<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1994
REGISTRATION NO. 33-56213
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENERAL DATACOMM INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0853856
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------
1579 STRAITS TURNPIKE
MIDDLEBURY, CONNECTICUT 06762-1299
(203) 574-1118
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HOWARD S. MODLIN
WEISMAN, CELLER, SPETT & MODLIN
445 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 371-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
JOHN W. WHITE
CRAVATH, SWAINE & MOORE
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019
(212) 474-1000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE> 2
GENERAL DATACOMM INDUSTRIES, INC.
Cross-reference sheet furnished pursuant to Item 501(b) of Regulation S-K
showing location in the Prospectus of information required by Items in Part I of
Form S-3.
<TABLE>
<CAPTION>
ITEM IN FORM S-3 PROSPECTUS LOCATION/CAPTION
------------------------------------------ ---------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page; Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Investment
Considerations; Not Applicable
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........... Underwriting
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Underwriting
9. Description of Securities to be
Registered................................ Description of Capital Stock
10. Interests of Named Experts and Counsel.... Legal Matters
11. Material Changes.......................... Management's Discussion and Analysis of
Results of Operations and Financial Condition
12. Incorporation of Certain Information by
Reference................................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DECEMBER 9, 1994
PROSPECTUS
[LOGO]
1,800,000 SHARES
GENERAL DATACOMM INDUSTRIES, INC.
COMMON STOCK
($.10 PAR VALUE)
All the shares of Common Stock, par value $.10 per share (the "Common Stock"),
offered hereby are being sold by General DataComm Industries, Inc. ("GDC" or the
"Company"). The Common Stock is listed on the New York Stock Exchange under the
symbol "GDC". On December 8, 1994, the last reported sale price for the Common
Stock, as reported on the New York Stock Exchange Composite Transactions Tape,
was $26.00 per share. See "Price Range of Common Stock and Dividend Policy".
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER THE
CAPTION "INVESTMENT CONSIDERATIONS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(2)............................. $ $ $
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated to be $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
270,000 additional shares of Common Stock at the Price to Public, less the
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of certificates for the shares of Common Stock will
be made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company, on or
about , 1994.
SALOMON BROTHERS INC SOUNDVIEW FINANCIAL GROUP, INC.
The date of this Prospectus is , 1994.
<PAGE> 4
[Diagram on this page, titled "ATM MARKET SEGMENTS",illustrates the four ATM
market segments described in "Business--ATM Market".]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS IN THE COMMON STOCK MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional offices located at Northwestern Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661; and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates by writing the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Common
Stock is listed on the New York Stock Exchange and reports, proxy statements and
other information concerning the Company can be inspected at such Exchange's
office located at 20 Broad Street, New York, New York 10005.
This Prospectus forms a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act of
1933 (the "Securities Act") with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto can be inspected and copied at
the public reference facilities and regional offices referred to above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, as amended by Form 10-K/A filed December 9, 1994, which has
been filed by the Company with the Commission pursuant to the Exchange Act (File
No. 1-8086), is hereby incorporated by reference in and made a part of this
Prospectus.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
offered hereby shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for the purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is, or is deemed to be, incorporated herein by
reference modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon the written or oral request of any such person, a copy of any
of or all the documents referred to above which have been or may be incorporated
in this Prospectus by reference, other than exhibits to such documents which are
not specifically incorporated by reference into such documents. Requests for
such copies should be directed to Tom Shea, Director of Strategic Planning,
General DataComm Industries, Inc., 1579 Straits Turnpike, Middlebury,
Connecticut 06762-1299, telephone number (203) 574-1118.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus or
incorporated herein by reference. Except as otherwise noted, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
GDC is a leading worldwide provider of wide area networking and
telecommunications products. The Company designs, assembles, markets, installs
and maintains products and services that enable telecommunications common
carriers, corporations and governments to build, upgrade and better manage their
global telecommunications networks. Products include multiplexers and
internetworking equipment, digital data sets, analog modems, Asynchronous
Transfer Mode ("ATM") cell switches, network management systems and
comprehensive support services.
GDC's customer base includes: Local Exchange Carriers including all seven
Regional Bell Operating Companies, Bell Canada and GTE; Competitive Access
Providers including MFS Datanet; Interexchange Carriers including AT&T, MCI and
Sprint; corporate end users such as American Airlines, Citicorp, EDS, Harris,
Hitachi and Hongkong & Shanghai Bank; and government entities including the
British Ministry of Defence, the French Ministry of State, NASA, the U.S. State
Department and many state and local governments.
To meet the growing market demand for higher speed communications services,
the Company has added ATM solutions to its more traditional product offerings.
In doing so, the Company believes it has enhanced its position as a leading
supplier of integrated wide area networking and telecommunications products. The
Company's strategy is based upon:
CAPITALIZING ON ATM TECHNOLOGY. The Company believes it has a leading
position in the ATM switch market. The following entities have deployed, or
announced their intention to deploy, GDC's ATM cell switches in their proposed
ATM networks: Ameritech, Bell Canada, MCI, MFS Datanet, Telecom Finland and
Australia's Defence, Science and Technology Organisation. As of September 30,
1994, GDC, along with Netcomm Limited, had shipped 241 ATM switches and related
products to a variety of customers in 15 countries (79 for customer trial and
162 sold). The Company also believes that growing market awareness of its ATM
technology has increased customer exposure to GDC's other products.
PROVIDING COST-EFFECTIVE FLEXIBLE PRODUCT SOLUTIONS. The Company's product
families are designed with architectures that scale to most network sizes and
cost requirements. Customers can select the products that are most appropriate
for their needs and migrate to higher capacity products over time.
IMPROVING PERFORMANCE OF CUSTOMER NETWORKS. The Company's products are
designed to improve network efficiency by increasing transmission speed,
compressing and consolidating voice and data communication and providing dynamic
bandwidth allocation.
LEVERAGING GLOBAL CUSTOMER BASE, DISTRIBUTION AND SUPPORT. The Company has
a worldwide customer base of corporate and government users and
telecommunications carriers. With a sales and marketing organization of 471
employees, the Company has global distribution capabilities in nearly 60
countries around the world. GDC's ability to provide international customer
service and support is critical to customers that run mission-critical
applications over their networks.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered(1)........................ 1,800,000 shares
Common Stock Outstanding(2):
Before the Offering....................... 18,009,455 shares
After the Offering........................ 19,809,455 shares
Use of Proceeds................................ For reduction of indebtedness, working
capital and general corporate purposes,
including potential acquisitions. See "Use
of Proceeds".
NYSE Symbol.................................... GDC
</TABLE>
- ---------------
(1) Excluding 270,000 shares subject to the Underwriters' over-allotment option.
(2) As of December 5, 1994. Including 2,226,250 shares of Class B Stock
convertible into Common Stock on a share-for-share basis at any time (see
"Description of Capital Stock"), but excluding 2,443,752 shares of Common
Stock issuable upon the exercise of options or warrants. See
"Capitalization".
INVESTMENT CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER
THE CAPTION "INVESTMENT CONSIDERATIONS".
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------
1992 1993 1994(1)
---- ---- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues....................................... $197,858 $211,847 $ 210,990
Gross profit................................... 90,248 101,442 100,658
Operating income............................... 5,549 8,997 661
Income (loss) before cumulative effect of
accounting changes........................... 2,643 6,116 (1,895)(2)
Net income (loss).............................. $ 2,643 $ 6,116 $ (2,328)(3)
Earnings (loss) per share:
Before cumulative effect of accounting
changes................................... 0.17 0.36 (0.11)(2)
Net.......................................... $ 0.17 $ 0.36 $ (0.14)(3)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994(1)
---------------------------
AS
ACTUAL ADJUSTED(4)
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 2,939
Working capital......................................... 56,413
Total assets............................................ 180,264
Long-term debt, including current portion............... 47,356
Stockholders' equity.................................... 84,487
</TABLE>
- ---------------
(1) In November 1993, the Company acquired Netcomm Limited ("Netcomm") and,
accordingly, Netcomm's results of operations were included in the Company's
consolidated financial data beginning at that time.
(2) Loss before cumulative effect of accounting changes and net loss for the
year ended September 30, 1994, include an income tax benefit of $1,700, or
$0.10 per share, resulting from the resolution of a foreign tax issue.
(3) Net loss for the year ended September 30, 1994, includes after tax charges
of $(433), or $(0.03) per share, as a result of the adoption of Statements
of Financial Accounting Standards Nos. 106 and 112 relating to
post-retirement and post-employment benefits, respectively.
(4) As adjusted for the issuance and sale of the Common Stock offered hereby.
See "Capitalization".
5
<PAGE> 8
INVESTMENT CONSIDERATIONS
FUTURE SALES DEPENDENT ON SHIFT IN PRODUCT MIX
The Company's product mix is shifting from its traditional analog product
line to high-speed digital data sets, multiplexer and internetworking products
and ATM cell switches. The ability of the Company to maintain or increase
revenues during the next several years may be dependent upon sales of its ATM
cell switches. For fiscal 1994, analog product sales accounted for approximately
20% of net product sales, while revenues from ATM switches and related products
accounted for less than 6% of net product sales. ATM cell switches were first
shipped in fiscal 1994 and a substantial portion of those were for testing and
evaluation by customers in their developing ATM-based networks.
