<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GLASGAL COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 94-2914253
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
20C COMMERCE WAY
TOTOWA, NEW JERSEY 07512
(201) 890-4800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
ISAAC J. GAON
CHIEF EXECUTIVE OFFICER
GLASGAL COMMUNICATIONS, INC.
20C COMMERCE WAY
TOTOWA, NEW JERSEY 07512
(201) 890-4800
(Name, address, including zip code, and telephone number, including area code,
of agent of service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT H. FRIEDMAN, ESQ. LAWRENCE S. WITTENBERG, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP TESTA, HURWITZ & THIBEAULT, LLP
505 PARK AVENUE HIGH STREET TOWER
NEW YORK, NEW YORK 10022 125 HIGH STREET
(212) 753-7200 BOSTON, MASSACHUSETTS 02110
(617) 248-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value(1).... 4,600,000 $6.375 $29,325,000 $8,886.36
</TABLE>
- ------------------------
(1) Includes 600,000 shares of Common Stock which the Underwriters have the
option to purchase from the Company and certain stockholders of the Company
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based on
$6.375, the per share average of the high and low sales prices of the Common
Stock on November 6, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
4,000,000 SHARES
[LOGO]
GLASGAL COMMUNICATIONS, INC.
COMMON STOCK
------------------
All of the 4,000,000 shares of Common Stock offered hereby are being offered
by Glasgal Communications, Inc. (the "Company"). The Common Stock of the Company
is quoted on the Nasdaq SmallCap Market under the symbol "GLAS" and on the
Boston Stock Exchange under the symbol "GGL." On October 31, 1997, the last
reported sale price of the Common Stock on the Nasdaq SmallCap Market was $6.875
per share. See "Price Range of Common Stock and Dividend Policy." Application
has been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "GLAS."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 11.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company and certain selling stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $875,000.
(3) The Company and certain stockholders of the Company have granted to the
Underwriters a 45-day option to purchase up to 600,000 additional shares of
Common Stock on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively, and the Proceeds to Selling Stockholders will be $ .
See "Principal Stockholders" and "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and reject any orders in whole or in part. It is expected
that the certificates for the shares of Common Stock will be available for
delivery at the offices of Volpe Brown Whelan & Company, LLC, One Maritime
Plaza, San Francisco, California, on or about , 1997.
------------------------
VOLPE BROWN WHELAN & COMPANY TUCKER ANTHONY
INCORPORATED
The date of this Prospectus is , 1997
<PAGE>
[This page contains a graphical depiction of the Company's solution setting
forth the
elements of the Company's implementation model]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND CERTAIN OTHER SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
Datatec-Registered Trademark- and Integrator's Workbench Product
Series-Registered Trademark- are registered trademarks of the Company and
Network Device Deployment, Computing Device Deployment, OfficeLink, HomeLink,
RapidRefresh, RapidRollout, RapidRestaurant and PracticeCentral are trademarks
of the Company. This Prospectus also includes product names, trade names and
marks of companies other than the Company. All other company or product names
are trademarks or registered trademarks of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL FINANCIAL DATA AND
SHARE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), WHICH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT COULD CAUSE ACTUAL RESULTS TO VARY
MATERIALLY FROM THOSE REFLECTED IN SUCH STATEMENTS, INCLUDING THOSE DISCUSSED IN
"RISK FACTORS" ON PAGES 5 THROUGH 11.
THE COMPANY
Glasgal Communications, Inc. (the "Company") provides configuration,
integration and rapid deployment services for the implementation of complex
computer networking and connectivity systems. By combining its standardized
process methodology and its Integrator's Workbench Product Series ("Integrator's
Workbench") software tools with extensive project management, integration and
implementation expertise, the Company delivers high quality and cost effective
technology deployment solutions. Utilizing four regional staging and
configuration centers and its own field deployment force of approximately 285
people operating out of 19 offices, the Company conducts multiple simultaneous
large scale implementations for organizations throughout the United States and
Canada.
