<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BOX HILL SYSTEMS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW YORK 3572 13-3460176
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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161 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10013
(212) 989-4455
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PHILIP BLACK
CHIEF EXECUTIVE OFFICER
BOX HILL SYSTEMS CORP.
161 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10013
(212) 989-4455
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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LEO SILVERSTEIN, ESQ. JOHN W. WHITE, ESQ.
BROCK, FENSTERSTOCK, CRAVATH, SWAINE & MOORE
SILVERSTEIN, MCAULIFFE & WADE, LLC WORLDWIDE PLAZA
ONE CITICORP CENTER, 56TH FLOOR 825 EIGHTH AVENUE
(212) 371-2000 NEW YORK, NEW YORK 10019
(212) 474-1000
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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 of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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. [ ]
CALCULATION OF REGISTRATION FEE
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================================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE
OF SECURITIES TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value................ * * $60,000,000 $18,182
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(1) Includes * shares which the Underwriters have the option to purchase to
cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JULY 23, 1997
PROSPECTUS
SHARES
BOX HILL SYSTEMS CORP.
COMMON STOCK
($.01 PAR VALUE)
Of the shares of common stock, $.01 par value per share (the "Common
Stock"), of Box Hill Systems Corp. ("Box Hill" or the "Company") offered hereby
(the "Shares"), shares are being issued and sold by the Company and
shares are being sold by certain shareholders of the Company (the
"Selling Shareholders"). The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Shareholders. See "Principal
and Selling Shareholders."
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. It is currently anticipated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol " ," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES BEING OFFERED
HEREBY.
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) PROCEEDS TO
SELLING
SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(2)....................... $ $ $ $
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(1) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(2) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of additional shares of
Common Stock at the Price to Public less the Underwriting Discount solely to
cover over-allotments, if any. If the Underwriters exercise such option in
full, the total Price to Public, Underwriting Discount, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC MONTGOMERY SECURITIES
The date of this Prospectus is , 1997.
<PAGE> 3
[PHOTOGRAPHS OF THE COMPANY'S PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING AND SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF
A PENALTY BID. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Certain statements contained in this "Prospectus Summary" and in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," including statements regarding the
anticipated development and expansion of the Company's business, the intent,
belief or current expectations of the Company, its directors or its officers,
primarily with respect to the future operating performance of the Company and
the products it expects to offer and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the factors set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information, financial statements,
including the notes thereto, and pro forma financial information appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the information set forth under "Risk Factors." Unless otherwise stated, or
unless the context otherwise requires, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. All share totals
stated herein reflect a 3.3-for-1 stock split which will occur in connection
with the Offering. See "Glossary" for the Company's definitions of certain terms
and acronyms used herein.
THE COMPANY
Box Hill designs, manufactures, markets and supports high-performance data
storage systems for the Open Systems computing environment. The Company's
storage solutions encompass a broad range of scalable products and services
targeting high-end customers who demand high performance, high availability and
the highest level of customer and technical support. The Company has a history
of providing storage solutions that meet these requirements by combining
extensive design and implementation experience with leading edge technologies.
The Company was among the first to develop and successfully commercialize a
hot-swappable SCSI Disk Array storage system and a Redundant Array of
Inexpensive/Independent Disks ("RAID") storage system for UNIX. In addition, the
Company recently introduced the Fibre Box(R), one of the first Fibre Channel
storage systems, and is finalizing the development of its X/ORaid(TM) Module,
which takes advantage of the new RAID capabilities that are currently being
embedded in Fibre Channel drives. Box Hill is also a leader in providing
comprehensive "best of breed" backup solutions to the Open Systems marketplace.
Demand for the Company's products, which are targeted to the high end of
the Open Systems market, is fueled by the rapid proliferation of new
data-intensive applications, such as video, the Internet, intranets, multimedia,
data warehousing and data mining, as well as the migration of mission-critical
applications off mainframe computers. This market is characterized by large
capacity UNIX and Windows NT servers operating in multi-platform environments,
generally running mission-critical applications. International Data Corporation
("IDC"), an independent market research firm, estimates that the worldwide
market for RAID storage systems in UNIX environments will grow at a compounded
annual growth rate of 19.3%, increasing from $6.3 billion in 1996 to $12.9
billion in 2000. In addition, IDC estimates that the worldwide market for RAID
storage systems in Windows NT environments will grow at a compounded annual
growth rate of 34.1%, increasing from $1.3 billion in 1996 to $4.3 billion in
2000.
The Open Systems market's current storage options include Disk Arrays, RAID
storage systems and tape backup systems, each of which are generally attached to
hosts by the Small Computer Systems Interface ("SCSI"). Fibre Channel, an
emerging high-speed serial interface that has recently become commercially
available, enables the transfer of data between computers and peripherals at
substantially increased rates, over greatly increased cabling lengths and among
a greater number of host/device connections. Fibre Channel also enables industry
standard RAID functionality to be efficiently embedded
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<PAGE> 5
directly onto Fibre Channel disk drives, thereby eliminating the necessity for
traditional RAID approaches that include CPU-intensive software RAID or an
additional hardware RAID controller. In addition, the Company envisions the
development of storage area networks ("SAN"s), enabled principally by Fibre
Channel and "clustering" software, such as Microsoft's "Wolfpack," that will add
networking capabilities to storage devices.
The Company's family of products and services is intended to provide
high-end users in the Open Systems market with the following benefits: (i)
faster response times, greater capacities, higher availability of data and
minimum system downtime; (ii) reliable, high quality, well-integrated backup
systems designed to satisfy customers' individual needs; (iii) all-encompassing
solutions, including design consulting, installation, integration, training and
comprehensive, 24-hour, post-sales service and technical support, as well as
software-based management tools; (iv) systems specifically designed to be
compatible with a variety of UNIX and Windows NT platforms; and (v) scalable
systems designed to satisfy the changing information technology needs of
customers.
The Company employs a direct marketing strategy targeted at data-intensive
industries, which to date primarily include financial services,
telecommunications, health care, government/defense and academia. Some of the
Company's customers include Merrill Lynch, Smith Barney, AT&T, Bell Atlantic,
Lucent Technologies, Bristol-Meyers Squibb, Merck & Co., Lockheed Martin, NASA,
Columbia University and Rutgers University.
Box Hill's objective is to continue its growth and enhance its position as
a leading independent provider of storage solutions to the Open Systems
marketplace. To achieve this objective, the Company plans to build upon its
record of successfully introducing and commercializing new products and
technologies that address the evolving data storage needs of its high-end
customer base. Key elements of this strategy are to maintain technological
leadership and innovation, focus on high-end markets in target industries,
expand geographically, focus on direct sales to end users and develop
relationships with OEM customers.
The Company was incorporated in New York in April 1988. Its executive
offices are located at 161 Avenue of the Americas, New York, NY 10013, its
telephone number is (212) 989-4455 and its address on the Internet is
http://www.boxhill.com.
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<PAGE> 6
THE OFFERING
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Common Stock Offered:
By the Company...................................... shares
By the Selling Shareholders......................... shares
Total....................................... shares
Common Stock Outstanding After the Offering(1)........ shares
Use of Proceeds....................................... The net proceeds to the Company from
the Offering will be used principally
to fund the Company's growth and
expansion plans, increase working
capital and for other general
corporate purposes. In addition, a
portion of the net proceeds will be
used to distribute to the current
shareholders the previously taxed,
but undistributed, S Corporation
earnings, which, as of March 31,
1997, were approximately $9,954,000.
See "Use of Proceeds."
New York Stock Exchange Symbol........................
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(1) Excludes 1,462,547 shares of Common Stock issuable upon exercise of
outstanding stock options. See "Management -- Incentive Program" and Note 5
of Notes to the Company's Financial Statements.
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares being offered
hereby.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
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THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues...................................... $27,608 $44,956 $55,232 $40,225 $50,027 $11,099 $15,232
Cost of goods sold................................ 17,018 26,453 33,568 24,067 33,028 6,896 10,019
------- ------- ------- ------- ------- ------- -------
Gross profit...................................... 10,590 18,503 21,664 16,158 16,999 4,203 5,213
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation.............. 6,021 12,608 15,174 9,067 6,347 1,738 2,040
Engineering and product development............. 659 975 1,420 1,634 2,071 557 465
Sales and marketing............................. 955 1,569 2,405 3,150 5,325 1,156 1,548
General and administrative...................... 526 831 1,351 1,931 2,348 472 626
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......................... 8,161 15,983 20,350 15,782 16,091 3,923 4,679
------- ------- ------- ------- ------- ------- -------
Operating income.................................. 2,429 2,520 1,314 376 908 280 534
Interest expense (income), net.................... (16) (80) 62 33 (144) (14) (11)
------- ------- ------- ------- ------- ------- -------
Income before income taxes........................ 2,445 2,600 1,252 343 1,052 294 545
Income taxes(1)................................... 238 459 426 311 226 63 81
------- ------- ------- ------- ------- ------- -------
Net income(1)..................................... $ 2,207 $ 2,141 $ 826 $ 32 $ 826 $ 231 $ 464
======= ======= ======= ======= ======= ======= =======
Pro forma income before income taxes(2)........... $ 6,124 $ 1,713 $ 2,266
Pro forma income taxes(3)......................... 2,358 660 872
------- ------- -------
Pro forma net income.............................. $ 3,766 $ 1,053 $ 1,394
======= ======= =======
Pro forma net income per share(4)................. $ $ $
======= ======= =======
Shares used in computing pro forma net income per
share(4)........................................
======= ======= =======
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AS OF MARCH 31, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 3,346 $ 3,346 $
Working capital (deficit)................................................ 8,547 (959)
Total assets............................................................. 22,137 22,654
Shareholders' equity (deficit)........................................... 9,233 (204)
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(1) For the periods presented, the Company was an S Corporation and,
accordingly, was not subject to federal and state income taxes. Income taxes
consist of New York City taxes and state franchise taxes.
(2) Pro forma income before income taxes reflects a pro forma adjustment to
reduce shareholder officers' compensation expense to reflect recently
executed employment agreements with the Company's three shareholder officers
which extend through December 31, 2000. The agreements provide for combined
minimum annual base compensation of $1,275,000. In addition, the shareholder
officers are eligible for a combined annual bonus equal to 1.0% of the
Company's net revenues in excess of $100,000,000, plus 8.0% of the Company's
income before income taxes in excess of $20,000,000. See Notes 2 and 8 of
Notes to the Company's Financial Statements and "Management -- Employment
and Compensation Agreements."
(3) Pro forma income taxes have been computed as if the Company was subject to
federal and state income taxes for all periods presented, based on the tax
laws in effect during those periods. See Note 2 of Notes to the Company's
Financial Statements.
(4) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the respective
periods, adjusted for the effect of dilutive common stock options, and after
giving effect to the estimated number of shares that would be required to be
sold (assuming an initial public offering price of $ per share) to
fund a distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954,000 had such
distribution occurred on March 31, 1997. See Note 2 of Notes to the
Company's Financial Statements and "Termination of S Corporation Status and
Dividend Policy."
(5) Adjusted to give pro forma effect to (i) a final S Corporation distribution
to the current shareholders, representing all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954,000 had such
distribution occurred on March 31, 1997 and (ii) a net deferred tax asset
which will be recorded by the Company as a result of the termination of its
S Corporation status, estimated at $517,000 had such termination occurred on
March 31, 1997. See Note 2 of Notes to the Company's Financial Statements
and "Termination of S Corporation Status and Dividend Policy."
(6) Adjusted to give effect to (i) the pro forma adjustments described in (5)
above and (ii) the sale by the Company of shares of Common Stock
(assuming an initial public offering price of $ per share) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
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<PAGE> 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the intent, belief or
current expectations of the Company, its directors or its officers, primarily
with respect to the future operating performance of the Company and the products
it expects to offer and other statements contained herein regarding matters that
are not historical facts, are "forward-looking" statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995). Because such
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the risk factors set forth below
before making an investment in the Common Stock.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS; INTRODUCTION OF FIBRE
CHANNEL PRODUCT LINE
The Open Systems storage market in which the Company operates is
characterized by rapid technological change, frequent new product introductions
and evolving industry standards. Customer preferences in that market are
difficult to predict. The introduction of products embodying new technologies by
the Company's competitors and the emergence of new industry standards could
render the Company's existing products as well as new products being introduced,
such as the Fibre Box(R), its recently introduced Fibre Channel storage system,
obsolete and unmarketable. The Company's success will depend upon its ability to
address the increasingly sophisticated needs of its customers and to develop and
introduce, on a timely basis, new competitive products (including new software
and enhancements to existing software) that keep pace with technological
developments and emerging industry standards and to enhance existing products.
The introduction of new and enhanced products such as the Fibre Box(R) also
requires that the Company manage transitions from older products in order to
minimize disruptions in customer orders and ensure that adequate supplies of new
products can be delivered to meet customer orders. There can be no assurance
that the Company will be successful in identifying, managing, developing,
manufacturing or marketing product enhancements or new products that respond to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction or marketing of such products, or that its new products and product
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. Further risks inherent in new product introductions
include the uncertainty of price performance relative to products of
competitors, including competitors' responses to new introductions. The
Company's business and operating results could be materially and adversely
affected if the Company were to be unsuccessful, or to incur significant delays,
in developing and introducing new products or enhancements.
The Company has begun shipping the Fibre Box(R) principally for customer
evaluation and has made limited sales to date. The Company does not anticipate
commencing significant commercial shipment of the Fibre Box(R) until 1998.
Currently, Fibre Box(R) is compatible only with Windows NT platforms, and there
can be no assurance that the Company will be successful in modifying the Fibre
Box(R) and its key components to be compatible with any of the UNIX platforms.
Moreover, the X/ORaid(TM) Module, a future optional component of the Fibre
Box(R) product line which activates RAID processors embedded on the Fibre
Channel disk drives, is currently in development, and there can be no assurance
that the Company will be successful in bringing it to market. The failure of the
Fibre Box(R) and other new products to
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<PAGE> 9
adequately meet current preferences of the marketplace or achieve market
acceptance could have a material adverse effect on the Company's business,
financial position and results of operations. See "Business -- Current and
Emerging Technologies."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS OF KEY COMPONENTS
The Company relies on other companies to supply certain key components of
its products that are available only from limited sources in the quantities and
quality demanded by the Company. The Company purchases substantially all of its
disk drives and all of its Fibre Channel drives from Seagate Technology, Inc.
("Seagate"), its DLT tape drives only from Quantum Corporation ("Quantum") and
its hardware RAID controllers only from CMD Technology, Inc. ("CMD").
Approximately 35.6%, 52.7% and 42.0% of the Company's raw material purchases
were from Seagate and approximately 13.8%, 16.5% and 11.0% of the Company's
total raw material purchases were from Quantum in the years ended December 31,
1995 and 1996 and for the three months ended March 31, 1997, respectively. In
addition, the Company purchases substantially all of its raw materials pursuant
to purchase orders, rather than pursuant to long term purchase agreements, and
maintains minimum inventory levels. Quantum is the only supplier of DLT tape
drives, which are currently in tight supply, and Seagate is the only
manufacturer and distributor of Fibre Channel drives. If the Company faced a
shortage of DLT tape drives or Fibre Channel drives, manufacture and shipment of
certain of the Company's products could be delayed indefinitely, as long as
there continue to be no alternative sources of supply. Even if alternative
sources of supply became available, the incorporation of such components from
alternative suppliers and the manufacture and shipment of such products could be
delayed while modifications to such products and accompanying software were made
to accommodate the introduction of alternative suppliers' components. The
Company has experienced a shortage of DLT tape drives in the past, and there can
be no assurance that the Company will not experience shortages of these or other
components in the future. Although hardware RAID controllers are available from
other sources, the Company estimates that replacing CMD's hardware RAID
controllers with those of another supplier would involve several months of
hardware and software modification. The Company's reliance on the limited number
of suppliers for key components of its products, the absence of long term
purchase agreements in connection therewith, the fact that the Company maintains
minimum inventory levels and the fact that there is currently a significant
market demand for disk drives, tape drives and hardware RAID controllers involve
several risks in addition to inadequate supply. These risks include the
potential for price increases, selective supply allocations, late deliveries and
poor component quality. They are particularly significant with respect to
suppliers of disk drives because, in order to meet product performance or
individual customer requirements, the Company must obtain disk drives with
extremely high quality and capacity. There can be no assurance that the Company
will not experience shortages of key components in the future or that the
Company will not be subject to selective supply allocations and increased prices
of components. Any shortage of key components and any delay or other difficulty
in obtaining such components from other suppliers and integrating them into the
Company's products could materially and adversely affect the Company's business,
financial position and results of operations.
CONCENTRATION OF CUSTOMERS IN TARGETED INDUSTRIES AND THE UNIX MARKETPLACE
The Company has historically targeted industries requiring high-end storage
products, and a material portion of the Company's revenues to date has been
derived from sales to customers in the financial services industry and the
telecommunications industry. In 1995, direct sales to customers in the financial
services and telecommunications industries constituted 55% and 9%, respectively,
of Box Hill's net revenues and in 1996 42% and 18%, respectively. An economic
downturn in any industry targeted by the Company with a material concentration
of customers could result in a material decrease in revenues. In 1994, a severe
downturn in the bond market caused several of the Company's large customers in
the financial services industry to reduce significantly their purchasing. This
contributed to a material decrease in revenues of 27% from 1994 to 1995.
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<PAGE> 10
In addition, historically, a material percentage of the Company's revenues
in each year has been derived from a limited number of customers. For example,
in 1995, the Company's top five customers, including distributors, accounted for
approximately 36% of the Company's total net revenues (a reduction from 45% in
1994). Similarly, in 1996, sales to the top five customers (some of which were
different from the top five in 1995) represented approximately 36% of the
Company's total net revenues. In 1995, two customers (a major investment banking
firm and a distributor in Tokyo) were each responsible for more than 10% of the
Company's revenues (24% in the aggregate). In 1996, no customer was responsible
for 10% or more of the Company's revenues, but in the first quarter of 1997,
direct sales to Lucent Technologies Inc. and AT&T Corp. represented, in the
aggregate, approximately 22% thereof. The Company generally does not enter into
long-term contracts with its customers, and customers generally have certain
rights to extend or delay the shipment of their orders or cancel orders without
penalty. Loss of any one or more principal customers or a material decrease in
their orders could materially and adversely affect the Company's business,
financial position and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Substantially all of the Company's revenues to date have been concentrated
in the UNIX marketplace, and within the UNIX marketplace, a significant portion
of the Company's revenues are associated with versions of UNIX manufactured by
Sun Microsystems, Inc. ("Sun Microsystems"). If Sun Microsystems were to change
its policy of supporting Open Systems computing environments and if the
Company's products were thereby rendered incompatible with Sun Microsystems'
products, the Company's business, financial position and results of operations
could be materially and adversely affected.
DIFFICULTIES IN MANAGING GROWTH
The Company's growth and expansion may place a significant strain on its
administrative, operational and financial resources and increased demands on its
manufacturing, sales and customer service functions, especially as the Company
attempts to expand its geographic reach and becomes less reliant on the
financial services and telecommunications industries. The Company's operations
have been based in New York City since its incorporation, and its sales have
been effected primarily in the northeastern region of the United States. The
opening of new offices may result in the loss of benefits derived from the
concentration of marketing and technical support in the Company's New York
office and the close proximity of such resources to a significant portion of its
customer base. To manage its growth effectively, the Company will need to hire,
train, motivate and manage new management, technical and sales employees. In
connection with its planned geographical expansion, the Company will incur
travel, telecommunications and other incremental costs, as well as increased
human resources costs. The failure by the Company to generate sufficient
revenues to offset the costs of geographical expansion could have a material
adverse effect on the Company's business, operating results or financial
condition. If the Company is able to successfully execute its expansion plans
but growth in demand for its products increases at a significantly higher rate
than anticipated, the Company may lack the production capacity necessary to
satisfy such demand in a timely fashion and its customers may experience
manufacturing or delivery delays or interruptions in service and support which
could have a material adverse effect on the Company's business and financial
position. This risk may be exacerbated by the fact that the Company does not
have long term purchase agreements with customers and maintains minimal
inventory levels, making it difficult for the Company to forecast demand for its
products, optimize utilization of manufacturing capacity and avoid the
possibility that the Company's resources may be excessively burdened from time
to time if customers place orders for substantially more products than they
customarily require. There can be no assurance that the Company will be able to
manage expansion successfully or that the Company's infrastructure, including
but not limited to its systems, procedures and controls, will be adequate to
support such expansion. In addition, there can be no assurance that the Company
will be able to achieve commercial success and maintain client service and
support in a geographically expanded area of operations at levels that it
historically achieved and provided in a geographically concentrated area.
9
<PAGE> 11
COMPETITION
The market for Open Systems storage is intensely competitive. The Company
competes primarily with traditional suppliers of computer systems such as Compaq
Computer Corporation, Hewlett-Packard Company ("Hewlett-Packard"), Sun
Microsystems, International Business Machines Corporation ("IBM"), Data General
Corporation and Digital Equipment Corporation, which market storage systems as
well as other computer products. The Company also competes against independent
storage system suppliers to the high-end Open Systems market, including EMC
Corporation, Network Appliance, Inc., Ciprico Inc. and MTI Technology
Corporation ("MTI"). In the area of tape backup, the Company competes with
suppliers of tape-based storage systems such as Datalink Corporation, MTI and
numerous resellers.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or devote greater resources
to the development, promotion and sale of products than the Company, or to
deliver competitive products at a lower end-user price. The Company also expects
that competition will increase as a result of industry consolidations. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition.
COMPETITIVE PRICING
Competitive pricing pressures exist in the data storage market, and have
had and may in the future have an adverse effect on the Company's revenues and
earnings. There also has been, and may continue to be, a willingness on the part
of certain large competitors to reduce prices in order to preserve or gain
market share, which cannot be foreseen by the Company. The Company believes that
pricing pressures are likely to continue as competitors develop more competitive
product offerings.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its officers and other key management and technical
personnel, particularly engineers, many of whom would be difficult to replace.
The Company's employees, including several members of its management team, may
voluntarily terminate their employment with the Company at any time, and
competition for qualified employees in the data storage industry is intense. The
Company has employment agreements with Dr. Benjamin Monderer and Ms. Carol
Turchin (who are husband and wife) and Mr. Mark Mays that run through December
31, 2000. Dr. Monderer, the Company's President, Chairman of the Board and Chief
Technical Officer, Ms. Turchin, a Director and Executive Vice President of the
Company, and Mr. Mays, a Director, Vice President and Secretary of the Company,
are co-founders of the Company. Although the employment agreements with each of
these officers and the Company's Compensation Plan and Agreement with Mr. Philip
Black, its Chief Executive Officer, contain non-competition and confidentiality
agreements (see "Management" and "Principal and Selling Shareholders"), there
can be no assurance that these provisions will be enforceable in whole or in
part. In addition, the Company does not maintain key-person insurance on any
executive officer in the Company. The loss of any employee who is critical to
the Company's success could have a material adverse effect on the business,
financial position and results of operations of the Company. In addition, the
Company's future operating results depend in part upon its ability to attract,
train, retain and motivate qualified management, technical, manufacturing, sales
and support personnel for its operations. Competitive factors that could affect
the Company's ability to attract and retain such personnel include compensation,
benefits, equity incentives and geographic location. There can be no assurance
that the Company will be successful in attracting or
10
<PAGE> 12
retaining such key personnel, and the failure of the Company to recruit and
retain additional key personnel could materially and adversely affect the
Company's business, financial position and results of operations. See
"-- Difficulties in Managing Growth," "Business -- Employees" and "Management --
Employment and Compensation Agreements."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF
INFRINGEMENT
The Company has no patent protection for its products and has attempted to
protect its proprietary software and other intellectual property rights through
copyrights, trade secrets and other measures. There can be no assurance,
however, that the Company will be able to protect its proprietary software and
other intellectual property rights adequately or that competitors, all of whom
have legitimate access to any non-proprietary technical standards utilized by
the Company in any of its products or systems (such as those established by the
American National Standards Institute ("ANSI")) will not be able to develop
similar technology independently. For example, a number of the Company's
competitors are producing or plan to produce products that incorporate Fibre
Channel technology.
The Company may from time to time be notified by third parties that it may
be infringing patents owned by or proprietary rights of third parties, although
no such claims are currently pending against the Company. If necessary, the
Company may have to seek a license under any such patent, or redesign or modify
its products and processes in order to avoid infringement of such patents. There
can be no assurance that such a license would be available on acceptable terms,
if at all, or that the Company could so avoid infringement of such patents, in
which case the Company's business, financial position and results of operations
could be materially and adversely affected.
There has been substantial litigation in the computer industry regarding
intellectual property rights, and litigation may be necessary to protect the
Company's proprietary technology. It is also possible that companies in the
storage system market will increasingly be subject to infringement claims as the
number of products and competitors in the Company's target markets grows. Any
such claims or litigation may be time-consuming and costly, cause product
shipment delays, require the Company to redesign or modify its products or
require the Company to enter into royalty or licensing agreements, any of which
could have a material adverse effect on the Company's business, operating
results or financial condition. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology or duplicate the Company's products or design. See
"Business -- Proprietary Technology and Intellectual Property."
DEPENDENCE ON SINGLE FACILITY
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to manufacture
and deliver products promptly upon the receipt of orders and to provide prompt
and efficient service to its customers. As a result, any disruption of the
Company's day-to-day operations could have a material adverse effect upon the
Company. The Company's operations, including manufacturing, research, marketing,
customer service and distribution functions, are based in and managed from a
single facility in New York City. A fire, flood, earthquake or other disaster or
condition affecting the Company's facility could disable these functions. Any
such damage to, or other condition interfering with the operation of, this
facility would have a material adverse effect on the Company's business,
financial position and results of operations. See "Business -- Facilities."
11
<PAGE> 13
FLUCTUATIONS IN OPERATING RESULTS
The Company believes that its operating results may continue to fluctuate
annually and quarterly (and within quarters) due to a variety of factors, some
of which are beyond the Company's control, including: the level of competition
and the development of new products by competitors; developments and changes in
storage technology; levels of expenditures on research and development; the
ability of the Company to develop and introduce new products and product
enhancements on a timely basis and within the allocated budget; the Company's
success in expanding its sales and marketing programs, including its strategy to
increase OEM sales; acceptance of and demand for the Company's products
(including the Company's recently introduced Fibre Box(R) and any other new
products and product enhancements); changes in customers' storage requirements
or purchasing policies with respect to equipment and services related thereto;
the size, timing, cancellation or rescheduling of significant orders;
postponements or deferrals of orders for new products in anticipation of new
products or product enhancements; the mix of products and systems sold; changes
in pricing by the Company or any of its competitors; component costs and
availability, particularly with respect to those components for which the
Company has only one supplier; changes in Company strategy; general economic
trends; and other factors. For the years ended December 31, 1994, 1995 and 1996,
net revenues of the Company were $55.2 million, $40.2 million and $50.0 million,
respectively, and operating income of the Company before shareholder officers'
compensation was $16.5 million, $9.4 million and $7.3 million, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company establishes expenditure levels for product development and
other operating expenses based in large part on expected future revenues.
However, for all of the reasons set forth above and because the market for the
Company's products is rapidly evolving and purchase decisions by customers may
be affected by budgetary considerations, sales for any future quarterly or
annual period cannot be predicted with a significant degree of accuracy and
period-to-period comparisons should not be relied upon as indications of future
performance. The Company experienced increases in revenues at the end of each
quarter of 1996 and at the end of the first quarter of 1997. If revenues fall
below expected levels, expenditure levels could be disproportionately high as a
percentage of revenues and operating results could be materially and adversely
affected. Fluctuations in operating results could result in volatility in the
price of the Common Stock.
WARRANTY EXPOSURE
Products offered by the Company may contain defects in hardware, software
or workmanship that remain undetected or that may not become apparent until
after commercial shipment. As a general policy, the Company ships replacement
hardware components to customers in advance of receiving returns of defective
components under a standard warranty, which runs from one to five years. The
Company occasionally issues credit in lieu of replacing a piece of equipment.
Any loss or delay in customer or market acceptance attributable to such defects
or any material replacement or repair expenses due to any such defects could
have a material adverse effect on the Company's business, financial position and
results of operations.
The Company's standard warranties as to hardware products generally mirror
those the Company receives from its component suppliers. To the extent that the
Company designs and manufactures its own subassemblies, its own warranty is not
supported by a supplier warranty. If a supplier were to fail to meet its
warranty obligations to the Company, and to the extent that the Company designs
and manufactures it own subassemblies, the Company would be liable to its
customers under its own warranty. The Company's standard warranty also contains
a cap on damages and an exclusion of liability for consequential damages and for
negligent or improper use of the product. It is possible that the limitation of
liability provisions contained in the Company's warranties will not be
enforceable. There can be no assurance that suppliers will be willing or able to
cover warranty costs to the Company or its end users, that the Company's
warranty costs will not be significant in the future, or that the limitation of
liability provisions will be enforceable. Any such failure of a supplier to
honor its warranty obligations or
12
<PAGE> 14
failure of liability limitations to be enforceable could have a material adverse
effect on the Company's business, financial position and results of operations.
See "Business -- Customer Service and Support."
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has not designated any specific use for a substantial portion
of the net proceeds payable to the Company from the sale of Common Stock
described in this Prospectus. The Company will use a portion of the proceeds to
distribute to the current shareholders all of the previously taxed, but
undistributed, S Corporation earnings of the Company. As of March 31, 1997, this
amount is estimated at $9,954,000. The actual amount of the distribution will be
adjusted to reflect the taxable income and any shareholder distributions from
April 1, 1997 through the termination of the S Corporation status. The Company
intends to use the balance of the net proceeds payable to the Company primarily
to fund its growth and expansion generally and to increase the Company's working
capital and for general corporate purposes which the management of the Company
will determine from time to time. Accordingly, the Board of Directors and
management of the Company will have significant flexibility in applying such
remaining proceeds of the Offering. The failure of the Company's management to
use such funds effectively could have a material adverse effect on the Company's
business, financial position and results of operations. See "Use of Proceeds"
and "Termination of S Corporation Status and Dividend Policy."
CONTROL BY CURRENT SHAREHOLDERS
Immediately following the consummation of the Offering, the three current
shareholders of the Company, each of whom is an officer and director of the
Company, will own beneficially approximately % of the outstanding
Common Stock (approximately % if the Underwriters' over-allotment
option is exercised in full), based on shares outstanding at the date of the
Prospectus. These shareholders will be able to elect a majority of the Company's
Board of Directors and approve all matters requiring shareholder approval, and
will have significant control over the Company and the conduct of its business.
Such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of the Company. See "Principal and Selling
Shareholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or, if one develops, that it will be maintained. The
initial public offering price, which was established by negotiations among the
Company, the Selling Shareholders and the representatives of the Underwriters
(the "Representatives"), may not be indicative of prices that will prevail in
the trading market for the Common Stock. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
In addition, the market price of the Common Stock may be volatile. Factors such
as fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
developments with respect to the proprietary rights of the Company or its
competitors, and general market conditions may have a significant effect on the
market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALES
Immediately following the consummation of the Offering, the Company will
have outstanding shares of Common Stock ( shares outstanding
if the Underwriters' over-allotment option is exercised in full), including
outstanding shares of Common Stock beneficially owned by the current
shareholders. The shares of Common Stock to be sold by the Company and
the Selling Shareholders pursuant to the Offering ( if the
Underwriters' over-allotment option is exercised in full) will be eligible for
sale without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), in the public market after the consummation of the Offering.
Sales of the remaining shares will be subject to Rule 144 under the
Securities Act. The holders thereof have agreed with the Underwriters not to
offer, sell, pledge or otherwise dispose of any shares of Common
13
<PAGE> 15
Stock for a period of 270 days after the date of this Prospectus without the
prior written consent of Salomon Brothers Inc. Additionally, the Company and the
officers and directors who are not Selling Shareholders have agreed not to issue
and sell (other than issuances by the Company pursuant to the Incentive Program
and other than bona fide gifts to persons who agree in writing to be bound by
the terms of such restrictions) any shares of Common Stock or other equity
securities of the Company for a period of 180 days after the date of this
Prospectus without the prior written consent of Salomon Brothers Inc. Following
the expiration or waiver of the foregoing restrictions on dispositions,
shares of Common Stock owned by the current shareholders, each of whom
is an affiliate of the Company, will be available for sale into the public
market pursuant to Rule 144 (including the volume and other limitations set
forth therein) and could impair the Company's future ability to raise capital
through an offering of its equity securities. Sales of substantial amounts of
Common Stock of the Company in the public market, or the prospect of such sales,
could materially and adversely affect the market price of the Common Stock. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Common Stock pursuant to the Offering will
experience immediate and substantial dilution in the net tangible book value per
share of Common Stock from the initial offering price. See "Dilution."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Business Corporation Law of the State of New York
("NYBCL") could have the effect of making it more difficult for a third party to
acquire, and as a result discourage a third party from attempting to acquire,
control of the Company. 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.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the Offering (assuming an initial
public offering price of $ per share), after deducting estimated
underwriting discount and expenses of the Offering payable by the Company, will
be approximately $ . The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Shareholders. The principal
purposes of this Offering are to fund the Company's growth and expansion
generally, increase the Company's working capital and equity base, provide a
public market for its Common Stock, provide liquidity to shareholders and
facilitate future access to the public capital markets. The Company also plans
to use a portion of the net proceeds of this Offering payable to the Company to
fund the final S Corporation distribution to the current shareholders. This
distribution will constitute all of the previously taxed, but undistributed, S
Corporation earnings through the consummation of the Offering. As of March 31,
1997, the estimated taxed, but undistributed, S Corporation earnings of the
Company was $9,954,000. The actual amount of the distribution will be adjusted
to reflect the taxable income and any shareholder distributions from April 1,
1997 through the termination of the S Corporation status.
Since the proceeds of the Offering will be applied over time, the actual
expenditure of such proceeds for any purpose could vary significantly from the
anticipated expenditures described above. Pending their use by the Company as
described above, the Company intends to invest the net proceeds of the Offering
in short-term, investment-grade instruments.
TERMINATION OF S CORPORATION STATUS AND DIVIDEND POLICY
On October 1, 1990, the Company elected to be treated as an S Corporation
and since then has been, and until immediately prior to the effective date of
the Offering will be, subject to taxation under Subchapter S under the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, the Company's
earnings have been taxed for federal and state income tax purposes directly to
the shareholders rather than to the Company. Upon conversion from S Corporation
to C Corporation status, the Company will become subject to federal and state
corporate income taxes.
In connection with the termination of the Company's S Corporation status,
the Company will make a distribution to the current shareholders of all
previously taxed, but undistributed, S Corporation earnings through the date of
the termination of the Company's S Corporation status. As of March 31, 1997,
such distribution amount, is approximately $9,954,000. The actual amount of the
distribution will be adjusted to reflect the taxable income and any shareholder
distributions from April 1, 1997 through the termination of the S Corporation
status. Following the termination of its S Corporation status, the Company will
record a net deferred tax asset on its balance sheet and record a corresponding
income tax benefit in its statement of income which will ultimately increase
retained earnings. See Note 2 of Notes to the Company's Financial Statements.
