<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION NO. 333-31873
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BOX HILL SYSTEMS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
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>
------------------------
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:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
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
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 5,290,000 $14.00 $74,060,000 $22,442
================================================================================================================
</TABLE>
(1) Includes 690,000 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, of which
$18,182 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
AUGUST 27, 1997
PROSPECTUS
4,600,000 SHARES
BOXHILL LOGO
COMMON STOCK
($.01 PAR VALUE)
Of the 4,600,000 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"), 2,700,000 shares are being issued and sold by the Company and
1,900,000 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 $12.00 and $14.00 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 "BXH," 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) PROCEEDS TO
SELLING
SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(2)....................... $ $ $ $
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses of the Offering payable by the Company estimated
at $625,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 690,000 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 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
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. 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 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. These products are
targeted to the high end of the Open Systems market, which 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
3
<PAGE> 5
in 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, Hoffmann-LaRoche, 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 and its
telephone number is (212) 989-4455.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered:
By the Company...................................... 2,700,000 shares
By the Selling Shareholders......................... 1,900,000 shares
Total....................................... 4,600,000 shares
Common Stock Outstanding After the Offering(1)........ 12,600,000 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 June 30, 1997,
were approximately $10,500,000. See
"Use of Proceeds."
New York Stock Exchange Symbol........................ BXH
</TABLE>
- ---------------
(1) Excludes 1,645,797 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
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
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 $23,144 $32,228
Cost of goods sold................................ 17,018 26,453 33,568 24,067 33,028 15,234 20,828
------- ------- ------- ------- ------- ------- -------
Gross profit...................................... 10,590 18,503 21,664 16,158 16,999 7,910 11,400
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation.............. 6,021 12,608 15,174 9,067 6,347 2,914 4,908
Engineering and product development............. 659 975 1,420 1,634 2,071 1,036 1,082
Sales and marketing............................. 955 1,569 2,405 3,150 5,325 2,479 3,285
General and administrative...................... 526 831 1,351 1,931 2,348 1,065 1,418
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......................... 8,161 15,983 20,350 15,782 16,091 7,494 10,693
------- ------- ------- ------- ------- ------- -------
Operating income.................................. 2,429 2,520 1,314 376 908 416 707
Interest expense (income), net.................... (16) (80) 62 33 (144) (43) (22)
------- ------- ------- ------- ------- ------- -------
Income before income taxes........................ 2,445 2,600 1,252 343 1,052 459 729
Income taxes(1)................................... 238 459 426 311 226 103 160
------- ------- ------- ------- ------- ------- -------
Net income(1)..................................... $ 2,207 $ 2,141 $ 826 $ 32 $ 826 $ 356 $ 569
======= ======= ======= ======= ======= ======= =======
Pro forma income before income taxes(2)........... $ 6,124 $ 2,735 $ 4,999
Pro forma income taxes(3)......................... 2,358 1,053 1,925
------- ------- -------
Pro forma net income.............................. $ 3,766 $ 1,682 $ 3,074
======= ======= =======
Pro forma net income per share(4)................. $ .32 $ .14 $ .26
======= ======= =======
Shares used in computing pro forma net income per
share(4)........................................ 11,815 11,805 11,824
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 6,536 $ 6,536 $ 28,054
Working capital (deficit)................................................ 8,685 (1,201) 30,817
Total assets............................................................. 26,483 27,171 48,689
Shareholders' equity (deficit)........................................... 9,338 (474) 31,544
</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 for the three shareholder officers 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 $13.00 per share) to fund
a distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $10,500,000 had such
distribution occurred on June 30, 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 $10,500,000 had such
distribution occurred on June 30, 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 $688,000 had such termination occurred on
June 30, 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 2,700,000 shares of Common Stock
(assuming an initial public offering price of $13.00 per share) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
6
<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. 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 adequately meet current preferences of
the marketplace or achieve market acceptance could have a
7
<PAGE> 9
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 39.4% of the Company's raw material purchases
were from Seagate and approximately 13.8%, 16.5% and 9.7% of the Company's total
raw material purchases were from Quantum in the years ended December 31, 1995
and 1996 and for the six months ended June 30, 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 net revenues of 27% from 1994 to 1995.
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,
8
<PAGE> 10
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 and 1997, no customer was responsible for 10% or more of the Company's
revenues, but in the six months ended June 30, 1997, direct sales to Lucent
Technologies Inc. and AT&T Corp. represented, in the aggregate, approximately
17% 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, although the Company under its employment
agreements with Dr. Monderer and Ms. Turchin is required to obtain insurance on
each of their lives in the principal amount of $1,000,000 payable to his or her
spouse. 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
10
<PAGE> 12
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 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 each of the first two quarters 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."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Although sales of the Company's products outside of the United States to
date have represented less than 20% of net revenues, the Company intends to
expand its operations internationally. These efforts will require significant
management attention and financial resources. There can be no assurance that
said efforts will be successful. Although sales are effected in U.S. dollars,
international sales are subject to a number of risks, including longer payment
cycles, unexpected changes in regulatory requirements, import and export
restrictions and tariffs, the burden of complying with a variety of foreign
laws, potentially adverse tax consequences, currency fluctuations, the
imposition of currency exchange or price controls, and political and economic
instability abroad. Additionally, proprietary rights and intellectual property
may be more difficult to protect outside of the United States. If the Company
increases its international sales, its total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.
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 June 30, 1997, this
amount is estimated at $10,500,000. The actual amount of the distribution will
be adjusted to reflect the taxable income and any shareholder distributions from
July 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 "-- Prior S
Corporation Status and Distribution to Current Shareholders", "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 63.5% of the outstanding Common
Stock (approximately 60.2% if the Underwriters' over-allotment option is
exercised in full), based on shares outstanding at the date of the Prospectus.
These shareholders have entered into a voting agreement to vote these shares for
their elections as directors and to vote in accordance with the determination of
the holders of a majority of the shares they own on proposals to merge,
consolidate or sell substantially all the assets of the Company. As a result of
their share ownership they 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 and the voting agreement 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
13
<PAGE> 15
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.
PRIOR S CORPORATION STATUS AND DISTRIBUTION TO CURRENT SHAREHOLDERS
The Company elected to be treated as an S Corporation for federal and state
income tax purposes of its taxable years beginning on or after October 1, 1990.
Unlike a C Corporation, an S Corporation is generally not subject to income tax
at the corporate level; instead, the S Corporation's income is taxed on the
personal income tax returns of its shareholders. The Company's status as an S
Corporation will terminate prior to the closing of the offering hereby. If S
Corporation status were denied for any periods prior to this termination by
reason of a failure to satisfy the S Corporation election or eligibility
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company would be subject to tax on its income as if it were a C Corporation for
these periods.
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 June 30, 1997, such
distribution amount is approximately $10,500,000. The actual amount of the
distribution will be adjusted to reflect the taxable income and any shareholder
distributions from July 1, 1997 through the termination of the S Corporation
status. Purchasers of Common Stock in this offering will not receive any of the
distributions described above. See "Use of Proceeds," and "Termination of S
Corporation Status and Dividend Policy."
NO DIVIDENDS IN FORESEEABLE FUTURE
The Company does not intend to pay cash dividends in the foreseeable future
and plans to retain all future earnings for use in the expansion and operation
of its businesses and for general corporate purposes. See "Termination of S
Corporation Status and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALES
Immediately following the consummation of the Offering, the Company will
have outstanding 12,600,000 shares of Common Stock (13,290,000 shares
outstanding if the Underwriters' over-allotment option is exercised in full),
including 8,000,000 outstanding shares of Common Stock beneficially owned by the
current shareholders. The 4,600,000 shares of Common Stock to be sold by the
Company and the Selling Shareholders pursuant to the Offering (5,290,000 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.
Holders of the remaining 8,000,000 shares have agreed with the Underwriters not
to offer, sell, pledge or otherwise dispose of any shares of Common 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 the
Employee Stock Purchase Plan 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, 8,000,000 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)
14
<PAGE> 16
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 dilution of $10.50 per share in the net tangible book value per share
of Common Stock from the initial offering price assuming an initial offering
price of $13.00 per share. See "Dilution."
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS
This Offering will provide substantial benefits to three current
shareholders of the Company, each of whom is a director and an executive officer
of the Company. Consummation of this Offering is expected to create a public
market for the Common Stock of the Company. This Offering will result for the
current shareholders, who paid a nominal amount for an aggregate of 9,900,000
shares of Common Stock, in a gain to them of approximately $22,970,000 from the
sale of an aggregate of 1,900,000 shares and a gross unrealized gain in the
aggregate of approximately $104 million assuming a public offering price of
$13.00 per share. In addition the Company will distribute to those shareholders
from the proceeds of the Company's offering all previously taxed but
undistributed S Corporation earnings of the Company, which as of June 30, 1997
amounted to approximately $10,500,000. See "-- No Prior Public Market, Possible
Volatility of Stock Price", "Dilution" and "Termination of S Corporation
Statutes and Dividend Policy."
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.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the Offering (assuming an initial
public offering price of $13.00 per share), after deducting estimated
underwriting discount and expenses of the Offering payable by the Company, will
be approximately $32,000,000. 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 June 30,
1997, the estimated taxed, but undistributed, S Corporation earnings of the
Company were approximately $10,500,000. The actual amount of the distribution
will be adjusted to reflect the taxable income and any shareholder distributions
from July 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 June 30, 1997, such
distribution amount is approximately $10,500,000. The actual amount of the
distribution will be adjusted to reflect the taxable income and any shareholder
distributions from July 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.
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<PAGE> 18
CAPITALIZATION
The following table sets forth as of June 30, 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 June 30, 1997, and (iii) the pro forma capitalization as
adjusted to give effect to the sale by the Company of 2,700,000 shares of Common
Stock (assuming an initial public offering price of $13.00 per share).
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Indebtedness.............................................. $ -- $ -- $ --(1)
====== ====== ======
Shareholders' equity (deficit):
Preferred Stock: $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding(2)...... $ -- $ -- $ --
Common Stock: $.01 par value, 40,000,000 shares
authorized; 9,900,000 shares issued and outstanding,
actual and pro forma; and 12,600,000 shares issued
and outstanding, as adjusted(3)...................... 99 99 126
Additional paid-in capital.............................. -- -- 31,991
Retained earnings (accumulated deficit)................. 9,239 (573)(4) (573)(4)
------ ------ ------
Total shareholders' equity (deficit)................. 9,338 (474) 31,544
------ ------ ------
Total capitalization............................ $9,338 $(474) $31,544
====== ====== ======
</TABLE>
- ---------------
(1) The Company received a commitment in August 1997 from a bank to provide
during the period following the Offering through April 30, 1998, a line of
credit of up to $10,000,000 bearing interest at the bank's prime rate,
pursuant to an agreement which will require the borrowings to be secured by
a pledge of substantially all of the Company's assets.
(2) 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.
(3) 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, (ii) 250,000 shares reserved for issuance under
the Company's Employee Stock Purchase Plan, and (iii) 690,000 shares to be
issued upon exercise of the over-allotment option granted to the
Underwriters. See "Management -- Incentive Program" and "-- Employee Stock
Purchase Plan" and Note 5 of Notes to the Company's Financial Statements.
(4) 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 $10,500,000 had such
distribution occurred on June 30, 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 $688,000 had such termination occurred on
June 30, 1997. See Note 2 of Notes to the Company's Financial Statements and
"Termination of S Corporation Status and Dividend Policy."
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<PAGE> 19
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
$9,338,000, or $.94 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 2,700,000 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 $13.00 per share), (ii) the final S
Corporation distribution to the current shareholders, estimated at $10,500,000,
had such distribution occurred on June 30, 1997, and (iii) the recognition of a
deferred tax asset, estimated at $688,000, resulting from the termination of the
Company's S Corporation status had such termination occurred on June 30, 1997,
the pro forma, as adjusted, net tangible book value of the Company at June 30,
1997 would have been $31,544,000, or $2.50 per share. This represents an
immediate dilution of $10.50 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............................. $13.00
Net tangible book value at June 30, 1997........................ $ .94
Decrease attributable to the final S Corporation distribution,
net of increase attributed to the recognition of a deferred
tax asset.................................................... (.99)
Increase attributable to new investors.......................... 2.55
-------
Pro forma, as adjusted, net tangible book value after Offering.... 2.50
--------
Dilution per share to new investors............................... $10.50
========
</TABLE>
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 June 30, 1997 with exercise prices less than the assumed initial
public offering price of $13.00 per share were exercised, the pro forma, as
adjusted, net tangible book value after the Offering would be $2.63 per share
and the dilution per share to new investors in this Offering would be $10.37 per
share.
The following table summarizes, as of June 30, 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 TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Current shareholders(1)... 9,900,000 78.6% $ 8,000 .02% $ .001
New investors(1).......... 2,700,000 21.4 35,100,000 99.98 13.00
------- --- -------- --- --------
Total........... 12,600,000 100% 35,108,000 100%
======= === ======== ===
</TABLE>
- ---------------
(1) The above table does not give effect to the sale of Common Stock by the
Selling Shareholders. The sale by the Selling Shareholders of 1,900,000
shares in the Offering will reduce the number of shares held by current
shareholders to 8,000,000, or approximately 63.5%, and will increase the
number of shares held by new investors to 4,600,000, or approximately 36.5%,
of the outstanding Common Stock to be outstanding after the Offering.
18
<PAGE> 20
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 December 31, 1995 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 December 31, 1994
has been derived from the Company's financial statements audited by Perelson
Weiner, independent auditors, which are not included 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 six month periods ended June 30, 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 six months ended June 30, 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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------- ------------------
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 $23,144 $32,228
Cost of goods sold.......................... 17,018 26,453 33,568 24,067 33,028 15,234 20,828
------- ------- ------- ------- ------- ------- -------
Gross profit................................ 10,590 18,503 21,664 16,158 16,999 7,910 11,400
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation........ 6,021 12,608 15,174 9,067 6,347 2,914 4,908
Engineering and product development....... 659 975 1,420 1,634 2,071 1,036 1,082
Sales and marketing....................... 955 1,569 2,405 3,150 5,325 2,479 3,285
General and administrative................ 526 831 1,351 1,931 2,348 1,065 1,418
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 8,161 15,983 20,350 15,782 16,091 7,494 10,693
------- ------- ------- ------- ------- ------- -------
Operating income............................ 2,429 2,520 1,314 376 908 416 707
Interest expense (income), net.............. (16) (80) 62 33 (144) (43) (22)
------- ------- ------- ------- ------- ------- -------
Income before income taxes.................. 2,445 2,600 1,252 343 1,052 459 729
Income taxes(1)............................. 238 459 426 311 226 103 160
------- ------- ------- ------- ------- ------- -------
Net income(1)............................... $ 2,207 $ 2,141 $ 826 $ 32 $ 826 $ 356 $ 569
======= ======= ======= ======= ======= ======= =======
Pro forma income before income taxes(2)..... $ 6,124 $ 2,735 $ 4,999
Pro forma income taxes(3)................... 2,358 1,053 1,925
------- ------- -------
Pro forma net income........................ $ 3,766 $ 1,682 $ 3,074
======= ======= =======
Pro forma net income per share(4)........... $ .32 $ .14 $ .26
======= ======= =======
Shares used in computing pro forma net
income per share (4)...................... 11,815 11,805 11,824
======= ======= =======
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 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 $ 6,536 $ 6,536
Working capital (deficit)... 5,926 9,741 10,645 7,269 8,069 8,685 (1,201)
Total assets................ 8,179 14,612 15,927 13,945 17,416 26,483 27,171
Shareholder loans payable... 1,200 3,000 3,401 -- -- -- --
Shareholders' equity
(deficit)................. 4,944 7,085 7,911 7,943 8,769 9,338 (474)
</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 for the three shareholder officers 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 $13.00 per share) to fund
a distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $10,500,000, had such
distribution occurred on June 30, 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 $10,500,000 had such
distribution occurred on June 30, 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 $688,000 had such termination occurred on
June 30, 1997. See Note 2 of Notes to the Company's Financial Statements and
"Termination of S Corporation Status and Dividend Policy."
20
<PAGE> 22
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. For the six months ended 1997, direct sales to customers in the
telecommunications industry had grown to 20%, while direct sales to the
financial services industry represented 37% 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
certain low margin disk products to an international distributor. The Company
generally extends to its customers the warranties provided to the Company by its
suppliers. 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, the failure of which could have a
material adverse effect on the Company's financial position or results of
operations. On a quarterly and annual
21
<PAGE> 23
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."
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>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
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 65.8 64.6
----- ----- ----- ----- -----
Gross profit.................................... 39.2 40.2 34.0 34.2 35.4
----- ----- ----- ----- -----
Operating expenses:
Shareholder officers' compensation............ 27.5 22.5 12.7 12.6 15.2
Engineering and product development........... 2.6 4.1 4.1 4.5 3.4
Sales and marketing........................... 4.4 7.8 10.6 10.7 10.2
General and administrative.................... 2.3 4.9 4.8 4.6 4.4
----- ----- ----- ----- -----
Total operating expenses.............. 36.8 39.3 32.2 32.4 33.2
----- ----- ----- ----- -----
Operating income................................ 2.4% 0.9% 1.8% 1.8% 2.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues -- Net revenues increased 39.4% to $32.2 million for the six
months ended June 30, 1997, compared to $23.1 million for the six months ended
June 30, 1996. The increase resulted from an increase in volume, which was
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 $5.5 million, or
189.7%, to $8.4 million for the six months ended June 30, 1997, compared to $2.9
million for the six months ended June 30, 1996. Net revenues from sales of the
Company's traditional storage products and backup products also increased for
the six months ended June 30, 1997 compared to the six months ended June 30,
1996, primarily due to an increased sales staff in 1997.
Gross profit -- Gross profit increased 44.3% to $11.4 million from $7.9
million for the comparable period of 1996. As a percentage of net revenues,
gross profit increased from 34.2% to 35.4%, principally as a result of decreases
in sales of certain low margin disk products.
Shareholder officers' compensation -- Shareholder officers' compensation
consists of salaries and bonuses paid to the Company's three shareholder
officers. Shareholders officers' compensation increased 69.0% to $4.9 million
for the six months ended June 30, 1997 as compared to $2.9 million for the
22
<PAGE> 24
six months ended June 30, 1996. The increase in shareholder officers'
compensation is attributable to higher bonuses for the first half of 1997 as
compared to the first half 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".
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 increased slightly to $1.1 million for the six months ended
June 30, 1997 from $1.0 million for the comparable period of 1996. As a
percentage of net revenues, engineering and product development decreased to
3.4% for the first half of 1997 from 4.5% for the first half of 1996.
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 32.0% to $3.3 million for the six months
ended June 30, 1997 from $2.5 million for the six months ended June 30, 1996.
The increase was primarily due to an increase in the direct sales forces and
field service staff and increased commissions based on the increase in sales. As
a percentage of net revenues, sales and marketing expenses decreased slightly to
10.2% for the first half of 1997 from 10.7% for the first half 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 27.3% to $1.4 million for the six months
ended June 30, 1997 from $1.1 million for the six months ended June 30, 1996.
The increase was due to an increase in support staff to support the Company's
growth. As a percentage of net revenues, general and administrative expenses
decreased slightly to 4.4% for the first half of 1997 from 4.6% for the first
half 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 primarily resulted from an
increase in volume, mostly due to sales of new RAID products, which were
introduced in November 1995. Net revenues from sales of these RAID products were
$10.9 million for the year ended December 31, 1996 and were derived principally
during the second half of the year. Net revenues from sales of these RAID
products were insignificant in 1995. 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 certain 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
23
<PAGE> 25
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.
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 primarily 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 volumes in 1995. Sales to customers in the financial services
industry decreased 35.1% to $22.2 million for 1995 from $34.2 million for 1994.
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.
24
<PAGE> 26
QUARTERLY RESULTS
The following table sets forth certain quarterly financial data for each of
the quarters in 1996 and the first and second quarters 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, JUNE 30,
1996 1996 1996 1996 1997 1997
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................... $ 11,099 $ 12,045 $12,853 $ 14,030 $ 15,232 $ 16,996
Gross profit.................... 4,203 3,707 3,947 5,142 5,213 6,187
Operating income................ 280 136 152 340 534 173
Net income...................... 231 125 154 316 464 105
Pro forma net income(1)......... 1,053 629 794 1,290 1,394 1,680
</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 six quarters ending June
30, 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 and second quarters 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 six months ended June 30, 1997, cash provided by operating
activities was $5.6 million compared to cash provided by operating activities of
$.8 million for the same period in 1996. The increase was primarily due to an
increase in accounts payable and accrued expenses, primarily shareholder
officers' bonuses, and a smaller increase in accounts receivable for the six
months ended June 30, 1997 as 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 $5.0 million for the same period in 1995. The change was
primarily due to an
25
<PAGE> 27
increase in accounts receivable and 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 $92,000
for the years ended December 31, 1995 and 1996 and for the six months ended June
30, 1997, respectively.
As of June 30, 1997, working capital was $8,685,000 and cash and cash
equivalents was $6,536,000. In August 1997, a commercial bank committed to
provide the Company with a $10 million revolving line of credit. The commitment
is subject to the completion of the Offering. Under the proposed terms of the
commitment, borrowings will be collateralized by a pledge of substantially all
of the Company's assets, with borrowings greater than $5 million also to be
secured by short-term investments. Additionally, the Company will be required to
comply with certain financial covenants, as defined. The outstanding balance
under the revolver will be due on April 30, 1998. The Company presently expects
that the net proceeds of the Offering, together with cash generated from
operations and available under the revolver, should be sufficient to meet its
operating and capital requirements for at least the next twenty-four 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 June 30, 1997 were approximately $10,500,000.
The actual amount of the distribution will reflect the taxable income and any
shareholder distributions during the period from July 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."
26
<PAGE> 28
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
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<PAGE> 29
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, 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
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<PAGE> 30
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 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. 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> 31
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 certain RAID capabilities by activating RAID
functionality 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> 32
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. 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 Hoffmann-LaRoche
Smith Barney NYNEX Pfizer
UBS Securities Sprint Warner-Lambert
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
31
<PAGE> 33
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 six months
ended June 30, 1997, respectively.
For a discussion of the risks associated with expansion, see "Risk
Factors -- Difficulties in Managing Growth" and "-- Risks Associated with
International Operations."
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> 34
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
June 30, 1997, the Company had 19 full-time employees engaged in research and
development activities and, in addition, had 14 full-time applications and
technical support engineers.
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 39.4% of the Company's total raw material
purchases were from Seagate and approximately 13.8%, 16.5% and 9.7% of the
Company's total raw material purchases were from Quantum in the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 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
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<PAGE> 35
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. 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 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> 36
EMPLOYEES
As of June 30, 1997, Box Hill had a total of 135 employees, (substantially
all of whom are full-time), of whom 19 were engaged in engineering, research and
development; 14 in applications and technical support engineering; 48 in
marketing, sales 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 in New York City at, a 44,000-square-foot leased facility, of which
approximately 10,000 square feet was added in 1997, occupied under a long term
lease, as amended, expiring in 2007. The Company also leases an office in
Vienna, Virginia, under a lease that expires in May 1998, to facilitate sales
efforts in the greater Washington, D.C. metropolitan area. The rent for the year
ended December 31, 1996 for the two facilities aggregated approximately
$350,000. 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> 37
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
August 25, 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........... 54 Director
Robert C. Miller.......... 53 Director
Mischa Schwartz........... 71 Director
</TABLE>
- ---------------
Philip Black has been Chief Executive Officer and a Director of the Company
since May 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,
36
<PAGE> 38
served as Chief Executive Officer of a computer systems integration division of
George S. May 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 until 1996 Chairman of the Board and Chief Executive Officer of
Conner Peripherals, Inc. which he founded in 1986. A leading manufacturer of
3 1/2" Winchester disk drives used in personal computers, Conner Peripherals 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. From 1996 to the present, Mr.
Conner has been Chairman of the Board of Golf Media, Inc., a company engaged in
the design of internet web sites for the promotion of golf products, and since
February 1996, Mr. Conner has been a principal of the Conner Group, an
independent consulting organization.
Robert C. Miller was elected a Director of the Company in August 1997. Mr.
Miller has been Chairman of the Board and Chief Executive Officer of NeTpower,
which is engaged in the development and manufacture of systems for the Windows
NT market, since he founded the company in February 1993. Prior thereto, he was
Chairman, President and Chief Executive Officer of MIPS Technologies Inc., since
its acquisition by Silicon Graphics Inc. in June 1992 and during the five-year
period prior to such acquisition. Mr. Miller had been Senior Vice President of
the Information Systems Group of Data General and had held several positions
with IBM, the last of which was Director of IBM's Boulder, Colorado laboratory.
A senior member of the Institute of Electrical and Electronic Engineers ("IEEE")
Society, Mr. Miller holds six United States patents and has authorized a number
of publications related to computer architecture. He holds a Bachelor's degree
in Mechanical Engineering from Bucknell University, an M.S. in Thermodynamics
from Stanford University and is a registered Professional Engineer.
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
37
<PAGE> 39
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 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.
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.
The Company granted, under its Incentive Program, in connection with their
elections as Directors of the Company, options to (i) Mr. Conner in July 1997 to
purchase 346,500 shares of its Common Stock at a price of $12.73 per share, and
(ii) to Mr. Miller and Dr. Schwartz in August 1997 to purchase 173,250 and
10,000 shares, respectively, of its Common Stock at the initial public offering
price per share. The five-year options vest 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 August 25, 1997.
(1) Represents amounts paid in 1996.
(2) Represents commissions paid in 1996.
(3) Represents moving expenses paid in 1996.