In order to provide high quality, consistent, rapid and cost effective
results, the Company has developed an implementation model consisting of (i) a
standardized process methodology, (ii) project management expertise, (iii)
Integrator's Workbench software tools, (iv) regional staging and configuration
centers and (v) its own field deployment force. The Company believes its
implementation model enables its direct customers to accelerate the assimilation
of networking technologies into their organizations, and allows its indirect
customers to accelerate the adoption of their products and services.
The Company markets its services to Fortune 2,000 companies directly through
its sales force and indirectly through systems manufacturers, systems
integrators, independent software vendors and telecommunications carriers. The
Company's direct customers include Bell Atlantic Network Integration, Beneficial
Management Corporation, Blockbuster Entertainment Inc., Federated Department
Stores, Inc., Lowe's Companies, Inc., Ross Stores, Inc., Starbucks Corporation,
Toys "R" Us, Inc. and Walgreen Co. The Company's indirect customers include
Diebold Inc., Electronic Data Systems Corporation, IBM Global Services, NCR
Corporation and Unisys Corporation. In June 1997, the Company was selected by
Cisco Systems, Inc. ("Cisco") to participate in its new Advanced Installation
Services ("AIS") program. The AIS program is intended to enable faster
deployment of Cisco's networking technology to Fortune 1,000 corporations.
Since April 1996, Glasgal has completed three acquisitions which have
enabled the Company to focus its business exclusively on providing
implementation services. The Company's objective is to be the premier provider
of configuration, integration and rapid deployment services for the
implementation of complex computer networking solutions. Key elements of the
Company's strategy include (i) focusing on implementation services, (ii)
targeting complex networking and connectivity implementations, (iii) leveraging
the Company's implementation model, (iv) leveraging existing customers, (v)
establishing strategic alliances, and (vi) pursuing strategic acquisitions.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 4,000,000 shares
Common Stock to be outstanding after the 32,211,134 shares(1)
offering......................................
Use of proceeds................................. To repay certain indebtedness and for
general corporate purposes including
potential acquisitions and working
capital.
Proposed Nasdaq National Market symbol.......... GLAS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED APRIL 30, JULY 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 55,876 $ 59,169 $ 59,481 $ 15,830 $ 18,600
Operating income (loss)................................. 3,203 (4,248) 1,538 2,221 479
Income (loss):
Continuing operations................................. 2,596 (5,149) 702 1,897 25
Discontinued operations............................... (4,989) (8,046) (5,662) (503) --
Net income (loss)..................................... (2,393) (13,418) (4,960) 1,394 25
Income (loss) per share:
Continuing operations................................. 0.14 (0.28) 0.03 0.07 0.00
Discontinued operations............................... (0.27) (0.44) (0.24) (0.02) --
Net income (loss) per share........................... $ (0.13) $ (0.73) $ (0.21) $ 0.05 $ 0.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common and
common equivalent shares.............................. 17,981 18,354 23,557 26,875 25,834
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997 (UNAUDITED)
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(3)
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 759 $ 759 $ 17,841
Working capital (deficiency)............................................. (2,943) 6,830 26,891
Total assets............................................................. 29,533 29,533 49,565
Long-term obligations.................................................... 2,000 1,200 --
Total shareholders' equity............................................... 1,121 11,694 36,394
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding as of October 31, 1997. Excludes
(i) approximately 6,745,071 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants at a weighted average exercise price
of $3.98 per share, (ii) 1,606,470 additional shares of Common Stock
reserved for issuance under the Company's employee and director stock option
plans and (iii) approximately 230,752 shares of Common Stock issuable upon
conversion of the Company's 10% convertible notes in a principal amount
aggregating $1,200,000 (the "Notes"). See "Management-- Stock Option Plans"
and "Description of Securities-- Convertible Notes."
