SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
V BAND CORPORATION
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(Name of Registrant as Specified in Its Charter)
Not applicable
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Feecomputed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1)
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share.
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(2) Aggregate number of securities to which transaction applies:
5,428,621
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$0.27 (cash merger consideration per share of Common Stock) .
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(4) Proposed maximum aggregate value of transaction:
$1,465,727.67
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(5) Total fee paid:
$294
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[GRAPHIC of V-Band Logo]
V Band Corporation
3 Westchester Plaza
Elmsford, NY 10523
To the Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of V Band Corporation (the "Company") to be held on June 14, 1999 at 10 a.m. at
the Company's offices at 3 Westchester Plaza, Elmsford, NY 10523.
At the meeting, you will be asked to consider and vote on the approval
of a merger (the "Merger") of the Company with and into a wholly owned
subsidiary of IPC Information Systems, Inc. ("IPC") in which the shareholders of
the Company will be entitled to receive $0.27 cash for each share of Common
Stock held by them. The attached notice of meeting and proxy statement explain
the proposed Merger and provide specific information about the Special Meeting.
Please read these materials carefully.
The Board of Directors has concluded that the Merger Agreement and the
proposed Merger are advisable and fair to, and in the best interests of, the
Company's shareholders. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER. There is no
assurance that the Company can continue as a going concern in the absence of the
Merger.
The affirmative vote of two-thirds of the outstanding shares of Common
Stock of the Company is required to approve the Merger. Thomas E. Feil, a
founder and the Chief Executive Officer of the Company, has agreed to vote the
shares of Common Stock he owns in favor of the Merger. Those shares represent
approximately 26.35% of the outstanding Common Stock of the Company. However, if
less than two-thirds of the Company's outstanding shares of Common Stock are
voted affirmatively, the Merger will not be consummated and the consideration
offered by IPC will not be available to you. THUS, YOUR FAILURE TO VOTE COULD
HAVE THE SAME CONSEQUENCES TO YOU AS A VOTE AGAINST THE MERGER.
Whether or not you are able to attend the Special Meeting, you are
urged to sign, date, and mail the enclosed proxy promptly.
Very truly yours,
/s/ Thomas Hughes
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Thomas Hughes
President
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[GRAPHIC of V-Band Logo]
V Band Corporation
3 Westchester Plaza
Elmsford, NY 10523
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
June 14, 1999
To the Shareholders of V Band Corporation:
A Special Meeting of Shareholders of V Band Corporation (the "Company")
will be held at the Company's offices at 3 Westchester Plaza, Elmsford, NY
10523, on June 14, 1999 at 10 a.m., for the following purposes:
1. To consider and vote upon a proposed merger, which is described in
the accompanying Proxy Statement, pursuant to which the Company will be merged
with and into IPC Merger Sub, Inc., a wholly owned subsidiary of IPC Information
Systems, Inc.("IPC"), and the holders of the Company's Common Stock will be
entitled to receive $0.27 cash for each share of Common Stock of the Company
held by them, and to adopt the Agreement and Plan of Merger pursuant to which
the merger will be effected, a copy of which is attached to the Proxy Statement
as Appendix A.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has determined that only holders of Common Stock
of record at the close of business on April 26, 1999 will be entitled to notice
of and to vote at the meeting or any adjournments thereof.
By Order of the Board of Directors,
/s/ Marc Teichman
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Marc Teichman
Secretary
Elmsford, New York
May 12, 1999
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[GRAPHIC of V-Band Logo]
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors of V Band
Corporation (the "Company") for use at the Special Meeting of the Shareholders
of the Company to be held on June 14, 1999 (the "Special Meeting"), or at any
adjournments thereof, for the purposes set forth in the foregoing notice. The
approximate date of mailing of the foregoing notice, this Proxy Statement and
the accompanying proxy is May 12, 1999.
At the Special Meeting, the shareholders will be asked to consider and
take action upon a proposal, unanimously recommended by the Board of Directors
of the Company, to adopt an Agreement and Plan of Merger dated as of April 14,
1999 (the "Merger Agreement") among IPC Information Systems, Inc. ("IPC"), IPC
Merger Sub, Inc., a wholly owned subsidiary of IPC incorporated in Delaware
("Merger Sub"), and the Company. Under the Merger Agreement, and subject to the
approval of shareholders representing two-thirds of the outstanding shares of
Common Stock and the satisfaction of certain other conditions, a merger (the
"Merger") will occur between the Company and Merger Sub. Upon consummation of
the Merger, the Company will merge with and into Merger Sub, the separate
existence of the Company will cease, and all shareholders of the Company, with
the exception of the shareholders who properly exercise their dissenter's
rights, will receive $0.27 for each share owned, without interest.
The consummation of the Merger is subject to a number of conditions.
Accordingly, even if shareholders adopt and approve the Merger Agreement and the
Merger, there is no assurance that the Merger will be consummated.
A shareholder giving a proxy has the power to revoke it any time before
it is exercised by filing with the Company a duly executed proxy bearing a later
date or by giving written notice of such revocation to the Secretary of the
Company prior to the meeting. A proxy may also be revoked by attending the
meeting and voting in person.
The expenses of solicitation will be paid by the Company. The principal
solicitation of proxies is being made by mail. However, the Company has retained
Kissel-Blake, a division of Shareholder Communications Corporation, to solicit
proxies, which may be by telephone, telegraph or personal interview at an
estimated cost of approximately $13,000. In addition, officers and other
employees of the Company may solicit proxies by telephone, telegraph or personal
interview, without additional compensation therefor. Forms of proxies will also
be distributed through brokers, custodians, and other like persons to the
beneficial owners of Common Stock of the Company and the Company will reimburse
such persons for their reasonable out-of-pocket expenses incurred in connection
therewith.
The record date for the determination of shareholders entitled to vote
at the meeting is the close of business on April 26, 1999. On that date, the
Company had 5,428,621 shares of Common
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Stock, $0.01 par value, issued and outstanding. As of that date there were
approximately 480 holders of record. Each shareholder of record as of that date
is entitled to one vote for each share then held.
All of the shares of Common Stock of the Company represented by valid
proxies, unless otherwise specified therein or revoked, will be voted FOR the
adoption of the Merger Agreement and the Merger. Where a shareholder has
appropriately specified how a proxy is to be voted, it will be voted
accordingly. However, if a broker or shareholder nominee limits on the proxy
card the number of shares voted on the adoption of the Merger Agreement and the
Merger, such "non-votes" will not be voted on the adoption of the Merger
Agreement and the Merger.
Some statements contained in this proxy statement regarding future
financial performance and results and other statements that are not historical
facts are forward-looking statements. Such statements relate to, among other
things, the Merger and future operating results. The words "expect," "project,"
"estimate," "predict," "anticipate," "believes," "plans," "intends," and similar
expressions are also intended to identify forward-looking statements. Such
statements are subject to numerous risks, uncertainties and assumptions,
including but not limited to: general business and economic conditions in the
Company's industry; pricing pressures and other competitive factors; results of
the Company efforts to reduce costs; issues arising from addressing year 2000
information technology issues; opportunities that the Company may pursue; the
availability and terms of financing; conditions to the consummation of the
Merger, which could affect the timing or occurrence of the Merger; legal
proceedings and changes in state or federal legislation or regulation.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. The Company does not undertake to update forward-looking information
contained herein or elsewhere to reflect actual results, changes in assumptions
or changes in other factors affecting such forward-looking statements. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
indicated in, contemplated by or implied by such statements.
SPECIAL FACTORS
Background of the Merger
In response to competitive factors in the market for the Company's
products, the larger size of the Company's competitors, and the Company's
declining financial performance, the Company has from time to time attempted to
solicit interest in a business combination with a larger entity.
In 1989, the Company engaged Goldman Sachs & Co. as a financial advisor
to advise a committee of the Company's Board of Directors with respect to
strategic alternatives, including a sale of the Company. In 1995, the Company
engaged Benedetto, Gartland & Greene, Inc. as a financial advisor to assist it
in exploring strategic alternatives, including a sale of the Company. In
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each case, the Company's financial advisors contacted third parties, but failed
to secure any interest in a business combination involving the Company. The
Company subsequently attempted to raise additional capital to fund the
development of a new generation of products. That effort was also unsuccessful.
Given these results, senior executives of the Company began to directly
contact executives of several other companies which sell telecommunications
equipment to the financial community in an effort to obtain an interest in a
business combination with the Company. As a result of the Company's direct
efforts, the Company entered into a confidentiality agreement with IPC on
September 11, 1998 and provided IPC with the opportunity to review detailed
information about the Company.
By a proposed letter of intent dated February 26, 1999, IPC made a
proposal to acquire the Company by means of a merger. Representatives of the
Company and IPC were unable to reach an agreement upon the terms of the proposed
letter of intent, but agreed to attempt to negotiate the terms and conditions of
a definitive merger agreement that could be recommended to each party's board of
directors. During the ensuing discussions with IPC, IPC expressed concern with
respect to the Company's ability to engage in discussions with other companies
and notified the Company that it would terminate all discussions with the
Company unless the Company agreed to deal solely with IPC during the course of
those discussions. As a result, the Company entered into an Exclusivity
Agreement with IPC on March 10, 1999 (the "Exclusivity Agreement"), in which it
agreed to deal exclusively with IPC to facilitate the negotiation of the Merger
Agreement until either party notified the other of the termination of the
negotiations, subject to a minimum period of ten business days (which was
subsequently extended until March 31, 1999).
Prior to entering into the Exclusivity Agreement, the Company's direct
efforts had resulted in only one other expression of interest in a possible
business combination with the Company. That expression of interest was tentative
in nature and was not as favorable to the Company as the IPC proposal. As a
result, the Company elected to enter into the Exclusivity Agreement with IPC and
engaged in the negotiations which resulted in the Merger Agreement.
At a meeting held on April 13, 1999, the Company's Board of Directors
unanimously approved and adopted the Merger Agreement and the arrangements for
the Special Meeting.
Stockholder's Agreement
Under a Stockholder's Agreement with IPC dated April 14, 1999 (the
"Stockholder's Agreement"), Mr. Thomas E. Feil, the Chief Executive Officer and
a director of the Company, has agreed to vote the 1,430,472 shares of Common
Stock beneficially owned by him, representing approximately 26.35% of the
outstanding shares of Common Stock, in favor of the Merger.
The Stockholder's Agreement also provides that Mr. Feil will vote his
shares against any action or agreement that would result in a breach by the
Company of the Merger Agreement and against: any extraordinary corporate
transaction, including, without limitation, a merger,
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consolidation or other business combination involving the Company or its
subsidiaries; a sale, lease or transfer of a material amount of assets of the
Company or its subsidiaries or a reorganization, recapitalization, dissolution
or liquidation of the Company or its subsidiaries; any change in the majority of
the board of directors of the Company; any material change in the present
capitalization of the Company or any amendment of the Company's certificate of
incorporation or by-laws; any other material change in the Company's corporate
structure or business; or any other action which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or materially adversely affect the Merger or the transactions contemplated by
the Merger Agreement or the Stockholder's Agreement. Mr. Feil has also agreed
that for the term of the Stockholder's Agreement he will not offer for sale,
sell, transfer, tender, pledge, encumber, assign or otherwise dispose of the
shares subject to the Stockholder's Agreement to any party other than IPC.
The Stockholder's Agreement does not provide for the purchase of Mr.
Feil's shares. Under the terms of the Stockholder's Agreement and the Merger
Agreement, Mr. Feil's shares are treated in the same manner as the shares held
by all other shareholders of the Company.
The Stockholder's Agreement terminates upon the earlier to occur of (i)
the completion of the Merger, (ii) the date the Merger Agreement is terminated
in accordance with its terms, and (iii) the date, if any, on which the Merger
Agreement is amended in a manner which adversely changes the amount,
composition, or timing of the merger consideration.
Recommendation Of Board Of Directors
The Board of Directors of the Company has unanimously authorized the
adoption of the Merger Agreement and the Plan of Merger contained therein and
recommends their approval by the shareholders.
In evaluating the terms of the proposed Merger, the Board of Directors
considered the history and prospects of the industry in which the Company
operates, the Company's past and present operations and earnings and cash flow
trends, the fact that the terms of the Merger are more favorable to the Company
than a tentative proposal made by another company which had expressed an
interest in acquiring the Company, and the fact that the Company has received no
other offer to acquire its assets or shares. The Board also considered the fact
that the transaction was negotiated at arms' length between the Company and IPC,
the fact that shareholders of the Company other than Mr. Feil will receive the
same price per share in the Merger as Mr. Feil is entitled to receive upon
consummation of the Merger, and the fact that no other special arrangements or
understandings exist between IPC and Mr. Feil.
In evaluating the Merger, the Board of Directors also considered the
uncertain nature of the Company's ability to continue as a going concern. As a
result of changes in the market for the Company's products, the Company has
incurred substantial recurring losses from operations. These losses have
resulted in a decline in the Company's shareholders' equity from approximately
$26.04 million on October 31, 1994 to approximately $1.4 million on January 31,
1999. These
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losses and their effect on the Company's financial condition have created
substantial concern on the part of the Company's customers which has resulted in
a further loss of business.
After considering the limited alternative courses of action available
to the Company, the Board of Directors has concluded that a transaction such as
the Merger is in the best interests of the Company and its shareholders and that
the Merger is the most favorable transaction currently available to the Company.
There is no assurance that the Company can continue to operate as a going
concern in the absence of the Merger.
The Board of Directors believes that the price offered by IPC reflects
the greater value which the Company's properties have to a larger company in the
Company's industry. The Merger Agreement (including the per share price to be
paid to Mr. Feil and other shareholders of the Company) was negotiated at arms'
length between the Company and IPC. Accordingly, and in light of the other
factors outlined above, the Board of Directors believes the price to be paid by
IPC is a fair price and is in the best interests of the Company's shareholders.
In light of all of the factors outlined above, the Board of Directors
concluded that it was not necessary to obtain any representation of unaffiliated
shareholders and that it was not advisable to incur the expense required to
obtain a report, appraisal or opinion from an outside party in connection with
the Merger.
New York law requires an affirmative vote of two-thirds of the
outstanding shares of Common Stock of the Company for approval of the Merger.
Since affiliates of the Company which are holders of Common Stock as of the
record date of the Special Meeting hold only approximately 26.35% of the
outstanding Common Stock of the Company, the approval of more than a majority of
the shares of Common Stock held by unaffiliated shareholders will be required to
approve the Merger.
Conflicts of Interest
In considering the recommendation of the Board with respect to the
Merger, shareholders should be aware that certain officers and directors of the
Company have interests in connection with the Merger which may present them with
actual or potential conflicts of interest.
CHANGE IN CONTROL PAYMENTS. In an effort to retain the services of the
Company's President in the face of the uncertainty associated with the Company's
financial condition and its efforts to seek a business combination, the Board of
Directors on November 15, 1998 approved a payment to be made to Mr. Thomas
Hughes in the amount of his annual base salary in the event that a change in
control of the Company occurs during the term of his employment or within six
months thereafter. During January, 1999 and March, 1999, the Company and its
subsidiaries provided similar benefits to a total of three additional employees
of the Company and its subsidiaries.
INDEMNIFICATION. The Merger Agreement provides that IPC will not alter
any exculpatory or indemnification provisions now existing in the Company's
Certificate of
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Incorporation or Bylaws for the benefit of any director or officer of the
Company. In addition, IPC has agreed in the Merger Agreement to provide
officers' and directors' liability insurance for a period of six years after the
Effective Time for each person now covered by the Company's directors' and
officers' insurance.
Purpose of the Merger
The transaction contemplated by the Merger Agreement has been
structured to successfully consummate the acquisition of the Company by IPC as
expeditiously as possible. The consummation of those transactions will provide
IPC with all of the assets and liabilities of the Company, and increase IPC's
presence in the market for the Company's products.
THE MERGER
The following summary of the material terms of the proposed Merger is
qualified in its entirety by reference to the full text of the Merger Agreement
which is attached to this Proxy Statement as Appendix A.
Merger Agreement
Under the terms of the Merger Agreement, the Company would be merged
with and into Merger Sub, each outstanding share of the Company's Common Stock
(other than shares as to which dissenters' rights have properly been preserved)
would be converted into the right to receive, upon surrender of the certificates
representing such shares as described below under "Payment for Shares;
Disbursing Agent", $0.27 cash, and the separate corporate existence of the
Company would cease. After the consummation of the Merger, the shareholders of
the Company will cease to have any rights with respect to their shares other
than the right to receive $0.27 per share or to perfect any rights which they
may have as dissenting shareholders.
Effective Time
The Merger will be consummated at the time that a certificate of the
merger of the Company and Merger Sub is filed with the Delaware Secretary of
State (the "Effective Time"). The Effective Time will be as promptly as
practicable after the Special Meeting on June 14, 1999, assuming that approval
of the Company's shareholders to the Merger has been obtained at the meeting and
that all other conditions to the Merger have been satisfied or waived.
Vote Required to Approve the Merger
New York law requires an affirmative vote of two-thirds of the
outstanding shares of Common Stock of the Company for approval of the Merger.
IPC holds an irrevocable proxy for shares representing approximately 26.35% of
the Common Stock. See "SPECIAL FACTORS; Stockholder's Agreement." IPC has stated
its intention to vote those shares in favor of the Merger.
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Payment for Shares; Disbursing Agent
ChaseMellon Shareholder Services, LLC has been appointed to act as
Disbursing Agent in connection with the Merger. Immediately after the Effective
Time, IPC will send a transmittal form to each record holder of Common Stock
advising them of the procedure for surrendering stock certificates in exchange
for cash. On proper surrender of an executed transmittal form together with such
certificates to the Disbursing Agent, shareholders will be entitled to receive
$0.27 cash for each share of Common Stock previously represented by the
surrendered certificates.
If the transmittal form is returned to the Disbursing Agent signed by a
person other than the registered holder of the stock certificates being
surrendered, such certificates must also be properly endorsed or accompanied by
a properly executed stock power and the signatures thereon as well as on the
transmittal form must be guaranteed by a commercial bank or trust company in the
United States or by a member of any national securities exchange. If the
transmittal form is signed by an executor, administrator, trustee, guardian,
attorney-in-fact, corporate officer or others acting in a fiduciary or
representative capacity, proper documentary evidence of the appointment and
authority of such person to so act must be enclosed with the transmittal form,
and such evidence must be satisfactory to the Disbursing Agent.
If payment is to be made to a person other than one in whose name the
surrendered certificate is registered, it shall be a condition of payment that
the certificate be properly endorsed and otherwise in proper form for transfer.
The person requesting such transfer shall either (i) pay to the Disbursing Agent
any transfer or other taxes required by reason of payment of cash to any person
other than the registered shareholder or (ii) establish to the satisfaction of
the Disbursing Agent that such tax has been paid or is not payable.
Funds will be disbursed to shareholders only upon proper surrender of
certificates. Any funds not disbursed within 60 days of the Effective Time will
be returned to IPC. Thereafter, upon surrender of certificates formerly
representing shares of Common Stock, IPC shall, subject to abandoned property
laws, make the $0.27 cash payment as described above. No interest shall accrue
or be payable with respect to the cash amount per share payable to any
shareholder.
Representations and Warranties
In the Merger Agreement, the Company, IPC and Merger Sub have made
certain representations and warranties to each other with respect to, among
other things, their respective organization and good standing, and proper
authorization and authority to enter into and perform their respective
obligations under the Merger Agreement. The Company has made additional
representations to IPC and Merger Sub with respect to, among other things, the
Company's capitalization, title to assets, public filings (including financial
statements), properties, undisclosed liabilities, compliance with law, tax
returns and payments, real property, intellectual property, tangible assets,
inventory, contracts, notes and accounts receivable, powers of attorney,
insurance, litigation, product warranties, product liabilities, employees,
employee benefits, and the absence of any material adverse changes with respect
to the Company.
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Certain Covenants
CONDUCT PRIOR TO EFFECTIVE TIME. The Company has agreed in the Merger
Agreement that among other things, it will: (i) not take any action outside of
the ordinary course of business; (ii) not amend its Certificate of Incorporation
or By-Laws; (iii) not grant any rights to obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights outstanding on the
date of the Merger Agreement); (iv) not declare, set aside, or pay any dividend
or distribution with respect to its capital stock or redeem, repurchase, or
otherwise acquire any of its capital stock; (v) not issue any note, bond, or
other debt security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the ordinary course of
business; (vi) not allow any security interest upon any of its assets outside
the ordinary course of business; (vii) not make any capital investment in, make
any loan to, or acquire the securities or assets of any other person outside the
ordinary course of business; and (viii) not make any change in employment terms
for any of its directors, officers, and employees outside the ordinary course of
business.
EXCLUSIVITY. The Company has also agreed that it will not, and will not
permit any of its subsidiaries to, solicit, initiate or knowingly encourage the
submission of inquiries, proposals or offers from any third party relating to:
(i) any acquisition of 10% or more of the consolidated assets of the Company and
its subsidiaries or of over 10% of any class of equity securities of the Company
or any of its subsidiaries; (ii) any tender offer (including a self tender
offer) or exchange offer that if consummated would result in any third party
beneficially owning 10% or more of any class of equity securities of the Company
or any of its subsidiaries; (iii) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries whose assets, individually or
in the aggregate, constitute more than 10% of the consolidated assets of the
Company, other than the Merger; or (iv) any other transaction which would, or
could, reasonably be expected to materially interfere with, prevent or
materially delay the Merger or which would, or could reasonably be expected to,
materially dilute its benefit to IPC. The Company has also agreed that it will
not enter into or participate in any discussions or negotiations regarding any
of the foregoing, or furnish to any third party any information with respect to
the business, properties or assets of the Company in connection with the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any third
party to do or seek any of the foregoing. However, the Company and the Board of
Directors may: (i) engage in discussions or negotiations with a third party who
has made a superior acquisition proposal if the Board of Directors, after
consultation with and advice from its outside counsel determines in good faith
that, in the exercise of its fiduciary responsibilities, such discussions or
negotiations should be commenced or such information should be furnished or such
facilitation undertaken; and (ii) furnish information pursuant to an appropriate
and customary confidentiality letter concerning the Company and its businesses,
properties or assets to a third party who has made a superior acquisition
proposal as to which a prior determination of the Board of Directors has been
made.
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ADJUSTMENT OF OPTIONS. The Company is also obligated to adjust each
outstanding option to purchase the Company's Common Stock to receive, in lieu of
each share of the Company's Common Stock for which such option is exercisable,
cash in an amount equal to the excess of $0.27 over the exercise price of such
option.
CREDIT FACILITY. The Company has agreed to use its best efforts to
enable Merger Sub to repay the Company's outstanding indebtedness under the
Company's credit facility with National Bank of Canada immediately after the
closing of the Merger and to receive a full and complete release of all security
interests provided by that credit facility.
Conditions to the Merger
The obligations of each of the Company, IPC and Merger Sub to effect
the Merger are conditioned upon, among other things: (i) the approval and
adoption of the Merger Agreement by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Common Stock; (ii) the absence of
any preliminary or permanent injunction or other court order which prevents
consummation of the Merger having been issued and remaining in effect. The
respective obligations of the Company, IPC and Merger Sub to effect the Merger
are also subject to the performance in all material respects of their respective
agreements contained in the Merger Agreement required to be performed by each of
them on or prior to the Effective Date, and the accuracy of their respective
representations and warranties set forth in the Merger Agreement and the receipt
of certain legal opinions and other closing documents.
The obligations of IPC and Merger Sub to effect the Merger are subject
to the following additional conditions: (i) the absence of any material adverse
change in the business, financial condition, operations, results of operations
or future prospects of the Company and its subsidiaries, taken as a whole,
except for such changes which were contemplated in a business plan provided by
the Company to IPC at the time of the Merger Agreement; and (ii) the number of
shares of Common Stock held by holders who have exercised their dissenter's
rights being limited to 10% or less of the Company's outstanding Common Stock.
Termination
The Merger Agreement may be terminated in the event of any of the
following:
(i) by mutual consent;
(ii) by IPC and Merger Sub, if the Company has breached any material
representation, warranty, or covenant contained in the Merger
Agreement in any material respect or if the Merger has not
occurred by July 31, 1999 because of the failure by the Company
to satisfy any of the conditions to their obligations to close;
(iii)by the Company if IPC or Merger Sub has breached any material
representation, warranty or covenant contained in the Merger
Agreement in any material respect or if the Merger has not
occurred by July 31, 1999 because of the failure by IPC or Merger
Sub to satisfy any of the conditions to the Company's obligation
to close;
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(iv) by the Company, if a person has made an acquisition proposal that
the Board of Directors determines, in good faith, is reasonably
likely to be completed and would, if completed, result in a
transaction more favorable to the Company's shareholders from a
financial point of view than the Merger Agreement and the Merger
(a "Superior Acquisition Proposal"); and
(v) by the Company, IPC, or Merger Sub, if the Company's shareholders
have failed to adopt the Merger.
If the Company, IPC, or Merger Sub terminates the Merger Agreement as a
result of the foregoing, all rights and obligations of the parties under the
Merger Agreement will terminate without liability, except for any liability of a
breaching party and except for the confidentiality obligations of the parties
and except for any obligation of the Company to make the termination payment
described below. If (i) the Company terminates the Merger Agreement because of
its receipt of a Superior Acquisition Proposal or (ii) if any party terminates
the Merger Agreement because the Company's shareholders have failed to adopt the
Merger and the Company or any of its subsidiaries enters into an agreement on or
before December 31, 1999 providing for certain transactions, the Company is
obligated to pay IPC a termination fee of $200,000.
Certain Results of the Merger
As a result of the Merger, the separate corporate existence of the
Company will cease. The shareholders of the Company will cease to have any
rights with respect to their shares other than the right to receive $0.27 per
share or to perfect any rights they may have as dissenting shareholders. The
Common Stock will no longer be registered under the Securities Exchange Act of
1934 and the Company will no longer have the obligation to file reports
thereunder.
Federal Income Tax Consequences
The following discussion is a summary of the principal federal income
tax consequences of the Merger to stockholders of the Company whose shares of
Common Stock are surrendered pursuant to the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of rights). The
discussion applies only to stockholders in whose hands shares of Common Stock
are capital assets and may not apply to shares of Common Stock received pursuant
to the exercise of employee stock options or otherwise as compensation or to
stockholders who are not citizens or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR
GENERAL INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE
INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISER TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER,
10
<PAGE>
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash pursuant to the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of dissenters'
rights) will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). In general, for federal
income tax purposes, a stockholder will recognize gain or loss equal to the
difference between the cash received by the stockholder pursuant to the Merger
and the stockholder's adjusted tax basis in the shares of Common Stock
surrendered pursuant to the Merger. Such gain or loss will be a capital gain or
loss. The rate at which any such gain will be taxed to non-corporate
stockholders (including individuals, estates and trusts) will, as a general
matter, depend upon each stockholder's holding period in the shares of Common
Stock at the Effective Time. If a non-corporate stockholder's holding period for
the shares of Common Stock is more than 12 months, either a 20 percent or a 10
percent capital gains rate generally will apply to such gain, depending on the
amount of taxable income of such stockholder for such year. If the stockholder's
holding period for the shares of Common Stock is one year or less, such gain
will be taxed at the same rates as ordinary income. Capital loss generally is
deductible only to the extent of capital gain plus ordinary income of up to
$3,000. Net capital loss in excess of $3,000 may be carried forward to
subsequent taxable years.
For corporations, capital losses are allowed only to the extent of
capital gains, and net capital gain is taxed at the same rate as ordinary
income. Corporations generally may carry capital losses back up to three years
and forward up to five years.
Payments in connection with the Merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
stockholder fails to furnish such stockholder's social security number or other
taxpayer identification number ("TIN"), or furnishes an incorrect TIN. Backup
withholding is not an additional tax but merely a creditable advance payment
which may be refunded to the extent it results in an overpayment of tax. Certain
persons generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information.
Rights of Dissenting Shareholders
Sections 623 and 910 of the New York Business Corporation Law give to
any shareholder of the Company who wishes to object to the Merger (an "Objecting
Shareholder") the right to receive from the Company the fair value of such
shareholder's shares in cash, provided that the Merger is not abandoned or fails
to be approved, and provided further that the following procedures are carefully
followed.
