 Line Card 64 Ports 120 Ohm $3,625
8-1212-20 PCSE1LC-128 Smart E1 Line Card 128 Ports 75 Ohm $5,495
8-1212-22 PCSE1LC-128 Smart E1 Line Card 128 Ports 120 Ohm $5,495
8-1214-00 PCSJ1LC-64 Smart J1 Line Card 64 Ports tbd
8-1214-20 PCSJ1LC-128 Smart J1 Line Card 128 Ports tbd
Analog Line Cards
8-1206-20 PCULC-12LS PC Universal Line Card (12 Ports) for LS-FXO Modules $1,995
67-1011-00 FXO Module for PCULC-12LS included
8-1206-00 PCULC-12 PC Universal Line Card (12 Ports) for DID and LS-FXS Modules $1,995
67-1007-00 Dual DID Module for PCULC-12 Card included
67-1008-00 Dual LS-FXS Module for PCULC-12 Card included
8-1130-00 PCULC-6 PC Universal Line Card (6 Ports) $1,795
67-1033-00 ME&M 2w/4w type I/II Module for PCULC-6 Card included
67-1032-00 LS-FXO Module for PCULC-6 included
67-1031-00 LS-FXS Module for PCULC-6 Card included
</TABLE>
<PAGE>
Excel, Inc.
PCX 96 and PCX 512 Price List
<TABLE>
<CAPTION>
PART NUMBER MODEL # DESCRIPTION PRICE
<S> <C> <C> <C>
Service Resource Cards
68-1207-00 PCMFDSP Multi Function DSP Card $2,495
67-1004-00 DC31-64 for PCMFDSP Card $1,695
67-1010-00 VRAF, Flash Simm for MFDSP Card future release
67-1006-00 VRAS Simm for MFDSP Card future release
68-1260-00 PCISDN-24 PCISDN PRI-24 D Channel Engine $6,995
68-2004-00 PCTGR-24 PC Tone Generator/Receiver Card (24 Receivers) $997
67-1001-00 DTMF Module for PCTGR-24 Card $149
67-1002-00 MF Module for PCTGR-24 Card $1,100
68-2004-10 PC Tone Generator/Receiver Card w/ 2 DTMF-6 Modules $1,295
68------00 PCRBI PC Resource Bus Interface Card $895
Host Control
66-1005-00 486/33 4MB, 200MB Hard Dr., Floppy Dr., Keyboard, VGA w/ Mouse $2,838
66-1009-00 486/32MB, 500 MB Hard Dr., Floppy Dr., Keyboard, VGA w/ Mouse $6,638
66-1001-00 486/33 4 MB, 40 MB Hard Drive, Floppy Drive, Keyboard $2,423
66-1010-00 486/33 4 MB, 200 MB Hard Dr., Floppy Dr., Keyboard, LCD w/ VGA $3,697
Software
65-8007-XX PCX Base System Software 3.X $4,995
65-8025-XX PCPPL Software 3.X $5,000
65-8031-XX PCISDN PRI Software 3.X $5,000
65-8041-XX Developers Toolkit Software $499
Control Software
Manuals
08-2006-XX PCX User's Manual 3.X with Current Release Notes $100
08-8041-XX Developer's Toolkit Manual with Current Release Notes $100
Spare Parts
62-0012-00 PCX Ringing Voltage/Talk Battery -48 V Power Supply $300
64-1012-00 PCX ULC Rear Exit Cable $125
</TABLE>
<PAGE>
Effective May 27, 1994 Excel, Inc
Supersedes: January 29, 1993 Price List
<TABLE>
<CAPTION>
PART NUMBER MODEL DESCRIPTION PRICE
<S> <C> <C> <C>
XLDX Base Unit
60-1000-01 XLDX-32-C 32 Port Base Unit. Includes one of each of the following: 16 $24,285.00
slot chassis/VME, 32 port CPU, 32 port matrix, bus extender,
and power module master
60-1002-01 XLDX-64-C 64 port Base Unit. Includes one of each of the following: 16 $41,428.00
slot chassis/VME, 64 port CPU, 64 port matrix, bus extender,
power module master, power module booster
XLDX Cards
63-1000-00 T1LC-4-C 4 T1 span Line Card $7,143.00
XLDX Software
55-1000-37 System SW Software Release XX.X $4,954.00
XLDX Spares
62-1002-00 Matrix 32 32 port matrix $10,057.00
62-1002-02 Matrix 64 64 port matrix $17,107.00
62-1006-00 CPU-32 32 Port CPU (68010) $4,572.00
62-1008-00 CPU-64 64 port CPU (68030) $10,714.00
67-1000-00 PSM-40B Power Module Master $5,486.00
67-1000-01 PSB-40B Power Module Booster $5,486.00
67-1000-02 PSM/PSB-40B Both Power Module Master and Booster $8,114.00
68-1300-00 Bus-Ex Bus Extender $3,657.00
95-1000-00 XLDX-16 16 slot XLDX chassis $18,000.00
</TABLE>
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
LNX 2000
Base unit with Front Air Flow/Logo. Includes
60-2200-00 LNX 2000-BU/FAF/L chassis, Matrix, and Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
Base Unit with Bottom Air Flow/Logo. Includes
60-2200-10 LNX 2000-BU/BAF/L chassis, Matrix, and Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
Base Unit with Bottom Air Flow. Includes
60-2200-20 LNX 2000-BUT/BAF chassis, Matrix, and Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
Base Unit with Front Air Flow. Includes
60-2200-30 LNX 2000-BU/FAF chassis, Matrix and Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
CPU (68302) Matrix Card - 2048 kbs CEPT
68-2000-00 MX/CPU-2000A clock simm whit I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
CPU (68302) matrix Card - 1.544 T1 clock
68-2000-10 MX/CPU-2000B simm with I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
CPU (68302) Matrix Card - 64 kbs clock simm
68-2000-20 MX/CPU-2000C whit I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
68-2005-00 ST1LC-96 4 T1 span line card with I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
68-2005-20 ST1LC-192 8 T1 span line card with I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 1
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
Multifunction DSP card with I/O card.
68-2007-00 MFDSP (modules not included) [_][_][_][_][_][_][_][_][_][_][_][_]
58-2010-00 SE1LC-128 4 E1 span line card with I/O card. 75 Ohm [_][_][_][_][_][_][_][_][_][_][_][_]
68-2010-02 SE1LC-128 4 E1 span line card with/O card. 120 Ohm [_][_][_][_][_][_][_][_][_][_][_][_]
68-2010-20 SE1LC-256 8 E1 span line card with I/O card. 75 Ohm [_][_][_][_][_][_][_][_][_][_][_][_]
68-2010-22 SE1LC-256 8 E1 span line card with I/O card. 120 Ohm [_][_][_][_][_][_][_][_][_][_][_][_]
68-2015-00 Sj1lc-128 4 J1 span line card with I/O card [_][_][_][_][_][_][_][_][_][_][_][_]
68-2016-00 ISDN PRI-24 24 D Channel Engine [_][_][_][_][_][_][_][_][_][_][_][_]
68-7994-00 LNX-chassis/FAF/L LNX chassis with Front Air Flow/Logo [_][_][_][_][_][_][_][_][_][_][_][_]
68-7004-10 LNX-chassis/BAF/L LNX chassis with Bottom Air Flow/Logo [_][_][_][_][_][_][_][_][_][_][_][_]
68-7004-20 LNX-chassis/BAF LNX chassis with Bottom Air Flow [_][_][_][_][_][_][_][_][_][_][_][_]
68-7004-30 LNX-chassis/FAF LNX chassis with Front Air Flow [_][_][_][_][_][_][_][_][_][_][_][_]
67-1014-00 I/O-MX/CPU I/O Module for the MX/CPU [_][_][_][_][_][_][_][_][_][_][_][_]
67-1013-00 I/O-DSP I/O Module for the MFDSP [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 2
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
67-1013-40 I/O-ISDN PRI I/O Module for the ISDN PRI-24 Card [_][_][_][_][_][_][_][_][_][_][_][_]
67-1015-00 I/O-St1LC I/O Module for the ST1LC card [_][_][_][_][_][_][_][_][_][_][_][_]
67-1016-00 I/O-SE1LC I/O Module for the SE1LC card [_][_][_][_][_][_][_][_][_][_][_][_]
Redundant Enhancement. Includes MX/CPU-
66-2200-00 LNX-2000RE 2000 and Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
65-8000-XX System SW LNX Base System software [_][_][_][_][_][_][_][_][_][_][_][_]
65-8001-XX Control SW LNX Control Software [_][_][_][_][_][_][_][_][_][_][_][_]
65-8020-XX IPPL International Programmable Protocol Software [_][_][_][_][_][_][_][_][_][_][_][_]
65-8030-XX PRI-SW ISDN PRI Software [_][_][_][_][_][_][_][_][_][_][_][_]
08-2000-XX LNX User's Manual LNX 2000 User's Manual. Current Rev [_][_][_][_][_][_][_][_][_][_][_][_]
67-1005-00 Clock Simm/2.048 2.048 kbs Clock Simm for MX/CPU-2000 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1005-10 Clock Simm/1.544 1.544 kbs Clock Simm for MX/CPU-2000 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1005-20 Clock Simm 64 kbs Clock Simm for MX/CPU-2000 [_][_][_][_][_][_][_][_][_][_][_][_]
68-115-00 Power Supply Card Power Supply Card - 48 VDC [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 3
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
68-7005-00 FNTR-5 Fan Tray Assembly [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 4
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
PCX 512
68-1126-00 PCALARM Alarm Card [_][_][_][_][_][_][_][_][_][_][_][_]
PC Universal Line Card. Includes any 6 of
the following single analog trunk modules: 67
-1031-00 JLS-FXS/67-1032-00, MGSLS-
68-1130-00 PCULC-6 FXO/67-1033-00, ME&M
CPU (68302) and Matrix Card. Includes 68-
68-1200-00 MX/CPU-512 1135-00, PC Term Card [_][_][_][_][_][_][_][_][_][_][_][_]
68-1200-10 MX/CPU-96 CPU (68302) and Matrix Card [_][_][_][_][_][_][_][_][_][_][_][_]
68-1205-00 PCST1LC-48 T1 Line Card (48 ports) [_][_][_][_][_][_][_][_][_][_][_][_]
68-1205-20 PCST1LC--96 T1 Line Card (96 ports) [_][_][_][_][_][_][_][_][_][_][_][_]
PCULC-12 PC Universal Line Card. Includes
any 6 of the following dual analog trunk
modules: 67-1007-00 MD-DID, dual DID port
module or 67-1008-00 MD-FXS, dual LS-FXS
port module. Requires matrix B4, C4,
68-1206-00 PCULC-12 D4 or later [_][_][_][_][_][_][_][_][_][_][_][_]
Mutlifunction DSP Card Base. (modules not
68-1207-00 PCMFDSP included) Requires matrix revision C or later. [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 5
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
PEB and MVIP Resource Bus interface and
68-1208-00 PCRBI PCX Terminator. (Schedule A1/93) [_][_][_][_][_][_][_][_][_][_][_][_]
68-1260-00 PCISDN PRI-24 24 D Channel Engine [_][_][_][_][_][_][_][_][_][_][_][_]
Tone Generator/Receiver-Base (Tone Simms
68-2002-00 PCTGR-24 not included) [_][_][_][_][_][_][_][_][_][_][_][_]
Tone Generator/Receiver Base including (2)
68-2002-10 PCTGR-12D DTMF-6's. [_][_][_][_][_][_][_][_][_][_][_][_]
67-1001-00 DTMF-6 DTMF module - 6 ports for PCTGR card [_][_][_][_][_][_][_][_][_][_][_][_]
67-1002-00 MF-6 MF module - 6 ports for PCTGR card [_][_][_][_][_][_][_][_][_][_][_][_]
67-1003-00 PCP Simm Precise Call Progress simm for the PCTGR card [_][_][_][_][_][_][_][_][_][_][_][_]
67-1007-00 MD-DID Dual DID Port Module for PCULC-12 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1008-00 MD-FXS Dual Ls-FXS Port Module for PCULC-12 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1011-00 MD-FXO Dual FXO Port Module for PCULC-12 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1031-00 MLS-FXS LS-FXS Module for the PCULC-6 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1032-00 MGSLS-FXO GS/LS-FXO Module for the PCULC-6 [_][_][_][_][_][_][_][_][_][_][_][_]
67-1033-00 ME&M E&M 2w/4w type I/II Module for PCULC-6 [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 6
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
65-8002-XX Control SW PCX Control Software [_][_][_][_][_][_][_][_][_][_][_][_]
65-8003-XX System SW PCX Base System Software [_][_][_][_][_][_][_][_][_][_][_][_]
08-2001-XX PCX User's Manual PCX 512 User's Manual. Current Rev. [_][_][_][_][_][_][_][_][_][_][_][_]
62-0006-00 Power Supply PCX-48 V/Ringing Power Supply [_][_][_][_][_][_][_][_][_][_][_][_]
62-1010-00 Power Supply PCX Power supply 110-48V, 3 Amp [_][_][_][_][_][_][_][_][_][_][_][_]
64-1012-00 PCX Rear Cable PCX ULC Rear exit cable [_][_][_][_][_][_][_][_][_][_][_][_]
68-1135-00 PC Term Card Included on Mx/CPU-512 Matrix Card [_][_][_][_][_][_][_][_][_][_][_][_]
68-7512-10 PCX Chassis 10 slot PCX Industrial Chassis [_][_][_][_][_][_][_][_][_][_][_][_]
68-7512-14 PCX Chassis 14 slot PCX Industrial Chassis [_][_][_][_][_][_][_][_][_][_][_][_]
68-7512-20 PCX Chassis 20 slot PCX Industrial Chassis [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 7
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
PCX/LNX
65-8005-XX EXACT Excel application Control Tool [_][_][_][_][_][_][_][_][_][_][_][_]
65-8010-XX Windows Toolkit Windows Base Toolkit software package [_][_][_][_][_][_][_][_][_][_][_][_]
65-8011-XX DOS Toolkit DIS base Toolkit software [_][_][_][_][_][_][_][_][_][_][_][_]
65-8012-XX UNIX Toolkit UNIX Base Toolkit software package [_][_][_][_][_][_][_][_][_][_][_][_]
Quad C31 Module/DTMF/MFR1 Red3eiver for
67-1004-00 DC31-64 MFDSP [_][_][_][_][_][_][_][_][_][_][_][_]
Voice recorded announcement, SRAM, for
67-1006-00 VRAS MFDSP [_][_][_][_][_][_][_][_][_][_][_][_]
Voice recorded announcement, Flash, for
67-1010-00 VRAF MFDSP [_][_][_][_][_][_][_][_][_][_][_][_]
67-1020-00 Tone Simm Tone simm for MFDSP
08-2020-00 EXACT User's Manual EXcel Application Control Tool User's Manual [_][_][_][_][_][_][_][_][_][_][_][_]
XLDX
32 Port Base Unit. Includes one of each of
the following: 16 slot chassis/VME, 32 port
CPU, 32 port matrix, bus extended, and
60-1000-01 XLDX-32-C power module master [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 8
<PAGE>
EXHIBIT III
TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Product Mix Configuration Estimate
- -----------------------------------------------------------------------------------------------------------------------------
Quantity of Hardware by Month
- -----------------------------------------------------------------------------------------------------------------------------
Part Number Name Description 1 2 3 4 5 6 7 8 9 10 11 12
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C><C><C><C><C><C><C><C><C><C><C>
64 port Base Unit. Includes one of each of
the following: 16 slot chassis/VME, 64 port
CPU, 64 port matrix, bus extended, power
60-1002-01 XLDX-64-C module master, power module booster [_][_][_][_][_][_][_][_][_][_][_][_]
63-1000-00 T1LC-4-C 4 T1 span Line Card [_][_][_][_][_][_][_][_][_][_][_][_]
55-1000-37 System SW Software Release XX.X [_][_][_][_][_][_][_][_][_][_][_][_]
62-1002-00 Matrix 32 32 port matrix [_][_][_][_][_][_][_][_][_][_][_][_]
62-1002-02 Matrix 64 64 port matrix [_][_][_][_][_][_][_][_][_][_][_][_]
62-1006-00 CPU-32 32 Port CPU (68010) [_][_][_][_][_][_][_][_][_][_][_][_]
62-1008-00 CPU-64 64 port CPU (68030) [_][_][_][_][_][_][_][_][_][_][_][_]
67-12000-00 PSM-40B Power Module Master [_][_][_][_][_][_][_][_][_][_][_][_]
67-1000-01 PSB-40BV Power Module Booster [_][_][_][_][_][_][_][_][_][_][_][_]
67-1000-02 PSM/PSB-40B Both Power Module Master and Booster [_][_][_][_][_][_][_][_][_][_][_][_]
68-1300-00 Bus-Ex Bus Extender [_][_][_][_][_][_][_][_][_][_][_][_]
95-1000-00 XLDX-16 16 slot XLDX chassis [_][_][_][_][_][_][_][_][_][_][_][_]
</TABLE>
Page 9
<PAGE>
EXHIBIT II PAGE 1 OF 2
(5/26/94)
DEMAND FORECAST
AND
DISCOUNT SCHEDULE
Demand Forecast
- ---------------
As required by the Purchase and Resale Agreement, BTI will provide a rolling
demand forecast for all Excel Products as described below. This demand forecast
will be used in determining a discount rate for all BTI purchases of Products.
A demand forecast will include an estimated quarterly purchase of specific Excel
Products (by Excel part numbers) and their quantities during the next 12-month
period. This forecast will be revised by BTI at 3-month/quarterly intervals. BTI
will assure the accuracy of its demand forecast by issuing purchase orders to
meet at least a minimum purchase requirement for each forecast quarter as
specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Quarterly Minimum QDF Adjustment Parameter for QDF Adjustment Parameter for
Demand Forecast Purchase XLDX Products LNX Products
(QDF) Requirement for
Products in the QDF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Q1 100% 0% 0%
- -----------------------------------------------------------------------------------------------------------------------------------
Q1+1 75% 0% + 15%
- -----------------------------------------------------------------------------------------------------------------------------------
Q1+2 50% + 25% + 25%
- -----------------------------------------------------------------------------------------------------------------------------------
Q1+3 25% + 50% + 50%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In essence, at the beginning of each quarter, BTI is to make a 12-month purchase
commitment by issuing purchase orders (at 100% of QDF for current quarter - Q1,
at 75% of QDF for one quarter immediately follow the current quarter - Q1+1, at
50% of QDF for two quarters immediately follow the current quarter - Q1+2, and
at 25% of QDF for three quarters immediately follow the current quarter - Q1+3).