(2) Pro forma to reflect the (i) receipt of $9,772,971 by the Company in October
1997 upon the exercise of outstanding redeemable warrants to purchase an
aggregate of 2,743,290 shares of Common Stock at an exercise price of $3.75
per warrant, less warrant solicitation fees, and the application of the net
proceeds therefrom (the "Warrant Call") and (ii) issuance of 236,516 shares
of Common Stock in August 1997 upon the conversion of $800,000 aggregate
principal amount of the Company's Notes (the "Note Conversion").
(3) Pro forma as adjusted to reflect the sale of the 4,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$6.875 per share and the initial application of the net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
RECENT CHANGE OF BUSINESS FOCUS. In October 1996, the Company acquired
Datatec Industries Inc. ("Datatec Industries"), a provider of configuration,
integration and deployment services. In June 1997, the Company discontinued its
data communications equipment distribution business in order to focus
exclusively on implementation services. The Company's current business
represents a substantial change from the Company's historical line of business.
Consequently, the Company's historical results of operations do not reflect
combined operations relating to its current business for a significant period of
time and such results may not be indicative of the Company's future results of
operations. Management and other key personnel may not have the experience
required to manage such a substantial change in business focus. If the Company's
efforts are not successful, the Company's results of operations could be
adversely affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FLUCTUATION IN QUARTERLY RESULTS; EXTENDED LEAD TIMES FOR REALIZATION OF
REVENUE. The Company's quarterly operating results have varied in the past, and
may vary significantly in the future, depending on a number of factors such as
market acceptance of new or enhanced versions of the Company's services, changes
in customer mix, changes in the level of operating expenses, the gain or loss of
significant customers, personnel changes and economic conditions in general and
in the Company's industry in particular. Any unfavorable change in these or
other factors could have a material adverse effect on the Company's operating
results for a particular quarter and makes the prediction of revenue and results
of operations on a quarterly basis difficult, and performance forecasts derived
from such predictions unreliable.
The Company has experienced large fluctuations in sales from
quarter-to-quarter due to substantial sales to customers in the retailing
industry. Typically, these customers delay improvements and enhancements during
the fourth quarter of the calendar year to avoid costly interruptions during the
holiday sales season. In addition, a substantial portion of the Company's
operating expenses is related to personnel, facilities, inventory, equipment and
marketing programs. The level of spending for such expenses cannot be adjusted
quickly and is therefore fixed in the short term. The level of these expenses is
based, in significant part, on the Company's expectations of future revenue on a
quarterly basis. If actual revenue levels on a quarterly basis are below
management's expectations, results of operations are likely to be adversely
affected because only a small amount of the Company's expenses varies with its
revenue in the short term.
Due to the nature and size of implementation projects that the Company is
now pursuing, there is a longer lead time between the initiation of prospective
business and the consummation of a transaction, if any. As such, there are
likely to be substantial fluctuations in sales volume from month-to-month and
quarter-to-quarter. The fluctuations in the Company's operating results increase
the Company's risk of failure, especially given its present level of working
capital. As a result, if the Company experiences lower than expected sales
volume for an extended period of time, it may have a material adverse effect on
the business, financial condition and results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
MANAGEMENT OF GROWTH. Recently, the Company has expanded its operations
rapidly through several acquisitions, which has placed significant demands on
the Company's administrative, operational and financial personnel and systems.
Additional expansion by the Company may further strain the Company's management,
financial and other resources. There can be no assurance that the Company's
systems,
5
<PAGE>
procedures, controls and existing space will be adequate to support expansion of
the Company's operations. The Company's future operating results will
substantially depend on the ability of its officers and key employees to manage
changing business conditions and to implement and improve its operational,
financial control and reporting systems. If the Company is unable to respond to
and manage changing business conditions, the quality of the Company's services,
its ability to retain key personnel and its results of operations could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON SIGNIFICANT CUSTOMERS; NO ASSURANCE OF BACKLOG. During each of
the past two fiscal years, sales of the Company's services to a limited number
of customers have accounted for a substantial percentage of the Company's total
net sales. For the years ended April 30, 1997 and 1996, the Company's 15 largest
customers accounted for approximately 61.5% and 63.0% of the Company's total net
sales, respectively. For the year ended April 30, 1997, Federated Department
Stores, Inc. and Lowe's Companies, Inc. accounted for approximately 11.7% and
10.1%, respectively, of the Company's total net sales. This concentration of
customers can cause the Company's net sales and earnings to fluctuate from
quarter-to-quarter, based on the requirements of its customers and the timing of
delivery of services. Although the Company believes it has good relationships
with its largest customers and has in the past received a substantial portion of
its net sales from repeat business with established customers, none of the
Company's major customers has any obligation to purchase additional services.
