SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
_________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
Commission File Number 0-10745
DATA SWITCH CORPORATION
______________________________________________________
(Exact name of Registrant as specified in its Charter)
DELAWARE 06-0962862
_______________________________ ____________________________
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
One Enterprise Drive, Shelton, Connecticut 06484
__________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (203) 926-1801
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to filing requirements for
the past 90 days. YES x NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of
the registrant at February 28, 1995: Approximately $35,218,000.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock and common stock purchase warrants at
December 31, 1994.
Securities registered pursuant to Section 12(b) of the Act.
NASDAQ Number of
Title of Each Class Symbol Shares Outstanding
____________________ ______ ___________________
Common Stock, $.01 par value,
with Purchase Rights attached DASW 12,376,891
Common Stock Purchase Warrants
(expiring December 31, 1995) DASWZ 10,112
ITEM 1 -- BUSINESS
The Company
Data Switch Corporation (referred to as the "Company") designs,
develops, manufactures, markets and services products for large
scale data center networks. Product categories include fiber-based
systems for connecting fiber processors and peripherals, channel
networking systems for connecting channel-attached devices and
processors over extended distances, communication systems for
connecting users onto the networks entering the Data Center and
channel switches for connecting legacy channels to peripherals. The
Company's products are intended to facilitate the flow of data
through complex information processing resources, such as airline
reservation systems, financial networks and common carrier
networks. These products reduce system downtime, improve
performance and increase total equipment flexibility and access by
dynamically switching the flow of data from overloaded or failed
equipment to available equipment.
The Company was incorporated in Delaware in April 1977 and became
a public company on the over-the-counter market in April 1982. In
December 1986, the Company acquired controlling interest in T-Bar
Incorporated ("T-Bar"). The remaining outstanding shares were
acquired in the third quarter of 1987. T-Bar was merged into the
Company in January 1990. The Company continues to manufacture and
sell certain of its products under the T-Bar name and logo.
Products
Product Line Breakdown % of Total Revenue
1994 1993 1992
____ ____ ____
Fiber-Based Systems 29% 20% 2%
Channel Networking Systems 8 16 18
Channel Switches 15 23 35
Data Communications Switches 13 10 14
T-Bar Products 9 7 8
Service 23 20 21
Other 3 4 2
____ ____ ____
Total 100% 100% 100%
==== ==== ====
Revenues were down slightly in 1994 primarily due to two factors.
First, the decline in channel switches continued as expected. In
addition, revenues in channel networking systems were impacted
adversely by a decline in the older technology units and slower
then expected acceptance of the newer generation of channel
extenders. The introduction of the Enterprise Networking System
9095 in the second half of the year is expected to increase
revenues in this segment of our business. Fiber based products
continued to grow as expected. Revenues from communications systems
were relatively strong.
In late 1994, the Company announced two new products. First the
Company introduced intelligent switching hubs for local area
network applications via a joint marketing, technology and
development agreement with LANNET, Inc. In addition, the Company
introduced the 9800 Multiple Architecture Extender (MAX), designed
to provide ESCON extension of high volume devices such as Direct
Access Storage Devices (DASD).
Fiber-Based Systems
The current generation of IBM mainframes is fiber-based. Data
Switch offers products that facilitate the connectivity and
networking of these new systems.
The Company's Fiber Management System (FMS) consists of
pre-assembled fiber-optic cabling and components, as well as a
planning and installation service for interconnecting these new
data center systems. FMS prices range from $50,000 to $750,000,
depending on the size and complexity of the installation.
Within the data center, a device called a "director" dynamically
networks new mainframes and fiber-based peripheral devices. A
director can re-distribute data traffic and bypass failed
computers, computer channels, or control units, thus enabling
companies to avoid downtime. The Company sells its director
product through a reseller agreement and plans to add other
features to enhance the product. Prices for a director range from
$100,000 to $450,000, depending on the number of connections
required.
The new generation of fiber-based mainframes cannot directly
communicate with older, copper-based mainframes or peripherals.
Protocol converters enable products from the different generations
to work together. The Company's High-Density FX (HDFX), MX (HDMX)
and BX (HDBX) products allow fiber to copper, multi-mode fiber to
single-mode and fiber extension capabilities, respectively. Prices
range from $10,000 to $275,000, depending on application
requirements.
The Company's Configuration Change Management System (CCMS) is a
software support system for multi-generation data centers. CCMS
builds a data center configuration database that generates reports
and graphical, logical configurations. The CCMS site license is
$25,000.
Channel Networking Systems
The Company's 9095 Enterprise Networking System (ENS) converts the
mainframe's signals for transmission over high-speed telephone
company lines, including Switched Multimegabit Data Service
(SMDS), to connect to other mainframes, high-speed printers, tape
storage units, and workstations at user sites located anywhere in
the world. The 9095 enables a company to share resources, provides
alternate paths in case a line fails, and balances traffic over the
lines to optimize performance. The Company began customer
shipments of the 9095 in January 1995. The price of a typical Model
9095 system with support for a multi-site network is approximately
$250,000.
The Company's current primary channel extension products, the
Models 9200 and 9400, multiplex several channels over one or two
high-speed communications lines, thereby providing the customer
with greater flexibility and economies than previous products. The
9800, introduced in December 1994, is the industry's first ESCON
channel extender maintaining all of the same functionality of the
9200 and 9400, but adding extension of ESCON DASD. This system's
price ranges from $80,000 to $400,000.
Channel Switches
Channel switches serve in copper-based networks of mainframes and
peripherals. The Company's Models 2400, 1800 and 1200 route data
between multiple, copper-based mainframe computers and peripheral
equipment. These switches range in price from approximately
$25,000 to $2,000,000, depending on size, sophistication and
capacity.
The Model 3600 Single and Redundant Matrix switches offer static
matrix switching of non-fiber channels, and integrated fiber-optic
switching and conversion, facilitiating the customer's migration to
the newer fiber architecture. Prices range from $57,000 to
$2,000,000, depending on the modules included.
The HostNet Model 9088 dynamically switches as many as 32 computer
channels, allowing users to access applications or information
residing on any attached computer. The Model 9088 provides local
connectivity at channel speeds. This product ranges in price from
approximately $60,000 to $2,000,000.
Data Communications Switches
Data communications switching systems maintain connections between
front-end processors attached to a large computer network and
potentially thousands of communications lines connecting remote
network sites. The Company's family of distributed matrix
switches includes the Universe, the Monolith-Plus, and the Remote
Monitoring Unit. These products can handle communications traffic
that ranges in speed from 50 bps to 2.048Mbps. The Universe system
handles up to 4,096 ports, and multiple systems can be combined
under common control to provide as many as 32,000 available ports.
The Remote Monitoring Unit gives users with communications matrix
switches the ability to perform centralized real-time monitoring of
remote site communications lines. These systems range in price
from approximately $26,000 to $1,500,000, with a typical system
price of $350,000.
As users have migrated to PC-based solutions, new requirements for
connecting the PC's and networking them into the Data Center have
emerged. The Company's solution for this requirement is the
Intelligent Switching Hub. As networks have grown in size,
switching hubs that allow for dedicated bandwidth to each PC have
become important building blocks for Enterprise Networks. The
Company began marketing a switching hub in 1995 as a result of an
alliance formed with LANNET, Inc. The price for these products
ranges from $20,000 to over $1,000,000.
T-Bar Products
The Company develops and markets a variety of switches and
components for voice, video and data applications under the "T-Bar"
name. These products range in price from $65 to $900.
The Variswitch product provides sparing for critical network
components and systems. Switching is provided for LANs, voice,
fiber-optics and data channels in addition to all standard data
communications interfaces. The Variswitch ranges in price from
$5,000 to $300,000.
T-Bar products also include switching, monitoring and cable
management solutions for the fiber-optic market. The newest
product T-Bar is the Optiswitch, a photonic matrix switch
transparent to speed and protocol. The Optiswitch product is
typically priced from $15,000 to $162,000.
The Company expanded into the LAN management market with the
announcement
of LANtap in August 1993. LANtap reduces the expense of managing
large LAN networks by sharing expensive diagnostic equipment and
facilitating centralized remote testing. The Company began
shipment of this product in the first quarter of 1994.
Sales and Marketing; Foreign Sales; and Backlog
The Company's customers are large companies, typically with IBM and
IBM-compatible mainframe computers and related peripheral devices.
Customers include airlines, banks, securities firms,
telecommunications companies, manufacturing firms, power utilities
and insurance companies.
The Company has a worldwide sales force of 75 sales managers,
representatives and systems engineers, located in 24 offices
throughout the United States and overseas. Products are sold
internationally through wholly-owned subsidiaries in Canada, the
United Kingdom, Germany, and Italy, and through independent
distributors worldwide.
The Company does not emphasize financing as part of its sales and
marketing efforts. The Company maintains a leasing arrangement for
customers who elect lease financing. Sales-type leases accounted
for approximately 3% of the Company's annual sales in 1994 and 2%
in 1993. The equipment leases generally range from two to five
years and include an option to purchase the equipment at the end of
the lease term.
The Company generally sells its equipment with a 90-day warranty
covering both parts and labor. The Company also provides
installation and maintenance services for its products. As of
February 1, 1995, the Company had 94 service personnel located in
28 offices in the United States and overseas. The Company also
provides service to certain of its customers through third-party
arrangements.
For the year ended December 31, 1994, the Company's sales to
customers in foreign countries were approximately $21,400,000,
representing approximately 24% of sales compared to $17,000,000, or
18% of sales, in 1993 and $19,800,000, or 24% of sales, in 1992,
reflecting an increase in sales in German and Italian markets from
1993 to 1994 and the severe adverse impact of European economic
conditions from 1992 to 1993.
All product orders are generally cancelable without penalty to the
customer. Substantially all of the Company's backlog is shipped
within 90 days. Backlog at any particular date depends on the
timing of orders, and therefore is not necessarily a reliable
indicator of future sales over an extended period of time. The
Company did not experience a material amount of order cancellations
in 1994 or 1993. The Company's backlog was approximately
$4,081,000 at December 31, 1994, compared with approximately
$7,781,000 at December 31, 1993.
During 1992 Data Switch received two multi-million dollar,
multi-year contracts from the Federal Reserve and Harris
Corporation. The Federal Reserve's contract with the Company is
for communication switches and control systems for its network
modernization program. Harris Corporation's contract with the
Company is for communications switching equipment for its project
to modernize the nation's air traffic control system. During 1994
the Federal Reserve and Harris Corporation purchased $2.2 million
and $1.5 million, respectively, of goods related to these
contracts. These contracts are subject to change and are thus not
included in the backlog. However, it is anticipated that future
releases under these contracts will amount to $.6 million and $1.2
million for the Federal Reserve and Harris Corporation,
respectively.
Engineering and Development
The industry in which the Company operates is subject to rapid
technological change. The Company is committed to the development
of new products and the application of new technologies to existing
products. Engineering and development activities resulted in
expenditures of $10,524,000, $12,970,000 and $12,725,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
Engineering and development expenditures are expensed as incurred.
The Company anticipates engineering and development expenditures of
approximately $10,000,000 in 1995. The Company believes that
despite the reduction in expense, improved effectiveness of the
department more than offsets the decrease in spending.
Manufacturing
Manufacturing operations consist of the assembly and testing of
equipment. Some assemblies are fabricated from purchased
components, and other subsystems are manufactured and assembled by
third parties. All components and assembled equipment undergo
rigorous quality-control testing as part of the manufacturing
process. Components and subassemblies are generally available from
more than one source. The Company has not experienced any
significant difficulties or delays in securing components.
Competition
The market for data center networking equipment is intensely
competitive. Competition is based on technology, equipment
features, quality, availability, price and service. The Company
believes that it is competitive in all of these areas.
In the fiber-based systems market, the Company primarily competes
with IBM and regional cabling companies. Conversion products are
sold by Comparex, IBM, Fibercom, and other companies. While IBM
holds the dominant market share, it does not offer a high-density
product with enhanced redundancy features, which the Company does.
Data Switch competes with IBM and a small number of resellers in
the director market.
In the field of channel networking and channel extension, the
Company competes with Computer Network Technology and Network
Systems Corporation. A number of other companies also manufacture
and market channel extension products.
In the channel switching market, the Company traditionally sold
against IBM. In late 1993 Telenex (a Division of General Signal)
entered into this market. The Company believes that IBM no longer
actively markets switching systems that support its
older-architecture mainframes because IBM is emphasizing its new
fiber-based systems.
Principal competitors in the data communications switching market
include Telenex (a division of General Signal), Bytex, which was
acquired by Network Systems in mid-1993, and Dynatech.
T-Bar products primarily compete with Hadax Electronics and
Telenex.
Employees
As of February 1, 1995, the Company had a total of 449 employees,
including 7 officers, 57 administrative personnel, 211 sales,
service and marketing personnel, 69 engineering personnel and 105
production personnel. None of the Company's employees is
represented by a labor organization, and the Company considers its
relationship with its employees to be good.
Patents and Trademarks
The Company has registered the name "DATA SWITCH". The Company
also acquired certain patents and trademarks in connection with its
acquisition of T-Bar, including the trademark "T-BAR". The Company
believes that although its patents and trademarks have value, they
are not material to its businesses, either individually or in the
aggregate.
ITEM 2 -- PROPERTIES
The Company currently leases a 59,000-square-foot facility in
Shelton, Connecticut, for its executive, administrative, sales and
engineering offices. The lease has a current annual rent of
$1,021,000 and expires May 31, 1995. The Company leases production
facilities and office space of approximately 64,000 square feet in
Orange, Connecticut, under a lease expiring June 30, 1995. Rent
payable by the Company for the duration of its lease in 1995 will
be approximately $154,000. The Company also leases approximately
23,000 square feet in Milford, Connecticut which was formerly used
for manufacturing purposes at an annual rental of $168,000 in 1994,
under a lease expiring June 30, 1997, with a renewal option through
June 30, 2002. The Company has sublet approximately 7,300 square
feet of this facility at an annual rental income of $36,000.
In the fourth quarter of 1994, the Company purchased an
83,000-square foot facility and adjacent land in Shelton,
Connecticut for the aggregate purchase price of $3,140,000. The
purchase is expected to be financed in major part by a low-interest
loan and a grant from the State of Connecticut. The Company will
consolidate its current Shelton and Orange operations in such
facility in the spring of 1995. The Company is currently
constructing an additional 10,800 square feet of warehouse space on
such site, at a cost of approximately $750,000. The Company
expects to recognize substantial expense reductions as a result of
such consolidation beginning in the third quarter of 1995.
The Company leases sales or service office space in 28 cities in
the United States, Canada and Europe. The leases have varying
expirations through March 2013, and the aggregate annual rent is
currently approximately $1,105,000.
The Company believes that its purchased and leased properties are
adequate to fulfill its operational requirements.
