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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934 (Fee Required).
For the fiscal year ended DECEMBER 31, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the transition period from __________ to __________.
Commission File Number 1-7960
TIE/COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0872068
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8500 W. 110th Street, Overland Park, Kansas 66210
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (913) 344-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par American Stock Exchange, Inc.
value $.10 per share
___________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $4,230,172 as of February 28, 1995. For purposes of the
foregoing statement only, directors and officers of the registrant and holders
of 5% or more of the registrant's common stock have been assumed to be
affiliates.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
As of February 28, 1995, 3,981,338 shares of common stock of the registrant
were outstanding.
Documents incorporated by reference: Part III: registrant's proxy statement
prepared in connection with its 1995 annual meeting of stockholders.
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PART I
ITEM 1. BUSINESS
GENERAL
TIE/communications, Inc. ("TIE", and together with its subsidiaries,
the "Company") is engaged in the sale, installation and servicing of
telecommunications products, services and software. The Company's principal
products are multi-featured, fully electronic, digitally controlled key systems,
private automated branch exchange ("PABX") systems and hybrid telephone systems,
voice response and processing products with computer telephone integration
hardware and software, video conferencing systems and network services including
long distance products as well as preowned phone systems, which are primarily
for business use. The Company's products also include other peripheral data and
telecommunications products. In addition, the Company not only sells
telecommunications equipment but offers a variety of lease and rental programs
to its customers.
The Company sells, installs and services its products through a North
American network of approximately 59 sales, service and warehouse facilities
located throughout Canada and major U.S. metropolitan areas in Arizona,
Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Mexico,
New Jersey, New York, North Carolina, Ohio, Oregon, Texas, Utah, Virginia and
Washington. For certain financial information by geographic area, refer to Note
16 to the Consolidated Financial Statements included herein.
The Company's current business strategy focuses on its North American
installation and service operations. In connection with implementing its
business strategy, the Company is seeking to expand its business by offering
customers and potential customers a broader range of products and through the
acquisition of additional information distribution related businesses.
Consistent with its business strategy, in 1991 the Company discontinued its
sales to Distributors in all territories other than Canada, and in 1992 the
Company discontinued its sales to Distributors in Canada, in connection with the
NTK America Corporation ("NTK America") transactions described below under
"Sales and Marketing". See also Item 7. This business strategy has resulted,
and will likely continue to result, in a substantial decline in the Company's
research and development activities, as the Company becomes primarily a seller
and provider of service and software for the telecommunications and information
distribution market place.
On September 17, 1993 TIE acquired substantially all of the non-
Northern Telecom manufactured key/hybrid telephone equipment customer base of
PacTel Meridian Systems ("PTMS"). The acquisition, which was effected pursuant
to an asset purchase agreement, included the acquisition and assignment of
contracts with customers and customer lists, together with inventory, vehicles
and other equipment of PTMS appropriate to service the customer base. Certain
liabilities of PTMS, directly related to the customer base, were also assumed by
TIE at closing. The liabilities consisted primarily of prepaid maintenance
contracts
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and warranty reserves. TIE and PTMS are not related and have no other material
relationship. It is TIE's understanding that PTMS is a California general
partnership which is 80% owned by Northern Telecom, Inc. ("Northern Telecom").
Pursuant to the asset purchase agreement, the Company purchased the
customer base, together with inventory and other equipment of PTMS for an
aggregate purchase price of $7,047,472. The liabilities assumed by the Company
of $3,653,271 directly reduced the amount of consideration paid to PTMS for the
acquired assets. The net purchase price of $3,394,201, was effected by: (a) a
cash payment to PTMS of $2,428,843 at the closing; (b) issuance of a note
payable by the Company of $1,000,000 due to PTMS, and subsequently paid, one
year from closing with interest at eight percent per annum; and (c) a subsequent
payment of $34,642 by PTMS to the Company to reflect final adjustments to the
purchase price.
As an inducement to complete the acquisition, Northern Telecom has
guaranteed certain levels of revenue from the acquired customer base for a
period of three years after closing. If those revenue levels are not achieved,
and the Company purchases at least 75% of its volume commitment, as discussed
below, Northern Telecom will provide TIE with equipment purchase credits up to
$2,000,000, thus effectively reducing the purchase price of the acquisition. At
the acquisition date, TIE anticipated that, at the historical and expected rate
of deterioration of the customer base revenues, Northern Telecom would be
required to provide TIE with equipment credits at the end of the third year.
During the period from September 17, 1993 through December 31, 1994, revenue
from the acquisition was below the guaranteed levels and minimum equipment
purchases were achieved. In connection with the agreement, TIE became a Norstar
key system distributor in conjunction with certain customer service requirements
for the acquired base and in order to provide a distribution channel in
connection with the equipment credit agreement. This acquisition complemented
the Company's existing operations in California of 4,000 active customers by
adding 14,000 new active customers and 22,000 inactive customers whose primary
telephone equipment was TIE product and other products compatible with the
business.
During 1993, the Company entered into a distribution agreement with
Northern Telecom for its digital key system product through TIE's U.S. sales and
service network. In connection with that agreement the Company entered into an
annual equipment purchase agreement whereby the Company selects the volume of
purchases and is able to receive discounts on those equipment purchases. The
greater the purchase commitment, the larger the discount received by the
Company. At December 31, 1994 the Company is required to purchase $7.5 million
of equipment (net of product discounts) in 1995.
On June 15, 1994, the Company's Canadian subsidiary, TIE
Telecommunications Canada, Limited ("TIE Canada"), through a tender offer,
redeemed all of its outstanding 2.251 million minority-owned shares for
approximately $2.6 million U.S. dollars in cash, making it a wholly-owned
subsidiary of the Company.
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TIE is a Delaware corporation, organized in 1971. Its principal
executive offices are located at 8500 West 110th Street, Overland Park, Kansas
66210, and its telephone number is (913) 344-0400.
REORGANIZATION OF THE COMPANY
On April 8, 1991, TIE and 24 of its domestic subsidiaries (a 25th
subsidiary filed on April 19, 1992) filed petitions under Chapter 11 of the
United States Bankruptcy Code. By virtue thereof, the Company continued to
manage its affairs and operate its business as a debtor-in-possession under
supervision of the United States Bankruptcy Court for the District of Delaware
("Bankruptcy Court"). In connection with the bankruptcy filings, the Company
solicited and obtained from HCR Partners, an Illinois general partnership and
the Company's principal senior secured creditor ("HCR"), an agreement respecting
reorganization of the Company as subsequently reflected in the First Amended
Joint Plan of Reorganization (the "Plan"). The Plan, which was confirmed by the
Bankruptcy Court and became effective on July 1, 1991, provided, among other
things, for (i) the exchange by HCR Partners of a $31,593,750 principal amount
senior secured note issued by the Company and guaranteed by certain of TIE's
subsidiaries (the "HCR Note") for an approximate 75% fully diluted interest in
TIE's new common stock, par value $0.10 per share (the "New Common Stock"); and
(ii) the issuance to the holders of record of TIE's old common stock, par value
$0.05 per share (the "Old Common Stock"), of one share of New Common Stock in
exchange for every 35 shares of Old Common Stock held by such persons, with the
New Common Stock thereby issued aggregating approximately 25% of the outstanding
New Common Stock. The Plan further provided for the deferred payment of certain
of the Company's tax liabilities over six years at statutory interest rates.
Other than with respect to the deferred payment of state and federal tax
liabilities and arrangements with HCR in respect of the HCR Note, all other bona
fide prepetition liabilities of the Company were to be paid in full under the
Plan.
The Plan was implemented by the Company following a strategic
evaluation of alternatives, including the possible sale of the Company,
restructuring of its existing debt outside proceedings under the Bankruptcy
Code, or reorganization of the Company pursuant to filing under Chapter 11. The
conclusion to seek a prepackaged reorganization under Chapter 11 was reached
after a complete evaluation of these alternatives and was further based upon the
Company's ability to meet its on-going operational costs, scheduled amortization
of the HCR Note, and the timing for the probable payment of scheduled income tax
liabilities.
Consummation of the Plan enabled the Company to reduce its
indebtedness and permitted it to fund its ongoing business needs from operations
through potential lines of credit secured by Company assets.
On the effective date of the Plan, by agreement between Marmon
Holdings, Inc., a Delaware corporation ("Marmon"), and The Pritzker Family
Philanthropic Fund (the "Fund"), the partners of HCR, HCR was liquidated. In
conjunction therewith, the Company has been advised that the shares of New
Common Stock which were to be distributed pro rata to the partners of
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HCR were distributed 60% to Marmon and 40% to the Fund. Accordingly, Marmon
currently beneficially owns 45% of the New Common Stock and the Fund currently
beneficially owns 30% of the New Common Stock.
The Company and HCR entered into a Voting Agreement dated as of June
18, 1991 (the "Voting Agreement"), which provided, subject to certain
limitations, that until July 1, 1994 all voting securities of the Company
beneficially owned by HCR and its affiliates would, in connection with the
election of "minority designees" (as defined in the Voting Agreement), be voted
by such persons pro rata in the same manner and proportion that votes of other
stockholders of the Company have been cast. In connection with the liquidation
of HCR, Marmon and the Fund assumed HCR's obligations under the Voting
Agreement. Inasmuch as the Voting Agreement has expired, all Directors of the
Company are now nominated by the Nominating Committee of the Board of Directors.
The Company and HCR also entered into a Revolving Credit Agreement,
dated as of June 18, 1991, as thereafter amended (the "Credit Agreement").
Pursuant to the Credit Agreement, HCR agreed to make available to the Company up
to $10,000,000 on a revolving basis through December 31, 1993. Advances under
the Credit Agreement bore interest at the per annum rate of 1% plus the
"reference rate" of Continental Bank N.A. (now Bank of America), and the Company
also agreed to pay a quarterly fee of 1/4% per annum on any unused amounts
available under the Credit Agreement. The Company also paid HCR a facilities
fee (as defined in the Credit Agreement) of $100,000 in connection with the
arrangement of the Credit Agreement. Advances under the Credit Agreement were
secured by a priority lien on substantially all of the assets of the Company and
such indebtedness was guaranteed by the Company's subsidiaries. The rights and
obligations of HCR under the Credit Agreement were assigned to Marmon pursuant
to the liquidation of HCR, and Marmon assumed HCR's obligations thereunder.
Effective December 31, 1993, the term of the Credit Agreement was extended for
an additional three year period ending December 31, 1996 upon substantially the
same terms and conditions, except that the maximum credit available was reduced
to $7,000,000. The Company paid a facilities fee of $75,000 in connection with
the extension. The Company believes that the terms and conditions of the Credit
Agreement as extended are competitive with the terms and conditions available
from third parties.
In connection with the consummation of the Plan, the Company and HCR
entered into a Registration Rights Agreement dated as of June 18, 1991 (the
"Registration Agreement"). The Registration Agreement grants to HCR certain
rights to have the Company register, on behalf of HCR, the shares of New Common
Stock received by HCR under the Plan. In connection with the liquidation of
HCR, rights in respect of the Registration Agreement were assigned to Marmon and
the Fund.
PRODUCTS AND SERVICES
The Company markets a broad range of fully electronic and digital,
multi-featured key telephone systems, hybrid switching systems and PABX systems,
together with voice
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response and processing products incorporating integrated hardware and software
and related business products and services for commercial distribution. A key
telephone system provides each telephone with direct access to multiple outside
trunk lines and internal communications through intercom lines. A PABX system,
through a central switching device, permits the connection of internal and
external lines. A hybrid switching system provides, in a single system, both
key telephone and PABX features. Key telephone equipment may be used with PABX
equipment. Voice response and processing products include voice-mail and inter-
active voice response systems, which allow via a single line instrument, access
to computerized information. The Company also provides video conferencing,
computer telephone integration and network services including long distance and
network design with related commercial and proprietary software.
All of the Company's fully electronic systems are microprocessor
based, digitally controlled systems. This enables the Company to readily
incorporate a variety of additional features as well as the ability to expand a
system's capacity through software enhancements. In addition, a number of the
Company's advanced systems provide integrated voice and data communications in a
single system. The Company's PABX systems utilize digital switching technology
which allows them to be an integral part of data processing and communications
networks. The Company also markets various telephone instruments and attendant
consoles for use with such PABX systems.
The Company's products are intended principally for small to medium-
sized business use. In connection with the sale and service of its products,
the Company also markets peripheral data and telecommunications products
obtained from other suppliers.
Through its network of sales and services facilities, the Company
sells, installs, maintains and upgrades its communication and information
distribution products and services.
SALES AND MARKETING
Purchasers of telephone systems and telephone instruments in the
United States can be divided into five categories:
- Telephone operating companies (local exchange carriers), which provide
telephone line services to telephone units in the United States and
which also sell, install and service telephone equipment;
- Telephone and electrical supply companies, including subsidiaries of
telephone operating companies, which sell telephone equipment at
wholesale to telephone interconnect companies and affiliated and
nonaffiliated telephone operating companies, but which typically do
not provide any installation or service;
- Telephone interconnect companies which sell telephone equipment to
users in competition with telephone operating companies and also
install and service such equipment;
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- Retail stores, including telephone specialty stores; and
- Telephone users.
The Company sells its products, services and software throughout the
United States and Canada to telephone users. The Company is one of the largest
telephone equipment service companies in Canada. One unit of TIE Canada also
assembles and sells some of its proprietary products to telephone operating
companies in Canada, as well as preowned equipment. In addition, the Company
offers telecommunications equipment lease and rental programs to its customers.
Pursuant to agreements the Company entered into with NTK America on
July 1, 1991, among other things, (i) the Company licensed on a non-exclusive
basis all of its telephone equipment technology to NTK America for a period of
five years for use in all territories not covered by the agreements with Century
Electronics and Systems Co., Ltd. described below; (ii) NTK America granted to
TIE an exclusive right to distribute certain equipment and a non-exclusive right
to distribute certain other equipment manufactured by NTK America's parent,
Nitsuko Corporation ("NTK"), in Canada, in each case for a period of five years
(which right TIE is authorized to assign to its subsidiaries); (iii) NTK granted
to the Company a non-exclusive right to distribute certain equipment
manufactured by NTK in the United States; (iv) the Company sold specified
inventory to NTK America at a price equal to the Company's carrying value for
such inventory, which price equalled approximately $9 million; and (v) the
Company consigned approximately $5 million of additional telephone inventory to
NTK America for resale. If NTK America sells any of NTK's products in the
United States, NTK America will pay the Company a royalty ranging from 3% to
7.5% of the purchase price of all equipment designed by the Company, depending
on the distribution channel. In addition, the Company is provided with the most
favorable purchase prices for NTK America products through July 1, 1996. NTK
America's obligations have been guaranteed by NTK.
The agreements with NTK America and NTK are in the process of being
extended until July 2001. It is anticipated that if NTK America does not invest
in research and development to advance the technology and improve the cosmetics
of the products, the marketability of these products will decline. Although the
Company has agreed to provide an incentive (up to 3% of the Company's monthly
purchases) to NTK America to invest in such research and development, the
Company cannot guarantee that NTK America will perform future development on
these products.
On August 31, 1992, the Company's Canadian subsidiary, TIE Canada,
entered into agreements with NTK America pursuant to which, among other things,
(i) TIE's distribution rights in Canada were modified, such that NTK America
directly granted to TIE Canada an exclusive right to sell to end users certain
equipment manufactured by NTK in Canada and a non-exclusive right to sell to end
users other NTK products in Canada for a period of five years; and (ii) TIE
Canada sold specified inventory to NTK America at a price equal to the Company's
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carrying value for such inventory of approximately $207,100, which was part of
a total price of $857,000. NTK America's obligations have been guaranteed by
NTK. Accordingly, as a result of the transactions with NTK America, the Company
has an exclusive right to distribute certain equipment manufactured by NTK in
Canada and a non-exclusive right to distribute certain other equipment
manufactured by NTK in the United States and Canada.
Pursuant to the Company's agreements with Century Electronics and
Systems Co., Ltd., formerly known as Chinteik Electronic System Co. Ltd.
("Century"), entered into on April 10, 1990, Century has the exclusive right for
a period of ten years to market the Company's products in Southeast Asia,
Australia, New Zealand, Hong Kong and China as well as Europe. Pursuant to a
Business Agreement, dated May 22, 1991, by and between the Company, NTK America
and Century, Century was relieved of its obligations to pay royalties to the
Company from the sale of its products by Century. The Company will continue to
provide Century with access to all of the products developed by the Company for
sale in those countries.
MAJOR CUSTOMERS AND BACKLOG
During 1994, 1993 and 1992, no customer accounted for 10% or more of
the Company's net sales.
The Company had purchase orders and commitments from its customers
for delivery of products into the following year of approximately $7.9 million
and $8.4 million at December 31, 1994 and 1993, respectively. Because a high
proportion of the Company's orders call for prompt delivery, the Company does
not believe that its backlog position at any time is necessarily indicative of
future sales. All orders at December 31, 1994, are expected to be filled within
a year of such date or less.
SOURCE OF SUPPLY AND MANUFACTURING
The largest supplier of equipment is Mitel Corporation of Kanata,
Canada which supplies PABX equipment and software. The Company understands that
it is currently the largest Mitel dealer in North America.
The second largest portion of the Company's products are currently
obtained from NTK America. A portion of the Company's key telephone systems
from NTK America have been manufactured by NTK in Thailand. The products
manufactured for the Company by NTK America have been based primarily upon the
Company's product specifications and have been developed in cooperation with
NTK.
The third largest provider of equipment is Northern Telecom which
supplies the Norstar key system.