Sales of the Company's analog products decreased from approximately $44
million in fiscal 1993 to approximately $34 million in fiscal 1994. The markets
for the Company's traditional analog products are mature and generally declining
and have correspondingly decreasing prices. Although GDC believes that its new
V.F 28.8 modem family introduced in fiscal 1994 will help to offset anticipated
future decreases in the sales of the Company's other analog products, the
overall market for analog products is expected to continue to decline. There can
be no assurance that the V.F 28.8 modem family will achieve broad market
acceptance.
In addition, the Company believes that the availability of its ATM switches
could provide the Company with better access to customers in selling its other
products and that the market penetration of these other products could increase
as its ATM products are sold. However, since the ATM market is in its infancy
and the Company may not be successful in developing, marketing and deploying its
ATM cell switches, there can be no assurance that sales of its other products
will benefit from any ATM-related business. The Company also believes that
revenue from certain of the Company's multiplexer products may decline in the
first quarter of fiscal 1995 from the fourth quarter of fiscal 1994. In fiscal
1994, revenues from these other products (excluding analog and ATM products)
were approximately 73% of net product sales. See "-- Infancy of ATM Market and
ATM Products" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Results of Operations -- 1st Quarter 1995".
INFANCY OF ATM MARKET AND ATM PRODUCTS
There can be no assurance that markets for ATM-based products, including
ATM cell switches, will develop or, that if they do, that they will develop in
the near future or that the Company's ATM products will be acceptable to these
markets.
Although many network equipment suppliers have introduced or announced
plans to introduce ATM-based products, the ATM market is still in its infancy.
Only a very limited number of ATM-based networks currently are deployed and
there can be no guarantees that ATM networks will be broadly deployed. Moreover,
even if ATM technology is deployed, the timing and extent of any such deployment
cannot be predicted. Certain other large-scale telecommunications technology
"breakthroughs", such as Frame Relay or ISDN, have often taken longer to be
deployed than originally anticipated and have not always been deployed as
broadly as originally anticipated.
Even if there is general market acceptance of ATM technology, the Company's
ATM cell switches may not be accepted. Although a number of telecommunications
carriers and corporations are testing and implementing the Company's ATM
switches, these entities are not obligated to continue to purchase any of GDC's
switches. Moreover, there already is intense competition among ATM switch
manufacturers and the ATM market will be subject to both rapid advances in
technology and greater demand for more flexible, cost-effective solutions. In
addition, the success of the Company's ATM switching technology is dependent on
the adequacy of the Company's manufacturing and support services capability. See
"-- Competition", "-- Rapid Technology Changes" and "-- Manufacturing and
Support Services Capability".
6
<PAGE> 9
COMPETITION
Each of the segments of the telecommunications and networking industries is
intensely competitive. Many of GDC's current and prospective competitors have
greater name recognition, a larger installed base of networking products, more
extensive engineering, manufacturing, marketing, distribution and support
capabilities and greater financial, technological and personnel resources.
Many of the participants in the networking industry, including, among
others, ADC Telecommunications, Bay Networks, Cascade Communications, Cisco, ECI
Telecom, FORE Systems, Lightstream, Newbridge Networks and StrataCom, and
certain participants in the computer industry, including, among others, DEC and
IBM, have introduced, or have announced their intention to develop, ATM
networking products. Other companies are expected to follow. In addition,
traditional suppliers of central office switching equipment, such as Alcatel,
AT&T Network Systems, Fujitsu, Hitachi, LM Ericsson, Northern Telecom and
Siemens, are expected to offer ATM-based switches for central offices. Companies
may also develop alternative network solutions to ATM. Even though certain of
these ATM competitors currently offer or plan to offer ATM products in markets
in which the Company does not plan to compete, it is possible that such
competitors will develop ATM technology that does compete with the Company's
products. This competition could result in the same intense price competition
that is present in the broader networking market.
RAPID TECHNOLOGY CHANGES
The markets for the Company's products are characterized by rapid
technological development, evolving industry standards, emerging network
architectures and frequent new product introductions. Rapid technological
development substantially shortens product life cycles and may lead to
technological obsolescence. The Company's success will depend, in part, upon its
ability to influence the development of industry standards, to enhance and
expand existing products and to select, develop, manufacture and market, in a
timely, cost-effective manner, new products that achieve market acceptance.
However, announcements of product enhancements or new product offerings may
cause customers to defer purchasing existing GDC products.
In the ATM market, the development of comprehensive industry standards is
evolving. The Company believes that its ability to compete successfully in the
ATM market also is dependent upon the compatibility and interoperability of its
products with products and architectures of other vendors. Alternative
networking solutions developed by others could render ATM networking technology
and the Company's products noncompetitive or obsolete. The Company currently
anticipates adding various features to its ATM cell switches during the 1995
calendar year, but there can be no assurances that GDC will be able to effect
such product enhancements or that it will be able to do so on a timely and cost-
effective basis. In the past, the Company has on occasion experienced delays in
its introductions of product enhancements and new products.
MANUFACTURING AND SUPPORT SERVICES CAPABILITY
Any delay or interruption in the manufacturing or customer service and
support of GDC products could adversely affect market acceptance of the
Company's products. As only a limited number of the Company's ATM switches have
been delivered to customers, software errors, functional limitations and
manufacturing problems may arise, especially as the Company's customers expand
or redefine their proposed networks. If such issues are not resolved in a timely
and adequate manner upon occurrence, customer acceptance of GDC's ATM switches
may be adversely affected.
7
<PAGE> 10
RELIANCE ON KEY COMPONENTS
The Company's products use certain components, such as microprocessors,
memory chips and pre-formed enclosures, that are acquired or available from one
or a limited number of sources. The Company has generally been able to procure
adequate supplies of these components in a timely manner from existing sources.
The Company's inability to obtain a sufficient quantity of these components as
required, or to develop alternative sources at acceptable prices and within a
reasonable time, could result in delays or reductions in product shipment which
could materially affect the Company's operating results in any given period.
QUARTERLY EARNINGS FLUCTUATIONS
The Company's quarterly operating results may vary significantly depending
on various factors, some of which are not within the control of the Company.
Additionally, as is the case with many high technology companies, a significant
portion of the Company's shipments typically occurs in the last few weeks of a
quarter. As a result, the Company's revenues may shift from one quarter to the
next, having a significant effect on reported results. See "-- Volatility of
Stock Price".
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the retention
and attraction of executive officers and key management employees and technical
personnel, including Charles P. Johnson, Chairman of the Board and Chief
Executive Officer, Ross Belson, President and Chief Operating Officer, and
Frederick R. Cronin, Vice President, Technology. Messrs. Johnson and Cronin are
founders of the Company. None of these executives has an employment agreement,
and only Mr. Belson has a one-year noncompete agreement following termination of
employment. Certain key employees of Netcomm, the original developer of the
Company's ATM technology, have entered into employment agreements through May
23, 1997, which include two-year noncompete clauses following termination of
employment.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation contains certain
provisions that could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock, thus making it less likely that a shareholder will receive a
premium in any sale of shares. Certain of such provisions allow the Company to
issue preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. Moreover, the Company's Board
of Directors is divided into three classes, each of which serves for a staggered
three-year term, making it more difficult for a third party to gain control of
GDC's Board. In addition, the holders of the Company's Class B Stock have, under
certain circumstances, greater voting power in the election of directors. As of
November 25, 1994, Mr. Charles P. Johnson, Chairman of the Board and Chief
Executive Officer of GDC, and all directors and executive officers of GDC as a
group beneficially own, directly or indirectly, 62.3% and 91.5%, respectively,
of the Company's Class B Stock. Since the holders of Common Stock and Class B
Stock vote separately as a class on all matters requiring an amendment to the
Company's Restated Certificate of Incorporation, as well as on mergers,
consolidations and certain other significant transactions for which stockholder
approval is required under Delaware law, Mr. Johnson individually and the
executive officers and directors as a group could veto any such transactions.
See "Description of Capital Stock".
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has fluctuated widely in response to
quarter-to-quarter operating results, industry conditions, awards of orders to
the Company or its competitors, new product
8
<PAGE> 11
or product development announcements by the Company or its competitors and
changes in earnings estimates by analysts. Any shortfall in revenue or earnings
from expected levels could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock in any given period. In
addition, the volatility of the stock markets in recent years has caused wide
fluctuations in trading prices of stocks of high technology companies
independent of their individual operating results. See "Price Range of Common
Stock and Dividend Policy".
INTERNATIONAL OPERATIONS
Approximately 37% of the Company's revenues in fiscal 1994 were from
international operations and the Company is seeking to expand its international
presence. Sales by the Company's foreign subsidiaries are denominated in foreign
currencies. All other international sales are denominated in U.S. dollars. In
addition, a number of the Company's products, or components thereof, are
manufactured abroad. Economic, political, business and military conditions in
certain countries present operational risks that are greater than those in the
United States. Revenues generated in foreign currencies also present currency
exchange and repatriation risks. The Company currently does not use any type of
derivatives to minimize such risks. From time to time, the Company's financial
results have been affected unfavorably by fluctuations in currency exchange
rates. The Company experienced a loss of $(188,000) in fiscal 1994 due to
currency exchange fluctuations and future unfavorable fluctuations in currency
exchange rates may have an adverse impact on the Company's revenues and
operating results.