ITEM 3 -- LEGAL PROCEEDINGS
A former officer of the Company who sued the Company for breach of
an alleged oral promise of lifetime employment was awarded a jury
verdict of $413,000 in October 1991. In May 1993 the court granted
the Company's motion to set aside the verdict. Such former officer
appealed the court's decision. In August 1994 the Connecticut
Supreme Court upheld the lower court decision, finding in favor of
the Company. The plaintiff's motion for rehearing of the case was
denied by the court in September 1994.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock and the warrants (see Note 9 to the Consolidated
Financial Statements) of the Company are traded on the
over-the-counter market under the NASDAQ symbols DASW and DASWZ,
respectively. The following table sets forth the quarterly high
and low trade prices for each of the common stock and the warrants
as reported by NASDAQ for the periods indicated.
<TABLE>
Common Stock (DASW)($'s)
________________________
<CAPTION>
High Low
<S> <C> <C>
1993
____
First Quarter 4-5/8 2-3/16
Second Quarter 4-1/4 2-5/8
Third Quarter 3-3/8 1-7/8
Fourth Quarter 2-3/4 1-1/2
1994
____
First Quarter 3 1-1/2
Second Quarter 2-15/16 2
Third Quarter 2-5/8 2-1/8
Fourth Quarter 3 2-1/8
</TABLE>
<TABLE>
1995 Warrants (DASWZ)($'s)
__________________________
<CAPTION>
High Low
<S> <C> <C>
1993
____
First Quarter 1-7/8 11/16
Second Quarter 1-1/2 1-1/8
Third Quarter 1-1/4 1
Fourth Quarter 1-1/4 1-1/8
1994
____
First Quarter 1-1/8 1
Second Quarter 1-1/8 1
Third Quarter 1-1/8 1-1/16
Fourth Quarter 1-1/4 1-1/8
</TABLE>
On February 28, 1995 the closing price of the common stock, as
reported by NASDAQ, was $3.50 per share. The closing price of the
1995 Warrants was $1.19 per warrant. As of February 28, 1995,
there were approximately 2,300 holders of record of the Company's
common stock and 6 holders of record of the 1995 Warrants.
Dividend Policy
The Company has never paid a cash dividend on its common stock and
does not contemplate doing so in the forseeable future.
ITEM 6 -- SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations data of the Company for the five years ended December
31, 1990 through 1994, and selected consolidated balance sheet data
as of December 31 for each of the five years. Such selected
consolidated financial data has been derived from the consolidated
financial statements of the Company and should be read in
conjunction therewith and the related footnotes thereto.
<TABLE>
<CAPTION>
Years Ended December 31
________________________________________________
1994 1993 1992 1991 1990
STATEMENT OF
OPERATIONS DATA (000's except per share data)
<S> <C> <C> <C> <C> <C>
Revenues, net $ 90,571 $ 95,078 $ 84,020 $103,000 $121,798
Cost of revenues 49,596 55,042 42,682 52,147 59,441
_________ _________ _________ _________ ________
Gross profit 40,975 40,036 41,338 50,853 62,357
Selling, general
and administrative 24,558 24,994 26,705 32,827 34,142
Engineering and
development 10,524 12,970 12,725 11,733 11,915
Restructuring
charge (a) - 1,780 - - -
Goodwill amort-
ization and
write-down (b) 171 171 171 34,450 2,888
_________ _________ _________ _________ ________
Income (loss)
from operations 5,722 121 1,737 (28,157) 13,412
Other expense (1,779) (2,189) (2,978) (3,775) (5,269)
_________ _________ _________ _________ ________
Income (loss)
before income
taxes 3,943 (2,068) (1,241) (31,932) 8,143
Provision for
(benefit from)
income taxes 1,380 (75) (228) 916 4,872
_________ _________ _________ _________ ________
Income (loss)
before extra-
ordinary gain 2,563 (1,993) (1,013) (32,848) 3,271
Extraordinary
gain (c) - - - 425 2,820
_________ _________ _________ _________ ________
Net income (loss) $ 2,563 $ (1,993) $ (1,013) $(32,423) $ 6,091
========= ========= ========= ========= ========
Income (loss)
before extra-
ordinary gain
per common share $ 0.21 $ (0.16) $ (0.08) $ (2.76) $ 0.28
========= ========= ========= ========= ========
Net income (loss)
per common
share (d) $ 0.21 $ (0.16) $ (0.08) $ (2.73) $ 0.52
========= ========= ========= ========= ========
Weighted average
number of common
shares
outstanding 12,358 12,120 11,993 11,892 11,693
</TABLE>
<TABLE>
<CAPTION>
December 31,
________________________________________________
1994 1993 1992 1991 1990
BALANCE SHEET DATA (000's)
<S> <C> <C> <C> <C> <C>
Working capital $ 28,578 $ 34,350 $ 27,786 $ 40,756 $ 41,167
Total assets 57,688 60,284 56,814 68,685 104,865
Short-term debt
and current
portion of
long-term debt
and capital
lease obligations 1,833 240 1,095 1,780 726
Capital lease
obligations, less
current portion 506 724 646 576 441
Long-term debt,
less current
portion 19,591 25,487 19,515 30,614 33,952
Redeemable
warrants - 885 802 718 635
Total share-
holders' equity 22,615 19,663 21,476 22,724 54,999
<FN>
(a) In the fourth quarter of 1993, the Company commenced a
workforce reduction of approximately 10% and accrued the cost of
severance and related expenses.
(b) In the third quarter of 1991, the Company wrote down goodwill
associated with the T-Bar purchase, to estimated recoverable value
of $2.4 million, and wrote off the goodwill associated with the
purchase of the minority interest in IntelliNet Corporation. The
charge amounted to $32,996,000.
(c) Net gain from exchange of convertible debentures in 1990 and
from repurchases of debt in 1991 and 1990.
(d) The Company has never paid a cash dividend on its common
stock.
</TABLE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1994 vs. 1993
The Company reported net income of $2,563,000 in 1994, compared
with a net loss of $1,993,000 in 1993 that included a one-time
pre-tax restructuring charge of $1,780,000 for employee severance
and related expenses. Product revenues decreased 7.3% in 1994 to
$70,199,000 compared with $75,739,000 in 1993. The shortfall was
the result of a decline in domestic product revenues, offset
somewhat by an increase in the international arena. Activity in
the Company's older product lines decreased significantly, offset
in part by more recent product introductions. Revenues in 1995 are
expected to increase as a result of new products introduced late in
1994, partially offset by the Company's expectation that its older
product lines will decline in volume. Service revenues continue an
upward trend increasing 5.3% to $20,372,000 in 1994 from
$19,339,000 in 1993. This increase was primarily due to an
increase in the installed base and improved time and materials
management. Revenues from European subsidiaries increased from
$12,254,000 in 1993 to $13,984,000 in 1994 as a result of a full
year of revenues from the Company's Italian subsidiary and an
increase in revenue from its German subsidiary. The Company
expects further growth in the European market due to the recent
reorganization of the European sales and marketing functions.
Cost of product revenues decreased to 54.4% in 1994, from 56.3% in
1993, primarily as a result of lower material costs and increased
manufacturing efficiencies. Cost of service revenues declined
significantly to 56.1% from 64.2% in 1993. This reduction was due
to decreased parts and materials expense resulting from a
concentrated effort in the management of this area, a reduction in
headcount and the impact of the increased revenue base. The
Company believes that in 1995 the cost of revenues will be similar
to those in 1994.
The Company reduced operating expenses in 1994, realizing a
$436,000 savings in selling, general and administrative expenses.
These reduced expenses were primarily attained through a reduction
in headcount achieved in the 1993 restructuring. Selling, general
and administrative expenses as a percentage of revenue were 27.3%
in 1994 versus 26.5% in 1993, due to the decrease in the revenue
base.
Engineering and development expenses decreased $2,446,000 to 11.6%
of revenue in 1994 from 13.6% of revenues in 1993. This reduction
was the result of a downsized and reorganized engineering
department and cost containment program. The Company believes that
despite the reduction in expense, improved effectiveness of the
department more than offsets the decrease in spending. A more
aggressive joint technology sharing strategy was implemented and
the Company entered into agreement with LANNET, Inc. and a
development and marketing agreement with EMC Corporation. We
expect to see initial product revenue related to both of these
arrangements begin in the first quarter of 1995. The Company
anticipates spending approximately $10,000,000 in research and
development in 1995.
In the fourth quarter of 1994 the Company purchased an 83,000
square foot building and adjacent land in Shelton, Connecticut
which will consolidate all the Company's operations in one
location, except for its foreign and regional sales and service
offices, when the Company's current Shelton and Orange leases
expire in mid-1995. The Company expects to incur non-recurring
relocation expenses of approximately $500,000 in the first half of
1995, offset in full by anticipated savings of the same amount as
a result of this consolidation in the second half of 1995.
Long and short-term debt outstanding (including capital lease
obligations) was $4,521,000 less at December 31, 1994 than at
December 31, 1993. Positive cash flow led to the repayment of
revolver debt. Interest expense was less in 1994 versus 1993
because of lower debt balances.
The Company recorded a tax provision of 35% on earnings before tax
of $3,943,000, substantially all of which were domestic. The
effective tax rate was slightly higher than the statutory federal
tax rate of 34% due to state taxes offset in part by the
utilization of loss and credit carryforwards and the reduction of
the valuation allowance due to reversal of temporary differences on
which the Company had previously provided deferred taxes. The
Company recorded an income tax benefit in 1993. This benefit was
limited by the valuation allowance established in 1993.
In 1994, the Company adopted SFAS No. 112 Employers' Accounting for
Post Employment Benefits. Under this statement employers are
required to recognize the obligation to provide post employment
benefits if the obligation is attributable to employee services
already rendered, employee rights to those benefits accumulate or
vest, payment of the benefits is probable, and the amount of
benefits can be reasonably estimated. The adoption of this
statement was not material to the consolidated results of
operations or financial position of the Company.
1993 vs 1992
The Company reported a net loss of $1,993,000 in 1993, compared
with a net loss of $1,013,000 in 1992. The Company's product
revenues increased in 1993 due to the shipment of new products.
Product revenues increased 14.1% compared with those in 1992,
reversing a trend of declining revenues from 1990 to 1992. Service
revenues increased 9.6% from 1992, due to an increase in the
installed base. Revenues in Europe declined from $13,096,000 in
1992 to $12,254,000 in 1993 due to continued weak economic
conditions, resulting in a $504,000 loss in Europe in 1993. The
net loss in 1993 included a one-time pre-tax restructuring charge
of $1,780,000 for employee severance and expenses related to a
reduction in staffing levels of approximately 10% to enable the
Company to operate profitably at current revenue levels. The
accrued costs of this restructuring was expended by the end of
1994. The future reduction in annual employee costs is
approximately $3,000,000.
Cost of product revenues increased in 1993 to 56.3% from 46.7% in
1992. Cost of service revenues declined to 64.2% in 1993 from
66.1% in 1992. The increase in cost of product revenues resulted
primarily from product mix, including a significant increase in
sales by the Company of products manufactured by third parties,
which products have lower gross margins than those manufactured by
the Company. The Company also experienced a decline in margins due
to discounts on large-dollar sales.
The Company reduced operating expenses in 1993, including a
$1,711,000 reduction in selling, general and administrative
expenses. This decrease was achieved through the consolidation of
facilities in 1993, and a smaller average workforce in 1993 versus
1992. As a result of these savings and increased revenues in 1993,
selling, general and administrative expenses as a percentage of
revenue decreased to 26.5% in 1993, compared with 32.0% in 1992.
Engineering and development expenditures increased to $12,970,000
in 1993 from $12,725,000 in 1992, comprising 13.6% and 15.1% of
revenues in 1993 and 1992, respectively. These expenditures
supported development of strategic new products which began
shipping in 1993.
Although long and short-term debt outstanding (including capital
lease obligations) was $5,195,000 more at December 31, 1993 than at
December 31, 1992, interest expense was substantially less in 1993
because the average outstanding debt and interest rates were lower
in 1993 than in 1992.
The Company recorded an income tax benefit in 1993. The tax
benefit in amount and percentage was lower in 1993 than in 1992, as
a result of limitations on the ability to recognize the tax benefit
of both domestic and foreign subsidiary losses. The Company
adopted SFAS No. 109, Accounting for Income Taxes in 1993. The net
effect of adoption of the statement was not material to the
consolidated results of operations or financial position of the
Company.
Liquidity and Capital Resources
The Company generated $12,454,000 of cash before financing
activities in 1994, as opposed to using $7,258,000 in 1993. As of
December 31, 1994 the Company had working capital of $28,578,000
reflecting a decrease of $5,772,000 from the prior year. This
decrease primarily resulted from substantial reductions in
inventory and receivable levels in 1994 which led to repayment of
the Company's long-term revolving debt. In addition to selling its
products, the Company also leases its products under sales type
lease agreements. These lease receivables are available for sale
as a source of financing. The Company received approximately
$151,000 in 1994 from the sale of leases compared to $3,043,000 in
1993.
The ratio of current assets to current liabilities was 2.9:1 at
year-end 1994, compared with 3.6:1 at year-end 1992.
Long-term debt consisted of $19,515,000 of convertible subordinated
debentures and $76,000 of indebtedness to the State of Connecticut
for a loan granted under a State financial assistance package.
The loan is subject to certain terms and conditions, one of which
is a promise to maintain operations in Connecticut for a minimum of
10 years from the date of receipt of the last State financial
assistance package payment. In addition, at December 31, 1994, the
Company, based on a formula of eligible receivables (as defined),
has available up to $8,000,000 of revolving credit with People's
Bank. This line of credit is collateralized by a first lien on
substantially all of the Company's assets, and is available subject
to maintenance of certain covenants and financial ratios through
March 1, 1996. At December 31, 1994 the Company used $1,578,000
of available credit to finance European operations in the short
term. The Company was in compliance with all financial covenants
contained in its credit agreement.
Capital expenditures in 1995 are expected to exceed depreciation
expense by approximately $750,000 due to the construction of
additional warehouse space needed to maintain operations at a new
83,000 square foot facility in Shelton, Connecticut. The facility
was purchased late in 1994, and will consolidate all the Company's
operations in one location, except for its foreign and regional
sales and service offices.
In the opinion of management, existing financial resources,
including cash anticipated to be generated by operations and
available under existing credit facilities, will be adequate to
meet current and expected operating and capital requirements.
Impact of Inflation
Inflation did not have a significant impact on the Company during
1992, 1993 and 1994, and is not expected to do so in 1995.
ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
INDEX
Page No.
