PROSPECTUS
4,886,703 Shares
General DataComm Industries, Inc.
Common Stock
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This prospectus relates to 1,200,000 shares of common stock of General
DataComm Industries, Inc. ("GDC") currently issuable, and a maximum of 4,886,703
shares which may be issuable to the Selling Stockholders named herein, upon
conversion of our 5% Preferred Stock and exercise of warrants, and sold by them
from time to time. In addition, the Selling Stockholders who hold our 5%
Preferred Stock may receive shares of common stock in lieu of cash on the
quarterly dividends payable on the 5% Preferred Stock. Two (2) of these Selling
Stockholders acquired our 5% Preferred Stock convertible into Common Stock and
warrants to purchase common stock pursuant to a purchase agreement dated July
31, 2000 ("Purchase Agreement") in a private placement. The two Selling
Stockholders assigned some of their warrants to their financial advisor which is
also listed as a Selling Stockholder.
We will not receive any of the proceeds from the sale of shares of
common stock acquired by the Selling Stockholders, although we have paid the
expenses of preparing this prospectus and the related registration statement. We
may receive proceeds from the exercise of the warrants which we would use for
general corporate purposes.
The shares are being registered to permit the Selling Stockholders to
sell the shares from time to time in the public market or through other means as
described in the section entitled "Plan of Distribution" beginning on page 8.
Our shares are traded on the New York Stock Exchange under the symbol "GDC". On
September 27, 2000, the last reported sales price of our common stock was
$5.625 per share.
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Before purchasing any of the shares covered by this prospectus,
carefully read and consider the risk factors in the section entitled "Risk
Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is September 28, 2000
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Any broker-dealers, agents or underwriters who participate in the distributions
of the shares for the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act") and any commission received by them or purchases by them of such shares at
a price less than the initial price to the public may be deemed to be
underwriting commissions or discounts under the Securities Act.
TABLE OF CONTENTS
Page
About this Prospectus............................................... 2
Where You Can Find More Information................................. 2
Forward-Looking Statements.......................................... 3
About General DataComm Industries, Inc.............................. 4
Company Strategy.................................................... 4
Risk Factors........................................................ 5
Use of Proceeds..................................................... 7
Selling Stockholders................................................ 8
Plan of Distribution................................................ 8
Description of Capital Stock........................................ 10
Legal Matters....................................................... 16
Independent Accountants............................................. 16
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed
with the Securities and Exchange Commission (the "SEC"). The prospectus relates
to shares of our common stock which the Selling Stockholders may sell from time
to time.
The shares have not been registered under the securities laws of
any state or other jurisdiction as of the date of this prospectus. Brokers or
dealers should confirm the existence of an exemption from registration or
effectuate such registration in connection with any offer and sale of the
shares.
This prospectus describes various significant risk factors that you
should consider before purchasing the shares. See "Risk Factors" beginning on
page 5. You should read this prospectus together with the additional information
described under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires us to file information with the SEC
concerning our business and operations. We file annual, quarterly and special
reports, proxy statements and other information with the SEC. You can read and
copy these documents at the public reference facility maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, NW, Room 1024, Washington, DC 20549. You can
also copy and inspect such reports, proxy statements and other information at
the regional offices of the SEC located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public on
the SEC's web site at http://www.sec.gov. You can also inspect our reports,
proxy statements and other information at the offices of the New York Stock
Exchange.
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and/or supersede this
information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"):
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1. Our Annual Report on Form 10-K for the year ended September 30, 1999.
2. Our quarterly reports on Form 10-Q for the quarters ended
December 31, 1999, March 31, 2000 and June 30, 2000.
3. Our current reports on Form 8-K dated May 17, 2000 and July 31, 2000.
4. The Definitive Proxy Statement for the Annual Meeting of GDC
on Schedule 14A, dated January 27, 2000.
This prospectus is part of a registration statement we filed with
the SEC (Registration No. 333-45784). You may request a free copy of any of the
above filings by writing or calling Vice President Business Development, General
DataComm Industries, Inc., Park Road Extension, Middlebury, CT 06762-1299
(telephone number (203) 758-1811).
You should rely only on the information incorporated by reference
or provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement to this
prospectus is accurate as of any date other than the date on the cover page of
this prospectus or any supplement.
FORWARD-LOOKING STATEMENTS
This prospectus and the other reports we have filed with the SEC
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The words or phrases
"intend", "expect", "may", "depend", "will ", "continue", and similar words and
phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and
uncertainties and we caution you that any forward-looking information provided
by or on behalf of GDC is not a guarantee of future performance. Our actual
results could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which are beyond our control, in
addition to those risks discussed in "Risk Factors" in this prospectus and in
our other public filings, press releases and statements by our management,
including the volatile and competitive nature of the data communications
industries, rapid changing technology, regulatory requirements and changes in
domestic and foreign economic and market conditions. All forward-looking
statements are current only as of the date on which such statements were made.
We do not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated events.
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ABOUT GENERAL DATACOMM INDUSTRIES, INC.
General DataComm Industries, Inc. was incorporated in 1969 under
the laws of the State of Delaware.