9
<PAGE> 12
USE OF PROCEEDS
The net proceeds from the issuance and sale of the 1,800,000 shares of
Common Stock offered hereby will be approximately $ million (approximately
$ million if the Underwriters' over-allotment option is exercised in full).
A minimum of $11.2 million of the net proceeds will be applied to the reduction
of the Company's outstanding indebtedness under the revolving credit facility
($16.2 million outstanding at September 30, 1994) which bears interest at 0.75%
over the prime rate (although alternative rates based on LIBOR are available)
and matures on November 30, 1996. The rate of interest in effect on December 5,
1994, was 8.61%. The Company plans to use the balance of the proceeds, along
with borrowings available under the revolving credit facility to fund future
operating and investing activities. Such activities, which required $33.8
million in cash in fiscal 1994, include expenditures related to the development
and expansion of the Company's ATM products. That balance of the net proceeds
also may be used to further reduce the Company's outstanding indebtedness under
the revolving credit facility or for other general corporate purposes, including
potential acquisitions. The Company at this time has no understandings or
commitments to make any acquisitions and there can be no assurances that any
acquisitions will be made. See "Capitalization", "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and
"Business -- Acquisition Strategy".
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange under the symbol
"GDC". The following table sets forth the high and low closing sales prices of
the Common Stock for the periods indicated, as reported on the New York Stock
Exchange Composite Transactions Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR 1993:
First Quarter.......................................... $ 6 3/8 $ 3 3/8
Second Quarter......................................... 11 1/4 6 1/2
Third Quarter.......................................... 15 3/4 8 1/2
Fourth Quarter......................................... 14 1/2 8 5/8
FISCAL YEAR 1994:
First Quarter.......................................... $11 3/4 $ 8 3/4
Second Quarter......................................... 17 5/8 8 1/2
Third Quarter.......................................... 16 3/8 10 7/8
Fourth Quarter......................................... 29 5/8 15 3/8
</TABLE>
On December 8, 1994, the last reported sales price for the Common Stock on
the New York Stock Exchange Composite Transactions Tape was $26.00 per share. As
of December 5, 1994, there were 15,783,205 and 2,226,250 shares of Common Stock
and Class B Stock, respectively, outstanding.
The Company has never declared or paid any cash dividends on its capital
stock. The Company's present policy is to retain earnings to finance operations,
and no change in that policy is expected. In addition, the terms of the
Company's revolving credit and term loan agreement prohibit the Company from
paying cash dividends on its capital stock. As a result, it is not anticipated
that cash dividends will be paid in the foreseeable future.
10
<PAGE> 13
CAPITALIZATION
(Dollars in thousands)
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1994, and as adjusted to give effect to the sale by
the Company of the 1,800,000 shares of Common Stock offered hereby (assuming no
exercise of the over-allotment option granted to the Underwriters). This
information should be read in conjunction with Selected Consolidated Financial
Data.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994
--------------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long-term debt(1):
Revolving credit loan -- prime plus 3/4%(2).................. $ 16,200
Note payable -- prime plus 1 1/4%(2).......................... 6,625
Other notes payable(3)........................................ 7,250
Mortgage payable -- LIBOR plus 2%............................. 11,025
Other......................................................... 1,018
-------- ---------
Total long-term debt..................................... 42,118
-------- ---------
Stockholders' equity:
Preferred Stock, $1.00 par value; 3,000,000 shares authorized;
no shares issued and outstanding............................. --
Common Stock, $.10 par value; 35,000,000 shares authorized;
16,461,959 shares issued and outstanding; and 18,261,959
shares as adjusted(4)........................................ 1,646
Class B Stock, $.10 par value; 35,000,000 shares authorized;
2,271,780 shares issued and outstanding(5).................. 227
Capital in excess of par value................................ 68,027
Earnings reinvested........................................... 21,477
Cumulative foreign currency translation adjustment............ (901)
Less: 841,773 treasury shares at cost....................... (5,989)
-------- ---------
Total stockholders' equity............................... 84,487
-------- ---------
Total capitalization................................... $126,605
======== =========
</TABLE>
- ---------------
(1) Excluding current portion ($5,238) of long-term debt.
(2) Alternate interest rates based on LIBOR are available.
(3) Various fixed and variable interest rates.
(4) Excluding 2,567,335 shares of Common Stock issuable upon exercise of stock
options and warrants granted or outstanding at September 30, 1994, at prices
ranging from $2.00 to $19.94 per share. Warrants are immediately
exercisable. Stock options generally become exercisable over five years and
expire ten years after the date of grant. At September 30, 1994, 871,075
stock options and warrants were exercisable.
(5) Class B Stock has, under certain circumstances, greater voting power in the
election of directors. See "Description of Capital Stock".
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
The following table should be read in conjunction with Management's
Discussion and Analysis of Results of Operations and Financial Condition and the
consolidated financial statements (and notes thereto) and other financial
information incorporated by reference in this Prospectus. The selected
consolidated statements of operations data for the years ended September 30,
1992, 1993 and 1994, and the selected consolidated balance sheet data at
September 30, 1993 and 1994, are derived from, qualified by reference to and
should be read in conjunction with, the related consolidated financial
statements (and notes thereto), audited by Coopers & Lybrand, a copy of which is
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1994.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------
1992 1993 1994(1)
-------- -------- -----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net product sales.................................................... $158,768 $171,468 $ 169,958
Service revenue...................................................... 31,679 32,855 34,245
Lease revenue........................................................ 7,411 7,524 6,787
-------- -------- -----------
197,858 211,847 210,990
Costs and expenses:
Cost of product sales................................................ 77,051 78,622 76,854
Amortization of capitalized software development costs............... 7,166 8,300 9,735
Cost of services..................................................... 22,441 22,493 22,861
Cost of lease revenue................................................ 952 990 882
Selling, general and administrative.................................. 68,789 73,166 79,921
Research and product development..................................... 15,910 19,279 20,076
-------- -------- -----------
192,309 202,850 210,329
Operating income....................................................... 5,549 8,997 661
Other income (expense):
Interest............................................................. (2,692) (1,982) (3,780)
Other, net........................................................... 340 126 249
-------- -------- -----------
(2,352) (1,856) (3,531)
Income (loss) before income taxes and cumulative effect of accounting
changes.............................................................. 3,197 7,141 (2,870)
Income tax provision (benefit)......................................... 554 1,025 (975)(2)
-------- -------- -----------
Income (loss) before cumulative effect of accounting changes........... 2,643 6,116 (1,895)
Cumulative effect of accounting changes................................ -- -- (433)(3)
-------- -------- -----------
Net income (loss)...................................................... $ 2,643 $ 6,116 $ (2,328)
========= ========= ===========
Earnings (loss) per share:
Income (loss) before cumulative effect of accounting changes......... $ 0.17 $ 0.36 $ (0.11)(2)(4)
Cumulative effect of accounting changes.............................. -- -- (0.03)(3)(4)
-------- -------- -----------
$ 0.17 $ 0.36 $ (0.14)
========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------
1993 1994(1)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 2,594 $ 2,939
Receivables........................................................................ 35,654 49,581
Inventories........................................................................ 34,522 42,162
Total assets....................................................................... 141,676 180,264
Long-term debt, including current portion.......................................... 31,891 47,356
Stockholders' equity............................................................... 67,028 84,487
</TABLE>
- ---------------
(1) In November 1993, the Company acquired Netcomm and, accordingly, Netcomm's
results of operations were included in the Company's consolidated financial
data beginning at that time.
(2) Includes an income tax benefit of $1,700, or $0.10 per share, resulting from
the resolution of a foreign tax issue.
(3) Represents after-tax charges of $(433), or $(0.03) per share, as a result of
the adoption of Statements of Financial Accounting Standards Nos. 106 and
112 relating to post-retirement and post-employment benefits, respectively.
(4) Supplementary earnings (loss) per share for fiscal year 1994, adjusted to
give effect to the beginning of fiscal 1994 for the repayment of the
revolving credit loan from the application of a portion of the net proceeds
of the offering contemplated hereby (see "Use of Proceeds"), is as follows:
<TABLE>
<S> <C>
Earnings (loss) per share:
Income (loss) before cumulative effect of accounting changes............................ $(0.08)
Cumulative effect of accounting changes................................................. (0.02)
------
$(0.10)
======
</TABLE>
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Although revenues were essentially unchanged in fiscal 1994 when compared
to fiscal 1993, there were significant differences in both the revenue trends
within the years and in the types of products sold in each year. Revenues
declined 4.9% in the fiscal 1993 second half compared to the first half, whereas
fiscal 1994 second half revenues exceeded the first half by 19.6%. The Company's
fiscal 1994 fourth quarter revenues were the highest in its history. The upward
trend in the second half was driven by demand for the Company's ATM and digital
transmission products, offset in part by a continuing decline in demand for the
Company's traditional analog products. The Company estimates that new and
existing customers each accounted for approximately one-half of the revenue
increase in the fiscal 1994 second half.