________
Financial Statements
Report of Independent Accountants 15
Consolidated Balance Sheets - December 31, 1994 and 1993 16
Consolidated Statements of Operations
for the years ended December 31, 1994, 1993 and 1992 17
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1993 and 1992 18
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1994, 1993 and 1992 19
Notes to Consolidated Financial Statements 20
Schedules (Refer to Item 14) 41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors of
Data Switch Corporation
We have audited the consolidated financial statements and the
financial statement schedule of Data Switch Corporation listed in
the index of consolidated financial statements and schedules in
Item 8 of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statement and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Data Switch Corporation at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Stamford, Connecticut
January 31, 1995
<PAGE>
<TABLE>
DATA SWITCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's except share data)
<CAPTION>
December 31,
_____________________
1994 1993
_________ ________
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,757 $ 491
Accounts receivable
(net of allowance for doubtful
accounts of $553 in 1994
and $656 in 1993) 18,713 25,245
Income taxes receivable 161 144
Lease receivables, net 1,475 1,095
Inventories 14,672 19,795
Prepaid expenses and other 646 966
_________ ________
Total current assets 43,424 47,736
Long-term lease receivables, net 3,288 3,135
Property, plant and equipment, net 7,988 5,801
Other 2,988 3,612
_________ ________
Total assets $ 57,688 $ 60,284
========= ========
Current liabilities:
Accounts payable, trade $ 4,525 $ 5,253
Short-term debt 1,578 -
Current portion of long-term debt 18 -
Accrued compensation 2,081 2,368
Other accrued liabilities 5,098 4,889
Income taxes payable 801 37
Other taxes payable 508 599
Current portion of capital
lease obligations 237 240
_________ ________
Total current liabilities 14,846 13,386
Long-term debt, less current portion 19,591 25,487
Capital lease obligations,
less current portion 506 724
Deferred income taxes 130 139
Contingencies
Redeemable warrants - 885
Shareholders' equity:
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued 12,425,320 and 12,224,278
shares at December 31, 1994 and 1993,
respectively 124 122
Additional paid-in capital 50,669 50,413
Accumulated deficit (27,724) (30,287)
Cumulative translation adjustment (165) (272)
Less:
Receivables from stock purchases - (24)
Treasury stock, at cost
(48,429 shares in 1994 and 1993) (289) (289)
_________ _________
Total shareholders' equity 22,615 19,663
_________ _________
Total liabilities and
shareholders' equity $ 57,688 $ 60,284
========= =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
/TABLE
<PAGE>
<TABLE>
DATA SWITCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's except per share data)
<CAPTION>
For the Years Ending December 31,
___________________________________
1994 1993 1992
_________ _________ _________
<S> <C> <C> <C>
Revenues:
Product revenues $ 70,199 $ 75,739 $ 66,368
Service revenues 20,372 19,339 17,652
_________ _________ _________
Revenues, net 90,571 95,078 84,020
Cost of revenues:
Cost of product revenues 38,176 42,617 31,012
Cost of service revenues 11,420 12,425 11,670
_________ _________ _________
Cost of revenues 49,596 55,042 42,682
Gross profit 40,975 40,036 41,338
Operating expenses:
Selling, general and
administrative 24,729 25,165 26,876
Engineering and
development 10,524 12,970 12,725
Restructuring charge - 1,780 -
_________ _________ __________
Total operating expenses 35,253 39,915 39,601
Income from operations 5,722 121 1,737
Other income (expense):
Interest expense (1,981) (2,077) (2,684)
Foreign exchange
gain (loss) 96 (87) (207)
Other, net 106 (25) (87)
_________ _________ _________
Total other income
(expense) (1,779) (2,189) (2,978)
Income (loss) before
income taxes 3,943 (2,068) (1,241)
Provision for (benefit
from) income taxes 1,380 (75) (228)
_________ _________ _________
Net income (loss) $ 2,563 $ (1,993) $ (1,013)
========= ========= =========
Primary income (loss)
per share $ .21 $ (.16) $ (.08)
========= ========= =========
Fully diluted earnings
per share
(a) (a) (a)
========= ========= =========
Weighted average number
of common shares
outstanding 12,358 12,120 11,993
========= ========= =========
<FN>
(a) Not presented as a result of being anti-dilutive.
The accompanying notes are an integral part of the consolidated
financial statements.
/TABLE
<PAGE>
<TABLE>
DATA SWITCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's)
<CAPTION>
For the Years Ended December 31,
_____________________________________
1994 1993 1992
Cash flows from operating
activities:
<S> <C> <C> <C>
Net income (loss) $ 2,563 $ (1,993) $ (1,013)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation 3,330 3,492 3,208
Goodwill amortization 171 171 171
Reduction of goodwill
from utilization
acquired NOLs 354 - -
Deferred income taxes (23) (130) 19
Changes in operating
assets and liabilities:
(Increase) decrease in:
Receivables 6,174 (6,710) 12,185
Inventories 5,243 491 (163)
Prepaid expenses and
other 358 517 (668)
Increase (decrease) in:
Accounts payable, trade (741) 1,551 (986)
Accruals (168) (1,562) 2,356
Income taxes payable 766 22 (79)
Other taxes payable (111) 197 9
Other, net (6) 199 640
_________ __________ _________
Net cash provided (used)
by operating activities 17,910 (3,755) 15,679
Cash flows from investing
activities:
Property and equipment
additions (5,456) (3,503) (2,799)
_________ _________ _______
Net cash used in
investing activities (5,456) (3,503) (2,799)
_________ _________ _______
Net cash provided (used)
before financing activities 12,454 (7,258) 12,880
Cash flows from financing
activities:
Net proceeds (payments)
of short-term debt 1,582 (598) (8,156)
Proceeds under long-term
borrowings 16,354 36,523 10,042
Principal payments and
repurchases under
long-term borrowings (22,471) (30,723) (13,424)
Proceeds from issuance
of common stock 320 325 244
Redemption of warrants (935) - -
_________ _________ _________
Net cash provided (used)
by financing activities (5,150) 5,527 (11,294)
Effect of exchange rate
changes on cash (38) 14 (131)
_________ _________ _________
Net increase (decrease)
in cash and cash equivalents 7,266 (1,717) 1,455
Cash and cash equivalents at
beginning of the period 491 2,208 753
_________ _________ _________
Cash and cash equivalents
at end of the period $ 7,757 $ 491 $ 2,208
========= ========= =========
Supplemental disclosures
of cash flow information:
Cash paid (received)
during the period for:
Interest $ 1,857 $ 1,913 $ 2,419
Income taxes $ 284 $ (405) $ 178
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
DATA SWITCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts
of Data Switch Corporation and its subsidiaries (the "Company").
All intercompany transactions and balances are eliminated.
Inventories:
Inventories are stated at the lower of cost, which
approximates a first-in, first-out basis, or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and
depreciated using the straight-line method over estimated useful
lives of two to forty years or, in the case of leasehold
improvements, over the term of the lease, if shorter. The cost and
accumulated depreciation applicable to assets retired are removed
from the accounts and the gain or loss on disposition is charged to
income.
Revenue Recognition:
The Company recognizes revenues from system sales and
sales-type leases when risk of loss transfers to the customer,
generally when the equipment is shipped. On new products or
substantial modifications to existing products, revenue is deferred
until customer acceptance. Unearned finance income on sales-type
leases is recognized over the lease term. Service revenues are
recognized over the contractual period for maintenance contracts,
or as services are performed. Rental income on systems leased to
customers under operating leases is recorded monthly, as earned.
Warranty:
It is the Company's general policy to give 90 day warranties
on its product sales. The estimated cost of providing such
warranty is charged to cost of sales upon recognition of product
revenue.
Income Taxes:
In 1992, the Company used the liability method of
accounting for income taxes. Effective January 1, 1993, the
Company adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS No. 109). The cumulative
effect of adoption was not material to the consolidated results of
operations or financial position of the Company.
Foreign Currency Translation:
The Company recognizes the local currency of its European
subsidiaries as their functional currency and accordingly,
translates assets and liabilities at year-end exchange rates and
revenue and expense items at average exchange rates prevailing
during the year. The resulting translation adjustments are
recorded as a separate component of shareholders' equity.
Cash Flows:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Earnings Per Share:
Primary earnings per share is computed on the basis of the
weighted average number of shares outstanding plus the common stock
equivalents that would arise from the exercise of stock options and
stock warrants, where not anti-dilutive.
Fully diluted earnings per share is computed on the basis
of the weighted average number of shares outstanding plus the
common stock equivalents that would arise from the exercise of
stock options and stock warrants, where not anti-dilutive, plus the
effect of the additional shares arising from the conversion of the
convertible subordinated debentures. The effect of this
calculation is antidilutive of all years.
2. Inventories
Inventories consist of the following as of December 31,
1994 and 1993:
<TABLE>
<CAPTION>
(000's)
1994 1993
_______ ________
<S> <C> <C>
Raw materials $ 8,266 $ 11,075
Systems in process 1,541 1,821
Finished goods 3,392 5,409
Demonstration equipment 1,473 1,490
Total $ 14,672 $ 19,795
</TABLE>
3. Property, Plant and Equipment
In the fourth quarter of 1994 the Company purchased an
83,000 square foot building and adjacent land in Shelton,
Connecticut which will consolidate all the Company's operations in
one location, except for its foreign and regional sales and service
offices, when the Company's current Shelton and Orange leases
expire in mid-1995.
Property, plant and equipment include the following as of
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
(000's)
1994 1993
_________ _________
<S> <C> <C>
Land $ 712 $ -
Buildings 2,533 -
Machinery and equipment 14,101 17,362
Furniture, fixtures,
and leasehold improvements 8,718 10,790
Equipment under capital leases 1,294 1,395
Systems leased to customers 1,617 1,411
________ _________
28,975 30,958
Less, accumulated depreciation
and amortization (20,987) (25,157)
_________ _________
Net property, plant and equipment $ 7,988 $ 5,801
========= =========
</TABLE>
4. Leasing Arrangements, as Lessor
Sales-Type Leases:
In addition to selling its products, the Company also
leases its products under sales-type lease agreements expiring at
various dates through 1999. The Company's net investment in
sales-type leases consists of the following as of December 31, 1994
and 1993:
<TABLE>
<CAPTION>
(000's)
1994 1993
_________ _________
<S> <C> <C>
Minimum lease payments receivable $ 3,691 $ 2,673
Estimated unguaranteed
residual values 1,415 1,955
Less, unearned finance income (343) (398)
_________ _________
Lease receivables, net 4,763 4,230
Less, current portion (1,475) (1,095)
_________ _________
Long-term portion $ 3,288 $ 3,135
========= =========
</TABLE>
Estimated unguaranteed residual values include those
related to lease receivables sold to third parties.
Future minimum amounts receivable at December 31, 1994
under sales-type leases for the next five years were:
(000's)
________
1995 $ 1,677
1996 1,310
1997 544
1998 128
1999 32
The Company has entered into various arrangements for the
sale of lease receivables under which the Company received proceeds
of approximately $151,000 in 1994, $3,043,000 in 1993 and
$3,906,000 in 1992. As of December 31, 1994 and December 31, 1993,
lease receivables sold under these arrangements totaled $2,186,000
and $4,747,000, respectively. In the event of a default by a
lessee, recourse is limited to the collateralized equipment, with
an estimated unguaranteed residual value of $621,000 and $1,134,000
at December 31, 1994 and 1993, respectively.
Operating Leases:
The Company leases systems to customers under operating
leases, generally with terms of up to 24 months, with provisions
for early termination with a penalty.
5. Leasing Arrangements, As Lessee
Operating Leases:
The Company currently conducts all of its operations from
leased facilities. In the fourth quarter of 1994 the Company
purchased an 83,000 square foot building and adjacent land in
Shelton, Connecticut which will consolidate all the Company's
operations in one location, except for its foreign and regional
sales and service offices, when the Company's current Shelton and
Orange leases expire in mid-1995. Future minimum rental payments
at December 31, 1994 under non-cancelable operating leases were as
follows:
(000's)
1995 $ 1,683
1996 786
1997 585
1998 313
1999 165
Thereafter 2,126
_______
Total $ 5,658
=======
The rent expense for all leased facilities amounted to
$2,486,000, $2,704,000, and $3,117,000 for 1994, 1993 and 1992,
respectively.
Capital Leases:
The Company leases equipment and automobiles (included in
property and equipment) under capital lease agreements that extend
through 1998. Depreciation expense on these assets amounted to
$360,000, $253,000 and $374,000 for 1994, 1993 and 1992,
respectively. As of December 31, 1994 and 1993, equipment under
capital leases had a net book value of $500,000 and $838,000
respectively.
Future minimum lease payments under capital leases,
together with the present value of such payments as of December 31,
1994, were as follows:
(000's)
_________
1995 $ 287
1996 215
1997 200
1998 148
________
Total 850
Less, imputed interest (at rates
ranging from 7.25% to 12.0%) (107)
_________
Present value of capital
lease obligations 743
Less, current portion (237)
_________
Long-term portion $ 506
=========
6. Other Accrued Liabilities
Included in other accrued liabilities are deferred
revenues related to maintenance contracts of $2,228,000 and
$1,126,000 at December 31, 1994 and 1993, respectively.
7. Short-Term Debt
Borrowings of the Company's European subsidiaries from
banks, collateralized by the subsidiaries' receivables, were
included in short-term debt at December 31, 1993 and 1992. All
such borrowings were paid off by March, 1993. In July 1994 the
Company entered into a new international overdraft line of credit
with National Westminster Bank, Plc, enabling its European
subsidiaries to borrow up to an aggregate of $2,250,000, of
which $672,000 was available as of December 31, 1994. Borrowings
under this line of credit are payable upon demand, are available
until March 29, 1995 and are supported by a standby letter of
credit and the cross guarantees of the Company and its
subsidiaries. The loans bear interest at the rate of National
Westminster's prime rate plus 1%. The weighted average interest
rate for these loans was 7.6% at December 31, 1994.
8. Long-Term Debt
Long-term debt consisted of the following as of December
31, 1994 and 1993:
<TABLE>
<CAPTION>
(000's)
_____________________
1994 1993
_________ _________
<S> <C> <C>
Lines of credit (a) $ - $ 5,972
9% convertible subordinated
debentures (b) 3,539 3,539
8-1/4% convertible subordinated
debentures (c) 15,976 15,976
State of Connecticut loan (d) 94 -
_________ _________
19,609 25,487
Less, current portion (18) -
_________ _________
$ 19,591 $ 25,487
========= =========
<FN>
(a) On March 11, 1993, the Company entered into a long-term
credit agreement with People's Bank providing for domestic
borrowings of up to $8,000,000, all of which was available at
December 31, 1994, based on a formula of eligible receivables (as
defined). The credit facility is collateralized by a first lien on
substantially all of the Company's assets, and the agreement
contains, among other provisions and covenants, the following: (1)
subordination of all existing and future indebtedness (as defined)
of the Company to the indebtedness under the credit facility; (2)
limitations on dividend payments, stock purchases and subordinated
debt repurchases; (3) maintenance of levels of Consolidated
Adjusted Tangible Net Worth (as defined) and (4) achievement of
various financial ratios. At December 31, 1994 the Company was in
compliance with all financial covenants contained in its credit
agreement. The Company is required to pay a commitment fee equal
to 1% of the unused borrowings under the line of credit.
The loans mature on March 1, 1996, and bear interest at the
People's prime rate plus 1-1/4%. As the letter of credit
supporting the Company's foreign borrowings (See Note 7) was funded
under the Company's domestic line, the Company's borrowing ability
under its domestic line of credit has been reduced for the
aggregate amount of $2,250,000 so long as the foreign facility
remains available.
(b) The 9% convertible subordinated debentures are convertible
into the Company's common stock at a price of $6.92 per share.