The Company does not intend to pay cash dividends in the foreseeable future
and plans to retain all of its future earnings for use in the expansion and
operation of its business and for general corporate purposes. The payment of
dividends in the future, if any, will be at the discretion of the Board of
Directors of the Company and will depend upon, among other factors, the
Company's earnings, financial condition, capital requirements and general
business outlook at the time the dividend is considered as well as the impact of
the distribution of dividends on the Company's financial condition and tax
liabilities.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the final S Corporation distribution to the current
shareholders and the recognition of a deferred tax asset resulting from the
termination of the Company's S Corporation status as if the distribution and
termination occurred on March 31, 1997, and (iii) the pro forma capitalization
as adjusted to give effect to the sale by the Company of shares of Common
Stock (assuming an initial public offering price of $ per share).
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness.............................................. $ -- $ -- $ --
====== ====== ======
Shareholders' equity (deficit):
Preferred Stock: $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding(1)...... $ -- $ -- $ --
Common Stock: $.01 par value, 40,000,000 shares
authorized; 9,900,000 shares issued and outstanding,
actual and pro forma; and shares issued and
outstanding, as adjusted(2).......................... 99 99
Additional paid-in capital.............................. -- --
Retained earnings (accumulated deficit)................. 9,134 (303)(3)
------ ------ ------
Total shareholders' equity (deficit)................. 9,233 (204)
------ ------ ------
Total capitalization............................ $9,233 $(204) $
====== ====== ======
</TABLE>
- ---------------
(1) Concurrent with the Company's conversion to C Corporation status immediately
prior to the consummation of the Offering, the Company will amend its
Certificate of Incorporation to authorize a class of Preferred Stock.
(2) Does not include the following shares of Common Stock: (i) 2,392,500 shares
reserved for issuance upon exercise of options authorized under the
Company's Incentive Program and (ii) shares to be issued upon exercise
of the over-allotment option granted to the Underwriters. See
"Management -- Incentive Program" and Note 5 of Notes to the Company's
Financial Statements.
(3) Adjusted to give pro forma effect to (i) a final S Corporation distribution
to the current shareholders, representing all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954,000 had such
distribution occurred on March 31, 1997 and (ii) a net deferred tax asset
which will be recorded by the Company as a result of the termination of its
S Corporation status, estimated at $517,000 had such termination occurred on
March 31, 1997. See Note 2 of Notes to the Company's Financial Statements
and "Termination of S Corporation Status and Dividend Policy."
16
<PAGE> 18
DILUTION
The net tangible book value of the Company as of March 31, 1997 was
$9,233,000, or $.93 per share of Common Stock. Net tangible book value per share
is determined by dividing the Company's tangible net worth (tangible assets less
total liabilities) by the number of shares of Common Stock outstanding. After
giving effect to (i) the sale by the Company of shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom
(after deducting estimated Offering expenses and the underwriting discount and
assuming an initial public offering price of $ per share), (ii) the
final S Corporation distribution to the current shareholders, estimated at
$9,954,000, had such distribution occurred on March 31, 1997, and (iii) the
recognition of a deferred tax asset, estimated at $517,000, resulting from the
termination of the Company's S Corporation status had such termination occurred
on March 31, 1997, the pro forma, as adjusted, net tangible book value of the
Company at March 31, 1997 would have been $ , or $ per share.
This represents an immediate dilution of $ per share in the net
tangible book value to new investors purchasing shares of Common Stock in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $
Net tangible book value at March 31, 1997..................... $ .93
Decrease attributable to the final S Corporation distribution,
net of increase attributed to the recognition of a deferred
tax asset.................................................. (.95)
Increase attributable to new investors........................
-------
-
Pro forma, as adjusted, net tangible book value after
Offering......................................................
--------
Dilution per share to new investors............................. $
========
</TABLE>
The following table summarizes, as of March 31, 1997, on a pro forma basis
and after giving effect to the Offering, 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 shareholders and to be paid by new
investors purchasing Common Stock in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Current shareholders(2)..... % $ % $
New investors(2)............
------- --- -------- ---
Total............. 100% 100%
======= === ======== ===
</TABLE>
- ---------------
(1) The above table excludes shares of Common Stock issuable upon exercise of
outstanding options under the Company's Incentive Program. If all
outstanding options at March 31, 1997 with exercise prices less than the
assumed initial public offering price of $ per share were
exercised, the pro forma, as adjusted, net tangible book value after the
Offering would be $ per share and the dilution per share to new
investors in this Offering would be $ per share.
(2) The above table does not give effect to the sale of Common Stock by the
Selling Shareholders. The sale by the Selling Shareholders of
shares in the Offering will reduce the number of shares held by current
shareholders to , or approximately %, and will increase
the number of shares held by new investors to , or approximately
%, of the outstanding Common Stock to be outstanding after the
Offering.
17
<PAGE> 19
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below as of and for the
year ended December 31, 1996 has been derived from the Company's financial
statements audited by Arthur Andersen LLP, independent public accountants,
included elsewhere in this Prospectus. The selected historical financial data
set forth below as of and for the years ended December 31, 1994 and 1995 has
been derived from the Company's financial statements audited by Perelson Weiner,
independent auditors, included elsewhere in this Prospectus. The selected
historical financial data set forth below as of and for the years ended December
31, 1992 and 1993 and for the three month periods ended March 31, 1996 and 1997
have been derived from unaudited financial statements of the Company which have
been prepared on the same basis as the audited financial statements and, in the
opinion of the Company, reflect all adjustments necessary (consisting only of
normal recurring adjustments) for the fair presentation of the Company's
financial position and results of operations for such periods. Results for
interim periods are not necessarily representative of the results to be expected
for a full year, and historical results are not necessarily indicative of the
results of operations to be expected in the future. The pro forma financial data
for the year ended December 31, 1996 and for the three months ended March 31,
1996 and 1997 give effect to (i) the Company's conversion to a C Corporation and
(ii) new employment agreements with the Company's shareholder officers. The pro
forma adjustments are based upon available information and certain assumptions
that management of the Company believes are reasonable. All of the financial
data set forth below are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's audited financial statements, the
notes thereto, and the other financial and statistical information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues................................ $27,608 $44,956 $55,232 $40,225 $50,027 $11,099 $15,232
Cost of goods sold.......................... 17,018 26,453 33,568 24,067 33,028 6,896 10,019
------- ------- ------- ------- ------- ------- -------
Gross profit................................ 10,590 18,503 21,664 16,158 16,999 4,203 5,213
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation........ 6,021 12,608 15,174 9,067 6,347 1,738 2,040
Engineering and product development....... 659 975 1,420 1,634 2,071 557 465
Sales and marketing....................... 955 1,569 2,405 3,150 5,325 1,156 1,548
General and administrative................ 526 831 1,351 1,931 2,348 472 626
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 8,161 15,983 20,350 15,782 16,091 3,923 4,679
------- ------- ------- ------- ------- ------- -------
Operating income............................ 2,429 2,520 1,314 376 908 280 534
Interest expense (income), net.............. (16) (80) 62 33 (144) (14) (11)
------- ------- ------- ------- ------- ------- -------
Income before income taxes.................. 2,445 2,600 1,252 343 1,052 294 545
Income taxes(1)............................. 238 459 426 311 226 63 81
------- ------- ------- ------- ------- ------- -------
Net income(1)............................... $ 2,207 $ 2,141 $ 826 $ 32 $ 826 $ 231 $ 464
======= ======= ======= ======= ======= ======= =======
Pro forma income before income taxes(2)..... $ 6,124 $ 1,713 $ 2,266
Pro forma income taxes(3)................... 2,358 660 872
------- ------- -------
Pro forma net income........................ $ 3,766 $ 1,053 $ 1,394
======= ======= =======
Pro forma net income per share(4)........... $ $ $
======= ======= =======
Shares used in computing pro forma net
income per share (4)......................
======= ======= =======
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1997
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(5)
------- ------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 675 $ 3,417 $ 2,037 $ 3,478 $ 994 $ 3,346 $ 3,346
Working capital (deficit)... 5,926 9,741 10,645 7,269 8,069 8,547 (959)
Total assets................ 8,179 14,612 15,927 13,945 17,416 22,137 22,654
Shareholder loans payable... 1,200 3,000 3,401 -- -- -- --
Shareholders' equity
(deficit)................. 4,944 7,085 7,911 7,943 8,769 9,233 (204)
</TABLE>
- ---------------
(1) For the periods presented, the Company was an S Corporation and,
accordingly, was not subject to federal and state income taxes. Income taxes
consist of New York City taxes and state franchise taxes.
(2) Pro forma income before income taxes reflects a pro forma adjustment to
reduce shareholder officers' compensation expense to reflect recently
executed employment agreements with the Company's three shareholder officers
which extend through December 31, 2000. The agreements provide for combined
minimum annual base compensation of $1,275,000. In addition, the shareholder
officers are eligible for a combined annual bonus equal to 1.0% of the
Company's net revenues in excess of $100,000,000, plus 8.0% of the Company's
income before income taxes in excess of $20,000,000. See Notes 2 and 8 of
Notes to the Company's Financial Statements and "Management -- Employment
and Compensation Agreements."
(3) Pro forma income taxes have been computed as if the Company was subject to
federal and state income taxes for all periods presented, based on the tax
laws in effect during those periods. See Note 2 of Notes to the Company's
Financial Statements.
(4) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the respective
periods, adjusted for the effect of dilutive common stock options, and after
giving effect to the estimated number of shares that would be required to be
sold (assuming an initial public offering price of $ per share) to
fund a distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954,000, had such
distribution occurred on March 31, 1997. See Note 2 of Notes to the
Company's Financial Statements and "Termination of S Corporation Status and
Dividend Policy."
(5) Adjusted to give pro forma effect to (i) a final S Corporation distribution
to the current shareholders, representing all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954,000 had such
distribution occurred on March 31, 1997 and (ii) a net deferred tax asset
which will be recorded by the Company as a result of the termination of its
S Corporation status, estimated at $517,000 had such termination occurred on
March 31, 1997. See Note 2 of Notes to the Company's Financial Statements
and "Termination of S Corporation Status and Dividend Policy."
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Box Hill was founded in 1988, and in 1990, the Company elected to be taxed
as a Subchapter S Corporation under the Internal Revenue Code.
Since its inception, Box Hill has focused exclusively on providing storage
solutions for high-end customers, primarily in the UNIX environment. The Company
initially focused on the financial services industry in response to that
industry's need for high-availability, high-performance, fault-tolerant storage
systems and high levels of customer and technical support. Box Hill leveraged
its position as a company focused exclusively on storage solutions to bring new
products to market faster than its competitors. As a result, Box Hill has
produced significant profits since inception and has financed its growth
primarily with cash generated from operations. The Company currently has no
indebtedness or other third-party financing.
During 1993 and 1994, the Company experienced rapid sales growth with net
revenues doubling from $27.6 million in 1992 to $55.2 million in 1994. During
these years a significant portion of revenues came from sales to customers in
the financial services industry. In 1994, a severe downturn in the bond market
caused several of the Company's large customers in the financial services
industry to reduce significantly their purchasing. This contributed to a
decrease in net revenues of 27.2% to $40.2 million in 1995. As a result, the
Company realized that it needed to diversify its customer base to reduce the
risk associated with dependence on one industry. Box Hill then embarked on a
strategy to target other industries that were using Open Systems technology,
such as telecommunications. In 1994, direct sales to the financial services and
telecommunications industries represented 62% and 6% of the Company's revenues,
respectively. By the first quarter of 1997, direct sales to customers in the
telecommunications industry had grown to 24%, while direct sales to the
financial services industry represented 42% of net revenues.
During the early years of the Company's growth, its operating expenses were
exceptionally low, as measured against revenues. This was primarily due to a
level of management and administration that worked well for a smaller company
but was insufficient to support future revenue growth. In addition, the
Company's close proximity to a majority of its customer base created sales
efficiencies that could not be sustained in serving a more geographically
dispersed customer base. In 1995, the Company began hiring a professional senior
management team, commencing with its Chief Executive Officer, who joined the
Company in May of that year. In 1996, the Company hired a Vice President of
Sales, a Financial Controller and a North American Sales Director, and, in 1997,
a Chief Financial Officer. In addition, in 1995, certain of the Company's key
employees were promoted to management positions and expenses were incurred to
expand international sales, and, in 1996, a new sales office was opened in the
greater Washington, D.C. metropolitan area. As a consequence of these and other
changes, the Company's operating expenses (excluding shareholder officers'
compensation) grew from 9% of net revenues in 1994 to 17% and 20% of net
revenues in 1995 and 1996, respectively.
Box Hill's manufacturing operations consist primarily of assembly and
integration of components and subassemblies into the Company's products with
certain of those subassemblies manufactured by independent contractors. The
Company's cost of goods sold consists primarily of direct material costs. On an
annual basis, between 1992 and 1996, gross margins have ranged from 41.2% in
1993 to 34.0% in 1996. In 1996, gross margins were lower partially as a result
of the Company's strategy to lower prices on its existing product line to adjust
to changing market conditions, as well as an unusually high level of sales of
low margin disk products to a distributor. On a quarterly and annual basis the
Company's gross margins have been and will continue to be affected by a variety
of factors, including competition, product configuration, product mix, the
availability of new products and product enhancements, and the cost and
availability of components. The Company's long-term strategy includes
maintaining or improving existing gross margins. See "Risk
Factors -- Fluctuations in Operating Results."
20
<PAGE> 22
The Company has entered into employment agreements effective upon
consummation of the Offering with its three shareholder officers providing for
combined minimum annual base compensation of $1,275,000. The agreements and a
current agreement in force with the Company's Chief Executive Officer provide
that these four officers are to receive combined annual bonuses equal to 1.5% of
net revenues in excess of $100,000,000 and 12.0% of the amount of pre-tax income
which exceeds $20,000,000 for a fiscal year. In addition, the Company's
agreement with its Chief Executive Officer also provides for him to receive a
bonus of .05% of net revenues up to $100,000,000 and 1.12% of the pre-tax
income, as defined, up to $20,000,000. See "Management -- Employment and
Compensation Agreements."
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's income
statements as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 60.8 59.8 66.0 62.1 65.8
----- ----- ----- ----- -----
Gross profit.................................... 39.2 40.2 34.0 37.9 34.2
----- ----- ----- ----- -----
Operating expenses:
Shareholder officers' compensation............ 27.5 22.5 12.7 15.7 13.4
Engineering and product development........... 2.6 4.1 4.1 5.0 3.1
Sales and marketing........................... 4.4 7.8 10.6 10.4 10.2
General and administrative.................... 2.3 4.9 4.8 4.3 4.0
----- ----- ----- ----- -----
Total operating expenses.............. 36.8 39.3 32.2 35.4 30.7
----- ----- ----- ----- -----
Operating income................................ 2.4% .9% 1.8% 2.5% 3.5%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net revenues -- Net revenues increased 36.9% to $15.2 million for the three
months ended March 31, 1997, compared to $11.1 million for the three months
ended March 31, 1996. The increase resulted from an increase in volume, which
were partially offset by price reductions. The increase in volume was primarily
the result of the ramp up of new RAID products, which were introduced in
November 1995. Net revenues from sales of RAID products increased 220.0% to $4.8
million for the three months ended March 31, 1997, compared to $1.5 million for
the comparable period of 1996. Net revenues from sales of the Company's
traditional storage and backup products also increased for the three months
ended March 31, 1997 compared to the three months ended March 31, 1996,
primarily due to an increased sales staff in 1997.
Gross profit -- Gross profit increased 23.8% to $5.2 million for the three
months ended March 31, 1997 from $4.2 million for the comparable period of 1996.
As a percentage of net revenues, gross profit decreased from 37.9% to 34.2%.
This decrease was primarily due to overall sales price decreases, partially
offset by decreases in material costs.
Shareholder officers' compensation -- Shareholder officers' compensation
consists of salaries and bonuses paid to the Company's three shareholder
officers. Shareholder officers' compensation increased 17.6% to $2.0 million for
the three months ended March 31, 1997 as compared to $1.7 million for the three
months ended March 31, 1996. The increase in shareholder officers' compensation
is attributable to higher bonuses for the first quarter of 1997 as compared to
the first quarter of 1996. In connection with the Offering, the Company will
enter into new employment agreements with the shareholder officers. See
"Management -- Employment and Compensation Agreements."
21
<PAGE> 23
Engineering and product development -- Engineering and product development
expenses consist primarily of employee compensation, engineering equipment and
supply expenses and fees paid for third-party design services. To date, no
engineering and development expenses have been capitalized. Engineering and
product development decreased 16.7% to $.5 million for the three months ended
March 31, 1997 from $.6 million for the comparable period of 1996. As a
percentage of net revenues, engineering and product development decreased to
3.1% for the first quarter of 1997 from 5.0% for the first quarter of 1996. The
decrease in engineering and product development costs was primarily due to
purchases of research and development equipment and supplies in the first
quarter of 1996 related to initial development work on the Fibre Box(R). The
Company believes that significant and continued investments in research and
development will be required to remain competitive and expects that these
expenditures may fluctuate as a percentage of net revenues in future periods.
Sales and marketing -- Sales and marketing expenses consist primarily of
salaries and commissions, advertising and promotional costs and travel expenses.
Sales and marketing expenses increased 25.0% to $1.5 million for the three
months ended March 31, 1997 from $1.2 million for the comparable period of 1996.
As a percentage of net revenues, sales and marketing decreased slightly to 10.2%
for the first quarter of 1997 from 10.4% for the first quarter of 1996.
General and administrative -- General and administrative expenses consist
primarily of compensation to employees performing the Company's administrative
functions and expenditures for the Company's administrative facilities. General
and administrative expenses increased 20.0% to $.6 million for the three months
ended March 31, 1997 from $.5 million for the comparable period of 1996. The
increase was due to an increase in administrative staff to support the Company's
growth. As a percentage of net revenues, general and administrative expenses
decreased slightly to 4.0% in the first quarter of 1997 as compared to 4.3% in
the first quarter of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues -- Net revenues increased 24.4% to $50.0 million for 1996,
compared to $40.2 million for 1995. The increase resulted primarily from the
introduction in November 1995 of new RAID products, which had higher volume
shipments principally in the second half of 1996. In addition, the Company's
penetration into new industries, as well as an increase in sales force,
contributed to the revenue increase in 1996.
Gross profit -- Gross profit increased 4.9% to $17.0 million for 1996 from
$16.2 million for 1995. As a percentage of net revenues, gross profit decreased
from 40.2% to 34.0%. This decrease reflected the Company's strategy to lower
prices on its existing product line to adjust to changing market conditions, as
well as an unusually high level of sales of low margin disk products to a
distributor. The gross margin decline was partially offset by the contribution
provided by new features in the Company's RAID products.
Shareholder officers' compensation -- Shareholder officers' compensation
decreased 30.8% to $6.3 million for 1996 from $9.1 million for 1995. The
decrease in shareholder officers' compensation in 1996 is attributable to lower
bonuses for 1996 as compared to 1995.
Engineering and product development -- Engineering and product development
expenses increased 31.3% to $2.1 million for 1996 from $1.6 million for 1995.
The increase in engineering and product development was primarily due to
research and development work on the Fibre Box(R) in 1996. As a percentage of
net revenues, engineering and product development remained flat at 4.1%.
Sales and marketing -- Sales and marketing expenses increased 65.6% to $5.3
million for 1996 from $3.2 million for 1995. As a percentage of net revenues,
sales and marketing increased to 10.6% from 7.8%. The increase was due to (i)
the hiring of a new Vice President of Sales in early 1996; (ii) an increase in
the direct sales force and field service staff; (iii) increased commissions
based on the increase in sales; and (iv) a full year of sales service
expenditures in Europe by an affiliated company which commenced operations in
the last quarter of 1995.
22
<PAGE> 24
General and administrative -- General and administrative expenses increased
21.1% to $2.3 million for 1996 from $1.9 million for 1995. The increase was due
to an increase in staff to support the Company's growth and the full salary
impact of the hiring of a Chief Executive Officer in late May 1995. As a
percentage of net revenues, general and administrative expenses decreased
slightly to 4.8% from 4.9%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues -- Net revenues decreased 27.2% to $40.2 million for 1995,
compared to $55.2 million for 1994. The decrease was due to a severe downturn in
the bond market in 1994 that caused several of the Company's large customers in
the financial services industry to reduce significantly their purchasing in
1995.
Gross profit -- Gross profit decreased by 25.3% to $16.2 million for 1995
from $21.7 million for 1994. The decrease was a direct result of the decrease in
net revenues. As a percentage of net revenues, gross profit increased slightly
from 39.2% in 1994 to 40.2% in 1995.
Shareholder officers' compensation -- Shareholder officers' compensation
decreased 40.1% to $9.1 million for 1995 from $15.2 million for 1994. The
decrease was due to lower bonuses in 1995 as compared to 1994.
Engineering and product development -- Engineering and product development
increased 14.3% to $1.6 million for 1995 from $1.4 million for 1994 due to an
increase in engineering staff and compensation increases in 1995. As a
percentage of net revenues, engineering and product development increased to
4.1% from 2.6%.
Sales and marketing -- Sales and marketing expenses increased 33.3% to $3.2
million for 1995 from $2.4 million for 1994 primarily due to an increase in the
direct sales force and field service support. As a percentage of net revenues,
sales and marketing increased to 7.8% from 4.4%.
General and administrative -- General and administrative expenses increased
35.7% to $1.9 million for 1995 from $1.4 million for 1994 due to the hiring of a
Chief Executive Officer in late May 1995, the hiring of MIS and accounting
employees during 1995, and the full salary impact of employees who were hired
during 1994. As a percentage of net revenues, general and administrative
expenses increased to 4.9% in 1995 from 2.3% in 1994.
23
<PAGE> 25
QUARTERLY RESULTS
The following table sets forth certain quarterly financial data for each of
the quarters in 1996 and the first quarter of 1997. This quarterly information
is unaudited, has been prepared on the same basis as the annual financial
statements and, in the opinion of the management of the Company, reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues.............. $11,099 $12,045 $12,853 $14,030 $15,232
Gross profit.............. 4,203 3,707 3,947 5,142 5,213
Operating income.......... 280 136 152 340 534
Net income................ 231 125 154 316 464
Pro forma net income(1)... 1,053 629 794 1,290 1,394
</TABLE>
- ---------------
(1) Pro forma net income reflects a pro forma adjustment for shareholder
officers' compensation in excess of agreed upon future levels under new
employment agreements and has been computed as if the Company was a C
Corporation and had been subject to federal and state income taxes during
all of the periods presented. See Notes 2 and 8 to the Company's Financial
Statements and "Management -- Employment and Compensation Agreements."
The Company's results of operations over the last five quarters ending
March 31, 1997 reflect increases in net revenues each quarter. This revenue
increase was driven by higher sales of new RAID products and backup solutions,
as well as the Company's penetration into new targeted industries, principally
telecommunications.
Gross margins ranged from approximately 38% in the first quarter of 1996 to
31% in the second and third quarters of 1996. Gross margins during the second
and third quarters of 1996 were adversely impacted by an unusually high level of
sales of low margin disk products to one distributor. Additionally, the
Company's price decreases, which were announced in late 1995, did not have a
significant impact on gross margins until beginning in the second quarter due to
the timing of customer orders. Gross margins for the fourth quarter of 1996 and
the first quarter of 1997 improved over the second and third quarters of 1996,
principally due to continually declining material costs and a more favorable
product mix.
The Company does not believe that quarterly comparisons are necessarily
reflective of its overall performance. The Company's quarterly operating results
have varied in the past and may vary in the future depending on a number of
factors, some of which are beyond the Company's control. These factors include
the timing of customer orders, changes in the Company's product and customer
mix, the introduction of new products by the Company or its competitors, pricing
pressures and economic conditions. In addition, the Company often incurs
significant development, sales and marketing expenses in anticipation of future
revenues. See "Risk Factors -- Fluctuations in Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, cash provided by operating
activities was $2.4 million compared to cash provided by operating activities of
$.2 million for the same period in 1996. The increase was primarily due to an
increase in accounts payable and accrued expenses and a smaller increase in
accounts receivable for the three months ended March 31, 1997 compared to the
same period of 1996, partially offset by an increase in inventories. For the
year ended December 31, 1996, cash used in operating activities was $2.2 million
compared to cash provided by operating activities of $4.9 million for the same
period in 1995. The change was primarily due to an increase in accounts
receivable and
24
<PAGE> 26
inventories as a result of increased sales volume, partially offset by increases
in net income, accrued expenses and customer deposits.
Cash used in investing activities consists primarily of purchases of
property and equipment. Capital expenditures were $375,000, $284,000 and $48,000
for the years ended December 31, 1995 and 1996 and for the three months ended
March 31, 1997, respectively.
As of March 31, 1997, working capital was $8,547,000 and cash and cash
equivalents was $3,346,000. The Company presently expects that the net proceeds
of the Offering, together with cash generated from operations, should be
sufficient to meet its operating and capital requirements for at least the next
twelve months. However, the Company may need additional capital to pursue
acquisitions or significant capital improvements, neither of which is currently
contemplated.
In connection with the Offering, the Company plans to make a distribution
to the current shareholders of all of the previously taxed, but undistributed, S
Corporation earnings, which as of March 31, 1997 were approximately $9,954,000.
The actual amount of the distribution will reflect the taxable income and any
shareholder distributions during the period from April 1, 1997 through the
effective date of the Offering. The Company plans to use a portion of the net
proceeds of the Offering to make the distribution. See "Use of Proceeds."
25
<PAGE> 27
BUSINESS
Box Hill designs, manufactures, markets and supports high-performance data
storage systems for the Open Systems computing environment. The Company's
storage solutions encompass a broad range of scalable products and services
targeting high-end customers. With data becoming an increasingly critical
business tool, these customers are demanding certain characteristics in their
storage systems, particularly high availability, high performance and fault
tolerance, as well as the highest level of customer and technical support. The
Company has a history of providing high-end storage solutions that meet these
requirements by combining extensive design and implementation experience with
leading edge technologies. The Company was among the first to develop and
successfully commercialize a hot-swappable SCSI Disk Array storage system and a
Redundant Array of Inexpensive/Independent Disks ("RAID") storage system for
UNIX. In addition, the Company recently introduced the Fibre Box(R), one of the
first Fibre Channel storage systems, and is finalizing the development of its
X/ORaid(TM) Module, which takes advantage of the new RAID capabilities that are
currently being embedded in Fibre Channel drives. The Company employs a direct
marketing strategy targeted at data-intensive industries, which to date
primarily include financial services, telecommunications, health care,
government/defense and academia.
INDUSTRY OVERVIEW
The demand for Open Systems data storage is fueled by the rapid
proliferation of new data-intensive applications, such as video, the Internet,
intranets, multimedia, data warehousing and data mining, as well as the
migration of mission-critical applications off mainframe computers. Disk storage
systems, tape backup systems and software-based management tools designed to
operate on multiple platforms are becoming a strategic part of the MIS
environment. MIS purchase decisions are becoming "storage centric" and, in many
instances, capital expenditures on storage systems are equal to or greater than
those made on computer processing hardware.
The high end of the Open Systems market is characterized by large capacity
UNIX and Windows NT servers operating in multi-platform environments, generally
running mission-critical applications. International Data Corporation ("IDC"),
an independent market research firm, estimates that the worldwide market for
RAID storage systems in UNIX environments will grow at a compounded annual
growth rate of 19.3%, increasing from $6.3 billion in 1996 to $12.9 billion in
2000. In addition, IDC estimates that the worldwide market for RAID storage
systems in Windows NT environments, will grow at a compounded annual growth rate
of 34.1%, increasing from $1.3 billion in 1996 to $4.3 billion in 2000.
The Company believes that storage purchase decisions at the high end of the
Open Systems computing environment are based on a variety of factors, including
(i) response time, capacity and minimization of downtime; (ii) data protection;
(iii) all-encompassing solutions; (iv) multi-platform compatibility; and (v)
scalability.
Current and Emerging Technologies
The Open Systems market's current storage options include Disk Arrays, RAID
storage systems and tape backup systems, each of which are generally attached to
hosts by the Small Computer Systems Interface ("SCSI"). Fibre Channel, an
emerging high-speed serial interface that has recently become commercially
available, enables faster data transfer to Disk Arrays and RAID storage systems.
Fibre Channel also enables industry standard RAID functionality to be
efficiently embedded directly onto Fibre Channel disk drives.
SCSI vs. Fibre Channel. SCSI has been the dominant commercially available
interface, and is currently used in most Disk Array and RAID storage systems.
Its potential successor, Fibre Channel, is regarded by many industry
participants as the storage industry's next-generation interface, given the many
advantages it has over SCSI. Fibre Channel enables the transfer of data between
computers and
26
<PAGE> 28
peripherals at substantially increased rates, over greatly increased cabling
lengths and among a greater number of host/device connections, as indicated in
the following table:
<TABLE>
<CAPTION>
MAXIMUM
DATA
TRANSFER MAXIMUM MAXIMUM
RATE CABLING HOST/DEVICE RAID EMBEDDED
INTERFACE (MB/SEC) LENGTHS CONNECTIONS ON THE DRIVE
- ---------------------------------------- -------- ------- ----------- -------------
<S> <C> <C> <C> <C>
SCSI.................................... 20 25 m 16 No
Ultra SCSI.............................. 40 25 m 16 No
Fibre Channel (Single Loop)............. 100 10 km 126 Yes
Fibre Channel (Dual Loop)............... 200 10 km 126 Yes
</TABLE>
Although the Fibre Channel interface has only recently become commercially
available and has essentially no market penetration (see "Risk Factors -- Rapid
Technological Change; Dependence on New Products; Introduction of Fibre Channel
Product Line"), a number of industry leaders, including Microsoft Corporation,
Seagate, Quantum, Fujitsu Limited, Adaptec, Inc., Emulex Corporation, Gadzoox
Networks, Inc., Vitesse Semiconductor Corporation and VLSI Technology, Inc.,
have indicated support for Fibre Channel technology and are producing or plan to
produce products that incorporate it. Seagate began shipping Fibre Channel disk
drives in the fourth quarter of 1996. In addition, the Fibre Channel Association
and the Fibre Channel Loop Community, trade associations formed to foster the
development of Fibre Channel technology, have more than 100 members, including
the Company and several of the foregoing industry leaders.
RAID. RAID storage systems address the need for high availability and
fault tolerance in disk storage systems. Traditionally, RAID functionality for
SCSI storage systems has been implemented in one of two ways: purely by software
on the host or by a hardware controller interposed between a host and a Disk
Array. These methods have different drawbacks: software-based RAID
implementations can slow down CPU processing time, while hardware
controller-based RAID implementations require an additional piece of hardware
which may be costly and is an additional point of failure. The recent advent of
Fibre Channel introduces a new RAID paradigm. Fibre Channel allows the major
RAID functions to be efficiently performed on disk drives themselves,
eliminating the need for burdensome CPU processing or a hardware RAID
controller.
Future Trend: Storage Area Networks
To address the growing demand for higher availability and increased
connectivity in Open Systems computing environments, the Company envisions the
development of storage area networks ("SAN"s) that will add networking
capabilities to storage devices. The Company believes that SANs will be enabled
principally by two emerging technologies: (i) Fibre Channel and (ii)
"clustering" software, such as Microsoft's "Wolfpack." Fibre Channel will allow
for a wider range of higher speed connections between and among a greater number
of hosts and storage devices in the SAN, and clustering software will allow for
the interconnection of multiple hosts to multiple storage devices (currently
commercially available systems typically only allow the attachment of one host
to one storage system). The Company believes that the high-performance,
high-availability features that clustering software is contemplated to possess
will enhance the ability of Windows NT, another Microsoft product and one of the
Company's principal targeted computing environments, to capture market share in
high-end mission-critical applications.
THE BOX HILL SOLUTION
Box Hill develops and markets a comprehensive range of storage systems
designed to meet the requirements of the high-end Open Systems market. The
Company's family of products and services is intended to provide users with the
following benefits:
High performance, high availability and fault tolerance. Recognizing the
increased demand for faster response times, greater capacities, higher
availability of data and minimum system downtime, the Company has focused on
developing high-end, high-performance storage products using SCSI, Ultra
27
<PAGE> 29
SCSI and Fibre Channel interfaces. The Company was among the first to develop
and successfully commercialize a hot-swappable SCSI Disk Array and a RAID
storage system for the UNIX environment. More recently, the Company was one of
the first to introduce a Fibre Channel storage system and is finalizing
development of what it believes will be the first Fibre Channel storage system
activating RAID functionality on the disk drives.
High-performance backup. To satisfy market demand for reliable,
high-quality backup products and systems, the Company offers a broad variety of
backup products, including tape library systems, backup software, training and
documentation. The Company has specialized expertise in the design and
implementation of effective, well-integrated backup solutions designed to
satisfy customers' individual needs, from departmental server systems to
enterprise network systems.
All-Encompassing Solutions. The Company delivers all-encompassing
solutions, including design consulting, installation, integration, training, and
comprehensive, 24-hour, post-sales service and technical support, as well as
software-based management tools. The Company employs a full staff of direct
sales personnel and applications engineers to assist customers in making
appropriate and effective storage system purchases and in addressing, analyzing
and solving complex, pre-deployment storage problems. This value-added
capability fosters customer loyalty and allows the Company to identify emerging
customer requirements for future data storage products.
Multi-platform support. As an independent provider of storage products,
Box Hill is well positioned to provide storage systems specifically designed to
be compatible with a variety of UNIX and Windows NT platforms. This
cross-platform capability allows end users to standardize on a single storage
system that can readily be reconfigured and redeployed at minimal cost as
operating systems or other Open System components change.
Scalability. The Company's products are designed using a flexible, modular
architecture allowing the Company to size and configure storage systems to the
application-specific requirements of individual customers. In addition, this
architecture allows the Company to resize and reconfigure these systems to adapt
to the changing needs of customers, while allowing them to retain capital value
in their underlying systems.
STRATEGY
Box Hill's objective is to continue its growth and enhance its position as
a leading independent provider of storage solutions to the Open Systems
marketplace. To achieve this objective, the Company plans to build upon its
record of successfully introducing and commercializing new products and
technologies that address the evolving data storage needs of its high-end
customer base. Key elements of this strategy are:
Maintain Technological Leadership and Innovation. The Company intends to
continue developing and commercializing high-end SCSI, Ultra SCSI and the
recently introduced Fibre Channel-based storage solutions. The Company intends
to capitalize on Fibre Channel components and technology by adding enabling
software to create products for high-availability storage systems and
future-envisioned SAN environments. With respect to its backup products, the
Company will continue to research and integrate "best of breed" tape libraries
and software, to develop its own software, and to improve its expertise as a
leader in backup integration.
Focus on High-End Markets in Target Industries. The Company intends to
continue to target users of UNIX and Windows NT computing environments who
require high-performance, high-availability and fault-tolerant storage
solutions, such as end users in data-intensive industries which, to date,
include financial services, telecommunications, health care, government/defense
and academia. In addition, it intends to expand its focus to include other
data-intensive vertical markets, such as video, multimedia and imaging
industries. The Company, as an independent provider of storage systems, believes
that it is better suited than captive providers are to address the
multi-platform computing requirements of these targeted high-end users.