The Company has made incremental investments in research and development,
marketing, production engineering and inventories (including ATM trial units) in
preparation for the roll-out of its ATM products. The Company also continues to
expand its international sales operations. As a result, operating expenses,
consisting of selling, general and administrative and research and product
development expenses, grew by $7.6 million to 47.4% of fiscal 1994 revenues
compared to 43.6% of fiscal 1993 revenues and contributed to the losses in the
first three quarters of fiscal 1994.
Net income in the fiscal 1994 fourth quarter of $1.3 million, or $0.07 per
share, reduced the net loss for the fiscal 1994 year to $(2.3) million, or
$(0.14) per share, compared to net income of $6.1 million, or $0.36 per share,
in fiscal 1993. The fiscal 1994 net loss included: (i) after tax charges of
$(433,000), or $(0.03) per share, as a result of adopting Statements of
Financial Accounting Standards Nos. 106 and 112 relating to post-retirement and
post-employment benefits, respectively, and (ii) an income tax benefit of $1.7
million, or $0.10 per share, resulting from the resolution of a foreign tax
issue.
In November 1993, the Company acquired Netcomm Limited ("Netcomm"), a
developer of ATM technology, and, accordingly, Netcomm's results of operations
were included in the Company's financial data beginning at that time. Netcomm
has been renamed General DataComm Advanced Research Centre Limited and its
charter is to develop next-generation ATM products.
In the third quarter of fiscal 1994 the Company raised $14.6 million, after
expenses, through a private offering of 1,250,000 shares of Common Stock.
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated quarterly financial
data (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1993 FISCAL YEAR ENDED SEPTEMBER 30, 1994
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $54,272 $54,295 $51,267 $52,013 $48,050 $48,032 $54,903 $60,005
Gross profit............... 25,216 25,606 25,076 25,544 22,806 22,802 25,563 29,487
Operating income (loss).... 2,313 2,724 1,953 2,007 (851) (1,602) 575 2,539
Net income (loss)(1)....... $ 1,551 $ 1,918 $ 1,283 $ 1,364 $(2,309) $ (810) $ (502) $ 1,293
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share.................... $ 0.10 $ 0.11 $ 0.07 $ 0.08 $ (0.14) $ (0.05) $ (0.03) $ 0.07
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) First quarter 1994 net loss includes charges totaling $(433), resulting from
the adoption of Financial Accounting Standards Nos. 106 and 112, effective
October 1, 1993. As originally reported, net loss for the first quarter was
$(1,993), or $(0.12) per share.
13
<PAGE> 16
The following table sets forth unaudited consolidated financial data stated
as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
----------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Revenues:
Net product sales.......................................................... 80.2% 80.9% 80.6%
Service revenue............................................................ 16.0 15.5 16.2
Leasing revenue............................................................ 3.8 3.6 3.2
------ ------ ------
100.0 100.0 100.0
Costs and expenses:
Cost of revenues........................................................... 50.8 48.2 47.7
Amortization of capitalized software development costs..................... 3.6 3.9 4.6
Selling, general and administrative........................................ 34.8 34.6 37.9
Research and product development........................................... 8.0 9.1 9.5
------ ------ ------
Operating income............................................................. 2.8 4.2 0.3
------ ------ ------
Net income (loss)............................................................ 1.3% 2.9% (1.1)%
===== ===== =====
</TABLE>
1st Quarter 1995
Because, as is historically the case, a significant portion of the
Company's shipments typically occurs in the last few weeks of a quarter and
because the Company is currently undergoing a product transition, the Company is
uncertain whether the trends evidenced in the last two quarters of fiscal 1994
will continue in the first quarter of fiscal 1995. The Company believes that
revenues and net income (loss) for the first quarter of fiscal 1995 may be below
the levels reported in the fourth quarter of fiscal 1994, but they are expected
to be above the levels reported in the first quarter of fiscal 1994. Although
revenues for the Company's ATM switches are expected to increase, revenues from
certain of GDC's multiplexer products may decline from the prior quarter.
1994 Compared with 1993
Revenues for fiscal 1994 were slightly lower (0.4%) than in fiscal 1993.
However, fiscal 1994 fourth quarter revenues rose $8.0 million, or 15.4%, over
the fourth quarter of fiscal 1993. Growth markets in the fiscal 1994 fourth
quarter included both the domestic carriers, which increased by $1.3 million or
10.3%, and many international areas, which increased by $6.8 million or 39.4%.
New products, such as ATM cell switches, V.F 28.8 modems and additions to
digital data set and multiplexer product lines, sold higher volumes compared to
the prior quarters of fiscal 1994, offset in part by a reduction in traditional
analog modem shipments. For the 1994 fiscal year, net product sales were down
$1.5 million, or 0.1%, service revenue was up $1.4 million, or 4.2%, and leasing
revenue was down $737,000, or 9.8%.
Gross margin (which includes amortization of capitalized software
development costs) declined slightly (0.2%) to 47.7% in fiscal 1994 from 47.9%
in fiscal 1993. Amortization of capitalized software development costs charged
to cost of product sales increased to $9.7 million in fiscal 1994 from $8.3
million in fiscal 1993 and had the effect of reducing gross margin by 0.5%. High
technology products in particular are subject to sales price pressures as
competition grows. The Company works to offset these effects by negotiating
lower material component prices, improving manufacturing cost and efficiencies
and introducing new generation products.
Selling, general and administrative expenses increased $6.8 million, or
9.2%, in fiscal 1994 principally due to strategic investments made in ATM
marketing operations (an increase of $1.1 million) and in international selling
organizations (an increase of $4.3 million). Since there was no corresponding
growth in revenues until the second half of the 1994 fiscal year, selling,
general and administrative expenses rose to 37.9% of revenues from 34.6% in
fiscal 1993.
14
<PAGE> 17
Research and product development spending, before consideration of
capitalized software development costs, increased to $33.2 million, or 15.7% of
revenues, from $29.8 million, or 14.1% of revenues, in fiscal 1993. This
increase, 11.3% year-over-year, reflects the acquisition of Netcomm and its
subsequent conversion to a dedicated ATM research facility ($947,000), the
start-up of a new ATM product development facility in Quebec, Canada ($395,000)
and the strategic repositioning of the domestic product development organization
($2.0 million). The increase in capitalized software development costs to $13.1
million, or 39.5% of total spending, in fiscal 1994, from $10.6 million, or
35.4% of total spending, in fiscal 1993, is directly related to the increasing
software content within the Company's products.
Interest expense in fiscal 1994 increased $1.8 million, nearly double the
fiscal 1993 level. The Company purchased and concurrently mortgaged two of its
principal facilities in September 1993, adding $630,000 to interest expense,
which was offset by lower rent expense. Also, the higher interest levels
reflected, among other things, an increase in borrowing levels attributable to
the acquisition cost of Netcomm in November 1993 (approximately $400,000 in
interest), the related investments since made to support the ATM product line
and investments in international sales organizations.
The fiscal 1994 income tax benefit of $975,000 is comprised of a $1.7
million favorable resolution of a foreign tax issue offset by $725,000 in
provisions for state and foreign income taxes. The Company has significant net
operating loss carryforwards (approximately $35 million at September 30, 1994)
available to offset future federal income taxes. These net operating losses
begin to expire in the year 2002.
1993 Compared with 1992
Revenues for fiscal 1993 rose $14.0 million, or 7.1%, over fiscal 1992. The
increase in net product sales of $12.7 million was principally due to
improvements in sales into domestic markets (an increase of $13.3 million) while
foreign sales results were mixed. Service revenue increased 3.7%, or $1.2
million, while leasing revenue remained constant on a year-to-year basis. The
Company estimates that new and existing customers each accounted for
approximately one-half of the revenue increase in fiscal 1993.
Gross margin rose to 47.9% in fiscal 1993 from 45.6% in fiscal 1992.
Product margins increased 2.3% from 47.0% to 49.3%, mainly attributable to
higher volumes and improvements in manufacturing productivity, which contributed
1.4% and 0.9%, respectively. Amortization of capitalized software development
costs charged to cost of product sales increased to $8.3 million in fiscal 1993
from $7.2 million in fiscal 1992. Excluding the impact of this amortization,
product margins rose to 54.1% in fiscal 1993 from 51.5% in fiscal 1992.
Selling, general and administrative expenses increased $4.4 million, or
6.4%, in fiscal 1993 from fiscal 1992. The higher spending levels reflected the
impact of headcount additions in the international and domestic sales forces,
regular salary increases, higher commissions (compensation costs increased $1.3
million and travel expenses increased $1.2 million) and other cost increases,
including those associated with the launch of new products.
Research and product development expenditures increased $4.6 million to
14.1% of revenue in fiscal 1993 due to increased investments in new product
development and enhancements. As a result, the capitalization of software
development costs rose from $9.3 million in fiscal 1992 to $10.6 million in
fiscal 1993. On a net basis, research and development expense increased $3.4
million, or 21.2%, in fiscal 1993 from the prior fiscal year.
Interest expense declined 26.4% from $2.7 million in fiscal 1992 to $2.0
million in fiscal 1993 mostly due to the lower levels of borrowings during the
fiscal year. Foreign currency exchange gains of $54,000 and $122,000 were
reported in other income in fiscal 1993 and 1992, respectively.