These debentures, due in 1996, are redeemable at a premium of 4%
decreasing to par in 1995, in whole or in part, at the option of
the Company.
(c) The 8-1/4% convertible subordinated debentures, which
mature on June 1, 2002, are convertible into the Company's common
stock at $6.92 per share and are redeemable in whole or in part, at
the option of the Company. The Company is required to redeem on
June 1, 1998, and on each June 1 thereafter through 2001,
$7,000,000 aggregate principal amount of debentures at a redemption
price of 100% of principal amount together with interest accrued to
the redemption date, calculated to retire 80% of the debentures
prior to maturity. As of December 31, 1994 $19,024,000 or
54.4% of the original amount had been purchased or exchanged,
which satisfies the repurchase requirements of the Company for 1998
and 1999. This agreement contains, among other provisions and
covenants, the following: (1) prepayment options at a premium of
4.95% decreasing to par in 1997; (2) subordination of the
debentures to all existing and future indebtedness (as defined);
(3) restrictions on the payment of dividends and stock
purchases and (4) maintenance of levels of Consolidated Tangible
Net Worth (as defined). In January of 1995 the Company repurchased
$750,000 face amount of these debentures.
(d) In August, 1994 the Company received a loan of $100,000
from the State of Connecticut in connection with the relocation of
its manufacturing facility to Orange, Connecticut in 1992. The
loan is payable monthly over five years at a rate of 5% per annum.
</TABLE>
9. Common Stock
Each 1995 Warrant issued pursuant to the debenture
exchange offer in 1990 entitles the holder to purchase one share of
common stock at a price of $5.00 per share, subject to adjustment,
from January 1, 1991 through December 31, 1995. The expiration
date is subject to extension under certain circumstances. The 1995
Warrants, which had a fair value of $0.75 per 1995 Warrant at the
date of the exchange, were redeemable at the option of the holder
for $1.25 during the last quarter of 1994. During such period,
748,112 warrants were redeemed. There were no 1995 Warrants
exercised in 1994 or 1993. As of December 31, 1994, 10,112 of the
1995 Warrants were outstanding.
The Company agreed in July 1992 to issue warrants to an
investment banking firm for services rendered, pursuant to which
such investment bank may, at any time after August 1, 1993 and
prior to July 31, 1997, purchase 100,000 shares of the Company's
common stock at $2.38 per share. None of the warrants were
exercised in 1994 or 1993.
The Company has reserved, as of December 31, 1994,
2,930,198 shares to be issued upon conversion of the 8-1/4%
convertible subordinated debentures, the 9% convertible
subordinated debentures, the 1995 Warrants and the investment
banking warrants.
In 1988, the Company declared a dividend of common share
purchase rights in the amount of one right for each 10 shares of
the Company's common stock. The rights are attached to and trade
with the shares of common stock, and each right entitles the holder
to acquire one additional share of common stock at a price of
$16.00 per share, subject to adjustment. In the event of any
merger or other combination of the Company not submitted
to a vote of the shareholders, the rights, along with the exercise
price, are exchangeable into 4 shares of the voting stock of the
Company or its successor or survivor (but the then-market value of
such shares shall not exceed 4 times the exercise price of the
rights). The rights are redeemable by the Company for $.01 per
right at any time prior to the occurrence of certain events
constituting change of control or intention to effect a change of
control of the Company.
10. Employee Incentive Plans
Stock Options:
The Company has one incentive stock option plan ("ISOP")
and one non-qualified stock option plan ("NQSOP") under which stock
options may be granted to employees to purchase the Company's
common stock at a price not less than fair market value at date of
grant. Options are granted for a term of 10 years under the ISOP,
and are serially exercisable at the rate of 33% per annum
commencing 18 months after the date of grant.
Options under the 1988 NQSOP are granted for a term of
five years. The plan provides for the same calculation of exercise
price as under the ISOP, but permits option grants to employees,
outside directors, advisors, and consultants who are not full-time
employees of the Company, and permits flexible exercise terms,
except as to outside directors. All outside director option grants
under the NQSOP are fixed at 10,000 shares (but not more than an
aggregate exercise price of $100,000) on such person's election to
the Board of Directors, with an additional option grant of 5,000
shares to be awarded after each anniversary of service. All
outside director options are exercisable as follows: one-third of
the shares after the first anniversary date of grant, two-thirds of
the shares after the second anniversary, and all of the shares
after the third anniversary.
The changes in the number of common shares issuable under
outstanding options, the number of shares reserved for issuance,
and the price range of options are as follows:
<TABLE>
<CAPTION>
1982 1983 1988 1989
ISOP(a) ISOP(a) NQSOP ISOP
(000's except price range data)
<S> <C> <C> <C> <C>
Outstanding: December 31, 1991 159 764 269 413
Options granted 6 209 120 102
Exercised - - - -
Cancelled (16) (181) (114) (96)
Outstanding: December 31, 1992 149 792 275 419
Options granted - 88 137 309
Exercised - (3) - -
Cancelled (44) (115) (228) (259)
Outstanding: December 31, 1993 105 762 184 469
Options granted - - 138 334
Exercised - (1) - (33)
Cancelled (54) (361) (20) (162)
Outstanding: December 31, 1994 51 400 302 608
Exercisable at
December 31, 1994 51 288 95 206
Available for grant at
December 31, 1994 - - 198 359
Total shares reserved for
future issuance at
December 31, 1994 51 400 500 967
Price range of options Low $4.00 $2.00 $1.81 $2.00
outstanding at
December 31, 1994 High $6.50 $8.13 $7.75 $4.63
Price range of options exercised
1992 Low - - - -
High - - - -
1993 Low - $2.00 - -
High - $3.21 - -
1994 Low - $2.00 - $2.00
High - $2.00 - $2.00
<FN>
(a) The 1982 and 1983 ISOP's have expired.
</TABLE>
Stock Purchase Plan:
The 1981 Stock Purchase Plan provided directors, officers
and managers of the Company the opportunity to purchase the
Company's common stock. The total number of shares authorized under
the plan could not exceed 375,000. The purchase price of the stock
could not be less than fair market value of the stock on the date
of purchase. In accordance with the terms of the plan, the Company
had taken notes, for 90% of the purchase price, for certain
purchases under the plan. These notes, which are shown as a
reduction of shareholders' equity, were repaid in full as of
December 31, 1994, totalled $24,000 at December 31, 1993 and
$78,000 at December 31, 1992. The plan expired with respect to
future purchases on January 4, 1983.
The 1991 Employee Stock Purchase Plan, which succeeded a
similar prior plan, grants to all regular full-time employees of
the Company and its subsidiaries the right to purchase up to an
aggregate of 500,000 shares of the Company's stock through payroll
deductions, at a purchase price equal to 85% of the fair market
value of the shares during each quarterly period that the plan is
in effect. During 1994, 1993 and 1992, employees purchased
107,366, 121,997 and 153,401 shares, respectively, of the Company's
stock through this non-compensatory plan and its predecessor. As
of December 31, 1994, there were 43,372 shares reserved for future
issuance under this Plan.
Stock Bonus Plan:
Under the 1983 Stock Bonus Plan, 150,000 shares were
reserved for issuance. The Board of Directors awarded 9,736, 9,810
and 8,550 shares to employees during 1994, 1993 and 1992,
respectively. Such awards are charged to expense and valued at the
fair market value of the stock at the date awarded. As of December
31, 1994, there were 805 shares reserved for future issuance under
this plan.
Data Switch Bonus Plans:
Under the Data Switch Bonus Plan ("Bonus Plan"), up to 10%
of the Company's pre-tax, pre-bonus profit is placed into a pool to
make cash awards to officers and other key employees based on base
salary and grade level. This plan, adopted as of July 1, 1992,
replaced the 1992 Executive Bonus Compensation Plan. Prior to
January 1, 1994, payments under the Bonus Plan were made quarterly,
based upon quarterly results. The Bonus Plan was amended
effective January 1, 1994 to provide for annual payments, based
upon annual results. Compensation expense under these plans was
$469,000, $173,000 and $96,000 in 1994, 1993 and 1992,
respectively.
The 1992 Executive Stock Incentive Plan is designed to
provide incentive to a limited number of key executive employees of
the Company. Under this plan, 500,000 shares of the Company's
common stock were reserved for issuance. On an annual basis, up to
6% of the pre-tax, pre-bonus profits of the Company are placed in
a bonus pool. Of that pool, 83.3% is paid in shares and the
balance in cash, based upon the participant's base salary. The
shares issued pursuant to this plan are restricted as to transfer
by the recipient for a period of 2 years. Compensation expense
under this plan was $247,000 in 1994 and $0 in 1993 and 1992.
The Bonus Plans are administered by the Compensation and
Stock Option Committee of the Board of Directors.
11. Retirement Savings Plan
In August 1986, the Board of Directors adopted the
Retirement Savings Plan ("Savings Plan") for the benefit of all
employees, effective as of January 1, 1987. The Savings Plan is a
defined contribution plan. The Company's contribution to the
Savings Plan was $362,000, $395,000 and $344,000 in 1994, 1993 and
1992, respectively.
12. Income Taxes:
The components of the provision (benefit) for income taxes
are as follows:
<TABLE>
<CAPTION>
(000's)
1994 1993 1992
_________ _________ _________
<S> <C> <C> <C>
U.S. federal income taxes:
Current $ 568 $ 30 $ 19
Deferred - (48) (19)
Charge equivalent to
acquired net operating
loss carryforward benefits 354 - -
State taxes:
Current 374 63 -
Deferred - (150) 150
Foreign taxes:
Current 61 (40) (257)
Deferred 23 70 (121)
_________ _________ __________
Total tax provision $ 1,380 $ (75) $ (228)
========= ========= ==========
</TABLE>
A reconciliation of the statutory tax rates and the
Company's effective tax rates are as follows:
<TABLE>
<CAPTION>
(000's)
1994 1993 1992
______ _______ _______
<S> <C> <C> <C>
U.S. federal statutory rate 34.0% (34.0%) (34.0%)
Increase (reduction) in tax
rate resulting from:
Domestic losses without tax
benefit - 20.8% 9.1%
Benefit of operating loss
carryforward (2.5%) - -
Benefit of tax credit
carryforward (1.6%) - -
Goodwill amortization 1.5% 2.8% 4.6%
State taxes 6.3% (2.7%) 8.0%
Reduction in valuation
allowance (4.5%) - -
Travel and Entertainment 1.4% 1.2% 1.8%
Varying tax rates of foreign
subsidiaries 0.4% 8.3% (7.9%)
______ ________ _______
35.0% (3.6%) (18.4%)
====== ======== =======
</TABLE>
The following table summarizes by component, the net
deferred tax assets (liabilities) of the Company as of December 31,
1994 and 1993.
<TABLE>
<CAPTION>
(000's)
_____________________
1994 1993
_________ _________
<S> <C> <C>
Current tax assets related to:
Inventory reserves $ 1,553 $ 2,056
Allowance for doubtful
accounts 186 202
Other 236 166
_________ _________
1,975 2,424
Non-current tax assets
related to:
Depreciation 1,065 1,294
Loss carryforward - 766
Tax credits 3,690 3,752
Alternative minimum credits 613 606
_________ _________
5,368 6,418
Current tax liabilities
related to:
Lease receivables (717) (776)
Other (509) (509)
_________ _________
(1,226) (1,285)
Non-current tax liabilities
related to:
Lease receivables (1,595) (2,209)
Other (130) (139)
_________ _________
(1,725) (2,348)
Valuation allowance (4,522) (5,348)
_________ _________
Net deferred tax liability $ (130) $ (139)
========= =========
</TABLE>
During 1994 the valuation allowance decreased by
approximately $826,000 due to the utilization of loss and credit
carryforwards and the reversal of temporary differences on which
the Company had previously provided deferred taxes.
At December 31, 1994 the Company had investment and
research and development tax credits of $3,690,000 which will
expire between 1996 and 2001. Included in these amounts are T-Bar
preacquisition credits of $1,494,000, which will expire between
1998 and 2001. To the extent that T-Bar preaquisition net
operating loss carryforwards and tax credit carryforwards are
utilized, the Company recognizes income tax expense and reduces
goodwill rather than recognizing a tax benefit. The Company has
unused alternative minimum tax credits of $613,000 which can be
carried forward indefinitely to offset future regular taxes
payable.
The cumulative amounts of income of the foreign
subsidiaries for which no U.S. federal deferred income tax
liabilities have been recorded were $1,136,000 and $965,000 at
December 31, 1994 and 1993, respectively. The Company intends to
reinvest undistributed earnings of its foreign subsidiaries and
thereby indefinitely postpone their remittance. Such earnings
would become taxable upon the sale or liquidation of these
international subsidiaries or upon the remittance of dividends. It
is not practicable to estimate the amount of the deferred tax
liability on such earnings. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject
to certain limitations, for use as credits against the Company's
U.S. tax liability, if any. As of December 31, 1994 the amount of
withholding tax that would be payable upon remittance of the entire
amount of undistributed earnings would approximate $166,000.
13. Supplemental Profit and Loss and Balance Sheet
Information
The Company operates in one industry segment, which
includes the design, development, manufacture, marketing and
maintenance of products for large scale data center networks. Net
revenue and income before income taxes for the three years ended
December 31, 1994, 1993 and 1992 and identifiable assets at the end
of each of those years, classified by geographic area, were as
follows:
<TABLE>
<CAPTION>
North European Consol-
(000's) America Subsidiaries lidated
<S> <C> <C> <C>
1994
Revenues, net $ 76,587 $ 13,984 $ 90,571
Income before
income taxes 3,886 57 3,943
Identifiable assets 51,896 5,792 57,688
1993
Revenues, net $ 82,824 $ 12,254 $ 95,078
Loss before income
taxes (1,526) (542) (2,068)
Identifiable assets 54,768 5,516 60,284
1992
Revenues, net $ 70,924 $ 13,096 $ 84,020
Loss before income taxes (542) (699) (1,241)
Identifiable assets 50,578 6,236 56,814
</TABLE>
Research and development expenses were $10,093,000,
$12,491,000 and $12,380,000 in 1994, 1993 and 1992, respectively.
The Company sells its products primarily to airlines,
banks, securities firms, telecommunication companies, manufacturing
firms, power utilities and insurance companies. The Company
performs ongoing credit evaluations of its customers' financial
condition and requires no collateral from its customers. There
were no sales to major customers in excess of 10% of consolidated
revenues for 1994, 1993 or 1992. The Company believes it did not
have a significant concentration of credit risk at December 31,
1994. At December 31, 1993, one customer accounted for
approximately 19% of the Company's consolidated accounts receivable
balance.