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<PAGE> 30
Expand Geographically. The Company was founded in New York City and
historically focused its sales efforts primarily in the northeastern region of
the United States. Having achieved commercial success in that region, the
Company plans to expand its geographic reach by increasing its direct sales
staff, opening additional offices in the United States and further developing a
network of international distributors to increase international sales.
Focus on Direct Sales to End Users. The Company believes that its direct
sales strategy maximizes the effectiveness of its sales efforts. In addition,
direct customer contact provides the Company with invaluable market feedback and
the ability to provide high-quality technical support and enhance customer
loyalty.
Develop Relationships with OEM Customers. The Company intends to augment
its traditional direct sales strategy by selling to select OEM customers in
situations where market dynamics are such that the Company would not otherwise
have access to these markets.
PRODUCTS AND SYSTEMS
Box Hill's family of products is a flexible, highly scalable set of
hardware and software storage solutions for Open Systems applications. The
Company's storage products feature modular building blocks that provide
customers with a variety of storage solutions ranging from SCSI Disk Array
configurations to multi-terabyte Ultra SCSI RAID storage systems to the Fibre
Channel RAID storage system, which is in the final stages of development. In
addition, Box Hill's backup products incorporate "best of breed" tape library
products and backup management software.
STORAGE PRODUCTS. The Company's principal disk storage products include
the Mod Box 5000(TM), the RAID Box 5300 Turbo(TM) product line and the recently
introduced Fibre Box(R).
Mod Box 5000(TM). The Mod Box 5000(TM) is a modular, scalable,
hot-swappable, SCSI and Ultra SCSI capable Disk Array system which can be
configured with a wide range of storage devices. The Mod Box 5000(TM)
architecture supports both 3 1/2" and 5 1/4" device form factors, enabling Box
Hill to support the highest capacity drives, and is compatible with both UNIX
and Windows NT platforms.
RAID Box 5300 Turbo(TM). Box Hill integrates hardware RAID controllers with
the Mod Box 5000(TM) Disk Array to create the RAID Box 5300 Turbo(TM) product
line. The Company also supplies remote monitoring and configuration software as
a key part of the RAID Box 5300 Turbo(TM) system. This high-end, high-speed,
hot-swappable, SCSI and Ultra SCSI capable RAID storage system supports
redundant failover controllers and capacities up to 2.7 TB. The Company believes
that its RAID Box 5300 Turbo(TM) is one of the fastest Ultra SCSI RAID storage
systems available for both UNIX and Windows NT platforms.
Fibre Box(R). The Company recently introduced the Fibre Box(R), one of the
first storage systems based on Fibre Channel technology. The Fibre Box(R)
enables data transfer rates of up to 200 MB per second, transmission distances
of up to 10 kilometers, connectivity of up to 126 host/device connections and
capacities up to 1.2 TB. In addition, the Fibre Box(R) contains up to eight 9 GB
Fibre Channel disk drives in an intelligent enclosure and features
hot-swappability, redundancy of key components, and automatic environmental
monitoring to enable failure prediction. Included with the Fibre Box(R) is the
Company's Fibre Box Array Explorer(TM) software program, which provides users
with the benefits of system monitoring and configuration, event reporting and
remote disk maintenance and administration.
Fibre Box(R) with X/ORaid(TM) Module. The Company is in the final stages
of developing what it believes will be the first Fibre Channel RAID storage
system activating RAID functionality directly on the disk drives. The Company's
X/ORaid(TM) Module will provide RAID capabilities by activating RAID processors
embedded in each Fibre Channel disk drive.
The Fibre Box(R) and the Fibre Box Array Explorer(TM) are compatible, and
the X/ORaid(TM) Module will be compatible, with Windows NT platforms and the
Company intends to make each of them compatible with UNIX platforms.
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<PAGE> 31
BACKUP PRODUCTS. Box Hill's backup solutions consist of a variety of "best
of breed" tape libraries and enterprise-wide backup software from industry
leaders, proprietary Company software and comprehensive integration and
customization services that produce turnkey solutions. The Company believes it
has unique abilities to custom design system-wide and enterprise-wide backup
systems and effectively integrate "best of breed" hardware and software backup
products. The principal tape backup products offered by the Company include the
Magna Box, an enterprise-wide automated DLT library with capacities ranging from
800 GB to 41 TB, and the Echo Box, which, together with the Company's
proprietary Tape Mirroring Software, allows for the simultaneous real-time
creation of two sets of backup tapes, one for fast, local retrieval of data and
the other for remote, off-site storage.
For a discussion of the risks associated with the development and
introduction of new products, see "Risk Factors -- Rapid Technological Change;
Dependence on New Products; Introduction of Fibre Channel Product Line."
CUSTOMERS
Box Hill markets its products principally to high-end users in the Open
Systems market. The Company has placed major storage system installations
principally in data-intensive industries in which customers require
high-performance, high-availability, fault-tolerant storage solutions, such as
financial services, telecommunications, health care, government/defense and
academia. In addition, the Company intends to expand its focus to include other
data-intensive vertical markets, such as video, multimedia and imaging
industries. The Company enjoys strong relationships with its customers, which
are reflected in high levels of repeat business over many years.
Some of the customers in each of the Company's targeted industries include:
<TABLE>
<S> <C> <C>
Financial Services Telecommunications Health Care
- ------------------------------ --------------------------------- ----------------------
Chase Manhattan Bank AT&T Abbott Laboratories
Merrill Lynch Bell Atlantic Bristol-Meyers Squibb
Salomon Brothers Lucent Technologies Pfizer
Smith Barney NYNEX Merck & Co.
UBS Securities Sprint SmithKline Beecham
Government/Defense Academic Institutions
- ------------------------------ ---------------------------------
Lockheed Martin Columbia University
NASA New York University
National Institutes of Health Rensselaer Polytechnic Institute
TRW Rutgers University
U. S. Department of Justice University of Pennsylvania
</TABLE>
See "Risk Factors -- Concentration of Customers in Targeted Industries and
the UNIX Marketplace" for a discussion of the risks arising from a significant
portion of the Company's sales directed to the financial services and
telecommunications industries, sales to a limited number of customers accounting
for a material percentage of the Company's annual revenues, and the
concentration of sales to the UNIX marketplace.
SALES AND MARKETING
The Company's marketing strategy emphasizes direct sales to high-end users
of its storage and backup products. Prior to 1995, the Company conducted its
sales exclusively from its facility in New York City. The Company recently
launched an expansion program to penetrate new markets outside the northeastern
region of the United States. The Company intends to add new sales
representatives and applications engineers in various cities in the United
States and Canada. In 1996, the Company established a sales location in the
greater Washington, D.C. metropolitan area and, in 1997, commenced hiring
personnel in San Diego, San Francisco and Ottawa, Canada. The Company also
intends to
30
<PAGE> 32
augment its traditional direct sales strategy by selling to select OEM customers
where market dynamics are such that the Company would not otherwise have access
to these markets. In addition, the Company's team of applications engineers,
generally highly qualified storage experts, complements the sales force by
providing pre-sales and pre-deployment consulting, installation services and
support.
The Company's international marketing strategy has been to use distributors
located outside of the United States. The Company's foreign activities have
principally been conducted through distributors in the United Kingdom, Japan and
Hong Kong. Since 1996, the Company has embarked on a program of international
expansion, engaging distributors in Korea, Singapore, Taiwan, Italy and Ireland.
The Company provides marketing and technical support services in connection with
European and Pacific Rim sales. The Company intends to continue international
expansion by developing distributor relationships in France, Germany,
Scandinavia and the Benelux countries. Sales to international distributors
located outside the United States represented approximately 17%, 16%, 18% and
15% of the Company's net revenues for 1994, 1995, 1996 and for the three-month
period ended March 31, 1997, respectively.
For a discussion of the risks associated with expansion, see "Risk
Factors -- Difficulties in Managing Growth."
ENGINEERING AND PRODUCT DEVELOPMENT
The Company's research, engineering and development efforts are focused on
developing innovative solutions to the storage needs of the high end of the Open
Systems market. The Company has expertise in UNIX and Windows NT driver and
system software, data storage system design and integration, high-speed
interface design for SCSI, Ultra SCSI and Fibre Channel and design,
qualification and integration of disk drives, tape drives, robotics and other
storage components. For example, the Company was among the first to develop and
successfully commercialize a hot-swappable SCSI Disk Array and a RAID storage
system for the UNIX environment. More recently, the Company was among the first
to introduce a Fibre Channel storage system and is finalizing development of
what it believes will be the first Fibre Channel storage system activating RAID
functionality on the disk drives.
The Company generally designs its products to have a modular architecture
that can be readily modified to respond to technological developments and
paradigm shifts in the Open Systems computing environment. This flexibility
allows the Company to focus research and development resources on specific
product innovations and advancements. The modular architecture of the products
meets customer needs with solutions tailored to their applications and products
that can be adapted to changes in technology and in their computing
environments.
The Company is currently focusing considerable development efforts on Fibre
Channel storage systems. Projects include improvements to the features,
functions and performance of the Fibre Box(R) and the Fibre Box Array
Explorer(TM), and the development of the X/ORaid(TM) Module, a future component
of the Fibre Box(R) product line. The Company intends to capitalize on Fibre
Channel technology and components by adding systems software to create products
for high-availability storage systems and future-envisioned SAN environments.
See "Risk Factors -- Rapid Technological Change; Dependence on New Products;
Introduction of Fibre Channel Product Line" and "-- Limited Protection of
Proprietary Technology; Risk of Third-Party Claims of Infringement" for
discussions of the risks associated with the development of new products and
protection of technological developments.
The Company's engineering design teams work cross-functionally with
marketing managers, applications, technical and production engineers and
customers to develop products and product enhancements. The Company employs a
full staff of applications engineers to assist customers in making appropriate
and effective storage system purchases and in addressing, analyzing and solving
complex pre-deployment storage problems. The Company's technical support
engineering team and production engineering team also contribute to the quality,
manufacturability and usability of products from design to deployment. This
value-added capability fosters customer loyalty and allows the Company to
identify emerging customer requirements for future data storage products.
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<PAGE> 33
Engineering and product development expenses of the Company (which do not
include compensation expenses for applications and technical support engineers,
which are recorded as sales and marketing expenses) for fiscal years 1994, 1995
and 1996 were $1.4 million, $1.6 million and $2.1 million, respectively. As of
March 31, 1997, the Company had 16 full-time employees engaged in research and
development activities.
CUSTOMER SERVICE AND SUPPORT
Recognizing that the provision of comprehensive, proactive and responsive
support is an essential element in establishing new customer accounts and
securing repeat business from existing customers, Box Hill is committed to
providing the highest levels of customer service and support aimed at
simplifying installation, reducing field failures, minimizing system downtime
and streamlining administration.
Service revenues have not comprised a significant portion of the Company's
revenues. In certain geographical regions, and for an annual or quarterly fee,
the Company maintains a staff of on-call technical personnel who are available
to visit the customer's site within a few hours. In other geographical regions,
the Company indirectly provides the same level of support by using third-party
service companies. In all cases, Box Hill technical support engineers are
available by phone on a seven day, 24 hour basis.
The Company provides standard warranties with all products sold which are
set forth in various documents and agreements which are delivered to customers
with each product. As a general policy, the Company ships replacement hardware
components to customers in advance of receiving returns of defective components
under a standard warranty, which runs from one to five years. The Company
occasionally issues credit in lieu of replacing a piece of equipment. A customer
may also contract for an extended warranty or on site maintenance support from
the Company on all products. See "Risk Factors -- Warranty Exposure."
MANUFACTURING
Box Hill's manufacturing operations consist of assembly and integration of
components and subassemblies into the Company's products with certain of those
subassemblies manufactured by independent contractors. The units are assembled
to order and are subjected to a systems-level test and to firmware revision
controls to ensure performance to specification in the anticipated end-user
computing environment. Test results are identified by individual product serial
numbers and are logged to aid in technical support. The Company strives to
develop close relationships with its suppliers, exchanging critical information
and implementing joint corrective action programs to maximize the quality of its
components, reduce costs and reduce inventory investments.
The Company relies on other companies to supply certain key components of
its products that are available only from limited sources in the quantities and
quality demanded by the Company. The Company purchases substantially all of its
disk drives and all of its Fibre Channel drives from Seagate, its DLT tape
drives only from Quantum and hardware RAID controllers only from CMD.
Approximately 35.6%, 52.7% and 42.0% of the Company's total raw material
purchases were from Seagate and approximately 13.8%, 16.5% and 11.0% of the
Company's total raw material purchases were from Quantum in the years ended
December 31, 1995 and 1996 and for the three months ended March 31, 1997,
respectively. In addition, the Company purchases substantially all of its raw
materials pursuant to purchase orders, rather than pursuant to long term
purchase agreements, and maintains minimum inventory levels. Quantum is the only
supplier of DLT tape drives, which are currently in tight supply, and Seagate is
the only manufacturer and distributor of Fibre Channel drives. If the Company
faced a shortage of DLT tape drives or Fibre Channel drives, manufacture and
shipment of certain of the Company's products could be delayed indefinitely, as
long as there continue to be no alternative sources of supply. Even if
alternative sources of supply became available, the incorporation of such
components from alternative suppliers and the manufacture and shipment of such
products could be delayed while modifications to such products and accompanying
software were made to accommodate the introduction of alternative suppliers'
32
<PAGE> 34
components. The Company has experienced a shortage of DLT tape drives in the
past, and there can be no assurance that the Company will not experience
shortages of these or other components in the future. Although hardware RAID
controllers are available from other sources, the Company estimates that
replacing CMD's hardware RAID controllers with those of another supplier would
involve several months of hardware and software modification. See "Risk
Factors -- Dependence on Limited Number of Suppliers of Key Components" for a
discussion of the risks associated with the Company's reliance on a limited
number of suppliers for key components.
COMPETITION
The market for Open Systems storage is growing and it is intensely
competitive. The Company competes primarily with traditional suppliers of
computer systems such as Compaq Computer Corporation, Hewlett-Packard, Sun
Microsystems, IBM, Data General Corporation and Digital Equipment Corporation,
which market storage systems as well as other computer products. The Company
also competes against independent storage system suppliers to the high-end Open
Systems market, including EMC Corporation, Network Appliance, Inc., Ciprico Inc.
and MTI. In the area of tape backup, the Company competes with suppliers of
tape-based storage systems such as Datalink Corporation, MTI Technology and
numerous resellers.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or devote greater resources
to the development, promotion and sale of products than the Company, or to
deliver competitive products at a lower end-user price. The Company also expects
that competition will increase as a result of industry consolidations. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced operating margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. See "Risk
Factors -- Competition."
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
Box Hill's success depends significantly upon its proprietary technology.
The Company has no patent protection for its products and has attempted to
protect its intellectual property rights through copyrights, trade secrets and
other measures. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company has registered its Box Hill(R) and Fibre Box(R)
trademarks and is claiming common law protection for and may seek to register
its RAID Box 5300 Turbo(TM), Mod Box 5000(TM), X/ORaid(TM) Module and Fibre Box
Array Explorer(TM) trademarks and other trademarks and logos as it deems
appropriate. The Company generally enters into confidentiality agreements with
its employees and with key vendors and suppliers. See "Risk Factors -- Limited
Protection of Proprietary Technology; Risk of Third-Party Claims of
Infringement" for a discussion of risks associated with attempting to secure and
maintain protection of proprietary rights and avoid claims of infringement of
the proprietary rights of others.
The Company licenses certain Fibre Channel driver software under a
royalty-free license for use in connection with host bus adapters purchased by
the Company from the licensor. The license is irrevocable, non-transferable and
non-exclusive, and continues as long as the Company continues to use the
licensor's drivers or unless the Company terminates it or either party
materially breaches its obligations.
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<PAGE> 35
EMPLOYEES
As of March 31, 1997, Box Hill had a total of 131 employees, (substantially
all of whom are full-time), of whom 16 were engaged in engineering, research and
development; 58 in marketing, sales, applications engineering and customer
support; 35 in manufacturing; 19 in general management and administration; and
three shareholder officers.
The Company has experienced no work stoppages and believes that its
employee relations are good. The Company's future performance depends in
significant part upon the continued service of its key technical and senior
management personnel. The Company provides incentives such as salary and
benefits, and will make stock option grants to attract and retain qualified
employees. See "Risk Factors -- Dependence on Key Personnel" and
"-- Difficulties in Managing Growth."
FACILITIES
Box Hill's manufacturing, research and development and principal sales and
marketing operations are conducted from, and its administrative staff are
located at, a 42,250-square-foot leased facility in New York City occupied under
a long term lease expiring in 2007. The Company also leases an office in Vienna,
Virginia to facilitate sales efforts in the greater Washington, D.C.
metropolitan area. The Company believes that its existing facilities are
adequate for its current needs.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers, and certain key employees, and their ages as of
July 20, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- -------------------------------------------------
<S> <C> <C>
Philip Black.............. 42 Chief Executive Officer and Director
Benjamin Monderer......... 39 Chairman of the Board, President and Chief
Technical Officer
Carol Turchin............. 35 Executive Vice President and Director
Mark A. Mays.............. 34 Vice President, Secretary and Director
Warren J. Fisher.......... 40 Vice President -- Sales
Adam T. Temple............ 39 Vice President -- Operations
Kenneth Pitz.............. 45 Vice President -- Materials Management
R. Robert Rebmann, Jr..... 32 Chief Financial Officer and Treasurer
Finis F. Conner........... 55 Director
Mischa Schwartz........... 71 Director
</TABLE>
- ---------------
Philip Black has been Chief Executive Officer and a Director of the Company
since June 1995. From 1976 to 1991 Mr. Black held a number of positions,
including Vice President, President, Chief Executive Officer and Vice Chairman
of the Board at Tekelec, Inc., a publicly traded company, of which he was the
founder, engaged in the design, manufacturing and marketing of diagnostics
systems and network switching solutions. From March 1990 until August 1991 Mr.
Black served as Managing Director of Echelon Europe, of which he was a
co-founder. In September 1991 Mr. Black became the Chief Executive Officer and
Treasurer of Avalon Control Technologies, a company specializing in products and
services related to Echelon's LONWorks technology, and served in those
capacities until June 1994. In April 1994 Mr. Black became President and Chief
Executive Officer of Chevry, a backup software company, and served in those
capacities until he joined the Company.
Benjamin Monderer, Eng.Sc.D., a co-founder of the Company, has been
President and a Director of the Company since its incorporation in 1988 and
became Chairman of the Board in July 1997. He is also Chief Technical Officer
and has served as Manager of Operations of the Company. Dr. Monderer had been a
member of the technical staff at Hewlett-Packard in 1980 and 1981 and was a
research scientist at Columbia University from 1986 to 1989. Dr. Monderer holds
a Bachelor of Science in Electrical Engineering degree from Princeton University
and a Master of Science degree in Electrical Engineering and a Doctor of
Engineering Science from Columbia University. Dr. Monderer is married to Carol
Turchin.
Carol Turchin, a co-founder of the Company, has been an executive officer
and a Director of the Company since its incorporation in 1988 and, in July 1997,
became Executive Vice President of the Company. She has also served as the
Company's Vice President of Sales and Marketing. Ms. Turchin holds a Bachelor of
Arts degree from Vassar College. Ms. Turchin is married to Benjamin Monderer.
Mark A. Mays, a co-founder of the Company, has been Vice President,
Technical Consultant and a Director of the Company since its incorporation in
1988 and was appointed Secretary of the Company in July 1997. From 1985 to 1988,
Mr. Mays served as Associate Research Scientist at Columbia University. Mr. Mays
holds a Bachelor of Science degree and a Master of Science degree in Electrical
Engineering from Columbia University.
Warren J. Fisher has served as Vice President -- Sales of the Company since
January 1996. From November 1992 to December 1995, Mr. Fisher was the Vice
President -- Sales of QStar Technologies, Inc., a software development company.
From April 1991 to November 1992, he served as Regional Sales Manager at Altos
Computer Systems, a computer manufacturer, and from June 1984 until April 1991,
served as Chief Executive Officer of a computer systems integration division of
George S. May
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<PAGE> 37
International Company, a consulting company. Mr. Fisher holds a Bachelor of
Science degree in Industrial Engineering and Management Science from
Northwestern University and a Master of Business Administration from
Northwestern University's J.L. Kellogg Graduate School of Management.
Adam T. Temple has served as Vice President -- Operations of the Company
since 1996. Mr. Temple joined the Company in 1991 and became Head of Operations
in 1992. Prior to joining the Company, Mr. Temple served as Advisory Engineer
for IBM at the T.J. Watson Research Center from 1990 to 1991, as a member of the
Research Staff at Columbia University's Center for Telecommunications Research
from 1985 to 1990, and as an engineer at Raytheon Company's Submarine Signal
Division from 1979 to 1985. Mr. Temple holds a Bachelor of Science degree in
Engineering and Applied Science from Yale University and a Master of Science in
Electrical Engineering from Columbia University.
Kenneth Pitz has served as Vice President -- Materials Management of the
Company since 1996. Mr. Pitz has served in various management capacities since
he joined the Company in 1992. Prior to joining the Company, Mr. Pitz served in
various capacities of increasing responsibility at Lex Electronics (formerly
Schweber Electronics, which was purchased in 1991 by Arrow Electronics, Inc.)
from 1976 to 1992, including Product Line Manager, Operations Manager of a sales
office, Director of a division and, ultimately, Director of Customer Services
for the company.
R. Robert Rebmann, Jr. has been Chief Financial Officer of the Company
since joining the Company in January 1997 and became Treasurer of the Company in
July 1997. Prior to joining the Company, Mr. Rebmann served as Audit Manager for
Perelson Weiner (formerly Weiner Associates), a mid-sized regional public
accounting firm. Mr. Rebmann held various positions of increasing responsibility
at Perelson Weiner from 1986 until December 1996. Mr. Rebmann holds a Bachelor
of Science degree in Accounting from the State University of New York at
Binghamton and is a Certified Public Accountant.
Finis F. Conner was elected a Director of the Company in July 1997. Mr.
Conner was Chairman of the Board and Chief Executive Officer of Conner
Peripherals, Inc. which he founded in 1986. Conner Peripherals, a leading
manufacturer of 3 1/2" Winchester disk drives used in personal computers, was
merged with Seagate in February 1996. Mr. Conner was a co-founder of Seagate,
and served as its Vice-Chairman from 1979 to 1985. Since February 1996, Mr.
Conner has been a principal of the Conner Group, an independent consulting
organization.
Mischa Schwartz, Ph.D. was elected a Director in July 1997. Dr. Schwartz is
the Charles Batchelor Professor Emeritus of Electrical Engineering at Columbia
University. He was Professor of Electrical Engineering and Computer Science at
Columbia University from 1974 until retirement in July 1996. Prior to 1974, he
served as Professor of Electrical Engineering at the Polytechnic Institute of
Brooklyn for 24 years, during a portion of which period he served as Head of the
Electrical Engineering Department. During his tenure at Columbia University he
served, in 1980 as a Visiting Scientist with IBM Research, from 1985 to 1988 as
Director of the Columbia University Center for Telecommunications, one of the
six National Engineering Research Centers established in 1985 under major grants
of the National Science Foundation, and during 1986 as a Resident Consultant
with NYNEX Science and Technology. He has also served as a part time consultant
on wireless communication systems for IBM Research during 1994 and for AT&T Bell
Laboratories during 1995. Dr. Schwartz, the author or co-author of nine books
and more than 150 technical publications on communication theory, systems signal
processing and computer communication networks, is a member of the National
Academy of Engineering, a Fellow and former Director of the Institute of
Electrical and Electronic Engineers ("IEEE") and former Chairman of its
Information Theory Group and Past President of the Communications Society. He
serves on the editorial board of several communication journals including
Networks and Telecommunication Systems. In 1984, he was cited by IEEE as one of
the ten all-time outstanding Electrical Engineering educators.
The Company intends to elect another director prior to the consummation of
the Offering who will not be an officer of the Company or affiliated with any
officer or director of the Company. The additional director, along with Mr.
Conner and Dr. Schwartz, will constitute the Company's Audit Committee. As of
the date of this Prospectus, the Company has not determined the identity of the
additional director.
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<PAGE> 38
DIRECTORS' COMPENSATION
In July 1997, the Company adopted a compensation policy for its
non-employee directors. The policy provides that such directors shall receive an
annual fee of $25,000 payable in quarterly installments, and shall be reimbursed
for out-of-pocket expenses incurred in connection with attending meetings of the
Board of Directors or committees thereof. Directors who are employees of the
Company do not receive additional compensation for serving as directors.
In July 1997, the Company granted, under its Incentive Program, an option
to purchase 346,500 shares of its Common Stock to Mr. Conner in connection with
his election as a director of the Company. The five-year option is exercisable
at $12.73 per share and vests ratably over sixteen quarters commencing on
October 1, 1997.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the fiscal
year ended December 31, 1996 for (i) the Company's Chief Executive Officer and
(ii) the Company's four most highly compensated other executive officers whose
salary, bonus and other compensation for such year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------------- LONG-TERM
OTHER COMPENSATION
NAME AND PRINCIPAL ANNUAL AWARDS ALL OTHER
POSITION* SALARY BONUS COMPENSATION (# OF OPTIONS) COMPENSATION
- --------------------------- -------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Philip Black............... $282,289 $ 72,630 -- -- --
Chief Executive Officer
Benjamin Monderer.......... 281,910 2,603,375 -- -- --
Chairman of the Board;
President; Chief
Technical Officer
Carol Turchin.............. 278,489 2,603,375 -- -- --
Executive Vice President
Mark A. Mays............... 278,489 295,250 -- -- --
Vice President, Secretary
Warren J. Fisher........... 101,392 -- $ 135,415(2) 13,530 $ 50,000(3)
Vice President -- Sales
</TABLE>
- ---------------
* Reflects the position or positions of such officers as of July 20, 1997.
(1) Represents amounts paid in 1996.
(2) Represents commissions paid in 1996.
(3) Represents moving expenses paid in 1996.
EMPLOYMENT AND COMPENSATION AGREEMENTS
The Company has entered into employment agreements with Dr. Monderer, Ms.
Turchin and Mr. Mays. The agreements are for a term commencing with the date of
this Prospectus and ending December 31, 2000 and provide for annual base
compensation of $500,000, $425,000 and $350,000, respectively, for Dr. Monderer,
Ms. Turchin and Mr. Mays, for the period ending December 31, 1998 with the
compensation for the remaining two years to be not less than the prior year's
base compensation, adjusted for increases in the Consumer Price Index. The
agreements also provide for an annual bonus of (i) 0.5% of the net revenues in
excess of $100,000,000 for each of Dr. Monderer and Ms. Turchin and (ii) 4.0%,
2.5% and 1.5% of the net pre-tax income above $20,000,000, respectively, for Dr.
Monderer, Ms. Turchin and Mr. Mays, for any year ending during the term of the
agreements. The employment agreements with Dr. Monderer and Ms. Turchin provide
that the Company is to secure term life insurance
37
<PAGE> 39
on the life of each of them in the amount of at least $1,000,000 for the benefit
of his or her spouse. Each of their employment agreements also provides that in
the event of the employee's death, the Company will pay the employee's spouse
the employee's base compensation for twelve months following such death at the
rate payable immediately prior to such death, plus the amount of any bonus which
would have been earned during the following 12 months, and that in event of
termination due to disability as defined in the agreement, the Company will pay
his or her base compensation for the twelve-month period following such
termination at the rate payable immediately prior to such termination.
In May 1995, the Company entered into a Compensation Plan and Agreement
(the "Compensation Plan") with Mr. Philip Black. The Compensation Plan provides
that Mr. Black's employment with the Company is at will. The agreement provides
for an annual base salary of $275,000, plus a bonus, based on the Company's net
revenues and pre-tax income for the immediately prior calendar year, of: (i)
0.05% of the net revenues plus 0.5% of the net revenues in excess of
$100,000,000 for the period and (ii) 1.12% of the pre-tax income, as defined,
plus 4.0% of the pre-tax income above $20,000,000 for the period.
The Compensation Plan may be terminated at the option of either the Company
or Mr. Black for convenience and without cause at any time upon 30 days prior
written notice. If so terminated by the Company, Mr. Black is entitled to a
severance payment equal to his annual salary and aggregate bonus for the
calendar year prior to the termination, but not more than $600,000 in the
aggregate. The employment agreements and the Compensation Plan contain a
non-competition covenant for a one-year period following termination of
employment.
STOCK OPTIONS
To date, there has been no exercise of stock options granted by the
Company. The only executive officer named in the Summary Compensation Table who
was granted stock options during the year ended December 31, 1996 was Mr. Fisher
who received, on January 8, 1996, an option to purchase 13,530 shares of Common
Stock at a price of $.75 per share.
The following table sets forth information concerning the value of
unexercised options held by Mr. Fisher and Mr. Black, the only executive
officers named in the Summary Compensation Table who held options as of December
31, 1996. None of those options is exercisable prior to consummation of the
Offering.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
NAME OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
---------------------------------------- -------------------------- ---------------------
<S> <C> <C>
Philip Black............................ 521,054 $ 2,282,217
Warren J. Fisher........................ 13,530 57,773
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock as of December 31, 1996
of $5.02 as determined by the Company.
INCENTIVE PROGRAM
The Company's 1995 Incentive Program (the "Incentive Program"), adopted in
May 1995 and as amended in July 1997, permits the grant during the ten-year
period ending in May 2005 to officers, directors and employees of the Company
and its direct and indirect subsidiaries and to certain consultants and advisors
of the Company of options to purchase up to 2,392,500 shares of the Company's
Common Stock, subject to adjustment. As of July 15, 1997, there were outstanding
options to purchase an aggregate of 1,462,547 shares of Common Stock of the
Company. None of the options is exercisable prior to the date of this
Prospectus.
38
<PAGE> 40
The Incentive Program authorizes the grant of incentive stock options
("ISO"), which may only be granted to employees of the Company or any subsidiary
or parent of the Company and non-qualified stock options ("Non-qualified
Options").
The Incentive Program is administered and interpreted by the Board of
Directors or by one or more committees appointed by the Board of Directors (the
"Plan Administrator").
The Board of Directors may, from time to time, amend, alter, suspend or
discontinue the Incentive Program, subject to required shareholder approval with
respect to amendments that would (1) increase the maximum number of shares of
Common Stock available for issuance under the Incentive Program, (2) reduce the
minimum option price, (3) effect any change inconsistent with Section 422 of the
Code or (4) extend the term of the Incentive Program.
To qualify as an ISO, the option price at which the Common Stock may be
purchased will be the Fair Market Value (or, if the grantee is a 10%
shareholder, 110% of the Fair Market Value (as defined below)) of the Common
Stock at the time of the grant. Upon exercise of any ISO or Non-qualified
Option, the grantee may pay the option price (a) in cash, (b) by delivering
shares of Common Stock held by the grantee for at least six months which have a
Fair Market Value equal to the option price on the exercise date, (c) by
surrender of options with respect to shares having a Fair Market Value equal to
the purchase price or (d) by delivering a combination of the foregoing with a
combined Fair Market Value equal to the option price.
In the event of a change in control, merger, consolidation, combination or
other transaction in which shareholders of the Company will receive cash or
securities (other than Common Stock), or if such shareholders are offered cash
or securities in exchange for their Common Stock and such offer, if accepted,
would result in the offeror becoming the owner of (a) at least 50% of the
outstanding shares of Common Stock of the Company or (b) such lesser percentage
of the Common Stock as the Plan Administrator determines will materially and
adversely affect the market value of the Common Stock after such offer, the Plan
Administrator shall have the right (i) to accelerate the exercise time of all
options such that they become exercisable in full immediately and/or (ii) adjust
the options by substituting the common stock of the surviving corporation,
parent or offeror.
THE 401(k) PLAN
In August 1995 the Company adopted a salary deferral plan, the Box Hill
Systems Corp. 401(k) Plan (the "401(k) Plan"), which is intended to qualify
under Section 401(a) and 401(k) of the Code. Company employees are eligible to
participate in the plan if they were employed as of August 1, 1995 or when they
attain the age of 21. Participants may make elective salary reduction
contributions to the 401(k) Plan of not less than 1% nor more than 15% of their
annual compensation, subject to a dollar limit established by law (which limit
was $9,500 in 1996). In addition, the Company may make a discretionary matching
contribution equal to a percentage of the employee's elected deferred amount and
may make one or both of two additional types of discretionary contributions,
neither of which is required, and each of which is to be determined annually by
the Company. To date, the Company has made no matching or other contributions
under the 401(k) Plan.
Participants are fully vested at all times in the amounts they contribute
to the Plan and are always 100% vested upon early or normal retirement. The
Company's matching contributions are to vest at a rate of 20% in the first year
of service; the vested percentage then increases by 20 percentage points for
each successive year of service and participants are 100% vested by the end of
their fifth year. Participants are always fully vested in special and additional
discretionary contributions made by the Company to the Plan. Benefits under the
Plan generally are distributable after the age of 59 1/2 or become payable upon
separation from service, retirement, death or disability.
39
<PAGE> 41
CERTAIN TRANSACTIONS
Dr. Benjamin Monderer and Ms. Carol Turchin, officers, Directors and
shareholders of the Company, have from time to time during the period from
December 31, 1993 through December 31, 1994 made loans to the Company for
working capital purposes. The largest outstanding balance of such loans, which
bore interest rates from 8% to 10% per annum, was $3,401,000 as of December 31,
1994. The loans were repaid in 1995, the last repayment, in the amount of
$1,901,000, having been made in June 1995. The related interest expense to the
Company in connection with such advances for the years ended December 31, 1994
and 1995 was $135,000 and $116,000, respectively.
Dr. Monderer, Ms. Turchin and Mr. Mark Mays are the sole shareholders of
Box Hill Systems Europe, Ltd. ("Box Hill Europe"), which they formed in 1995 to
provide marketing and technical support services to the Company in connection
with European sales. They, along with Mr. Philip Black, are its directors. The
Company pays the expenses of Box Hill Europe's operations, which consist solely
of salaries for its employees and related expenses, plus a fee of 10% of total
expenses. None of Box Hill Europe's employees is an officer or director or an
affiliate of an officer or director of the Company. For the years ended December
31, 1995 and 1996, and the three months ended March 31, 1996 and 1997, the
Company expensed $99,000, $316,000, $63,000 and $65,000, respectively, in
connection with such operation. In addition, the Company had accounts payable to
Box Hill Europe of $55,000 and $42,000 as of December 31, 1996 and March 31,
1997, respectively.
40
<PAGE> 42
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock of the Company, after giving effect to the
Offering, by (i) each person known by the Company to be the beneficial owner of
5% or more thereof, (ii) each director, (iii) each named Executive Officer and
(iv) all officers and directors as a group. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated. As
indicated elsewhere in this Prospectus, each Selling Shareholder has held and
continues to hold certain positions with the Company. See "Management."
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP AMOUNT AND NATURE
OF COMMON STOCK OF BENEFICIAL OWNERSHIP
BEFORE THIS OFFERING AFTER THIS OFFERING
---------------------------- NUMBER OF -------------------------
PERCENTAGE OF SHARES PERCENTAGE OF
NUMBER OF OUTSTANDING BEING NUMBER OF OUTSTANDING
NAME SHARES SHARES OFFERED SHARES SHARES
- --------------------------------- ---------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Benjamin Monderer(1)............. 6,600,000(2) 66.7% %
Carol Turchin(1)................. 6,600,000(2) 66.7
Mark A. Mays(1).................. 3,300,000 33.3
Philip Black..................... 234,475(3) 2.3
Finis F. Conner.................. 17,325(3) * *
Warren J. Fisher................. 4,795(3) * *
Directors and Executive Officers
as a group (10 persons)........ 10,163,842(4) 100.00% %
</TABLE>
- ---------------
* Less than one percent.