(a) The Objecting Shareholder must not vote in favor of the Merger and,
before the proposal to approve the Merger is submitted to a vote at the Special
Meeting to be held on June 14, 1999, the Objecting Shareholder must file with
the Company a written objection to the Merger stating the Objecting
Shareholder's intention to demand payment for the Objecting Shareholder's
shares. The written objection should be delivered prior to the Special Meeting
to V Band Corporation, 3 Westchester Plaza, Elmsford, NY 10523, Attention of Mr.
Robert Riiska,
11
<PAGE>
Chief Financial Officer. Registered Mail, Return Receipt Requested is
recommended. The objection may also be submitted at the Special Meeting before a
vote is taken on the Merger.
(b) The objection must include (i) a notice of election to dissent,
(ii) the shareholder's name and residence address, (iii) the number of shares as
to which the shareholder dissents and (iv) a demand for payment of the fair
value of the shareholder's shares if the Merger is consummated.
(c) A NEGATIVE VOTE IS NOT SUFFICIENT. A shareholder may not dissent as
to less than all of the shares, as to which he has a right to dissent, held by
him of record, that he owns beneficially. A nominee or fiduciary may not dissent
on behalf of any beneficial owner as to less than all of the shares of such
owner, as to which such nominee or fiduciary has a right to dissent, held of
record by such nominee or fiduciary.
(d) Within ten days after the date after the Special Meeting, the
Company must give written notice to each Objecting Shareholder that the Merger
has been authorized by the vote of the Company's shareholders.
(e) Together with the written demand or within one month thereafter,
the Objecting Shareholder must submit certificates representing all of his
shares of the Company's stock to the Company or its transfer agent for the
purpose of affixing a notation indicating that a demand for payment has been
made. Otherwise, at the option of the Company, exercised by written notice given
within 45 days from the date of filing of the notice to dissent, the Objecting
Shareholder will lose his dissenter's rights, unless a court, for good cause
shown, otherwise directs.
(f) Within 15 days after the later of the Effective Time or last day of
the period during which written demand by the Objecting Shareholder must be made
(but in no case later than 90 days from the date of the Special Meeting), the
Company must make a written offer by registered mail to each Objecting
Shareholder to pay for such shareholder's shares at a specified price which the
Company considers to be their fair value. Such offer must be accompanied by a
statement setting forth the aggregate number of shares with respect to which
notices of election to dissent have been received and the aggregate number of
holders of such shares. If the Merger has been consummated at the time of such
offer, the offer shall also be accompanied by (i) the advance payment to each
Objecting Shareholder who has submitted to the Company his or her stock
certificates as described in the preceding paragraph (e), of an amount equal to
80% of the amount of such offer, or (ii) as to each Objecting Shareholder who
has not yet submitted such Shareholder's stock certificates, a statement that
the Company will make an advance payment to such Objecting Shareholder of an
amount equal to 80% of the amount of such offer promptly upon submission of such
Objecting Shareholder's stock certificates. Every advance payment or statement
as to advance payment must include advice to the Objecting Shareholder to the
effect that acceptance of such payment does not constitute a waiver of any
dissenter's rights. Any offer must be made at the same price per share to all
Objecting Shareholders.
(g) If, within 30 days after making such offer, the Objecting
Shareholder and the Company agree upon the price to be paid for the Objecting
Shareholder's shares, payment must be made by the Company within 60 days of the
date of the making of such offer or the Effective
12
<PAGE>
Time, whichever is later, upon the surrender of the certificates representing
the Objecting Shareholder's shares.
(h) If the Company fails to make such offer as provided in paragraph
(f) or if the Objecting Shareholder and the Company fail to agree upon the price
to be paid within 30 days of the date of the Company's offer, the Company must,
within 20 days after the expiration of the applicable time period, institute a
special proceeding in the Supreme Court of the State of New York, County of
Westchester to determine the rights of the Objecting Shareholder and to fix the
fair value of the Objecting Shareholder's shares.
(i) If the Company fails to institute such special proceeding, the
Objecting Shareholder may do so within 30 days after the expiration of such 20
day period. Failure of the Objecting Shareholder to institute such proceedings
will result in the loss of such Objecting Shareholder's dissenter's rights
unless the court, for good cause shown, otherwise directs.
(j) Within 60 days after the final determination of the special
proceeding, the Company must pay to each Objecting Shareholder the amount found
to be due him or her, upon surrender of the certificates representing the
Objecting Shareholder's shares.
After the Effective Time, the obligations of the Company referred to
above will be discharged by Merger Sub, as the surviving corporation of the
Merger.
The foregoing summary of the rights of Objecting Shareholders does not
purport to be complete and is qualified in its entirety by reference to Sections
623 and 910 of the New York Business Corporation Law, a copy of which appears in
Appendix B to this Proxy Statement.
Source of Funds
If the Merger is consummated, and no dissenters' rights are exercised,
shareholders of the Common Stock will receive aggregate cash consideration for
their shares of approximately $1.5 million. All of these funds will be supplied
by IPC from its general corporate funds.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed for quotation in the National
Association of Securities Dealers OTC Bulletin Board under the symbol "VBAN".
The following table shows the high and low closing bid prices for the Company's
Common Stock during each of the fiscal quarters identified below. These bid
prices were obtained from IDD Information Services. The
13
<PAGE>
quotations represent prices in the over-the-counter market between dealers in
securities and do not include retail markup, markdown, or commissions.
<TABLE>
<CAPTION>
Fiscal 1999 High Low
- ----------- ---- ---
<S> <C> <C>
Second Quarter $ .48 $ .20
First Quarter $ .22 $ .17
Fiscal 1998 High Low
- ----------- ---- ---
Fourth Quarter $ .41 $ .13
Third Quarter $ .38 $ .11
Second Quarter $ .88 $ .25
First Quarter $1.75 $ .63
Fiscal 1997 High Low
- ----------- ---- ---
Fourth Quarter $2.44 $1.50
Third Quarter $2.44 $1.38
Second Quarter $2.00 $1.25
First Quarter $2.50 $1.25
</TABLE>
On April 14, 1999 (the last trading day before the announcement of the
Merger Agreement) the low bid price, high ask price, and closing bid price of
the Common Stock were $0.22, $0.34, and $0.28, respectively. As of May 12, 1999,
there were approximately 480 holders of record of the Company's Common Stock.
The Company has never paid a regular dividend on its shares, and does
not anticipate paying dividends in the near future.
Under the terms of the Credit Agreement dated as of May 28, 1997
between the Company and National Bank of Canada, New York Branch, the Company is
restricted from declaring or paying dividends if an event of default has
occurred and is continuing thereunder.
THE COMPANY
General
The Company was incorporated in New York in 1977 and commenced business
operations in 1980. It is a leading supplier of instant access voice
communications systems. These systems include sophisticated software-based
communications workstations, switching equipment, peripheral products, project
management services, technical services and wide-area network solutions. The
Company's products and services are used worldwide primarily by financial
services organizations for the trading of stocks, bonds and other financial
instruments. Other applications include the mission critical communications
requirements of the electric power industry and emergency service providers.
14
<PAGE>
The largest share of the Company's sales is derived from the sale and
servicing of voice trading systems to the financial services industry. Traders
and dealers require instant access communication to a large constituency,
including peers, customers, and market information providers. In contrast to
conventional business telephone systems, voice trading systems utilize more
network access lines than telephone handsets. Each workstation provides the user
with immediate push button access to as many as 320 telephone lines along with a
visual indication of the current operational status of each line. The Company's
voice trading systems offer a distributed switching architecture (without a
central controller) and full software control for ease of moves, additions, and
changes. Other markets for these systems include communication control centers
for utilities, government and military agencies, emergency service E9-1-1
dispatch centers and network operations.
Available Information
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports and other information may be inspected and
copied or obtained by mail upon payment of the SEC's prescribed rates at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the New York Regional Office of the
SEC, 7 World Trade Center, New York, New York 10048. The SEC also maintains a
Web site that contains reports, proxy, information statements and other
information regarding registrants that file electronically with the SEC. The
address of such site is http://www.sec.gov.
Accompanying and forming a part of this Proxy Statement are the
Company's Annual Report on Form 10-K for the year ended October 31, 1998, as
amended, and the Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1999.
Selected Financial Data
The following table presents certain summary selected consolidated
financial data of the Company as of and for each year of the five fiscal years
in the period ended October 31, 1998 and for the three month periods ended
January 31, 1999 and January 31, 1998. This financial data was derived from
audited and unaudited historical financial statements of the Company and should
be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this Proxy
Statement and the financial statements and notes accompanying this Proxy
Statement.
The selected financial data set forth below do not purport to be
complete and should be read in conjunction with, and are qualified in their
entirety by, the Company's interim unaudited
15
<PAGE>
financial statements and annual financial statements, including the notes
thereto, which accompany this Proxy Statement.
<TABLE>
<CAPTION>
For the 3 Months
Ended January 31, For the Year Ended October 31,
----------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(in 000's, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $3,776 $4,724 $18,573 $31,081 $32,886 $29,351 $31,078
Income (loss) before
cumulative effect of
accounting change (568) (2,322) (4,369) (8,512) 27 (11,594) 627
Cumulative effect of
accounting change - - - - - - 1,242
------- ------- ------- ------- ------- ------- -------
Net income (loss) per
basic and diluted common
share $(568) $(2,322) $(4,369) $(8,512) $27 $(11,594) $1,869
====== ======== ======== ======== === ========= ======
Per share data:
Income (loss) before
cumulative effect of
accounting change $(.10) $(.43) $(.81) $(1.58) $.01 $(2.18) $.12
Cumulative effect of
accounting change - - - - - - .23
------- ------- ------- ------- ------- ------- -------
Net income (loss) $(.10) $(.43) $(.81) $(1.58) $.01 $(2.18) $ .35
====== ====== ====== ======= ==== ======= ====
Weighted average number of
basic and diluted common
shares outstanding
Cash dividends per common
share 5,429 5,413 5,423 5,372 5,323 5,322 5,311
$.00 $.00 $.00 $.00 $.00 $.00 $.00
Working capital $928 $2,987 $1,395 $5,151 $10,619 $9,622 $18,935
Total assets $8,006 $11,564 $8,807 $14,552 $22,042 $21,212 $36,027
Shareholders' equity $1,392 $3,832 $1,920 $6,097 $14,488 $14,398 $26,039
</TABLE>
16
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
As an aid to understanding the Company's operating results, the
following table shows, for the periods indicated, the percentage relationship
which each item bears to sales.
<TABLE>
<CAPTION>
3 Months Ended Fiscal Year Ended October 31,
January 31, -----------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Sales
Equipment 55.4% 68.3% 66.8% 81.8% 84.2%
Service 44.6 31.7 33.2 18.2 15.8
------ ------ ------ ------ -------
Total sales 100.0 100.0 100.0 100.0 100.0
Cost of sales
Equipment(*) 78.3 75.1 69.0 73.8 59.2
Service (*) 63.3 65.9 67.8 76.7 62.2
------ ------ ------ ------ -------
Total cost of sales 71.6 72.2 68.6 74.3 59.7
------ ------ ------ ------ -------
Gross Profit 28.4 27.8 31.4 25.7 40.3
Selling, general and administrative
expenses 37.8 62.8 44.6 39.2 31.0
Research and development expenses 5.0 12.7 9.2 11.5 9.5
------ ------ ------ ------ -------
Operating loss (14.4) (47.7) (22.4) (25.0) (0.1)
====== ====== ====== ====== =======
Net income (loss) (15.0)% (49.2)% (23.5)% (27.4)% .01%
====== ====== ====== ====== =======
</TABLE>
* Presented as a percentage of the related sales categories.
Comparison of First Quarter 1999 and 1998
Results of Operations
- ---------------------
Sales for the first quarter of 1999, ended January 31, 1999, of $3,776
were $948, or 20%, lower than the $4,724 reported in the first quarter of 1998.
Equipment sales of $2,093 in the first quarter of 1999 decreased by $1,135, or
35%, from the equipment sales of $3,228 in the first quarter of 1998. This
decrease was primarily due to decreased demand for the Company's products. Sales
from the Company's service business increased to $1,683, or 13%, for the first
quarter of 1999 from $1,496 for the first quarter of 1998. This increase was
primarily due to new maintenance contracts entered into after the expiration of
warranty periods for installations of the Company's exchange phone in previous
fiscal years and an increase in other customers serviced by the Company.
Gross profit margin was 28% for the first quarter of 1999 and 1998.
The gross profit margin for the equipment sales was 22% in the first quarter of
1999 compared to 25% for the same period in 1998. This decrease was primarily
attributable to price discounting required in competitive bidding for new
installations as well as additions to existing customer installations. The gross
profit margin for service sales was 37% for the first quarter of 1999 as
compared to
17
<PAGE>
34% for the same period in 1998. The increase was attributable to the increase
in maintenance sales for the first quarter.
Operating expenses for the first quarter of 1999 were $1,614 or $1,952
lower than the $3,566 reported for the first quarter of 1998. The decrease was
primarily attributable to the first quarter 1998 charge of $1,023 related to the
Company's restructuring of its operations, reductions in research and
development expenditures, and decreases in other operating expenses.
The net loss reported in the first quarter ended January 31, 1999 was
$568, or $.10 per share, compared to a net loss of $2,322, or $.43 per share,
for the first quarter of 1998. The loss was primarily attributable to the
aforementioned decrease in equipment sales and gross profit margin for the first
quarter of 1999. The average shares outstanding for the quarter ended January
31, 1999 increased to 5,429 versus 5,413 for the same period in 1998.
Financial Condition
- -------------------
The Company's cash was $630 at January 31, 1999, a decrease of $285
from the October 31, 1998 balance of $915. Short-term debt decreased $120 as a
result of payments made during the quarter. Inventory decreased $540 as the
Company substantially reduced new purchases and also rescheduled deliveries of
goods previously ordered from its subcontractors and suppliers.
The Company's losses for 1997, 1998 and the first quarter of 1999 have
had a substantial impact on its working capital and liquidity. On May 28, 1997
the Company entered into a Credit Agreement (the "Credit Agreement") with
National Bank of Canada, New York Branch (the "Bank"). The Credit Agreement
provides a $2 million credit facility to the Company secured by substantially
all of the assets of the Company and its domestic subsidiaries. As a result of
the Company's results of operations, the Bank amended the financial covenants of
the Credit Agreement. The Company's operations are dependent upon the continued
availability of funding under the Credit Agreement. The amended financial
covenants require, among other things, an improvement in the Company's results
of operations during the second fiscal quarter of 1999 and a return to
profitability in the third fiscal quarter of 1999. There is no assurance that
the Company will be able to satisfy these requirements.
Comparison of Fiscal Years 1998, 1997, and 1996
Sales
- -----
Sales for the year ended October 31, 1998 were $18.6 million, a $12.5
million, or 40% decrease from sales for 1997. The decline in 1998 sales was
primarily due to a decrease in large exchange floor installations and a general
decline in demand for the Company's products. Equipment sales, which include new
equipment installations plus moves, adds, and changes for customers' existing
systems, decreased by 51% from $25.4 million in 1997 to $12.4 million in 1998.
Of this $13.0 million decrease, $7.0 million was attributable to a decline in
large exchange floor installations and $6.0 million was attributable to a
decrease in the sale of the Company's other products.
Sales in 1998 to non-financial customers (i.e., communication control
centers for utilities, and government agencies, etc.) accounted for $4.0
million, or 21% of sales, a $1.5 million
18
<PAGE>
increase from 1997 non-financial customer sales. The increase was attributable
to a $0.7 million increase in sales of the Company's Licom products and several
specific sales of the Company's product in diverse applications in 1998.
Sales for the year ended October 31, 1997 were $31.1 million, a $1.8
million, or 5% decrease from sales for 1996. The decline in 1997 sales was
primarily due to a decrease in sales of the Company's Licom subsidiary and was
partially offset by an increase in the Company's service sales. Equipment sales,
which include new equipment installations plus moves, adds, and changes for
customers' existing systems, decreased by 8% from $27.7 million in 1996 to $25.4
million in 1997. Of this $2.3 million decrease, $1.5 million was attributable to
a decline in the sales of Licom's products and $.8 million was attributable to a
decrease in the sale of the Company's other products. The decline in the sale of
the Company's Licom products was primarily due to a decline in the number of
units sold resulting from increased competition in the market for Licom's
products and the Company's emphasis on the sale of its other products.
Sales in 1997 to non-financial customers (i.e., communication control
centers for utilities and government agencies) accounted for $2.5 million, or 8%
of sales, a $3.5 million decrease from 1996 non-financial customer sales. The
decrease was related primarily to several specific sales of the Company's
product in diverse applications in 1996.
Since the Company sells products to its foreign customers and
distributors for U.S. dollars, it is unaffected by currency translations. The
Company's United Kingdom operation primarily transacts sales in pounds sterling
or US dollars. Those sales transacted in pound sterling were not materially
impacted by foreign exchange rate fluctuations during 1998 or 1997.
Direct sales were $16.4 million, or 88% of total sales in 1998, as
compared to $24.9 million and $28.4 million, or 80% and 86% of sales in 1997 and
1996, respectively.
Gross Profit Margins
- --------------------
Gross profit margins for 1998 and 1997 were 31% and 26% respectively.
The equipment gross profit margin was 31% in 1998 as compared to 26% in 1997.
The increase in equipment gross profit margins in 1998 was attributable to
modifications to existing systems and Licom new systems installed representing a
higher percentage of total equipment sales. In general, both of these types of
sales generate higher gross profit margins than new installations of the
Company's core products. The service gross profit margin increased to 32% in
1998 from 23% in 1997. This was primarily attributable to efficiencies gained as
a result of the January 1998 restructuring, and new maintenance contracts
entered into during 1998.
Gross profit margins for 1997 and 1996 were 26% and 40% respectively.
The equipment gross profit margin was 26% in 1997 as compared to 41% in 1996.
The decrease in equipment gross profit margins for 1997 was attributable to
special fourth quarter 1997 expense adjustments, including an $.8 million
write-down of certain field and supplier inventory and a $.5 million increase in
inventory reserves related to components for older product lines. In addition,
the gross profit margin was unfavorably impacted by large customer contracts,
for which the Company obtained lower gross profit margins, large manufacturing
variances, due to a lower volume of purchases during the year, service
variances, due to large contracts where the Company
19
<PAGE>
incurred additional warranty costs, and a decrease in gross profit margins from
the Company's Licom business due to increased production costs. The service
gross profit margin decreased to 23% in 1997 from 38% in 1996. This was
primarily attributable to increased costs in the Company's service operations
and an increase in the amount of technicians providing warranty services related
to several large contracts.
Operating Expenses
- ------------------
Total operating expenses for 1998 decreased to $10.0 million,
representing a 37% decrease from $15.8 million for 1997. Operating expenses as a
percentage of sales were 54% in 1998 as compared to 51% in 1997. The selling,
general and administrative expenses increase as a percentage of sales to 45% in
1998 from 39% in 1997 was attributable to a $1.0 million restructuring charge in
1998.
Total operating expenses for 1997 increased to $15.8 million,
representing an 18% increase from $13.3 million for 1996. Operating expenses as
a percentage of sales were 51% in 1997 as compared to 40% in 1996. The selling,
general and administrative expenses increased as a percentage of sales to 39% in
1997 from 31% in 1996.
Selling, general and administrative costs for 1998 decreased $3.9
million to $8.3 million, or 32%, from $12.2 million in 1997. The decrease in
selling, general and administrative expenses was primarily attributable to cost
reductions initiated in the January 1998 restructuring program and the 1997
write-off of the remaining value of the goodwill of $2.3 million related to the
Company's London operation.
Selling, general and administrative costs for 1997 increased $2 million
to $12.2 million, or 20%, from $10.2 million in 1996. The increase in selling,
general and administrative expense was primarily attributable to the Company
writing off the remaining value of the goodwill of $2.3 million related to the
Company's London operation.
Research and development expenses for 1998 of $1.7 million decreased
$1.9 million, or 52% from $3.6 million in 1997. Research and development
expenses as a percentage of sales decreased to 9% in 1998 as compared to 11% in
1997. The decrease is primarily due to the maturation of the Company's current
product line and the suspension of development of a new generation product line.
Research and development expenses for 1997 of $3.6 million increased
$.5 million, or 15%, from $3.1 million in 1996. Research and development
expenses as a percentage of sales increased to 11% in 1997 as compared to 9% in
1996. The increase was primarily due to prototype and development expenses for
specific customer contracts.
Other Income and Expense
- ------------------------
Interest expense was $195,000 for 1998 and $80,000 in 1997, which was
primarily due to the debt incurred related to the credit facility obtained by
the Company in May 1997. No interest expense was reported in 1996.
20
<PAGE>
Provision for Income Taxes
- --------------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109") "Accounting for Income
Taxes." Under SFAS 109, the deferred tax provision is determined under the
liability method. Under this method, deferred tax assets and liabilities are
recognized based on differences between the financial statement carrying amount
and the tax basis of assets and liabilities using presently enacted tax rates.
During 1996, the Company reduced the deferred tax asset and valuation allowance
by $208,000. During 1997, the Company increased the deferred tax asset and
valuation allowance by $3,105,000 and $3,805,000 respectively. During 1998, the
Company increased both the deferred tax asset and valuation allowance by
$2,786,000. The total valuation allowance as of October 31, 1998 of $11,409,000
reduces the deferred tax asset to zero. The Company's 1998, 1997, and 1996 tax
provisions of $0, $700,000, and $5,000, reflect effective tax rates of 0%, (9)%,
and 16%, respectively.
Net Income (Loss) Per Basic and Diluted Common Share
- ----------------------------------------------------
For 1998, the Company recorded a net loss of $4.4 million or ($.81)
per share, as compared to a net loss of $8.5 million or ($1.58) per share in
1997. The loss was primarily attributable to reduction in the overall sales
level, partially offset by a reduction in operating expenses.
For 1997, the Company recorded a net loss of $8.5 million or ($1.58)
per share, as compared to net income of $27,000 or $.01 per share in 1996. The
loss was primarily attributable to the write-off of goodwill related to the
Company's London operation, the write-down of spare and prototype inventory, the
write-down of the Company's deferred tax asset, and a reduction in the Company's
gross profit margin.
Liquidity and Capital Resources
- -------------------------------
The Company's cash at October 31, 1998 increased $.6 million, to $.9
million, compared to the $.3 million balance reported at October 31, 1997.
Accounts receivable decreased $5.3 million, to $2.8 million in 1998 from $8.1
million in 1997 primarily due to retainage due on a large customer contract as
of October 31, 1997, increased collection efforts, and a decline in the demand
for the Company's products. Short-term debt decreased $1.5 million, and
inventories decreased $.5 million.
The Company's cash at October 31, 1997 declined $2 million, to $.3
million, compared to the balances reported at October 31, 1996. Accounts
receivable increased $1.4 million, to $8.1 million in 1997 from $6.7 million in
1996 primarily due to retainage due on a large customer contract. Other current
liabilities (excluding short-term debt) decreased $2.1 million. Offsetting these
items, short-term debt increased $2.9 million and inventory decreased $3.1
million.
The Company's working capital was $1.4 million as of October 31, 1998,
a $3.8 million decrease from $5.2 million as of October 31, 1997. The reduction
in working capital as of October 31, 1998 was primarily attributable to losses
incurred by the Company.
21
<PAGE>
The Company's working capital was $5.2 million as of October 31, 1997,
a $5.4 million decrease from $10.6 million as of October 31, 1996. The reduction
in working capital as of October 31, 1997 was primarily attributable to the
increase in short-term debt and decreases in inventory and cash and cash
equivalents. Working capital was $10.6 million as of October 31, 1996, a $1
million increase from $9.6 million as of October 31, 1995.
The Company's losses for 1998 and 1997 have had a substantial impact
on its working capital and liquidity. On May 28, 1997 the Company entered into a
Credit Agreement (the "Credit Agreement") with National Bank of Canada, New York
Branch (the "Bank") which expires on May 28, 2000. The Credit Agreement provides
a $2 million credit facility to V Band Corporation secured by substantially all
of the assets of the Company and its domestic subsidiaries. As a result of the
Company's results of operations in the past, the Bank amended the financial
covenants of the Credit Agreement. The Company's operations are dependent upon
the continued availability of funding under the Credit Agreement. The continued
availability of funding under the Credit Agreement is dependent, in turn, upon
the Company's ability to satisfy the amended financial covenants set forth in
the Credit Agreement. The amended financial covenants require, among other
things, an improvement in the Company's results of operations during the second
fiscal quarter of 1999 and a return to profitability commencing in the third
fiscal quarter of 1999. There is no assurance that the Company will be able to
satisfy these requirements.
The Company has no significant commitments for capital expenditures as
of October 31, 1998.
Year 2000
- ---------
The Company utilizes software and related technologies throughout its
business that may be affected by the date change in the year 2000. Systems
modifications or replacement are underway which are expected to make all
computer systems at the Company compliant with the year 2000 requirement. A
committee consisting of key employees from the engineering, IT, production, and
finance and management functions established procedures for testing all Company
products, software and vendors for year 2000 compliance. To date, major product
lines have been tested and found to be year 2000 compatible. Vendors have been
formally contacted and asked to certify that year 2000 issues will not interfere
with delivery of goods or services. A contingency plan will be finalized after
the results of all testing and vendor responses are received. The Company's
financial software is supported by an independent firm which licenses its
products and services to the Company. Although the vendor has certified that its
applications are in compliance with the year 2000 requirements, full testing
coupled with a visit to the vendor's facility are planned during the second
quarter of 1999. In the event major problems are discovered, the Company expects
that new software can be installed and tested during the year.
All applicable testing for year 2000 compliance is scheduled for
completion by June 30, 1999, which the Company believes will leave sufficient
time to resolve any problems that might be discovered. As most costs are
associated with time spent by employees or vendors, the Company expects to incur
less than $50,000 of costs for year 2000 compliance issues.
22
<PAGE>
Although there can be no assurance that the Company, its vendors, third
party providers of goods and services (utilities, telecommunications etc.) or
the Company's customers will not discover year 2000 compliance problems, the
Company is currently unaware of any that would have an adverse affect on its
operations and financial conditions. Failure by the Company to identify and
correct any year 2000 issues on a timely basis could result in lost revenues,
increased operating expenditures, loss of customers coupled with related
litigation expenses and a business interruption, any of which could have a
material adverse effect on the Company's financial condition.
A contingency plan will be finalized after the results of all testing
and vendor responses are received.
INFORMATION ABOUT IPC
IPC Information Systems, Inc. (together with its subsidiaries, "IPC")
is a leader in providing integrated telecommunications equipment and services
that facilitate the execution of transactions by the financial trading
community. Such transactions involve the trading of equity and debt securities,
commodities, currencies and other financial instruments. IPC designs,
manufactures, installs and services turret systems and installs and services the
cabling infrastructure and networks which provide financial traders with desktop
access to time-sensitive communications and data. IPC's primary customers
include securities and investment banking firms, merchant and commercial banks,
interdealer brokers, foreign exchange and commodity brokers and dealers,
securities and commodity exchanges, mutual and hedge fund companies, asset
managers and insurance companies. IPC uses an integrated approach to marketing
its products and services, leveraging its established customer base throughout
the financial trading community. In addition, through its subsidiary,
International Exchange Networks, Ltd. (IXnet), IPC operates an international
voice and data network, providing a variety of dedicated private line, managed
data and switched voice services, which has been specifically designed to meet
the specialized telecommunications requirements of the financial trading
community. In 1998, IPC's total revenues were $295.9 million and total earnings
before interest, taxes, depreciation and amortization, excluding a non-recurring
$10.6 million charge for change in control expense, was approximately $44.6
million.
Certain Assistance
IPC has expressed a willingness to provide commercial and financial
assistance to the Company in connection with the conduct of the Company's
operations prior to the consummation of the Merger, including, without
limitation, the conduct of the Company's business with its customers and
suppliers. However, IPC has no obligation to provide such assistance under the
terms of the Merger Agreement and there is no assurance that such assistance
will be provided. Any transaction between the Company and IPC prior to the
consummation of the Merger will be on an arm's length basis and will depend upon
the ability of the Company and IPC to negotiate mutually acceptable terms with
respect to such provision of assistance.
