SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
OR
___ 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 No. 0-20688
GLASGAL COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-2914253
(State of Incorporation) (I.R.S. Employer Identification No.)
- ------------------------ ------------------------------------
151 Veterans Drive, Northvale, NJ 07647
(Address of principal executive offices) (Zip Code)
- ---------------------------------------- ----------
Registrant's telephone number, including area code: (201) 768-8082
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, .001 par value
Common Stock Purchase Warrants
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at July 31, 1996 was approximately $63,993,000. For purposes of
computing such market value, the Registrant has deemed as affiliates only
executive officers, directors and their affiliates.
The total number of shares of Common Stock of the Registrant
outstanding at July 31, 1996 was 16,341,162.
<PAGE>
TABLE OF CONTENTS
PART I PAGE #
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure 48
PART III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners
and Management 56
Item 13. Certain Relationships and Related Transactions 59
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 60
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PART I
ITEM 1. BUSINESS
DEVELOPMENT OF THE BUSINESS
Glasgal Communications, Inc. a New Jersey corporation, was founded and
incorporated in 1975 (the "Predecessor") as a distributor of data communications
equipment and services. Beginning in 1991 the Predecessor began redirecting its
efforts to become an open systems integrator providing complete computer network
systems and integration services.
In May 1994, the Predecessor merged with and into Sellectek
Incorporated, a California corporation incorporated in 1983 ("Sellectek") (the
"Merger"). The surviving entity, Sellectek, changed its name to Glasgal
Communications, Inc. following the Merger and continued its existence under the
laws of the State of California. The Merger provided the Company (as hereinafter
defined) with an immediate infusion of approximately $750,000 ($190,000 net of
expenses) in cash contributed by Sellectek and created a publicly-traded vehicle
to finance the future growth of the Company's operation. Prior to the Merger,
Sellectek was a publicly-traded company without any on-going business
operations. The Company's sole business is the business of the Predecessor and
while Sellectek was the survivor of the Merger, for accounting purposes, the
Merger is treated as a reverse acquisition with the Predecessor as the acquirer.
In January 1996, Glasgal Communications, Inc. reincorporated in the state of
Delaware. As used herein the term "Company" refers collectively to Glasgal
Communications, Inc., a Delaware corporation, the Predecessor, and to its
subsidiaries, Signatel Ltd. ("Signatel"), its Canadian subsidiary and
Computer-Aided Software Integration, Inc. ("CASI").
On October 28, 1994, the Company consummated the acquisition of all the
voting capital stock of Signatel, a Canadian distributor of data communications
equipment and services, for 875,000 shares of its Common Stock. The acquisition
was accounted for as a pooling of interests.
On April 24, 1996, the Company acquired 80% of the common stock of
CASI. CASI develops and licenses a suite of system engineering software tools
collectively known as the Integrator's Workbench Product Series(TM). This
software automates the design, implementation, migration and support of
client/server computing environments. The acquisition has been accounted for as
a purchase; operations of CASI have been included in the accompanying
consolidated financial statements from the date of the acquisition.
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On July 31, 1996, the Company acquired all of the common stock of HH
Communications, Inc., a Chicago area based systems integrator, for 1,500,000
shares of its common stock. The acquisition will be accounted for as a pooling
of interests.
DESCRIPTION OF BUSINESS
The Company is in the business of providing enterprise wide networking,
services and solutions including design, configuration, integration and
migration services to its customers in the USA and Canada. In most cases these
services are bundled with products selected by Company consultants to meet
specific technological needs of its customers. The Company also provides full
life cycle support including installation and maintenance services across the
USA and Canada. Internationally the Company exports primarily wide area
networking products to some fifty (50) resellers around the world.
In April 1996, the Company purchased 80% of CASI, a designer and
developer of middleware systems products. CASI's "Integrator's Workbench Product
Series"(TM) is currently comprised of two products - "The Configurator"(TM) and
the "Information Router"(TM). The Configurator(TM) is designed to automate the
design, configuration, integration and migration processes within network
environments, thereby reducing labor time for these tasks by as much as 80%. The
Information Router(TM) is a real time messaging system which "translates"
information from disparate platforms/protocols. The Information Router
eliminates the need for custom programming to perform intranet or internet
communication among applications, while ensuring integrity. Both products are
being marketed to Fortune 5,000 companies and government institutions by a small
specialist sales team. The Configurator(TM) is also being introduced into
Glasgal's own integration department allowing it to significantly reduce project
labor costs and thereby increase its competitiveness. In its initial marketing
phase, CASI has found significant interest for the product in its target markets
and has several "pilots" and evaluations planned for over the summer period.
In addition to its own unique products, Glasgal as a system integrator
offers solutions based on industry standard, proven hardware and software. The
Company is fully authorized to sell and support systems from leading
manufacturers including Microsoft, Novell, Cisco, 3Com, Sun Microsystems, RAD,
Micom, Optika and many others. The Company encompasses market leading operating
systems to support a truly "open" system implementation.
BUSINESS STRATEGY
The Company's objective is to become one of the leading "open" systems
integrators providing complete enterprise networking solutions in the USA and
Canada and eventually globally.
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Systems integration is not only a high growth market, it is one that is
continuously evolving as new technologies come to market from a myriad of
technology companies. As margins on hardware come under increasing pressure
systems integrators are placing greater reliance on margins from services to
maintain and increase profitability. Since 1992, the Company has recognized the
importance of moving towards a significantly higher value added services sales
mix. For the fiscal year ended April 30, 1996 service revenue accounted for
$7,017,000 or 17% of net sales compared with $2,167,000 or 7% of sales for the
year ended December 31, 1992. However, this migration to services is being
adopted by several systems integrators thereby increasing competition in this
lucrative area. The concentration is therefore shifting towards increasing
efficiency and productivity, so as to reduce the variable costs associated with
delivering integration services to clients. Recognizing this trend, the Company,
through its new subsidiary CASI, designed and developed tools that substantially
lower labor variable cost elements by automating a significant proportion of the
integration process. Developed initially to help reduce the cost of delivering a
significant customer, the Company's management recognized that a tool of this
nature could be useful to any organization involved in high volume integration
services and has begun marketing the product through a small and specialized
CASI salesforce.
The Company's current operations will use the Configurator(TM) to
increase their own competitiveness and hence profitability. The CASI salesforce
will primarily attempt to sell the Configurator(TM) initially to systems
integrators ("SI's"), who will use the product for specific high volume projects
that they are engaged in. In this way SI's become a sales extension to CASI. The
Information Router(TM), accepted as the standard communications device by the
Integrating Technology Consortium (ITC), a group of leading hotel chains and
technology vendors, is currently being installed in several hotels.
Due to the paradyne shift that the Configurator and Information Router
imposes on organizations, the sales leadtimes are long and normally involves
evaluations and pilot projects before prospects are ready to commit to the
products. Management is currently actively involved in finding ways to shorten
the process without reducing the potential opportunities.
To provide more focus to its salesforce the Company is moving towards
concentrating its solution deliverables to the following areas:
o Client/Server Technology - This technology is a form of shared,
or distributed, computing in which tasks and computing power are
split between servers (a host computer) and clients (workstations
or personal computers). This division provides the network
design, topology, hardware, software, and cabling thereby
offering customers a "one-stop" shop.
o Connectivity - This division's focus is on delivering technology
to allow dissimilar devices to communicate with each other.
o Remote Access/Security - This division's focuses on providing
solutions for remote workstations or mobile users to dial into a
network and access the resources of that network.
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o Data Communications - This division focuses on providing
solutions to customers with a need to transfer data between two
points.
o Middleware - This is a category of software that hides the
underlying network and its communication protocols from
applications, allowing seamless interoperability. The CASI
Configurator(TM), for example, allows simultaneous distribution
of application software to the workstations via networks
irrespective of the network communication protocol being used.
o Document Imaging - This technology allows organizations to
capture, store, manipulate and access documents on their
computers resulting in many efficiencies and benefits for an
organization including:
- Preserving the look of documents.
- Reducing the workload of data entry clerks.
- Providing the ability for documents to be viewed and
worked on by many people simultaneously.
- Reducing the risk of lost documentation.
Previously, the Company ran its operations through virtual business
units (VBU's) based on four vertical sales divisions, i.e., Domestic Branch
Operations, Export Sales Operations, Government, and Canada Branch Operations.
To provide added focus, meaningful support, and increased synergies throughout
the existing organization, as well as for potential new acquisitions, the
Company is organizing itself along technology solution lines as described above.
Separate VBU's have been established with appropriate technological expertise in
order to support increasingly complex deliverables in each of its solution
areas.
The Company's overall growth strategy remains dedicated towards strong
internal growth supplemented by strategic acquisitions.
INDUSTRY AND MARKET ASSESSMENT
The Company believes that the enterprise networking market will
experience further growth and that the once robust market for mainframe and
minicomputers will continue to decline. Certain desktop personal computers are
fully capable of performing such computationally intensive functions as database
management, three-dimensional modeling, and high-resolution graphics rendering.
They are also fully capable of performing as LAN file servers, allowing hundreds
of individual networked workstations to share data. Applications that once
required a dedicated mainframe or minicomputer platform, such as accounting and
statistical applications, are increasingly run on distributed client/server
platforms.
Several years ago, the Company recognized the opportunities that would
accrue from the shift taking place in the computer industry as a result of the
proliferation and growth in processing power of personal computers, and the
shift by manufacturers to an "open" systems architecture. This shift allowed
separate vendor computer platforms to communicate with one another for the first
time on a large scale. With "open" systems architecture came a growing demand
from users to replace rigid centralized processing systems with the more
flexible
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processing of information on personal computer networks. This shift away from
centralized processing toward distributed systems, which is today a common
solution for many enterprises, became possible due to: (a) the advent of faster
and more powerful microprocessors, (b) price declines for networking hardware
and software, (c) user-friendly and application-specific software, (d)
increasing computer knowledge and skills in the work force, (e) the ability to
share and communicate enterprise data both locally and world-wide through what
have become known as local and wide area networks (LANs/WANs) and most recently
(f) Internet access through the PC.
Today's hot topic in commerce, finance, medicine, education and almost
every walk of life is the Internet. Once the preserve of the mainframe but now
in the public domain through the rapid growth of the PC, it is much vaunted as
the road to a new golden age of information. However, it is not just the
Internet but networks generally which the Company believes will continue to show
significant growth. The Internet in many ways shows how the future of networking
will develop. Today an office networks its internal computers with a LAN and in
many cases its multiple sites with a WAN. Increasingly the LAN is being
connected to the Internet.
Market acceptance of personal computers was widely realized in the
mid-1980's, bringing processing power, ease of use, and inexpensive applications
to the general public. The advent of LAN technologies introduced a viable
mechanism for the connection of multiple computer users, and allowed for the
sharing of peripherals such as laser printers and mass storage devices. More
importantly, LAN platforms provided a means of monitoring and controlling all of
these independent spheres of influence under a common management system and for
shared access to mission-critical information and data elements stored on the
system. This connectivity mechanism also offered a means of attaching multiple
LAN users through a common connection to a host system, reducing the costs and
simplifying procedures associated with access to even the largest repositories
of data be they within the company or outside its domain as in the case of the
Internet.
The many advantages of client/server networking (one or more servers
holding application and/or data, connected to a series of PC's), the ever
growing software applications coming to market for text, voice, graphics and
video as well as the advent of faster transmission rates, have encouraged
organizations to increase their use of networks as information proliferates both
geographically and by media type. As a result network topologies have increased
dramatically in complexity and size and will continue to do so well into the
future. Industry statistics from various sources, including Ledgeway/Dataquest,
Data Communications magazine and Frost & Sullivan Market Intelligence, indicate
that the annual rate of growth for connectivity products and services will climb
at a rate not less than 10% during the next several years.
The increased reliance organizations place on their networks today not
only generates demand for control devices like hubs, routers and switches - all
of which are provided by the Company - but also challenges service support
suppliers like the Company to reduce down times to a minimum.
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The Company is uniquely positioned to support its customers and
prospects in all aspects of networking and connectivity solutions:
o Through its 50+ vendor relationships the Company can provide
networking products that meet even the most challenging customer
needs.
o Through its many service locations throughout the USA and Canada
the Company has the required infrastructure to offer 24 hour
support 365 days per year on all products.
o The Company has highly trained and experienced personnel
delivering design, configuration, integration and migration
support of network systems.
o Utilizing the software developed by its subsidiary, CASI, the
Company can carry out the above functions at a significantly
lower cost than its competition.
EXPORT SALES AND OPERATIONS. The Company sells in approximately 33
overseas locations through an international reseller network. Export sales
represented 8.9%, 8.7%, 11.7% and 8.5% of the Company's net sales as of the
fiscal year ended December 31, 1993, the four months ended April 30, 1994, and
the fiscal years ended April 30, 1995 and 1996, respectively. The market for
data networks abroad can range from one to five years behind the United States
in terms of state-of-the-art technology. Due to this time lag, as well as
differences in local competitive pressures, export margins on discrete data
communications devices are still relatively high compared to the Company's
domestic margins. This area is supported by four people.
The following table gives an analysis of the Company's export sales by
geographic area:
<TABLE>
<CAPTION>
SALES
(in thousands)
Four Months
Year Ended December 31, Ended April 30, Year Ended April 30,
----------------------- --------------- --------------------
EXPORT SALES: 1992 1993 1994 1995 1996
------------- ---- ---- - ---- ---- ----
<S> <C> <C> <C> <C> <C>
Canada $ 507 $ 256 $ 49 $ 103 $ 117
Europe 1,627 1,953 335 1,754 1,759
Middle East 66 29 17 73 137
Latin America 660 604 222 1,087 742
Far East 186 411 351 1,095 785
---- ---- --- ----- ---
$3,046 $3,253 $974 $4,112 $3,540
===== ===== === ===== ======
</TABLE>
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The Company ships products to its international agents only upon
receipt of an irrevocable letter of credit or full prepayment, with the
exception of Europe and Canada where the Company has granted these agents a
credit line.
CUSTOMERS
The Company's customers represent a variety of industries, and only two
market segments, the securities industry and government (at approximately 15%
and 18%, respectively), accounted for more than 10% of net sales in the fiscal
year ended April 30, 1996. Two customers, Waterhouse Securities, Inc. and Telos
Corporation, each accounted for more than 10% of net sales in the fiscal year
ended April 30, 1996, with such customers accounting for approximately 15% and
18% of net sales, respectively.
VENDORS
The Company has relationships with over 100 manufacturers and
distributors around the world. These manufacturers include Novell Inc., Intel
Corporation, Hewlett-Packard Co., Micom Corporation, RAD Data Communications,
Inc. (RAD), and Racal-Datacom, Inc. The distributors include, Microage, Inc.,
Intelligent Electronics, Inc. and Merisel, Inc. In addition, the Company is a
reseller of telephone line services from major companies, including LDDS
Worldcom Inc., MFS Telecom, Southern Pacific Telecom and IDB World
Communications Group Inc.
One vendor, RAD, accounted for 13% of total purchases during the year
ended April 30, 1996. Two vendors, Micom and RAD, accounted for 10% and 12%,
respectively, of total purchases during the year ended April 30, 1995. Micom and
RAD, accounted for 13% and 10%, respectively, of total purchases during fiscal
1993. During fiscal 1992, Micom also accounted for 10% of total purchases, while
RAD accounted for more than 5% but less than 10% of total purchases. Two other
vendors each accounted for more than 5% but less than 10% of total purchases in
1992 and 1993. These vendors were Mod Tap, Inc. and Microcom. The Company
believes that its relationship with these and all its vendors is satisfactory
and, while terms in agreements with vendors change from time to time in the
ordinary course of business, the Company believes that the loss of any one
vendor or changes in the terms of agreements would not have a materially adverse
effect on the Company's business. The Company has negotiated stock rotation and
price protection privileges with certain of its major vendors.
COMPETITION
The Company competes with computer manufacturers, software vendors and
telephone companies in all or some aspects of its business, some of which
companies have far greater resources than the Company. The Company believes,
however, that its wide-ranging skills as a full-service enterprise network
integrator, including skills at network implementation, network design,
equipment procurement, software integration, carrier
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facilities liaison, installation maintenance, support services, premises wiring,
product procurement and data communications, enable it to be positioned to
compete effectively.
EMPLOYEES
The Company has 164 full-time employees. The Company employs 38
salespeople and 60 technical support people. The remaining employees consist of
48 administrative personnel, 4 project managers and 14 telemarketing and sales
support staff. The Company believes its relationship with its employees is
satisfactory.
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ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Northvale, New
Jersey. The headquarters building includes approximately 21,000 square feet of
warehouse and office space and was designed and built especially for the Company
in 1987. In addition, the building houses the Company's New York branch office.
The headquarters building is subject to a mortgage in the principal amount of
$1,000,000 outstanding as of April 30, 1996. In addition to its headquarters
building, the Company leases throughout the United States approximately 26,146
square feet of office space in 15 locations for its branch operations. The
Company also leases an aggregate of approximately 10,918 square feet of office
space in six locations in Canada.
ITEM 3. LEGAL PROCEEDING
The Company is not a party to any legal proceedings which individually
or in the aggregate, is believed to be material to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on Nasdaq under the
symbol "GLAS". The Company's Common Stock commenced listing on Nasdaq on May 3,
1994. Prior to such date, Sellectek's common stock traded on Nasdaq under the
symbol "SLTK". The following table sets forth the high and low bid prices on
Nasdaq for the periods indicated, as reported by the National Quotation Bureau,
Incorporated. The quotations are inter-dealer prices without adjustment for
retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions. These prices may not necessarily be indicative of any
reliable market value.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
May 3, 1994 - July 31, 1994........................................ $5-3/4 $3-1/4
August 1, 1994 - October 31, 1994.................................. $4 $3
November 1, 1994-January 31, 1995 ................................. $3-5/8 $1-3/4
February 1, 1995-April 30, 1995.................................... $1-3/4 $1
May 1, 1995-July 31, 1995.......................................... $3-7/8 $1-1/4
August 1, 1995-October 31, 1995.................................... $4 $2-1/2
November 1, 1995-January 31, 1996.................................. $10-1/2 $3-3/4
February 1, 1996-April 30, 1996.................................... $12-3/4 $6-1/2
May 1, 1996-July 31, 1996.......................................... $11-5/8 $6-3/4
</TABLE>
On July 31, 1996, the closing bid price for the Company's Common Stock
as reported on Nasdaq was $6-5/8. As of July 31, 1996, there were approximately
281 holders of record of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its inception, other than distributions made by the Predecessor to shareholders
of the Predecessor in amounts sufficient to reimburse the Predecessor's
shareholders for federal (and some state) income tax liabilities arising from
the Predecessor's former status as an "S" corporation. The Company currently
intends to retain any earnings for use in the business and does not anticipate
paying any dividends to its shareholders in the foreseeable future. Each of the
Company's loan agreements with the Company's bank includes a restriction
prohibiting the payment of dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of the
Company for, and at the end of (i) each of the years in the three-year period
ended December 31, 1993, (ii) the four months ended April 30, 1993 and 1994 and
(iii) the years ended April 30, 1995 and 1996. The Company changed its fiscal
year-end from December 31 to April 30 on May 2, 1994. The Company acquired
Signatel on October 28, 1994 by issuing 875,000 shares of its common stock in
exchange for all of the voting capital stock of Signatel. The acquisition was
accounted for using the pooling of interests method of accounting; consequently
all periods presented reflect the combined operations of Glasgal Communications,
Inc. and Signatel after eliminating all intercompany transactions and balances.
On April 24, 1996 the Company acquired 80% of CASI for $500,000 in cash and
44,260 shares of common stock. The acquisition was accounted for as a purchase;
the results of CASI operations from the date of acquisition are not material.
The financial data presented below for, and at the end of, the four
month period ended April 30, 1993, has been derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the financial data includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data at and for such
dates and periods.
The data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED APRIL 30, APRIL 30,
----------------------------------- ------------------------ ----------------------------
1991 1992 1993 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
STATEMENT OF OPERATIONS (In thousands, except share and per share data)
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $32,467 $32,627 $36,391 $11,833 $11,156 $35,161 $41,781
Operating Costs:
Cost of Sales 23,302 23,460 25,419 8,497 8,523 25,634 30,653
Selling, general and
administrative 8,241 8,715 10,422 3,397 4,640 11,725 11,327
Income (loss) from
operations 924 452 550 (61) (2,009) (1,198) (199)
Interest Expense 501 408 491 160 136 476 758
Provisions (benefit) for
income taxes 42 1 206(b) -- -- (32) --
Net income (loss) 381 43 (147) (221) (2,145) (1,643) (1,180)(c)
Net income (loss) per
share -- -- -- -- -- (0.15) (.09)(c)
Average number of shares
outstanding -- -- -- -- 10,681,237 12,853,747
Pro forma net income
(loss)(a) 373 29 (164) (221)
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
------------------------------------ -------------------------------------------------
1991 1992 1993 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital (deficiency) $(1,647) $(1,953) $(1,648) $(1,407) $(1,967) $(2,865) $2,470
Total Assets 10,908 12,159 14,811 11,874 11,844 12,594 16,251
Short-term debt 4,821 5,854 6,101 4,170 3,650 4,660 2,009
Long-term debt 489 90 1,072 1,180 1,086 918 1,088
Total Liabilities 9,928 11,230 14,052 11,357 11,228 12,905 9,098
Total shareholders'
equity (deficit) 980 929 759 517 616 (311) 7,153
</TABLE>
(a) As adjusted to reflect the statutory income tax rate that would have been
recorded had the Company not elected S corporation status. Prior to January
1994, the Company had elected under the Internal Revenue Code of 1986, as
amended, to be an S corporation, whose shareholders were taxed on their
proportionate share of the Company's taxable income.