BTI is required to submit a new/revised QDF on or within one week from February
15, May 15, August 15, and November 15.
Upon revising a QDF at the beginning of each quarter, BTI will issue addendum
(to all relevant open purchase orders) to maintain the above minimum purchase
requirement. In lieu of delivery on a purchase order, a cancellation/restocking
charge will be assessed at 50% of purchase price.
Excel will rely on and utilize BTI's QDF in its material and resource planning
and all delivery obligations set forth herein shall only apply to those products
specified in QDF. Should the new/revised QDF contain orders for Products beyond
the specified QDF adjustment parameters,
<PAGE>
Excel shall not be obligated to deliver those Products within the 90-day
delivery schedule contained in this Agreement. A 5% surcharge from list price
will also be added to the
<PAGE>
EXHIBIT II PAGE 2 OF 2
5/10/94
Discount Schedule
- -----------------
An OEM discount schedule is established for BTI as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Purchase ($) Discount on Equipment Discount on Software*
(based on list price)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,000,000 or less 15% 30%
- -----------------------------------------------------------------------------------------------------------------------------------
1,000,001 to 2,000,000 20% 50%
- -----------------------------------------------------------------------------------------------------------------------------------
2,000,001 to 3,000,000 30% 75%
- -----------------------------------------------------------------------------------------------------------------------------------
3,000,001 to 10,000,000 35% 100%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Software discounts can only be applied to base software, ISDN/PRI software, and
PPL software.
OEM discounts (from list price) are applicable to all standard Excel Products.
Applicable discount rates are determined by an annualized "moving average" of
total purchases (based on list price) during a 4-quarter or one-year period.
This 4-quarter period consists of the current quarter (Q1), two quarters
immediately prior to the current quarter (Q1-1 and Q1-2), and one quarter
immediately following the current quarter (Q1+1).
The above discount schedule is effective on the date this agreement is signed.
It is not applicable to any previously issued BTI purchase orders.
Cash Discount
- -------------
Excel will extend an additional 1% discount (from list price) to BTI for
purchase orders received with down payments (at 33% of purchase price). Or, a 2%
discount (from list price) for each purchase commitment (with purchase orders)
at more than $2,000,000 and a down payment equal to 33% of purchase price.
<PAGE>
EXHIBIT IV
TECHNICAL TRAINING
Excel, Inc. offers to its Customers, both factory and on-site training
for all Excel products. Proper training on Excel products is recommended for
Customer personnel in order to ensure optimal system utilization and efficiency.
Training is also useful for the Customer when interfacing with Excel technical
staff should service be required.
OEM CUSTOMERS
Signed OEM customers are entitled to a specific amount of technical
training to be provided by Excel, Inc. The training will include a one-time,
2 day factory training course, at no charge, for up to 5 employees of signed OEM
customers. If the number of student exceeds 5 or the number of training days
exceeds 2, the Customer will be responsible for payment according to the
following chart for the exceeded amounts. The customer is responsible for any
transportation, lodging and meals associated with the training course.
FACTORY TRAINING
Excel, Inc. provides factory training for all its products at corporate
headquarters in Sagamore Beach, MA. Courses include product review, hands on
demonstrations, and all written documentation and materials. The courses will be
taught by a qualified member of the Excel Technical staff.
The scheduling of courses is flexible, however registration for classes
should be completed 30 days prior to the class date. A minimum of (5) students
and a maximum of (8) students are required to warrant training classes. Smaller
classes may be held at the discretion of Excel, Inc. Excel reserves the right to
cancel or delay classes if the classes are scheduled for less than (5) people.
Arrangements can be made to combine training for customers that cannot meet the
minimum class size requirement.
Customers can register for courses by contacting the Excel Training
Department at 508-833-1144. Upon scheduling of courses, the customer will be
requested to provide Excel with a purchase order number assessing the number of
students, their names and fee per student. The course is non-refundable if the
cancellation is made less than 15 days prior to the start date of the course. If
a student is unable to attend, substitutions will be permitted, provided Excel
is notified by the customer.
<PAGE>
The customer is responsible for any transportation, lodging or meals
associated with the training. The price for courses depends on the length of the
course and is calculated on a per student per day basis. (See the chart below
for rates). Students will be provided with manuals and associated literature
required for-the course at no charge.
ON-SITE TRAINING
Excel offers the option of on-site training courses for customers that
have a large number of employees to train. On-site training will be taught by a
qualified Excel Technical staff member and will be scheduled depending on
his/her availability.
Arrangements for on-site training must be scheduled (60) days in
advance and cancellation less that (15) days prior to the scheduled date will
result in a cancellation charge as shown in the following chart. At the time of
scheduling, Excel must be advised of the equipment available to the instructor
and the proposed facility.
On-site training is offered at a fixed cost per day per course, and the
customer is responsible for the instructors transportation, lodging and meals as
well as for any freight charges for the transportation of Excel equipment. These
expenses will be prepaid and charged against a customer purchase order. Excel
will provide manuals and any literature associated with the course at no charge.
See the following chart for on-site training rates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
OEM Customer Training PCX Training LNX Training Both Systems
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Course Fee (2 days) No Charge No Charge No Charge
Size of Class - Maximum 5 Students 5 Students 5 Students
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Factory Training PCX Training LNX Training Both Systems
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Course Fee per Day per Student $300.00 $300.00 $500.00
Transportation, Lodging & Meals Student Pays Student Pays Student Pays
Literature No Charge No Charge No Charge
Size of Class - Minimum 5 Students 5 Students 5 Students
Size of Class - Maximum 8 Students 8 Students 8 Students
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Customer Site Training (On-site) PCX Training LNX Training Both Systems
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Course Fee per Day per class $1,500.00 $1,500.00 $2,5000.00
Instructor Expenses Billed at Cost Billed at Cost Billed at Cost
(transportation, lodging, meals)
Literature No Charge No Charge No Charge
Cancellation fee (less than 15 $1,000.00 $1,000.00 $1,000.00
business days)
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit V
EXTENDED WARRANTY AND SUPPORT PROGRAM
Excel offers Extended Warranty and Support services to its customers,
on all of its products, in the form of an annually renewable agreement. These
services are available to the Customer in four options; the "Prepaid Hardware
Extended Warranty and Support Program", the "Prepaid Software Extended Warranty
& Support Program", the "Hardware Extended Warranty & Support Program" and the
"Software Extended Warranty and Support Program". These Programs assure that the
Customer will have continuous support, and repair services available to it on
all Excel products, even after the initial warranty has expired.
PROCEDURE TO OBTAIN SERVICE
To obtain service under any of Excel's Extended Warranty Programs,
Customer shall contact Excel by phone, at 1-800-541-7002, and request such
service. Customer shall identify itself and present its Extended Warranty
Program identification number, together with the serial number of any piece of
equipment sought to be repaired under this Program. These numbers will be
verified by Excel, and subject to such verification, Customer shall be connected
to authorized Excel maintenance and support personnel.
Customer shall make available to such Excel personnel, one of its own
employees, previously trained in the Excel training program, to perform
recommended corrective services on Customer's site. Should the problem persist
after all efforts to remotely repair the product have been exhausted, EXCEL
shall provide the Customer with a return material authorization number, which
must accompany all returned items, and Customer shall then at its expense,
return the hardware to EXCEL for factory servicing. All returned items must be
appropriately packaged by Customer, in the original shipping container. EXCEL
shall then inspect the said hardware. If EXCEL, in its reasonable judgment,
determines that the hardware is functioning normally and in no need of repair,
EXCEL will return the hardware to the Customer, and shall invoice the Customer
in accordance with the price list for "Out of Warranty Service". If EXCEL in its
reasonable judgment determines that the hardware is defective, it shall, if
possible, repair the hardware at no cost to the Customer. All factory repaired
products shall be tested before return to Customer, and shall be continuously
warranted for the duration of the Extended Warranty Program. If EXCEL determines
in its reasonable judgment that the return item cannot be repaired, it shall
offer to Customer a replacement item for 50% of the item's list price.
EXCEL's standard time to repair and return hardware is 60 days from
receipt of such hardware by EXCEL. All repaired items will be shipped by EXCEL,
prepaid, (U.S. and Canada only) to Customer. Should Customer desire to shorten
said repair time, it shall so notify EXCEL and EXCEL shall notify Customer both
of the availability of such expedited repair, and the additional cost associated
with such expedited repair.
<PAGE>
SOFTWARE SUPPORT
With the purchase of the "Prepaid Software Extended Warranty and
Support Program" or the "Software Extended Warranty and Support Program",
Customer shall be entitled to unlimited software support per year. Customer may
receive said support by calling the aforementioned number and requesting
software support.
ON SITE SERVICE
EXCEL will, subject to personnel availability, provide on site service
to Customer (Continental United States and Canada only) upon request. Upon
receipt of request for on site service, EXCEL shall send qualified technical
personnel to the site indicated by Customer, for on site repair or consultation.
Customer shall pay for all on site service. Customer will pay an hourly fee of
$100/hour, travel time included. Customer will also pay for all travel and
associated costs. It is suggested that Customer exhaust all possible remote
repair attempts before requesting on site service.
EXTENDED WARRANTY AND SUPPORT PROGRAM PRICING
The Extended Warranty Program is offered to Customer both at the time
of original purchase of equipment, or, after the original date of purchase with
EXCEL's approval. If purchased at the time of equipment purchase, or during the
initial warranty period, the Extended Warranty and Support Program will
automatically cover the Equipment for the first twelve months commencing with
the expiration of the initial warranty period. Under this option, Customer will
be invoiced at the time of initial equipment purchase. Should Customer desire to
purchase the Program after the initial warranty period has elapsed, EXCEL may,
at its option, refuse to supply said extended warranty coverage, or make its
acceptance conditional upon a satisfactory site survey of Customers Equipment,
at Customers expense. Should EXCEL elect to supply such service, the Extended
Warranty and Support Program will become effective upon signing of the Extended
Warranty and Support Agreement, and receipt of payment therefore by EXCEL. EXCEL
reserves the right not to renew the Extended Warranty and Support Program for
any reason.
The Extended Warranty and Support Program is offered at an annual
charge per system based on system configuration. The prices for said Program are
contained on the Extended Warranty and Support Program Price List attached
hereto. EXCEL reserves the right to modify its prices for the Extended Warranty
Programs, which modification shall become effective as of the next annual
renewal of said Program. EXCEL shall give Customer at least sixty days prior
written notice of any price increase.
<PAGE>
If Customer purchases the Extended Warranty and Support Program
together with its initial purchase of equipment, the price for the first year of
the Extended Warranty and Support Program will be discounted in accordance with
the attached price schedule.
EXCLUSIONS FROM BOTH EXTENDED WARRANTY AND SUPPORT PROGRAMS
1 Repair or replacement is required as a result of causes other than
normal use, including without limitation, repair, maintenance,
alteration or modification of the Products by persons other than Excel
or other authorized personnel, accident, fault or negligence of the
Customer, operator error or improper use or misuse of the Products, or
causes external to the Products such as, but not limited to,
transportation or fluctuations of humidity or temperature in excess of
the specified tolerance levels of the Products or failure of electrical
power, or fire or water damage; or
2 The products are modified by the Customer.
3 The Installation Site is not maintained in accordance with Excel's
applicable site specification as set forth in the product User's
Manual.
ANNUAL RENEWAL
Customer may, at least thirty days before the expiration of its
Extended Warranty and Support Program, request in writing a twelve month renewal
of said Program at the then current list prices and terms. Renewal of the
Program shall be subject to Excel's approval, and receipt of payment therefore.
<PAGE>
EXTENDED WARRANTY & SUPPORT PROGRAM
Price List
1. Option A: Prepaid Hardware Extended Warranty & Support Program
Includes: Free hardware repair, 25% of list price to replace
Price: 10% of purchase price of hardware
2. Option B: Prepaid Software Extended Warranty & Support Program
Includes: unlimited hours technical support & free software
upgrades
Price: 10% of list price of software, not to exceed $150K per
year
3. Option C: Hardware Extended Warranty & Support Program
Includes: Free hardware repair, 25% of list price to replace
Price: 15% of purchase price of hardware
4. Option D: Software Extended Warranty & Support Program
Includes: unlimited hours technical support & free software
upgrades
Price: 15% of list price of software, not to exceed $250K per
year
5. On site service: $100/hour (travel time included) + travel and associated
expenses
*Extended Warranty (12 additional months) begins 12 months after date of
purchase.
<PAGE>
EXTENDED WARRANTY & SUPPORT PROGRAM
This Extended Warranty & Support Program Agreement is entered into by and
between Excel, Inc. with an office at 355 Old Plymouth Rd., Sagamore Beach, MA
02562 and Boston Technology Inc. ("customer"). By its acceptance hereof, Excel,
Inc. agrees to provide extended warranty coverage and support for the equipment
purchased under Excel's Purchase and Resale Agreement appended hereto. The terms
and conditions contained elsewhere herein are a part of this agreement. Extended
Warranty coverage begins 12 full months from date of purchase.
Options:
___Option A: Prepaid Hardware Extended Warranty & Support Program
(details contained herein)
Includes: Free hardware repair, 25% of list price to
replace
Price: 10% of purchase price of hardware
___Option B: Prepaid Software Extended Warranty & Support Program
(details contained herein)
Includes: unlimited hours technical support & free
software upgrades
Price: 10% of purchased software at list price, with
a maxi-annual cap of $150K per year
___Option C: Hardware Extended Warranty & Support Program
(details contained herein)
Includes: Free hardware repair, 25% of list price to
replace
Price: 15% of purchase price of hardware
___Option D: Software Extended Warranty & Support Program
(details contained herein)
Includes: unlimited hours technical support & free
software upgrades
Price: 15% of purchased software at list price, with
a maximum annual cap of $250K per year
On Site Service Price: $100/hour, (travel time included), plus travel and
associated expenses.
Excel, Inc. Boston Technology Inc.
By: By:
------------------------------ --------------------------------
Title: Title:
--------------------------- -----------------------------
Date: Date:
---------------------------- ------------------------------
<PAGE>
Exhibit VI
OUT OF WARRANTY PRICE LIST
Software Support $1,000 first call customer set-up fee and
$200/hour (minimum 1 hour)
Software Upgrades* 50% of software list price, 90 day warranty
On Site Service $150/hour, includes travel time, (minimum 2.5
hours) + 110% of travel and associated expenses
Factory Service Repair - 25% of current purchase price, 90 day
warranty
Replace - 25% of current purchase price, 90 day
warranty
*Each purchased software upgrade may only be installed and used in one system
(LNX, PCX or XLDX) at any time.
Excel reserves the right to conduct periodic audits to verify software copyright
compliance.
<PAGE>
EXHIBIT 10.7
EXCEL, INC.
CREDIT AGREEMENT
Dated as of December 21, 1995
THIS CREDIT AGREEMENT is made as of December 21, 1995, by and between EXCEL
INC. (the "Company"), a Massachusetts corporation having its chief executive
office at 255 Independence Drive, Hyannis, Massachusetts and THE FIRST NATIONAL
BANK OF BOSTON (the "Bank"), a national banking association having its head
office at 100 Federal Street, Boston, Massachusetts 02110.
SECTION I
---------
DEFINITIONS
-----------
1.1. Definitions.
-----------
All capitalized terms used in this Agreement or in the Note or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
Adjusted Eurodollar Rate. Applicable to any Interest Period, shall mean a
------------------------
rate per annum determined pursuant to the following formula:
AER = [ IOR ]*
---
[1.00-RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
*The amount in brackets shall be rounded upwards, if
necessary, to the next higher 1/100 of 1%.
Where:
"Interbank Offered Rate" applicable to any Eurodollar Loan for
any Interest Period means the rate of interest determined by the Bank
to be the prevailing rate per annum at which deposits in U.S. dollars
are offered to the Bank by first-class banks in the interbank
Eurodollar market in which it regularly participates on or about 10:00
a.m. (Boston time) two Business Days before the first day of such
Interest Period in an amount approximately equal to the principal
amount of the Eurodollar Loan to which such Interest Period is to
apply for a period of time approximately equal to such Interest
Period.
<PAGE>
-2-
"Reserve Percentage" applicable to any Interest Period means
the rate (expressed as a decimal) applicable to the Bank during such
Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for determining the
maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of the Bank
with respect to "Eurocurrency liabilities" as that term is defined
under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
Affected Loans. See Section 2.7(a).
--------------
Agreement. This Agreement, as the same may be supplemented or amended from
---------
time to time.
Bank. See Preamble.
----
Base Rate. The greater of (i) the rate of interest announced from time to
---------
time by the Bank at its head office at 100 Federal Street, Boston, Massachusetts
02110 as its Base Rate, and (ii) the Federal Funds Effective Rate plus 1/2 of 1%
per annum (rounded upwards, if necessary, to the next 1/8 of 1%).
Base Rate Loan. Any Loan bearing interest determined with reference to the
--------------
Base Rate.
Borrowing Base. An amount equal to the lesser of (a) the Commitment Amount
--------------
or (b) 75% of the net outstanding amount of Base Accounts.
"Base Accounts" means accounts receivable of the Company as
-------------
to which the Company has furnished to the Bank the information
required by this Agreement and shall not include (a) accounts payable
by subsidiaries, affiliates and employees of the Company, (b) accounts
payable by debtors not located in the United States, unless otherwise
approved in writing by the Bank or (c) accounts evidenced by
promissory notes.
The "net outstanding amount of Base Accounts" means the net
---------------------------------------
amount of Base Accounts outstanding after eliminating from the
aggregate amount of outstanding Base Accounts (i) such accounts that
are more than 90 days past the date of the original invoice date or
more than 60 days past the due date, whichever is earlier, and (ii)
all other accounts of any account debtor with 25% or more of its
accounts that are more than 90 days past the date of the original
invoice date or more than 60 days past due as aforesaid; and deducting
from the aggregate face amount of the remaining Base Accounts all
payments, adjustments and credits applicable thereto and all amounts
due thereon considered by the Bank difficult to collect or
uncollectible by reason of return, rejection, repossession, loss or
damage of or to the merchandise giving rise thereto, a merchandise or
other dispute,
<PAGE>
-3-
insolvency of the account debtor, or any other reason, all as
determined by the Bank in its discretion, which determination shall be
final and binding upon the Company.