38
<PAGE> 40
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 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 up to $100,000,000 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, up to $20,000,000, 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.
39
<PAGE> 41
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 August 25, 1997, there were
outstanding options to purchase an aggregate of 1,645,797 shares of Common Stock
of the Company. None of the options is exercisable prior to the date of this
Prospectus.
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 vesting of all options
such that they become fully exercisable immediately and/or (ii) adjust the
options by substituting the common stock of the surviving corporation, parent or
offeror.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan, which was adopted in August
1997, provides an opportunity for eligible employees of the Company to purchase
shares of Common Stock, at a discount, through regular period salary reductions.
A maximum of 250,000 shares of Common Stock may be issued under the Stock
Purchase Plan.
The first offering under the Stock Purchase Plan will begin on the
commencement of this Offering and end on March 31, 1998. Unless otherwise
determined by the Board of Directors or the Compensation Committee, subsequent
offerings will commence on the first business day occurring on or after each
April 1 thereafter and will end on the last business day occurring on or before
the following March 31. The Board of Directors or the Compensation Committee
may, in its discretion, select a different offering period for any offering,
provided that the duration of the offering is not more than one year. All
employees who are customarily employed by the Company or a subsidiary designated
by the Board of Directors or the Compensation Committee for more than twenty
hours per week and have been so employed for at least
40
<PAGE> 42
six months as of the first day of the applicable offering period are eligible to
participate in the Stock Purchase Plan.
The maximum number of shares which may be purchased by a participating
employee of the Company during an offering will be determined by the Board of
Directors or the Compensation Committee. An employee may purchase shares under
the Stock Purchase Plan by authorizing payroll deductions of up to 10% of his
regular pay during this offering period. Unless the employee has previously
withdrawn from the offering, his accumulated payroll deductions will be used to
purchase Common Stock on the last business day of the period at a price equal to
85% of the price of the Common Stock on the offering date or the exercise date,
whichever is lower. Under applicable tax rules, an employee may purchase no more
than $25,000 of the fair market value worth of Common Stock in any calendar year
(determined on the first day of the offering period(s) in which such stock is
purchased); certain other tax limitations may apply.
The Stock Purchase Plan will be administered by the Board of Directors or
the Compensation Committee. The Board of Directors or the Compensation Committee
may at any time amend the Stock Purchase Plan, subject to the approval of the
Company's stockholders if and to the extent required to comply with Rule 16b-3
under the Exchange Act or to preserve the favorable tax treatment of
participants, or discontinue the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 423 of the Code, which provides that an
employee will not have income for federal income tax purposes at the start of an
offering or upon the purchase of shares of Common Stock at the end of an
offering, but generally will recognize ordinary income, in addition to capital
gain or loss, when the employee sells the shares.
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.
41
<PAGE> 43
CERTAIN TRANSACTIONS
Dr. Benjamin Monderer and Ms. Carol Turchin, officers, Directors and
shareholders of the Company, 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 operating 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 operating expenses, which fee is principally used to pay applicable
United Kingdom taxes. No sales of the Company's products or services are
effected through Box Hill Europe. 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 six months ended June
30, 1996 and 1997, the Company expensed $99,000, $316,000, $157,000 and
$160,000, respectively, in connection with such operation. In addition, the
Company had accounts payable to Box Hill Europe of $55,000 and $65,000 as of
December 31, 1996 and June 30, 1997, respectively. The Company expects that Box
Hill Europe will continue to operate as a separate independent company after the
Offering.
42
<PAGE> 44
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)(2)........ 9,900,000 100.0% 712,500 8,000,000 63.5%
Carol Turchin(1)(2)............ 9,900,000 100.0 712,500 8,000,000 63.5
Mark A. Mays(1)(3)............. 9,900,000 100.0 475,000 8,000,000 63.5
Philip Black(4)................ 234,475 2.3 -- 234,475
Finis F. Conner(4)............. 21,656 * -- 21,656 *
Warren J. Fisher(4)............ 4,736 * -- 4,736 *
Robert C. Miller(4)............ 10,828 * -- 10,828 *
Mischa Schwartz(4)............. 625 * -- 625 *
Directors and Executive
Officers as a group (11
persons)(5).................. 10,190,433 100.0% 1,900,000 8,290,433 64.3%
</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) Beneficial ownership includes, before the Offering, 3,300,000 shares owned
by such individual's spouse and 3,300,000 shares owned by Mr. Mays, and
after the Offering 2,587,500 shares owned by such individual's spouse and
2,825,000 shares owned by Mr. Mays, all of which shares are subject to the
voting agreement described below, as to which shares such individual
disclaims beneficial ownership.
(3) Beneficial ownership includes, before the Offering, an aggregate of
6,600,000 shares owned by Dr. Monderer and Ms. Turchin, and after the
Offering 2,587,500 shares owned by each thereof, all of which are subject to
a voting agreement, described below, as to which shares Mr. Mays disclaims
beneficial ownership.
(4) Beneficial ownership represents shares issuable upon exercise of options
exercisable within 60 days of the date of this Prospectus.
(5) Beneficial ownership includes 290,433 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.
On July 31, 1997, Dr. Monderer, Ms. Turchin and Mr. Mays entered into a
voting agreement with respect to the shares each owns, effective with the
consummation of the Offering. Pursuant to the agreement, such shareholders have
agreed to vote their respective shares for the election of each thereof as a
Director of the Company and will vote their shares in accordance with the
determination of the holders of a majority of their shares as to any proposal to
merge, consolidate, liquidate or sell substantially all the assets of the
Company. The agreement, which is to terminate on December 31, 2009, or upon the
deaths of Dr. Monderer and Ms. Turchin, prohibits the transfer of their shares
other than (i) to a member of the transferor's family who agrees to be bound by
the agreement, (ii) pursuant to a sale exempt from registration pursuant to Rule
144 under the Securities Act or (iii) in a merger, consolidation or sale of
substantially all the assets of the Company.
43
<PAGE> 45
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,
12,600,000 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
44
<PAGE> 46
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.
45
<PAGE> 47
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 12,600,000
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 4,600,000 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 8,000,000 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 and
the Employee Stock Purchase Plan.
Upon expiration of a period of 270 days from the date of this Prospectus,
all of the Restricted Shares will become eligible for sale subject to the
provisions of Rule 144 under the Securities Act.
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 (126,000 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 registration statements under the Securities
Act to register shares of Common Stock reserved for issuance under its Incentive
Program and the Employee Stock Purchase Plan, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act. Such registration statements will become effective immediately
upon filing. As of August 25, 1997, options to purchase 1,645,797 shares of
Common Stock at a weighted average exercise price of $4.74 per share were
outstanding under the Company's Incentive Program.
46
<PAGE> 48
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............................................. 4,600,000
=======
</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 has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 690,000
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 upon consummation of the Offering 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 Employee Stock Purchase Plan 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
47
<PAGE> 49
involve purchases of the Common Stock in the open market following completion of
this Offering to cover 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 and the Selling
Shareholders. 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 and 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 to audit the financial statements as of December
31, 1996 and for the year then ended. The decision to change accountants was
approved by the Board of Directors. The auditor's report of Perelson Weiner as
of December 31, 1995 and for the years ended December 31, 1994 and 1995,
included elsewhere herein, does not contain an adverse opinion or a disclaimer
of opinion and was 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 change, there were no disagreements with the former
auditors on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures
48
<PAGE> 50
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.
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.
49
<PAGE> 51
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 Microsoft computer operating system commonly used
in Open Systems.
50
<PAGE> 52
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> 53
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.
August 27, 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> 54
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
August 27, 1997
INDEPENDENT AUDITORS' REPORT
Board of Directors
Box Hill Systems Corp.
We have audited the accompanying balance sheet of Box Hill Systems Corp.,
an S corporation, as of December 31, 1995 and the related statements of income,
changes in shareholders' equity and cash flows for the years ended December 31,
1994 and 1995. 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, 1995 and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995 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> 55
BOX HILL SYSTEMS CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30, 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 $ 6,536 $ 6,536
Accounts receivable, net of allowance of $162,
$206 and $206................................ 5,294 9,238 10,877 10,877
Inventories..................................... 4,224 6,114 8,022 8,022
Prepaid expenses and other...................... 121 215 227 227
Deferred income taxes........................... -- -- -- 614
------- ------- ------- -------
Total current assets.................... 13,117 16,561 25,662 26,276
Property and equipment, net....................... 828 855 821 821
Deferred income taxes............................. -- -- -- 74
------- ------- ------- -------
$13,945 $17,416 $26,483 $27,171
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 4,062 $ 5,152 $ 7,611 $ 7,611
Accrued expenses................................ 567 1,111 6,013 6,013
Customer deposits............................... 795 1,346 2,126 2,126
Deferred revenues............................... 424 883 1,227 1,227
Distribution payable to shareholders............ -- -- -- 10,500
------- ------- ------- -------
Total current liabilities............... 5,848 8,492 16,977 27,477
------- ------- ------- -------
Deferred rent..................................... 154 155 168 168
------- ------- ------- -------
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 9,239 (573)
------- ------- ------- -------
Total shareholders' equity (deficit).... 7,943 8,769 9,338 (474)
------- ------- ------- -------
$13,945 $17,416 $26,483 $27,171
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 56
BOX HILL SYSTEMS CORP.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $55,232 $40,225 $50,027 $23,144 $32,228
Cost of goods sold.......................... 33,568 24,067 33,028 15,234 20,828
------- ------- ------- ------- -------
Gross profit...................... 21,664 16,158 16,999 7,910 11,400
------- ------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation........ 15,174 9,067 6,347 2,914 4,908
Engineering and product development....... 1,420 1,634 2,071 1,036 1,082
Sales and marketing....................... 2,405 3,150 5,325 2,479 3,285
General and administrative................ 1,351 1,931 2,348 1,065 1,418
------- ------- ------- ------- -------
20,350 15,782 16,091 7,494 10,693
------- ------- ------- ------- -------
Operating income.................. 1,314 376 908 416 707
Interest income............................. 73 83 144 43 22
Interest expense............................ (135) (116) -- -- --
------- ------- ------- ------- -------
Income before income taxes........ 1,252 343 1,052 459 729
Income taxes................................ 426 311 226 103 160
------- ------- ------- ------- -------
Net income.................................. $ 826 $ 32 $ 826 $ 356 $ 569
======= ======= ======= ======= =======
Pro forma data (unaudited) (Note 2):
Pro forma income before income taxes...... $ 6,124 $ 2,735 $ 4,999
Pro forma income taxes.................... 2,358 1,053 1,925
------- ------- -------
Pro forma net income...................... $ 3,766 $ 1,682 $ 3,074
======= ======= =======
Pro forma net income per share............ $ .32 $ .14 $ .26
======= ======= =======
Shares used in computing pro forma net
income per share....................... 11,815 11,805 11,824
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 57
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)................... -- -- 569 569
--------- ---- ------ ------
Balance, June 30, 1997 (unaudited)......... 9,900,000 $ 99 $9,239 $ 9,338
========= ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 58
BOX HILL SYSTEMS CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income.......................... $ 826 $ 32 $ 826 $ 356 $ 569
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
--
Depreciation and
amortization................ 174 210 257 124 126
Other.......................... 21 21 45 -- 13
Changes in operating assets and
liabilities --
Accounts receivable....... (421) 3,074 (3,989) (2,361) (1,639)
Inventories............... (1,680) 318 (1,890) 240 (1,908)
Prepaid expenses and
other.................. (44) (50) (94) (134) (12)
Accounts payable.......... (680) 934 1,090 (842) 2,459
Accrued expenses.......... 50 102 545 2,635 4,902
Customer deposits......... 717 (73) 551 232 780
Deferred revenues......... -- 424 459 505 344
------ ------ ------ ------ ------
Net cash provided by (used
in) operating
activities............. (1,037) 4,992 (2,200) 755 5,634
------ ------ ------ ------ ------
Investing Activities:
Purchases of property and
equipment........................ (519) (375) (284) (146) (92)
Other............................... (225) 225 -- -- --
------ ------ ------ ------ ------
Net cash used in investing
activities............. (744) (150) (284) (146) (92)
------ ------ ------ ------ ------
Financing Activities:
Advances from (repayments to)
shareholders..................... 401 (3,401) -- -- --
------ ------ ------ ------ ------
Net increase (decrease) in
cash and cash
equivalents............ (1,380) 1,441 (2,484) 609 5,542
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 $4,087 $6,536
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 59
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 June 30, 1997, and for the six months ended
June 30, 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 six months ended June 30, 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 are presented net of sales discounts and returns and allowances.
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> 60
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 six months ended June 30, 1996 and
1997, advertising expense was $343, $383, $520, $221 and $249, 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 $688 as of June 30, 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 six months ended June 30, 1996 and 1997, was $485,
$355, $256, $113 and $95, 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> 61
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 June 30, 1997 reflects (i)
a distribution payable to the shareholders of the Company of all previously
taxed, but undistributed, S Corporation earnings (estimated at $10,500 as of
June 30, 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 $688 as of June 30, 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 July 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 June 30, 1997, are as follows:
<TABLE>
<S> <C>
Allowance for doubtful accounts.................................... $ 79
Inventory reserves................................................. 228
Accrued expenses and other......................................... 304
Deferred rent...................................................... 68
Depreciation....................................................... 9
----
$ 688
====
</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 six months ended June 30, 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 six months
ended June 30, 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 $688 as of June 30,
1997).
F-10
<PAGE> 62
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 $13.00 per share) to fund a
distribution to the current shareholders of all previously taxed, but
undistributed, S Corporation earnings, estimated at $10,500 had such
distribution occurred on June 30, 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 year ended December 31,
1994, two principal customers accounted for 12.8% and 10.4%, respectively, of
the Company's net revenues. For the year ended December 31, 1995, one of those
customers and a different principal customer accounted for 13.4% and 10.1%,
respectively, of the Company's net revenues. In 1996, and for the six months
ended June 30, 1997, no single customer accounted for greater than 10% of the
Company's net revenues.
F-11
<PAGE> 63
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Export Sales
The following table summarizes export sales by geographical region:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------- ENDED JUNE 30,
1994 1995 1996 1997
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Asia...................................... 8.4% 10.3% 9.1% 5.5%
Europe.................................... 7.6 4.7 8.3 8.7
Other..................................... 0.6 0.8 0.6 0.5
---- ---- ---- ----
16.6% 15.8% 18.0% 14.7%
==== ==== ==== ====
</TABLE>
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 39.4% 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
six months ended June 30, 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 9.7% of the
Company's total component purchases were from this supplier for the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 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,
------------------ JUNE 30,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Equipment and furniture............................. $1,064 $1,325 $ 1,385
Leasehold improvements.............................. 405 428 460
------ ------ ------
1,469 1,753 1,845
Less -- Accumulated depreciation.................... (641) (898) (1,024)
------ ------ ------
$ 828 $ 855 $ 821
====== ====== ======
</TABLE>
Depreciation expense was $174, $210, $257, $124 and $126 for the years
ended December 31, 1994, 1995 and 1996 and for the six months ended June 30,
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.
F-12
<PAGE> 64
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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............................... 23,100 5.03-10.61 8.22
Forfeitures.......................... (19,833) .75- 5.02 1.66
--------- --------- ------
Balance, June 30, 1997............... 1,116,047 $ .64-10.61 $ .78
========= ========= ======
</TABLE>
At June 30, 1997, no options were exercisable and 1,276,453 options were
available for future grant. 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. In August 1997, the Company issued options to two new directors to
purchase an aggregate of 183,250 shares of Common Stock at the initial public
offering price per share. These options vest ratably over four years, beginning
in October 1997, and are 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Pro forma net income, as reported..................... $ 3,766 $ 3,074
Pro forma net income, as adjusted..................... 3,661 3,010
Pro forma net income per share, as reported........... .32 .26
Pro forma net income per share, as adjusted........... .31 .25
</TABLE>
The weighted average fair value of each stock option granted during the
years ended December 31, 1995 and 1996 and for the six months ended June 30,
1997 was $.46, $1.86 and $5.43, respectively. As of June 30, 1997, the weighted
average remaining contractual life of each stock option outstanding was 8.3
years. The weighted average remaining contractual life of each stock option
granted during the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997 was 7.6, 8.9 and 9.8
F-13
<PAGE> 65
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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,
--------------------- JUNE 30,
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% per annum. The Company recorded interest expense of
$135 and $116 for the years ended December 31, 1994 and 1995, respectively,
related to such advances.
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 six months ended June 30, 1996 and 1997, the Company expensed $99,
$316, $157 and $160, respectively, related to operating costs of Box Hill
Europe. The Company had a payable to Box Hill Europe of $55 and $65 as of
December 31, 1996 and June 30, 1997, respectively. The Company expects Box Hill
Europe to operate as a separate independent company after the Offering.
7. EMPLOYEE BENEFIT PLANS
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 six months ended June 30, 1997.
Employee Stock Purchase Plan
In August 1997, the Company adopted an employee stock purchase plan under
the provision of Section 423 of the Internal Revenue Code. The plan provides
eligible employees of the Company with an opportunity to purchase shares of the
Company's Common Stock at 85% of fair market value, as defined. The Company has
reserved 250,000 shares of Common Stock for issuance pursuant to this plan and
no shares have been issued.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its primary operating facility under a noncancelable
operating lease which expires in September 2007. The lease provides for a rent
abatement which is being amortized over the
F-14
<PAGE> 66
BOX HILL SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
life of the lease. Rent expense for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1996 and 1997, was $135, $366, $369,
$179 and $201, 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. The agreement contains a non-competition covenant
for a one-year period following termination of employment.
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.
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 4,600,000 shares
of its Common Stock, of which 1,900,000 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> 67
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, ANY SELLING SHAREHOLDER 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....................... 16
Termination of S Corporation Status
and Dividend Policy................. 16
Capitalization........................ 17
Dilution.............................. 18
Selected Historical and Pro Forma
Financial Data...................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 36
Certain Transactions.................. 42
Principal and Selling Shareholders.... 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Change in Accountants................. 48
Additional Information................ 49
Glossary.............................. 50
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.
4,600,000 SHARES
BOX HILL SYSTEMS CORP.
COMMON STOCK
($.01 PAR VALUE)
BOXHILL LOGO
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
PROSPECTUS
DATED , 1997
<PAGE> 68
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............................................. $ 22,442
NASD Filing Fee.................................................. 7,900
New York Stock Exchange Filing Fee............................... 62,450
Printing and Engraving Costs..................................... 100,000
Legal Fees and Expenses.......................................... 140,000
Accounting Fees and Expenses..................................... 270,000
Transfer Agent and Registrar Fees and Expenses................... 3,500
Miscellaneous.................................................... 18,708
-------
Total.................................................. $ 625,000
-------
</TABLE>
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> 69
Under Section 8 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 August 25, 1997, the Company
granted options to purchase an aggregate 1,645,797 shares of Common
Stock (after giving retroactive effect to the share dividend) under its
Incentive Program to 94 employees and three directors of the Company.
The options included grants of options with respect to an aggregate of
1,124,575 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 Form of Amendment to Certificate of Incorporation authorizing Preferred Stock to be
filed prior to commencement of Offering
3.3 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 Form of Employment Agreement between the Company and Carol Turchin*
10.3 Form of Employment Agreement between the Company and Benjamin Monderer*
10.4 Form of Employment Agreement between the Company and Mark Mays*
10.5 Incentive Program of the Company, as amended
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
10.8 Employee Stock Purchase Plan
10.9 Voting Agreement dated July 31, 1997 among Dr. Monderer, Ms. Turchin and Mr. Mays
11.1 Statement regarding computation of pro forma net income per share
</TABLE>
II-2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
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>
(b) FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts
- ---------------
* Previously filed.
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> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the 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 27th day of August, 1997.
BOX HILL SYSTEMS CORP.
By: /s/ PHILIP BLACK
------------------------------------
Philip Black
Chief Executive Officer
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, August 27, 1997
- ----------------------------------- President and Chief Technical
Benjamin Monderer Officer
/s/ CAROL TURCHIN Executive Vice President and August 27, 1997
- ----------------------------------- Director
Carol Turchin
/s/ PHILIP BLACK Chief Executive Officer and August 27, 1997
- ----------------------------------- Director
Philip Black
/s/ R. ROBERT REBMANN, JR. Chief Financial Officer and August 27, 1997
- ----------------------------------- Treasurer (Principal Financial
R. Robert Rebmann, Jr. and Accounting Officer)
/s/ MARK A. MAYS Vice President, Secretary and August 27, 1997
- ----------------------------------- Director
Mark A. Mays
</TABLE>
II-4
<PAGE> 72
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.
August 27, 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> 73
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
August 27, 1997
INDEPENDENT AUDITORS' REPORT
Board of Directors
Box Hill Systems Corp.
We have audited in accordance with generally accepted auditing standards,
the balance sheet of Box Hill Systems Corp. as of December 31, 1995 and the
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1995 and 1994 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, New York
January 30, 1997
S-2
<PAGE> 74
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:
June 30, 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> 75
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 Form of Amendment to Certificate of Incorporation authorizing Preferred Stock
to be filed prior to commencement of Offering.................................
3.3 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 Form of Employment Agreement between the Company and Carol Turchin*...........
10.3 Form of Employment Agreement between the Company and Benjamin Monderer*.......
10.4 Form of Employment Agreement between the Company and Mark Mays*...............
10.5 Incentive Program of the Company, as amended..................................
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..........................
10.8 Employee Stock Purchase Plan
10.9 Voting Agreement dated July 31, 1997 among Dr. Monderer, Ms. Turchin and Mr.
Mays
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>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 1.1
[Draft--8/26/97]
Box Hill Systems Corp.
4,600,000 Shares*
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
, 1997
Salomon Brothers Inc
Montgomery Securities
As Representatives of the several Underwriters,
In care of Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Box Hill Systems Corp., a New York corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 2,700,000 shares of Common Stock, $.01 par value ("Common
Stock") of the Company, and the persons named in Schedule II hereto (the
"Selling Shareholders") propose to sell to the Underwriters 1,900,000 shares of
Common Stock (said shares to be issued and sold by the Company and shares to be
sold by the Selling Shareholders collectively being hereinafter called the
"Underwritten Securities"). The Company also proposes to grant to the
Underwriters an option to purchase up to 690,000 additional shares of Common
Stock (the "Option Securities"; the Option Securities, together with the
Underwritten Securities, being hereinafter called the "Securities").
1. Representations and Warranties. (a) The Company and the
Selling Shareholders jointly and severally represent and warrant to, and agree
with, each Underwriter as set forth below in this Section 1. Certain terms used
in this Section 1 are defined in Section 17 hereof.
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
- ------------
* Plus an option to purchase from Box Hill Systems Corp. up to 690,000
additional shares to cover over-allotments.
<PAGE> 2
2
statement (file number 333-31873) on Form S-1, including a related
preliminary prospectus, for the registration under the Securities Act
of 1933 (the "Act") of the offering and sale of the Securities. The
Company may have filed one or more amendments thereto, including a
related preliminary prospectus, each of which has previously been
furnished to you. The Company will next file with the Commission either
(A) prior to the Effective Date of such registration statement, a
further amendment to such registration statement (including the form of
final prospectus) or (B) after the Effective Date of such registration
statement, a final prospectus in accordance with Rules 430A and
424(b)(1) or (4). In the case of clause (B), the Company has included
in such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and
the rules thereunder to be included in such registration statement and
the Prospectus. As filed, such amendment and form of final prospectus,
or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be
included or made therein.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Prospectus
(and any supplements thereto) will, comply in all material respects
with the applicable requirements of the Act and the rules thereunder;
on the Effective Date and at the Execution Time, the Registration
Statement did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the
<PAGE> 3
3
Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
the information contained in or omitted from the Registration
Statement, or the Prospectus (or any supplement thereto) in reliance
upon and in conformity with information furnished herein or in writing
to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(iii) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(iv) The consolidated financial statements and schedules of the
Company included in the Prospectus and the Registration Statement
present fairly in all material respects the financial condition,
results of operations and cash flows of the Company as of the dates and
for the periods indicated, comply as to form with the applicable
accounting requirements of the Act and the rules and regulations
thereunder and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein). The selected
financial data set forth under the caption "Selected Financial
Information" in the Prospectus and Registration Statement fairly
present, on the basis stated in the Prospectus and the Registration
Statement, the information included therein.
(v) The Company is not in violation or default of (i) any
provision of its charter or bylaws, or (ii) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory body,
administrative
<PAGE> 4
4
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties, as applicable.
(vi) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto) and has paid all taxes required
to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as described in or as would not have a
material adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, whether or
not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto).
(vii) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and the
Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material
adverse change in the condition (financial or otherwise), prospects,
earnings, business or properties of the Company, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto).
(viii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as
<PAGE> 5
5
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(ix) The Company does not have any subsidiaries.
(b) Each Selling Shareholder represents and warrants to, and
agrees with, each Underwriter that:
(i) Such Selling Shareholder is the lawful owner of the
Securities to be sold by such Selling Shareholder hereunder and upon
sale and delivery of, and payment for, such Securities, as provided
herein, such Selling Shareholder will convey good and marketable title
to such Securities, free and clear of all liens, encumbrances, equities
and claims whatsoever.
(ii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities and has not effected any sales of shares of Common
Stock which, if effected by the issuer, would be required to be
disclosed in response to Item 701 of Regulation S-K.
(iii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by such
Selling Shareholder of the transactions contemplated herein, except
such as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Underwriters and
such other approvals as have been obtained.