(b) Included in this amount is $195,000 of additional income taxes and interest
assessed in 1993 applicable to a transaction entered into by Signatel
during 1989.
(c) Net loss for the year includes a write off of $223,000 ($.02 per share) of
unamortized deferred financing fees as a result of the early extinguishment
of debt classified as an extraordinary item in the accompanying financial
statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein. All amounts in the following discussion have been rounded to
the nearest thousand dollar. On October 28, 1994, the Company acquired Signatel.
The acquisition has been accounted for as a pooling of interests. The financial
information for all periods appearing below represent the combination of such
information for the Company and Signatel as though they had been combined
throughout such periods. On April 24, 1996 the Company acquired CASI. The
acquisition has been accounted for as a purchase. Operations of CASI from the
date of acquisition were not material. See Note 2 to Consolidated Financial
Statements.
For the purpose of the following discussion and analysis "export sales"
represent sales by the Company's operations within the United States to entities
outside the United States and "foreign sales" represent sales by the Company's
subsidiary, Signatel. The Company's export sales represent sales of discrete
data communications equipment only. Unlike export sales, the Company's foreign
sales include sales of data communications equipment as well as sales of
complete computer network systems and integration services.
In conjunction with the Company's merger with Sellectek, the Company
changed its fiscal year end from December 31 to April 30.
In addition, certain matters discussed herein are forward looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those presented.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED APRIL 30, 1996 AND 1995
Net sales for the year ended April 30, 1996 were $41,781,000 compared
to $35,161,000 for the year ended April 30, 1995. The increase of 18.8% is
largely attributable to a 41% increase in service revenue to $7,017,000.
Gross profits for the year ended April 30, 1996 were $11,127,000
compared to $10,527,000 for the year ended April 30, 1995, an increase of 5.7%.
Gross profits as a percentage of net sales were 26.6% for the year ended April
30, 1996 compared to 29.9% for the year ended April 30, 1995. The Company's
gross profit percentage was negatively impacted by the Federal Enterprise
Systems division volume sales at low margins. The Federal Enterprise Systems
division accounted for 18% and 1% of sales in 1996 and 1995, respectively. In
addition, the Company anticipates seeing continued pressure on equipment sale
gross margins.
15
<PAGE>
Selling, general and administrative expenses for the year ended April
30, 1996 were $11,327,000 compared to $11,726,000 for the year ended April 30,
1995. The decrease of 3.4% is attributable to decreases in both selling and
general and administrative expenses. Selling expenses decreased by 5% and
general and administrative expenses decreased by 4.3%. The decrease in selling
expenses is attributable to lower commission expense resulting from a higher
volume of non-commissionable sales. The decrease in general and administrative
expenses results from a streamlining and re-engineering of the Company's
processes which are continuing into fiscal 1997 with further cost reductions
anticipated.
Operating loss for the year ended April 30, 1996 was $199,000 compared
to $1,198,000 for the year ended April 30, 1995. This represents a reduction of
83% in operating losses, primarily the result of increased sales and reduced
overhead.
Interest expense for the year ended April 30, 1996 was $757,000
compared to $476,000 for the year ended April 30, 1995. Included in interest
expense is approximately $200,000 of amortization of deferred financing charges
relating to bridge loan financing the Company entered in during the year.
The Company's net loss for the fiscal year ended April 30, 1996 was
$1,180,000 compared to a net loss of $1,643,000 for the year ended April 30,
1995. Included in the net loss for the year ended April 30, 1996 is
approximately $223,000 representing the write off of the unamortized deferred
financing costs as an extraordinary item upon the early extinguishment of Bridge
Loan financing. See "Liquidity and Capital Resources" section for discussion of
Bridge Financing.
FISCAL YEARS ENDED APRIL 30, 1995 AND DECEMBER 31, 1993
Net sales for the year ended April 30, 1995 were $35,161,000 compared
to $36,391,000 for the year ended December 31, 1993. This decrease of
approximately 3.4% is attributable to a Company-initiated turnover of the
Company's sales force as well as to a significant decrease in sales to one of
the Company's significant customers which accounted for more than 10% of sales
for the fiscal year ended December 31, 1993. In order for the Company to meet
its objectives of shifting to systems sales, the Company replaced approximately
40% of its sales force with personnel better suited to provide complete computer
network systems and integration services. The Company anticipates that this
process will continue. Such Company-initiated turnover, although necessary to
achieve the Company's strategic goal, required an investment in the new sales
personnel the benefit of which has not been immediately evidenced. Net domestic
sales, export sales and foreign sales for the year ended April 30, 1995 were
$26,085,000, $4,112,000 and $4,964,000, respectively. Net domestic sales, export
sales and foreign sales for the year ended December 31, 1993 were $28,233,000,
$3,253,000 and $4,905,000, respectively.
Excluded from net sales is the unearned portion of the Company's
service contract revenue, which amounted to $ 1,075,000 as of April 30, 1995 and
$253,000 as of December 31, 1993.
16
<PAGE>
Gross profits for the year ended April 30, 1995 were $10,527,000
compared to $10,972,000 in the year ended December 31, 1993. Gross profits as a
percentage of net sales were 29.9% for the year ended April 30, 1995 compared to
30.2% in the year ended December 31, 1993. Gross profits for the year ended
April 30, 1995 consisted of $7,974,000 representing 30.6% of domestic sales,
$848,000 representing 20.6% of export sales and $1,705,000 representing 34.3% of
foreign sales. Gross profits for the year ended December 31, 1993 consisted of
$8,643,000 representing 30.6% of domestic sales, $642,000 representing 19.7% of
export sales and $1,687,000 representing 34.4% of foreign sales.
Selling, general and administrative expenses for the year ended April
30, 1995 were $11,726,000 compared to $10,423,000 for the year ended December
31, 1993. The increase of 12.5% is the result of increases in both selling and
general and administrative expenses. Selling expenses for the year ended April
30, 1995 were $6,213,000 compared to $5,628,000 for the year ended December 31,
1993. The increase of 10.4% is attributable to two major factors: (i) the
Company produced a catalogue of the products it sells in 1994, for which costs
of approximately $300,000 are included in selling expense for the year ended
April 30, 1995 with no corresponding amount in the year ended December 31, 1993,
(ii) the Company increased its provision for uncollectible accounts by
approximately $300,000 compared to the year ended December 31, 1993. General and
administrative expenses for the year ended April 30, 1995 were $5,513,000 as
compared to $4,795,000 for the year ended December 31, 1993. Included in this
15% increase is approximately $185,000 of professional fees associated with the
acquisition of Signatel, which was accounted for as a pooling of interests.
Under such accounting, all acquisition costs including legal and accounting
costs are charged to expense. The Company incurred and estimates it will
continue to incur approximately $180,000 annually as a result of being a public
company. Included in these costs are legal fees for general corporate matters
and SEC matters, fees related to retaining a public relations firm and
maintaining insurance for the Company's directors and officers. Such fees were
not incurred in fiscal 1993. Salaries increased by approximately $100,000 as a
result of adding a chief financial officer and several in-house technical
support personnel. Relocation expenses were approximately $75,000, the result of
relocating sales and technical people around the country. In its continued
effort to improve its infrastructure, the Company invested over $500,000 in
equipment during the year, this has resulted in increased depreciation of
approximately $60,000.
Interest expense for the year ended April 30, 1995 was $476,000
compared to $491,000 for the year ended December 31, 1993. The decrease of 3%
reflects interest savings of approximately $110,000 as a result of the
conversion of a subordinated loan into equity, offset by the cost of financing
the current year loss with increased average borrowings under the Company's
revolving credit facility.
The Company's net loss for the fiscal year ended April 30, 1995 was
$1,643,000 compared to a net loss of $164,000 for the year ended December 31,
1993. The Company's net loss per share for the fiscal year ended April 30, 1995
was $0.15.
17
<PAGE>
FOUR MONTHS ENDED APRIL 30, 1994 AND 1993
Net sales for the four months ended April 30, 1994 were $11,155,000
compared to $11,833,000 in the four months ended April 30, 1993. This decrease
of 5.7% is primarily attributable to depressed export sales, severe weather
conditions in the Northeastern United States, the Company-initiated sales force
turnover and a significant decrease in sales to one of the Company's significant
customers who accounted for more than 10% of sales for the fiscal year ended
December 31, 1993. Net domestic sales, export sales and foreign sales for the
four months ended April 30, 1994 were $8,292,000, $974,000 and $1,889,000,
respectively. Net domestic sales, export sales and foreign sales for the four
months ended April 30, 1993 were $8,519,000, $1,325,000 and $1,989,000,
respectively.
Excluded from net sales is the unearned portion of the Company's
service contract revenue, which amounted to $267,000 as of April 30, 1994 and
$227,000 as of April 30, 1993.
Gross profits for the four months ended April 30, 1994 were $2,632,000
compared to $3,336,000 in the four months ended April 30, 1993. Gross profits as
a percentage of net sales were 23.6% for the four months ended April 30, 1994
compared to 28.2% in the four months ended April 30, 1993. This decrease in
gross profit percentage is the result of an increase in the Company's inventory
reserve of approximately $500,000 to account for slow moving inventory. Gross
profits for the four months ended April 30, 1994 consisted of $1,756,000
representing 21.2% of domestic sales, $154,000 representing 15.8% of export
sales and $722,000 representing 38.2% of foreign sales. Gross profits for the
four months ended April 30, 1993 consisted of $2,380,000 representing 27.9% of
domestic sales, $291,000 representing 22.0% of export sales, $665,000
representing 33.4% of foreign sales.
Selling, general and administrative expenses for the four months ended
April 30, 1994 were $4,640,000 compared to $3,398,000 for the four months ended
April 30, 1993. Selling expenses for the four months ended April 30, 1994 were
$2,735,000 compared to $1,787,000 for the four months ended April 30, 1993. The
increase of 53% includes costs associated with the Company-initiated turnover of
its sales force as previously discussed as well as an increase of approximately
$600,000 to the Company's provision for doubtful accounts receivable to properly
reflect the disposition of those receivables. The Company has enhanced its
policies and procedures in this area to mitigate the need for such a significant
provision in the future including the increase in follow-up services to improve
customer satisfaction after each sale. General and administrative expenses were
$1,905,000 for the four months ended April 30, 1994 as compared to $1,611,000
for the four months ended April 30, 1993. The increase of 18.3% includes
approximately $100,000 of non-recurring severance pay as well as other costs
supporting the Company's effort to shift the focus of the organization to
systems sales. Interest expense for the four months ended April 30, 1994 was
$136,000 compared to $160,000 for the four months ended April 30, 1993. The
decrease of 15% reflects lower average debt, including the conversion of a
subordinated loan into equity of the Company and lower interest rates for the
period.
18
<PAGE>
The Company's net loss for the four months ended April 30, 1994 was
$2,145,000 compared to a net loss of $221,000 for the four months ended April
30, 1993.
BACKLOG AND DEFERRED INCOME
The Company records revenue on the shipment of goods and the
performance of services. Many orders cannot be immediately shipped from
available inventory and, as a result, are added to the Company's backlog, which
was approximately $4,100,000 and $3,018,000 as of June 30, 1995 and 1996,
respectively. The Company expects that all of the backlog as of June 30, 1996
will be shipped by June 30, 1997. The Company sells service contracts on the
majority of the equipment it sells. Such contracts are one year in duration with
payments received annually in advance of commencement of the contract or
quarterly in advance. The Company recognizes the revenue from these contracts on
a straight line basis over the term of the contract, with the unearned portion
of the revenue reflected as deferred income. The excess of revenue from a
maintenance contract over related cost of selling that contract to a third party
vendor is recognized at the time of sale. As of April 30, 1996, the Company had
deferred income of $621,000 that it will recognize over the course of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $2,865,000 at April 30,
1995, as compared to working capital of $2,470,000 at April 30, 1996. The
increase in the working capital was principally attributable to the Company's
public offering in September 1995.
Prior to its 1996 fiscal year and since January 1994, the Company
funded its operations with cash flow from operations, borrowings and equity
investments. Over this period the Company raised approximately $3,700,000
through private placements consisting of (i) an equity investment in January
1994 by Direct Connect International Inc. ("DCI") pursuant to which DCI
converted approximately $2,000,000 of outstanding indebtedness of the Company
including accrued interest owed to DCI into 2,723,973 shares of Common Stock of
the Company, (ii) $750,000 of gross proceeds received by the Company from
Sellectek Incorporated upon consummation of the merger with Sellectek
Incorporated on May 2, 1994, (iii) $450,000 of gross proceeds received by the
Company in May 1994 from the sale of 180,000 shares of Common Stock to several
purchasers in a private offering, (iv) the satisfaction of $250,000 in accounts
payable of the Company in exchange for the issuance by the Company of 100,000
shares of Common Stock in June 1994, and (v) the application of a promissory
note in the aggregate principal amount of $250,000 by a debtholder to the
payment of the aggregate exercise price of warrants to purchase 125,000 shares
of Common Stock at an exercise price of $2.00 per share in September 1994.
On May 8, 1995, the Company consummated a bridge financing (the "First
Bridge Financing"), pursuant to which it issued an aggregate of (i) $1,200,000
principal amount of promissory notes (the "Bridge Notes") which bore interest at
the rate of 8% per annum, (ii) 600,000 warrants (the "First Bridge Warrants"),
each First Bridge Warrant entitling the holder
19
<PAGE>
to purchase one share of Common Stock at an initial exercise price of $1.875
(subject to adjustment upon the occurrence of certain events) during the
three-year period commencing May 8, 1996, and (iii) 442,478 shares of Common
Stock at $1.13 per share. The net proceeds of $1,379,000 from the First Bridge
Financing were applied by the Company to reduce accounts payable and accrued
liabilities. Each First Bridge Warrant automatically converted into a Redeemable
Warrant (sometimes hereinafter referred to as the "New Warrant") having terms
identical to those of the Redeemable Warrants underlying the Units issued in the
Offering (as herein after defined).
On June 13, 1995, the Company consummated a bridge financing (the
"Second Bridge Financing" and, collectively with the First Bridge Financing, the
"Bridge Financings") pursuant to which it issued an aggregate of 350,000
warrants (the "Second Bridge Warrants" and collectively with the First Bridge
Warrants, the "Bridge Warrants"), each Second Bridge Warrant entitling the
holder to purchase one share of Common Stock at an initial exercise price of
$1.75 per share (subject to adjustment upon the occurrence of certain events)
during the three year period commencing June 13, 1996. The net proceeds of
$70,000 from the Second Bridge Financing were applied by the Company to reduce
accounts payable and accrued liabilities. Upon consummation of the Offering,
each Second Bridge Warrant was automatically converted into a New Warrant.
On September 28, 1995, the Company completed a public offering (the
"Offering") of 1,783,000 units (including an overallotment of 258,000 units in
October 1995 for net proceeds of approximately $6,485,000). Each unit consisted
of two shares of Common Stock and one redeemable warrant and was sold at $5 per
unit. Each redeemable warrant entitled the holder to purchase one share of
Common Stock at an initial exercise price of $3.75 per share. The net proceeds
were used as follows: (i) repay Bridge Notes referred to above plus accrued
interest through September 28, 1995, (ii) repay certain outstanding balances
under its revolving credit facility, and (iii) working capital purposes.
In March 1996, the Company completed a private placement offering of
312,500 shares of common stock. The net proceeds of the private placement
offering, $1,207,000, together with Company common stock, were used to acquire
80% of the issued and outstanding shares of common stock of CASI, and provide
CASI with working capital.
The Company has a credit facility with a bank that provides for a
maximum $3,750,000 revolving loan. The Company also has a mortgage with another
bank for $1,000,000. The maturity of the revolving loan and mortgage are August
31, 1996 and April 4, 2006, respectively. The revolving loan presently accrues
interest on borrowing at prime plus 1.75%, while the mortgage interest rate is
fixed at 8.05% for the first five years of its term. Allowable borrowings under
the revolving loan are based on a percentage of accounts receivable and
inventory. As of April 30, 1996, the Company had approximately $2,879,000
outstanding under the revolving loan. The credit facility is secured by a
perfected first priority security interest and lien upon all present and future
assets owned by the Company. The credit facility is also guaranteed by Mr.
Glasgal, Chairman of the Board and a principal shareholder of the Company.
20
<PAGE>
On August 2, 1996, the Company received a commitment from a finance
company to provide the Company with a $4 million revolving line of credit. The
revolving line of credit will bear interest at prime plus 1.75%. Allowable
borrowings under the revolving line of credit will be based on a percentage of
receivables and inventory. Although the Company intends to enter into this
commitment, there can be no assurance that the Company will consummate a
transaction with this finance company.
The Company also has an agreement with Deustche Financial Services
(DFS) whereby DFS finances purchases of inventory up to $400,000. Interest on
the outstanding balance accrues at prime plus 2.0%. The Company also has a line
of credit of up to 500,000 Canadian dollars. The line of credit is due on demand
and accrues interest on the outstanding balance at a rate of prime plus 1.25%.
As a result of the public offering and the private placement offerings
during fiscal 1996, the Company has outstanding approximately 2,933,000 warrants
to purchase Company common stock. These warrants are currently exercisable by
the holder and allow the holder to convert each warrant into one share of
Company common stock for $3.75. These warrants expire on September 21, 1999 and
may be redeemed by the Company on or after September 21, 1996, provided certain
conditions are met, for $.05 per warrant. The Company views the warrants as a
potential source of liquidity and may utilize this liquidity to meet its
strategic goals.
As of April 30, 1996, the Company had net operating loss carryforwards
for income tax purposes of approximately $4,137,000 to offset future taxable
income, if any. Such net operating loss carryforwards expire through 2011.
The Company believes it has adequate liquidity and resources to sustain
current operations for the next twelve (12) months.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statements Schedules
CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Public Accountants. . . . . . . . . . . . . . . . . 23
Consolidated Balance Sheets as of April 30, 1995 and 1996. . . . . . . . . 25
Consolidated Statements of Operations for the year ended
December 31, 1993, the four months ended April 30,1994
and the years ended April 30, 1995 and 1996 . . . . . . . . . . . . . . 26
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the year ended December 31, 1993,
the four months ended April 30, 1994
and the years ended April 30, 1995 and 1996 . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows for the year ended
December 31, 1993, the four months ended April 30, 1994
and the years ended April 30, 1995 and 1996 . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 30
SCHEDULES
Schedule II - Valuation and Qualifying Accounts . . . . . . . 47
Schedules other than the one listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the consolidated financial statements or related notes.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glasgal Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Glasgal
Communications, Inc. (a Delaware corporation) and subsidiaries as of April 30,
1995 and 1996 and the related consolidated statements of operations, changes in
shareholders' equity (deficit) and cash flows for the year ended December 31,
1993, the four months ended April 30, 1994 and the years ended April 30, 1995
and 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Signatel, Ltd., a company acquired during 1994 in a transaction
accounted for as a pooling of interests, as discussed in Note 2, for the year
ended November 30, 1993. Such statements are included in the 1993 consolidated
financial statements of Glasgal Communications, Inc. and reflect 13.5% of the
related consolidated revenues for that year. Those statements were audited by
other auditors whose reports have been furnished to us and our opinion, insofar
as it relates to amounts included for Signatel, Ltd., is based solely upon the
reports of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Glasgal
Communications, Inc. and subsidiaries as of April 30, 1995 and 1996 and the
results of their operations and their cash flows for the year ended December 31,
1993, the four months ended April 30, 1994 and the years ended April 30, 1995
and 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Roseland, New Jersey ARTHUR ANDERSEN LLP
August 2, 1996
23
<PAGE>
To the Shareholders of
Signatel Ltd.