Based in Middlebury, Connecticut we are a worldwide provider of
wide area networking and telecommunications products and services. We focus on
providing multiservice provisioning solutions using ATM switching and
multiservice access products. We design, market, install and maintain products
and offer services that enable telecommunications common carriers, corporations,
governments and other organizations to build, improve and more cost effectively
manage their global telecommunications networks. In fiscal 1999, we completed a
major reorganization of business operations that created two new independent
operating divisions in the form of the Broadband Systems Division and the
Network Access Division. VITAL Network Services, L.L.C. was established as a
business unit in 1997 in addition to DataComm Leasing Corporation which was
independently operated for many years.
Our products and services are marketed throughout the world. We
sell and lease our products primarily to common carriers (telephone and cable
companies), corporations and governments and through our own worldwide sales and
service organizations as well as original equipment manufacturers (OEMs), system
integrators, local distributor networks and value-added resellers.
Internationally, we maintain subsidiary operations in Canada, the United
Kingdom, Mexico, France, Singapore and Brazil. Sales and technical support
offices are maintained by us in Sweden, Japan, Hong Kong, China and Argentina.
In total, we manage a worldwide distribution network with representatives in
more than 60 countries. International operations represented approximately 48%
of our revenues in fiscal 1999 as compared to 50% in fiscal 1998. Our foreign
operations are subject to all the risks inherent in international operations
such as currency fluctuates and instability of governments.
Our customer base includes:
o Local Exchange Carriers, including all Regional Bell
Operating Companies and Bell Canada;
o Alternative Service Providers including Cignal Global
Communications;
o Interexchange Carriers including MCI Worldcom;
o Corporate end users;
o Government entities including New York City Transit Authority,
Commonwealth of Kentucky and the U.K. Ministry of Defense;
o International communications carriers such as France Telecom
and Telecom New Zealand;
o Suppliers of central office switching equipment
such as Lucent LM Technologies and LM Ericsson.
No individual customer accounts for 10 percent or more of our
consolidated revenue.
Our executive offices are located at Park Road Extension,
Middlebury, Connecticut, 06762-1299, and our telephone number is (203) 758-1811.
COMPANY STRATEGY
Prior to December 1998, we operated with a horizontal structure
with such functional organizations as marketing, sales and engineering operating
across all of our product lines.
In December 1998, we restructured our operations into distinct and
independently managed strategic business units for specified groups of products
and services. Each unit has been identified as a reportable segment as
summarized below:
o The Broadband Systems Division ("BSD") has
responsibility for the development, marketing and
sale of broadband telecommunication products,
including ATM products;
o The Network Access Division ("NAD") has
responsibility for the development, marketing and
sale of access telecommunication products, including
frame relay and DSL products;
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o Vital Network Services, L.L.C. offers a broad range of network
services, including an expansion into professional network design
and consulting services.
o DataComm Leasing Corporation offers BSD and NAD
customers the opportunity to lease than rather than
purchase products.
Each business unit is comprised of a general manager and dedicated
marketing, sales, product development and finance functions ("Strategic Business
Unit [SBU] management teams"). As a result our business units are more focused
on products, sales channels and technologies unique to each SBU and are
streamlined to maximize time-to-market, product performance and customer
satisfaction. Our new SBU management teams have responsibility for their
respective operating results.
To minimize the cost of certain support functions, including, among
others, marketing services, information technology, specific finance functions,
human resource management and facilities maintenance, our support operations are
centralized and provide their respective services to all business units.
As part of our new business strategy, we have sold, are holding for
sale and/or closed operations not considered strategic to the four (4) business
units discussed above.
RISK FACTORS
In this Section we highlight the significant risks associated with
our business and operations. Investing in our common stock involves a high
degree of risk. You should be able to bear a complete loss of your investment.
To understand the level of risk, you should completely consider the following
risk factors, as well as the other information found in this prospectus, when
evaluating an investment in the shares.
WE HAVE INCURRED OPERATING LOSSES FOR THE LAST TWENTY-THREE QUARTERS AND EXPECT
TO INCUR NET LOSSES FOR THE FORESEEABLE FUTURE. We incurred net losses of $22.6
million for the year ended September 30, 1999, $33.4 million for the year ended
September 30, 1998 and $42.8 million for the year ended September 30, 1997. For
the nine (9) months ended June 30, 2000 we incurred a net loss of $26.2 million
(unaudited). As of September 30, 1999 and 1998 our accumulated deficit was
$127.5 million and $103.1 million, respectively and $155 million as of June 30,
2000 (unaudited). We expect to continue to incur significant operating expenses
and losses. While we have continued to manage and reduce our expenses, we will
need significant revenue growth to achieve and maintain profitability. We cannot
guarantee that we will generate sufficient revenues to achieve and maintain
profitability. Even if we do achieve profitability, we cannot guarantee we can
sustain or increase profitability on a quarterly or annual basis in the future.