23
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning the stock ownership of all
persons known by the Company to own beneficially more than 5% of the Company's
shares of Common Stock. Each director of the Company, each executive officer
named in the executive compensation table and all directors and executive
officers of the Company as a group, as of May 12, 1999.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percentage of
Owned Class
----- -----
<S> <C> <C> <C>
Thomas E. Feil 1,430,472 (1) 26.4%
3 Westchester Plaza, Elmsford, NY 10523
Thomas Hughes 130,567 (2) *
3 Westchester Plaza, Elmsford, NY 10523
Luke P. La Valle, Jr. 12,000 (2) *
50 Broad Street, Suite 1609, New York, NY 10004
Thomas H. Lenagh 10,000 (2) *
6 Greenwich Office Park, Greenwich, CT 06831
Brian S. North 25,000 (2) *
1400 Eleven Penn Center, Philadelphia, PA 19103
A. Eugene Sapp, Jr. 8,000 (2) *
2101 West Clinton Ave., Huntsville, AL 35807
J. Stephen Vanderwoude 8,000 (2) *
2316 Young Road, Southern Pines, NC 28388
All directors and executive officers as a group (10 persons) 1,624,039 (1) 29.9%
- ----------------------------------------------------------------
* - less than 1%
</TABLE>
(1) Excludes 80,000 shares held in an irrevocable trust for Mr. Feil's
daughter, over which Mr. Feil holds no voting or investment power. Includes
40,000 shares held by Mr. Feil's wife, over which Mr. Feil disclaims
beneficial ownership.
(2) Includes shares that may be acquired upon exercise of options, which are
currently exercisable or are exercisable within 60 days, as follows: Mr.
Hughes, 130,567 shares; Mr. LaValle, 12,000 shares; Mr. Lenagh, 10,000
shares; Mr. North, 25,000 shares; Mr. Sapp, 8,000 shares; Mr. Vanderwoude,
8,000 shares; and all directors and executive officers as a group, 193,567
shares.
INDEPENDENT PUBLIC ACCOUNTANTS
It is anticipated that representatives of Deloitte & Touche LLP will be
present at the Special Meeting and will have an opportunity to make a statement
if they desire to do so, and to respond to any appropriate inquiries from
shareholders.
24
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at
the Special Meeting. However, if any other business properly comes before the
Meeting, it is the intention of the persons named in the enclosed proxy to vote
on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ THOMAS HUGHES
-----------------
THOMAS HUGHES
President
Dated: May 12, 1999
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
IPC INFORMATION SYSTEMS, INC.,
IPC MERGER SUB, INC.
AND
V BAND CORPORATION
APRIL 14, 1999
<PAGE>
TABLE OF CONTENTS
1. Definitions 1
2. Basic Transaction 5
-----------------
(a) The Merger 5
(b) The Closing 6
(c) Actions at the Closing 6
(d) Effect of Merger 6
(e) Procedure for Payment 7
(f) Closing of Transfer Records 7
3. Representations and Warranties of the Target 7
(a) Organization, Qualification, and Corporate Power 8
(b) Capitalization 8
(c) Authorization of Transaction 8
(d) Noncontravention 8
(e) Filings with the SEC 9
(f) Title to Assets 9
(g) Subsidiaries 9
(h) Financial Statements 10
(i) Events Subsequent to Most Recent Fiscal Quarter End 10
(j) Undisclosed Liabilities 10
(k) Brokers' Fees 10
(l) Legal Compliance 10
(m) Tax Matters 11
(n) Real Property 12
(o) Intellectual Property 13
(p) Tangible Assets 14
(q) Inventory 14
(r) Contracts 14
(s) Notes and Accounts Receivable 15
(t) Powers of Attorney 16
(u) Insurance 16
(v) Litigation 16
(w) Product Warranty 16
(x) Product Liability17
(y) Employees 17
(z) Employee Benefits17
(aa) Environmental, Health, and Safety Matters 19
(bb) Disclosure 19
4. Representations and Warranties of the Buyer and Merger Sub 19
<PAGE>
(a) Organization 19
(b) Authorization of Transaction 19
(c) Noncontravention 19
(d) Brokers' Fees 20
(e) Disclosure 20
(f) Merger Sub. 20
5. Covenants 20
(a) General 20
(b) Notices and Consents 20
(c) Regulatory Matters and Approvals 20
(d) Operation of Business 21
(e) Full Access 22
(f) Notice of Developments 22
(g) Exclusivity 22
(h) Insurance and Indemnification 23
(i) Stock Options 23
(j) National Bank of Canada 24
(k) Form 10-Q 24
6. Conditions to Obligation to Close 24
(a) Conditions to Obligation of the Buyer and Merger Sub 24
(b) Conditions to Obligation of the Target 26
7. Termination 27
(a) Termination of Agreement 27
(b) Effect of Termination 27
(c) Termination Fee 28
8. Miscellaneous 28
(a) Survival 28
(b) Press Releases and Public Announcements 28
(c) No Third-Party Beneficiaries 28
(d) Entire Agreement 28
(e) Succession and Assignment 28
(f) Counterparts 28
(g) Headings 28
(h) Notices 29
(i) Governing Law 30
(j) Jurisdiction; Service of Process 30
(l) Severability 31
(m) Expenses 31
(n) Construction 31
(o) Incorporation of Exhibits and Schedules 31
<PAGE>
Exhibit A--Delaware Certificate of Merger
Exhibit B--New York Certificate of Merger
Exhibit C--Form of Opinion of Counsel to the Target
Exhibit D--Form of Opinion of Counsel to the Buyer and Merger Sub
Disclosure Schedule--Exceptions to Representations and Warranties
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April 14, 1999, by and among IPC
Information Systems, Inc., a Delaware corporation (the "Buyer"), IPC Merger Sub,
Inc., a Delaware corporation and a wholly-owned Subsidiary of the Buyer ("Merger
Sub"), and V Band Corporation, a New York corporation (the "Target"). The Buyer,
the Merger Sub, and the Target are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which the Buyer will
acquire all of the assets of the Target for cash through a merger of the Target
with and into Merger Sub.
Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to the Buyer's willingness to enter into this
Agreement, Thomas E. Feil ("Mr. Feil") and the Buyer have entered into a
Stockholder's Agreement (the "Stockholder's Agreement") pursuant to which Mr.
Feil has agreed to vote all shares of Target common stock beneficially owned by
him (not less than 1,430,472 shares) in favor of the Merger.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions.
"Acquisition Proposal" has the meaning set forth in ss.5(q) below.
"Acquisition Transaction" has the meaning set forth in ss.5(q) below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Business Plan" means the documents designated as such by separate
agreement of the Parties.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer or Merger Sub
owns beneficially.
"Closing" has the meaning set forth in ss.2(b) below.
<PAGE>
"Closing Date" has the meaning set forth in ss.2(b) below. "COBRA"
means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code
ss.4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the agreement between the Target and
the Buyer dated September 11, 1998.
"Confidential Information" means any information concerning the
businesses and affairs of the Target and its Subsidiaries other than information
that (i) was or becomes generally available to the public or (ii) was or becomes
generally available to the Buyer or Merger Sub on a non-confidential basis prior
to its disclosure to the Buyer, Merger Sub or their representatives.
"Controlled Group" has the meaning set forth in Code ss.1563.
"Credit Facility" means the revolving loan and letter of credit
facility of the Target made pursuant to the credit agreement between the
National Bank of Canada, New York Branch and the Target, dated May 28, 1997, as
amended and the Loan Documents referred to therein.
"Definitive Proxy Materials" means the definitive proxy materials
relating to the Special Meeting.
"Delaware Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"Dissenting Share" means any Target Share held of record by any
stockholder who or which has exercised his or its appraisal rights under the New
York Business Corporation Law.
"Effective Time" has the meaning set forth in ss.2(d)(i) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
<PAGE>
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Loss Account" has the meaning set forth in Reg. ss.1.1502-19.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Merger" has the meaning set forth in ss.2(a) below.
"Merger Consideration" has the meaning set forth in ss.2(d)(v) below.
"Merger Sub" has the meaning set forth in the preface above.
<PAGE>
"Most Recent Balance Sheet" means the balance sheet contained within
financial statements for the Most Recent Fiscal Quarter End. "Most Recent Fiscal
Quarter End" has the meaning set forth in ss.3(h) below.
"Most Recent Fiscal Year End" has the meaning set forth in ss.3(h)
below.
"Mr. Feil" has the meaning set forth in the preface above.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"New York Business Corporation Law" means the Business
Corporation Law of the State of New York, as amended.
"New York Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) which, in the case of the Target, it is understood has resulted in
operating losses.
"Party" has the meaning set forth in the preface above.
"Paying Agent" has the meaning set forth in ss.2(e)(i) below.
"Payment Fund" has the meaning set forth in ss.2(e)(i) below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, `or a governmental entity (or any department, agency, or political
subdivision thereof).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Public Report" has the meaning set forth in ss.3(e) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Requisite Stockholder Approval" means the affirmative vote of the
holders of two thirds of the Target Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialman's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Special Meeting" has the meaning set forth in ss.5(c)(ii) below.
"Stockholder's Agreement" has the meaning set forth in the preface
above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Superior Acquisition Proposal" has the meaning set forth in
ss.7(a)(iv) below.
"Surviving Corporation" has the meaning set forth in ss.2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, $.01 par value per
share, of the Target which is the only class of capital stock of the Target that
is outstanding and has voting rights..
"Target Stockholder" means any Person who or which holds any Target
Shares.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party" means any "group" as described in Rule 13d-5(b)
promulgated under the Securities Exchange Act, or Person, other than the Target,
the Buyer, Merger Sub or any of their Affiliates.
2. Basic Transaction.
<PAGE>
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into Merger Sub (the "Merger") at the
Effective Time and Merger Sub shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Thacher
Proffitt & Wood, Two World Trade Center, New York, New York commencing at 9:00
a.m. local time on the second business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself) or such other date as
the Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will
deliver to the Buyer and Merger Sub the various certificates, instruments, and
documents referred to in ss.6(a) below, (ii) the Buyer and Merger Sub will
deliver to the Target the various certificates, instruments, and documents
referred to in ss.6(b) below, (iii) the Target and Merger Sub will file with the
Secretary of State of the State of Delaware a certificate of merger
substantially in the form attached hereto as Exhibit A (the "Delaware
Certificate of Merger"), (iv) the Target and Merger Sub will file with the
Department of State of the State of New York a certificate of merger
substantially in the form attached hereto as Exhibit B (the "New York
Certificate of Merger"), and (v) the Buyer will cause the Surviving Corporation
to deliver the Payment Fund to the Paying Agent in the manner provided below in
this ss.2.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
(the "Effective Time") the Target and Merger Sub file the Delaware
Certificate of Merger with the Secretary of State of the State of
Delaware. The Merger shall have the effect set forth in the Delaware
General Corporation Law. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Target
or Merger Sub in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Merger Sub immediately prior to the Effective Time.
(iii) Bylaws. The Bylaws of the Surviving Corporation shall be
the Bylaws of Merger Sub immediately prior to the Effective Time.
(iv) Directors and Officers. The directors and officers of
Merger Sub shall become the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office).
(v) Conversion of Target Shares. At and as of the Effective
Time, (A) each Target Share (other than any Dissenting Share or
Buyer-owned Share) shall be converted
<PAGE>
into the right to receive an amount (the "Merger Consideration") equal
to $0.27 in cash (without interest), (B) each Dissenting Share shall be
converted into the right to receive payment from the Surviving
Corporation with respect thereto in accordance with the provisions of
the New York Business Corporation Law, and (C) each Buyer-owned Share
shall be canceled; provided, however, that the Merger Consideration
shall be subject to equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the
number of Target Shares outstanding. No Target Share shall be deemed to
be outstanding or to have any rights other than those set forth above
in this ss.2(d)(v) after the Effective Time.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the
Buyer will cause the Surviving Corporation to furnish to
ChaseMellon Shareholders Services, L.L.C. (the "Paying Agent")
a corpus (the "Payment Fund") consisting of cash (registered
in the name of the Paying Agent or its nominee) sufficient in
the aggregate for the Paying Agent to make full payment of the
Merger Consideration to the holders of all of the outstanding
Target Shares (other than any Dissenting Shares and
Buyer-owned Shares) and (B) the Buyer will cause the Paying
Agent to mail a letter of transmittal (with instructions for
its use) to each record holder of outstanding Target Shares
for the holder to use in surrendering the certificates which
represented his or its Target Shares against payment of the
Merger Consideration. No interest will accrue or be paid to
the holder of any outstanding Target Shares.
(ii) The Buyer may cause the Paying Agent to invest
the cash included in the Payment Fund in one or more
investments as the Buyer may direct from time to time;
provided, however, that the terms and conditions of the
investments shall be such as to permit the Paying Agent to
make prompt payment of the Merger Consideration as necessary.
The Buyer may cause the Paying Agent to pay over to the
Surviving Corporation any net earnings with respect to the
investments, and the Buyer will cause the Surviving
Corporation to replace promptly any portion of the Payment
Fund which the Paying Agent loses through investments.
(iii) The Buyer may cause the Paying Agent to pay over to the
Surviving Corporation any portion of the Payment Fund
(including any earnings thereon) remaining 60 days after the
Effective Time, and thereafter all former stockholders shall
be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat, and other similar laws) as
general creditors thereof with respect to the cash payable
upon surrender of their certificates.
(iv) The Buyer shall cause the Surviving Corporation
to pay all charges and expenses of the Paying Agent.
<PAGE>
(f) Closing of Transfer Records. After the Effective Time,
transfers of Target Shares outstanding prior to the Effective Time shall not be
made on the stock transfer books of the Surviving Corporation.
3. Representations and Warranties of the Target. The Target represents
and warrants to the Buyer and Merger Sub that the statements contained in this
ss.3 are correct and complete as of the date of this Agreement, and that the
statements contained in ss.ss.3(a), (b), (c), (d), (e), (f), (k) and (bb), and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout the aforesaid subsections of this ss.3), except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.3.
(a) Organization, Qualification, and Corporate Power. Each of the
Target and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation, as
set forth in the Disclosure Schedule. Each of the Target and its Subsidiaries is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction in which the failure to be so qualified would have a material
adverse effect upon the business, financial condition, operations, results of
operations or future prospects of the Target and its Subsidiaries taken as a
whole. Each of the Target and its Subsidiaries has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it except for such licenses, permits and authorizations, the absence
of which would not have a material adverse effect upon the business, financial
condition, operations, results of operations or future prospects of the Target
and its Subsidiaries taken as a whole. ss.3(a) of the Disclosure Schedule lists
the directors and officers of each of the Target and its Subsidiaries. The
Target has delivered to the Buyer and Merger Sub correct and complete copies of
the certificate of incorporation and bylaws of each of the Target and its
Subsidiaries (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
each of the Target and its Subsidiaries are correct and complete. None of the
Target and its Subsidiaries is in default under or in violation of any provision
of its certificate of incorporation or bylaws.
(b) Capitalization. The entire authorized capital stock of the
Target consists of 20,000,000 Target Shares, of which 5,428,621 Target Shares
are issued and outstanding and 1,719,322 Target Shares are held in treasury. All
of the issued and outstanding Target Shares have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Target.
<PAGE>
(c) Authorization of Transaction. The board of directors of the
Target has adopted this Agreement (including the plan of merger incorporated
herein) in accordance with Section 902 of the New York Business Corporation Law.
The Target has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that the Target cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval. This Agreement
constitutes the valid and legally binding obligation of the Target, enforceable
in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries is
subject or any provision of the certificate of incorporation or bylaws of any of
the Target and its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice,
consent or approval under any material agreement, contract, lease, license,
instrument, or other arrangement to which any of the Target and its Subsidiaries
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets). Other
than in connection with the provisions of the New York Business Corporation Law,
the Securities Exchange Act, and applicable state securities laws, none of the
Target and its Subsidiaries needs to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except for such authorizations, consents or
approvals which, if not obtained, would not have a material adverse effect upon
the business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
(e) Filings with the SEC. The Target has made all filings with the
SEC that it has been required to make under the Securities Act and the
Securities Exchange Act (collectively the "Public Reports"). Each of the Public
Reports has complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Target has
provided the Buyer with access to a correct and complete copy of each Public
Report (together with all exhibits and schedules thereto and as amended to date)
filed by the Target since January 1, 1994.
(f) Title to Assets. The Target and its Subsidiaries have good and
marketable title to, or a valid leasehold interest in, the properties and assets
used by them, located on their premises, or shown on the Most Recent Balance
Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.
(g) Subsidiaries. ss.3(g) of the Disclosure Schedule sets forth
for each Subsidiary of the Target (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized
<PAGE>
capital stock of each class of its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, and (iv) the number
of shares of its capital stock held in treasury. All of the issued and
outstanding shares of capital stock of each Subsidiary of the Target have been
duly authorized and are validly issued, fully paid, and nonassessable. One of
the Target and its Subsidiaries holds of record and owns beneficially all of the
outstanding shares of each Subsidiary of the Target, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws or in the case of V Band plc, foreign law), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the Target
and its Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of its Subsidiaries or that could require any Subsidiary of the
Target to issue, sell, or otherwise cause to become outstanding any of its own
capital stock. There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights with respect to any Subsidiary of the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Target. None of the Target and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Target.
(h) Financial Statements. The Target has filed a Quarterly Report
on Form 10-Q for the fiscal quarter ended January 31, 1999 (the "Most Recent
Fiscal Quarter End") and an Annual Report on Form 10-K for the fiscal year ended
October 31, 1998 (the "Most Recent Fiscal Year End"). The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of the Target and its Subsidiaries as of the
indicated dates and the results of operations of the Target and its Subsidiaries
for the indicated periods, are correct and complete in all respects, and are
consistent with the books and records of the Target and its Subsidiaries;
provided, however, that the interim statements are subject to normal year-end
adjustments.
(i) Events Subsequent to Most Recent Fiscal Quarter End. From the
Most Recent Fiscal Quarter End to the date of this Agreement, there has not been
any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Target and its Subsidiaries
taken as a whole.
(j) Undisclosed Liabilities. None of the Target and its
Subsidiaries has any Liability, including any Liability for Taxes, except for
(i) Liabilities set forth on the face of, or in the notes to, the Most Recent
Balance Sheet or in the notes to the balance sheet dated as of the Most Recent
Fiscal Year End, (ii) Liabilities which have arisen after the Most Recent Fiscal
Quarter End in the Ordinary Course of Business and (iii) Liabilities that
individually or in the aggregate do not have a material adverse effect upon the
business, financial condition, operations, results of operations, or future
prospects of the Target and its Subsidiaries taken as a whole.
<PAGE>
(k) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(l) Legal Compliance. Each of the Target, its Subsidiaries, and their
respective predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) the failure of which to comply with would
have a material adverse effect on the business, financial condition, operations,
results of operations or future prospects of the Target and its Subsidiaries
taken as a whole, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
(m) Tax Matters.
(i) Each of the Target and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct
and complete in all material respects. All Taxes owed by any of the
Target and its Subsidiaries (whether or not shown on any Tax Return)
have been paid. None of the Target and its Subsidiaries currently is
the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where any of the Target and its Subsidiaries does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of any of the Target and
its Subsidiaries that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) Each of the Target and its Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other Third Party.
(iii) Neither the Target nor its Subsidiaries expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any
Tax Liability of any of the Target and its Subsidiaries either (A)
claimed or raised by any authority in writing or (B) as to which the
Target and its Subsidiaries has Knowledge based upon personal contact
with any agent of such authority. ss.3(m)(iii) of the Disclosure
Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Target and its Subsidiaries
for taxable periods ended on or after October 31, 1994, indicates those
Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of audit. The Target has provided the
Buyer with access to correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by any of the Target and its Subsidiaries
since October 31, 1994.
(iv) None of the Target and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
<PAGE>
(v) None of the Target and its Subsidiaries has filed a
consent under Code ss.341(f) concerning collapsible corporations. None
of the Target and its Subsidiaries has made any payments, is obligated
to make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code ss.280G. None of the Target and its Subsidiaries
has been a United States real property holding corporation within the
meaning of Code ss.897(c)(2) during the applicable period specified in
Code ss.897(c)(1)(A)(ii). None of the Target and its Subsidiaries has
issued or assumed (A) any obligation described in Section 279(b) of the
Code, (B) any applicable high yield discount obligation, as defined in
Section 163(i) of the Code, or (C) any registration-required
obligations, within the meaning of Section 163(f)(2) of the Code, that
is not in registered form. Each of the Target and its Subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income
Tax within the meaning of Code ss.6662. None of the Target and its
Subsidiaries is a party to any Tax allocation or sharing agreement.
None of the Target and its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Target) or (B) has any
Liability for the Taxes of any Person (other than any of the Target and
its Subsidiaries) under Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(vi) ss.3(m)(vi) of the Disclosure Schedule sets forth the
following information with respect to each of the Target and its
Subsidiaries (or, in the case of clause (B) below, with respect to each
of the Subsidiaries) as of the most recent practicable date (as well as
on an estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the basis of
the Target or each Subsidiary in its assets; (B) [intentionally
omitted] (C) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Target or any Subsidiary; and
(D) the amount of any deferred gain or loss allocable to the Target or
any Subsidiary arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Target and its Subsidiaries (A)
did not, as of the Most Recent Fiscal Quarter End, exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto) and (B) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the
past custom and practice of the Target and its Subsidiaries in filing
their Tax Returns.
(n) Real Property.
(i) Neither the Target nor its Subsidiaries owns any real
property.
<PAGE>
(ii) ss.3(n)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to or by any of
the Target and its Subsidiaries. The Target has provided the Buyer with
access to correct and complete copies of the leases and subleases
listed in ss.3(n)(ii) of the Disclosure Schedule (as amended to date).
With respect to each lease and sublease listed in ss.3(n)(ii) of the
Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
(C) no party to any lease or sublease that is
material to the business, financial condition, operations,
results of operations or future prospects of the Target and
its Subsidiaries taken as a whole is in breach or default, and
no event has occurred which, with notice or lapse of time,
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated
any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) none of the Target and its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold or subleasehold;
(H) each facility leased or subleased that is
material to the business, financial condition, operations,
results of operations or future prospects of the Target and
its Subsidiaries taken as a whole thereunder have received all
approvals of governmental authorities (including licenses and
permits) required to be obtained by the Target or its
Subsidiaries in connection with the operation thereof and have
been operated and maintained, to the extent the Target and its
Subsidiaries are required to do so, in all material respects
in accordance with applicable laws, rules, and regulations;
and
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities.
<PAGE>
(o) Intellectual Property.
(i) The Target and its Subsidiaries own or have the right to
use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the businesses of
the Target and its Subsidiaries as presently conducted. Each item of
Intellectual Property owned or used by any of the Target and its
Subsidiaries immediately prior to the Closing hereunder will be owned
or available for use by the Target or the Subsidiary on identical terms
and conditions immediately subsequent to the Closing hereunder. Each of
the Target and its Subsidiaries has taken all action necessary to
maintain and protect each item of Intellectual Property that it owns or
uses which is material to the business of the Target and its
Subsidiaries as presently conducted.
(ii) None of the Target and its Subsidiaries has interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties, and none of the
Target and its Subsidiaries has received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the
Target and its Subsidiaries must license or refrain from using any
Intellectual Property rights of any Third Party, in each case which is
pending on the date of this Agreement).
(iii) ss.3(o)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to any of the Target and
its Subsidiaries with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which any of the Target and its Subsidiaries has made with
respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which any of the Target and its
Subsidiaries has granted to any Third Party with respect to any of its
Intellectual Property (together with any exceptions).
(iv) ss.3(o)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any Third Party owns and that any of
the Target and its Subsidiaries uses pursuant to license, sublicense,
agreement, or permission.
(p) Tangible Assets. The Target and its Subsidiaries own or lease
all buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted.
(q) Inventory. All inventory of the Target and its Subsidiaries,
whether or not reflected in the Most Recent Balance Sheet, consists of a quality
and quantity usable and salable in the Ordinary Course of Business of the Target
and its Subsidiaries, except for items of obsolete materials and materials of
below standard quality, all of which have been written down in the Most Recent
Balance Sheet to realizable market value, or for which adequate reserves have
been provided in the Most Recent Balance Sheet. The present quantity of all
inventory of the Target and its Subsidiaries is reasonable and warranted in the
present circumstances of the business of the Target and its Subsidiaries.
<PAGE>
(r) Contracts. ss.3(r) of the Disclosure Schedule lists the
following contracts and other agreements to which any of the Target and its
Subsidiaries is a party on the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $50,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services
(including maintenance), the performance of which will extend over a
period of more than one year or involve consideration in excess of
$10,000 per annum;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$50,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible or any agreement under which it is a
guarantor or otherwise is liable for any Liability or obligation
(including indebtedness) of any other Person;
(v) any agreement concerning noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $75,000 or providing severance or change of
control benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(x) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of any of the Target and its Subsidiaries taken as a whole;
or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
<PAGE>
Target has provided the Buyer with access to a correct and complete copy of each
written agreement listed in ss.3(r) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss.3(r) of the Disclosure Schedule. With respect to any
such agreement which is material to the business, financial condition,
operations, results of operations or future prospects of the Target and its
Subsidiaries taken as a whole: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(s) Notes and Accounts Receivable. All notes and accounts
receivable of the Target and its Subsidiaries are reflected properly on their
books and records, are valid receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their
terms at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Target and its Subsidiaries.
(t) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of any of the Target and its Subsidiaries.
(u) Insurance. ss.3(u) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of the Target and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past six (6) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage;
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements; and
(vi) a list of losses incurred that were covered in
whole or in part by such policies.
<PAGE>
(v) Litigation. ss.3(v) of the Disclosure Schedule sets forth each
instance in which any of the Target and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party or, to the Knowledge of the Target and its Subsidiaries, has been
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. Neither the Target nor its Subsidiaries has any reason to believe
that any other such action, suit, proceeding, hearing, or investigation may be
brought or threatened against any of the Target and its Subsidiaries.
(w) Product Warranty. Each product manufactured, assembled, sold,
leased, or delivered by any of the Target and its Subsidiaries has been in
conformity, in all material respects, with all applicable contractual
commitments and all express and implied warranties, and none of the Target and
its Subsidiaries has any Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target and its Subsidiaries. No product manufactured, sold,
leased, or delivered by any of the Target and its Subsidiaries is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. ss.3(w) of the Disclosure Schedule includes copies
of the standard terms and conditions of sale or lease for each of the Target and
its Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions).
(x) Product Liability. None of the Target and its Subsidiaries has
any Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, assembled, sold, leased, or delivered by any of the Target
and its Subsidiaries, which Liability would have a material adverse effect on
the business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
(y) Employees. To the Knowledge of the Target and its
Subsidiaries, no executive, key employee, or group of employees has any plans to
terminate employment with any of the Target and its Subsidiaries. None of its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has any of them experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. None of the Target and its
Subsidiaries has committed any unfair labor practice. Neither the Target nor its
Subsidiaries has any Knowledge of any organizational effort presently being made
or threatened by or on behalf of any labor union with respect to employees of
any of the Target and its Subsidiaries.
(z) Employee Benefits.
<PAGE>
(i) ss.3(z) of the Disclosure Schedule lists each Employee
Benefit Plan that any of the Target and its Subsidiaries maintains or
to which any of the Target and its Subsidiaries contributes or has any
obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, summary annual reports, PBGC-1's,
and summary plan descriptions) have been timely filed and
distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of COBRA have been met with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of the Target and its
Subsidiaries. All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code ss.401(a), has received, within
the last two years, a favorable determination letter from the
Internal Revenue Service that it is a "qualified plan," and
Seller is not aware of any facts or circumstances that could
result in the revocation of such determination letter.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) The Target has provided Buyer with access to
correct and complete copies of the plan documents and summary
plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
<PAGE>
(ii) With respect to each Employee Benefit Plan that any of
the Target, its Subsidiaries, and any ERISA Affiliate maintains or ever
has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the
Knowledge of the Target and its Subsidiaries, threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or, to the Knowledge of the Target
and its Subsidiaries, threatened. Neither the Target nor its
Subsidiaries has any Knowledge of any basis for any such
action, suit, proceeding, hearing, or investigation.