The Company provided $1.0 million and $554,000 in fiscal 1993 and 1992,
respectively, for federal, state and foreign income taxes, with the increase
principally attributable to higher taxable income in foreign operations.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash and cash equivalents were $2.9 million at September 30,
1994, compared to $2.6 million at September 30, 1993.
15
<PAGE> 18
Non-debt working capital, excluding cash and cash equivalents, increased
$19.6 million in fiscal 1994 to $58.7 million at September 30, 1994. This
increase resulted primarily from increases in current receivables and
inventories, which were partially offset by increases in accounts payable and
accrued liabilities and deferred income on maintenance contracts. Current
receivables increased $13.9 million in fiscal 1994 to $49.6 million at September
30, 1994, due in part to the revenue growth in the fourth quarter. Inventory
grew $7.6 million to $42.2 million in anticipation of increasing shipments of
ATM and other new products. The increase in working capital requirements, and
the net loss before cumulative effects of accounting changes in fiscal 1994 of
$(1.9) million compared to net income of $6.1 million in fiscal 1993,
contributed to the $3.5 million net cash used by operating activities in fiscal
1994 compared to the $27.4 million net cash provided in fiscal 1993 and the
$25.7 million net cash provided in fiscal 1992.
Investing activities during fiscal year 1994 included net additions to
property, plant and equipment of $11.3 million, additions to capitalized
software development costs of $13.1 million and costs of $5.9 million associated
with the Netcomm acquisition. Any future product growth will increase capital
requirements for manufacturing and development equipment. As a result, the
Company anticipates that fiscal 1995 capital requirements should equal or exceed
1994 capital expenditures. Cash used for investing activities grew $10.2 million
in fiscal 1994 over fiscal 1993, $5.9 million of which related to the
acquisition of Netcomm. The balance of the increase, $4.3 million, related to
additions to property, plant and equipment and capitalized software. Additions
to property, plant and equipment and capitalized software also accounted for the
$4.8 million increase in cash used for investing activities in fiscal 1993 over
fiscal 1992.
Financing activities during the year ended September 30, 1994, added $34.2
million in cash, representing $16.5 million from long-term borrowings, $3.1
million from the issuance of Common Stock pursuant to employee stock programs
and net proceeds of $14.6 million in conjunction with a private placement of
1,250,000 shares of Common Stock in the fiscal 1994 third quarter.
In November 1993, the Company entered into an amended revolving credit
agreement expiring on November 30, 1996, that provides for borrowings of up to
$25.0 million, reduced by the value of outstanding letters of credit issued by
the lenders on behalf of the Company up to $2.5 million. Interest is charged at
0.75% plus the higher of either (1) the prime rate or (2) the federal funds rate
plus 1/2 of 1%. Alternatively, the Company may elect to borrow at 2.625% over
LIBOR for terms of 1, 2, 3 or 6 months. The agreement imposes various financial
covenants, requires that most assets of GDC be pledged as collateral and limits
the permitted amount of borrowing through an asset-based formula. The loan
balance outstanding at September 30, 1994, was $16.2 million. In June 1994, this
agreement was further amended to provide an $8.0 million term loan ($7.5 million
outstanding at September 30, 1994), the proceeds of which the Company used to
reduce in full other maturing indebtedness. The Company is in compliance with
the various financial covenants of this agreement.
In September 1993, the Company purchased its corporate headquarters and
manufacturing facilities and concurrently entered into mortgages to partially
finance these purchases. The mortgage balances outstanding at September 30,
1994, totaled $11.4 million. Interest is charged at LIBOR (90-day) plus 2%,
principal payments are $100,000 per quarter and the mortgages mature in the year
2003.
Notes payable and capitalized lease obligations (excluding the term loan of
$7.5 million referenced above), both used to finance capital equipment
purchases, totaled $11.8 million at September 30, 1994, and have five-year
maturities.
Cash provided by financing activities of $34.2 million in fiscal 1994, was
required to fund the operating and investing requirements previously described.
This compares to cash used by financing activities of $6.4 million in fiscal
1993 and $14.5 million in fiscal 1992.
The Company believes that its existing cash balances and future cash flow
from operations, combined with available funds under its revolving credit
facility and the proceeds from the offering contemplated hereby, will be
adequate to support the Company's growth for the foreseeable future.
16
<PAGE> 19
BUSINESS
OVERVIEW
GDC is a leading worldwide provider of wide area networking and
telecommunications products. The Company designs, assembles, markets, installs
and maintains products and services that enable telecommunications common
carriers, corporations and governments to build, upgrade and better manage their
global telecommunications networks. Products include multiplexers,
internetworking equipment, digital data sets, analog modems, Asynchronous
Transfer Mode ("ATM") cell switches, network management systems and
comprehensive support services. The Company sells and leases its products
through its own worldwide sales and service organizations, as well as through
local distributors and value-added resellers.
GDC's customer base includes: Local Exchange Carriers including all seven
Regional Bell Operating Companies, Bell Canada and GTE; Competitive Access
Providers including MFS Datanet; Interexchange Carriers including AT&T, MCI and
Sprint; corporate end users such as American Airlines, Citicorp, EDS, Harris,
Hitachi and Hongkong & Shanghai Bank; and government entities including the
British Ministry of Defence, the French Ministry of State, NASA, the U.S. State
Department and many state and local governments.
The Company's executive offices are located at 1579 Straits Turnpike,
Middlebury, Connecticut 06762-1299 and its telephone number is (203) 574-1118.
STRATEGY
The Company's broad product line provides integrated networking solutions
used to construct global data, voice and video communications networks. The
Company's core product line of multiplexers and internetworking equipment,
digital data sets and analog modems has historically combined advanced wide area
networking technology with analog and digital transmission capabilities. During
the last several years the Company has emphasized its digital product offerings
over its analog products as telephone companies upgrade their transmission
facilities and offer new digital services at substantially lower rates.
In the early 1990s, the Company identified ATM technology as the preferred
solution for addressing problems caused by the increasing limitations of
conventional Local Area Network ("LAN") and Wide Area Network ("WAN")
technologies. ATM provides a dramatic increase in capacity throughout networks,
carrying both LAN and WAN traffic faster than conventional networking
technologies. ATM also enables the transmission of voice, video and high-speed
data traffic on a single communications line. After reviewing various strategic
alternatives for entering the ATM market, the Company entered into a
distribution and technology transfer agreement with Netcomm in December 1992.
The Company subsequently acquired Netcomm in 1993.
By offering ATM solutions to its customers, the Company believes it has
enhanced its position as a leading supplier of wide area networking and
telecommunications products. The Company's strategy of providing integrated
networking solutions to its customers is based upon the following:
Capitalizing on ATM Technology. The Company believes it has a leading
position in the ATM switch market. The following entities have deployed, or
announced their intention to deploy, GDC's ATM cell switches in their proposed
ATM networks: Ameritech, Bell Canada, MCI, MFS Datanet, Telecom Finland and
Australia's Defence, Science and Technology Organisation. As of September 30,
1994, GDC, including NetComm, had shipped 241 ATM switches and related products
to a variety of customers in 15 countries (79 for customer trial and 162 sold).
The Company also believes that growing market awareness of its ATM switch
technology has increased customer exposure to GDC's other products.
Providing Cost-Effective Flexible Product Solutions. The Company's product
families are designed with architectures that scale to most network sizes and
cost requirements. Customers can select the products that are most appropriate
for their needs and migrate to higher capacity products over time. GDC's common
software modules across product families allow the end user to utilize a single
network
17
<PAGE> 20
management system, which provides value-added capabilities such as extensive
alarm reporting, diagnostics and advanced service restoral options for each
circuit in the network.
Improving Performance of Customer Networks. The Company's products are
designed to improve network efficiency by increasing transmission speed,
compressing and consolidating voice and data communication and providing dynamic
bandwidth allocation.
Leveraging Global Customer Base, Distribution and Support. The Company has
a worldwide customer base of corporate and government users and
telecommunications carriers. The Company has global distribution capabilities
and products installed in nearly 60 countries around the world. GDC's ability to
provide international customer service and support is critical to customers that
run mission-critical applications over their networks.
ATM MARKET
Background. Improvements in microprocessor technology over the past
several years have significantly changed the way users design and build
communications networks. Corporations are migrating away from mainframe centric
computer networks and moving to client/server architectures in which increasing
processing power is located on the desktop. Personal computers ("PCs") and
workstations are connected together to form LANs, and large corporations today
may have up to several hundred LANs within their enterprise. LANs typically use
shared medium technologies like Ethernet, Token Ring and Fiber Distributed Data
Interface. These LAN technologies require that all users contend for the
available bandwidth and consequently, as the number of users increases,
throughput decreases. In addition, users find that shared medium LANs cannot
provide the bandwidth necessary to support today's powerful PCs running
communication-intensive applications.
WANs present an additional bottleneck constraining greater deployment of
enterprise-wide networks. The underlying WAN architecture is optimized for low
speed, constant bit-rate voice communications. It does not scale well to
accommodate high-speed, burst-oriented data communications typical of a LAN. To
address this problem, telecommunications carriers have deployed fiber optic
transmission facilities in their networks over the past decade and are beginning
to, or have announced their intention to, test and deploy ATM switches as the
platform of choice for offering new, value-added services to their customers.