If revenues grow slower then we anticipate, our business, results of operation
and financial condition will be materially and adversely affected and our
available cash and credit reduced, and some customers may be concerned with
respect to our ability to support our products.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FUNDING. Until we are profitable, we
will require substantial additional funds to continue our research and
development and market our products and services. If we continue to sustain
losses we may not be in compliance with relevant covenants and other provisions
in our revolving credit and term loan facility which requires, among other
things, maintaining net worth, as defined therein, at more than $10,018,000 at
the end of any quarter. Our net worth as computed under such facility at the end
of the June 30, 2000 quarter amounted to $18.4 million ($38.4 million on June
30, 2000 on a pro forma basis to reflect the sale of $5 million of our 5%
Cumulative Convertible Preferred Stock to the Selling Stockholders and the sale
of $15 million of our Common Stock to another investor on July 31, 2000 and
September 13, 2000, respectively.) If we do not comply with such covenants and
if a waiver or amendment is not obtained, we may not be able to borrow funds
under such loan facility and such lenders could accelerate the due dates under
such loan facility. In such case, as well as for additional cash needs, we
intend to seek such funding through sales under public or private financings
and/or sales of business units if deemed by us appropriate. There can be no
assurance that additional financing will be available, or if available, that
such additional financing will be available on terms acceptable to us or that we
will be able to sell any business unit or the amount of proceeds from any such
transaction. Furthermore, if we do default on our obligations under the loan
facility it could result in the required prepayment before maturity of other
debt.
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WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY. Each of the segments of the
telecommunications and networking industries is intensely competitive. Many of
our 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 have targeted our segments. Each competitor offers a
unique solution and all are formidable competitors. We are not anticipating
growth in market share for our ATM-based products and we may not be able to
maintain our share.
THE TRADING PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE. The trading price of
our common stock has fluctuated widely in response to quarter-to-quarter
operating results, industry conditions, awards of orders to us or our
competitors, new product or product development announcements by us or our
competitors, and changes in earnings estimates by analysts and from time to time
the volatile nature of equity markets. Any shortfall in revenue or earnings from
expected levels could have an immediate and significant adverse effect on the
trading price of our common stock in any given period. As a result of this
volatility, it may be difficult for an investor to make an investment decision
with respect to our common stock or other securities. There can be no assurance
that the volatility of the price of our common stock will diminish at any time
in the near future. In addition, the volatility of the stock markets in recent
years has caused wide fluctuations in trading prices of stock of high technology
companies independent of their individual operating results.
WE HAVE A CONCENTRATION OF OWNERSHIP AND OUR CHARTER CONTAINS ANTI-TAKEOVER
PROVISIONS WHICH MAY DISCOURAGE A POSSIBLE TAKEOVER. As of June 30, 2000, Mr.
Charles P. Johnson, our Chairman of the Board and Chief Executive Officer, and
all of our directors and executive officers as a group, beneficially own,
directly or indirectly, 73.6% and 92.3%, respectively, of our Class B Stock and
2.3% and 7.2%, respectively, of our common stock. Our Restated Certificate of
Incorporation ("Charter") contains various 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 us. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of our common stock, thus making it less likely that a shareholder will
receive a premium in any sale of shares, in that:
o We can 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;
o our 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 our Board;
o the holders of our Class B Stock have, under certain circumstances,
greater voting power in the election of directors. Since the
holders of common stock and Class B Stock vote separately as a
class on all matters requiring an amendment to our Charter 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".
WE ARE UNLIKELY TO PAY CASH DIVIDENDS. We have never declared or paid any cash
dividends on our common or Class B stock. In addition, the terms of our loan and
security agreement prohibit us from paying cash dividends on our common stock,
Class B Stock or any class of Preferred or common stock except we are permitted
to pay cash dividends with respect to our outstanding 9% Cumulative Convertible
Exchangable Preferred Stock (the 9% Preferred Stock") so long as we have excess
availability of at least $1,000,000 under such loan and security agreement. As a
result, it is not anticipated that cash dividends will be paid in the
foreseeable future on our common stock.
IN ORDER TO COMPETE SUCCESSFULLY, WE MUST KEEP PACE WITH THE RAPID CHANGES
INVOLVING TECHNOLOGY. Our business is subject to rapid technological advances,
changes in customer requirements and frequent new product, feature and service
introductions and enhancements. Our future success will depend upon our ability
to enhance our proposed product and services and to timely develop and introduce
new products, features and services that keep pace with technological
developments, encompass changing customer requirements and achieve customer
acceptance. Any failure on our part to anticipate or respond adequately to
technological developments and customer
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requirements, or any significant delays in product development or introduction
as well as delays in deployment because of the extended cycle to prove ease of
use, functionality, predictability, manageability and cost benefit could result
in a loss of competitiveness, revenues, profit margin and/or market share as
well. There is no assurance that the products or product enhancements which we
develop will achieve market acceptance or that we will retain key employees.
WE MUST TIMELY DELIVER OUR PRODUCTS. Our products are manufactured by our
manufacturing and outsource partners. Failure of any of these third parties to
timely deliver products or meet quality requirements could adversely affect our
cash flow, customer relationships, and profitability.
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the
sale of the common stock offered by this prospectus. If the Selling Stockholders
exercise the warrants, we will receive proceeds from such exercise which we will
use for general corporate purposes.