(iv) Neither the sale of the Securities being sold by such
Selling Shareholder nor the consummation
<PAGE> 6
6
of any other of the transactions herein contemplated by such Selling
Shareholder or the fulfillment of the terms hereof by such Selling
Shareholder will conflict with, result in a breach or violation of, or
constitute a default under any law or the terms of any indenture or
other agreement or instrument to which such Selling Shareholder is a
party or bound, or any judgment, order or decree applicable to such
Selling Shareholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Shareholder.
Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company and the Selling Shareholders agree, severally and not jointly, to sell
to each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company and the Selling Shareholders, at a purchase price of
$ per share, the amount of the Underwritten Securities set forth opposite
such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to 690,000 shares of the Option Securities at the same purchase price per share
as the Underwriters shall pay for the Underwritten Securities. Said option may
be exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option Securities by the Company and
payment therefor to the Company
<PAGE> 7
7
shall be made as provided in Section 3 hereof. The number of shares of the
Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
, 1997, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement among the Representatives, the Company and
the Selling Shareholders or as provided in Section 9 hereof (such date and time
of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the respective aggregate purchase
prices of the Securities being sold by the Company and each of the Selling
Shareholders to the Company and the Selling Shareholders by wire transfer
payable in same-day funds to an account specified by the Company and by each of
the Selling Shareholders. Delivery of the Underwritten Securities and the Option
Securities shall be made through the facilities of The Depositary Trust Company
unless the Representatives shall otherwise instruct.
Each Selling Shareholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Securities to be purchased by them from such Selling Shareholder and the
respective Underwriters will pay any additional stock transfer taxes involved in
further transfers.
If the option provided for in Section 2(b) hereof is exercised
after the third business day prior to the Closing Date, the Company will deliver
the Option Securities (at the expense of the Company) to the Representatives on
the date specified by the Representatives (which shall be within three Business
Days
<PAGE> 8
8
after exercise of said option) for the respective accounts of the several
Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to the Company by wire transfer
payable in same-day funds to an account specified by the Company. If settlement
for the Option Securities occurs after the Closing Date, the Company and such
Selling Shareholders will deliver to the Representatives on the settlement date
for the Option Securities, and the obligation of the Underwriters to purchase
the Option Securities shall be conditioned upon receipt of, supplemental
opinions, certificates and letters confirming as of such date the opinions,
certificates and letters delivered on the Closing Date pursuant to Section 6
hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set
forth in the Prospectus.
5. Agreements. (a) The Company agrees with the several
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement without your prior consent. Subject to
the foregoing sentence, if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company
will promptly advise the Representatives (A) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (B) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been
filed with the Commission, (C) when, prior to termination of the
offering of the
<PAGE> 9
9
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (D) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule
462(b) Registration Statement, or for any supplement to the Prospectus
or of any additional information, (E) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that
purpose and (F) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or the suspension of any
such qualification and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect
such compliance and (ii) supply any supplemented Prospectus to you in
such quantities as you may reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(iv) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
<PAGE> 10
10
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(v) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate, and will maintain
such qualifications in effect so long as required for the distribution
of the Securities and will pay any fee of the National Association of
Securities Dealers, Inc., in connection with its review of the
offering.
(vi) The Company, except pursuant to this Agreement, will not,
for a period of 180 days following the Execution Time, without the
prior written consent of Salomon Brothers Inc, offer, sell or contract
to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to
cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of
the Company) directly or indirectly, or announce the offering of, any
other shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock; provided, however, that the
Company may issue and sell Common Stock pursuant to any employee stock
option or purchase plan, stock ownership plan or dividend reinvestment
plan of the Company in effect at the Execution Time and the Company may
issue Common Stock issuable upon the conversion of securities or the
exercise of options outstanding at the Execution Time.
(b) Each Selling Shareholder agrees with the several
Underwriters that such Selling Shareholder, except pursuant to this Agreement,
will not during the period of 270 days following the Execution Time, without the
prior written consent of the Representatives, offer, sell or contract to sell,
or otherwise dispose of, directly or indirectly, or announce the offering of,
any other shares of Common Stock beneficially owned by such person, or any
securities convertible into, or exchangeable for, shares of
<PAGE> 11
11
Common Stock, other than shares of Common Stock disposed of as bona fide gifts.
6. Conditions to the Obligations of the Under writers. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Shareholders contained herein as of the Execution Time, the Closing Date and any
settlement date pursuant to Section 3 hereof, to the accuracy of the statements
of the Company and the Selling Shareholders made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public offering
price, if such determination occurred at or prior to 3:00 PM New York City time
on such date or (ii) 9:30 AM on the Business Day following the day on which the
public offering price was determined, if such determination occurred after 3:00
PM New York City time on such date; if filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any
such supplement, will be filed in the manner and within the time period required
by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Representatives
the opinion of Brock, Fensterstock, Silverstein, McAuliffe & Wade LLC, counsel
for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and authority to own its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a
foreign corporation and
<PAGE> 12
12
is in good standing under the laws of each jurisdiction which requires
such qualification;
(ii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock (including the
Securities being sold hereunder by the Selling Shareholders) have been
duly and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder by the Company have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities being sold by the Selling
Shareholders are duly listed and admitted for trading on the New York
Stock Exchange; the Securities being sold hereunder by the Company are
duly authorized for listing, subject to official notice of issuance and
evidence of satisfactory distribution, on the New York Stock Exchange;
the certificates for the Securities are in valid and sufficient form;
and the holders of outstanding shares of capital stock of the Company
are not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding;
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Prospectus, and
there is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit thereto, which is not described or filed
as required;
(iv) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and within
the
<PAGE> 13
13
time period required by Rule 424(b); to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued, no proceedings for that purpose have been
instituted or threatened and the Registration Statement and the
Prospectus (other than the financial statements and other financial
information contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules thereunder; and such counsel has
no reason to believe that on the Effective Date or at the Execution
Time the Registration Statement contains or contained any untrue
statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date and on the
Closing Date includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the financial
statements and other financial information contained therein, as to
which such counsel need express no opinion);
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in the Agreement and in the Prospectus;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) the charter
or by-laws of the Company or (ii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company of any court,
<PAGE> 14
14
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or any of its
or their properties; and
(viii) no holders of securities of the Company have rights to
the registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of New York or the
Federal laws of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the Underwriters
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials. References to the
Prospectus in this paragraph (b) include any supplements thereto at the Closing
Date.
(c) The Selling Shareholders shall have furnished to the
Representatives the opinion of Brock, Fensterstock, Silverstein, McAuliffe &
Wade LLC, counsel for the Selling Shareholders, dated the Closing Date, to the
effect that:
(i) this Agreement and the Power-of-Attorney have been duly
authorized, executed and delivered by the Selling Shareholders and each
Selling Shareholder has full legal right and authority to sell,
transfer and deliver in the manner provided in this Agreement the
Securities being sold by such Selling Shareholder hereunder;
(ii) the delivery by each Selling Shareholder to the several
Underwriters of certificates for the Securities being sold hereunder by
such Selling Shareholder against payment therefor as provided herein,
will pass good and marketable title to such Securities to the several
Underwriters, free and clear of all liens, encumbrances, equities and
claims whatsoever;
(iii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by any Selling Shareholder of the transactions contemplated herein,
except such as may have been obtained under the Act and such as may be
<PAGE> 15
15
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Underwriters and
such other approvals (specified in such opinion) as have been obtained;
and
(iv) neither the sale of the Securities being sold by any
Selling Shareholder nor the consummation of any other of the
transactions herein contemplated by any Selling Shareholder or the
fulfillment of the terms hereof by any Selling Shareholder will
conflict with, result in a breach or violation of, or constitute a
default under any law or the terms of any indenture or other agreement
or instrument known to such counsel and to which any Selling
Shareholder is a party or bound, or any judgment, order or decree known
to such counsel to be applicable to any Selling Shareholder of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over any Selling Shareholder.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of New York or the
Federal laws of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the Underwriters,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of the Selling Shareholders and public officials.
(d) The Representatives shall have received from Cravath,
Swaine & Moore, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Representatives may reasonably require, and the
Company and each Selling Shareholder shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the Chief
Executive Officer or the President and the principal financial or accounting
officer of the Company, dated the Closing Date, to the effect that the signers
of such certificate have carefully examined the
<PAGE> 16
16
Registration Statement, the Prospectus, any supplements to the Prospectus and
this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be per formed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(f) Each Selling Shareholder shall have furnished to the
Representatives a certificate, signed by such Selling Shareholder, dated the
Closing Date, to the effect that the signer of such certificate has carefully
examined the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that the representations and warranties of
such Selling Shareholder in this Agreement are true and correct in all material
respects on and as of the Closing Date to the same effect as if made on the
Closing Date.
(g) At the Execution Time and at the Closing Date, Arthur
Andersen LLP shall have furnished to the Representatives letters, dated
respectively as of the Execution Time and as of the Closing Date, in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro
<PAGE> 17
17
forma financial statement included in the Registration Statement and
the Prospectus and reported on by them comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company; carrying out
certain specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
stockholders, directors; and inquiries of certain officials of the
Company who have responsibility for financial and accounting matters of
the Company as to transactions and events subsequent to December 31,
1996, nothing came to their attention which caused them to believe
that:
(1) any unaudited financial statements included in
the Registration Statement and the Prospectus do not comply in
form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-1, and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus,
(2) with respect to the period subsequent to June 30,
1997, there were any changes, at a specified date not more
than five days prior to the date of the letter, in the capital
stock of the Company or decreases in the stockholders' equity
of the Company as compared with the amounts shown on the June
30, 1997, consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the period
from July 1, 1997 to such specified date there were any
decreases, as compared with the period beginning on March 31,
1997, and ending June 30, 1997, in net revenues or income
before income taxes or in
<PAGE> 18
18
total or per share amounts of net income of the Company,
except in all instances for changes or decreases set forth in
such letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the
Representatives,
(3) the information included in the Registration
Statement and Prospectus in response to Regulation S-K, Item
301 (Selected Financial Data), Item 302 (Supplementary
Financial Information) and Item 402 (Executive Compensation)
is not in conformity with the applicable disclosure
requirements of Regulation S-K,
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the
Registration Statement and the Prospectus, including the information
set forth under the captions "Capitalization", "Dilution", "Selected
Historical and Pro Forma Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Prospectus, agrees with the accounting records of the Company,
excluding any questions of legal interpretation.
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto) the effect of which, in any case referred to in clause (i)
or (ii) above, is, in the sole judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by
<PAGE> 19
19
the Registration Statement (exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(i) On or prior to the Execution Time, the New York Stock
Exchange shall have approved the Underwriters' participation in the distribution
of the Securities.
(j) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A hereto from
each officer and director of the Company and each Selling Shareholder addressed
to the Representatives, in which each such person agrees not to offer, sell,
contract to sell, pledge or otherwise dispose of, or file a registration
statement with the Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Exchange Act with respect to, any shares of
capital stock of the Company or any securities convertible into or exercisable
or exchangeable for such capital stock, or publicly announce an intention to
effect any such transaction, for a period of 180 days after the date of this
Agreement for each officer and director of the Company, and 270 days after the
date of this Agreement for the Selling Shareholders, other than (i) any shares
of Common Stock to be sold hereunder, (ii) any option or warrant or the
conversion of a security outstanding on the date hereof and referred to in the
Prospectus to which this Agreement relates and (iii) other than shares of Common
Stock disposed of as bona fide gifts approved by Salomon Brothers Inc.
(k) The Company shall have caused the Securities to be
eligible for trading on the New York Stock Exchange upon issuance.
(l) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this
<PAGE> 20
20
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company and each Selling Shareholder in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York, on the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or any Selling
Shareholder to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally through Salomon Brothers Inc on demand for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities. If the Company is required to make any
payments to the Underwriters under this Section 7 because of any Selling
Shareholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, the Selling Shareholders
pro rata in proportion to the percentage of Securities to be sold by each shall
reimburse the Company on demand for all amounts so paid.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Securities Exchange Act
of 1934 (the "Exchange Act") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
<PAGE> 21
21
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement for the registration of the Securities as originally
filed or in any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representatives specifically for inclusion therein.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Selling Shareholder severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls the Company or any
Underwriter within the meaning of either the Act or the Exchange Act and each
other Selling Shareholder to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to written information
furnished to the Company by or on behalf of such Selling Shareholder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Selling Shareholder may otherwise have.
(c) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each Selling Shareholder, to
the same extent as the foregoing indemnity to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the
<PAGE> 22
22
Representatives specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Underwriter may otherwise have. The Company and each Selling
Shareholder acknowledges that the statements set forth in the last paragraph of
the cover page regarding delivery of the Securities, the stabilization legend in
block capital letters on page [2] and, under the heading "Underwriting" or "Plan
of Distribution", (i) the sentences related to concessions and reallowances and
(ii) the paragraph related to stabilization in any Preliminary Prospectus and
the Prospectus constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in any Preliminary Prospectus
or the Prospectus.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a), (b) or (c) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a), (b) or (c) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of,
<PAGE> 23
23
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, (iii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties and an indemnified party will not
without the prior written consent of the indemnifying parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a),
(b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company, the Selling Shareholders and
the Underwriters agree to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Company, one or more of the Selling Shareholders and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company, by the Selling Shareholders and
by the Underwriters from the offering of the Securities; provided, however, that
in no case shall any Underwriter (except as may be provided in any agreement
among underwriters relating to the offering of the Securities) be responsible
for any amount in excess of the underwriting discount or commission applicable
to the Securities purchased by such Underwriter hereunder. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the Company, the Selling Shareholders and the Underwriters shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the
<PAGE> 24
24
Company, of the Selling Shareholders and of the Underwriters in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company and by the
Selling Shareholders shall be deemed to be equal to the total net proceeds from
the offering (before deducting expenses) received by each of them, and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company, the Selling Shareholders on the
one hand or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (e), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph e).
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
<PAGE> 25
25
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities that the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities that the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Shareholders or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company, the Selling Shareholders and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been suspended or
limited or minimum prices shall have been established on such Exchange, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the Representatives, impractical or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its
<PAGE> 26
26
officers, of each of the Selling Shareholders and of the Underwriters set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, any
Selling Shareholder or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telefaxed to the Salomon Brothers Inc General Counsel (fax
no.: (212) 783-1752) and confirmed to the General Counsel, care of Salomon
Brothers Inc, at Seven World Trade Center, New York, New York, 10048, Attention:
General Counsel; or, if sent to the Company, will be mailed, delivered or
telefaxed to (212) 989-6817 and confirmed to it at Box Hill Systems Corp., 161
Avenue of the Americas, New York, NY l0013, attention of Philip Black; or if
sent to the Selling Shareholders, will be mailed, delivered or telefaxed to
(212) 371-5500 and confirmed it to them at the addresses set forth in Schedule
II hereto.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
<PAGE> 27
27
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or trust
companies are authorized or obligated by law to close in New York City.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments thereto and
any Rule 462(b) Registration Statement became or become effective.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus included in
the Registration Statement at the Effective Date that omits Rule 430A
Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution Time
or, if no filing pursuant to Rule 424(b) is required, shall mean the form of
final prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"Registration Statement" shall mean the registration
statement referred to in paragraph (a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended or such Rule 462(b)
Registration Statement, as the case may be. Such term shall include any Rule
430A Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
<PAGE> 28
28
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating to
the offering covered by the initial registration statement.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
BOX HILL SYSTEMS CORP.
by
----------------------
Name:
Title:
BENJAMIN MONDERER
----------------------
CAROL TURCHIN
----------------------
MARK A. MAYS
----------------------
<PAGE> 29
29
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
by SALOMON BROTHERS INC
by
--------------------
Vice President
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
[or]
SALOMON BROTHERS INC
by
--------------------
Vice President
For itself and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE> 30
30
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ----------------
<S> <C>
Salomon Brothers Inc ......................................
Montgomery Securities .....................................
------------
Total ................................... 4,600,000
============
</TABLE>
<PAGE> 31
SCHEDULE II
<TABLE>
<CAPTION>
Numbers of Shares
of Underwritten
Selling Securities
Shareholders Address To Be Sold
- ------------ ------- -----------------
<S> <C> <C>
Benjamin Monderer 712,500
Carol Turchin 712,500
Mark A. Mays 475,000
---------
Total .......................................... 1,900,000
=========
</TABLE>
<PAGE> 32
EXHIBIT A
[Letterhead of officer, director or Selling Shareholder of
Box Hill Systems Corp.]
Box Hill Systems Corp.
Public Offering of Common Stock
, 19
Salomon Brothers Inc
Montgomery Securities
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), among Box Hill
Systems Corp., a New York corporation (the "Company"), the Selling Shareholders
named in Schedule II thereto, and each of you as representatives of a group of
Underwriters named therein, relating to an underwritten public offering of
Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned will not, without the prior
written consent of Salomon Brothers Inc, offer, sell, contract to sell, pledge
or otherwise dispose of, or file a registration statement with the Commission in
respect of, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Exchange Act with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction, for a
period of [180] [270] days after the date of this Agreement, other than (i) any
shares of Common Stock to be sold under the Underwriting Agreement, (ii) any
option or warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectus to which this Agreement relates and (iii)
shares of Common Stock disposed of as bona fide gifts approved by Salomon
Brothers Inc.
<PAGE> 33
2
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting Agreement),
the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer,
director or major shareholder]
[Name and address of officer,
director or major shareholder]
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BOX HILL SYSTEMS CORPORATION
(Under Section 805 of the Business Corporation Law of New York)
WE, THE UNDERSIGNED, Benjamin Monderer and Mark A. Mays, 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 and a certificate
of amendment thereto was filed on May 1, 1995.
3. The certificate of incorporation is hereby amended to
delete Article "FOURTH" in its entirety and to effect the following Article
FOURTH:
FOURTH: The aggregate number of shares which the
corporation shall have the authority to issue is: (a)
Forty Million (40,000,000) shares of common stock,
par value $.01 per share; and (b) Five Million
(5,000,000) shares of Preferred Stock in series and
the authority to establish and fix the designations
of each series and the variations in the relative
rights, preferences and designations as between
series shall be vested in the Board of Directors of
the corporation. The Board of Directors is authorized
to file an amendment to the certificate of
incorporation of the corporation under Section 805- A
of the Business Corporation Law setting forth the
designations of each series and the variations in the
relative rights, preferences and limitations of each
series of preferred stock without further action by
the shareholders of the corporation.
<PAGE> 2
Exhibit 3.2
4. The amendment was authorized by the unanimous written
consent of the Board of Directors, dated as of July 3, 1997, 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 July 3, 1997.
IN WITNESS WHEREOF, we have signed this certification on the
day of 1997 and we affirm the statements contained therein as true
under penalties of perjury.
BOX HILL SYSTEMS CORP.
By:
-----------------------------
Benjamin Monderer, President
By:
-----------------------------
Mark A. Mays, Secretary
-2-
<PAGE> 1
Exhibit 4.1
TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY.
COMMON STOCK COMMON STOCK
BOX HILL SYSTEMS CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
PAR VALUE CUSIP xxxxxx xx x
$.01 PER SHARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$.01 PAR VALUE PER SHARE, OF BOX HILL SYSTEMS CORP., transferable on the
books of the Corporation in person or by duly authorized Attorney on
surrender of this certificate properly endorsed. This certificate shall
not be valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
SIGNATURE TO COME SEAL TO COME SIGNATURE TO COME
SECRETARY CHAIRMAN AND OF THE BOARD
COUNTERSIGNED AND
REGISTERED:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
(NEW YORK)
Transfer Agent
and Registrar
By
Authorized Signature
<PAGE> 2
BOX HILL SYSTEMS CORP.
The Corporation will furnish to any stockholder, upon request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof, and the qualification, limitations or restrictions of such
preferences and/or rights, so far as the same shall have been fixed, and of the
authority of the Board of Directors to designate and fix any preferences, rights
and limitations of any wholly unissued class or series. Any such request should
be addressed to the Secretary of the Corporation at the principal office.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- ______ Custodian _______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act______________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________
________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated,______________________________________
________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 5.1
August 27, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: BOX HILL SYSTEMS CORP.
AMENDMENT NO. 1 TO REGISTRATION STATEMENT
ON FORM S-1 - FILE NO. 333-31873
Ladies and Gentlemen:
As counsel to Box Hill Systems Corp., a New York corporation (the
"Registrant"), with respect to the above Registration Statement relating to
the registration of 5,290,000 shares of the Common Stock, $.01 par value (the
"Shares") of the Registrant to be sold pursuant to the Underwriting Agreement
between the Registrant and the shareholders of the Company designated in the
Registration Statement as "Selling Shareholders" and Salomon Brothers Inc and
Montgomery Securities as representatives of the underwriters, we have examined
copies of the Certificate of Incorporation and amendments thereto, By-laws of
the Registrant, as amended, minutes of relevant proceedings, unanimous consents
of Directors and shareholders of the Company and such other materials as we
determined pertinent.
Based upon the foregoing, it is our opinion that the Shares, when paid
and issued pursuant to the terms of the Underwriting Agreement, will be legally
issued, fully paid and non-assessable.
<PAGE> 2
Securities and Exchange Commission
August 27, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
Brock, Fensterstock, Silverstein,
McAuliffe & Wade, LLC
LS:kwj
<PAGE> 1
(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)
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
(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
(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: /s/ Paul Folino By: /s/ Kenneth W. Pitz
--------------------------------- -----------------------------
(Signature) (Signature)
Name: Paul F. Folino Name: Kenneth W. Pitz
--------------------------------- -----------------------------
(Please type of print) (Please type of print)
Title: President and CEO Title: General Manager
--------------------------------- -----------------------------
Date: August 29, 1995 Date: 08/23/95
--------------------------------- -----------------------------
(5)
<PAGE> 6
7
<PAGE> 1
Exhibit 10.7
THIS LEASE made this 23rd day of December, 1993
LANDLORD
Earle W. Kazis, Ronald J. Mount and Spring and Americas Associates, as tenants
in common (hereafter referred to as the "Landlord"), by its agent, Earle W.
Kazis Associates, Inc., having its place of business at 161 Avenue of the
Americas, New York, NY 10013, and BoxHill Systems Corporation (hereafter
referred to as the "Tenant"), a New York corporation, having its place of
business at 161 Avenue of the Americas, New York, NY 10013.
GRANT OF PREMISES AND TERM
The Landlord hereby lets and leases to the Tenant, and the Tenant hereby takes
and hires from the Landlord, the following described space: A portion of the
10th floor, as outlined and hatched on the diagram attached hereto, made part
hereof and marked "Exhibit A" (such space is hereafter referred to as "the
premises') in the building known by street number as No. 161 Avenue of the
Americas, in the Borough of Manhattan, City, County and State of New York
(hereafter referred to as "the building"), with the privilege to the Tenant of
using (subject to such rules and regulations as the Landlord shall from time to
time prescribe) the necessary entrances and appurtenances to the premises,
reserving to the Landlord all other portions of the building not herein
specifically demised, for a term which shall commence on the earlier of the
following dates ("Commencement Date"): 1. the date that Tenant is open for
business and operating in the Tenth(1) Floor premises; or 2. May 1, 1994 and
shall end on the last day of the tenth Lease year unless such term shall sooner
cease and expire or be terminated as hereinafter provided.
Landlord will commence and prosecute to completion, with diligence, and in a
good and workmanlike manner, the work specified in Paragraph Forty-Ninth of the
Lease, ("Landlord's Work").
Landlord's Work shall be deemed to be completed (a) despite the fact that minor
or insubstantial details of construction, decoration or mechanical adjustment
remain to be performed and (b) portions thereof, under good construction
scheduling practices, should not be completed until other uncompleted Landlord's
Work or Tenant's Work (as hereafter defined) is to be completed. Landlord shall
complete any incomplete Landlord's Work with diligence thereafter.
The date, for all purposes of this Lease, as of which the Landlord's Work (if
not then completed) shall conclusively be deemed to be completed shall be the
date on which the Landlord's Work reasonably would have been completed except
for a delay resulting from Tenant's failure to comply
- ------------------
(1) The first least year shall begin on the date of Commencement
of the term hereof, if the date of Commencement of the term
hereof shall occur on the first day of a calendar month, if
not, then the first lease year shall commence on the first day
of the calendar month next following the date of Commencement
of the term hereof.
1
<PAGE> 2
with the provisions of this Lease.
The premises will be delivered to Tenant "as is" on the date hereof except for
Landlord's Work.
COVENANTS AND CONDITIONS
THE ABOVE LETTING IS UPON THE FOLLOWING COVENANTS AND CONDITIONS, each
and every one of which the Tenant covenants and agrees with the Landlord to keep
and perform, and the Tenant agrees that the covenants herein contained on the
part of the Tenant to be performed shall be deemed conditional limitations, as
well as covenants and conditions.
USE
FIRST: The Tenant shall use the premises only for its general and
executive offices in connection with Tenant's computer consulting, maintenance,
equipment, assembly, installation and systems integration business including,
training and seminar programs in connection therewith.
Tenant shall not use or permit the use of the premises or any part thereof in
any way which would violate any of the covenants, agreements, terms, provisions
and conditions of this Lease or for any unlawful purposes or in any unlawful
manner or in violation of a requirement such as the Certificate of Occupancy for
the premises or the building, and Tenant shall not suffer or permit the premises
or any part thereof to be used in any manner or anything to be done therein or
anything to be brought into or kept therein which, in the judgement of Landlord,
reasonably exercised, shall in any way (i) impair the character, reputation or
appearance of the building, or (ii) impair or interfere with any of the building
systems or services or the proper and economic operation of the building, or
(iii) impair or interfere with the use of any of the other areas of the building
or occasion discomfort, inconvenience or annoyance to, any of the other tenants
or occupants of the building. Tenant shall not install any electrical or other
equipment of any kind which, in the reasonable judgment of Landlord, might cause
any such impairment, interference, discomfort, inconvenience or annoyance.