Therefore, there can be no assurance that any of the Company's major customers
will continue to purchase new services in amounts similar to previous years.
Although the particular customers are likely to change from period-to-period,
the Company believes that large orders from a limited number of customers will
continue to account for a substantial portion of its net sales in any fiscal
period. In any period, the unexpected loss of or decline in net sales from a
major customer, or the failure to generate significant revenues from other
customers, could have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company's implementation services are generally provided at a fixed
contract price pursuant to purchase orders or other written agreements with its
customers. Although certain traditional customers of Datatec Industries continue
to order services through oral agreements, the Company is in the process of
changing its procedure to assure that in the future, where possible, all
services will be provided under written agreements or purchase orders. There can
be no assurance that the Company will not be involved in litigation with respect
to any oral agreements with customers or that the outcome of any such litigation
might not be unfavorable to the Company as a result of the lack of a written
agreement or purchase order.
Backlog for the Company's services as of October 1, 1997 totaled $40.6
million. Backlog consists of purchase orders, written agreements and oral
agreements with customers for which a customer has scheduled the provision of
services within the next 12 months. Orders included in backlog may be canceled
or rescheduled by customers without penalty. A variety of conditions, both
specific to the individual customer and generally affecting the customer's
industry, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated. The Company cannot assure the timely replacement
of canceled, delayed or reduced orders. Significant or numerous cancellations,
reductions or delays in orders by a customer or group of customers could
materially adversely affect the Company's business, financial condition and
results of operations. Backlog should not be relied upon as indicative of the
Company's revenues for any future period.
DEPENDENCE ON INDIRECT CUSTOMERS AND STRATEGIC ALLIANCES. The Company
markets its services in part through indirect customers and strategic alliances
with systems manufacturers, systems integrators, independent software vendors
and telecommunications carriers, that utilize the Company's services to provide
joint solutions to customers. The Company has entered into a non-exclusive
agreement with Cisco, pursuant to which the Company has agreed to provide
implementation services to customers of Cisco. Cisco may terminate its agreement
with the Company at any time, with or without cause. Termination of the Cisco
agreement, or any similar agreement that the Company enters into in the future,
may have a
6
<PAGE>
material adverse effect on the Company's business, financial condition and
results of operations. The Company's strategy is to enter into similar
agreements with other systems manufacturers, systems integrators, independent
software vendors and telecommunications carriers. Because the Company utilizes
and will continue to utilize indirect customers and strategic alliances as a
significant distribution channel, the Company is subject to the risk that its
indirect customers or strategic partners will discontinue or decrease their use
of the Company's services for reasons unrelated to the quality or price of, or
demand for, the Company's services, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company is subject to the risk that the demand for products and services sold by
its indirect customers or strategic partners will decline, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACQUISITIONS. A significant portion of the Company's revenue growth
resulted from its recent acquisition of Datatec Industries. The Company has
pursued, and will continue to pursue, opportunities through internal development
and acquisitions of complementary enterprises and products. The Company has not
entered into any agreements involving potential acquisitions at this time. The
Company competes for acquisition and expansion opportunities with many entities
that have substantially greater resources than the Company. In addition,
acquisitions may involve difficulties in the retention of personnel, diversion
of management's attention, unexpected legal liabilities, and tax and accounting
issues. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses or service offerings into its operations or expand into new
markets. Once integrated, acquisitions may not achieve comparable levels of
revenue, profitability or productivity as the existing business of the Company
or otherwise perform as expected. The occurrence of any of these events could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES. The Company has a history
of limited working capital and had working capital deficiencies of $585,000,