(1) The address of such person is c/o Box Hill Systems Corp., 161 Avenue of the
Americas, New York, NY 10013.
(2) Includes 3,300,000 shares owned by such individual's spouse, as to which
such individual disclaims beneficial ownership.
(3) Represents shares issuable upon exercise of options exercisable within 60
days of the date of this Prospectus.
(4) Includes 263,842 shares issuable upon exercise of options exercisable within
60 days of the date of this Prospectus by all directors and executive
officers as a group and by the wife of an officer who is also an employee of
the Company.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 40,000,000 shares of the
Common Stock, par value $.01 per share. After the closing of the Offering,
shares of the Common Stock will be issued and outstanding, assuming no
exercise of the Underwriters' over-allotment option. Concurrent with the
Company's conversion to C Corporation status immediately prior to consummation
of the Offering, the Company will amend its Certificate of Incorporation to
authorize a class of Preferred Stock, par value $.01 per share. Upon closing of
the Offering, no shares of Preferred Stock will be issued and outstanding. The
following summary of the terms and provisions of the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Certificate of Incorporation and By-laws, which have been filed as
exhibits to the Company's registration statement, of which this Prospectus is a
part, and applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders. There are no cumulative voting rights for
the election of directors. Holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor, subject to preferences that may be applicable to any
outstanding Preferred Stock. In the event of a dissolution of the Company,
whether voluntary or involuntary, after distribution to the holders of Preferred
Stock, if any, of amounts to which they may be preferentially entitled, the
holders of Common Stock are entitled to share ratably in the assets of the
Company legally available for distribution to its shareholders. None of the
holders of Common Stock has any preemptive, subscription, liquidation,
conversion or redemption rights, and no holders of Common Stock are subject to
further calls or assessments or rights of redemption by the Company. No sinking
funds are available to the holders of Common Stock. All outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of the Offering will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Upon amendment of the Company's Certificate of Incorporation immediately
prior to consummation of the Offering to authorize the class of Preferred Stock,
the Company's Board of Directors will have the authority to issue 5,000,000
shares of Preferred Stock in one or more series and to fix the powers,
designations, rights, preferences and restrictions thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the Company's shareholders. The issuance of a series
of Preferred Stock in certain circumstances, based on the terms of the series,
may delay, deter or prevent a change in control of the Company, may discourage
bids for the Company's Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. The Company currently has no
plans to issue any Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's By-laws provide that the Company will indemnify its directors
and executive officers for their reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him or her in connection with his or her
defense of any action (except an action by the Company in its own right) to
which he or she becomes a party by reason of the fact that such individual
served as an officer or director of the Company or of any corporation in which
he or she served at the request of the Company, other than in connection with
acts committed in bad faith or resulting from active and deliberate dishonesty,
or in connection with which he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled. The
Company's employment agreements with Dr. Monderer, Ms. Turchin
42
<PAGE> 44
and Mr. Mays, its Compensation Agreement with Mr. Black and its agreement with
Mr. Conner in connection with his appointment as a director contain
indemnification provisions consistent with the foregoing.
The foregoing indemnification provisions do not eliminate a director's duty
of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available. They
also do not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
CERTAIN PROVISIONS OF NEW YORK LAW
Section 912 of the NYBCL regulates "business combinations," a term covering
a broad range of transactions between "resident domestic corporations" (as
defined, which term would include the Company) and an interested shareholder,
which is defined as any person beneficially owning 20% or more of the
outstanding voting stock of the resident domestic corporation or any affiliate
or associate of that owner. Under the statute, a resident domestic corporation
may not engage in any business combination with any interested shareholder,
unless (a) if the business combination is to occur within five years of the date
the shareholder acquired 20% or more ownership, either the business combination
or the stock acquisition was previously approved by the Board of Directors, or
(b) the business combination is approved by a majority of outstanding voting
stock (not including shares owned by the interested shareholder), which approval
may not be effectively given until approximately five years after the interested
shareholder first attained 20% ownership (the "Stock Acquisition Date"), or (c)
the business combination occurs after five years after the interested
shareholder's Stock Acquisition Date and the consideration paid to the
non-interested shareholders meets certain stringent conditions imposed by
section 912. The restrictions imposed by section 912 will not apply to a
corporation that amends its by-laws by the affirmative vote of a majority of its
outstanding voting stock (not including shares owned by the interested
shareholder) to "opt out" of section 912; however, an amendment will not be
effective for 18 months after the vote and will not apply to any business
combination where the Stock Acquisition Date precedes the amendment.
At this time, the Company will not seek to "opt out" of section 912 and,
therefore, the restrictions imposed by section 912 will apply to the Company.
Section 912 of the NYBCL may discourage other persons from making a tender
offer for, or acquisitions of, a number of shares of the Common Stock. This
could have the incidental effect of inhibiting changes in management and also
may prevent temporary fluctuations in the market price of the Common Stock that
often result from actual or rumored takeover attempts. In addition, the limited
liability provisions in the Company's Certificate of Incorporation with respect
to directors and the indemnification provisions in the Company's by-laws may
discourage shareholders from bringing a lawsuit against directors for breach of
their fiduciary duty and also may have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an
action, if successful, might otherwise have benefited the Company and its
shareholders. Furthermore, a shareholder's investment in the Company may be
adversely affected to the extent the Company pays the costs of settlement and
damage awards against the Company's directors and officers pursuant to the
indemnification provisions in the Company's by-laws.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
43
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock, and any sales of substantial amounts of Common Stock in the open market
may adversely affect the market price of the Common Stock offered hereby.
Upon completion of the Offering, there will be an aggregate of
shares of Common Stock outstanding assuming (i) no exercise of the Underwriters'
over-allotment option and (ii) no exercise of outstanding options to purchase
Common Stock. Of these shares, the shares of Common Stock sold in this
Offering will be freely tradable without restriction or further registration
under the Securities Act, unless such shares are held by "affiliates" of the
Company, as that term is defined under the Securities Act and the regulations
promulgated thereunder. The remaining shares of Common Stock (the
"Restricted Shares") are held by the Selling Shareholders. The Restricted Shares
were sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted" securities within the
meaning of Rule 144 under the Securities Act.
The Company and each of its directors and officers including the Selling
Shareholders, have agreed that, for a period of 180 days (270 days in the case
of the Selling Shareholders) after the date of this Prospectus, they will not
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock
(without the prior consent of Salomon Brothers Inc) provided that the Company
may issue and sell shares of Common Stock pursuant to the Incentive Program.
Upon expiration of a period of days from the date of this Prospectus,
approximately of the Restricted Shares will become eligible for sale
subject to the provisions of Rule 144 under the Securities Act. The remainder of
the Restricted Shares held by existing shareholders will become eligible for
sale at various times thereafter, subject to the provisions of Rule 144.
Additionally, shares issued pursuant to the Incentive Program may be sold
beginning 90 days after this Offering by non-affiliates of the Company subject
to the manner of sale requirements of Rule 144, but without compliance with the
other requirements of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year, is entitled to sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock ( shares immediately after the Offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years would be entitled to sell such shares under Rule 144(k) without regard
to the requirements described above.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under its Incentive
Program, thus permitting the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act. Such registration
statement will become effective immediately upon filing. As of July 15, 1997,
options to purchase 1,462,547 shares of Common Stock at a weighted average
exercise price of $3.71 per share were outstanding under the Company's Incentive
Program.
44
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to the Underwriters,
and each of the Underwriters, for whom Salomon Brothers Inc and Montgomery
Securities are acting as representatives (the "Representatives"), has severally
agreed to purchase from the Company and the Selling Shareholders the number of
shares set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
Salomon Brothers Inc .......................................
Montgomery Securities ......................................
-------
Total.............................................
=======
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares of Common Stock are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated. The Company and the Selling Shareholders have been advised by the
Representatives that the several Underwriters propose initially to offer such
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to other dealers.
After the initial offering, the public offering price and such concessions may
be changed.
The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to additional shares of Common Stock, at
the public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option only to cover
over-allotments in the sale of the shares of Common Stock that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment.
The Selling Shareholders have agreed that they will not, without prior
written consent of Salomon Brothers Inc, offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offering of, any
shares of Common Stock beneficially owned by such person or any securities
convertible into, or exchangeable for, shares of Common Stock during the period
of 270 days after the date of this Prospectus, other than shares of Common Stock
disposed of as bona fide gifts. The Company and its officers and directors other
than the Selling Shareholders have agreed that they will not, without the prior
written consent of Salomon Brothers Inc, offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offer of any shares
of Common Stock, options or any securities convertible into, or exchangeable
for, shares of Common Stock during the period of 180 days after the date of this
Prospectus; provided, however, that the Company may issue and sell Common Stock
pursuant to the Incentive Program and the Company may issue Common Stock
issuable upon the exercise of securities outstanding on the date of this
Prospectus. Salomon Brothers Inc in its sole discretion may release any of the
shares subject to the lock-up at any time without notice.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The Representatives, on behalf of the Underwriters, may engage in
stabilizing transactions, syndicate covering transactions and penalty bids in
accordance with Rule 104 under the Securities Exchange Act of 1934, as amended.
Stabilizing transactions permit bids to purchase the Common Stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market following
completion of this Offering to cover
45
<PAGE> 47
all or a portion of a syndicate short position created by the Underwriters
selling more shares of Common Stock in connection with this Offering than they
are committed to purchase from the Company. In addition, the Representatives, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements between the Underwriters whereby they may reclaim from an
Underwriter (or a dealer participating in the Offering), for the account of the
Underwriters, the selling concession with respect to shares of Common Stock that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Such stabilizing transactions, syndicate
covering transactions and penalty bids may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required and, if any are undertaken, they may be discontinued at any time.
The Representatives have informed the Company and the Selling Shareholders
that they do not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this Offering there has been no public market for the Common
Stock. The price to the public for the Shares has been determined through
negotiations between the Company, the Selling Shareholders and the
Representatives and was based on, among other things, the Company's financial
and operating history and condition, the prospects of the Company and its
industry in general, the management of the Company and the market prices of
securities of companies engaged in businesses similar to those of the Company.
There can, however, be no assurance that the prices at which the Shares will
sell in the public market after this Offering will not be lower than the price
at which they are sold by the Underwriters.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brock, Fensterstock, Silverstein,
McAuliffe & Wade, LLC, New York, NY. Certain legal matters in connection with
this Offering will be passed upon for the Underwriters by Cravath, Swaine &
Moore, New York, NY.
EXPERTS
The financial statements and schedule as of December 31, 1996 and for the
year then ended included in this Prospectus and elsewhere 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 financial statements and schedule as of December 31, 1995 and
for the years ended December 31, 1994 and 1995 included in this Prospectus have
been audited by Perelson Weiner, independent auditors, 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.
CHANGE IN ACCOUNTANTS
On January 6, 1997, the Company engaged Arthur Andersen LLP as its
independent public accountants. The decision to change accountants was approved
by the Board of Directors. The auditor's report of Perelson Weiner for the years
ended December 31, 1994 and 1995, included elsewhere herein, does not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with the
audits of the company's financial statements for the years ended December 31,
1994 and 1995 and in the subsequent interim period prior to the dismissal, there
were no disagreements with the former auditors on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the former auditor's satisfaction, would
have caused them to make reference to the subject matter in their report. Prior
to retaining Arthur Andersen LLP, the Company did not consult with Arthur
Andersen LLP regarding the application of accounting principles to a specified
transaction, the type of audit opinion that might be rendered on the Company's
financial statements, or any other matter.
46
<PAGE> 48
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, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all the information contained in the Registration Statement, certain
portions of which have been 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 and
the exhibits and schedules thereto. Statements made in the Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected, without charge, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048 or
on the Internet at http://www.sec.gov. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates.
The Company intends to furnish its shareholders with annual reports
containing financial statements for each fiscal year audited by an independent
public accounting firm and quarterly reports for the first three quarters of
each fiscal year containing unaudited interim financial information.
47
<PAGE> 49
GLOSSARY
ANSI....................... American National Standards Institute.
clustering software........ Clustering software allows a client software
application to interact with a cluster of host
servers, as if the cluster were a single host.
Clustering software is designed to increase both
availability (by providing alternative processing
capacity in the event of a host failure) and
scalability (by sharing resources among a number
hosts in the cluster).
CPU........................ Central Processing Unit. Refers to a
microprocessing chip in a host computer.
Disk Array................. A storage system comprising a variable number of
disk drives externally attached by means of an
interface to a computer system.
DLT........................ Digital Linear Tape. A proprietary tape drive
product line designed and built by Quantum.
failover................... A high-availability and data protection feature
that automatically transfers functions from a
failed device to a redundant device.
fault tolerance............ The capability of a system to withstand a degree of
failure and continue to perform its functions.
Fibre Channel.............. The name given to a new interface standard
developed by ANSI.
GB......................... Gigabyte. 1,024 megabytes.
high availability.......... The capability of a system to perform its functions
with minimal downtime.
hot-swappable.............. The ability of components of a storage system, such
as disks, power supplies and fans, to be exchanged
while the system remains powered on.
MB......................... Megabyte. 1,048,576 bytes, a unit of measurement
for data storage.
Open Systems............... Computing environments incorporating computers that
act as servers interconnected over a network to
client workstations and a variety of other system
components and peripherals based on a series of
published or open interface specifications.
RAID....................... Redundant Array of Inexpensive/Independent Disks. A
Disk Array storage system with fault tolerant
capabilities.
SCSI....................... Small Computer Systems Interface. The name given to
a commonly used interface standard developed by
ANSI.
TB......................... Terabyte. 1,024 gigabytes.
Ultra SCSI................. An advanced form of SCSI with increased performance
capabilities.
UNIX....................... A popular multi-user computer operating system
commonly used in Open Systems.
Windows NT................. A proprietary Microsoft computer operating system
commonly used in Open Systems.
48
<PAGE> 50
BOX HILL SYSTEMS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants -- Arthur Andersen LLP....................... F-2
Independent Auditors' Report -- Perelson Weiner....................................... F-3
Balance Sheets........................................................................ F-4
Statements of Income.................................................................. F-5
Statements of Shareholders' Equity.................................................... F-6
Statements of Cash Flows.............................................................. F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 51
After the recapitalization discussed in Note 9 to the Financial Statements is
effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 23, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Box Hill Systems Corp.:
We have audited the accompanying balance sheet of Box Hill Systems Corp. (a
New York Corporation) as of December 31, 1996, and the related statements of
income, shareholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Box Hill Systems Corp. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Philadelphia, Pa.
March 21, 1997 (except with
respect to the matter discussed
in Note 9 as to which the
date is , 1997)
F-2
<PAGE> 52
After the recapitalization discussed in Note 9 to the Financial Statements is
effected, we will be in a position to render the following report.
PERELSON WEINER
New York, NY
July 23, 1997
INDEPENDENT AUDITORS' REPORT
Board of Directors
Box Hill Systems Corp.
We have audited the accompanying balance sheets of Box Hill Systems Corp.,
an S corporation, as of December 31, 1994 and 1995 and the related statements of
income, changes in shareholders' equity and cash flows for the years then ended.
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 disclosure 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 financial statements referred to above, present fairly,
in all material respects, the financial position of Box Hill Systems Corp. as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
New York, NY
January 30, 1997 (except with respect
to the matters discussed in Note 9
as to which the date is , 1997)
F-3
<PAGE> 53
BOX HILL SYSTEMS CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ---------------------
------------------- PRO FORMA
1995 1996 ACTUAL (NOTE 2)
------- ------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,478 $ 994 $ 3,346 $ 3,346
Accounts receivable, net of allowance of $162,
$206 and $206................................ 5,294 9,238 9,795 9,795
Inventories..................................... 4,224 6,114 7,922 7,922
Prepaid expenses and other...................... 121 215 233 233
Deferred income taxes........................... -- -- -- 448
------- ------- ------- -------
Total current assets.................... 13,117 16,561 21,296 21,744
Property and equipment, net....................... 828 855 841 841
Deferred income taxes............................. -- -- -- 69
------- ------- ------- -------
$13,945 $17,416 $22,137 $22,654
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 4,062 $ 5,152 $ 7,285 $ 7,285
Accrued expenses................................ 567 1,111 2,716 2,716
Customer deposits............................... 795 1,346 1,659 1,659
Deferred revenues............................... 424 883 1,089 1,089
Distribution payable to shareholders............ -- -- -- 9,954
------- ------- ------- -------
Total current liabilities............... 5,848 8,492 12,749 22,703
------- ------- ------- -------
Deferred rent..................................... 154 155 155 155
------- ------- ------- -------
Commitments and contingencies (Note 8)
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized. None issued............... -- -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 9,900,000 shares issued and
outstanding.................................. 99 99 99 99
Retained earnings (accumulated deficit)......... 7,844 8,670 9,134 (303)
------- ------- ------- -------
Total shareholders' equity (deficit).... 7,943 8,769 9,233 (204)
------- ------- ------- -------
$13,945 $17,416 $22,137 $22,654
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 54
BOX HILL SYSTEMS CORP.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $55,232 $40,225 $50,027 $11,099 $15,232
Cost of goods sold.......................... 33,568 24,067 33,028 6,896 10,019
------- ------- ------- ------- -------
Gross profit...................... 21,664 16,158 16,999 4,203 5,213
------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation........ 15,174 9,067 6,347 1,738 2,040
Engineering and product development....... 1,420 1,634 2,071 557 465
Sales and marketing....................... 2,405 3,150 5,325 1,156 1,548
General and administrative................ 1,351 1,931 2,348 472 626
------- ------- ------- ------- -------
20,350 15,782 16,091 3,923 4,679
------- ------- ------- ------- -------
Operating income.................. 1,314 376 908 280 534
Interest expense (income), net.............. 62 33 (144) (14) (11)
------- ------- ------- ------- -------
Income before income taxes........ 1,252 343 1,052 294 545
Income taxes................................ 426 311 226 63 81
------- ------- ------- ------- -------
Net income.................................. $ 826 $ 32 $ 826 $ 231 $ 464
======= ======= ======= ======= =======
Pro forma data (unaudited) (Note 2):
Pro forma income before income taxes...... $ 6,124 $ 1,713 $ 2,266
Pro forma income taxes.................... 2,358 660 872
------- ------- -------
Pro forma net income...................... $ 3,766 $ 1,053 $ 1,394
======= ======= =======
Pro forma net income per share............ $ $ $
======= ======= =======
Shares used in computing pro forma net
income per share.......................
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 55
BOX HILL SYSTEMS CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993................. 9,900,000 $ 99 $6,986 $ 7,085
Net income............................... -- -- 826 826
--------- ---- ------ ------
Balance, December 31, 1994................. 9,900,000 99 7,812 7,911
Net income............................... -- -- 32 32
--------- ---- ------ ------
Balance, December 31, 1995................. 9,900,000 99 7,844 7,943
Net income............................... -- -- 826 826
--------- ---- ------ ------
Balance, December 31, 1996................. 9,900,000 99 8,670 8,769
Net income (unaudited)................... -- -- 464 464
--------- ---- ------ ------
Balance, March 31, 1997 (unaudited)........ 9,900,000 $ 99 $9,134 $ 9,233
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 56
BOX HILL SYSTEMS CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income.......................... $ 826 $ 32 $ 826 $ 231 $ 464
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
--
Depreciation and
amortization................ 174 210 257 46 62
Other.......................... 21 21 45 11 --
Changes in operating assets and
liabilities --
Accounts receivable....... (421) 3,074 (3,989) (1,486) (557)
Inventories............... (1,680) 318 (1,890) 95 (1,808)
Prepaid expenses and
other.................. (44) (50) (94) (69) (18)
Accounts payable.......... (680) 934 1,090 42 2,133
Accrued expenses.......... 50 102 545 1,269 1,605
Customer deposits......... 717 (73) 551 43 313
Deferred revenues......... -- 424 459 35 206
------ ------ ------ ------ ------
Net cash provided by (used
in) operating
activities............. (1,037) 4,992 (2,200) 217 2,400
------ ------ ------ ------ ------
Investing Activities:
Purchases of property and
equipment........................ (519) (375) (284) (31) (48)
Other............................... (225) 225 -- -- --
------ ------ ------ ------ ------
Net cash used in investing
activities............. (744) (150) (284) (31) (48)
------ ------ ------ ------ ------
Financing Activities:
Advances from (repayments to)
shareholders..................... 401 (3,401) -- -- --
------ ------ ------ ------ ------
Net increase (decrease) in
cash and cash
equivalents............ (1,380) 1,441 (2,484) 186 2,352
Cash and cash equivalents, beginning
of period........................... 3,417 2,037 3,478 3,478 994
------ ------ ------ ------ ------
Cash and cash equivalents, end of
period.............................. $2,037 $3,478 $ 994 $3,664 $3,346
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 57
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Box Hill Systems Corp. (the "Company"), designs, manufactures, markets and
supports high performance data storage systems for the Open Systems computing
environment. The Company employs a direct marketing strategy aimed at
data-intensive industries which, to date, include financial services,
telecommunications, health care, government/defense and academia. The Company's
manufacturing operations consist primarily of assembly and integration of
components and subassemblies into the Company's products. The Company's
manufacturing, research and development and principal sales and marketing
operations are conducted from a single, leased facility in New York City.
Interim Financial Statements
The financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited. In the opinion of management, this
financial information includes all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial information set forth.
The results of operations for the three months ended March 31, 1997, are not
necessarily indicative of the results to be expected for the full year.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition and Product Warranty
The Company recognizes revenue on product sales when products are shipped.
Revenues from maintenance contracts are deferred and recognized on a
straight-line basis over the contract term, generally twelve months. The Company
generally extends to its customers the warranties provided to the Company by its
suppliers. The Company provides for the estimated cost that may be incurred for
product warranties in the period the related revenue is recognized. To date, the
Company's suppliers have covered the majority of the Company's warranty costs.
There can be no assurance that such suppliers will continue to cover such costs
in the future, which could have a material adverse effect on the Company's
financial position and results of operations.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments purchased with
an original maturity of three months or less. Cash equivalents consist
principally of money market mutual funds.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist principally of purchased components used as raw materials.
F-8
<PAGE> 58
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost. Equipment and furniture are
depreciated using accelerated methods over their estimated useful lives (5 to 7
years). Leasehold improvements are amortized on a straight-line basis over the
life of the lease. Significant improvements are capitalized and expenditures for
maintenance and repairs are charged to expense as incurred. Upon the sale or
retirement of these assets, the applicable cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
the statements of income.
Advertising Costs
The Company expenses advertising costs as incurred. For the years ended
December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996
and 1997, advertising expense was $343, $383, $520, $119 and $158, respectively.
Product Development
Research and development costs are expensed as incurred. In conjunction
with the development of its products, the Company incurs certain software
development costs. No costs have been capitalized pursuant to SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," since the period between achieving technological feasibility and
completion of such software is relatively short and software development costs
qualifying for capitalization have been insignificant.
Income Taxes
The Company has elected to be taxed as a Subchapter "S" Corporation under
the Internal Revenue Code and the New York State Tax Code. Accordingly, no
provision has been made for federal or state income taxes since the Company's
shareholders' are taxed directly on their proportionate share of the Company's
taxable income. Income taxes consist of New York City taxes and state franchise
taxes.
Immediately preceding the Company's proposed initial public offering (see
Note 9), the Company will terminate its S Corporation status and will become
subject to federal and state income taxes. Upon terminating its S Corporation
status, the Company will record a tax benefit for the recognition of a net
deferred tax asset estimated at $517 as of March 31, 1997 (see Note 2).
Supplemental Cash Flow Disclosures
Cash paid for interest was $135 and $116, for the years ended December 31,
1994 and 1995. Cash paid for income taxes for the years ended December 31, 1994,
1995 and 1996, and for the three months ended March 31, 1996 and 1997, was $485,
$355, $256, $56 and $30, respectively.
New Accounting Pronouncements
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 establishes financial accounting and reporting
standards for stock-based compensation plans. This statement also applies to
transactions in which an entity issues its equity instruments to acquire goods
and services from nonemployees. The Company adopted the disclosure requirements
of SFAS No. 123 relative to its employee stock compensation plan (see Note 5).
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This statement is effective for fiscal years ending after
December 15, 1997 and, when adopted, will
F-9
<PAGE> 59
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
require restatement of prior years' earnings per share. The adoption of SFAS No.
128 will not have a material effect on the pro forma net income per share
reported in the accompanying financial statements.
2. PRO FORMA DATA (UNAUDITED)
Pro Forma Balance Sheet Data
The pro forma balance sheet of the Company as of March 31, 1997 reflects
(i) a distribution payable to the shareholders of the Company of all previously
taxed, but undistributed, S Corporation earnings (estimated at $9,954 as of
March 31, 1997), and (ii) a net deferred tax asset which will be recorded by the
Company as a result of terminating its S Corporation status shortly before the
effective date of the Offering (estimated at $517 as of March 31, 1997). The
deferred income tax asset will represent the tax effect of the cumulative
differences between the financial reporting and income tax bases of certain
assets and liabilities as of the termination of S Corporation status, and will
be recorded as an income tax benefit in the quarter in which the Offering is
completed. The actual deferred tax asset recorded will be adjusted to reflect
the effect of operations from April 1, 1997 through the termination of the S
Corporation status. In addition, the actual amount of the distribution will be
adjusted to reflect the taxable income and any shareholder distributions during
the same period.
The significant items comprising the Company's pro forma net deferred tax
asset as of March 31, 1997, are as follows:
<TABLE>
<S> <C>
Allowance for doubtful accounts.................................... $ 79
Inventory reserves................................................. 185
Accrued expenses and other......................................... 184
Deferred rent...................................................... 60
Depreciation....................................................... 9
----
$ 517
====
</TABLE>
Pro Forma Income Statement Data
In connection with the proposed Offering, the Company entered into
employment agreements with three of its officers, who are the current
shareholders, which provide for a combined minimum annual base compensation of
$1,275, in addition to provisions for benefits, termination and certain
incentive compensation based on future revenues and earnings (see Note 9). For
informational purposes, pro forma income before income taxes for the year ended
December 31, 1996 and for the three months ended March 31, 1996 and 1997 has
been presented to reflect the elimination of historical shareholder officers'
compensation expense in excess of the base salary amounts included in employment
agreements.
Additionally, immediately preceding the Offering, the Company will
terminate its status as an S Corporation and will be subject to federal and
state income taxes. Accordingly, for informational purposes, the accompanying
statements of income for the year ended December 31, 1996, and the three months
ended March 31, 1996 and 1997 include a pro forma adjustment for the income
taxes which would have been recorded if the Company had been a C Corporation,
based on the tax laws in effect during the respective periods. The pro forma
adjustment for income taxes does not include a one-time income tax benefit
related to the recognition of a net deferred tax asset which will be recorded by
the Company upon terminating its S Corporation status (estimated at $517 as of
March 31, 1997).
F-10
<PAGE> 60
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the federal statutory income tax rate and the pro
forma effective income tax rate for the year ended December 31, 1996 is as
follows:
<TABLE>
<S> <C>
Federal statutory rate............................................. 34.0%
State and local income taxes, net of federal benefit............... 6.2
Other.............................................................. (1.7)
-----
38.5%
=====
</TABLE>
Pro Forma Net Income Per Share
Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the respective periods,
adjusted for the effect of dilutive common stock options, and after giving
effect to the estimated number of shares that would be required to be sold
(assuming an initial public offering price of $ per share) to fund a
distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $9,954 had such distribution
occurred on March 31, 1997. Pursuant to the requirements of the Securities and
Exchange Commission, common stock equivalents issued by the Company during the
12 months immediately preceding the Offering have been included in the
calculation of the shares used in computing pro forma net income per share as if
they were outstanding for all periods presented using the treasury stock method.
3. RISKS AND UNCERTAINTIES
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, dependence on new products, dependence on a limited number of
suppliers of key components, reliance on a limited number of principal
customers, concentration of customers in targeted industries, difficulties in
managing growth, competition, competitive pricing, dependence on key personnel,
enforcement of the Company's intellectual property rights, dependence on a
single production facility, and an uneven pattern of quarterly results.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company does not require collateral or other securities to support customer
receivables. The majority of the Company's net revenues are derived from sales
to customers in the financial services and telecommunications industries and a
significant amount of the Company's net revenues are derived from sales to
customers located in the New York City area. For the years ended December 31,
1994 and 1995, two customers accounted for 23.2% and 23.6%, respectively, of the
Company's net revenues. In 1996, no single customer accounted for greater than
10% of the Company's net revenues. For the three months ended March 31, 1997,
two customers accounted for 21.6% of the Company's net revenues.
Export Sales
There is no single foreign geographic area of significant concentration.
Export sales accounted for approximately 16.6%, 15.8%, 18.0% and 14.7% of net
revenues for the years ended December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1997, respectively.
F-11
<PAGE> 61
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Dependence on Suppliers
The Company purchases substantially all of its disk drives, a critical
component of its storage products, from one supplier. Approximately 51.1%,
35.6%, 52.7% and 42.0% of the Company's total component purchases were made from
this supplier for the years ended December 31, 1994, 1995 and 1996 and for the
three months ended March 31, 1997, respectively. Additionally, the Company
purchases all of its DLT tape drives from another supplier, which is the only
source for such tape drives. Approximately 13.8%, 16.5% and 11.0% of the
Company's total component purchases were from this supplier for the years ended
December 31, 1995 and 1996 and for the three months ended March 31, 1997,
respectively. There are a limited number of suppliers for certain of the
Company's other components and management believes that other suppliers could
provide certain similar products on comparable terms. Any shortage of key
components and any delay or other difficulty in obtaining such components from
other suppliers and integrating them into the Company's products or lack of
supply from sole source suppliers could have a material adverse effect on the
Company's financial position and results of operations.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Equipment and furniture............................ $1,064 $1,325 $ 1,343
Leasehold improvements............................. 405 428 458
------ ------ ------
1,469 1,753 1,801
Less -- Accumulated depreciation................... (641) (898) (960)
------ ------ ------
$ 828 $ 855 $ 841
====== ====== ======
</TABLE>
Depreciation expense was $174, $210, $257, $46 and $62 for the years ended
December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996
and 1997, respectively.
5. STOCK INCENTIVE PLAN
The Company's stock incentive plan ("the Plan"), adopted in May 1995 and as
amended in July 1997, provides for the granting of incentive and nonqualified
stock options to employees, non-employee directors, and consultants. The Company
has currently reserved 2,392,500 shares of Common Stock for issuance pursuant to
the Plan. The terms and conditions of grants of stock options are determined by
the Board of Directors in accordance with the terms of the Plan.
Information with respect to the options under the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF WEIGHTED AVERAGE
SHARES EXERCISE PRICES EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1994.......... -- $ -- $ --
Grants.............................. 1,043,833 .64- .75 .69
--------- ---------
Balance, December 31, 1995.......... 1,043,833 .64- .75 .69
Grants.............................. 68,947 .83-5.02 1.93
--------- ---------
Balance, December 31, 1996.......... 1,112,780 .64-5.02 .77
Grants.............................. 9,900 5.03 5.03
Forfeitures......................... (19,833) .75-5.02 4.68
--------- ---------
Balance, March 31, 1997............. 1,102,847 $.64-5.03 $ .79
========= =========
</TABLE>
F-12
<PAGE> 62
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1997, no options were exercisable and 1,289,653 options were
available for future grant. In June 1997, the Company issued an option to an
employee to purchase 13,200 shares of the Company's Common Stock at an exercise
price of $10.61 per share. The options are exercisable 10 years from the date of
the grant, or vest ratably over five years from the grant date upon a sale of
the Company or a public offering of the Company's Common Stock, as defined (see
Note 9).
In July 1997, the Company issued an option to a new director to purchase
346,500 shares of the Company's Common Stock at an exercise price of $12.73 per
share. The option vests ratably over four years, beginning in October 1997, and
is exercisable through July 2002.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for its stock option plan. The disclosure requirements of SFAS No. 123 were
adopted by the Company in 1996. Had compensation cost for the Plan been
determined based upon the fair value of the options at the date of grant, as
prescribed by SFAS No. 123, the Company's pro forma net income and pro forma net
income per share would have been reduced to the following amounts:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Pro forma net income, as reported..................... $ 3,766 $ 1,394
Pro forma net income, as adjusted..................... 3,661 1,362
Pro forma net income per share, as reported...........
Pro forma net income per share, as adjusted...........
</TABLE>
The weighted average fair value of each stock option granted during the
years ended December 31, 1995 and 1996 and for the three months ended March 31,
1997 was $.46, $1.86 and $3.32, respectively. As of March 31, 1997, the weighted
average remaining contractual life of each stock option outstanding was 8.5
years. The weighted average remaining contractual life of each stock option
granted during the years ended December 31, 1995 and 1996 and the three months
ended March 31, 1997 was 8.5, 9.1 and 9.8 years, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rate............................. 6.1% 6.0% 6.1%
Expected dividend yield............................. -- -- --
Expected life....................................... 7 years 7 years 7 years
Expected volatility................................. 60% 60% 60%
</TABLE>
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
6. RELATED PARTY TRANSACTIONS
In connection with working capital needs, two shareholders made certain
advances to the Company which were repaid in 1995. The advances bore interest at
rates ranging from 8% to 10%. The Company recorded interest expense of $135 and
$116 for the years ended December 31, 1994 and 1995, respectively, related to
such advances.
F-13
<PAGE> 63
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company's shareholders formed an affiliated Company, Box
Hill Systems Europe Ltd. ("Box Hill Europe"), to provide marketing and technical
support services to the Company. For the years ended December 31, 1995 and 1996,
and for the three months ended March 31, 1996 and 1997, the Company expensed
$99, $316, $63 and $65, respectively, related to operating costs of Box Hill
Europe. The Company had a payable to Box Hill Europe of $55 and $42 as of
December 31, 1996 and March 31, 1997, respectively.
7. RETIREMENT SAVINGS PLAN
Effective August 1, 1995, the Company established a retirement savings plan
under the provisions of Section 401(k) of the Internal Revenue Code. The plan
covers all employees who were employed on the effective date of the plan or upon
the attainment of age 21. The Company can make discretionary contributions to
the plan. No contributions were made to the Plan for the years ended December
31, 1994, 1995 and 1996 and for the three months ended March 31, 1997.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its primary operating facility under a noncancelable
operating lease. The lease provides for a rent abatement which is being
amortized over the life of the lease. Rent expense for the years ended December
31, 1994, 1995 and 1996 and for the three months ended March 31, 1996 and 1997,
was $135, $366, $369, $87 and $90, respectively.
Future minimum lease payments, on a cash basis, under all noncancelable
operating leases at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................ $ 347
1998........................................ 337
1999........................................ 337
2000........................................ 356
2001........................................ 370
Thereafter.................................. 1,464
------
$ 3,211
======
</TABLE>
Employment Agreements
The Company has an employment contract with its Chief Executive Officer
("CEO") which provides for base annual compensation, incentive bonus, benefits
and termination. Either the Company or the CEO may terminate the agreement at
any time with or without cause. However, if the Company terminates the agreement
without cause, the Company must continue to pay the CEO for a one-year period
subsequent to the termination.