(C) Neither the Target nor its Subsidiaries has
incurred or has any reason to expect that any of the Target
and its Subsidiaries will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV
of ERISA (including any withdrawal liability as defined in
ERISA ss.4201) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(iii) None of the Target, its Subsidiaries, and the other
members of the Controlled Group that includes the Target and its
Subsidiaries contributes to, ever has contributed to, or ever has been
required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal liability as defined in ERISA ss.4201) under any
Multiemployer Plan.
(iv) None of the Target and its Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with COBRA).
(aa) Environmental, Health, and Safety Matters. Each of the Target, its
Subsidiaries, and their respective predecessors and Affiliates has complied and
is in compliance with all Environmental, Health, and Safety Requirements, the
failure to comply with which would have a material adverse effect on the
business, financial condition, operations, results of operations or future
prospects of the Target and its Subsidiaries taken as a whole.
<PAGE>
(bb) Disclosure. The Definitive Proxy Materials will comply with the
Securities Exchange Act in all material respects. The Definitive Proxy Materials
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading;
provided, however, that the Target makes no representation or warranty with
respect to any information that the Buyer and Merger Sub will supply
specifically for use in the Definitive Proxy Materials.
4. Representations and Warranties of the Buyer and Merger Sub. Each of
the Buyer and Merger Sub represents and warrants to the Target that the
statements contained in this ss.4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this ss.4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this ss.4.
(a) Organization. Each of the Buyer and Merger Sub is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction. Each of the Buyer and Merger Sub
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of each of
the Buyer and Merger Sub, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either the Buyer or Merger Sub is subject
or any provision of the certificate of incorporation or bylaws of either the
Buyer or Merger Sub or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument, or other arrangement
to which either the Buyer or Merger Sub is a party or by which it is bound or to
which any of its assets is subject. Other than in connection with the provisions
of the Delaware General Corporation Law, the Securities Exchange Act, the
Securities Act, and applicable state securities laws, neither the Buyer nor
Merger Sub needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except for such authorizations, consents or approvals which, if not
obtained, would have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Buyer
and its Subsidiaries taken as a whole.
(d) Brokers' Fees. Neither the Buyer nor Merger Sub has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
any of the Target and its Subsidiaries could become liable or obligated.
<PAGE>
(e) Disclosure. None of the information that the Buyer and Merger
Sub will supply specifically for use in the Definitive Proxy Materials will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
(f) Merger Sub. Merger Sub has not heretofore conducted any
business and has no material assets or liabilities other than those associated
with this Agreement.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.6 below).
(b) Notices and Consents. The Target will give any notices (and
will cause each of its Subsidiaries to give any notices) to third parties, and
will use its best efforts to obtain (and will cause each of its Subsidiaries to
use its best efforts to obtain) any Third Party consents, that the Buyer may
request in connection with the matters referred to in ss.3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in ss.3(d) and ss.4(c) above. Without limiting the
generality of the foregoing:
(i) Securities Exchange Act and State Securities Laws. The
Target will prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Special Meeting. The
Target will use its best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Buyer will provide the Target with whatever information
and assistance in connection with the foregoing filing that the Target
reasonably may request.
(ii) New York Business Corporation Law. The Target will call a
special meeting of its stockholders (the "Special Meeting") as soon as
practicable in order that the stockholders may consider and vote upon
the adoption of this Agreement and the approval of the Merger in
accordance with the New York Business Corporation Law. The Target will
mail the Definitive Proxy Materials to its stockholders as soon as
reasonably practicable. The Definitive Proxy Materials will contain the
affirmative recommendation of the board of directors of the Target in
favor of the adoption of this Agreement and the approval of the Merger;
provided, however, that neither the board of directors nor any
<PAGE>
director or officer of the Target shall be required to violate any
fiduciary duty or other requirement imposed by law in connection
therewith.
(d) Operation of Business. The Target will not (and will not cause
\or permit any of its Subsidiaries to) engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries will
authorize or effect any change in its certificate of incorporation or
bylaws;
(ii) none of the Target and its Subsidiaries will grant any
options, warrants, or other rights to purchase or obtain any of its
capital stock or issue, sell, or otherwise dispose of any of its
capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding);
(iii) none of the Target and its Subsidiaries will declare,
set aside, or pay any dividend or distribution with respect to its
capital stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock;
(iv) none of the Target and its Subsidiaries will issue any
note, bond, or other debt security or create, incur, assume, or
guarantee any indebtedness for borrowed money or capitalized lease
obligation outside the Ordinary Course of Business (including in such
Ordinary Course of Business, transactions under the Target's Credit
Facility with National Bank of Canada and its successors and assigns);
(v) none of the Target and its Subsidiaries will impose or
allow any Security Interest upon any of its assets outside the Ordinary
Course of Business; (including in such Ordinary Course of Business,
transactions under the Target's Credit Facility with National Bank of
Canada and its successors and assigns);
(vi) none of the Target and its Subsidiaries will make any
capital investment in, make any loan to, or acquire the securities or
assets of any other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any
change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries will commit to
any of the foregoing.
<PAGE>
(e) Full Access. The Target will (and will cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access during
normal business hours to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to each of
the Target and its Subsidiaries. Each of the Buyer and Merger Sub will treat and
hold and use as such any Confidential Information it receives from any of the
Target and its
<PAGE>
Subsidiaries in the course of the reviews contemplated by this ss.5(e), solely
in accordance with the terms of the Confidentiality Agreement, and, if this
Agreement is terminated for any reason whatsoever, agrees to return to the
Target all tangible embodiments (and all copies) thereof which are in its
possession.
(f) Notice of Developments. Each Party will give prompt written
notice to the others of any development (i) causing a breach of any of its own
representations and warranties in ss.3 and ss.4 above and (ii) any development
which would cause a breach of such representations and warranties if such
representations and warranties were required to be correct and complete on each
day from the date of this Agreement to the Closing Date. No disclosure by any
Party pursuant to this ss.5(f), however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) Exclusivity.
(i) the Target shall not, and shall not permit any of its
Subsidiaries to (whether directly or indirectly through advisors,
agents or other intermediaries) and,
(ii) the Target shall not, and shall not permit any of its
Subsidiaries to, authorize or knowingly permit any of its or their
officers, directors, agents, representatives, advisors or Subsidiaries
to,
solicit, initiate or knowingly encourage the submission of inquiries, proposals
or offers from any Third Party relating to (A) any acquisition of 10% or more of
the consolidated assets of the Target and its Subsidiaries or of over 10% of any
class of equity securities of the Target or any of its Subsidiaries, (B) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 10% or more of
any class of equity securities of the Target or any of its Subsidiaries, (C) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Target or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 10% of the consolidated assets of the Target, other than the transaction
contemplated by this Agreement or (D) any other transaction the consummation of
which would, or could reasonably be expected to impede, interfere with, prevent
or materially delay the Merger or which would, or could reasonably be expected
to, materially dilute the benefits to the Buyer of the transaction contemplated
hereby (collectively, the "Acquisition Proposals" and which, if consummated,
will be an "Acquisition Transaction") or enter into or participate in any
discussions (except as may be necessary to inform a Third Party of the
provisions of this ss.5(g), or negotiations regarding any of the foregoing, or
furnish to any Third Party any information with respect to the business,
properties or assets of the Target in connection with the foregoing, or
otherwise cooperate in any way with, or knowingly assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to do or seek
any of the foregoing; provided, however, that the provisions of this ss.5(g)
shall not limit or prohibit the Target or its board of directors from (i)
engaging in discussions or negotiations with such a Third Party who has made a
Superior Acquisition Proposal but only if the board of directors of the Target,
after consultation with and advice from its outside counsel determines in good
faith that, in the exercise of its fiduciary responsibilities, such discussions
or negotiations should be commenced or such information should be furnished
<PAGE>
or such facilitation undertaken; (ii) furnishing information pursuant to an
appropriate and customary confidentiality letter concerning the Target and its
businesses, properties or assets to a Third Party who has made a Superior
Acquisition Proposal as to which a prior determination of the board of directors
of the Target as contemplated under clause (i) above as been made; provided,
further that (A) the board directors of the Target shall not, and shall not
authorize any officers or representatives to, take any of the foregoing actions
until notice to the Buyer of the Target's intent to take such action shall have
been given; and (B) if the board of directors of the Target receives a Superior
Acquisition Proposal, to the extent it may do so without breaching its fiduciary
duties as determined in good faith after consultation with its outside counsel,
and without violating any of the conditions of such Superior Acquisition
Proposal, then the Target shall promptly inform the Buyer of the material terms
and conditions of such proposal and the identity of the Third Party making it;
or (iii) taking a position on a tender offer by a Third Party, as required by
Rule 14e-2 under the Securities Exchange Act (provided no such position shall
constitute a recommendation of such transaction if it does not constitute a
Superior Acquisition Proposal), or complying with its duties of disclosure under
applicable state law. As of the date hereof, the Target shall immediately cease
and cause each of its Subsidiaries and its and their advisors, agents and other
intermediaries to cease, any and all existing activities, discussions or
negotiations with any Third Party conducted heretofore with respect to any of
the foregoing.
(h) Insurance and Indemnification. The Buyer will not take any
action to alter or impair any exculpatory or indemnification provisions now
existing in the certificate of incorporation or bylaws of the Target for the
benefit of any individual who served as a director or officer of the Target at
any time prior to the Effective Time. For six years after the Closing Date,
Buyer will provide, pursuant to a policy maintained by Buyer or will cause the
Surviving Corporation to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Closing Date covering each
such Person currently covered by the Target's officers' and directors' liability
insurance on terms with respect to coverage and amount no less favorable than
those of such policy in effect on the date hereof.
(i) Stock Options. At the Effective Time, each option to purchase
Target Shares granted by the Target to an employee or director under any
employee or director stock option plan or other compensation plan or arrangement
of the Target, which is outstanding and unexercised immediately prior to the
Effective Time (whether or not such options are then vested or exercisable),
shall be adjusted so as to entitle the option holder to receive, in lieu of each
Target Share that would otherwise have been issuable upon the exercise of such
option, an amount, in cash, computed by multiplying (i) the positive difference,
if any, between (x) $0.27 per Target Share and (y) the exercise price per Target
Share applicable to the option by (ii) the number of Target Shares subject to
such option. Prior to the Effective Time, the Target agrees to take, or cause to
be taken, all actions necessary under such options to provide for their
adjustment and final settlement in accordance with this ss.5(i). At the
Effective Time, the Surviving Corporation will make the cash payment, if any,
required to be made to each option holder at which time each such option shall
be canceled and declared null and void. Notwithstanding any other provision of
this ss.5(i), the Surviving Corporation shall have the right to withhold payment
in respect of any option to purchase Target Shares that is outstanding and
unexercised at the Effective Time and otherwise eligible for final settlement
hereunder, until such time as it receives satisfactory written documentation of
the adjustments required
<PAGE>
to be made to such option under this ss.5(i) and evidence of the option holder's
consent to such adjustment and settlement.
(j) National Bank of Canada. The Target will use its best efforts
to take all steps necessary (i) to enable the entire indebtedness under the
Credit Facility and otherwise to the National Bank of Canada to be paid by the
Surviving Corporation in full immediately after the Closing and (ii) to obtain
from the National Bank of Canada immediately after the Closing, in return, a
full and complete release, including the return of all collateral physically
possessed, the reassignment of any collateral and the execution of UCC-3's, as
the case may be, of all Security Interests related thereto, including those
granted under the General Security Agreement, as amended, the Security Agreement
- - Patents, Trademarks and Copyright, as amended, the May 28, 1997 Pledge
Agreement, as amended, and the March 5, 1999 Pledge Agreement.
(k) Form 10-Q. The Target will make all filings with the SEC that
it is hereinafter required to make under the Securities Exchange Act including
the quarterly report on Form 10-Q for the quarter ended April 30, 1999.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer and Merger Sub. The
obligation of each of the Buyer and Merger Sub to consummate the transactions to
be performed by it in connection with the Closing is subject to satisfaction or
waiver by the Buyer and Merger Sub of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(ii) the representations and warranties set forth in ss.3
above shall be true and correct in all material respects at and as of
the Closing Date except (A) for those expressly stated to be made as of
the date of this Agreement, (B) where the failure of such
representations and warranties (taken together without regard to any
materiality or Knowledge qualification set forth therein) to be true
and correct has not had, or could not be reasonably expected to have, a
material adverse effect on the business, financial condition,
operations, results of operations or future prospects of the Target and
its Subsidiaries taken as a whole or (C) where the failure of such
representations and warranties to be true is contemplated by the
Business Plan;
(iii) the representations and warranties set forth in
ss.ss.3(a), (b), (c), (d), (e), (f), (k) and (bb) above shall be true
and correct at and as of the Closing Date;
(iv) the Target shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(v) since the Most Recent Fiscal Quarter End, there shall have
been no material adverse change in the business, financial condition,
operations, results of
<PAGE>
operations or future prospects of the Target and its Subsidiaries taken
as a whole, except as contemplated by the Business Plan;
(vi) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
capital stock of the Surviving Corporation and to control the Surviving
Corporation and its Subsidiaries after giving effect to the
transactions contemplated by this Agreement, or (D) affect adversely
the right, before or following the Closing, of any of the Surviving
Corporation and its Subsidiaries to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(vii) the Target shall have delivered to the Buyer and Merger
Sub a certificate to the effect that each of the conditions specified
above in ss.6(a)(i)-(vi) is satisfied in all respects;
(viii) the holders of not more than 10% of the outstanding
Target Shares shall have demanded appraisal of such shares in
accordance with New York Business Corporation Law;
(ix) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in ss.3(d) and ss.4(c) above (and not subject to the
exception set forth in the last sentence therein);
(x) the Buyer and Merger Sub shall have received from counsel
to the Target an opinion substantially in form and substance as set
forth in Exhibit C attached hereto, addressed to the Buyer and Merger
Sub, and dated as of the Closing Date;
(xi) the Buyer and Merger Sub shall have received the
resignations, effective as of the Closing, of each director and officer
of the Target and its Subsidiaries other than those whom the Buyer
shall have specified in writing at least five business days prior to
the Closing;
(xii) the Target and its Subsidiaries shall have operated in
all material respects consistent with the Business Plan which has been
agreed to among the parties hereto; and
(xiii) all actions to be taken by the Target in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in
form and substance to the Buyer and Merger Sub.
<PAGE>
(b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver by Target of the following
conditions:
(i) the representations and warranties set forth in ss.4 above
shall be true and correct in all material respects at and as of the
Closing Date except for those expressly stated to be made as of the
date of this Agreement;
(ii) each of the Buyer and Merger Sub shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation;
(iv) each of the Buyer and Merger Sub shall have delivered to
the Target a certificate to the effect that each of the conditions
specified above in ss.6(b)(i)-(iii) is satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(vi) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in ss.3(d) and ss.4(c) above (and not subject to the
exception set forth in the last sentence therein);
(vii) the Target shall have received from counsel to the Buyer
and Merger Sub an opinion substantially in form and substance as set
forth in Exhibit D attached hereto, addressed to the Target, and dated
as of the Closing Date; and
(viii) all actions to be taken by the Buyer and Merger Sub in
connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
satisfactory in form and substance to the Target.
7. Termination.
(a) Termination of Agreement. Any of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
<PAGE>
(ii) the Buyer and Merger Sub may terminate this Agreement by
giving written notice to the Target at any time prior to the Effective
Time (A) in the event the Target has breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer or Merger Sub has notified the Target
of the breach, and the breach has continued without cure for a period
of 10 days after the notice of breach or (B) if the Closing shall not
have occurred on or before July 31, 1999, by reason of the failure of
any condition precedent under ss.6(a) hereof (unless the failure
results primarily from the Buyer or Merger Sub breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving
written notice to the Buyer and Merger Sub at any time prior to the
Effective Time (A) in the event the Buyer or Merger Sub has breached
any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Target has notified the Buyer
and Merger Sub of the breach, and the breach has continued without cure
for a period of 10 days after the notice of breach or (B) if the
Closing shall not have occurred on or before July 31, 1999, by reason
of the failure of any condition precedent under ss.6(b) hereof (unless
the failure results primarily from the Target breaching any
representation, warranty, or covenant contained in this Agreement);
(iv) The Target may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Effective Time, in the
event that a Person has made an Acquisition Proposal that the board of
directors of the Target determines, in good faith is reasonably likely
to be subject to completion and would, if consummated, result in a
transaction more favorable, from a financial point of view, to the
Target Stockholders than this Agreement and the Merger (a "Superior
Acquisition Proposal"); or
(v) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Special Meeting in
the event this Agreement and the Merger fail to receive the Requisite
Stockholder Approval.
(b) Effect of Termination. Other than as set forth in ss.7(c) below, if
any Party terminates this Agreement pursuant to ss.7(a) above, all rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party then in
breach); provided, however, that the confidentiality provisions contained in
ss.5(e) above shall survive any such termination.
(c) Termination Fee. In the event of termination by the Target pursuant
to (i) 7(iv) above or (ii) if Requisite Stockholder Approval is not obtained and
the Target and/or any of its Subsidiaries, on or before December 31,1999, has
entered into an agreement providing for an Acquisition Transaction (which, for
purposes of this subsection (c), shall substitute 33 % for 10% each time 10%
appears in ss.5(g) hereof), Target shall pay to Buyer a termination fee of two
hundred thousand dollars ($200,000) not as a penalty but in recognition of the
substantial time and efforts expended, expenses incurred and other opportunities
foregone by the Buyer in connection with this Agreement.
<PAGE>
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and
covenants of the Parties (other than the provisions in ss.2 above concerning
payment of the Merger Consideration and the provisions in ss.5(h) above
concerning insurance and indemnification) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Parties;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provisions in ss.2 above concerning payment of the Merger Consideration are
intended for the benefit of the Target Stockholders and (ii) the provisions in
ss.5(h) above concerning insurance and indemnification are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
(d) Entire Agreement. This Agreement (including the Disclosure
Schedule and the other documents referred to herein) and the Confidentiality
Agreement constitute the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof or thereof.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<PAGE>
If to the Target:
V Band Corporation
3 Westchester Plaza
Elmsford, New York 10523
Attention: Thomas Hughes, President
Phone: (914) 347-7118
Fax: (914) 347-7524
Copy to:
Buchanan Ingersoll P.C.
Eleven Penn Center 14th Center
1835 Market Street
Philadelphia, Pennsylvania 19103-2895
Attention: Brian North
Phone: (215) 665-3828
Fax: (215) 665-8760
If to the Buyer:
IPC Information Systems, Inc.
88 Pine Street
Wall Street Plaza
New York, New York 10005
Attention: Daniel Utevsky
Phone: (212) 858-7908
Fax: (212) 509-7959
Copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Thomas N. Talley
Phone: (212) 912-7645
Fax: (212) 432-7152
<PAGE>
If to Merger Sub:
IPC Merger Sub, Inc.
c/o IPC Information System, Inc.
88 Pine Street
Wall Street Plaza
New York, New York 10005
Attention: Daniel Utevsky
Phone: (212) 858-7908
Fax: (212) 509-7959
Copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Thomas N. Talley
Phone: (212) 912-7645
Fax: (212) 432-7152
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
(j) Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based upon any right arising out of, this
Agreement may be brought against any of the Parties in the courts of the State
of New York, County of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York, and each
of the Parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any Party anywhere in the world.
(k) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the New York Business
<PAGE>
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(l) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. Target and its Subsidiaries
shall not incur expenses to Third Parties in connection with this Agreement and
the Merger in excess of two hundred thousand dollars ($200,000) in the
aggregate.
(n) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(o) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
IPC INFORMATION SYSTEMS, INC.
By: /s/ Gerald E. Starr
-----------------------------------
Name: Gerald E. Starr
Title: President and Chief Executive Officer
V BAND CORPORATION
By: /s/ Thomas Hughes
-----------------------------------
Name: Thomas Hughes
Title: President
IPC MERGER SUB, INC.
By: /s/ Gerald E. Starr
-----------------------------------
Name: Gerald E. Starr
Title: President and chief Executive Officer
<PAGE>
Exhibit A
CERTIFICATE OF MERGER
OF
V BAND CORPORATION
INTO
IPC MERGER SUB, INC.
Pursuant to Section 252 of the Delaware General Corporation Law
The undersigned corporation DOES HEREBY CERTIFY:
1. The name and state of incorporation of each of the constituent
corporations of the merger are as follows:
Name State of Incorporation
---- ----------------------
V Band Corporation ("V Band") New York
IPC Merger Sub, Inc. ("Merger Sub") Delaware
2. The agreement and plan of merger among IPC Information Systems, Inc., V
Band and Merger Sub dated as of April 14, 1999 (the "Agreement and Plan
of Merger") has been approved, adopted, certified, executed and
acknowledged by V Band and by Merger Sub pursuant to Section 252 of the
Delaware General Corporation Law.
3. The name of the surviving corporation is [IPC/V Band Corporation
("IPC/V Band")], a Delaware corporation. The certificate of
incorporation of [IPC/V Band] shall be the certificate of incorporation
of Merger Sub, Section 1 of which is hereby amended to read as follows:
"The name of the Corporation is [IPC/V Band Corporation]."
4. The merger shall be effective at 5:01 p.m. on the date of filing of
this Certificate of Merger with the Delaware Secretary of State.
5. The executed Agreement and Plan of Merger is on file at the principal
place of business of Merger Sub, the address of which is c/o Wall
Street Plaza, 88 Pine Street, New York, New York 10005.
6. A copy of the Agreement and Plan of Merger will be furnished by
[_________], on request and without cost, to any shareholder of V Band
or of Merger Sub.
7. The authorized capital stock of V Band consists of 20,000,000 shares of
common stock, par value $.01 per share.
<PAGE>
Dated: _________ ___, 1999.
IPC MERGER SUB, INC.
By:
------------------------------------
Name:
Title:
<PAGE>
Exhibit B
CERTIFICATE OF MERGER
OF
V BAND CORPORATION
INTO
IPC MERGER SUB, INC.
Pursuant to Section 907 of the New York Business Corporation Law
1. The name and jurisdiction of incorporation of each corporation that
is to merge are:
Name Jurisdiction of Incorporation
---- -----------------------------
V Band Corporation
(f/k/a V Band Systems Inc., "V Band") New York
IPC Merger Sub, Inc. ("Merger Sub") Delaware
2. Merger Sub is the surviving corporation of the merger and on the
effective date of the merger its name will be [IPC/V Band Corporation
("IPC/V Band")]. The jurisdiction of incorporation of [IPC/V Band] is
Delaware.
3. The certificate of incorporation of V Band was filed with the Secretary
of State of New York on [_____ ___, 1977]. The issued and outstanding
capital stock of V Band consists of 5,428,621 shares of common stock,
par value $.01 per share, and the common stock of V Band is the only
class of capital stock outstanding and entitled to vote. The number of
shares of common stock of V Band entitled to vote on the merger of V
Band into Merger Sub is not subject to change prior to the effective
date of such merger.
4. The certificate of incorporation of Merger Sub was filed with the
Secretary of State of Delaware on April 12, 1999. The application for
authority of Merger Sub was filed with the Secretary of State of New
York on April[___], 1999. The outstanding capital stock of Merger Sub
consists of 10,000 shares of common stock, par value $.01 per share
("Common Stock"). The certificate of incorporation of [IPC/V Band] is
the certificate of incorporation of Merger Sub, as amended in section 1
thereof to indicate the change in Merger Sub's name to [IPC/V Band].
5. The effective date of the merger is the date on which a certificate of
merger of V Band into Merger Sub is filed with the Delaware Secretary
of State pursuant to Section 252 of the Delaware General Corporation
Law.
6. The agreement and plan of merger dated as of April 14, 1999 by and
among V Band, IPC Information Systems, Inc. and Merger Sub (the
"Agreement and Plan of Merger") has been approved by at least
two-thirds of the votes of all issued and outstanding shares of V Band
entitled to vote thereon at a special meeting held on _________ ___,
1999.
<PAGE>
7. The merger of V Band into Merger Sub is permitted under the Delaware
General Corporation Law and is in compliance therewith.
8. [IPC/V Band] may be served with process in New York State in any action
or special proceeding for the enforcement of any liability or
obligation of V Band previously amenable to suit in New York State and
for the enforcement as provided in the Business Corporation Law of the
State of New York ("B.C.L.") of the right of shareholders of V Band to
receive payment for their shares against [IPC/V Band].
9. Subject to the provisions of ss.623 of the B.C.L., [IPC/V Band] will
promptly pay to the shareholders of V Band the amount, if any, to which
they shall be entitled under the provisions of the B.C.L. relating to
the right of shareholders to receive payment for their shares.
10. The Secretary of State of New York is designated as agent of [IPC/V
Band] upon whom process against it may be served in any action or
special proceeding. The post office address within or without this
state to which the Secretary of State shall mail a copy of any process
served upon him or her is c/o IPC Information Systems, Inc.,Wall Street
Plaza, 88 Pine Street, New York, New York 10005, attention: President.
11. The Agreement and Plan of Merger is on file at the place of business of
[IPC/V Band]. The address of such foreign corporation is c/o IPC
Information Systems Inc., Wall Street Plaza, 88 Pine Street, New York,
New York 10005.
12. A copy of the Agreement and Plan of Merger will be furnished by [IPC/V
Band] on request and without cost to any shareholder of either V Band
or [IPC/V Band].
13. All fees and taxes (including penalties and interest) administered by
the Department of Taxation and Finance which are due and payable by V
Band have been paid and a [estimated][final] cessation franchise tax
report through the [anticipated date of the merger] has been filed by V
Band.
14. [[IPC/V Band] will, within 30 days of the date hereof, file the final
cessation franchise tax report and promptly pay the Department of
Taxation and Finance all fees and taxes (including penalties and
interest), if any, due to the Department of Taxation and Finance by V
Band.]
<PAGE>
IN WITNESS WHEREOF, this certificate has been subscribed this ___ day
of _________, 1999, by the undersigned who affirms that the statements made
herein are true under the penalties of perjury.
V BAND CORPORATION
By:
------------------------------------------
Name:
Title:
IPC MERGER SUB, INC.
By:
------------------------------------------
Name:
Title:
<PAGE>
Exhibit C
___________, 1999
IPC Information Systems, Inc.
88 Pine Street
Wall Street Plaza
New York, New York 10005:
Re: Merger of V Band Corporation into IPC Merger Sub, Inc.
Ladies and Gentlemen:
We have acted as counsel to V Band Corporation, a New York corporation
(the "Target") in connection with the Merger of the Target with and into IPC
Merger Sub, Inc., a Delaware corporation ("Merger Sub"), a wholly owned
subsidiary of IPC Information Systems, Inc. (the "Buyer") pursuant to the terms
of the Agreement and Plan of Merger dated as of April __, 1999 (the "Merger
Agreement") by and among the Buyer, Merger Sub, and the Target. Capitalized
terms used herein not otherwise defined shall have the meanings assigned to such
terms in the Merger Agreement. This opinion is given pursuant to Section
6(a)(xii) of the Merger Agreement.
In connection with such representation we have examined originals,
photocopies of originals or certified copies of certain Target records, and such
agreements, communications and other instruments, certificates of public
officials, certain other certificates and such other documents, records and
instruments as we have deemed relevant and necessary as a basis for our opinion
herein, including the following:
(i) A copy of the Restated Certificate of Incorporation of the
Target as filed with the Secretary of State of New York on
September 2, 1983;
(ii) A copy of the By-Laws of the Target;
(iii) A certificate of the Secretary of State of New York dated
____________, 1999 to the effect that the Target is duly
incorporated under the laws of the State of New York and is in
good standing in the State of New York;
(iv) Copies of resolutions adopted by the Target's Board of
Directors at a meeting held on April __, 1999;
(v) Copies of resolutions adopted by the shareholders of the
Target at a meeting held on _________, 1999;
(vi) A copy of the Merger Agreement; and
<PAGE>
(vii) A copy of the Disclosure Schedule.