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RESEARCH AND DEVELOPMENT AND PATENTS
The Company is engaged in product development aimed at expanding the
Company's product lines to reflect advances in technology and an expansion of
its telephone markets. During 1994, 1993 and 1992, the Company spent
approximately $216 thousand, $233 thousand and $205 thousand, respectively, on
Company-sponsored research and development. The Company's focus on its
installation and service business has resulted, and will likely continue to
result, in a substantial decline in the Company's research and development
activities.
The Company believes that patents are one of the significant
competitive factors in the conduct of its business. The Company owns a number
of patents in its name and, with respect to certain products manufactured for
the Company by NTK, in its name together with NTK.
The Company is continually exploring the development, manufacture and
distribution of business communications products in addition to its present line
of products, both by itself and with others.
WARRANTY AND MAINTENANCE
The Company generally provides customers with a warranty on equipment
and installation for one year after the installation of a new system. The
Company generally receives warranties on equipment from its suppliers similar to
the warranties extended by the Company to its customers. The Company charges
its customers for all repairs done subsequent to the warranty period.
The Company assists customers in the installation, maintenance and
repair of the Company's products and provides training to the employees of such
customers.
COMPETITION AND GOVERNMENT REGULATION
The telecommunications equipment industry is characterized by intense
competition and rapid change. The Company's products and services compete with
similar products and services offered by a number of telephone equipment
distributors, certain telephone operating companies and telephone interconnect
companies. The principal telephone equipment distributor selling its products
in the United States is AT&T Technologies Incorporated. Other major competitors
include Northern Telecom Limited, Toshiba America, Inc. and Executone
Information Systems, Inc.
Effective January 1, 1984, American Telephone and Telegraph Company,
("AT&T") was divested of the regional Bell Telephone operating companies (the
"RBOCs"). The RBOCs are permitted to market, sell, install and service,
pursuant to the antitrust consent decree in connection with the divestitures,
but not manufacture for sale in the United States, telecommunications products
of the type marketed by the Company. Since the restriction upon manufacture
was adopted, efforts to lift the restriction have been taken periodically by
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administrations of the President of the United States, by the Federal
Communications Commission (the "FCC") and in the United States Congress, and
similar efforts may be undertaken in the future.
These changes and changing regulations governing AT&T, the RBOCs and
cable television companies, as well as regulatory changes in international
markets, have substantially altered, and may continue to affect, the competition
for and the pricing, marketing and distributing of certain telecommunications
equipment, including the Company's products.
The FCC and the Canadian Radio-Television and Telecommunications
Commission ("CRTC") have promulgated regulations setting installation and
equipment standards for telecommunications products of the type marketed by the
Company in the United States and Canada, respectively, and requiring that all
such products be registered with, and meet standards adopted by, each of the FCC
and the CRTC. The Company's products are designed to comply with these
requirements and the Company has registered all of its current products. The
FCC and the CRTC also require that all telephone operating companies provide
nondiscriminatory interconnection for such products with local exchange services
in order to promote the competitive provision of such products. In addition,
the telephone operating companies must offer local exchange services on an
unbundled basis from such products, again to promote the competitive provision
of these products.
EMPLOYEE RELATIONS
As of December 31, 1994, the Company had approximately 1,100 full-time
employees. The Company believes its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's principal properties include a leased facility in
Overland Park, Kansas, which is utilized for its principal executive offices,
and a leased facility in West Haven, Connecticut, which is utilized as a local
sales office and a repair facility, including the buying and selling of
preowned communications equipment.
In addition to its principal properties, the Company utilizes leased
space for office, sales, service, repair or warehouse operations at locations in
24 states and Canada. In addition, the Company owns a facility in Moline,
Illinois, which is utilized for office, sales, service and warehouse operations.
As of December 31, 1994, the Company leased real property at an
aggregate annual rental of approximately $3.3 million and leased equipment at an
aggregate annual rental of approximately $1.4 million. For a schedule of the
Company's lease commitments, see Note 12 to the Consolidated Financial
Statements.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of lawsuits which arose in the
normal course of business. While any litigation has elements of uncertainty,
the Company believes that none of such lawsuits are material to the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information with respect to the executive officers
of TIE as of March 27, 1995:
Has Served as
Name Age Position an Officer Since
---- --- -------- ----------------
George N. Benjamin, III 57 President and Chief 1992
Executive Officer
Neal L. Brees 47 Treasurer 1994
Eric V. Carter 59 Executive Vice President 1984
Daniel E. Coomer 48 Chief Information Officer 1993
Robert H. Kalina 37 Vice President - Engineering 1993
& Operations
Edward F. Muehlberger 48 Vice President - Human Resources 1994
Randolph K. Piechocki 42 Executive Vice President, 1990
TIE/communications, Inc.,
and President, TIE Systems, Inc.
Robert W. Webb 55 Vice President, Secretary, 1993
General Counsel
George N. Benjamin, III has served as President and Chief Executive
Officer of TIE since April 1, 1992. From August 1988 through April 1, 1992, he
served as Group Vice President of The Marmon Group, Inc. From July 1987 to
August 1988, Mr. Benjamin was President of Trig Systems, a telecommunications
management consulting group founded by him. From December 1985 to July 1987 Mr.
Benjamin was President of Ericsson, Inc., a wholly-owned subsidiary of Ericsson,
N.A.
Neal L. Brees has served as Treasurer of TIE since January 31, 1994.
From December 1988 to August 1993, he was Assistant Treasurer of The Marley
Company. From
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March 1981 to December 1988, he served as Manager, Financial Systems of The
Marley Company.
Eric V. Carter has served as Executive Vice President of TIE since
April 1, 1992. From April 9, 1991 through March 30, 1992, he served as
President of the Company. Mr. Carter was Executive Vice President of TIE from
June 1990 through April 1991, and he served as Vice President - Operations of
TIE from December 1987 through June 1990.
Daniel E. Coomer has served as Chief Information Officer of the
Company since September 1993. From September 1988 through August 1993 he was a
private MIS consultant, and, in part, he acted as a consultant to the Company.
Robert H. Kalina has served as Vice President - Engineering and
Operations of TIE since March 8, 1993. From June 6, 1991 through March 7, 1993,
he served as Director of Engineering and Operations of TIE. Mr. Kalina was
Director of Corporate Quality Assurance of TIE from March 1987 through May 1991.
Edward F. Muehlberger has served as Vice President - Human Resources
of TIE since February 21, 1994. From March 1992 to December 1993, he served in
the senior Human Resources position including Assistant Vice President - Human
Resources and Quality for Southwire Company. From February 1984 to December
1991, he served as Vice President, Human Resources for Blue Circle America, Inc.
Randolph K. Piechocki has served as Executive Vice President of TIE
since June 1994 and President of TIE Systems, Inc. since January 1990. From
July 1988 through December 1989, he was Vice President of TIE Systems, Inc.
From July 1981 to July 1988, he served as Vice President and Branch Manager of
CTG/British Telecom, located in New York.
Robert W. Webb has served as Vice President and Secretary of the
Company since June 1993 and June 1992, respectively, Vice President and
Secretary of each of The Marmon Group, Inc., Marmon Industrial Corporation and
Marmon Holdings, Inc. since prior to 1988, and General Counsel and Secretary of
Union Tank Car Company since prior to 1988.
Although not an executive officer of the Company, Roy B. Henry has
served as Interim Chief Financial Officer since February 1995, pursuant to the
Administrative and Consulting Services Agreement dated as of January 1, 1995.
Since September 1993 he has served as Corporate Controller of The Marmon Group,
Inc. From June 1990 to August 1993, he served as Vice President and Controller
for Remington Products Company.
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All of the Company's executive officers are full-time employees of the
Company with the exception of Mr. Carter and Mr. Webb. Mr. Carter, pursuant to
an Employment Agreement dated July 1, 1992, devotes an average of 80 hours per
calendar quarter to his duties as an Executive Vice President of the Company.
See "Reorganization of the Company" under Item 1. None of the Company's
directors or executive officers are related.
Additional information respecting executive officers as well as
directors will be included in TIE's proxy statement prepared for use at its
annual meeting of stockholders scheduled to be held on June 12, 1995 (the "Proxy
Statement"). TIE intends to file a definitive copy of the Proxy Statement with
the Securities and Exchange Commission not later than 120 days after the close
of its fiscal year.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
TIE's Common Stock is traded on the American Stock Exchange and its
symbol is TIE. The quarterly high and low trading prices for the Common Stock
on the American Stock Exchange as set forth below are as reported by the
American Stock Exchange.
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1993 High Low
---- ---- ----
<S> <C> <C>
First Quarter 14 3/8 10 1/2
Second Quarter 11 3/4 9
Third Quarter 8 7/8 7 3/4
Fourth Quarter 10 3/8 7 1/8
1994 High Low
---- ---- ----
First Quarter 9 5/8 7 1/8
Second Quarter 8 1/2 6 7/8
Third Quarter 9 1/4 7
Fourth Quarter 7 1/8 4 1/4
</TABLE>
The number of persons who were holders of record of the Company's
Common Stock on February 28, 1995, was 7,495.
The Company has not paid any cash dividends on its Common Stock since
its organization. For the foreseeable future, the Company expects that any
earnings will continue to be retained for use in its business. The terms of
certain agreements relating to the Company's financing restrict the amount of
dividends which may be paid by the Company. Refer to Note 9 to the Consolidated
Financial Statements for further details.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
After the effective date of the Plan, the operations of the Company have been
treated for financial statement reporting purposes on a "Fresh Start Reporting"
basis in accordance with the Statement of Position 90-7 of the American
Institute of Certified Public Accountants, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (see Note 2 to the Consolidated
Financial Statements). Accordingly, all references to the Company with respect
to operations and financial statements for any period prior to July 1, 1991 are
referred to as the "Predecessor Company," while references to the Company for
operations and financial statement purposes for periods from July 1, 1991, are
referred to as the "Successor Company".
<TABLE>
<CAPTION>
SUCCCESSOR COMPANY PREDECESSOR COMPANY
------------------------------------------------------ ----------------------------
(Dollars in thousands, except per share amounts)
Six Months Six Months Year Ended
YEARS ENDED DECEMBER 31, Ended Ended December 31,
-----------------------------------
1994 1993(1) 1992(2) DEC 31, 1991 JUNE 30, 1991 1990
-------- -------- -------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $124,907 $102,111 $101,154 $ 52,269 $ 51,541 $100,587
Income (loss) from continuing operations (3,119) 1,365 1,219 (183) (40,788) (11,353)
Income (loss) from discontinued operations -- -- -- 7 (4,534) 3,949
Extraordinary income -- -- -- -- 18,896 --
Preferred stock dividends and accretion -- -- -- -- -- (1,335)
Net income (loss) applicable to common stock (3,119) 1,365 1,219 (176) (26,426) ( 8,739)
Earnings (loss) per common share:
Continuing operations $ (0.78) $ 0.34 $ 0.31 $ (0.05) $ (40.45) $ (12.82)
Discontinued operations -- -- -- 0.01 (4.50) 3.99
Extraordinary income -- -- -- -- 18.74 --
Cash dividends declared per common share -- -- -- -- -- --
At period end:
Total assets $ 54,225 $ 62,994 $ 65,797 $ 76,531 $ 94,938 $ 132,398
Working capital 246 5,653 12,503 11,209 10,587 10,495
Long-term debt -- -- 398 777 4,998 33,795
Common stockholders' equity 19,740 22,922 21,618 20,781 21,096 31,792
All references to per share amounts have been restated to reflect the 1 for 35
reverse stock split which was treated as being effective on June 30, 1991.
<FN>
(1) See Note 19 to the Consolidated Financial Statements regarding restatement
of 1993 amounts for correction of errors.
(2) See Note 7 to the Consolidated Financial Statements regarding change in
accounting for amortization of intangible assets.
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
RESULTS OF OPERATIONS - 1994 COMPARED TO 1993:
For the year ended December 31, 1994, the Company incurred a net loss of $3.1
million or $0.78 per share as compared to net income of $1.4 million or $0.34
per share for the year 1993. The 1994 net loss included non-cash charges to
income of $2.4 million consisting of a $1.5 million write-down of inventory and
a $0.9 million write-down of intangible assets for the impairment of goodwill,
as discussed in more detail in the following paragraphs. In addition to these
non-recurring adjustments, the decline in earnings from 1993 was negatively
affected by a significant deterioration in gross margin percentages and
increases in operating expenses.
Total revenue for 1994 increased $22.8 million or 22.3% as compared to 1993.
The increase occurred primarily in new equipment sales with a $20.2 million or
26.5% increase over 1993. Net revenue from new equipment sales accounted for
approximately 77.1% and 74.5% of the total revenue for 1994 and 1993,
respectively. The service revenue increased $2.6 million or 10.0% in 1994 over
1993 with the increase primarily from the PTMS acquisition base in California.
Service revenue in the California region more than doubled with an increase of
$3.4 million in 1994 as compared to 1993. An offsetting decrease of $0.8
million resulted from a shift in the service revenue mix from guaranteed revenue
streams associated with maintenance contracts to time and material billings.
Net revenues from services provided accounted for approximately 22.9% of total
revenue in 1994 as compared to 25.5% of total revenue in 1993. Revenue from
service transactions is expected to continue to comprise a significant portion
of the Company's overall net revenue in future periods. However, there are no
assurances that the foregoing will occur.
The gross margin percentage for 1994 was 44.7% as compared to 49.3% for 1993.
The 1994 margin was negatively affected by the $1.5 million write-down of
inventory charged to cost of sales for the excess of net book value over the
estimated net realizable value. This charge resulted from a review of the
carrying value of its inventories completed in the fourth quarter of 1994. The
decline in the gross margin percentage is primarily due to a change in the sales
mix with a higher proportion of revenue being generated in 1994 from new
equipment sales and sales of proprietary products, as discussed above, which
carry a lower margin versus service transactions. Although new equipment sales
carry lower margins, these sales present future service business opportunities
to the Company. The gross margin on new equipment sales and service revenue has
declined from 45.9% and 59.5%, respectively, in 1993 to 41.6% and 55.2%,
respectively, in 1994. The decline in new equipment margins is related to
higher PABX sales which are lower in margin due to competitive pressure.
However, PABX equipment provides more higher margin service business
opportunities at the end of the warranty period. New equipment margins are also
lower due to declining sales of the Company's proprietary design key system as
compared to the newer Northern Telecom key system product. The decrease in
gross margins on service revenue is primarily due to higher than expected
service costs and increased competition. The Company expects competition will
continue to affect the gross margin percentages in the future, although there
are no assurances that this will occur.
16
<PAGE>
Another factor that may affect the Company's gross margin percentage in the more
distant future relates to the Company's agreement with NTK America. Under that
agreement, the Company is provided with the most favorable purchase prices on
NTK America products for the duration of the agreement. The agreement is in
the process of being extended until July 2001. It is anticipated that if NTK
America does not invest in research and development to advance the technology
and improve the cosmetics of the products, the marketability of these products
will decline. Although the Company has agreed to provide an incentive to NTK
America to invest in such research and development, the Company cannot guarantee
that NTK America will perform future development on these products. Therefore,
the Company cannot estimate the impact of the foregoing on future gross margin
at this time.
Operating expenses in 1994 increased $9.9 million (19.8%) over 1993. Operating
expenses as a percent of sales, however, decreased to 48.1% in 1994 as compared
to 49.1% in 1993. The increase in operating expenses consists of additional
expenses resulting from customer base acquisitions occurring in the latter part
of 1993 and an increase in selling expenses consistent with the 22.3% increase
in net revenue in 1994 over 1993. Operating expenses in 1994 were negatively
affected by a $0.9 million non-cash charge for the write-down of intangible
assets for the impairment of goodwill. The Company completed a review of the
recoverability of its intangible assets during the fourth quarter of 1994. This
review followed management's determination that, based on increased competition
and the fact that certain operating efficiencies have not materialized as
planned, an impairment of goodwill had occurred. The non-cash charge of $0.9
million included in operating expenses represents a write-down for the
impairment of goodwill from the acquisition of the customer base in California
in the third quarter of 1993. Additionally, operating expenses in 1994 include
increased expenses incurred to support the new products and services being
offered by the Company, predominantly in the new strategic business units of
network services, videoconferencing products and services, as well as a new
direct equipment sales program. The Company is continuing to monitor operating
expenses and will seek to continue to control costs in future periods. It is
not expected that operating expenses will increase significantly in the future
without a corresponding significant increase in revenue.
Nonoperating income (expense) decreased $0.6 million in 1994 from 1993
represented by: (a) a decrease in interest income of $0.7 million resulting from
declining cash balances in 1994; (b) a favorable decrease in interest expense of
$0.3 million from the debt repayments in 1994; and (c) a decrease in other
income, net of $0.2 million. Other income, net is substantially comprised of
royalty income of $1.6 million and $1.5 million for the years 1994 and 1993,
respectively, primarily from NTK America for its sale of equipment designed by
the Company. Other income, net for both 1994 and 1993 also included
nonrecurring gains from insurance settlements of $285 thousand and $350
thousand, respectively. Another nonrecurring item included in 1993 other
income, net is the net gain of approximately $0.4 million relating to the
relocation of the Corporate offices to Overland Park, Kansas.
In 1993, and continuing through 1994, TIE focused its efforts on maintaining its
existing customer base and implementation of training and marketing programs
related to its new strategic businesses. The purchase of certain assets of
PTMS was consummated during the month of September 1993. Initially, performance
in the California region was far below
17
<PAGE>
expectations without a corresponding reduction in expenses which had a negative
impact upon the Company's operating income. Unfortunately, this performance
level continued through 1994. In addition, the Company expected that non-
recurring expenses related to the absorption of that base would negatively
affect the Company's results but not to the extent which occurred.