On July 15, 1997, the Company entered into employment agreements with its
three shareholder officers, which commence on the closing date of the Company's
initial public offering (see Note 9). The agreements provide for combined
minimum annual base compensation of $1,275, benefits termination,
non-competition and death benefits. The agreements extend through December 31,
2000. In addition, the shareholder officers are eligible for a combined annual
bonus equal to (i) 1.0% of the consolidated net revenues of the Company in
excess of $100 million, plus (ii) 8.0% of the Company's income before income
taxes in excess of $20 million, for any fiscal year during the agreement term.
F-14
<PAGE> 64
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that the outcome of such
litigation and claims will not have a material adverse effect on the Company's
financial position or results of operations.
9. RECAPITALIZATION:
The Company is contemplating an initial public offering of shares
of its Common Stock, of which will be sold by current shareholders. In
connection therewith, on July 3, 1997, the Company's Board of Directors and
shareholders approved an amendment to the Company's Certificate of Incorporation
to be filed prior to the Offering authorizing 5,000,000 shares of $.01 par value
Preferred stock and authorized a 3.3-for-1 split of its Common Stock to be
effected prior to the Offering. The authorized Preferred Stock and the stock
split have been retroactively reflected in the accompanying financial
statements.
F-15
<PAGE> 65
[DIAGRAM OF COMPANY'S PRODUCTS IN DEVELOPMENT]
<PAGE> 66
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY 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 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 DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Termination of S Corporation Status
and Dividend Policy................. 15
Capitalization........................ 16
Dilution.............................. 17
Selected Historical and Pro Forma
Financial Data...................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 26
Management............................ 35
Certain Transactions.................. 40
Principal and Selling Shareholders.... 41
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Change in Accountants................. 46
Additional Information................ 47
Glossary.............................. 48
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
BOX HILL SYSTEMS CORP.
COMMON STOCK
($.01 PAR VALUE)
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
PROSPECTUS
DATED , 1997
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with the offering described
in this Registration Statement. All of such amounts (except the SEC Registration
Fee and NASD Filing Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 18,182
NASD Filing Fee................................................... 6,500
New York Stock Exchange Filing Fee................................ *
Printing and Engraving Costs...................................... *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Transfer Agent and Registrar Fees and Expenses.................... *
Miscellaneous..................................................... *
-------
Total................................................... $ *
-------
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides that a director of
the Company shall not be liable to the Company or its shareholders for damages
for any breach of duty in such capacity unless a judgment or other final
adjudication adverse to such director establishes that his acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or that his or her acts
violated Section 719 of the New York Business Corporation Law.
The By-laws of the Company further provide that the Company shall indemnify
any officer or director of the Company for his or her reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him or her in
connection with his or her defense of any action (except an action by the
Company in its own right) to which he or she becomes a party by reason of the
fact that such individual served as an officer or director or employee of the
Company or of any corporation in which he or she served at the request of the
Company, unless judgment or final adjudication adverse to the officer or
director establishes that his or her acts were committed in bad faith or were
the result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
Section 722 of the New York Business Corporation Law provides, in
substance, that New York corporations may indemnify their directors and officers
in connection with actions or proceedings (other than one by or in the right of
the corporation to procure a judgment in its favor) brought against such
directors or officers, including actions brought against such directors or
officers by or in the right of any other corporation, by reason of the fact that
they are or were such directors or officers, against judgements, fines, amounts
paid in settlement and reasonable expenses.
The Company's employment agreements with Dr. Benjamin Monderer, Ms. Carol
Turchin and Mr. Mark Mays, all executive officers and directors of the Company,
its compensation agreement with Mr. Philip Black, a director of the Company and
its Chief Executive Officer, and an agreement with Mr. Finis Conner, a director
of the Company, provide for the indemnification of those individuals to the
extent of the foregoing.
II-1
<PAGE> 68
[Under Section of the Underwriting Agreement, the Representatives are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities under the
Securities Act].
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
(1) In May 1995 the Company amended its Certificate of Incorporation to
increase the Company's authorized shares of Common Stock to 40,000,000,
par value $.01 per share, and recapitalized its outstanding 15 shares
held by Dr. Benjamin Monderer, Ms. Carol Turchin and Mr. Mark Mays into
3,000,000 shares of Common Stock. In July 1997, the Board of Directors
authorized an issuance to the shareholders prior to the consummation of
the Offering of a dividend of 3.3 shares of Common Stock for each share
held. In the opinion of the Company, the recapitalization and the stock
dividend did not constitute offers or sales under the Securities Act.
(2) During the period from May 1995 through July 3, 1997, the Company
granted options to purchase an aggregate of 1,462,547 shares of Common
Stock (after giving retroactive effect to the share dividend) under its
Incentive Program to 94 employees and a director of the Company. The
options included grants of options with respect to an aggregate of
941,325 shares granted to officers and Directors as a group and to the
wife of an officer who is also an employee. None of the options are
exercisable prior to the commencement of the public offering of the
shares being registered pursuant to this Registration Statement. The
Company intends to register the shares subject to the Incentive Program
on a Registration Statement on Form S-8 which will be filed shortly
after the effective date of this Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company
3.2 Amended and Restated By-laws of the Company
4.1 Form of Common Stock certificate of the Company*
5.1 Opinion of Brock, Fensterstock, Silverstein, McAuliffe & Wade, LLC*
10.1 Compensation Plan and Agreement between the Company and Philip Black
10.2 Employment Agreement between the Company and Carol Turchin
10.3 Employment Agreement between the Company and Benjamin Monderer
10.4 Employment Agreement between the Company and Mark Mays
10.5 Incentive Program of the Company
10.6 License Agreement with Emulex Corporation
10.7 Lease Agreement, dated as of December 23, 1993, as extended and modified, related to
the Company's facilities in New York City*
11.1 Statement regarding computation of pro forma net income per share
16 Letter re: change in certifying accountants*
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
\
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Perelson Weiner
23.3 Consent of Brock, Fensterstock, Silverstein, McAuliffe & Wade, LLC (contained in
Exhibit 5.1)
24 Power of Attorney (included with the signature page hereof)
27 Financial Data Schedule
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, 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 such
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 Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance on 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 is declared effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such 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 the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-3
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on this 23rd day of July, 1997.
BOX HILL SYSTEMS CORP.
By: /s/ PHILIP BLACK
------------------------------------
Philip Black
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby authorizes and constitutes Philip Black and Benjamin Monderer, and
each of them singly, his true and lawful attorneys-in-fact with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Box Hill Systems Corp. to sign and file any and all amendments (including
posteffective amendments) to this Registration Statement, and any registration
statement filed pursuant to Rule 462(b) of the Securities Act of 1933, with all
exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, and he hereby ratifies and confirms all that
said attorneys-in-fact or any of them, or this or his substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ----------------------------------- ---------------------------------- --------------
<C> <S> <C>
/s/ BENJAMIN MONDERER Chairman of the Board, President July 23, 1997
- ----------------------------------- and Chief Technical Officer
Benjamin Monderer
/s/ CAROL TURCHIN Executive Vice President and July 23, 1997
- ----------------------------------- Director
Carol Turchin
/s/ PHILIP BLACK Chief Executive Officer and July 23, 1997
- ----------------------------------- Director
Philip Black
/s/ R. ROBERT REBMANN, JR. Chief Financial Officer and July 23, 1997
- ----------------------------------- Treasurer (Principal Financial and
R. Robert Rebmann, Jr. Accounting Officer)
/s/ MARK A. MAYS Vice President, Secretary and July 23, 1997
- ----------------------------------- Director
Mark A. Mays
</TABLE>
II-4
<PAGE> 71
After the recapitalization discussed in Note 9 to the Financial Statements
is effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 23, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Box Hill Systems Corp.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Box Hill Systems Corp. as of December 31, 1996 and
for the year then ended (except with respect to the matters discussed in Note 9
as to which the date is , 1997). Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of valuation and qualifying accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic 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 financial statements taken as a
whole.
Philadelphia, Pa.,
March 21, 1997
S-1
<PAGE> 72
After the recapitalization discussed in Note 9 to the Financial Statements
is effected, we will be in a position to render following report.
PERELSON WEINER
New York, NY
July 23, 1997
INDEPENDENT AUDITORS' REPORT
Board of Directors
Box Hill Systems Corp.
We have audited in accordance with generally accepted auditing standards,
the financial statements of Box Hill Systems Corp. as of December 31, 1994 and
1995 and for the years then ended and have issued our report thereon dated
January 30, 1997 (except with respect to the matters discussed in Note 9 as to
which the date is , 1997). Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of valuation and qualifying accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial required to be
forth therein in relation to the basic financial statements taken as a whole.
New York, NY
January 30, 1997
S-2
<PAGE> 73
BOX HILL SYSTEMS CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE, CHARGES DEDUCTIONS BALANCE,
BEGINNING OF TO FROM END OF
PERIOD EXPENSE RESERVE PERIOD
------------- ------- ---------- --------
<S> <C> <C> <C> <C>
RESERVE FOR DOUBTFUL ACCOUNTS:
March 31, 1997 (unaudited)................... $ 206 $ -- $ -- $206
December 31, 1996............................ $ 162 $ 44 $ -- $206
December 31, 1995............................ $ 54 $ 108 $ -- $162
December 31, 1994............................ $ 5 $ 49 $ -- $ 54
</TABLE>
S-3
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*...............................................
3.1 Certificate of Incorporation of the Company...................................
3.2 Amended and Restated By-laws of the Company...................................
4.1 Form of Common Stock certificate of the Company*..............................
5.1 Opinion of Brock, Fensterstock, Silverstein, McAuliffe & Wade, LLC*...........
10.1 Compensation Plan and Agreement between the Company and Philip Black..........
10.2 Employment Agreement between the Company and Carol Turchin....................
10.3 Employment Agreement between the Company and Benjamin Monderer................
10.4 Employment Agreement between the Company and Mark Mays........................
10.5 Incentive Program of the Company..............................................
10.6 License Agreement with Emulex Corporation.....................................
10.7 Lease Agreement, dated as of December 23, 1993, as extended and modified,
related to the Company's facilities in New York City*.........................
11.1 Statement regarding computation of pro forma net income per share.............
16 Letter re: change in certifying accountants*..................................
23.1 Consent of Arthur Andersen LLP................................................
23.2 Consent of Perelson Weiner....................................................
23.3 Consent of Brock, Fensterstock, Silverstein, McAuliffe & Wade, LLC (contained
in Exhibit 5.1)...............................................................
24 Power of Attorney (included with the signature page hereof)...................
27 Financial Data Schedule.......................................................
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
BOX HILL SYSTEMS CORP.
Filed by:
N. George Turchin, Esq.
790 Madison Avenue
Suite 201
New York, New York 10021
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
BOX HILL SYSTEMS CORP.
Under Section 402 of the Business Corporation Law.
The undersigned, for the purpose of forming a corporation pursuant to
Section 402 of the Business Corporation Law of the State of New York, does
hereby certify and set forth:
FIRST: The name of the corporation is Box Hill Systems Corp.
SECOND: The purposes for which the corporation is formed are:
To engage in any lawful act or activity for which corporations may be
organized under the business corporation law, provided that the corporation is
not formed to engage in any act or activity which requires the act or approval
of any state official, department, board, agency or other body without such
approval or consent first being obtained.
To manufacture, make, buy sell, exchange, install, repair, service,
supply, exploit, develop, protect and generally trade and deal in (as principal
or agent) products, processes and techniques of all kinds pertaining or related
to or connected with electronics and related industries, including, without
limitation, equipment, parts and components for radio, television and
phonograph, products for military electronics and industrial electronics,
transistors, rectifiers, diodes and other semiconductors of every kind and
description, aircraft, missile and other airborne apparatus surveillance
systems, beaconry, radio transmitting, receiving and relay equipment, microwave
equipment, telephone and telegraph terminal equipment, air traffic control
devices, communications equipment, meteorological devices, transducers and other
acoustical devices, electronic cleaning equipment, fixed and variable
capacitors, delay lines and pulse forming networks, television tuners,
deflection components, transformers, power generators and other power supply and
silicon supplies and crystals, cast germanium, resistors, computer components,
thin films, intermetallics and other advanced solid state techniques, and
electrophotographic processes.
<PAGE> 3
To develop, experiment with, conduct research on, connect, manufacture,
produce, assemble, buy, rent or otherwise acquire, hold, own, operate, use,
install, equip, replace, maintain, service, process, reprocess, repair, remodel,
recondition, import, export, sell, lease, market, distribute, transport or
otherwise dispose of and generally to deal in and with, as contractor,
subcontractor, principal, agent, commission merchant, broker, factor or any
combination of the foregoing and at wholesale or retail or both, any and all
kinds of computer hardware and computer software and all allied apparatus,
systems, parts, supplies, tools, implements, raw materials, natural products,
manufactured articles and products, and goods, wares, merchandise and tangible
property of every kind, used or capable of being used for any purpose whatever.
To engage in research and development, purchase, sale, import, export,
license, distribution, manufacture, or rental of any product, machine,
apparatus, appliance merchandise and property of every kind and description,
ideas, systems and procedures of any nature, including, without limiting the
generality of the foregoing, all types of products which possess an internal
intelligence for recognizing and correlating any type of data or information to
be processed, pattern interpretation, recognition and memory systems and
equipment, optical scanning, analog, and digital computers, components, all
types of electrical, mechanical, electro-mechanical and electronic products and
systems such as for analysis of visible, radar, sonar or other inputs, voice
recognition and identification of voice elements and magnetic storage and drums.
To acquire by purchase, subscription, underwriting or otherwise, and to
own, hold for investment, or otherwise, and to use, sell, assign, transfer,
mortgage, pledge, exchange or otherwise dispose of real and personal property of
every sort and description and wheresoever situated, including shares of stock,
bonds, debentures, notes, scrip, securities, evidences of indebtedness,
contracts or obligations of any corporation or association, whether domestic or
foreign, or of any firm or individual or of the United States or any state,
territory or dependency of the United States or any foreign country, or any
municipality or local authority within or without the United States, and also to
issue in exchange therefor, stocks, bonds, or other
-2-
<PAGE> 4
securities or evidences of indebtedness of this corporation and, while the owner
or holder of any such property, to receive, collect and dispose of the interest,
dividends and income on or from such property and to possess and exercise in
respect thereto all of the rights, powers and privileges of ownership, including
all voting powers thereon.
To construct, build, purchase, lease or otherwise acquire, equip, hold,
own, improve, develop, manage, maintain, control, operate, lease, mortgage,
create liens upon, sell, convey or otherwise dispose of and turn to account, any
and all plants, machinery, works, implements and things or property, real and
personal, of every kind and description, incidental to, connected with, or
suitable, necessary or convenient for any of the purposes enumerated herein,
including all or any part or parts of the properties, assets, business and good
will of any persons, firms, associations or corporations.
The powers, rights and privileges provided in this certificate are not to
be deemed to be in limitation of similar, other or additional powers, rights and
privileges granted or permitted to a corporation by the Business Corporation
Law, it being intended that this corporation shall have all the rights, powers
and privileges granted or permitted to a corporation by such statute.
THIRD: The office of the corporation is to be located in the County of New
York, State of New York.
FOURTH: The aggregate number of shares which the corporation shall have
the authority to issue is Two Hundred (200), all of which shall be without par
value.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against it may be served. The post office address
to which the Secretary of State shall mail a copy of any process against the
corporation served on him is:
N. George Turchin, Esq.
790 Madison Avenue, Suite 201
New York, New York 10021
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<PAGE> 5
SIXTH: The personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity is hereby
eliminated except that such personal liability shall not be eliminated if a
judgment or other final adjudication adverse to such director establishes that
his acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the Business Corporation Law.
IN WITNESS WHEREOF, this certificate has been subscribed to this 4th day
of April 1988 by the undersigned who affirms that the statements made herein are
true under penalties of perjury.
/s/ Gerald Weinberg
------------------------------------
GERALD WEINBERG
90 State Street
Albany, New York
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<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BOX HILL SYSTEMS CORP.
(Under Section 805 of the Business Corporation Law of New York)
WE, THE UNDERSIGNED, Benjamin Monderer and Carol Turchin, being
respectively the President and the Secretary of Box Hill Systems Corp. hereby
certify:
1. The name of the corporation is Box Hill Systems Corp.
2. The certificate of incorporation of said corporation was filed by
the Department of State on the 5th day of April, 1988.
3. (a) The certificate of incorporation is amended to: (i) to
increase the authorized number of shares which the corporation shall have
authority to issue from 200 shares of capital stock to 40,000,000 shares of
common stock, par value $.01 per share; and (ii) to change the authorized stock
from shares without par value to shares of $.01 par value per share.
(b) To effect the foregoing, Article FOURTH relating to the
authorized number of shares which the corporation shall have authority to issue
is amended to read as follows:
FOURTH: The aggregate number of shares which the corporation shall
have authority to issue is Forty Million (40,000,000) shares of
common stock, par value $.01 per share.
4. Fifteen (15) shares of the corporation's capital stock, without par
value, are issued and outstanding. Each such issued and outstanding share of
stock shall be converted on the effective date of this amendment into 200,000
shares of common stock, par value $.01 per share, at a ratio of one (1) to two
hundred thousand (200,000). One Hundred and Eighty-Five (185) shares of the
corporation's capital stock, without par value, are authorized but unissued.
Each such authorized but unissued shares of stock shall be converted on the
effective date of this
<PAGE> 7
amendment into 200,000 shares of common stock, par value $.01 per share, at a
ratio of one (1) to two hundred thousand (200,000).
5. The amendment was authorized in the following manner: by the
unanimous written consent of the board of directors, dated as of May 23, 1995,
followed by the unanimous written consent of the holders of all of the issued
and outstanding shares of the capital stock of the corporation, dated as of May
23, 1995.
IN WITNESS WHEREOF, we have signed this certification on the 23rd day
of May 1995 and we affirm the statement contained therein as true under
penalties of perjury.
BOX HILL SYSTEMS CORP.
By: /s/ Benjamin Monderer
----------------------------------
Benjamin Monderer, President
By: /s/ Carol Turchin
----------------------------------
Carol Turchin, Secretary
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<PAGE> 8
CERTIFICATE OF CHANGE
OF
BOX HILL SYSTEMS CORP.
Under Section 805-A of the Business Corporation Law
IT IS HEREBY CERTIFIED THAT:
1. The name of the corporation is:
BOX HILL SYSTEMS CORP.
2. The certificate of incorporation was filed by the Department of
State on the 5th day of April, 1988.
3. The certificate of incorporation is hereby changed:
To modify the paragraph which sets forth the post office
address to which the Secretary of State shall mail a copy of any process served
against the corporation.
4. The Secretary of State is designated as agent of the corporation
upon whom process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is:
The Corporation
161 Sixth Avenue
New York, New York 10013
5. The change to the certificate of incorporation was authorized
first by the board of directors and then by the holders of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned hereby affirms that the
statements made herein are true under the penalties of perjury.
Dated: April 20, 1995
/s/ Carol Turchin
_____________________________
Carol Turchin
Secretary
/s/ Benjamin Monderer
_____________________________
Benjamin Monderer
President
<PAGE> 9
STATEMENT OF ORGANIZATION
OF
THE SOLE INCORPORATOR
OF
BOX HILL SYSTEMS CORP.
The undersigned, being the sole incorporator of Box Hill Systems
Corp., a New York corporation (the "Corporation"), does hereby take the
following actions:
1. Directs that a copy of the Certificate of Incorporation of the
Corporation, filed by the Secretary of State of the State of New York on April
5, 1988 and evidence of receipt and filing by the Office of the Secretary of
State be filed in the minute book of the Corporation.
2. Sets the number of directors at three (3) and elects the
following persons as directors of the Corporation to serve until the first
annual meeting of shareholders and until their respective successors are elected
and qualified:
Benjamin Monderer
Carol Turchin
Mark Mays
3. Adopts the form of by-laws annexed hereto as and for the by-laws
of the Corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
the 5th day of April, 1988.
/s/ Gerald Weinberg
------------------------------
Gerald Weinberg
<PAGE> 1
EXHIBIT 3.2
JULY 3, 1997
AMENDED AND RESTATED
BY-LAWS
BOX HILL SYSTEMS CORP.
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
shareholders of the Corporation shall be held on such date, at such time and at
such place within or without the State of New York as may be designated by the
Board of Directors, for the purpose of electing Directors and for the
transaction of such other business as may properly be brought before the
meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders of the Corporation may be called at any time by the Board of
Directors, the Chairman of the Board or the President, or by written instrument
signed by a majority of the Board of Directors and shall be called by the Chief
Executive Officer, Chairman of the Board, the President or the Secretary upon
the written request of holders of record of at least thirty percent (30%) of the
total outstanding shares of all classes entitled to vote at such meeting, which
request shall set forth the purpose or purposes for which the meeting is to be
called. At a special meeting of the shareholders only such business shall be
transacted as is related to the purpose or purposes set forth in the notice of
meeting.
<PAGE> 2
SECTION 3. PLACE OF MEETING. Each meeting of shareholders
shall be held at such place, within or without the State of New York, as may be
fixed by the Board of Directors, or, if no place is so fixed, at the principal
office of the Corporation in the State of New York; provided, however, that any
meeting of shareholders shall be held at such place within or without the State
of New York as may be fixed by agreement in writing among all the shareholders
of the Corporation.
SECTION 4. NOTICE. Written notice of a meeting of shareholders
shall be given, personally or by first class mail, to each shareholder entitled
to vote at the meeting not less than ten (10) nor more than fifty (50) days
before the date of the meeting. Such notice shall state the place, date and hour
of the meeting and, unless the meeting is an annual meeting, shall indicate that
such notice is being issued by or at the direction of the person or persons
calling the meeting and shall state the purpose or purposes for which the
meeting is called. If at any meeting action is proposed to be taken which would,
if taken, entitle shareholders fulfilling the requirements of Section 623 of the
Business Corporation Law of the State of New York to receive payment for their
shares, the notice of such meeting shall include a statement of that purpose and
to that effect and shall be accompanied by a copy of such Section 623 or an
outline of its material terms. If mailed, a notice of meeting is given when
deposited in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the Secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be necessary
to give any notice of the adjourned meeting if the time and place to which the
meeting is adjourned are announced at the meeting at
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which the adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted at the meeting as originally called.
If, however, after the adjournment the Board of Directors fixes a new a record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record on the new record date entitled to notice
hereunder.
If any By-Law regulating an impending election of Directors is
adopted, amended or repealed by the Board of Directors, the By-Law so adopted,
amended or repealed, together with a concise statement of the changes made,
shall be set forth in the notice of the next meeting of shareholders held for
the purpose of electing Directors.
SECTION 5. QUORUM. At any meeting of shareholders, the
presence in person or by proxy of the holders of a majority of the shares
entitled to vote at such meeting shall constitute a quorum for the transaction
of any business, provided, however, when a specified item of business is
required to be voted on by the holders of a class or series of the Corporation's
shares, voting as a class, the holders of a majority of the shares of such class
or series shall constitute a quorum for the transaction of such specified item
of business. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders.
If a quorum shall not be present in person or by proxy at any
meeting of shareholders, the shareholders present may adjourn the meeting
despite the absence of a quorum.
SECTION 6. ORGANIZATION. The Chief Executive Officer, or in
his or her absence, the Chairman of the Board, or in his or her absence, the
President, or in his or her
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<PAGE> 4
absence, a Vice President, shall call every meeting of the shareholders to
order, and shall act as chairman of the meeting. In the absence of the Chief
Executive Officer, the Chairman of the Board, the President and all Vice
Presidents, the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at such meeting shall elect a
chairman.
The Secretary of the Corporation shall act as secretary of all
meetings of the shareholders and keep the minutes; in the absence of the
Secretary, the Chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 7. VOTING. Unless otherwise provided in the
Certificate of Incorporation every shareholder of record shall be entitled at
every meeting of shareholders to one vote for every share standing in his name
on the record of shareholders of the Corporation. A list of shareholders as of
the record date, certified by the Secretary or an Assistant Secretary
responsible for its preparation or by a transfer agent, shall be produced at any
meeting of shareholders upon the request thereat or prior thereto of any
shareholder.
The Board of Directors may prescribe a date not more than
fifty (50) nor less than ten (10) days prior to the date of a meeting of
shareholders for the purpose of determining the shareholders entitled to notice
of or to vote at such meeting or any adjournment thereof. If no record date is
fixed, the record date for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if no notice is
given, the day on which the meeting is held. When a determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date for the adjourned
meeting.
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<PAGE> 5
Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy must be signed by
the shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law.
The vote upon any matter as to which a vote by ballot is
required by law, and, upon the demand of any shareholder, the vote upon any
other matter before the meeting, shall be by ballot. Except as otherwise
provided by law or by the Certificate of Incorporation, all elections of
Directors shall be decided by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
Treasury shares and shares held by another domestic or foreign
corporation of any type or kind if a majority of the shares entitled to vote in
the election of directors of such other corporation is held by the Corporation,
shall not be shares entitled to vote or to be counted in determining the total
number of outstanding shares.
SECTION 8. INSPECTORS. The Board of Directors in advance of
every meeting of shareholders may appoint one or more Inspectors to act at such
meeting or any adjournment thereof. If Inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat, shall, appoint one or more Inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat.
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<PAGE> 6
Each Inspector appointed to act at any meeting of the
shareholders before entering upon the discharge of his duties shall take and
sign an oath faithfully to execute the duties of Inspector at such meeting with
strict impartiality and according to the best of his ability. The Inspectors so
appointed shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder entitled to vote thereat, the Inspectors shall make a report
in writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by them.
Any report or certificate made by them shall be prima facie evidence of the
facts stated and of the vote as certified by them.
SECTION 9. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any
action by vote required or permitted to be taken by the shareholders may be
taken without a meeting on written consent, setting forth in the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
This section shall not be construed to alter or modify the provisions of any
section of these By-Laws or any provision in the Certificate of Incorporation
not inconsistent with the Business Corporation Law of the State of New York
under which the written consent of the holders of less than all outstanding
shares is sufficient for corporate action.
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<PAGE> 7
SECTION 10. DETERMINATION OF SHAREHOLDERS OF RECORD FOR
CERTAIN PURPOSES. For the purposes of determining the shareholders entitled to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action (other
than the determination of the shareholders entitled to notice of and to vote at
a meeting of the shareholders), the Board of Directors may fix, in advance, a
date as the record date for any such determination of shareholders and such date
shall not be more than fifty (50) days prior to such action. If no record date
is fixed, the record date shall be the close of business on the day on which the
resolution of the Board relating thereto is adopted. For the purpose of
determining that all shareholders entitled to vote thereon have consented to any
action without a meeting, if so record date is fixed by the Board of Directors
and no resolution has been adopted by the Board relating thereto, such
shareholders shall be determined as of the date or time as of which such consent
shall be expressed to be effective.
SECTION 11. WAIVERS OF NOTICE. Whenever under the provisions
of these ByLaws the shareholders are authorized to take any action after notice
to them or the Board of Directors or a committee is authorized to take any
action after notice to its members, such action may be taken without notice if
at any time before or after such action be completed the shareholders, Directors
or committee members submit a signed waiver of notice. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to the
conclusion thereof the lack of notice of such meeting shall constitute a waiver
of notice by him. The attendance of a Director or committee member at a meeting
without protesting prior thereto or at its commencement the lack of notice of
such meeting shall constitute a waiver of notice by him.
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<PAGE> 8
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business of the
Corporation shall be managed under the direction of a Board of Directors, none
of the members of which need be shareholders of the Corporation, but each of
whom shall be at least eighteen (18) years of age. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution adopted by a majority of the entire Board (i.e., the total number of
Directors which the Corporation would have if there were no vacancies). Unless a
different number is fixed by the Board, the number of Directors constituting the
Board of Directors shall be the minimum number provided by law. Except as
hereinafter otherwise provided for filling vacancies, the Directors shall be
elected at the annual meeting of shareholders to hold office until the next
annual meeting, and shall hold office until the expiration of the term for which
they were elected, and until their successors have been elected and qualified.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Any
Director may be removed, with or without cause, and the vacancy filled by a vote
of the shareholders at any special meeting the notice of which shall state that
it is called for that purpose. Any vacancy caused by such removal and not filled
by the shareholders at the meeting at which such removal shall have been made,
or any vacancy occurring in the Board for any other reason, and newly created
directorships resulting from any increase in the number of Directors, may be
filled by vote of a majority of the Directors then in office although less than
a quorum; provided, however, that the term of office of any Director so elected
shall expire at the next succeeding annual
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<PAGE> 9
meeting of shareholders and when his successor has been elected and qualified,
and at such annual meeting the shareholders shall elect a successor to the
Director filling such vacancy or newly created directorship.
SECTION 3. PLACE OF MEETING. Except as provided in these
By-Laws, the Board of Directors may hold its meetings, regular or special, in
such place or places within or without the State of New York as the Board from
time to time shall determine.
SECTION 4. REGULAR MEETINGS. Unless otherwise provided by the
Board of Directors, a regular meeting of the Board shall immediately follow each
annual meeting of shareholders of the Corporation and shall be held at the place
at which such annual meeting is held. No notice shall be required for a regular
meeting of the Board of Directors, but a copy of every resolution fixing or
changing the time, date or place of a regular meeting shall be mailed to every
Director at least five days before the meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
The Secretary shall give or cause to be given notice of the
time and place of holding of each special meeting by mailing the same at least
three days before the meeting or by causing the same to be delivered in person
or transmitted by telegraph, telefax, telex or telephone at least 24 hours
before the meeting, to each Director at the address which he has designated to
the Secretary of the Corporation as the address to which notices intended for
him shall be mailed. The notice of a meeting need not specify the purpose of the
meeting. Any business may be transacted by the Board of Directors is present,
although held without notice.
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SECTION 6. QUORUM. Subject to the provisions of Section 2 of
this Article II, and except as otherwise expressly required by law, the presence
of a majority of the Directors in office shall constitute a quorum for the
transaction of business, and the act of a majority of the Directors present at
any meeting of the Board of Directors at which a quorum is present shall be the
act of the Board of Directors. A majority of the Directors present, whether or
not a quorum is present, may adjourn a meeting from time to time without notice
other than by announcement at the meeting as originally called.
SECTION 7. ORGANIZATION. The Chairman of the Board or, in his
absence, the President (if he is a Director) or, in his absence the Chief
Executive Officer (if he is a Director), shall call every meeting of the Board
of Directors, shall call every meeting of the Board of Directors to order and
shall act as Chairman of the meeting. In the event of the absence of the
Chairman of the Board or in the event the President and the Chief Executive
Officer are not Directors or in the event of their absence (if he is a
Director), a Chairman shall be elected from the Directors present.
The Secretary of the Corporation shall act as secretary of all
meetings of the Directors and keep the minutes; in the absence of the Secretary,
the Chairman of the meeting may appoint any person to act as secretary of the
meeting.
At all meetings of the Board of Directors business shall be
transacted in such order as from time to time the Board may determine.
Except as otherwise required by law, at any regular or special
meeting of the Board of Directors, the vote of a majority of the Directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board.
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SECTION 8. COMMITTEES. The Board of Directors may by
resolution adopted by a majority of the entire Board designate from among its
members committees, each consisting of three or more Directors, and, subject to
the provisions of Section 712 of the Business Corporation Law of the State of
New York, define the powers and duties of such committees as the Board from time
to time may deem advisable.
SECTION 9. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, and except when currently the Corporation is
insolvent or would thereby be made insolvent, the Board of Directors shall have
the power in its discretion from time to time to declare and pay dividends upon
the outstanding shares of the Corporation out of surplus only, so that the net
assets of the Corporation remaining after such declaration, payment or
distribution shall at least equal the amount of its stated capital.
SECTION 10. COMPENSATION OF DIRECTORS. A Director may receive
compensation for his services as such in such amount as the Board of Directors
shall from time to time determine.
SECTION 11. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF
MEETING. Any action required or permitted to be taken by the Board of Directors
or any committee thereof may be taken without a meeting if all members of the
Board or committee consent in writing to the adoption of a resolution
authorizing the action. The resolutions and the written consents thereto shall
be filed with the minutes of the proceedings of the Board or committee.
SECTION 12. CONFERENCE TELEPHONE MEETINGS. Any one or more
members of the Board of Directors or any committee thereof may participate in a
meeting of the Board or committee by means of a conference telephone or similar
communications equipment allowing
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<PAGE> 12
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
SECTION 1. TITLES AND APPOINTMENT. The officers of the
Corporation shall be a Chairman of the Board, Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, a Treasurer and such
additional officers as the Board of Directors may appoint pursuant to Section 7
of this Article III. All officers shall be elected or appointed by the Board of
Directors and shall hold office at the pleasure of the Board. The officers may,
but need not, be Directors. The same person may hold any two or more offices,
except that the same person shall not be both President and Secretary at the
same time.
The Board of Directors may require any officer to give
security for the faithful performance of his duties and may remove him with or
without cause. The election or appointment of an officer shall not of itself
create any contract rights and his removal without cause shall be without
prejudice to his contract rights, if any.
In addition to the powers and duties of the officers of the
Corporation set forth in these By-Laws the officers, agents and employees of the
Corporation shall have such powers and perform such duties in the management of
the Corporation as the Board of Directors may prescribe.
SECTION 2. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall be the chief executive officer of the
Corporation and, subject to the control of the Board of Directors, shall have
general charge and control of all of its business and
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<PAGE> 13
affairs. In the absence of the Chairman of the Board and President, he shall
preside at all meetings of the shareholders and, if a Director, at all meetings
of the Board of Directors.
\
SECTION 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board shall have all powers and shall perform all duties
incident to the office of the Chairman of the Board. He shall preside at
meetings of shareholders and at all meetings of the Board of Directors and shall
have such other powers and perform such other duties as may from time to time be
assigned to him by these By-Laws or by the Board of Directors.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President
shall be the chief technical officer of the Corporation and, subject to the
control of the Board of Directors and the Chairman of the Board, shall have
general charge and control of all its technical operations and shall have all
powers and shall perform all duties incident to the office of President. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
shareholders and, if a Director, at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these By-laws, the Chairman of the Board or by the
Board of Directors.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform other
duties as may from time to time be assigned to him by these By-Laws or by the
Board of Directors, the Chief Executive Officer, the Chairman of the Board or
the President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary
shall keep the minutes of all meetings of the Board of Directors and the minutes
of all meetings of the
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<PAGE> 14
shareholders; he or she shall attend to the giving or serving of notices of the
Corporation; he or she shall have custody of the corporate seal of the
Corporation and shall affix the same to such documents and other papers as the
Board of Directors, the Chief Executive Officer, the Chairman of the Board, or
the President shall authorize and direct; he or she shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors, the Chief Executive Officer, the Chairman
of the Board or the President shall direct, all of which shall at all reasonable
times be open to the examination of any director, upon application, at the
office of the Corporation during business hours; and he or she shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned by him by these By-Laws or the Board of Directors,
the Chief Executive Officer, the Chairman of the Board, or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer
shall unless otherwise provided by the Board of Directors shall be the chief
financial officer of the Corporation. The Treasurer shall receive, have custody
of, and when proper shall pay out, disburse or otherwise dispose of, all funds
and securities of the Corporation which may come into his or her hands; in the
name and on behalf of the Corporation, he or she may endorse checks, notes and
other instruments for collection and shall deposit the same to the credit of the
Corporation in such bank or banks or depository or depositories as the Board of
Directors may designate; he or she shall sign all receipts and vouchers for
payments made to the Corporation; he or she shall enter or cause to be entered
regularly in the books of the Corporation kept for the purpose, full and
accurate accounts of all moneys received or paid or otherwise disposed of by
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<PAGE> 15
him or her and whenever required by the Board of Directors, the Chief Executive
Officer, the Chairman of the Board, or the President shall render statements of
such accounts; and he shall have all powers and shall perform all duties
incident to the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors, the Chief Executive Officer, the
Chairman of the Board or the President.