We have also reviewed such matters of law as we have considered
relevant for the purposes of this opinion.
In the examination of such documents, we have assumed the genuiness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the original documents of all documents
submitted to us as certified or photostatic copies, and we have relied upon the
aforesaid documents with respect to the accuracy of the factual matters set
forth therein. As to any facts relevant to our opinion which were not
independently established, we have relied upon information given to us by
officers of the Target. We have made no independent examination of factual
matters set forth in the aforesaid certificates or representations for the
purpose of rendering this opinion.
We have also assumed, without verification, for purposes of this
opinion, the due authorization, execution, and delivery of the Merger Agreement
by the Buyer and Merger Sub and that it constitutes a legal, valid, and binding
obligation of the Buyer and Merger Sub, enforceable against them in accordance
with its terms.
Based upon and subjec to the foregoing and the qualifications set
forth below, we are of the opinion that
1. The Target has been duly incorporated and is validly existing
and in good standing under the laws of the State of New York.
2. The Target has the corporate power and authority to enter into
and perform its obligations under the Merger Agreement.
3. The execution and delivery by the Target of the Merger
Agreement, and the performance of its obligations thereunder, have been duly
authorized by all requisite corporate action on the part of the Target, and the
Merger Agreement has been executed and delivered by the Target.
4. The Merger Agreement is a legal, valid, and binding obligation
of the Target, and is enforceable against the Target in accordance with the
terms of the Merger Agreement.
5. The execution and delivery by the Target of the Merger
Agreement, and the performance of its obligations thereunder, do not conflict
with or result in a violation of the Target's Restated Certificate of
Incorporation or By-Laws or of any order, writ, judgment, or decree known to us
and by which the Target is bound.
<PAGE>
6. No approval, authorization or other action by, or filing with,
any federal or state governmental authority is required in connection with the
execution and delivery by the Target of the Merger Agreement and the performance
on the Closing Date of its obligations under the Merger Agreement, except for
the filing of the New York Certificate of Merger, the Delaware Certificate of
Merger, and the report required by Rule 13e-3(d)((3) promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, and except for such approvals, authorizations, actions or filings which
have been obtained or made prior to the date hereof.
7. To our knowledge, without undertaking any independent searches
of court dockets, there is no action, suit, or proceeding pending or threatened
against the Target which would prevent the Target from consummating any of the
transactions contemplated by the Merger Agreement.
8. The Delaware Certificate of Merger, when filed with the
Delaware Secretary of State pursuant to Section 252 of the Delaware General
Corporation Law, and the New York Certificate of Merger, when filed in with the
New York Secretary of State pursuant to Section 904-A of the New York Business
Corporation Law, will result in the effectiveness of the Merger between the
Target and Merger Sub.
We are licensed to practice law in the State of New York and do not
hold ourselves out to be experts on, or generally familiar with or qualified to
express an opinion on, the laws of any jurisdiction other than those of the
State of New York and the federal laws of the United States. In giving this
opinion, we are not passing on any matters of the laws of any jurisdiction other
than the federal laws of the United States, the laws of the State of New York,
and the General Corporation Law of the State of Delaware.
In addition to the qualifications set forth above, the foregoing
opinions are subject to the following assumptions and qualifications, all of
which we have made with your permission.
A. The opinions expressed in numbered paragraph 4 above are
subject in all respects to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance and transfer, reorganization, moratorium, and other laws of general
application affecting creditors' rights and remedies, (ii) statutory or common
law principles affecting the enforcement of contract rights generally, such as
statutes of limitation and the exercise of judicial or administrative discretion
in accordance with general equitable principles, particularly as to materiality,
reasonableness, good faith and fair dealing, and the availability of the remedy
of specific performance or other injunctive relief, and (iii) limitations on the
validity, binding effect, or enforceability or waivers, provisions in the nature
of penalties, or indemnification provisions.
<PAGE>
B. We express no opinion on the validity, binding effect or
enforceability under certain circumstances of provisions of the Merger Agreement
(i) that relate to conflicts of law, consent to jurisdiction, choice of forum,
or choice of law, or (ii) that purport to prevent oral modification or waivers.
C. We express no opinion on compliance with fiduciary duty
requirements.
D. Our opinion is based solely upon our review of the documents
described above and such other investigations of law we have deemed necessary.
Other than our review of such documents, we have not reviewed any other
documents or made an independent investigation for the purpose of rendering this
opinion, and we make no representation as to the scope or sufficiency of our
document review for your purposes.
Any opinion expressed herein with respect to this firm's knowledge or
awareness with respect to the existence or absence of facts is limited to the
actual knowledge of lawyers of the firm who have provided substantive
representation to the Target and is intended to signify that during the course
of our representation of the Target nothing has come to our attention which has
given us actual knowledge of the existence or absence of such facts. Except to
the extent expressly set forth herein, we have not undertaken any independent
investigation to determine the existence or absence of such facts. No inference
as to our knowledge or the existence or absence of such facts should be drawn
from our representation of the Target.
This opinion is rendered solely to and for your benefit and may not be
relied upon by any other party. Copies of this opinion may not be delivered or
furnished to any other party (other than for a bona fide business reason in the
ordinary course of your business or if required pursuant to a judicial
proceeding), nor may all or part of this opinion be quoted, circulated, or
referred to in any other document without our prior written consent.
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to our attention or any changes in law which may hereafter
occur.
Very truly yours,
BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION
By:
-----------------------------
<PAGE>
Exhibit D
[Letterhead of Thacher Proffitt & Wood]
[212-912-7400]
__________, 1999
V Band Corporation
3 Westchester Plaza
Elmsford, New York 10523
Re: Merger of V Band Corporation and IPC Merger Sub, Inc.
Dear Sirs:
We have acted as special counsel to IPC Information Systems,
Inc., a Delaware corporation (the "Buyer") in connection with the merger V Band
Corporation (the "Target"), with and into IPC Merger Sub, Inc., a wholly owned
subsidiary of the Buyer ("Merger Sub") pursuant to the terms of the Agreement
and Plan of Merger of dated as of April __, 1999 by and among the Buyer, Merger
Sub, and the Target ("Merger Agreement"). Capitalized terms not otherwise
defined herein are defined as set forth in the Merger Agreement. This opinion is
given pursuant to section 6(b)(vii) of the Agreement.
We have examined originals or copies, certified or otherwise
identified, of such documents, corporate records, and other instruments, and
have examined such matters of law, as we have deemed necessary or advisable for
purposes of rendering the opinions set forth below. As to matters of fact, we
have examined and relied upon the representations of the Company contained in
the Merger Agreement, and, where we have deemed appropriate, representations or
certifications of officers of the Buyer and Merger Sub or public officials.
We have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents submitted to us as
copies. In making our examination of any documents, we have assumed that all
parties other than the Buyer and Merger Sub had the corporate power and
authority to enter into and perform all obligations thereunder, and, as to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery of such documents, and the validity and
binding effect and enforceability thereof.
<PAGE>
V Band Corporation
_________, 1999 Page 2.
Based on the foregoing, we are of the opinion that:
1. Each of the Buyer and Merger Sub has been duly
incorporated and is validly existing in good standing under the
laws of the State of Delaware.
2. Each of the Buyer and Merger Sub has the corporate
power and authority to enter into and perform its obligations
under the Merger Agreement.
3. The execution and delivery by each of the Buyer of
the Merger Agreement, and the performance of its obligations
thereunder, have been duly authorized by all requisite corporate
action on the part of the Buyer and Merger Sub, and the Merger
Agreement has been executed and delivered by the Buyer and Merger
Sub.
4. The Merger Agreement is legal, valid and binding
obligation of each of the Buyer and Merger Sub, enforceable
against the Buyer and Merger Sub in accordance with its terms.
5. The execution and delivery by each of the Buyer
and Merger Sub of the Merger Agreement, and the performance of
its obligations thereunder, do not conflict with or result in a
violation of its respective certificate of incorporation or
by-laws, or of any order, writ, judgment, decree, agreement or
instrument known to us and to which the Buyer or Merger Sub is a
party or by which either is bound.
6. No approval, authorization or other action by, or
filing with, any federal or state governmental authority is
required in connection with the execution and delivery by each of
the Buyer and Merger Sub of the Merger Agreement and the
performance on the Closing Date of its respective obligations
under the Merger Agreement or, if any such approval,
authorization, action or filing is required, it has been
obtained.
7. To our knowledge, there is no pending or
threatened litigation against either the Buyer or Merger Sub
which is known to us and which, if adversely determined, would
have a material adverse effect on the ability of either the Buyer
or Merger Sub to perform its obligations under the Merger
Agreement.
Our opinions are subject to the qualification that (i)
enforcement of the Merger Agreement may be limited by bankruptcy, insolvency,
reorganization, liquidation, voidable preference, moratorium or other laws
(including the laws of fraudulent conveyance and transfer) or judicial decisions
affecting the enforcement of creditors' right generally, and (ii) the
enforceability of each of the Buyer's and Merger Sub's obligations under the
Merger Agreement is subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and to the effect of certain laws and judicial decisions upon the availability
and enforceability of certain remedies provided in the Merger Agreement,
including the remedies of specific performance and self-help.
<PAGE>
V Band Corporation
_________, 1999 Page 3.
We do not express any opinion concerning law other than the law
of the State of New York, the corporate law of the State of Delaware, and the
federal law of the United States and we do not express any opinion concerning
the application of the "doing business" laws or the securities laws of any
jurisdiction other than the federal securities laws of the United States.
This opinion is given to you for your sole benefit, and may not
be relied upon by any other person or entity nor granted as whole or in part, or
otherwise referred to in any document without our express written consent.
Very truly yours,
THACHER PROFFITT & WOOD
By
-----------------------
Thomas N. Talley
<PAGE>
APPENDIX B
NEW YORK BUSINESS CORPORATION LAW
SECTION 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE
EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to
the taking of an action specified in clauses (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment of the fair
value of his shares shall not be available:
(i) To a shareholder of the parent
corporation in a merger authorized by section 905 (Merger of parent and
subsidiary corporations), or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations); or
(ii) To a shareholder of the surviving
corporation in a merger authorized by this article, other than a merger
specified in subclause (i), unless such merger effects one or more of the
changes specified in subparagraph (b) (6) of section 806 (Provisions as to
certain proceedings) in the rights of the shares held by such shareholder; or
(iii) Notwithstanding subclause (ii) of this
clause, to a shareholder for the shares of any class or series of stock, which
shares or depository receipts in respect thereof, at the record date fixed to
determine the shareholders entitled to receive notice of the meeting of
shareholders to vote upon the plan of merger or consolidation, were listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc.
(B) Any sale, lease, exchange or other disposition of
all or substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease, exchange or other
disposition of assets) other than a transaction wholly for cash where the
shareholders' approval thereof is conditioned upon the dissolution of the
corporation and the distribution of substantially all of its net assets to the
shareholders in accordance with their respective interests within one year after
the date of such transaction.
(C) Any share exchange authorized by section 913 in
which the corporation is participating as a subject corporation; except that the
right to receive payment of the fair value of his shares shall not be available
to a shareholder whose shares have not been acquired in the exchange or to a
shareholder for the shares of any class or series of stock, which shares or
<PAGE>
depository receipt in respect thereof, at the record date fixed to determine the
shareholders entitled to receive notice of the meeting of shareholders to vote
upon the plan of exchange, were listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a share
exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in paragraph (c)
of section 623.
(3) Any shareholder, not entitled to vote with respect to a
plan of merger or consolidation to which the corporation is a party, whose
shares will be canceled or exchanged in the merger or consolidation for cash or
other consideration other than shares of the surviving or consolidated
corporation or another corporation.
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT FORSHARES
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
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(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed
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<PAGE>
such notice of election to pay for his shares at a specified price which the
corporation considers to be their fair value. Such offer shall be accompanied by
a statement setting forth the aggregate number of shares with respect to which
notices of election to dissent have been received and the aggregate number of
holders of such shares. If the corporate action has been consummated, such offer
shall also be accompanied by (1) advance payment to each such shareholder who
has submitted the certificates representing his shares to the corporation, as
provided in paragraph (f), of an amount equal to eighty percent of the amount of
such offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment or
statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the shareholders'
authorization date, the offer may be conditioned upon the consummation of such
action. Such offer shall be made at the same price per share to all dissenting
shareholders of the same class, or if divided into series, of the same series
and shall be accompanied by a balance sheet of the corporation whose shares the
dissenting shareholder holds as of the latest available date, which shall not be
earlier than twelve months before the making of such offer, and a profit and
loss statement or statements for not less than a twelve month period ended on
the date of such balance sheet or, if the corporation was not in existence
throughout such twelve month period, for the portion thereof during which it was
in existence. Notwithstanding the foregoing, the corporation shall not be
required to furnish a balance sheet or profit and loss statement or statements
to any shareholder to whom such balance sheet or profit and loss statement or
statements were previously furnished, nor if in connection with obtaining the
shareholders' authorization for or consent to the proposed corporate action the
shareholders were furnished with a proxy or information statement, which
included financial statements, pursuant to Regulation 14A or Regulation 14C of
the United States Securities and Exchange Commission. If within thirty days
after the making of such offer, the corporation making the offer and any
shareholder agree upon the price to be paid for his shares, payment therefor
shall be made within sixty days after the making of such offer or the
consummation of the proposed corporate action, whichever is later, upon the
surrender of the certificates for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this
4
<PAGE>
state, such proceeding shall be brought in the county where the office of the
domestic corporation, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the corporation
does not request any such determination or if the court finds that any
dissenting shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as of
the close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
5
<PAGE>
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if the
court finds any of the following:
(A) that the fair value of the shares as determined
materially exceeds the amount which
the corporation offered to pay;
(B) that no offer or required advance payment was made
by the corporation;
(C) that the corporation failed to institute the
special proceeding within the period
specified therefor; or
(D) that the action of the corporation in complying
with its obligations as provided in
this section was arbitrary, vexatious or otherwise not in good faith.
In making any determination as provided in clause (A), the court may consider
the dollar amount or the percentage, or both, by which the fair value of the
shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the amount
found to be due him, upon surrender of the certificates for any such shares
represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event
be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation
and, if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and if
it is not liquidated, retain his right to be paid for his shares, which
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<PAGE>
right the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the corporation
within thirty days after the corporation has given him written notice that
payment for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given to
him within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be given
in the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
Amendment No. 1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1998
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 0-13284
V BAND CORPORATION
------------------
(Exact name of registrant as specified in its charter)
New York 13-2990015
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3 Westchester Plaza, Elmsford, New York 10523
(Address and zip code of principal executive office)
(914) 789-5000
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The number of shares of Common Stock outstanding as of January 31, 1999 was
5,428,621 shares.
The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of January 31, 1999 was $812,124.
* The Company has assumed that all of the outstanding shares were held by
non-affiliates except for the shares beneficially owned by any officer or
director of the Company who owns 1% or more of the Company's outstanding common
stock and persons known by the Company beneficially to own 10% or more of the
Company's outstanding common stock. The market value was based on the closing
price of these shares on January 31, 1999.
Documents incorporated by reference
None.
<PAGE>
V BAND CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
<PAGE>
PART I
Item 1. Business
General
V Band Corporation (together with its subsidiaries, the "Company"), was
incorporated in New York in 1977 and commenced business operations in 1980. It
is a leading supplier of instant access voice communications systems. These
systems include sophisticated software-based communications workstations,
switching equipment, peripheral products, project management services, technical
services and wide-area network (WAN) solutions. V Band's products and services
are used worldwide primarily by financial services organizations for the trading
of stocks, bonds and other financial instruments. Other applications include the
mission critical communications requirements of the electric power industry and
emergency service providers.
The largest share of the Company's sales is derived from the sale and servicing
of voice trading systems to the financial services industry. Traders and dealers
require instant access communication to a large constituency, including peers,
customers, and market information providers. In contrast to conventional
business telephone systems, voice trading systems utilize more network access
lines than telephone handsets. Each workstation provides the user with immediate
push button access to as many as 320 telephone lines along with a visual
indication of the current operational status of each line. The Company's voice
trading systems offer a distributed switching architecture (without a central
controller) and full software control for ease of moves, additions, and changes.
Other markets for these systems include communication control centers for
utilities, government and military agencies, emergency service E9-1-1 dispatch
centers and network operations.
Beginning in 1994, the Company implemented significant changes in the manner in
which it conducts business. During 1994, the Company established a direct sales
and service network in the United States and the United Kingdom by acquiring
four companies which distributed and serviced the Company's products in the
principal markets of New York, London and Boston. The Company further increased
its direct sales and service network in the United States by opening sales
offices in Chicago and San Francisco. In 1995, the Company restructured its
manufacturing process by out-sourcing the manufacture of many sub-assemblies of
the Company's products. In 1995, the Company also reorganized its management,
engineering, manufacturing and administrative organizations, and reduced the
number of its employees. During 1996, the Company established V Band Asian
Partners, a strategic alliance of thirteen distributors of the Company's
products in the Asian market.
In 1994, the Company acquired certain assets of Windmill Communications, Inc.
("Windmill"), Advantage Communications, Inc. ("Advantage"), ACT Computer
Support, LTD. ("ACT") and acquired the outstanding capital stock of Mercury
Dealing Systems ("Mercury"). The Windmill and Advantage acquisitions provided
the Company with a service presence and increased sales strength in the New York
City and Boston markets respectively. The Mercury and ACT acquisitions increased
the Company's sales and service presence in the London market. These
acquisitions, coupled with the opening of sales offices in Chicago and San
Francisco, implemented the Company's strategy of enhancing market share through
the direct sale and full service of its products, including project management,
maintenance and other services. The Company's sales offices are complemented in
certain regions of the domestic and global marketplace by distributors which
sell and service the Company's products.
<PAGE>
During 1995, the Company transferred the production of its printed circuit
boards from an internal manufacturing process to external contract
manufacturers. This action was undertaken to reduce the cost of the Company's
products and permitted the Company to substantially reduce the size of its
production facilities. The Company also reorganized its management, engineering,
manufacturing and administrative organizations and substantially reduced the
number of the Company's employees.
During 1996, the Company established V Band Asian Partners, a strategic
partnership with The Trade Wind Group, a long-time distributor of the Company's
products based in Australia. V Band Asian Partners is an alliance of thirteen
distributors whose marketing efforts and servicing capabilities are coordinated
and supported by The Trade Wind Group. Through this partnership, the Company has
improved its ability to capitalize on the growth in the Asian financial
marketplace.
During 1995, the Company executed an agreement with the Chicago Board of Trade
(CBOT) for the sale and installation of a major trading floor communications
system that includes approximately 1,700 custom-designed exchange floor
telephones and various peripheral equipment in transactions valued, in
aggregate, at approximately $9 million. The (CBOT) exchange phone system employs
the same advanced technology base used in the Company's Broad Band DN switching
architecture and Power Deck product line. The Company provided full installation
services, including project management and cabling for the 9,000 line
communication system. The project was completed in January 1998.
In 1996, the Company executed an agreement for a major expansion and relocation
of the Chicago Board of Trade's financial trading floor. This contract, which
augmented the agreement mentioned above, was valued in excess of $2.5 million
and was completed in 1997.
During 1997, the Company completed major system installations in several
non-traditional, emerging financial centers including Oslo, Norway and Moscow.
In 1997, the Company executed an agreement with the New York Mercantile Exchange
for the sale, installation and maintenance of a major two floor trading
communications system that includes approximately 600 custom-designed exchange
floor telephones (with up to 8 handsets each) and various peripheral equipment.
This transaction, valued at over $4.9 million, was completed in 1997.
In January 1998, the Company established a plan to restructure its operations.
The plan included consolidation of office space in New York and London and the
centralization of the administrative functions of the Company's United States
service operation into its New York operation. In addition, the Company
reassigned several marketing and administrative staff to field sales support
functions as a further effort to enhance revenues. As a result of this plan, the
Company reduced the number of its employees from the October 31, 1997 level of
186 to 110 as of October 31, 1998.
In July 1998, the Company restructured the operations of its United Kingdom
subsidiary, V Band PLC. An agreement with Siemens Corporation allowed the
Company to outsource V Band PLC's service dispatch and spare parts inventory
functions, further reducing operating costs while improving overall service
levels and parts availability for V Band PLC's base of customers. The number of
field service personnel was held constant. For the fiscal years ended October
31, 1998 and 1997, V Band PLC had sales of $5.3 and $7.1, respectively. At
October 31, 1998, V Band PLC had 27 employees.
<PAGE>
In October 1998, the Company signed a joint sales and marketing agreement with
FORE Systems, Inc., a leading supplier of high bandwidth multimedia networking
solutions. The agreement calls for the two firms to work together on the
development and support of specific vertical markets for instant access
voice/data networks and ATM-based solutions that enable multimedia LANs. In
addition, FORE Systems and V Band have agreed to work collectively in the areas
of compatibility testing, customer field trial, demonstrations and ongoing
technical support.
Also in October 1998, the Company announced a strategic partnership agreement
with Bosch Telecom, Europe's fourth largest telecommunications manufacturer.
Through this agreement, V Band PLC has become the exclusive source for sales and
service of both Bosch's and V Band's product line for financial services firms
in the United Kingdom. In addition, the two companies will be combining
technical resources to begin exploring additional joint solutions for voice,
video and data as applied to the financial industry. The Company anticipates to
receive revenues from sales of Bosch communications systems and accompanying
service contract agreements in the first quarter of fiscal year 1999.
Through a subsidiary, Licom, Inc. ("Licom"), the Company also designs,
manufactures and sells fiber optic-based voice and data multiplexers
specifically designed for the "mission critical" communications of the electric
power industry, such as inter-substation communications. Other markets for Licom
multiplexers include command and control applications for "right-of-way"
companies such as utilities, transportation companies, and emergency service
organizations. In 1997, the Company consolidated the operations of its Licom
subsidiary into the operations of its core business in Elmsford, NY.
Products and Markets
The Company introduced its first voice trading system in 1981. Since then, the
Company has developed, manufactured and distributed several new generations of
systems, increasing power, features, flexibility and network management
capabilities while reducing repair cost and space requirements.
In June 1990, the Company introduced the industry's first all digital voice
trading system, the VIAX DN. Digital connectivity reduces network costs,
improves reliability, and offers users the ability to program their station
options directly from the console. Digital technology has sharply reduced the
space required for the common equipment. The Company's current digital system,
the "BroadBand DN", requires as little as one-eighth of the space that was
required by the systems first introduced in 1987.
In 1993, the Company introduced Power Deck, a highly advanced digital
communications workstation for the financial community. The Power Deck user
interface is fully compatible with the Company's BroadBand DN technology
platform, and features state-of-the-art surface mount design. Significant
innovations include a high resolution graphics display, enhanced user
programmability and an ergonomically designed detachable keypad that improves
productivity and gives users precise control of critical phone functions.
In 1995, the Company introduced BroadBand DN, the latest generation of its
distributed digital switching system. BroadBand DN is built on a high-speed
computing platform allowing direct connection to the digital facilities of the
public network and providing digital connectivity to the desktop. The system's
basic architecture allows for software feature enhancements and reduces the risk
<PAGE>
of future obsolescence. The administration software empowers the user with
system control and configuration capability, allows diagnostic reporting, and
eases the ability to perform moves, adds, and changes from a personal computer.
The Company's digital trading consoles give the users access to all system
lines, paperless button labeling and fully programmable loudspeaker monitoring
of multiple lines simultaneously.
In 1995, the Company introduced DXi, a high-speed digital communications
console. The DXi is fully compatible with the Company's BroadBand DN technology
platform and employs the same base technology as the Power Deck. The Company
also introduced its digital eXchange Phone, which was installed successfully at
the Chicago Board of Trade. The eXchange Phone employs the technology base of
the Power Deck product line and provides state-of-the-art communications
designed specifically for the hectic and demanding environment of an exchange.
The eXchange Phone was ergonomically designed to optimize trading floor space
and maintain high efficiency for member firms.
In 1995, the Company developed the APL (Audio Processing Line) card, which
increases the capacity of telephone lines that can be handled by each BroadBand
DN node by combining the AP-ACC (Audio Processing-Analog Control Card) and ALC
(Analog Line Card) cards into a single card. This card enables the Company to
increase the capacity and use of card space in its backroom cabinets and racks.
Also, a new speaker interface was developed which allows speakers to be
dynamically programmed from the Power Deck and DXi consoles. The Company also
developed advanced intercom features for its digital trading consoles and a
speakerphone for its Power Deck trading console.
In 1995, the Company introduced a suite of highly sophisticated networking
products and tools designed to address the needs of its current and future
customers. These products, Global Switching Module ("GSM"), WAN ONE
inter-networking products, PassPort Network Management Platform and F.A.S.T.
(Fast Access Support Technology), represent the leading edge in networking
capabilities for the financial trading environment.
The GSM, which employs a one gigabit switch for information throughput, can
support a trading floor with over 2,400 user consoles and delivers access to
over 16,000 lines without system blocking. The Company installed GSM at several
customer locations during 1996.
The WAN ONE product enables remote trading floor communication systems to
operate as if they were located together. For example, traders in London can
have instant, local access to lines in New York, Canada, or virtually anywhere
in the world.
The PassPort Network Management Platform is a sophisticated UNIX-based suite of
tools that control and maintain large systems in a cost-effective manner. True
multi-tasking and simultaneous multi-user operations allow large system managers
to effectively administer distributed trading systems across existing corporate
LANs and WANs.
The Company's F.A.S.T. service enables service technicians to troubleshoot and
perform moves, adds and changes (MACs) remotely through phone lines, thereby
increasing system performance and serviceability.
In 1996, a second generation digital exchange floor phone product was developed
that enables the use of up to eight handsets per phone. The Company believes
that its products are well positioned to compete for business in the exchange
floor marketplace.
<PAGE>
In 1996, the Company introduced the Clarity Speaker System. The Clarity Speaker
System allows traders and brokers to simultaneously monitor an unprecedented
number of lines without the need for numerous individual speaker cube arrays.
The Clarity Speaker System employs advanced digital signal processing and
features that help users to more readily manage incoming communications in a
high traffic environment while requiring minimal space at the trading desk. The
Company also introduced a DXi hard-key button module that will enable its Power
Deck and DXi trading consoles to support hard keys as well as softkeys, or a
combination of both.
In 1997, the Company redesigned and enhanced the physical attributes of its
Power Deck and DXi voice trading consoles to increase their visual appeal with
end users. This redesign involved new faceplates, rounded streamlined edging and
an all-new color scheme. In addition, the Company developed a full-duplex
version of the Clarity speaker system and added numerous software enhancements
to the feature set of its line of digital trading consoles.
In 1998, numerous software enhancements were introduced for the Company's Broad
Band DN line of products. In addition, the Company finalized and deployed a
full-duplex "open microphone" version of the Clarity Speaker System. This
development allows hands-free monitoring of up to 24 lines simultaneously and
offers various communications features and options.
Through Licom's product ProMX, the Company supplies fiber optic-based
multiplexers to the electric power industry. The ProMX is an integrated, modular
multiplexing unit designed to carry "mission critical" communications and
operate in circumstances and physical environments for which conventional
equipment is not usually designed to withstand. ProMX interfaces with protective
relays, supervisory control and data acquisition (SCADA), voice, data and
telemetry. The ProMX units, or nodes, communicate with fiber optic networks at
data transmission rates of 1.544 million bits per second (T1), 2.048 million
bits per second (E1) or 51.84 million bits per second (SONET OC1). ProMX nodes,
common in transmission substations, are often located together with console
systems equipment in the command center. Licom, based in Elmsford, New York,
continues to market, test, ship and support the ProMX product line.
Product Development
The Company's product development strategy is to continually improve its current
product lines and to develop advanced new products and technologies to meet the
evolving needs of the markets it serves. The Company's emphasis is on software
and features that facilitate the integration of computer networks and digital
voice systems within the trading floor environment.