We have audited the balance sheet of Signatel Ltd. as of November 30, 1993 and
the statements of income and retained earnings and of changes in financial
position for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 1993 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
Deloitte & Touche
Charter Accountants
Toronto, Ontario
January 14, 1994
24
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------
1995 1996
----------------- -----------------
<S> <C> <C>
ASSETS
- -------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 4) $ -- $ 579,087
Accounts receivable, less allowances of $403,914 and
$323,582, respectively for doubtful accounts (Note 4) 5,942,097 6,505,947
Inventory, less allowances of $293,964 and $343,018 for
obsolescence (Notes 1 and 4) 2,589,750 2,655,452
Prepaid expenses and other current
assets 590,041 739,665
--------------- ---------------
Total current assets 9,121,888 10,480,151
PROPERTY AND EQUIPMENT, net (Notes 1, 3, 4 and 5) 3,193,319 3,629,554
GOODWILL (Note 2) -- 1,866,967
OTHER ASSETS 278,456 274,810
--------------- ---------------
Total assets $ 12,593,663 $ 16,251,482
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings (Note 4) $ 4,523,278 $ 1,915,467
Current portion of long-term obligations (Note 5) 137,074 93,332
Accounts payable 4,873,238 4,804,234
Accrued liabilities 1,356,375 574,454
Deferred income (Note 1) 1,075,124 620,734
Other current liabilities 21,942 1,643
--------------- ---------------
Total current liabilities 11,987,031 8,009,864
--------------- ---------------
LONG-TERM OBLIGATIONS (Note 5) 918,052 1,088,370
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value (4,000,000 shares
authorized, no shares issued and outstanding) -- --
Common stock, $.001 par value (authorized 34,000,000
shares; issued and outstanding 10,299,176 and
14,841,162 shares, respectively) (Notes 6 and 13) -- 14,841
Additional paid-in capital 2,999,141 11,693,354
Accumulated deficit (3,204,660) (4,434,817)
Cumulative translation adjustment (Note 1) (105,901) (120,130)
--------------- ---------------
Total shareholders' equity (deficit) (311,420) 7,153,248
--------------- ---------------
Total liabilities and shareholders' equity (deficit) $ 12,593,663 $ 16,251,482
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
25
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FOUR FOR THE YEARS ENDED
ENDED MONTHS ENDED APRIL 30,
DECEMBER 31, APRIL 30, -------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES (Note 1)
Equipment
$ 31,384,734 $ 9,359,921 $ 30,185,389 $ 34,763,949
Services
5,006,440 1,794,639 4,975,909 7,016,872
------------ ------------ ------------ ------------
36,391,174 11,154,560 35,161,298 41,780,821
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales
Equipment
22,646,846 7,332,807 21,205,812 26,608,877
Services
2,772,184 1,190,551 3,428,335 4,044,360
------------ ------------ ------------ ------------
25,419,030 8,523,358 24,634,147 30,653,237
Selling, general and administrative expenses 10,422,509 4,640,427 11,725,597 11,327,190
------------ ------------ ------------ ------------
Total costs and expenses 35,841,539 13,163,785 36,359,744 41,980,427
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 549,635 (2,009,225) (1,198,446) (199,606)
INTEREST EXPENSE (Notes 4 and 6) 490,596 136,053 476,096 757,485
------------ ------------ ------------ ------------
Income before provision
(benefit) for income taxes 59,039 (2,145,278) (1,674,542) (957,091)
INCOME TAX PROVISION (BENEFIT)(Notes 1 & 7) 206,372 -- (31,753) --
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (147,333) (2,145,278) (1,642,789) (957,091)
EXTRAORDINARY ITEM (NOTE 5) -- -- -- (223,066)
NET LOSS $ (147,333) $ (2,145,278) $ (1,642,789) $ (1,180,157)
============ ============ ============ ============
LOSS PER SHARE
Loss before extraordinary item $ (.15) $ (.07)
Extraordinary item -- (.02)
NET LOSS $ (.15) $ (.09)
============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES (Note 1) 10,681,237 12,853,747
============ ============
PRO FORMA NET INCOME (LOSS) DATA (Unaudited, Note 1)
Income before provision for
income taxes, as reported $ 59,039
Pro forma income tax 223,000
provision ------------
Pro forma net income (loss) $ (163,961)
============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
26
<PAGE>
Glasgal Communications, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Note 5)
<TABLE>
<CAPTION>
Common Stock
---------------------------
Issued Retained Cumulative Total
------------------------ Additional Earnings Translation Shareholders'
Shares Dollars Paid-in-capital (Deficit) Adjustment Equity
------------ ----------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 7,593,287 $ -- $ 10,120 $ 992,862 $ (74,158) $ 928,824
============ ========= ============= ============ ============= =============
Net loss -- -- -- (147,333) -- (147,333)
Effect of exchange rate changes -- -- -- -- (22,390) (22,390)
------------ --------- ------------- ------------ ------------- -------------
Balance at December 31, 1993 7,593,287 $ -- $ 10,120 $ 845,529 $ (96,548) $ 759,101
============ ========= ============= ============ ============= =============
Conversion of loan payableinto
Common stock 2,723,973 -- 2,016,835 -- -- 2,016,835
Net loss -- -- -- (2,145,278) -- (2,145,278)
Effect of exchange rate changes -- -- -- -- (14,357) (14,357)
Conversion from S corporation
status to C corporation -- -- 262,122 (262,122) -- --
------------ --------- ------------- ------------ ------------- -------------
Balance at April 30, 1994 10,317,260 $ -- $ 2,289,077 $ (1,561,871) $ (110,905) $ 616,301
============ ========= ============= ============ ============= =============
Sellectek merger ( Note 2) -- -- 190,000 -- -- 190,000
Private Placement Offerings of
Common stock 180,000 -- 427,383 -- -- 427,383
Conversion of accounts payable
into Common stock 100,000 -- 237,435 -- -- 237,435
Exercise of warrants 125,000 -- 237,435 -- -- 237,435
Net loss -- -- -- (1,642,789) -- (1,642,789)
Effect of exchange rate changes -- -- -- -- 5,004 5,004
Common stock issued for options
exercised 19,394 -- 93,811 -- -- 93,811
Stock exchanged for cancellation
of loan (Note 8) (442,478) -- (476,000) -- -- (476,000)
------------ --------- ------------- ------------ ------------- -------------
Balance at April 30, 1995 10,299,176 $ -- $ 2,999,141 $ (3,204,660) $ (105,901) $ (311,420)
============ ========= ============= ============ ====-========= =============
Private placement offering of
common stock and warrants
and bridge financing 442,478 -- 579,472 -- -- 579,472
Public offering of common stock
and warrants 3,566,000 -- 6,535,009 (50,000) -- 6,485,009
Acquisition and cancellation of
common stock (12,500) -- (26,635) -- -- (26,635)
Common stock issued for options
exercised 189,248 -- 123,563 -- -- 123,563
Change in par value of common
stock (Note 13) -- 14,484 (14,484) -- -- --
Private placement offering of
common stock (Note 2) 312,500 313 1,206,629 -- -- 1,206,942
Stock issued for business
acquisition (Note 2) 44,260 44 290,659 -- -- 290,703
Net loss -- -- -- (1,180,157) -- (1,180,157)
Effect of exchange rate changes -- -- -- -- (14,229) (14,229)
------------ --------- ------------- ------------ ------------- -------------
Balance at April 30,1996 14,841,162 $ 14,841 $ 11,693,354 $ (4,434,817) $ (120,130) $ 7,153,248
============ ========= ============= ============ ============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
27
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FOUR FOR THE YEARS ENDED
ENDED MONTHS ENDED APRIL 30,
DECEMBER 31, APRIL 30, -------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (147,333) $(2,145,278) $(1,642,789) $(1,180,157)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities--
Depreciation and amortization 391,801 127,436 453,855 664,890
Provision for doubtful accounts and inventory
obsolescence 141,186 1,184,501 755,266 450,022
Extraordinary Item -- -- -- 223,066
Changes in operating assets and liabilities
net of effects from purchase of CASI
(Increase) decrease in accounts receivable (2,017,230) 2,399,316 (2,386,019) (848,872)
(Increase) decrease in inventory (471,541) (242,441) 250,679 (230,702)
Increase in prepaid expenses and other assets (762,588) (43,511) (181,383) (402,385)
Increase (decrease) in accounts payable,
accrued liabilities and other 1,592,695 (387,375) 1,085,070 (1,419,378)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (1,273,010) 892,648 (1,665,321) (2,743,516)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (616,771) (59,003) (516,959) (590,423)
Net cash used for CASI acquisition -- -- -- (704,701)
Advances to CASI -- -- -- (1,135,160)
Net cash used in investing activities (616,771) (59,003) (516,959) (2,430,284)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payment of) short-term borrowings
819,192 (641,968) 952,467 (2,607,811)
Proceeds from notes payable 900,000 250,000 -- --
(Payments) Proceeds of indebtedness (581,852) (28,426) (110,150) 126,576
Net Proceeds from Common Stock issuance's -- -- 746,065 8,248,351
Net proceeds from Sellectek merger -- -- 190,000 --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 1,137,340 (420,394) 1,778,382 5,767,116
----------- ----------- ----------- -----------
Net effect of foreign currency translation
on cash (22,390) (14,357) 5,004 (14,229)
----------- ----------- ----------- -----------
Net increase (decrease) in cash (774,831) 398,894 (398,894) 579,087
CASH AT BEGINNING OF PERIOD 774,831 -- 398,894 --
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ -- $ 398,894 $ -- $ 579,087
=========== =========== =========== ===========
</TABLE>
28
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C> <C> <C>
Interest paid $402,831 $118,000 $470,293 $755,171
Income taxes paid $ 4,900 $ -- $ -- $ --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On January 1, 1994, the Direct Connect International Inc. notes payable of
$1,900,000 plus accrued interest of $117,000 was converted into equity.
On June 6, 1994, RAD Communications, Inc. converted $250,000 of Glasgal's
account payable into 100,000 shares of Glasgal's common stock.
On April 30, 1995, Mr. Glasgal contributed 442,478 shares of Common Stock in
consideration for the cancellation of $476,000 owed to the Company.
On April 24, 1996, the Company purchased 80% of the common stock of
Computer-Aided Software Integration, Inc. (CASI) for $500,000 in cash plus
44,260 shares of common stock of the Company valued at $290,000.
Goodwill $ 1,866,000
Cash Paid for Common Stock (including expenses) (705,000)
Common Stock Issued (290,000)
---------------
Liabilities Assumed $ 871,000
===============
During 1996, a capital lease obligation of $166,000 was incurred when the
Company entered into a lease for new equipment.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
29
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company and its significant accounting policies:
Business--
Glasgal Communications, Inc. ("Glasgal"), and its Canadian
subsidiary, Signatel, Ltd. ("Signatel") distribute data
communications equipment and services, as well as design, install
and service local and wide area network systems that connect a
broad range of networking and communication products which allow
for the high speed transmission of data, voice, fax and video.
Glasgal's subsidiary, Computer-Aided Software Integration, Inc.
("CASI"), develops and licenses a suite of system engineering
software tools collectively known as the Integrators Workbench
Product Series(TM) (IWPS). This software automates the processes
of system design, configuration, implementation, migration and
support of client/server computing environments.
Basis of Presentation--
The consolidated financial statements include the accounts of Glasgal
Communications, Inc. and its subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated.
On May 2, 1994, the Company merged with and into Sellectek,
Incorporated ("Sellectek") (See Note 2 - Mergers and
Acquisitions). For accounting purposes the merger has been treated
as a reverse merger using the recapitalization method of
accounting. In connection with the Company's merger with
Sellectek, the Company changed its fiscal year end to April 30.
On October 28, 1994, Glasgal acquired all of the voting stock of
Signatel, a Canadian based company (See Note 2 Mergers and
Acquisitions). The transaction was accounted for as a pooling of
interests and, accordingly, the accompanying consolidated
financial statements include the accounts of Signatel for all
periods presented.
On April 24, 1996, the Company acquired 80% of the common stock of
CASI (See Note 2 - Mergers and Acquisitions). The acquisition has
been accounted for as a purchase; operations of CASI from the date
of acquisition were not significant. The excess of
30
<PAGE>
purchase price over fair market value of the net assets acquired
has been included in goodwill and will be amortized over 10 years.
Foreign Currency Translation--
The local currency of Signatel is its functional currency. Assets and
liabilities of Signatel are translated into US dollars at the
current exchange rate. Income statement accounts are translated at
the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange
rates from period to period are included as a separate component
of shareholders' equity.
Revenue Recognition--
The Company recognizes revenue from the sale of data communications
equipment upon shipment. Service revenue is recognized as the
services are provided. Maintenance contract revenue is recognized
on a straight-line basis over the contract period, usually one
year. The excess of revenues over related costs of maintenance
contracts sold to third party vendors is recognized at the time of
sale. Deferred income represents that portion of maintenance
contract revenue that has not been earned.
Cash and Cash Equivalents--
The Company considers as cash equivalents all highly liquid
investments with an original maturity of three months or less.
Inventory--
Inventory consists of merchandise purchased for resale, primarily
data communications and network equipment, and is stated at the
lower of cost (first-in, first-out basis) or market.
In those instances where the Company believes it will realize less
than the cost of the inventory items, an obsolescence reserve is
established for an amount equal to the difference between the cost
of the inventory and its estimated market value.
Property and Equipment--
Property and equipment is stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line and declining balance methods
over the estimated useful lives or lease terms of the related
assets, whichever is shorter.
31
<PAGE>
Long-Lived Assets--
During 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" ("SFAS 121"). SFAS 121 requires,
among other things, that an entity review its long-lived assets
and certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may
not be fully recoverable. As a result of its review, the Company
does not believe that any impairment currently exists related to
its long-lived assets.
Stock Based Compensation--
The Financial Accounting Standards Board issued a new standard,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
requires that an entity account for employee stock compensation
under a fair value based method. However, SFAS 123 also allows an
entity to continue to measure compensation cost for employee
stock-based compensation arrangements using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25").
Entities electing to remain with the accounting under Opinion 25
are required to make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting
under SFAS 123 has been applied. The accounting and disclosure
requirements of this standard are effective for the Company's 1997
fiscal year. The Company expects to continue to account for
employee stock-based compensation under Opinion 25.
Income Taxes--
Prior to January 1, 1994, the Company filed its Federal income tax
return as an S Corporation. As a result, the Company's taxable
income was includable directly in the Federal income tax return of
the shareholders and no provision was made for Federal income
taxes. Provision was made for those states in which the Company
operates which do not recognize such an election or in which the
Company has not made such election. As a result of the acquisition
of Signatel, the income tax provision reflected in the
consolidated statements of operations includes a provision of
$206,372 in 1993 for income taxes on Signatel's income, which
included $194,707 of additional income taxes and interest assessed
in 1993 applicable to a transaction entered into by Signatel
during 1989. Effective January 1, 1994, the Company terminated its
S Corporation status and became subject to Federal income taxes.
In conjunction with this termination the Company began accounting
for income taxes in accordance with SFAS 109 "Accounting for
Income Taxes".
32
<PAGE>
Earnings (Loss) per Share--
Commencing May 2, 1994, the effective date of the Company's merger
with Sellectek (see Note 2), earnings (loss) per share is computed
based upon the weighted average number of common shares and common
equivalent shares outstanding during each period, giving effect to
the exchange of Company shares for shares of Sellectek and the
issuance of Company shares for the shares of Signatel. Common
equivalent shares have not been included if antidilutive.
Use of 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 reporting
period. Actual results could differ from those estimates.
Reclassifications--
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
(2) Mergers and Acquisitions:
Sellectek--
On May 2, 1994 the Company merged with and into Sellectek. At the
time of the merger, Sellectek was a public company which had
$750,000 of cash and no liabilities or operations. For accounting
purposes, the merger has been treated as a recapitalization of the
Company with the Company as the acquirer (reverse acquisition).
The operations of the surviving entity are those of the Company
and, accordingly, Sellectek changed its name to Glasgal
Communications, Inc. Pursuant to the merger each outstanding share
of common stock of the Company was converted into 3,242.40 shares
of Sellectek common stock. The cost of the merger, approximately
$560,000, has been charged to additional paid-in capital. Pro
forma information is not presented since substantially all of the
assets, liabilities and operations were those of the Company.
Signatel--
On October 28, 1994, the Company acquired all of the issued and
outstanding voting common shares of Signatel, a Canadian
distributor of data communications equipment and services, in
exchange for 875,000 of its common shares. The acquisition was
33
<PAGE>
accounted for using the pooling of interests method of accounting.
Presented below are the individual company and combined net sales,
operating income (loss), net income (loss) and identifiable assets
for the periods identified (stated in US dollars and net of
intercompany eliminations):
<TABLE>
<CAPTION>
Glasgal Signatel Combined
------- -------- --------
For the year ended
December 31, 1993
---------------------------------------
<S> <C> <C> <C>
Net Sales $ 31,486,000 $ 4,905,000 $ 36,391,000
Operating Income 548,000 2,000 550,000
Net Income (loss) 47,000 (194,000) (147,000)
Identifiable Assets 12,566,000 2,245,000 14,811,000
For the four months ended
April 30, 1994
---------------------------------------
Net Sales $ 9,266,000 $ 1,889,000 $ 11,155,000
Operating Loss (1,888,000) (121,000) (2,009,000)
Net Loss (2,014,000) (131,000) (2,145,000)
Identifiable Assets 10,243,000 1,601,000 11,844,000
For the year ended
April 30, 1995
---------------------------------------
Net Sales $ 30,197,000 $ 4,964,000 $ 35,161,000
Operating Loss (1,026,000) (172,000) (1,198,000)
Net Loss (1,468,000) (175,000) (1,643,000)
Identifiable Assets 10,787,000 1,807,000 12,594,000
</TABLE>
The combined results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the
entire periods presented. In addition, the combined results are
not intended to be a projection of future results and do not
reflect any synergy's that might be achieved from combined
operations.
CASI--
On April 24, 1996, the Company acquired 80% of the outstanding common
stock of CASI, a company that develops and licenses software
products, in exchange for $500,000 in cash and 44,260 shares of
common stock of the Company valued at $6.57 per share based on the
average trading price of the Company's common stock for several
days before and after the date of the acquisition agreement. The
acquisition was accounted for as a purchase. The excess of
purchase price over fair value of net assets acquired, $1,867,000,
is included in goodwill and is being amortized over 10 years on a
straight line basis. Operations of CASI, which commenced in
February, 1995, were immaterial and CASI recorded losses of
$490,000 and $415,000 in the period from inception through
December 31, 1995 and the four months ended April 30, 1996,
respectively. If the acquisition of CASI had been consummated on
May 1,
34
<PAGE>
1995, the pro forma loss before extraordinary item would have been
approximately $1,634,000.
In connection with this transaction, in March 1996 the Company
completed a private placement offering of 312,500 shares of common
stock. The net proceeds of the private placement offering,
$1,207,000, were used to acquire 80% of the issued and outstanding
shares of common stock of CASI, and to provide CASI with working
capital.
(3) Property and equipment:
The following is a summary of property and equipment, at cost.
APRIL 30,
--------------------------------
1995 1996
---- ----
Land $ 321,000 $ 321,000
Building 1,947,483 1,979,128
Computer Equipment 2,303,059 3,196,785
Furniture and fixtures 1,171,086 1,186,822
Computer equipment held under capital
leases 214,397 213,566
---------- ----------
5,957,025 6,897,301
Less--Accumulated depreciation and
amortization 2,763,706 3,267,747
---------- ----------
Net property and equipment $ 3,193,319 $ 3,629,554
=========== ===========
(4) Short-term borrowings:
The Company has a credit facility with a bank that provides a
maximum revolving loan of $3,750,000. Availability under the
revolving loan is calculated at the sum of (a) 75% of eligible
accounts receivable (as defined) and (b) 20% of the cost or
wholesale market value of eligible inventory, as defined. The
revolving loan accrues interest at the bank's floating base rate
plus 1.75% (10% at April 30, 1996) and expires on August 31, 1996.
On August 2, 1996, the Company received a commitment from a lender
to provide the Company with a $4,000,000 revolving line of credit.
The revolving line of credit will bear interest at the lender's
prime rate plus 1.75%. Availability under the revolving line of
credit is based upon a percentage of eligible receivables and a
percentage of eligible inventory, as defined. The revolving line
of credit has a term of 3 years. The Company intends to accept
this commitment.
Short-term borrowings at April 30, 1995 and 1996 included $860,060
and $676,085, respectively, representing checks drawn in excess of
available cash balances.
35
<PAGE>
The Company has a "floor planning" arrangement with a lender to
finance the Company's purchases of inventory up to a total value
of $400,000. Under this arrangement, the Company is able to
purchase goods on credit from pre-authorized vendors who are paid
by the lender on pre-determined terms. The Company pays interest
at the lender's prime rate plus 2% (10.25% at April 30, 1996). As
collateral for this arrangement, the Company has a certificate of
deposit of $100,000 pledged to this lender. As of April 30, 1996
approximately $229,700 was outstanding under this arrangement and
is included in accounts payable in the accompanying consolidated
balance sheets.
The Company has a line of credit up to and payable in 500,000
Canadian dollars (US $362,500), due on demand with interest
calculated at the bank's prime rate plus 1.25% per annum (9.5% at
April 30, 1996). As of April 30, 1996, $87,602 was outstanding and
is included in short-term borrowings.
In connection with a merger agreement with Direct Connect
International, Inc. (DCI), the Company entered into a note payable
agreement with DCI during November 1992 for $1,000,000 due June
1993 with interest at 2% over the prime rate. During 1993, the
note payable was increased several times and the balance of the
note on December 31, 1993 was $1,900,000. On December 2, 1993, the
Company signed a mutual release agreement with DCI, which released
both companies from their commitments or obligations related to
the merger agreement.
In connection with the release agreement, the Company entered into a
common stock purchase agreement with DCI (DCI Agreement). Pursuant
to the DCI Agreement, in January 1994, DCI converted the
outstanding indebtedness of the Company owed to DCI into 2,723,973
shares of common stock of the Company (see Note 6).
All present and future assets of the Company are pledged as security
under the various debt agreements.