14. Quarterly Income Data (Unaudited)
Selected quarterly data is as follows:
<TABLE>
<CAPTION>
(000's except per share data)
1994
________________________________________________
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Revenues, net $ 21,210 $ 22,218 $ 23,427 $ 23,716 $ 90,571
Gross profit 9,502 9,902 10,847 10,724 40,975
Net income 115 457 1,013 978 2,563
Primary earnings
per share 0.01 0.04 0.08 0.08 0.21
</TABLE>
<TABLE>
<CAPTION>
(000's except per share data)
1993
________________________________________________
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Revenues, net $ 23,238 $ 23,407 $ 26,164 $ 22,269 $ 95,078
Gross profit 10,972 10,317 10,025 8,722 40,036
(a) (a)
Net income (loss) 749 208 (676) (2,274) (1,993)
Primary earnings
(loss)
per share 0.06 0.02 (0.06) (0.19) (0.16)
<FN>
(a) Includes a one-time pre-tax restructuring charge of
$1,780,000 for employee severance and related expenses as the
Company reduced its staffing levels approximately 10%.
</TABLE>
15. Subsequent Events
In 1994 and 1995 the Company entered into a series of
arrangements with Mr. Richard E. Greene, founder and, until his
resignation in January 1995, a director of the Company, pursuant to
which Mr. Greene will provide certain advisory services to the
Company through December 31, 1996, in exchange for annual
compensation of $225,000 in 1994, 1995 and $175,000 in 1996.
In addition, in January 1995, the Company made a loan to
Mr. Greene in the amount of $500,000, collateralized by a pledge of
400,000 shares of the Company's common stock, to be repaid in
thirty six (36) equal monthly installments commencing on January 1,
1997, plus interest at the rate charged to the Company by its
principal lender, plus 1%, which interest payments began upon the
effective date of the agreement. In consideration of this loan,
Mr. Greene granted to the Company an option to purchase 200,000
shares of the pledged stock at a price of $3.00 per share, and a
right of first refusal to purchase any other shares of common stock
which Mr. Greene may desire to sell in a private sale transaction.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company as of February
28, 1995 are as set forth below.
Name Age Office
William J. Lifka 65 Chairman of the Board of
Directors, President and
Chief Executive Officer
W. James Whittle 43 Senior Vice President,
Chief Financial Officer
and Treasurer
Anthony J. Fusarelli 47 Senior Vice President,
Worldwide Sales
and Service
Robert J. Connolly 49 Vice President, Operations
Robert M. McDermott 47 Vice President, Engineering
Michael A. Ruggieri 43 Vice President, Strategic
Marketing
Shawn A. Smith 36 Secretary and Corporate
Counsel
Brandt R. Allen 54 Director
D. David Cohen 54 Director
Norman L. Rasmussen 66 Director
Irwin J. Sitkin 64 Director
Michael D. Stashower 68 Director
No officer holds his office for a fixed term, and the Board of
Directors may terminate an officer's employment at any time. The
term of each director will end at the 1995 annual meeting of
shareholders, which is expected to be held on May 18, 1995. There
are no family relationships among the directors and officers.
William J. Lifka became Chairman, President and Chief Executive
Officer of the Company in December 1993, and has been a director of
the Company since 1985. From 1984 to 1993, Mr. Lifka was Chairman,
President and Chief Executive Officer of Summagraphics Corporation.
From 1979 to 1984, Mr. Lifka held various key management positions
at International Telephone and Telegraph Corporation, where his
most recent title was Vice President and Group General Manager,
Communications.
W. James Whittle is Senior Vice President, Chief Financial Officer
and Treasurer of the Company. He joined the Company in 1986. From
1975 to 1986, he held various positions with Sterling Fluid
Products, Inc., where his most recent position was General Manager,
TorrVac Division.
Anthony J. Fusarelli is Senior Vice President of Worldwide Sales
and Service of the Company. He joined the Company in 1985. From
1980 through 1985 he was employed by Harris Corporation, where he
held various sales and sales management positions.
Robert J. Connolly is Vice President of Operations of the Company.
He joined the Company in 1982. Prior to his employment with the
Company, he served as Manager of Quality Assurance for Data
Products New England.
Robert M. McDermott is Vice President of Engineering of the
Company. He joined the Company in 1994. From 1986 to 1994 he was
employed by Summagraphics Corporation, where his most recent
position was Vice President of Engineering.
Michael A. Ruggieri is Vice President of Strategic Marketing of the
Company. He joined the Company in 1982. From 1978 to 1982, Mr.
Ruggieri was an engineer at Perkin-Elmer Corporation.
Shawn A. Smith is Secretary and Corporate Counsel of the Company.
She joined the Company in 1988. From 1985 to 1988, Ms. Smith was
an associate in the law firm of Robinson & Cole in Hartford,
Connecticut.
Brandt R. Allen has been a director of the Company since October
1993. Since 1970, he has been on the faculty of the Darden
Business School, University of Virginia, where he is currently
Associate Dean and the James C. Wheat Professor of Business
Administration. Prior to joining the University of Virginia
faculty, Mr. Allen was a professor at the Harvard Business School.
D. David Cohen has been a director of the Company since May 1992.
He previously served as a director of the Company from 1986 to
1988. He is currently engaged in the private practice of law in
New York and is Of Counsel to the New York law firm of Parker
Duryee Rosoff & Haft. From December 1988 to December 1990, while
also engaged in the practice of law as a member of Parker Duryee
Rosoff & Haft, Mr. Cohen served as Vice President and General
Counsel of the Company. From 1983 to 1988 he was a partner in the
law firm of Cooper, Cohen, Singer & Ecker.
Norman L. Rasmussen has been a director of the Company since
October 1993. Since 1991, he has been President and Chief
Executive Officer of SofTech, Inc., and has been a director of
SofTech, Inc. since 1975. Prior to his employment with SofTech, he
headed Teleprocessing, Inc., a systems integration firm which he
founded. Mr. Rasmussen was a member of the Massachusetts
Governor's Industry Advisory Committee on Information Processing
from 1986 to 1994. He was employed by IBM in various marketing and
development positions from 1953 to 1974.
Irwin J. Sitkin has been a director of the Company since 1989. Mr.
Sitkin is a retired Vice President, Corporate Administration, of
Aetna Life and Casualty Company. During his 35 years at Aetna, Mr.
Sitkin held executive positions in data processing and information
systems.
Michael D. Stashower has been a director of the Company since 1985.
From 1990 until February 1994, he served as Executive Vice
President, Chief Financial Officer and Treasurer of the Company.
Previously, Mr. Stashower served as Executive Vice President for
Softstrip, Inc. Prior to joining Softstrip, Mr. Stashower held
various key management positions at Perkin-Elmer Corporation, where
his most recent title was Senior Vice President, Finance.
Compliance with Section 16(a) of the Exchange Act Each director,
officer and beneficial owner of ten percent (10%) or more of a
registered class of the Company's equity securities is required to
file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of the Common Stock
and other equity securities of the Company by specific due dates.
During the year ended December 31, 1994, all such filing
requirements were in compliance.
ITEM 11 -- EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of the
Chief Executive Officer and the Company's four other most highly
compensated executive officers whose salary and bonus exceeded
$100,000 in 1994, for services rendered during fiscal years 1994,
1993 and 1992.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
Commis- All
sions Restricted Other
and Stock Compen-
Name Year Salary Bonuses Award Options sation
and Title ($) ($) ($) (#) ($)(1)
_________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
William
J. Lifka,
Chairman, 1994 322,500(2) - 106,250 10,000 5,856
President
and Chief
Executive 1993(3) 10,923 - - - -
Officer 1992 - - - - -
W. James
Whittle, 1994 135,771 68,258 - 22,500 3,437
Senior
Vice
President, 1993(4) 122,884 4,027 - 12,500 3,100
Chief
Financial
Officer
and 1992 - - - - -
Treasurer
Anthony J.
Fusarelli,
Senior Vice 1994 125,000 130,173 - 2,500 4,667
President
Worldwide
Sales 1993 120,000 63,802 - 12,500 4,797
and
Service 1992 110,000 64,253 - 16,500 2,537
Michael (5)
Ruggieri, 1994 130,000 65,359 - 20,500 3,294
Vice
President 1993 - - - - -
Strategic
Marketing 1992 - - - - -
Frederick
Dietz,(6) 1994 174,774 98,400 - 2,500 4,723
Deputy
President 1993 175,000 6,077 - 7,500 5,014
1992 158,333 21,894 - 32,500 4,682
<FN>
(1) Includes Company-paid life insurance premiums for the benefit
of each such executive officer and Company contributions for the
account of each such executive officer under the Company's Employee
Retirement Savings Plan.
(2) Includes $50,000 fee for service as Chairman of the Board of
Directors of the Company.
(3) Mr. Lifka joined the Company as Chairman, President and Chief
Executive Officer on December 16, 1993.
(4) Mr. Whittle was elected an executive officer of the Company in
May 1993.
(5) Mr. Ruggieri was elected an executive officer of the Company
in January 1994.
(6) Mr. Dietz ceased to be an executive officer of the Company on
December 31, 1994.
/TABLE
<PAGE>
Stock Option Plans
Set forth below is a summary of stock option grants made during the
year ended December 31, 1994 to the Chief Executive Officer of the
Company and each of the four other most highly compensated
executive officers.
<TABLE>
OPTION GRANTS IN FISCAL YEAR 1994
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants For Option Term (1)
_________________________________________________________________
% of
Total
Options
Granted
to Exercise
Options Employees or Base Expir-
Granted in Fiscal Price ation 5% 10%
Name (#) Year ($/Sh) Date ($) ($)
____ _______ _________ ________ ______ ___ ___
<S> <C> <C> <C> <C> <C> <C>
William J. 10,000 2.9 2.500 6/30/1995 1,250 2,500
Lifka
W. James 2,500 6.5 2.375 1/21/2004 3,734 9,463
Whittle 20,000 2.375 3/17/2004 29,872 75,703
Anthony J. 2,500 0.7 2.375 1/21/2004 3,734 9,463
Fusarelli
Michael A. 20,500 6.0 2.375 1/21/2004 30,619 77,595
Ruggieri
(2)
Frederick 2,500 0.7 2.375 1/21/2004 371 742
Dietz
<FN>
(1) Potential realizable value is based on an assumption that the
stock price of the common stock appreciates at the annual rate
shown from the date of grant until the end of the option term. The
numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) Expiration dates when granted. Mr. Dietz's options will expire
on June 30, 1995, due to the cessation of his employment with the
Company.
/TABLE
<PAGE>
OPTION EXERCISES IN 1994 AND OPTION VALUES AT YEAR-END 1994
There were no options exercised in 1994 by any of the persons in
the table below.
The following table provides information as to the value of options
held by the persons named below, measured in terms of the closing
price of the Common Stock on December 31, 1994.
<TABLE>
<CAPTION>
Number of Shares Value of
Subject to Unexercised Unexercised In-the-
Options at Year-End Money Options at Year-End
($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
____ ___________ _____________ ___________ _____________
<S> <C> <C> <C> <C>
William J.
Lifka 20,000 - 600 -
W. James
Whittle 22,750 35,500 1,494 4,796
Anthony J.
Fusarelli 18,416 23,001 3,360 6,330
Michael A.
Ruggieri 5,732 22,318 168 3,774
Frederick
Dietz 79,333 26,667 7,466 11,183
<FN>
(1) Value at year-end was $2.56 per share.
</TABLE>
Compensation of Directors
Directors who are not employees or officers of the Company received
the following compensation in 1994: (1) $8,000 per year as a
retainer; (2) $1,000 per Board meeting attended; and (3) $500 per
committee meeting attended, when the committee convenes on a day on
which no Board meeting is held. Such annual retainer was increased
to $10,000 in 1995. In addition to the cash compensation, each
outside director is granted a non-qualified stock option upon
appointment to the Board to purchase 10,000 shares of the Company's
common stock, and additional options to purchase 5,000 shares each
year thereafter in which the director continues to serve. The
options vest in three (3) equal installments on each of the first
three (3) successive anniversaries of the date of grant, subject to
continued service. In November 1994, each outside director
received an option to purchase 10,000 common shares, vesting
immediately which option will expire at the 1995 annual
meeting of shareholders.
Employment Contracts, Termination of Employment and Change in
Control Agreements Mr. William J. Lifka serves as President and
Chief Executive Officer of the Company pursuant to an Employment
Agreement with the Company, at a monthly salary of $25,000
Pursuant to such agreement, Mr. Lifka is responsible for
recruitment of a successor President and Chief Executive Officer.
In January 1994, Mr. Lifka was also awarded a restricted stock
grant of 50,000 shares, the vesting of which was subject to certain
terms and conditions which have been fulfilled. Mr. Lifka is also
paid an annual stipend of $50,000 under the Employment Agreement
for his services as Chairman of the Board of Directors.
On April 1, 1994, the Company entered into an Employment Agreement
with Mr. Frederick Dietz in connection with Mr. Dietz's service as
Deputy President of the Company. Such agreement provided that in
the event of a termination of Mr. Dietz's employment with the
Company, Mr. Dietz would be entitled to salary continuance for a
period of twelve (12) months. Effective December 31, 1994, Mr.
Dietz ceased to serve as Deputy President of the Company, and
agreed to provide full-time transition services to the Company
through March 31, 1995. The payments made to Mr. Dietz pursuant to
such arrangement run from January 1, 1995 through December 31,
1995, and will total $175,000.
The Company has entered into Executive Severance Compensation
Agreements with its executive officers pursuant to which such
officers would be entitled to receive payments of up to 50% of such
officer's aggregate total compensation during the five fiscal
years preceding a change in control of the Company, based upon
length of service with the Company, or its successor, subsequent
to such change in control, if the individual officer's employment
with the Company is involuntarily terminated (or the individual
receives a reduction in compensation or demotion in title, etc.)
for reasons other than cause following such change in control,
or during the six month period preceding such change in control.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of December 31, 1994 certain
information with respect to the beneficial ownership of the
Company's Common Stock by (a) each person known by the Company to
beneficially own 5% or more of the outstanding shares of its
Common Stock; (b) all directors of the Company; (c) the Chief
Executive Officer and four other most highly compensated executive
officers; and (d) all directors and officers of the Company as a
group. Except as otherwise specified, each named beneficial
owner has sole voting and investment power with respect to the
shares set forth opposite his name:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership Class
<S> <C> <C>
Richard E. Greene* 2,152,079(a) 17.4%
4255 Gulf Drive #125
Holmes Beach, FL 34217
Beall Technologies, Inc. 1,489,300 12.0%
and Purnendu Chatterjee
100 Lighting Way
Secaucus, NJ 07094
William J. Lifka* 100,000(b) 0.8%
610 N. Flagship Drive
Salem, SC 29676
Frederick Dietz 124,504(c) 1.0%
31 Doe Hollow Road
Trumbull, CT 06611
Anthony J. Fusarelli 34,833(d) 0.3%
6 Crescent Lane
Trumbull, CT 06611
W. James Whittle 26,539(e) 0.2%
568 Stratfield Road
Fairfield, CT 06430
Michael A. Ruggieri 6,206(f) 0.1%
273 Chestnut Hill Road
Wilton, CT 06897
Michael D. Stashower* 71,588(g) 0.6%
14 Cardinal Lane
Westport, CT 06880
Brandt R. Allen* 20,000(h) 0.2%
1208 Blueridge Road
Charlottesville, VA 22903
D. David Cohen* 33,502(i) 0.3%
82 Tara Drive
Roslyn, NY 11576
Norman L. Rasmussen* 10,000(j) 0.1%
59 Commercial Wharf
Boston, MA 92110
Irwin J. Sitkin* 33,867(k) 0.3%
3500 Mystic Pointe Drive
Aventura, FL 33180
All directors and officers
as a group 2,640,836(l) 20.9%
(15 persons)
<FN>
*Director
_______________
(a) Includes 131,249 shares owned of record by a trust for the
benefit of Mr. Greene's children. Also includes 48,000 shares
owned of record by Mr. Greene's wife. Mr. Greene disclaims
beneficial ownership as to such shares. Also includes vested
options to purchase a total of 20,000 shares.