During the years ended October 31, 1998, 1997 and 1996, the Company's annual
research and development expenditures were $1.7 million, $3.6 million and $3.1
million or 9%, 12% and 9% of sales, respectively.
Sales, Service and Distribution
In 1994, the Company completed the transformation of its distribution channels
into a direct sales and service network in the United States and United Kingdom
with the acquisition of certain assets of four unrelated companies distributing
and or servicing the Company's products. These business acquisitions provided
the Company with a service presence and increased its sales strength in the New
York City, Boston and London markets. These acquisitions advanced the Company's
strategy to enhance market share through the direct sale and full service of its
products, which includes project management, maintenance and other services in
the United States and United Kingdom.
<PAGE>
The Company currently maintains direct sales and service centers in New York
City, Boston, Chicago, San Francisco and London to provide sales, services and
support to customers in the United States and London markets. Through these
centers, the Company sells equipment, including modifications to existing
systems, and support services, including maintenance contracts and project
management. The Company utilizes several distributors to support its operations
throughout other regions of the United States.
The Company utilizes a network of international distributors to deliver sales
and service support in other global markets, such as Canada, the Pacific Rim,
South America and Europe. To accommodate the increased activity level of global
financial markets, V Band expanded its base of foreign distributors during 1996.
At present, there are approximately 25 authorized V Band distributors worldwide,
with new digital systems placed in emerging financial centers in Russia, Greece
and South Africa. During 1996, V Band Corporation and Australia-based Trade Wind
Group announced the formation of V Band Asian Partners, a strategic partnership
to expand distribution channels for V Band's products in Pacific Rim countries.
Licom uses direct and distributor sales, service, project management and
maintenance in the United States and Canada, and uses independent distributors
for international sales and service.
Sales to Morgan Guaranty Trust Company of New York and affiliates (including
sales through its vendor, AT&T Solutions) represented 15%, 6% and 10% of sales
in 1998, 1997 and 1996, respectively. Sales to the Chicago Board of Trade and
its general contractor represented 8%, 10% and 21% of sales in 1998, 1997 and
1996, respectively. During 1998 and 1997 sales to The New York Mercantile
Exchange accounted for 1% and 16% of the Company's sales.
Equipment sales, excluding Licom's ProMX, consisting of new systems installed
and modifications to existing systems, in all markets, were $10.9 million, $24.4
million and $25.3 million, representing 58%, 79% and 77% of the Company's sales
in 1998, 1997 and 1996, respectively. Licom sales represented 9%, 3% and 7% of
the Company's sales in 1998, 1997 and 1996, respectively. Service sales, which
consists of maintenance contract sales, support, service and miscellaneous
repairs accounted for 33%, 18% and 16%, of sales during 1998, 1997 and 1996,
respectively. The Company's Licom subsidiary operates from the Company's
Elmsford, NY facility.
The Company's foreign sales for 1998, 1997 and 1996 were $7.7 million, $11.4
million and $9.7 million, or 41%, 37% and 29%, respectively, of total
consolidated sales. For further information regarding foreign sales, see Note 9
- -- Notes to Consolidated Financial Statements.
The Company's sales of systems for application in "non-financial" communications
control centers of utilities, railroads and other "right-of-way" companies as
well as E9-1-1 emergency service centers and government/military applications
were, in the aggregate, 21%, 8% and 20% of the Company's sales for 1998, 1997
and 1996, respectively.
Manufacturing and Sources of Supply
During 1995, the Company restructured its manufacturing operations to reduce the
cost of its products by out-sourcing the production of its printed circuit
boards. As part of this restructuring, the Company significantly down-sized its
production facility by relocating its operations, in July 1995, to a 15,000
square foot facility in Elmsford, New York, from its former 67,000 square foot
leased facility in Yonkers, New York. The Elmsford facility houses the Company's
purchasing, production control, final assembly, quality control, testing and
repair operations.
<PAGE>
The Company primarily utilizes two outside subcontractors to manufacture its
custom fabricated, printed circuit boards. The Company provides the product
designs, engineering bill of materials and testing procedures to ensure that
suppliers meet the Company's quality and reliability standards. The Company has
been be able to reduce some of its product cost due to the economies of scale
afforded by the outside contractors in the purchase of components.
While the Company believes that reduced equipment production volume has strained
its relationships with many of its subcontractors and suppliers, the Company did
not experience any significant delays in the delivery of material from either
subcontractors or suppliers in 1998. Due to the overall decline in equipment
revenue in 1998 and management's efforts to reduce the Company's investment in
inventory, the Company substantially reduced new purchases and also rescheduled
deliveries of goods previously ordered from its subcontractors and suppliers. To
achieve more favorable economies of scale, an increasing number of components
are currently sourced from single suppliers. There is, therefore, no assurance
that, in the event of a supply shortage, such components will be readily
available in the quality and quantity necessary to meet the Company's needs. In
1997, the Company experienced several delays in the delivery of product,
primarily related to the production of Licom products. In accordance with
industry practice, the Company seeks to maintain inventory in quantities
sufficient to ship products within four to eight weeks of receipt of orders.
This requires the Company to maintain a significant investment in inventory.
Patents
In 1994, the Company was granted a U.S. patent relating to the design of the
Power Deck console system. In 1993, the Company was granted a U.S. patent
relating to the design of the VIAX DN console system. In 1992, the Company
received patents on its system digital switch architecture and its power
supplies.
The Company believes that patent protection for its designs could enhance its
ability to successfully market its product technology at reduced risk to
competitors' imitation of the Company's products. However, no assurance can be
given that any patent issued will effectively limit competition for the
Company's products and the Company's protection of its market position through
technological development has, to date, been derived primarily from the
Company's ability to keep secret its proprietary information and knowledge. The
unique design features of the Company's products may be susceptible to discovery
by third persons who have access to such products. Technological changes in the
telephone terminal equipment industry occur rapidly and new patents are
constantly being issued for products sold in the industry. No assurance can be
made that claims will not be brought against the Company alleging that the
Company's products, or aspects thereof, infringe on competitors' patents. The
Company has no such claims pending. The Company seeks to protect its proprietary
rights to computer software through copyright, non-disclosure agreements and
software licenses.
Distributor Support and Warranty Policy
The Company's service personnel, together with third-party service firms engaged
by the Company or by the Company's customers, perform all necessary maintenance
of products sold by the Company or by its distributors, including components
manufactured by others. The Company performs maintenance and assists
distributors and third-party maintenance companies under its standard warranty
policy. The Company generally warrants its products to be free from defects in
material and workmanship for a period of one year from the date of installation
and repairs or replaces defective products under warranty without charge to its
customers.
<PAGE>
Competition
The market for the Company's products is highly competitive and is characterized
by advanced technology, rapid change and broad product support. Many of the
Company's competitors, both in the United States and globally, are large
companies that manufacture and distribute a wide range of telephone products,
and provide services such as installation and maintenance. Management believes
that the competitive factors in its product lines are price, quality,
reliability, product innovation, timely delivery, service and product support.
The Company's largest competitors in the United States and the United Kingdom
are IPC Information Systems, Inc. ("IPCI") and British Telecom NA. The Company
believes that these two markets, the United States and United Kingdom, comprise
60%-65% of the global market for the Company's products. The competitors in
markets served by ProMX products are primarily RFL Technologies, Pulsar
Technologies, the Centronics Division of NORTEL and ASEA Brown Boveri.
The Company believes that its primary competitive advantages are the quality and
features of its products and its service and product support. While the Company
is able to provide these advantages to all customers in the market places it
serves, the relatively greater size of the Company's competitors has been
perceived to be a competitive disadvantage for the Company.
Backlog
As of October 31, 1998, 1997 and 1996, the Company's backlog of purchase orders
that management believes to be firm was $4.3 million, $3.8 million and $8.3
million, respectively. The Company expects to deliver all products and services
from its October 31, 1998 backlog during fiscal 1999. The Company generally
delivers large system configured products to customers within six to twelve
weeks of its receipt of firm orders. Where the Company makes direct end-user
installations, smaller to mid-sized system deliveries generally occur four to
eight weeks from receipt of firm orders. Management does not believe that the
Company's backlog is a meaningful indication of future sales.
Employees
As of October 31, 1998, the Company had 110 full-time employees, of whom 19 were
product development and production personnel, 69 were sales, marketing and
service support personnel, and 22 were administrative personnel. This compares
to 186 at October 31, 1997 and 199 at October 31, 1996. The decrease from 1997
was primarily attributable to the Company's restructuring plan.
Many of the Company's employees are highly skilled, and the Company's success
will depend, in part, on its ability to attract and retain such employees. None
of the Company's employees are covered by a collective bargaining agreement;
however, four employees of a wholly owned subsidiary of the Company, all of whom
work in the Boston service center, are members of a local collective bargaining
unit. The Company believes its relations with its employees are good.
<PAGE>
Private Securities Litigation
Reform Act Safe Harbor Statement
When used in this Annual Report on Form 10-K and in other public statements by
the Company and Company officers, the words "expect", estimate", project",
"intend" and similar expressions are intended to identify forward looking
statements regarding events and financial trends which may affect the Company's
future operating results and financial condition. Such statements are subject to
risks and uncertainties that could cause the Company's actual results and
financial condition to differ materially. Such factors include, among others:
(i) the intense competition in the market places for the Company's products and
services; (ii) the sensitivity of the Company's business to general economic
conditions and the economic conditions of the industries which purchase the
Company's products and services; (iii) the performance of the Company's
suppliers and subcontractors; (iv) changes in accounting principles, policies,
or guidelines; and (v) other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services, and prices. Additional factors are described in this Annual Report on
Form 10-K and in the Company's other reports filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on these
forward looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Item 2. Properties
The Company's executive offices, engineering, assembly, quality assurance, and
repair business operations are located at a 15,000 square foot leased facility
located at 3 Westchester Plaza, Elmsford, New York.
Leases for the Company's domestic sales and service support locations include
approximately: 2,500 square feet located in New York City; 1,300 square feet
located in Boston, Massachusetts; 2,600 square feet in Chicago, Illinois; and
983 square feet in San Francisco, California.
Licom's headquarters and operations were relocated in May of 1997 to the
corporate headquarters.
As part of a plan to reduce and consolidate its office space, the Company has
subleased its former 8,900 square foot sales office in New York City, has
relocated its executive offices and engineering facilities to 3 Westchester
Plaza, Elmsford, New York, and has signed a contract to assign the lease of a
former 20,000 square foot production facility located 20 miles southeast of
London.
Management believes that all of its facilities are in good condition and working
order and have adequate capacity to meet its needs for the foreseeable future.
<PAGE>
Item 3. Legal Proceedings
In October 1994, the Company commenced an action against Technical Telephone
Systems, Inc. ("TTSI") in New York State Supreme Court, Westchester County, for
minimum payments due to the Company in the amount of $650,000 under a
distribution agreement between the Company and TTSI. In November 1994, TTSI
filed a counterclaim against the Company denying all allegations stated in the
Company's complaint and alleging a breach of good faith and fair dealing by the
Company, claiming damages of $1 million. The Company has been in discussions
with TTSI and expects that a settlement of this proceeding will be concluded in
the near future which will not have a material impact on the consolidated
financial condition of the Company.
In June 1998, IEC Electronics Corp. ("IEC Electronics") commenced an action
against the Company in New York State Supreme Court, Wayne County, asserting
claims for the payment of $299,914 for products delivered to the Company,
$186,385 for inventory having that value, $12,404 for materials and labor in
work in progress, an unspecified amount for incidental expenses incurred in the
storage, transportation and sale of inventory and work in progress, and an
unspecified amount for the costs and disbursements of the action. The Company
has filed an answer denying liability for the claims and asserting a
counterclaim against IEC Electronics in an amount in excess of $500,000.
The Company is a party to other legal proceedings commenced against it by
suppliers and former employees. The Company believes that none of these
proceedings will have a material impact on the consolidated financial condition
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth fiscal
quarter of the year ended October 31, 1998.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed for quotation in the National Association
of Securities Dealers OTC Bulletin Board under the symbol "VBAN". The following
table shows the high and low closing bid prices for the Company's Common Stock
during each of the fiscal quarters identified below. These bid prices were
obtained from IDD Information Services. The quotations represent prices in the
over-the-counter market between dealers in securities and do not include retail
markup, markdown, or commissions.
Fiscal 1998 High Low
- ----------- ---- ---
Fourth Quarter $ .41 $ .13
Third Quarter $ .38 $ .11
Second Quarter $ .88 $ .25
First Quarter $ 1.75 $ .63
Fiscal 1997 High Low
- ----------- ---- ---
Fourth Quarter $ 2.44 $ 1.50
Third Quarter $ 2.44 $ 1.38
Second Quarter $ 2.00 $ 1.25
First Quarter $ 2.50 $ 1.25
As of January 31, 1999, there were approximately 500 holders of record of the
Company's Common Stock.
The Company has never paid a regular dividend on its shares, and does not
anticipate paying dividends in the near future.
Under the terms of the Credit Agreement dated as of May 28, 1997, between the
Company and National Bank of Canada, New York Branch, the Company is restricted
from declaring or paying dividends if an event of default has occurred and is
continuing thereunder.
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below have been derived from the audited
financial statements of the Company, and should be read in connection with those
statements, which are included herein.
<TABLE>
<CAPTION>
For the Year Ended October 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in 000's, except per share data)
<S> <C> <C> <C> <C> <C>
Sales ................................ $ 18,573 $ 31,081 $ 32,886 $ 29,351 $ 31,078
Income (loss) before cumulative effect
of accounting change ............. (4,369) (8,512) 27 (11,594) 627
Cumulative effect of accounting change -- -- -- -- 1,242
-------- -------- -------- -------- --------
Net income (loss) per basic and
diluted common share ................. $ (4,369) $ (8,512) $ 27 $(11,594) $ 1,869
======== ======== ======== ======== ========
Per share data:
Income (loss) before cumulative
effect of accounting change .. $ (.81) $ (1.58) $ .01 $ (2.18) $ .12
Cumulative effect of accounting
change ....................... -- -- -- -- .23
-------- -------- -------- -------- --------
Net income (loss) ................ $ (.81) $ (1.58) $ .01 $ (2.18) $ .35
======== ======== ======== ======== ========
Weighted average number of basic and
diluted common shares outstanding 5,423 5,372 5,323 5,322 5,311
Cash dividends per common share ...... $ .00 $ .00 $ .00 $ .00 $ .00
Working capital ...................... $ 1,395 $ 5,151 $ 10,619 $ 9,622 $ 18,935
Total assets ......................... $ 8,807 $ 14,552 $ 22,042 $ 21,212 $ 36,027
Shareholders' equity ................. $ 1,920 $ 6,097 $ 14,488 $ 14,398 $ 26,039
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
As an aid to understanding the Company's operating results, the following table
shows, for the periods indicated, the percentage relationship which each item
bears to sales.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
------------------------------
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Sales
Equipment .............................. 66.8 % 81.8% 84.2 %
Service ................................ 33.2 18.2 15.8
------ ----- ------
Total sales ................................ 100.0 100.0 100.0
Cost of sales
Equipment(*) ........................... 69.0 73.8 59.2
Service(*) ............................. 67.8 76.7 62.2
------ ----- ------
Total cost of sales ........................ 68.6 74.3 59.7
------ ----- ------
Gross Profit ............................... 31.4 25.7 40.3
Selling, general and administrative expenses 44.6 39.2 31.0
Research and development expenses .......... 9.2 11.5 9.5
------ ----- ------
Operating loss ............................. (22.4) (25.0) (0.1)
====== ===== ======
Net income (loss) .......................... (23.5)% (27.4)% .01%
====== ===== ======
</TABLE>
* Presented as a percentage of the related sales categories.
Sales
Sales for the year ended October 31, 1998 were $18.6 million, a $12.5 million,
or 40% decrease from sales for 1997. The decline in 1998 sales was primarily due
to a decrease in large exchange floor installations and a general decline in
demand for the Company's products. Equipment sales, which include new equipment
installations plus moves, adds, and changes for customers' existing systems,
decreased by 51% from $25.4 million in 1997 to $12.4 million in 1998. Of this
$13.0 million decrease, $7.0 million was attributable to a decline in large
exchange floor installations and $6.0 million was attributable to a decrease in
the sale of the Company's other products.
<PAGE>
Sales in 1998 to non-financial customers (i.e., communication control centers
for utilities, and government agencies, etc.) accounted for $4.0 million, or 21%
of sales, a $1.5 million increase from 1997 non-financial customer sales. The
increase was attributable to a $0.7 million increase in sales of the Company's
Licom products and several specific sales of the Company's product in diverse
applications in 1998.
Sales for the year ended October 31, 1997 were $31.1 million, a $1.8 million, or
5% decrease from sales for 1996. The decline in 1997 sales was primarily due to
a decrease in sales of the Company's Licom subsidiary and was partially offset
by an increase in the Company's service sales. Equipment sales, which include
new equipment installations plus moves, adds, and changes for customers'
existing systems, decreased by 8% from $27.7 million in 1996 to $25.4 million in
1997. Of this $2.3 million decrease, $1.5 million was attributable to a decline
in the sales of Licom's products and $.8 million was attributable to a decrease
in the sale of the Company's other products. The decline in the sale of the
Company's Licom products was primarily due to a decline in the number of units
sold resulting from increased competition in the market for Licom's products and
the Company's emphasis on the sale of its other products.
Sales in 1997 to non-financial customers (i.e., communication control centers
for utilities and government agencies) accounted for $2.5 million, or 8% of
sales, a $3.5 million decrease from 1996 non-financial customer sales. The
decrease was related primarily to several specific sales of the Company's
product in diverse applications in 1996.
Since the Company sells products to its foreign customers and distributors for
U.S. dollars, it is unaffected by currency translations. The Company's United
Kingdom operation primarily transacts sales in pounds sterling or US dollars.
Those sales transacted in pound sterling were not materially impacted by foreign
exchange rate fluctuations during 1998 or 1997.
Direct sales were $16.4 million, or 88% of total sales in 1998, as compared to
$24.9 million and $28.4 million, or 80% and 86% of sales in 1997 and 1996,
respectively.
Gross Profit Margins
Gross profit margins for 1998 and 1997 were 31% and 26% respectively. The
equipment gross profit margin was 31% in 1998 as compared to 26% in 1997. The
increase in equipment gross profit margins in 1998 was attributable to
modifications to existing systems and Licom new systems installed representing a
higher percentage of total equipment sales. In general, both of these types of
sales generate higher gross profit margins than new installations of the
Company's core products. The service gross profit margin increased to 32% in
1998 from 23% in 1997. This was primarily attributable to efficiencies gained as
a result of the January 1998 restructuring, and new maintenance contracts
entered into 1998.
Gross profit margins for 1997 and 1996 were 26% and 40% respectively. The
equipment gross profit margin was 26% in 1997 as compared to 41% in 1996. The
decrease in equipment gross profit margins for 1997 was attributable to special
fourth quarter 1997 expense adjustments, including an $.8 million write-down of
certain field and supplier inventory and a $.5 million increase in inventory
reserves related to components for older product lines. In addition, the gross
profit margin was unfavorably impacted by large customer contracts, for which
<PAGE>
the Company obtained lower gross profit margins, large manufacturing variances,
due to a lower volume of purchases during the year, service variances, due to
large contracts where the Company incurred additional warranty costs, and a
decrease in gross profit margins from the Company's Licom business due to
increased production costs. The service gross profit margin decreased to 23% in
1997 from 38% in 1996. This was primarily attributable to increased costs in the
Company's service operations and an increase in the amount of technicians
providing warranty services related to several large contracts.
Operating Expenses
Total operating expenses for 1998 decreased to $10.0 million, representing a 37%
decrease from $15.8 million for 1997. Operating expenses as a percentage of
sales were 54% in 1998 as compared to 51% in 1997. The selling, general and
administrative expenses increase as a percentage of sales to 45% in 1998 from
39% in 1997 was attributable to a $1.0 million restructuring charge in 1998.
Total operating expenses for 1997 increased to $15.8 million, representing an
18% increase from $13.3 million for 1996. Operating expenses as a percentage of
sales were 51% in 1997 as compared to 40% in 1996. The selling, general and
administrative expenses increased as a percentage of sales to 39% in 1997 from
31% in 1996.
Selling, general and administrative costs for 1998 decreased $3.9 million to
$8.3 million, or 32%, from $12.2 million in 1997. The decrease in selling,
general and administrative expenses was primarily attributable to cost
reductions initiated in the January 1998 restructuring program and the 1997
write-off of the remaining value of the goodwill of $2.3 million related to the
Company's London operation.
Selling, general and administrative costs for 1997 increased $2 million to $12.2
million, or 20%, from $10.2 million in 1996. The increase in selling, general
and administrative expense was primarily attributable to the Company writing off
the remaining value of the goodwill of $2.3 million related to the Company's
London operation.
Research and development expenses for 1998 of $1.7 million decreased $1.9
million, or 52% from $3.6 million in 1997. Research and development expenses as
a percentage of sales decreased to 9% in 1998 as compared to 11% in 1997. The
decrease is primarily due to the maturation of the Company's current product
line and the suspension of development of a new generation product line.
Research and development expenses for 1997 of $3.6 million increased $.5
million, or 15%, from $3.1 million in 1996. Research and development expenses as
a percentage of sales increased to 11% in 1997 as compared to 9% in 1996. The
increase was primarily due to prototype and development expenses for specific
customer contracts.
Other Income and Expense
Interest expense was $195,000 for 1998 and $80,000 in 1997, which was primarily
due to the debt incurred related to the credit facility obtained by the Company
in May 1997. No interest expense was reported in 1996.
<PAGE>
Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109") "Accounting for Income Taxes." Under
SFAS 109, the deferred tax provision is determined under the liability method.
Under this method, deferred tax assets and liabilities are recognized based on
differences between the financial statement carrying amount and the tax basis of
assets and liabilities using presently enacted tax rates. During 1996, the
Company reduced the deferred tax asset and valuation allowance by $208,000.
During 1997, the Company increased the deferred tax asset and valuation
allowance by $3,105,000 and $3,805,000 respectively. During 1998, the Company
increased both the deferred tax asset and valuation allowance by $2,786,000. The
total valuation allowance as of October 31, 1998 of $11,409,000 reduces the
deferred tax asset to zero. The Company's 1998, 1997, and 1996 tax provisions of
$0, $700,000, and $5,000, reflect effective tax rates of 0%, (9)%, and 16%,
respectively.
Net Income (Loss) Per Basic and Diluted Common Share
For 1998, the Company recorded a net loss of $4.4 million or ($.81) per share,
as compared to a net loss of $8.5 million or ($1.58) per share in 1997. The loss
was primarily attributable to reduction in the overall sales level, partially
offset by a reduction in operating expenses.
For 1997, the Company recorded a net loss of $8.5 million or ($1.58) per share,
as compared to net income of $27,000 or $.01 per share in 1996. The loss was
primarily attributable to the write-off of goodwill related to the Company's
London operation, the write-down of spare and prototype inventory, the
write-down of the Company's deferred tax asset, and a reduction in the Company's
gross profit margin.
Liquidity and Capital Resources
The Company's cash at October 31, 1998 increased $.6 million, to $.9 million,
compared to the $.3 million balance reported at October 31, 1997. Accounts
receivable decreased $5.3 million, to $2.8 million in 1998 from $8.1 million in
1997 primarily due to retainage due on a large customer contract as of October
31, 1997, increased collection efforts, and a decline in the demand for the
Company's products. Short-term debt decreased $1.5 million, and inventories
decreased $.5 million.
The Company's cash at October 31, 1997 declined $2 million, to $.3 million,
compared to the balances reported at October 31, 1996. Accounts receivable
increased $1.4 million, to $8.1 million in 1997 from $6.7 million in 1996
primarily due to retainage due on a large customer contract. Other current
liabilities (excluding short-term debt) decreased $2.1 million. Offsetting these
items, short-term debt increased $2.9 million and inventory decreased $3.1
million.
The Company's working capital was $1.4 million as of October 31, 1998, a $3.8
million decrease from $5.2 million as of October 31, 1997. The reduction in
working capital as of October 31, 1998 was primarily attributable to losses
incurred by the Company.
The Company's working capital was $5.2 million as of October 31, 1997, a $5.4
million decrease from $10.6 million as of October 31, 1996. The reduction in
working capital as of October 31, 1997 was primarily attributable to the
increase in short-term debt and decreases in inventory and cash and cash
equivalents. Working capital was $10.6 million as of October 31, 1996, a $1
million increase from $9.6 million as of October 31, 1995.
<PAGE>
The Company's losses for 1998 and 1997 have had a substantial impact on its
working capital and liquidity. On May 28, 1997 the Company entered into a Credit
Agreement (the "Credit Agreement") with National Bank of Canada, New York Branch
(the "Bank") which expires on May 28, 2000. The Credit Agreement provides a $2
million credit facility to V Band Corporation secured by substantially all of
the assets of the Company and its domestic subsidiaries. As a result of the
Company's results of operations in the past, the Bank amended the financial
covenants of the Credit Agreement. The Company's operations are dependent upon
the continued availability of funding under the Credit agreement. The continued
availability of funding under the Credit Agreement is dependent, in turn, upon
the Company's ability to satisfy the amended financial covenants set forth in
the Credit Agreement. The amended financial covenants require, among other
things, an improvement in the Company's results of operations during the second
fiscal quarter of 1999 and a return to profitability commencing in the third
fiscal quarter of 1999. There is no assurance that the Company will be able to
satisfy these requirements.
The Company has no significant commitments for capital expenditures as of
October 31, 1998.
Year 2000
The Company utilizes software and related technologies throughout its business
that may be affected by the date change in the year 2000. Systems modifications
or replacement are underway which are expected to make all computer systems at
the Company compliant with the year 2000 requirement. A committee consisting of
key employees from the engineering, IT, production, and finance and management
functions established procedures for testing all Company products, software and
vendors for year 2000 compliance. To date, major product lines have been tested
and found to be year 2000 compatible. Vendors have been formally contacted and
asked to certify that year 2000 issues will not interfere with delivery of goods
or services. A contingency plan will be finalized after the results of all
testing and vendor responses are received. The Company's financial software is
supported by an independent firm which licenses its products and services to the
Company. Although the vendor has certified that its applications are in
compliance with the year 2000 requirements, full testing coupled with a visit to
the vendor's facility are planned during the second quarter of 1999. In the
event major problems are discovered, the Company expects that new software can
be installed and tested during the year.
All applicable testing for year 2000 compliance is scheduled for completion by
June 30, 1999, which the Company believes will leave sufficient time to resolve
any problems that might be discovered. As most costs are associated with time
spent by employees or vendors, the Company expects to incur less than $50,000 of
costs for year 2000 compliance issues.
Although there can be no assurance that the Company, its vendors, third party
providers of goods and services (utilities, telecommunications etc.) or the
Company's customers will not discover year 2000 compliance problems, the Company
is currently unaware of any that would have an adverse affect on its operations
and financial conditions. Failure by the Company to identify and correct any
year 2000 issues on a timely basis could result in lost revenues, increased
operating expenditures, loss of customers coupled with related litigation
expenses and a business interruption, any of which could have a material adverse
effect on the Company's financial condition.
A contingency plan will be finalized after the results of all testing and vendor
responses are received.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Although the Company currently invoices its customers in US dollars or UK
pounds, exchange rates for these and other local currencies in countries where
the Company may operate in the future may fluctuate in relation to the US
dollar. Such fluctuations may have an adverse effect on the Company's earnings
or assets when local currencies are exchanged for US Dollars. Any weakening of
the value of such local currency against the US dollar could result in lower
revenues and earnings for the Company. To date, gains and losses related to
foreign currency transactions and foreign currency translation have not been
material for the Company. Included in the Company's consolidated balance sheet
at October 31, 1998 are net assets of the Company's United Kingdom subsidiary of
$816,000.