If any license or permit of a governmental authority shall be required for the
proper and lawful conduct of Tenant's business or other activity carried on in
the premises, and if the failure to secure such license or permit might or
would, in any way, affect Landlord, then Tenant, at Tenant's expense, shall duly
procure and thereafter maintain such license or permit and submit the same for
inspection by Landlord. Tenant, at Tenant's expense, shall, at all times, comply
with the requirements of each such license or permit.
The use of the premises shall not in any event be deemed to include, and Tenant
shall not use or permit the use of the premises or any part thereof for (a) the
sale, preparation or consumption of food or beverages (alcoholic or
non-alcoholic), except by its employees and persons invited by it in connection
with the furtherance of its business and prospects, (b) a banking or safe
deposit business or a money exchange, (c) as a stock brokerage office, (d) the
conduct of a school of any kind (other than a training center for employees or
customers or prospective customers of Tenant), (e) an
2
<PAGE> 3
employment agency, (f) the conduct of any business, organization or activity in
which, in the reasonable judgment of Landlord, may create or foster an unusual
risk to the security of the building or of any of its tenants or occupants, (g)
for the purpose of manufacturing, requiring or servicing of products or goods of
whatsoever kind or nature except in connection with Tenant's use of premises as
described in paragraph first, above, (h) the sale or display of goods or
merchandise of any kind or retail purposes, or, (i) the conduct of any business
which involves direct patronage of the general public in the premises, such as,
by way of illustration, a medical or other health maintenance office or a travel
agent.
The premises shall not be used, at any time, by a government or governmental
agency or authority.
SIGNS
No signs, advertisements or notices shall be exhibited, inscribed, painted or
affixed by Tenant on any part of the outside of the premises or on the inside of
the premises which can be seen outside of the premises without the prior written
consent of the Landlord. In the event of the violation of the foregoing by any
tenant, Landlord may remove the same without any liability, and may charge the
expense incurred by such removal to the Tenant. Landlord shall have the right to
prohibit any advertising by Tenant which, in the opinion of Landlord, impairs
the reputation of the building or its desirability as a building or space
therein available for rent, and upon written notice from Landlord, Tenant shall
refrain from or discontinue such advertising.
DIRECTORY
Landlord will allow Tenant's name to appear (a) in a building directory of
tenants which shall be furnished by Landlord, in a manner designated by
Landlord, in its sole discretion, as the "standard" for such directory and (b)
on or near the exterior of the entrance to the premises, at a location, in a
manner and with a format adopted as "standard" for tenants in the building
occupying similar space within the building, by Landlord in its sole discretion.
If more than one such building directory is furnished by Landlord, then Landlord
shall select the building directory to which clause (a) of the preceding
sentence shall be applicable and Landlord's selection shall be final and
conclusive. All costs reasonably incurred by Landlord in effecting the
provisions of the first sentence of this Paragraph shall be reimbursed to it by
Tenant, on demand, as additional rent.
BASE RENT AND ADDITIONAL RENT
SECOND: Tenant shall pay to Landlord at 161 Avenue of the Americas, New
York, New York 10013, or such other place as shall be designated from time to
time by notice from Landlord to Tenant, an annual rent, sometimes called base
rent as follows: during Lease Years One through Five an annual amount equal to
the Hundred Eighty Four Thousand Nine Hundred Twenty Dollars ($184,920.00),
during Lease years Six and Seven, an annual amount equal to Two Hundred Three
Thousand Four Hundred Twelve Dollars ($203,412.00), during Lease year Eight an
amount equal to One Hundred Seventy Thousand Two Hundred Eighty Dollars
($170,280.00) and during Lease
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Years Nine and Ten an amount equal to Two Hundred Three Thousand Four Hundred
Twelve Dollars ($203,412.00).
The term "Lease Year" shall mean a period of twelve consecutive full calendar
months. The first Lease Year shall begin on the Commencement Date if the Rent
Commencement Date shall occur on the first day of the calendar month, and, if
not, then the first Lease Year shall commence on the first day of the calendar
month next following the Commencement Date. Each succeeding Lease Year shall
commence on the anniversary date of the first Lease Year. Any portion of the
term of this Lease which is less than a full Lease Year, such as a period from
the Commencement Date to and including the last day of the month in which it
occurs or a period at the end of the term of this Lease arising by reason of an
early termination for whatever reason of the term, shall be deemed a partial
Lease Year, and all of the provisions of this Lease, relating to a Lease Year,
including the payment of base rent, shall be applicable to a partial Lease Year
on a pro rata basis, so to speak, determined by a fraction, the numerator of
which is the number of days within the partial Lease Year and the denominator of
which is 360.
The Base Rent shall be payable in equal monthly installments, in advance, on the
first day of each month during the term.
In addition to the base rent, Tenant shall also pay all sums, costs, expenses,
payments and deposits required of Tenant pursuant to the terms of this Lease,
and, in the event of any nonpayment of any of the foregoing (hereinafter
sometimes singularly or collectively referred to as "additional rent"). Landlord
shall have (in addition to all other rights and remedies) all the rights and
remedies provided for in this Lease or by any Requirement in the case of
nonpayment of the base rent.
The term "requirement" shall mean any law, ordinance, order, rule or regulation
of a governmental authority, including but not limited to those relating to
zoning, building and the environment.
The term "governmental authority" shall mean the United States, the State in
which the premises are located, and any political subdivision thereof, and any
agency, department, commission, board, bureau or instrumentality of any of them,
and any regulatory body such as a Board of Fire Underwriters.
Tenant shall pay base rent and additional rent by good and sufficient check,
subject to collection, drawn on a bank which is a member of the New York
Clearing House Association or a successor thereto.
All base rent and additional rent shall be paid by Tenant without notice or
demand and without abatement, deduction, counterclaim or set-off, except as may
otherwise be specifically provided herein.
If the Rent Commencement Date occurs on other than the first day of a calendar
month, the base rent for the calendar month in which the rent commencement date
occurs shall be prorated by a fraction,
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the numerator of which is the number of days in such month within the Term, and
the denominator is the number of days within such month.
If any installment of rent or additional rent or any service charge shall not be
paid within five (5) days following the date on which the same shall be due and
payable pursuant to this Lease then, in addition to, and without waiving or
releasing, any other rights and remedies of the Landlord, the Tenant shall pay
to the Landlord a late charge of one and one half (1-1/2%) percent per month
computed (on the basis of a 30-day month) from the date on which each such
installment became due and payable to the date of payment of the installment on
the amount of each such installment or installments, as liquidated damages for
Tenant's failure to make prompt payment, and the same may be collected on demand
or as additional rent in accordance with the provisions of paragraph
TWENTY-FIFTH of this Lease.
REPAIRS, MACHINERY, CLEANING AND WASTE
THIRD: (a) The tenant shall take good care of the premises and the
fixtures, appurtenances, equipment and facilities therein and shall make as and
when needed, all repairs in and about the premises required to keep them in good
order and conditions; such repairs to be equal in quality to the original work.
Should the Tenant fail to repair any condition in or about the premises or the
fixtures, appurtenances, equipment and facilities therein which is of such a
nature that its neglect would result in damage or danger to the building, its
fixtures, appurtenances, facilities and equipment, or to its occupants (of which
nature the Landlord shall be the judge) or, in the case of repairs of any other
nature, should the Tenant have failed to make the required repairs or to have
begun, in good faith, the work necessary to make them within five days after
notice by personal service or certified mail, return receipt requested, from the
Landlord of the condition requiring repair, the Landlord may, in either such
case, immediately enter the premises and make the required repairs at the
expense of the Tenant. The Landlord may make, at the expense of the Tenant, any
repairs to the building or to its fixtures, appurtenances, facilities or
equipment, whether of a structural or any other nature, which are required by
reason of damage or injury due (i) to the negligence or the improper acts of the
Tenant or its employees, agents, licensees or visitors; (ii) to the moving, into
or out of the building, of property being delivered to or taken from the
premises; (iii) to the installation, repair or removal of the property of the
Tenant in the premises; or (iv) to the faulty operation of any machinery,
equipment, or facility installed in the premises by or for the Tenant. The
Tenant will pay the cost of any repairs made by the Landlord pursuant to this
paragraph upon presentation of bills therefor, or the Landlord may, at its
option, add such amounts to any installment or installments of rent due under
this lease and collect the same as additional rent. The liability of the Tenant
under this paragraph THIRD shall survive the expiration or other termination of
this Lease.
MACHINERY
(b) If the Tenant shall install or maintain machinery or manufacturing
equipment of any description in the premises, the operation of which produces
noise or vibration which is transmitted
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beyond the premises and the Landlord deems it necessary that the noise or
vibration of such machinery or equipment be diminished, eliminated, prevented or
confined to the premises, the Landlord may give written notice to the Tenant,
requiring that the Tenant provide and install rubber or other approved settings
for absorbing, preventing or decreasing the noise or vibration and such
installation shall be conclusive, and the installation shall be made in such
manner and of such material as the Landlord may direct. Should the Tenant fail
to comply with such request within fifteen days, the Landlord may do the work
necessary to absorb, prevent or decrease the noise or vibration of such
machinery or equipment and the Tenant will pay to the Landlord the cost of such
work upon demand or such cost may, at the option of the Landlord, be added to
any installment or installments of rent under this Lease and shall be payable by
the Tenant as additional rent.
(c) The premises shall be kept clean and in order by the Tenant at the
Tenant's expense, and to the satisfaction of the Landlord. The Tenant shall, at
its own expense, clean the interior and exterior surfaces of the windows at such
times as the windows become dirty to a degree which, in the judgment of the
Landlord, adversely affects the appearance of the building or the premises. Such
window cleaning shall be done in a manner which complies with the requirements
of this Lease and all applicable laws and regulations. The Tenant shall, at its
own expense, remove from the building any and all rubbish, refuse and waste
originating in the premises of the Tenant or cause the same to be removed. The
removal of such refuse, rubbish and waste shall be subject to such rules and
regulations as to the time and manner of removal as, in the judgment of the
Landlord, are necessary for the proper operation of the building. In the event
that the Tenant shall fail to clean the windows or remove its refuse, rubbish
and waste, such cleaning or removal may be done by the Landlord, and the Tenant
shall pay to the Landlord the cost of the cleaning of the windows or the removal
of any of the Tenant's refuse, rubbish and waste from the building. Bills for
the same shall be rendered by the Landlord to the Tenant at such times as the
Landlord may elect and shall be due and payable when rendered, and the amount of
such bills shall be deemed to be, and be paid as additional rent. Should the
Landlord clean the windows or remove the rubbish of the Tenant and of other
tenants, the cost of such cleaning or removal shall be apportioned as between
the Tenant and such other tenants respectively on the basis of the number of
windows or the respective approximate quantities of such rubbish and waste as
the case may be. The Landlord's apportionment of such respective quantities
shall be conclusive on the parties.
(d) If Tenant installs HVAC equipment and/or facilities within the
premises which services the Premises exclusively, Tenant agrees to maintain and
repair (including making necessary replacements) such equipment and services and
to provide and to keep in force, at Tenant's sole cost, during the Term for the
benefit of Landlord and Tenant, a comprehensive maintenance and service
agreement, in form and substance satisfactory to Landlord in the reasonable
exercise of its discretion, covering the maintenance, service, repairing and
replacement, labor and materials, with respect to such equipment and services.
Tenant agrees to deliver to Landlord a duplicate original of the aforesaid
service and maintenance agreement which shall provide that it will run in favor
of Landlord if Landlord so elects and that such agreement may not be cancelled
except on ten days notice to Landlord.
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ALTERATIONS AND FIXTURES
Paragraph FOURTH Continued In Rider Annexed Hereto and Made a Part of This
Lease.
FOURTH: (a) The Tenant shall not make any alteration, decoration,
addition or improvement in or upon the premises, nor incur any expense therefor,
without having first obtained the written consent of the Landlord therefor.
Landlord will not unreasonably withhold such consent. Whenever any alteration,
decorations, additions or improvements of the premises are made by the Tenant,
the Tenant shall not, knowingly, employ or permit to be employed therein any
labor which will cause strikes or labor troubles with other employees in the
building employed by the Landlord or its contractors. All alterations,
decorations, additions or improvements shall be made and installed in a good and
workmanlike manner and shall comply with all requirements, by law, regulation or
rule, of the Federal, State and City Governments and all subdivisions and
agencies thereof, and with the requirements of the New York Fire Insurance
Exchange, New York Board of Fire Underwriters and all other bodies exercising
similar functions, and shall conform to any particular requirements of the
Landlord expressed in its consent for the making of any such alterations,
decorations, additions, and improvements. Any such work once begun shall be
completed with all reasonable dispatch, but shall be done at such time and in
such manner as not to interfere with the occupancy of any other tenant or the
progress of any work being performed by or on account of the Landlord.
(b) All alterations, decorations, additions or improvements, which may
be made or installed by either of the parties hereto in or upon the premises
(whether made during or prior to the term of this Lease or during the term of
any prior lease of the premises made between the Landlord and the Tenant),
except the furniture, trade fixtures, stock in trade, and like personal property
of the Tenant, shall be conclusively deemed to be part of the freehold and
property of the Landlord, and shall remain upon the premises, and, upon the
expiration or any termination for the term of this lease, shall be surrendered
therewith as a part thereof, unless the Landlord shall, prior to the expiration
or termination of the term, notify the Tenant that any or all of such
alterations, decorations, additions or improvements shall be removed, in which
event, the Tenant shall remove the same in accord with the Landlord's notice at
its own cost and expense at or prior to the expiration or termination of the
term. The Tenant, at or prior to the expiration or any termination of the term
of this lease shall, at its own expense, remove all its furniture, trade
fixtures, stock in trade and like personal property. The Tenant shall restore
and repair, at its own cost and expense, any damage or disfigurement of the
premises occasioned by any such removals or remaining after such removals, so as
to leave the premises in good order and condition or, the Landlord at its
option, may do such restoration and repair and the Tenant will pay the cost
thereof upon demand. If any furniture, trade fixtures, stock in trade or other
personal property of the Tenant shall not be removed at the expiration or any
termination of this lease, the Landlord, at the Landlord's option, may treat the
same as having been irrevocably abandoned, in which event the Tenant shall have
no further right, title or interest therein and the Landlord may remove these
same from the premises, disposing of them in any way which the Landlord sees fit
to do, and the Tenant shall, on demand, pay to the Landlord the expense incurred
by the Landlord for the removal thereof, as well as the cost of any restoration
of the
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premises above provided. The Tenant's obligations under this subdivision (b) of
this paragraph Fourth shall survive the expiration of this lease.
Paragraph FOURTH Continued In Rider Annexed Hereto and Made a part of This Lease
(c) The Landlord may at any time during the term of this Lease, change
the arrangement or location of the entrance or passageways, doors and doorways,
and the corridors, elevators, stairs, toilets or other parts of the building
used by the public or in common by the Tenant and other tenants (including,
without limitation, the conversion of elevators from manually operated to an
automatic self-service basis) and may alter the facilities, fixtures,
appurtenances and equipment of the building as it may deem the same advisable,
or as it may be required so to do by any governmental authority, law, rule or
regulation. The Landlord may, after reasonable notice, change the name, street
number or designation by which the building is commonly known.
COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
FIFTH: The Tenant shall promptly comply, at the Tenant's own expense,
with all laws, ordinances, regulations and requirements of the City, State and
Federal Government, and all subdivisions and agencies hereof, and of the New
York Fire Insurance Exchange, the New York Board of Fire Underwriters, and of
any fire insurance rating organization, and of all other departments, bureaus,
officials, boards and commissions with regard to the premises, or the use
thereof by the Tenant, and (if the premises are situated on the ground floor)
the sidewalks adjoining the same in so far as such compliance is made necessary
by the Tenant's use of the sidewalks adjoining the same in so far as such
compliance is made necessary by the Tenant's use of the sidewalks. The Tenant
will not permit the maintenance of any nuisance upon the premises or permit its
employees, licensees or visitors to do any illegal act therein, or in and about
the building after notice thereof from the Landlord. If any such law, ordinance,
regulation or requirement shall not be promptly complied with by the Tenant,
then the Landlord may, at its option, enter upon the premises to comply
therewith, and should any fine or penalty be imposed for failure to comply
therewith or by reason of any such illegal act, the Tenant agrees that the
Landlord may, at its option pay such fine or penalty, which the Tenant agrees to
repay to the Landlord with interest from the date of payment, as additional
rent.
COMPLIANCE WITH LANDLORD'S RULES
Paragraph SIXTH Continued In Rider Annexed Hereto and Made a Part of This Lease.
SIXTH: The Tenant and the tenant's employees, and any other persons
subject to control of the Tenant, shall well and faithfully observe all the
rules and regulations annexed hereto, and also any and all reasonable rules and
regulations affecting the premises, the building or the equipment,
appurtenances, facilities and services thereof, hereafter promulgated by the
Landlord. The Landlord may at any time, and from time to time, prescribe and
regulate the placing of safes, machinery, quantities of merchandise and other
things, and regulate which elevator and entrance
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shall be used by the Tenant's employees, and for the Tenant's shipping; and may
make such other and further rules and regulations as in its judgment may, from
time to time, be needed or desirable for the safety, care or cleanliness of the
building and for the preservation of good order therein.
PLATE GLASS
SEVENTH: The Landlord may at its option, either (i) at the Tenant's
expense, keep the plate glass, if any, in the premises insured in the name of
the Landlord, against loss or damage, the premium for which, whether by separate
policy or as a part of a schedule of another policy, shall be paid by the Tenant
to the Landlord, upon demand, or (ii) require the Tenant, at the Tenant's
expense, to keep the plate glass, if any, in the premise insured in the name of
the Landlord, against loss or damage, in which event, the Tenant shall deliver
such policy and evidence of due payment of the premium therefor to the Landlord.
[EIGHTH INTENTIONALLY DELETED]
LANDLORD'S ACCESS TO THE PREMISES
NINTH: (a) The Tenant shall, without in any way affecting the Tenant's
obligations hereunder, and without constituting any eviction, permit the
Landlord and its agents; (i) at all reasonable hours, to enter the premises and
have access thereto, for the purpose of inspecting or examining them and to show
them to other persons; (ii) to enter the premises to make repairs and
alterations, and to do any work on the premises and any work in connection with
excavation or construction on any adjoining premises or property (including, but
not limited to, the shoring up of the building) and to take in any of the
foregoing instances, any space needed therefor; and (ii) during the six months
preceding the termination hereof, to place and maintain thereon the usual "for
rent" notices. The Tenant shall permit the Landlord to erect and maintain ducts,
pipes and conduits in and through the premises.
(b) In the event that the premises shall, in the Landlord's judgment,
become substantially vacated before the expiration of this lease, or in the
event the tenant shall be removed by summary proceedings, or in the event that,
during the last month of the term, the Tenant shall have removed all of the
Tenant's property therefrom, the Landlord may immediately enter into and upon
said premises for the purpose of decorating, renovating or otherwise preparing
same for a new tenant, without thereby causing any abatement of rent or
liability on the Landlord's part for other compensation, and such acts shall
have no effect upon this lease.
(c) If the Tenant or an officer or a authorized employee of the Tenant
shall not be personally present to open and permit an entry into said premise,
at any time, when for any reason an entry therein shall be necessary or
permissible hereunder, the Landlord or the Landlord's agents, may enter the same
by a master key , or may forcibly enter the same without rendering the Landlord
or such agents liable therefor (if during such entry the Landlord shall accord
reasonable care to the Tenant's property) and without in any manner affecting
the obligations and covenants of this lease
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and in no event shall any such entry by the Landlord or its agents be deemed an
acceptance of a surrender of this lease, either expressed or implied, nor a
waiver by the Landlord of any covenant of this lease on the part of the Tenant
to be performed.
ELECTRIC CURRENT; LIVE STEAM
TENTH: (a) If electric current be supplied by the Landlord, the Tenant
covenants and agrees to purchase the Tenant's requirements thereof for lighting
and power purposes at the premises from the Landlord or the Landlord's
designated agent, on the terms and at the rates set by the Landlord, such rates
not to exceed the rates in the service classification under which the Landlord
purchases electric current from the public utility corporation serving the part
of the city where the building is located.
Where more than one meter measures the service of the Tenant in the building,
the service rendered through each meter may be computed and billed separately in
accord with the rates herein provided for. No current shall be furnished until
the equipment of the Tenant has been approved by the proper authorities, and
after such approval, no changes shall be made in such equipment without the
written consent of the Landlord. The Tenant shall pay, upon demand, the bills
for electric current furnished, and the use of meters; the Landlord and its
agent reserving the right, without releasing the Tenant from any liability, and
without constituting any eviction, and without any liability on the Landlord's
part, to cut off such electric current after five days' notice for non-payment
of any such bill or bills. The Tenant shall comply with such rules, regulations
and contract provisions as are customarily prescribed by public service
corporations supplying such services, for consumption similar to that of the
Tenant.
(b) The Landlord may discontinue the supply of electric current under
subdivision (a) at any time on sixty (90) day's notice to the Tenant without
being liable to the Tenant therefor or without in any way affecting this lease
or the liability of the Tenant hereunder or causing the diminution of rent, and
the same shall not be deemed to be a lessening or diminution of services within
the meaning of any law, rule, or regulation now or hereafter enacted,
promulgated, or issued. Should the Landlord give such notice of discontinuance,
the Tenant shall make the Tenant's own arrangements to receive such service
direct from such public utility corporation serving the building and the
Landlord shall permit the Landlord's wires, conduits and meters, to the extent
to which they are safely available for such use and to the extent to which they
may be so used under any applicable governmental regulations or the regulations
of such public utility, to be used for the purpose. Should any additional or
other wiring, conduits, meters or any other or different distribution equipment
be required in order to permit the Tenant to receive such service directly from
the public utility, the same will be installed, as the Landlord shall elect,
either by the Landlord, at the sole cost and expense of the Tenant, or by the
Tenant at the Tenant's sole cost and expense. In the case of central
distribution equipment which is used in connection with the distribution or
metering of current supplied to the Tenant and other tenants of the building,
and which is required to be installed under governmental regulations or the
regulations of such utility, the cost of installation thereof will be prorated
among the several tenants, serviced through the distribution facility in the
proportion which
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their average consumption of electric current over the next preceding period of
not less than six months' duration bears to the total consumption of electric
current by all tenants during such period, and the Tenant shall pay to the
Landlord the Tenant's share of such cost of installation, apportioned as above,
within five (5) days following receipt of a statement, showing the cost of the
distribution equipment and the manner in which the cost has been allocated to
the Tenant. Should the supply of electric current by the Landlord be
discontinued, but not as a result of the Landlord's election to discontinue the
supply of current, then the Tenant shall, at the Tenant's expense, install all
wiring, metering and distribution facilities which are required in order to
permit the Tenant to purchase the Tenant's requirements for electric current for
the premises from such utility and shall discontinue the use of the Landlord's
electric wires, cables, meters and distribution facilities. All such facilities
installed by the Tenant shall be installed in a workmanlike way which complies
with the applicable governmental regulations and the regulations of the public
utility. The Landlord will in any such case permit any pipe-chases or channels
available in the building to be used by the Tenant for the Tenant's cables and
conduits to the extent that the same may be available and may be safely used for
the purpose.
(c) The Landlord shall not in any way be liable or responsible to the
Tenant for, any loss or damage or expense which the Tenant may sustain or incur
if either the quantity or character of electric service is changed or is no
longer available or suitable for the Tenant's requirements, nor shall the
Landlord be in any way responsible for any interruption of service due to
breakdowns, repairs, malfunction of electrical equipment or any other cause
relating to electrical service which is beyond the Landlord's reasonable
control.
(d) If there be any facilities for the supply of live steam in the
building, such steam shall be supplied to the Tenant only if separate agreements
are made therefor and pursuant to such arrangements. In the event that such
separate agreements shall be made, the appropriate provisions of this paragraph
Tenth shall be applicable thereto.
CONDEMNATION
ELEVENTH: If the premises or any part thereof, shall be taken or
condemned for any public or quasi public use, this lease and the term hereby
granted shall terminate on the date when possession of the premises or such part
shall be actually taken for such public or quasi public use. If any other part
of the building shall be so taken, and such taking shall, in the judgment of the
Landlord, make the operation of the building impractical, unprofitable or
uneconomical (even though no part of the premises be taken), the Landlord may,
at its option, give to the Tenant, at any time after the vesting of title and
prior to the actual taking of possession, thirty (30) day's notice of intention
to terminate this lease, and upon the date designated in such notice, this lease
and the term hereby granted shall terminate. In no event shall any condemnation
award be apportioned, and the Tenant hereby assigns to the Landlord all rights
and claim to any part of such award, but the rent, and all other sums payable by
the Tenant, shall be apportioned as of the date of any such termination of this
lease.