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors from
time to time may appoint such other officers (who may, but need not, be
Directors), including but not limited to Vice Chairman, Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers, a Comptroller and
Assistant Comptrollers, as the Board may deem advisable and the officers so
appointed shall have such powers and perform such duties as may be assigned to
them by the Board of Directors, the Chief Executive Officer, the Chairman of the
Board or the President.
In the absence of the Secretary or the Treasurer, upon the
direction of the Board of Directors, the Chief Executive Officer, the Chairman
of the Board or the President, any Assistant Secretary and any Assistant
Treasurer, respectively, shall have all the powers and may perform all the
duties assigned to the Secretary or the Treasurer.
SECTION 9. COMPENSATION OF OFFICERS. The officers of the
Corporation shall be entitled to receive such compensation for their services as
the Board of Directors from time to time may determine.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
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SECTION 1. NATURE OF INDEMNITY. Subject to the provisions of
Sections 721 through 725 of the Business Corporation Law of the State of New
York:
(a) The Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding whether civil or
criminal, including an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any Director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he or she, his or her testator or intestate, was a Director or
officer of the Corporation, or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees actually necessarily incurred as a result of such
action or proceeding, or any appeal therein, provided that no indemnification
may be made to or on behalf of any such Director or officer if a judgment or
other final adjudication adverse to the Director or officer establishes that his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled. The foregoing limitation
shall prohibit such indemnification only to the extent that such indemnification
is prohibited by Section 721 of the Business Corporation Law of the State of New
York, or any successor provision.
(b) The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not in itself create a presumption that any
such Director or officer did not act, in good faith, for a
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purpose which he reasonably believed to be in, or, in the case of service for
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise, not opposed to, the best interests of the Corporation
or that he or she had reasonable cause to believe that his or her conduct was
unlawful.
(c) The Corporation shall also indemnify any person made, or
threatened to be made, a party to an action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she, his or her testator or intestate, is or was a Director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of any other corporation of any type or kind, domestic or officer of
any other corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by him in connection with the defense or
settlement of such action, or in connection with an appeal therein provided that
no indemnification may be made to or on behalf of any such Director or officer
if a judgment or other final adjudication adverse to the Director or officer
establishes that his or her acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled. The foregoing
limitation shall prohibit such indemnification only to the extent that such
indemnification is prohibited by Section 721 of the Business Corporation Law of
the State of New York, or any successor provision; except that no
indemnification shall be made in respect of (1) a threatened action, or a
pending action which is settled or otherwise disposed of, or (2) any claim,
issue or matter as to
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which such person shall have been adjudged to be liable to the Corporation,
unless and only to the extent that the court in which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
upon application that, in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
(d) For the purpose of this Article IV, the Corporation shall
be deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his or her duties to the Corporation also imposes
duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable law shall be
considered fines; and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
SECTION 2. SUCCESSFUL DEFENSE. A person who has been
successful, on the merits or otherwise, in the defense of a civil or criminal
action or proceeding of the character described in Section 1 of this Article IV
shall be entitled to indemnification as authorized in such Section 1.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER.
Except as provided in Section 2 of this Article IV, any indemnification under
Section 1 of this Article IV, unless ordered by a court, shall be made by the
Corporation, only if authorized in a specific case:
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(1) by the Board of Directors, acting by a quorum consisting
of Directors who are not parties to such action or proceeding, upon a
finding that the Director or officer has met the standard of conduct
set forth in Section 1 of this Article IV;
(2) if such a quorum is not obtainable or, even if obtainable,
a quorum of disinterested Directors so directs;
(3) by the Board of Directors upon the opinion in writing of
independent legal counsel that indemnification is proper in the
circumstances because the applicable standard of conduct set forth in
Section 1 has been met by such Director or officer; or
(4) by the shareholders upon a finding that the Director or
officer has met the applicable standard of conduct set forth in such
Section 1.
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action or proceeding shall
be paid by the Corporation in advance of final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount or an appropriate portion thereof if it is
ultimately found, under the procedure set forth in this Article IV, that he or
she is not entitled to any indemnification or to indemnification to the full
extent of the expenses advanced by the Corporation.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The
foregoing provisions for indemnification and advancement of expenses shall be
deemed to be a contract between the Corporation and each Director, officer,
employee and agent who serves in any such capacity at any time while these
provisions as well as the relevant provisions of the New York
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Business Corporation Law are in effect and any repeal or modification thereof
shall not affect any right or obligation then existing with respect to any state
of facts then or previously existing or any action, suit or proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a contract right may not be modified retroactively
without the consent of such Director, officer, employee or agent.
The indemnification and advancement of expenses provided by
this Article IV shall not be deemed exclusive of any other rights to which those
indemnified may be entitled, whether contained in the Certificate of
Incorporation of the Corporation or these By-laws or, when authorized by (i) the
Certificate of Incorporation or these By-laws, (ii) a resolution of
shareholders, (iii) a resolution of Directors, or (iv) an agreement providing
for such indemnification. The Corporation may enter into an agreement with any
of its Directors, officers, employees or agents providing for indemnification
and advancement of expenses, including attorneys' fees, that may change,
enhance, qualify or limit any right to indemnification or advancement of
expenses created by this Article IV, provided that no indemnification may be
made to or on behalf of any Director or officer if a judgment or other final
adjudication adverse to the Director or officer establishes that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled.
SECTION 6. SEVERABILITY. If this Article IV or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall
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nevertheless indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of
indemnification to a person described in Section 1 of this Article IV, the
Corporation shall be subrogated to the extent of such payment to any right of
recovery such person may have and such person, as a condition of receiving
indemnification from the Corporation, shall execute all documents and do all
things that the Corporation may deem necessary or desirable to perfect such
right of recovery, including the execution of such documents necessary to enable
the Corporation effectively to enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall
not be liable under this Article IV to make any payment in connection with any
claim made against a person described in Section 1 of this Article IV to the
extent such person has otherwise received payment (under any insurance policy,
by-law or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
SHARES
SECTION 1. CERTIFICATES FOR SHARES. Certificates for shares of
the Corporation shall be in such form, not inconsistent with law and with the
Certificate of Incorporation, as the
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Board of Directors shall approve. All certificates shall be signed by the Chief
Executive Officer, the Chairman of the Board, the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and shall be sealed with the seal of the Corporation or a facsimile
thereof, and shall not be valid unless so signed and sealed. The signatures of
the officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation or one of its employees. No person shall sign a certificate for
shares of the Corporation in two capacities.
In case any officer who has signed or whose facsimile
signature has been placed upon a certification for shares of the Corporation
shall have ceased to be such officer of the Corporation before the certificate
is issued by the Corporation, the certificate may nevertheless be issued by the
Corporation with the same effect as if he or she were such officer at the date
of its issue.
All certificates for shares shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the Corporation's books.
Except as hereinafter provided, all certificates surrendered
to the Corporation for transfer shall be canceled, and no new certificates shall
be issued, until the former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. TRANSFER OF SHARES. Shares of the Corporation shall
be transferred on the books of the Corporation by the holder thereof, in person
or by his attorney thereunto duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares to be transferred, except
as provided in the succeeding section.
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SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a
person owning a certificate for shares of the Corporation alleges that it has
been lost, stolen or destroyed, such person shall file in the office of the
Corporation an affidavit setting forth, to the best of the person's knowledge
and belief, the time place and circumstances of the loss, theft, or destruction,
together with a bond of indemnity sufficient in the opinion of the Board of
Directors to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate and with one
or more sufficient sureties approved by the Board of Directors. Thereupon the
Board of Directors may cause to be issued to such person a new certificate or a
duplicate of the certificate alleged to have been lost, stolen or destroyed.
Upon the stub of every new or duplicate certificate so issued shall be noted the
fact of such issue and the number, date, and the name of the registered owner of
the lost, stolen or destroyed certificate in lieu of which the new or duplicate
certificates is issued.
SECTION 4. REGULATIONS. The Board of Directors shall have
power and authority to make such other rules and regulations not inconsistent
with the Certificate of Incorporation or with these By-Laws as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CORPORATE SEAL. The Board of Directors shall
provide a suitable seal, containing the name of the Corporation, and the
Secretary shall have custody thereof.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation
shall be such fiscal year as the Board of Directors from time to time by
resolution shall determine.
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SECTION 3. CONTRACTS. Except as otherwise provided in these
By-Laws or by law or as otherwise directed by the Board of Directors, the Chief
Executive Officer, the Chairman of the Board, any Vice Chairman of the Board,
the President or any Vice President shall be authorized to execute and deliver,
in the name and on behalf of the Corporation, all agreements, bonds, contracts,
deeds, mortgages, notes, obligations and other instruments, either for the
Corporation's own account or in a fiduciary or other capacity, and the seal of
the Corporation, if appropriate, shall be affixed thereto by any such officer or
the Secretary or an Assistant Secretary. The Board of Directors, the Chief
Executive Officer, the Chairman of the Board, any Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chief Executive Officer, the Chairman of the Board, any Vice Chairman of the
Board or the President may authorize any other officer, employee or agent to
execute and deliver, in the name and on behalf of the Corporation, agreements,
bonds, contracts, deeds, mortgages, notes, obligations and other instruments,
either for the Corporation's own account or in a fiduciary or other capacity,
and, if appropriate, to affix the seal of the Corporation thereto. The grant of
such authority by the Board of any such officer may be general or confined to
specific instances.
SECTION 4. CHECKS, NOTES, ETC. All checks, drafts, bills of
exchange, acceptances, notes, obligations and orders for the payment of money
shall be signed and, if required by the Board of Directors, countersigned by
such officers of the Corporation and/or other persons as the Board of Directors
from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes,
obligations and orders for the payment of money made payable to the Corporation
may be endorsed for deposit to the credit
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of the Corporation with a duly authorized depository by the Treasurer and/or
such other officers or persons as the Board of Directors from time to time may
designate.
SECTION 5. LOANS. No loans and no renewals of any loans shall
be contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized, any officer or agent of the Corporation may obtain
loans and advances for the Corporation from any firm, corporation or individual,
and for such loans and advances may make, execute and deliver promissory notes,
bonds or other evidences of indebtedness of the Corporation. When authorized to
do so by the Board, the Chief Executive Officer, the Chairman of the Board, or
the President, any officer or agent of the Corporation may pledge, hypothecate
or transfer, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation, any and all stocks, securities
and other personal property at any time held by the Corporation, and to that end
may endorse, assign and deliver the same. Such authority may be general or
confined to specific instances.
ARTICLE VII
AMENDMENTS
These By-Laws other than Article IV may be amended by the
Board of Directors of the Corporation at any regular meeting or at any special
meeting the notice of which shall state that amendment of the By-Laws is to be
one of the purposes of the meeting. Article IV of these By-Laws shall only be
amended or repealed and any other provision of these By-Laws or any amendments
adopted by the Board may be amended, or repealed by the vote of the shareholders
of the Corporation at any annual meeting or at any special meeting the notice of
which shall state that amendment of the By-Laws is to be one of the purposes of
the meeting, except no
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amendment of Section 5 of Article IV which retroactively modifies the contract
rights of a Director, officer, employee or agent may be effective without the
consent of such person..
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EXHIBIT 10.1
COMPENSATION PLAN AND AGREEMENT
This Agreement is made as of the 31 day of May, 1995, by BoxHill Systems
Corp., a New York Corporation, with offices at 161 Sixth Avenue, New York, N.Y.
10003 ("BH") and Philip Black, individually, residing at 2201 McKain Street,
Calabasas, California 91302 ("Black").
BH and BLACK each recognize that:
BH is in the business of providing a variety of unique products and
services to its clients; and BLACK is an individual with unique
executive management capabilities;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set out below, and as an integral part of the terms of BLACK'S employment with
BH, BLACK and BH, intending to be legally bond, agree as follows:
I. POSITION & APPLICATION OF AGREEMENT
BLACK is hired by BH, subject to the terms and conditions of this
Agreement, as the Chief Executive Officer ("CEO") of BH.
BLACK is an Employee At Will of BH and BLACK'S employment with BH may be
terminated by BLACK or BH in accordance with the provisions hereof.
BLACK'S position may be changed by BH, at its option, from time to time,
upon 30 days prior written notice to BLACK. Any change of position of BLACK
initiated by BH and not voluntarily accepted by BLACK, shall be treated as a
termination of BLACK for convenience and without "Cause" by BH, as provided for
by the termination provisions of this Agreement.
BLACK shall devote his full time and attention to his position with BH.
<PAGE> 2
BLACK shall observe all applicable laws, regulations and rules in the
performance of this Agreement.
BLACK shall work as at the direction of the Board of Directors of BH.
BLACK shall also work at the direction of the Management Committee of BH of
which he will be a member, along with the President and Secretary of BH.
BLACK will perform such work, as is consistent and commensurate with
BLACK'S position and will make all best efforts to properly discharge all of
BLACK'S performance obligations under this Agreement.
BLACK may be requested by BH, at the sole option of the Board of Directors
and Shareholders of BH, to serve as a member of the Board of Directors of BH. In
the event BH makes such request, BLACK agrees to accept such appointment and any
service by BLACK as a member of the Board of Director of BH, shall be without
additional compensation.
BLACK understands that BH does not now maintain and no commitment is made
by BH that it will in the future maintain, any Officer or Director liability
insurance.
BLACK agrees that this Agreement applies to the entire term of his
employment with BH as to past, current and future employment, regardless of
changes in position, work locations or otherwise.
BH's entire obligation and liability to BLACK is established by this
Agreement.
BLACK understands that certain provisions of this Agreement will continue
to apply to
BLACK and will continue to bind BLACK following the expiration, termination or
cancellation of this Agreement, for any reason whatsoever.
II. WARRANTS & REPRESENTATIONS OF BLACK
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<PAGE> 3
BLACK warrants and represents to BH that he has fully disclosed to BH all
information which would influence BH's decision to enter into this Agreement
with BLACK and BLACK is not subject to any claims, actions, proceedings,
obligations, or liabilities which BLACK has not fully disclosed to BH.
BLACK warrants and represents to BH that he has fully investigated and
explored the opportunities and risks presented by this Agreement and that he is
not entering into this Agreement on the basis of any promise or commitment not
expressly set forth herein.
BLACK warrants and represents to BH that he fully understands and agrees
that BH may enter into understandings and agreements with other parties which
may be the same, similar, or different from those as established hereby and
nothing in this Agreement or otherwise shall restrict BH from entering into such
understandings or agreements.
BLACK warrants and represents to BH that he is free to enter into this
Agreement and that he is not subject to any restrictions or limitations of any
form, irrespective of whether such restrictions may or may not have been
enforced, affecting, the formation or performance of this Agreement.
III. RESTRICTIONS ON BLACK
The following restrictions apply to BLACK while this Agreement is in
effect, in addition to the other provisions hereof.
BLACK may not offer, promise, give, assign, or pay any portion or all of
his compensation to any other individual or entity without the prior approval of
BH.
BLACK shall not make any material and substantial commitments as to the
products, services of BH or the personnel of BH or any other aspects of BH'S
business, without obtaining
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the prior approval for such commitments from the Management Committee of BH or
the Board of Directors of BH. For purposes of the foregoing, material and
substantial shall mean, extra ordinary, exceeding any regular, routine or
necessary commitments in the day to day operations of the business of BH.
While this Agreement is in effect, BLACK shall not, without the written
consent of the Board of Directors of BH, participate, directly or indirectly, in
any business activity, including, any business activity that is competitive with
or otherwise relates to the current or contemplated business of BH, as may be
reasonably known to it, including but not limited to, the business of
development, sale, licensing, promotion, utilization, exploitation of, or other
dealing in, or with, computer hardware, computer software, data services,
information processing systems and consulting services, or other computer based
services or products or any other products or services sold or offered by BH.
BLACK agrees that BLACK is subject to a code of ethical conduct and all
applicable laws, regulations and rules and shall perform the work under this
Agreement in accordance with all applicable laws, regulations and rules and
ethical standards.
IV. COMPENSATION & TAXES
Compensation shall be payable by BH to BLACK, as described in Attachment
A.
BLACK shall only be entitled to compensation for and during the time in
which this Agreement is in effect, except as otherwise expressly provided for
herein.
BLACK is responsible for all taxes, duties, or similar charges arising out
of compensation paid by BH to BLACK under this Agreement, or any other benefits
provided by BH to BLACK under this Agreement, including, the grant by BH to
BLACK of any BH stock or stock options of
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BH.
V. INTELLECTUAL PROPERTY RIGHTS
BLACK does hereby assign and grant to BH the entire right, title and
interest of BLACK, in and to, any work BLACK furnishes or produces or which
results from this Agreement (whether or not copyrightable or patentable)
irrespective if such work is conceived or first actually reduced to practice in
the course of performance of this Agreement.
BLACK does hereby assign and grant to BH the entire right, title and
interest of BLACK in and to all ideas, concepts, know-how, inventions,
improvements, discoveries or other intellectual property, (whether or not
copyrightable or patentable), conceived or first actually reduced to practice in
the course of performance of this Agreement, or previously conceived and reduced
to practice which is incorporated by BLACK in the work or which are necessary to
utilize the work covered by this Agreement.
BLACK will, without charge to BH and at BH'S request execute such
documents and instruments, including, but not limited to, an assignment of
title, to reflect the foregoing.
VI. CONFIDENTIALITY
BLACK expressly covenants and agrees that he will not at any time, whether
during the term of employment hereunder or thereafter, reveal or disclose to any
firm, person, or entity, nor permit to be revealed or disclosed, any information
or data concerning BH'S or its clients, suppliers, employees, subcontracts,
products, services, business and finances, or use any such information, except,
as expressly authorized, in advance and in writing, by BH'S Board of Directors.
Without limitation to the above, BLACK specifically acknowledges and agrees that
information and data regarding computer hardware, computer software programs,
systems
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developed or improved by BH personnel, the identity of BH'S actual and potential
clients and client representatives and contacts, the nature of the products or
services provided by BH and the prices charged therefore, the identities of BH'S
actual and prospective employees, suppliers and subcontractors, and the specific
skills possessed by BH'S actual and prospective employees, suppliers and
subcontractors are to be treated as confidential and proprietary, and that such
information and data constitute BH trade secrets.
Upon termination, BLACK agrees not to, directly or indirectly, use for any
purposes whatsoever such information and data and that BLACK will continue to
keep such information and data confidential and shall not disclose or reveal
such to any other party.
Upon termination, BLACK agrees to promptly deliver to BH all materials or
property in his possession belonging to BH, or its clients, suppliers and
subcontractors, and any and all copies thereof, including, but not limited to,
any and all originals and copies of sales information, files and reports,
telephone directories, reports, manuals, procedures, visual aids, customer
lists, correspondence and any other material and property relating to the
business of BH, or its clients, suppliers and subcontractors in the custody of
BLACK.
BLACK shall not divulge or furnish to BH or any other party with whom
BLACK may be in contact with as a result of this Agreement, any information or
data which BLACK does not have the right to divulge or furnish and BLACK shall
not infringe upon any property right of BH or any third party in the performance
of this Agreement.
VII. TERMINATION
BH may terminate this Agreement and BLACK'S employment hereunder for
"Cause", arising from BLACK'S substantial and material breach of this Agreement
or any other reason
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constituting "Cause" as established by applicable law, upon written notice to
BLACK.
BLACK may terminate this Agreement and BLACK'S employment hereunder, for
"Cause", upon written notice to BH, arising from BH'S substantial and material
breach of this Agreement. The only manner in which BH may substantially and
materially breach this Agreement is by its failure to make payment to BLACK of
compensation, as established by this Agreement, as properly payable to BLACK.
This Agreement is not otherwise subject to termination for "Cause" by BLACK.
BH may terminate this Agreement and BLACK'S employment hereunder, for
convenience and without "Cause", at any time, upon 30 days prior written notice
to BLACK.
BLACK may terminate this Agreement and BLACK'S employment hereunder, for
convenience and without "Cause", at any time, upon 30 days prior written notice
to the BH.
In the event of termination of BLACK by BH for "Cause" as provided for
above or if BLACK terminates this Agreement for convenience and without "Cause",
BLACK shall only be entitled to compensation actually paid by BH to BLACK, as of
the date of the notice of such termination.
In the event of termination by BLACK for "Cause" as provided for above or
if BH terminates this Agreement for convenience and without "Cause", provided
BLACK observes all the other provisions of this Agreement, including, the
confidentiality, non-interference and non-competition provisions of this
Agreement, BLACK shall be entitled to compensation accrued by BLACK to the
effective date of termination. Accrued compensation equals compensation actually
paid to BLACK, as of the date of the notice of such termination plus
compensation to the effective date of termination plus 1 year severance
compensation equal to BLACK'S annual
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salary and bonus for the calendar year prior to termination, not to exceed in
any event $600,000.00 in total, which severance compensation is payable over the
year subsequent to the effective date of termination in the same manner as
salary is paid.
BLACK shall not be entitled to any other compensation from BH, except as
expressly set forth in this Agreement.
VIII. NON-COMPETITION
In the event that BLACK'S employment with BH shall be terminated at any
time and for any reason, whether by BH or BLACK, or otherwise, BLACK agrees that
he will not, without the prior written consent of BH, for a period of 1 year
after the date of such termination, directly or indirectly, on his own behalf,
on behalf of any other person, or on behalf of or as a partner, shareholder,
officer, director, employee, agent, consultant or trustee of any entity, or
otherwise, engage in any business or activity in direct or indirect competition
with BH, or with any parent, subsidiary, affiliate or successor of BH, in the
State of New York, and/or any other State or Country, in which BH is doing
business on the date of the termination of BLACK'S employment, which business or
activity in direct or indirect competition with BH shall mean:
(i) providing to any of the active clients of BH, as hereinafter defined,
products or services similar to or competitive with the products or
services available from BH during any part of the 1 year after termination
of BLACK'S employment, or soliciting or attempting to solicit any active
client of BH for the purpose of providing such products or service to it.
For purposes hereof, active clients shall mean those persons or entities
for which BH sold or leased any product, performed any service during the
1 year period immediately preceding the termination of BLACK'S employment;
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<PAGE> 9
(ii) directly or indirectly contacting, or providing products or services
similar to or competitive with the products or services available from BH
during any part of the 1 year after termination of BLACK'S employment to
any past or prospective client of BH with whom he had any dealings during
the 1 year period immediately prior to the effective date of the
termination of his employment, regardless or whether such past or
prospective clients are or were "active" as defined above.
(iii) hire, subcontract, employ or engage, or solicit, contact or
communicate with for the purpose of hiring, employing, subcontracting or
engaging, any person or entity which was a current or prospective
employee, supplier or subcontractor of BH, at the time of the termination
of BLACK'S employment or at any time within the 1 year period immediately
preceding such termination, for the purpose of performing the same or
similar services that such person was performing for BH during any part of
the 1 year after termination of BLACK'S employment. For purposes of the
above, current is defined as any party with whom BH had an agreement or
understanding in effect, as of the date of termination and prospective is
defined as any party to whom BLACK had contact with or knowledge of prior
to the date of termination.
BH and BLACK agree that the period of time and geographical area specified
above are reasonable in view of the nature of the business in which BH is
engaged and proposes to engage and BLACK'S knowledge of its business. However,
if any of such periods or such area should be judged unreasonable in any
judicial proceedings, then such period of time shall be reduced by elimination
of such portion thereof, or both, as are deemed unreasonable, so that this
covenant
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<PAGE> 10
may be enforced in such area and during such period of time as is adjudged to be
reasonable.
The parties recognize that a remedy at law for a breach of this section
will not be adequate, and for its protection, BH shall have the right to obtain,
in addition to any other relief and remedies available to it, injunctive relief,
whether mandatory or restraining, to enforce the provisions of this section. In
the event that the provisions of this section are violated and BH obtains a
preliminary or permanent injunction, the duration of the limitations embodied in
this section shall be extended to 1 year from the effective date of such
injunction, less any period between the termination of BLACK'S employment
hereunder and the effective date of such injunction during which BLACK proves
that he was not in violation of the provisions of this section, it being the
intention of this section to ensure that BH shall enjoy one full year of actual
freedom from competition from BLACK.
IX. INDEMNIFICATION
BLACK will indemnify and hold BH harmless from any loss, liability, cost,
damage or expense which BH may sustain, including reasonable attorneys' fees
incurred by BH, arising out of, related to or due to: (i) a breach by BLACK of
this Agreement, including any covenant, representation or warranty made by BLACK
in this Agreement or (ii) the non-performance by BLACK of any obligation he may
have under this Agreement.
Provided BLACK fulfills his obligations under this Agreement to BH, BH
will hold BLACK harmless from any loss, liability, cost, damage or expense which
BLACK may sustain, including reasonable attorneys' fees incurred by BLACK, as to
any claims by a third party, relating to the proper performance of his duties
for BH, under this Agreement. The foregoing shall not apply in the event any
claims by a third party arise and BLACK has been or is
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discharged for "Cause" and such discharge for "Cause" is held, at any time, in
arbitration or by a court of competence jurisdiction, to be in violation of this
Agreement.
X. SEVERABILITY
If any of the provisions of this Agreement, or the application of any term
or provision to any persons or circumstances is invalid or unenforceable to any
extent, then the remainder of this Agreement or the application of the term or
provision to persons or circumstances, other than those to which it is held
invalid or unenforceable, shall not be affected thereby and each term or
provision of this Agreement shall be valid and enforceable to the extent
permitted by law.
XI. ASSIGNMENT AND SURVIVAL
The rights and obligations of the parties created while this Agreement is
in effect shall survive after the termination of this Agreement and shall inure
to the benefit of and be binding upon the successors and assigns of each party.
BLACK may not assign this Agreement or subcontract the work under this
Agreement. BH may assign this Agreement upon written notice to BLACK.
XII. WAIVER OF BREACH
The waiver by either party of any breach of this Agreement shall not
operate as or be construed to be a waiver of any subsequent breach. No course of
dealing nor any delay on the part of either party in exercising or enforcing
their rights under this Agreement shall operate as a waiver of such rights.
XIII. ENTIRE AGREEMENT & MODIFICATION
This Agreement contains the entire Agreement of the parties and supersedes
all prior Agreements or understandings pertaining to the subject matter hereof
whether written or oral.
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<PAGE> 12
BH at its sole discretion may change any portion of this Agreement,
including Attachment A, by providing 30 days prior written notice to the BLACK.
Unless such written notice otherwise states a date for the change to occur, the
change will become effective immediately on the 30th day after such notice is
given. Any change of this Agreement initiated by BH and not voluntarily accepted
by BLACK, shall be treated as a termination of BLACK for convenience and without
"Cause" by BH in accordance with the termination provisions of this Agreement.
No other modification or amendment of this Agreement shall be effective
unless in a written instrument, executed by the parties.
XIV. GOVERNING LAW AND FORUM
Irrespective of the present or future residence of either of the parties
hereto, this Agreement shall in all respects be governed by the laws of the
State of New York, without giving effect to principles of conflicts of laws. BH
and BLACK also consent to the jurisdiction of any Federal or State court located
in New York, New York, with respect to any claim or controversy arising in
connection with this Agreement, and each waives any claim of inconvenient forum
which such party may have in connection with such jurisdiction.
XV. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or
the breach will be settled by arbitration, before three arbitrators in
accordance with the rules of the American Arbitration Association then in effect
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction. The arbitrators will be selected, by the parties,
from a panel of arbitrators/attorneys having experience with the computer/data
processing
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<PAGE> 13
business. The parties agree that any arbitration shall be held in New York
County, State of New York.
The arbitrators will have no authority to award damages not measured by
the prevailing party's actual damages, and may not, in any event, make any
relief, finding or award that does not conform to the terms and conditions of
this Agreement.
Either party, before or during any arbitration, may apply to a court
having jurisdiction for a restraining order or injunction where such relief is
necessary to protect its interests.
Neither party nor the arbitrators may disclose the existence or results of
any arbitration hereunder, without the express prior written consent of both
parties.
Prior to initiation of arbitration, the aggrieved party will give the
other party written notice, describing the claim and amount as to which it
intends to initiate arbitration.
XVI. EQUITABLE RELIEF
The services to be rendered by BLACK hereunder are of a special character
which gives them a peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law. Furthermore, a breach by
the BLACK of any of the provisions contained herein, including, but not limited
to, the provisions relating to confidentiality, noninterference and
non-competition of this Agreement, will cause the BH irreparable injury and
harm. BLACK expressly agrees that, notwithstanding anything otherwise contained
in this agreement to the contrary, BH shall be entitled to injunctive or other
equitable relief to prevent the BLACK'S breach or anticipated breach of this
Agreement, including, but not limited to, BLACK'S breach of the provisions
contained in the provisions of this Agreement relating to confidentiality,
non-interference and non-competition. Resort to such equitable relief, however,
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<PAGE> 14
shall not be construed to be a waiver of any other rights or remedies which the
BH may have for damages or otherwise.
XVII. NOTICES
Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by (i) certified or registered mail, postage
prepaid, return receipt requested, (ii) overnight delivery with confirmation of
delivery or (iii) facsimile transmission with an original mailed by first class
mail, postage prepaid, addressed as follows:
To BH: President, BoxHill Systems Corp.,
161 Sixth Avenue, New York, N.Y. 10003
To BLACK: 2201 McKain St., Calabasas, CA 91302
or in each case to such other address as shall have last been furnished by like
notice. If mailing by registered or certified mail is impossible due to an
absence of postal service, notice shall be in writing and personally delivered
to the aforesaid address. Each notice or communication shall be deemed to have
been given as of the date so mailed or delivered as the case may be; provided,
however that any notice sent by facsimile shall be deemed to have been given as
of the date sent by facsimile if a copy of such notice is also mailed by first
class mail on the date sent by facsimile, if the date of mailing is not the same
as the date of sending by facsimile; then the date of mailing by first class
mail shall e deemed to be the date upon which notice given.
XVIII. SEPARATE COUNSEL
BLACK acknowledges he has had the opportunity to retain and consult with
separate counsel of his own selection acting on his behalf in connection with he
negotiation, execution and consummation of this Agreement, and covenants that
he, alone shall be liable and
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<PAGE> 15
responsible for (and shall not look to the employer in connection with) the fees
and expenses of such separate counsel.
XIX. EFFECT
The parties agree to execute any and all such further instruments and
documents, and to take any and all such further actions which are reasonably
required to effectuate this Agreement and the intents and purposes hereof.
XX. BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, personal
representatives, successors and assigns.
XXI. COUNTERPARTS
This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
XXII. NON-DISCLOSURE
BLACK shall keep confidential and shall not disclose the contents of this
Agreement, including, Attachment A to any other party.
BLACK ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS HIS OBLIGATIONS UNDER THIS AGREEMENT.
BOXHILL SYSTEMS CORP. PHILIP BLACK
Signature: /s/ Ben Monderer Signature: /s/ Philip Black
----------------------- -----------------------
Name: Ben Monderer Date:
---------------------------- ----------------------------
Title: President
---------------------------
15
<PAGE> 16
Date:____________________________
16
<PAGE> 17
ATTACHMENT A
COMPENSATION PLAN
PHILIP BLACK - CHIEF EXECUTIVE OFFICER ("CEO")
COMPENSATION
Salary
Bi-weekly $10,576.92
Commissions
Not Applicable
Bonus
1. 0.05% of the net revenue of BH, on an annual basis plus 0.5% of the net
revenue of BH in excess of $100,000,000.00, on an annual basis.
AND
2. 1.12% of the net pre-tax profits of BH, on an annual basis plus 4.0% of
the net pre-tax profits of BH, above $20,000,000.00 on an annual basis.
Net revenue and net pre-tax profits of BH are computed in accordance with
generally accepted accounting principles, constantly applied, for tax purposes,
excluding Officers' bonuses but including Officers' base salary, including that
of BLACK. Such bonus or payment thereof to BLACK as to net revenue or net
profits of BH is to be determined solely by the accountants of BH. In the event
BLACK disagrees with such determination, BLACK will notify BH within 15 days
after receipt of notification from BH of such determination of the accountants
for BH.
For purposes of this bonus provision, net revenue and net pre-tax profits
are computed on
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a accrual basis, consistently applying generally accepted accounting principles.
The annual bonus calculations are to be made as of the close of each
calendar year.
Annual bonus payments, based on the annual bonus calculations, are to be
made by BH to BLACK within 60 days after the close of BH'S calendar year based
upon such annual bonus calculations less any quarterly bonus advances (described
below) paid by BH to BLACK during the calendar year as to which the annual bonus
payments are based.
In the event that such quarterly bonus advances paid by BH to BLACK,
during a calendar year, exceed the annual bonus calculations, the deficit shall
carry forward to reduce any subsequent calendar years' bonus payable by BH to
BLACK and shall be recoverable by BH from BLACK.
Quarterly estimates, on a cumulative basis, of such annual bonus payments,
will be computed by BH, as of the close of each BH calendar quarter and a
quarterly bonus advance, based on such cumulative quarterly estimates, will be
paid by BH to BLACK, within 30 days after the close of BH'S calendar quarter.
BLACK must be in the employ of BH and this Agreement must be in effect to
entitle BLACK to any bonus.
Stock Options
BLACK may be offered by BH, at the sole option of the current Board of
Directors of BH and Shareholders of BH, stock or stock options relating to the
common stock of BH, in such amounts and at such prices as may be determined by
BH, in its sole discretion, but in no event in the aggregate more than that
which would represent 5% of the issued and outstanding stock of BH. In the event
BLACK accepts an offer from BH regarding such stock or stock options,
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BLACK acknowledges and agrees that such stock or stock option will be subject to
terms and conditions regarding acquisition, holding and disposition that will be
established solely by BH as it may determine, and the execution by BLACK of any
option agreement, subscription agreement or Shareholders' agreement required by
BH, as it may determine, in its sole discretion. The Company makes no commitment
that any stock or stock options will be issued to BLACK at any time.
Relocation & Relocation Expenses
BLACK will relocate to the New York, N.Y. Metropolitan area prior to July
1, 1995. Relocation expenses of BLACK up to $100,000.00 will be reimbursed by
BH. All such relocation expenses are to be documented. Any portion of the
$100,000.00 not expensed by BLACK shall be paid by BH to BLACK, as a stipend to
BLACK, upon the submission to BH by BLACK of a final expense report relating to
his relocation. BLACK shall be responsible for all taxes associated with such
relocation expense reimbursement or payment of stipend.