36
<PAGE>
(5) Long-term obligations:
Long-term obligations are comprised of--
APRIL 30,
-------------------------------
1995 1996
---- ----
Mortgage payable $ 958,611 $ 1,000,000
Capital lease obligation 78,297 166,962
Other 18,218 14,740
----------- -----------
1,055,126 1,181,702
Less--Current portion of long-term
obligations 137,074 93,332
---------- ----------
$ 918,052 $ 1,088,370
=========== ===========
The Company has a 10 year mortgage agreement with a bank for
$1,000,000. During the first 5 years of the agreement the interest
rate is fixed at 8.05% per annum. Beginning in the year 2002, the
interest rate is subject to adjustment, as defined.
The scheduled repayment of long-term debt is as follows:
1997 $ 93,332
1998 69,633
1999 70,800
2000 16,412
2001 17,783
Thereafter 913,742
(6) Shareholders' equity:
Common Stock Issuances--
Pursuant to the DCI Agreement in January 1994, DCI converted the
outstanding indebtedness of the Company owed to DCI into 2,723,973
shares of common stock of the Company (see Note 4). In addition,
the DCI Agreement gives the Company the right to require DCI to
purchase up to 1,337,230 additional shares of Common Stock of the
Company (the "Additional Shares") for an aggregate of $8,750,000,
less current warrant solicitation fees (the "Additional DCI
Investment"). The Company may require the Additional DCI
Investment if, and then only to the extent, that DCI receives
proceeds from the exercise of existing warrants. If the Company
does not require the Additional DCI Investment, DCI may still
purchase, on the same terms, up to one-half of the Additional
Shares.
In May 1994, the Company sold 180,000 shares of common stock in a
private offering for gross proceeds of $450,000.
37
<PAGE>
In June 1994, the Company issued 100,000 shares of its common stock
in satisfaction of a $250,000 account payable.
In September 1994, a warrant holder exercised the right to purchase
125,000 shares of common stock at an exercise price of $2.00 per
share. In satisfaction of the exercise price, the warrant holder
canceled the promissory note of $250,000 owed to the warrant
holder by the Company.
Bridge Financings--
On May 8, 1995, the Company consummated a bridge financing (the
"First Bridge Financing"), pursuant to which it issued an
aggregate of (i) $1,200,000 principal amount of promissory notes
(the "Bridge Notes") which bore interest at the rate of 8% per
annum and were payable upon the earlier of the consummation of the
Offering (as hereinafter defined), (ii) 600,000 warrants (the
"First Bridge Warrants"), each First Bridge Warrant entitling the
holder to purchase one share of Common Stock at an initial
exercise price of $1.875 (subject to adjustment upon the
occurrence of certain events) during the three-year period
commencing May 8, 1996, and (iii) 442,478 shares of Common Stock
at $1.13 per share. Financing fees of approximately $260,000 were
incurred in connection with the First Bridge Financing. Upon the
consummation of the Offering, each First Bridge Warrant was
converted into a redeemable warrant having terms identical to
those of the redeemable warrants underlying the units offered in
the Offering. The Company recorded an original issuance discount
of $120,000 associated with (i) and (ii) above.
On June 13, 1995, the Company consummated a bridge financing (the
"Second Bridge Financing") pursuant to which it issued an
aggregate of 350,000 warrants (the "Second Bridge Warrants"). Each
Second Bridge Warrant entitles the holder to purchase one share of
Common Stock at an initial exercise price of $1.74 per share
during the three year period commencing June 13, 1996. The net
proceeds from the Second Bridge Financing were approximately
$70,000. Upon consummation of the Offering, each First Bridge
Warrant was converted into a redeemable warrant having terms
identical to those of the redeemable warrants underlying the units
offered in the Offering.
Public Offering--
On September 28, 1995, the Company completed a public offering (the
"Offering") of 1,783,000 units at $5 per unit (including an
overallotment of 258,000 units in October 1995) for net proceeds
of approximately $6,485,000. Each unit consists of two shares of
Common Stock and one redeemable warrant. Each redeemable warrant
entitles the holder to purchase one share of Common Stock at an
initial exercise price of $3.75 per share. In addition, in
connection with the sale of 400,000 shares of common stock by
certain selling shareholders, the Company contributed 200,000
redeemable warrants
38
<PAGE>
(valued at $50,000) that were included in the 200,000 units sold
by such shareholders. The Bridge Notes were repaid with the
proceeds of the Offering resulting in the write off of the
unamortized original issuance discount and the unamortized
deferred financing costs and the recognition of an extraordinary
loss of $223,006.
Stock Options--
The 1990 Stock Option Plan (the "1990 Plan") provides for grants of
1,500,000 common stock options to employees, directors, and
consultants to purchase common stock at a price at least equal to
100% of the fair market value of such shares on the grant date.
The exercise price of any options granted to a person owning more
than 10% of the combined voting power of all classes of stock of
the Company ("10% shareholder"), shall be at least equal to 110%
of the fair market value of the share on the grant date. The
options are granted for no more than a 10-year term (5 years for
10% shareholders) and the vesting periods range from 2 to 4 years.
In November 1993, the Company adopted its 1993 Consultant Stock
Option Plan (the "1993 Plan"), under which 30,000 shares of common
stock are reserved for issuance. The 1993 Plan provides for grants
of common stock options to selected persons who provide consulting
and advisory services to the Company to purchase common stock at a
price at least equal to 100% of the fair market value of such
shares on the grant date, as determined by the Board of Directors.
The exercise price of any options granted to a person owning more
than 10% of the combined voting power of all classes of stock of
the Company ("10% shareholder"), shall be at least equal to 110%
of the fair market value of such shares on the grant date. The
options are granted for no more than a 10-year term (5 years for
10% shareholders) and the vesting periods are determined by the
Board of Directors.
39
<PAGE>
The following table represents a summary of stock option activity
under the 1990 Plan and the 1993 Plan:
<TABLE>
<CAPTION>
1993 CONSULTANT STOCK
1990 STOCK OPTION PLAN OPTION PLAN
---------------------------------------------- -----------------------------
SHARES PRICE SHARES PRICE
------------- ---------------------------- ------------- ------------
<S> <C> <C> <C> <C>
Options outstanding at April 30, 1994 80,836 $ 5.00 - $ 15.63 21,000 $ 5.00
Granted 845,991 $ 1.25 - $ 3.4375 - -
Exercised (2,394) $ 3.68 (17,000) $ 5.00
Canceled (437,584) $ 3.425 - $ 3.4375 - -
------------- ---------------------------- ------------- ------------
Options outstanding at April 30, 1995 486,849 $ 1.25 - $ 15.63 4,000 $ 5.00
Granted 353,000 $ 2.775 - $ 10.55 5,000 $ 2.50
Exercised (91,248) $ 1.25 4,000 $ 5.00
Canceled (53,320) $ 1.25 - -
------------- ----------------------------- ------------- ------------
Options outstanding at April 30, 1996 695,281 $ 1.25 - $ 15.63 5,000 $ 2.50
============= ============================= ============= ============
Exercisable at April 30, 1996 283,345 $ 1.25 - $ 15.63 5,000 $ 2.50
============= ============ === ============ ============= ============
</TABLE>
As of April 30, 1996, a total of 660,151 and 4,000 shares remain
reserved for future grants under the 1990 Plan and the 1993 Plan,
respectively.
On March 1, 1995, the Company adopted the 1995 Directors Stock Option
Plan (the "Directors Plan"), under which 500,000 shares of Common
Stock are reserved for issuance. All members of the Board of
Directors who are not employees of the Company ("Eligible
Directors") are eligible to receive grants of options. Each
Eligible Director is granted an option to purchase 24,000 shares
of Common Stock on the date the Eligible Director is elected to
the Board of Directors, and will be granted another option to
purchase 24,000 shares of Common Stock annually thereafter so long
as he remains an Eligible Director. Generally, each option vests
ratably over a three-year period provided such individual
continues to serve as a Director of the Company.
40
<PAGE>
<TABLE>
<CAPTION>
1995 DIRECTORS STOCK
OPTION PLAN
---------------------------------------------------
SHARES PRICE
------ -----
<S> <C> <C>
Options outstanding at April 30, 1994 -- $ --
Granted during 1995 48,000 $1.25
Exercised -- --
Canceled -- --
---------------- -------------------
Options Outstanding at April 30, 1995 48,000 $1.25
Granted during 1996 72,000 $2.552 - $2.775
Exercised -- --
Canceled -- --
================ ===================
Options outstanding at April 30, 1996 120,000 $1.25 - $2.775
================ ===================
Shares exercisable at April 30, 1996 48,000 $1.25
================ ===================
</TABLE>
As of April 30, 1996, 380,000 shares were available for future
issuance under the Directors Plan.
During January 1992, the Company granted options to purchase
1,386,742 shares of its common stock, at an exercise price of
$.005 per share. The options may be exercised at any time prior to
January 1, 2002. 39,000 options have been exercised as of April
30, 1996. In April 1993, the Company granted options, which expire
in April 2003, to purchase 109,755 shares of common stock to a
consultant/advisor to the Company at an exercise price of $.005
per share. 55,000 options have been exercised as of April 30,
1996.
In March 1995, the Company granted options to purchase 165,000 shares
of Common Stock at an exercise price of $1.25 to certain executive
officers of the Company. These options are exercisable over a
three year period beginning August 24, 1995. The options expire in
March 2005. No options have been exercised as of April 30, 1996.
On April 25, 1995 the Company granted options to purchase 350,000
shares of Common Stock at an exercise price of $1.75, to certain
officers of Signatel. These options are exercisable, at any time
and from time to time, prior to April 21, 2005. As of April 30,
1996 no options have been exercised.
The table below sets forth the activity relating to stock options
referred to above which were originally granted by the Company not
pursuant to any option plan.
41
<PAGE>
<TABLE>
<CAPTION>
SHARES PRICE
-------------- ----------------
<S> <C> <C>
Options Outstanding at April 30, 1994 1,496,497 $.005
Granted 515,000 $1.25 - $1.75
Exercised -- --
Canceled -- --
-------------- ----------------
Options Outstanding at April 30, 1995 2,011,497 $.005 - $1.75
Granted -- --
Exercised (94,000) $.005
Canceled (95,455) $1.75
-------------- ----------------
Options Outstanding at April 30, 1996 1,822,042 $.005 - $1.75
============== ================
</TABLE>
On July 17, 1995, Mr. Glasgal granted to five executive officers of
the Company, options to purchase an aggregate of 300,000 shares of
his common stock. The options granted by Mr. Glasgal vest 1/3 on
July 17, 1996 (at an exercise price of $2.775 per share, the fair
market value at the date of grant), 1/3 on July 17, 1997 (at an
exercise price of $3.50 per share) and 1/3 on July 17, 1998 (at an
exercise price of $4.50 per share).
(7) Income Taxes:
In January 1994, the Company adopted the provisions of SFAS 109
"Accounting for Income Taxes." The statement requires that
deferred income taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities and
their financial reporting amounts.
Deferred income taxes result primarily from temporary differences in
the recognition of expenses for tax and financial reporting
purposes. Deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
April 30,
-------------------------------------------
1995 1996
---------------------- --------------------
<S> <C> <C>
Net operating loss carryforwards $ 1,021,000 $ 1,406,000
Accelerated depreciation (326,000) (316,000)
Allowance for doubtful accounts 136,000 109,000
Inventory obsolescence 95,000 112,000
Other 19,000 19,000
------------------- -------------------
945,000 1,330,000
Valuation Allowance (945,000) (1,330,000)
------------------ ------------------
$ -- $ --
================== ==================
</TABLE>
The Company has recorded a full valuation allowance against the net
deferred tax asset due to uncertainty relating to the realization
of this asset.
42
<PAGE>
The Company does not provide for US income taxes on the undistributed
earnings of its foreign subsidiaries as the Company does not have
any current intention of repatriating such earnings.
At April 30, 1996, the Company has available $4,137,000 of net
operating loss carry forwards, which may be used to offset future
taxable income. These net operating loss carryforwards expire
through 2011.
(8) Related party transactions:
Beginning July, 1993, the Company and Ralph Glasgal, its Chairman and
President, orally agreed that future salary payments would be
suspended. In the year ended December 31, 1993, and the year ended
April 30, 1995, the Company loaned Mr. Glasgal $181,150, and
$294,850, respectively. On April 30, 1995, and in contemplation of
the closing of the First Bridge Financing (see Note 14), Mr.
Glasgal contributed to the Company 442,478 shares of Common Stock
in consideration for the cancellation of the $476,000 owed to the
Company. The 442,478 shares of Common Stock contributed to the
Company were canceled.
During 1993, the Company paid a management fee of approximately
$63,000 to a company controlled by a shareholder of the Company.
(9) Employee benefit plan:
The Company has a contributory 401(k) salary reduction plan which
covers each employee who is at least 21 years of age and has been
a full-time employee for six months. The Company matches the first
$600 contributed into the plan by each employee annually. The
Company's contributions to the plan were $37,800, $12,400, $27,400
and $17,100 for the year ended December 31, 1993, the four months
ended April 30, 1994 and the years ended April 30, 1995 and 1996,
respectively.
(10) Commitments and contingencies:
The Company leases sales offices in various states throughout the
United States and Canada. The terms of these leases generally do
not extend beyond one year. Rent expense incurred and charged to
operations was $224,000, $84,000, $252,000 and $372,000 for the
year ended December 31, 1993, the four months ended April 30, 1994
and the years ended April 30, 1995 and 1996, respectively.
43
<PAGE>
The Company has operating lease commitments as follows:
1997 216,293
1998 184,496
1999 49,200
2000 33,600
2001 ---
The Company has entered into employment agreements with five key
employees. Three of the employment agreements expire on December
31, 1996, and provide for an aggregate annual salary of $635,000.
The remaining employment agreements provide for annual salary of
$265,500 increased annually by the percentage increase in the
consumer price index. One of these agreements expires on April 30,
2001, while the other is indefinite subject to termination clauses
within the agreement.
(11) Concentrations of credit risk:
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable. Generally, the Company does
not require collateral or other security to support customer
receivables. At April 30, 1996, the Company's customers were
primarily within the continental United States, Canada, parts of
Europe, the Far East and Latin America, and, due to geographical
diversity, credit risk is limited. For the year ended April 30,
1996 two customers accounted for an aggregate of 33% of sales. For
the year ended December 31, 1993, one of these two customers
accounted for 10% of sales. In no other period presented did any
one customer account for more than 10% of sales.
(12) Export Sales
The following table gives an analysis of the Company's export sales.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR MONTHS FOR THE YEAR FOR THE YEAR ENDED
DECEMBER 31, ENDED APRIL 30, ENDED APRIL 30, APRIL 30,
1993 1994 1995 1996
----------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Canada $ 256,000 $ 49,000 $ 103,000 $ 117,000
Europe 1,953,000 335,000 1,754,000 1,759,000
Middle East 29,000 17,000 73,000 137,000
Latin America 604,000 222,000 1,087,000 742,000
Far East 411,000 351,000 1,095,000 785,000
--------------- --------------- --------------- ---------------
$3,253,000 $ 974,000 $4,112,000 $3,540,000
=============== =============== =============== ==============
</TABLE>
For information relating to the Company's foreign operations see Note 2.
44
<PAGE>
(13) Recapitalization
In January 1996, the Company was reincorporated in the State of
Delaware and each outstanding share of the old California
Corporation, no par value common stock, was converted into one
share of the new Delaware Corporation $.001 par value common
stock. This change resulted in the transfer of $14,484 from the
additional paid-in capital account to the common stock account. In
conjunction with the reincorporation, the Company increased the
authorized common stock from 21,000,000 shares to 34,000,000
shares.
(14) Subsequent Events
On July 31, 1996, the Company acquired all of the voting stock of HH
Communications, Inc. (HH), a Chicago area based systems
integrator, in exchange for 1,500,000 shares of its Common Stock.
The acquisition will be accounted for using the pooling of
interests method of accounting. For financial reporting purposes
HH utilizes December 31 as its year end. Presented below are the
individual company and combined net sales, net income and earnings
per share for the periods identified:
45
<PAGE>
<TABLE>
<CAPTION>
HH COMBINED
COMPANY (UNAUDITED) (UNAUDITED)
-------------------- ----------------- -----------------
<S> <C> <C> <C>
For the year ended April 30, 1996(*)
- ---------------------------------------------
Net Sales $ 41,781,000 $ 4,398,000 $ 46,179,000
Net Income (Loss) (1,131,000) (9,000) (1,140,000)
Earnings (Loss) Per Share (.09) N/A (.08)
Weighted Average Shares 13,190,031 N/A 14,690,031
For the year ended April 30, 1995(*)
- ---------------------------------------------
Net Sales 35,161,000 897,000 37,288,000
Net Income (Loss) (1,643,000) 15,000 (1,628,000)
Earnings (Loss) Per Share (.15) N/A (.13)
Weighted Average Shares 10,681,237 N/A 12,181,237
For the year ended December 31, 1993
- ---------------------------------------------
Net Sales 36,391,000 897,000 37,288,000
Net Income (Loss) (147,000) 59,000 (88,000)
Earnings (Loss) Per Share N/A N/A N/A
Weighted Average Shares N/A N/A N/A
</TABLE>
(*) HH financial information for the year ended December 31, 1995
(**) HH financial information for the year ended December 31, 1994
The combined results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods presented.
In addition, the combined results are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
As of July 31, 1996, the Company adopted the 1996 Employee and
Consultant Stock Option Plan pursuant to which options to purchase
up to 2,000,000 shares of Common Stock may be granted by the
Company. Options to purchase 1,377,000 shares were granted on July
31, 1996 to employees of HH. All of such options vest in 15 years
(subject to earlier vesting upon HH reaching certain earnings
goals) and have an exercise price of $6.928 per share, the fair
market value at the date of the Grant.
46
<PAGE>
GLASGAL COMMUNICATIONS, INC.
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance, Charges to
beginning cost and Balance, end of
of period expenses Other (1) Deductions period
------------- -------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1996
Allowance for doubtful accounts $ 403,914 $ 285,022 $ 5 $ (365,359) $ 323,582(2)
Allowance for inventory obsolescence 293,964 165,000 (846) (115,100) 343,018(3)
Year ended April 30, 1995
Allowance for doubtful accounts 746,355 497,606 (616) (839,431) 403,914(2)
Allowance for inventory obsolescence 55,729 257,660 420 (19,845) 293,964(3)
Four months ended April 30, 1994
Allowance for doubtful accounts 194,004 654,856 (64) (102,441) 746,355(2)
Allowance for inventory obsolescence 35,196 529,645 (828) (508,284) 55,729(3)
Year ended December 31, 1993
Allowance for doubtful accounts 293,682 96,524 - (196,202) 194,004(2)
Allowance for inventory obsolescence 117,973 44,662 (473) (126,966) 35,196(3)
</TABLE>
(1) Includes changes in balances due to foreign exchange rates.
(2) Includes $3,650, $3,688 $3,617 and $0, respectively, relating to Signatel.
(3) Includes $15,079, $15,955, $27,011 and $20,478, respectively, relating to
Signatel.
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 14, 1994 the Company notified its certifying accountants, KPMG
Peat Marwick (KPMG), that the client-auditor relationship between the Company
and KPMG would be terminated immediately. Additionally, the Company announced
its new certifying accountants, Arthur Andersen LLP, would serve as independent
accountants for the fiscal year 1995. The decision to change accountants was
approved by the Board of Directors.
The Company believes, and has been advised by KPMG Peat Marwick that it
concurs in such belief, that, during the fiscal year ended December 31, 1993 and
subsequent thereto, the Company and KPMG Peat Marwick did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of KPMG Peat Marwick, would have caused it to make
reference in connection with its report on the Company's financial statements to
the subject matter of the disagreement.
No report of KPMG Peat Marwick on the Company's financial statements
for either of the past two fiscal years contained an adverse opinion, a
disclaimer or opinion or a qualification or was modified as to uncertainty,
audit scope or accounting principles. During such fiscal periods, there were no
"reportable events" within the meaning of Item 304 (a) (1) of Regulation S-K
promulgated under the Securities Act.
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages and
present positions with the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Ralph Glasgal 63 Chairman of the Board and President
Isaac J. Gaon 47 Chief Executive Officer and Director
Ingemar Sjunnemark 50 Vice President - Export Sales
Robert F. Gadd 34 Vice President - Federal and Enterprise Systems
Scott Schultz 42 Vice President - Domestic Sales
James M. Caci 31 Chief Financial Officer, Secretary and Treasurer
Thomas D'Alleva 40 Vice President - Technical Operations
Robert H. Friedman 43 Director
Joseph M. Salvani 39 Director
Maurice Kulik 57 Director
Thomas J. Berry 71 Director
The directors are elected for one year terms which expire at the next
annual meeting of shareholders. Executive officers are elected annually by the
Board of Directors to hold office until the first meeting of the Board following
the next annual meeting of shareholders and until their successors have been
elected and qualified.
The following is a brief summary of the background of each director and
executive officer of the Company.
RALPH GLASGAL, Director, Chairman of the Board and President, with
degrees in Engineering Physics and Electrical Engineering, founded the
Predecessor in 1975 as a distributor of data communications equipment and
services. Prior to 1975 he held various engineering positions with RCA, Siemens
and Timeplex. Mr. Glasgal currently oversees the evaluation and selection of
connectivity products sold and installed by the Company. He is the author of
numerous articles and three books on data communications.