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MECHANIC'S LIENS
TWELFTH: The Tenant will not permit, during the term hereby granted,
any mechanic's or other lien or order for payment of work, labor, services, or
materials furnished or to be furnished to attach to or affect the premises or
any portion thereof, and agrees that no such lien or order shall under any
circumstances attach to or affect the fee, leasehold or other estate of the
Landlord herein, or the building. The Tenant's obligation to keep the premises
in repair, and its right to make alterations therein, if any, shall not be
construed as the consent of the Landlord to the furnishing of any such work,
labor or law. Notice is hereby given that the Tenant has no power, authority of
right to do any act or to make any contract which may create, or be the
foundation for, any lien upon the fee or leasehold estate of the Landlord in the
premises or upon the land buildings of which they are a part or the improvements
now erected or hereafter to be erected upon the premises or the land or
buildings of which the premises are a part; and in any such mechanic's or other
lien or order shall be filed against the purchases of the land and buildings of
which the premises are a part, the Tenant shall, within ten (10) days
thereafter, discharge said lien or order by payment, deposit or by bond fixed in
a proper proceeding according to law. If the Tenant shall fail to take such
action, or shall not cause such lien or order to be discharged within ten (10)
days after the filing thereof, the Landlord may pay the amount of such lien or
discharge the same by deposit of, by bond or in any other manner according to
law, and pay any judgment recovered in any action to establish or foreclose such
lien or order, and any amount so paid, together with the expenses incurred by
the Landlord, including all attorneys' fees and disbursements incurred in any
defense of any such action, bonding or other proceeding, shall be deemed
additional rent.
SUBORDINATION
THIRTEENTH: This lease, and all the rights of the Tenant hereunder, are
and shall be subject and subordinate to any and all mortgages now or which
hereafter may become liens either in whole or in part on the building, or the
land on which it stands, and also to any and all other mortgages covering other
lands or lands and buildings, which may now or hereafter be consolidated with
mortgages or mortgages upon the building and the land on which it stands or
which may be consolidated and spread to cover the building and such land and any
such other lands or lands and buildings, and any extension, renewal or
modification of any such mortgages, and to any and all underlying leases on
record or hereafter to be recorded, against the building or the land on which it
stands, and also Tenant any and all other mortgages covering other lands or
lands and buildings, which may now or hereafter be consolidated with any
mortgage or mortgages upon the building and the land on which it stands or which
may be consolidated and spread to cover the buildings and such land and any
other lands or lands and buildings, and any extension, renewal or modification
of any such mortgages, and to any and all underlying leases on record, or
hereafter to be recorded, against the building or the land on which it stands,
and any extensions, renewals or modifications thereof. The Tenant hereby
constitutes and irrevocably appoints the Landlord the Tenant's attorney in fact
to execute any instrument or certificate evidencing such subordination for and
on behalf of the Tenant.
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CERTIFICATE OF OCCUPANCY
FOURTEENTH: The Tenant shall immediately discontinue any use of the
demised premises, which may, at any time be claimed or declared by the City or
State of New York or other government authority to be in violation of or
contrary to the certificate of occupancy of the building, or by reason of which
any attempt may be made to penalize the Landlord or require the Landlord to
secure any certificate of occupancy other than the one, if any, now issued for
the building.
VAULTS
FIFTEENTH: Notwithstanding anything herein contained, or shown on any
sketch, plan or schedule hereto attached, to the contrary, if any vault space
forms a part of the premises, or adjoins the same, or any part or portion of the
herein demised premises is not within the property line of the building or
premises, and if the use of the said space shall hereafter be prevented or
curtailed by exercise of any governmental authority, the Tenant shall have no
claim whatever upon the Landlord for the loss of such space, by any abatement of
the rent, or otherwise, and the Landlord's covenant of quiet enjoyment
hereinafter contained, shall not be deemed to apply to any such space. The
Landlord makes no representation as to the location of the property line of the
building. The Tenant shall reimburse the Landlord for the vault charge or tax,
if any, imposed by the city of New York with respect of any such vault space.
[SIXTEENTH INTENTIONALLY DELETED]
FIRE AND FIRE INSURANCE
Paragraph SEVENTEENTH (a) Continued In Rider Annexed Hereto and Made a Part of
This Lease.
SEVENTEENTH: (a) If the premises shall be damaged by fire the Tenant
shall give immediate notice thereof to the Landlord, and said damage (unless the
same shall be due to the negligence or other fault of the Tenant or its
employees) shall be repaired by the Landlord, at the Landlord's expense, with
all reasonable speed, making due allowance for delay due to labor troubles,
settlement of loss and other causes beyond the control of the Landlord, and the
Tenant shall, in every reasonable way, facilitate the making of such repairs and
(unless the fire shall be due to the negligence or other fault of the Tenant or
its employees) the base rent and additional rent shall be suspended during such
period as the premises shall have been rendered wholly untenantable and, in the
event that the premises are rendered partially untenantable, the rent shall be
abated during such period, in the proportion which the area of the premises
which is rendered untenantable bears to the area of the whole premises, but no
damage to the premises or the building by fire, or other cause, however
extensive, shall terminate this lease, or give the Tenant the right to quit and
surrender the premises, or impair any obligation for the Tenant hereunder,
except with respect to the payment of base rent and additional rent (and with
respect thereto the extent above provided) unless the same be so extensive that
the Landlord shall, within sixty (60) days after the date when such fire occurs,
elect to demolish or reconstruct the building, in which event (even though the
premises shall be then
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tenantable and occupied by the Tenant) the Landlord may give to the Tenant
thirty (30) days' notice of intention to terminate this lease, and upon the date
designated in such notice, the term hereby granted shall terminate, and the rent
shall be apportioned as of the date of such fire or as of such later date as the
Tenant may actually surrender possession.
(b) The Tenant shall conduct its business and use the premises in such
a manner as shall make and keep the rate of insurance upon the entire building
as low as such rate can be made and kept, and the Tenant shall install and
maintain all its furniture, fixtures, equipment, stocks and materials in such a
manner as to accomplish the foregoing purposes. The Tenant further agrees not to
permit any act to be done or anything brought into or kept upon the premises
which will void or avoid the insurer's liability under any contract of fire
insurance on the building or its contents. Should the fire insurance rate on the
building be increased beyond the present rate, by reason of the Tenant's
occupancy or character of its business, or the Tenant's failure to comply with
the terms hereof, the Tenant agrees to pay to the Landlord, on demand, the
additional cost of such insurance, or, at the option of the Landlord, the same
may be added to any installment of rent and be payable as additional rent. The
schedule of the makeup of a rate issued by an authorized rating organization
shall be conclusive evidence of the facts therein stated and of the items in the
rates applicable to the premises.
CHANGE IN USE OF PREMISES, SUBLETTING AND ASSIGNMENT
EIGHTEENTH: The use to be made of the premises by the Tenant as herein
provided and the identity of the Tenant being among the inducements to the
making of this lease, the Tenant shall not, without having first obtained the
Landlord's written consent, use the premises or any part thereof, or permit the
same to be used, for any purpose other than that above specified nor assign or
transfer this lease or any interest therein, or mortgage or encumber the same,
or suffer the name to be assigned, transferred, or encumbered by operation of
law, or sublease the premises or any part thereof, or permit the same to be
occupied by anyone other than the Tenant and the Tenant's employees, except such
other businesses as are owned or controlled by at least 51% ownership by Tenant.
No such consent shall be deemed to permit any act except that to which it
specifically refers or to waive or to render unnecessary any subsequent consent
to a similar act, or to relieve the Tenant or any assignee from any obligation
under this lease, and any as signee, by accepting an assignment, shall be
conclusively deemed to have assumed this lease and all obligations already
accrued or to accrue thereunder and further to have agreed to duly and fully
perform all of the Tenant's covenants herein contained. If the Tenant shall, at
any time, be in default in the payment of rent, the Landlord shall have the
right to collect rent from any assignee, under-tenant, or occupant, and credit
the same to the account of the Tenant; and no such collection shall constitute a
waiver of the foregoing covenant or constitute the acceptance of anyone other
than the Tenant as tenant, or shall otherwise release, impair, or otherwise
affect any obligation of the Tenant under this lease.
WAIVER AND SURRENDER; REMEDIES CUMULATIVE
NINETEENTH: No consent or waiver of any provision hereof or acceptance
of any
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<PAGE> 15
surrender shall be implied from any act or forbearance by the Landlord. No
agreement purporting to accept a surrender of this lease, or to modify, alter,
amend or wave any term or provision thereof, shall have any effect or validity
whatever, unless the same shall be in writing, and executed by the Landlord and
by the Tenant, and be duly delivered, nor shall the delivery of any keys to
anyone have any legal effect, any rule or provision of law to the contrary
notwithstanding. Any consent, waiver or acceptance of surrender, in writing, and
properly executed and delivered as aforesaid, shall be limited to the special
instance of which it is given, and no superintendent or employee, other than an
officer of the Landlord or of its managing agent, and no renting representative
shall have any authority to accept a surrender of the premises, or to make any
agreement or modification of this lease, or any of the terms and provisions
hereof. No provision of any lease made by the Landlord to any other tenant of
the building shall be taken into consideration in any manner whatever in
determining the rights of the Tenant herein. No payment by the Tenant or receipt
by the Landlord of a lesser amount than the monthly rent herein stipulated shall
be deemed to be other than on account of the stipulated rent, nor shall any
endorsement of any check, nor any letter accompanying any such payment of rent
be deemed an accord and satisfaction (unless an agreement to accept a lesser
amount be signed by the Landlord), but the Landlord may accept such payment
without prejudice to the Landlord's full right to recover the balance of such
rent and to institute summary proceedings therefor. The receipt by the Landlord
of any rent, or additional rent or of any other sum of money which may be
payable under this lease, or of any portion thereof, shall not be deemed a
waiver of the right of the Landlord to enforce the payment of any sum of any
kind previously due or which may be appropriate, or to terminate this lease or
to exercise any of the rights and remedies reserved to the Landlord hereunder,
and the failure of the Landlord to enforce any covenant or condition (although
the Tenant shall have repeatedly or continuously broken the same without
objection from the Landlord) shall not estop the Landlord at any time from
taking any action with respect to such breach which may be authorized by this
lease, or by law, or from enforcing said covenant or any other covenant or
condition on the occasion of any subsequent breach or default. In the event of
any continuing or threatened breach by the Tenant, the Landlord shall have the
right of injunction. The various rights, remedies, powers and elections of the
Landlord, as provided in this lease or created by law, are cumulative, and none
of them shall be deemed to be exclusive of the others, or of such other rights,
remedies, powers and elections as are now or may hereafter be conferred upon the
Landlord by law.
REPRESENTATIONS AS TO PREMISES, CERTIFICATE OF OCCUPANCY AND USE
TWENTIETH: The Tenant represents to the Landlord that the Tenant has
made, or caused to be made, a careful inspection of the premises and that the
Tenant has made an examination of the certificate of occupancy of the building
and that the area and present condition of the premises are in all respects
satisfactory to the Tenant, except (if at all) as may herein otherwise be
expressly stated in the memorandum of repairs or decorations to be done by the
Landlord attached to this lease, and that the Tenant has determined that the use
of the premises, as set forth in this lease, is consistent with the uses
permitted under the certificate of occupancy. The Tenant acknowledges that no
representations or promises have been made by the Landlord or the Landlord's
agents with respect to the premises for the building or the certificate of
occupancy thereof, except as in this lease set
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<PAGE> 16
forth. The statements contained in this lease regarding the use of the premises
by the Tenant shall not be deemed a representation or warranty by the Landlord
that such use is lawful or permitted by the certificate of occupancy of the
building.
LIMITATION OF LANDLORD'S LIABILITY
TWENTY-FIRST: (a) The Tenant shall make no claim upon the Landlord for
abatement of rent, constructive eviction, rescission, or otherwise, and the
Landlord shall be exempt from all liability, except for injuries to the Tenant's
person or property which are due to the negligence of the Landlord, its agents,
servants or employees in the management of the premises or the real property of
which the demised premises are a part, for or on account of any annoyance,
inconvenience, interference with business, or other damage, caused by: (i) any
interruption, malfunction or curtailment of the operation of the elevator
service, heating plant, sprinkler system, gas, water, sewer or steam supply,
plumbing, machinery, electric equipment or other appurtenances, facilities,
equipment, and conveniences in this building, whether such interruption,
malfunction or curtailment be due to breakdowns, or repairs, or strikes or
inability to obtain electricity, fuel or water due to any such cause or any
other cause beyond the Landlord's control; (ii) any work or repair, alteration
or replacement done by or on behalf of the Landlord or the Tenant, pursuant to
the provisions of this lease; (iii) any water, rain, snow, steam, gas,
electricity or other element, which may enter, flow from or into the premises or
any part of the building, or any noise or vibration audible in, or transmitted
to the premises; (iv) any vermin; (v) any falling paint, plaster or cement; (vi)
any interference with light or with other easements or incorporeal
hereditaments; (vii) any latent defect or deterioration in the building or the
appurtenances thereof, whether or not the Landlord shall have been notified of
any condition allegedly causing same; (viii) any zoning ordinances or other acts
of governmental or public authority now or hereafter in force; and (ix) any act
or omission if any other occupant of the building or other person temporarily
therein. The Tenant will not hold the Landlord liable for any loss or theft of,
or damage to, any property in the herein demised premises done or caused by any
employee, servant, or agent of the Landlord who is invited into the premises by
the Tenant, nor for the loss, damage or theft of any property stored or theft in
the basement or in any other part of the building, or left with any employee of
the Landlord, notwithstanding such theft, loss or damage may occur through
carelessness or negligence of the Landlord's employees; and the Tenant agrees
that any employee in entering the premises at the invitation of the Tenant or
accepting custody of property shall be then deemed agent of the Tenant or other
person at whose instance he may be acting, and not agent of the Landlord.
Employees are not permitted to receive or accept packages or property for
account of Tenants. Storerooms or storage space for personal property (if
provided) are provided gratuitously by the Landlord, and the use of same shall
be at the Tenant's risk and the Tenant will not hold the Landlord liable for any
loss of or damage to person or property therein or thereby. Nothing in this
lease contained shall impose any obligation upon the Landlord with respect to
any real property other than this building, whether said other real property be
owned by the Landlord or otherwise, or shall in any way limit the Landlord's
right to build upon or otherwise use said other real property in such manner as
the Landlord may see fit. The Tenant shall make no claim upon the Landlord for
abatement of rent, constructive eviction or rescission, and the Landlord shall
have no liability by reason of the Landlord's failure to enforce the provisions
of the lease to any other
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tenant against such other tenant.
(b) Any right and authority reserved by and granted to the Landlord
under this lease, to enter upon and make repairs in the premises shall not be
taken as obligating the Landlord to inspect and to repair the premises and the
Landlord hereby assumes no responsibility or liability for the care, inspection,
maintenance, supervision, alteration or repair of the premises. The Tenant
assumes possession and control of the premises and exclusively the whole duty of
care and repair, if any, owed to persons outside the premises and travelers on
the street and sidewalk.
INDEMNITY BY TENANT
TWENTY-SECOND: The Tenant hereby indemnifies and agrees forever to save
harmless the Landlord against any and all liabilities, penalties, claims,
damages, expenses (including attorneys' and counsel fees) or judgments, arising
from injury to person or property of any kind, occasioned wholly or in part by
any act or acts, omission or omissions of the Tenant, or of the employees,
customers, agents, assigns or under-tenants of the Tenant, or based on any
matter or thing growing out of the Tenant's use or occupation of the premises or
any part of the building.
NOTICES
TWENTY-THIRD: Any notice which is given by either party to the other
pursuant to this lease shall be in writing and shall be given as follows: (a) If
such notice is to be given by the Landlord to the Tenant, such notice may be
given personally or by registered or certified mail in the following manner: (i)
notice may be given personally, by delivering the same to the Tenant or, if the
Tenant be a corporation or partnership, to any officer of such corporation or
member of the partnership, at the premises or at any other place; (ii) notice
may also be given personally at the premises by delivering the same to the
Tenant or any officer or partner of the Tenant, or to any regular employee of
the Tenant; or (iii) notice may also be given by registered or certified mail,
by depositing the notice, enclosed in an envelope addressed to the Tenant at its
address given in this lease or at the premises, in any United States Post
Office, postage and registry fees prepaid; (b) If such notice is to be given by
the Tenant to the Landlord, the notice shall be given by registered or certified
mail, by depositing the notice, enclosed in an envelope, addressed to the
Landlord at 161 Sixth Avenue, New York, N.Y., or at such other place as the
Landlord shall hereafter designate in writing, in any United States Post Office,
postage and registry of certified fees prepaid. Any notice shall be deemed to
have been given on the date when the same is delivered as above provided or, if
given by mail, on the date when it is deposited as above provided in the United
States Post Office.
INSOLVENCY
TWENTY-FOURTH: If, at any time after the execution and delivery of this
lease, the Tenant shall be adjudicated a bankrupt, or if the Tenant shall make
any assignment for the benefit of any insolvency law, or petition or answer to
reorganize the Tenant shall be approved by any court or judge, or if a petition
or answer for a composition or extension shall be filed by the Tenant, or if
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<PAGE> 18
a receiver or trustee shall be appointed for the Tenant's property, or if the
Tenant's interest in this lease shall be attached or levied upon or shall
devolve upon or pass to any party other than the Tenant (whether such event
occurs prior or subsequent to the commencement of the term of Tenant's entry
into possession) such event shall be conclusively deemed a default hereunder,
and the Landlord shall have the right to terminate this lease in the manner
hereinafter provided, as if such event were a breach by the Tenant of one of the
covenants of this lease. In the event of such termination, the Tenant or any
person claiming under, by or through the Tenant, by virtue of any statute or of
an order of any court, shall not be entitled to possession or to remain in
possession of the demised premises but shall forthwith quit and surrender same.
Exclusive of and in addition to any other rights or remedies the Landlord may
have through any other portion or provision of this lease or by virtue of any
rule of law or statute, said Landlord may keep and retain, as liquidated
damages, any rent, security, deposit or other moneys or consideration received
by the Landlord from the Tenant, or others on behalf of the Tenant. Also, in the
event of termination of this lease as aforesaid, the Landlord shall be entitled,
as and for liquidated damages from the Tenant for breach of the unexpired term
of this lease, to an amount equal to the difference between the rental value of
the remainder of the term at the time of termination and the actual rent
reserved, both discounted to present worth at the rate of four per cent (4%) per
annum. If at any time within a reasonable period following the date of the
termination of the lease, as aforesaid, the premises should be re-rented by the
Landlord, the rent realized by any re-letting shall be deemed prima facie to be
the rental value. In the event of the occurrence of any of the above-mentioned
events of default occasioned solely through the invocation by the Tenant or by
third parties of the laws of the state of New York, judicial or statutory, as
distinguished from the invocation of Federal laws relating to bankruptcy,
reorganization, or otherwise, the Landlord, in addition to the foregoing, may
accelerate the full amount of rent reserved for the remainder of the Lease, and
the same shall forthwith become due and payable to the Landlord. Nothing herein
provided shall be deemed to prevent or restrict the Landlord from proving and
receiving as liquidated damages herein the maximum permitted by any rule of law
or statute prevailing when such damages are to be proved, whether they be
greater or less than those referred to above.
REMEDIES OF THE LANDLORD ON DEFAULT PERFORMANCE BY THE TENANT
Paragraph TWENTY-FIFTH Continued In Rider Annexed Hereto and Made a Part of This
Lease.
TWENTY-FIFTH: (a) If the Tenant shall default in the full and due
performance of any covenant of this lease, the Landlord shall have the right,
upon five (5) days' notice to the Tenant (unless a shorter period of notice or
provision for the performance of such work without notice is elsewhere
established), to perform the same for the account of the Tenant, and in such
event all workmen employed by the Landlord shall be deemed the agents of the
Tenant, and any reasonable payment made, and expense incurred, by the Landlord
in this connection, shall forthwith become due and payable by the Tenant to the
Landlord. If the Landlord is compelled to incur any expenses, including
reasonable attorneys' fees in instituting, prosecuting or defending any action
or proceeding instituted by reason of any default of the Tenant hereunder, the
sum or sums so paid by the Landlord with all interest, costs and damages, shall
be deemed immediately due to the Landlord upon demand.
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Any and all sums payable by the Tenant to the Landlord shall bear interest at
the rate of Eighteen percent (18%) per annum from the due date to the date of
actual payment, and any and all such sums (except the rent hereinabove expressly
reserved) shall be deemed to be additional rent for the period prior to such due
date, and the Landlord shall have the same remedies for default in the payment
of such additional rent as for default in the payment of the rent expressly
reserved.
PERFORMANCE BY THE LANDLORD NOT AN EXCLUSIVE REMEDY
(b) In the event that under the provisions of this lease the Landlord
shall have the privilege of performing any covenant in respect of which the
Tenant may be in default and of recovering the expenses so involved from the
Tenant as additional rent or otherwise, such remedy shall not be the exclusive
remedy of the Landlord but the Landlord may, at its option, treat such default
as a breach of a substantial obligation of this lease and shall have all the
other remedies in respect thereof provided in this or any other paragraph of
this lease.
DISPOSSESS TERMINATION OF LEASE
(c) If the Tenant shall violate or default in the full and due
performance of any covenant, provision or condition of this lease (other than
the covenant to pay the rent or any additional rent), or any covenant, provision
or condition of any other lease under which the Tenant is a tenant in the
building, or if any of the events specified in the paragraph of this lease
numbered Twenty-fourth and headed "Insolvency" shall occur, or if the conduct of
the Tenant or any occupant of the premises shall reasonably be deemed
objectionable by the Landlord or the Landlord's managing agent, the Landlord
will give to the Tenant five day's notice of such violation, default or
misconduct. In the event that (i) the Tenant shall default in the payment of the
rent or of any additional rent, or (ii) if the premises shall be vacated,
abandoned or deserted, or (iii) in the event that the Tenant, after notice
thereof as above provided, shall fail to stop any violation or fully cure or
remedy any default or terminate any default or terminate any misconduct under
this lease (or in the event that the default is of a nature such that the steps
required to cure or remedy the same fully cannot reasonably be completed within
five days, then if the Tenant shall not have commenced and have diligently and
continuously prosecuted the steps necessary to cure or remedy such default) the
Landlord may give to the Tenant ten (10) day's notice of its intention to
terminate this lease, and, in such event, on the tenth day following the giving
of such notice this lease and the term hereby granted shall terminate and expire
as fully and completely as if that day were the date herein expressly fixed for
the expiration of the term, and the Tenant shall thereupon quit and surrender
the premises into the possession of the Landlord, but the Tenant shall
nevertheless remain liable for deficiency in future rent and for any other
defaults hereunder, as hereinafter provided. If the Tenant shall default in the
payment of the rent, or any additional rent herein mentioned, or of any part of
either, or if this lease shall be terminated by the notice last above provided
for, the Landlord may immediately, or at any time thereafter, re-enter the
premises and remove all persons and property therefrom, either by summary
dispossess proceedings, or by any suitable action or proceeding at law, or by
force, or otherwise, without being liable to indictment, prosecution of damages
therefor, and re-possess and enjoy the premises together with all additions,
alterations, installations and improvements, and no entry by the
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Landlord shall be deemed as acceptance of surrender. Upon any such re-entry, the
Landlord may re-let the premises or any part or parts thereof, and for such term
or terms as to the Landlord may seem wise, even though the same extend beyond
the date herein expressly fixed for the expiration of the term. Any such
re-letting shall, at the Landlord's option, be either for the Landlord's own
account, or as the agent for the Tenant. If the Landlord shall re-let as the
agent of the Tenant, the Landlord shall receive the rents and apply the same,
first, to the payment of all expenses which the Landlord shall have incurred by
reason of the Tenant's default and in connection with such-entry and re-letting,
including, but not by way of limitation, legal expenses, brokers' commissions,
and the cost of reasonable repairs, redecoration and alterations, and, secondly
to the fulfillment of the covenants of the Tenant herein contained, and the
surplus, if any, existing at the date herein expressly fixed for the expiration
of the term, shall be paid to the Tenant, but the Tenant shall be entitled to no
such payment until said date. So long as the premises, or any part thereof,
shall not be re-let, or shall be re-let by the Landlord as the agent of the
Tenant, the Tenant shall remain liable for the full and due performance of all
the covenants of this lease, and the Tenant hereby agrees to pay to the
Landlord, as damages for any default hereunder, until the date herein expressly
fixed for the expiration of the term, the equivalent of the amount of all the
rent and additional rent reserved herein, less the net avails of re-letting, as
herein before defined, if any, and the same shall be due and payable by the
Tenant to the Landlord on the several rent days above specified, that is, upon
each of the said rent days the Tenant shall pay to the Landlord the amount of
deficiency then existing and shall not be entitled to withhold any such payment
until the date herein expressly fixed for the expiration of the term. The
liability of the Tenant shall survive the issuance of a final order and warrant
of dispossess, and re-entry by the Landlord, and any other termination of this
lease for default of this lease for default of the Tenant, and the granting by
the Landlord of a new lease of the premises to another tenant, and the Tenant
hereby waives any defense which might be predicated upon any of said acts or
events.
The Tenant hereby expressly waives (i) any and all right to regain
possession of said premises or to reinstate or redeem this lease as provided by
the Real Property Actions & Proceedings Law, (and as said law may be amended) or
any such right which is or may be given by any other statute, law or decision
now or hereafter in force; (ii) the service of any notice demanding rent or
stating an intention to re-enter; or any similar right which is or may be given
by any statute, law or decision now or hereafter in force; (iii) any and all
rights of redemption and all other rights to regain possession or to reinstate
this lease (in case the Tenant shall be dispossessed or ejected by, or pursuant
to judgment, order, execution or warrant of any court or judge). Except as
provided in Section 259-c of the Real Property Law with respect to an action for
personal injury or property damage between the parties hereto, the Tenant waives
and will waive all right to trial by jury in any summary proceedings and in any
other proceeding or action at law hereafter instituted by the Landlord against
the Tenant in respect of this lease, and also in any action or proceeding
between the parties hereto for any cause; and it is hereby agreed, that in any
of such events, the matter in dispute shall be tried before a judge without a
jury. In the event the Landlord shall commence any action or summary proceeding
for non-payment of rent or other breach of covenant or condition, the Tenant
hereby agrees not to interpose any counterclaim of whatever nature or
description in any such action or proceeding. The words "re-enter" and
"re-entry" as used in this lease are not restricted to
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their technical legal meaning.