Business Day. (i) For all purposes other than as covered by clause (ii)
------------
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts are open for the conduct of a substantial part of their
commercial banking business; and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day that is a Business Day described in clause (i) and
that is also a day for trading by and between banks in U.S. Dollar deposits in
the interbank Eurodollar market.
Code. The Internal Revenue Code of 1986 and the rules and regulations
----
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
Commitment Amount. $5,000,000.00 or any lesser amount, including zero,
-----------------
resulting from a termination or reduction of such amount in accordance with
Section 7.2.
Company. See Preamble.
-------
Computation Rate. See Section 2.11.
----------------
Consolidated Current Liabilities. At any date as of which the amount
--------------------------------
thereof shall be determined, all amounts that should, in accordance with
generally accepted accounting principles, be included as current liabilities on
the consolidated balance sheet of the Company and its Subsidiaries as at such
date, plus, to the extent not already included therein, all Loans made under
this Agreement, and all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendable at the option of the Company or any Subsidiary to a date
more than one year from the date of determination.
Consolidated Tangible Net Worth. At any date as of which the amount
-------------------------------
thereof shall be determined, the consolidated total assets of the Company and
its Subsidiaries minus (i) the sum of any amounts attributable to (a) goodwill,
-----
(b) intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights, capitalized software development
costs, and research and development expenses except prepaid expenses, (c) all
reserves not already deducted from assets, (d) any writeup in the book value of
assets resulting from any revaluation thereof subsequent to the date of the
financial statements referred to in Section 4.6 and (e) the value of any
minority interests in Subsidiaries and (ii) Consolidated Total Liabilities.
---
Consolidated Total Liabilities. At any date as of which the amount thereof
------------------------------
shall be determined, all obligations that should, in accordance with generally
accepted accounting principles, be classified as liabilities on the consolidated
balance sheet of the Company and its Subsidiaries, including in any event all
Indebtedness.
<PAGE>
-4-
Controlled Group. All trades or businesses (whether or not incorporated)
----------------
under common control that, together with the Company, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
Default. An Event of Default or event or condition that, but for the
-------
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
Encumbrances. See Section 6.5.
------------
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
-----
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Eurodollar Loan. Any Loan bearing interest at a rate determined with
---------------
reference to the Adjusted Eurodollar Rate.
Event of Default. Any event described in Section 7.1.
----------------
Federal Funds Effective Rate. For any day, a fluctuating interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the Bank
from three Federal funds brokers of recognized standing selected by the Bank.
Guarantees. As applied to the Company and its Subsidiaries, all
----------
guarantees, endorsements or other contingent or surety obligations with respect
to obligations of others whether or not reflected on the consolidated balance
sheet of the Company and its Subsidiaries, including any obligation to furnish
funds, directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract for any of the foregoing, for the purpose of payment of
obligations of any other person or entity.
Indebtedness. As applied to the Company and its Subsidiaries, (i) all
------------
obligations for borrowed money or other extensions of credit, whether or not
secured, absolute or contingent, including, without limitation, unmatured
reimbursement obligations in respect of letters of credit or guarantees issued
for the account of or on behalf of the Company and its Subsidiaries; (ii) all
obligations representing the deferred purchase price of property, other than
accounts payable arising in the ordinary course of business; (iii) all
obligations evidenced by bonds, notes, debentures or other similar instruments;
(iv) all obligations secured by any mortgage, pledge, security interest or other
lien on property owned or acquired by the Company or any of its Subsidiaries
whether or not the obligations secured thereby shall have been assumed; (v) that
portion of all obligations arising under capital leases that is required to be
capitalized on the consolidated balance sheet of the Company and its
Subsidiaries; (vi) all Guarantees; and (vii) all
<PAGE>
-5-
obligations that are immediately due and payable out of the proceeds of or
production from property now or hereafter owned or acquired by the Company or
any of its Subsidiaries.
Interest Period.
---------------
(a) With respect to each Eurodollar Loan, the period commencing on the
date of such Eurodollar Loan and ending one, two, three or six months
thereafter, as the Company may elect the applicable Notice of Borrowing;
(b) with respect to each Base Rate Loan, the period commencing on the date
of such Base Rate Loan;
provided that:
--------
(i) any Interest Period (other than an Interest Period
determined pursuant to clause (iii) below) that would otherwise end on a
day that is not a Business Day shall be extended to the next succeeding
Business Day unless, in the case of Eurodollar Loans, such Business Day
falls in the next calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period applicable to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall, subject to clause (iii) below, end on the
last Business Day of a calendar month;
(iii) any Interest Period during the Revolving Credit Period
that would otherwise end after the Revolving Credit Termination Date shall
end on the Revolving Credit Termination Date; and
(iv) notwithstanding clauses (iii) and (iv) above, no Interest
Period applicable to a Eurodollar Loan shall have a duration of less than
one month, and if any Interest Period applicable to such Loans would be for
a shorter period, such Interest Period shall not be available hereunder.
Investment. As applied to the Company and its Subsidiaries, the purchase
----------
or acquisition of any share of capital stock, partnership interest, evidence of
indebtedness or other equity security of any other person or entity, any loan,
advance or extension of credit to, or contribution to the capital of, any other
person or entity, any real estate held for sale or investment, any commodities
futures contracts held other than in connection with bona fide hedging
transactions, any other investment in any other person or entity, and the making
of any commitment or acquisition of any option to make an Investment.
Loan. A loan made to the Company by the Bank pursuant to Section 11 of
----
this Agreement, and "Loans" means all of such loans, collectively.
<PAGE>
-6-
Note. A promissory note of the Company, substantially in the form of
----
Exhibit A hereto, evidencing the obligation of the Company to the Bank to repay
the Loans.
Notice of Borrowing. See Section 2.2.
-------------------
Obligations. Any and all obligations of the Company to the Bank of every
-----------
kind and description, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument, if any, and including
obligations to perform acts and refrain from taking action as well as
obligations to pay money.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
----
any or all of its functions under ERISA.
Permitted Encumbrances. See Section 6.5.
----------------------
Plan. At any time, an employee pension or other benefit plan that is
----
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code.
Qualified Investments. As applied to the Company and its Subsidiaries,
---------------------
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts of banks or
trust companies organized under the laws of the United States or any state
thereof that have capital and surplus of at least $100,000,000, (iii) commercial
paper that is rated not less than prime-one or A-1 or their equivalents by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or their successors, and (iv) any repurchase agreement secured by any one or
more of the foregoing.
Revolving Credit Period. The period beginning on the date of this
-----------------------
Agreement and extending through and including the Revolving Credit Termination
Date or such earlier date on which the commitment to make Loans is terminated or
the Commitment Amount is reduced to zero in accordance with the terms hereof.
Revolving Credit Termination Date. December 15,1997.
---------------------------------
Subsidiary. Any corporation, association, joint stock company, business
----------
trust or other similar organization of which 50% or more of the ordinary voting
power for the election of a majority of the members of the board of directors or
other governing body of such entity is held or controlled by the Company or a
Subsidiary of the Company; or any other such organization the management of
which is directly or indirectly controlled by the Company or a Subsidiary of the
Company through the exercise of voting power or otherwise; or any joint venture,
whether incorporated or not, in which the Company has a 50% ownership interest.
1.2. Accounting Terms. All terms of an accounting character shall have the
----------------
meanings assigned thereto by generally accepted accounting principles applied on
a basis consistent with
<PAGE>
-7-
the financial statements referred to in Section 4.6 of this Agreement, modified
to the extent, but only to the extent, that such meanings are specifically
modified herein.
SECTION 11
----------
DESCRIPTION OF CREDIT
---------------------
2.1. The Loans. During the Revolving Credit Period, and subject to the
---------
terms and conditions hereof, the Bank will make Loans to the Company, from time
to time until the close of business on the Revolving Credit Termination Date, in
such sums as the Company may request, provided that the aggregate principal
--------
amount of all Loans at any one time outstanding hereunder shall not exceed the
Borrowing Base. The Company may borrow, repay pursuant to Section 2.8 and
reborrow, from the date of this Agreement until the Revolving Credit Termination
Date, the full amount of the Borrowing Base or any lesser sum that is at least
$100,000.00 and an integral multiple of $100,000.00. Any Loan not repaid by the
Revolving Credit Termination Date shall be due and payable on the Revolving
Credit Termination Date.
2.2. Notice and Manner of Borrowing of Loans. (a) Whenever the Company
---------------------------------------
desires to obtain a Loan hereunder, the Company shall notify the Bank (which
notice shall be irrevocable) by telephone received no later than 2:00 p.m.
Boston time on the day on which the requested Loan is to be made as a Base Rate
Loan, and received no later than 10:00 a.m. Boston time on the date two Business
Days before the day on which the requested Loan is to be made as a Eurodollar
Loan. Such notice shall specify (i) the effective date and amount of each Loan,
subject to the limitations set forth in Section 2.1, (ii) the interest rate
option to be applicable thereto, and (iii) with respect to any requested
Eurodollar Loans, the duration of the applicable Interest Period (subject to the
provisions of the definition of Interest Period and Section 2.5). If requested
by the Bank, such notification (a "Notice of Borrowing") shall be immediately
followed by a written confirmation thereof, provided that if such written
--------
confirmation differs in any material respect from the action taken by the Bank,
the records of the Bank shall control absent manifest error. Prior to the end
of the Interest Period applicable to any Eurodollar Loan, the Borrower shall
deliver a Notice of Borrowing in accordance with this Section 2.2 which shall
specify the interest rate option and duration of the applicable Interest Period
to rollover such Eurodollar Loan. Failure to deliver such Notice of Borrowing
shall be deemed to be an election of the Base Rate.
(b) Subject to the terms and conditions hereof, the Bank shall make each
Loan on the effective date specified therefor by crediting the amount of such
Loan to the Company's demand deposit account with the Bank; provided that if
--------
such Loan is to be made on a day on which the Company is to repay all or any
part of an outstanding Loan, the Bank shall apply the proceeds of such new Loan
to make such repayment and only an amount equal to the difference (if any)
between the amount being borrowed and the amount being repaid shall be made
available by the Bank to the Company.
2.3. Facility Fee. The Company shall pay to the Bank during the Revolving
------------
Credit Period an annual facility fee equal to $9,500.00. The facility fee shall
be payable quarterly in advance, on the first day of January, April, July and
October of each year beginning January 1,
<PAGE>
-8-
1996. A prorated amount for the period from the date hereof to December 31, 1995
shall be payable at the closing.
2.4. The Note. (a) The Loans shall be evidenced by a single Note, payable
--------
to the order of the Bank and having a final maturity of December 15, 1997. The
Note shall be dated on or before the date of the first Loan and shall have the
blanks, if any, therein appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the Company
to, enter on the schedule forming a part of the Note or otherwise in its records
appropriate notations evidencing the date and the amount of each Loan, the
interest rate applicable thereto and the date and amount of each payment of
principal made by the Company with respect thereto; and in the absence of
manifest error, such notations shall constitute conclusive evidence thereof. The
Bank is hereby irrevocably authorized by the Company to attach to and make a
part of the Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to make any notation as provided in this
subsection (b) shall in any way affect any Loan or the rights or obligations of
the Bank or the Company with respect thereto.
2.5. Duration of Interest Periods. Subject to the provisions of the
----------------------------
definition of Interest Period, the duration of the Interest Period for each
Eurodollar Loan shall be as specified in the applicable Notice of Borrowing.
Notwithstanding the foregoing, the Company may not select an Interest Period
that would end, but for the provisions of the definition of Interest Period,
after the final maturity hereof.
2.6. Interest Rates and Payments of Interest. (a) Each Base Rate Loan
---------------------------------------
shall bear interest on the outstanding principal amount thereof at a rate per
annum equal to the Base Rate, which rate shall change contemporaneously with any
change in the Base Rate. Such interest shall be payable on the last day of each
month commencing December 31, 1995, and when such Base Rate Loan is due (whether
at maturity, by reason of acceleration or otherwise).
(b) Each Eurodollar Loan shall bear interest on the outstanding principal
amount thereof, for the Interest Period applicable thereto, at a rate per annum
equal to the Adjusted Eurodollar Rate plus two and one half percent (2.5%).
Such interest shall be payable for such Interest Period on the last day thereof
and when such Eurodollar Loan is due (whether at maturity, by reason of
acceleration or otherwise) and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
2.7. Changed Circumstances.
---------------------
(a) In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would otherwise
be set the Bank shall have determined in good faith (which determination
shall be final and conclusive) that, by reason of changes affecting the
interbank Eurodollar market, adequate and reasonable means do not exist for
ascertaining the Interbank Offered Rate, or
<PAGE>
-9-
(ii) at any time the Bank shall have determined in good faith
(which determination shall be final and conclusive) that:
(A) the making of a Eurodollar Loan has been made impracticable
or unlawful by (1) the occurrence of a contingency that materially and
adversely affects the interbank Eurodollar market or (2) compliance by the
Bank in good faith with any applicable law or governmental regulation,
guideline or order or interpretation or change thereof by any governmental
authority charged with the interpretation or administration thereof or with
any request or directive of any such governmental authority (whether or not
having the force of law); or
(B) the Adjusted Eurodollar Rate shall no longer represent the effective
cost to the Bank for U.S. dollar deposits in the interbank market for deposits
in which it regularly participates;
then, and in any such event, the Bank shall forthwith so notify the Company
thereof. Until the Bank notifies the Company that the circumstances giving rise
to such notice no longer apply, the obligation of the Bank to allow selection by
the Company of the type of Loan affected by the contingencies described in this
Section 2.7(a) (herein called "Affected Loans") shall be suspended. If at the
--------------
time the Bank so notifies the Company, the Company has previously given the Bank
a Notice of Borrowing with respect to one or more Affected Loans but such Loans
have not yet gone into effect, such notification shall be deemed to be void and
the Company may borrow Loans of a nonaffected type by giving a substitute Notice
of Borrowing pursuant to Section 2.2 hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) the Company shall, with respect to
the outstanding Affected Loans, prepay the same, together with interest thereon
and any amounts required to be paid pursuant to Section 2.11, and may borrow a
Loan of another type in accordance with Section 2.1 hereof by giving a Notice of
Borrowing pursuant to Section 2.2 hereof.
(b) In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(i) subjects the Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by the Company
or otherwise with respect to the transactions contemplated hereby (except
for taxes on the overall net income of the Bank imposed by the United
States of America or any political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, the Bank (other than such
requirements as are already included in the determination of the Adjusted
Eurodollar Rate), or
<PAGE>
-10-
(iii) imposes upon the Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by the Bank or impose any expense upon the Bank
with respect to any Loans, the Bank shall notify the Company thereof. The
Company agrees to pay to the Bank the amount of such increase in cost reduction
in income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by the Bank of a statement in the
amount and setting forth the Bank's calculation thereof, which statement shall
be deemed true and correct absent manifest error.
(c) If the Bank shall have determined that (i) the adoption of or change
in any law, rule, regulation or guideline, directive or request regarding
capital requirements for banks or bank holding companies (whether or not having
the force of law), or any change in the interpretation or application thereof by
any governmental authority, central bank or comparable authority charged with
the interpretation or administration thereof, or (ii) compliance by the Bank
with any of the foregoing, imposes on or increases a requirement of the Bank to
allocate capital resources to the Bank's commitment to make Loans hereunder that
has or would have the effect of reducing the return on the Bank's capital as a
consequence of its commitment to make Loans hereunder to a level below that
which the Bank could have achieved (taking into consideration the Bank's then
existing policies with respect to capital adequacy and assuming the full
utilization of the Bank's capital) but for such adoption, change or compliance
by any amount deemed by the Bank to be material, then the Bank shall notify the
Company thereof. The Company agrees to pay to the Bank the amount of such
reduction of capital as and when such reduction is determined, upon presentation
by the Bank of a statement in the amount and setting forth the Bank's
calculation thereof, which statement shall be deemed true and correct absent
manifest error. In determining such amount, the Bank may use any reasonable
averaging and attribution methods.
2.8. Payments and Prepayments of the Loans. (a) Each Loan shall mature,
-------------------------------------
and the principal amount thereof shall be due and payable, on the Revolving
Credit Termination Date. Eurodollar Loans may not be prepaid. Base Rate Loans
may be prepaid at any time, without premium or penalty. Interest accrued on the
amounts so paid shall be paid in accordance with Section 2.6. No prepayment of
the Loans during the Revolving Credit Period shall affect the Commitment Amount
or impair the Company's right to borrow as set forth in Section 2.1.
(b) If at any time the aggregate principal amount of outstanding Loans
shall exceed the Borrowing Base, the Company shall repay such principal amount
(together with accrued interest thereon) of the outstanding Loans, if any, as
may be necessary so that after such repayment the aggregate outstanding
principal amount of the Loans does not exceed the amount of the Borrowing Base.
2.9. Method of Payment. All payments and prepayments of principal and all
-----------------
payments of interest shall be made by the Company to the Bank at 100 Federal
Street, Boston, Massachusetts in immediately available funds, on or before 2:00
p.m. (Boston time) on the due
<PAGE>
-11-
date thereof, free and clear of, and without any deduction or withholding for,
any taxes or other payments. The Bank may, and the Company hereby authorizes the
Bank to, debit the amount of any payment not made by such time to the demand
deposit account of the Company with the Bank, followed promptly by notice to the
Company of such action taken.
2.10. Overdue Payments. (a) Overdue principal (whether at maturity, by
----------------
reason of acceleration or otherwise) and, to the extent permitted by applicable
law, overdue interest and fees or any other amounts payable hereunder or under
the Note shall bear interest from and including the due date thereof until paid,
compounded daily and payable on demand, at a rate per annum equal to (i) if such
due date occurs prior to the end of an Interest Period for Eurodollar Loans, 2%
above the interest rate applicable to such Loan for such Interest Period until
the expiration of such Interest Period, and thereafter, 2% above the Base Rate;
and (ii) in all other cases, 2% above the rate then applicable to Base Rate
Loans, which interest shall be compounded daily and payable on demand. (b) If a
payment of principal or interest hereunder is not made within 10 days of its due
date, the Company will also pay, on demand, a late payment charge equal to 5% of
the amount of such payment. Nothing in the preceding sentence shall affect the
Bank's rights to exercise any of its rights or remedies, including those
provided in Section 7.2, if an Event of Default has occurred.