During March 1994, the Company entered into a one-year dial-tone referral
agreement with the US West Small Business Group which is in the process of being
extended for two years with an option exercisable by the Company for a third
year wherein the Company sells and services telephone equipment for new
customers referred to it by US West. The agreement provides for a lower sales
expense to the Company while providing better qualified customer opportunities
from the US West customer base. In return, the Company provides US West a
royalty for the resulting sales. The equipment provided under this agreement is
private labeled as US West.
RESULTS OF OPERATIONS - 1993 COMPARED TO 1992:
For the year ended December 31, 1993, the Company generated income from
continuing operations of $1.4 million or $0.34 per share as compared to income
from continuing operations of approximately $1.2 million or $0.31 per share for
the year 1992. The increase in net income from 1992 is due to the net effect of
a non-operating increase of $1.1 million in other income, net and a reduction in
operating income of $0.6 million, as discussed in more detail in the following
paragraphs. The operating results of the Company for 1993 were favorably
affected by the change in the amortization period for intangible assets that was
implemented on April 1, 1992.
Total net revenue for 1993 increased $1.0 million or 0.9% as compared to 1992.
An increase of $1.6 million occurred in new equipment sales with a decline of
$0.6 million in net revenue from services provided. Net revenue from new
equipment sales accounted for approximately 74.5% of the total revenue for 1993,
up slightly from approximately 73.7% for 1992. The remaining revenue was
generated by service transactions.
The gross margin percentage for 1993 was 49.3% as compared to 49.9% for 1992.
The decline in the gross margin percentage is due to the change in sales mix
with a slightly higher proportion of revenue being generated from new equipment
sales and sales of proprietary products, which carry a lower margin versus
service transactions. Lower margins on new equipment sales are acceptable as
these sales generate possible future service business. Additionally, the gross
margin on service revenue has declined from 68.6% in 1992 to 59.5% in 1993 due
to increased competition in the industry.
Operating expenses for 1993 remained relatively consistent with 1992. Operating
expenses were favorably affected by a decline in amortization expense due to the
change in the amortization period of intangible assets which was implemented on
April 1, 1992. This change accounted for a reduction in operating expenses of
approximately $268 thousand for 1993 as compared to 1992.
Other income, net of $2.0 million for 1993 increased $1.1 million as compared to
1992. Other income, net is substantially comprised of royalty income of $1.5
million and $1.3 million for the years 1993 and 1992, respectively, primarily
from NTK America for its sale of equipment designed by the Company. Other
income, net for 1993 also includes certain nonrecurring items
18
<PAGE>
including the gain on the disposal of the Company's Connecticut headquarters
facility of approximately $1.7 million which occurred in the third quarter of
1993, extinguishing all long-term debt except for statutory tax settlements.
This gain was partially offset by the net cost of the relocation of the
headquarters to Kansas of approximately $1.3 million. Additionally, the Company
recorded approximately $0.4 million of income in December 1993 related to
settlement of a property insurance claim and $0.2 million of expenses associated
with the attempted privatization of its Canadian subsidiary. All other items
included in other income, net increased $0.3 million in the aggregate in 1993 as
compared to 1992.
In 1993, TIE focused its efforts on maintaining its existing customer base and
implementation of training and marketing programs related to its new strategic
businesses. The purchase of certain assets of PTMS was consummated during the
month of September and the California region fourth quarter results were below
expectations due to the logistics and non-recurring expenses related to the
transition of that base into the domestic direct sales and service business.
Earlier in the year the Company's Canadian subsidiary struck an alliance with
Alberta Government Telephone.
In February, 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 109 - "Accounting for Income Taxes".
SFAS No. 109 requires a change from the deferred method of accounting for income
taxes to the asset and liability method of accounting for income taxes.
Effective January 1, 1993, the Company prospectively adopted SFAS No. 109.
INFLATION
Inflation has had a relatively minor impact on the Company as the rate of
inflation has declined in recent reporting periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1994 totalled $0.9 million, a decrease
of $7.2 million from December 31, 1993. For the year ended December 31, 1994,
the Company recorded a breakeven cash flow from operating activities as the 1994
net loss included non-cash inventory and goodwill write-downs aggregating $2.4
million and higher depreciation and amortization of $0.6 million over 1993. In
June 1994, approximately $2.6 million was used to purchase all of the
outstanding minority shares of the Company's Canadian subsidiary resulting in
a 100% ownership interest by the Company. Additionally, the Company used
approximately $1.6 million for payment of the long-term tax liability, $0.9
million for net capital expenditures, $1.4 million for debt repayments and $0.7
million to expand its service network.
The Company has a $7,000,000 line of credit with Marmon Holdings, Inc. which
expires December 31, 1996. The indebtedness under the line of credit is secured
by substantially all of the Company's assets and has been guaranteed by the
prinicipal subsidiaries of the Company.
The Company believes sufficient cash resources exist to support its anticipated
needs through currently available cash, cash expected to be generated from
future operations, or from the line of credit previously mentioned. The Company
can borrow against this line of credit if needed, assuming no breach of any of
the covenants (which include restrictions on asset purchases and require
specified levels of working capital and net worth to be maintained) and that the
aggregate principal amount outstanding at any time under the credit agreement
does not exceed the
19
<PAGE>
"Borrowing Base" (which is based on inventory and receivables) set forth in the
credit agreement. The Company was in compliance with or had received a waiver
of the covenants as of December 31, 1994 and therefore was qualified to borrow
the entire $7,000,000 available under the line. The Company borrowed under this
line of credit during 1994 but no borrowings were outstanding as of December 31,
1994.
At December 31, 1994 the Company did not have any material commitments for
capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not provide post-retirement or post-employment benefits and,
therefore, there is no impact on the Company under SFAS 106, "Employers
Accounting for Post-Retirement Benefits Other Than Pensions" and SFAS 112
"Employers Accounting for Post-Employment Benefits".
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report 22
Financial Statements:
Consolidated Balance Sheets - December 31, 1994 and 1993 23 - 24
Consolidated Statements of Operations - Years Ended
December 31, 1994, 1993 and 1992 25
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1994, 1993 and 1992 26
Consolidated Statements of Cash Flows - Years Ended
December 31, 1994, 1993 and 1992 27 - 28
Notes to Consolidated Financial Statements 29 - 44
Schedule VIII: Valuation and qualifying accounts 45
All other schedules are either not required or the information is
provided in the footnotes to the financial statements.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TIE/communications, Inc.
We have audited the consolidated balance sheets of TIE/communications, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994 and the related financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TIE/communications,
Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 10, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 - "Accounting for income taxes",
effective January 1, 1993. As discussed in Note 19, the Company's 1993
financial statements have been restated for the correction of errors.
KPMG Peat Marwick LLP
March 10, 1995
Kansas City, Missouri
22
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993 (Note19)
---------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 887,000 $ 8,133,000
Notes and accounts receivable, net
of allowance for doubtful accounts:
December 31, 1994-$2,172,000
December 31, 1993-$1,529,000 13,780,000 12,520,000
Inventories, net (Note 4) 13,704,000 14,223,000
Restricted cash equivalents 232,000 290,000
Current portion of long-term notes receivable 215,000 276,000
Current deferred tax assets, net (Note 10) 82,000 232,000
Prepaid expenses 952,000 1,053,000
Miscellaneous 1,683,000 2,154,000
---------- ---------
Total current assets 31,535,000 38,881,000
---------- ----------
Property, net (Note 6) 1,852,000 1,874,000
Intangible assets, net (Note 7) 19,735,000 19,655,000
Long-term deferred tax assets, net (Note 10) 563,000 1,954,000
Long-term notes receivable 385,000 473,000
Other assets 155,000 157,000
----------- -----------
Total assets $54,225,000 $62,994,000
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1993 (Note 19)
-------- --------------
<S> <C> <C>
Current liabilities:
Notes payable and current
maturities of long term debt (Note 9) $ -- $ 1,424,000
Accounts payable 7,499,000 7,802,000
Accrued expenses 12,243,000 11,139,000
Relocation reserves (Note 5) 123,000 303,000
Deferred service revenue 9,297,000 10,207,000
Income taxes payable (Note 10) 2,127,000 2,353,000
---------- ----------
Total current liabilities 31,289,000 33,228,000
Other non-current liabilities (Note 11) 376,000 739,000
Long-term tax liability (Note 10) 2,741,000 4,370,000
Minority interest 79,000 1,735,000
---------- ----------
Total liabilities 34,485,000 40,072,000
---------- ----------
Stockholders' equity:
Common Stock, par value $0.10 399,000 399,000
Authorized - 10,000,000 shares
Issued - 3,988,392 shares
Outstanding - 3,981,338 shares
Additional paid-in capital 19,217,000 19,217,000
Retained Earnings (Deficit) (711,000) 2,408,000
Common Stock in treasury, at cost (60,000) (60,000)
---------- ----------
18,845,000 21,964,000
Cumulative foreign currency translation
adjustment 895,000 958,000
---------- ----------
Commitments (Notes 8 and 12)
Total stockholders' equity 19,740,000 22,922,000
----------- -----------
Total liabilities and stockholders'
equity $54,225,000 $62,994,000
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1994 1993 (Note 19) 1992
------------- -------------- -------------
<S> <C> <C> <C>
Net revenue:
Equipment sales $ 96,314,000 $ 76,108,000 $ 74,540,000
Services provided 28,593,000 26,003,000 26,614,000
------------- ------------- -------------
124,907,000 102,111,000 101,154,000
------------- ------------- -------------
Cost of sales:
Equipment sales (Note 4) 56,280,000 41,193,000 42,306,000
Services provided 12,808,000 10,533,000 8,370,000
------------- ------------- -------------
69,088,000 51,726,000 50,676,000
------------- ------------- -------------
Gross margin:
Equipment sales 40,034,000 34,915,000 32,234,000
Services provided 15,785,000 15,470,000 18,244,000
------------- ------------- -------------
55,819,000 50,385,000 50,478,000
Operating expenses (Note 7) 60,069,000 50,131,000 49,597,000
------------- ------------- -------------
Operating income (loss) from
consolidated operations (4,250,000) 254,000 881,000
Interest income 160,000 860,000 1,032,000
Interest expense (256,000) (538,000) (541,000)
Other income, net (Note 14) 1,799,000 1,960,000 864,000
------------- ------------- -------------
Pretax income (loss) (2,547,000) 2,536,000 2,236,000
Provision for income taxes (Note 10) 541,000 1,089,000 895,000
------------- ------------- -------------
Income (loss) before minority interest (3,088,000) 1,447,000 1,341,000
Minority interest 31,000 82,000 122,000
------------- ------------- -------------
Net income (loss) $ (3,119,000) $ 1,365,000 $ 1,219,000
------------- ------------- -------------
------------- ------------- -------------
Net income (loss) per share $ (0.78) $ 0.34 $ 0.31
------------- ------------- -------------
------------- ------------- -------------
Average shares outstanding 3,981,338 3,981,338 3,981,338
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
Retained
Additional Earnings Cumulative
Common Stock Paid-in (Deficit) Treasury Stock Translation Total
--------------------- ------------------
Shares Issue Amount Capital (Note 19) Shares Amount Adjustment (Note 19)
--------------------- ---------------------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1992 3,988,392 $399,000 $19,217,000 $(176,000) (7,054) $(60,000) $1,401,000 $20,781,000
Cumulative Translation
Adjustment (382,000) (382,000)
Net income for the year 1992 1,219,000 1,219,000
--------- -------- ----------- --------- -------- --------- ----------- ----------
Balance-December 31, 1992 3,988,392 399,000 19,217,000 1,043,000 (7,054) (60,000) 1,019,000 21,618,000
Cumulative Translation
Adjustment (61,000) (61,000)
Net income for the year 1993 1,365,000 1,365,000
--------- -------- ----------- --------- ------ --------- ----------- ----------
Balance - December 31, 1993 3,988,392 399,000 19,217,000 2,408,000 (7,054) (60,000) 958,000 22,922,000
Cumulative Translation (63,000) (63,000)
Adjustment
Net loss for the year 1994 (3,119,000) (3,119,000)
--------- -------- ----------- --------- ------ --------- ---------- -----------
Balance - December 31, 1994 3,988,392 $399,000 $19,217,000 $(711,000) (7,054) $(60,000) $ 895,000 $19,740,000
--------- -------- ----------- --------- ------ --------- ---------- -----------
--------- -------- ----------- --------- ------ --------- ---------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 (Note 19) 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,119,000) $1,365,000 $ 1,219,000
Adjustments to reconcile net income
to cash flows from operating activities:
Depreciation and amortization 2,812,000 2,235,000 2,544,000
Goodwill adjustment 850,000 -- --
Write down of inventory 1,540,000 -- --
Deferred income (30,000) (52,000) (57,000)
Minority interest 31,000 82,000 122,000
Deferred income taxes 491,000 1,055,000 755,000
Gain on disposition of building -- (1,738,000) --
Relocation expense 640,000 1,300,000 --
Gain on sale of Canadian distribution business -- -- (160,000)
Changes in working capital, net of
acquisitions and divestitures:
Accounts receivable (1,439,000) (2,027,000) 2,296,000
Inventories (1,257,000) (932,000) 3,350,000
Restricted cash equivalents 58,000 1,329,000 --
Other receivables 480,000 (873,000) 865,000
Miscellaneous current assets 60,000 (374,000) 565,000
Accounts payable (220,000) 1,656,000 2,329,000
Accrued expenses 944,000 (877,000) (2,407,000)
Relocation reserves (820,000) (1,904,000) (5,978,000)
Deferred service revenue (802,000) (1,500,000) (661,000)
Taxes payable (219,000) (6,000) (89,000)
------------- ------------- -------------
Cash flows from (used for)
operating activities -- (1,261,000) 4,693,000
Cash flows from investment activities:
Capital expenditures, net of disposals (861,000) (869,000) (446,000)
Cash received from notes receivable -- 1,918,000 --
Increase (decrease) in investment in and
advances to affiliates 1,000 -- (73,000)
Cash proceeds from sale of investment in
affiliate -- -- 202,000
Assets of businesses acquired (1) (671,000) (3,258,000) (1,265,000)
Purchase of minority interest of subsidiary (2,625,000) (796,000) (500,000)
Proceeds from sale of Canadian distribution
business -- -- 762,000
Other 1,000 (18,000) (74,000)
------------- ------------- -------------
Cash flows used for
investment activities (4,155,000) (3,023,000) (1,394,000)
(Continued)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
TIE/communications, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1994 1993 (Note 19) 1992
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Payment of long-term tax liability $ (1,629,000) $ (1,859,000) $(1,766,000)
Long-term and short-term debt repayments (1,424,000) (455,000) (473,000)
Other 135,000 799,000 324,000
------------- ------------- -------------
Cash flows used for financing activities (2,918,000) (1,515,000) (1,915,000)
Impact of changes in foreign currency
translation (173,000) (120,000) (227,000)
------------- ------------- -------------
Increase (decrease) in cash and cash
equivalents (7,246,000) (5,919,000) 1,157,000
Cash and cash equivalents at the
beginning of period 8,133,000 14,052,000 12,895,000
------------- ------------- -------------
Cash and cash equivalents at the
end of period $ 887,000 $ 8,133,000 $14,052,000
------------- ------------- -------------
------------------------------ ------------- ------------- -------------
Cash flow information:
Interest paid $ 282,000 $ 513,000 $ 618,000
------------- ------------- -------------
------------- ------------- -------------
Income taxes paid (excluding
payment of long term tax liability) $ 262,000 $ 176,000 $ 269,000
------------- ------------- -------------
------------- ------------- -------------
(1) Acquisitions:
Inventory $ -- $ (1,004,000) $ (416,000)
Other current assets -- -- (22,000)
Intangible assets (671,000) (7,426,000) (947,000)
Other assets -- (3,000) --
Accrued expenses -- 491,000 55,000
Deferred service revenue -- 3,684,000 65,000
Note payable -- 1,000,000 --
------------- ------------- -------------
$ (671,000) $ (3,258,000) $(1,265,000)
------------- ------------- -------------
------------- ------------- -------------
(2) Non-cash activity:
Reduction of intangible assets
to establish deferred tax asset $ -- $ 3,241,000 $ --
------------- ------------- -------------
------------- ------------- -------------
Note received in exchange for
Canadian distribution business $ -- $ -- $ 686,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
TIE/Communications, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: On June 19, 1991, the Company's First Amended Joint
Plan of Reorganization (the "Plan") was confirmed by the United States
Bankruptcy Court for the District of Delaware. The confirmed Plan provided
for the Company to issue Common Stock to HCR Partners in exchange for the
principal portion of its secured debt to HCR Partners. Accrued interest on
HCR Partners secured debt and warrants to purchase 1,000,000 shares of the
Company's Common Stock held by HCR Partners were extinguished. As a result
of this transaction, HCR Partners became the owner of 75% of the Common
Stock of the Company. On the effective date of the Plan, by agreement
between Marmon Holdings, Inc., a Delaware corporation ("Marmon"), and The
Pritzker Family Philanthropic Fund (the "Fund"), the partners of HCR, HCR
was liquidated. In conjunction therewith, the Company has been advised
that the shares of New Common Stock which were to be distributed pro rata
to the partners of HCR were distributed 60% to Marmon and 40% to the Fund.