Other Expenses
An expense reimbursement account will be maintained by BH for BLACK,
pursuant to which, BLACK shall be reimbursed by BH, for all reasonable and
customary out of pocket expenses, not to exceed $500.00 per week, actually
incurred by BLACK, on behalf of BH, solely in the conduct of BH's business,
based upon full and complete itemized vouchers, submitted promptly by BLACK in
accordance with BH's policies and procedures. Any expenses in excess of $500.00
per week, require prior written approval of the Management Committee of BH and
shall not be reimbursed to BLACK by BH without such prior approval.
Fringe Benefits
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<PAGE> 20
BLACK shall be entitled to those fringe benefits such as medical and
dental benefits, which are provided to all BH full time employees, as may be
established and changed from time to time by BH and as are established by the
employee benefits handbook published by BH. Holidays, sick days and personal
days applicable to BLACK shall be in accordance with the employee benefits
handbook published by BH. BLACK shall be entitled to paid vacation of 3 weeks,
per full calendar year of work. Vacation time will accrue in one year and be
taken in the subsequent year.
Life Insurance
BH may, in its discretion and at its expense, at any time after the
execution of this Agreement, apply for and procure as owner and for its own
benefit, insurance on the life of the BLACK, in such amounts and in such form or
forms as the BH may choose. BLACK shall have no interest whatsoever in any such
policy or policies, but he shall, at the request o the BH, submit to such
medical or other examinations, supply such information and execute such
documents, as may be required by BH or the insurance company or companies to
whom the BH has applied for such insurance. The results of any such medical
examination may not be used by the BH as grounds for termination of the BLACK.
Total Disability
For purposes of this Agreement, the term "Total Disability" shall mean the
failure or inability of BLACK for reasons of health, to perform his usual and
customary duties on behalf of the BH in the usual and customary manner for a
total of more than ninety (90) consecutive business days (excluding Saturdays,
Sundays and Holidays, as specified below) out of any consecutive period of three
hundred sixty-five (365) days, including Saturdays, Sundays and
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Holidays. The term "Holidays" shall include New Year's Day, President's
Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas
Day, and any other weekday on which Federal and/or State banks are closed in the
State of New York. In such event, Total Disability shall be deemed to have
occurred on the ninetieth (90th) such business day, that BLACK shall fail or be
unable to perform his usual and customary duties on behalf of the BH in the
usual and customary manner. Until the date upon which Total Disability shall
have occurred, BLACK'S compensation and status as an employee under this
Agreement shall continue. If the parties are unable to agree with respect to any
question with respect to Total Disability, including, but not limited to, the
following: (i) whether BLACK is Totally Disabled, (ii) the date upon which the
disability of BLACK commenced or (iii) the date upon which either the disability
of BLACK terminated or the Total Disability occurred, then such dispute shall be
determined by arbitration in accordance with this Agreement. Upon an occurrence
of Total Disability, this Agreement shall be terminated and shall be deemed
terminated, as if BLACK had terminated for convenience. BLACK may supplement, at
his option and expense, any standard short-term or long-term disability
insurance coverage, which may be provided by BH with his own short-term or
long-term disability insurance coverage.
BOXHILL SYSTEMS CORP. PHILIP BLACK
Signature: /s/ Ben Monderer Signature: /s/ Philip Black
----------------------- --------------------------
Name: Ben Monderer Date: 5/31/95
---------------------------- -------------------------------
Title: President
---------------------------
Date:
----------------------------
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<PAGE> 22
CONSENT AGREEMENT
BETWEEN
BOARD OF DIRECTORS OF BOXHILL SYSTEMS CORPORATION
AND
PHILIP BLACK
Pursuant to the requirements of Section III of the Compensation Plan and
Agreement dated 31 May 1995 between the Board of Directors of BoxHill Systems
corp. (the "Board") and Philip Black ("Black"), the Board consents that Black
may hold the non-employee position of Director of the Board of Tekelec, a
California Corporation located at 26580 Agoura Road, Calabasas, California
91302.
Dated: 31 day of May, 1995
/s/ Ben Monderer
- ------------------------------------
Ben Monderer, Director
/s/ Carol Turchin
- ------------------------------------
Carol Turchin, Director
/s/ Mark A. Mays
- ------------------------------------
Mark A. Mays, Director
/s/ Philip Black
- ------------------------------------
Philip Black
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
Employment Agreement dated as of July 3, 1997 between BOX HILL SYSTEMS
CORP., a New York corporation (the "Company") and Carol Turchin ("Executive").
WITNESSETH:
WHEREAS, the Company desires to continue the employment of the Executive
and the Executive wishes to continue to be employed by the Company on the terms
and conditions hereinafter contained;
NOW, THEREFORE, it is hereby agreed as follows:
1. Employment. The Company hereby employs Executive as Executive
Vice President of the Company for the Term as defined in paragraph 2 to perform
the duties described in Section 3 hereof.
2. Term. Unless terminated earlier pursuant to the provisions of
Section 7.2 or 8 hereof, the term of employment of Executive covered by this
Agreement shall commence on the date of the closing of the first offering of
securities of the Company which is registered under the Securities Act of 1933,
as amended and shall continue through December 31, 2000 (the "Term").
3. Duties. Executive shall devote substantially all her time to the
affairs and business of the Company for which she will serve as Executive
President and perform the duties designated by the Board of Directors of the
Company. Executive shall use her best efforts to promote the interests and
welfare of the Company.
4. Salary; Bonus. (a) As her compensation hereunder, Executive shall
be paid by the Company a base salary of $425,000 per annum during the first 12
month period of the Term, with the compensation for each of the remaining 12
month periods to be determined by the Board of Directors but not to be less than
her base compensation for the preceding twelve month period adjusted for the
increase, if any, in the Consumer Price Index for the last month of the
immediately preceding twelve month period. For this purpose, the Consumer Price
Index shall mean the Consumer Price Index U.S. City Average, All Items Figure
for Urban Wage Earners and Clerical Workers, published by the Bureau of Labor
Statistics of the U.S. Department of Labor, or any comparable Consumer Price
Index which shall be subsequently published to supersede such designated
Consumer Price Index. The base compensation shall be payable in equal biweekly
installments.
(b) The Company shall pay Executive a bonus within 30 days
following the completion of the statement of income of the Company and its
subsidiaries for the most recently completed fiscal year ending during the Term
as audited by the independent public accounting firm selected by the Company to
audit the consolidated financial statements of the Company and its
<PAGE> 2
subsidiaries equal to (i) 0.5% of the consolidated net revenues of the Company
in excess of $100,000,000, and (ii) 2.5% of the amount by which the Pre-tax
Income for that year exceeds $20,000,000. Pre-tax Income shall mean the income
of the Company and its subsidiaries before provision for applicable federal,
state and local income taxes, all as determined in accordance with generally
accepted accounting principles.
5. Benefits. The Company shall be obligated to pay, provide or
secure or continue to provide, pay or secure, as the case may be, at its own
expense for Executive while employed by the Company pursuant to the Agreement
the following:
(i) full coverage or reimbursement for all medical and dental
expenses incurred by Executive and her husband and children, but with respect to
each child not beyond the later of the date the child attains the age of
twenty-two (22) or the last day is a full-time student in a college or graduate
school;
(ii) business accident insurance and accidental death and
disability insurance for the benefit of the beneficiary or beneficiaries
specified by the Executive in the amount or amounts provided by the Company on
behalf of its executives or key employees;
(iii) term insurance on the life of the Executive in the
principal amount of not less than $1,000,000 payable to such beneficiary or
beneficiaries as designated from time to time by the husband of the Executive,
which policy shall be assigned to the husband of Executive;
(iv) a disability policy providing payment to the Executive at
the rate of at least $60,000 per annum during the period commencing the day
following the Disability Payment Period described in Section 7.2 and ending not
earlier than the date the Executive attains the age of sixty-five (65); and
(v) during each year of her employment a full-paid four-week
vacation.
6. Expenses. The Company shall pay or reimburse Executive for all
expenses normally reimbursed by the Company and reasonably incurred by her in
furtherance of her duties hereunder including, without limitation, travel,
meals, hotel accommodations and the like upon submission by her of vouchers or
an itemized list thereof prepared in compliance with such rules relating thereto
as the Board may, from time to time, adopt and as may be required in order to
permit such payments as proper deductions to the Company under the Internal
Revenue Code, as amended from time to time, and the rules and regulations
adopted pursuant thereto now or hereafter in effect.
7. Death; Disability.
7.1 In the event of Executive's death during the Term, subject
to this Agreement not having been terminated pursuant to Section 8, the Company
shall pay to the Executive's widower or estate for the 12 month period following
such death the amount of the base
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<PAGE> 3
salary at the rate provided in Section 4 as of the date of death, plus the bonus
which would have been payable at the end of the fiscal year of the Company if
the Executive had survived such year end unless the death of the Executive is
prior to the end of the first quarter of the fiscal year, in which event the
bonus, if any, shall be the amount of bonus earned by the Executive with respect
to the fiscal year ended immediately prior to her death.
7.2 In the event of Executive's disability (as hereinafter
defined) for one-hundred and twenty (120) consecutive calendar days or in the
aggregate one hundred and eighty (180) calendar days during any twelve (12)
months of the Term, the Company shall have the right, by written notice to
Executive, to terminate this Agreement as of the date of such notice, except the
Company shall pay for an additional 12 month period (the "Disability Payment
Period") to the Executive or her legal representative as compensation in
addition to the benefits provided under a group Long Term Disability Policy
which the Company maintains during the term of this Agreement the base
compensation provided in Section 4 at the rate in effect immediately prior to
the Executive being disabled under this Section 7.2. "Disability" for the
purposes of this Agreement shall mean Executive's physical or mental disability
so as to render Executive incapable of carrying out Executive's essential duties
under this Agreement.
8. Termination. The Company shall have the right to discharge
Executive and terminate this Agreement for Cause (as hereinafter defined) by
written notice to Executive and this Agreement shall be deemed terminated as of
the date of such notice. For the purpose of this agreement, "Cause" shall mean
(a) conviction of a felony, (b) gross neglect or gross misconduct (including
conflict of interest) in the carrying out of Executive's duties, (c) repeated or
substantial failure, refusal or neglect to perform Executive's duties in
accordance with paragraph 3 hereof, (d) the engaging by Executive in a material
act or acts of dishonesty affecting the Company, or its subsidiaries, or (e)
drunkenness or the illegal use of drugs by Executive materially and repeatedly
interfering with performance of Executive's obligations under this Agreement. In
the event of a termination by the Company pursuant to this paragraph 8, the
Company shall not be under any further obligation to Executive hereunder except
to pay Executive, subject to the rights and remedies of the Company in the
circumstances, (i) salary and benefits accrued and payable up to the date of
such termination, and (ii) reimbursement for expenses accrued and payable under
paragraph 6 hereof through the date of termination.
9. Non-Competition.
9.1 Subject to the Company not then being in default of its
obligations under this Agreement, Executive, for a period ending one year
following the last day of her employment as an Executive by the Company (the
"Non-competition Period"), shall not perform services or otherwise act in any
capacity (including without limitation as an employee, independent contractor,
officer, director or consultant) for, or otherwise be engaged by or have any
financial interest in or affiliation with, any individual corporation,
partnership or any other entity involved in or connected with the business in
which the Company (for purposes of Sections 9, 10 and 11, "Company" shall also
include the Company and the subsidiaries of the Company) is engaged other
3
<PAGE> 4
than for or on behalf of the Company; provided, however, that nothing contained
in this Section 9.1 shall prevent Executive from purchasing as an investment
securities of any corporation whose securities are regularly traded on any
national securities exchange or in the over-the-counter market, provided that
the amount of such securities along with securities held at or after such
purchase by other members of her family, including her parents, siblings and
members of their families do not aggregate at least 5% of the outstanding
securities of such corporation.
9.2 During the Non-competition Period and subject to the
Company's not being in default of this Agreement, Executive shall not solicit or
induce any Executive of the Company to leave the employ of the Company.
10. Confidential Information.
10.1 Executive shall regard and preserve as confidential all
trade secrets and other proprietary information pertaining to the business of
the Company or its subsidiaries that Executive may obtain during her employment;
and, to the extent that such proprietary information shall not become public
knowledge, Executive shall not disclose to others, during her employment or
thereafter, any of such proprietary information.
10.2 Executive agrees that any inventions, copyrightable
material, secret processes, formulae, trademarks, products or improvements that
she may invent, produce, prepare, acquire or suggest during the term of this
Agreement, relating generally to any matter or thing connected in any way with
or relating to the work, products or projects carried on by Executive for the
Company shall become the absolute property of the Company; and Executive further
agrees to assign without further compensation all such inventions, copyrightable
material, trade secrets, secret processes, formulae, trademarks, products and
improvements and all rights thereto, domestic and foreign, to the Company and to
execute all documents whatsoever that may be necessary to transfer to and vest
in the Company all right, title and interest in and to such inventions,
copyrightable material, trade secrets, secret processes, formulae, trademarks,
products and improvements.
10.3 The Company shall own forever and throughout the world
(exclusively during the current and renewed or extended term of any patent
anywhere in the world and thereafter, non-exclusively) all rights of any kind or
nature now or hereafter known in and to all of the product of Executive's
services hereunder in any capacity and any and all parts thereof, including,
without limitation, patent, copyright and all other property or proprietary
rights in or to any ideas, concepts, designs, drawings, plans, prototypes or any
other similar creative works and to the product of any or all of such services.
Executive acknowledges and agrees that for the foregoing purposes, Executive is
performing her services as the Company's employee-for-hire. Without limiting the
generality of the previous sentence, Executive acknowledges and agrees that all
memoranda, notes, records and other documents made or compiled by Executive or
made available to Executive during the Term concerning the business of the
Company, shall be the property of the Company, and shall be delivered by
Executive to the Company, upon termination of this Agreement or at any other
time at the Company's request.
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<PAGE> 5
11. Indemnification.
(a) The Company agrees to indemnify Executive in the event she
is made or threatened to be made a party to any action, suit or proceeding,
whether civil or criminal, and whether or not by or in the right of the Company
or any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise, by
reason of the fact that she, her testator or intestate, is or was a director or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity at the request of the Company, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, actually and necessarily incurred as a result of such action,
suit or proceeding, or any appeal therein, provided that (i) no indemnification
may be made to or on her behalf if a judgment or other final adjudication
adverse to her establishes that her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that she personally gained in fact a financial profit
or other advantage to which she was not legally entitled; (ii) no
indemnification shall be required in connection with the settlement of any
pending or threatened action or proceeding, or any other disposition thereof
except a final adjudication, unless the Company has consented to such settlement
or other disposition, and (iii) the Company shall not be obligated to indemnify
her if and to the extent she is entitled to be indemnified under a policy of
insurance as such policy would apply in the absence of this Agreement.
Executive shall be paid or reimbursed by the Company reasonable
expenses, including attorneys' fees, incurred in defending any action or
proceeding, whether threatened or pending, in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of the Executive to repay
such amount to the Company to the extent, if any, she is ultimately found not to
be entitled to indemnification.
(b) The Company agrees to maintain at its expense insurance in
the principal amount of at least $20,000,000 from a reputable and financially
capable insurance company insuring the officers and directors of the Company,
including the Executive, against all claims, actions, judgment, fines and
amounts paid in settlement and reasonable expenses arising from their acts or
omissions as officers or directors of the Company individually or collectively,
including claims or actions arising under the United States Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the
securities laws of other jurisdictions or the common law other than those which
arise principally from acts or omissions by her in bad faith or which were the
result of her actions and deliberate dishonesty.
12. Remedies.
12.1 Nothing herein contained is intended to waive or diminish
any rights the Company may have at law or in equity at any time to protect and
defend its legitimate property
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interests including its business relationship with third parties, the foregoing
provisions being intended to be in addition to and not in derogation or
limitation of any other rights the Company may have at law or in equity.
12.2 A breach by Executive of the provisions of Section 9.1,
9.2, 10.1, 10.2 or 10.3 of this Agreement may cause the Company irreparable
injury and damage. Executive therefore agrees that damages may be an inadequate
remedy and that the Company shall be entitled to injunctive and/or other
equitable relief to prevent any breach of such Section of this Agreement and
to secure its enforcement, without being required to provide any security or
post any bond.
13. Notices. Any notices pertaining to this Agreement if to the
Company shall be addressed to Box Hill Systems Corp., 161 Avenue of the
Americas, New York, New York 10013 and if to the Executive at ________________,
New York, New York _________. All notices shall be in writing and shall be
deemed duly given if personally delivered or sent by registered or certified
mail, overnight or express mail or by telefax. If sent by registered or
certified mail, notice shall be deemed to have been received and effective three
days after mailing; if by overnight or express mail or by telefax, notice shall
be deemed received the next business day after being sent. Any party may change
its address for notice hereunder by giving notice of such change in the manner
provided herein.
14. Entire Agreement. This Agreement contains the entire agreement
of the parties respecting the subject matter contained herein. No modification
of any provision hereof shall be effective except by a written agreement signed
by the parties hereto.
15. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
entirely made and performed therein.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties, their respective successors, heirs and assigns (where
permitted).
(c) The waiver by one party hereto of any breach by the other
(the "Breaching Party") of any provision of this Agreement shall not operate or
be construed as a waiver of any other (prior or subsequent) breach by the
Breaching Party, and waiver of a breach of a provision in one instance shall not
be deemed a waiver of a breach of such provision in any other circumstance.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the year and date first above written.
BOX HILL SYSTEMS CORP.
By:______________________________
EXECUTIVE:
_________________________________
CAROL TURCHIN
7
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Employment Agreement dated as of July 3, 1997 between BOX HILL SYSTEMS
CORP., a New York corporation (the "Company") and Benjamin Monderer
("Executive").
WITNESSETH:
WHEREAS, the Company desires to continue the employment of the Executive
and the Executive wishes to continue to be employed by the Company on the terms
and conditions hereinafter contained;
NOW, THEREFORE, it is hereby agreed as follows:
1. Employment. The Company hereby employs Executive as President of
the Company for the Term as defined in paragraph 2 to perform the duties
described in Section 3 hereof.
2. Term. Unless terminated earlier pursuant to the provisions of
Section 7.2 or 8 hereof, the term of employment of Executive covered by this
Agreement shall commence on the date of the closing of the first offering of
securities of the Company which is registered under the Securities Act of 1933,
as amended and shall continue through December 31, 2000 (the "Term").
3. Duties. Executive shall devote substantially all his time to the
affairs and business of the Company for which he will serve as President and
perform the duties designated by the Board of Directors of the Company.
Executive shall use his best efforts to promote the interests and welfare of the
Company.
4. Salary; Bonus. (a) As his compensation hereunder, Executive shall
be paid by the Company a base salary of $500,000 per annum during the first 12
month period of the Term, with the compensation for each of the remaining 12
month periods to be determined by the Board of Directors but not to be less than
his base compensation for the preceding twelve month period adjusted for the
increase, if any, in the Consumer Price Index for the last month of the
immediately preceding twelve month period. For this purpose, the Consumer Price
Index shall mean the Consumer Price Index U.S. City Average, All Items Figure
for Urban Wage Earners and Clerical Workers, published by the Bureau of Labor
Statistics of the U.S. Department of Labor, or any comparable Consumer Price
Index which shall be subsequently published to supersede such designated
Consumer Price Index. The base compensation shall be payable in equal biweekly
installments.
(b) The Company shall pay Executive a bonus within
30 days following the completion of the statement of income of the Company and
its subsidiaries for the most recently completed fiscal year ending during the
Term as audited by the independent public accounting firm selected by the
Company to audit the consolidated financial statements of the Company and its
subsidiaries equal to (i) 0.5% of the consolidated net revenues of the Company
in excess of
<PAGE> 2
$100,000,000, and (ii) 4% of the amount by which the Pre-tax Income for that
year exceeds $20,000,000. Pre-tax Income shall mean the income of the Company
and its subsidiaries before provision for applicable federal, state and local
income taxes, all as determined in accordance with generally accepted accounting
principles.
5. Benefits. The Company shall be obligated to pay, provide or
secure or continue to provide, pay or secure, as the case may be, at its own
expense for Executive while employed by the Company pursuant to the Agreement
the following:
(i) full coverage or reimbursement for all medical and dental
expenses incurred by Executive and his wife and children, but with respect to
each child not beyond the later of the date the child attains the age of
twenty-two (22) or the last day is a full-time student in a college or graduate
school;
(ii) business accident insurance and accidental death and
disability insurance for the benefit of the beneficiary or beneficiaries
specified by the Executive in the amount or amounts provided by the Company on
behalf of its executives or key employees;
(iii) term insurance on the life of the Executive in the
principal amount of not less than $1,000,000 payable to such beneficiary or
beneficiaries as designated from time to time by the wife of the Executive,
which policy shall be assigned to the wife of Executive;
(iv) a disability policy providing payment to the Executive at
the rate of at least $60,000 per annum during the period commencing the day
following the Disability Payment Period described in Section 7.2 and ending not
earlier than the date the Executive attains the age of sixty-five (65); and
(v)during each year of his employment a full-paid four-week
vacation.
6. Expenses. The Company shall provide Executive with a new model of
a four door large sedan automobile to assist in the performance of his duties
and bear the rental, maintenance, parking and insurance expenses with respect
thereto and pay or reimburse Executive for all other expenses normally
reimbursed by the Company and reasonably incurred by him in furtherance of his
duties hereunder including, without limitation, travel, meals, hotel
accommodations and the like upon submission by him of vouchers or an itemized
list thereof prepared in compliance with such rules relating thereto as the
Board may, from time to time, adopt and as may be required in order to permit
such payments as proper deductions to the Company under the Internal Revenue
Code, as amended from time to time, and the rules and regulations adopted
pursuant thereto now or hereafter in effect.
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<PAGE> 3
7. Death; Disability.
7.1 In the event of Executive's death during the Term, subject
to this Agreement not having been terminated pursuant to Section 8, the Company
shall pay to the Executive's widow or estate for the 12 month period following
such death the amount of the base salary at the rate provided in Section 4 as of
the date of death, plus the bonus which would have been payable at the end of
the fiscal year of the Company if the Executive had survived such year end
unless the death of the Executive is prior to the end of the first quarter of
the fiscal year, in which event the bonus, if any, shall be the amount of bonus
earned by the Executive with respect to the fiscal year ended immediately prior
to his death.
7.2 In the event of Executive's disability (as hereinafter
defined) for one-hundred and twenty (120) consecutive calendar days or in the
aggregate one hundred and eighty (180) calendar days during any twelve (12)
months of the Term, the Company shall have the right, by written notice to
Executive, to terminate this Agreement as of the date of such notice, except the
Company shall pay for an additional 12 month period (the "Disability Payment
Period") to the Executive or his legal representative as compensation in
addition to the benefits provided under a group Long Term Disability Policy
which the Company maintains during the term of this Agreement the base
compensation provided in Section 4 at the rate in effect immediately prior to
the Executive being disabled under this Section 7.2. "Disability" for the
purposes of this Agreement shall mean Executive's physical or mental disability
so as to render Executive incapable of carrying out Executive's essential duties
under this Agreement.
8. Termination. The Company shall have the right to discharge
Executive and terminate this Agreement for Cause (as hereinafter defined) by
written notice to Executive and this Agreement shall be deemed terminated as of
the date of such notice. For the purpose of this agreement, "Cause" shall mean
(a) conviction of a felony, (b) gross neglect or gross misconduct (including
conflict of interest) in the carrying out of Executive's duties, (c) repeated or
substantial failure, refusal or neglect to perform Executive's duties in
accordance with paragraph 3 hereof, (d) the engaging by Executive in a material
act or acts of dishonesty affecting the Company, or its subsidiaries, or (e)
drunkenness or the illegal use of drugs by Executive materially and repeatedly
interfering with performance of Executive's obligations under this Agreement. In
the event of a termination by the Company pursuant to this paragraph 8, the
Company shall not be under any further obligation to Executive hereunder except
to pay Executive, subject to the rights and remedies of the Company in the
circumstances, (i) salary and benefits accrued and payable up to the date of
such termination, and (ii) reimbursement for expenses accrued and payable under
paragraph 6 hereof through the date of termination.
9. Non-Competition.
9.1 Subject to the Company not then being in default of its
obligations under this Agreement, Executive, for a period ending one year
following the last day of his employment as an Executive by the Company (the
"Non-competition Period"), shall not perform
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<PAGE> 4
services or otherwise act in any capacity (including without limitation as an
employee, independent contractor, officer, director or consultant) for, or
otherwise be engaged by or have any financial interest in or affiliation with,
any individual corporation, partnership or any other entity involved in or
connected with the business in which the Company (for purposes of Sections 9, 10
and 11, "Company" shall also include the Company and the subsidiaries of the
Company) is engaged other than for or on behalf of the Company; provided,
however, that nothing contained in this Section 9.1 shall prevent Executive from
purchasing as an investment securities of any corporation whose securities are
regularly traded on any national securities exchange or in the over-the-counter
market, provided that the amount of such securities along with securities held
at or after such purchase by other members of his family, including his parents,
siblings and members of their families do not aggregate at least 5% of the
outstanding securities of such corporation.
9.2 During the Non-competition Period and subject to the
Company's not being in default of this Agreement, Executive shall not solicit or
induce any Executive of the Company to leave the employ of the Company.
10. Confidential Information.
10.1 Executive shall regard and preserve as confidential all
trade secrets and other proprietary information pertaining to the business of
the Company or its subsidiaries that Executive may obtain during his employment;
and, to the extent that such proprietary information shall not become public
knowledge, Executive shall not disclose to others, during his employment or
thereafter, any of such proprietary information.
10.2 Executive agrees that any inventions, copyrightable
material, secret processes, formulae, trademarks, products or improvements that
he may invent, produce, prepare, acquire or suggest during the term of this
Agreement, relating generally to any matter or thing connected in any way with
or relating to the work, products or projects carried on by Executive for the
Company shall become the absolute property of the Company; and Executive further
agrees to assign without further compensation all such inventions, copyrightable
material, trade secrets, secret processes, formulae, trademarks, products and
improvements and all rights thereto, domestic and foreign, to the Company and to
execute all documents whatsoever that may be necessary to transfer to and vest
in the Company all right, title and interest in and to such inventions,
copyrightable material, trade secrets, secret processes, formulae, trademarks,
products and improvements.
10.3 The Company shall own forever and throughout the world
(exclusively during the current and renewed or extended term of any patent
anywhere in the world and thereafter, non-exclusively) all rights of any kind or
nature now or hereafter known in and to all of the product of Executive's
services hereunder in any capacity and any and all parts thereof, including,
without limitation, patent, copyright and all other property or proprietary
rights in or to any ideas, concepts, designs, drawings, plans, prototypes or any
other similar creative works and to the product of any or all of such services.
Executive acknowledges and agrees that for the foregoing purposes, Executive is
performing his services as the Company's employee-for-hire. Without limiting the
4
<PAGE> 5
generality of the previous sentence, Executive acknowledges and agrees that all
memoranda, notes, records and other documents made or compiled by Executive or
made available to Executive during the Term concerning the business of the
Company, shall be the property of the Company, and shall be delivered by
Executive to the Company, upon termination of this Agreement or at any other
time at the Company's request.
11. Indemnification.
(a) The Company agrees to indemnify Executive in the event he
is made or threatened to be made a party to any action, suit or proceeding,
whether civil or criminal, and whether or not by or in the right of the Company
or any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise, by
reason of the fact that he, his testator or intestate, is or was a director or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity at the request of the Company, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, actually and necessarily incurred as a result of such action,
suit or proceeding, or any appeal therein, provided that (i) no indemnification
may be made to or on his behalf if a judgment or other final adjudication
adverse to him establishes that his acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled; (ii) no indemnification
shall be required in connection with the settlement of any pending or threatened
action or proceeding, or any other disposition thereof except a final
adjudication, unless the Company has consented to such settlement or other
disposition, and (iii) the Company shall not be obligated to indemnify him if
and to the extent he is entitled to be indemnified under a policy of insurance
as such policy would apply in the absence of this Agreement .
Executive shall be paid or reimbursed by the Company reasonable
expenses, including attorneys' fees, incurred in defending any action or
proceeding, whether threatened or pending, in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of the Executive to repay
such amount to the Company to the extent, if any, he is ultimately found not to
be entitled to indemnification.
(b) The Company agrees to maintain at its expense insurance in
the principal amount of at least $20,000,000 from a reputable and financially
capable insurance company insuring the officers and directors of the Company
including the Executive against all claims, actions, judgment, fines and amounts
paid in settlement and reasonable expenses arising from their acts or omissions
as officers or directors of the Company individually or collectively, including
claims or actions arising under the United States Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the securities laws of
other jurisdictions or the common law
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<PAGE> 6
other than those which arise principally from acts or omissions by him in bad
faith or which were the result of his actions and deliberate dishonesty.
12. Remedies.
12.1 Nothing herein contained is intended to waive or diminish
any rights the Company may have at law or in equity at any time to protect and
defend its legitimate property interests including its business relationship
with third parties, the foregoing provisions being intended to be in addition to
and not in derogation or limitation of any other rights the Company may have at
law or in equity.
12.2 A breach by Executive of the provisions of Section 9.1,
9.2, 10.1, 10.2 or 10.3 of this Agreement may cause the Company irreparable
injury and damage. Executive therefore agrees that damages may be an inadequate
remedy and the Company shall be entitled to injunctive and/or other equitable
relief to prevent any breach of such Section of this Agreement and to secure its
enforcement, without being required to provide any security or post any bond.
13. Notices. Any notices pertaining to this Agreement if to the
Company shall be addressed to Box Hill Systems Corp., 161 Avenue of the
Americas, New York, New York 10013 and if to the Executive at ________________,
New York, New York _________. All notices shall be in writing and shall be
deemed duly given if personally delivered or sent by registered or certified
mail, overnight or express mail or by telefax. If sent by registered or
certified mail, notice shall be deemed to have been received and effective three
days after mailing; if by overnight or express mail or by telefax, notice shall
be deemed received the next business day after being sent. Any party may change
its address for notice hereunder by giving notice of such change in the manner
provided herein.
14. Entire Agreement. This Agreement contains the entire agreement
of the parties respecting the subject matter contained herein. No modification
of any provision hereof shall be effective except by a written agreement signed
by the parties hereto.
15. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
entirely made and performed therein.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties, their respective successors, heirs and assigns (where
permitted).
(c) The waiver by one party hereto of any breach by the other
(the "Breaching Party") of any provision of this Agreement shall not operate or
be construed as a waiver of any other (prior or subsequent) breach by the
Breaching Party, and waiver of a breach of a
6
<PAGE> 7
provision in one instance shall not be deemed a waiver of a breach of such
provision in any other circumstance.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the year and date first above written.
BOX HILL SYSTEMS CORP.
By:________________________________
EXECUTIVE:
___________________________________
BENJAMIN MONDERER
7
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
Employment Agreement dated as of July 3, 1997 between BOX HILL SYSTEMS
CORP., a New York corporation (the "Company") and Mark A. Mays ("Executive").
WITNESSETH:
WHEREAS, the Company desires to continue the employment of the Executive
and the Executive wishes to continue to be employed by the Company on the terms
and conditions hereinafter contained;
NOW, THEREFORE, it is hereby agreed as follows:
1. Employment. The Company hereby employs Executive as Vice
President of the Company for the Term as defined in paragraph 2 to perform the
duties described in Section 3 hereof.
2. Term. Unless terminated earlier pursuant to the provisions of
Section 7 or 8 hereof, the term of employment of Executive covered by this
Agreement shall commence on the date of the closing of the first offering of
securities of the Company which is registered under the Securities Act of 1933,
as amended and shall continue through December 31, 2000 (the "Term").
3. Duties. Executive shall devote substantially all his time to the
affairs and business of the Company for which he will serve as Vice President
and perform the duties designated by the Board of Directors of the Company.
Executive shall use his best efforts to promote the interests and welfare of the
Company.
4. Salary; Bonus. (a) As his compensation hereunder, Executive shall
be paid by the Company a base salary of $350,000 per annum during the first 12
month period of the Term, with the compensation for each of the remaining 12
month periods to be determined by the Board of Directors but not to be less than
his base compensation for the preceding twelve month period adjusted for the
increase, if any, in the Consumer Price Index for the last month of the
immediately preceding twelve month period. For this purpose, the Consumer Price
Index shall mean the Consumer Price Index U.S. City Average, All Items Figure
for Urban Wage Earners and Clerical Workers, published by the Bureau of Labor
Statistics of the U.S. Department of Labor, or any comparable Consumer Price
Index which shall be subsequently published to supersede such designated
Consumer Price Index. The base compensation shall be payable in equal biweekly
installments.
(b) The Company shall pay Executive a bonus within
30 days following the completion of the statement of income of the Company and
its subsidiaries for the most recently completed fiscal year ending during the
Term as audited by the independent public accounting firm
<PAGE> 2
selected by the Company to audit the consolidated financial statements of the
Company and its subsidiaries equal to 1.5% of the amount by which the Pre-tax
Income for that year exceeds $20,000,000. Pre-tax Income shall mean the income
of the Company and its subsidiaries before provision for applicable federal,
state and local income taxes, all as determined in accordance with generally
accepted accounting principles.
5. Benefits. The Company shall be obligated or continue to provide,
pay or secure, at its own expense for Executive while employed by the Company
pursuant to the Agreement medical, health, disability and business accident
insurance coverage in the forms provided to him during the twelve months ended
June 30, 1997. Executive shall be entitled to a full-paid four-week vacation
during each year of his employment.
6. Expenses. The Company shall pay or reimburse Executive for all
other expenses normally reimbursed by the Company and reasonably incurred by him
in furtherance of his duties hereunder including, without limitation, travel,
meals, hotel accommodations and the like upon submission by him of vouchers or
an itemized list thereof prepared in compliance with such rules relating thereto
as the Board may, from time to time, adopt and as may be required in order to
permit such payments as proper deductions to the Company under the Internal
Revenue Code, as amended from time to time, and the rules and regulations
adopted pursuant thereto now or hereafter in effect.
7. Disability. In the event of Executive's disability (as
hereinafter defined) for ninety (90) consecutive calendar days or in the
aggregate one hundred and twenty (120) calendar days during any twelve (12)
months of the Term, the Company shall have the right, by written notice to
Executive, to terminate this Agreement as of the date of such notice.
"Disability" for the purposes of this Agreement shall mean Executive's physical
or mental disability so as to render Executive incapable of carrying out
Executive's essential duties under this Agreement.
8. Termination. The Company shall have the right to discharge
Executive and terminate this Agreement for Cause (as hereinafter defined) by
written notice to Executive and this Agreement shall be deemed terminated as of
the date of such notice. For the purpose of this agreement, "Cause" shall mean
(a) conviction of a felony, (b) gross neglect or gross misconduct (including
conflict of interest) in the carrying out of Executive's duties, (c) repeated or
substantial failure, refusal or neglect to perform Executive's duties in
accordance with paragraph 3 hereof, (d) the engaging by Executive in a material
act or acts of dishonesty affecting the Company, or its subsidiaries, or (e)
drunkenness or the illegal use of drugs by Executive materially and repeatedly
interfering with performance of Executive's obligations under this Agreement. In
the event of a termination by the Company pursuant to this paragraph 8, the
Company shall not be under any further obligation to Executive hereunder except
to pay Executive, subject to the rights and remedies of the Company in the
circumstances, (i) salary and benefits accrued and payable up to the date of
such termination, and (ii) reimbursement for expenses accrued and payable under
paragraph 6 hereof through the date of termination.