2.11. Payments Not at End of Interest Period. If the Company for any
--------------------------------------
reason makes any payment of principal with respect to any Eurodollar Loan on any
day other than the last day of the Interest Period applicable to such Eurodollar
Loan, or fails to borrow a Eurodollar Loan after giving a Notice of Borrowing
pursuant to Section 2.2, the Company shall pay to the Bank an amount computed
pursuant to the following formula:
L = (R - T) x P x D
---------------
360
L = amount payable to the Bank
R = interest rate on such Loan
T = effective interest rate per annum at which any readily marketable bond or
other obligation of the United States, selected at the Bank's sole
discretion, maturing on or near the last day of the Interest Period of such
Loan and in approximately the same amount as such Loan can be purchased by
the Bank on the day of such payment of principal or failure to borrow
P = the amount of principal prepaid or the amount of the requested Loan
D = the number of days remaining in the Interest Period as of the date of such
payment or the number of days of the requested Interest Period
The Company shall pay such amount upon presentation by the Bank of a statement
setting forth the amount and the Bank's calculation thereof pursuant hereto,
which statement shall be deemed true and correct absent manifest error.
2.12. Computation of Interest and Fees. Interest and all fees payable
--------------------------------
hereunder shall be computed daily on the basis of a year of 360 days and paid
for the actual number of days for
<PAGE>
-12-
which due. If the due date for any payment of principal is extended by operation
of law, interest shall be payable for such extended time. If any payment
required by this Agreement becomes due on a day that is not a Business Day such
payment may be made on the next succeeding Business Day (subject to clause (i)
of the definition of Interest Period), and such extension shall be included in
computing interest in connection with such payment.
SECTION III
-----------
CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Loan. The obligation of the Bank to
------------------------------------
make its initial Loan is subject to the condition precedent that the Bank shall
have received, in form and substance satisfactory to the Bank and its counsel,
the following:
(a) this Agreement and the Note, duly executed by the Company;
(b) a certificate of the Clerk or an Assistant Clerk of the Company with
respect to resolutions of the Board of Directors authorizing the execution and
delivery of this Agreement and the Note and identifying the officer(s)
authorized to execute, deliver and take all other actions required under this
Agreement, and providing specimen signatures of such officers;
(c) the certificate of incorporation of the Company and all amendments and
supplements thereto, filed in the office of the Secretary of The Commonwealth of
Massachusetts, certified by said Secretary of The Commonwealth as being a true
and correct copy thereof;
(d) the Bylaws and articles of incorporation of the Company and all
amendments and supplements thereto, certified by the Clerk or an Assistant Clerk
as being a true and correct copy thereof;
(e) a certificate of the Secretary of The Commonwealth of Massachusetts,
as to legal existence and good standing in such state and listing all documents
on file in the office of said Secretary of State;
(f) an opinion addressed to it from Christopher Stavros, counsel to the
Company, substantially in the form of Exhibit G hereto; and
---------
(g) such other documents, and completion of such other matters, as counsel
for the Bank may deem necessary or appropriate.
3.2. Conditions Precedent to all Loans. The obligation of the Bank to make
---------------------------------
each Loan, including the initial Loan, is further subject to the following
conditions:
(a) timely receipt by the Bank of the Notice of Borrowing as provided in
Section 2.2;
(b) the representations and warranties contained in Section IV shall be
true and accurate in all material respects on and as of the date of such Notice
of Borrowing and on the effective date of each Loan as though made at and as of
each such date (except to the extent that
<PAGE>
-13-
such representations and warranties expressly relate to an earlier date), and no
Default shall have occurred and be continuing, or would result from such Loan;
(c) the resolutions referred to in Section 3.1(b) shall remain in full
force and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for the
Bank to make Loans hereunder.
The making of each Loan shall be deemed to be a representation and warranty
by the Company on the date of such Loan as to the accuracy of the facts referred
to in subsection (b) of this Section 3.2.
SECTION IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Company represents and warrants to the Bank that:
4.1. Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification.
4.2. Corporate Authority. The execution, delivery and performance of this
-------------------
Agreement and the Note and the transactions contemplated hereby are within the
corporate power and authority of the Company and have been authorized by all
necessary corporate proceedings, and do not and will not (a) require any consent
or approval of the stockholders of the Company, (b) contravene any provision of
the charter documents or bylaws of the Company or any law, rule or regulation
applicable to the Company, (c) contravene any provision of, or constitute an
event of default or event that, but for the requirement that time elapse or
notice be given, or both, would constitute an event of default under, any other
agreement, instrument, order or undertaking binding on the Company, or (d)
result in or require the imposition of any Encumbrance on any of the properties,
assets or rights of the Company.
4.3. Valid Obligations. This Agreement and the Note and all of their
-----------------
respective terms and provisions are the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective terms except as
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, and except as the
remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
<PAGE>
-14-
4.4. Consents or Approvals. The execution, delivery and performance of
---------------------
this Agreement and the Note and the transactions contemplated herein do not
require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other party.
4.5. Title to Properties; Absence of Encumbrances. Each of the Company
--------------------------------------------
and its Subsidiaries has good and marketable title to all of the properties,
assets and rights of every name and nature now purported to be owned by it,
including, without limitation, such properties, assets and rights as are
reflected in the financial statements referred to in Section 4.6 (except such
properties, assets or rights as have been disposed of in the ordinary course of
business since the date thereof), free from all Encumbrances except Permitted
Encumbrances or those Encumbrances disclosed in Exhibit B hereto, and, except as
---------
so disclosed, free from all defects of title that might materially adversely
affect such properties, assets or rights, taken as a whole.
4.6. Financial Statements. The Company has furnished the Bank its
--------------------
consolidated balance sheet as of December 31, 1994 and its consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, and related footnotes, audited and certified by Arthur
Andersen & Co. The Company has also furnished the Bank its consolidated balance
sheet as of September 22, 1995 and its consolidated statements of income,
changes in stockholders' equity and cash flow for the period then ended,
certified by the principal financial officer of the Company but subject,
however, to normal, recurring year-end adjustments that shall not in the
aggregate be material in amount. All such financial statements were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods specified and present fairly the financial position
of the Company and its Subsidiaries as of such dates and the results of the
operations of the Company and its Subsidiaries for such periods. There are no
liabilities, contingent or otherwise, not disclosed in such financial statements
that involve a material amount.
4.7. Changes. Since the date of the financial statements referred to in
-------
Section 4.6, there have been no changes in the assets, liabilities, financial
condition, business or prospects of the Company or any of its Subsidiaries other
than changes in the ordinary course of business, the effect of which has not, in
the aggregate, been materially adverse.
4.8. Defaults. As of the date of this Agreement, no Default exists.
--------
4.9. Taxes. The Company and each Subsidiary have filed all federal,
-----
state and other tax returns required to be filed, and all taxes, assessments and
other governmental charges due from the Company and each Subsidiary have been
fully paid. The Company and each Subsidiary have established on their books
reserves adequate for the payment of all federal, state and other tax
liabilities.
4.10. Litigation. Except as set forth on Exhibit C hereto, there is no
---------- ---------
litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Company's or any Subsidiary's officers, threatened, against the
Company or any Subsidiary that, if adversely determined, would result in a
material judgment not fully covered by insurance or could result in a forfeiture
of all or any substantial part of the property of the Company or its
Subsidiaries, or
<PAGE>
-15-
would otherwise have a material adverse effect on the assets, business or
prospects of the Company or any Subsidiary.
4.11. Use of Proceeds. No portion of any Loan is to be used for the
---------------
"purpose of purchasing or carrying" any "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. 221 and 224, as amended; and following the application of the proceeds of
each Loan, the value of all "margin stock" of the Company will not exceed 25% of
the value of the total assets of the Company that are subject to the
restrictions set forth in Section 6.5 and 6.6.
4.12. Subsidiaries. As of the date of this Agreement, all the
------------
Subsidiaries of the Company are listed on Exhibit D hereto. The Company or a
---------
Subsidiary of the Company is the owner, free and clear of all liens and
encumbrances, of all of the issued and outstanding stock of each Subsidiary.
All shares of such stock have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares have been
granted, and no options, warrants or similar rights are outstanding.
4.13. Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.14 Compliance with ERISA. The Company and each member of the
---------------------
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "Prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
4.15. Environmental Matters. The Company and each of its Subsidiaries
---------------------
are in material compliance with all Federal, state and local environmental laws
and ordinances with respect to the conduct of their business or business
operations and have no knowledge or notice of any material violation of any
environmental protection law, regulation or order.
SECTION V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation remains outstanding, the Company covenants as follows:
5.1. Financial Statements and other Reporting Requirements. The Company
-----------------------------------------------------
shall furnish to the Bank:
(a) as soon as available to the Company, but in any event within 90 days
after the end of each of its fiscal years, a consolidated and consolidating
balance sheet as of the end of each such year, and a related consolidated and
consolidating statement of income, changes in stockholders' equity and cash flow
for such year, audited and certified by Arthur Andersen & Co.
<PAGE>
-16-
(or other independent certified public accountants acceptable to the Bank) in
the case of such consolidated statements, and certified by the chief financial
officer in the case of such consolidating statements; and, concurrently with
such financial statements, a copy of said certified public accountants'
management report;
(b) as soon as available to the Company, but in any event within 30 days
after the end of each month, (i) a consolidated and consolidating balance sheet
as of the end of each such fiscal quarter, and a related consolidated and
consolidating statement of income for the period then ended, certified by the
principal financial officer of the Company but subject, however, to normal,
recurring yearend adjustments that shall not in the aggregate be material in
amount and (ii) a borrowing base report substantially in the form of Exhibit E;
----------
(c) as soon as available to the Company, but in any event within 30 days
after the end of each of its fiscal quarters, a report in substantially the form
of Exhibit F hereto signed on behalf of the Company by its chief financial
---------
officer;
(d) promptly after the receipt thereof by the Company, copies of any
reports submitted to the Company by independent public accountants in connection
with any interim review of the accounts of the Company made by such accountants;
(e) promptly alter the same are available, copies of all proxy statements,
financial statements and reports as the Company may file with the Securities and
Exchange Commission or any governmental authority at any time having
jurisdiction over the Company or its Subsidiaries;
(f) if and when the Company gives or is required to give notice to the PBGC
of any "Reportable Event" (as defined in Section 4043 of ERISA) with respect to
any Plan that might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that any member of the Controlled Group or the plan
administrator of any Plan has given or is required to give notice of any such
Reportable Event, a copy of the notice of such Reportable Event given or
required to be given to the PBGC;
(g) immediately upon becoming aware of the existence of any condition or
event that constitutes a Default, written notice thereof specifying the nature
and duration thereof and the action being or proposed to be taken with respect
thereto;
(h) promptly upon becoming aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Company or
any of its Subsidiaries regarding any environmental hazard or condition or any
spill, release, discharge or disposal of any substance defined or designated by
any environmental statute, rule or regulation of any governmental entity now in
effect and applicable to such property, as hazardous or toxic material,
hazardous or toxic substance or any similar term, written notice thereof and the
action being or proposed to be taken with respect thereto;
(i) promptly upon becoming aware of any litigation or of any other
investigative proceedings by a governmental agency or authority commenced or
threatened against the
<PAGE>
-17-
Company or any of its Subsidiaries of which it has notice, the outcome of which
would or might have a materially adverse effect on the assets, business or
prospects of the Company or the Company and its Subsidiaries on a consolidated
basis, written notice thereof and the action being or proposed to be taken with
respect thereto; and
(j) from time to time, such other financial data and information about the
Company or its Subsidiaries as the Bank may reasonably request.
5.2. Conduct of Business. Each of the Company and its Subsidiaries
-------------------
shall:
(a) duly observe and comply in all material respects with all applicable
laws and valid requirements of any governmental authorities relative to its
corporate existence, rights and franchises, to the conduct of its business and
to its property and assets, and shall maintain and keep in full force and effect
all licenses and permits necessary in any material respect to the proper conduct
of its business;
(b) maintain its corporate existence; and
(c) remain engaged substantially in the design and manufacture of
telecommunication platforms, and related software, devices, and services.
5.3. Maintenance and Insurance. Each of the Company and its Subsidiaries
-------------------------
shall maintain its properties in good repair, working order and condition as
required for the normal conduct of its business. Each of the Company and its
Subsidiaries shall at all times maintain liability and casualty insurance with
financially sound and reputable insurers in such amounts as the officers of the
Company in the exercise of their reasonable judgment deem to be adequate. In
the event of failure to provide and maintain insurance as herein provided, the
Bank may, at its option, provide such insurance and charge the amount thereof to
the account of the Company or any of its Subsidiaries with the Bank.
5.4. Taxes. The Company shall pay or cause to be paid all taxes,
-----
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due.
5.5. Inspection by the Bank. The Company shall permit the Bank or its
----------------------
designees, at any reasonable time, and upon reasonable notice (or if a Default
shall have occurred and is continuing, at any time and without prior notice), to
(i) visit and inspect the properties of the Company and its Subsidiaries, (ii)
examine and make copies of and take abstracts from the books and records of the
Company and its Subsidiaries, and (iii) discuss the affairs, finances and
accounts of the Company and its Subsidiaries with their appropriate officers,
employees and accountants. In handling such information the Bank shall exercise
the same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any nonpublic
information thereby received or received pursuant to subsections 5.1(a), (b), or
(c) except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of the Bank in connection with their present or
prospective business relations with the Company, (ii) to prospective transferees
or purchasers of an interest in the Loans, (iii) as
<PAGE>
-18-
required by law, regulation, rule or order, subpoena, judicial order or similar
order and (iv) as may be required in connection with the examination, audit or
similar investigation of the Bank.
5.6. Maintenance of Books and Records. Each of the Company and its
--------------------------------
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with generally
accepted accounting principles consistently applied and applicable law.
5.7. Consolidated Tangible Net Worth. The Company shall at all times
-------------------------------
maintain Consolidated Tangible Net Worth of at least (i) $5,000,000.00. Any
consolidated losses shall not reduce the amount of Consolidated Tangible Net
Worth required to be maintained pursuant to this Section 5.7.
5.8. Consolidated Total Liabilities to Consolidated Tangible Net Worth
-----------------------------------------------------------------
Ratio. The Company shall at all times maintain a ratio of Consolidated Total
- -----
Liabilities to Consolidated Tangible Net Worth of not greater than 1.25 to 1.00.
5.9. Cash Flow Coverage. The Company shall at all times maintain
------------------
consolidated Cash Flow Coverage of not less than 2.0 to 1.00. As used in this
Section 5.9, "Cash Flow Coverage" shall mean, at any date as of which the amount
------------------
thereof shall be determined and for the period specified, the quotient obtained
by dividing the total of: (i) consolidated earnings before income taxes for
--------
such period, excluding any nonrecurring or extraordinary items, plus (ii)
----
consolidated depreciation and amortization expenses for such period, plus (iii)
----
consolidated interest expense (including imputed interest on capital lease
obligations) (collectively, "Interest Expense") minus (iv) capital expenditures
---------------- -----
minus cash taxes minus dividends and distributions; by the total of (i) Interest
- ----- ----- --
Expense for such period plus (ii) current maturities of long-term Indebtedness
----
for such period.
5.10. Profitability. The Company shall earn consolidated pretax income of
-------------
at least $1,000,000.00 in every fiscal quarter.
5.11. Cleanup Provision. The Company shall reduce its outstanding loan
-----------------
balance once each period to a maximum of $500,000 and once each period to
$300,000, each for 30 consecutive days in the 12 month periods ending December
31, 1996 and December 31, 1997, respectively.
5.12. Further Assurances. At any time and from time to time the Company
------------------
shall, and shall cause each of its Subsidiaries to, execute and deliver such
further instruments and take such further action as may reasonably be requested
by the Bank to effect the purposes of this Agreement and the Note.
SECTION VI
----------
NEGATIVE COVENANTS
------------------
<PAGE>
-19-
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation remains outstanding, the Company covenants as follows:
6.1. Indebtedness. Neither the Company nor any of its Subsidiaries shall
------------
create, incur, assume, guarantee or be or remain liable with respect to any
Indebtedness other than the following:
(a) Indebtedness of the Company or any of its Subsidiaries to the Bank or
any of its affiliates;
(b) Indebtedness existing as of the date of this Agreement and disclosed on
Exhibit B hereto or in the financial statements referred to in Section 4.6; and
- ---------
(c) other Indebtedness of the Company in an aggregate outstanding principal
amount not exceeding $300,000.00 annually.
6.2. Contingent Liabilities. Neither the Company nor any of its
----------------------
Subsidiaries shall create, incur, assume, guarantee or remain liable with
respect to any Guarantees other than in favor of the Bank or its affiliates,
without the prior written consent of the Bank.
6.3. Leases. Neither the Company nor any of its Subsidiaries shall
------
during any fiscal year enter into any leases of real or personal property as
lessee, except for capital leases or leases providing for payments in any one
fiscal year (whether or not such payments are termed rent) that in the aggregate
do not increase the aggregate annual lease payments of the Company and its
Subsidiaries in excess of $100,000.00 over such payments required to be made
during the immediately preceding fiscal year.
6.4. Sale and Leaseback. Neither the Company nor any of its Subsidiaries
------------------
shall enter into any arrangement, directly or indirectly, whereby it shall sell
or transfer any property owned by it in order to lease such property or lease
other property that the Company or any such Subsidiary intends to use for
substantially the same purpose as the property being sold or transferred.