SURRENDER AT EXPIRATION
TWENTY-SIXTH: Upon the expiration or any termination of the term of
this lease, the Tenant shall quit and surrender the demised premises, together
with any fixtures, equipment or appurtenances installed in the premises at the
commencement of this lease, and any alterations, decorations, additions and
improvements which are not to be removed in compliance with the provisions of
paragraph Fourth hereof, to the Landlord, in good order and condition, ordinary
wear excepted. The Tenant shall remove all its furnishings, trade fixtures,
stock in trade and like personal property in accord with the requirements of
paragraph Fourth, so as to leave the premises broom- clean and in an orderly
condition. If the last day of the term of this lease falls on Sunday, this lease
shall expire on the business day immediately preceding. The Tenant's obligation
to observe and perform this covenant shall survive the expiration or other
termination of the term of this lease.
QUIET ENJOYMENT
TWENTY-SEVENTH: The Landlord covenants that, if the Tenant shall duly
keep and perform all the terms and conditions hereof, the Tenant shall peaceably
and quietly have, hold and enjoy the premises for the term aforesaid, subject
however to ground leases, underlying leases and mortgages as herein before
described, and to the lien, rights and estate by virtue of unpaid taxes of any
government having jurisdiction of the premises of which the herein demised
premises are a part. If the Landlord shall hereafter sell, exchange or lease the
entire building, subject to this lease, or, being the lessee thereof, shall
assign its lease, the grantee, lessee, or assignee thereof, as the case may be,
shall, without further agreement by any party, be conclusively deemed to be the
Landlord of this lease and to have assumed and undertaken to carry out all of
the obligations hereof on the part of the Landlord to be performed, and the
Tenant does hereby release the above named Landlord from any claim or liability
arising or accruing hereunder, subsequent to such transfer or ownership or
possession, for breach of the covenant or quiet enjoyment, or otherwise.
[TWENTY-EIGHTH INTENTIONALLY DELETED]
PASSENGER ELEVATORS, HEAT
TWENTY-NINTH: The Landlord shall furnish, passenger elevator service
with the elevators now in the building, and sufficient heat during the cold
season to heat the premises. The Landlord may suspend such service, if it should
become necessary or proper to do so, at any time. The Landlord shall restore
such service within a reasonable time, making due allowance for labor troubles,
acts of God, or any cause beyond the Landlord's control. Should the Tenant be in
default in the payment of any rent hereunder, the Landlord may, without notice
and without diminution of the liability of the Tenant hereunder, and without
constituting a constructive eviction, suspend or refuse the Tenant freight and
passenger elevator service. Should the Tenant, after notice, violate the
provisions of Rule 14, the Landlord may, without any diminution of such
liability or constituting
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such eviction, suspend or refuse the Tenant freight elevator service until the
conditions in violation of Rule 14 have been fully remedied.
WATER AND SEWER RENTS
THIRTIETH: (a) The Tenant shall pay for all hot and cold water used on
the premises and the Tenant's proportionate share of the cost of such water used
for lavatory purposes in any lavatories used by the Tenant in common with other
tenants at the Landlord's standard rates. In the event that the Tenant shall use
water for any industrial purpose or any purpose other than usual lavatory
purposes, the Tenant shall, at its own expense, install a meter or meters for
the measurement of the quantity of water thus consumed and keep the same in good
working order. With respect to water used for lavatory purposes, whether on the
premises or in lavatories sued by the Tenant in common with other tenants, if
the quantity of water so used is measured by a meter which measures the
consumption of water by other tenants, the Tenant shall pay its proportionate
share of all water so consumed. Such proportionate part shall be fixed in accord
with the number of persons occupying the premises and the number of persons
occupying all premises using water which is measured by such meter. In the event
that there shall be a separate meter which measures the use of water by the
Tenant of lavatory purposes, the Tenant will pay for the water so shown to have
been used and the cost of maintenance of such meter. All payments for water
shall be due when billed to the Tenant. In the event that the Tenant defaults in
the payment for any water, the amount not paid shall forthwith be payable as
additional rent and the Landlord may also, without incurring any liability or
disability thereby or constituting a constructive eviction, discontinue the
Tenant's supply of water. The Landlord is not under obligation to supply hot
water and, if hot water is supplied, the Landlord may at any time
(b) The Tenant shall pay the New York City sewer rents apportioned to
the Tenant's consumption of water at the premises. The apportionment of the
sewer rent to the premises shall be made in accord with the measurement or
apportionment of water consumed at the premises as in this lease hereinbefore
provided. The sewer rents shall be billed with the water charges and the
Landlord shall have the same remedies for the collection thereof provided in the
case of charges for water.
SPRINKLER MAINTENANCE & SECURITY
THIRTY-FIRST: The Tenant shall pay to the Landlord the Tenant's
proportionate share of the cost of maintenance, operation and rental of the
automatic fire alarm supervisory service and manual alarm and sprinkler system
now installed in the building and the premises, and for any special watchman or
security patrol service which may be employed by Landlord. The Tenant's
proportionate share of such cost shall be the fraction of the annual
expenditures of the Landlord for such purposes, of which the numerator is the
premises and the denominator is the rentable area of the entire building. The
amount so payable by the Tenant shall be due when bills therefor are rendered by
the Landlord to the Tenant, and in the event of default in the payment thereof,
the Landlord may add the amount of any such bill to any succeeding installment
of rent and the same shall be collectible as additional rent.
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INSURANCE
Paragraph THIRTY-SECOND Continued In Rider Annexed Hereto and Made a Part of
This Lease.
THIRTY-SECOND: The Tenant shall during the demised term provide and
keep in force public liability insurance, written by insurance companies
approved by the Landlord, covering the Tenant, which shall be in the limit of at
least $3 million for claims arising from injury to any one person and (subject
to said limit for each individual) with a limit of at least $3 million for total
claims arising from any one casualty.
The Tenant shall furnish the Landlord within five (5) days after the
commencement of the term hereof, with a certificate of such insurance, which
certificate shall provide, that in the event of any change or cancellation of
the policy, advance notice thereof will be given to the Landlord. Upon failure
at any time on the part of the Tenant to obtain or keep in force the insurance
required by this paragraph, or to pay the premiums thereof, in addition to the
rights and remedies provided in paragraph Twenty-fifth hereof, the Landlord
shall be at liberty from time to time, and as often as such failure shall occur,
to pay the premiums therefor and any and all sums so paid for insurance by the
Landlord shall be and become, and are hereby declared to be, additional rent
under this lease due and payable on the next rent day or any successive rent
day.
DEFAULT UNDER OTHER LEASE
THIRTY-THIRD: (a) If the Tenant, before the commencement of the term
herein granted, shall default in any covenant of any other lease with the
Landlord, then, at the option of the Landlord this lease shall not go into
effect and the Tenant shall have no right to possession of the premises; and the
Tenant agrees to reimburse the Landlord upon demand for any expense of loss that
may be suffered due to the Tenant's default.
(b) In the event that during the term herein granted the Tenant shall
default in the performance of the covenants of any other lease with the Landlord
such default shall be deemed a default under the terms of this lease and the
Landlord shall have all the remedies herein provided for the event of a default
under this lease.
WORK TO BE DONE BY LANDLORD:
THIRTY-FOURTH: If work of any nature is agreed herein to be done by the
Landlord, the Tenant agrees that it may be done after the commencement of this
lease and that no rebate of rent or allowance will be granted therefor. The
Landlord shall not be required to furnish any work or materials to the demised
premises, except as expressly provided in the memorandum of repairs or
decorations to be done by the Landlord attached to this lease. In case the
Landlord is prevented from making any repairs, improvements, decorations or
alterations, installing any fixtures or articles of equipment, furnishing any
services or performing any other convent herein contained to be performed on the
Landlord's part, due to the Landlord's inability to obtain, or difficulty in
obtaining,
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labor or materials necessary therefor, or due to any governmental rules and
regulations relating to the priority of national defense requirements, or due to
labor troubles, or due to any other cause beyond the Landlord's control, the
Landlord shall not be liable to the Tenant for damages resulting therefrom, nor
except as expressly otherwise provided in paragraph SEVENTEENTH hereof (in
respect of damage to the premises due to fire), shall the Tenant be entitled to
any abatement or reduction of rent by reason thereof, nor shall the same give
rise to a claim in the Tenant's favor that such failure constitutes actual or
constructive, total or partial eviction from the premises.
MARGINAL NOTES
[THIRTY-FIFTH INTENTIONALLY DELETED]
THIRTY-SIXTH: The marginal headings or titles of the various paragraphs
of this lease are for reference and index purposes only, and none of them shall
be taken into consideration or given any effect whatever in determining the
meaning or scope of the paragraph to which any of them apply. The use of any
pronoun referring to either of the parties to this lease shall be construed to
include any or no gender and any number.
RENT CONTROL
THIRTY-SEVENTH: If pursuant to any existing or future laws, rules or
regulations, the rent, additional rent or any portion therefor shall be
uncollectible or unchargeable, then the provisions of this Lease shall be deemed
amended so as to be consistent with such laws, rules or regulations. To the
extent not prohibited by law, at such time or such law, or regulations shall be
removed, declared inapplicable or repealed, Tenant shall pay Landlord as
additional rent the amount of rent that would have been payable hereunder had
such law, rule or regulation not been applied hereto. The provisions of this
paragraph 37 shall survive the expiration of the Lease.
TAX ESCALATION
THIRTY-EIGHTH: If in any calendar year commencing with the calendar
year 1995 the "total real estate taxes", as hereinafter defined, shall be
increased over the "total real estate taxes" payable by Landlord for the
calendar year 1994 then Tenant shall pay Landlord "Tenant's proportionate share"
(as such term is hereinafter defined) of such amount in excess thereof in the
manner hereinafter provided. Tenant's obligation hereunder shall be apportioned
as between Landlord and Tenant for the portion of such real estate taxes
accruing within the term of this Lease.
"Tenant's proportionate share" shall be deemed to be 6.95 Percent.
Tenant's proportionate share has been computed by dividing Tenant's rentable
space, which is deemed to be 18,492.00 sq. ft. by 90% of the total rentable
space in the building, to wit 266,000 square feet.
"Total real estate taxes" shall mean and include the expenditures of
the Landlord for taxes or assessments payable by the Landlord upon or with
respect to the building and the land upon which
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it is located, imposed by Federal, State or local government (plus all
expenditures for fees and expenses incurred in the course of obtaining a
reduction in any tentative assessed valuation), and all taxes imposed by any
such authority relating to the maintenance and operation of the building, but
shall not include income, franchise, inheritance or capital stock taxes.
The term "real estate taxes" shall mean all taxes and assessments
levied, assessed or imposed at any time by any governmental authority upon or
against the Land and/or Building on the Land, and also any tax or assessment
levied, assessed or imposed at any time by any governmental authority in
connection with the receipt of income rents from said Land and/or Buildings to
the extent that same shall be in lieu of (and/or in lieu of increase in) all or
a portion of any of the aforesaid taxes or assessments upon or against the said
Land and/or Buildings.
Tenant shall pay Landlord as additional rent monthly, in advance, a sum
equal to one-twelfth of the increase of Tenant's proportionate share of the
total real estate taxes as projected by Landlord. Within One Hundred Eight (180)
days of the expiration of each calendar year Landlord shall furnish Tenant with
a written statement of the actual Tenant's proportionate share of the increase
in the total real estate taxes. If greater or less than the amount actually
incurred, either Landlord shall reimburse Tenant for such amount or Tenant shall
pay such amount within twenty (20) days after the receipt of said statement.
For each calendar year, commencing with the calendar year 1995 at the
beginning of each and every lease year, Landlord shall estimate the amount to be
due from Tenant as constituting the projected increase in Tenant's proportionate
share of the total real estate taxes and Tenant shall pay 1/12th of said amount
monthly in advance subject to adjustments as herein above provided. Tenant may,
within thirty (30) days of the receipt of said estimate dispute the amount
thereof on notice to Landlord.
In the event of a dispute between the parties hereto said dispute shall
be determined by arbitration as set forth in Paragraph "Forty-Second". Pending
determination of such dispute Tenant shall pay Landlord the amount claimed to be
due as per Landlord's estimate without prejudice or waiver.
COST ESCALATION
Paragraph THIRTY-NINTH Continued In Rider Annexed Hereto and Made a Part of This
Lease.
THIRTY-NINTH: If in any calendar year commencing with the calendar year
1995 the "operating expenses" as herein after defined, shall exceed the
"operating expenses" for the calendar year 1994 then Tenant shall pay Landlord
as additional rent "Tenant's proportionate share" (as such term is defined in
Paragraph 30 hereof) of the amount of the operating expenses in excess thereof
in the manner therein after provided. If the first and/or last years of the term
of this lease shall not be full calendar years, then the Tenant's obligation for
operating expenses attributable to such years shall be prorated on the basis of
the ratio between the number of days of such calendar years falling
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within the Lease term and 365.
"Operating expenses" shall mean those expenses and expenditures (except
those for Real Estate Taxes) incurred by the Landlord in connection with the
operation and maintenance of the building, including:
(a) Heating: Includes all the expenditures of the Landlord (including
expenditures for any related taxes) for fuel or steam used for the heating of
the building and the production of hot water;
(b) Light and Power: Includes all the expenditures of the Landlord
(including expenditures for any related taxes) for electricity used for power
for the operation of elevators, pumps, motors and fans from time to time used in
connection with the operation of the building and for lighting of the parts of
the building used in common by all tenants of the facilities of the building
used in its operation;
(c) Employees Expense: (i) Wages, salaries, fees and other compensation
or payments, (ii) payroll taxes and contributions to any Social Security,
Unemployment insurance, welfare, pension or similar fund, (iii) payments or
other fringe benefits required to be made by law or by union agreement, made by
or an behalf of the Landlord with respect to employees and agents of the
Landlord who from time to time regularly serve in the building and perform
services in connection with its operation and, with respect to any employees
regularly serving in the building and one or more other buildings of the
Landlord, their wages, salaries, fees and such other compensation, taxes,
contributions and fringe benefits determined on the basis of the hours served at
the building in which the premises are located and such other buildings, as such
hours are scheduled by the Landlord and the Landlord's expenditures for the
uniforms of employees and the cleaning, pressing and repair thereof;
(d) Contract Services: Expenditures for services which the Landlord is
obligated to provide pursuant to this Lease and which the Landlord elects to
provide through independent contractors rather than through its own employees;
(e) Repairs and maintenance: Expenditures for repairs to the building
and all work of physical maintenance of the building and the cost of supplies
and equipment used in connection therewith;
(f) Insurance: Premiums and other charges incurred by Landlord with
respect to the insurance of the building against destruction by fire and the
other hazards included in "extended coverage" and with respect to insurance
against liability for personal injuries, disease of death and property damage;
(g) Water Charges: Water charges and sewer rents, not reimbursed by
tenants;
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(h) Accounting: Reasonable bookkeeping and accounting fees;
(i) Miscellaneous: Reasonable management fees and commissions.
There shall be excluded from the wages, salaries and other items of
Employee expense the wages, salaries and other related items of Expense with
respect to employees in the Landlord's Administrative Offices.
Commencing with the calendar year 1995 Tenant shall pay Landlord as
additional rent monthly, in advance, a sum equal to 1/12th of Tenant's
proportionate share of operating Expenses as projected by Landlord in excess of
such operating expenses for the Calendar year. Within one hundred and eighty
(180) days of the expiration of each calendar year Landlord shall furnish Tenant
with a written statement of the actual operating expenses incurred for the
calendar year. In the event such statement discloses that the additional rent
paid by Tenant as Tenant's proportionate share of operating expenses is greater
or less than the amount actually incurred, either Landlord shall reimburse
Tenant for such amount, together with the forwarding of such statement, or
tenant shall pay such amount within twenty (20) days after receipt of such
statement.
At the beginning of every calendar year, Landlord shall estimate the
amount to be due from Tenant and Tenant shall pay 1/12th of such amount monthly
in advance, subject to adjustment as hereinabove provided. Tenant may, within
thirty (30) days of the receipt of such estimate, dispute the amount thereof on
notice to Landlord.
In the event of a dispute between the parties hereto such dispute shall
be determined by arbitration as set forth in Paragraph FORTY-SECOND. Pending
determination of such dispute, tenant shall pay landlord the amount claimed to
be due as per Landlord's estimate without prejudice or waiver.
[FORTIETH INTENTIONALLY DELETED]
LANDLORD'S EXCULPATORY
FORTY-FIRST: Anything contained in the foregoing to the contrary not
withstanding, Tenant agrees that it shall look solely to the estate and property
of the Landlord in the Land and Building of which the Premises form a part, for
the collection of any judgment (or other judicial process) requiring the payment
of money by Landlord, in the event of any default or breach by Landlord with
respect to any of terms, covenants and conditions of this lease to be observed
and/or performed by Landlord, and no other property or assets of Landlord shall
become subject to levy, execution, attachment or other enforcement procedures
for the satisfaction of Tenant's remedies. If the Land and Building of which the
Premises form a part are transferred or conveyed, Landlord shall be relieved of
all covenants and obligations under this Lease thereafter accruing and Tenant
shall look to such transferee thereafter.
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ARBITRATION
Paragraph FORTY-SECOND Continued In Rider Annexed Hereto and Made a Part of This
Lease.
FORTY-SECOND: In such cases where this Lease specifically provides for
the settlement of a dispute by arbitration, such arbitration shall be conducted
by the American Arbitration Association situated in the offices of such
Association closest to the Premises. Such submission to arbitration may be made
by either party on notice to the other. This Paragraph shall not be deemed to
give either party the right to submit any dispute to arbitration which has not
been specifically provided herein to be settled by arbitration.
LANDLORD'S COVENANT
FORTY-THIRD: Landlord agrees to keep its books and records pertaining
to the cost escalation to be paid by Tenant in accordance with Paragraph 39
hereof, in accordance with reasonable accounting practices conducted by Landlord
and further agrees to make its books and records pertaining thereto available
for inspection and/or audit by Tenant, on reasonable notice, provided, however,
that such audit and inspection shall not be made for a period more than twelve
(12) months prior to such audit.
[FORTY-FOURTH INTENTIONALLY DELETED]
EXECUTION
FORTY-FIFTH: This Lease shall become effective only when it has been
signed by a duly authorized representative of each of the parties and delivered
to the other party. This Lease is being executed simultaneously in four
counterparts, two of which shall be delivered to Tenant. Each of such fully
executed counterparts shall be deemed an original and it shall not be necessary
in making proof of this Lease to produce or account for more than one such
counterpart.
POSSESSION
FORTY-SIXTH: If Landlord is unable to give possession of the demised
premises on the date of the commencement of the term hereof, because or the
holding-over or retention of possession of any tenant, undertenant or occupants,
or if the premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Landlord shall not be subject to any liability
for failure to give possession on said date and the validity of the Lease shall
not be impaired under such circumstances, nor shall the same be construed in any
way to extend the term of this Lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for the inability to obtain
possession) until after Landlord shall have given Tenant written notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or to occupy
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premises other than the demised premises prior to the date specified as the
commencement of the term of the Lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this Lease, except as to the covenant to pay rent. The provisions
of this Paragraph are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Property Law.
FREIGHT ELEVATOR SERVICE
FORTY-SEVENTH: Except on Saturdays and Sundays, and on holidays
recognized as legal holidays by State or Federal Government, the Landlord shall
furnish, between the hours of eight AM and six PM freight elevator service with
elevators now in the building. If the Tenant requires freight elevator service
in addition to that prescribed above, the Landlord will provide such freight
elevator service, but the Tenant shall pay to the Landlord for such service at
the rate of $41.00 per hour for each hour during which the additional service is
supplied. If the Landlord's expenses for labor, as defined in Paragraph
TWENTY-NINTH of this Lease shall increase, then the rate per hour charged for
such after-hour service rendered by the Landlord shall be increased from time to
time by the same percentage as the Landlord's expense for labor for the base
year established under paragraph THIRTY-NINTH. The failure on the part of the
Landlord, to make the freight elevators available at such additional times, if
due to breakdowns, repairs, maintenance, strikes, anticipation of strikes and
labor troubles or other causes beyond the control of the Landlord, shall involve
no liability on the part of the Landlord, nor shall it constitute an eviction.
[FORTY-EIGHTH INTENTIONALLY DELETED]
WORK BY LANDLORD
FORTY-NINTH: Except for Landlord's Work, Tenant will take possession of
the premises in an "As Is" condition. Landlord's work shall consist solely of
the following: (A). Renovate the existing men's and ladies bathrooms in the
front of the premises on the 10th floor of the building; and (B). Subject to
provisions of Section Tenth (b) of the Lease, Landlord shall provide the
following electric service to the Tenth floor premises; 800 nominal amps 208
volts, 3 phase during the term of the lease. In connection with above referenced
electric service Landlord shall provide an electrical distribution box with
Tenant to be solely responsible for the distribution of said electric service.
*The commencement date of this Lease shall not be postponed by reason of the
non-completion of the foregoing work detailed in subsection (A) by May 1, 1994.
The Tenant agrees to permit the Landlord and its designees to enter the premises
in order to perform the foregoing work and the Landlord may perform such work
while the Tenant is in occupancy of the premises and the Tenant shall not be
entitled to any abatement of rent, or other compensation by reason thereof.
FIFTIETH: Landlord agrees to reimburse Tenant in the amount of
$200,000.00 towards the cost of Tenant's work on the Tenth Floor premises. Such
reimbursement shall be paid by Landlord to Tenant promptly after the following
has occurred: (a) completion of all Tenant work
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on the Tenth Floor premises in accordance with Paragraph FOURTH of this Lease
and (b) Tenant is open for business and operating in the Tenth Floor Premises.
(c) Replace lot lined windows except where lot lined windows are
incorporated in mechanical rooms.
(d) Provide operable radiator valves so that each radiator may be
turned on or off as desired.
(e) Remove all unnecessary equipment, such as electrical boxes,
wire, conduit and venting from the 10th floor premises.
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Rules and Regulations
1. The Tenant shall not clean, nor require, permit or allow any window
in the demised premises to be cleaned from the outside in violation of Section
202 of the Labor Law or of the Rules of the Board of Standards and Appeals, or
of any other board or body having or asserted jurisdiction;
2. All machinery shall be kept in approved settings, sufficient to
absorb any shock and prevent any noise, vibration or annoyance in the building
of which the demised premises are a part and shall be provided with oil pans
between such machinery and the floor beneath it, sufficient to prevent the
seepage of oil on or into the floors;
3. No acid that in any way may injure any of the pipes or plumbing
equipment in the building shall be poured or allowed to drain into the pipes or
plumbing equipment thereof, but shall in the event that the building is provided
with an acid line be poured only therein, or if there be no acid line, shall be
neutralized in a manner satisfactory to the Landlord. No substance which may
causes any objectionable odor shall be left in the demised premises.
4. During the cold season, the windows shall be kept closed to maintain
the temperature of the demised premises and to prevent any freezing thereof, or
of any equipment or appliance therein;
5. All trucks, vehicles or conveyances used by the Tenant in the
demised premises shall have rubber-tired wheels;
6. The Tenant's employees, except clerical or executive help, shall, if
the Landlord so directs, at all times use only the combination passenger and
freight elevator, if any, in going into or coming out of the demised premises;
7. No sign or lettering shall be inscribed on any door, wall or window
of the demised premises which is visible from the street or the portion of the
building used in common by other tenants except such as may be approved in
writing by the Landlord or its agents or designee;
8. No additional locks or bolts shall be placed anywhere upon or within
the demised premises or any on rooms therein, unless duplicate keys thereto be
given to the Landlord and all such keys must, on the termination of this lease,
be surrendered to the Landlord;
9. The Landlord may exclude any persons visiting or attempting to visit
the premises between 7 P.M. and 8 A.M. and on Saturdays, Sundays and legal
holidays, and may require such persons to sign the Night Report and may require
a pass for any such person, signed by the Tenant;
10. The sanitary and safety facilities used solely by the Tenant or by
the Tenant in common with other occupants of the building of which the demised
premises are a part, shall be used
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only for the purposes for which they were constructed;
11. No signs, signals, devices, displays, sounds or advertisements
visible or audible from the street or from the halls and other parts of the
building used in common by the Tenant and other Tenants shall be inscribed,
erected or maintained unless the kind, style, location and manner thereof shall
have been approved in writing by the Landlord and if any sign, signal, sound
display or advertising be erected, made or inscribed without such approval, the
Landlord may remove the same and charge the cost of so doing to the Tenant as
additional rent. Any sign or display which may be installed by the Tenant shall
be kept in good order and repair and in a neat and attractive condition. The
Landlord reserves the right to use the roof and outside walls surrounding the
premises for sign purposes.
The Landlord may remove any sign or signals or displays in order to paint the
premises or any part of the building, or make any repairs, alterations or
improvements in or upon the premises or building, or make any repairs,
alterations or improvements in or upon the premises or building, or any part
thereof, provided it causes the same to be removed and replaced at the
Landlord's expense whenever the said painting, repairs, alterations or
improvements shall have been completed;
12. No advertising which, in the opinion of the Landlord tends to
impair the reputation of the building or its desirability as a loft or office
building, shall be published or caused to be published by the Tenant and, upon
notice from the Landlord, the Tenant shall refrain from or discontinue such
advertising;
13. Awnings, antennae, aerials, ventilating and air-conditioning
apparatus or other projections from the windows or outside walls of the demised
premises shall not be erected or installed;
14. The lights, skylights, entrances, passages, courts, elevators,
stairways, loading platforms, halls or any part of the building intended for the
use in common by the Tenant and the other occupants thereof shall not be
obstructed or encumbered (whether by means of storing of materials and skids or
otherwise). In the event of any such encumbrance or obstruction, the Landlord
may remove the material causing such encumbrance or obstruction and cause it to
be stored and charge the cost of doing so to the Tenant. No courtyard or yard
appurtenant to the premises or the building shall be used for parking vehicles
of any kind;
15. No Part of the premises or the building shall be marked, painted,
drilled into, or in any way defaced. No laying of linoleum, or other similar
floor covering so that the same shall come in direct contact with the floor of
the demised premises shall be made; and if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed tot he floor, by a paste or other material, soluble in water.