9. Non-Competition.
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<PAGE> 3
9.1 Subject to the Company not then being in default of its
obligations under this Agreement, Executive, for a period ending one year
following the last day of his employment as an Executive by the Company (the
"Non-competition Period"), shall not perform services or otherwise act in any
capacity (including without limitation as an employee, independent contractor,
officer, director or consultant) for, or otherwise be engaged by or have any
financial interest in or affiliation with, any individual corporation,
partnership or any other entity involved in or connected with the business in
which the Company (for purposes of Sections 9, 10 and 11, "Company" shall also
include the Company and the subsidiaries of the Company) is engaged other than
for or on behalf of the Company; provided, however, that nothing contained in
this Section 9.1 shall prevent Executive from purchasing as an investment
securities of any corporation whose securities are regularly traded on any
national securities exchange or in the over-the-counter market, provided that
the amount of such securities along with securities held at or after such
purchase by other members of his family, including his parents, siblings and
members of their families do not aggregate at least 5% of the outstanding
securities of such corporation.
9.2 During the Non-competition Period and subject to the
Company's not being in default of this Agreement, Executive shall not solicit or
induce any Executive of the Company to leave the employ of the Company.
10. Confidential Information.
10.1 Executive shall regard and preserve as confidential all
trade secrets and other proprietary information pertaining to the business of
the Company or its subsidiaries that Executive may obtain during his employment;
and, to the extent that such proprietary information shall not become public
knowledge, Executive shall not disclose to others, during his employment or
thereafter, any of such proprietary information.
10.2 Executive agrees that any inventions, copyrightable
material, secret processes, formulae, trademarks, products or improvements that
he may invent, produce, prepare, acquire or suggest during the term of this
Agreement, relating generally to any matter or thing connected in any way with
or relating to the work, products or projects carried on by Executive for the
Company shall become the absolute property of the Company; and Executive further
agrees to assign without further compensation all such inventions, copyrightable
material, trade secrets, secret processes, formulae, trademarks, products and
improvements and all rights thereto, domestic and foreign, to the Company and to
execute all documents whatsoever that may be necessary to transfer to and vest
in the Company all right, title and interest in and to such inventions,
copyrightable material, trade secrets, secret processes, formulae, trademarks,
products and improvements.
10.3 The Company shall own forever and throughout the world
(exclusively during the current and renewed or extended term of any patent
anywhere in the world and thereafter, non-exclusively) all rights of any kind or
nature now or hereafter known in and to all of the product of Executive's
services hereunder in any capacity and any and all parts thereof, including,
without limitation, patent, copyright and all other property or proprietary
rights in or to any ideas, concepts,
3
<PAGE> 4
designs, drawings, plans, prototypes or any other similar creative works and to
the product of any or all of such services. Executive acknowledges and agrees
that for the foregoing purposes, Executive is performing his services as the
Company's employee-for-hire. Without limiting the generality of the previous
sentence, Executive acknowledges and agrees that all memoranda, notes, records
and other documents made or compiled by Executive or made available to Executive
during the Term concerning the business of the Company, shall be the property of
the Company, and shall be delivered by Executive to the Company, upon
termination of this Agreement or at any other time at the Company's request.
11. Indemnification.
(a) The Company agrees to indemnify Executive in the event he
is made or threatened to be made a party to any action, suit or proceeding,
whether civil or criminal, and whether or not by or in the right of the Company
or any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise, by
reason of the fact that he, his testator or intestate, is or was a director or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee or
officer of the Company or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity at the request of the Company, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, actually and necessarily incurred as a result of such action,
suit or proceeding, or any appeal therein, provided that (i) no indemnification
may be made to or on his behalf if a judgment or other final adjudication
adverse to him establishes that his acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled; (ii) no indemnification
shall be required in connection with the settlement of any pending or threatened
action or proceeding, or any other disposition thereof except a final
adjudication, unless the Company has consented to such settlement or other
disposition, and (iii) the Company shall not be obligated to indemnify him if
and to the extent he is entitled to be indemnified under a policy of insurance
as such policy would apply in the absence of this Agreement.
Executive shall be paid or reimbursed by the Company reasonable
expenses, including attorneys' fees, incurred in defending any action or
proceeding, whether threatened or pending, in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of the Executive to repay
such amount to the Company to the extent, if any, he is ultimately found not to
be entitled to indemnification.
(b) The Company agrees to maintain at its expense insurance in
the principal amount of at least $20,000,000 from a reputable and financially
capable insurance company insuring the officers and directors of the Company
including the Executive against all claims, actions, judgment, fines and amounts
paid in settlement and reasonable expenses arising from their acts or omissions
as officers or directors of the Company individually or collectively, including
4
<PAGE> 5
claims or actions arising under the United States Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the securities laws of
other jurisdictions or the common law other than those which arise principally
from acts or omissions by him in bad faith or which were the result of his
actions and deliberate dishonesty.
12. Remedies.
12.1 Nothing herein contained is intended to waive or diminish
any rights the Company may have at law or in equity at any time to protect and
defend its legitimate property interests including its business relationship
with third parties, the foregoing provisions being intended to be in addition to
and not in derogation or limitation of any other rights the Company may have at
law or in equity.
12.2 A breach by Executive of the provisions of Section 9.1,
9.2, 10.1, 10.2 or 10.3 of this Agreement may cause the Company irreparable
injury and damage. Executive therefore agrees that damages may be an inadequate
remedy and that the Company shall be entitled to injunctive and/or other
equitable relief to prevent any breach of such Section of this Agreement and to
secure its enforcement, without being required to provide any security or post
any bond.
13. Notices. Any notices pertaining to this Agreement if to the
Company shall be addressed to Box Hill Systems Corp., 161 Avenue of the
Americas, New York, New York 10013 and if to the Executive at ________________,
New York, New York _________. All notices shall be in writing and shall be
deemed duly given if personally delivered or sent by registered or certified
mail, overnight or express mail or by telefax. If sent by registered or
certified mail, notice shall be deemed to have been received and effective three
days after mailing; if by overnight or express mail or by telefax, notice shall
be deemed received the next business day after being sent. Any party may change
its address for notice hereunder by giving notice of such change in the manner
provided herein.
14. Entire Agreement. This Agreement contains the entire agreement
of the parties respecting the subject matter contained herein. No modification
of any provision hereof shall be effective except by a written agreement signed
by the parties hereto.
15. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
entirely made and performed therein.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties, their respective successors, heirs and assigns (where
permitted).
(c) The waiver by one party hereto of any breach by the other
(the "Breaching Party") of any provision of this Agreement shall not operate or
be construed as a waiver of any other (prior or subsequent) breach by the
Breaching Party, and waiver of a breach of a provision in one instance shall not
be deemed a waiver of a breach of such provision in any other circumstance.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the year and date first above written.
BOX HILL SYSTEMS CORP.
By:________________________________
EXECUTIVE:
___________________________________
MARK A. MAYS
7
<PAGE> 1
Exhibit 10.5
EXHIBIT A
BOX HILL SYSTEMS CORP.
1995 INCENTIVE PROGRAM
AS AMENDED AND RESTATED
AS OF JULY 3, 1997
The 1995 Incentive Program (the "Program") provides for the
grant to officers, directors and employees of Box Hill Systems Corporation and
its direct and indirect subsidiaries (collectively, the "Company"), and certain
consultants to the Company, certain rights to acquire shares of the Company's
common stock, par value $.01 per share (the "Common Stock"). The Company
believes that this Program will cause those persons to contribute materially to
the growth and success of the Company, thereby benefitting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted by the Board
of Directors of the Company or by one or more Committees appointed by the Board
of Directors of the Company from among its members (the "Plan Administrator").
The Board of Directors may appoint different Committees to handle different
duties under the Program. The Plan Administrator's decisions shall be final and
conclusive with respect to the interpretation and administration of the Program
and any Grant made under it.
<PAGE> 2
2. OPTIONS.
Incentives under the Program shall consist of incentive stock
options and non-qualified stock options (collectively the "Options"). All
Options shall be subject to the terms and conditions set out herein and to such
other terms and conditions consistent with this Program as the Plan
Administrator deems appropriate. The Plan Administrator shall approve the form
and provisions of each Option. Options need not be uniform.
3. ELIGIBILITY.
Options may be granted to any employee, officer, key
executive, director, professional or administrator, consultant or advisor to the
Company or any subsidiary of the Company selected by the Plan Administrator to
receive Options under the Program (persons so selected, the "Optionee(s)").
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of shares of Common
Stock (the "Shares") that may be issued or transferred under the Program is
725,000 Shares plus, (i) any Shares which are forfeited under the Program after
the Program becomes effective; plus (ii) any Shares surrendered to the Company
in payment of the exercise price of Options issued under the Program. The Shares
may be authorized but unissued Shares or Treasury Shares. The number of Shares
available for Options at any given time shall be reduced by the aggregate of all
Shares previously issued or transferred pursuant to the Program plus the
aggregate of all Shares which may become subject to issuance under
then-outstanding Options.
(b) Adjustments Upon Changes in Capitalization or Other
Events. Upon changes in the Common Stock of the Company by reason of a stock
dividend, stock split, reverse split,
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<PAGE> 3
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization or liquidation, the number and class of Shares
available under the Program as to which Options may be granted (both in the
aggregate and to any one Optionee), the number and class of Shares under each
then-outstanding Stock Option and the Option Price per share of such options,
shall be correspondingly adjusted by the Plan Administrator, such adjustments to
be made in the case of outstanding Stock Options without change in the total
price applicable to such options. In the event of a merger, consolidation,
combination, reorganization or other transaction in which the Company will not
be the surviving corporation, or in which the Company will not be the surviving
corporation, or in which the Company becomes a wholly-owned subsidiary of the
new corporation, a holder of Options under the Program shall be entitled to
options for that number of shares of stock in the new corporation which the
Optionee would have received had the Optionee exercised all of the unexercised
options available to the Optionee under the Program, whether or not then
exercisable, at the instant immediately prior to the effective date of such
transaction. Thereafter, adjustments as provided above shall relate to the
Options of the new corporation. Except as otherwise specifically provided in the
Option, in the event of a Change in Control (as defined below), merger,
consolidation, combination, reorganization or other transaction in which the
shareowners of the Company will receive cash or securities (other than Common
Stock) or in the event that an offer is made to the holders of Common Stock of
the Company to sell or exchange such Common Stock for cash, securities or stock
of another corporation and such offer, if accepted, would result in the offeror
becoming the owner of (a) at least 50% of the outstanding Common Stock of the
Company or (b) such lesser percentage of the outstanding Common Stock which the
Plan Administrator in its sole discretion determines will materially adversely
affect the market value of
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<PAGE> 4
the Common Stock after the tender or exchange offer, the Plan Administrator
shall have the right, but not the obligation, in the exercise of its business
judgment, prior to the shareowners' vote on such transaction or prior to the
expiration date (without extensions) of the tender or exchange offer, (i)
accelerate the time of exercise so that all Options which are outstanding shall
become immediately exercisable in full, without regard to any limitations of
time, performance or amount otherwise contained in the Program or in the Options
and/or (ii) determine that the Options shall be adjusted and make such
adjustments by substituting for Common Stock of the Company subject to Options,
common stock of the surviving corporation or offeror if such stock of such
corporation is publicly traded or, if such stock is not publicly traded, by
substituting common stock of a parent of the surviving corporation or offeror if
the stock of such parent is publicly traded, in which event the aggregate option
price shall remain the same and the number of shares subject to outstanding
Options shall be the number of shares which could have been purchased on the
closing day of such transaction or the expiration date of the offer with the
proceeds which would have been received by the Optionee if the Option had been
exercised in full prior to such transaction or expiration date and the Optionee
had exchanged all of such shares in the transaction or sold or exchanged all of
such shares pursuant to the tender or exchange offer. For purposes of this
Section 4(b), "Change in Control" means (i) any "person", as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the shareowners of the Company in
substantially the same proportion as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
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<PAGE> 5
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities without the approval of the Board of Directors of
the Company; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (i), (iii) or (iv) of
this sentence) whose election by the Board or nomination for election by the
Company's shareowners was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
cease for any reason to constitute at least a majority thereof; (iii) the
shareowners of the Company approve a merger or consolidation of the Company with
any other company, other than (1) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or (2) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or (iv) the
shareowners of the Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets and properties.
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<PAGE> 6
5. OPTION GRANTS.
The Plan Administrator may grant options qualifying as
incentive stock options under the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"), or non-qualified options not entitled to special
tax treatment under Section 422 of the Internal Revenue Code of 1986 (the
"Code"), as amended (collectively, "Stock Options"). The following provisions of
this Section 5 shall apply to such Stock Options:
(a) Exercise of Option. An Optionee may exercise an Option by
delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price (the "Option Price"). The notice of
exercise, once delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Optionee shall pay the
Option Price in cash or by delivering shares of Common Stock which have been
owned by the Optionee for a minimum of six (6) months and which have a Fair
Market Value on the date of exercise equal to the Option Price, or a combination
of cash and Shares. The Optionee shall pay the Option Price not later than
thirty (30) days after the date of a statement from the Company following
exercise setting forth the Option Price, Fair Market Value of Common Stock on
the exercise date, the number of shares of Common Stock that may be delivered in
payment of the Option Price, and the amount of withholding tax due, if any. If
the Optionee fails to pay the Option Price within the thirty (30) day period,
the Plan Administrator shall have the right to take whatever action it deems
appropriate, including voiding the option exercise. The Company shall not issue
or transfer shares of Common Stock upon exercise of an Option until the Option
Price is fully paid.
(c) Share Withholding. With respect to any non-qualified
option, the Plan Administrator may, in its discretion and subject to such rules
as the Plan Administrator may adopt (including, without limitation, rules
relating to minimum holding periods for Common Stock),
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<PAGE> 7
permit the Optionee to satisfy, in whole or in part, any withholding tax
obligation which may arise in connection with the exercise of a non-qualified
option by electing to have the Company withhold shares of Common Stock having a
Fair Market Value equal to the amount of the withholding tax. Notwithstanding
the foregoing, as a condition of the grant of any Option to any officer or
director of the Company subject to the reporting requirements (a "Reporting
Person") of Section 16 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator shall require, upon the
exercise of any Option by any Reporting Person, at a time when the Company shall
be required to file periodic reports under Section 13 of the Exchange Act, that
the number of shares of Common Stock otherwise issuable upon the exercise of
such Option shall be reduced by the number of shares of Common Stock having an
aggregate Fair Market Value equal to the amount of the Reporting Person's
liability for any and all taxes required by law to be withheld.
(d) Price and Term. The Option Price per share, term and other
provisions of Options Optioned under the Program shall be specified in the
Option, as limited, in the case of Incentive Stock Options, by the provisions of
Section 5(e) below, if granted pursuant to such Section. In addition, the Plan
Administrator may prescribe such other conditions as it may deem appropriate,
which conditions shall be specified in the instrument of Option.
(e) Limits on Incentive Stock Options. The aggregate fair
market value of the stock covered by Incentive Stock Options granted under the
Program or any other stock option plan of the Company or any subsidiary or
parent of the Company that become exercisable for the first time by any employee
in any calender year shall not exceed $100,000. The aggregate Fair Market Value
will be determined at the time of the grant. The period for exercise of an
Incentive Stock
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<PAGE> 8
Option shall not exceed ten (10) years from the date of the Option (or five
years if the Optionee is also a 10% stockholder). The Option Price at which
Common Stock may be purchased by the Optionee under an Incentive Stock Option
shall be the Fair Market Value (or 110% of the Fair Market Value if the Optionee
is a 10% stockholder) of the Common Stock on the date of the grant. Incentive
Stock Options may only be granted to employees of the Company or any subsidiary
or parent of the Company. Incentive Stock Options by their terms shall not be
transferrable by the Optionee other than by the laws of descent and
distribution, and shall be exercisable, during the lifetime of the Optionee,
only by the Optionee.
6. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. The Board of Directors of the Company may from
time to time amend, alter, suspend or discontinue the Program, subject to any
requirement of stockholder approval required by applicable law, rule or
regulation, including Section required by applicable law, rule or regulation,
including Section 162(m) of the Code or, if the Common Stock is then listed or
admitted for trading on any United States securities exchange or on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
any requirement for shareholder approval required under the rules of such
exchange or NASDAQ, as the case may be; provided, however, that no amendment
shall be made without shareholder approval if such amendment would (1) increase
the maximum number of shares of Common Stock available for issuance under this
Program (subject to Section 4(b)), (2) reduce the minimum Option Price, (3)
effect any change inconsistent with Section 422 of the Code or (4) extend the
term of this Program.
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<PAGE> 9
(b) Termination of the Program. The Program shall terminate on
the tenth anniversary of its effective date unless terminated earlier by the
Board or unless extended by the Board.
(c) Termination and Amendment of Outstanding Options. A
termination or amendment of the Program that occurs after an Option has been
granted shall not result in the termination or amendment of the Option unless
the Optionee consents or unless the Plan Administrator acts under Section 7(d).
The termination of the Program shall not impair the power and authority of the
Plan Administrator with respect to outstanding Options. Whether or not the
Program has terminated, an outstanding Option may be terminated or amended under
Section 7(d) or may be amended by agreement of the Company and the Optionee on
terms consistent with the Program.
7. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Only an Optionee or his or
her authorized representative may exercise rights under an Option. Such persons
may not transfer those rights, except as to non-qualified option upon the
express written consent of the Company, which may be granted or denied in the
Company's discretion. Except as otherwise expressly provided herein or in the
Options, when an Optionee dies, the personal representative of the Options may
exercise the rights. The Personal representative must furnish proof satisfactory
to the Plan Administrator of his or her right to receive the Option under the
Optionee's will or under the applicable laws of descent and distribution.
(b) Suitable Options. The Plan Administrator may grant an
Option to an employee of another corporation who becomes eligible to receive the
Option by reason of a
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<PAGE> 10
corporate merger, consolidation, acquisition of stock or property, share
exchange, reorganization or liquidation involving the Company in substitution
for an Option previously granted by such corporation (the "Original Options").
The terms and conditions of the substitute Option may vary from the terms and
conditions required by the Program and from those of the Original Options. The
Plan Administrator shall prescribe the exact provisions of the substitute
Options, preserving where possible the provisions of the Original Options.
(c) Subsidiaries. The term "subsidiary" means a corporation in
which the Company owns directly or indirectly 50% or more of the voting power.
(d) Compliance with Law. The Program, the exercise of Options,
and the obligations of the Company to issue shares of Common Stock upon exercise
of Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Plan Administrator may
revoke any Option if it is contrary to law or modify an Option to bring it into
compliance with any valid and mandatory government regulation.
(e) Ownership of Stock. An Optionee shall have no rights as a
stockholder of the Company with respect to any Shares covered by an Option until
the Shares are issued to the Optionee or his representative on the Company's
books.
(f) No Right to Employment. The Program and the Options under
it shall not confer upon any Optionee the right to continue in the employment of
the Company or affect in any way the right of the Company to terminate the
employment of an Optionee at any time.
(g) Effective Date of the Program. The effective date of the
Program is May 23, 1995.
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<PAGE> 11
(h) Fair Market Value. For the purposes of the Program, the
term Fair Market Value means, as of any date, the closing price of a share of
Common Stock of the Company on such date. The closing price shall be (i) if the
Common Stock is then listed or admitted for trading on any national securities
exchange, or if not so listed or admitted for trading, is listed or admitted for
trading on NASDAQ, the last sale price of the Common Stock, regular way, or the
mean of the bid and asked prices thereof for any trading day on which no such
sale occurred, in each case as officially reported on the principal securities
exchange on which the Common Stock is listed or admitted for trading or on
NASDAQ, as the case may be, or (ii) if not so listed or admitted for trading on
a national securities exchange or NASDAQ, the mean between the closing high bid
and low asked quotations for the Common Stock in the over-the-counter market as
reported by NASDAQ, or any similar system for the automated dissemination of
securities prices then in common use, if so quoted, as reported by any member
firm of the New York Stock Exchange selected by the Company; provided, however,
that if, by reason of extended or continuous trading hours on any exchange or in
any market or for any other reason, the time, with respect to any trading day,
of the close of trading for the purpose of determining the "last sale price" or
the "closing" bid and asked prices is not objectively determinable, the time on
such trading day used for the purpose of reporting any compilation of last sale
prices or closing bid and asked prices in The Wall Street Journal shall be the
time on such trading day as of which the "last sale price" or "closing" bid and
asked prices are determined for purposes of this definition. If the Common Stock
is quoted on a national securities or central market system in lieu of a market
or quotation system described above, the closing price shall be determined in
the manner set forth in clause (i) of the preceding sentence if actual
transactions are reported, and in the manner set forth in clause (ii) of the
preceding sentence
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<PAGE> 12
if bid and asked quotations are reported but actual transactions are not. If on
the date in question, there is no exchange or over-the-counter market for the
Common Stock, the "fair market value" of such Common Stock shall be determined
by the Plan Administrator acting in good faith.
(i) Application of Funds. The proceeds received by the Company
from the exercise of Options pursuant to the Program will be used for general
corporate purposes.
(j) No Obligation to Exercise Option. The granting of an
Option under the Program shall impose no obligation upon the Optionee to
exercise such option.
(k) Severability. If any provision of the Program, or any term
or condition of any Option granted or form executed or to be executed
thereunder, or any application thereof to any person or circumstances is
invalid, such provision, term, condition or application shall to that extent be
void (or, in the discretion of the Plan Administrator, such provision, term or
condition may be amended so as to avoid such invalidity or failure), and shall
not affect other provisions, terms or conditions or applications thereof, and to
this extent such provisions, terms and conditions are severable.
(l) Option Agreement. Each grant under this Program shall be
evidenced by an option agreement (i.e., an instrument of Option) setting forth
the terms and conditions applicable to such Option. No Option shall be valid
until an agreement is executed by the Company and the Optionee and, upon
execution by each party and delivery of the agreement to the Company, such
Option shall be effective as of the effective date set forth in the Agreement.
(m) Restricted Shares. Each award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock subject to
such Option upon any securities exchange or under any
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<PAGE> 13
law, or the consent or approval of any governmental body, or the taking of any
other action is necessary or desirable as a condition of, or in connection with,
the delivery of shares thereunder, such shares shall not be delivered unless
such listing, registration, qualification, consent, approval or other action
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company may require that certificates evidencing shares of
Common Stock delivered upon an exercise of any Option bear a legend indicating
that the sale, transfer or other disposition thereof by the holder is prohibited
except in compliance with the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
(n) Program Controls. In the case of any conflict or
inconsistency between the terms of this Program and the terms of any instrument
of Option, the terms of this Program will control, unless the instrument of
Option expressly provides that the terms of such instrument of Option will
control.
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<PAGE> 1
EXHIBIT 10.6
FIBRE CHANNEL DRIVER SOFTWARE LICENSE
This License Agreement ("License") between Emulex Corporation
("Emulex"), with offices at 3535 Harbor Boulevard, Costa Mesa, CA 92626, and Box
Hill Systems Corp., ("Licensee"), with offices at 161 Sixth Avenue, New York, NY
10013, shall govern the use by Licensee of certain software to be provided by
Emulex for use with Emulex Fibre Channel chipset and or/host adapter products
purchased by Licensee.
1. DEFINITIONS:
1.1 "OBJECT CODE." Computer programs assembled or compiled in
magnetic or electronic binary form which are readable and
usable by machines, but not generally readable by humans
without reverse-assembly, reverse-compiling, or
reverse-engineering.
1.2 "SOURCE CODE." Computer programs written in higher-level
programing languages sometimes accompanied by English language
comments. Source Code is intelligible to trained programmers
and may be translated to Object Code for operation on hardware
through the process of compiling.
1.3 "OPERATING ENVIRONMENT." A computer operating system and
hardware platform for which an Emulex Driver is designed to
operate.
1.4 "PROTOCOL." The definition of specific Fibre Channel
capabilities within an Emulex Driver that allow network or
storage interoperability.
1.5 "EMULEX DRIVERS." One or more computer programs which controls
the operation of the Emulex Fibre Channel chipset and/or host
adapter. Each Operating Environment and each Protocol will have
a different driver. This software is loaded on a host computer
by a customer.
1.6 "DOCUMENTATION." Printed material relating to the Emulex
Driver, including descriptions and instructions for its use.
1.7 "DERIVATIVE WORK." A work that is based upon one or more
pre-existing works, such as a revision, modification,
translation (including compilation or recapitulation by
company), abridgment, condensation, expansion, or any other
form in which such a pre-existing work may be recast,
transformed, or adapted, and that, if prepared without
authorization by the owner of the pre-existing work, would
constitute a copyright infringement.
1.8 "EFFECTIVE DATE." The date that Licensee executes this
Agreement.
<PAGE> 2
2. TERM:
The term of this Agreement shall continue until Licensee ceases using
the Emulex Drivers, or until terminated in accordance with Section 10
hereof, at which time all copies of the Emulex Drivers in the
possession of Licensee shall be either returned to Emulex or destroyed
by Licensee.
3. EMULEX OBLIGATIONS:
3.1 DELIVERY OF LICENSED SOFTWARE. At no charge to Licensee, Emulex
shall deliver to Buyer one (1) copy of the Source Code and (1)
copy of the Object Code for the Emulex Drivers to be used by
Licensee upon a mutually agreeable schedule after the Effective
Date of this Agreement. The Emulex Drivers shall function in
accordance with their specifications.
3.2 UPDATES. At no charge to Licensee, Emulex shall provide
Licensee with software updates and any other changes that
Emulex may develop for the Emulex Drivers, provided hereunder,
for a period of two (2) years following delivery of the code
hereunder.
4. LICENSEE'S OBLIGATIONS:
4.1 DERIVATIVE WORK. Licensee agrees that Emulex Drivers are being
made available as an example and template. Licensee
acknowledges that it may, at Licensee's sole option, use the
Emulex Drivers to create, test and document a Derivative Work
for use with Licensee's computers when interfacing with and
Emulex Fibre Channel chipset and/or host adapter.
4.2 ASSUMPTION OF LIABILITY. Licensee assumes all responsibility
and liabilities in connection with the distribution of the
Derivative Work of the Emulex Drivers.
4.3 COPYRIGHT NOTICE. Licensee agrees to maintain intact and not
modify or delete Emulex's copyright notice which is contained
in each copy of the Emulex Drivers. Licensee shall place its
own copyright notice on all copies of the Derivative Works of
the Emulex Drivers created Licensee, which shall be interpreted
to include protection of the underlying copyrights of Emulex.
5. GRANT AND ACCEPTANCE OF LICENSE:
5.1 LIMITED LICENSE. Emulex hereby grants Licensee the irrevocable
personal, nontransferable, nonexclusive, royalty free, right
and license to:
a. Use and modify the Object and Source Code and related
Documentation for the Emulex Drivers and to prepare
Derivative Works thereof, for the
<PAGE> 3
limited purpose of ensuring compatibility and
interoperability with Licensee's products. Licensee
may not sublicense, distribute or otherwise disclose
the Source Code for the Emulex Drivers to third
parties. Licensee may not use the Emulex Drivers, or
Derivative Works thereof, for any purpose other than
to control the operation of Emulex Host Adapters or
Fibre Channel Chipsets; and
b. Distribute and sublicense copies of Derivative Works
of the Emulex Drivers, in Object Code only, for use
with Emulex Fibre Channel chipset and as part of
Licensee's products.
6. RESTRICTIONS:
6.1 USE OF SOFTWARE. License shall not reproduce, duplicate, copy
or otherwise disclose, distribute or disseminate the Emulex
Drivers or Derivative Works thereof in any form except to the
extent allowed under this Agreement.
6.2 SUBLICENSE OF DERIVATIVE WORKS. The Emulex Drivers or
Derivative Works thereof shall be sublicensed and distributed
by Licensee in Object Code only. Licensee shall require each
recipient of any Emulex Driver or Derivative Work thereof (the
"Licensee Driver") to be subject to the following sublicense
terms which shall be set forth in either a written agreement
signed by the recipient prior to receipt of the Licensee
Driver, or in a printed statement that accompanies the Licensee
Driver in a conspicuous and fully visible manner at the time of
receipt of the Licensee Driver.
a. The Recipient is granted a nonexclusive,
nontransferable license to use the Licensee Driver in
Object Code only;
b. The Recipient is permitted to make one archival copy
of the Licensee Driver; and
c. The Recipient may not otherwise copy, reverse compile
or reverse assemble all or any portion of the
Licensee Driver.
6.3 U.S. GOVERNMENT. Licensee will only provide the Licensee Driver
to the U.S. Government with RESTRICTED RIGHTS. Use, duplication
or disclosure by the U.S. Government is subject to the
restrictions as set forth in the Rights in Technical Data and
Computer Software clause at 48 C.F.R., paragraph 252-227-7013.
7. PROPRIETARY RIGHTS AND NON-DISCLOSURE:
Licensee agrees that Emulex owns all right, title and interest,
including, any and all worldwide copyrights, patents and trade secrets
in the Emulex Drivers. The Emulex
<PAGE> 4
Drivers contain trade secrets of Emulex and Licensee agrees that it
shall employ reasonable security precautions to maintain the
confidentiality of such trade secrets in the same manner as Licensee
protects its own proprietary information which it does not wish to
disclose.
8. WARRANTY:
Emulex makes no warranties whatsoever expressed or implied with respect
to the Emulex Drivers. Licensee agrees that the Emulex Drivers are
accepted and utilized "AS IS." Emulex DISCLAIMS ANY AND ALL PROMISES,
REPRESENTATIONS, AND WARRANTIES, EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, WITH RESPECT TO THE EMULEX DRIVERS, ANY DATA, INFORMATION,
OR OTHER MATERIAL FURNISHED TO THE LICENSEE HEREUNDER, INCLUDING THEIR
CONDITION; CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION; THE
EXISTENCE OF ANY LATENT OR PATENT DEFECTS; AND TITLE, MERCHANTABILITY,
OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
9. LIMITATION OF LIABILITY:
Neither party shall have any liability to the other party, or any third
party, whether in contract, tort, negligence or products liability for
any claim, loss of use, business interruption , lost data, lost files,
or for any indirect, special, incidental or consequential damages of
any kind or nature whatsoever, even if the affected party has been
advised of the possibility of such damages occurring.
10. TERMINATION:
10.1 This Agreement may be terminated, at any time, by Licensee
giving written notice of termination to Emulex.
10.2 Should either party commit a material breach of any obligation
hereunder, the other party may, at its option, terminate this
agreement upon thirty (30) days' written notice to the other
party. Such notice shall state the default upon which
termination is based. Notwithstanding such notice, termination
shall not occur and the defaulting party shall not be liable
for any further remedy if such default is cured within such
thirty (30) day period. Termination shall not affect any
sublicense granted by Licensee or the rights of Licensee prior
to the effective date or termination.
11. MISCELLANEOUS:
11.1 RELATIONSHIP OF THE PARTIES. The parties are independent
contractors of one another. Nothing herein shall be deemed to
create any relationship of agency,
<PAGE> 5
partnership, or joint venture between the parties.
11.2 NO ASSIGNMENT. Licensee represents that it is acting on its own
behalf and is not acting as agent for or on behalf of any third
party, except any present affiliate or subsidiary of Licensee,
and further agrees that it may not assign its rights or
obligations under this agreement without prior written consent
of Emulex.
11.3 NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective when deposited in the U.S.
mail, postage prepaid, and addressed to the appropriate party
at the address noted above, unless by such notice a different
address shall have been designed in writing.
11.4 GOVERNING LAW. The laws of the state of California shall govern
the interpretation and enforcement of this Agreement.
11.5 DISCLAIMERS. Emulex is not entitled to any compensation from
Licensee under this Agreement or otherwise. Licensee has no
obligation to develop or market any Emulex products or any
derivative works of the Emulex Drives or the Emulex Drivers
themselves. Licensee makes no warranties or representations of
any form to Emulex.
EMULEX CORPORATION BOX HILL SYSTEMS CORPORATION
By: By:
--------------------------------- -----------------------------
(Signature) (Signature)
Name: Name:
--------------------------------- -----------------------------
(Please type of print) (Please type of print)
Title: Title:
--------------------------------- -----------------------------
Date: Date:
--------------------------------- -----------------------------
<PAGE> 1
EXHIBIT 11.1
BOX HILL SYSTEMS CORPORATION
PRO FORMA NET INCOME PER SHARE CALCULATION(1)
<TABLE>
<CAPTION>
Year Ended Three Months Ended Three Months Ended
December 31, 1996 March 31, 1996 March 31, 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Pro forma net income...... $3,766,000 $1,053,000 $1,394,000
========== ========== ==========
Weighted average number
of shares issued and
outstanding............... 9,900,000 9,900,000 9,900,000
Dilutive effect of stock
options (1)...............
Number of shares that would
be required to be sold in
the initial public offering
to fund the final S
Corporation distribution... ---------- ---------- ----------
Adjusted weighted average
number of shares
outstanding................
========== ========== ==========
Pro forma net income
per share.................. $ $ $
========== ========== ==========
</TABLE>
(1) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the respective
periods, adjusted for the effect of dilutive common stock options, and after
giving effect to the estimated number of shares that would be required to be
sold (assuming an initial public offering price of $ per share) to fund a
distribution to the existing shareholders of all previously taxed, but
undistributed S Corporation earnings, estimated at $9,954,000 had such
distribution occurred on March 31, 1997. Pursuant to the requirements of the
Securities and Exchange Commission, common stock equivalents issued by the
Company during the twelve months immediately preceding the Offering have been
included in the calculation of the shares used in computing pro forma net
income per share as if they were outstanding for all periods presented using
the treasury stock method.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Box Hill Systems Corp.
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 23, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of Box Hill Systems Corp.
As independent auditors, we hereby consent to the use of our report and to
all references to our Firm included in or made a part of this registration
statement.
PERELSON WEINER
New York, NY
July 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 994
<SECURITIES> 0
<RECEIVABLES> 9,444
<ALLOWANCES> (206)
<INVENTORY> 6,114
<CURRENT-ASSETS> 16,561
<PP&E> 1,753
<DEPRECIATION> (898)
<TOTAL-ASSETS> 17,416
<CURRENT-LIABILITIES> (8,492)
<BONDS> 0
0
0
<COMMON> (99)
<OTHER-SE> (8,670)
<TOTAL-LIABILITY-AND-EQUITY> (17,416)
<SALES> (50,027)
<TOTAL-REVENUES> (50,027)
<CGS> 33,028
<TOTAL-COSTS> 33,028
<OTHER-EXPENSES> 16,047
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> (144)
<INCOME-PRETAX> (1,052)
<INCOME-TAX> 226
<INCOME-CONTINUING> (826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (826)<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>ALL ASSETS AND EXPENSES ARE SHOWN AS DEBIT BALANCES. ALL LIABILITIES, EQUITY
REVENUE, INCOME, CONTRA-ASSET AND ALLOWANCE ACCOUNTS ARE SHOWN AS CREDIT
BALANCES.
</FN>
</TABLE>