6.5. Encumbrances. Neither the Company nor any of its Subsidiaries shall
------------
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets including, without limitation, on any of its accounts
receivable or inventory ("Encumbrances"), or assign or otherwise convey any
------------
right to receive income, including the sale or discount of accounts receivable
with or without recourse, except the following ("Permitted Encumbrances"):
----------------------
(a) Encumbrances in favor of the Bank or any of its affiliates; and
(b) Encumbrances existing as of the date of this Agreement and disclosed in
Exhibit B hereto;
- ---------
<PAGE>
-20-
6.6. Merger; Consolidation; Sale or Lease of Assets. Neither the Company
----------------------------------------------
nor any of its Subsidiaries shall sell, lease or otherwise dispose of assets or
properties (valued at the lower of cost or market), other than sales of
inventory in the ordinary course of business, in the aggregate in excess of
$500,000 in any fiscal year; or liquidate, merge or consolidate into or with any
other person or entity, provided that any Subsidiary of the Company may merge or
--------
consolidate into or with (i) the Company if no Default has occurred and is
continuing or would result from such merger and if the Company is the surviving
company, or (ii) any other wholly-owned Subsidiary of the Company.
6.7. Change in Control. Robert Madonna, his spouse or issue shall own at
-----------------
least 51% of the Equity Securities of the Company, but in any case Robert
Madonna shall not own less than 51% of the voting stock. For purposes hereof
"Equity Securities" shall mean (a) all common stock, preferred stock,
participations, shares, partnership interests, or other equity interests in and
of the Company (regardless of how designated and whether or not voting or non-
voting) and (b) all warrants, options, and other rights to acquire any of the
foregoing.
6.8. Equity Distributions. The Company shall not pay any dividends on
--------------------
any class of its capital stock or make any other distribution or payment on
account of or in redemption, retirement or purchase of such capital stock which
result in an Event of Default under Sections 5.7, 5.8, 5.9 or 5.10, or violates
any other provision of this Agreement.
6.9. Investments. Neither the Company nor any of its Subsidiaries shall
-----------
make or maintain any Investments other than (i) existing Investments in
Subsidiaries and (ii) Qualified Investments.
6.10. ERISA. Neither the Company nor any member of the Controlled
-----
Group shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of the Company or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
SECTION VII
-----------
DEFAULTS
--------
7.1. Events of Default. There shall be an Event of Default hereunder if
-----------------
any of the following events occurs:
(a) the Company shall fail to pay when due (i) any amount of principal of
any Loans, (ii) any amount of interest thereon or (iii) any fees or expenses
payable hereunder or under the Note within 10 days following notice; or
(b) The Company shall fail to perform any term, covenant or agreement
contained in Sections 5.1(g), 5.5, 5.7 through 5.11 or 6.1 through 6.10; or
<PAGE>
-21-
(c) the Company shall fail to perform any covenant contained in Sections
5.1(f, 5.1(h) or 5.2, and such failure shall continue for 30 days; or
(d) the Company shall fail to perform any term, covenant or agreement
(other than in respect of subsections 7.1(a) through (c) hereof) contained in
this Agreement and such default shall continue for 30 days after notice thereof
has been sent to the Company by the Bank; or
(e) any representation or warranty of the Company made in this Agreement or
in the Note or any other documents or agreements executed in connection with the
transactions contemplated by this Agreement or in any certificate delivered
hereunder shall prove to have been false in any material respect upon the date
when made or deemed to have been made; or
(f) there shall occur any material adverse change in the assets,
liabilities, financial condition, business or prospects of the Company or the
Company and its Subsidiaries, taken as a whole, as determined by the Bank acting
good faith; or
(g) the Company or any of its Subsidiaries shall fail to pay at maturity,
or within any applicable period of grace, any obligation or obligations which in
the aggregate exceed $10,000 for borrowed monies or advances, or for the use of
real or personal property, or fail to observe or perform any term, covenant or
agreement evidencing or securing such obligations for borrowed monies or
advances, or relating to such use of real or personal property, the result of
which failure is to permit the holder or holders of such Indebtedness to cause
such Indebtedness to become due prior to its stated maturity upon delivery of
required notice, if any; or
(h) the Company or any of its Subsidiaries shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar official of itself or of all or a substantial
part of its property, (ii) be generally not paying its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) take any action or commence any case or proceeding
under any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or any other law providing for the relief of
debtors, (vi) fail to contest within 30 days or in an appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code or other law, (vii) take any action under the
laws of its jurisdiction of incorporation or organization similar to any of the
foregoing; or
(i) a proceeding or case shall be commenced, without the application or
consent of the Company or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 30 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against the Company or
such Subsidiary; or action under the laws of the jurisdiction of incorporation
or organization of the
<PAGE>
-22-
Company or any of its Subsidiaries similar to any of the foregoing shall be
taken with respect to the Company or such Subsidiary and shall continue unstayed
and in effect for any period of 30 days; or
(j) a judgment or order for the payment of money shall be entered against
the Company or any of its Subsidiaries by any court, or a warrant of attachment
or execution or similar process shall be issued or levied against property of
the Company or such Subsidiary, and such judgment, order, warrant or process
shall continue undischarged or unstayed for 30 days; or
(k) the Company or any member of the Controlled Group shall fail to pay
when due any amount or amounts that it shall have become liable to pay to the
PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a
Plan or Plans shall be filed under Title IV of ERISA by the Company, any member
of the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans against the Company and such proceedings shall not have been dismissed
within 30 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any; or
7.2. Remedies. Upon the occurrence of an Event of Default described in
--------
subsections 7.1(h) and (i), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
(a) the Bank's commitment to make any further Loans hereunder shall
terminate;
(b) the unpaid principal amount of the Loans together with accrued interest
and all other Obligations shall become immediately due and payable without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived; and
(c) the Bank may exercise any and all rights it has under this Agreement,
the Note or any other documents or agreements executed in connection herewith,
or at law or in equity, and proceed to protect and enforce the Bank's rights by
any action at law, in equity or other appropriate proceeding.
SECTION VIII
------------
MISCELLANEOUS
-------------
8.1. Notices. Unless otherwise specified herein, all notices hereunder
-------
to any party hereto shall be in writing and shall be deemed to have been given
when delivered by hand, when properly deposited in the mails postage prepaid,
when sent by electronic facsimile transmission, or when delivered to the
overnight courier, addressed to such party at its address indicated below:
If to the Company, at
<PAGE>
-23-
EXCEL INC.
255 Independence Drive
Hyannis, MA 02601
Attention: Nathan Apatow
If to the Bank, at
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Bradford Egan
MA Corp. Cape Cod
or at any other address specified by such party in writing.
8.2. Expenses. The Company shall, on demand, pay or reimburse the Bank
--------
for all expenses (including attorneys' fees of outside counsel or allocation
costs of in-house counsel incurred or paid by the Bank in connection with the
preparation, negotiation and closing of this Agreement and the Note (whether or
not the transactions contemplated hereby shall be consummated) or in connection
with the administration or amendment of this Agreement or the Note (whether or
not the transactions contemplated hereby shall be consummated) and with the
enforcement of any Obligation or exercise of any right of the Bank hereunder or
under the Note.
8.3. Set-Off. Regardless of the adequacy of any collateral or other
-------
means of obtaining repayment of the Obligations, any deposits, balances or other
sums credited by or due from the head office of the Bank or any of its branch
offices to the Company may, at any time and from time to time after the
occurrence of an Event of Default hereunder, without notice to the Company or
compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived) be
set off, appropriated, and applied by the Bank against any and all obligations
of the Company to the Bank or any of its affiliates in such manner as the head
office of the Bank or any of its branch offices in their sole discretion may
determine, and the Company hereby grants the Bank a continuing security interest
in such deposits, balances or other sums for the payment and performance of all
such obligations.
8.4. Term of Agreement. This Agreement shall continue in force and
-----------------
effect so long as the Bank has any commitment to make Loans hereunder or any
Loan or any Obligation shall be outstanding.
8.5. No Waivers. No failure or delay by the Bank in exercising any
----------
right, power or privilege hereunder or under the Note or under any other
documents or agreements executed in connection herewith shall operate as a
waiver thereof; nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein and in the Note provided are
cumulative and not exclusive of any rights or remedies otherwise provided by
agreement or law.
<PAGE>
-24-
8.6. Massachusetts Law. This Agreement and the Note shall be deemed to
-----------------
be contracts made under seal and shall be construed in accordance with and
governed by the laws of The Commonwealth of Massachusetts (without giving effect
to any conflicts of law provisions contained therein).
8.7. Amendments. Neither this Agreement nor the Note nor any provision
----------
hereof or thereof may be amended, waived, discharged or terminated except by a
written instrument signed by the Bank and, in the case of amendments, by the
Company.
8.8. Binding Effect of Agreement. This Agreement shall be binding upon
---------------------------
and inure to the benefit of the Company and the Bank and their respective
successors and assigns; provided that the Company may not assign or transfer its
--------
rights or obligations hereunder. The Bank may sell, transfer or grant
participations in the Note without the prior written consent of the Company, and
the Company agrees that any transferee or participant shall be entitled to the
benefits of Sections 2.7, 2.11, 5.5 and 8.3 to the same extent as if such
transferee or participant were the Bank hereunder; provided that notwithstanding
any such transfer or participation, the Company may, for all purposes of this
Agreement, treat the Bank as the person entitled to exercise all rights
hereunder and under the Note and to receive all payments with respect thereto.
8.9. Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
8.10. Partial Invalidity. The invalidity or unenforceability of any one
------------------
or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
8.11. Captions. The captions and headings of the various sections and
--------
subsections of this Agreement are provided for convenience only and shall not be
construed to modify the meaning of such sections or subsections.
8.12. Termination. The Company shall have the right to terminate this
-----------
Agreement upon sixty (60) days written notice, without prejudice to any rights
of the Bank set forth in this Agreement and only to the extent that there is no
loan Obligation outstanding at the time of termination.
8.13. WAIVER OF JURY TRIAL. EXCEPT AS PROHIBITED BY LAW, NEITHER THE
--------------------
COMPANY NOR THE BANK, NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS, SHALL (A) SEEK A
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION
PROCEDURE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED DOCUMENT OR
AGREEMENT, OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED,
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CAN NOT BE OR HAS NOT BEEN WAIVED.
THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HERETO
HAS IN ANY WAY AGREED
<PAGE>
-25-
WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION 8.12
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
8.14. Entire Agreement. This Agreement, the Note and the documents and
----------------
agreements executed in connection herewith constitute the final agreement of the
parties hereto and supersede any prior agreement or understanding, written or
oral, with respect to the matters contained herein and therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
EXCEL INC.
By /s/ Robert P. Madonna
----------------------------------
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Bradford P. Egan
----------------------------------
Title: Vice President
<PAGE>
EXCEL INC.
PROMISSORY NOTE
$5,000,000.00 December 21, 1995
Boston, Massachusetts
For value received, the undersigned hereby promises to pay to The First
National Bank of Boston (the "Bank"), or order, at the head office of the Bank
at 100 Federal Street, Boston, Massachusetts 02110, the principal amount of Five
Million Dollars ($5,000,000.00) or such lesser amount as shall equal the
aggregate unpaid principal amount of all Loans (as defined in the Agreement
referred to below) made by the Bank to the undersigned pursuant to the
Agreement, in lawful money of the United States and in immediately available
funds, in the amounts and on the dates provided on the schedule attached hereto
and to pay interest on the unpaid principal amount hereof, at said office, in
like money and funds, for the period commencing on the date hereof until paid in
full, at the rates per annum and on the dates provided on such schedule.
Overdue payments of principal (whether at stated maturity, by acceleration
or otherwise), and, to the extent permitted by law, overdue interest, shall bear
interest, compounded monthly and payable on demand in immediately available
funds, at a rate per annum equal to two percent (2%) above greater of (i) the
rate in effect with respect to such principal prior to its maturity and (ii) the
rate then applicable to Base Rate Loans under the Agreement.
This Note is issued pursuant to, and entitled to the benefits of, and is
subject to, the provisions of a certain Credit Agreement dated as of December
21, 1995 by and between the undersigned and the Bank (herein, as the same may
from time to time be amended or extended, referred to as the "Agreement"), but
neither this reference to the Agreement nor any provision thereof shall affect
or impair the absolute and unconditional obligation of the undersigned maker of
this Note to pay the principal of and interest on this Note as herein provided.
As provided in the Agreement, this Note is subject to mandatory prepayment
in certain circumstances.
In case an Event of Default (as defined in the Agreement) shall occur, the
aggregate unpaid principal of plus accrued interest on this Note shall become or
may be declared to be due and payable in the manner and with the effect provided
in the Agreement.
<PAGE>
The undersigned may at its option prepay all or any part of the principal
of this Note before maturity upon the terms provided in the Agreement.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
This instrument shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
EXCEL INC.
By: /s/ Robert P. Madonna
-------------------------------
Title: President
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
AND PROMISSORY NOTE
This Amendment to Credit Agreement and Promissory Note (the "Amendment") is
made as of May 24, 1996 and amends the Credit Agreement dated as of December 21,
1995 (as amended, the "Agreement"), between EXCEL, INC. (the "Company"), and THE
FIRST NATIONAL BANK OF BOSTON, a national banking association (the "Bank") and
the Promissory Note dated as of December 21, 1995 executed by the Company in
favor of the Bank (as amended, the "Note"). Capitalized terms which are used in
this Amendment and are defined in the Agreement, shall have the meanings given
to them in the Agreement unless they are otherwise defined in this Amendment.
WHEREAS, the Bank has made available to the Company a certain $5,000,000
credit facility as described in the Agreement and evidenced by the Note; and
WHEREAS, the Company and the Bank have agreed to increase the credit
facility to $10,000,000;
NOW, THEREFORE, the Bank and the Company agree as follows:
I. AMENDMENTS TO THE AGREEMENT
1. Section 1.1. of the Agreement is hereby amended by deleting
"$5,000,000.00" from the definition of "Commitment Amount" set forth
-----------------
and substituting "$10,000,000.00" therefor.
2. Section 2.3 of the Agreement is hereby amended by deleting it in its
entirety and replacing it with the following:
"2.3 Facility Fee. The Company shall pay to the Bank during the
------------
Revolving Credit Period an annual fee equal to (i) $9,500.00 from the
date of this Agreement until June 30, 1996 and $25,000.00 thereafter.
The facility fee shall be payable quarterly in advance, on the first
day of January, April, July and October of each year. The Company
shall pay $2,375.00 on each of January 1, 1996, and April 1, 1996 and
$6,250.00 each quarter in advance thereafter commencing on July 1,
1996. A prorated amount for the period from the date of the Agreement
to December 31, 1995 shall be payable at the closing."
II. AMENDMENT TO THE NOTE
The Note is hereby amended by deleting "$5,000,000.00" and "Five Million
Dollars ($5,000,000.00)" from the first page thereof and substituting
<PAGE>
"$10,000,000.00" and "Ten Million Dollars $10,000,000.00)", respectively,
therefor.
III. MISCELLANEOUS AGREEMENTS
1. Continuing Effect of the Agreement. This Amendment shall not
----------------------------------
constitute an amendment of any provision of the Agreement or the Note
not expressly referred to herein and shall not be construed as a
consent to any action on the part of the Company that would require a
waiver or consent of the Bank except as expressly stated herein. The
provisions of the Agreement and the Note that are not expressly
amended or modified hereby are and shall remain in full force and
effect, and are hereby ratified and confirmed, including without
limitation, the negative pledge on assets of the Company as set forth
in Section 6.5 of the Agreement.
2. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the bank that the representations and warranties set forth
in the Agreement and the Note as amended by this Amendment are true
and correct on and as of the date hereof as if made on and as of the
date hereof, and that no Event of Default exists on and as of the date
hereof.
3. Fees, Costs, Expenses and Taxes. The Company also agrees to pay on
-------------------------------
demand all costs and expenses of the Bank in connection with the
preparation, execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, including the
fees and allocation costs of its in-house counsel.
4. Effectiveness of Amendment. This Amendment shall be effective as of
--------------------------
the date hereof upon receipt by the Bank of (a) this Amendment duly
executed and delivered by the Company and the Bank and (b) such other
documents and certificates as the bank or its counsel may have
requested.
5. Governing Law. The Amendment shall be deemed to be a contract under
-------------
seal and for all purposes shall be governed by and construed and
enforced in accordance with the laws of The Commonwealth of
Massachusetts.
6. Counterparts. The Amendment may be executed in any number of
------------
counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the
same instrument. The Amendment shall be firmly attached to the Note by
stapling or other permanent means of attachment and shall constitute
an integral part of the Note from and after the date first above
written.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered by their duly authorized officers as of the date first above
written.
EXCEL. INC.
By: /s/ Robert P. Madonna
--------------------------------
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Bradford P. Egan
--------------------------------
Title: Vice President
<PAGE>
as of March 20, 1997
Excel, Inc.
255 Independence Park
Hyannis, MA 02601
Attention: Mr. Robert Madonna
RE: Line of Credit
--------------
Gentlemen:
The First National Bank of Boston (the "Bank") has made a certain revolving
line of credit (the "Line") available to Excel, Inc. (the "Borrower") pursuant
to a certain credit agreement dated December 21, 1995 (as amended, the
"Agreement"). All obligations with respect to the Line are evidenced by a
certain Promissory Note in the principal amount of $5,000,000 dated as of
December 21, 1995, amended and increased to $10,000,000 (as amended, the
"Note").
The Borrower has requested, and the Bank has agreed to amend the Borrowing
Base definition and waive and amend certain covenants as set forth in the
Agreement.
Now, therefore, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Borrower and the Bank hereby agree as follows:
1. The Borrowing Base as defined in the Agreement is hereby amended to
include 50% of the Net Security Value of Base Inventory net of the obsolescence
reserve. "Net Security Value of Base Inventory" shall mean the net value of Base
Inventory, calculated at the lesser of fair market value or cost determined on
the "first in, first out" basis, after subtracting the value of any Base
Inventory which is damaged or detective and after taking into account charges
and liens, other than those of the Bank, of all kinds against the Base
Inventory, changes in the market value thereof, and transportation, processing
and other handling charges affecting the value thereof, all as determined by the
Bank in its discretion, which determination shall be final and binding upon the
Borrowers. "Base Inventory" shall mean inventory consisting of raw materials as
to which a Borrower has acquired title, and is otherwise in compliance with
Section 6.5 Encumbrance, and the Borrowers have furnished to the Bank
-----------
information as required by Section 5.1(b) hereof. Inventory immediately loses
the status of Base Inventory if and when a Borrower sells it, otherwise passes
title thereto or consumes it.