Accordingly, Marmon currently beneficially owns 45% of the New Common Stock
and the Fund currently beneficially owns 30% of the New Common Stock.
The effective date of the Plan was July 2, 1991. However, for purposes of
financial statement reporting the Plan was treated as being effective on
June 30, 1991. Further, in accordance with the Statement of Position 90-7
of the American Institute of Certified Public Accountants, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code", the
Company was required to account for the reorganization using Fresh-Start
Reporting. Accordingly, all financial information for any period prior to
July 1, 1991 is referred to as that of the "Predecessor Company".
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its majority-owned domestic and foreign
subsidiaries. All intercompany accounts and transactions have been
eliminated. Certain amounts have been reclassified to conform with the
current year presentation.
REVENUE: Revenue from equipment sales and service work to end users is
recognized at the time of its completion. Deferred service revenue is
recorded in equal increments over the term of the contract.
STATEMENTS OF CASH FLOWS: For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
INVENTORIES: Inventories are valued at the lower of cost or market (net
realizable value), using the first-in, first-out method.
29
<PAGE>
PROPERTY: Property, plant and equipment are stated at cost. Depreciation
and amortization are provided on the straight-line method over the
estimated useful lives of the assets. At the time fixed assets are sold or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss, if any, is
included in the determination of income. Maintenance and repair costs are
expensed as incurred.
INTANGIBLE ASSETS: Intangible assets are being amortized on a
straight-line basis over periods ranging from 7 to 20 years.
The Company assesses the recoverability of intangible assets, including
goodwill, based on forecasted undiscounted future operating cash flows.
Impairments are charged to operations as additional amortization.
TRANSLATION OF FOREIGN CURRENCIES: The financial statements of the
Company's Canadian subsidiary are translated into U.S. dollars at current
exchange rates with any resulting adjustment being charged or credited to
stockholders' equity. Foreign currency transaction gains and losses, which
are not material, are reflected in income.
RESEARCH AND DEVELOPMENT COSTS: New product development, product
improvement and research costs are expensed as incurred. Such costs
amounted to $216,000, $233,000 and $205,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
NET INCOME (LOSS) PER SHARE: Net income (loss) per common share is based
on the weighted average number of shares of common stock outstanding during
the period.
2. FRESH-START REPORTING
In accordance with SOP 90-7, since the Company's stockholders prior to the
confirmation of the Plan received less than 50% of Common Stock outstanding
after confirmation of the Plan, the Company accounted for the
reorganization using Fresh-Start Reporting. Accordingly, all assets and
liabilities were restated to reflect their reorganization value at June 30,
1991, which approximated fair value at that date of reorganization.
Based upon an independent analysis of the Company performed in conjunction
with the confirmation hearing on the Plan, a business value of $46,000,000
was established. The factors considered in determining the business value
included cash flow projections, historical and current operations, future
prospects and comparisons of the financial performance of the Company to
other comparable companies. Based on that analysis, management calculated
the portion of the reorganization value of the Company representing the
estimated value of the net assets of the Company immediately after the
reorganization at $21,096,000, after the adjustments to write down fixed
assets, receivables and inventory to the best estimate of their respective
fair market values at June 30, 1991 and to adjust liabilities to reflect
their present value. Intangible assets were written down to reflect the
reorganization value in excess of amounts allocable to identifiable assets.
30
<PAGE>
3. CASH AND CASH EQUIVALENTS
Cash equivalents consist of overnight investments, commercial paper and
time deposits which are carried at cost, which approximates fair value.
The revolving cash account is an interest-bearing account held on deposit
with the Marmon Corporation, (refer to Note 18 for further details). The
following is a schedule of cash and cash equivalents:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash $ 55,000 $ 3,635,000
Overnight investments 832,000 2,498,000
Revolving cash account -- 2,000,000
----------- -----------
$ 887,000 $ 8,133,000
----------- -----------
----------- -----------
</TABLE>
Cash and cash equivalents do not include $232,000 and $290,000 of
restricted cash equivalents at December 31, 1994 and 1993, respectively,
which are classified separately on the balance sheet and represent
collateral for a letter of credit on the corporate office lease.
04. INVENTORIES
A summary of inventories at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1993
-------------------------------
<S> <C> <C>
Spare parts and jobs in progress $ 3,058,000 $ 2,912,000
Finished goods 10,646,000 11,311,000
----------- -----------
13,704,000 $14,223,000
----------- -----------
----------- -----------
</TABLE>
During the fourth quarter of 1994, the Company completed a review of the
carrying value of its inventories. Included in cost of sales is a non-cash
charge of $1,540,000 which primarily represents a write-down of inventory
for the excess of net book value over the estimated net realizable value.
Net realizable value is determined as estimated selling price based on
current inventory levels and current market conditions less cost of
disposal.
5. RELOCATION OF CORPORATE HEADQUARTERS/GAIN FROM DISPOSITION OF BUILDING
In August 1993, the Company relocated its corporate headquarters from
Seymour, Connecticut to Overland Park, Kansas. The Company moved out of
the Seymour facility and transferred the deed on that building to its
mortgage holder resulting in a gain of $1,738,000 in 1993 which is included
in other income, net. The costs associated with the relocation,
principally transition and relocation expenses, were estimated at
approximately $1,300,000. During 1994, approximately $640,000 of
additional relocation costs were charged to operations. Costs incurred
through December 31, 1994 approximated $1,800,000.
31
<PAGE>
6. PROPERTY
The following is a schedule of property, plant and equipment:
<TABLE>
<CAPTION>
December 31, Estimated
--------------------------
1994 1993 Life
----------- ----------- ---------
<S> <C> <C> <C>
Land $ 10,000 $ 10,000 --
Buildings 224,000 224,000 30 years
Equipment and tooling 14,665,000 15,591,000 3-9 years
Leasehold improvements 729,000 668,000 Life of lease
Furniture and fixtures 3,475,000 3,692,000 3-10 years
----------- -----------
19,103,000 20,185,000
Less accumulated depreciation
and amortization 17,251,000 18,311,000
----------- -----------
$ 1,852,000 $ 1,874,000
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1993 and 1992
was $861,000, $1,011,000 and $1,168,000, respectively.
7. INTANGIBLE ASSETS
Intangible assets include the Reorganization Value In Excess Of Amounts
Allocable To Identifiable Assets which resulted from the application of
Fresh-Start Reporting in 1991. This intangible asset is being amortized on
a straight-line basis over a 20-year period. In connection with the
implementation of Statement of Financial Accounting Standards ("SFAS") No.
109, intangible assets relating to the reorganization have been adjusted
and will continue to be adjusted as Predecessor Company deferred tax assets
are recognized.
Intangible assets also include the excess of consideration paid over the
fair value of net tangible assets of domestic businesses acquired since
July 1, 1991, and of all businesses acquired by the Company's Canadian
subsidiary at the time of acquisition. These intangible assets are being
amortized on a straight-line basis over their estimated useful lives
ranging from 7 to 20 years. The excess of consideration paid over fair
value of net tangible assets in the years ended December 31, 1994 and 1993
totalled $1,792,000 and $7,426,000, respectively (see Note 8).
Intangible assets consist of:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Reorganization Value In Excess Of Amounts
Allocated To Identifiable Assets $12,212,000 $11,122,000
Excess of consideration paid over
fair value of net assets acquired 14,773,000 12,981,000
Less accumulated amortization (7,250,000) (4,448,000)
----------- -----------
$19,735,000 $19,655,000
----------- -----------
----------- -----------
</TABLE>
32
<PAGE>
Amortization expense for the years ended December 31, 1994, 1993 and 1992
was $1,951,000, $1,224,000 and $1,376,000, respectively.
During the fourth quarter of 1994, the Company completed a review of the
recoverability of its intangible assets. This review followed management's
determination that, based on increased competition and the fact that
certain revenues and operating efficiencies have not materialized as
planned, an impairment of goodwill related to California operations
acquired in late 1993 had occurred. Included in operating expenses is a
non-cash charge of $850,000 which represents a write-down for the
impairment of goodwill arising from the acquisition of certain customer
bases in California.
In determining the amount of impairment, management made its best estimates
of future undiscounted operating cash flows during the remaining
amortization period (approximately six years).
During the quarter ended June 30, 1992, the Company reevaluated the period
of amortization for intangible assets resulting from the reorganization in
1991 and concluded that the estimated useful life of certain intangible
assets should be extended from 10 years to 20 years. The conclusion was
reached based upon extensive evaluation of several factors including the
future outlook of the Company and to make the financial results of the
Company more comparable to its main competitors. The effect of this change
in accounting estimate was to increase the Company's net income for the
year ended December 31, 1992 by $723,000 (or $0.18 per share).
8. ACQUISITIONS AND TENDER OFFER
On June 15, 1994, the Company's Canadian subsidiary, TIE/Telecommunications
Canada, Ltd., through a tender offer, redeemed all of its outstanding 2.251
million minority-owned shares for approximately $2.6 million U.S. dollars
in cash. The redemption was treated as a purchase and goodwill of $1.3
million will be amortized over 20 years.
On September 17, 1993 the Company acquired substantially all of the non-
Northern Telecom manufactured key-hybrid telephone equipment customer base
of PacTel Meridian Systems ("PTMS"), a California general partnership
which the Company understands is 80% owned by Northern Telecom, Inc.
("Northern Telecom") and 20% owned by Pacific Bell. The acquisition, which
was effected pursuant to an asset purchase agreement, included the
acquisition and assignment of contracts with customers and customer lists,
together with inventory, vehicles and other equipment of PTMS appropriate
to service the customer base. Certain liabilities of PTMS, directly
related to the customer base, were also assumed by the Company at closing.
The liabilities consisted primarily of prepaid service contracts and
warranty reserves.
Pursuant to the asset purchase agreement, the Company purchased the
customer base, together with inventory and other equipment of PTMS for an
aggregate purchase price of $7,047,472. The liabilities assumed by the
Company of $3,653,271 directly reduced the amount of consideration paid to
PTMS for the acquired assets. The net purchase price of $3,394,201, was
effected by: (a) a cash payment to PTMS of $2,428,843 at the closing; (b)
issuance of a note
33
<PAGE>
payable by the Company of $1,000,000 due to PTMS one year from closing with
interest at eight percent per annum; and (c) a subsequent payment of
$34,642 by PTMS to the Company to reflect final adjustments to the purchase
price. The operating results of PTMS have been included in the
consolidated results of the Company since the date of acquisition. Company
sales during 1993 relating to the PTMS acquisition totalled approximately
$2,800,000. The pro forma effects of the acquisition on the results of
operations are not determinable.
As an inducement to complete the acquisition, Northern Telecom has
guaranteed certain levels of revenue from the acquired customer base for a
period of three years after closing. If those revenue levels are not
achieved, and the Company purchases at least 75% of its volume commitment,
as discussed below, Northern Telecom will provide TIE with equipment
purchase credits up to $2,000,000, thus effectively reducing the purchase
price of the acquisition. At the acquisition date, TIE anticipated that,
at the historical and expected rate of deterioration of the customer base
revenues, Northern Telecom would be required to provide TIE with equipment
credits at the end of the third year.
In connection with the PTMS acquisition, the Company entered into an annual
equipment purchase agreement whereby the Company selects the volume of
purchases and is able to receive discounts on those equipment purchases.
The greater the purchase commitment, the larger the discount received by
the Company. At December 31, 1994 the Company is required to purchase $7.5
million of equipment (net of product discounts) in 1995.
In the fourth quarter of 1990, the Company's Canadian subsidiary acquired
the business of CTG, Inc. a Toronto based telephone interconnect company
which operates in various locations throughout Canada. The Company's
Canadian subsidiary received cash of $3,361,000 in exchange for liabilities
assumed in connection with this acquisition. The consideration to be paid
for this acquisition is a royalty based on sales with a minimum
consideration of approximately $3,000,000. The minimum amount is to be
paid in equal quarterly installments over five years. The minimum royalty
was recorded as a liability. Future adjustments to the minimum royalty are
recorded as an adjustment to intangibles which amounted to approximately
$671,000 and $385,000 for the years ended December 31, 1994 and 1993.
9. LONG TERM DEBT, NOTES PAYABLE AND AVAILABLE CREDIT FACILITIES
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Variable rate term loans $ -- $ 424,000
Notes payable -- 1,000,000
----------- -----------
Total debt -- 1,424,000
Less current maturities of
long-term debt -- (1,424,000)
----------- -----------
Total Long-Term Debt and
Notes Payable $ -- $ --
----------- -----------
----------- -----------
</TABLE>
At December 31, 1993, variable rate term loans represented secured debt of
the Company's direct sales operations which was assumed at acquisition or
incurred to finance the acquisitions made prior to July 1, 1991. Interest
rates on these loans were 9% per annum at December 31, 1993. The variable
rate term loans matured during 1994.
34
<PAGE>
In connection with the acquisition of the customer base from PTMS in
September 1993, the Company issued a note payable at an interest rate of 8%
per annum in the amount of $1,000,000 which was repaid on September 17,
1994.
Upon confirmation of the Company's Plan of Reorganization, HCR Partners
made available a $10.0 million revolving line of credit through December
31, 1993. The Company agreed that in connection with the liquidation of
HCR Partners, the revolving line of credit agreement could be assigned to
and assumed by Marmon. Effective December 31, 1993, the term of the Credit
Agreement was extended by Marmon for an additional three year period ending
December 31, 1996 upon substantially the same terms and conditions, except
that the maximum credit available was reduced to $7,000,000. The Company
paid a facilities fee of $75,000 in connection with the extension. The
indebtedness under the line of credit is secured by substantially all of
the Company's assets and has been guaranteed by the principal subsidiaries
of the Company.
The Company is required to pay a commitment fee of 1/4% per annum on any
unused amounts available under this line of credit. The Company may draw
down on this line at any time assuming no breach of any of the covenants
(which include restrictions on asset purchases and require specified levels
of working capital and net worth to be maintained) and provided that the
aggregate principal amount outstanding at any time under this line does not
exceed the "Borrowing Base" (which is based on inventory and receivables).
The Company is also restricted from declaring or paying dividends under the
provisions of the Revolving Credit Agreement without the written consent of
the lender. The Company was in compliance with or had received a waiver of
the covenants as of December 31, 1994 and therefore was qualified to borrow
the entire $7,000,000 available under the line. The Company borrowed under
this line of credit during 1994, but no borrowings were outstanding as of
December 31, 1994. The Company believes that the terms and conditions of
the Credit Agreement as extended are competitive with the terms and
conditions available from third parties.
10. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 - "Accounting for
Income Taxes". SFAS No. 109 requires a change from the deferred method of
accounting for income taxes to the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
benefits or consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax benefits are recognized to the extent
it is more likely than not that such benefits will be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
In accordance with Fresh-Start Reporting, the reversal of temporary
differences and utilization of tax benefits attributed to the Predecessor
Company will be recognized through the reduction of intangible assets.
Alternatively, temporary differences and tax benefits relating to the
Company will be recognized through the Statement of Operations as such
items are expected to be recovered or settled.
35
<PAGE>
Effective January 1, 1993, the Company prospectively adopted SFAS No. 109
recognizing a deferred tax asset of approximately $38,100,000 with a
corresponding valuation allowance of $35,400,000 million. The net amount
of $2,700,000 was allocated as a reduction of goodwill, therefore, there
was no cumulative effect on income related to the change in accounting for
income taxes.
The components of pretax income (loss) of consolidated companies are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
U.S. $(3,476,000) $1,747,000 $ 1,464,000
Foreign 929,000 789,000 772,000
----------- ----------- -----------
Pretax income (loss) $(2,547,000) $2,536,000 $ 2,236,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Current:
State $ 50,000 $ 34,000 $ 140,000
Deferred:
Federal -- 586,000 625,000
State -- 42,000 285,000
Foreign 491,000 427,000 395,000
Tax settlements -- -- (550,000)
----------- ----------- -----------
$ 541,000 $ 1,089,000 $ 895,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table is a reconciliation of the provision for income taxes
reported in the Consolidated Statements of Operations to the provision as
calculated at the statutory U.S. Federal income tax rate:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1994 1993 1992
------------ ----------- ----------
<S> <C> <C> <C>
Tax computed on a consolidated
basis by applying the
statutory U.S. Federal income
tax rate (34%) $ (866,000) $ 862,000 $765,000
Increase (decrease) resulting
from:
Change in the valuation
allowance for deferred tax
assets allocated to income
tax expense 1,018,000 (308,000) --
State and local income taxes,
net of federal income tax 33,000 50,000 280,000
Nondeductible goodwill amortization 228,000 325,000 465,000
Tax settlements -- -- (550,000)
Taxes on foreign income at
higher rates 109,000 104,000 86,000
Other items, net 19,000 56,000 (151,000)
--------- --------- ----------
$ 541,000 $1,089,000 $895,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
36
<PAGE>
The significant components of deferred income tax expense for the years
ended December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Deferred income tax expense (exclusive
of the effects of other components
listed below) $ 491,000 $1,363,000
Net adjustment due to change in
gross deferred tax asset (1,018,000) 14,000
Increase (Decrease) in valuation
allowance for deferred tax assets 1,018,000 (322,000)
----------- -----------
$ 491,000 $1,055,000
----------- -----------
----------- -----------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1994 and 1993 are
presented below. The Company did not have any deferred tax liabilities
at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Deferred tax assets:
Amortizable intangibles $ 1,613,000 $ --
Accounts receivable and notes
receivable 826,000 1,522,000
Inventories 2,208,000 1,123,000
Plant and equipment, principally
due to differences in depreciation 655,000 567,000
Net operating loss carryforward 29,079,000 29,271,000
Warranty reserves 373,000 281,000
Vacation reserves 453,000 --
Other accrued expenses 605,000 567,000
Foreign investment tax credit
carryforwards 487,000 1,209,000
Foreign research and development
tax deductions carryforward 1,069,000 725,000
Deferred service revenue 842,000 773,000
Other temporary differences 405,000 1,285,000
------------ ------------
Total gross deferred tax assets 38,615,000 37,323,000
Less valuation allowance (37,970,000) (35,137,000)
------------ ------------
Net deferred tax assets $ 645,000 $ 2,186,000
------------ ------------
------------ ------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The Company, in determining the net
deferred tax asset to be recognized at December 31, 1994, analyzed the past
earnings history and the future projected pretax book income and taxable
income. In order to fully realize the deferred tax asset reflected at
December 31, 1994, the Company's Canadian subsidiary will need to generate
future taxable income of approximately $1,475,000. Management believes it
is more likely than not the subsidiary will realize the benefits of
deductible differences and other tax attributes, net of existing valuation
allowances at December 31, 1994.