49
<PAGE>
ISAAC J. GAON, Chief Executive Officer and Director, joined the
Predecessor in April 1992. He served as Chief Financial Officer from April 1992
until October 1994. Prior to joining the Predecessor, Mr. Gaon served as a
consultant to the Predecessor, developing the strategic plan and financial model
for the Predecessor's nationwide enterprise networking strategy. From September
1987 to December 1991, Mr. Gaon, a chartered accountant, served as President and
Chief Executive Officer of Toronto-based NRG, Inc., (a subsidiary of Gestetner
International) an office equipment supplier, and in several key senior
management roles within Gestetner Canada and Gestetner USA.
INGEMAR SJUNNEMARK, Vice President - Export Sales since October 1988.
Since joining the Predecessor in 1986 and until October 1988, Mr. Sjunnemark was
Director of Technical Marketing. Prior to joining the Predecessor, Mr.
Sjunnemark held various positions with ITT and General Data Communications
Industries. Mr. Sjunnemark holds degrees in Electrical Engineering and in
Marketing/Economics from the University of Stockholm.
ROBERT F. GADD, Vice President - Federal and Enterprise Systems since
September 1992, joined the Predecessor in April 1992. Mr. Gadd served as
Director of Technical Operations of the Company from April 1992 until August
1992. Prior to joining the Predecessor, Mr. Gadd was co-founder of Automation
Partners International, Inc. ("API"), a San Francisco-based systems integration
firm which has provided open architecture solutions to the legal industry since
1986. Prior to API, Mr. Gadd had his own automation consulting firm and
specialized in developing integrated solutions to meeting specific objectives in
a variety of business disciplines, including political campaigns, oil and gas,
real estate, and banking.
JAMES M. CACI, Chief Financial Officer, Secretary and Treasurer, joined
the Company in October 1994. Mr. Caci has been the Company's Chief Financial
Officer since October 1994 and the Company's Secretary and Treasurer since June
1995. From April 1994 to October 1994 Mr. Caci was a manager in the finance
department of Merck & Co., and from July 1986 to April 1994, Mr. Caci was
associated with the accounting firm of Arthur Andersen LLP, most recently
holding the position of Manager.
SCOTT SCHULTZ, Vice President - Sales & Marketing, joined the company
in September of 1995. Prior to joining the Company, Mr. Schultz held several
positions at Rad Network Devices (RND) since August 1991, most recently vice
president of sales. Prior to RND Mr. Schultz was director of sales training for
Timeplex, Inc.
THOMAS D'ALLEVA, Vice President - Technical Operations, joined the
company in October 1995. Prior to joining the Predecessor, Mr. D'Alleva was
Director of Product Management for RAM Mobile Data from May 1993 until October
1995. From January 1990 through May 1993, Mr. D'Alleva was Regional Manager of
Professional Services at Pyramid Technology. Mr. D'Alleva has held various
positions in Systems Engineering Management and Business Development. Mr.
D'Alleva holds a Bachelor of Arts degree from New York State University at
Oswego.
50
<PAGE>
ROBERT H. FRIEDMAN, Director since August 1994, has been a partner with
Olshan Grundman Frome & Rosenzweig, a New York City law firm, since August 1992.
Prior to that time and since September 1983 he was associated with Cahill Gordon
& Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters.
JOSEPH M. SALVANI, Director since August 1994, has been the President
of Salvani Investments, Inc., an investment and consulting firm that is a
consultant to Brookehill Equities, Inc. since 1991. Mr. Salvani was a registered
broker with Brookehill Equities, Inc. from March 1991 to July 1992. From July
1989 through 1991, he was a founder, general partner and Hedge Fund Manager of
EGS Associates, LP, a private investment limited partnership. He served as a
general partner of Steinhardt Partners from October 1986 until April 1989 and as
a general partner of Institutional Partners, LP from January 1987 to April 1989.
He began his career in 1981 as an analyst with Goldman, Sachs & Co. Mr. Salvani
is a graduate of Rutgers College with Bachelor of Science degrees in Accounting,
Economics and Finance. He also holds a Masters Degree in Business Administration
from Columbia University. Mr. Salvani is Chairman of the Board of Directors and
Chief Executive Officer of Direct Connect International Inc. ("DCI"), a Nasdaq
traded company and a director of Medicis Pharmaceutical, Inc., a pharmaceutical
company.
MAURICE KULIK, Director since October 1994, is also Chief Executive
Officer and President of Signatel which he founded in 1977. Prior to 1977 he
held various engineering, sales and marketing management positions with ATELCO,
ROR Associates, Beckman Instruments and SPERRY/UNIVAC. From 1985 to 1989 Mr.
Kulik also served as President, Chief Executive Officer and Director of Black
Box Canada Corporation, a joint venture corporation with Black Box Corporation
of Pittsburgh, PA. Mr. Kulik currently oversees Signatel's financial and
strategic planning as well as its marketing and sales management functions.
THOMAS J. BERRY, Director since July 1995, is currently retired. Mr.
Berry was an executive with the U.S. Postal Service from November 1986 to
December 1992, serving as executive assistant to the Postmaster General. Prior
to that time and until November 1986, Mr. Berry held various executive positions
at AT&T. Mr. Berry is a director of Computer Horizons Corp., a Nasdaq traded
company.
51
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years ended December
31, 1993, 1994, the fiscal years ended April 30, 1995 and 1996 with respect to
annual and long-term compensation for services in all capacities to the Company
of (i) the chief executive officer, and (ii) the other four most highly
compensated executive officers of the Company at April 30, 1996 who received
compensation of at least $100,000 during fiscal year ended April 30, 1996
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
STOCK LONG-TERM
OPTIONS INCENTIVE
NAME AND POSITION YEAR SALARY BONUS (SHARES) PAYMENTS
----------------- ---- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C>
Ralph Glasgal(1) 1996 $250,000 $74,800 -- --
Chairman of the Board and President 1994* 26,700 -- -- --
1994 105,901 -- -- --
1993 319,992 -- -- --
Isaac J. Gaon 1996 $204,800 -- 108,821 --
Chief Executive Officer 1994* 192,300 -- 90,000 --
1994 200,000 -- -- --
1993 180,685 --
Robert F. Gadd 1996 $136,433 $22,500 103,985 --
Vice President-Federal and Enterprise 1994* 113,900 -- 60,000 --
Systems 1994 112,308 -- -- --
1993 112,654 -- --
William Currie(2) 1996 $142,308 $16,625 -- --
Vice President - Domestic Sales 1994* 126,200 -- 100,000 --
1994 116,269 -- -- --
1993 -- -- --
Ingemar Sjunnemark 1996 $115,600 $15,000 24,666 --
Vice President - Export Sales 1994* 109,307 -- 15,000 --
1994 108,608 -- -- --
1993 105,391 -- --
</TABLE>
52
<PAGE>
(1) During 1992, the Company paid Ralph Glasgal $355,922 in full satisfaction
for loans he and his wife, Linda Glasgal, had made to the Company in the
past. Mr. Glasgal agreed to take this repayment as part of his 1992 salary
compensation. Beginning July, 1993, the Company and Ralph Glasgal, its
Chairman and President, orally agreed that future salary payments would be
suspended. During the period of salary suspension, Mr. Glasgal's duties
were significantly diminished as a result of the addition of Mr. Gaon as
Chief Executive Officer in April 1992. During this period, Mr. Glasgal
spent the majority of his time pursing interests outside of the Company.
Mr. Glasgal contributed to the Company 442,478 shares of Common Stock in
consideration for the cancellation by the Company of the $476,000 owed as
of April 30, 1995 by Mr. Glasgal to the Company. Mr. Glasgal is currently
receiving salary compensation of $250,000 per year. Mr. Glasgal may also
receive a bonus at the discretion of, and to be determined by, the Board of
Directors.
(2) Mr. Currie's employment with the Company was terminated on April 30, 1996.
* Represents the fiscal year ended April 30, 1995. The Company changed its
fiscal year end in May 1994 from December 31 to April 30.
STOCK OPTION TABLE
The following table sets forth certain information regarding stock
option grants made to each of the Named Officers during the fiscal year ended
April 30, 1996,
OPTIONS GRANTED IN FISCAL YEAR ENDED
APRIL 30, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES OF
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION (1)
----------
SHARES OF % OF TOTAL EXERCISE EXPIRATION 5% 10%
COMMON STOCK OPTIONS GRANTED OR BASE DATE
UNDERLYING TO EMPLOYEES IN PRICE
NAME OPTIONS GRANTED FISCAL YEAR ($/SH)
<S> <C> <C> <C> <C> <C> <C>
Ralph Glasgal -- -- -- -- -- --
Isaac J. Gaon 108,821 31.45 2.775 July 17, 2005 $189,913 $481,276
Ingemar Sjunnemark 24,666 7.13 2.775 July 17, 2005 43,047 109,089
Robert F. Gadd 103,985 30.05 2.775 July 17, 2005 181,473 459,888
William Currie -- -- -- -- -- --
</TABLE>
(1) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the option. These numbers do not take into account
provisions providing for termination of the option following termination of
employment, nontransferability or difference in vesting periods.
53
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information as to each of the named
officers concerning exercises of options during the fiscal year ended April 30,
1996 and unexercised stock options held as of April 30, 1996.
<TABLE>
<CAPTION>
Value
Realized
Shares (Market Number of Unexercised Options Value of Unexercised
Acquired Price at Held at April 30, 1996 In-The-Money Options at
on Exercise Exercise April 30, 1996(1)
less
Exercise
Price)
------------- -------------- -------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Ralph Glasgal -- $ -- -- -- $ -- $ --
Isaac J. Gaon -- -- 525,245 168,821 3,899,361 889,179
William S. Currie -- -- 100,000 -- 625,000 --
Robert F. Gadd -- -- 317,166 143,985 2,352,259 741,329
Ingemar Sjunnemark 35,000 105,000 267,166 34,666 1,997,060 179,047
</TABLE>
(1) Assuming a price of $7.50 per share of Common Stock, which was the
closing bid price per share as of April 30, 1996.
The value of personal benefits for executive officers of the Company
during the fiscal year ended April 30, 1996 that might be attributable to
management as executive fringe benefits such as automobiles and club dues cannot
be specifically or precisely determined; however, it would not exceed 10% for
any individual named above or, with respect to the group, would not in the
aggregate exceed 10% of the compensation reported above.
The Company adopted the Glasgal Communications, Inc., Salary Reduction
Plan (the "401(k) Plan") effective January 1, 1983. The 401(k) Plan was assumed
by the Company following the Merger. The 401(k) Plan is a voluntary program
covering employees who are at least 21 years of age and who have worked full
time for the Company for six months. A participant in the 401(k) Plan may
contribute from 2% to 15% of his or her base salary or wages up to the maximum
amount per year allowable (currently $9,500) under the Internal Revenue Code of
1986, as amended, and the Company makes matching contributions of 100% of the
participant's contribution up to a maximum of $600 per year per participant. A
participant's and the Company's contributions and the related investment
earnings thereon are immediately vested and not subject to forfeiture.
Distribution of a participant's vested benefits in the 401(k) Plan is made upon
a termination of employment subject to the right of the participant, if his or
her account balance exceeds $3,500, to defer receipt until attaining age 65.
Certain in-service withdrawals, and loans up to 50% of a participant's account,
are permitted under the 401(k) Plan, including withdrawals to meet financial
emergencies. At July 31, 1996, 37 of the Company's employees were participating
in the 401(k) Plan.
54
<PAGE>
DIRECTORS COMPENSATION
Each director who is not an employee of the Company receives an annual
grant of options to purchase 24,000 shares of Common Stock pursuant to the
Directors Plan at an exercise price equal to fair market value on the date of
grant and a fee of $1,000 per meeting attended.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Glasgal
pursuant to which he is employed full-time as the Company's President commencing
January 1, 1993 and until terminated in accordance with the agreement. The
agreement expires on December 31, 1996. The Company has entered into an
employment agreement with Mr. Gaon pursuant to which he is employed full-time as
the Company's Chief Executive Officer commencing January 1, 1993 and until
terminated in accordance with the agreement. The agreement expires on December
31, 1996. The Company has entered into an employment agreement with Mr. Gadd.
Mr. Gadd's employment agreement provides for Mr. Gadd to be employed full-time
as the Company's Vice President-Federal and Enterprise Systems. The employment
agreement expires on December 31, 1996. The agreements provide for aggregate
annual compensation of $635,000.
The Company has entered into an employment agreement with Mr. Kulik
pursuant to which he is employed full-time as the Chief Executive Officer and
President of Signatel Ltd., the Company's Canadian subsidiary commencing October
28, 1994 and until terminated in accordance with the agreement. Mr. Kulik
receives an annual base salary of $115,500; provided that the base salary shall,
at a minimum, be increased after each 12 months of employment by a percentage
equal to the percentage increase in the Consumer Price Index over such 12-month
period, with the increased amount to remain in effect for the next 12-month
period.
55
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, with respect to the
beneficial ownership of Common Stock outstanding as of July 24, 1996 by (i) each
person known by the Company to be the beneficial owner of five percent or more
of the Company's Common Stock, (ii) each of the Named Officers, (iii) each
director, and (iv) all executive officers and directors as a group.
NAME AND ADDRESS OF AMOUNT OF SHARES PERCENT OF CLASS
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PRE-OFFERING
----------------------- --------------------- ------------------
Ralph Glasgal(3) 4,895,875 33.0%
Direct Connect(4) 1,175,000 7.9%
International Inc.
700 Godwin Avenue
Midland Park, NJ 07432
Isaac Gaon(5) 619,778 4.0%
Robert F. Gadd(6) 398,366 2.6%
William Currie (7) 100,000 *
Robert H. Friedman(8) 47,146 *
505 Park Avenue
New York, NY 10022
Joseph Salvani(9) 32,000 *
700 Godwin Avenue
Midland Park, NJ 07432
Maurice Kulik(10) 643,636 4.3%
Thomas Berry(11) 24,000 *
All directors and
officers as a group 7,131,967 43.2%
(9 persons)(12)
* Less than 1%
- -----------------
(1) Unless otherwise indicated, all addresses are c/o Glasgal Communications,
Inc., 151 Veterans Drive, Northvale, New Jersey 07647.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares for which the beneficial owner has sole voting and
investment power. The percentage of class is calculated in accordance with
Rule 13d-3 and includes options or other rights to subscribe which are
exercisable within sixty (60) days of July 24, 1996.
(3) Includes (i) 146,752 shares of Common Stock owned by Ralph Glasgal's wife
and (ii) 1,175,000 shares of Common Stock owned by Direct Connect
International Inc.
56
<PAGE>
("DCI") which Ralph Glasgal has the right to vote pursuant to a voting
agreement with DCI.
(4) Based on information provided to the Company by DCI. Does not include any
shares of common stock to be purchased by DCI at the time of the Additional
DCI Investment.
(5) Represents options exercisable within sixty (60) days from July 24, 1996 to
purchase (i) 495,245 shares of Common Stock at an exercise price of $.005
per share, (ii) 60,000 shares of Common Stock at an exercise price of $1.25
per shares, and (iii) 64,533 shares of Common Stock at an exercise price of
$2.775 per share (includes options to purchase 28,259 shares of Common
Stock held by Ralph Glasgal.
(6) Represents options exercisable within sixty (60) days from July 24, 1996 to
purchase (i) 297,166 shares of Common Stock at an exercise price of $.005
per share, (ii) 40,000 shares of Common Stock at an exercise price of $1.25
per share, and (iii) 61,200 shares of Common Stock at an exercise price of
$2.775 per share (includes options to purchase 26,538 shares of Common
Stock held by Ralph Glasgal).
(7) Represents options exercisable within sixty (60) days from July 24, 1996 to
purchase 100,000 shares of Common Stock at an exercise price of $1.25 per
share. Mr. Currie's employment with the Company was terminated on April 30,
1996.
(8) Represents options exercisable within sixty (60) days from July 24, 1996 to
purchase (i) 15,146 shares of Common Stock at an exercise price of $.005
per share, (ii) 24,000 shares of Common Stock at an exercise price of $1.25
per share, and (iii) 8,000 shares of Common Stock at an exercise price of
$2.525 per share.
(9) Represents options exercisable within sixty (60) days of July 24, 1996 to
purchase (i) 24,000 shares of Common Stock at an exercise price of $1.25
per share and (ii) 8,000 shares of Common Stock at an exercise price of
$2.525 per share. Mr. Salvini is also the Chairman of the Board of DCI but
has no power to direct DCI's voting or disposition of its interest in the
Company. Thus the shares of the Company's Common Stock owned by DCI are not
deemed to be attributable to Mr. Salvani.
(10) Represents (i) 440,000 shares of Common Stock to be issued in exchange for
outstanding Class B shares of Signatel held by Maurice Kulik and (ii)
options exercisable within sixty (60) days of July 24, 1996 to purchase
203,636 shares at an exercise price of $1.75 per share. In addition,
Maurice Kulik holds proxies to vote 440,000 shares of Common Stock held by
another shareholder of the Company, Berthold Hoeniger, which shares will be
surrendered to the Company upon the exchange by Mr. Kulik of the Class B
shares of Signatel for shares of Common Stock of the Company described
above. Such proxies terminate on a share for share basis as Maurice Kulik
exchanges his Class B shares of Signatel for shares of Common Stock
57
<PAGE>
of the Company. The holders of such Class B shares are entitled to the
equivalent of any dividend paid on shares of Common Stock of the Company.
(11) Represents options exercisable within sixty days of July 24, 1996 to
purchase 24,000 shares of Common Stock at an exercise price of $2.775 per
share.
(12) Includes (i) options exercisable within sixty (60) days of July 24, 1996 to
purchase an aggregate of 1,736,092 shares of Common Stock held by the
directors and executive officers of the Company (includes options to
purchase 79,066 shares of Common Stock held by Ralph Glasgal) and (ii)
1,175,000 shares of Common Stock owned by DCI which Ralph Glasgal has the
right to vote pursuant to a voting agreement with DCI.
58
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's existing bank indebtedness under its
revolving credit facility, Ralph Glasgal, the Chairman of the Board and
President of the Company, has guaranteed the Company's obligations thereunder.
As of April 30, 1996, the Company had an aggregate outstanding indebtedness
under the revolving credit facility of $2,879,000.
The Company has entered into a common stock purchase agreement (the
"DCI Agreement") with DCI, a principal shareholder of the Company, governing
certain equity investments which DCI has made, and in the future intends to
make, in the Company's Common Stock. Pursuant to the DCI Agreement, in January
1994 DCI converted $1.9 million of outstanding indebtedness of the Company owed
to DCI into equity of the Company (the "DCI Conversion"). In addition, the DCI
Agreement gives the Company the right to require DCI to purchase an additional
number of shares of Common Stock equal to 13.5% of the outstanding shares on the
date of the agreement (the "Additional Share") for an aggregate of $8.75
million, less certain warrant solicitation fees (the "Additional DCI
Investment"). The Company may require this purchase if, and then only to the
extent, that DCI receives proceeds from the exercise of certain existing DCI
warrants. DCI has the right to retain the first $500,000 of warrant proceeds;
however, such amount must be used by DCI to purchase shares of Common Stock if
the aggregate amount of warrant proceeds applied to the purchase of Common
Stock, after the earlier of the expiration or exercise of all warrants or 24
months after the effectiveness of the registration statement covering the DCI
common stock underlying the warrants, is less than $8.4 million. If the Company
does not require the Additional DCI Investment, DCI may still purchase, on the
same terms, up to one-half of the Additional Shares.
On July 17, 1995, Mr. Glasgal granted to five executive officers and
other key employees of the Company, options to purchase an aggregate of 300,000
shares of Common Stock. The options granted by Mr. Glasgal vest 1/3 on July 17,
1996 (at an exercise price of $2.775 per share), 1/3 on July 17, 1997 (at an
exercise price of $3.50 per share) and 1/3 on July 17, 1998 (at an exercise
price of $4.50 per share). In connection with this grant the Company granted
options to purchase 281,000 shares of Common Stock under the 1990 Option Plan to
the same executive officers and on the same vesting schedule, at an exercise
price of $2.775 per share, which represented fair market value on the date of
grant.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(a)(1) The following financial statements are included in Part II, Item
8:
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets as of April 30, 1995 and 1996
Consolidated Statements of Operations for the year ended
December 31, 1993, the four months ended
April 30, 1994 and the years ended April 30, 1995
and 1996.
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the year ended December 31, 1993, the four
months ended April 30, 1994 and the years ended April 30,
1995 and 1996.
Consolidated Statements of Cash Flows for the year ended
December 31, 1993, the four months ended April 30, 1994
and the years ended April 30, 1995 and 1996.
Notes to Consolidated Financial Statements
(2) The following financial statement schedules are included in
this Form 10-K report:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown in the
financial statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 1996:
None
(c) Exhibits:
Exhibit #
3.1 Amended Certificate of Incorporation of the
Company.
3.2 By-laws of the Company
60
<PAGE>
*4.1 Specimen Certificate of the Company's Common Stock.