2. Section 5.1(a) of the Agreement requires that audited fiscal year end
statements be submitted to the Bank within 90 days of the Borrower's fiscal year
end. The Borrower has made it known to the Bank that the statement will not be
available within that set period of time for fiscal 1996. The Borrower has
requested a waiver of the covenant default. Based on the representations made
by the Borrower, the Bank hereby waives the covenant default referenced above
for the year ended December 31, 1996 and resets the time period to 180 days from
the Borrower's fiscal year end. Thereafter, the time period for said covenant
will again be 90 days from fiscal year end.
<PAGE>
-2-
3. Section 6.3 of the Agreement requires that the Borrower or any of its
subsidiaries not enter into any leases of real or personal property as lessee
which increase the aggregate annual lease payments over $100,000 from the prior
fiscal year. The Borrower has made it known to the Bank that the Borrower
entered into new leases requiring annual aggregate lease payments of $225,000 in
the fiscal year ended December 31, 1996, $125,000 in excess of the permitted
amount. The Bank hereby waives the covenant default referenced above for the
year ended December 31, 1996 based on the representations made by the Borrower
and resets the covenant amending the annual limitation to $300,000 (from the
previously agreed $100,000) for future periods.
4. Section 6.4 of the Agreement restricts the Borrower from entering into
sale or leaseback transactions. The Borrower has made it known to the Bank that
the Borrower did enter into a $560,000 sale/leaseback transaction in the fiscal
year ended December 31, 1996. The Bank hereby waives the covenant default
referenced above for the year ended December 31, 1996, based on the
representations made by the Borrower and resets the covenant for the periods
thereafter.
These waivers shall not constitute a waiver of any provision of the Agreement
other than Section 5.1(a), 6.3, and 6.4 and shall not be construed as a consent
to any action on the part of the Borrower that would require a waiver or consent
of the Bank except as expressly stated herein. All of the provisions of the
Agreement are and shall remain in full force and effect and are hereby ratified
and confirmed.
Sincerely,
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Bradford P. Egan
--------------------------------
Its: Vice President
---------------------------
Acknowledged:
Excel, Inc.
By: /s/ Nathan C. Apatow
------------------------
Its: Treasurer
<PAGE>
-3-
Exhibit
MONTHLY BORROWING BASE CERTIFICATE
Company ____________________________
1. Accounts Receivable @ ___________ (date) $_____________
a. Less Accounts over 60 days $_____________
b. Less Accounts due to Cross Aging Rule (25%) $_____________
c. Less Affiliate Receivables $_____________
d. Less Foreign Receivables $_____________
e. Less Other Ineligibles $_____________
2. Eligible Accounts Receivable $_____________
3. Advance Rate (75%) $_____________
4. Accounts Receivable Availability $_____________
5. Raw Material Inventory $_____________
6. Advance Rate (50%) $_____________
7. Net Obsolescence Reserve $_____________
8. Inventory Availability $_____________
9. Total AIR and Inventory Availability $_____________
10. Less Outstanding Loan Balance (maximum $10,000,000) $_____________
12. Net Availability (Overadvance) $_____________
The undersigned, and the individual signing this certificate on behalf of the
undersigned, certify that the information contained herein is true, correct, and
complete as of the date set forth above.
By: ______________________________
(Authorized Official)
Date: ____________________________
<PAGE>
Exhibit A
---------
EXCEL, INC.
PROMISSORY NOTE
December 21, 1995
$5,000,000.00 Boston, Massachusetts
For value received, the undersigned hereby promises to pay to The First
National Bank of Boston (the "Bank"), or order, at the head office of the Bank
at 100 Federal Street, Boston, Massachusetts 02110, the principal amount of Five
Million Dollars ($5,000,000.00) or such lesser amount as shall equal the
aggregate unpaid principal amount of all Loans (as defined in the Agreement
referred to below) made by the Bank to the undersigned pursuant to the
Agreement, in lawful money of the United States and in immediately available
funds, in the amounts and on the dates provided on the schedule attached hereto
and to pay interest on the unpaid principal amount hereof, at said office, in
like money and funds, for the period commencing on the date hereof until paid in
full, at the rates per annum and on the dates provided on such schedule.
Overdue payments of principal (whether at stated maturity, by
acceleration or otherwise), and, to the extent permitted by law, overdue
interest, shall bear interest, compounded monthly and payable on demand in
immediately available funds, at a rate per annum equal to two percent (2%) above
greater of (i) the rate in effect with respect to such principal prior to its
maturity and (ii) the rate then applicable to Base Rate Loans under the
Agreement.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Credit Agreement dated as of December
21, 1995 by and between the undersigned and the Bank (herein, as the same may
from time to time be amended or extended, referred to as the "Agreement"), but
neither this reference to the Agreement nor any, provision thereof shall affect
or impair the absolute and unconditional obligation of the undersigned maker of
this Note to pay the principal of and interest on this Note as herein provided.
As provided in the Agreement, this Note is subject to mandatory
prepayment in certain circumstances.
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal of plus accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Agreement.
The undersigned may at its option prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Agreement.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
-2-
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
EXCEL INC.
By:
--------------------------------
Title:
<PAGE>
-3-
SCHEDULE I TO PROMISSORY NOTE
<TABLE>
<CAPTION>
Type of Loan
Amount of Eurodollar Interest Interest Notation
Date Loan or Base Loan Rate Rate* Period Amount Paid Made By
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
* For Base Rate Loans, insert "Base Rate"
** For Eurodollar Loans
<PAGE>
-4-
EXHIBIT B
List of Indebtedness and Encumbrances
1. $2.6 Million First Mortgage on corporate headquarters building #60 and #70
at 255 Independence Drive , Hyannis, MA. Seven year note, twenty year
amortization provided by Cape Cod Bank & Trust.
2. $300 Thousand Term Note secured by equipment and provided by Cape Cod
Bank & Trust.
<PAGE>
-5-
EXHIBIT C
List of litigation. Arbitration, or Investigations Pending
Litigation:
Melissa Lima v Excel Inc., et al
(Employment Litigation, discrimination in hiring)
U.S. District Court Mass. 95-10330-PBS)
Arbitration:
None
Investigations:
None
<PAGE>
-6-
EXHIBIT D
List of Subsidiaries
NONE
<PAGE>
-7-
Exhibit E
MONTHLY BORROWING BASE CERTIFICATE
Company ____________________
1. Account Receivable @ _________________(date) $________________
a. Less Accounts over 60 days $________________
b. Less Accounts due to Cross Aging Rule (25%) $________________
c. Less Affiliate Receivables $________________
d. Less Foreign Receivables $________________
e. Less Other Ineligibles $________________
2. Eligible Accounts Receivable $________________
3. Advance Rate (75%) X
4. Accounts Receivable Availability $________________
5. Less Outstanding Loan Balance (Maximum $5,000,000) $________________
6. Net Availability or (Overadvance) $________________
The undersigned, and the individual signing this certificate on behalf of the
undersigned, certify that the information contained herein is true, correct and
complete as of the date(s) set forth above.
By:____________________________
Authorized Official
Date:__________________________
<PAGE>
-8-
EXHIBIT F
---------
REPORT OF CHIEF FINANCIAL OFFICER
---------------------------------
EXCEL, INC. (the "Company) HEREBY CERTIFIES that:
This Report is furnished pursuant to the Credit Agreement dated as of
December 8, 1995 by and between the Company and The First National Bank of
Boston (the "Agreement"). Unless otherwise defined herein, the terms used in
this Report have the meanings given to them in the Agreement.
As required by the Agreement, financial statements of the Company for
the quarter ended ______________ (the "Financial Statements') prepared in
accordance with generally accepted account principals consistently applied
accompany this Report. The Financial Statements present fairly the financial
position of the Company as the date thereof and the results of the operations of
the Company for the period covered thereby (subject only to normal recurring
year-end adjustments).
The figures set forth in Schedule I for determining compliance by the
Company with the financial covenants contained in the Agreement are true and
complete as of the date thereof.
The activities of the Company during the period covered by the
Financial Statements have been reviewed by the Chief Financial Officer or by
employees or agents under his immediate supervision. Based on such review, to
the best knowledge and belief of the Chief Financial Officer, and as of the date
of this Report, no Default has occurred.*
WITNESS my hand this ___ day of __________, 199__.
EXCEL, INC.
By:
--------------------------------
Title:
-----------------------------
*If a Default has occurred, this paragraph is to be modified with an appropriate
statement as to the nature thereof, the period of existence thereof and what
action the Company has taken, is taking, or proposes to take with respect
thereto.
<PAGE>
-9-
SCHEDULE I TO REPORT OF CHIEF FINANCIAL OFFICER
Schedule of Compliance as of ___________ with provisions of Section
5.7, 5.8, 5.9, and 5.10 of the Credit Agreement dated as of December 8, 1995
(the "Agreement") between Excel, Inc. and the First National Bank of Boston.
1. Consolidated Tangible Net Worth (Section 5.7)
---------------------------------------------
(i) Total Assets $________________
(ii) Excluded Items (if any) $________________
(iii) Total Liabilities $________________
(iv) Tangible Net Worth $________________
[(I) minus the sum of (ii) and (iii)]
-----
(v) Minimum Tangible Net Worth
permitted by Agreement $________________
2. Ratio of Total Liabilities to Tangible Net Worth (Section 58)
-------------------------------------------------------------
(i) Total Liabilities $________________
(ii) Tangible Net Worth $________________
(iii) Ratio of (I) to (ii) ________________
3. Cash Flow Coverage (Section 5.9)
--------------------------------
(i) Earnings before interest and income taxes $________________
[excluding non-recurring or extraordinary
items]
(ii) Depreciation and Amortization $________________
(iii) Capital Expenditures $________________
(iv) Cash Taxes Paid $________________
(v) Dividends and Distributions $________________
<PAGE>
-10-
(vi) Total Operating Cash Flow
(I) plus (ii) minus (iii) minus (iv) minus (v) $________________
(vii) Interest Expense $________________
(viii) Principal on Debt and Capital Leases paid $________________
(ix) Total Debt Service
(vii) plus (viii) $________________
(x) Cash Flow Coverage Ratio
(vi) divided by (ix) ________________
(xi) Cash Flow Ratio Required by Agreement ________________
4. Profitability (Section 5. 10)
-----------------------------
(i) Fiscal Quarter Pre-Tax Income
Required by Agreement $________________
<PAGE>
-11-
EXHIBIT G
---------
FORM OF OPINION OF COUNSEL TO THE COMPANY
------------------------
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
RE: Revolving Credit Agreement dated as of ______________ by and
between The First National Bank of Boston (the "Bank") and [NAME
OF COMPANY] (the "Company")
Ladies/Gentlemen:
We have acted as counsel to ___________ (the "Company") in connection
with the preparation, execution and delivery of the Revolving Credit and Term
Loan Agreement, dated as of __________ (the "Agreement") between The First
National Bank of Boston (the "Bank") and the Company pursuant to which the
Company has executed and delivered to the Bank its Note in the principal amount
of $_________. All terms defined in the Agreement shall have the same meanings
herein.
We have examined executed counterparts of the Agreement and the Note
and originals, or copies, the authenticity of which has been established to our
satisfaction, of such other documents, corporate records, agreements and
instruments and certificates of public officials and officers of the Company as
we have deemed necessary as the basis for the opinions herein expressed. As to
the questions of fact material to such opinions we have, when relevant facts
were not independently established, relied upon certifications by officers of
the Company.
Based on the foregoing and having regard for legal considerations as we
have deemed relevant, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the [State/Commonwealth of ___________], has all
requisite corporate power to own its property and conduct its business as now
conducted and is duly qualified and in good standing as a foreign corporation
and duly authorized to do business in each jurisdiction wherein the nature of
its properties or business requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on its business,
financial condition, assets or properties taken as a whole.
2. The execution and delivery of the Agreement and the Note and
performance by the Company of its obligations thereunder and of the transactions
contemplated thereby are within the corporate power and authority of the
Company, and have been authorized by proper
<PAGE>
-12-
corporate proceedings and do not contravene any provision of law of the United
States or its political subdivisions or the [Certificate of
Incorporation/Articles of Organization] or ByLaws of the Company, or, to the
best of our knowledge, contravene any provision of, or constitute an event of
default or event which, with the lapse of time or the giving of notice, or both,
would constitute an event of default under, any other agreement, instrument or
undertaking binding on the Company.
3. The Agreement and the Note have been duly executed and delivered by
the Company. The Agreement and the Note and all of the terms and provisions
thereof are the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting enforcement of
creditors' rights generally, and except as the remedy of specific performance or
of injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
4. The execution, delivery and performance of the Agreement and the
Note and the transactions contemplated thereby do not require any approval or
consent of, or filing or registration with, any governmental or other agency or
authority, or any other party.
5. Except as set forth on Exhibit D to the Agreement, there is no
---------
litigation, proceeding or investigation pending, or, to the best of our
knowledge after due inquiry, threatened, against the Company or any Subsidiary
which, if adversely determined, would result in a material judgment not
substantially covered by insurance or would otherwise have a material adverse
effect on the assets, business or prospects of the Company or any Subsidiary.
6. Each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power to own its property and conduct
its businesses as now conducted and is duly qualified and in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
where the nature of its properties or businesses requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on its business, financial condition, assets or properties taken as a
whole.
7. As of the date of the Agreement, all the Subsidiaries of the Company
are listed on Exhibit E thereto. The Company is the record holder of all of the
---------
issued and outstanding stock of each of its Subsidiaries. All shares of such
stock have been validly issued and are fully paid and nonassessable, and no
rights to subscribe to any additional shares have been granted, and no options,
warrants or similar rights are outstanding.
8. Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended.
9. All state and local recording, franchise, stamp, documentary and
other taxes and governmental charges and assessments required to be paid in
connection with the execution,
<PAGE>
-13-
delivery, filing or recordation of, or as a condition to the enforcement of, the
Agreement and the Note and any of the transactions contemplated thereby, have
been duly paid.
Very truly yours,
<PAGE>
Exhibit 10.8
MORTGAGE AND SECURITY AGREEMENT
EXCEL, INC., a Massachusetts business corporation, having a principal place of
business at 41 Meeting House Lane, P.O. Box 327, Sagamore Beach, Massachusetts
02562 ("Mortgagor") for consideration paid, grant to CAPE COD BANK AND TRUST
COMPANY, a Massachusetts banking corporation, having its usual place of business
at 307 Main Street, Hyannis, MA 02601 ("Mortgagee") with MORTGAGE COVENANTS, to
secure the payment OF TWO MILLION SIX HUNDRED THOUSAND AND N0/100
($2,600,000.00) DOLLARS payable as provided in a note of even date (the "Note"),
and also to secure the performance of all of the covenants and agreements
contained in this Mortgage and the said note of even date and any other
documents executed as collateral therefor or relating thereto and existing as of
the date hereof.
The land together with the buildings and other structures now or hereafter
placed thereon (hereinafter called the "mortgaged premises" or the "premises" or
the "property") in Barnstable (Hyannis), Barnstable County, Massachusetts, more
particularly described in Exhibit "A" attached hereto and made a part hereof.
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There is included herein as a part of the premises all portable or
sectional buildings at any time placed upon said premises, and all furnaces,
ranges, heaters, plumbing, gas and electric fixtures, screens, mantels, shades,
screen doors, storm doors and windows, oil burners, gas or electric
refrigerators and all other fixtures of whatever kind and nature at present or
hereafter installed in or on the premises in any manner which renders such
articles usable in connection therewith so far as the same are, or can by
agreement of parties, be made a part of the realty, and all material, apparatus
or supplies intended to enter into the construction, repair or remodeling of the
buildings on the premises, now in said buildings or on the premises, or placed
therein or thereon prior to the full payment and discharge of this Mortgage.
This mortgage is intended also to be a Security Agreement and Financing
Statement under the Uniform Commercial Code. Accordingly, the Mortgagor grants
to the Mortgagee a security interest in the Property (as hereinafter defined)
and covenants and agrees that, as of the execution hereof and upon the
subsequent acquisition of such furnishings, fixtures, supplies, materials, and
any other improvements and items of personal property the Mortgagor shall have,
and used in connection with the described real estate or purchase from the
proceeds of the loan contemplated hereunder, and for replacement items:
a) provide the Mortgagee with the above personal property a precise
inventory, save for all new and used vehicles and any parts inventory,
of the same, as and when acquired;
b) execute and deliver to the Mortgagee, in form appropriate for
recording and filing, financing statements on all such articles,
fixtures, equipment and materials;
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c) provide to the Mortgagee such other assurances as may be required by
the holder to establish the holder's first and prior security interest
in such fixtures, supplies, materials, and any other improvements; and
d) execute, deliver and cause to be recorded and filed from time to time,
without notice or demand, and at the mortgagor's sole cost and
expense, continuance and such priority of security in such articles,
fixtures, equipment and materials.
The above-described furnishings, fixtures, supplies, materials, and realty,
together with any and all improvements now thereon, or from time to time
thereon, and any additions thereto or replacements thereof, are herein
collectively referred to as the "Property". It is understood and agreed that the
security interest in the property delivered to the Mortgagee hereunder shall not
cover property owned by lessees and tenants in possession.