Cements and other similar adhesive material shall not be used. Removal of any
alterations, decorations or improvements in compliance with paragraph Fourth of
this lease shall include the removal of all linoleum, lining and adhesive
material;
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16. No part of the demised premises shall be used in a manner or for a
purpose that is substantially objectionable to the Landlord or to another
tenant, or which in the reasonable judgment of the Landlord, might cause
structural injury to the building;
17. The Tenant's employees shall not stand or loiter around the
hallways, stairways, elevators, front, roof or any other part of the building
used in common by the occupants thereof;
18. No load shall be placed upon any floor of the building exceeding
the floor load per square foot area which such floor was designed to carry, and
all loads shall be evenly distributed. The Landlord reserves the right to
prescribe the weight and position of all safes, machinery and other personal
property in the premises which must be placed so as to distribute their weight;
19. Nothing shall be thrown out of the windows or doors, or down the
passages or skylights of the building, nor shall any of them be covered,
obstructed or encumbered. No improper noises shall be made in the building, nor
shall birds or animals be brought therein;
20. Where freight elevators are provided by the building, all
deliveries shall be made to or from the demised premises exclusively by means of
such elevators;
21. Any one doing janitorial work for the Tenant shall at all times be
subject to order and direction by the superintendent of the building, although
he shall not be the servant of either the superintendent or the Landlord;
22. No peddling, soliciting and canvassing shall be permitted in the
premises or by the Tenant's employees elsewhere in the building;
23. The Landlord may prescribe, and from time to time vary, the time
for any removals or deliveries from or into the premises, at any time, and such
prescriptions shall apply whether or not the material so removed or, received is
the property of the Tenant. Removals or deliveries safes, machinery and any
other heavy or bulky matter shall be done only upon written authorization of the
Landlord and only in such manner and by such persons as may be acceptable to the
Landlord, and the Landlord may require any further assurances or agreements or
indemnity from the Tenant and the movers Tenant to that effect. The Landlord
reserves the right to inspect all freight to be brought into the building and to
exclude from the building all freight which violates any of these Rules and
regulations or the lease of which these rules and regulations are a part;
24. The Tenant shall not permit its servants, employees, agents,
visitors or licensees, at any time to bring or keep upon the premises any
inflammable, combustible or explosive fluid, chemical or substance or cause or
permit any unusual or objectionable odors to be produced upon or emanate from
the premises;
25. The passenger and service elevators, other than automatic
self-service elevators, if any, shall be operated only by employees of the
Landlord and must not in any event be interfered
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with by the Tenant, his servants, employees, agents, visitors or licensees.
Elevators will be operated only during such hours as the Landlord may from time
to time determine;
26. The Tenant shall not use any other method of heating than that
supplied by the Landlord; In the event Landlord does not supply heat, Tenant
shall have the right to use U.L. approved heaters which shall not exceed the
power capacity of the space;
27. If the premises consist of basement space, or if any merchandise of
the Tenant is stored in the basement portion of the building, all such
merchandise shall, at the Tenant's own cost and expense, be placed entirely on
skids or platforms, which will raise such merchandise at least six inches from
the floor;
28. No drilling in floors, walls or ceilings shall be done except in
compliance with paragraph Fourth of this lease and no such drilling shall be
done during usual business hours unless authorized by the Landlord in writing;
29. No vending machines shall be installed or permitted to remain in
the premises unless the Landlord shall first have given its specific written
authorization for the installation of each such machine. The Tenant shall not
authorize or permit any vendor of sandwiches, coffee, or other foods, candies or
beverages to enter the premises for the purpose of soliciting sales of such
wares to the Tenant's employees.
THE TERMS, COVENANTS AND CONDITIONS contained in the foregoing Lease
shall be binding on, and shall enure to the benefit of the parties hereto, and
their respective legal representatives, successors, and assigns, but no
assignment made or purported to be made in violation of the provisions of this
Lease shall vest in such assignee any right or title in or to this lease or in
or to the estate hereby created.
IN WITNESS WHEREOF, this agreement, consisting of 43 pages, numbered 1
through 39 and 4(A) through 4(D), has been signed and sealed by the parties
hereto, the day and year first above written.
LANDLORD
EARLE W. KAZIS ASSOCIATES, INC.
Agent for: Earle W. Kazis,
Ronald J. Mount and Spring and
Americas Associates, as Tenants in Common
WITNESS:
BY /s/ Charles Rosenbluth
- --------------------- -----------------------------
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<PAGE> 35
Charles Rosenbluth
Executive Vice President
WITNESS: TENANT:
BoxHill Systems Corporation
BY /s/ Ben Monderer
- --------------------- -----------------------------
Benjamin Monderer
President
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<PAGE> 36
RIDER
Annexed to and made a part of the Lease dated October , 1993 between Earle W.
Kazis Associates, Inc. Agents for Earle W. Kazis, Ronald J. Mount and Spring and
Americas, Associates as Tenants in Common, as Landlord and BoxHill Systems,
Corporation as Tenant, consisting of Pages 33 through 39 inclusive.
FOURTH (continued): (c) Tenant, at its expense, shall prepare plans and
specifications ("Plans and Specifications") containing complete and coordinated
information and dimensions necessary for the construction and finishing of the
premises for its use as provided and limited by the provisions of the first
paragraph of Paragraph FIRST hereof. The Plans and Specifications shall be
submitted by Tenant to Landlord for its approval, which approval shall not be
unreasonably withheld. The Plans and Specifications (and any resubmissions of
disapproved Plans and Specifications) shall be deemed conclusively approved by
Landlord unless disapproved (with reasons, in reasonable detail) within fifteen
(15) business days after they have been received by (and not delivered to)
Landlord. If such Plans and Specifications shall have been timely disapproved by
Landlord, then, within ten days after notice of such disapproval shall have been
given to Tenant, the Plans and Specifications shall (a) be modified by Tenant in
such respects as shall be necessary to make the same acceptable to Landlord, and
(b) as so modified, delivered to Landlord. Final Plans and Specifications as to
which Landlord shall have given its approval are hereinafter referred to as the
"Tenant's Plans". The work and materials specified and depicted in Tenant's
Plans are hereinafter referred to as "Tenant's Work."
Tenant shall have the right to and will effect Tenant's Work in accordance with
Tenant's Plans.
Tenant's Work will be commenced and prosecuted to completion by Tenant with
diligence and in a good and workmanlike manner.
Tenant's Work shall be effected in compliance with the following:
(a) No part of the building outside of the premises nor any of its
structural parts outside or within the premises shall be affected;
(b) The proper functioning of any of the mechanical, electrical,
sanitary, fire alarm and other systems of the building, including those
within or serving the premises, shall not be affected;
(c) Tenant's Work shall be effected only by contractors satisfactory to
and first approved by Landlord which approval, except for elements of
such Tenant Work of a nature described in subdivisions (a) and (b)
hereof, will not be unreasonably withheld;
(d) Tenant's Work shall be effected at such times and in such manner as
Landlord
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may from time to time reasonably designate;
(e) All costs and expenses of or incidental to Tenant's Work shall be
borne solely by Tenant who shall establish to the reasonable satisfaction of
Landlord that these costs are beng paid when due and that completion of the
Tenant's Work will be effected as herein and in the other provisions of this
Lease provided;
(f) Throughout the performance of Tenant's Work Tenant, in addition to
and not in limitation of other provisions applicable thereto contained in this
Lease, shall maintain or cause to be maintained (i) Worker' Compensation
insurance, in statutory limits, for all eligible workmen engaged in performing
Tenant's Work and (ii) builder's All-Risk insurance in an amount equal to the
value of Tenant's Work on the completion thereof, and shall furnish Landlord
with certificates evidencing the existence of such insurance prior to the
commencement of any Tenant's Work, each of which by its terms shall state that
such insurance is not to be terminated without giving Landlord not less than
thirty days prior notice of such termination;
(g) In the event Tenant shall enter upon the premises or any other part
of the building, as may be above permitted by Landlord, Tenant agrees to
indemnify and save Landlord free and harmless, form and against any and all
claims, loss, liability and damage, including reasonable counsel fees, arising
from or claimed to arise from any act or neglect of Tenant, its contractors,
agents, servants, or employees or from any failure to act, or for any other
reason whatsoever arising out of said entry or such work; and
(h) Tenant shall have no right to enter the premises for any purposes
prior to the commencement date except for the purpose of completing Tenant's
Work.
Tenant (which term as used in this paragraph shall include agents, contractors
and invitees of Tenant) shall be entitled to access to the Premises after the
Commencement Date for the purposes of effecting Tenant's Work subject to the
following:
(a) Landlord's Work shall have reached a point where the effecting of
Tenant's Work, in Landlord's judgment, will not delay or hamper landlord in the
completion of Landlord's Work; and
(b) The labor employed by Tenant in effecting Tenant's Work shall be
harmonious and compatible with the labor employed by Landlord, and, should
Tenant's labor cause a "labor problem" with Landlord's labor, Tenant may be
required by Landlord to withdraw from the Premises until such labor problem
ceases to exist.
Notwithstanding anything to the contrary contained in the preceding
paragraph, Landlord reserves the right to deny Tenant access to the Premises and
to request Tenant to withdraw therefrom and cease any work being performed by it
or on its behalf if Landlord, in its judgment, determines that such entry or
effecting of Tenant's Work significantly interferes with, hampers or
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prevents Landlord from completing Landlord's Work at the earliest possible date.
The Plans and Specifications shall provide for the installation of a
first class air conditioning system in the Tenth floor premises, complete with
stands, windows, louvers, condensate pumps and piping condenser air intakes and
discharge and power wire units as well as the necessary duct work in respect
thereof.
All licenses and permits necessary to effect Tenant's Work shall be the sole
responsibility of Tenant but applications in respect thereof shall be filed by
Landlord at Tenant's expense. Tenant shall furnish Landlord with all materials,
including Plans and Specifications (and Tenant's Plans) and information
necessary to obtain the same.
Without limiting Landlord's right to disapprove the Plans and Specifications in
the exercise of its reasonable judgment, Landlord shall not be deemed
unreasonable in disapproving the Plans and Specifications if (a) Tenant shall
not have complied with the provisions of the preceding paragraph, (b) the Plans
and Specifications do not comply with requirements or (c) the Plans and
Specifications specify materials, designs, capacities, finishes or colors of a
standard or quality below the standard prevailing for similar Tenant
improvements in buildings similar to that of the building in the Borough of
Manhattan.
The provisions of this Subparagraph (c) shall prevail with respect to Tenant's
Work notwithstanding any conflict with the other provisions of this Article
FOURTH.
No consent to or approval by Landlord of Tenant's Work or of Tenant's Plans
shall be deemed approval by Landlord of Tenant's Work when completed or to the
construction thereof during the course of completion.
As used in this Lease, the term "Regular Hours" means generally customarily
daytime Business Hours but in no event prior to 8 A.M. or after 6 P.M. on
Business Days. Business Days means all days other than Saturdays, Sundays and
days observed as holidays by the Federal or New York State Governments or unions
whose members are employed at the building.
SIXTH (continued): Nothing contained in this Lease shall be construed
to impose upon Landlord any duty or obligation to Tenant to enforce any building
rules and regulations or the terms, covenants or conditions in any other lease
against any other Tenant, and Landlord shall have no liability to Tenant for a
violation of any such rules and regulations or Lease by any other tenant or its
employees, agents or invitees.
SEVENTEENTH (a) (continued): The Landlord shall not be liable for any
loss or damages to the Tenant's property or interest of whatever nature, in, on
about or relating to the premises, resulting from fire and other casualty,
whether or not occasioned by the negligence of the Landlord, its servants,
agents, employees, or otherwise.
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TWENTY-FIFTH (continued): (a) The provisions of this Subdivision (a)
are in addition to and not in limitation of any other provisions with respect to
its subject matter elsewhere in this Lease contained.
THIRTY-SECOND (continued): Landlord shall be named as an additional
insured in any such public liability insurance required of Tenant under this
Section THIRTY-SECOND.
Expenditures for capital improvements shall not be deemed operating expenses
unless those expenditures under generally applied real estate practice are
expenses or regarded as deferred expenses, or are required by requirements, and,
in case of expenditures for capital improvements, the cost thereof shall be
included as an "operating expense" for the year in which incurred and subsequent
years, on a straight line basis, to the extent that such items are amortized
over an appropriate period of not more than ten years with an interest factor
equal to 2% over the prime rate, so-called, then being charged by a major bank,
so-called, having its principal banking office in the City of New York.
FORTY-SECOND (continued): The Arbitration shall be conducted in
accordance with the prevailing rules of the American Arbitration Association.
FORTY-FOURTH (continued): Tenant hereby represents and warrants that it
has dealt with and will deal with no real estate brokers and that no real estate
broker(s) has or will represent it, in connection with this transaction other
than Earle W. Kazis Associates, Inc. Based upon the foregoing representation and
warranty made by Tenant, Landlord will pay any brokerage commission arising by
reason of this Lease.
FIFTIETH: Tenant covenants and agrees not to suffer, permit, introduce
or maintain in, on or about any portion of the premises, any asbestos,
polychlorinated biphenyls, petroleum products or any other hazardous or toxic
materials, wastes and substances which are defined, determined or identified as
such in any federal, state or local laws, rules or regulations (whether now
existing or hereafter enacted or promulgated) or any judicial or administrative
interpretation of any thereof, including any judicial or administrative orders
or judgments. Any such asbestos, polychlorinated biphenyls, petroleum products
and any such other materials, wastes and substances are herein collectively
called "Hazardous Materials." Tenant further covenants and agrees to indemnify,
protect and save Landlord harmless against and from any and all damages, losses,
liabilities, demands, defenses, judgments, suits, proceedings, costs,
disbursements, or expenses of any kind or of any nature whatsoever (including,
without limitation, attorneys' and experts' fees and disbursements) which may at
any time be imposed upon, incurred by or asserted or awarded against Landlord
and arising from or out of any Hazardous Materials on, in, under or affecting
all or any portion of the building or premises, introduced by, or on behalf of,
Tenant, including, without limitation (i) the costs of removal of any and all
Hazardous Materials from all or any portion of the building or premises, (ii)
additional costs required to take necessary precautions to protect against the
release of Hazardous Materials on, in, under or affecting the building or
premises, into the air, any body of water, any other public domain or any
surrounding
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areas and (iii) any costs incurred to comply, in connection with all or any
portion of the building or premises, with all applicable laws, orders, judgments
and regulations with respect to Hazardous Materials. The preceding portions of
this provision do not apply to Hazardous Materials which may be located in the
building or premises at or prior to the first to occur of (i) the Commencement
Date and (ii) the initial commencement (heretofore or hereafter) of any work,
construction, repairs or alterations therein by Tenant.
FIFTY-FIRST: This Lease and the obligations of Tenant hereunder shall
be in no way affected, impaired or excused because Landlord is unable to
fulfill, or is delayed in fulfilling, any of its obligations under this Lease by
reason of strike, other labor trouble, governmental pre-emption or priorities or
other controls in connection with a national or other public emergency or
shortages of fuel, supplies or labor resulting therefrom, or other like cause
beyond Landlord's reasonable control.
Notwithstanding anything to the contrary elsewhere contained in this Lease,
Landlord shall be excused from fulfilling an obligation under this Lease or a
date by which such obligation is required to be performed to the extent it is
unable to fulfill or is delayed in fulfilling such obligation under this Lease
by reason of strike, other labor trouble, governmental pre-emption or priorities
or controls in connection with a national or other public emergency, shortages
of fuel, supplies or labor resulting therefrom, acts of God, fire, casualty,
acts or omissions of the Tenant or its agents, servants or employees or other
cause beyond its reasonable control. The time within which Landlord is required
to attain such fulfillment shall be extended not less than one day for each day
or any fraction thereof of any such delay.
Under no circumstances shall the Landlord be liable for consequential, exemplary
or punitive damages or any damages in the nature of any of the foregoing.
FIFTY-SECOND: For the purposes of this Lease and all matters pertinent
thereto, unless the context otherwise requires:
(a) The term "rent" and derivatives thereof shall mean and include at
the option of Landlord base rent and/or additional rent payable under
this Lease;
(b) If, at any time during the last month of the Term, Tenant shall
have removed all or substantially all of its property from the
premises, Landlord may, and Tenant hereby irrevocably grants to
Landlord a license to, immediately enter and alter, renovate and
redecorate the premises, without elimination, diminution or abatement
of rent, or incurring liability to Tenant for any compensation, and
such acts shall have no effect upon this Lease;
(c) Without incurring any liability to Tenant, Landlord may permit
access to the premises and open the same, whether or not Tenant shall
be present, upon demand of any receiver, trustee, assignee for the
benefit of creditors, sheriff, marshal or court officer
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<PAGE> 41
entitled to, or reasonably purporting to be entitled to, such access
for the purpose of taking possession of, or removing, its property or
for any other lawful purpose (but this provision and any action by
Landlord hereunder shall not be deemed a recognition by Landlord that
the person or official making such demand has any right or interest in
or to this Lease, or in or to the premises), or upon demand of a
Governmental Authority;
(d) Tenant shall not occupy any common areas of space in the building
(by assignment, sublease or otherwise) other than the premises, except
with the prior written consent of Landlord in each instance;
(e) Tenant will not clean, nor require, permit, suffer or allow any
window in the premises to be cleaned, from the outside in violation of
Section 202 of the Labor Law or of any requirement;
(f) Tenant agrees that its sole remedies in cases where Landlord's
reasonableness in exercising its judgment or withholding its consent or
approval is applicable pursuant to a specific provision of this Lease,
or any rider or separate agreement relating to this Lease, if any,
shall be those in the nature of an injunction, declaratory judgment, or
specific performance, the rights to money damages or other remedies
being hereby specifically waived;
(g) The Article headings of this Lease are for convenience only and are
not to be given any effect whatsoever in construing this Lease;
(h) This Lease shall not be binding upon Landlord unless and until it
is signed by Landlord and a signed copy thereof is delivered by
Landlord to Tenant;
(i) If Landlord or Tenant consists of more than one party, the
obligations, representations, warranties and covenants of Landlord or
Tenant, as the case may be, hereunder are joint and several as to each
such party;
(j) Except as otherwise expressly provided in this Lease, each
covenant, agreement, obligation or other provision of this Lease on
Tenant's part to be performed shall be deemed and construed as a
separate and independent covenant of Tenant, not dependent on any other
provision of this Lease;
(k) All words and terms used in this Lease, regardless of the number
and gender in which used, shall be deemed to include any other number
and any other gender as the context in which used may require; and the
use herein of the words "successors and assigns" or "successors or
assigns" of Landlord or Tenant shall be deemed to include the heirs,
legal representatives and assigns of any individual Landlord or Tenant;
(l) If more than one person is named as or becomes Tenant hereunder,
the Landlord
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may require the signatures of all such persons in connection with any
notice to be given or action to be taken by Tenant hereunder. Each
person named as Tenant shall be fully and primarily liable for all of
the Tenant's obligations hereunder. Any notice by the Landlord to any
person named as Tenant shall be sufficient and shall have the same
force and effect as though given to all persons named as Tenant;
(m) Unless the context in which used requires a different construction,
the words "herein", "hereof" and "hereunder" and words of similar
import refer to this Lease as a whole and not to any particular Section
or subdivision thereof;
(n) The rule of the ejusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific
matters to matters similar to the matters specifically mentioned.
FIFTY-THIRD: Each party agrees, at any time and from time to time, as
required by the other party, upon not less than ten (10) days prior notice, to
execute and deliver to the other a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications
that the same is in full force as modified and stating the modifications),
certifying the dates to which the respective items of rent have been paid, and
stating whether or not, to the best knowledge of the signer, the other party is
in default in performance of any of its obligations under this Lease, and, if
so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant thereto may be relied
upon by others with whom the party requesting such certificates may be dealing.
NOTE: If and to the extent that any provisions of this Rider conflict
or are otherwise inconsistent with any of the other provisions of this Lease,
including the rules and regulations attached to it, whether or not such
inconsistency is expressly noted in this Rider, the provisions of this Rider
shall prevail.
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EARLE W. KAZIS ASSOCIATES, INC.
161 Avenue of the Americas, New York, NY 10013
212-255-1550
August 1, 1992
Mr. Benjamin Monderer
President
BoxHill Systems, Inc.
161 Avenue of the Americas
New York, NY 10013
Re: Portion of the Sub-basement (Approx. 832 Sq. Ft.)
Dear Mr. Monderer:
This letter is intended to confirm our understanding that you may use a portion
of the sub-basement in 161 Avenue of the Americas, New York, N.Y., as more
particularly described and outlined in red on the plan attached hereto and made
a part hereof, marked Exhibit "A-1" for the purpose of storage of your records
and materials on a monthly basis subject to termination by either party on
thirty (30) days prior written notice. This rental shall be at the rate of Two
Hundred Eight and 00/100 Dollars ($208.00) per month payable in advance on the
first day of each month.
Use of these premises will be wholly at your risk as to theft, damage by fire or
the elements or other casualty, and any measure for the protection of the stored
property will be provided by you.
At such time as you vacate this storage area, all of your records and materials
will be removed by you at your expense and the area will be left broom clean.
If, after your review of this letter you are satisfied that it is in accordance
with our understanding, kindly sign and return the enclosed copy of this letter
to me. The license provided under this letter will be effective when we receive
a copy of the letter signed by an authorized officer of your company.
Yours cordially,
EARLE W. KAZIS ASSOCIATES, INC.
Agents for:
Earle W. Kazis, Ronald J. Mount
and Spring and Americas
Associates, as Tenants in Common
AGREED & ACCEPTED:
BOXHILL SYSTEMS CORP
/s/ Ben Monderer
- ------------------------------- Charles Rosenbluth
Benjamin Monderer - President Executive Vice President
Date:
--------------------------
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EARLE W. KAZIS ASSOCIATES, INC.
161 Avenue of the Americas, New York, NY 10013
212-255-1550
June 15, 1994
Mr. Benjamin Monderer
President
BoxHill Systems, Inc.
161 Avenue of the Americas
New York, NY 10013
Re: Portion of the Basement (Approx. 1,630 Sq. Ft.)
Dear Mr. Monderer:
This letter is intended to confirm our understanding that you may use a portion
of the Basement in 161 Avenue of the Americas, New York, N.Y., as more
particularly described and outlined in red on the plan attached hereto and made
a part hereof, marked Exhibit "A-2" for the purpose of storage of your records
and materials on a monthly basis subject to termination by either party on
thirty (30) days prior written notice. This rental shall be at the rate of Four
Hundred Eight and 00/100 Dollars ($408.00) per month payable in advance on the
first day of each month.
Use of these premises will be wholly at your risk as to theft, damage by fire or
the elements or other casualty, and any measure for the protection of the stored
property will be provided by you.
At such time as you vacate this storage area, all of your records and materials
will be removed by you at your expense and the area will be left broom clean.
In addition, you agree to permit building staff access to the subject storage
area, as required, to gain access to the building's mechanical systems, pipes,
etc.
If, after your review of this letter you are satisfied that it is in accordance
with our understanding, kindly sign and return the enclosed copy of this letter
to me. The license provided under this letter will be effective when we receive
a copy of the letter signed by an authorized officer of your company.
Yours cordially,
EARLE W. KAZIS ASSOCIATES, INC.
Agents for:
Earle W. Kazis, Ronald J. Mount
and Spring and Americas
Associates, as Tenants in Common
AGREED & ACCEPTED:
BOXHILL SYSTEMS CORP
/s/ Ben Monderer
- -------------------------------- Charles Rosenbluth
Benjamin Monderer - President Executive Vice President
Date:
---------------------------
44
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LEASE EXTENSION AND MODIFICATION AGREEMENT
DATED: APRIL 15, 1997
Reference is hereby made to the lease dated December 23rd, 1993 between Earle W.
Kazis Associates, Inc., agent for Earle W. Kazis, Ronald J. Mount and Spring and
Americas Associates, as Tenants in Common, ("Landlord") and BoxHill Systems
Corporation ("Tenant") for the entire tenth floor, as extended and modified to
include a portion of the ninth floor by Lease Extension And Modification
Agreement dated July 13, 1995, of the building known by street number as 161
Avenue of the Americas, in the borough of Manhattan, City, County and State of
New York.
It is understood and agreed as follows:
1. Effective as of June 1, 1997, the term of the said lease is extended
such that it shall terminate on September 30, 2007.
2. Effective as of June 1, 1997, the said lease is modified to include a
portion of the eleventh floor (the "Eleventh Floor Premises") as more
particularly described and cross-hatched in red on the plan attached
hereto and made a part hereof and marked "Exhibit B".