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SELLING STOCKHOLDERS
We issued our 5% Preferred Stock which is presently convertible
into 1,000,000 shares of our common stock and warrants to purchase an additional
200,000 shares of our common stock to two of the Selling Stockholders on July
31, 2000. Subsequently these Selling Stockholders each assigned warrants to
purchase 25,000 shares of common stock to the third Selling Stockholder. Strong
River Investments, Inc, ("Strong River") and Bay Harbor Investments, Inc, ("Bay
Harbor") purchased an aggregate of $5.0 million of convertible preferred stock
and warrants from the Company in a private placement transaction which closed on
July 31, 2000. The 5% Preferred Stock and the warrants are described in more
detail on pages 12 and 13 of this Prospectus. Holders of the 5% Preferred Stock
are prohibited from using them to convert into and acquire shares of our common
stock to the extent that such conversion would result in such holder, together
with any affiliate thereof, beneficially owning in excess of 9.999% of the
outstanding shares of our common stock following such conversion. This
restriction may be waived by the holder on not less than 61 days' notice to the
Company. Since the number shares of our common stock issuable upon conversion of
the 5% Preferred Stock may change based upon fluctuations of the market price of
our common stock prior to a conversion, the actual number of shares of common
stock that will be issued under the 5% Preferred Stock, and consequently the
number of shares of our common stock that will be beneficially owned by Strong
River and Bay Harbor, cannot be determined at this time. Because of this
fluctuating characteristic, the Company has agreed to register a number of
shares of our common stock that exceeds the number of shares beneficially owned
by Strong River and Bay Harbor. The number of shares of our common stock listed
in the table below as being beneficially owned by Strong River and Bay Harbor
includes the shares of our common stock that are issuable to them, subject to
the 9.999% limitation, upon conversion of their Preferred Stock and exercise of
their warrants. However, the 9.999% limitation would not prevent Strong River
and Bay Harbor from acquiring and selling in excess of 9.999% of our common
stock through a series of conversions and sales under the 5% Preferred Stock and
a series of acquisitions and sales of the common stock obtained on exercise of
the warrants.
Name of Selling Shares of Common Shares Registered Number of Shares of
Stockholder Stock Owned Hereby Common Stock Owned
Prior to Offering After Offering (1)
--------------- ------------------ ---------------- ------------------
Strong River
Investments, Inc. 673,200(2) 2,418,351 1/2 (2)(4) - 0 -
Bay Harbor
Investments, Inc. 575,000(2) 2,418,351 1/2 (2)(4) - 0 -
Ram Capital
Resources, LLC 50,000(3) 50,000 - 0 -
1. Assumes all shares of common stock offered hereby are sold.
2. Includes 500,000 shares presently obtainable upon conversion of 5%
Preferred Stock and 75,000 shares obtainable upon exercise of
warrants.
3. Includes 50,000 shares obtainable upon exercise of warrants.
4. Includes up to 50%of an additional 3,686,703 shares of common stock in the
aggregate issuable to each of these two Selling Stockholders pro rata based on
possible lowering of the conversion price of the 5% Preferred Stock, and shares
of common stock issuable as dividends instead of cash, at our option. A
supplement will be filed to this prospectus as any such adjustments and/or
issuances are made. The maximum number of all shares registered equals 19.9999%
of our outstanding common stock on July 20, 2000. Any additional issuances in
excess of 19.9999% would require approval by our stockholders in order to list
the shares on the New York Stock Exchange.
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock issuable upon conversion of or as dividends on the 5% Preferred
Stock or upon exercise of the Warrants on any stock exchange, market or trading
facility on which the shares are traded or in
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private transactions. These sales may be at fixed or negotiated prices. The
Selling Stockholders may use any one or more of the following methods when
selling shares of common stock except as limited by the Purchase Agreement:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales, except as limited by the Purchase Agreement;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Except as limited by the Purchase Agreement, the Selling Stockholders
may also engage in short sales against the box, puts and calls and other
transactions in securities of the Company or derivatives of Company securities
and may sell or deliver shares in connection with these trades. The Selling
Stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a Selling Stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
Because the Selling Stockholders may be deemed to be "underwriters,"
the Selling Stockholders will be subject to prospectus delivery requirements
under the Securities Act. In addition, in the event of a "distribution" of
securities, the Selling Stockholders, any selling broker-dealer and any
"affiliated purchasers" may be subject to Regulation M under the Exchange Act,
which prohibits certain activities for the purpose of pegging, fixing or
stabilizing the price of securities in connection with an offering.
Except as otherwise provided by the Registration Rights Agreement
pursuant to which this registration statement is being filed, the Company is
required to pay all fees and expenses incident to the registration of the shares
of common stock, including fees and disbursements of counsel to the Selling
Stockholders (not to exceed $5,000 in the aggregate) and excluding all
discounts, commissions and other similar expenses paid to brokers, dealers,
agent and others. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act in connection with untrue statements or omissions of
material facts in this prospectus.
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DESCRIPTION OF CAPITAL STOCK
Our current authorized capital consists of 50,000,000 shares of
common stock, par value $.10 per share, 10,000,000 shares of Class B Stock, par
value $.10 per share and 3,000,000 shares of Preferred Stock, par value $1.00
per share.
The Board of Directors is authorized pursuant to our Charter to
provide for the issue of the shares of Preferred Stock in one or more series
with such rights as the Board of Directors may determine.
Common Stock
The holders of shares of our common stock 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 on
all matters requiring an amendment to our Charter 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 our common stock will be paid if, and when, declared.
However, if a cash dividend is paid in respect of the common stock, a cash
dividend must also be paid on the Class B Stock in an amount per share of Class
B Stock equal to 90% of the amount of the cash dividends paid on each share of
the common stock. Otherwise, however, our common stock and the Class B Stock
rank equally as to dividends.