The Mortgagor covenants:
1) to perform all of the covenants and agreements contained in said note;
2) to pay before the same become delinquent and a lien against the
property (and to provide by such time evidence of such payment,
satisfactory to the holder hereof) all taxes, charges, sewer use fees,
water rates and assessments of every name and nature, whether or not
assessed against the Mortgagor, if applicable or related to the
property, or any interest therein, or the debt, obligation or any
agreement secured hereby, or the disbursements or the application of
the proceeds thereof; but the obligations of the Mortgagor under this
Section 2 contained shall not extend to any income tax or corporation
excise tax of the holder;
3) that if at any time any law or court decree prohibits the performance
of any material obligation undertaken herein by the Mortgagor, or
provides that any amount to be paid hereunder by the Mortgagor,
exclusive of principal and interest payments, must be credited against
the Mortgagor's obligations under the Note, the holder shall have the
right, on 30 days' prior written notice to the Mortgagor, to require
payment in full of the entire indebtedness secured hereby;
4) to assure the payment of all taxes, charges, sewer use fees, water
rates, assessments of every name and nature, or any other obligation
which may have or acquire priority over this Mortgage, and which are
assessed or payable with reference to the property, at the election of
the holder, if and only to the extent the loan to value ratio is more
than 80%, the Mortgagor shall deposit with the holder, on each day
when any payment under the Note is required to be made, a sum
determined by the holder to be sufficient to provide, in the
aggregate, a fund adequate to pay any such amounts 1 day at least
before the same become delinquent; and whenever the holder determines
sums accumulated under the provisions of this Section 4 to be
insufficient to meet the obligation for which such deposits were made,
the Mortgagor shall pay within 10 days of demand of
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the holder, any amount required to cover the deficiency therein; every
deposit may, at the option of the holder, be applied directly against
the obligation with reference to which it was made, or, to the fullest
extent permissible according to law, any other obligation of the
Mortgagor secured hereby; such deposits may be commingled with other
assets of the holder and, in the discretion of the holder, invested by
the holder for its own account, without any obligation to pay income
from such investment, or interest on such deposits, to Mortgagor, or
to account to Mortgagor for such income in any manner;
5) not to suffer any act in its nature capable of materially harming the
value of the mortgaged premises, irrespective of whether or not such
act may constitute waste; not to suffer to be made any material
alteration or change in the use, occupancy, or structural condition of
the mortgaged premises unless the written consent of the Mortgagee be
first obtained in each particular case; to keep all and singular the
said premises in such repair, order and condition as the same are now
in or may be in while the Mortgage is outstanding, reasonable wear and
tear only excepted; not to permit or suffer any violation of any law,
ordinance or regulation affecting the mortgaged premises or the use
thereof, except to the extent Mortgagor may in good faith contest the
validity or effect thereof by duly instituting proceedings as long as
the action underlying the same is stayed; that the Mortgagee may, in
its discretion upon reasonable notice and reasonable times, enter upon
and make repairs as in its judgment may be necessary to keep said
premises in good condition and repair, and that all money so expended
shall be secured by this Mortgage, shall draw interest at the rate
provided in the note from the date of the advance of such payment and
shall be payable by the Mortgagor to the Mortgagee at such time and in
such amounts as the Mortgagee may determine;
6) to carry with respect to the property and its use physical hazard
insurance on an "all risks" basis covering the perils of fire,
extended coverage and special extended coverage (including earthquake,
boiler explosion, collapse, costs of demolition and contingent
liability from the operation of any building laws as they may pertain
to nonconforming property) in an amount not less than 100% of the full
replacement cost of all building improvements and interests thereof
and Mortgagor's contents therein, and during the construction of any
improvements which become a part of the property, to carry insurance
in "Builder's Risk completed value (non-reporting)" form, including
all risk type coverage and to carry such liability insurance coverage
as the holder shall from time to time reasonably require; initial
minimum limits of $1,000,000.00 which limits may be reviewed annually
by Mortgagee; all insurance (with evidence of payment of premiums
thereon satisfactory to the holder) so required to be maintained,
together with any other insurance with respect to the property
maintained by the Mortgagor, shall be deposited with, and, except for
public liability coverage and except to the extent of the first
$50,000.00 in aggregate of losses payable in any calendar year, and
any other coverage the holder may determine shall not by payable to it
in case of loss, shall be first payable in case of loss to the holder;
all
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renewals or replacements of such insurance from time to time in
force together with evidence of payment of premiums thereon
satisfactory to the holder shall be delivered to the holder 1 day at
least before the expiration date of then current insurance; all
insurance required as aforesaid to be maintained with respect to the
property shall be written by such companies, on such terms, in such
form and for such periods and amounts as the holder shall from time to
time approve and shall not be cancelable or amendable without at least
15 day's prior written notice to the holder; and no settlement on
account of any loss covered by such insurance, exceeding $50, 000.00
in the aggregate in any calendar year, shall be effected without the
consent of the holder;
7) except as provided in Paragraph 6, the proceeds of any hazard
insurance shall, at the option of the holder (i) be applied to or
toward the indebtedness secured hereby in such order as the holder may
determine (in which event the Mortgagor shall be relieved of the
obligation in Section 5 of this Mortgage to the extent of the repair
of that part of the property damaged by the hazard with respect to
which insurance is paid); or (ii) if the holder shall require repair
of that part of the property so damaged by the insured hazard, the
holder shall release to the Mortgagor insurance proceeds paid to it
upon such reasonable conditions as the holder may prescribe and upon
completion of such repair shall, at the holder's option, apply any
excess insurance proceeds to or toward the indebtedness secured hereby
in such order as the holder may determine or release the same to the
Mortgagor; notwithstanding any thing in this Section 7 to the
contrary, however, if the insurer denies liability to the Mortgagor,
except where such denial is based on the negligence of the Mortgagee,
the Mortgagor shall not be relieved of any obligation under Section 5
of this Mortgage, whether or not the proceeds of insurance are applied
to or toward the indebtedness secured hereby;
8) the awards of damages on account of any condemnation for public use of
or injury to the property shall be paid to the holder; such awards
shall, at the option of the holder (i) be applied to or toward the
indebtedness secured hereby in such order as the holder may determine,
in which event the Mortgagor shall be relieved of the obligation of
Section 5 of this Mortgage to the extent of the repair of that part of
the property which remains and which has been damaged or injured by
such public action; or (ii) if the holder shall require restoration of
that part of the property which remains, the holder shall release to
the Mortgagor such awards paid to it upon such conditions as the
holder may reasonably prescribe, but not more than such portion of
such awards as may be required to repair such damage or injury; and
any balance remaining shall be applied by the holder to or toward the
indebtedness secured hereby in such order as the holder may determine;
9) to use its best efforts continuously to use and occupy the property or
cause the property to be used or occupied;
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10) except in the ordinary course of business in each instance, not to
lease the property or any substantial part thereof, without the prior
written consent of the holder; faithfully to keep, observe and satisfy
all the obligations on the part of the lessor to be kept, performed
and satisfied under every lease from time to time in force with
reference to the property, except upon default of the tenant, and not
to alter or terminate any such lease or accept rentals for more than
one month's rental in advance; and, at any time on notice from the
holder, to submit to the holder for examination all such leases and on
the demand of the holder, to assign and deliver to the holder any or
all such leases, or and upon and after an Event of Default the rents
and profits thereof, such assignments to be in form satisfactory to
the holder, but in all events to provide that the Mortgagor shall
retain the rents and profits thereof until an Event of Default occurs
in any covenant or condition in this Mortgage; and the holder shall
have the right, by the execution of suitable written instruments from
time to time, to subordinate this Mortgage, and the rights of the
holder hereunder, to any lease or leases from time to time, in force
with reference to the property, and, on the execution of any such
instrument, this Mortgage shall to the extent permitted by law be
subordinate to the lease for which such subordination is applicable
with the same force and effect as if such lease had been executed and
delivered, and a notice thereof recorded to the extent required to
give notice to third persons, prior to the execution, delivery and
recording of this Mortgage;
11) "Deleted in its Entirety"
12) that, at the option of the holder, upon the occurrence of any Event of
Default under the Note, the rate of interest stated on the face hereof
shall be increased by an additional three percent (3%) per annum above
the Rate until such amount shall be paid in full (whether before or
after judgment), said increased rate of interest shall remain in
effect for such time as the event of default continues;
13) that, from time to time, on the written request of the holder, the
Mortgagor shall furnish within 10 days of said request a written
statement, signed and, if requested, acknowledged, setting forth the
amount of the indebtedness which the Mortgagor acknowledges to be due
on the Note and under this Mortgage, specifying any claims of offset
or defense which the Mortgagor asserts against the indebtedness
secured hereby or any obligations to be paid or performed hereunder,
and the then state of facts relative to the condition of the property;
14) whether or not for additional interest or other consideration paid or
payable to the holder, no forbearance on the part of the holder or
extension of the time for the payment of the whole or any part of the
obligations secured hereby, whether oral or in writing, or any other
indulgence given by the holder to the Mortgagor or to any other party
claiming any interest in or to the property, shall operate to release
or in any manner affect the original liability of the Mortgagor, or
the priority of this Mortgage or to limit, prejudice or impair any
right of the holder, including,
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without limitation, the right to realize upon the security, or any
part thereof, for the obligations secured hereby or any of them,
notice of any such extension, forbearance or indulgence being hereby
waived by the Mortgagor and all those claiming by, through or under
the Mortgagor; and no consent or waiver, express or implied, by the
holder to or of any default by the Mortgagor shall be construed as a
consent or waiver to, or of any further default in the same or any
other term, condition, covenant or provision of this Mortgage or of
the obligations secured hereby; in case redemption is had by the
Mortgagor after foreclosure proceedings have begun, the holder shall
be entitled to collect all costs, charges and expenses incurred up to
the time of redemption; in case of foreclosure sale, the holder shall
be entitled to the costs, charges and expenses allowed under the
Statutory Power of Sale; and in case any one or more of the provisions
of this Mortgage may be found to be invalid, or unenforceable for any
reason or in any respect, such invalidity or unenforceability shall
not limit or impair enforcement of any other provision hereof;
15) that wherever notice, demand or a request may properly be given to the
Mortgagor under this Mortgage, the same shall always be sufficient to
serve as a notice, demand or request hereunder if in writing and sent
by registered or certified mail, postage prepaid, return receipt
requested, so-called express mail, private express carrier or hand
delivery, addressed to the Mortgagor at the address given in this
Mortgage as the Mortgagor's address and to the Mortgagor at 41 Meeting
House Lane, P.O. Box 327, Sagamore Beach, Massachusetts 02562; and any
such notice, demand or request shall be treated as having been given
upon receipt or tender for delivery at the notice address; and a
notice so addressed shall always be sufficient notice, notwithstanding
a change in the ownership of the equity of redemption of the property,
whether or not consented to by the holder; and where more than one
person constitutes the Mortgagor, one notice sent to the address given
in this Mortgage as the Mortgagor' s address or the last known
business address of any one of them shall constitute sufficient notice
to all;
16) the undertakings of the Mortgagor contained in Section 2 of this
Mortgage with respect to items other than the payment of real estate
taxes, sewer use fees, water rates, and assessments, shall survive the
payment of all obligations secured hereby; however, after an
acknowledgment of the satisfaction of the obligations secured hereby,
or a discharge of this Mortgage, this Mortgage shall not be security
for the performance of such undertakings, notwithstanding the survival
of the same; but, thereafter, and notwithstanding anything to the
contrary contained in the Note, this Mortgage or any other document or
instrument securing the Note, the holder shall look solely to the
Mortgagor, personally, for the performance of such undertakings;
17) that without limiting the scope and effect of other provisions of the
Mortgage, to the extent that any of the property is of a nature that a
security interest therein may be perfected under the Uniform
Commercial Code, as enacted in the
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Commonwealth of Massachusetts, this instrument shall, as of the date
of execution hereof, constitute a security agreement granting to the
holder a security interest in the property. Without limiting the
generality of the foregoing, the security interest held by the secured
party shall cover cash and noncash proceeds of that portion of the
property which is subject to a security interest. Further, with
respect to that portion of the property which is subject to a security
interest, the Mortgagor agrees with the holder as follows:
a) such portion shall continue to be free from all pledges, liens,
encumbrances and security interest or other claims in favor of
others, except in the case of purchase money security interests,
and that the Mortgagor will warrant and, at the holder's request,
defend the same from all claims and demands of all persons, and
b) such portion is to be located on the real estate which is
included as part of the property and will not be removed
therefrom without the prior written consent of the holder unless,
upon such removal, similar items of equal value are substituted
or replaced.
18) that annually, within one hundred fifty (150) days after the
expiration of each calendar year, or fiscal year, if applicable, and
at no expense to the holder, the Mortgagor shall deliver to the holder
audited financial statements for the Mortgagor, showing a true and
complete treatment of the annual operating expenses and income of the
property, and financial statements and tax returns of the Mortgagor
and any guarantors or endorsers, such statements to be in form
reasonably satisfactory to the holder;
19) that the Mortgagor will, from time to time at the holder's request,
make, execute, deliver, file and record all such instruments,
conveyances, notices, financing statements and other documents, and
take all such further action as the holder may determine to be
reasonably necessary or advisable for the better assuring and
confirming to the holder of its security interests in the property or
any part thereof, and will so execute, deliver, file and record such
instrument or instruments as the holder may request;
20) that in addition to other payments herein required, the Mortgagor
shall, at the Mortgagee's option, exercisable at any time or from time
to time, if and only to the extent the loan to value ratio exceeds
80%, now or in the future, pay to the Mortgagee monthly on the 21st
day of each month, or such other day of the month as may be designated
by the mortgagee during the term hereof, and for so long as the
Liabilities secured by this Agreement shall remain unpaid, an amount
equal to one-twelfth (1/12th) of the municipal taxes and assessments
which the Mortgagee estimates will become due and payable on account
of the Mortgaged Premises for the year next succeeding any period for
which such taxes and assessments have been paid or escrowed hereunder
sufficient, to enable Mortgagee to accumulate at
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least thirty (30) days prior to the dates upon which such municipal
taxes and assessments are payable the amounts then due and payable.
Further, the Mortgagor shall pay to the Mortgagee on demand the amount
of any deficiency of the funds so collected when the actual amount of
such taxes and assessments becomes known. The Mortgagee shall maintain
such funds in an interest bearing account which may be co-mingled with
other funds of the Mortgagee. The Mortgagee shall apply said funds to
the payment of municipal taxes and assessments, as applicable, to the
extent such amounts are determined by he Mortgagee to be due and
payable. In the event the Mortgagee collects such tax payments
hereunder, the Mortgagor shall deliver to the Mortgagee the bills
representing any such amounts within ten (10) days of the receipt
thereof by the Mortgagor. Notwithstanding the provisions of this
section, upon an occurrence of an event which is, or, solely with the
passage of time, would be, an Event of Default hereunder, the
Mortgagee shall not be required to apply such funds as provided above,
and may set off such funds against the Liabilities and apply any such
funds towards the Liabilities in accordance with the terms herein.
21) that the following are conditions of this Mortgage:
a) the covenants and agreements herein contained shall not be
breached;
b) except for real estate taxes and assessments until 1 day before
any delinquency therein (delinquency, with reference to such
taxes and assessments being hereby defined, for the purposes of
this Mortgage, as meaning the time when, on the non-payment
thereof, interest or penalties commence to accrue), not to create
any encumbrance on the property even if such encumbrance is
inferior to this Mortgage;
c) the Mortgagor shall not permit any encumbrance to exist against
the property, even if such encumbrance is inferior to this
Mortgage; without limitation, the filing of a notice of Federal
or State tax lien with the holder or at the office at which, by
law, such notice is to be filed to be effective against the
property, whether or not such lien applies, in terms, to the
property, shall be a breach of this condition; and any period of
grace in this Mortgage provided to the Mortgagor for a default in
this Mortgage shall not be applicable to the filing of such a
notice of governmental lien or to any encumbrance created by the
Mortgagor;
d) the Mortgagor shall not make or permit any transfer, sale, or
other disposition of any part or all of its interest in the
Property other than in the ordinary course of business or of any
ownership interest in the Mortgagor without the prior written
approval of the holder hereof, which said approval shall not be
unreasonably withheld. No such transfer, sale or other
disposition and no forbearance on the part of the holder or
extension of the time for the payment of the debt secured hereby
or any other
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indulgence given by the holder shall operate to release,
discharge, modify, change or affect the original liability of the
Mortgagor, nor the priority of this Mortgage either in whole or
in part, notice of such forbearance, extension or other
indulgence being herein expressly waived;
e) no ownership interest of the Mortgagor in the limited partnership
shall be transferred, without the prior written consent of the
holder, to any person other than the stockholders of the
Mortgagor in existence on the date of this Mortgage, or members
of their immediate families;
f) the Mortgagor shall not file a petition or any application for
relief, extension, moratorium or reorganization under any
bankruptcy, insolvency or debtor's relief law, or make an
assignment for the benefit of creditors or enter into any trust
mortgage arrangement, so-called, or consent to the appointment of
a receiver or any of the property of the Mortgagor; and
g) the Mortgagor shall not permit any petition under any bankruptcy,
insolvency or debtor's relief law filed against it, to remain
undischarged for a period of more than 45 days after the filing
thereof, nor shall the Mortgagor permit the continuation of any
receivership proceedings instituted against it for more than a
period of 45 days after the commencement thereof;
h) the Mortgagor shall not breach any provisions of any lease
relative to the property which would allow the lessee under said
lease to terminate the same, affecting more than 10% of the
warehouse square footage at the property in any one year;
i) the Mortgagor shall not breach any covenant contained in any loan
documents executed herewith regarding the loan described herein,
which breach has continued beyond any applicable cure or grace
period;
22) that the following are Events of Default:
a) if any payment required under the Note or this Mortgage shall not
be made when due;
b) if there shall be any breach of the conditions of Sections 21 b),
21 d), 21 e), 21 f), 21 g) and h) of this Mortgage or the
covenant in Section 4 of this Mortgage; or
c) if there shall be any breach of the condition of Section 21 c) of
this Mortgage in any respect other than the filing of a
governmental lien continuing for more than 30 days; or
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d) if there shall be any breach of the other conditions or covenants
of this Mortgage which shall exist for more than 30 days after
notice thereof from the holder (except where a period of grace is
specifically otherwise provided or negated, in which case, such
specific periods of time or negotiation shall govern);
(e) if the note secured by this Mortgage and any other obligations of
the Mortgagor or any Co-maker, Guarantor or Endorser to the
Mortgagee hereof, or assigned to or held by the Mortgagee, is
further secured by additional security, any breach in the
performance of any of the conditions contained in any of said
other security shall also constitute a breach of the conditions
of this Mortgage. Similarly, the breach of the conditions of this
Mortgage shall likewise constitute a breach of all of the said
additional security; and in the event of a foreclosure hereunder
or under said additional security, the Mortgagee shall have the
right to foreclose either this Mortgage or any of said additional
security, jointly or severally, and in such order as in the sole
opinion of the Mortgagee will be deemed best to protect the
interest of the Mortgagee in both or either of this mortgage and
said additional security; that the Mortgagee, in the event of a
foreclosure of this mortgage or of the additional security shall
have the right to offer the real estate and said additional
security for sale as a unit or separately, and, if as a unit, may
allocate any price received therefor between said real estate and
said additional security.
Upon an Event of Default, and without derogating from the rights of the
holder to demand payment of the Note in accordance with the terms of the
Note, the holder shall have the right to declare the entire indebtedness of
the Mortgagor under the Note forthwith due and payable.