37
<PAGE>
At December 31, 1994, the Company has total net operating loss
carryforwards for federal income tax purposes of approximately
$168,000,000; however, the Company's ability to utilize the net operating
losses has been materially limited under Internal Revenue Code Section 382
and Section 383. Due to these limitations, the amount of future taxable
income which can be offset by federal net operating losses incurred prior
to July 1, 1991 is approximately $2,700,000 annually ($41,800,000 in the
aggregate). Federal net operating losses incurred after June 30, 1991
approximate $23,000,000 and are available to offset future income without
limitation. Federal and state net operating loss carryforwards will expire
between 1995 and 2009. The Company will first utilize Predecessor Company
NOL's to the extent available and will thereafter utilize the Company's
NOL's.
The Company also has foreign net operating loss carryforwards of
approximately $14,880,000 at December 31, 1994, which expire between 1996
and 1999. Additionally, there are foreign investment income tax credits of
approximately $487,000 which expire in 1996 through 2004 and foreign
research and development tax deductions of approximately $2,443,000 which
do not expire.
For the year ended December 31, 1992, deferred tax expense of $1,305,000
represents taxes that would have been paid to the respective tax
authorities in the absence of operating loss carryforwards from prior
periods. Since these loss carryforwards are Predecessor Company losses,
the Company is unable to realize the benefit for accounting purposes, and,
accordingly, intangible assets have been reduced by the amount of taxes not
paid.
The Internal Revenue Service ("IRS") completed its examination of the
Company's consolidated Federal income tax returns through the taxable year
ended December 31, 1986. As a result of such examination, the IRS proposed
certain adjustments that would increase the Company's consolidated taxable
income and tax liability for certain years. The Company negotiated a
settlement of these proposed adjustments which was approved by the Joint
Committee of Taxation on January 17, 1991. In addition to the Federal
income tax liability arising from the negotiated adjustments to the
Company's consolidated taxable income for those years, the adjustments
arising from the settlement will result in additional state income tax
liabilities. On April 26, 1991, the Company received a formal demand for
payment of the Federal income tax liability resulting from the settlement.
As a consequence of the Chapter 11 proceedings and applicable law, the
Company is entitled to defer payment of the Federal and state tax
liabilities over a period of six years, with payment thereof to be made
quarterly from October 1, 1991 for the Federal liability and annually for
the state liability from July 1, 1992. The outstanding balance accrues
interest at the six month U.S. Treasury Bill rate.
11. OTHER NON-CURRENT LIABILITIES
Included in other non-current liabilities at December 31, 1994 is a long-
term rental payable of $107,000 assumed by the Company's Canadian
subsidiary in connection with the 1994 acquisition of a certain Canadian
rental base. At December 31, 1993, other non-current liabilities included
long-term obligations assumed by the Company's Canadian subsidiary in
connection with an acquisition made in 1990 including a minimum royalty
payable for that acquisition which totalled $440,000 at December 31, 1993.
38
<PAGE>
12. LEASE AND PURCHASE COMMITMENTS
The Company leases office and warehouse space under noncancellable
operating leases expiring at various dates through the year 2000, and
leases certain equipment under operating lease agreements expiring at
various dates through 1997. Minimum annual rentals on these lease
commitments are as follows:
<TABLE>
<CAPTION>
Minimum
Year Ended Annual
December 31, Rentals
------------ -----------
<S> <C>
1995 $ 4,105,000
1996 3,539,000
1997 2,448,000
1998 1,942,000
1999 710,000
2000 25,000
-----------
Total minimum annual rentals $12,769,000
-----------
-----------
</TABLE>
Rent expense charged to operations for the years ended December 31, 1994,
1993 and 1992 was $4,741,000, $4,442,000 and $4,505,000, respectively. In
the ordinary course of business, leases expire and are replaced or renewed,
therefore, the rent expense in future periods is not expected to be less
than the amount shown for 1994. Additionally, the Company is committed to
purchase certain amounts of equipment (refer to Note 8).
13. EMPLOYEE BENEFIT PLANS
The Company's Profit Sharing and Savings Plan was amended on January 1,
1985 to allow participating employees to authorize payroll deferrals of up
to 10 percent of their total compensation and to contribute such amounts to
the plan. From January 1, 1992 until May 31, 1992, the Company matched a
participant's contribution by making contributions equal to 100% of that
portion of a participant's deferred compensation which did not exceed 3% of
the compensation payable to such participant. From June 1, 1992 to
December 31, 1994, the Company matched a participant's contribution by
making contributions equal to 50% of that portion of a participant's
deferred compensation which did not exceed 6% of the compensation payable
to such participant. During the years ended December 31, 1994, 1993 and
1992, the Company's contributions amounted to $341,000, $307,000 and
$370,000, respectively.
39
<PAGE>
14. OTHER INCOME, NET
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Gain on disposition of building
(Note 5) $ -- $1,738,000 $ --
Gain (loss) on sale of property 4,000 (5,000) 6,000
Royalty income, net 1,615,000 1,495,000 1,317,000
Relocation expenses, net -- (1,300,000) --
Insurance settlement 285,000 350,000 --
Other (105,000) (318,000) (459,000)
---------- ---------- ----------
Other income, net $1,799,000 $1,960,000 $ 864,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Net royalty income is substantially comprised of royalty income from NTK
America for its sale of equipment designed by the Company in the amounts of
$1,658,000, $1,378,000 and $1,298,000 for the years 1994, 1993 and 1992,
respectively. The NTK royalty agreement was originally to be in effect
through July 1996 and is in the process of being extended until July 2001.
In December 1994 and 1993, the Company recorded income of $285,000 and
$350,000 related to settlements of property insurance claims for inventory
losses.
15. DISCONTINUED OPERATIONS
On May 14, 1991, the Company entered into an agreement with Nitsuko America
Corporation ("NTK America") to sell specified inventory that it owns to NTK
America at a price equal to the Company's carrying value of such inventory.
This transaction, which closed on July 1, 1991, resulted in the sale of
inventory to NTK America. Additionally, the Company licensed on a
nonexclusive basis all of its telephone equipment technology to NTK America
for a period of five years through June 1996, during which, the Company has
an exclusive right to distribute certain equipment manufactured by NTK
America's parent, Nitsuko Corporation ("NTK") in Canada, and a nonexclusive
right to distribute certain other NTK products in the United States and in
Canada. If NTK America sells any of NTK's products in the United States,
NTK America will pay the Company a royalty ranging from 3% to 7.5% of the
purchase price of all equipment designed by the Company (depending on the
distribution channel). In addition, the Company will be provided with the
most favorable purchase prices available for NTK America's products during
the period of the agreement. As a result of the foregoing, the Company
commenced discontinuance of its distribution operations in 1991.
During the third quarter of 1992, the Company's Canadian subsidiary sold
its key telephone system distribution business to NTK America for
approximately $857,000. The Canadian subsidiary received $762,000 of this
amount in cash during 1992. The remaining amount was paid in January 1993.
This transaction completed the Company's discontinuation (which was begun
in 1991) of its sales to Distributors. The operating loss of $13,000 on
the Company's distribution operations is included in other income, net for
the year 1992.
As part of the sales agreement with NTK America, the Canadian subsidiary
will be provided with the most favorable purchase prices available for NTK
America's products during the period of the agreement which is similar to
the U.S. agreement in place with NTK America.
40
<PAGE>
16. BUSINESS SEGMENT AND GEOGRAPHIC AREAS
The Company operates primarily in the telecommunications equipment
industry. The Company primarily sells, installs and services its products
through a domestic and Canadian network of sales and service facilities
primarily to small to medium sized customers. An analysis of the Company's
operations by geographic location is as follows:
<TABLE>
<CAPTION>
Year Ended United
December 31, 1994 States Canada Eliminations Consolidated
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
companies $97,032,000 $27,958,000 $ (83,000) $124,907,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pretax income (loss) $(3,448,000) $ 929,000 $ (28,000) $ (2,547,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Assets identifiable to
geographic areas $43,822,000 $12,264,000 $(1,861,000) $ 54,225,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
Year Ended United
December 31, 1993 States Canada Eliminations Consolidated
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
companies $77,474,000 $24,734,000 $ (97,000) $102,111,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pretax income $ 1,747,000 $ 789,000 $ -- $ 2,536,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Assets identifiable to
geographic areas $50,964,000 $14,274,000 $(2,244,000) $ 62,994,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
Year Ended United
December 31, 1992 States Canada Eliminations Consolidated
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
companies $75,152,000 $26,130,000 $ (128,000) $101,154,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pretax income $ 1,458,000 $ 772,000 $ 6,000 $ 2,236,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Assets identifiable to
geographic areas $53,226,000 $14,786,000 $(2,215,000) $ 65,797,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Identifiable assets for each geographic area are those assets associated
with the operations in each area. Eliminations include amounts for
internal sales between geographic areas, profit in inventory and
investments in foreign operations.
41
<PAGE>
17. SELECTED QUARTERLY DATA (UNAUDITED)
Set forth below is selected quarterly information for the years ended
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 Quarters
----------------------------------------------------------------------
1st (a) 2nd(a) 3rd 4th(b)(c)
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $29,703,000 $31,714,000 $31,829,000 $31,661,000
Gross margin 14,186,000 15,230,000 14,469,000 11,934,000
Net income (loss) (142,000) 426,000 148,000 (3,551,000)
Income (loss) per share $(0.04) $0.11 $0.04 $(0.89)
<CAPTION>
1993 Quarters
----------------------------------------------------------------------
1st 2nd 3rd(d) 4th (a)(e)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $23,749,000 $24,011,000 $24,933,000 $29,418,000
Gross margin 12,144,000 12,184,000 12,099,000 13,958,000
Net income 239,000 259,000 235,000 632,000
Income per share $0.06 $0.07 $0.06 $0.16
<FN>
(a) Amounts have been restated for correction of errors (see Note 19).
(b) Includes a non-cash charge of $1,540,000 which primarily represents a
write-down of inventory for the excess of net book value over the
estimated net realizable value (see Note 4).
(c) Includes additional amortization of $850,000 which represents a
write-down for the impairment of goodwill arising from the acquisition
of certain customer bases in California (see Note 7). The fourth
quarter also includes charges relating to physical inventory results
($415,000), additional relocation costs ($340,000) and a gain of
$285,000 from an insurance settlement.
(d) Includes approximately $438,000 net gain from the disposition of the
building and associated relocation costs in the move of the corporate
headquarters to Overland Park, Kansas.
(e) Includes $350,000 gain on insurance settlement and $240,000 of
expenses associated with the attempted privatization of the Company's
Canadian subsidiary.
</TABLE>
18. RELATED PARTY TRANSACTIONS
The Company entered into an Administrative and Consulting Agreement
dated as of January 1, 1995 with Marmon, pursuant to which Marmon
provides certain centralized administrative and consulting services to
the Company. In consideration of such services, the Company has
agreed to pay to Marmon a monthly amount of $36,000. Under the
agreement, the Company has also agreed to reimburse Marmon for all
reasonable expenses it incurs in connection with the provision of
services to the Company. Reimbursements are not considered material.
42
<PAGE>
Additionally, in 1992 the Company began depositing its excess cash in
a revolving cash account with the Marmon Corporation (refer to Note
3). The Company earns interest on the amounts deposited in this
account at rates that are at least comparable to third party rates
available for equivalent overnight investments.
19. EFFECT OF CORRECTIONS
In November 1994, the Company amended its financial statements for
1993 and the first and second quarters of 1994 to correct accounting
errors principally relating to incorrect service billings to
California customers who previously had purchased service contracts.
The contracts were acquired as part of the PTMS acquisition at the end
of the third quarter of 1993. Additionally, unrelated errors in the
same periods were discovered involving inventories and accruals at the
Company's Northwest operating unit. The effect of the corrections
were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1993
----------------------------
As previously reported Corrections As restated
---------------------- ----------- -----------
<S> <C> <C> <C>
Revenues $102,531,000 $ (420,000) $102,111,000
------------ ------------ ------------
------------ ------------ ------------
Pre-tax Income $ 3,002,000 $ (466,000) $ 2,536,000
------------ ------------ ------------
------------ ------------ ------------
Net Income $ 1,682,000 $ (317,000) $ 1,365,000
------------ ------------ ------------
------------ ------------ ------------
Earnings per share $ 0.42 $ (0.08) $ 0.34
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
Three Months Ended March 31, 1994
---------------------------------
As previously reported Corrections As restated
---------------------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 30,255,000 $ (552,000) $ 29,703,000
------------ ------------ ------------
------------ ------------ ------------
Pre-tax Income (Loss) $ 691,000 $ (747,000) $ (56,000)
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss) $ 295,000 $ (437,000) $ (142,000)
------------ ------------ ------------
------------ ------------ ------------
Earnings(Loss) per share $ 0.07 $ (0.11) $ (0.04)
------------ ------------ ------------
------------ ------------ ------------
43
<PAGE>
<CAPTION>
Three Months Ended June 30, 1994
--------------------------------
As previously reported Corrections As restated
---------------------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 31,636,000 $ 78,000 $ 31,714,000
------------ ----------- ------------
------------ ----------- ------------
Pre-tax Income $ 993,000 $(110,000) $ 883,000
------------ ----------- ------------
------------ ----------- ------------
Net Income $ 467,000 $ (41,000) $ 426,000
------------ ----------- ------------
------------ ----------- ------------
Earnings per share $ 0.12 $ (0.01) $ 0.11
------------ ----------- ------------
------------ ----------- ------------
<CAPTION>
Six Months Ended June 30, 1994
------------------------------
As previously reported Corrections As restated
---------------------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 61,891,000 $ (474,000) $ 61,417,000
------------ ----------- ------------
------------ ----------- ------------
Pretax Income $ 1,684,000 $ (857,000) $ 827,000
------------ ----------- ------------
------------ ----------- ------------
Net Income $ 762,000 $ (478,000) $ 284,000
------------ ----------- ------------
------------ ----------- ------------
Earnings per share $ 0.19 $ (0.12) $ 0.07
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
44
<PAGE>
TIE/communications, Inc. and Subsidiaries
SCHEDULE VIII: VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Cost and Balance at
Description of Period Expenses Deductions* End of Period
----------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1994
-----------------
Allowance for
doubtful accounts $1,529,000 $1,912,000 $(1,269,000) $2,172,000
Year Ended
December 31, 1993
-----------------
Allowance for
doubtful accounts $1,913,000 $ 937,000 $(1,321,000) $1,529,000
Year Ended
December 31, 1992
-----------------
Allowance for
doubtful accounts $2,090,000 $ 690,000 $ (867,000) $1,913,000
-----------------
<FN>
* Bad debts written off.
</TABLE>
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to directors required by this item is incorporated by
reference to information under the caption "Election of Directors" in the Proxy
Statement. The information as to executive officers is included in Part 1 of
this report, "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information under the caption "Security Ownership of Certain Beneficial Owners"
in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Schedules: See Item 8.
2. Exhibits: See Exhibit Index on Page 48.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the last fiscal quarter.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TIE/communications, Inc.
By: /s/ George N. Benjamin, III
-------------------------------------
March 27, 1995 George N. Benjamin, III, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Position or Office Date
------------------ ----
/s/ George N. Benjamin, III President, Chief Executive March 27, 1995
-------------------------------
George N. Benjamin, III Officer and Director
/s/ Eric V. Carter Director March 27, 1995
-------------------------------
Eric V. Carter
/s/ Robert C. Gluth Director March 27, 1995
-------------------------------
Robert C. Gluth
/s/ Thomas L. Kelly, Jr. Director March 27, 1995
-------------------------------
Thomas L. Kelly, Jr.
/s/ Robert E. LaBlanc Director March 27, 1995
-------------------------------
Robert E. LaBlanc
/s/ Robert A. Pritzker Director March 27, 1995
-------------------------------
Robert A. Pritzker
/s/ Robert W. Webb Director March 27, 1995
-------------------------------
Robert W. Webb
/s/ Roy B. Henry Interim Chief Financial March 27, 1995
-------------------------------
Roy B. Henry Officer
47
<PAGE>
EXHIBIT INDEX
2 -- Joint Plan of Reorganization of the Debtors, filed with the
United States Bankruptcy Court for the District of Delaware on
April 8, 1992. (8)
3 -- Restated Certificate of Incorporation(1) and By-Laws. (2)
3.1 -- Amendment to the Restated Certificate of Incorporation. (4)
3.2 -- Amendment, dated June 10, 1987, to the Restated Certificate of
Incorporation. (5)
3.3 -- Certificate of Correction, dated September 1, 1987, to the
Restated Certificate of Incorporation. (5)
10.4 -- Stock Purchase Agreement dated as of March 24, 1990, by and
between TIE and Chinteik ("Chinteik Agreement"). (6)
10.5 -- License Agreement, exhibit to Chinteik Agreement. (6)
10.6 -- Form of Separation Agreement executed between TIE and Randolph K.