The need for more bandwidth in both the LAN and WAN environments to support
current data processing and networking applications is a key factor driving
demand for ATM products. Increasing numbers of applications combining voice,
video and data will demand even more bandwidth than current applications.
ATM Segments. Although currently in the early stages of development, ATM
is expected to become a leading transmission switch technology for
communications networks. In April 1994, the Gartner Group, an independent market
research and consulting firm, projected the market for all ATM products to grow
from approximately $275 million in 1993 to approximately $3.1 billion in 1997,
representing a compounded annual growth rate of over 80%. Within the broader ATM
market, the Company has identified the four distinct segments described below
and has chosen to pursue the enterprise and edge switch segments.
Workgroup Hub. ATM workgroup hubs are devices used to connect high
speed workstations and servers to form a high performance, local computing
environment. The Company expects switched Ethernet and virtual LAN
architectures to be the dominant approaches to creating this local
computing environment and anticipates a gradual migration to ATM desktop
connectivity. GDC intends to address this market segment through
partnerships or potential acquisitions in order to provide a timely
entrance into this market.
Enterprise Switch. Enterprise switches are used to interconnect a
broad range of customer premise equipment, including LAN hubs, routers,
multiplexers, PBXs and video codecs, across a campus or a more
geographically dispersed area to create high-speed backbone networks
linking
18
<PAGE> 21
major corporate locations. Key market requirements include a fault tolerant
architecture and the ability to support a broad range of interfaces and
adaptation capabilities for new, as well as legacy, technologies.
Edge Switch. The telecommunications carrier edge switch is typically
located in the central office of a Local Exchange Carrier, an Interexchange
Carrier, a Competitive Access Provider or a Cable TV Operator. Switches are
used as platforms to provide services to a number of end user locations.
Common carriers also utilize these switches in the basements of buildings
to offer new services to multiple customers. As with the enterprise switch
market, fault tolerance and the ability to support a broad range of
interfaces and adaptation capabilities are key requirements because
carriers need maximum flexibility. In addition, the unique packaging and
environmental requirements of telecommunications carriers must be met.
Central Office Switch. At large central offices, all traffic in the
network hierarchy has been converted into ATM cells and the required
switches must provide up to hundreds of gigabits of throughput. GDC does
not intend to address this market directly as the Company views the
development costs of these switches to be high and believes this market is
currently served by established central office switching providers. Rather,
the Company intends to develop strategic partnerships with participants in
this market as a vehicle for enhancing its position in the edge and
enterprise switch markets.
GDC's Target ATM Segments. The enterprise and edge switch markets, which
the Company is pursuing, address the points in a network where LAN, voice, video
and other data applications converge with WANs and the greatest bandwidth
bottlenecks exist. The Company also believes that, at present, these two
segments are not adequately served by any established vendors.
PRODUCTS
In fiscal 1994, sales and leases of products represented approximately 84%
of revenues while service revenues represented about 16% of revenues. GDC's line
of products includes:
Multiplexers/Internetworking Products. GDC's multiplexer and
internetworking products family includes systems for both branch office and
corporate backbone locations which integrate voice, traditional data, video and
LAN traffic over narrowband (56/64 Kbps) or wideband (fractional T1/E1 and
T1/E1) digital services. By consolidating multiple forms of traffic over a
single transmission line, these products dramatically decrease an end user's
network costs. The Company's products integrate both time division multiplexing
and packet switching (LAN routing and frame relay switching), thereby providing
a flexible networking platform.
For the corporate backbone locations, the Company offers the TMS 3000 which
supports a wide range of voice, facsimile, LAN, traditional data and video
applications. In April 1993, GDC introduced the Office Communications Manager
("OCM"), a cost-effective networking solution for the branch office location.
The Company believes the OCM is the only branch office product which offers the
integration of voice, LAN routing, frame relay and traditional data at speeds
ranging from 56/64 Kbps to T1/E1.
19
<PAGE> 22
In corporate backbone environments requiring broadband speeds and services,
the Company's APEX ATM switches can be used. The TMS 3000 and OCM can feed into
the APEX switch enabling the Company to offer an integrated networking solution
that scales from small remote or branch locations into regional wideband
backbones and ultimately into ATM-based broadband backbones. Selling prices vary
widely depending on the size and complexity of the system being ordered. The
average sales prices of TMS and OCM products shipped in fiscal 1994 were
approximately $47,000 and $6,000, respectively.
[Artwork No. 2 here]
Digital Data Sets. Digital data sets are used to convert and interpret
signals from computers and communications equipment into a form that is
acceptable for transmission over telecommunications facilities. The Company
offers a broad set of narrowband digital data sets that run at various speeds up
to 64 Kbps and wideband digital data sets operating at fractional T1 and T1
speeds. GDC recently introduced broadband data sets running at T3 rates. GDC
supplies its digital data sets to the major North American telephone companies
and various end users. GDC continues to enhance its digital transmission product
line by combining higher transmission speeds with value-added capabilities
including data compression, concentration, protocol adaptation/conversion and
network management. This enables the Company to offer differentiated, and, in
some cases, unique transmission solutions and sustain better than average gross
margins.
The Company is leveraging its digital transmission expertise by pursuing
international markets. In China and in developing countries in Latin America and
the Pacific Rim, there is insufficient copper wire installed to support the
growing demand for communications services. The Company believes it is
responding to these needs by offering new products utilizing transmission
technologies like 2B1Q (Two Binary One Quarternary) and HDSL (High Speed Digital
Subscriber Line). These products offer much higher transmission speeds while
using half of the copper wire pairs normally needed to provision private line
services. Sales prices of typical digital data sets range from $350 per unit to
$2,000 per unit.
20
<PAGE> 23
Analog Modems. Analog modems convert digital computer signals to a format
that can be transmitted over telephone lines. As described above, the market for
these modems has been shrinking as telephone networks move from an analog to a
digital format. The Company offers a broad range of private line and dial-up
analog modems operating at all standard speeds up to 19.2 Kbps.
GDC recently developed a new modem family, known as the V.F 28.8 family,
offering transmission speeds twice as fast as modems conforming to any pre-V.34
standards and throughputs of up to 115 Kbs over basic analog dial-up facilities
or two-wire analog private line circuits. The V.F 28.8 products enable faster
transmission speeds on a single pair of wires versus traditional analog
provisioning requiring two pairs. The Company is seeking to expand sales of its
V.F 28.8 products through direct and indirect selling activities throughout the
world and through licensing arrangements. GDC began shipping V.F 28.8 units in
the first quarter of fiscal 1994 and expects sales of these products to
partially offset expected declines in its traditional analog products, although
at the present time sales of the V.F 28.8 modems are not a significant part of
the Company's aggregate product sales. Sales prices of typical analog modems
range from $244 per unit to $1,350 per unit.
ATM Switches and Network Management Systems. The Company currently offers
a family of ATM switches and access products for both public and private
networks under the GDC APEX name. The APEX product line consists of the
APEX-DV2, the APEX-NPX and the APEX-MAC.
<TABLE>
<CAPTION>
SWITCH SPECIFICATIONS TARGETED SEGMENT
---------------- ------------------------------- -------------------------------
<S> <C> <C>
APEX-DV2 Provides up to 6.4 Gbps of Enterprise switch for corporate
capacity and support for up to and government users.
64 ports within a single shelf,
utilizing AC power supplies.
APEX-NPX Provides up to 6.4 Gbps of Edge switch for common
capacity and support for up to carriers, including telephone
64 ports within a single shelf, and cable television companies.
utilizing DC power supplies.
APEX-MAC Provides up to 1.4 Gbps of Lower capacity enterprise
capacity and support for 14 to switch for corporate and
28 ports within a single shelf. government users and common
carriers.
</TABLE>
GDC's APEX-NMS 3000 Network Management System supports the Company's
APEX-ATM switches. The network management platform offers a powerful UNIX-based,
object-oriented system employing a graphical user interface for ATM network
management via the industry-standard Simple Network Management Protocol. The
APEX-NMS 3000 enables a network manager to configure APEX switches and monitor
the ATM switch network, the capacity and utilization of each ATM node and the
status of each other component of the network.
Several major carriers have announced that they propose to use GDC-APEX ATM
switches as their platform for new data communications services. A number of
corporate customers also have purchased APEX switches. The Company believes its
family of APEX switches have the following competitive features:
- Scalability, allowing a customer to construct a multitiered switch
network that scales in price and performance.
- Flexibility, providing the customer with comprehensive interfaces and
adaptation capabilities.
- Traffic management architecture, providing networks with traffic
policing, traffic prioritization and buffer management capabilities.
- Switched virtual circuits, dynamically establishing connections on an
end-to-end basis.
Selling prices vary widely depending on the size and complexity of the
system being ordered. The average sales price of an APEX system in fiscal 1994
was approximately $77,000.