(b) Includes vested options to purchase 20,000 shares.
(c) Includes vested options to purchase 79,333 shares.
(d) Includes vested options to purchase 18,416 shares.
(e) Includes vested options to purchase 22,750 shares.
(f) Includes vested options to purchase 5,732 shares.
(g) Assumes conversion of Data Switch 8-1/4% Convertible
Subordinated Debentures, representing 7,225 shares. Also includes
vested options to purchase 28,333 shares.
(h) Includes vested options to purchase 10,000 shares.
(i) Includes 505 shares owned of record by trusts for the benefit
of others and 864 shares owned of record by Mr. Cohen's wife. Mr.
Cohen disclaims beneficial ownership as to such shares. Also
includes vested options to purchase 6,667 shares.
(j) Includes vested options to purchase 10,000 shares.
(k) Includes vested options to purchase 16,667 shares.
(l) Includes vested options to purchase 258,852 shares of the
Company's Common Stock, and assumes conversion of Data Switch
8-1/4% Convertible Subordinated Debentures representing 7,225
shares.
/TABLE
<PAGE>
ITEM 13 -- CERTAIN TRANSACTIONS
In 1994 and 1995 the Company entered into a series of arrangements
with Mr. Richard E. Greene, founder and, until his resignation
in January 1995, a director of the Company, pursuant to which Mr.
Greene will provide certain advisory services to the Company
through December 31, 1996, in exchange for annual compensation of
$225,000 in 1994, 1995 and $175,000 in 1996.
In addition, in January 1995, the Company made a loan to Mr. Greene
in the amount of $500,000, secured by a pledge of 400,000
shares of the Company's common stock, to be repaid in thirty six
(36) equal monthly installments commencing on January 1, 1997,
plus interest at the rate charged to the Company by its principal
lender, plus 1%, which interest payments began upon the
effective date of the agreement. In consideration of this loan,
Mr. Greene granted to the Company an option to purchase 200,000
shares of the pledged stock at a price of $3.00 per share, and a
right of first refusal to purchase any other shares of Common
Stock which Mr. Greene may desire to sell in a private sale
transaction.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
Exhibits
Management Contracts and Compensatory Arrangements
10.1 1988 Non Qualified Stock Option Plan (Previously filed
pursuant to S-8 Registration Statement)
10.2 1989 Incentive Stock Option Plan (Previously filed pursuant
to S-8 Registration Statement)
10.3 1992 Executive Stock Incentive Plan (Previously filed
pursuant to 1992 10-K)
10.4 Data Switch Bonus Plan (Previously filed pursuant to 1992
10-K)
10.5 Executive Severence Compensation Agreement (Previously filed
pursuant to 1992 10-K)
10.6 Employment Agreement with William J. Lifka (Previously filed
Pursuant to 1993 10-K)
10.7 Amendment to Employment Agreement with William J. Lifka
10.8 Employment Agreement with Frederick Dietz
10.9 Termination of Employment Agreement with Frederick Dietz
10.10 Employment Agreement with Richard E. Greene
10.11 First Amendment to Employment Agreement with Richard E.
Greene
10.12 Option and Right of First Refusal Agreement with Richard E.
Greene
11. Computation of Earnings (Loss) per Share
24. Consent of Coopers & Lybrand L.L.P.
Financial Statements
See Item 8 for index
Schedules
II. Valuation and Qualifying Accounts
8-K Filings
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATA SWITCH CORPORATION
By: W. James Whittle
_________________________
W. James Whittle
Senior Vice President and
Chief Financial Officer
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
William J. Lifka March 29, 1995
________________________________
William J. Lifka
Chairman of the Board, President
and Chief Executive Officer
W. James Whittle March 29, 1995
________________________________
W. James Whittle
Senior Vice President and
Chief Financial Officer
Michael D. Stashower March 29, 1995
________________________________
Michael D. Stashower
Director
Irwin J. Sitkin March 29, 1995
________________________________
Irwin J. Sitkin
Director
D. David Cohen March 29, 1995
________________________________
D. David Cohen
Director
Brandt R. Allen March 29, 1995
________________________________
Brandt R. Allen
Director
Norman L. Rasmussen March 29, 1995
________________________________
Norman L. Rasmussen
Director
<PAGE>
<TABLE>
SCHEDULE II
DATA SWITCH CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 and 1992
(000's)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
___________________________________________________________________
Allowance for
Doubtful Accounts
<S> <C> <C> <C> <C>
1994 $ 656 $ (102) $ 1 $ 553
1993 656 8 8 656
1992 1,049 (311) 82 656
</TABLE>
EXHIBIT 10.11
FIRST AMENDMENT TO LIFKA EMPLOYMENT AGREEMENT
This Amendment, made as of this 30th day of March, 1995
by and between William J. Lifka, residing at 610 N. Flagship Drive,
Salem, SC 29676 ("Lifka") and Data Switch Corporation, a Delaware
corporation with offices at One Enterprise Drive, Shelton, CT 06484
(the "Company")
W I T N E S S E T H:
WHEREAS, the Company and Lifka entered into an Employment
Agreement ("Agreement") dated as of December 19, 1993, pursuant to
which Lifka was retired as President and Chief Executive Officer of
the Company until June 15, 1994; and
WHEREAS, Lifka has continued to serve past the date of the
Agreement, on a month-to-month basis and
WHEREAS, the parties desire to extend the Agreement, in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Except as expressly set forth herein, all terms
and conditions of the Agreement shall remain in full force and
affect and shall not be deemed amended hereby.
2. The term of the Agreement shall be extended
through June 30, 1995, unless sooner terminated by Lifka or the
Company in accordance with the terms hereof, or extended by the
mutual agreement of the parties in writing.
3. Lifka's base compensation hereunder shall be
twenty five thousand dollars ($25,000) per month, payable in
accordance with the Company's standard payroll practices.
IN WITNESS WHEREOF, the parties have executed this
Amendment as of the date first above written.
DATA SWITCH CORPORATION
By:Irwin J. Sitkin____________
Irwin J. Sitkin
Chairman, Compensation and
Stock Option Committee
William J. Lifka__________
William J. Lifka
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 1st day of April, 1994, by and between
Frederick Dietz, Jr., 31 Doe Hollow Road, Trumbull, CT 06611
("Dietz") and Data Switch Corporation, a Delaware corporation with
its principal office at One Enterprise Drive, Shelton, CT (the
"Company").
W I T N E S S E T H:
WHEREAS, Data Switch desires that Dietz assume the position of
Deputy President of the Company and Dietz has agreed to assume such
position; and
WHEREAS, the position to be assumed by Dietz involves certain
unique duties and responsibilities.
NOW, THEREFORE, the parties hereby agree that the following
terms and conditions shall govern Dietz's employment with the
Company as Deputy President.
1. Position and Duties. Effective March 25, 1994, Dietz
shall assume the role of Deputy President of the Company. The term
of Dietz's employment as such shall continue until terminated by
Dietz or the Company in accordance with the provisions of Section
4 hereof. In connection with such position, Dietz agrees to
undertake the following duties:
(a) Facilitating the absorption of T-Bar activities into
those of the Company as a whole while optimizing T-Bar sales
opportunities;
(b) Participating in and contributing to the Product
Council, under the leadership of the Vice President of Strategic
Marketing;
(c) Taking the place of the President and Chief
Executive Officer in the negotiation of various partnering and
other corporate agreements, and serving as President in the absence
of the Company's President and Chief Executive Officer, at such
times as are specifically requested by the President and Chief
Executive Officer; and
(d) Performing such other duties and undertaking such
tasks as assigned by the President and Chief Executive Officer.
2. Compensation. The Company will pay to Dietz the
following compensation for the performance of his duties hereunder:
(a) Base salary of $175,000 per annum, payable in
accordance with the Company's standard payroll practices;
(b) 1994 Incentive compensation at a rate calculated by
multiplying .0032 by 1994 T-Bar revenues;
(c) In the event that bonuses are payable under the Data
Switch Bonus Plan and/or the 1992 Executive Stock Incentive Plan,
Dietz will receive bonus payments thereunder at the same percentage
of base salary then payable to the Company's Vice President of
Sales, Marketing and Service. Such bonuses, if payable under the
terms of the applicable plan and by agreement of the Board of
Directors of the Company, will be paid to Dietz whether or not the
Company or Dietz exercises its or his right to terminate this
Agreement pursuant to Section 4 hereof prior to the time such
bonuses are payable.
(d) Such other health and life insurance and other
fringe benefit plans or arrangements as are generally available to
the executive officers of the Company.
3. Change in Control. The Executive Severance Compensation
Agreement between Dietz and the Company will remain in full force
and effect during the term of this Agreement, including the
separation provisions thereof; provided, however, that in the event
that amounts become payable to Dietz under the Executive Severance
Compensation Agreement, all payments to Dietz as specified in
paragraph 4(a) hereof shall cease at the time such payments under
the Executive Severance Compensation Agreement are made to Dietz.
4. Termination.
(a) At any time after September 1, 1994, the Company or
Dietz may elect to terminate this Agreement, upon written notice to
the other. In the event that the Company exercises such right,
Dietz shall be entitled to continuation of his base salary and
Company payment of his COBRA premiums for a period of twelve (12)
months after such notification. In the event that Dietz exercises
such right, Dietz shall be entitled to continuation of his base
salary and Company payment of his COBRA premiums for a period of
twelve (12) months after notification; provided, however, that
Dietz shall be obligated to work full time for the Company for the
first three (3) months of such severance period.
(b) Notwithstanding anything to the contrary contained
herein, in the event that Dietz obtains other employment during the
severance period, the Company shall cease its COBRA payments
hereunder. Dietz will be obligated to notify the Company immedi-
ately upon his acceptance of such other employment.
(c) Upon any termination of this Agreement, Dietz's
participation in the Company's life insurance, 401(k), and Employee
Stock Purchase plans shall cease as of the date Dietz ceases work
as a full time employee of the Company.
5. Non Competition. In consideration of the promises
hereunder, Dietz agrees that for a period of one (1) year following
the termination of this Agreement for any reason, Dietz will not
accept employment from any direct competitor of the Company, which
competitors are set forth on Schedule A attached hereto.
6. Arbitration. Any disputes arising under this Agreement
will be resolved by arbitration under the rules of the American
Arbitration Association, and judgment on any award rendered may be
entered in any court having competent jurisdiction. The place of
arbitration shall be the office of the American Arbitration
Association in or nearest to Shelton, Connecticut.
7. No Assignment. This Agreement shall be binding upon the
parties hereto, their legal representatives, heirs, successors and
assigns, and neither party may assign this Agreement without the
prior written consent of the other party.
8. No Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall
not be deemed a waiver or such term, covenant or condition, nor
shall any waiver or relinquishment of such right or power consti-
tute a waiver or relinquishment of any other term or terms.
9. Notices. Any notices required or permitted to be given
hereunder to either party shall be deemed given if delivered or
sent by registered or certified mail, return receipt requested, to
such party at his or its address as hereinabove set forth, or to
such other address as such party may designate by notice similarly
given.
10. Headings. Section headings are used herein for conve-
nience only and shall not affect the meaning of any provision
hereof.
11. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Connecti-
cut.
12. Remedies. In addition to any other rights or remedies
the parties may have under this Agreement or applicable law, the
parties shall have the right to enforce the terms of this Agreement
by specific performance or other equitable remedies, enforceable
through arbitration, or in aid of arbitration, in accordance with
the provisions of paragraph 9 hereof.
13. Entire Agreement. This instrument contains the entire
agreement between the Company and Dietz relating to the matters
herein set forth other than the Agreement to Conditions of
Employment and various Stock Option Agreements between Dietz and
the Company, which will remain in full force and effect and are not
modified hereby, except to the extent of requiring arbitration of
any dispute arising thereunder. This Agreement may not be amended
or terminated orally but only in a writing signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DATA SWITCH CORPORATION
By:William J. Lifka_________
Witness William J. Lifka
President and
Chief Executive Officer
Frederick Dietz, Jr._____
Witness Frederick Dietz, Jr.
<PAGE>
SCHEDULE A
COMPETITORS
Network Systems Corporation
Computer Network Technology (CNT)
Digital Controls
Beall Technologies, Inc.
Fibercom
Telenex
Dynatech
K.C.I., Inc.
IBM
EXHIBIT 10.9
January 12, 1995
Mr. Frederick Dietz
31 Doe Hollow Road
Trumbull, CT 06611
Dear Fred:
On November 30, 1994, Data Switch Corporation ("Data Switch or the
"Company") notified you, pursuant to Section 4(a) of the Employment
Agreement, dated April 1, 1994, between you and Data Switch (the
"Employment Agreement"), that it is exercising its right to
terminate the Employment Agreement. Under the terms of the
Employment Agreement, you are entitled to certain salary
continuance and other benefits, more fully set forth therein.
For value and consideration received, you and the Company have
agreed to modify and amend the Employment Agreement as set forth
below. Except as expressly modified by this letter, all other
terms and conditions of the Employment Agreement will remain in
full force and effect, and will not be deemed amended by this
letter.
1. Salary Continuance; Fringe Benefits.Effective March 31,
1995, you will no longer serve as an employee of Data Switch.
Section 4(a) of the Employment Agreement is hereby amended to
provide that upon such termination of your employment, you shall
receive nine (9) months' salary continuance, commencing as of April
1, 1995 and ending as of December 31, 1995. During the period
prior to March 31, 1995, you will be entitled to the same level of
insurance and other fringe benefits that you presently receive.
Any major travel and entertainment expenses you incur during this
period must be approved by me (or my successor) in advance; no
reimbursement will be made for expenses incurred after March 31,
1995. During the period you are recevieving salary continuance,
you will be entitled to those benefits set forth in Section 4 of
the Employment Agreement. In the event that you enter into a sales
representative agreement with the Company, this arrangement will
not act to terminate the Company's obligation to continue to pay
your COBRA benefits in accordance with the terms of the Employment
Agreement. No bonus or any other type of commission or incentive
payment will accrue to you after December 31, 1994.
2. Change in Control.Consistent with the terms of the Employment
Agreement and the Executive Severance Compensation Agreement
between you and the Company (the "ESCA") you will be entitled to
receive payouts under the ESCA in the event that a Change in
Control (as defined in the ESCA) occurs prior to September 30,
1995. Notwithstanding the foregoing, in the event that a Change in
Control specifically involving the "Lynx" project occurs prior to
December 31, 1995, you will be entitled to payouts under the ESCA.