Piechocki. (6)
10.7 -- "Standstill" Letter Agreement, dated April 10, 1990, by and
between HCR Partners and TIE. (6)
10.9 -- Exchange Agreement, dated April 7, 1991, by and between HCR
Partners and TIE. (7)
10.10 -- Amendment, dated April 8, 1991, to Separation Agreement, dated
December 11, 1985, between TIE and Eric V. Carter. (8)
10.11 -- Severance Agreement, dated April 9, 1991, between TIE and Thomas
L. Kelly, Jr. (8)
10.12 -- Separation Agreement and General Release, dated February 13,
1992, between TIE and Barry D. Schumaker. (11)
10.13 -- Separation Agreement and General Release, dated March 6, 1992,
between TIE and Roger L. Crossland. (11)
10.14 -- Administrative and Consulting Service Agreements, dated January
1, 1995, between The Marmon Group, Inc. and TIE. *
10.15 -- Business Agreement, dated May 22, 1991, by and between TIE,
Nitsuko America Corporation and Century Electronics and Systems
Co., Ltd. (11)
10.16 -- Inventory and Equipment Transfer Agreement between TIE and
Nitsuko America Corporation, dated May 14, 1991. (11)
48
<PAGE>
10.17 -- License and Royalty Agreement between TIE and Nitsuko America
Corporation, dated July 1991. (11)
10.18 -- Consignment Agreement between TIE and Nitsuko America
Corporation, dated July 1991. (11)
10.19 -- Distribution Agreement between TIE and Nitsuko America
Corporation dated July 1991. (11)
10.20 -- Revolving Credit Agreement, dated June 18, 1991, by and among TIE
and certain of its subsidiaries and HCR Partners. (9)
10.21 -- Registration Rights Agreement, dated June 18, 1991, by and
between HCR Partners and TIE. (9)
10.22 -- Voting Agreement, dated June 18, 1991, between TIE and HCR
Partners. (9)
10.23 -- Amendment to and Assignment of Revolving Credit Agreement,
entered into as of July 1, 1991, by and among TIE and certain of
its subsidiaries, HCR Partners and Marmon Holdings, Inc. (10)
10.24 -- Distribution Agreement between TIE/communications Canada, Inc.
and Nitsuko America Corporation dated August 31, 1992. (12)
10.25 -- Inventory and Equipment Transfer Agreement, dated July 24, 1992,
by and between Nitsuko America Corporation and TIE/communications
Canada, Inc. (12)
10.26 -- Employment Agreement between Eric V. Carter and TIE, dated
January 14, 1992. (12)
10.27 -- Letter Agreement between George N. Benjamin, III and TIE, dated
April 29, 1992. (12)
10.28 -- Revolving Funds Agreement between TIE and The Marmon Corporation,
dated January 1, 1992. (12)
10.29 -- Asset Purchase and Sale Agreement by and between PacTel Meridian
Systems and TIE/communications, Inc., dated September 17, 1993.
(13)
10.30 -- Agreement between Mark Amatrudo and TIE, dated November 1, 1993.
(14)
10.31 -- Agreement and Release between Mark Amatrudo and TIE, dated
November 19, 1993. (14)
10.32 -- Agreement between Anthony T. Guiterman and TIE, dated December 8,
1993. (14)
10.33 -- Agreement and Release between Anthony T. Guiterman and TIE dated
December 9, 1993. (14)
49
<PAGE>
10.34 -- Agreement between Anthony T. Guiterman and TIE, dated November 9,
1993. (14)
10.35 -- Agreement and Release between Brian J. Kelley and TIE, dated
February 10, 1994. (14)
10.36 -- Agreement and Release between Russell J. Melita and TIE, dated
December 28, 1993. (14)
10.37 -- Second Amendment dated March 1, 1992, to the Revolving Credit
Agreement, dated June 18, 1991 among TIE and certain of its
subsidiaries and Marmon Holdings, Inc. (14)
10.38 -- Amendment dated March 31, 1993 to the Revolving Credit Agreement,
dated June 18, 1991, by and between TIE and various of its
subsidiaries and Marmon Holdings, Inc. (14)
10.39 -- Fourth Amendment dated December 31, 1993 to the Revolving Credit
Agreement, dated June 18, 1991, by and between TIE and various of
its subsidiaries and Marmon Holdings, Inc. (14)
10.40 -- Retirement and Savings Stock Trust between TIE/communications and
Neal L. Brees, Trustee dated January 3, 1995.*
21 -- List of Subsidiaries. *
27 -- Financial Data Schedule. *
----------------------------
* Filed herewith
50
<PAGE>
COPIES OF EXHIBITS WILL BE
PROVIDED TO SHAREHOLDERS UPON REQUEST
(1) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-72010, which was declared effective by the Commission on May 14,
1981, and incorporated herein by reference.
(2) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-69860, which was declared effective by the Commission on December 4,
1980, and incorporated herein by reference.
(3) Filed as an exhibit to TIE's Registration Statement on Form S-1, No.
2-75271, which was declared effective by the Commission on December
18, 1981, and incorporated herein by reference.
(4) Filed as an exhibit to TIE's Annual Report on Form 10-K, dated March
29, 1984, and incorporated herein by reference.
(5) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, and incorporated herein by reference.
(6) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, and incorporated herein by reference.
(7) Filed as an exhibit to TIE's Report on Form 8-K, dated April 8, 1991,
reporting the filing by the Debtors for reorganization relief under
Chapter 11 of the United States Bankruptcy Code, and incorporated
herein by reference.
(8) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by reference.
(9) Filed as an exhibit to TIE's Report on Form 8-K, dated July 1, 1991,
and incorporated herein by reference.
(10) Filed as an exhibit to TIE's Current Report on Form 8-K, dated August
26, 1991, and incorporated herein by reference.
(11) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by reference.
(12) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, and incorporated herein by reference.
(13) Filed as an exhibit to TIE's Current Report on Form 8-K, dated
September 30, 1993, and incorporated herein by reference.
(14) Filed as an exhibit to TIE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference.
51
<PAGE>
Exhibit 10.14
ADMINISTRATIVE AND CONSULTING
SERVICES AGREEMENT
-----------------------------
THIS ADMINISTRATIVE AND CONSULTING SERVICES AGREEMENT (the "Agreement"),
dated as of JANUARY 1, 1995, between THE MARMON GROUP, INC., a Delaware
corporation ("Service Co."), and TIE/COMMUNICATIONS, INC., a Delaware
corporation (the "Company").
W I T N E S S E T H
WHEREAS, Service Co. provides certain centralized administrative and
consulting services to a variety of enterprises engaged in diverse business
activities; and
WHEREAS, the Company desires to retain Service Co. to provide
administrative and consulting services to it, and Service Co. has agreed to
provide the same, on the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. ENGAGEMENT OF SERVICE CO.
The Company hereby engages Service Co. to provide administrative and
consulting services as specified herein and Service Co. hereby accepts such
engagement.
2. DESCRIPTION OF SERVICES.
During the term of this Agreement, Service Co. shall provide to and on
behalf of the Company the following services:
(a) personnel services, including executive placement, succession
planning, management training and other general personnel consulting
services, such as advice with respect to state and federal compliance
requirements;
(b) risk management services, including the negotiation and acquisition,
on an on-going basis, of insurance coverage to the extent available at
commercially reasonable prices, either by separate policies or blanket
coverage, compliance with applicable underwriting instructions and procedures
pertaining to insurance programs, processing applications, paying premiums
and processing claims with insurance companies, and, directly or through
third parties, the administration of self-insured programs;
<PAGE>
(c) employee benefit administration and management services relating to
the establishment and administration of pension, profit sharing or other
forms of qualified and non-qualified retirement plans;
(d) the coordination of legal services for the Company, including the
retention and supervision of legal counsel;
(e) tax and accounting services by in-house professionals and/or through
the retention of outside professionals, if necessary;
(f) services related to any reorganization, arrangement, readjustment,
liquidation, dissolution or bankruptcy, including administrative services
pertaining to the sale of the Company or its assets and the winding up of its
business, coordination of the disposition of accounts receivable and payable,
and the administration of any accounts, claims, assets or interests owned by
or pertaining to the Company; further, at the request of the Company, Service
Co. shall provide such services with respect to the liquidation and windup of
any division or wholly-owned subsidiary of the Company;
(g) payroll services, if requested by the Company;
(h) clerical services, if requested by the Company;
(i) telephone and other communications services, if requested by the
Company;
(j) travel services, if requested by the Company; and
(k) such other administrative and consulting services as may, from time
to time, be agreed to by the Company and Service Co.
In order to more efficiently provide services under this Agreement,
Service Co. may, at the request of the Company, make available one or more of
its employees to serve as an officer or officers of the Company, as elected
from time to time by the Board of Directors of the Company. The Company
agrees to indemnify and defend any employee of Service Co. who serves as an
officer of the Company in accordance herewith to the full extent permitted by
law.
3. TRADEMARKS.
Service Co. is the owner of the trademarks THE MARMON GROUP and M MARMON
(Stylized) and the registrations thereof as collective membership marks (the
"Trademarks") to identify the user thereof as a member of The Marmon Group of
companies. Service Co. grants the Company the right and license to use the
2
<PAGE>
Trademarks during the term of this Agreement; provided, however, that the
manner of such use shall be consistent with the specifications contained in
the Marmon Group Identity Guide, as the same may be amended from time to
time, and provided further that Service Co. shall have the right to terminate
the license contained in this paragraph at any time by written notice to the
Company.
4. TERM.
The term of this Agreement shall commence as of the date hereof and shall
continue until terminated by either party upon thirty (30) days' prior
written notice to the other party. Notwithstanding the foregoing, Service Co.
may terminate this Agreement upon the occurrence of any one or more of the
following:
(a) The Company shall file a voluntary petition in bankruptcy, or shall
be adjudicated bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, readjustment, liquidation or similar
relief under any present or future statute or law relating to bankruptcy,
insolvency, or other relief for debtors, whether federal or state, or shall
seek, consent to, or acquiesce in the appointment of any trustee, receiver,
conservator or liquidator of the Company, or of all or any substantial part
of its properties;
(b) A court of competent jurisdiction shall enter an order, judgment or
decree approving a petition filed against the Company seeking any
reorganization, arrangement, readjustment, liquidation, dissolution or
similar relief under any present or future statute or law relating to
bankruptcy, insolvency or other relief for debtors, whether federal or state,
and either the Company shall consent to or acquiesce in the entry of such
order, judgment or decree or the same shall remain unvacated and unstayed for
an aggregate of sixty (60) days from the date of entry thereof, or any
trustee, receiver, conservator or liquidator of the Company or of all or any
substantial part of its properties shall be appointed without the consent of
or acquiescence of the Company and such appointment shall remain unvacated
and unstayed for an aggregate of sixty (60) days; or
(c) The Company shall merge into or consolidate with another entity.
5. PAYMENT FOR SERVICES.
In consideration of administrative and consulting services to be rendered
by Service Co. to the Company under this Agreement, the Company shall pay
Service Co. the following fees:
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(a) ADMINISTRATIVE SERVICES FEE. The Company agrees to pay Service Co.
an administrative services fee (the "Fee"), which for the initial contract
year of this Agreement shall be in the amount set forth on Exhibit A,
attached hereto and incorporated herein by this reference. The Fee shall be
payable in twelve (12) equal monthly installments as provided in subparagraph
(c) below. The amount of the Fee shall be renegotiated for each additional
contract year during which this Agreement is in effect and the renegotiated
Fee shall be set forth on a revised Exhibit A to be attached hereto.
(b) EXPENSES. In addition to payment of the Fee, the Company agrees to
reimburse Service Co. for all separately identifiable reasonable costs and
expenses incurred by Service Co. in connection with the services provided
hereunder ("Expenses"), which costs and expenses shall be itemized on monthly
statements from Service Co. to the Company.
(c) PAYMENTS. The Company shall pay Service Co. on or before the first
day of each month the Fee for such month. The Company shall also pay Service
Co., within ten (10) days after receipt of a statement for Expenses, the
amount of Expenses reflected thereon. Notwithstanding the foregoing, if the
Company has an account in a cash concentration account being managed by
Service Co., the Company hereby authorizes Service Co. to charge the
Company's account designated therein for the aforesaid Fee and Expenses on
the dates heretofore specified. Each statement of Expenses delivered by
Service Co. to the Company shall be conclusive and binding on the Company
unless the Company objects thereto in writing within thirty (30) days after
the receipt thereof, specifying the purported error or errors contained
therein.
6. INDEMNIFICATION.
Notwithstanding Service Co.'s agreement to perform administrative and
consulting services in accordance with the provisions hereof, the Company
acknowledges that the final responsibility with respect to the performance of
such services shall rest with the Company, and that performance by Service
Co. of services hereunder shall not subject Service Co. or its stockholders,
directors, officers, employees or agents to any liability whatsoever, except
as shall be caused by the gross negligence or willful misconduct on the part
of Service Co. or any of its stockholders, directors, officers, employees or
agents. The Company agrees to indemnify and hold harmless Service Co., its
stockholders, directors, officers, employees and agents with respect to any
claims or liabilities (including reasonable attorneys' fees) which may be
asserted or imposed against Service Co. or such persons, except for any
claims which may be asserted or liabilities which may be imposed by virtue of
any gross negligence or willful misconduct of Service Co.
4
<PAGE>
7. PRESERVATION OF CONFIDENTIALITY.
In connection with the performance of services hereunder, Service Co.
acknowledges that it may become privy to confidential or proprietary
information relating to the business and affairs of the Company. Service Co.
agrees that it shall use its best efforts and shall cause its employees and
agents performing services on behalf of the Company to retain all information
relative to the business of the Company in strict confidence and not to
disclose any such information now or hereafter received or obtained from the
Company to any third party without the prior consent of the Company;
provided, however, that any such confidential or proprietary information may
be disclosed (i) to third parties retained by Service Co. on behalf of the
Company (e.g., attorneys, accountants, consultants, etc.) as shall be
necessary to perform the services hereunder, (ii) to the extent such
information becomes generally available to the public other than as a result
of an unauthorized disclosure by Service Co., or (iii) in the event Service
Co. or its stockholders, directors, officers, employees or agents are
compelled to disclose such information in accordance with an order from any
court of competent jurisdiction or under any provision of applicable law;
provided, however, in such event Service Co. shall promptly notify the
Company of such required disclosure and shall furnish only such portion of
such information as Service Co. is legally compelled to disclose.
8. NOTICE.
All notices and other communications provided for hereunder shall be in
writing and, if sent by telegram, telex, facsimile transmission or personal
delivery, shall be deemed to have been given and received when sent (if, in
the case of telex or facsimile transmissions, receipt is confirmed by
telephone) and, if mailed, shall be deemed to have been given and received
three business days after the date when sent by registered or certified mail,
postage prepaid, and addressed to the parties at the following addresses (or
at such other address as either party may, by written notice given the other
party as provided herein, have designated as its address for such purpose):
If to Service Co.:
The Marmon Group, Inc.
225 West Washington Street
Chicago, Illinois 60606
Attention: Executive Vice President
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If to the Company:
TIE/communications, Inc.
8500 West 110th Street
Overland Park, Kansas 66210
Attention: President
9. NO PARTNERSHIP OR JOINT VENTURE.
Nothing contained in this Agreement shall constitute or be construed to
create a partnership or joint venture between Service Co. and the Company and
their respective successors and assigns, the relationship being solely that
of independent contractors.
10. NO LIABILITY.
Neither by entering into this Agreement, nor by any acts, omissions or
course of conduct with respect to it, nor on any other basis does or will
Service Co. assume any liability for any debt, judgment, liability or
obligation of Company whatsoever. It is specifically agreed that Service Co.
neither has nor assumes any such liability.
11. PRIOR AGREEMENT; PAST SERVICES.
This Agreement supersedes any prior Administrative and Consulting
Services Agreement between the Company and Service Co. Any such prior
agreement is hereby terminated as of the date hereof. The parties
acknowledge that if Service Co. has previously provided administrative and
consulting services to the Company without a written agreement, such services
have been provided on substantially the terms set forth in this Agreement,
and the parties hereby ratify the fees, if any, paid to Service Co. by the
Company for such services.
12. SEVERABILITY.
If any provision of this Agreement is declared invalid or contrary to
the laws or public policy of the United States or any state or territory
thereof, or any rule or regulation issued pursuant thereto, it is the
intention of the parties that the remaining provisions of this Agreement
shall not be affected thereby, but shall remain in full force and effect.
13. SUCCESSORS.
This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and permitted assigns,
subject to the provisions of Paragraph 4 hereof.
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<PAGE>
14. ILLINOIS LAW.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Illinois.
15. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
taken to be an original and all collectively be one instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement on the date and year first above
written.
THE MARMON GROUP, INC.
By: /s/ Robert W. Webb
------------------------------
Robert W. Webb
Vice President
TIE/COMMUNICATIONS, INC.
By: /s/ George N. Benjamin, III
------------------------------
George N. Benjamin, III
President
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EXHIBIT A
TO ADMINISTRATIVE
AND CONSULTING SERVICES AGREEMENT
ADMINISTRATIVE SERVICES FEE
Company: TIE/COMMUNICATIONS, INC.