We have never paid cash dividends on the common stock or Class B
Stock and cash dividends, except as provided for in our loan and security
agreement allowing payment of dividends on our 9% Preferred Stock, are not
permitted by our loan and security agreement. Stock dividends on and stock
splits of common stock will only be payable or made in shares of common stock.
Upon our liquidation, dissolution or winding up of our affairs, the
holders of our common stock and Class B stock sharing ratably as one class are
entitled 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 our Board of Directors. The
common stock is not convertible into shares of any other equity security of GDC.
Our common stock is freely transferable.
Class B Stock
The holders of shares of our Class B Stock are entitled to one vote
per share on all matters submitted to stockholders except that they are entitled
to ten votes per share under certain circumstances in the election of directors.
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 our Charter as
well as on mergers, consolidations and certain other significant transactions
for which stockholder approval is required under Delaware law. Holders of our
Class B Stock do not have preemptive rights or cumulative voting rights.
Dividends on our Class B Stock will be paid only as and when
dividends on the common stock are declared and paid. Moreover, if a cash
dividend is paid in respect of the common stock, a cash dividend must also be
paid on the Class B Stock in an amount per share of Class B Stock equal to 90%
of the amount of the cash dividends paid on each share of common stock.
Otherwise, however, 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 our liquidation or insolvency, the holders of Class
B Stock and common stock share ratably 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.
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Holders of our Class B Stock may elect at any time to convert any
of or all such shares to shares of our 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 the Class B Stock
into common stock, then 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 the number of shares of common stock corresponding to the number of
shares of Class B Stock thus converted.
The Class B Stock is not transferable except to certain family
members and related entities of the holder thereof.
Special Voting Requirements
Our Charter contains a provision requiring a two-thirds vote on any
merger or consolidation or any sale or other disposition of all or substantially
all of our 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 us. That provision also requires that business
combinations involving us and certain "Acquiring Persons", who are any persons
or entities which directly or indirectly own or control at least 5% of our
voting stock, be approved by the holders of four-fifths of our 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:
o Has been authorized by our Board of Directors prior
to the time that the Acquiring Person involved in
such business combination became an Acquiring Person;
or
o will result in the receipt by our other stockholders
of a specified minimum amount and form of payment
for their shares.
Anti-Takeover Statute
Section 203 of the Delaware General Corporation Law ("Delaware
Section 203") is applicable to corporate takeovers in Delaware. Subject to
certain exceptions set forth therein, Delaware Section 203 provides that a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless:
o Prior to such date, the board of directors of the
corporation approved either the business combination
or the transaction which resulted in the stockholder
becoming an interested stockholder;
o upon consummation of the transaction which resulted
in the stockholder becoming an interested
stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced
(excluding certain shares); or
o on or subsequent to such date, the business
combination is approved by the board of directors of
the corporation and by the affirmative vote of at
least 66-2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
An interested stockholder is defined to include any person who,
together with affiliates and associates, owns, or within the prior three (3)
years did own, 15% or more of the corporation's voting stock. Delaware Section
203 could make it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period
although the stockholders may, by adopting an amendment to the corporation's
certificate of incorporation or by-laws, elect not to be governed by this
section, effective twelve months after adoption. Our Charter and By-laws do not
exclude us from the restrictions imposed under Delaware Section 203.
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Warrants
The warrants issued to the Selling Stockholders entitle them to
purchase an aggregate of 200,000 shares of our common stock at $5.75 per share
up to and including July 31, 2005. We have the right to redeem the warrants on
no less than thirty (30) days nor more than sixty (60) days notice at $.01 per
share at any time after July 31, 2002 if the trading price of our common stock
exceeds 200% of the then exercise price of the warrants for twenty (20) trading
days out of thirty (30) consecutive trading days and a registration statement is
in effect for the shares of common stock purchasable under the warrants or the
shares are freely transferable without volume restrictions pursuant to Rule
144(k) under the Securities Act unless the Selling Stockholders exercise the
warrants on or before the date fixed for redemption. If we are to be merged into
another corporation, the holders of the warrants have fifteen (15) days after
receipt of notice of the stockholders meeting called to approve the merger to
exercise the warrants at the then exercise price during such fifteen (15) day
period or the warrants will expire.
Preferred Stock - General
Preferred Stock, including our 5% Preferred Stock and 9% Preferred
Stock, may be issued in one or more series from time to time by action of our
Board of Directors. The shares of any series of Preferred Stock may be
convertible into our 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 our liquidation, dissolution or winding up and may have
preferential or other voting rights, in each case, to the extent, if any,
determined by our Board of Directors at the time it creates the series of
Preferred Stock. The 5% Preferred Stock and 9% Preferred Stock are our only
classes of Preferred Stock outstanding.
5% Preferred Stock
We have outstanding 200,000 shares of 5% Preferred Stock. The 5%
Preferred Stock has a liquidation preference of $25.00 per share and ranks as to
dividends and liquidation prior to the common stock and on a parity with the 9%
Preferred Stock. The 5% Preferred Stock is fully paid and nonassessable. Holders
of 5% Preferred Stock do not have any preemptive rights. The 5% Preferred Stock
is not subject to any sinking fund or other obligation to redeem or retire such
stock except it will automatically convert into common stock two (2) years from
issuance on July 31, 2002 unless extended for failure of the underlying shares
of common stock to be registered.