**4.2 The Company's 1990 Stock Option Plan, as amended to
date.
***4.3 Form of 1993 Consultant Stock Option Plan
***4.4 Form of 1995 Directors Stock Option Plan
***4.5 Form of Warrant Certificate
***4.6 Warrant Agreement between Continental Stock
Transfer and Trust Co. and the Company.
***4.7 Representative's Warrant Agreement, including Form
of Representative's Warrant.
4.8 1996 Employee and Consultant Stock Option Plan.
***10.1 Loan and Security Agreement by and between
the Company and United Jersey Bank dated
March 10, 1993, as amended.
***10.2 Mortgage and Security Agreement between the
Company and United Jersey Bank dated March
10, 1993, as amended.
***10.3 Transaction Agreement dated October 28, 1994 among
the Company, Signatel Ltd., Maurice Kulik and
Robert Engelberg.
***10.4 Common Stock Purchase Agreement dated
January 7, 1994 by and among Direct Connect
International Inc., the Company and Ralph
Glasgal.
- ---------------------
*Incorporated by reference from the Company's Registration Statement on Form S-3
(File No. 333-03414) filed with the Commission on April 8, 1996.
**Incorporated in reference to the Company's Registration statement on Form S-8
(File No. 333-08381) filed with the Commission on July 18, 1996.
***Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-93470) filed with the Commission on June 14, 1995.
61
<PAGE>
***10.5 Subcontract Agreement by and between C3/TSI and the
Company dated February 3,1995.
***10.6 License Agreement dated as of March 17, 1995
between Computer-Aided Software Integration, Inc.
and the Company.
***10.7 Employment Agreement dated as of March 1, 1993 by
and between the Company and Ralph Glasgal.
***10.8 Employment Agreement dated as of March 1, 1993 by
and between the Company and Ingemar Sjunnemark.
***10.9 Employment Agreement dated as of March 1, 1993 by
and between the Company and Isaac Gaon.
***10.10 Employment Agreement dated as of March 1, 1993 by
and between the Company and Robert Gadd.
***10.11 Agreement and Plan of Merger dated January 10,
1994.
***10.12 Form of Financial Advisory and Consulting Agreement
between the Company and Joseph Stevens & Company,
L.P.
***10.13 Mutual Cancellation Agreement dated April 30, 1995
between the Company and Ralph Glasgal.
***10.14 Employment Agreement dated October 28, 1994 between
Signatel Ltd., the Company and Maurice Kulik.
***10.15 Form of Bridge Note.
***10.16 Form of Bridge Warrant
***10.17 Amendment No. 11 to Loan and Security Agreement.
***10.18 Amendment No. 12 to Loan and Security Agreement.
- ---------------------
***Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-93470) filed with the Commission on June 14, 1995.
62
<PAGE>
*10.19 Stock Purchase Agreement by and among
Computer-Aided Software Integration, Inc., David
Tobey and the Company dated February 15, 1996.
10.20 Stockholders' Agreement by and among Computer-Aided
Software Integration, Inc., David Tobey and the
Company dated April 24, 1996.
***16.1 Letter from KPMG Peat Marwick relating to change of
accountants.
23.1 Independent Public Accountants Consent, Arthur
Andersen LLP
23.2 Independent Public Accountants Consent, Deloitte &
Touche
27 Financial Data Schedule
- -----------------------
*Incorporated by reference from the Company's Registration Statement on Form S-3
(File No. 333-03414) filed with the Commission on April 8, 1996.
***Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-93470) filed with the Commission on June 14, 1995.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ace of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLASGAL COMMUNICATIONS, INC.
----------------------------
(Registrant)
Date: August 12, 1996 By:/s/ Isaac J. Gaon
--------------- -----------------
Name: Isaac J. Gaon
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ralph Glasgal Chairman of the Board and President August 12, 1996
- -------------------------
Ralph Glasgal
/s/ Isaac J. Gaon Chief Executive Officer and Director August 12, 1996
- ------------------------- (principal executive officer)
Isaac J. Gaon
- ------------------------- Director August 12, 1996
Joseph M. Salvani
/s/ Robert H. Friedman Director August 12, 1996
- -------------------------
Robert H. Friedman
/s/ Maurice Kulik Director August 12, 1996
- -------------------------
Maurice Kulik
/s/Thomas Berry Director August 12, 1996
- -------------------------
Thomas Berry
/s/ James M. Caci Chief Financial Officer (principal August 12, 1996
- ------------------------- financial and accounting officer)
James M. Caci
</TABLE>
64
CERTIFICATE OF INCORPORATION OF
GLASGAL COMMUNICATIONS, INC.
FIRST: The name of this corporation is Glasgal Communications, Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805, and the name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The name and mailing address of the incorporator of the
corporation is:
Michael I. Otner
c/o Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
FOURTH: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FIFTH: The corporation is authorized to issue 38,000,000 shares,
34,000,000 of which are designated "Common Stock," $0.001 par value, and
4,000,000 of which are designated "Preferred Stock," $0.001 par value. The Board
of Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
SIXTH: In furtherance and not in limitation of the powers conferred by
statue, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind from time to time any or all of the bylaws of the corporation;
provided, however, that any bylaw amendment adopted by the Board of Directors
increasing or reducing the authorized number of directors or amending,
repealing, altering or rescinding Article 3, Section 3.2 of the Bylaws of the
corporation shall require a resolution adopted by the affirmative vote of not
less than sixty-six and two-thirds percent (66-2/3%) of the directors. Any
<PAGE>
Bylaw amendment adopted by the stockholders increasing or reducing the
authorized number of directors or amending, repealing, altering or rescinding
Article 3, Section 3.2 of the Bylaws of the corporation shall require the
approval of not less than sixty-six and two-thirds percent (66-2/3%) of the
total voting power of all outstanding shares of stock of the corporation
entitled to vote thereon.
SEVENTH: The number of directors of the corporation shall be fixed from
time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors. Any director or the entire Board of Directors may be removed from
office by the stockholders of the corporation only for cause.
EIGHTH: No stockholder will be permitted to cumulate votes in any
election of directors.
NINTH: Special meetings of the stockholders of this corporation for any
purpose or purposes may be called at any time upon the request in writing of a
majority of the Board of Directors or by the Chairman of the Board or the
President of the corporation. Any such request shall state the purpose or
purposes of the proposed meeting. As soon as reasonably practicable after
receipt of such a request, written notice of such meeting, stating the place,
date (which shall be sixty (60) days from the date of the notice) and hour of
the meeting, shall be given to each stockholder entitled to vote at such
meeting. Special meetings may not be called other than as provided in this
ARTICLE NINTH.
TENTH: Stockholders of the corporation shall take action by meetings
held pursuant to this Certificate of Incorporation and the Bylaws. Stockholders
may not take any action by written consent in lieu of a meeting. Meetings of
stockholders may be held within or outside of the State of Delaware, as the
Bylaws may provide. The books of the corporation may be kept (subject to any
provision contained in the statute) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the corporation.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in ARTICLES SIXTH, SEVENTH, TENTH, TWELFTH
and this ARTICLE ELEVENTH may not be repealed or amended in any respect unless
such repeal or amendment is approved by the affirmative vote of not less than
sixty-six and two-thirds percent (66-2/3%) of the total voting power of all
outstanding shares of stock of this corporation
-2-
<PAGE>
entitled to vote thereon, unless such amendment or repeal has been previously
approved by the vote of not less than sixty-six and two-thirds percent (66-2/3%)
of the members of the Board of Directors, in which case those Articles of this
Certificate of Incorporation may be so amended or repealed by a vote of not less
than a majority of the total voting power of all outstanding shares of stock of
the corporation entitled to vote thereon.
TWELFTH: A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the directors of a corporation for breach of
fiduciary duty, then a director of the corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this ARTICLE TWELFTH by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
THIRTEENTH: Elections of directors need not be by written ballot unless
the Bylaws of the corporation shall so provide.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does hereby make this Certificate, under penalties of perjury, hereby declaring
and certifying that this is my act and deed and the facts herein stated are
true, and accordingly have hereunto set my hand this 10th day of January, 1996.
/s/ Michael I. Otner
----------------------------
Michael I. Otner
Sole Incorporator
-3-
BYLAWS
OF
GLASGAL COMMUNICATIONS, INC.
ARTICLE 1 - Offices
-------------------
1.1 REGISTERED OFFICE. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The corporation may also have offices at such other
places both within or without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE 2 - Stockholders
------------------------
2.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the President or the Chief Executive
Officer or, if not so designated, at the registered office of the corporation.
2.2 ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at a time fixed by the Board of
Directors, the President or the Chief Executive Officer. If this date shall fall
upon a legal holiday at the place of the meeting, then such meeting shall be
held on the next succeeding business day at the same hour. If no annual meeting
is held in accordance with the foregoing provisions, the Board of Directors
shall cause the meeting to be held as soon thereafter as convenient.
2.3 SPECIAL MEETINGS. A special meeting of the stockholders may be
called only in the manner specified in the Certificate of Incorporation.
2.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
<PAGE>
2.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
2.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation of these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
2.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
another time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no stockholder
is present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
2.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
-2-
<PAGE>
2.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders a majority of the stock present or represented and voting on a matter
properly before the meeting (or if there are two or more classes of stock
entitled to vote as separate classes, then in the case of each such class, the
holders of a majority of the stock of that class present or represented and
voting on a matter) shall decide any matter properly before the meeting to be
voted upon by the stockholders at such meeting, except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-Laws. Any election by stockholders shall be determined by a plurality of the
votes cast by the stockholders entitled to vote at the election.
ARTICLE 3 - Directors
---------------------
3.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
3.2 NUMBER; ELECTION; TENURE AND QUALIFICATION. The number of directors
shall constitute the whole Board shall be fixed by resolution of the Board of
Directors, with the number initially fixed at six (6). Each director shall be
elected by the stockholders at the annual meeting and shall hold office until
the next annual meeting and until his successor is elected and qualified, or
until his earlier death, resignation or removal. Directors need not be
stockholders of the corporation.
3.3 VACANCIES. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, or a director chosen to full a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
3.4 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
-3-
<PAGE>
3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
3.7 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be given to each director
in person, by telephone or by telegram sent to his business or home address at
least 48 hours in advance of the meeting, or by written notice mailed to his
business or home address at least 72 hours in advance of the meeting. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
3.8 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
3.9 QUORUM. A majority of the number of directors fixed pursuant to
Section 3.2 shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
3.10 ACTION AT MEETING. At any meeting of the Board of Directors at
which quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
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<PAGE>
3.11 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
3.12 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-Laws for the Board of Directors.
3.13 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 4 - Officers
--------------------
4.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Chief Executive Officer, a Secretary, a Chief Financial Officer and
such other officers with such other titles as the Board of Directors shall
determine, including a Chairman of the Board, a Vice-Chairman of the Board, a
Treasurer, and one or more Vice Presidents, Controllers, and Assistant
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<PAGE>
Secretaries. The Board of Directors may appoint such other officers as it may
deem appropriate.
4.2 ELECTION. The President, Chief Executive Officer, Chief Financial
Officer and Secretary shall be elected annually by the Board of Directors at its
first meeting following the annual meeting of stockholders. Other officers may
be appointed by the Board of Directors at such meeting or at any other meeting.
4.3 QUALIFICATION. The President need not be a director. No officer
need be a stockholder. Any two or more offices may be held by the same person.
4.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
4.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
The Board of Directors, or a committee duly authorized to do so, may
remove any officer with or without cause. Except as the Board of Directors may
otherwise determine, no officer who resigns or is removed shall have any right
to any compensation as an officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise, unless such
compensation is expressly provided in a duly authorized written agreement with
the corporation.
4.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of the President, Chief
Financial Officer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
4.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. If the Board
of Directors appoints a Chairman of the Board, he shall, when present, preside
at all meetings of the Board of Directors. He shall perform such duties and
possess such powers as are usually vested in the office of the Chairman of the
Board
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<PAGE>
or as may be vested in him by the Board of Directors. If the Board of Directors
appoints a Vice Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
4.8 PRESIDENT. The President shall be the chief operating officer of
the corporation. He shall also be the chief executive officer of the corporation
unless such title is assigned to another person. The President shall, subject to
the direction of the Board of Directors, have general supervision and control of
the business of the corporation. Unless otherwise provided by the directors, he
shall preside at all meetings of the stockholders and of the Board of Directors
(except as provided in Section 4.7 above). The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
4.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
4.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal or refusal
to act of the Secretary, the Assistant Secretary, (or if there shall be more
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<PAGE>
than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
4.11 CHIEF FINANCIAL OFFICER AND CONTROLLER. The Chief Financial
Officer shall perform such duties and shall have such powers as may from time to
time be assigned to him by the Board of Directors or the President. The Chief
Financial Officer shall also be the Treasurer of the corporation unless the
Board of Directors has appointed another person as the Treasurer. In addition,
the Chief Financial Officer shall perform such duties and have such powers as
are incident to the office of treasurer, including without limitation the duty
and power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Controller shall perform such duties and possess such powers as the
Board of Directors, the President or the Chief Financial Officer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Chief Financial Officer, the Controller, (or if there shall be more than
one, the Controllers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Chief Financial Officer.
4.12 BONDED OFFICERS. The Board of Directors may require any officer to
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his duties and for the restoration to the
corporation of all property in his possession or under his control belonging to
the corporation.
4.13 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 5 - Capital Stock
5.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of
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<PAGE>
Incorporation, the whole or any part of any unissued balance of the authorized
capital stock of the corporation or the whole or any part of any unissued
balance of the authorized capital stock of the corporation held in its treasury
may be issued, sold, transferred or otherwise disposed of by vote of the Board
of Directors in such manner, for such consideration and on such terms as the
Board of Directors may determine.
5.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation the
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
5.3 TRANSFERS. Subject to the restrictions, if any, stated or noted on
the stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of
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<PAGE>
such indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
5.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 6 - Indemnification
---------------------------
The corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director, officer or trustee which
it shall have power to indemnify under the Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any by-law,
agreement or vote on stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director, officer or trustee and (iii) shall inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Article shall be
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<PAGE>
offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the Corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the Corporation (or was serving at the Corporation's request as a
director or officer of another corporation) shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the General Corporation Law of
Delaware.
To assure indemnification under this Article of all such persons who
are determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including, without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a person
with respect to an employee benefit plan in the performance of such person's
duties for a purpose reasonably believed by such person to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the corporation.
ARTICLE 7 - General Provisions
------------------------------
7.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on April 30
of each year.
7.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
7.3 EXECUTION OF INSTRUMENTS. The President, the Chief Executive
Officer or the Treasurer shall have power to execute and deliver on behalf and
in the name of the corporation any instrument requiring the signature of an
officer of the
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corporation, except as otherwise provided in these By-Laws, or where the
execution and delivery of such an instrument shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
7.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
7.5 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as or appoint
any person or persons to act as, proxy or attorney fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
7.6 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
7.7 CERTIFICATE OF INCORPORATION. All references in these by-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
7.8 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
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disinterested directors, even though the disinterested directors be less than a
quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
7.9 SEVERABILITY. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
7.10 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 8 - Amendments
----------------------
8.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or
replaced or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present except when a different vote is required
by express provision of law, the Certificate of Incorporation or these By-Laws.
8.2 BY THE STOCKHOLDERS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws,
provided notice of such alteration, amendment, repeal or adoption of new by-laws
shall have been stated in the notice of such special meeting.
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GLASGAL COMMUNICATIONS, INC.
1996 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
Dated July 31, 1996
1. PURPOSE. This 1996 Employee and Consultant Stock Option Plan (the
"Plan") is established as a compensatory plan to attract, retain and provide
equity incentives to selected employees to promote the financial success of
Glasgal Communications, Inc. (the "Company") or any Subsidiary or Affiliate of
the Company. Capitalized terms not previously defined herein are defined in
Section 16 of the Plan.
2. SHARES. The shares of stock that may be purchased upon exercise of
Options granted under the Plan (the "Shares") are shares of the common stock,
$.001 par value (the "Common Stock") of the Company.
3. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under the Plan shall not exceed 2,000,000 in total
subject to adjustment as provided in the Plan. If any Option is terminated for
any reason without being exercised in whole or in part, the Shares thereby
released from such Option shall be available for purchase under other Options
subsequently granted under the Plan. At all times during the term of the Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under the Plan.
4. ELIGIBILITY. Options may be granted to employees of and consultants
to the Company or any Subsidiary or Affiliate of the Company. The Company's
Board of Directors (the "Board of Directors") in its sole discretion shall
select the recipients of Options ("Optionees"). An Optionee may be granted more
than one Option under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS. The Board of Directors shall
determine the number of Shares subject to the Option, the exercise price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in such form
(which need not be the same for each Optionee) as the Board of Directors shall
from time to time approve.
5.2 DATE OF GRANT. The date of grant of an Option shall be the
date on which the Board of Directors makes the
<PAGE>
determination to grant such Option unless otherwise specified by the Board of
Directors. The Grant representing the Option will be delivered to the Optionee
with a copy of the Plan within a reasonable time after the date of grant.
5.3 EXERCISE PRICE. The exercise price of an Option shall be
determined by the Board of Directors at the time of grant.
5.4 EXERCISE PERIOD. Options shall be exercisable within the
times or upon the events determined by the Board of Directors as set forth in
the Grant.
5.5 OPTIONS TRANSFERABLE. Options granted under the Plan may
be freely transferred or assigned by the Optionee as determined by the Board of
Directors.
6. EXERCISE OF OPTIONS.
6.1 NOTICE. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Board of
Directors (which need not be the same for each Optionee), stating the number of
Shares being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
6.2 PAYMENT. Payment for the Shares may be made in cash (by
check) or, where approved by the Board of Directors in its sole discretion at
the time of grant and where permitted by law: (a) by cancellation of
indebtedness of the Company to the Optionee; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such Shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market having a Fair Market Value equal to the
exercise price of the Option; (c) by instructing the Company to withhold Shares
otherwise issuable pursuant to an exercise of the Option having a Fair Market
Value equal to the exercise price of the Option (including the withheld Shares);
(d) by waiver of compensation due or accrued to Optionee for services rendered;
(e) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from the Optionee and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD Dealer")
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for the exercise price
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and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; (f) provided that a public
market for the Company's stock exists, through a "margin" commitment from the
Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (g) by any
combination of the foregoing.
6.3 TAXES. The Company may make such provisions as it may deem
appropriate, consistent with applicable law, in connection with any Options
granted under the Plan with respect to the withholding of any taxes or any other
tax matters.
6.4 LIMITATIONS ON EXERCISE. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) The Board of Directors may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then exercisable.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended (the "1933
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the Securities and Exchange Commission
("SEC") or to effect compliance with the registration, qualification or listing
requirements of any state securities laws or stock exchange, and the Company
shall have no liability for any inability or failure to do so.
6.5 Information to Optionees. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company prior to such Optionee's exercise of the Option, and to each Optionee
annually during the period such Optionee has Options outstanding, at such time
after the close of each fiscal year of the Company as such statements are
released by the Company to its shareholders; provided, however, the Company
shall not be required to provide such financial statements to Optionees whose
services in connection with the Company assure them access to equivalent
information.
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<PAGE>
7. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Board of
Directors shall have the power to modify, extend or renew outstanding Options
and to authorize the grant of new Options in substitution therefor, provided
that any such action may not, without the written consent of the Optionee,
impair any rights under any Option previously granted. The Board of Directors
shall have the power to reduce the exercise price of outstanding options.
8. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in the Plan.
9. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Option granted
under the Plan shall confer on any Optionee any right to continue in the employ
of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
10. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
without consideration, or if a substantial portion of the assets of the Company
are distributed, without consideration in a spin-off or similar transaction, to
the shareholders of the Company, the number of Shares available under the Plan
and the number of Shares subject to outstanding Options and the exercise price
per share of such Options shall be proportionately adjusted, subject to any
required action by the Board of Directors or shareholders of the Company and
compliance with applicable securities laws; provided, however, that a fractional
share shall not be issued upon exercise of any Option and any fractions of a
Share that would have resulted shall either be cashed out at Fair Market Value
or the number of shares issuable under the Option shall be rounded up to the
nearest whole number, as determined by the Board of Directors; and provided
further that the exercise price may not be decreased to below the par value, if
any, for the Shares.
11. ASSUMPTION OF OPTIONS BY SUCCESSORS.
11.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in
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<PAGE>
which there is no substantial change in the shareholders of the Company and the
Options granted under the Plan are assumed or replaced by the successor
corporation, which assumption shall be binding on all Optionees), (b) a
dissolution or liquidation of the Company, (c) the sale of substantially all of
the assets of the Company, or (d) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Options may be
assumed by the successor corporation, which assumption shall be binding on all
Optionees. In the alternative, the successor corporation may substitute
equivalent Options or provide substantially similar consideration to Optionees
as was provided to shareholders (after taking into account the existing
provisions of the Options). The successor corporation may also issue, in place
of outstanding Shares of the Company held by the Optionee, substantially similar
shares or other property subject to repurchase restrictions no less favorable to
the Optionee.