------------------------------------
1995 $36,000 per month
<PAGE>
Exhibit 10.40
TIE/COMMUNICATIONS, INC.
RETIREMENT AND SAVINGS STOCK TRUST
<PAGE>
TIE/COMMUNICATIONS, INC.
RETIREMENT AND SAVINGS STOCK TRUST
THIS AGREEMENT is made this 3rd day of January, 1995 by and between
TIE/COMMUNICATIONS, INC. (the "Company") and NEAL L. BREES as trustee (the
"Trustee").
R E C I T A L S :
A. The Company established the TIE/Communications, Inc.
Retirement and Savings Plan (the "Plan") in order to provide for a
covenient manner for eligible employees to save and invest in the
event of their retirement, disability or death.
B. The Company established the TIE/Communications, Inc.
Retirement and Savings Plan Trust with the CG Trust Company (the
"CG Trust") in order to implement the Plan. However, the Company
desires to have Company stock held as an asset of the Plan
separately from the CG Trust and therefore desires to establish the
TIE/Communication, Inc. Retirement and Savings Stock Trust (the
"Trust") primarily to hold Company common stock for the Plan.
C. The Company has appointed the Trustee to serve as trustee
hereunder and the Trustee has agreed to continue to serve in such
capacity under the Trust herein.
In consideration of the mutual covenants of the parties
hereto, the Trust is hereby restated in its entirety as follows as
of the date first above written:
ARTICLE I
THE TRUST FUND AND ADMINISTRATION
SECTION 1.01. EXEMPT STATUS OF TRUST. This Trust is
established as a trust exempt from tax in accordance with Sections
401(a) and 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). Until advised otherwise, the Trustee may
conclusively assume that this Trust is qualified and tax exempt
under the Code. Contributions are to be made to the Trust Fund as
herein provided. Such contributions are to be made for the purpose
of providing benefits to the Participants, or their Beneficiaries,
under the Plan. The Trust Fund is to be accumulated by the Trustee
in accordance with the Plan herein specified of which this Trust
Agreement is a part, and for the expenses of the Trust, if not paid
by the Company, as herein provided. No portion of the corpus or
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earnings of the Trust Fund can be used for, or diverted to, purposes other
than for the exclusive benefit of employees of the Company or their
Beneficiaries.
SECTION 1.02. TRUSTEES. There shall be one Trustee
hereunder, subject as herein provided. The Trustee above named has
been duly appointed by the Company. In the event that any vacancy
is created in the office of Trustee, the Company may appoint a
successor Trustee or, by notice to each remaining Trustee, may
reduce or enlarge the number of persons serving as Trustee. If
there are more than two persons serving as Trustee hereunder, they
shall act by majority vote. During any vacancy in the office of
Trustee hereunder, irrespective of how long such vacancy shall
continue, the remaining persons serving as Trustee hereunder shall
have and exercise all the titles, powers, authorities and
discretion given herein to the Trustee. The Company may appoint
additional persons as Trustee hereunder at any time, or a single
corporate Trustee or a corporate co-Trustee. Any such corporate
co-Trustee shall have such of the powers of the Trustee herein set
forth as shall be agreed upon between the Company and such
corporate co-Trustee at any time acting hereunder. Except as
herein provided with respect to a corporate co-Trustee, the persons
serving as Trustee at any time acting hereunder shall have and
exercise all the titles, powers, authorities and discretion herein
given to said named Trustee.
ARTICLE II
GENERAL POWERS
SECTION 2.01. POWERS OF TRUSTEE. In addition to the powers
conferred by law upon trustees, and not by way of limitation
thereof, but subject to the limitation on the power of any Trustee
with respect to any life insurance contracts on the Trustee's life
set forth in the Plan, the Trustee is hereby authorized, at any
time or from time to time, to exercise the following powers or to
refrain from exercising any of such powers with the care, skill,
prudence and diligence that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an
enterprise of like character and like aims:
(a) to hold, manage, improve, repair and control all
property, real or personal, at any time forming a part of the
Trust Fund; to continue to hold any or all property, real or
personal, received by the Trustee as a part of the Trust Fund
or as an addition to the Trust Fund, even though the same be
of a character other than that prescribed by law for the
investment of trust funds;
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(b) to sell or offer to sell for cash, credit or
installments at public or private sale, to grant options to
purchase, and to convey or exchange any and all of the
property at any time forming a part of the Trust Fund, or any
life estate, term of years, remainder or reversion therein for
such price, including property of equivalent value (whether or
not of like kind or similar use, and including life estates,
terms of years, remainders or reversions), and upon such terms
as the Trustee shall determine;
(c) to lease or license the use of any tangible or in-
tangible personal property at any time forming a part of the
Trust Fund upon such terms as the Trustee shall determine;
(d) to borrow money, to extend or renew any existing
indebtedness and to mortgage or pledge any property at any
time forming a part of the Trust Fund;
(e) to settle, compromise, contest, agree to arbitrate
and be bound thereby, extend the time for payment or abandon
claims (including claims for taxes or penalties) or demands in
favor of or against the Trust Fund or any part thereof; to
reduce the interest rate upon any indebtedness to the Trust
Fund when the Trustee shall deem such to be for the best
interests of the Trust Fund; to consent to the extension of
the period of limitations on assessment of any tax or penalty;
to execute any contract, waiver, release, closing agreement,
settlement or stipulation in connection with the above;
(f) to sell, convey, release, mortgage, encumber, lease,
partition, improve, manage, insure against loss, protect and
subdivide any real estate, interests therein or parts thereof;
to dedicate for public use, to vacate any subdivisions or
parts thereof, to resubdivide, to contract to sell, to grant
options to purchase, to sell on any terms; to convey, to
mortgage, pledge, or otherwise encumber said property, or any
part thereof; to lease said property or any part thereof from
time to time, in possession or reversion, by leases to
commence in PRAESENTI or IN FUTURO and upon any terms and for
any period of time, and to renew or extend leases; to amend,
change or modify the terms and provisions of any leases and to
grant options to lease and options to renew leases and options
to purchase the whole or any part of the reversions; to
partition or to exchange said real property, or any part
thereof, for other real or personal property; to grant
easements or charges of any kind, to release, convey or assign
any right, title or interest in or about or easement appur-
tenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from
buildings on said premises; to purchase or hold real estate,
improved or unimproved, or any reversion in real estate
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subject to lease; to insure the Trustee and any person having
an interest in or responsibility for the care, management or
repair of such property against such risks as the Trustee
deems advisable, and to charge the premiums therefor as an
expense of the Trust Fund; to direct, or to authorize any
other person to direct, the trustee of any land trust of which
the Trust Fund is a beneficiary to mortgage, lease, convey or
contract to convey the real estate held in such land trust or
to execute and deliver deeds, mortgages, notes and any and all
documents pertaining to the property subject to such land
trust or in any matter regarding such trust; to execute
assignments of all or any part of the beneficial interest in
such land trust;
(g) to abandon any property, real or personal, which the
Trustee shall deem to be worthless or not of sufficient value
to warrant keeping, protecting or maintaining, to abstain from
the payment of installments due on purchase contracts or
mortgages, taxes, water rates, assessments, repairs and
maintenance with respect to any such property; to permit any
such property to be lost by foreclosure, tax sale or other
proceedings; to convey any such property for a nominal
consideration or without consideration; to permit the
expiration of any renewal, sale, exchange or purchase option
with respect to any property or lease thereof;
(h) to purchase or otherwise acquire, or to invest, re-
invest or refrain from investing the Trust Fund wholly or par-
tially in common stock or in any other securities or other
type or types of assets (without regard to whether such shall
be listed on any stock exchange or other public market,
registered with any securities commissions or similar bodies
or subject to contractual, legal or other restrictions,
including "investment letter" restrictions), including but not
limited to bonds, notes, debentures, mortgages, preferred
stocks, puts or calls, voting trust certificates, beneficial
interests in land trusts, interests or shares in common trust
funds, mutual funds, "open-end" or "closed-end" investment
funds or trusts, real estate investment trusts or savings and
loan or building and loan associations, oil, gas or other
mineral interests or natural resources, motion picture, radio,
television or CATV productions, programming and licenses,
livestock or other animals, commodities, foreign exchange, or
other property or undivided interests in property as the
Trustee may deem advisable without being limited by any
statute or rule of law regarding investments by trustees,
PROVIDED, THAT no investment shall be made in any asset which
is outside of the jurisdiction of the United States Federal
District Courts; and in that connection, without limiting the
generality of the foregoing, to invest the Trust Fund or any
part thereof in any partnership, limited partnership, joint
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venture, association, joint stock company or Massachusetts
trust and to have and to exercise all powers of management and
participation in the management necessary and incident to a
membership in such partnership, limited partnership or other
venture, including the making of any election available under
any tax law by such partnership or venture, and at any time to
participate in the incorporation of any such partnership or
venture; to open accounts, margin or otherwise, with brokerage
firms, banks or others, to invest the funds of the Trust Fund
in and to conduct, maintain and operate such accounts directly
or through an agent for the purchase, sale and exchange of
commodities, stocks, bonds and other securities, and in
connection therewith, to borrow money, obtain guarantees, and
engage in all other activities necessary or incidental to
conducting, maintaining and operating such accounts;
(i) to purchase or otherwise acquire, for cash, credit
or installments, or to invest in, reinvest in, retain or
continue for an indefinite term, any business or business
interests, as shareholder, creditor, partner, proprietor, or
otherwise, even though it may be closely or privately held; to
participate in the conduct of such business or to rely upon
others to do so, and to take or delegate to others the
discretionary power to take any action with respect to its
management and affairs which an individual could take as owner
of such business, including the voting of stock, and the
determination of all questions of policy; to take possession
of the assets of such business, and to exercise complete
control and management of such business, and in connection
therewith to enter into and perform contracts, commitments,
orders and engagements; to incur expenses and debts in
connection with the conduct and operation of such business,
and to pay and discharge such expenses and debts; to join in
and execute partnership agreements and amendments thereto; to
participate in any incorporation, reorganization, merger,
consolidation, recapitalization, liquidation or dissolution of
such business or any change in its nature and to retain and
continue such changed or successor business; to invest
additional capital in, subscribe to or buy additional stock or
securities of or to make or guarantee new or increased
secured, unsecured or subordinated loans to any business, with
trust funds; to rely upon the reports of certified public
accountants as to the operations and financial condition of
any business, without independent investigation; to elect,
employ and compensate directors, officers, employees or agents
of any business, who may include the Trustee or an agent of
the Trustee (but no Trustee so elected shall receive any
compensation therefor); to deal with an act for such business
in any capacity, including any banking or trust capacity, to
sell, pledge or liquidate any interest in such business;
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(j) to employ and pay reasonable compensation to such
agents, contractors, brokers, advisors, trustees, title-
holders, escrowees, custodians, depositories, accountants,
attorneys, investment counsel, appraisers, insurers and others
as may be necessary or desirable in managing and protecting
the Trust Fund, and to execute any general or limited
direction or power of attorney to reflect such employment;
(k) to vote, or refrain from voting, any corporate stock
either in person or by general or limited proxy, for any
purpose, including without limiting the generality of the
foregoing, for the purpose of electing any Trustee as a
director of any such corporation; to exercise, or refrain from
exercising, or to sell any conversion privilege, warrant,
option or subscription right with respect to any security
forming a part of the Trust Fund; to consent to take any
action in connection with and receive and retain any securi-
ties resulting from any reorganization, consolidation, merger,
readjustment of the financial structure, sale, lease,
mortgage, or other disposition of the assets of any corpora-
tion or other organization the securities of which may at any
time form a part of the Trust Fund; to deposit any securities
with or under the direction of a committee formed to protect
said securities and to consent to or participate in any action
taken or recommended by such committee; to pay all assess-
ments, subscriptions and other sums of money which may seem
expedient for the protection of the interest of the Trust as
the holder of such stocks, bonds or other securities; to enter
into an agreement making the Trust liable for a PRO RATA share
of the liabilities of any corporation which is being dissolved
and in which stock is held, when in the opinion of the Trustee
such action is necessary to the plan of liquidation and
dissolution of any such corporation; to join in and vote for
participation in or modification or cancellation of any
restrictive purchase or retirement agreement relating to any
partnership interest or corporate stock agreement relating to
any partnership interest or corporate stock held as a portion
of the Trust Fund; to join in the formation, modification,
amendment, extension or cancellation of any voting trust;
(l) to transfer any real property which may at any time
form a part of the Trust Fund into a land trust, for the
benefit of the Trust, the trustees of such transferee-trust to
be the transferror-Trustees or any other person, persons,
corporation, or combination thereof, upon such terms and
conditions as the transferror-Trustees shall determine and
from time to time to withdraw all or a portion of such
property or the proceeds thereof or to revoke such a trans-
feree-trust; to cause any securities, bank accounts, safety
deposit boxes or vaults or other property, real or personal,
which may at any time form a part of the Trust Fund to be
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issued, held, registered or recorded in any Trustee's
individual name, or assumed name, either with or without
indication of any fiduciary capacity, or in the name of a
nominee or in such form that title will pass by delivery;
(m) to open and maintain one or more savings accounts or
checking accounts and to rent one or more safety deposit boxes
or vaults with any bank, trust company, safe deposit box
company, savings and loan association or building and loan
association, public or private, located within the jurisdic-
tion of the United States Federal District Courts; to deposit
to the credit of such account or accounts all or any part of
the funds belonging to the Trust Fund, whether or not such
funds may earn interest; from time to time to remove some or
all of the items placed in any safety deposit box or vault, or
to withdraw a portion or all of the funds so deposited in any
such account, any such removal to be carried out by and any
such withdrawal to be effected by a check, written direction
or other instrument signed by the Trustee or such other person
or persons as the Trustee may from time to time authorize; and
any such bank or company or association is hereby authorized
to allow such person or persons access to such safety deposit
box or vault and to pay such check or other instrument and
also to receive the same for deposit to the credit of any
holder thereof when so signed and properly endorsed without
inquiry of any kind, and access when allowed and payments when
so made by such bank or trust company or association shall not
be subject to criticism or objection by any person concerned
or interested in any way in the Trust Fund;
(n) at any time and from time to time, and subject to
revocation at any time, to delegate the authorities, discre-
tion and powers, or any of them, herein conferred upon the
Trustee, or the custody of any or all property comprising the
Trust Fund, to any one or more co-trustees then acting, such
delegation and all revocations thereof to be evidenced by an
instrument in writing signed, acknowledged and delivered to
the co-trustee or co-trustees; to transfer the situs of any or
all trust assets to any other place within the jurisdiction of
the United States Federal District Courts; to appoint any bank
or trust company as substitute trustee as to such assets, and
at will to remove (and approve the accounts and give full
release and discharge to) any substitute trustee so appointed
and to appoint another such substitute trustee or to rescind
such appointment;
(o) to invest in any bond, debenture, note or certifi-
cate or other indebtedness of the Company (any of which are
referred to in this Subsection (o) as an "obligation"),
PROVIDED, THAT such obligation is acquired from the Company
and that such acquisition is at a price then paid for a
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substantial portion of the same issue by persons independent
of the Company and, PROVIDED, FURTHER, that immediately
following such investment, the Trust does not own more than
twenty-five percent (25%) of the aggregate amount of obliga-
tions issued in such issue at the time of such investment and
that at least fifty percent (50%) of the aggregate amount of
such obligations issued in such issue are held by persons
independent of the Company;
(p) if a bank is acting as Trustee, to deposit securi-
ties with a clearing corporation; the certificates represent-
ing securities, including those in bearer form, may be held in
bulk form with, and may be merged into certificates of the
same class of the same issuer which constitute assets of other
accounts or owners without certification as to the ownership
attached; utilization of a book-entry system may be made for
the transfer or pledge of securities held by the Trustee or by
a clearing corporation; the Trustee shall at all times,
however, maintain a separate and distinct record of the
securities owned by the Trust Fund;
(q) if a bank is acting as Trustee, to participate in
and use the Federal Book-Entry Account System, a service
provided by the Federal Reserve Bank for its member banks for
deposit of Treasury securities;
(r) to invest all or any part of the assets of the Trust
Fund in any collective investment trust which then provides
for the pooling of the assets of plans and trusts qualified
under Section 401(a) of the Code and exempt from tax under
Section 501(a) thereof (whether or not such collective
investment trust provides for the pooling of assets of other
tax-exempt trusts), PROVIDED, THAT such collective investment
trust is exempt from tax under the Code; the provisions of the
document governing such collective investment trust, as it may
be amended from time to time, shall govern any investment
therein and are hereby made a part hereof;
(s) to commingle the assets of the Trust Fund for
investment purposes with the assets of any other Trust Fund
established by a Related Entity in accordance with Section
401(a) of the Code, PROVIDED, THAT such Trust Fund is exempt
from tax pursuant to Section 501(a) of the Code and, PROVIDED,
FURTHER, that the assets, income, and expenses of each such
Trust Fund are separately accounted for; and
(t) to make any payment, to receive any money, to take
any action and to make, execute and deliver and receive any
contract, deed, instrument or document which may be deemed
necessary or advisable to exercise any of the foregoing powers
or to carry into effect any provision herein contained; in
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addition to the powers enumerated hereinabove, to do all other
acts which in the judgment of the Trustee are necessary or
desirable for the proper administration of the Trust Fund.
SECTION 2.02. LITIGATION BY PARTICIPANTS. To the extent
permitted by applicable law, the Trustee shall be indemnified by
the Company against any and all liabilities, settlements,
judgments, losses, costs, and expenses (including reasonable legal
fees and expenses) of whatever kind and nature which may be imposed
on, incurred by or asserted against the Trustee by reason of the
performance or nonperformance of a Trustee's function if such
action did not constitute gross negligence or willful misconduct.