$7.7 million, $3.0 million and $2.9 million at April 30, 1995, 1996, 1997 and
July 31, 1997, respectively. On March 19, 1997, the Company entered into a
credit facility with a financial institution that provides for maximum borrowing
of $17.0 million. The credit facility provides for a $15.0 million revolving
credit facility, with allowable borrowing under the facility based on a formula
of receivables and inventory. The credit facility also provides for a term loan
of $2.0 million with principal and interest due monthly. The revolving credit
facility bears interest at the prime rate plus 0.75% per annum and the term loan
bears interest at the prime rate plus 1.5% per annum. The credit facility
requires the Company to comply with certain financial and nonfinancial
covenants. As of July 31, 1997, the Company was not in compliance with certain
covenants and is in the process of obtaining waivers. As there can be no
assurance that such waivers will be obtained, certain long-term debt has been
classified as current in the accompanying financial statements as of July 31,
1997. Outstanding borrowings under the term loan and revolving loan as of July
31, 1997 were $1.9 million and $9.2 million, respectively.
In addition, while the Company had net income of $25,000 for the three
months ended July 31, 1997, the Company has incurred net losses of $2.4 million,
$13.4 million and $5.0 million for the fiscal years ended April 30, 1995, 1996,
and 1997, respectively. There can be no assurance that the Company will generate
sufficient revenues to meet expenses or to operate profitably in the future. If
the Company is unable to generate sufficient cash flow from its operations it
would have to seek additional borrowings, effect debt or equity offerings or
otherwise raise capital. There can be no assurance that any such financing will
be available to the Company, or if available, that the terms will be acceptable
to the Company. In addition, the ability to raise other capital might be
restricted by financial covenants contained in the Company's currently existing
borrowing agreements.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in large
part on the continued service of its key personnel. In particular, the loss of
the services of Isaac Gaon, Chief Executive Officer of
7
<PAGE>
the Company, or Christopher Carey, President and Chief Executive Officer of
Datatec Industries, could have a material adverse effect on the operations of
the Company. The Company has employment agreements with Messrs. Gaon and Carey
each of which expire on October 31, 1999. Each of these employment agreements
may be terminated by the Company for cause or by the employee for good reason.
Mr. Glasgal, Chairman of the Board and President of the Company, has announced
that he will retire from these positions concurrently with the Company's annual
stockholders' meeting to be held in December 1997 (the "Annual Stockholders'
Meeting"). Messrs. Gaon and Carey have been elected as Chairman of the Board and
President of the Company, respectively, effective upon Mr. Glasgal's retirement.
The Company's future success and growth also depends on its ability to continue
to attract, motivate and retain highly qualified employees, including those with
the technical, managerial, sales and marketing expertise necessary to operate
the business of the Company. Competition for personnel in the configuration,
integration and deployment services industry is intense, and there can be no
assurance that the Company will be successful in attracting, motivating and
retaining such personnel. Departures and additions of key personnel may be
disruptive to the Company's business and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management-- Employment Agreements."
COMPETITION. The Company competes with a number of other companies involved
in the design, configuration, installation, integration, deployment and
servicing of computer networking technologies. The market for configuration,
integration and deployment services is highly fragmented, intensely competitive
and rapidly changing and there can be no assurance that the Company will be able
to compete successfully in the future. The Company believes that its ability to
compete successfully depends upon a number of factors both within and beyond its
control, including performance, price, quality and breadth of services, and
industry and general economic trends. In addition to direct competition, the
Company faces indirect competition from its existing and potential future
customers, many of which internally design, integrate and deploy their own
technologies for their particular needs, and therefore may be reluctant to use
services offered by independent providers such as the Company. As a result, the
Company must educate prospective customers as to the advantages of the Company's
services. There can be no assurance that the Company will be able to compete
effectively with its direct competitors or to adequately educate potential
customers to the benefits provided by the Company's services.