Mr. Frederick Dietz
March 23, 1995
Page 2
3. Transition Services.During the period from January 1, 1995
through March 31, 1995, you will undertake to provide general
advice to Company employees as requested, and to ensure the orderly
transition of your personal Company projects to designated Company
executives. You will have use of an office and support services at
the Data Switch headquarters until March 31, 1995.
4. Company Car. You will be entitled to use of your Company
car until March 31, 1995. After such period, you will, at your
option, either return the car to the Company or purchase the car in
accordance with standard Company policies.
If the foregoing reflects your understanding of our
arrangement, please sign this letter and the enclosed copy in the
space indicated below and return the copy to me.
Very truly yours,
William J. Lifka______
William J. Lifka
Agreed and Accepted:
Frederick Deitz______
Frederick Dietz
EXHIBIT 10.10
GREENE EMPLOYMENT AGREEMENT
This AGREEMENT made as of this 15th day of December, 1993 and
between Data Switch Corporation, a Delaware corporation with
offices at One Enterprise Drive, Shelton, Connecticut 06484 (the
"Company") and Richard E. Greene, an individual residing at 4255
Gulf Drive #125, Holmes Beach, Florida, 34217 ("Greene" or the
"Executive").
W I T N E S S E T H:
WHEREAS, Greene has resigned as Chairman of the Board of the
Company in order to limit his involvement in the day to day
operations of the Company; and
WHEREAS, the parties hereto have arrived at a mutual under-
standing with respect to the terms and conditions of Greene's
prospective future employment by the Company.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Term: The term of Greene's employment under this
Agreement (the "Term") shall begin as of January 1, 1994 and
continue until December 31, 1996, unless sooner terminated by
Greene or the Company, in accordance with the terms hereof, or
otherwise extended by the mutual agreement of the parties.
2. Duties: Greene hereby agrees to devote a substantial
portion of his business time to his position as an employee, senior
representative and executive goodwill ambassador for the Company.
It is understood and agreed that Greene shall be requested to
perform only such duties appropriate to his position as may be
assigned to him from time to time by the Chairman of the Board of
Directors. It is estimated that Greene will spend approximately
forty (40) days per annum on the business of affairs of the
Company, exclusive of the time spent by him on Board matters. It
is understood that Greene may not be required to spend more than
forty (40) days per annum on such non-Board assignments.
3. Base Compensation, Medical Benefits, Expenses
(a) The Company shall pay to Greene, and Greene shall accept
from the Company, as full compensation for all services rendered
and to be rendered hereunder, the amounts set forth on the Schedule
of Compensation, attached hereto as Schedule A, said base compensa-
tion to be payable according to the Company's standard payroll
practices. Also annexed hereto as Schedule B is a list of stock
options currently held by Greene. The non-qualified options set
forth on Schedule B shall remain in full force and effect through-
out the term hereof, and exercisable in accordance with the terms
and conditions of the stock option agreements relating thereto.
Prior to their expiration, the incentive stock options set forth on
Schedule B shall be cancelled and terminated and in replacement
thereof, Greene shall be granted a single non-qualified option to
purchase 90,000 shares at a price of $4.09 per share. Such option
shall vest in its entirety one (1) year from the date of issuance,
and shall be exercisable during the Term hereof and for ninety (90)
days thereafter. In the event that Greene is terminated without
Cause (as herein defined), or for reason of Greene's disability,
Greene's options shall be exercisable in the same manner and during
the same time period as if this Agreement has not been so terminat-
ed.
(b) Greene will also be entitled to participate, to the
extent eligible, in accordance with the provisions of any medical
and dental insurance plans and arrangements, whether now existing
or hereafter instituted, available to other senior executives of
the Company, and without any discrimination as to Greene by reason
of his less than full time services to the Company during the term
hereof. If, by reason of any provision of its health insurance
plans, the Company is unable to include Greene as a participant
thereunder, the Company shall provide, at its own cost, substan-
tially the same benefit to him, in such manner as the Company may
reasonably elect (i.e., Company-paid continuation of benefits under
COBRA or procurement of a substantially similar policy).
(c) Greene is authorized to incur reasonable travel, enter-
tainment and expenses incidental to the performance of his duties
as requested by the Chairman of the Board of Directors. If Greene
advances the funds for any such expenses, the Company will
reimburse him upon his presentation of adequate documentation of
expenses, in accordance with standard Company practices. Greene
shall also be entitled to retain possession during the term hereof
of the Company-owned automobile presently used by him. The Company
will continue to insure the vehicle. Greene will pay for all of
the other costs of operation thereof, including all costs in
connection with his car phone.
(d) Greene shall not be eligible for any bonus or other
incentive compensation programs, nor shall he be included in any
other Company fringe benefit plan or program, except as specified
herein.
4. Termination: Except as otherwise expressly provided
herein, this Employment Agreement may be terminated only as
follows:
(a) By the resignation of Executive, upon the date of such
resignation;
(b) Automatically, upon the death of the Executive;
(c) Upon written notice from the Company on the happening of
an event of Disability of the Executive. As used herein the term
"Disability" shall mean any physical or mental medical condition
which causes the Executive to be unable to perform his assigned
tasks for a period of (i) one year or (ii) the onset of any such
disabling condition with little or no likelihood of Executive
returning to work for at least forty (40) calendar days in the
twelve (12) months thereafter. In the event of any dispute
concerning the existence of a medical condition of the Executive's
likelihood of recuperation, the dispute shall be resolved by a
qualified licensed physician selected by the Executive, and
reasonably acceptable to the Company. Notwithstanding anything to
the contrary contained in this Agreement, the Company shall not
terminate Executive for having a Disability during any calendar
year in which Executive has theretofore actually or substantially
performed his duties under this Agreement; or
(d) By the Company, on written notice to the Executive with
or without "Cause." Cause, as used herein, shall mean only: (i)
undertaking of acts by Executive which result, or if prosecuted
would be likely to result, in conviction of Executive for commis-
sion of a felony in connection with his services to the Company;
(ii) violation of any material provision contained in the Agreement
to Conditions of Employment or the non-compete provisions of the
Non-Compete and Consulting Agreement with the Company executed by
Greene, both dated October 2, 1981 (attached hereto as Schedule C
is the complete list of competitors, association with which will be
deemed a violation of the non-compete provisions set forth in the
above-referenced agreements. Greene's association with any
companies other than those set forth in Schedule C shall not be
deemed such a violation.); (iii) any material failure of the
Executive to follow the reasonable written instructions of the
Board of Directors which are otherwise consistent herewith; (iv)
the failure, after written notice, of the Executive to devote the
required time and attention in good faith to the business and
affairs of the Company, consistent with the limited time he is
required to spend on the business and affairs of the Company; or
(v) a pattern of disparagement of the Company by the Executive,
such that his usefulness as an Executive ambassador-at-large for
the Company shall be substantially destroyed. The exercise by
Greene of his responsibility as a director or his rights as a
shareholder shall not in any event constitute disparagement.
5. Severance Compensation:
(a) Termination by the Company.
Without Cause: In the event of any termination of Greene's
employment by the Company without Cause prior to December 31, 1996,
it shall be deemed that Executive has met and/or satisfied any and
all of his obligations hereunder. Accordingly, the Company shall
perform and undertake to perform all of its promises and obliga-
tions to Executive as and when each such promise or obligation
comes due for the remainder of the term of this Agreement as though
it was not so terminated.
With Cause: In the event of any termination of this Agreement
by the Company with Cause prior to December 15, 1996, the
Executive's compensation hereunder shall cease upon such termina-
tion.
(b) Termination by Executive. In the event of any
resignation by Executive, his compensation hereunder shall
terminate upon the happening of such resignation.
(c) Death or Disability: In lieu of inclusion in the
Company's life and/or Disability policies, the Executive, or his
representative, as the case may be, shall receive in the event of
his death or disability, the balance of the cash compensation due
to him pursuant to Section 3(a) hereof, and the forgiveness of his
debt to the Company pursuant to Section B hereof.
6. Termination Upon Certain Events:
(a) Notwithstanding any provision to the contrary
contained herein or in a certain Executive Severance Compensation
Agreement, the Company (or its successor, as the case may be) may
terminate this Agreement without further liability to the Employee,
except as provided for herein, by giving ten (10) days notice to
the Executive, upon the happening of any of the following events:
(i) A sale of all or substantially all of its
assets to a single purchaser or group of
associated purchasers ("Sale");
(ii) A merger or consolidation of the Company
with any other company if the shareholders of
the Company own or receive upon effectuation
of any such transaction less than fifty per-
cent (50%) of the voting shares of the surviv-
ing corporation ("Merger");
(iii) The acquisition by any person or group
of associated persons of thirty percent (30%)
or more of the outstanding shares of the
Company (a "Takeover"); or
(iv) The filing by or against the Company of
a petition in Bankruptcy or for reorganization
pursuant to the Bankruptcy Laws.
(b) In the event of a termination of the Executive's
employment by the Company upon the happening of a Sale or Merger or
Takeover as provided for in subparagraph (a) (i) (ii) or (iii) of
this Section 6, the Executive shall receive Executive Severance in
accordance with his Executive Severance Compensation Agreement with
the Company, and no further compensation hereunder. Notwithstand-
ing anything to the contrary contained herein, the Company's
ability to terminate this Agreement upon any occurrence set forth
in subparagraphs (a) (i), (ii) or (iii) of this Section 6 is
contingent upon Greene's receipt of Executive Severance in
accordance with such Executive Severance Compensation Agreement.
7. Director: The Executive currently is a director of the
Company, and shall continue to so serve, without separate compensa-
tion, except for reimbursement of his expenses in connection with
attendance at Board meeting, and attention to Board matters. In
the event the Board of Directors fail to include the Executive on
management's slate for re-election to the Board of Directors in any
year, such failure may be deemed by the Executive to be a termina-
tion of this Agreement without Cause, and upon written notification
by him to the Board to that effect, this Agreement shall thereupon
be deemed terminated as if terminated Without Cause by the Company.
8. Loan Amounts: The Executive is indebted to the Company
in the amount of $93,517.61. The Company and the Executive have
agreed that an annual interest rate equal to the rate charged by
the Company's principal lender shall apply to such loan from this
date forward until January 1, 1997 and that the interest payments
with respect to the loan shall be deducted from the amounts
otherwise payable by the Company to the Executive. Notwithstanding
the foregoing, provided that Executive shall not have been
terminated for "cause" hereunder, the principal amount of such
loans shall be deemed forgiven in their entirety on January 2,
1997. In the event of a Sale, Merger or Takeover as defined in
Section 6(a)(i) (ii) or (iii) hereof, or death or Disability of the
Executive as set forth in Section 5(c) hereof, the Executive shall
also be entitled to loan forgiveness.
9. Arbitration: Any disputes arising under this Agreement
shall be resolved by arbitration under the rules for commercial
arbitration of the American Arbitration Association, and judgment
on any award rendered may be entered in any court having competent
jurisdiction. The place of arbitration shall be the office of the
American Arbitration Association in or nearest to Shelton,
Connecticut. If the Company determines that it has Cause to
terminate the Executive's employment, the Company shall nonetheless
be precluded from asserting any such legal position unless it
continues to advance to the Executive the Executive's base pay as
if his employment has been terminated without Cause, until a final
determination shall be rendered in the arbitration proceeding. The
Company may seek to recover, without interest, the advances so made
by it in the arbitration proceeding.
10. No Assignment: This Agreement shall be binding upon the
parties hereto, their legal representatives, heirs, successors and
assigns, and neither party may assign this Agreement without the
prior written consent of the other party.
11. No Waiver: Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall
not be deemed a waiver or such term, covenant or condition, nor
shall any waiver or relinquishment of such right or power consti-
tute a waiver or relinquishment at any other term or terms.
12. Notices: Any notices required or permitted to be given
hereunder to either party shall be deemed given if delivered or
sent by registered or certified mail, return receipt requested, to
such party at his or its address as hereinabove set forth, or to
such other address as such party may designate by notice similarly
given. If any notice is sent to the Company, it shall be sent to
the attention of the President, with a separate copy to Shawn A.
Smith, Esq., Corporate Counsel.
13. Expenses: Each party shall pay its own expenses in
connection with the preparation, review and execution of this
Agreement. The Company shall reimburse the Executive for his
reasonable legal expenses, up to, but not in excess of, NINE
THOUSAND FIVE HUNDRED DOLLARS ($9,500.00) actually incurred and/or
paid by Executive in connection with this Agreement and/or any
other agreements, negotiations or documentation as between the
Company and Greene.
14. Headings: Section headings are used herein for conve-
nience only and shall not affect the meaning of any provision
hereof.
15. Governing Law: This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Connecti-
cut.
16. Remedies: In addition to any other rights or remedies
the parties may have under this Agreement or applicable law, the
parties shall have the right to enforce the terms of this Agreement
by specific performance or other equitable remedies.
17. Entire Agreement: This instrument contains the entire
agreement between the Company and Greene relating to Greene's
employment by the Company, other than the Agreement to Conditions
of Employment, the Employee Non-Disclosure and Confidentiality
Agreement, the Non-Compete and Consulting Agreement and the
Executive Severance Compensation Agreement each of which remains in
full force and effect, except as expressly modified hereby and to
the extent of requiring arbitration of any dispute arising
thereunder. This Agreement may not be amended or terminated orally
but may be so amended by writing signed by both parties. Notwith-
standing anything to the contrary contained herein, the provisions
of the Non-Compete and Consulting Agreement which related to
consulting services are hereby deemed to be null and void.
18. Personal Property: The Executive has certain items of
personal property, including furniture, certain contents of the
safe located at the Company's offices and memorabilia on the
premises of the Company. The Executive has identified in a letter
to the Chairman of the Board the personal property which he
reserves the right to remove from the premises, to and until June
30, 1995. The Executive hereby waives his right to, and transfers
to the Company any interest he may have with respect to, all other
personalty on the premises of the Company which is not identified
in such letter, and any of his identified personal properties not
removed before July 1, 1995.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DATA SWITCH CORPORATION
By: William J. Lifka
____________________________________
William J. Lifka
Chairman of the Board, President and
Chief Executive Officer
Richard E. Greene
_____________________________________
Richard E. Greene
EXHIBIT 10.11
FIRST AMENDMENT
TO GREENE EMPLOYMENT AGREEMENT
This AMENDMENT made as of this 15th day of Janaury 1995 to an
Agreement made as of the 15th day of December, 1993 (the "Employ-
ment Agreement") as between Data Switch Corporation, a Delaware
corporation with offices at One Enterprise Drive, Shelton,
Connecticut 06484 (the "Company") and Richard E. Greene, an
individual residing at 4255 Gulf Drive #125, Holmes Beach, Florida,
34217 ("Greene" or the "Executive").