For the purposes of this Mortgage, the term "default", as used in the
STATUTORY POWER OF SALE, shall mean an Event of Default, as defined herein;
23) that if there shall be any breach in any condition or covenant of this
mortgage which constitutes an Event of Default, the holder shall have the
right, but without any obligation so to do, to cure such default for the
account of the Mortgagor and, to the fullest extent permissible according
to law, apply any funds credited by or due from the holder to the Mortgagor
against the same (without any obligation first to enforce any other rights
of the holder, including, without limitation, any rights under the Note or
this Mortgage, or any guarantee thereof, and without prejudice to any such
rights); without limiting the generality of the foregoing, the Mortgagor
hereby authorizes the holder to pay all taxes, sewer use fees, water rates
and assessments, with interest, costs and charges accrued thereon, which
may at any time be a lien upon the property, or any part thereof; to pay
the premiums for any insurance required hereunder; to incur and pay
reasonable
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expenses in protecting its rights hereunder and the security hereby
granted; to pay any balance due under any Security Agreement on any
articles, fixtures, equipment and materials included as a part of the
property; and the payment of all amounts so incurred, together with
interest thereon at the annual rate specified in the Note as the interest
to be paid on the indebtedness evidenced by the Note shall be secured
hereby as fully and effectually as any other obligation of the Mortgagor
secured hereby; and, to the fullest extent permissible according to law, to
apply to any of these purposes or to the repayment of any amounts so paid
by the holder together with interest thereon any sums paid on the Note or
this Mortgage by the Mortgagor as interest or otherwise;
24) that, at any foreclosure sale, any combination, or all, of the property or
security given to secure the indebtedness secured hereby, may be offered
for sale for one total price, and the proceeds of such sale accounted for
in one account without distinction between the items of security or without
assigning to them any proportion of such proceeds, the Mortgagor hereby
waiving the application of any doctrine of marshalling; and, in case the
holder, in the exercise of the power of sale herein given, elects to sell
in parts or parcels, said sales may be held from time to time, and the
power shall not be fully executed until all of the property or security not
previously sold shall have been sold;
25) that, if the provisions of the Uniform Commercial Code as adopted in
Massachusetts are applicable to any property or security given to secure
the indebtedness secured hereby which is sold in combination with or as a
part of the property, or any part thereof, at one or more foreclosure
sales, any notice required under such provisions shall be fully satisfied
by the notice given in execution of the Statutory Power of Sale (referred
to below) with respect to the property or any part thereof;
26) that Mortgagor agrees to and hereby does indemnify and hold harmless the
holder from and against any and all loss, cost or expense including,
without limitation, any clean-up costs and fines incurred by the holder and
arising out of or in any way connected with the application of any federal,
state, County, Regional and local laws pertaining to the use, storage or
existence of hazardous or toxic materials or environmental hazard on the
property, including, without limitation, Massachusetts General Laws,
Chapter 21E and in this connection the Mortgagor covenants that the
property is not now being used and will not be used for any activities
involving, directly or indirectly, the use, generation, treatment, storage
or disposal of any hazardous or toxic chemical, material, substance or
waste, including without limitation (a) asbestos in any form; (b) urea
formaldehyde foam insulation; (c) transformers or other equipment which
contain dielectric fluid containing polychlorinated byphenyls; (d) any
other hazardous or toxic chemical, material, substance or waste, exposure
to which is prohibited, limited or regulated by any federal, state, county,
regional or local authority; in furtherance of the foregoing, Mortgagor
agrees to take all steps necessary in order to prevent any
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lien pursuant to said laws from attaching to the property or any part
thereof; the Mortgagor's liability under this Section shall survive
transfers of the property by the Mortgagor and foreclosure of this
Mortgage;
Notwithstanding any provision herein to the contrary, Mortgagor shall have
no liability hereunder (a) to holder as to any matter for which Mortgagor might
otherwise be liable hereunder which is not caused or contributed to by Mortgagor
and which is caused by or due to the negligence of the holder or (b) to any
successors or assigns of holder for any matter for which Mortgagor might
otherwise be liable hereunder, which is not caused or contributed to by
Mortgagor, and which is caused by or due to the negligence of any such successor
or assign.
The word "holder", as used herein, shall mean the Mortgagee named at the
beginning of this instrument and any subsequent holder or holders of this
Mortgage.
The word "Mortgagor", as used herein, shall mean the person named at the
beginning of this instrument as the Mortgagor, and any subsequent owner or
owners of the equity of redemption of the property (but such reference is not
intended as a consent by the holder to any transfer of such equity by the
Mortgagor to which the holder has not provided its prior written consent).
All the covenants and agreements of the Mortgagor herein contained shall be
binding upon the Mortgagor and the successors and assigns of the Mortgagor.
This MORTGAGE is upon the STATUTORY CONDITION, and upon the further condition
that all covenants and agreements of MORTGAGOR herein or contained in the note
or other collateral documents and all other conditions thereof shall be kept and
fully performed, for any breach of which the Mortgagee shall have the STATUTORY
POWER OF SALE.
Executed as a sealed instrument this 21st day of April, 1995.
EXCEL, INC.
/s/ Robert P. Madonna
--------------------------------
By: Robert P. Madonna, President and Treasurer
COMMONWEALTH OF MASSACHUSETTS
Barnstable, ss April 24, 1995
<PAGE>
-13-
Personally appeared the above-named Robert P. Madonna, President and
Treasurer, as aforesaid and acknowledged the foregoing instrument to be the free
act and deed of EXCEL, INC., before me,
/s/ Laurie A. Warren
--------------------------------
Notary Public: Laurie A. Warren
My commission expires: August 10, 1995
(SEAL)
<PAGE>
REAL ESTATE PROMISSORY NOTE
$2,600,000.00 HYANNIS, MASSACHUSETTS
April 21, 1995
The undersigned (jointly and severally if more than one) for value
received, promise to pay to the order of
CAPE COD BANK AND TRUST COMPANY (the "Bank")
at the Head Office of the Bank, at 307 Main Street, Hyannis, MA 02601, TWO
MILLION SIX HUNDRED THOUSAND AND NO/100 ($2,600,000.00) DOLLARS seven (7) years
after the date of this Note and, until this Note is paid in full, interest and
principal shall be payable as follows:
Interest only shall be payable monthly during the first six months of the
term of this Note at the annual rate of the Prime Rate of Interest as published
in the Wall Street Journal (the "Prime Rate") plus three quarters (.75%) percent
per annum (the "Rate") computed on the unpaid principal balance with the first
payment due May 21, 1995, changes in the Rate to take effect on the date changes
in the Prime Rate are published in the Wall Street Journal; and
Thereafter (the "Amortization Period") monthly payments of TWENTY-EIGHT
THOUSAND AND NO/100 ($28,000.00) DOLLARS ("Amortization Payments") shall be
payable with the first payment due on November 21, 1995 with Amortization
Payments being first applied to interest then due and the balance, if any, to
principal.
At each anniversary date the Bank reserves the right:
1. To call for an additional payment of principal equal to the amount of
the principal which would have been paid had the amortization payments been
adjusted to reflect changes in the interest note in order to maintain a fifteen
year amortization schedule; and
2. To recalculate the amortization payments in order to maintain a
fifteen year amortization schedule calculated from the date of the note.
In the event that any monthly payment due hereunder is not paid within Ten
(10) days of the due date, there shall become due hereunder, at the option of
the Bank hereof, a late charge of three and 00/100 (3.00%) percent of the amount
overdue.
The undersigned has granted to the Bank a mortgage on the following
described property to secure the payment and performance of all obligations:
<PAGE>
Land, together with the buildings thereon, situated at 60, 70 and 80
Perseverance Way, Hyannis, Massachusetts, together with certain personal
property of the undersigned.
In addition to the above property, all other property belonging to,
standing in the name of or pledged on behalf of the undersigned which is now or
may hereafter be in the possession of the Bank for any purpose, and also any
other property described in one or more agreements or mortgages which have been
or shall be delivered or caused to be delivered, to the Bank by the undersigned,
together with all additions or accessions thereto (all of the foregoing being
hereinafter called "Collateral") , shall constitute continuing security for any
and all obligations.
In the event the undersigned is in default under the terms and provisions
of the loan, or the unpaid principal and interest and other charges due the Bank
are not paid when due, including acceleration after default, then the default
rate of interest on the unpaid principal and interest then due shall be equal to
the aggregate of the Rate of interest recited herein from time to time plus
three (3.00%) percent per annum until such amount shall be paid in full (whether
before or after judgment).
In the event the Borrower pays the Note in full in or within three (3)
years from the date hereof, the Borrower shall pay the Bank an exit fee in the
amount of one-half (.50%) percent of the then outstanding principal balance.
The entries on the records of the Bank (including any appearing on this
Note) shall be prima facie evidence of the aggregate principal amount
outstanding under this note and interest accrued thereon.
The Borrower agrees that it will not permit the outstanding balance of the
Loan to exceed 80% of the Bank's then current appraised value of the portion of
the Collateral known as 60, 70 and 80 Perseverance Way, Hyannis, Massachusetts
02601. Any appraisal required by the Bank shall be performed by an appraiser of
the Banks choice and shall be at the cost of the Borrower. Notwithstanding any
provision to the contrary, in the event of a default hereunder, the Bank shall
notify the Borrower in writing and Borrower shall have 30 days to cure by
furnishing additional collateral satisfactory to the Bank.
The undersigned represents and warrants that (a) all Collateral is owned by
the undersigned or by the person(s) delivering all or any part of the property
to the Bank to be held as Collateral and is not subject to any liens, security
interests or rights of others, except those approved by the Bank in writing, and
its delivery to the Bank has been duly authorized by all necessary action, and
that (b) the Collateral is genuine and is what it purports to be.
The Bank may at its option, whether or not this note is due, demand, sue
for, collect, or make any compromise or settlement it deems desirable with
reference to any Collateral. Right is expressly granted to the Bank at its
option to transfer at any time to itself or to its nominee any securities,
documents or other property pledged hereunder and to receive the income thereon
and hold the same as security therefor, or apply it on the principal or interest
due hereon or due on
<PAGE>
any liability secured hereby. The Bank shall have no duty as to the protection
or collection of any Collateral or any income thereon, and shall be bound to
take any steps necessary to preserve any rights in any Collateral against prior
parties. The Bank shall not exercise its right to vote any voting securities
comprising Collateral unless an event of default under this note has occurred
and the Bank had notified the undersigned or successors and assigns thereof, in
writing of its intention to vote such securities.
The undersigned shall furnish the Bank from time to time, and at least
annually within one hundred fifty (150) days after the end of the Borrower's
fiscal year-end, with such financial statements as the Bank may require in form
satisfactory to the Bank. Financial information furnished to the Bank shall be
true and correct and fairly represent the financial condition of the undersigned
as of the date(s) furnished and the operating results of the undersigned for the
periods for which the same are furnished. The undersigned shall permit the
representatives of the Bank to inspect its properties and its books and records,
and to make copies or abstracts thereof.
If the undersigned, as registered Bank of securities comprising Collateral,
received (a) any dividend or other distribution in cash or other property in
connection with the liquidation or dissolution of the issuer of such securities
or (b) any stock certificate, option or right, whether as an addition to, in
substitution of, or in exchange for, such securities, or otherwise, the
undersigned agrees to accept same in trust for the Bank, and to forthwith
deliver same to the Bank in the exact form received, with the undersigned's
endorsement and/or assignment when necessary, to be held by the Bank as
collateral.
Upon the occurrence of any of the following events of default: (a) default
in the payment or performance of any of the Obligations (including any failure
to pay any installment of principal or interest hereunder when due) or of any
obligations of any Obligor to others for borrowed money or in respect of any
extension of credit or accommodation; (b) failure of any representation and
warranty hereunder or of any representation or warranty, statement or
information in any documents or financial statements delivered to the Bank for
the purpose of inducing it to make or maintain the loan under this note to be
true and correct; (c) failure of the undersigned to file any tax return, or to
pay or remit any tax, when due; (d) failure to furnish the Bank promptly on
request with financial information about, or to permit inspection by the Bank of
books, records and properties of, any Obligor; (e) any financial information
furnished to the Bank reflecting operating loss and/or total liabilities in
excess of total assets, as determined by generally accepted accounting
principles; (f) loss, theft, substantial damage, sale or encumbrance to or of
any property constituting collateral or the making of any levy, seizure or
attachment thereof or thereon or the failure to pay when due any tax thereon or,
with respect to any insurance policy, any premium therefor; (g) default under
any instrument constituting, or under any agreement relating, to Collateral; (h)
any Obligor generally not paying its debts as they become due; (i) death,
dissolution, termination of existence, business failure, appointment of a
receiver or other custodian of any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against, any Obligor; (j) change in the
condition or affairs (financial or otherwise) of any Obligor which in the
opinion of the Bank will impair its security or increase its risk (thereupon or
at any time thereafter such default not having been previously cured), at the
option of the Bank, all
<PAGE>
Obligations of the undersigned shall become immediately due and payable without
notice or demand and the Bank shall then have in any jurisdiction where
enforcement hereof is sought, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial Code of
Massachusetts.
Without limiting the foregoing and in addition thereto, a failure to pay
when due two or more installments of principal or payments of interest (whether
consecutive or not) under this note shall be a default which shall not be deemed
waived by the Bank by its acceptance of such payments.
Any sums from time to time credited by or due from the Bank to any Obligor
and any property of any Obligor in which the Bank has from time to time any
security interest or which from time to time may be in the possession of the
Bank for any purpose shall also constitute collateral for the payment or
performance of the obligations of such Obligor, and the undersigned hereby
grants the Bank a continuing security interest in such sums and property.
Regardless of the adequacy of Collateral the Bank may apply such sums or
property or realizations upon any such security interest against said
Obligations at any time in the case of a primary Obligor but only against
matured obligations in the case of a secondary Obligor.
The terms and conditions of this note and any other loan documents relating
to collateral constitute the entire agreement between the parties, and supersede
all prior agreements and understandings, both written and oral, of the Bank and
the undersigned with respect to the subject matter hereof and of any such
agreement, and may not be modified or amended except in writing and signed by
the Bank.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this note. No waiver of any right shall be effective unless in writing and
signed by the Bank nor shall a waiver on one occasion be construed as a bar to
or waiver of any such right on any future occasion.
Each obligor waives presentment, demand, notice, protest, and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this note or of any Collateral, and assents to any
extension or postponement of the time of payment or any other indulgence under
this note or with respect to any Collateral, to any substitution, exchange or
release of any Collateral, and/or to the addition or release of any other party
or person primarily or secondarily liable hereunder.
The undersigned will pay on demand all costs of collection and attorney's
fees paid or incurred by the Bank in enforcing the Obligations of any obligor.
As herein used "Obligor" means any person primarily or secondarily liable
hereunder or in respect hereto, including any person who has pledged property on
behalf of the undersigned to be held as Collateral; "Obligation" means any
obligation hereunder or otherwise of any Obligor to the Bank whether direct or
indirect, absolute or contingent, due or to become due, now existing or arising;
and "Bank" means the payee or any endorsee of this note who is in
<PAGE>
possession of it, or the bearer hereof if this note is at the time payable to
the bearer. This note shall take effect as a sealed instrument and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts. The Bank is hereby authorized, without further notice, to fill in
any blank spaces on this note, and to date this note as of the date funds are
first advanced hereunder.
EXCEL, INC.
/s/ Laurie A. Warren By: /s/ Robert P. Madonna
- ------------------------- -----------------------------
Witness Robert P. Madonna, President
and Treasurer
<PAGE>
EXHIBIT A
Three certain parcels of land together with the buildings thereon situated in
Barnstable (Hyannis), Barnstable County, Massachusetts bounded and described as
follows:
<TABLE>
<S> <C> <C>
Parcel 1: SOUTHEASTERLY by land of the Town of Barnstable as shown on
- -------- plan hereinafter referred to one hundred ten
and no/100 (110.00) feet;
SOUTHWESTERLY by LOT A-3 as shown on said plan three hundred
thirty-one and 09/100 (331.09) feet;
WESTERLY by a fifty (50) foot wide private way, known
as Perseverance Way, as shown on said plan by
two courses a total distance of one hundred
ninety and seventy-eight (190.78) feet;
NORTHWESTERLY by LOT A-1 as shown on said plan two hundred
eighty-one and 21/100 (281.21) feet; and
NORTHEASTERLY by land of the Town of Barnstable as shown on
said plan two hundred eighty-four and 36/100
(284.36) feet;
</TABLE>
Being shown as LOT A-2 and containing 90,114 square feet of land on a plan of
land entitled "Subdivision Plan of Land in Barnstable - Mass. for Park Lands
Properties Inc. Scale 1"=40' August 24, 1974 John P. Doyle, R.L.S." which said
plan is filed with the Barnstable County Registry of Deeds in Plan Book 291,
Page 27.
<TABLE>
<S> <C> <C>
Parcel 2: NORTHERLY by Lot A-2 as shown on said plan three hundred
- -------- thirty-one and 09/100 (331.09) feet;
EASTERLY by Independence Drive and by land of the Town
of Barnstable on three courses a total
distance of four hundred fifty-three and
18/100 (453.18) feet;
SOUTHWESTERLY by Lot A-4 as shown on said plan three hundred
sixty-six and no/100 (366.00) feet; and
NORTHWESTERLY by the arc of Perseverance Way eighty-one and
60/100 (81.60) feet;
</TABLE>
Being shown as LOT A-3 and containing 90,127 square feet of land on said plan.
<TABLE>
<S> <C> <C>
Parcel 3: NORTHERLY by Perseverance Way as shown on said plan
- -------- eighty-five and 77/100 (85.77) feet;
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
EASTERLY by Lot A-3 as shown on said plan three hundred
sixty-six and no/100 (366.00) feet;
SOUTHEASTERLY by Independence Drive as shown on said plan
thirty-eight and 29/100 (39.29) feet;
SOUTHERLY by land now or formerly of Park Lands
Properties Inc. as shown on said plan four
hundred forty-six and 30/100 (446.30) feet;
and
WESTERLY by Lot A-5 as shown on said plan three hundred
fifty-eight and 36/100 (358.36) feet;
</TABLE>
Being shown as LOT A-4 and containing 90,012 square feet on said plan.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 23, 1997