21
<PAGE> 24
ACQUISITION STRATEGY
As part of its business strategy, the Company actively reviews acquisition
opportunities, including those which may complement its product lines, provide
access to emerging technologies or enhance market penetration. In November 1993,
the Company acquired Netcomm for $5.5 million in cash and $1.8 million in Common
Stock. Future acquisitions could be for stock or cash or a combination thereof
and could be substantially larger than past acquisitions. The Company at this
time has no understandings or commitments to make any acquisitions and there can
be no assurances that any acquisitions will be made.
MARKETING, SALES AND CUSTOMERS
The Company's products and networks are marketed throughout the world.
GDC's sales and marketing organization, which, at September 30, 1994, consisted
of approximately 471 employees, is organized on a worldwide basis to address
three market segments: (1) corporate and government end users; (2) common
carriers; and (3) indirect sales through value-added resellers and distributors.
In the United States, the Company sells, leases and services its equipment
primarily through its own sales and service groups, which include separate
geographic sales and technical support organizations for corporate and
government end users and common carrier markets. No customer accounted for 10%
or more of the Company's revenues during any of the past three fiscal years.
Internationally, GDC maintains full subsidiary operations in Canada (sales
and service), the United Kingdom (sales and service), Mexico (sales and
service), France (sales and service), Australia (sales), Singapore (sales) and
Russia (sales), and sales and technical support offices in Japan, Hong Kong,
Germany, China, Brazil and Spain. These sales offices manage a worldwide
distribution network with representatives in more than 48 countries.
International operations represented 37% of the Company's revenues in fiscal
1994. GDC's foreign operations are subject to all the various risks inherent in
operating outside the U.S.
Selected users of the Company's products include:
TELECOMMUNICATIONS
Alascom
Ameritech
AT&T
Bell Atlantic
Bell Canada
BellSouth
British Telecom
CPT (Peru)
GTE
Guangdong PTA (China)
Impsat (Argentina, Columbia)
MCI
MFS Datanet
NYNEX
Pacific Bell
SNET
Southwestern Bell
Sprint
Telecom Finland
Telefonos de Mexico
US West
WilTel
COMMERCIAL
American Airlines
EDS
Harris
Hitachi
Lockheed
Loral
TRW
GOVERNMENT
British Ministry of Defence
French Ministry of State
Los Angeles, City and County
NASA
New York City Transit Authority
U.S. State Department
Various state governments,
including California, Florida,
Michigan, Ohio and Texas
FINANCIAL SERVICES
Boatmen's Bancshares
Cecoban (Mexico)
Citicorp
Flserv
Hongkong & Shanghai Bank
Key Services
Quotron Systems
Shawmut Bank
Telerate Systems
Wheat First Butcher & Singer
Securities
22
<PAGE> 25
CUSTOMER SERVICE AND SUPPORT
GDC provides comprehensive technical support crucial for its
telecommunications carrier, corporate and government customers that run
mission-critical applications over their networks. Each of the Company's sales
subsidiaries directly provides its own support capabilities, augmented by third
party service providers when necessary. Authorized distributors provide their
own support services and participate in service certification programs
administered by DataComm Service Corporation, a U.S. subsidiary of GDC.
The Company's service and support programs include product repair,
logistics support, installation, maintenance, educational services and on-line
network management services. Services are supported by field service engineers,
technical support staff and Technical Operations and Assistance Centers ("TOAC")
located in the U.S. and the United Kingdom. TOACs are staffed 24 hours a day,
365 days a year. The Company offers various value added services, including
First ResponseTM, an outsourcing service by which TOAC Technicians monitor and
manage customer networks on a remote basis. Customers of GDC's service and
support programs include Bell South Mobility, New York City Transit Authority,
the State of Michigan and Volvo. At September 30, 1994, GDC had 307 people
engaged in services and support activities.
RESEARCH AND PRODUCT DEVELOPMENT
In order to develop and implement new technologies in the data, voice and
video communications industry and to broaden the applications for its products,
GDC has significant ongoing engineering programs for product improvement and new
product development. At September 30, 1994, 331 people were engaged in research
and development activities. The Company conducts research and development
activities in three locations. Development for all transmission products,
multiplexer and internetworking products, enhancements to the APEX-ATM switch
products and continuation engineering activities occur in the Technology
Research Center in Middlebury, Connecticut. The Multimedia Research Center in
Montreal, Quebec focuses on ATM-based applications and solutions, and the
Advanced Research Centre in Basildon, England focuses on next generation ATM
hardware and software.
MANUFACTURING
GDC's principal assembly plant is a Company-owned, 360,000 square foot
facility located in Naugatuck, Connecticut, of which approximately 200,000
square feet are currently being utilized. The Company also outsources the
manufacturing and assembly of certain subassemblies, generally high volume
items. Outsourced products represented approximately 15% of the manufacturing
assembly during the 1994 fiscal year.
GDC's Connecticut facilities recently received ISO 9001 certification. ISO
9001 is a comprehensive model for quality assurance in design/development,
production, installation and servicing. It was developed by a technical
committee comprised of representatives from over 90 countries under the
direction of the Geneva-based International Organization for Standardizations.
GDC's United Kingdom facilities recently received BS 5750 certification. Awarded
by the British Standards Institute, BS 5750 also is a comprehensive quality
assurance model.
23
<PAGE> 26
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The holders of shares of Common Stock of GDC are entitled to one vote per
share on all matters submitted to stockholders. They are also entitled to vote
separately as a class (as are the holders of shares of the Class B Stock
described below) on all matters requiring an amendment to the Company's Restated
Certificate of Incorporation, as well as on mergers, consolidations and certain
other significant transactions for which stockholder approval is required under
Delaware law. Holders of the Common Stock do not have preemptive rights or
cumulative voting rights.
Dividends on the Common Stock will be paid if, and when, declared. The
Common Stock is entitled to cash dividends which are 11.11% higher per share
than the cash dividends which may be paid on the Class B Stock, but otherwise
the Common Stock and the Class B Stock rank equally as to dividends. The Company
has never paid cash dividends and dividends are not permitted by the Company's
revolving credit and term loan agreement. Stock dividends on and stock splits of
Common Stock will only be payable or made in shares of Common Stock.
The Common Stock is entitled upon liquidation to receive the entire net
assets of the Company remaining after payment of all debts and other claims of
creditors and after the holders of each series of Preferred Stock, if any, have
been paid the preferred liquidating distribution on their shares, if any, as
fixed by the Board of Directors of GDC. The Common Stock is not convertible into
shares of any other equity security of the Company.
The Common Stock is freely transferable.
CLASS B STOCK
The holders of shares of Class B Stock of GDC are entitled to one vote per
share on all matters submitted to stockholders, except that they are entitled to
ten votes per share in the election of directors under certain circumstances.
They are also entitled to vote separately as a class (as are the holders of
shares of Common Stock) on all matters requiring an amendment to the Company's
Restated Certificate of Incorporation, as well as on mergers, consolidations and
certain other significant transactions for which stockholder approval is
required under Delaware law. Holders of the Class B Stock do not have preemptive
rights or cumulative voting rights.
Dividends on the Class B Stock will be paid only as and when dividends on
the Common Stock are declared and paid. The Common Stock is entitled to cash
dividends which are 11.11% higher per share than the cash dividends which may be
paid on the Class B Stock, but otherwise the Common Stock and the Class B Stock
rank equally as to dividends. Stock dividends on and stock splits of Class B
Stock will only be payable or made in shares of Class B Stock.
In the event of liquidation or insolvency, each share of Class B Stock will
be entitled, through conversion into Common Stock, to share ratably with the
Common Stock in the assets remaining after payment of all debts and other claims
of creditors, subject to the rights of any Preferred Stock which may be issued
in the future.
Holders of Class B Stock may elect at any time to convert any of or all
such shares to shares of the Common Stock on a share-for-share basis. In the
event that the number of outstanding shares of Class B Stock falls below 5% of
the aggregate number of issued and outstanding shares of Common Stock and Class
B Stock, or the Board of Directors and holders of a majority of the outstanding
shares of Class B Stock approve the conversion of all the Class B Stock into
Common Stock, then the shares of the Class B Stock will automatically be
converted into shares of Common Stock. In the event of such conversion,
certificates formerly representing outstanding shares of Class B Stock will
thereafter be deemed to represent a like number of shares of Common Stock.
24
<PAGE> 27
The Class B Stock is not transferable except to certain family members and
related entities of the holder thereof.
SPECIAL VOTING REQUIREMENTS
The Company's Restated Certificate of Incorporation contains a provision
requiring a two-thirds vote on any merger, consolidation or sale of all or
substantially all the Company's assets. It also contains a "fair price"
provision requiring all stockholders to receive equal treatment in the event of
a takeover which may be coercive. This "fair price" provision may not be amended
except by a four-fifths vote of the stockholders and may be considered to have
the effect of discouraging tender offers, takeover attempts, acquisitions or
business combinations involving the Company. That provision also requires that
business combinations involving the Company and certain "Acquiring Persons"
(defined to include any person or entity which directly or indirectly owns or
controls at least 5% of the voting stock of the Company) be approved by the
holders of four-fifths of the Company's outstanding shares entitled to vote
(other than shares held by an Acquiring Person with which or by or on whose
behalf a business combination is proposed) unless such business combination
either:
(1) has been authorized by the Board of Directors of GDC prior to the
time that the Acquiring Person involved in such business combination became
an Acquiring Person; or
(2) will result in the receipt by the other stockholders of the
Company of a specified minimum amount and form of payment for their shares.