Holders of shares of our 5% Preferred Stock will be entitled to
receive, when, if and as declared by our Board of Directors out of our funds
legally available for payment, dividends at the annual rate of 5% or $1.25 per
share. Dividends are payable quarterly in arrears on January 31, April 30, July
31, and October 31 of each year. Dividends on the 5% Preferred Stock are
cumulative from the date of original issue and at the option of the Board of
Directors are payable in common stock or cash.
So long as our 5% Preferred Stock is outstanding, we may not
declare or pay any dividend on common stock or other stock ranking junior to or
on a parity with the 5% Preferred Stock or acquire common stock or any other
stock ranking junior to or on a parity with the 5% Preferred Stock (except by
conversion into or exchange for any stock ranking junior to the 5% Preferred
Stock), unless the full cumulative dividends on the 5% Preferred Stock have been
paid, or contemporaneously are declared and paid, through the last dividend
payment date. Should dividends not be paid in full on the 5% Preferred Stock,
and any other preferred stock ranking on a parity as to dividends with the 5%
Preferred Stock, all dividends declared on the 5% Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the 5% Preferred Stock
will be declared pro rata, so that the amount of dividends declared per share on
the 5% Preferred Stock and such other preferred stock will bear to each other
the same ratio that accumulated dividends per share on the shares of 5%
Preferred Stock and such other preferred stock bear to each other. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the 5% Preferred Stock which may be in arrears. The 5%
Preferred Stock and our 9% Preferred Stock are on a parity.
We are not currently permitted by our principal loan agreement to
pay cash dividends on the 5% Preferred Stock, so it is intended all such
dividends will be payable in shares of common stock registered under this
prospectus.
The holders of our 5% Preferred Stock are entitled at any time to
convert the shares of the 5% Preferred Stock into common stock at the conversion
price of $5.00 per share, subject to adjustment, or presently 5 shares of common
stock for each share of 5% Preferred Stock, except that, with respect to shares
of the 5% Preferred Stock called for automatic conversion or redemption,
conversion rights will expire at the close of business on the redemption date,
unless with respect to redemption, we default in payment of the redemption
price.
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The conversion price is subject to potential adjustment on six
reset dates commencing January 31, 2001 and each three (3) months thereafter if
the trading price of our common stock is less than the conversion price then in
effect based on the average closing price for ten (10) trading days preceding
the reset date. There is an earlier reset date following release of our
September 30, 2000 quarter results if our net worth falls below a formula.
Subject to consent under our revolving credit and term loan facility which has
been received, we have the right to redeem some or all of the 5% Preferred Stock
at 105% of the redemption price of $25.00 per share plus accumulated and unpaid
dividends in order to avoid the reset by written notice given at least 15 days
prior to the reset date. If we fail to redeem the shares on any reset date for
which we have given notice of redemption, we will lose the right to repurchase
the shares for any future reset date if there is an adjustment. We have given
notice that we wil redeem all of the outstanding 5% Preferred Stock to avoid any
such reset.
In the event of our voluntary or involuntary liquidation,
dissolution or winding-up, the holders of shares of the 5% Preferred Stock will
be entitled to receive, out of the assets available for distribution to
stockholders, before any distribution or payment is made to holders of common
stock or any other stock ranking junior upon liquidation to the 5% Preferred
Stock, liquidating distributions in the amount of $25.00 per share plus all
accumulated and unpaid dividends to the date of liquidation.
Subject to consent under our revolving credit and term loan
facility, which has been received, we have the right to redeem the 5% Preferred
Stock at $25.00 per share plus any accumulated and unpaid dividends, on no less
than 30 days and no more than 60 days notice if we sell assets or one or more
business units for net proceeds of $50 million or more or sell securities in an
underwritten public offering in excess of $50 million and a registration
statement is in effect for the shares of common stock into which the 5%
Preferred Stock is convertible.
We also have the right by no less than 30 days nor more than sixty
(60) days written notice to cause the 5% Preferred Stock to be automatically
convertible into common stock if the closing price (as defined) of the common
stock has equaled or exceeded 125% of the conversion price then in effect for at
least 20 trading days within 30 consecutive trading days ending within five
trading days before notice of conversion is mailed, and a registration statement
is in effect for the shares of common stock to be issued.
Unless full cumulative dividends on all outstanding shares of our
5% Preferred Stock and any other preferred stock ranking on a parity with the 5%
Preferred Stock have been or contemporaneously are declared and paid for all
past dividend periods, the 5% Preferred Stock may not be redeemed and we may not
purchase or otherwise acquire any shares of the 5% Preferred Stock.
If we are to be merged into another corporation, the holders of the
5% Preferred Stock will have the option by written notice given with fifteen
(15) days after receipt of notice of the stockholders meeting called to approve
the merger to either convert their 5% Preferred Stock into our common stock at
the then conversion price or require the surviving corporation to redeem our 5%
Preferred Stock at 125% of its liquidation value. If such option is not
exercised, the 5% Preferred Stock will automatically convert into our common
stock at the end of the fifteen (15) day period.
Except as required by the Delaware General Corporation Law, the
holders of 5% Preferred Stock will not be entitled to vote.