W I T N E S S E T H:
WHEREAS, the Employment Agreement provides that the Executive
will continue to serve as a director of the Corporation and that
any failure to include the Executive on the management slate for
reelection to the Board of Directors for any year may be deemed by
the Executive to be termination of his Employment Agreement with
the Company;
WHEREAS, the Executive desires to resign as a director of the
Company in order to engage in certain unrelated full-time activi-
ties; and
WHEREAS, the Executive is ready, willing and able to
continue to provide general advice to the Company on a limited
basis as an employee, senior representative and Executive goodwill
ambassador for the Company; and
WHEREAS, the Company has agreed to increase Executive's
compensation and under certain circumstances to extend the term of
the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Ratification of Employment Agreement.
The Employment Agreement hereby is, ratified and confirmed in
all respects, except as amended hereby.
2. Additional Responsibilities of the Employee.
In additional to the duties and responsibilities of the
Employee set forth in Section 2 of the Employment Agreement, the
Executive agrees to provide during the term hereof one written
report each quarter commencing during the first quarter of 1995 on
trends in the computer and communications switching business. The
extent, format and substance of each such report shall be in the
Executive's reasonable business discretion and professional
judgment.
3. Adjustment of Compensation:
The Base Compensation payable to the Executive as set forth in
Schedule A of the Employment Agreement shall be increased as
follows:
1995 - Two Hundred Twenty-Five Thousand Dollars ($225,000); and
1996 - One Hundred Seventy-Five Thousand Dollars ($175,000).
4. Adjustment of Term.
The term of the Employment Agreement as set forth in Section
1 of the Employment Agreement shall automatically be extended for
one (1) additional year, 1997 under the following conditions:
(a) If the Company exists as a separately owned public
company on December 31, 1996 and the price of its Common Stock is
$4.00 per share or more, the Employment Agreement shall be extended
for one additional year on the same terms and conditions and the
Executive shall receive as Base Compensation for such additional
year One Hundred and Fifty Thousand ($150,000) in cash payable in
accordance with the Company's normal payroll practices during said
year.
(b) If the Company exists as a separately owned public
company as of December 31, 1996 and the price of the Common Stock
is less then $4.00 per share, but not less than $2.50 per share,
than the Employment Agreement shall be extended for an additional
year on the same terms and conditions and the Executive shall
receive as Base Compensation for such additional year 37,500 shares
of the Company's Common Stock (restricted against retransfer),
which Shares shall be issued to him promptly after January 1, 1997.
(c) If the Company does not exist as a separately owned
public Company as of December 31, 1996, or if the price per share
is less than $2.50 per share, this Employment Agreement shall not
be extended for any additional term.
(d) The applicable price per share of the Common Stock for
purposes of this provision shall be, the Closing Price for the
shares on NASDAQ or any other securities exchange on which such
shares shall then be traded averaged over the ten (10) trading
days preceding December 31, 1996. In the event of any stock split,
stock dividend or similar recapitalization between the date hereof
and the measuring period, the price per share and the number of
shares referred to in paragraphs (a) and (b) hereof shall be
appropriately adjusted.
(e) In the event there is a Sale, Merger or Take Over of the
Company, as defined by Section 6(a)(i)(ii) or (iii) of the
Employment Agreement prior to December 31, 1996, it shall be
understood that the Company shall no longer exist as a separately
owned public company for purposes of this paragraph 4.
5. Resignation as a Director.
Notwithstanding any other provision of the Employment
Agreement, neither the Executive's resignation as a director nor
the Company's acceptance of any such resignation or failure to
renominate him shall be deemed a termination of the Agreement by
either party.
6. Legal Representation; Attorneys Fees.
Notwithstanding paragraph 5 of the Employment Agreement, in
the event the Company fails to make the payments due the Executive
under the Employment Agreement as amended by this Agreement, the
Employment Agreement shall be deemed terminated Without Cause by
the Company. In the event that legal action is necessary for the
enforcement by Executive of the Company's obligations under the
Employment Agreement, as amended hereby, the Executive shall be
entitled to recover said amounts together with costs of collection,
including attorney fees and court costs. In addition, the
Executive may be entitled to accelerated payment of any and all
base compensation due to him under the Employment Agreement, as
amended hereby, in the event of certain breaches by the Company of
its obligations to the Executive pursuant to a certain Option and
Right of First Refusal letter agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DATA SWITCH CORPORATION
By: W. James Whittle
_________________
W. James Whittle
Richard E. Greene
_________________
Richard E. Greene
EXHIBIT 10.12
RICHARD E. GREENE
4255 Gulf Drive, #125
Holmes Beach, Florida 34217
January 11, 1995
Data Switch Corporation
One Enterprise Drive
Shelton, Connecticut 06484
Attn: William J. Lifka
Chairman of the Board
Re: Option and Right of First Refusal
Dear Bill:
I refer to the following agreements: (i) that certain Loan
Agreement with People's Bank (the "Loan Agreement") pursuant to
which I have borrowed the sum of Five Hundred Thousand and 00/100
($500,000.00) Dollars ("Loan Obligations"), (ii) the Stock Pledge
Agreement with People's Bank (the "Pledge Agreement") pursuant to
which I have secured my Loan Obligations with a pledge of
securities, including Three Hundred Thousand shares of the issued
and outstanding common stock represented by the certificates
identified on Exhibit A hereto (the "Pledged Stock") of Data Switch
Corporation (the "Company"). The common stock of the Company is
also referred to hereinafter as the "Common Stock". Subject to
the terms and conditions hereof, I hereby grant you an option to
purchase the Pledge Stock and a Right of First Refusal to purchase
any Common Stock which I may intend to sell in any private
transaction.
1. Definitions.
The Loan Agreement and the Pledge Agreement are hereinafter
referred to as the "Loan Documents." Capitalized terms used but
not otherwise defined herein shall have the same meaning as
provided in the Loan Documents.
2. Unconditional Option to Purchase Pledged Stock.
I hereby grant to the Company an option (the "Option") to
purchase all (but not less than all of) the Pledged Stock at a
price of Three and 00/100 ($3.00) Dollars per share (the "Strike
Price"), to be exercised at any time during the period that my Loan
Obligations are outstanding, subject to the terms and conditions
hereinafter set forth. The Strike Price shall be adjusted on
account of any stock dividend, stock split or similar recapitaliza-
tion. For purposes hereof, "Pledged Stock" shall not include any
money realized from the sale of any portion of the "Pledged Stock."
To exercise the Option, the Company shall give me written
notice prior to the Termination Date, as hereinafter defined, by
certified mail at 4255 Gulf Drive, #125, Holmes Beach, Florida
34217 or such other address as I shall provide you in writing. In
the event you shall exercise your option hereunder, you shall close
on such purchase on or before the tenth (10th) business day
following my receipt of such notice (the "Closing Date"), at your
offices, at which time you shall tender to me, in federal funds or
by certified or bank cashier's check, the aggregate Strike Price
for all, but not less than all, the Pledged Stock.
In the event you fail to give me notice prior to the
Termination Date, as hereinafter defined, or, in the event you give
me notice, but fail to close on or before 5:00 P.M. on the tenth
(10th) business day following my receipt of your notice, this
Option shall terminate and be of no further force and effect.
In the event that the Company is purchased, merged or
otherwise acquired by a third party, this Option shall terminate as
to the Pledged Stock, and shall not apply to any securities
substituted as collateral for the Pledged Stock, and the Right of
First Refusal, as hereinafter defined, shall terminate coincident
therewith.
3. Right of First Refusal
I hereby further grant to the Company a Right of First Refusal
(the "Right of First Refusal") to purchase any shares of the Common
Stock, including, but not limited to the Pledged Stock, of which I
am the record and beneficial owner, which I intend to sell
privately, for so long as my Loan Obligation is outstanding on the
same terms and conditions, and at the same price, as offered to me
by a bona fide third party.
In the event I receive a bona fide offer of private sale prior
to the Termination Date, which I intend to accept, I shall give
the Company written notice thereof by certified mail at One
Enterprise Drive, Shelton, Connecticut 06484 or such other address
as you shall provide to me in writing. Such notice shall set forth
all the material facts concerning such proposed sale, including,
but not limited to: the purchase price and the number of shares.
Your Right of First Refusal shall be deemed sufficiently
exercised if the Company gives me written notice of its election to
purchase the shares subject to the offer by certified mail by 5:00
P.M. on the fifth (5th) business day following your receipt of my
notice to the Company of the offer. The price for such shares
shall be price offered by said third party which price shall be
paid in the same manner as set forth in the offer from the bona
fide third party, and the Closing Date shall be the same as in the
bona fide third party offer, but not earlier than the fifth (5th)
business day following your receipt of written notice of the offer.
If the Company does not notify me of its election to purchase and
close within the period specified in the offer, or if you decline
to purchase the shares, the Right of First Refusal shall be
terminated as to the shares covered by such offer, but shall
continue as to any other shares which remain owned by me.
For purposes hereof, a "private" sale means a sale effected by
me to any one or limited number of purchasers, without a public
offering of such securities through the facilities of any securi-
ties exchange or system of interdealer quotations. We agree,
however, that private sale shall not include any transaction
whereby the Company is purchased, merged or otherwise acquired by
a third party.
4. Termination.
Your Option and Right of First Refusal shall terminate and be
of no further force and effect (i) thirty (30) days following
receipt by the Company of my written notice of my intention to
satisfy my Loan Obligation, provided that within such thirty (30)
day period I shall have satisfied such Loan Obligation or (ii) upon
any earlier default by the Company in payment of the consideration
for said Option and Right of First Refusal when due as hereinafter
set forth ("Termination Date").
5. Ownership of Common Stock Subject to this Agreement.
I hereby warrant and represent to you that I am the beneficial
owner of all shares of Common Stock registered in my name, and I am
not the beneficial owner of any Common Stock not registered in my
name.
6. Consideration for Option and Right of First Refusal
In consideration of the Option and Right of First Refusal, you
have agreed to pay me quarterly for the period commencing January
1, 1995 to December 31, 1996 the sum of two thousand dollars
($2,000) plus the amount of accrued interest in respect to my Loan
Obligation as of the end of each quarter. The first payment will
be for the period from January 1, 1995 to March 31, 1995.
Additional payments shall be due at the end of each subsequent
quarter until December 31, 1996. For the period commencing on
January 1, 1997 and terminating on December 31, 1997, you shall
pay me an amount equal to the accrued interest in respect of my
Loan Obligations during each quarterly period.
All such quarterly payments shall be due as of the last day of
each calendar quarter, and paid to me not later than the tenth
(10th) day following the end of each such quarter. In the event
any payment is not made when required hereunder and within five (5)
business days of notice of non-payment, a condition of default
shall exist, and the Option and Right of First Refusal shall be
deemed to have terminated. In addition, in the event such non-
payment shall continue for ninety (90) days without cure, then,
unless such non-payment has resulted from my prior breach of the
Option and/or Right of First Refusal set forth herein, all
compensation due to me under the Employment Agreement dated as of
December, 1993 amended on January 11, 1995 shall be accelerated.
Notwithstanding the foregoing, in the event that the Option
and the Right of First Refusal are terminated (other than by
default by you in the payment of the consideration set forth
herein) earlier than December 31, 1997, then no further payments
shall be required of you after the date of such early termination,
as measured by the expiration of the Option and the Right of First
Refusal. We agree that each of the 1995, 1996 and 1997 payments
being made includes an unspecified sum allocable to the
continuation of the Option and the Right of First Refusal until the
satisfaction of my Loan Obligations, and that no further payments
by you shall be required after December 31, 1997.
7. Attorneys Fees and Costs of Collection.
The Company has agreed to pay $5,000.00 to Brody and Ober P.C.
in partial reimbursement of the legal fees incurred in connection
with this Agreement of Option and Right of First Refusal. In the
event that the Company defaults in any payments due hereunder, the
Company agrees that in addition to the amounts due me hereunder, I
shall be entitled to recover any additional interest, penalties,
fees or costs of collection due under the Loan Obligations, as a
result of any failure on my part to pay the amounts due thereunder,
as well as the costs of collection including attorney fees and
court costs, incurred by me to collect the amounts due me
hereunder.
8. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
Kindly acknowledge your agreement herewith by signing a copy
hereof and returning it to me.
Yours very truly,
Richard E. Greene
___________________
Richard E. Greene
Accepted and Agreed this
11th day of Janaury 1995
DATA SWITCH CORPORATION
By: William J. Lifka
________________________________
William J. Lifka
Chairman of the Board, President
and Chief Executive Officer
<TABLE>
Exhibit 11
DATA SWITCH CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(000's except per share data)
<CAPTION>
1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Primary
Shares outstanding at
the beginning of the period 12,176 12,041 11,797
Weighted average number of
shares issued and issuable
share equivalents 182 79 196
_______ _______ _______
Weighted average number
of common shares outstanding 12,358 12,120 11,993
======= ======= =======
Net income (loss) $ 2,563 $ (1,993) $(1,013)
======== ========= ========
Primary earnings (loss)
per share $ 0.21 $ (0.16) $ (0.08)
======== ========= ========
Fully Diluted
Shares outstanding at
the beginning of the period 12,176 12,041 11,797
Weighted average number of
shares issued and issuable
share equivalents 197 237 225
Assumed conversion of
debentures 2,820 2,820 2,820
_________ _________ ________
Weighted average number of
common shares outstanding
as adjusted for full
dilution 15,193 15,098 14,842
========= ========= ========
Net income (loss)
$ 2,563 $ (1,993) $(1,013)
Adjustment for interest,
net of tax, on convertible
debentures 972 972 972
_________ _________ _______
Adjusted net income (loss) $ 3,535 $ (1,021) $ (41)
Fully diluted earnings
(loss) per share $ 0.23 $ (0.07) $(0.00)
<FN>
(a) These calculations are submitted in accordance with SEC
Release No. 9083, although they are not in accordance with APB
opinion No. 15 because the additional incremental shares are
anti-dilutive and increase/decrease the reported net income (loss)
per share.
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Data Switch Corporation on Form S-8 (File Nos. 2-
83306, 33-35834, 33-35835, 33-39785 and 33-79282) and on Form S-1
(File Nos. 33-13057 and 33-36227) of our report dated January 31,
1995, on our audits of the consolidated financial statements and
the financial statement schedule of Data Switch Corporation as of
December 31, 1994 and 1993, and for each of the three years in the
period ended December 31, 1994, which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-13-1994
<CASH> 7,757
<SECURITIES> 0
<RECEIVABLES> 19,266
<ALLOWANCES> 553
<INVENTORY> 14,672
<CURRENT-ASSETS> 43,424
<PP&E> 28,975
<DEPRECIATION> 20,987
<TOTAL-ASSETS> 57,688
<CURRENT-LIABILITIES> 14,846
<BONDS> 19,515
<COMMON> 124
0
0
<OTHER-SE> 21,491
<TOTAL-LIABILITY-AND-EQUITY> 57,688
<SALES> 90,571
<TOTAL-REVENUES> 90,571
<CGS> 49,596
<TOTAL-COSTS> 49,596
<OTHER-EXPENSES> (202)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,981
<INCOME-PRETAX> 3,943
<INCOME-TAX> 1,380
<INCOME-CONTINUING> 2,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,563
<EPS-PRIMARY> .21
<EPS-DILUTED> .23
</TABLE>