PREFERRED STOCK
Preferred Stock may be issued in one or more series from time to time by
action of the Board of Directors of GDC. The shares of any series of Preferred
Stock may be convertible into Common Stock, may have priority over the Common
Stock and Class B Stock in the payment of dividends and as to the distribution
of assets in the event of liquidation, dissolution or winding up of the Company
and may have preferential or other voting rights, in each case, to the extent,
if any, determined by the Board of Directors of the Company at the time it
creates the series of Preferred Stock. There currently are no shares of
Preferred Stock outstanding.
25
<PAGE> 28
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriters, and each of the
Underwriters, for whom Salomon Brothers Inc and SoundView Financial Group, Inc.
are acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company, the number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
----------------------------------------------------------------- ---------
<S> <C>
Salomon Brothers Inc.............................................
SoundView Financial Group, Inc. .................................
---------
Total....................................................... 1,800,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase the 1,800,000
shares of Common Stock offered hereby (other than the shares of Common Stock
covered by the over-allotment option described below) if any such shares of
Common Stock are purchased. In the event of a default by any Underwriter, the
Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated. The Company has been advised by the
Representatives that the several Underwriters propose initially to offer such
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to other dealers.
After the initial offering, the public offering price and such concessions may
be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 270,000
additional shares at the public offering price less the underwriting discount
set forth on the cover page of this Prospectus. The Underwriters may exercise
such option only to cover over-allotments in the sale of the shares of Common
Stock that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
The Company has agreed not to offer, sell or contract to sell, or otherwise
dispose of, or announce the offering of, any shares of Common Stock, or any
securities convertible into, or exchangeable for, shares of Common Stock, except
the shares of Common Stock offered hereby, for a period of 90 days from the date
of this Prospectus without the prior written consent of the Representatives;
provided, however, that the Company may issue and sell Common Stock pursuant to
any employee stock option plan, stock ownership plan or dividend reinvestment
plan in effect on the date of this Prospectus and the Company may issue Common
Stock issuable upon the conversion of securities or the exercise of warrants
outstanding on the date of this Prospectus. Furthermore, certain directors and
executive officers (including the chairman and chief executive officer,
president and chief operating officer and vice president - finance and chief
financial officer) of the Company have agreed that they will not offer, sell or
contract to sell, or otherwise dispose of, or announce the offering of, any
shares of Common Stock for a period of 90 days from the date of this Prospectus
without the prior written consent of the Representatives (other than shares
disposed of as bona fide gifts).
26
<PAGE> 29
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
Salomon Brothers Inc was the financial advisor to the Company in connection
with the Company's November 1993 acquisition of Netcomm and was the private
placement agent for the Company in connection with the Company's sale of
1,250,000 shares of Common Stock on May 27, 1994.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Weisman, Celler, Spett &
Modlin, New York, New York. Certain legal matters in connection with the
offering contemplated hereby will be passed upon for the Underwriters by
Cravath, Swaine & Moore, New York, New York. As of December 5, 1994, members of
the firm of Weisman, Celler, Spett & Modlin beneficially owned 6,750 shares of
the Class B Stock of the Company. Howard S. Modlin, a member of such firm, is
Secretary and a director of the Company.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company at September 30, 1994 and 1993 and for the three years ended
September 30, 1994, 1993 and 1992, incorporated by reference in this Prospectus,
have been incorporated herein by reference in reliance upon the audit report of
Coopers & Lybrand, independent accountants, given upon the authority of that
firm as experts in accounting and auditing.
27
<PAGE> 30
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents
by Reference........................ 3
Prospectus Summary.................... 4
Investment Considerations............. 6
Use of Proceeds....................... 10
Price Range of Common Stock and
Dividend Policy..................... 10
Capitalization........................ 11
Selected Consolidated
Financial Data...................... 12
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 13
Business.............................. 17
Description of Capital Stock.......... 24
Underwriting.......................... 26
Legal Matters......................... 27
Experts............................... 27
</TABLE>
1,800,000 SHARES
GENERAL
DATACOMM
INDUSTRIES, INC.
COMMON STOCK
($.10 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
SOUNDVIEW FINANCIAL
GROUP, INC.
PROSPECTUS
DATED , 1994
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) payable by the registrant in connection with the
issuance and distribution of the shares registered hereby. Other than the SEC
registration fee and the NASD filing fee, such expenses are estimates.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 21,503.02
NASD filing fee............................................ 6,735.88
Printing costs (excluding stock certificates).............. 97,500.00
Accounting fees and expenses............................... 25,000.00
Blue Sky fees and expenses................................. 10,000.00
Legal fees and expenses.................................... 165,000.00
Miscellaneous expenses..................................... 4,261.10
-----------
Total............................................ $330,000.00
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article Tenth of the registrant's Restated Certificate
of Incorporation filed as Exhibit 3.1 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988, which is incorporated by
reference herein, for information concerning indemnification of directors and
officers. Section 145 of the General Corporation Law of Delaware permits or
requires indemnification of officers and directors in the event that certain
statutory standards of conduct are met. However, reference is made to Item 17
with respect to indemnification for liabilities arising under the Securities Act
of 1933.
Under an insurance policy with The Chubb Group of Companies, the directors
and certain officers of the undersigned registrant and its subsidiaries are
indemnified against certain losses arising from certain claims which may be made
against such persons, by reason of their being such directors or officers.
ITEM 16. EXHIBITS
*1. Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company (incorporated
by reference from Exhibit 3.1 to Form 10-Q for the quarter ended
June 30, 1988; amendments thereto are filed as Exhibit 3.1 to Form 10-Q
for the quarter ended March 31, 1990).
3.2 Amended and Restated By-laws of the Company (incorporated by reference
from Exhibit 3.2 to Form 10-K for the year ended September 30, 1987).
*4. Specimen Common Stock Certificate.
*5. Opinion of Weisman, Celler, Spett & Modlin.
23.1 Consent of Coopers & Lybrand.
*23.2 Consent of Weisman, Celler, Spett & Modlin (contained in Exhibit 5).
*24. Powers of Attorney.
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities
II-1
<PAGE> 32
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
For purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
9th day of December, 1994.
GENERAL DATACOMM INDUSTRIES, INC.,
By *
--------------------------------------
Charles P. Johnson
Chairman of the Board
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and December 9, 1994
- ------------------------------------------ Chief Executive Officer
Charles P. Johnson (Principal Executive
Officer)
* Vice President-Finance and December 9, 1994
- ------------------------------------------ Chief Financial Officer
William S. Lawrence (Principal Financial
Officer)
/s/ WILLIAM G. HENRY Corporate Controller December 9, 1994
- ------------------------------------------ (Principal Accounting
William G. Henry Officer)
* Director December 9, 1994
- ------------------------------------------
Howard S. Modlin
* Director December 9, 1994
- ------------------------------------------
Frederick R. Cronin
* Director December 9, 1994
- ------------------------------------------
Lee M. Paschall
* Director December 9, 1994
- ------------------------------------------
John L. Segall
</TABLE>
- ---------------
* The undersigned by signing his name hereto does sign and execute this
registration statement pursuant to the Power of Attorney executed by the
above-named officers and directors of the registrant and filed with the
Securities and Exchange Commission on behalf of such officers and directors.
/s/ GERALD GORDON
- -----------------------------------
Gerald Gordon
II-3
<PAGE> 34
GENERAL DATACOMM INDUSTRIES, INC.
EXHIBIT INDEX
Certain of the exhibits to this registration statement are hereby
incorporated by reference, as specified below, to other documents filed with the
Commission. Exhibit designations below correspond to the numbers assigned to
exhibit classifications in Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTIONS PAGE NOS.
- ------- -------------------------------------------------------------------------- ----------
<C> <S> <C>
*1 Form of Underwriting Agreement. ..........................................
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 to Form 10-Q for the quarter ended June 30,
1988; amendments thereto are filed as Exhibit 3.1 to Form 10-Q for the
quarter ended March 31, 1990). ...........................................
3.2 Amended and Restated By-laws of the Company (incorporated by reference
from Exhibit 3.2 to Form 10-K for the year ended September 30, 1987). ....
*4 Specimen Common Stock Certificate. .......................................
*5 Opinion of Weisman, Celler, Spett & Modlin. ..............................
23.1 Consent of Coopers & Lybrand. ............................................
*23.2 Consent of Weisman, Celler, Spett & Modlin (contained in Exhibit 5). .....
*24 Powers of Attorney. ......................................................
</TABLE>
- ---------------
* Previously filed
E-1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of General DataComm Industries, Inc. and Subsidiaries on Form S-3 (No. 33-56213)
of our report, which includes an explanatory paragraph for certain accounting
changes, dated October 19, 1994, on our audits of the consolidated financial
statements and financial statement schedules of General DataComm Industries,
Inc. and Subsidiaries as of September 30, 1994 and 1993 and for the years ended
September 30, 1994, 1993 and 1992, which report is included in the 1994 Annual
Report on Form 10-K, as amended by Form 10-K/A. We also consent to the reference
to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Stamford, Connecticut
December 9, 1994