11.2 EXPIRATION OF OPTIONS. In the event such successor
corporation, if any, refuses to assume or substitute the Options, as provided
above, pursuant to a transaction described in Subsection 11.1(a) above, such
Options shall expire on the consummation of such transaction at such time and on
such conditions as the Board of Directors shall determine. In the event such
successor corporation, if any, refuses to assume or substitute the Options as
provided above, pursuant to a transaction described in Subsections 11.1(a), (b)
or (c) above, or there is no successor corporation, and if the Company ceases to
exist as a separate corporate entity, then, notwithstanding any contrary terms
in the Option Grant, the Options shall expire on a date at least twenty (20)
days after the Board of Directors gives written notice to Optionees specifying
the terms and conditions of such termination.
11.3 OTHER TREATMENT OF OPTIONS. Subject to any greater rights
granted to Optionees under the foregoing provisions of this Section 11, in the
event of the occurrence of any transaction described in Section 11.1, any
outstanding Options shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
11.4 ASSUMPTION OF OPTIONS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Option under the Plan in substitution of
such other company's option, or (b) assuming such option as if it had been
granted under the Plan if the terms of such assumed option
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<PAGE>
could be applied to an Option granted under the Plan. Such substitution or
assumption shall be permissible if the holder of the substituted or assumed
option would have been eligible to be granted an Option under the Plan if the
other company had applied the rules of the Plan to such grant. In the event the
Company assumes an option by another company, the terms and conditions of such
option shall remain unchanged (except that the exercise price and the number and
nature of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
12. ADOPTION. The Plan shall become effective on the date that it is
adopted by the Board of Directors (the "Effective Date"). Upon the Effective
Date, the Board of Directors may grant Options pursuant to the Plan.
13. ADMINISTRATION. The Plan may be administered the Board of
Directors. The interpretation by the Board of Directors of any of the provisions
of the Plan or any Option granted under the Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
14. TERM OF PLAN. Options may be granted pursuant to the Plan from time
to time within a period of ten (10) years after the date on which the Plan is
adopted by the Board of Directors.
15. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may at any
time terminate or amend the Plan in any respect including (but not limited to)
amendment of any form of Grant, exercise agreement or instrument to be executed
pursuant to the Plan.
16. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings:
16.1 "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
16.2 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting
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power of all classes of stock in one of the other corporations in such chain.
16.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
16.4 "FAIR MARKET VALUE" shall mean the fair market value of
the Shares as determined by the Board of Directors from time to time in good
faith. If a public market exists for the Shares, the Fair Market Value shall be
the average of the price of the last trade on each of the six business days
immediately prior to the date of determination or, in the event the Common Stock
of the Company is listed on a stock exchange or on the NASDAQ National Market
System, the Fair Market Value shall be the closing price on such exchange or
quotation system on the last trading day prior to the date of determination.
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COMPUTER-AIDED SOFTWARE INTEGRATION, INC.
STOCKHOLDERS' AGREEMENT
<PAGE>
STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS...................................................... 2
Section 1.1 Definitions.............................. 2
ARTICLE II - MANAGEMENT...................................................... 4
Section 2.1 Certificate of Incorporation; By-Laws.... 4
Section 2.2 Board of Directors of the Company........ 4
Section 2.3 Certain Corporate Actions................ 5
Section 2.4 Board of Directors of Glasgal............ 6
Section 2.5 Expiration............................... 6
ARTICLE III - RESTRICTIONS UPON TRANSFER..................................... 7
Section 3.1 Transfer Restrictions.................... 7
Section 3.2 Permitted Transfers by Tobey to Certain
Family Members, Etc...................... 7
Section 3.3 Stock Transfer Record.................... 8
Section 3.4 Endorsement on Stock Certificates........ 8
Section 3.5 Agreements by Company.................... 8
Section 3.6 Rights of First Refusal.................. 9
Section 3.7 Participation Rights..................... 10
Section 3.8 Bring-Along Right........................ 11
Section 3.9 Delivery of Stock Certificates and
Documents.................................................. 12
Section 3.10 Expiration............................... 12
ARTICLE IV - PUT AND CALL RIGHTS............................................. 12
Section 4.1 Put Right; Call Right.................... 12
Section 4.2 Termination of Employment................ 13
Section 4.3 Procedure for Determining Fair Market
Value.................................... 13
Section 4.4 Closing of Put or Call................... 14
ARTICLE V - MISCELLANEOUS.................................................... 14
Section 5.1 Capital Contribution..................... 14
Section 5.2 Best Efforts............................. 14
Section 5.3 Financial Statements..................... 15
Section 5.4 Inspection of Property................... 15
Section 5.5 Certain Relationships with Glasgal....... 16
Section 5.6 Invalid or Unenforceable Provisions...... 17
Section 5.7 Notices.................................. 17
Section 5.8 Benefit and Burden....................... 17
Section 5.9 Gender................................... 17
Section 5.10 Changes; Waiver.......................... 17
Section 5.11 Specific Performance..................... 17
Section 5.12 Entire Agreement......................... 18
Section 5.13 Governing Law............................ 18
Section 5.14 Headings................................. 18
<PAGE>
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") entered into
and effective for all purposes and in all respects as of the 24th day of April,
1996 (the "Effective Date"), by and among (i) COMPUTER-AIDED SOFTWARE
INTEGRATION, INC., a California corporation (the "Company"), (ii) DAVID H. TOBEY
("Tobey"), and (iii) GLASGAL COMMUNICATIONS INC., a Delaware corporation
("Glasgal"). Tobey and Glasgal are hereinafter sometimes together referred to as
the "Stockholders" and are hereinafter sometimes each individually referred to
as a "Stockholder".
WHEREAS, Tobey, the Company and Glasgal entered into a Stock
Purchase Agreement dated as of February 15, 1996;
WHEREAS, the Stockholders are the legal and beneficial owners
of all of the issued and outstanding shares of the Company's Common Stock, par
value one cent ($0.01) per share (the "Common Stock"), consisting of one
thousand (1,000) shares, as follows:
Number of Shares
Stockholder of Common Stock
----------- ---------------
Tobey 200
Glasgal 800
-----
TOTAL 1,000
=====
WHEREAS, simultaneously herewith the Stockholders and the
Company are entering into a Registration Rights Agreement and an Employment
Agreement each dated the date hereof;
WHEREAS, the parties hereto believe that it is in the best
interests of the Company and of the Stockholders to make provision for the
management and operation of the Company, future dispositions of shares of Common
Stock and certain other matters; and
WHEREAS, the parties hereto desire to set forth herein the
terms and conditions of their agreements and understandings with respect to the
foregoing.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual promises herein contained and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby covenant and agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. The following terms shall have the following
meanings whenever used in this Agreement:
(a) "Affiliate" of any Person shall mean any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. As used in this
definition of Affiliate, the term "control" of any Person shall mean the
ownership, directly or indirectly, of securities of such Person possessing more
than 50% of the voting power for the election of directors or the power to
designate a majority of the Persons constituting the board of directors of such
Person or exercising authority similar to that of a corporate board of
directors.
(b) "Annual Business Plan" shall mean the Initial Business
Plan (as defined below) as amended and approved annually by the Board of
Directors.
(c) "Appraiser" shall mean any nationally recognized
investment banking firm or financial expert which does not (and the directors,
officers, employees, Affiliates or shareholders of which do not) have a material
direct or indirect financial interest in the Stockholders or the Company or any
of their subsidiaries or Affiliates, which has not been within the three years
prior to the date of acts hereunder, and, at the time it is called upon to give
independent financial advice hereunder, is not (and none of the directors,
officers, employees, Affiliates or shareholders of which is) a promoter,
director or officer of the Company or any Stockholder or any of their
subsidiaries or Affiliates and which has not in the three years prior to the
dates of acts hereunder provided any advice or opinions to any Stockholder or
the Company, except in connection with this Agreement, as an independent
financial banking firm or financial expert.
(d) "Bona Fide Offer" shall mean a legally enforceable offer
in writing, made and signed by a Third Party (as defined below).
(e) "Cause" shall mean any criminal conviction of Tobey for an
offense involving the misappropriation of a material amount of funds or property
of the Company, or failure of Tobey to devote at least one thousand eight
hundred (1,800) hours per year to his duties as President and Chief Executive
Officer of the Company (other than for reason of disability), after written
notice by the Company providing Tobey with an opportunity to cure such failure.
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<PAGE>
(f) "Charter Documents" shall have the meaning set forth in
Section 2.1.
(g) "Excess Cash" shall mean the amount of cash held by the
Company at the end of the Company's fiscal year after payment or provision for
all current liabilities and in excess of the working capital requirements of the
Company for the next following year as provided in the Company's Annual Business
Plan.
(h) "Good Reason" shall mean any diminution of Tobey's
position, duties, responsibilities or compensation as President and Chief
Executive Officer of the Company; or the geographic relocation of Tobey's
position as President and Chief Executive Officer of the Company; or the failure
of Glasgal to make the capital contribution to the Company set forth in Section
5.1 of this Agreement.
(i) "Initial Business Plan" shall mean the initial business
plan for the Company attached as Exhibit A hereto.
(j) "Initial Public Offering" shall mean the first primary
underwritten public offering of equity securities of the Company pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended.
(k) "Offering Stockholder" shall have the meaning set forth
in Section 3.6.
(l) "Person" shall mean an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
(m) "Registered Notice" shall mean written notice sent by (i)
registered or certified mail, return receipt requested, and first-class postage
prepaid or (ii) a nationally-recognized overnight delivery service; and, if such
Registered Notice is sent with respect to a Bona Fide Offer, such Registered
Notice shall contain a true and complete copy of the Bona Fide Offer, setting
forth the price and all terms and conditions, with the name(s), address(es)
(both home and office) and business(es) or other occupation(s) of the offeror or
offerors. Any notice which does not contain all such requisite information shall
not be considered a "Registered Notice" for the purposes hereof.
(n) "Third Party" shall mean an offeror or offerors who is (or
who are) not an Affiliate (or a prospective Affiliate) of the Offering
Stockholder or the Initiating Stockholder and who is a person or persons or
entity or entities financially capable of carrying out the terms of the Bona
Fide Offer.
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<PAGE>
ARTICLE II
MANAGEMENT
Section 2.1 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Prior to the Closing Date (as such term is defined in the
Stock Purchase Agreement), the Company's Certificate of Incorporation and Bylaws
shall be amended in accordance with applicable law to be substantially in the
form attached hereto as Exhibits B and C, respectively (the "Charter
Documents"), on the Closing Date.
(b) From and after the Closing Date, each Stockholder shall
vote its shares of Common Stock at any regular or special meeting of
stockholders of the Company or in any written consent executed in lieu of such a
meeting of stockholders, and shall take all actions necessary, to ensure that
the Company's Charter Documents do not at any time conflict in any respect with
the provisions of this Agreement.
Section 2.2 BOARD OF DIRECTORS OF THE COMPANY.
(a) The Stockholders covenant and agree, at all times and from
time to time to vote their shares of Common Stock and, if applicable, to vote as
a director of the Company (or cause their Designees (as defined below) to vote
as directors), in such manner so that, the Board of Directors of the Company
shall at all times consist of at least three (3) and not more than five (5)
members, and so that, of such members, one (1) member shall be designated by
Tobey (the "Tobey Designee"), and the remaining members shall be designated by
Glasgal (the "Glasgal Designees"). The Tobey Designee and the Glasgal Designees
are sometimes collectively referred to herein as "Designees" and individually as
a "Designee."
(b) If, prior to his or her election to the Board of Directors
of the Company pursuant to Section 2(a) hereof, any Designee shall be unable or
unwilling to serve as a director of the Company, the Stockholder who nominated
any such Designee shall be entitled to nominate a replacement who shall then be
a Designee for purposes of this Section 2.2. If, following election to the Board
of Directors of the Company pursuant to Section 2.2(a) hereof, any Designee
shall resign or be removed or be unable to serve for any reason prior to the
expiration of his or her term as a director of the Company, the Stockholder who
nominated such Designee shall within 30 days of such event notify the Board of
Directors of a replacement Designee and the Stockholders shall vote their shares
of Common Stock at any regular or special meeting called for the purpose of
filling positions on the Board of Directors of the Company, or in any written
consent executed in lieu of such a meeting of stockholders, and shall take all
actions necessary, to ensure the
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<PAGE>
election to the Board of Directors of the Company of such replacement Designee
to fill the unexpired term of the Designee who such new Designee is replacing.
(c) There shall be no committees of the Board of Directors.
(d) The Board of Directors of the Company shall approve and
adopt the Initial Business Plan. Beginning in fiscal year 1997 and in each year
thereafter the Board of Directors shall approve and adopt the Annual Business
Plan. The Board of Directors shall manage the Company on a basis consistent with
the Initial Business Plan or the Annual Business Plan (whichever shall be
applicable).
Section 2.3 CERTAIN CORPORATE ACTIONS. The Stockholders agree that the
Company shall not, directly or indirectly, take the following actions without
the unanimous consent of the members of the Board of Directors (including the
Tobey Designee) and the Stockholders in addition to any other requirements of
law or the Charter Documents of the Company:
(i) the issuance by the Company of
equity securities, any equity derivative
securities, securities convertible into
equity securities or rights to acquire equity
securities;
(ii) the sale, lease, transfer or other
disposition (in a transaction or related series of
transactions) of any material assets of the
Company (including, without limitation, any
material intellectual property assets);
(iii) incur any material indebtedness
other than indebtedness expressly approved in
the Initial Business Plan or the Annual Business
Plan (whichever may be applicable) and at market
rates and terms;
(iv) engage in any transaction, contract
or arrangement with an Affiliate of the Company or
the Stockholders other than as set forth in the
Initial Business Plan;
(v) any amendment, modification or
repeal of any provision of the Charter Documents;
(vi) any repurchase or redemption of
equity securities of the Company;
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<PAGE>
(vii) the declaration of any dividends
or the making of any distribution (other than
pro rata dividends of Excess Cash);
(viii) any merger or consolidation
involving the Company;
(ix) any purchase, lease or acquisition
by the Company of a material amount of
assets;
(x) the liquidation or dissolution of
the Company;
(xi) the hiring and termination of
officers (other than the President and Chief
Executive Officer) of the Company;
(xii) the Initial Public Offering;
(xiii) the approval and adoption of the
Initial Business Plan and Annual Business
Plan; or
(xiv) make any plans or agreements to do
any of the foregoing.
Section 2.4 BOARD OF DIRECTORS OF GLASGAL. Glasgal shall provide Tobey
with notice of each meeting of the Glasgal Board of Directors. Tobey shall have
the right to attend meetings of the Glasgal Board of Directors and to
participate in such meetings (without any vote on matters). In connection with
the foregoing, Tobey shall be provided on a timely basis with all materials that
members of the Glasgal Board of Directors receive or are entitled to receive
(including, without limitation, all resolutions, minutes, reports, presentations
and actions by written consent).
Section 2.5 EXPIRATION.
(a) If beginning in fiscal year 1997 the Company shall
experience operating losses in excess of 5% of sales during any two consecutive
fiscal years thereafter, then the events set forth in Sections 2.3(iii),
2.3(ix), 2.3(xi) and 2.3(xiii) shall no longer require the unanimous consent of
the Board of Directors or the Stockholders of the Company.
(b) The rights and obligations of the Stockholders under this
Article II shall expire upon the earlier of the date (i) that Tobey shall have
disposed of more than one-half (1/2) the number of shares of Common Stock owned
by him as of the Effective Date or (ii) the Initial Public Offering.
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<PAGE>
ARTICLE III
RESTRICTIONS UPON TRANSFER
Section 3.1 TRANSFER RESTRICTIONS.
(a) Except as otherwise provided in this Agreement or as
agreed upon by the prior written consent of the Stockholders, the Stockholders
shall not sell, exchange, deliver or assign, dispose of, bequeath or gift,
pledge, mortgage, hypothecate or otherwise encumber, transfer or permit to be
transferred, whether voluntarily, involuntarily or by operation of law
(including, without limitation, the laws of bankruptcy, insolvency, intestacy,
descent and distribution and succession) (collectively, a "Transfer"), all or
any of the shares of Common Stock now owned or hereafter acquired by such
Stockholder.
(b) In the event that, at any time or from time to time, any
shares of Common Stock are Transferred to any party (other than the Company or
any Stockholder) pursuant to any provision hereof, the transferee shall take
such shares of Common Stock pursuant to all provisions, conditions and covenants
of this Agreement, and, as a condition precedent to the transfer of such shares
of Common Stock, the transferee shall agree (for and on behalf of himself or
itself, his or its legal representatives and his or its transferees and assigns)
in writing to be bound by all provisions of this Agreement as a party hereto and
in the capacity of a Stockholder. In the event that there shall be any Transfer
to any person or entity pursuant to any provision of this Agreement and in
compliance with the provisions of this Article III, all references herein to the
Stockholders or to any Stockholder shall thereafter be deemed to include such
transferee.
Section 3.2 PERMITTED TRANSFERS BY TOBEY TO CERTAIN FAMILY MEMBERS,
ETC. Notwithstanding the provisions of Section 3.1 hereof, all or any portion of
Tobey's shares of Common Stock may at any time or times be transferred to any of
the following (and such transfer shall be registered on the books of the
Company): (a) Tobey's parent, spouse, brother or sister, natural or adopted
lineal descendant or spouse of such descendant; (b) the trustee of a trust
whether INTER VIVOS or testamentary, of which only Tobey and/or any person or
person named in (a) of this Section 3.2 is the beneficiary or beneficiaries;
provided, however, that as a condition precedent to any transfer of such shares
of Common Stock as provided in this Section 3.2, the transferee of such shares
of Common Stock shall agree to comply with the provisions of this Agreement. In
the event that Tobey shall transfer any or all of his shares of Common Stock to
any person or entity pursuant to this Section 3.2, and in the further event that
Tobey shall be required to transfer all of his shares of Common Stock to the
Company and/or the other Stockholders pursuant to any provision of this
Agreement, the transferee of
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such Stockholder's shares of Common Stock shall be required to transfer all of
the shares of Common Stock which are required to be transferred by Tobey to the
Company and/or the other Stockholders upon the same terms and conditions as
Tobey.
Section 3.3 STOCK TRANSFER RECORD. The Company shall keep a stock
transfer book in which shall be recorded the name and address of each
Stockholder. No Transfer or issuance of any shares of Common Stock shall be
effective or valid unless and until recorded in such stock transfer book. The
Company agrees not to record any Transfer or issuance of shares of Common Stock
in such stock transfer book unless the transfer or issuance is in strict
compliance with all provisions of this Agreement. Each Stockholder agrees that,
in the event such Stockholder desires to make a Transfer within the provisions
hereof, such Stockholder shall furnish to the Company such evidence of
compliance with this Agreement as may be reasonably required by the Board of
Directors of the Company.
SECTION 3.4 ENDORSEMENT ON STOCK CERTIFICATES. Each certificate
representing shares of Common Stock of the Company now or hereafter held by any
Stockholder shall bear a statement in substantially the following form:
"The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition
pursuant to the laws of bankruptcy, intestacy, descent and
distribution or succession) of the shares of Common Stock
evidenced by the within Certificate is restricted under the
terms of the Stockholders' Agreement, dated April 24, 1996, by
and among the Company and its stockholders, a copy of which
Agreement is on file at the principal office of the Company.
Upon written request of any Stockholder, the Company shall
furnish, without charge to such Stockholder, a copy of such
Agreement.
The shares of Common Stock represented by this certificate
have not been registered under the Securities Act of 1933 and
may not be transferred in the absence of registration or an
exemption therefrom under such Act."
Section 3.5 AGREEMENTS BY COMPANY. The Company agrees, for and on
behalf of itself and its successors and assigns, that:
(a) It hereby consents to this Agreement.
(b) It shall not issue, transfer or reissue any Common Stock
in violation of the provisions of this Agreement.
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<PAGE>
(c) All certificates representing shares of Common Stock
issued by the Company and held by any Stockholder shall bear an endorsement in
substantially the form specified in Section 3.4.
Section 3.6 RIGHTS OF FIRST REFUSAL.
(a) In the event that any Stockholder shall receive a Bona
Fide Offer by a Third Party to purchase all or any portion of such Stockholder's
shares of Common Stock (the "Offered Shares") and such Stockholder shall desire
to accept such Bona Fide Offer, such Stockholder (the "Offering Stockholder")
shall promptly send Registered Notice to the Company and to the other
Stockholders (the "Other Stockholders"), offering to sell the Offered Shares to
the Company and to the Other Stockholders at the same price and upon the same
terms and conditions as are contained in the Bona Fide Offer. The Company and
the Other Stockholders shall then have such rights and privileges, for the
prescribed time periods, as are set forth in this Section 3.6.
(b) Whenever, under this Section 3.6, a Bona Fide Offer to
purchase Offered Shares shall have been received from a Third Party, and
Registered Notice of the Bona Fide Offer shall have been sent by the Offering
Stockholder, the following procedures shall be complied with:
(i) For a period of thirty days from its receipt of
such Registered Notice, the Company shall have the right to purchase
all or any part of the Offered Shares; provided, however, that an
election by the Company to purchase less than all of the Offered Shares
shall be ineffective unless the Other Stockholders shall purchase the
balance of the Offered Shares.
(ii) If the Company shall not elect to purchase all
of the Offered Shares, then the Other Stockholders shall have the
right, for a period of thirty days after the expiration of the
Company's thirty-day exercise period, to purchase all (but not less
than all) of the Offered Shares.