Item 8. Financial Statements and Supplementary Data
The response to this item is incorporated by reference to pages F-1 through F-12
and S-1 herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Office Held
- ---- --- -----------
<S> <C> <C>
Thomas E. Feil (1) 57 Chief Executive Officer, Director
Thomas Hughes 39 President, Chief Operating Officer
Marc Teichman 57 Vice President - HR and Administration
Nicholas Nestora 48 Vice President - Sales and Operations
Luke P. La Valle, Jr. (2)(3) 56 Director
Thomas H. Lenagh (2) 74 Director
Brian S. North (1) 47 Director
Robert O. Riiska 37 Chief Financial Officer
A. Eugene Sapp, Jr. (1) 62 Director
J. Stephen Vanderwoude (2)(3) 55 Chairman, Director
</TABLE>
(1) Member of stock option committee.
(2) Member of audit committee.
(3) Member of compensation committee.
There is no family relationship among any of the directors or executive officers
of the Company. Information with respect to the directors and executive officers
of the Company, based upon information furnished by them, is set forth below.
Thomas E. Feil served as Chairman of the Company from April 1985 to June 1998,
as a Director since its inception and as Chief Executive Officer from April 1985
to August 1988 and from August 1993 to present. From the Company's inception
until April 1985, Mr. Feil was President of the Company.
Thomas Hughes was appointed President and Chief Operating Officer of the Company
in May 1997. He has been the Chief Operating Officer of the company since 1995
and was its Vice President of Marketing and Product Planning from 1993 to 1995.
Mr. Hughes began his career with the Company in 1988 as a Staff Engineer and
held various engineering management positions of increasing responsibility until
his appointment as Vice President. Prior to joining the Company, he worked as a
researcher at CBS Laboratories' Technology Center and a Systems Engineer at
United Technologies.
Robert O. Riiska was appointed Chief Financial Officer in May 1998. Mr. Riiska
is employed by Morris-Anderson & Associates, Ltd., a management consulting firm
retained by the Company in April 1998.
Marc Teichman was appointed Vice President of HR and Administration in May 1998.
Mr. Teichman joined V Band in August 1996 as Director of Human Resources. Prior
to joining V Band, Mr. Teichman was Vice President and Senior Consultant at
Guidelines Management Consultants. Prior to his employment at Guidelines, he
served as Vice President of Human Resources for Cunard Line and The Chas P.
Young Company, a financial printer. Mr. Teichman also held various director
level human resource positions with Hilt AG and The Hertz Corporation, where his
last position was as Director of Personnel for Hertz Rent-A-Car.
<PAGE>
Nicholas Nestora was appointed Vice President, Sales and Operations of V Band in
May 1998. Previously, Mr. Nestora served the Company as Vice President of Field
Operations from 1997 to 1998. Prior to joining V Band, he was Director of
Operations at BT (British Telecom) North America, from 1989 to 1997.
Luke P. La Valle, Jr. has served as a Director of the Company since June 1992.
Since 1980, Mr. La Valle has been President and Chief Investment Officer of
American Capital Management, Inc., a New York City based investment management
firm for individuals, trusts, pension and profit sharing accounts. Prior to
forming American Capital Management, Inc., Mr. La Valle worked for United States
Trust Company of New York for 13 years specializing in small company investing
in the Pension and Institutional Investment Division.
Thomas H. Lenagh has served as a Director of the Company since June 1993. Mr.
Lenagh has served as an independent financial consultant for the last six years.
He was formerly Chairman and Chief Executive Officer of Greiner Engineering from
1984 to 1986. Prior to that he was Financial Vice President of Aspen Institute
until 1984. Previously, he was Treasurer and Portfolio Manager of the Ford
Foundation. Mr. Lenagh is a retired Captain of the United States Naval Reserve.
Mr. Lenagh is also a Director of CML, Inc., Gintel Funds, Adams Express,
Clemente Growth Fund, ICN Pharmaceuticals, Inc., Irvine Sensors Corporation and
Franklin Quest.
Brian S. North has served as a Director of the Company since September 1988. Mr.
North is an attorney with the law firm of Buchanan Ingersoll Professional
Corporation in Philadelphia. From 1995 to 1997 he practiced law with White and
Williams. From 1987 to 1994, he was a member of the law firm of Elliott,
Reihner, Siedzikowski, North & Egan, P.C. and predecessor law firms. From 1980
to 1987, he was Senior Corporate Counsel of Sun Company, Inc.
A. Eugene Sapp, Jr. has served as a Director of the Company since August 1994.
Mr. Sapp, employed by SCI Systems since 1962, has been its President, Chief
Operating Officer and Director since 1981. Mr. Sapp also serves as a Director of
Irvine Sensors Corp., Computer Products, Inc. of Boca Raton, Florida, and CMS,
Inc. of Tampa, Florida.
J. Stephen Vanderwoude has served as Director of the Company since May 1994 and
as Chairman since June 1998. Mr. Vanderwoude is currently Chairman and Chief
Executive Officer of Madison River Telephone Company LLC. He was President,
Chief Executive Officer and Director for Video Lottery Technologies in Atlanta,
Georgia from 1994 to 1995. Prior to that, he was the President and Chief
Operating Officer of Sprint Corporation's Local Telecommunication Division until
September 1993. Prior to the merger of Sprint and Centel corporations in March
1993, Mr. Vanderwoude was President and a Director of Centel Corporation from
1988 and held various executive and management positions with Centel since 1971.
Mr. Vanderwoude is a Director of First Midwest, a bank holding company.
Each officer is elected by and serves at the pleasure of the Board of Directors.
Directors are elected annually by the shareholders, except when the Board of
Directors may elect a director to fill a vacancy on the Board. The executive
officers of the Company are elected annually by the Board of Directors.
<PAGE>
The Board of Directors has three standing committees: Stock Option, Executive
Compensation and Audit Committees. The Stock Option Committee exercises the
responsibilities of the Board in granting options under and administering the
Company's 1982 Incentive Stock Option Plan and its 1984 Stock Option Plan. The
Executive Compensation Committee's principal functions are to recommend to the
Board of Directors the compensation arrangements for the executive officers of
the Company. The Audit Committee's principal functions are to review with
internal financial staff and the Company's independent public accountant, the
Company's reporting process and internal controls and to recommend the
selection, retention or termination of the independent public accountants. The
Company has entered into Indemnity Agreements with each of its directors and its
officers, pursuant to which the Company is obligated to reimburse or pay certain
expenses incurred by its directors and officers arising out of claims made
against them in connection with their services to the Company.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table sets forth information for each of the fiscal years ended
October 31, 1998, 1997 and 1996 concerning the compensation of the Company's
Chairman and Chief Executive Officer and each of its other executive officers
whose salary and bonus for fiscal 1998 exceeded $100,000:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation (1)
------------------------------------------------ ----------------
Securities
Name/ Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options (#) Compensation (2)
- ------------------ ---- ------ ----- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Feil, (3) 1998 $200,000 $ - $ - - $ 100
Chief Executive 1997 200,000 - - - 1,627
Officer and Director 1996 200,000 - - - 2,000
Thomas Hughes, (4) 1998 150,000 - 6,000 - 1,500
President- 1997 150,000 - 4,000 30,000 1,570
Chief Operating Officer 1996 150,000 2,000 - 90,000 1,500
Nicholas Nestora 1998 132,000 - 6,000 40,000 1,320
Vice President-
Sales and Operations
</TABLE>
- -----------------
(1) Other than the Company's 401(k) Plan and its stock option and stock
purchase plans, the Company does not have any long-term incentive plans and
does not grant restricted stock awards.
(2) Includes amounts contributed by the Company under the Company's 401(k) Plan
during the fiscal year and any additional discretionary annual
contributions related to the prior fiscal year.
(3) Mr. Feil waived the receipt of $143,000 of his compensation during fiscal
year 1998.
(4) Mr. Hughes is a party to an agreement with the Company which entitles him
to receive approximately one year's compensation should there be a change
of control of the Company during the term of his employment or within six
months thereafter.
<PAGE>
STOCK OPTIONS
The following tables summarize option grants during the fiscal year ended
October 31, 1998 to the named officers and the value of the options held by such
persons at the end of such fiscal year. None of the named officers exercised any
stock options during the fiscal year ended October 31, 1998. The Company does
not maintain any pension plans or any supplementary pension award plans.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
-----------------------------------------------------------------------------------------------------
Percentage of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise Price Expiration
Name Options Granted Fiscal Year (per share) Date 5% 10%
---- --------------- ----------- ----------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Marc Teichman 40,000 8.6% $.25 - .50 2008 $ 1,212 $4,822
Nicholas Nestora 40,000 8.6% $.25 - .50 2008 $ 808 $3,572
</TABLE>
Aggregate Option Exercises in Fiscal 1998 and Fiscal Year-end Option Value
<TABLE>
<CAPTION>
Value of Unexercised In-the
Number of Unexercised Options Money Options at
at FY-End FY-End
-------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas Hughes - - 130,567 15,000 - -
Marc Teichman - - - 40,000 - -
Nicholas Nestora - - - 40,000 - -
</TABLE>
During the year ended October 31, 1998, the Company reduced the exercise price
of 145,567 of the above options to $.50 per share from original prices ranging
from $1.44 to $4.75 per share.
<PAGE>
COMPENSATION OF DIRECTORS
Each outside director of the Company is entitled to receive an annual director's
fee of $7,500 plus $500 for each board meeting attended (up to a limit of six
meetings per year), plus deferred cash compensation, payable upon termination of
service as a director, in an amount equal to $2,000 for each year of service as
a director. Pursuant to the Company's Stock Compensation Plan for Non-Employee
Directors, each outside director may elect to have all or a portion of his
compensation paid by the Company by means of the issuance of the Company's
Common Stock in lieu of cash. Additionally, each director is reimbursed for
out-of-pocket travel expenses incurred to attend a board meeting and may receive
reasonable compensation for chairing any committee of the board. Outside
directors also receive, upon election or re-election as a director, a grant of
stock options under the Company's 1984 Stock Option Plan covering 2,000 shares
of the Company's Common Stock, at an exercise price equal to the fair market
value on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. La Valle, and Vanderwoude comprise the Compensation Committee. Messrs.
Feil, North and Sapp comprise the Stock Option Committee. Messrs. La Valle,
Lenagh and Vanderwoude comprise the Audit Committee. Mr. Feil is an officer and
employee of the Company, but is not eligible to receive stock options while
serving on the Stock Option Committee.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning the stock ownership of all persons
known by the Company to own beneficially more than 5% of the Company's shares of
Common Stock. Each director of the Company, each executive officer named in the
executive compensation table and all directors and executive officers of the
Company as a group, as of January 31, 1999.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Owned Class
------------------ -----
<S> <C> <C>
Thomas E. Feil 1,430,472 (1) 26.4%
3 Westchester Plaza, Elmsford, NY 10523
Thomas Hughes 130,567 (2) *
3 Westchester Plaza, Elmsford, NY 10523
Luke P. La Valle, Jr. 12,000 (2) *
50 Broad Street, Suite 1609, New York, NY 10004
Thomas H. Lenagh 10,000 (2) *
6 Greenwich Office Park, Greenwich, CT 06831
Brian S. North 25,000 (2) *
1400 Eleven Penn Center, Philadelphia, PA 19103
A. Eugene Sapp, Jr. 8,000 (2) *
2101 West Clinton Ave., Huntsville, AL 35807
J. Stephen Vanderwoude 8,000 (2) *
2316 Young Road, Southern Pines, NC 28388
All directors and executive officers as a group (10 persons) 1,624,039 (1) 29.9%
</TABLE>
- -------------------
* - less than 1%
(1) Excludes 80,000 shares held in an irrevocable trust for Mr. Feil's daughter,
over which Mr. Feil holds no voting or investment power.
(2) Includes shares that may be acquired upon exercise of options, which are
currently exercisable or are exercisable within 60 days, as follows: Mr. Hughes,
130,567 shares; Mr. LaValle, 12,000 shares; Mr. Lenagh, 10,000 shares; Mr.
North, 25,000 shares; Mr. Sapp, 8,000 shares; Mr. Vanderwoude, 8,000 shares; and
all directors and executive officers as a group, 193,567 shares.
Item 13. Certain Relationships and Related Transactions
During the year ended October 31, 1998, the Chief Executive Officer of the
Company waived $143,000 of his compensation. The Company has recorded such
amount as compensation expense and a capital contribution.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) 1. Financial Statements:
Description
Independent Auditors' Report
Consolidated Balance Sheets as of October 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended October
31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years
Ended October 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended October
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
VIII Valuation and Qualifying Accounts S-1 All other schedules not listed above
have been omitted because the information has been otherwise supplied in the
financial statements or the notes thereto or they are not applicable, or the
amounts are insignificant or immaterial.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
3.1 Restated Certificate of Incorporation. (5)
3.2 Amended By-Laws. (1)
10.1 Lease dated April 22, 1988 between registrant
and URBCO, Inc. for premises at 565 Taxter
Road, Elmsford, New York. (3)
10.2 Amended and Restated 1982 Incentive Stock
Option Plan, as amended. (10)
10.3 1984 Stock Option Plan adopted by Registrant
on June 27, 1984, as amended. (7)
10.4 1986 Employee Stock Purchase Plan, as adopted
by Registrant in December 1985, as amended.
(7)
10.5 Rights Agreement, dated as of February 20,
1989 between the Company and Registrar &
Transfer Company, as rights agent. (4)
10.6 Letter of Registrant to Thomas E. Feil dated
August 29, 1989. (1)
10.7 Adoption of Non-Standardized Retirement Plan
and Trust (401-K) dated January 1, 1989, as
amended. (5)
10.8 Amendment dated October 14, 1991 to a lease
dated April 22, 1988 between the Company and
URBCO, Inc. for premises at 565 Taxter Road,
Elmsford, New York. (7)
<PAGE>
10.9 Second Amendment dated February 20, 1992 to a
lease dated April 22, 1988 between the
Company and URBCO, Inc. for premises at 565
Taxter Road, Elmsford, New York. (7)
10.10 Third Amendment dated May 28, 1993 to a lease
dated April 22, 1988 between the Company and
URBCO, Inc. for premises at 565 Taxter Road,
Elmsford, New York. (6)
10.11 Fourth Amendment dated June 8, 1994 to a
lease dated April 22, 1988 between the
Company and URBCO, Inc. for premises at 565
Taxter Road, Elmsford, New York. (6)
10.12 Agreement dated July 1, 1992 between the
Company and California Institute of
Technology. (9)
10.13 Share Acquisition Agreement dated July 28,
1994, relating to TR Financial Communications
plc, together with Deed of Covenant of the
same date between the Company and Mercury
Communications Limited. (8)
10.14 Stock Compensation Plan for Non-Employee
Directors. (10)
10.15 Agreement dated May 28, 1997 between the
Company and National Bank of Canada, New York
Branch. (11)
10.16 Agreement dated June 4, 1998 between the
Company and National Bank of Canada, New York
Branch. (12)
10.17 Fifth Amendment dated March 26, 1998 to a
lease dated April 22, 1988 between the
Company and Taxter Park Associates, as
successor in interest to URBCO, Inc., for
premises at 565 Taxter Road, Elmsford, New
York. (13)
16 Letter regarding change in certifying
accountant (3)
21 Subsidiaries
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedules
<PAGE>
Footnotes to Exhibits
1. Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1989, and incorporated
herein by reference.
2. Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1988, and incorporated
herein by reference.
3. Filed as an exhibit to the Company's Current Report on Form
8-K filed March 18, 1994, and incorporated herein by
reference.
4. Filed as an exhibit to the Company's registration statement
on Form 8-A filed February 22, 1989, and incorporated herein
by reference.
5. Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1990, and incorporated
herein by reference.
6. Filed as an exhibit to the Company's Annual Report on Form
10-K for the period ended October 31, 1994, and incorporated
herein by reference.
7. Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1992, and incorporated
herein by reference.
8. Filed as an exhibit to the Company's Current Report on Form
8-K filed August 12, 1994, and incorporated herein by
reference.
9. Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended January 31, 1994, and incorporated
herein by reference.
10. Filed as an exhibit to the Company's registration statement
on Form S-8 filed November 29, 1996, and incorporated herein
by reference.
11. Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended July 31, 1997, and incorporated
herein by reference.
12. Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended July 31, 1998, and incorporated
herein by reference.
13. Filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1998, and incorporated
herein by reference.
<PAGE>
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
V BAND CORPORATION
Dated: March 17, 1999 By: /s/Robert O. Riiska
-------------------
Robert O. Riiska, Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Thomas E. Feil and Robert O. Riiska his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
<PAGE>
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 in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas E. Feil Chief Executive Officer and Director March 17, 1999
- ------------------ (Principal Executive Officer)
Thomas E. Feil
/s/ Thomas Hughes President and
- ----------------- Chief Operating Officer March 17, 1999
Thomas Hughes
/s/ Robert O. Riiska
- --------------------- Chief Financial Officer (Principal March 17, 1999
Robert O. Riiska Financial and Accounting Officer)
/s/ Luke P. La Valle, Jr. Director March 17, 1999
- -------------------------
Luke P. La Valle, Jr.
/s/ Thomas H. Lenagh Director March 17, 1999
- --------------------
Thomas H. Lenagh
/s/ Brian S. North Director March 17, 1999
- -------------------
Brian S. North
/s/ A. Eugene Sapp, Jr. Director March 17, 1999
- -----------------------
A. Eugene Sapp, Jr.
/s/ J. Stephen Vanderwoude Director March 17, 1999
- --------------------------
J. Stephen Vanderwoude
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
V Band Corporation
We have audited the accompanying consolidated balance sheets of V Band
Corporation and subsidiaries as of October 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended October 31, 1998. Our audits also
included the financial statement schedule listed at Item 14(a)2. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of V Band Corporation and subsidiaries
as of October 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring losses
from operations. The Company's operations are dependent upon the continued
availability of funding under its bank credit agreement. These items raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/s/DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 2, 1999
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
(in 000's, except share data)
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................................. $ 915 $ 336
Accounts receivable, less allowance for doubtful
accounts of $289 in 1998 and $498 in 1997 .................. 2,813 8,079
Inventories, net ................................................. 4,241 4,733
Prepaid expenses and other current assets ........................ 313 458
-------- --------
Total current assets .................... 8,282 13,606
-------- --------
Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements ........ 7,811 9,539
Less: Accumulated depreciation and amortization .................. (7,444) (8,786)
-------- --------
Total fixed assets ...................... 367 753
-------- --------
Other Assets ..................................................... 158 193
-------- --------
TOTAL ASSETS ............................................... $ 8,807 $ 14,552
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt .................................................. $ 1,425 $ 2,943
Accounts payable ................................................. 2,434 2,557
Accrued wages .................................................... 842 894
Customer deposits ................................................ 1,389 959
Other accrued expenses ........................................... 797 1,102
-------- --------
Total current liabilities .............. 6,887 8,455
-------- --------
Commitments and Contingencies (Note 6)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
(in 000's, except share data)
1998 1997
-------- --------
<S> <C> <C>
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,147,943 shares in 1998 and 7,131,913 shares in 1997 71 71
Capital in excess of par value ................................... 20,016 19,872
Deficit ................... ...................................... (6,639) (2,270)
Cumulative translation adjustment ................................ 240 192
-------- --------
13,688 17,865
Less - Treasury stock, at cost; 1,719,322 shares................ (11,768) (11,768)
-------- --------
Total shareholders' equity............... 1,920 6,097
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 8,807 $ 14,552
======== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
(in 000's, except per share data)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales
Equipment ................................... $ 12,415 $ 25,413 $ 27,703
Service ..................................... 6,158 5,668 5,183
-------- -------- --------
Total sales ............................ 18,573 31,081 32,886
-------- -------- --------
Cost of Sales
Equipment ................................... 8,566 18,748 16,404
Service ..................................... 4,172 4,350 3,224
-------- -------- --------
Total cost of sales .................... 12,738 23,098 19,628
-------- -------- --------
Gross profit ........................... 5,835 7,983 13,258
-------- -------- --------
Operating Expenses
Selling, general and administrative ......... 8,287 12,188 10,189
Research and development .................... 1,708 3,573 3,118
-------- -------- --------
Total operating expenses ............... 9,995 15,761 13,307
-------- -------- --------
Operating loss ........................ (4,160) (7,778) (49)
Interest Expense ................................... (195) (80)
Other Income (Expense) ............................. (14) 46 81
-------- -------- --------
Income (loss) before income taxes ...... (4,369) (7,812) 32
Provision for Income Taxes ......................... 700 5
-------- -------- --------
Net income (loss) ...................... $ (4,369) $ (8,512) $ 27
======== ======== ========
Net income (loss) per basic and diluted common share $ (.81) $ (1.58) $ .01
======== ======== ========
Weighted average number of basic and diluted
common shares outstanding ...................... 5,423 5,372 5,323
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
(in 000's)
Capital in Retained Cumulative
Common Excess of Par Earnings Translation Treasury
Stock Value (Deficit) Adjustment Stock
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1995 ....................... $ 70 $ 19,776 $ 6,215 $ 105 $(11,768)
Net income ...................................... 27
Translation adjustment .......................... 63
-------- -------- -------- -------- --------
Balance, October 31, 1996 ....................... 70 19,776 6,242 168 (11,768)
Proceeds from employee
stock purchase plan .......................... 1 96
Net loss ........................................ (8,512)
Translation adjustment .......................... 24
-------- -------- -------- -------- --------
Balance, October 31, 1997 ....................... 71 19,872 (2,270) 192 (11,768)
Proceeds from employee
stock purchase plan .......................... 1
Waiver of Chief Executive Officer's compensation 143
Net loss ........................................ (4,369)
Translation adjustment .......................... 48
-------- -------- -------- -------- --------
Balance, October 31, 1998 ....................... $ 71 $ 20,016 $ (6,639) $ 240 $(11,768)
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997 and 1996
(in 000's)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .................................................. $ (4,369) $ (8,512) $ 27
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation .................................................... 443 566 742
Amortization and write-off of other assets ...................... 49 2,598 458
Provision (benefit) for doubtful accounts ...................... 142 117 (53)
Provision for inventory reserves ................................ 334 473
Deferred income taxes ........................................... 700
Waiver of Chief Executive Officer's compensation .............. 143
Changes in assets
and liabilities:
Accounts receivable ......................................... 5,124 (1,459) (1,901)
Inventories ................................................. 158 2,592 (202)
Prepaid expenses and other current assets ................... 145 222 (250)
Other assets ................................................ (14) 74 (9)
Accounts payable and other current liabilities .............. (49) (2,043) 740
Foreign currency translation adjustment ..................... 48 24 63
-------- -------- --------
Net cash provided by (used in) operating activities ..... 2,154 (4,648) (385)
-------- -------- --------
Cash Flows from Investing Activities
Sales of marketable securities ..................................... 187
Capital expenditures ............................................... (57) (209) (284)
-------- -------- --------
Net cash used in investing activities ................... (57) (209) (97)
-------- -------- --------
Cash Flows from Financing Activities
Debt issuance costs ................................................ (105)
Proceeds from employee stock purchase plan ......................... 1 97
Proceeds from short-term debt ...................................... 17,321 9,007
Payments of short-term debt ........................................ (18,840) (6,064)
-------- -------- --------
Net cash provided by (used in) financing activities ..... (1,518) 2,935 --
-------- -------- --------
Net increase (decrease) in cash ........................................ 579 (1,922) (482)
--------
Cash at beginning of year .............................................. 336 2,258 2,740
-------- -------- --------
Cash at end of year .................................................... $ 915 $ 336 $ 2,258
======== ======== ========
Supplementary Disclosures
Income taxes paid .................................................. $ -- $ 384 $ 65
======== ======== ========
Interest paid ...................................................... $ 195 $ 61 $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The Company and basis of presentation
V Band Corporation and its wholly-owned subsidiaries (the "Company") designs,
manufactures, sells, installs and services specialized telephone systems
consisting of sophisticated telephone consoles and supporting common equipment
for switching and access to telephone network facilities. These systems are sold
primarily to financial services firms for use by traders in the trading and
dealing of stocks, bonds, commodities and other financial instruments. The
Company also designs, manufactures and distributes a family of digital
communications multiplexers specifically designed for the "mission critical"
communications of the electric power industry. Other markets include command and
control applications for "right-of-way" companies such as utilities and
transportation companies, and emergency service organizations.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's ability to
continue as a going concern is uncertain based on the matters discussed below.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of assets or the amounts of liabilities
that might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent upon the
Company's ability to return to profitablity and to maintain compliance with its
amended bank covenants.
The Company has incurred recurring losses from operations. As a result of the
Company's results of operations, the bank amended the financial covenants of the
Credit Agreement (see Note 5).The amended financial covenants require, among
other things, an improvement in the Company's results of operations during the
second fiscal quarter of 1999 and a return to profitability commencing in the
third fiscal quarter of 1999. The Company's operations are dependent upon the
continued availability of funding under the Credit Agreement. The continued
availability of funding under the Credit Agreement is dependent, in turn, upon
the Company's ability to satisfy the amended financial covenants set forth in
the Credit Agreement and upon the ability of the Company to generate sufficient
revenue and results from operations to support such funding. The Company is
presently seeking additional sales orders in order to improve the results of its
operations. There is no assurance that the Company will be able to improve the
results of its operations to satisfy the amended financial covenants.
Note 2: Significant accounting policies
Consolidation
The accompanying consolidated financial statements include the accounts of V
Band Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Furniture, fixtures, equipment and leasehold improvements
Furniture, fixtures, equipment and leasehold improvements are carried at cost.
Depreciation is computed using the straight-line method over 3-10 years, the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the term of the related lease or the estimated useful lives of the
improvements.
<PAGE>
Revenue recognition
Equipment revenue, for new system installations and modifications to existing
systems at customer locations, is recognized as the product is shipped. For
long-term contracts, equipment revenue is recognized under the
percentage-of-completion method. Service revenue, which includes maintenance
contract revenue and repairs, is recognized when the service has been completed.
Income taxes
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the income tax basis of the Company's assets and
liabilities using presently enacted tax rates.
Income (loss) per share
During 1998, the Company adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share". SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share on the
face of the statement of operations. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
and dilutive common equivalent shares (common stock options) outstanding.
Foreign currency translation
For translation of the financial statements of its United Kingdom operations,
the Company has determined that the local currency is the functional currency.
Assets and liabilities of foreign operations are translated at year-end exchange
rates and income statement accounts are translated at average exchange rates for
the year. The resulting translation adjustments are made directly to the
Cumulative Translation Adjustment component of Shareholders' Equity. Foreign
currency transactions are recorded at the exchange rate prevailing at the
transaction date.
Management estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
Impact of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 130, Reporting Comprehensive Income and Statement No. 131,
Disclosure about Segments of an Enterprise and Related Information. The Company
is in the process of evaluating the new statements, which are effective for
Fiscal 1999. The adoption of these statements is not expected to have a material
effect on the Company's consolidated financial statements.
Disclosure about Fair Value of Financial Instruments
The carrying value of the Company's credit facilities approximates fair value
and is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.
<PAGE>
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company performs
ongoing credit evaluations of its customers' financial conditions and generally
does not require collateral.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the anticipated undiscounted operating
cash flows generated by these assets are less than the assets' carrying value.
Note 3: Inventories
Inventories are as follows, at October 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Finished goods ....................... $ 3,812,000 $ 3,374,000
Parts and components ................. 3,339,000 3,935,000
----------- -----------
7,151,000 7,309,000
Less: Inventory reserves ............ (2,910,000) (2,576,000)
----------- -----------
$ 4,241,000 $ 4,733,000
=========== ===========
</TABLE>
Note 4: Other assets
In July 1994, the Company acquired all of the issued share capital of Mercury
Dealing Systems ("MDS"), a subsidiary of Mercury Communications Limited. MDS had
been a distributor of the Company's products in the United Kingdom since 1987.
The aggregate purchase price for the share capital of MDS was $4,634,000,
inclusive of liabilities assumed. The acquisition was accounted for under the
purchase method, whereby the excess of the purchase price over the fair value of
the net assets acquired was $3,389,000, and was being amortized over a ten-year
period. During the year ended October 31, 1997, the Company decided that the
future operations of the MDS business could not support the carrying value of
the goodwill and therefore wrote-off the remaining net book value of $2.3
million to selling, general and administrative expense.