The approval of the holders of at least a majority of the shares of
the 5% Preferred Stock then outstanding will be required to amend, alter or
repeal any of the provisions of the Charter or the Certificate of Designation or
to authorize any reclassification of the 5% Preferred Stock, in either case so
as to affect adversely the preferences, special rights or privileges or voting
power of the 5% Preferred Stock, either directly or indirectly. A similar
majority vote of the holders of the shares of the 5% Preferred Stock then
outstanding is required:
o to authorize or create any class of stock senior to
the 5% Preferred Stock as to dividends or distributions upon liquidation or;
o to create, issue or increase the authorized number of
shares of any series of our authorized preferred stock ranking senior to the 5%
Preferred Stock as to dividends or distributions upon liquidation; or
o to authorize additional shares of 5% Preferred Stock.
9% Preferred Stock
We have outstanding 787,900 shares of 9% Preferred Stock. The 9%
Preferred Stock has a liquidation preference of $25.00 per share and ranks as to
dividends and liquidation prior to the common stock and on a parity with
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the 5% Preferred Stock. The 9% Preferred Stock is fully paid and nonassessable.
Holders of 9% Preferred Stock do not have any preemptive rights. The 9%
Preferred Stock is not subject to any sinking fund or other obligation to redeem
or retire such stock. Unless converted, redeemed or exchanged, the 9% Preferred
Stock will remain outstanding indefinitely.
Holders of shares of our 9% Preferred Stock will be entitled to
receive, when, if and as declared by our Board of Directors out of our funds
legally available for payment, cash dividends at the annual rate of 9% or $2.25
per share. Dividends are payable quarterly in arrears on March 31, June 30,
September 30, and December 31 of each year. Dividends on the 9% Preferred Stock
are cumulative from the date of original issue.
So long as our 9% Preferred Stock is outstanding, we may not
declare or pay any dividend on common stock or other stock ranking junior to or
on a parity with the 9% Preferred Stock or acquire common stock or any other
stock ranking junior to or on a parity with the 9% Preferred Stock (except by
conversion into or exchange for our stock ranking junior to the 9% Preferred
Stock), unless the full cumulative dividends on the 9% Preferred Stock have been
paid, or contemporaneously are declared and paid, through the last dividend
payment date. Should dividends not be paid in full on the 9% Preferred Stock,
and any other preferred stock ranking on a parity as to dividends with the 9%
Preferred Stock, all dividends declared on the 9% Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the 9% Preferred Stock
will be declared pro rata, so that the amount of dividends declared per share on
the 9% Preferred Stock and such other preferred stock will bear to each other
the same ratio that accumulated dividends per share on the shares of 9%
Preferred Stock and such other preferred stock bear to each other. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the 9% Preferred Stock which may be in arrears.
We are permitted to pay cash dividends on the 9% Preferred Stock,
so long as we are not in default under our revolving credit and term loan
facility and our borrowing availability exceeds $1,000,000 after payment of such
dividend.
The holders of our 9% Preferred Stock are entitled at any time to
convert the shares of the 9% Preferred Stock into common stock at the conversion
price of $13.65 per share subject to adjustment, except that, with respect to
shares of the 9% Preferred Stock called for redemption or exchange, conversion
rights will expire at the close of business on the redemption or exchange date,
unless we default in:
o the payment of the redemption price;
o the issuance of 9% Debentures in exchange for the 9%
Preferred Stock; or
o the payment of the final dividend on the exchange date.
The 9% Preferred Stock is exchangeable in whole, but not in part,
at our sole option for 9% Convertible Subordinated Debentures due 2006 (the "9%
Debentures") on any Dividend Payment Date at a rate of $25.00 principal amount
of the 9% Debentures for each share of the 9% Preferred Stock. We may not
exchange any shares of the 9% Preferred Stock unless full cumulative dividends
have been paid or set aside for payment on the 9% Preferred Stock and on any
preferred stock ranking as to dividends on a parity with the 9% Preferred Stock.
On and after the date of exchange of 9% Preferred Stock for 9%
Debentures, the 9% Preferred Stock will cease to accumulate dividends, will no
longer be deemed to be outstanding and will represent only the right to receive
the 9% Debentures and accrued and unpaid dividends, if any, to the Exchange
Date.
In the event of our voluntary or involuntary liquidation,
dissolution or winding-up, the holders of shares of the 9% Preferred Stock will
be entitled to receive, out of the assets available for distribution to
stockholders, before any distribution or payment is made to holders of common
stock or any other stock ranking junior upon liquidation to the 9% Preferred
Stock, liquidating distributions in the amount of $25.00 per share plus all
accumulated and unpaid dividends to the date of liquidation.
The 9% Preferred Stock is redeemable in whole or in part, at our
sole option, at the redemption price of $25.00 per share at any time on or after
September 30, 1999, plus accumulated and unpaid dividends to the date fixed for
redemption, provided, however, the shares of the 9% Preferred Stock are not
redeemable on and after September 30, 1999 and prior to September 30, 2000
unless the closing price (as defined) of the common stock has equaled or
exceeded 150% of the conversion price then in effect for at least 20 trading
days within 30 consecutive trading days ending within five trading days before
notice of redemption is mailed.