(iii) If the Company and the Other Stockholders shall
not, individually or together, purchase, within the prescribed time
periods, all of the Offered Shares covered by the Bona Fide Offer, the
Offering Stockholder shall have the right to accept such Bona Fide
Offer in whole (but not in part) and to sell such Offered Shares,
subject to all of the provisions and restrictions of this Agreement.
(iv) The sale by the Offering Stockholder must be
fully consummated within ninety days after the date the Offering
Stockholder first sent Registered Notice; and, in the event that such
sale is not fully consummated within
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<PAGE>
such period, the provisions of this Section 3.6 must again be complied
with by the Offering Stockholder before the Offering Stockholder may
sell the Offered Shares.
(c) The Offering Stockholder agrees, if so requested by the
Other Stockholders, to vote or cause a vote to be made (as a director of the
Company, and, if applicable, as a stockholder of the Company) in favor of the
exercise by the Company of its option to purchase all or a portion (but if a
portion, only if the Other Stockholders have elected to purchase the balance of
the shares of Common Stock so offered) of the shares of Common Stock which the
Offering Stockholder has offered to sell to the Company pursuant to and within
the provisions of Section 3.6. In the event that the Company's exercise of such
option to purchase such shares of Common Stock requires an amendment to the
Charter Documents of the Company or a reduction of its capital or a reappraisal
of its assets and/or any other corporate action, the Offering Stockholder
agrees, if so requested by the Other Stockholders, to vote or cause a vote to be
made (as a director of the Company, and, if applicable, as a stockholder of the
Company) in favor of any such corporate action as may be legally taken.
Section 3.7 PARTICIPATION RIGHTS.
(a) If Glasgal is an Offering Stockholder under Section 3.6
and the Offered Shares to be sold pursuant to the Bona Fide Offer represent 25%
or more of Glasgal's shares of Common Stock (in one transaction or a series of
related transactions), each Other Stockholder shall have the right to sell an
amount of shares of Common Stock owned by such Other Stockholder determined by
multiplying the total number of Offered Shares by a fraction, the numerator of
which shall be the number of shares of Common Stock (calculated on a fully
diluted basis) then owned by such Other Stockholder and the denominator of which
shall be the total number of shares of Common Stock (calculated on a fully
diluted basis) then owned by all the Stockholders. If such Other Stockholder
elects to exercise his participation right pursuant to this Section 3.7, an
amount of such Other Stockholders shares of Common Stock as specified in the
Participation Notice (as defined below) delivered pursuant to Section 3.7(b)
shall be sold either to the Third Party, the Company and/or the Other
Stockholders exercising their rights of first refusal pursuant to Section 3.6
(as the case may be) in lieu of a corresponding amount of Offered Shares.
(b) Any exercise of the participation right pursuant to
Section 3.7(a) shall be by a written notice (the "Participation Notice")
delivered by any Other Stockholder to the Offering Stockholder within thirty
days after receipt of the Registered Notice of the Bona Fide Offer. A
Participation Notice shall state the amount of shares of Common Stock that such
Other
-10-
<PAGE>
Stockholder is proposing to sell pursuant to this Section 3.7 and that such
Other Stockholder elects to sell such shares in accordance with procedures set
forth hereunder. Failure to deliver a Participation Notice shall be deemed
conclusive evidence of such Other Stockholders intent to decline to exercise his
participation right.
Section 3.8 BRING-ALONG RIGHT.
(a) In the event that a Stockholder (the "Initiating
Stockholder") proposes a Transfer of all of its shares of Common Stock (and such
shares shall constitute at least a majority of the outstanding shares of Common
Stock (calculated on a fully diluted basis)) for cash pursuant to a Bona Fide
Offer to a Third Party (a "Sale of the Company"), the Initiating Stockholder
shall have the right (the "Bring-Along Right") to require all (but not less than
all) the Other Stockholders (each a "Bring-Along Seller" and collectively the
"Bring-Along Sellers") to sell, and each Bring-Along Seller hereby agrees to
sell, to the Third Party all the shares of Common Stock held by such Bring-Along
Seller (the "Bring-Along Shares") for exactly the same per share cash
consideration being provided to the Initiating Stockholder. Notwithstanding the
foregoing, each Bring-Along Seller shall have the right to exercise its right of
first refusal as provided in Section 3.6.
(b) The Initiating Seller shall notify the Bring-Along Sellers
in writing of such proposed Transfer (the "Sale Notice"). The Sale Notice shall
set forth (a) the name and address of the Third Party and (b) a copy of the
written proposal pursuant to which the Sale of the Company will be effected
containing all of the material terms and conditions thereof, including (i) the
number of shares of Common Stock (calculated on a fully diluted basis) proposed
to be transferred by the Initiating Seller, (ii) the cash price per share of
Common Stock (calculated on a fully diluted basis) to be paid, (iii) the terms
and conditions of payment offered by the Third Party, (iv) whether the
Initiating Seller has determined to exercise the Bring-Along Right, (v) in the
event the Initiating Seller has determined to exercise the Bring-Along Right,
that the Third Party has been informed of the Bring-Along Right provided for in
this Section 3.8 and has agreed to purchase the Bring-Along Shares in accordance
with the terms hereof and to be bound by such terms subsequent to such purchase
to the same extent as the Bring-Along Seller immediately prior to that sale and
(vi) the date and location of and procedures for selling the shares of Common
Stock to the Third Party.
(c) The Bring-Along Shares purchased from each BringAlong
Seller by the Third Party pursuant to this Section 3.8 in connection with the
Sale of the Company shall be purchased for cash consideration only. The
Initiating Stockholder shall not receive any direct or indirect benefits, fees,
payments,
-11-
<PAGE>
inducements or other compensation in connection with the Sale of the Company.
Section 3.9 DELIVERY OF STOCK CERTIFICATES AND DOCUMENTS. Upon the
closing of any purchase of any shares of Common Stock pursuant to this Article
III, the seller shall deliver to the purchaser the following: the certificate or
certificates representing the shares of Common Stock being sold, duly endorsed
for transfer, and such assignments, certificates of authority, consents to
transfer, instruments and evidences of title of the seller and of the seller's
compliance with this Agreement as may be reasonably required by the purchaser.
Section 3.10 EXPIRATION. The rights and obligations of Stockholders
under this Article III shall expire on the date of the Initial Public Offering.
ARTICLE IV
PUT AND CALL RIGHTS
Section 4.1 PUT RIGHT; CALL RIGHT.
(a) During the Put Period (as defined below), Tobey shall have
the right, exercisable at his sole option, to sell, and Glasgal shall have the
obligation upon such exercise to purchase, all, but not less than all, of the
shares of Common Stock held by Tobey, in accordance with the provisions of this
Article IV at the Fair Market Value (as defined below) of such shares on the
exercise date.
(b) Commencing on the one year anniversary of the commencement
of the Put Period and terminating on the last day of the Put Period (the "Call
Period"), Glasgal shall have the right, exercisable at its sole option, to
purchase, and Tobey shall have the obligation upon such exercise to sell, all,
but not less than all, of the shares of Common Stock held by Tobey, in
accordance with the provisions of this Article IV at the Fair Market Value of
such shares on the exercise date.
(c) The Put Period shall be the period from July 31, 1999
through the later of (i) the twenty-four month period thereafter and (ii) the
termination of the Employment Agreement between the Company and Tobey, dated as
of the date hereof as the same may be extended or modified; provided, however,
in the event that the Board of Directors of the Company, prior to July 31, 1999,
notifies Tobey in writing that it has resolved to attempt to effect an Initial
Public Offering, the commencement of the Put Period shall be delayed until the
earlier of (x) the consummation of the Initial Public Offering, (y) nine months
from the date of the Board of Directors resolution to attempt the Initial Public
-12-
<PAGE>
Offering or (z) the time that the Company is no longer actively pursuing the
Initial Public Offering.
Section 4.2 TERMINATION OF EMPLOYMENT.
(a) In the event of a termination of Tobey's employment (i) by
the Company for Cause or (ii) by Tobey without Good Reason, Glasgal shall have
the right, exercisable at its sole option, during the one hundred twenty (120)
day period beginning on the date of such termination, to purchase, and Tobey
shall have the obligation upon such exercise to sell, all, but not less than
all, of the shares of Common Stock held by Tobey, in accordance with the
provisions of Article IV at the Fair Market Value of such shares on the
termination date.
(b) In the event of a termination of Tobey's employment (i) by
the Company for other than Cause or (ii) by Tobey for Good Reason, Tobey shall
have the right, exercisable at his sole option, during the one hundred twenty
(120) day period beginning on the date of such termination, to sell, and Glasgal
shall have the obligation upon such exercise to purchase, all, but not less than
all, of the shares of Common Stock held by Tobey, in accordance with the
provisions of Article IV at the Fair Market Value of such shares on the
termination date.
Section 4.3 PROCEDURE FOR DETERMINING FAIR MARKET VALUE.
(a) For purposes of this Agreement, the Fair Market Value of
shares of Common Stock shall mean the fair market value as shall be determined
by an Appraiser selected by the mutual agreement of Tobey and Glasgal within 15
days after Glasgal's exercise of its call right pursuant to Section 4.1(b) or
4.2(a) or Tobey's exercise of his put right pursuant to Section 4.1(a) or
4.2(b). If Glasgal and Tobey cannot select an Appraiser within such 15 day
period, then each of Glasgal and Tobey shall select an Appraiser within 5 days
after the expiration of such 15 day period. The two Appraisers so selected shall
jointly select (within 10 days of their appointment) a third Appraiser who shall
determine Fair Market Value hereunder. In determining Fair Market Value, the
Appraiser shall use one or more valuation methods that it, in its best
professional judgment, believes to be most appropriate to determine the
aggregate fair market value of the Company. Thereupon the Fair Market Value of
the shares of Common Stock shall be appraised at their pro rata share of such
aggregate fair market value, without giving effect to any discount for the lack
of liquidity of the shares of Common Stock or the fact that the shares of Common
Stock being sold represent a minority interest. The Company shall bear all of
the costs and expenses of the Appraiser. The Appraiser shall determine the Fair
Market Value of such shares of Common Stock within 45 days following its
selection as such.
-13-
<PAGE>
Section 4.4 CLOSING OF PUT OR CALL.
(a) Any closing of a purchase of Common Stock by Glasgal
pursuant to this Article IV (the "Article IV Closing") shall occur no later than
sixty days (60) days after the date that the Appraiser determines the Fair
Market Value of shares of Common Stock pursuant to Section 4.3.
(b) The Article IV Closing shall be held at the principal
office of the Company or at such other place which Glasgal and Tobey shall
otherwise agree upon. At the Article IV Closing, the certificate or certificates
representing the shares of Common Stock so purchased shall be delivered to
Glasgal and Glasgal shall deliver full cash payment of the Fair Market Value of
such shares of Common Stock in immediately available funds.
ARTICLE V
MISCELLANEOUS
Section 5.1 CAPITAL CONTRIBUTION.
(a) Glasgal hereby agrees that it shall make an additional
capital contribution to the Company, in the amount of $625,000 to be contributed
no later than January 1, 1997.
(b) In the event that Glasgal fails to contribute the
aggregate amount specified in Section 5.1(a), Glasgal shall be deemed to
contribute to the capital of the Company such number of its shares of Common
Stock with a value equal to the amount of such unpaid capital contributions and
such shares shall thereupon become treasury stock of the Company. For purposes
of this Section 5.1(b), Glasgal's shares of Common Stock so contributed shall be
valued at $4,000 per share (as equitably adjusted for any stock split, stock
dividend, recapitalization, reclassification or other similar transaction).
Glasgal shall promptly surrender to the Company certificate(s) for the shares of
Common Stock deemed to be contributed to the Company pursuant to Section 5.2(b).
(c) In the event Glasgal fails to contribute the aggregate
amount specified in Section 5.1(a) by January 1, 1997, Tobey (or his designee)
shall have the right to purchase, and Glasgal agrees to sell, Glasgal's
remaining shares of Common Stock (as such holdings shall have been reduced
pursuant to Section 5.1(b)) for $4,000 per share (as equitably adjusted for any
stock split, stock dividend, recapitalization, reclassification or other similar
transaction) together with the Glasgal Integration Resources (as defined below).
Section 5.2 BEST EFFORTS. Each Stockholder hereby agrees that when
any action or vote is required to be taken by such Stockholder pursuant to this
Agreement, such Stockholder
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<PAGE>
shall use its best efforts to call, or cause the appropriate officers and
directors of the Company to call, a special or annual meeting of stockholder of
the Company, as the case may be, or execute or cause to be executed a consent in
writing in lieu of any such meetings of the General Corporation Law of the State
of Delaware to effectuate such stockholder action.
Section 5.3 FINANCIAL STATEMENTS. The Company shall deliver to each
Stockholder:
(a) as soon as available but in any event within 45 days after
the end of each fiscal quarter (other than the last fiscal quarter of each
fiscal year), unaudited consolidated statements of income and cash flows of the
Company and its subsidiaries for such quarterly period and for the period from
the beginning of the fiscal year to the end of such quarter, and consolidating
and consolidated balance sheets of the Company and its subsidiaries as of the
end of such quarterly period, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments; and
(b) within 120 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its subsidiaries for such fiscal year, and consolidated balance
sheets of the Company and its subsidiaries as of the end of such fiscal year,
all prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (i) with respect to the consolidated
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, and (ii) a copy of such firm's annual management
letter to the Board of Directors (if such management letter is prepared for that
year).
Section 5.4 INSPECTION OF PROPERTY. The Company shall permit any
representatives designated by any Stockholder, upon reasonable notice and during
normal business hours, to (i) visit and inspect any of the properties of the
Company and its subsidiaries, (ii) examine the corporate and financial records
of the Company and its subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss and inquire into the affairs, finances and accounts
of any such corporations with the directors, officers, key employees and
independent accountants of the Company and its subsidiaries. The Stockholders
will hold, and will cause its representatives to hold, all knowledge and
information relating to or concerning the Company or any of its subsidiaries or
affiliates confidential, and will not use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation, provided;
however, that the Stockholders may disclose or divulge such information,
knowledge
-15-
<PAGE>
or data that is or becomes generally available to the public (through no act on
such Stockholder's part), or where such disclosure is legally compelled by
judicial or administrative action.
Section 5.5 CERTAIN RELATIONSHIPS WITH GLASGAL.
(a) Glasgal intends to be a customer of the Company. In the
event that Glasgal purchases goods and/or services from the Company, the Company
shall charge Glasgal the lowest price as is charged to any other customer of the
Company during the preceding twelve months for the same goods and/or services
(excluding other customers who receive special promotional incentives or volume
discounts); provided, however, that Glasgal shall be eligible for any volume
discounts generally available to other customers of the Company.
(b) The Initial Business Plan identifies certain
administrative and support services to be provided by Glasgal to the Company.
Such services shall be provided by Glasgal to the Company at Glasgal's direct
cost, which shall include applicable Glasgal salary expense. Upon the request of
the Board of Directors of the Company, Glasgal may provide additional
administrative and support services to the Company. Glasgal shall charge the
Company reasonable prices for such additional administrative and support
services not in excess of the lowest prices charged by Glasgal to a third party
for such services.
(c) Upon the execution of this Agreement, Glasgal shall
contribute all assets, resources and personnel relating to its current computer
integration capabilities, which include the services of hardware and software
configuration and burn in/testing for Glasgal, and which excludes pre-sales,
design, consulting, installation and after sale maintenance support
(collectively, the "Glasgal Integration Resources").
(d) Prior to the earlier to occur of (i) the date of the
Initial Public Offering and (ii) the date that Tobey no longer owns any shares
of Common Stock, Glasgal shall not, directly or indirectly, whether as a
proprietor, partner, investor, stockholder, director, officer, consultant,
independent contractor, co-venturer, employer, employee, agent, representative
or in any other capacity, engage in the business of computer software
integration, other than as a stockholder in the Company. Notwithstanding the
foregoing, Glasgal shall not be precluded from effecting an acquisition of an
entity that conducts, as part of its operations, a computer software integration
business so long as CASI is granted (prior to the consummation of such
acquisition) an option to acquire such computer integration portion of such
business at fair market value as determined by an Appraiser.
-16-
<PAGE>
Section 5.6 INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
Section 5.7 NOTICES. Any and all notices, requests or other
communications provided for herein shall be given in writing and sent by (i)
registered or certified mail, return receipt requested, with first-class postage
prepaid or (ii) nationally recognized overnight courier; and such notices shall
be addressed: (a) if to the Company, to the principal office of the Company; (b)
if to any Stockholder, to the address of such Stockholder as reflected in the
stock records of the Company, unless notice of a change of address is furnished
to all parties in the manner provided in this Section 5.7.
Section 5.8 BENEFIT AND BURDEN. This Agreement shall inure to the
benefit of, and shall be binding upon, (a) the Company and its successors and
assigns, and (b) the Stockholders and their respective legatees, distributees,
estates, executors, administrators, personal representatives, successors and
assigns, and other legal representatives.
Section 5.9 GENDER. The use of either gender herein shall be deemed to
be or include the other genders and the use of the singular herein shall be
deemed to be or include the plural (and VICE VERSA), wherever appropriate.
Section 5.10 CHANGES; WAIVER. No change or modification of this
Agreement shall be valid unless the same is in writing and signed by all the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person against whom it is sought to be
enforced. The failure of any party at any time to insist upon strict performance
of any condition, promise, agreement or understanding set forth herein shall not
be construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
Section 5.11 SPECIFIC PERFORMANCE. Each of the Company and the
Stockholders acknowledges and agrees that in the extent of any breach of this
Agreement the non-breaching party or parties would be irreparably harmed and
could not be made whole by monetary damages. It is accordingly agreed that the
Company and the Stockholders shall waive the defense in any action for specific
performance that a remedy at law would be inadequate and that the Company and
the Stockholders, in addition to any other remedy they may be entitled at law or
equity, shall be entitled to compel specific performance of this Agreement.
-17-
<PAGE>
Section 5.12 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto,
that certain Registration Rights Agreement, dated as of even date herewith by
and among the Company and the Stockholders; the Employment Agreement, Stock
Purchase Agreement and the Charter Documents set forth all of the promises,
agreements, conditions, understandings, warranties and representations among the
parties hereto with respect to the shares of Common Stock owned by the
Stockholders and any other matters set forth herein, and there are no promises,
agreements, conditions, understandings, warranties or representations, oral or
written, express or implied, among them with respect to such shares or such
other matters. Any and all prior agreements among the parties hereto with
respect to the shares of Common Stock owned by the Stockholders are hereby
revoked. This Agreement is, and is intended by the parties to be, an integration
of any and all prior agreements or understandings, oral or written, with respect
to the shares of Common Stock.
Section 5.13 GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware (without regard to
its laws relating to choice-of-law or conflicts-of-law).
Section 5.14 HEADINGS. The headings, subheadings and other captions in
this Agreement are for convenience and reference only and shall not be used in
interpreting, construing or enforcing any of the provisions of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers, and each Stockholder has executed this
Agreement, all as of the day and year first above written.
COMPANY:
COMPUTER-AIDED SOFTWARE
INTEGRATION, INC., a Delaware
corporation
By:/s/ David H. Tobey
-----------------------------------
David H. Tobey, President
STOCKHOLDERS:
/s/ David H. Tobey
-----------------------------------------
DAVID H. TOBEY
GLASGAL COMMUNICATIONS, INC.,
a Delaware corporation
By:/s/ James M. Caci
--------------------------------------
James M. Caci, Chief Financial
Officer
-19-
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glasgal Communications, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report dated August 2, 1996, included in this Form 10-K, into the Company's
previously filed Registration Statements, File Numbers 33-87122, 33-94802,
33-93470, 333-08381, 333-03414 and 333-09509.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
August 12, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 14, 1994 on the November 30, 1993 financial statements of
Signatel Ltd, included in this Form 10-K and into Glasgal Communications, Inc.,
previously filed registration statements File Numbers 33-87122, 33-94802,
33-93470, 333-08381, 333-03414 and 333-09509.
Deloitte & Touche
Chartered Accountants
Toronto, Canada
August 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 579,087
<SECURITIES> 0
<RECEIVABLES> 6,829,529
<ALLOWANCES> 323,582
<INVENTORY> 2,655,452
<CURRENT-ASSETS> 10,480,151
<PP&E> 3,629,554
<DEPRECIATION> 7,696,409
<TOTAL-ASSETS> 16,251,482
<CURRENT-LIABILITIES> 8,009,864
<BONDS> 0
0
0
<COMMON> 14,841
<OTHER-SE> 11,293,354
<TOTAL-LIABILITY-AND-EQUITY> 16,251,482
<SALES> 41,780,821
<TOTAL-REVENUES> 41,780,821
<CGS> 30,653,237
<TOTAL-COSTS> 41,980,427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 757,485
<INCOME-PRETAX> (957,091)
<INCOME-TAX> 0
<INCOME-CONTINUING> (957,091)
<DISCONTINUED> 0
<EXTRAORDINARY> (223,066)
<CHANGES> 0
<NET-INCOME> (1,180,157)
<EPS-PRIMARY> .09
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