Furthermore, the Company agrees to indemnify the Trustee against
any liability imposed as a result of a claim asserted by any person
or persons under Federal or state law where the Trustee acts in
good faith. The foregoing right of indemnification shall be in
addition to other rights of the Trustee by law or by reason of
insurance coverage of any kind. The Company may, at its own
expense, and as allowed by law, settle any claim asserted or
proceeding brought against the Trustee when such settlement appears
to be in the best interests of the Company. If the Company obtains
fiduciary liability insurance to protect the Trustee, the
provisions of this Section 2.02 shall be applicable only to the
extent that such insurance coverage is insufficient.
SECTION 2.03. ADVICE OF COUNSEL. The Trustee may consult
with counsel, who may be counsel for the Company, in respect to any
of the Trustee's duties or obligations hereunder; and the Trustee
shall be fully protected in acting or refraining from acting in
accordance with the advice of such counsel.
SECTION 2.04. APPLICATION OF FUNDS. No person dealing with
the Trustee shall be obligated to see to the application of money
or assets paid or delivered to the Trustee or to inquire into the
propriety, necessity or expediency of the Trustee's exercise of his
authority hereunder.
SECTION 2.05. NON-DISCRIMINATION. Neither the Trustee nor
the Company shall take any action hereunder which will result in
benefiting one Participant or group or Participants at the expense
of another, or in discriminating between Participants similarly
situated, or in applying different rules or decisions to substan-
tially similar sets of facts.
SECTION 2.06. FEES AND EXPENSES. The fees and expenses of
the Trust may be paid from the assets of the Trust Fund to the
extent not paid by the Company. If the Trustee is an employee of
the Company, then the Trustee shall not be entitled to any
compensation for serving as Trustee. If a bank is acting as
Trustee, then the bank shall be entitled to reasonable compensation
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for its services as a Trustee, as may be agreed upon from time to
time between the Trustee and the Company.
ARTICLE III
CHANGES IN TRUSTEE
SECTION 3.01. RESIGNATION AND REMOVAL OF TRUSTEES.
(a) Any Trustee appointed hereunder may resign as such
by giving at least fifteen days' prior written notice of such
resignation to the Company, specifying in such notice the date
when such resignation shall take effect; and thereupon such
resignation shall, for all purposes, on the date so specified
therefor in said notice, become and be in full force and
effect and the Trustee so resigning shall thenceforth be
discharged, subject as hereinafter provided, from all further
duties and obligations hereunder.
(b) The Company shall have the right, at any time and
from time to time, with or without cause, to remove any
Trustee then acting hereunder by a written notice thereof to
all of the persons serving as Trustee, specifying in such
notice the date when such removal shall take effect, and
thereupon such removal shall, for all purposes, on the date
specified therefor in said notice, become and be in full force
and effect and the Trustee so removed shall thenceforth be
discharged, subject as hereinafter provided, from all further
duties and obligations hereunder.
SECTION 3.02. RECEIPTS. Upon any such resignation or
removal, the resigning or removed Trustee shall be entitled to
receive all appropriate receipts for the delivery of properties
then held in the Trust Fund, from the Trustee's successor, or if
there be more than one Trustee and no successor has been appointed,
then from the remaining persons serving as Trustee; PROVIDED, THAT
the retiring Trustee shall, on request, execute, acknowledge and
deliver to any successor Trustee an instrument or instruments in
writing conveying and transferring to such successor Trustee, upon
the trusts herein expressed, all the estate and properties
constituting the Trust Fund at the time and the rights, powers,
duties, discretion and trusts of such predecessor in trust.
SECTION 3.03. ACCEPTANCE. Any successor Trustee appointed
hereunder shall, prior to acting as Trustee hereunder, file an
instrument in writing with the Company, signed by such successor
Trustee, accepting such appointment, and thereupon, without any
further act or conveyance, shall be vested with the title to, and
have the right to the possession of, all the estate and properties
constituting the Trust Fund at the time, and shall have all the
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<PAGE>
rights, duties, powers and discretion of the Trustee's predecessor
in trust hereunder.
SECTION 3.04. ADDRESS. Each Trustee appointed hereunder
shall promptly file with the Company, in writing, the Trustee's
post office address and each change of such post office address.
SECTION 3.05. MERGER OF CORPORATE TRUSTEE. In the event that
any corporate Trustee hereunder shall be converted into, shall
merge or consolidate with, or shall sell or transfer substantially
all of its assets and business to, another corporation, state or
federal, the corporation resulting from such conversion, merger or
consolidation, or the corporation to which such sale or transfer
shall be made, shall thereupon become and be the corporate Trustee
under this Agreement with the same effect as though originally so
named.
ARTICLE IV
REPORTS AND ACCOUNTS OF THE TRUSTEE
SECTION 4.01. ANNUAL REPORT. An annual statement of each
Participant's benefits shall be prepared by the Trustee and
delivered as the Company shall from time to time direct.
SECTION 4.02. ACCOUNTS OF TRUSTEE.
(a) Within 210 days after the last day of each Plan
Year, the Trustee shall file with the Company, the
Participants and the Beneficiaries receiving benefits a
written account setting forth all transactions effected by the
Trustee subsequent to the end of the period covered by the
Trustee's last previous accounting and listing the assets of
the Trust Fund at the close of the period covered by such
account.
(b) Upon the expiration of 90 days after the delivery of
any such account, such account shall be deemed approved by the
Company, the Participants and the Beneficiaries except as to
matters, if any, covered by written objections theretofore
delivered to the Trustee regarding which the Trustee has not
given an explanation satisfactory to the objector, and the
Trustee shall be released and discharged as to all items,
matters and things set forth in such account which are not
covered by such written objections, as if such account had
been settled and allowed by a decree of a court having juris-
diction regarding such account and of the Trustee, the Company
and all persons having or claiming to have any interest in the
Trust Fund. The Trustee, nevertheless, shall have the right
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<PAGE>
to have such accounts settled by judicial proceedings, if the
Trustee so elects.
SECTION 4.03. FUNDING POLICY. The Trustee shall determine,
not less frequently than annually, the Plan's current funding needs
and shall communicate such decision to the persons responsible for
the Plan's investments.
ARTICLE V
NON-ALIENATION
SECTION 5.01. ALIENATION. No part of or interest in the
Trust Fund, or anticipation or payment therefrom, shall be in any
manner transferable or assignable, either by the voluntary or
involuntary act of any Participant, or Beneficiary, or by operation
of law, or be liable or be taken for any debt, liability, contract
or other obligation of or claim against any such person; PROVIDED,
HOWEVER, that this Section shall not be applicable to Qualified
Domestic Relations Orders to the extent required by Section 414 of
the Code.
ARTICLE VI
AMENDMENT AND DISCONTINUANCE
SECTION 6.01. AMENDMENTS. The Trust Agreement may be amended
at any time and from time to time by action of the Company
evidenced by an instrument in writing delivered to the Trustee;
PROVIDED, HOWEVER, that no such amendment shall impair the rights
of any person with respect to such person's beneficial interest in
the Trust Fund, as it is then constituted, nor vest in the Company
any right, title or interest in or to the assets of the Trust Fund,
nor be effective unless, as so amended, shall be for the exclusive
benefit of the employees of the Company and their Beneficiaries,
except such amendment or amendments as, in the opinion of counsel,
may be necessary or advisable to meet the requirements of any
statute of the United States or regulation promulgated thereunder;
and PROVIDED, FURTHER, that no amendment changing the rights and
duties of the Trustee shall become effective without the Trustee's
written consent.
SECTION 6.02. DISCONTINUANCE. While it is intended that the
Trust be permanent, the Company reserves the right to terminate the
Trust or permanently discontinue contributions to the Trust Fund at
any time. Such termination or discontinuance may be effected by a
notice in writing delivered to the Trustee in which the effective
date of such termination or discontinuance is specified. Such
termination or discontinuance shall not terminate this Trust or
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<PAGE>
operate to accelerate any payments or distributions hereunder, and
the Trustee shall continue to administer this Trust in accordance
with the provisions hereof. On or after the date of delivery of
any such notice, or upon permanent discontinuance of contributions
to the Trust Fund, or upon partial termination of the Plan (but
then only with respect to those Participants whose employment with
the Company is terminated incident to such partial termination)
with or without notice, all Participants' benefits shall become
fully vested. Notwithstanding the foregoing, on and after the date
of termination of the Plan or permanent discontinuance of
contributions, as aforesaid, the Trustee, in the Trustee's sole
discretion, may provide for distributions of the benefits of any
Participant at the end of any Plan Year before the occurrence of
any of the events otherwise entitling Participant's to
distributions under the Plan.
ARTICLE VII
ABSENCE OF GUARANTY
SECTION 7.01. ABSENCE OF GUARANTY. Neither the Trustee nor
the Company in any way guarantee the Trust Fund from loss or
depreciation. While it is the intention of the Company that the
Plan be permanent, the Company does not guarantee the continuation
thereof or contributions hereto for any Plan Year. All payments to
be made under the Plan shall be made solely out of the Trust Fund
and neither the Company nor the Trustee in any way guarantee, or
shall be personally responsible for, the payment of any amount
which may be or become due to any person from the Trust Fund. The
Company shall not incur any liability for any act or omission of
any Trustee nor shall any Trustee incur any liability for any act
or omission of the Company or of another Trustee.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. INTERPRETATION. Except with respect to any
matters herein specified for determination by the Company, any
interpretation of the provisions hereof made by the Trustee in good
faith shall be binding upon all parties hereto and all persons
acquiring or claiming rights in and to the Trust Fund.
SECTION 8.02 INSPECTION OF RECORDS. No person shall have
any right to inspect any records of the Trustee with respect to any
person's rights hereunder; provided, however, a Participant shall
have the right to inspect records to the extent required by law.
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<PAGE>
SECTION 8.03. HEADINGS; GENDER; GOVERNING LAW. Article and
section headings are supplied in this Agreement for convenience
only and shall be given no legal effect. Any masculine pronoun
shall include also the feminine. This Trust Agreement shall be
construed in accordance with the laws of the State in which the
principal place of business of the Company is located.
SECTION 8.04. TRUSTEE PARTICIPANTS. Anything herein
contained to the contrary notwithstanding:
(a) The fact that a Trustee hereunder may also be a Par-
ticipant shall not limit or impair his right to act hereunder
and to benefit from this Trust as freely and with like force
and effect as though he were not a Trustee hereunder;
(b) Any Trustee may at the same time be an owner,
officer, director or shareholder of a Related Entity, as well
as a Participant, and in any of said capacities shall have the
right to act and benefit from this Trust as freely and with
like force and effect as though he were not a Trustee
hereunder;
(c) Any action taken hereunder by the Company shall be
valid and binding even though at the time of such action any
person acting on behalf of the Company shall be a Trustee or
Participant; and
(d) Notwithstanding the foregoing, no Trustee who is
also a Participant shall participate in the exercise of any
discretion with respect to a determination affecting his
rights under the Plan, and any such discretion shall be
exercised by, and only by, the remaining persons serving as
Trustee; but nothing herein contained shall preclude such
person from electing a mode of settlement or designating any
Beneficiary under the Plan.
SECTION 8.05. NOTICES. Any notice which may be desired or
may be required to be given hereunder shall be deemed validly given
or served if deposited in the United States registered or certified
mail, postage prepaid, and addressed as follows:
(a) If the party to be notified is the Company, at the
principal office of the Company;
(b) If the party to be notified is a Trustee, at the
last known post office address of such Trustee theretofore
filed pursuant to the provisions hereof.
Any address of any party hereunder may be changed by a notice in
writing to the Company duly served in accordance herewith.
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<PAGE>
SECTION 8.05. BINDING EFFECT. The provisions hereof shall be
binding upon all persons who shall be, become or shall have been,
Participants herein as hereinabove provided, their heirs, legal
representatives and Beneficiaries, and upon the Trustee and the
Trustee's successors, and upon the Company.
SECTION 8.06. RELIANCE ON COMPANY'S RECORDS. The Trustee
shall be fully protected in taking any action indicated by this
instrument to be within the scope of the authority of any person
which the Trustee in good faith believes to be genuine. The
Trustee may rely upon any certificate, statement or other represen-
tation made to the Trustee by the Company concerning any fact
required to be determined hereunder and specifically, without
limitation, any certificate, statement or other representation with
respect to employees of the Company, their ages, the history of
their employment and their compensation. The Trustee shall incur
no liability on account of the payment of any money or the doing of
any act in reliance upon any such certificate, statement or other
representation. The Trustee shall not be required to take any
action with respect to a change in a Participant's status with
respect to employment or compensation until the Trustee has been
notified of any such change by the Company.
SECTION 8.07. TAX RELEASES. Prior to making any payment or
distribution hereunder to any person, the Trustee may require such
releases or other documents from any lawful taxing authority, may
require such indemnity from the payee or distributee as the Trustee
shall reasonably deem necessary for the Trustee's protection, and
may deduct from the amount to which such person may be entitled
such amount as, in the Trustee's discretion, the Trustee deems
proper to protect the Trustee and the Trust Fund against liability
on account of death, succession, estate, inheritance, income or
other taxes and out of the money so deducted may discharge any such
liability and pay the balance to the person or persons entitled
thereto.
SECTION 8.08. RETURN OF CONTRIBUTION.
(a) MISTAKE OF FACT. If a contribution made by the
Company to the Trust Fund is made due to a good faith mistake
of fact, then within one year of the date of payment of such
contribution to the Trust Fund there shall be returned to the
Company an amount equal to the excess of (1) the amount of
such contribution over (2) the amount which would have been
contributed had a mistake of fact not occurred (the "Excess
Contribution"). If the share of the profits and losses of the
Trust Fund attributable to such Excess Contribution is a net
loss, then the amount of such Excess Contribution to be
returned to the Company shall be reduced by the amount of such
net loss.
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<PAGE>
(b) DISALLOWANCE OF DEDUCTION. All contributions made
by the Company to the Trust Fund are conditioned upon their
deductibility under Code Section 404. If a good faith mistake
is made in determining the deductibility of a contribution,
then within one year of the date of disallowance of the
deduction of such contribution to the Trust Fund, there shall
be returned to the Company an amount equal to the excess of
(1) the amount of such contribution over (2) the amount which
would have been contributed had a mistake not occurred in
determining the deductibility of such contribution (the
"Excess Contribution"). If the share of such Excess Contribu-
tion in the profits and losses of the Trust Fund is a net
loss, then the amount of such Excess Contribution returnable
to the Company shall be reduced by the amount of such loss.
(c) REVERSION OF EXCESS ASSETS. Notwithstanding anything
contained in this Trust to the contrary, upon termination of
the Plan, if assets remain in the Trust Fund after all
benefits have been paid in accordance with Section 4044(a) of
the Employee Retirement Income Security Act of 1974, as
amended, then the amount of such excess assets shall be
returned to the Company.
SECTION 9.09. DEFINITIONS. Terms used herein and not
otherwise defined shall have the same meaning as set forth in the
Plan.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf, and the Trustee, to indicate acceptance,
has signed this instrument, all on the date first above written.
TIE/COMMUNICATIONS, INC.
By /s/ G. N. Benjamin, III
---------------------------
Its President & CEO
-------------------------
ACCEPTED:
/s/ NEAL L. BREES
------------------------------
Neal L. Brees, Trustee
<PAGE>
Exhibit 21
SUBSIDIARIES OF TIE/COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
STATE/COUNTRY
NAME OF CORPORATION OF CORPORATION
------------------- --------------
<S> <C>
Chatlos Systems, Inc. New Jersey
TIE International, Inc. Delaware
TIE National Leasing Corporation New York
TIE Service, Inc. California
TIE Systems, Inc. Delaware
TIE Systems, Inc., Central Valley California
TIE Systems, Inc. Illinois Colorado
TIE Systems, Inc. Minnesota Minnesota
TIE Systems, Inc. Mississippi Valley Iowa
TIE Systems, Inc. Northern California California
TIE Systems, Inc. New England Massachusetts
(90% owned by TIE)
TIE Systems, Inc. New York Connecticut
TIE Systems, Inc. Southeast Florida Florida
TIE Systems, Inc. Southern California California
TIE/telecommunications Canada Limited Canada
TIE Telecommunications Hong Kong Limited Hong Kong
TIE/communications Canada Inc. Canada
(wholly-owned by TIE/telecommunications Canada Limited)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 887,000
<SECURITIES> 0
<RECEIVABLES> 15,952,000
<ALLOWANCES> 2,172,000
<INVENTORY> 13,704,000
<CURRENT-ASSETS> 31,535,000
<PP&E> 19,103,000
<DEPRECIATION> 17,251,000
<TOTAL-ASSETS> 54,225,000
<CURRENT-LIABILITIES> 31,289,000
<BONDS> 0
<COMMON> 399,000
0
0
<OTHER-SE> 19,341,000
<TOTAL-LIABILITY-AND-EQUITY> 54,225,000
<SALES> 96,314,000
<TOTAL-REVENUES> 124,907,000
<CGS> 56,280,000
<TOTAL-COSTS> 69,088,000
<OTHER-EXPENSES> 60,069,000
<LOSS-PROVISION> 1,912,000
<INTEREST-EXPENSE> (256,000)
<INCOME-PRETAX> (2,547,000)
<INCOME-TAX> 541,000
<INCOME-CONTINUING> (3,088,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,119,000)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