Note 5: Short-term Debt
In May 1997, the Company entered into a Credit Agreement with National Bank of
Canada (the "Credit Agreement"), which expires in May 2000. The Credit Agreement
provided a revolving loan and letter of credit facility of up to $4 million. The
Company's obligations under the Credit Agreement are secured by a security
interest in all of the assets of V Band Corporation and its domestic
subsidiaries. Under the terms of the Credit Agreement, the Company is restricted
from paying dividends if an event of default has occurred and is continuing
thereunder. Due to the Company's results of operations for 1997, the Company
<PAGE>
failed to satisfy the financial covenants set forth in the Credit Facility. On
February 9, 1998, National Bank of Canada waived the Company's failure to
satisfy those covenants at October 31, 1997 and amended the covenants for fiscal
year 1998. In addition, the interest rate on the outstanding borrowings was
modified to prime plus 2 percent effective February 1, 1998. The amended
financial covenants were not satisfied for the three-month period ended April
30, 1998. On June 4, 1998, National Bank of Canada waived the Company's failure
to satisfy those covenants at April 30, 1998 and amended the covenants for the
remainder of fiscal year 1998. The Company satisfied the amended financial
covenants for the three-month periods ended July 31, 1998 and October 31, 1998,
but was in violation of a non-financial covenant as of October 31, 1998. As of
October 31, 1998, the balance outstanding was $1,425,000 and the prime rate was
8%. On February 18, 1999, National Bank of Canada waived the non-financial
covenant default, amended the financial covenants for all periods through
expiration, and reduced the revolving loan and letter of credit facility to $2
million.
Note 6: Commitments and contingencies
(a) Litigation In October 1994, the Company commenced an action against
Technical Telephone Systems, Inc. ("TTSI") in New York State Supreme Court,
Westchester County, for minimum payments due to the Company in the amount of
$650,000 under a distribution agreement between the Company and TTSI. In
November 1994, TTSI filed a counterclaim against the Company denying all
allegations stated in the Company's complaint and alleging a breach of good
faith and fair dealing by the Company, claiming damages of $1 million. The
Company has been in discussions with TTSI and expects that a settlement of this
proceeding will be concluded in the near future which will not have a material
impact on the consolidated financial condition of the Company.
In June 1998, IEC Electronics Corp. ("IEC Electronics") commenced an action
against the Company in New York State Supreme Court, Wayne County, asserting
claims for the payment of $500,000 for products delivered to the Company,
inventory, and an unspecified amount for incidental expenses and costs. The
Company has filed an answer denying liability for the claims and asserting a
counterclaim against IEC Electronics in an amount in excess of $500,000.
The Company is a party to other legal proceedings commenced against it by
suppliers and former employees. The Company believes that none of these
proceedings will have a material impact on the consolidated financial condition
of the Company.
<PAGE>
(b) Operating leases
The Company leases office and production space under leases expiring through
2005. Certain of these lease agreements provide the option for renewals and
include escalations based on increases in certain costs. Future minimum annual
rental payments under these leases for the years ended October 31 are as
follows:
1999 $743,000
2000 527,000
2001 448,000
2002 224,000
2003 99,000
Thereafter 165,000
The Company has subleased one facility and has signed a contract to assign the
lease of another facility. Future minimum payments of $1,300,000 relating to
these facilities are included in the table above. The Company anticipates that
the respective sublessee and assignee will actually make such payments.
Rent expense for the years ended 1998, 1997, and 1996 was $606,000, $956,000 and
$1,007,000, respectively.
(c) Employment arrangements
In December 1998, the Company entered into employment agreements with certain
officers and employees that provide for compensation and other benefits upon
change of control of the Company. The aggregate compensation to be paid under
these agreements is $365,000, and such future compensation has not been
reflected in the accompanying consolidated financial statements. Agreements with
aggregate compensation totaling $215,000 have an expiration date of December 31,
1999, while an agreement with compensation to be paid of $150,000 is in effect
during the term of the officer's employment and six months thereafter.
During the year ended October 31, 1998, the Chief Executive Officer of the
Company waived $143,000 of his compensation. The Company has recorded such
amount as compensation expense and a capital contribution.
(d) Accounts payable
During the year ended October 31, 1998, the Company entered into arrangements
with several vendors whereby each vendor agreed that the Company could satisfy
all or a portion of its existing accounts payable balance by remitting periodic
payments generally throughout fiscal year 1999. Certain of these arrangements
contain provisions for the payment of interest.
Note 7: Stock options
The Company has stock option plans that provide for the granting of options, at
fair market value, to certain key employees and directors to acquire common
stock of the Company. During the year ended October 31, 1998, the Company
reduced the exercise price of 145,567 options to $.50 per share from original
prices ranging from $1.44 to $4.75 per share. Such repricing has been reflected
below.
<PAGE>
The following is a summary of stock option transactions for the three years in
the period ended October 31, 1998:
Shares Exercise Prices
------ ---------------
Shares under option - November 1, 1995 ..... 687,194 $ .50 to $ 6.88
Options granted ........................ 358,700 .50 to 2.63
Options cancelled ...................... (169,637) 1.88 to 6.88
--------
Shares under option - October 31, 1996 ..... 876,257 .50 to 6.00
Options granted ........................ 180,000 .50 to 1.75
Options cancelled ...................... (117,506) 1.44 to 5.00
--------
Shares under option - October 31, 1997 ..... 938,751 .50 to 6.00
Options granted ...................... 462,933 .25 to .75
Options cancelled .................... .25 to 6.00
(407,316)
--------
Shares under option -October 31, 1998 ...... 994,368 .25 to 6.00
========
Options exercisable at:
October 31, 1997 ..................... 648,151 $ .50 to $ 6.00
========
October 31, 1998 ..................... 663,435 .25 to 6.00
========
The following table summarizes information about stock options outstanding at
October 31, 1998:
<TABLE>
<CAPTION>
Options Granted Options Exercisable
------------------------------------------- ---------------------------
Weighted Weighted Weighted
Year Range of Number Average Average Number Average
of Exercise Outstanding Remaining Exercise Exercisable Exercise
Grant Prices 10/31/98 Life (Years) Price 10/31/98 Price
- ----------------------------- ------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1989 $5.75 - $5.75 20,000 .92 $ 5.75 20,000 $ 5.75
1990 .50 - 4.00 31,202 1.74 3.12 31,202 3.12
1991 .50 - 3.88 70,633 2.70 3.50 70,633 3.50
1992 .50 - 6.00 79,350 3.71 4.75 79,350 4.75
1993 3.88 - 5.50 10,000 4.53 4.08 10,000 4.08
1994 .50 - 5.13 81,234 5.18 4.45 81,234 4.45
1995 .50 - 5.00 71,666 6.35 2.74 71,666 2.74
1996 .50 - 2.63 239,850 7.39 1.44 239,850 1.44
1997 .50 - 1.75 86,500 8.43 1.16 59,500 1.27
1998 .25 - .75 303,933 9.37 .47 - -
======= ==== ===== ======= =====
994,368 6.87 $ 2.04 663,435 $ 2.80
======= ==== ====== ======= ======
</TABLE>
<PAGE>
All stock options become exercisable upon a change of control, as defined.
The estimated fair value of options granted during 1998, 1997, and 1996 was $.33
per share, $1.75 per share, and $1.88 per share, respectively. The Company
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its stock option and purchase plans. No compensation cost has
been recognized for the Company's fixed stock option plans and stock purchase
plan. Had compensation costs for the Company's stock option plans and stock
purchase plan been determined based on the fair value, at the option grant dates
for awards, in accordance with the accounting provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation", the Company's net income (loss) and net income (loss) per share
for the years ended October 31, 1998, 1997 and 1996 would have been reduced to
the pro forma amounts indicated in the following table:
Net income (loss) applicable to common shareholders:
1998 1997 1996
-------- -------- ------
As reported $ (4,369) $ (8,512) $ 27
Pro forma (4,520) (8,655) (317)
Net income (loss) per common share and common share equivalent
As reported $ (.81) $ (1.58) $ .01
Pro forma (.83) (1.60) (.06)
The fair value of options granted under the Company's fixed stock option plans
during 1998 was estimated on the dates of grant using the Black-Scholes
options-pricing model with the following weighted-average assumptions used:
dividend yield of zero, expected volatility of approximately 49%, risk free
interest rate of approximately 5.5%, and expected lives of option grants of 10
years. Pro forma compensation cost related to shares purchased under the 1995
Incentive Stock Option Plan is measured based on the discount from market value.
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future pro forma effects.
Note 8: Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, deferred income taxes reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts. The valuation allowance reduces the deferred tax asset to the
amount that management believes will ultimately be realized.
Realization of the deferred tax asset is dependent upon sufficient future
taxable income during the period that temporary differences and carryforwards
are expected to be available to reduce taxable income.
As of October 31, 1998, the Company had available net operating loss
carryforwards for tax return purposes of approximately $18,322,000 that begin to
expire in 2011.
<PAGE>
The income tax provision (benefit) consists of the following:
1997 1996
--------- --------
Current
Federal ............................. $
State and local ..................... 5,000
---------
5,000
Deferred ---------
Federal ............................. $ 658,000
State and local ..................... 42,000
---------
700,000
---------
$ 700,000 $ 5,000
========= ========
The difference between the recorded income tax provision (benefit) and the
income taxes computed by applying the statutory Federal income tax rate was the
following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
U.S. statutory rate applied to pretax
income (loss) ..................... $(1,478,000) $(2,657,000) $ 11,000
Dividends received deduction and
tax-exempt interest
Goodwill amortization ................. 350,000 127,000
State and local taxes, net of federal
tax benefit ....................... (385,000) 3,000
Increase (decrease) in valuation
allowance ......................... 1,438,000 3,359,000 (208,000)
Reversal of current liability for taxes
Other, net ............................ 40,000 33,000 72,000
----------- ----------- -----------
$ -- $ 700,000 $ 5,000
=========== =========== ===========
</TABLE>
<PAGE>
The net deferred income tax asset at October 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
Deferred tax assets(liabilities) 1998 1997
- -------------------------------- ------------ ------------
<S> <C> <C>
Depreciation .................................... $ 354,000 $ 280,000
Amortization .................................... 712,000 624,000
Inventory reserves .............................. 2,266,000 2,237,000
Accrued expenses ................................ 114,000 190,000
Bad debt reserve ................................ 82,000 169,000
State and local taxes, net of federal tax benefit -- 1,282,000
Net operating loss carry forwards ............... 7,881,000 3,841,000
------------ ------------
11,409,000 8,623,000
Valuation allowance ............................. (11,409,000) (8,623,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
Note 9: Segment information
(a) Significant customers
Morgan Guaranty Trust Company of New York and affiliates (including sales
through its vendor, AT&T Solutions) accounted for 15%, 6% and 10% of the
Company's sales in 1998, 1997 and 1996, respectively. During 1998, 1997 and
1996, the Chicago Board of Trade and its general contractor accounted for 8%,
10% and 21%, respectively, of the Company's sales. During 1997, The New York
Mercantile Exchange accounted for 16% of the Company's sales.
(b) Foreign sales
In 1998, 1997 and 1996, foreign sales represent 41%, 37% and 29%, respectively,
of consolidated sales and include the following geographical areas:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Pacific Rim $ 1,500,000 $ 2,600,000 $ 1,900,000
Europe (including UK) 5,300,000 6,300,000 6,900,000
All others 900,000 2,500,000 900,000
----------- ----------- ------------
$ 7,700,000 $ 11,400,000 $ 9,700,000
=========== ============ ============
</TABLE>
<PAGE>
Note 10: Capital transactions
(a) Stock rights plan
On February 20, 1989, the Board of Directors of the Company adopted a common
share purchase rights plan and declared a dividend distribution of one common
share purchase right (the "Right") on each of its common shares to shareholders
of record on March 7, 1989. Each Right will entitle the registered holder to
purchase from the Company one outstanding common share, par value $.01 per
share, at a purchase price of $45.00 per share, subject to anti-dilutive
adjustments (the "Purchase Price"). The Rights generally become exercisable if a
person or group acquires, or tenders for, 20% or more of the Company's common
shares. In such event, the holder of a Right will have the right to receive,
upon exercise of the Right at the then current Purchase Price, a number of
common shares with a total market value of two times the Purchase Price. The
Rights expired on February 19, 1999.
(b) Employee stock purchase plan
Under the Company's 1986 Stock Purchase Plan (the "Purchase Plan"), all eligible
employees may authorize payroll deductions of up to 10% of their base salary to
purchase shares of the Company's Common Stock at 85% of the market price. There
are no charges or credits to income in connection with the Purchase Plan. In
January 1999, the Company discontinued the Purchase Plan for periods after
December 31, 1998.
Note 11: Employee 401(K) Savings Plan
The Company has a tax-deferred employee 401(k) savings plan covering
substantially all employees. Contributions by the Company are made at the
Company's discretion. Contributions to the plan in 1998, 1997 and 1996 were
$39,000, $40,000 and $49,000, respectively.
Note 12: Fourth quarter results
During the fourth quarter of 1997 the Company recorded the following expense
adjustments:
Inventory reserves and write-offs $ 1,300,000
Intangible asset write-off 2,300,000
Cost of goods sold 800,000
Deferred tax asset valuation allowance 700,000
Warranty reserves 200,000
Severance and other 200,000
Allowance for doubtful accounts 200,000
<PAGE>
<TABLE>
<CAPTION>
Schedule VIII
V BAND CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1998, 1997, AND 1996
Column A Column B Column C - Additions Column D Column E
- -------- -------- -------------------- -------- --------
(1) (2)
Balance at Charged to Charged to Balance at
Beginning of costs and other End of
Description Period expenses accounts Deductions Period
- ----------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
October 31, 1998 $ 498,000 $ 142,000 $ 351,000 (a) $ 289,000
October 31, 1997 $ 381,000 $ 117,000 $ 498,000
October 31, 1996 $ 456,000 $ (53,000) $ 22,000 (a) $ 381,000
Inventory reserve
October 31, 1998 $ 2,576,000 $ 334,000 $ 2,910,000
October 31, 1997 $ 2,103,000 $ 473,000 $ 2,576,000
October 31, 1996 $ 2,144,000 $ 41,000 (b) $ 2,103,000
Warranty reserve
October 31, 1998 $ 273,000 $ 247,000 $ 386,000 (c) $ 134,000
October 31, 1997 $ 343,000 $ 589,000 $ 659,000 (c) $ 273,000
October 31, 1996 $ 415,000 $ 289,000 $ 361,000 (c) $ 343,000
Reserve for Notes Receivable
October 31, 1997 $ 110,000 $ 110,000 (d)
October 31, 1996 $ 110,000 $ 110,000
Valuation allowance for deferred
income tax asset
October 31, 1998 $ 8,623,000 $ 2,786,000 $ 11,409,000
October 31, 1997 $ 4,818,000 $ 700,000 $ 3,105,000 $ 8,623,000
October 31, 1996 $ 5,026,000 $ 208,000 $ 4,818,000
</TABLE>
(a) Doubtful accounts written off, net of cash recovered.
(b) Consumption of obsolete or slow moving inventory, which was reserved for in
the prior year.
(c) Warranty labor charges combined with actual cash payments.
(d) Note receivable written off, net of cash received.
S -1
<PAGE>
EXHIBIT 21
Subsidiaries
------------
V Band PLC - organized under the laws of England
Licom, Inc. - incorporated under the laws of the State of Delaware
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in V Band Corporation's
Registration Statements Nos. 2-94923, 33-7540, 33-19146 and 33-62458 on Form S-8
of our report dated March 2, 1999 (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's ability to continue
as a going concern) appearing on page F-1 of the Annual Report on Form 10-K for
the year ended October 31, 1998.
/s/DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 12, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13284
V BAND CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2990015
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3 Westchester Plaza, Elmsford, New York 10523
----------------------------------------------------
(Address and zip code of principal executive office)
(914) 789-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares of Common Stock outstanding, as of January 31, 1999, was
5,428,621 shares.
<PAGE>
V BAND CORPORATION
FORM 10-Q QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JANUARY 31,1999
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at January 31, 1999 (unaudited) and
October 31, 1998
Consolidated statements of operations for the three months ended
January 31, 1999 and 1998 (unaudited)
Consolidated statements of cash flows for the three months ended
January 31, 1999 and 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND OCTOBER 31, 1998
(in 000's, except share data)
January 31, October 31,
1999 1998
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash ...................................................... $ 630 $ 915
Accounts receivable, less allowance for doubtful
accounts of $292 in 1999 and $289 in 1998 ............. 2,867 2,813
Inventories, net .......................................... 3,701 4,241
Prepaid expenses and other current assets ................. 344 313
-------- --------
Total current assets ............... 7,542 8,282
-------- --------
Fixed Assets:
Furniture, fixtures, equipment and leasehold improvements . 7,831 7,811
Less: Accumulated depreciation and amortization ........... (7,516) (7,444)
-------- --------
Total fixed assets ................. 315 367
-------- --------
Other Assets .............................................. 149 158
-------- --------
TOTAL ASSETS .......................................... $ 8,006 $ 8,807
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................... $ 1,305 $ 1,425
Accounts payable .......................................... 2,245 2,434
Accrued wages ............................................. 910 842
Customer deposits ......................................... 1,480 1,389
Other accrued expenses .................................... 674 797
-------- --------
Total current liabilities ......... 6,614 6,887
-------- --------
Commitments and Contingencies (see notes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND OCTOBER 31, 1998
(in 000's, except share data)
(continued)
January 31, October 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Shareholders' Equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued 7,147,943 shares ............................... 71 71
Capital in excess of par value ............................ 20,016 20,016
Deficit ................................................... (7,207) (6,639)
Cumulative translation adjustment ......................... 281 240
-------- --------
13,160 13,688
Less Treasury stock, ata cost; 1,719,322 shares............ (11,768) (11,768)
-------- --------
Total shareholders' equity ......... 1,392 1,920
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 8,006 $ 8,807
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
AND 1998 (unaudited) (in 000's, except
per share data)
1999 1998
------- -------
<S> <C> <C>
Sales
Equipment .................................. $ 2,093 $ 3,228
Service .................................... 1,683 1,496
------- -------
Total sales ........................... 3,776 4,724
------- -------
Cost of Sales
Equipment .................................. 1,639 2,423
Service .................................... 1,066 986
------- -------
Total cost of sales ................... 2,705 3,409
------- -------
Gross profit .......................... 1,071 1,315
------- -------
Operating Expenses
Selling, general and administrative ........ 1,425 2,964
Research and development ................... 189 602
------- -------
Total operating expenses .............. 1,614 3,566
------- -------
Operating loss ........................ (543) (2,251)
Interest Expense ................................. (35) (50)
Other Income (Expense) ........................... 10 (21)
------- -------
Net loss .............................. $ (568) $(2,322)
======= =======
Net loss per basic and diluted common share ...... $ (.10) $ (.43)
======= =======
Weighted average number of basic and diluted
shares outstanding ........................... 5,429 5,413
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
V BAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (unaudited)
(in 000's)
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ..................................................... $ (568) $(2,322)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation .............................................. 73 126
Amortization of other assets .............................. 9 8
Provision for doubtful accounts ........................... 3 3
Waiver of Chief Executive Officer's compensation .......... -- 50
Changes in assets and liabilities:
Accounts receivable ................................... (57) 3,837
Inventories ........................................... 540 (974)
Prepaid expenses and other current assets ............. (31) 17
Other assets .......................................... -- --
Accounts payable and other current liabilities ........ (153) 881
Foreign currency translation adjustment ............... 41 7
------- -------
Net cash (used in) provided by operating activities (144) 1,633
------- -------
Cash Flows from Investing Activities
Capital expenditures ......................................... (21) (33)
------- -------
Net cash used in investing activities ............. (21) (33)
------- -------
Cash Flows from Financing Activities
Proceeds from short-term debt ................................ 3,075 5,800
Payments of short-tem debt ................................... (3,195) (7,404)
------- -------
Net cash used in financing activities ............. (120) (1,604)
------- -------
Net decrease in cash ............................................. (285) (4)
Cash at beginning of period ...................................... 915 336
------- -------
Cash at end of period ............................................ $ 630 $ 332
======= =======
Supplementary Disclosures
Income taxes paid ............................................ $ -- $ 4
======= =======
Interest paid ................................................ $ 35 $ 52
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
V BAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in 000's)
Note A -- Basis of Presentation
The accompanying consolidated financial statements include the accounts of V
Band Corporation and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the fiscal year
ended October 31, 1998 as set forth in the Company's annual report on Form 10-K.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at January 31, 1999 and all periods
presented have been made.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's ability to
continue as a going concern is uncertain based on the matters discussed below.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of assets or the amounts of liabilities
that might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent upon the
Company's ability to return to profitability and to maintain compliance with its
amended bank covenants.
The Company has incurred recurring losses from operations. As a result of the
Company's results of operations, the bank amended the financial covenants of the
Credit Agreement (see Note D). The amended financial covenants require, among
other things, an improvement in the Company's results of operations during the
second fiscal quarter of 1999 and a return to profitability commencing in the
third quarter of 1999. The Company's operations are dependent upon the continued
availability of funding under the Credit Agreement. The continued availability
of funding under the Credit Agreement is dependent, in turn, upon the Company's
ability to satisfy the amended financial covenants set forth in the Credit
Agreement and upon the ability of the Company to generate sufficient revenue and
results from operations to support such funding. The Company is presently
seeking additional sales orders in order to improve the results of its
operations. There is no assurance that the Company will be able to improve the
results of its operations to satisfy the amended financial covenants.
Note B -- Significant accounting policies
Revenue recognition - Equipment revenue, for new system installations and
modifications to existing systems at customer locations, is recognized as the
product is shipped. For long-term contracts, equipment revenue is recognized
under the percentage of completion method. Service revenue, which includes
maintenance contract revenue and repairs, is recognized when the service has
been completed.
<PAGE>
Note C -- Inventories
Inventories are summarized as follows:
January 31, October 31,
1999 1998
Finished goods ........................... $ 3,166 $ 3,812
Parts and components ..................... 3,044 3,339
------- -------
6,210 7,151
Less: Inventory reserves ................. (2,509) (2,910)
------- -------
$ 3,701 $ 4,241
======= =======
Note D -- Short-term debt
In May 1997, the Company entered into a Credit Agreement with National Bank of
Canada, (the "Credit Agreement") which expires in May 2000. The Credit Agreement
provided a revolving loan and letter of credit facility of up to $4 million. The
Company's obligations under the Credit Agreement are secured by a security
interest in all of the assets of V Band Corporation and its domestic
subsidiaries. Under the terms of the Credit Agreement, the Company is restricted
from paying dividends if an event of default has occurred and is continuing
thereunder. Due to the Company's results of operations for 1997, the Company
failed to satisfy the financial covenants set forth in the Credit Facility. On
February 9, 1998, National Bank of Canada waived the Company's failure to
satisfy those covenants at October 31, 1997 and amended the covenants for fiscal
year 1998. In addition, the interest rate on the outstanding borrowings was
modified to prime plus 2 percent effective February 1, 1998. The amended
financial covenants were not satisfied for the three-month period ended April
30, 1998. On June 4, 1998, National Bank of Canada waived the Company's failure
to satisfy those covenants at April 30, 1998 and amended the covenants for the
remainder of fiscal year 1998. The Company satisfied the amended financial
covenants for the three-month periods ended July 31, 1998, October 31, 1998 and
January 31, 1999, but was in violation of a non-financial covenant as of October
31, 1998. The prime rate was 7.75% at January 31, 1999. On February 18, 1999,
National Bank of Canada waived the non-financial covenant default, amended the
financial covenants for all periods through expiration, and reduced the
revolving loan and credit facility to $2 million.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (in 000's except per share data)
Results of Operations
Sales for the first quarter of 1999, ended January 31, 1999, of $3,776 were
$948, or 20%, lower than the $4,724 reported in the first quarter of 1998.
Equipment sales of $2,093 in the first quarter of 1999 decreased by $1,135, or
35%, from the equipment sales of $3,228 in the first quarter of 1998. This
decrease was primarily due to decreased demand for the Company's products. Sales
from the Company's service business increased to $1,683, or 13%, for the first
quarter of 1999 from $1,496 for the first quarter of 1998. This increase was
primarily due to new maintenance contracts entered into after the expiration of
warranty periods for installations of the Company's eXchange phone in previous
fiscal years and an increase in other customers serviced by the Company.
Gross profit margin was 28% for the first quarter of 1999 and 1998. The gross
profit margin for the equipment sales was 22% in the first quarter of 1999
compared to 25% for the same period in 1998. This decrease was primarily
attributable to price discounting required in competitive bidding for new
installations as well as additions to existing customer installations. The gross
profit margin for service sales was 37% for the first quarter of 1999 as
compared to 34% for the same period in 1998. The increase was attributable to
the increase in maintenance sales for the first quarter.
Operating expenses for the first quarter of 1999 were $1,614 or $1,952 lower
than the $3,566 reported for the first quarter of 1998. The decrease was
primarily attributable to the first quarter 1998 charge of $1,023 related to the
Company's restructuring of its operations, reductions in research and
development expenditures, and decreases in other operating expenses.
The net loss reported in the first quarter ended January 31, 1999 was $568, or
$.10 per share, compared to a net loss of $2,322, or $.43 per share, for the
first quarter of 1998. The loss was primarily attributable to the aforementioned
decrease in equipment sales and gross profit margin for the first quarter of
1999. The average shares outstanding for the quarter ended January 31, 1998
increased to 5,429 versus 5,413 for the same period in 1997.
Financial Condition
The Company's cash was $630 at January 31, 1999, a decrease of $285 from the
October 31, 1998 balance of $915. Short-term debt decreased $120 as a result of
payments made during the quarter. Inventory decreased $540 as the Company
substantially reduced new purchases and also rescheduled deliveries of goods
previously ordered from its subcontractors and suppliers.
The Company's losses for 1997, 1998 and the first quarter of 1999 have had a
substantial impact on its working capital and liquidity. On May 28, 1997 the
Company entered into a Credit Agreement (the "Credit Agreement") with National
Bank of Canada, New York Branch (the "Bank"). The Credit Agreement provides a $2
million credit facility to the Company secured by substantially all of the
assets of the Company and its domestic subsidiaries. As a result of the
Company's results of operations, the Bank amended the financial covenants of the
Credit Agreement. The Company's operations are dependent upon the continued
availability of funding under the Credit Agreement. The continued availability
of funding under the Credit Agreement is dependent, in turn, upon the Company's
ability to satisfy the amended financial covenants set forth in the Credit
Agreement. The amended financial covenants require, among other things, an
improvement in the Company's results of operations during the second fiscal
quarter of 1999 and a return to profitability in the third fiscal quarter of
1999. There is no assurance that the Company will be able to satisfy these
requirements.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Although the Company currently invoices its customers in US dollars or UK
pounds, exchange rates for these and other local currencies in countries where
the Company may operate in the future may fluctuate in relation to the US
dollar. Such fluctuations may have an adverse effect on the Company's earnings
or assets when local currencies are exchanged for US dollars. Any weakening of
the value of such local currency against the US dollar could result in lower
revenues and earnings for the Company. To date, gains and losses related to
foreign currency transactions and foreign currency translation have not been
material for the Company. Included in the Company's consolidated balance sheet
at October 31, 1998 are net assets of the Company's United Kingdom subsidiary of
$816,000. There has been no material change in this information during the first
fiscal quarter of 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.18 Agreement dated November 15, 1998 between the Company
and Thomas Hughes.
10.19 Agreement dated December 1, 1998 between the Company and
Nicholas Nestora.
10.20 Agreement dated December 1, 1998 between the Company and
Marc Teichman.
<PAGE>
V BAND CORPORATION
SIGNATURES
Pursuant to the requirements 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.
V BAND CORPORATION
(Registrant)
Date: March 17, 1999
/s/ Thomas E. Feil
------------------
Thomas E. Feil
Chairman & Chief Executive Officer
(Duly Authorized Officer)
Date: March 17, 1999
/s/ Robert O. Riiska
--------------------
Robert O. Riiska
Chief Financial Officer
(Principal Accounting Officer)