3. Effective as of October 1, 1997, Tenant's base rent as shown in the
said lease shall be modified to be as follows:
10/01/97 - 12/31/99: $461,124.00/annum; $38,427.00/mo.;
01/01/00 - 12/31/00: $489,252.00/annum; $40,771.00/mo.;
01/01/01 - 12/31/01: $503,196.00/annum; $41,933.00/mo.;
01/01/02 - 12/31/02: $470,244.00/annum; $39,187.00/mo.;
01/01/03 - 12/31/04: $513,336.00/annum; $42,778.00/mo.;
01/01/05 - 09/30/07: $531,768.00/annum; $44,314.00/mo.;
Said base rent, as modified, shall be payable in advance without demand
therefor, on the first day of each month for the balance of the lease
term, in lawful money of the United States, together with, when due or
demanded, such other sums as are payable in accordance with said lease,
by the Tenant as additional rent.
4. For the purpose of calculating Tenant's "proportionate share" of the
"total real estate taxes" as defined in Article Thirty-Eighth of the
said lease, Article Thirty-Eighth is hereby modified and Tenant's new
total square footage is deemed to be 42,250 and Tenant's new
proportionate share is deemed to be 15.88%.
5. For the purpose of calculating Tenant's "pro rata share" of the
"operating expenses" as
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defined in Article Thirty-Ninth of the said lease, Article Thirty-Ninth
is hereby modified to provide that the numerator of the pro rata
fraction is 42,250.
6. Commencing June 1, 1997, Tenant shall pay Landlord for Tenant's pro
rata share of the costs of cleaning the common areas, including
lavatories, on the 11th floor of the building. The term "pro rata"
means a fraction, the numerator of which is 9,908 and the denominator
of which is 20,000. Tenant shall pay said pro rata share in the sum of
Two Hundred Ninety One and 85/100 Dollars ($291.85) monthly on the
first day of each and every month commencing June 1, 1997 and ending
December 31, 1997. After the end of each calendar year, Landlord shall
submit to Tenant a statement o the cost of the common area cleaning for
the said year, and the amount payable therefor by Tenant pursuant to
this paragraph 6. Tenant shall pay to Landlord, within twenty (20) days
of receipt of the said statement, the shortfall, if any, between the
total paid by Tenant for common area cleaning during the preceding
calendar year and Tenant's pro rata share of the actual cost to
Landlord of the common area cleaning for the said year. Commencing
January 1, 1998 and thereafter, Tenant's monthly payments on account
for common area cleaning shall be equal to one-twelfth of the Tenant's
pro rata share of total common area cleaning charges for the prior
calendar year.
7. Tenant shall have the right to occupy the Eleventh Floor Premises
pursuant to all of the terms and conditions contained in the subject
lease agreement, as modified, with no base rent or additional rent
payments (other than for the costs of electric power used and for
Tenant's pro rata share of common area cleaning on the eleventh floor)
attributable to the Eleventh Floor Premises to become due and payable
prior to October 1, 1997.
8. Tenant agrees to accept the premises in an "as is" condition and to
alter and remodel the premises for its intended use at the Tenant's
sole cost and expense. Landlord agrees to provide a work allowance to
Tenant in the amount of $100,000.00 which Tenant agrees to spend on
making improvements to the Eleventh Floor Premises. Such work allowance
shall be paid by Landlord to Tenant promptly after the following has
occurred: (a) completion of all Tenant work on the Eleventh Floor
Premises in accordance with Paragraph Fourth of the subject lease, (b)
Tenant is open for business and operating in the Eleventh Floor
Premises and (c) Tenant has completed all payments to the contractor.
9. Landlord shall, at its sole cost and expense, demise the subject
Eleventh Floor Premises and separate the existing electrical service to
the said premises such that it may be separately metered. Tenant shall
at its sole cost and expense, provide for the purchase and installation
of the submetering equipment required to meter Tenant's electrical
consumption in its Eleventh Floor Premises.
10. Landlord shall, at its sole cost and expense, renovate the lavatories
in the common area of the eleventh floor.
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11. Except as modified herein, the said lease is in all respects ratified
and confirmed.
12. This Lease Extension and Modification Agreement shall become effective
only when it has been signed by a duly authorized representative of
each of the parties hereto and delivered, fully executed, by the
Landlord to the Tenant.
IN WITNESS WHEREOF, Earle W. Kazis Associates, Inc. agent for Earle W. Kazis,
Ronald J. Mount and Spring and Americas Associates, as Tenants in Common, as
Landlord, and BoxHill Systems Corporation, as Tenant, have caused this
instrument to be executed on the date first above written.
Witness as to Landlord: LANDLORD
EARLE W. KAZIS ASSOCIATES, INC.
Agent for:
Earle W. Kazis, Ronald J. Mount and
Spring and Americas Associates as
Tenants in Common
/s/ CHARLES ROSENBLUTH
- ------------------------------ ------------------------------------
Charles Rosenbluth
Executive Vice President
Witness as to Tenant: TENANT
/s/ BENJAMIN MONDERER
- ------------------------------ ------------------------------------
Benjamin Monderer
President
3
<PAGE> 48
LEASE EXTENSION AND MODIFICATION AGREEMENT
DATED: JULY 15, 1995
Reference is hereby made to the lease dated December 23rd, 1993 between Earle W.
Kazis Associates, Inc., agent for Earle W. Kazis, Ronald J. Mount and Spring and
Americas Associates, as Tenants in Common, ("Landlord") and BoxHill Systems
Corporation ("Tenant") for the entire floor of the building known by street
number as 161 Avenue of the Americas, in the borough of Manhattan, City, County
and State of New York.
It is understood and agreed as follows:
1. Effective as of January 1, 1995, the term of the said lease is extended
such that it shall terminate on December 31, 2005.
2. Effective as of January 1, 1995, the said lease is modified to include
a portion of the ninth floor (the "Ninth Floor Premises") as more
particularly described and cross-hatched in red on the plan attached
hereto and made a part hereof and marked "Exhibit B".
3. Effective as of January 1, 1995, Tenant's base rent as shown in the
said lease shall be modified to be as follows:
1/1/96 - 12/31/99: $337,272.00/annum; $28,106.00/mo.;
1/1/00 - 12/31/00: $355,764.00/annum; $29,647.00/mo.;
1/1/01 - 12/31/01: $369,612.00/annum; $30,801.00/mo.;
1/1/02 - 12/31/02: $336,480.00/annum; $28,040.00/mo.;
1/1/03 - 12/31/04: $369,612.00/annum; $30,801.00/mo.;
1/1/05 - 12/31/05: $388,104.00/annum; $32,342.00/mo.;
Said base rent, as modified, shall be payable in advance without demand
therefor, on the first day of each month for the balance of the lease
term, in lawful money of the United States, together with, when due or
demanded, such other sums as are payable in accordance with said lease,
by the Tenant as additional rent.
4. For the purpose of calculating Tenant's "proportionate share" of the
"total real estate taxes" as defined in Article Thirty-Eighth of the
said lease, Article Thirty-Eighth is hereby modified and Tenant's new
total square footage is deemed to be 32,342 and Tenant's new
proportionate share is deemed to be 12.16%.
5. For the purpose of calculating Tenant's "pro rata share" of the
"operating expenses" as defined in Article Thirty-Ninth of the said
lease, Article Thirty-Ninth is hereby modified to provide that the
numerator of the pro rata fraction is 32,342.
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<PAGE> 49
6. Commencing January 1, 1996, Tenant shall pay Landlord for Tenant's pro
rata share of the costs of cleaning the common areas, including
lavatories, on the 9th floor of the building. The term "pro rata" means
a fraction, the numerator of which is 13,850 and the denominator of
which is 20,000. Tenant shall pay said pro rata share in the sum of Two
Hundred Fifty Four and 87/100 Dollars ($254.87) monthly on the first
day of each and every month commencing January 1, 1996 and ending
December 31, 1996. After the end of each calendar year, Landlord shall
submit to Tenant a statement o the cost of the common area cleaning for
the said year, and the amount payable therefor by Tenant pursuant to
this paragraph 6. Tenant shall pay to Landlord, within twenty (20) days
of receipt of the said statement, the shortfall, if any, between the
total paid by Tenant for common area cleaning during the preceding
calendar year and Tenant's pro rata share of the actual cost to
Landlord of the common area cleaning for the said year. Commencing
January 1, 1997 and thereafter, Tenant's monthly payments on account
for common area cleaning shall be equal to one-twelfth of the Tenant's
pro rata share of total common area cleaning charges for the prior
calendar year.
7. Tenant shall have the right to occupy the Ninth Floor Premises pursuant
to all of the terms and conditions contained in the subject lease
agreement, as modified, with no base rent or additional rent payments
(other than for the costs of electric power used) attributable to the
Ninth Floor Premises to become due and payable prior to January 1,
1996.
8. Tenant agrees to accept the premises in an "as is" condition and to
alter and remodel the premises for its intended use at the Tenant's
sole cost and expense. Landlord agrees to provide a work allowance to
Tenant in the amount of $170,000.00 which Tenant agrees to spend on
making improvements to the Ninth Floor Premises. Such work allowance
shall be paid by Landlord to Tenant promptly after the following has
occurred: (a) completion of all Tenant work on the Ninth Floor Premises
in accordance with Paragraph Fourth of the subject lease, (b) Tenant is
open for business and operating in the Ninth Floor Premises and (c)
Tenant has completed all payments to the contractor.
9. Except as modified herein, the said lease is in all respects ratified
and confirmed.
10. This Lease Extension and Modification Agreement shall become effective
only when it has been signed by a duly authorized representative of
each of the parties hereto and delivered, fully executed, by the
Landlord to the Tenant.
11. Upon the date on which this Lease Extension and Modification shall
become effective, pursuant to Paragraph 10, above, the term of the
lease dated April 4, 1991, as amended by Lease Modification Agreements
dated June 4, 1991, February 3, 1993 and December 24, 1993, between
Earle W. Kazis Associates Inc., as agent for Earle W. Kazis, Ronald J.
Mount and Spring and Americas Associates, as Tenants in Common, as
Landlord and Box Hill Systems Corporation, as Tenant, for a portion of
the Ninth Floor of the building
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<PAGE> 50
known by street number as 161 Avenue of the Americas, shall expire as
though such date were originally specified in that lease as the
expiration date for such term.
IN WITNESS WHEREOF, Earle W. Kazis Associates, Inc. agent for Earle W.
Kazis, Ronald J. Mount and Spring and Americas Associates, as Tenants
in Common, as Landlord, and Box Hill Systems Corporation, as Tenant,
have caused this instrument to be executed this ____ day of July 1995.
Witness as to Landlord: LANDLORD
EARLE W. KAZIS ASSOCIATES, INC.
Agent for:
Earle W. Kazis, Ronald J. Mount and
Spring and Americas Associates as
Tenants in Common
/s/ CHARLES ROSENBLUTH
- ------------------------------ ------------------------------------
Charles Rosenbluth
Executive Vice President
Witness as to Tenant: TENANT
BOX HILL SYSTEMS CORP.
/s/ BENJAMIN MONDERER
- ------------------------------ ------------------------------------
Benjamin Monderer
President
3
<PAGE> 1
Exhibit 10.8
Box Hill Systems Corp.
1997 Employee Stock Purchase Plan
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of Box Hill Systems Corp.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company,
or a committee of the Board appointed in accordance with Section 13.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Box Hill Systems Corp., and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings paid in cash including commissions, overtime, shift premium, incentive
compensation, incentive payments, bonuses and other cash compensation, but
excluding any income received from the exercise of options.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and at least six (6) ______ as of the first day
of the applicable offering period. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company. Where the period
of leave exceeds 90 days and the individual's right to re-employment is not
guaranteed either by statute or by contract, the employment relationship shall
be deemed to have terminated on the 91st day of such leave.
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<PAGE> 2
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last trading day of each
Purchase Period, if any, or each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any
established stock exchange or a national
market system, including without limitation
the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing
sales price for such stock (or the closing
bid, if no sales were reported) as quoted on
such exchange or system for the last market
trading day prior to the time of
determination, as reported in The Wall
Street Journal or such other source as the
Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling
prices are not reported, its Fair Market
Value shall be the mean of the closing bid
and asked prices for the Common Stock on the
date of such determination, as reported in
The Wall Street Journal or such other source
as the Board deems reliable, or;
(3) In the absence of an established market for
the Common Stock, the Fair Market Value
thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment Date under
the first Offering Period under the Plan,
the Fair Market Value shall be the initial
price to the public as set forth in the
final Prospectus included within the
registration statement in Form S-1 filed
with the Securities and Exchange Commission
for the initial public offering of the
Company's Common Stock (Registration
Statement No. 333-31873).
(k) "Offering Period" shall mean the period beginning with the
date an option is granted under the Plan and ending with the date determined by
the Board. During the term of the Plan, the duration of each Offering Period
shall be determined from time to time by the Board, provided that no Offering
Period may exceed twelve (12) months in duration. If determined by the Board, an
Offering Period may include one or more Purchase Periods. The first Offering
Period shall begin on the effective date of the Company's initial public
offering of its Common Stock that is registered with the Securities and Exchange
Commission (the "Effective Date") and shall end on the last Trading Day on or
before March 31, 1998.
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<PAGE> 3
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the period commencing on an
Enrollment Date or after an Exercise Date and which is of such duration as the
Board shall determine.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceed Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering and Purchase Periods. The Plan shall be implemented
by consecutive, overlapping Offering Periods, each of which
shall be of such duration (not to exceed 12 months) as the
Board shall determine from time to time in its discretion, and
each of which shall consist of such number of Purchase Periods
as the Board shall determine from time to time in its
discretion. The Plan shall continue until terminated in
accordance with Section 19 hereof. The initial Offering Period
shall commence on the Effective Date and shall end on the last
Trading Day on or before
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<PAGE> 4
March 31, 1998. Unless otherwise specified by the Board,
Offering Periods subsequent to the initial Offering Period
shall be six months in duration, without any Purchase Periods,
with the second Offering Period commencing on the first
Trading Day on or after April 1, 1998 and ending on the last
Trading Day on or before September 30, 1998. The Board shall
have the power to change the duration of Offering Periods
(including the commencement dates thereof) at any time or from
time to time, and shall have the power to implement multiple
Purchase Periods within any Offering Period, provided that
(except as the shareholders may otherwise approve) any such
change shall be effected only with respect to Offering Periods
commencing after the date on which the change is made.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period. The Board shall have the power to change the payroll deduction rate up
to a maximum rate of twenty percent (20%) at any time or from time to time;
provided that (except as the stockholders may otherwise approve) any such change
shall be effected only with respect to Offering Periods commencing after the
date the change is made.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase (subject to the limit
set forth in Section 6(a)) or decrease the rate of his or her payroll deductions
during the Offering Period by completing or filing with the company a new
subscription agreement authorizing a change in payroll deduction rate. The Board
may, in its discretion, limit the number of participation rate changes during
any Offering Period. The change in rate shall be effective with the first full
payroll period following five (5) business days after the Company's receipt of
the new subscription agreement unless the Company elects to process a given
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<PAGE> 5
change in participation more quickly. A participant's subscription agreement
shall remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b) (8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at such
time during any Purchase or Offering Period. Payroll deductions shall recommence
at the rate provided in such participant's subscription agreement at the
beginning of the first Offering Period, or, if applicable, first Purchase Period
which is scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price. In no event shall an Employee be
permitted to purchase during each Offering Period, or Purchase Period, if
applicable, more than $12,500 worth of Common Stock valued at the Fair Market
Value on the first day of such Offering Period; provided, however, that for the
first Offering Period under the Plan an Employee shall not be permitted to
purchase more than $25,000 worth of Common Stock valued at the Fair Market Value
on the first day of the first Offering Period; and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof.
The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, or, if applicable, Purchase Period subject to earlier
withdrawal by the
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<PAGE> 6
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) On any given Exercise Date, the number of shares with
respect to which options are to be exercised shall not exceed _____ shares
(which number gives effect to a 3.3 for 1 split of the Common Stock approved by
the Board in July 1997 to be effective immediately prior to the initial public
offering of the Common Stock of the Company, provided, however, for the Exercise
Date of the first Offering Period under the Plan, the number of shares with
respect to which options are to be exercised shall not exceed 100,000 shares
(which number gives effect to a 3.3 for 1 split of the Common Stock approved by
the Board in July 1997 to be effective immediately prior to the initial public
offering of the Common Stock of the Company. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds the
share limit described in this subsection, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of the shares purchased upon exercise of his
or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
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<PAGE> 7
(c) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be increase ______
shares (which number gives effect to a 3.3 for 1 split of the Common Stock
approved by the Board in July 1997 to be effective immediately prior to the
initial public offering of the Common Stock of the Company, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
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<PAGE> 8
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, as well as the price per share
and the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company, provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall effect, and to
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
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<PAGE> 9
(b) Dissolution or Liquidation. In the event of a proposed
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, any Offering Periods then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date") and
any Offering Periods then in progress shall end on the New Exercise Date. The
New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 18 hereof, no such termination can
affect options previously granted, provided that an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that the
termination of the Plan is in the best intetrests of the Company and its
shareholders. Except as provided in Section 18 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain shareholder approval in such a manner and to such a
degree as required.
(b) Without shraeholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ration applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each particpant properly correspond with amounts withheld from the
particpant's Compensation, and establish such other limitations or procedures as
the Board (or its committee) determines in its sole discretion advisable which
are consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the lcoation,
or by the person, designated by the Company for the receipt thereof.
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<PAGE> 10
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
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EXHIBIT A
BOX HILL SYSTEMS CORP.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary (ies)
1. ______________hereby elects to participate in the Box Hill Systems
Corp. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of __% of my Compensation on each payday for the Offering Period on
each payday for subsequent Offering Periods (from 1 to 10%). Such
amounts shall be deducted each payday during the Offering Period in
accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the completed Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse
only):_______________ .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within two (2) years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or one
(1)year after the Exercise Date, I will be treated for federal income
tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased by me over the
price which I paid for the shares. I hereby agree to notify the Company
in writing within 30 days after the date of any disposition of my
shares and I will make adequate provision for Federal, state or other
tax withholding obligations, if any, which arise upon the disposition
11
<PAGE> 12
of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the two year
and one year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lessor of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
----------------------------------------------------------
(First) (Middle) (Last)
- ------------------------ -----------------------------------
(Relationship) (Address)
-----------------------------------
Employee's Social
Security Number:
-------------------------------------------
Employee's Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
-------------- ------------------------------------------
Signature of Employee
------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
12
<PAGE> 13
EXHIBIT B
BOX HILL SYSTEMS CORP.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Box Hill
Systems Corp. Employee Stock Purchase Plan which began on _______, 19__ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purpose of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------------
--------------------------------------
--------------------------------------
Signature:
--------------------------------------
Date:
---------------------------------
13
<PAGE> 1
Exhibit 10.9
Box Hill Systems Corp.
161 Avenue of the Americas
New York, NY 10013
Gentlemen:
Please be advised that Benjamin Monderer, Chairman of the
Board and President of Box Hill Systems Corp., a New York corporation (the
"Company"), Carol Turchin, Executive Vice President of the Company, and Mark A.
Mays, Vice President and Secretary of the Company (collectively the "Shareholder
Parties") have deemed it in the best interest of the Company and for their
mutual benefit in view of a contemplated public offering of shares of Common
Stock of the Company for the account of the Company and for each of their
respective accounts (the "IPO") that their shares, constitute currently all of
the outstanding shares of Common Stock of the Company, be voted to secure the
continuity of management and the utilization or disposition of the assets of the
Company. Each of the individual parties hereto owns 1,000,000 shares of Common
Stock. The Shareholder Parties confirm their prior oral agreement, and desire
the Company to acknowledge the existence of such agreement and provide certain
services with respect thereto as follows:
1. The Shareholder Parties agree that following the IPO all
shares of the Common Stock of the Company beneficially owned by each, including
any shares of the Company acquired by each subsequent to the date of this
Agreement, will be voted for the election of each of the Shareholder Parties as
one of the Directors of the Company.
2. With respect to the following matters, the Shareholder
Parties agree to vote after the IPO all shares of Common Stock of the Company
beneficially owned by each in accordance with the determination of those
Shareholder Parties owning at the time a majority of the shares of Common Stock
of the Company then owned by all of the Shareholder Parties:
(a) any proposal to approve or authorize a merger,
consolidation, sale of substantially all of the assets or
dissolution of the Company;
(b) any proposal to amend the Company's Certificate
of Incorporation; and
<PAGE> 2
Box Hill Systems Corp.
July 31, 1997
Page 2
(c) any proposal to liquidate the Company in whole or
in part.
3. Following the death and during the period of the
incompetency, as legally determined, of any of the Shareholder Parties, the
shares of Common Stock of the Company owned by the decedent or incompetent party
shall remain subject to this Agreement during the remaining term of the
Agreement and shall be voted as directed by the Estate of, or heir to the
decedent's shares, or the competent party, as the case may be, with respect to
the matters set forth in paragraphs 1 and 2.
4. In order to secure the purposes of this Agreement, each
Shareholder Party agrees that during the term of this Agreement, he or she shall
not sell, pledge or hypothecate without the consent of the others, except: (i)
to members of his or her immediate family or a trust or trusts for the benefit
of such family members or for which such family members are trustees, provided
that the transferee agrees in writing to be bound by the provisions of this
Agreement; (ii) if the sale or transfer is, in the opinion of counsel to the
Company, exempt from registration under the Securities Act of 1933 by virtue of
the provisions of Rule 144 under said Act as may be amended from time to time,
provided such disposition does not exceed the volume limitations set forth in
the Rule without reference to the provisions of subparagraph (k) of Rule 144; or
(iii) if such transfer or sale is effected pursuant to a merger, consolidation
or asset sale approved by the shareholders of the Company. Any testamentary
disposition of the shares of Common Stock of the Company by a Shareholder Party
or the disposition of his or her shares of Common Stock of the Company by laws
of descent shall be subject to the terms and provisions of this Agreement.
5. The Shareholder Parties agree to cause to be delivered to
the Company the stock certificates representing the shares of Common Stock of
the Company which they beneficially own for the purpose of having the Company
inscribe thereon and the Company agrees to inscribe thereon and note in the
records of the Company the following:
"The shares of Common Stock evidenced by this stock
certificate are subject to a Voting Agreement dated July 31,
1997 and Benjamin Monderer, Carol Turchin and Mark A. Mays
which restricts the voting and the disposition of the shares,
which restriction may also apply after the death of an
individual party
<PAGE> 3
Box Hill Systems Corp.
July 31, 1997
Page 3
thereto. A copy of the agreement is on file at the corporate
offices of the Company."
6. This Agreement shall terminate on the earlier of December
31, 2009, (b) the death of both Monderer and Turchin or (c) upon the mutual
consent of the Shareholders.
7. This Agreement shall be binding on the heirs, successors
and assigns of the parties hereto.
Kindly acknowledge the terms of this Agreement and the
agreement of the Company to the provisions of paragraph 5 by signing at the
place indicated and returning a copy of this letter to the undersigned.
Very truly yours,
/s/ Benjamin Monderer
------------------------------------
Benjamin Monderer
/s/ Carol Turchin
------------------------------------
Carol Turchin
/s/ Mark A. Mays
------------------------------------
Mark A. Mays
Agreed:
Box Hill Systems Corp.
By /s/ Philip Black
--------------------------------------------
Philip Black, Chief Executive Officer
<PAGE> 1
Exhibit 11.1
BOX HILL SYSTEMS CORPORATION
PRO FORMA NET INCOME PER SHARE CALCULATION(1)
<TABLE>
<CAPTION>
Year Ended Six Months Ended Six Months Ended
December 31, 1996 June 30, 1996 June 30, 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Pro forma net income...... $3,766,000 $1,682,000 $3,074,000
========== ========== ==========
Weighted average number
of shares issued and
outstanding............... 9,900,000 9,900,000 9,900,000
Dilutive effect of stock
options (1)............... 1,046,349 1,036,743 1,055,620
Number of shares that would
be required to be sold in
the initial public offering
to fund the final S
Corporation distribution... 868,486 826,486 826,486
---------- ---------- ----------
Adjusted weighted average
number of shares
outstanding................ 11,814,836 11,805,229 11,824,106
========== ========== ==========
Pro forma net income
per share.................. $.32 $.14 $.26
========== ========== ==========
</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 $13.00 per share) to fund a
distribution to the existing shareholders of all previously taxed, but
undistributed S Corporation earnings, estimated at $10,500,000 had such
distribution occurred on June 30, 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 16
January 30, 1997
Box Hill Systems Corp.
161 Avenue of the America
New York, New York 10013
This is to confirm that the client-auditor relationship between Box Hill
Systems Corp. (Commission File Number 333-31873) and Perelson Weiner has
ceased. This letter hereby confirms the statements made under the Change in
Accountants section in Box Hill Systems Corp.'s S-1 Registration Statement with
respect to (i) our audits of the financial statements as of December 31, 1995
and for the years ended December 31, 1994 and 1995 and (ii) disagreements with
Perelson Weiner regarding matters of accounting principles and practices,
financial statement disclosure, and auditing scope and procedure.
Perelson Weiner
<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
reports and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
August 27, 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
August 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,536
<SECURITIES> 0
<RECEIVABLES> 11,083
<ALLOWANCES> (206)
<INVENTORY> 8,022
<CURRENT-ASSETS> 25,662
<PP&E> 1,845
<DEPRECIATION> (1,024)
<TOTAL-ASSETS> 26,483
<CURRENT-LIABILITIES> (16,977)
<BONDS> 0
0
0
<COMMON> (99)
<OTHER-SE> (9,239)
<TOTAL-LIABILITY-AND-EQUITY> (26,483)
<SALES> (32,228)
<TOTAL-REVENUES> (32,228)
<CGS> 20,828
<TOTAL-COSTS> 20,828
<OTHER-EXPENSES> 10,693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22)
<INCOME-PRETAX> (729)
<INCOME-TAX> 160
<INCOME-CONTINUING> (569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (569)<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>