Many of the Company's current and potential competitors have longer
operating histories and greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, larger customer bases, and
greater market acceptance of their services, than the Company. As a result, they
may be able to respond more quickly to technological changes or market
opportunities, and to devote greater resources to the development, promotion and
sale of their services than the Company. Also, in the markets in which the
Company operates, there are relatively low barriers to entry and new competition
may arise either from expansion by established companies or from new emerging
companies. Increased competition may result in pressure for price reductions and
related reductions in gross margins and market share, any of which could have a
material adverse effect on the Company's ability to achieve its financial and
business goals. To achieve its goal of larger market share, the Company must
continue to enhance its existing services, introduce new service offerings,
recruit and train additional deployment and engineering staff, and recruit and
train sales and marketing professionals. There can be no assurance that the
Company will be able to successfully compete against current and future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on its business, financial condition and results of
operations.
The Company has licensed on a non-exclusive basis, including the right to
sublicense, its Integrators Workbench software tool to certain third parties. As
a result of such licenses, third parties have obtained the right to use
Integrator's Workbench and may use this software to compete with the Company in
certain instances. See "Business--Competition."
8
<PAGE>
RELIANCE ON UNIONIZED LABOR. A substantial portion of the Company's
deployment force is employed under contracts with the International Brotherhood
of Electrical Workers and the International Brotherhood of Electrical Workers
Local 1430 (collectively the "IBEW"). The Company's union employees are
responsible for the deployment of the Company's services. The Company's current
contracts with the IBEW expire on December 31, 1997. Negotiations have not
commenced with respect to the new contracts and there can be no assurance as to
the results of the negotiations or whether such contracts will be negotiated
without any work stoppages. Any work stoppages or other labor disturbances could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Employees."
LIMITED INTELLECTUAL PROPERTY. The Company relies on a combination of
contractual rights, copyright and trade secret laws to establish and protect its
software and other proprietary rights. Existing copyright and trade secret laws
offer only limited protection. There can be no assurance that the steps taken by
the Company to protect these proprietary rights will be adequate to deter
misappropriation. Although the Company does not believe that it is infringing
the intellectual property rights of others, there can be no assurance that such
claims will not be asserted and, if asserted, would not have a material adverse
effect on the Company's business, financial condition and results of operations.
Any such litigation could be costly and divert management's attention, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such litigation
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek licenses from
third parties or prevent the Company from selling its services, any one of which
would have a material adverse effect on the Company's business, financial
conditions and results of operations. See "Business--Intellectual Property."
INFLUENCE BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. As of September 30,
1997, the Company's directors and executive officers owned and/or had the power
to vote approximately 39.7% of the Common Stock. In addition, as of September
30, 1997, Ralph Glasgal, the current Chairman of the Board and President of the
Company, through his direct ownership and through a voting agreement with Direct
Connect International Inc. ("DCI") had the power to vote approximately 18.7% of
the Common Stock and Mr. Carey, President and Chief Executive Officer of Datatec
Industries had the power to vote approximately 14.1% of the Common Stock.
Accordingly, management will be able to influence (in addition to their
influence as officers and/or directors) the affairs of the Company, including
the election of directors and other matters requiring stockholder approval.