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Unless full cumulative dividends on all outstanding shares of 9%
Preferred Stock and any other preferred stock ranking on a parity with the 9%
Preferred Stock have been or contemporaneously are declared and paid for all
past dividend periods, the 9% Preferred Stock may not be redeemed and we may not
purchase or otherwise acquire any shares of the 9% Preferred Stock.
Except as indicated below or as required by the Delaware General
Corporation Law, the holders of 9% Preferred Stock will not be entitled to vote.
If at any time dividends payable on our 9% Preferred Stock are in
arrears and unpaid in an amount equal to or exceeding the amount of dividends
payable thereon for six quarterly dividend periods, the holders of our 9%
Preferred Stock, voting separately as a class with the holders of any other
series of our preferred stock granted voting rights, will have the right to
elect two (2) directors. These directors would be in addition to the number of
directors constituting our Board of Directors immediately prior to the accrual
of that right. So long as our Board of Directors is divided into classes, our
directors so elected by the holders of shares of the 9% Preferred Stock and
other such preferred stock series would be elected to the classes with the
longest remaining terms. Such voting rights will continue for the 9% Preferred
Stock until all dividends accumulated and payable on that stock have been paid
in full, at which time such voting rights of the holders of the 9% Preferred
Stock will terminate. Such voting rights would revest in the event of a
subsequent similar arrearage. Upon any termination of such voting right the term
of office of all the directors so elected by preferred stockholders voting
separately as a class will terminate.
The approval of the holders of at least a majority of the shares of
the 9% Preferred Stock then outstanding will be required to amend, alter or
repeal any of the provisions of the Charter or the Certificate of Designation or
to authorize any reclassification of the 9% Preferred Stock, in either case so
as to affect adversely the preferences, special rights or privileges or voting
power of the 9% Preferred Stock, either directly or indirectly. A similar
majority vote of the holders of the shares of the 9% Preferred Stock then
outstanding is required (a) to authorize or create any class of stock senior to
the 9% Preferred Stock as to dividends or distributions upon liquidation or (b)
to create, issue or increase the authorized number of shares of any series of
our authorized preferred stock ranking senior to the 9% Preferred Stock as to
dividends or distributions upon liquidation.
The 9% Preferred Stock has special rights that become effective
upon the occurrence of certain types of significant transactions affecting
corporate control or our ownership which are deemed a "Change in Control". The
holders of the 9% Preferred Stock shall have the right effective for thirty days
following the mailing date of a notice disclosing a Change in Control to require
us to repurchase all or any part of their shares of 9% Preferred Stock on the
date that is no later than 45 days after the date of such repurchase right
notice, at a repurchase price equal to $25.00 per share, plus accrued and unpaid
dividends to the repurchase date with respect to such shares. We may satisfy our
repurchase obligations through the issuance of shares of our common stock valued
at the Market Price of the common stock.
A "Change in Control" means the occurrence of any of the following
events:
o any person (including any entity or group deemed to be
a "person" under Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act) becomes the direct or indirect
beneficial owner (as determined in accordance with Rule
13d-3 under the Exchange Act) of shares of our capital
stock representing greater than 50% of the total voting
power of all shares of our capital stock entitled to
vote in the election of Directors under ordinary
circumstances or to elect a majority of our Board of
Directors;
o we sell, transfer or otherwise dispose of all or
substantially all of our assets;
o when, during any period of 12 consecutive months after
the date of original issuance of the Preferred Stock,
individuals who at the beginning of any such 12-month
period constituted our Board of Directors (together
with any new directors whose election by such
Board or whose nomination for election by our
stockholders was approved by a vote of a majority of
the directors still in office who were either
directors at the beginning of such period or whose
election or nomination for election was previously so
approved), cease for any reason to constitute
a majority of our Board of Directors then in office
(excluding from such calculation any election of
directors by holders of the 9% Preferred Stock); or
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o the date of the consummation of our merger or consolidation
with another corporation where our stockholders immediately
prior to the merger or consolidation, would not beneficially
own immediately after the merger or consolidation, shares
entitling such stockholders to 50% or more of all votes
(without consideration of the rights of any class of stock
to elect directors by a separate class vote) to which all
stockholders of the corporation issuing cash
or securities in the merger or consolidation would be
entitled in the election of directors, or where members of
our Board of Directors immediately prior to the
merger or consolidation, would not immediately after the
merger or consolidation, constitute a majority of the board
of directors of the corporation issuing cash or
securities in the merger or consolidation.
As used herein, "Market Price" of a share of the common stock will
be the average of the Closing Prices of the common stock for the ten trading
days ending on the last trading day preceding the date of the Change in Control.
Registrar and Transfer Agent
Chase Mellon Shareholder Services, L.L.C., is our Registrar and
Transfer Agent for the 9% Preferred Stock as well as our common stock and Class
B Stock. We act as Registrar and Transfer Agent for the 5% Preferred Stock.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon
for us by Weisman Celler Spett & Modlin, P.C., New York, New York. Howard S.
Modlin, a member of Weisman Celler Spett & Modlin, P.C. is a Director and
Secretary of GDC.
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements as of September 30, l999 and
l998 and for each of the periods in the three year period ended September 30,
l999 incorporated by reference in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing therein.
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is not lawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has not been any change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.
GENERAL DATACOMM INDUSTRIES, INC.
4,886,703
shares of common stock
-----------------------------
PROSPECTUS
------------------------------
September 28, 2000