VOLATILITY OF THE COMPANY'S COMMON STOCK. The market price of the Company's
Common Stock has experienced significant volatility. Announcements of
technological or other innovations for new commercial products or services of
the Company or its competitors, developments concerning propriety rights or
governmental regulations, changes in financial estimates by securities analysts,
or general conditions in the economy or the market for the Company's services,
some of which may be unrelated to the Company's performance and beyond the
Company's control, may have a significant effect on the Company's business and
on the market price of the Company's securities. Sales of a substantial number
of shares by existing security holders could also have an adverse effect on the
market price of the Company's securities. In particular, the Company believes
that the increase in the number of outstanding shares of Common Stock as a
result of the exercise of the warrants in the Warrant Call will cause increased
volatility of its stock price in the short-term. The stocks of many technology
companies have experienced extreme price and volume fluctuations unrelated to
the operating performance of those companies.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have outstanding 32,211,134 shares of Common Stock, assuming (i) no
exercise of the Underwriters' over-allotment option, (ii) no exercise of
6,745,071 options and warrants outstanding as of October 31, 1997, and (iii) no
conversion of the Notes. As of September 30, 1997, approximately 14,088,047
shares of Common Stock were immediately available for sale without restriction
in the public market. All remaining outstanding
9
<PAGE>
shares (the "Restricted Shares") were issued and sold by the Company in private
transactions and are eligible for public sale if registered under the Securities
Act or sold in accordance with Rule 144 or Rule 144A.
As of October 31, 1997, approximately 6,975,823 shares of Common Stock were
reserved for issuance upon the exercise of outstanding options, warrants, and
conversion of outstanding notes. See "Management--Stock Option Plans." and
"Description of Securities--Convertible Notes." The Company has filed
registration statements on Form S-8 and Form S-3 under the Securities Act to
register the issuance or resale of an aggregate of approximately 4,965,576
shares of Common Stock upon the exercise or conversion of these derivative
securities and to register the resale of an aggregate of approximately 1,409,918
restricted shares of Common Stock issued in connection with various acquisitions
and private placements. Sales of such securities pursuant to such shelf
registration statements may have an adverse effect on the market price of the
Company's securities.
The Company and its officers and directors who as of September 30, 1997
owned 9,066,084 shares of Common Stock and options exercisable within 60 days of
September 30, 1997 to purchase an additional 1,681,300 shares of Common Stock,
have agreed that, without the prior written consent of Volpe Brown Whelan &
Company, LLC, he, she or it will not, during the period ending 90 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option to contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or (ii) enter into any
swap or similar agreement that transfers, in whole or in part, the economic risk
of ownership of the Common Stock, whether any such transaction describe in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. Volpe Brown Whelan & Company, LLC may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. Volpe Brown
Whelan & Company, LLC has granted Mr. Glasgal the right to sell (i) up to 67,167
shares of Common Stock to certain employees of the Company upon the exercise of
certain options previously granted to such employees by Mr. Glasgal, and (ii) up
to 3,000 shares of Common Stock per week during such 90 day period commencing
two weeks after the date of this Prospectus. In addition, Messrs. Carey and
Glasgal have pledged 750,000 and 2,579,475 shares of Common Stock, respectively,
pursuant to margin loans with brokerage firms. Volpe Brown Whelan & Company, LLC
has agreed to permit these individuals to sell these shares from time to time to
the extent necessary to satisfy the requirements of these loans.
No predictions can be made as to the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's ability to raise capital through an offering of its
equity securities in the future. See "Shares Eligible for Future Sale."
RIGHTS OF COMMON STOCK SUBORDINATE TO PREFERRED STOCK. The Certificate of
Incorporation of the Company authorizes the issuance of a maximum of 4,000,000
shares of preferred stock, par value $0.001 per share. There are no shares of
preferred shares currently issued and outstanding. However, if shares of
preferred stock are issued in the future, the terms of a series of preferred
stock may be set by the Company's Board of Directors without approval by the
holders of the Common Stock of the Company. Such terms could include, among
others, preferences as to dividends and distributions on liquidation as well as
separate class voting rights. The rights of the holders of the Company's Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future.
CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS. The Company's Certificate of
Incorporation: (i) requires certain procedures to be followed and time periods
to be met for any stockholder to propose matters to be
10
<PAGE>
considered at annual meetings of stockholders, including nominating directors
for election at those meetings; (ii) prohibits stockholders from calling special
meetings of stockholders; and (iii) authorizes the Board of Directors of the
Company to issue up to 4,000,000 shares of preferred stock without stockholder
approval and to set the rights, preferences and other designations, including
voting rights, of those shares as the Board of Directors may determine. These
provisions, alone or in combination with each other and with the matters
described under "--Influence by Management and Principal Stockholders," may
discourage transactions involving actual or potential changes of control of the
Company, including transactions that otherwise could involve payment of a
premium over prevailing market prices to holders of Common Stock. The Company is
also subject to provisions of the Delaware General Corporation Law that may make
some business combinations more difficult. See "Description of
Securities--Certain Provisions of the Company's Charter and Bylaws and Delaware
Law."
NO CASH DIVIDENDS. The Company has not paid cash dividends on its Common
Stock since its inception, other than certain distributions made to stockholders
in amounts sufficient to reimburse the Company's stockholders for income tax
liabilities arising from the Company's former status as a Subchapter "S"
corporation. The Company does not intend to pay cash dividends on its Common
Stock for the foreseeable future. The payment of cash dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon such factors as earnings levels, capital requirements, the Company's
financial condition and other factors deemed relevant by the Company's Board of
Directors. In addition, the payment of cash dividends by the Company is
restricted by the Company's current bank credit facility, and future borrowings
may contain similar restrictions. See "Price Range of Common Stock and Dividend
Policy."
DILUTION. The purchasers of the Common Stock offered hereby will experience
immediate and significant dilution of approximately $5.79 per share in the net
tangible book value per share of the Common Stock as of July 31, 1997. See
"Dilution."
11
<PAGE>
THE COMPANY
The Company's executive offices are located at 20C Commerce Way, Totowa, New
Jersey 07512. The telephone number of the Company is (201) 890-4800. The Company
intends to seek stockholder approval to change its name to Datatec Systems
Integration, Inc. at the Annual Stockholders' Meeting. When used in this
Prospectus, the term the "Company" refers to Glasgal Communications, Inc. and
its subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the 4,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $6.875 per
share are estimated to be approximately $24.7 million ($26.0 million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated expenses of the offering.
The Company anticipates using the net proceeds of this offering as follows:
(i) approximately $2.3 million of such net proceeds to repay borrowings under
the Company's line of credit which bears interest at the prime rate plus 0.75%
per annum and expires on March 16, 2000 (which indebtedness was incurred to
repay the prior credit facility of Datatec Industries), (ii) approximately $1.8
million to repay in full borrowings under the Company's term loan which bears
interest at the prime rate plus 1.5% per annum and matures on March 16, 2000,
(iii) approximately $1.2 million to repay the Company's 10% Convertible Notes
due February 1999, unless converted, (iv) approximately $660,000 to repay
indebtedness which bears interest at a rate of 3.65% per annum (as of July 31,
1997) and matures over the next four years, (v) approximately $1.4 million of
indebtedness due to Plan C LLC, a related party, which note bears interest at a
rate of 12.5% per annum (see "Certain Transactions"), (vi) approximately
$950,000 to repay a mortgage on a property owned by the Company which bears
interest at a rate of 8.05% per annum, and (vii) approximately $2.0 million to
enhance the Company's computer infrastructure. The balance of the net proceeds
will be used for general corporate purposes, including potential acquisitions,
and development activities and working capital. The Company has not entered into
any agreements involving potential acquisitions at this time and there can be no
assurance that the Company will enter into any such agreements or consummate any
such acquisitions. The allocation of the net proceeds of this offering set forth
above represents the Company's best estimate based upon its present plans and
certain assumptions regarding general economic and industry conditions and the
Company's future revenues and expenditures. The Company reserves the right to
reallocate these proceeds within the above-mentioned categories or to other
purposes if management believes it is in the Company's best interests. Any
additional net proceeds from the exercise of the Underwriters' over-allotment
option (up to approximately $1.3 million) will be added to the Company's working
capital. Pending such uses, the Company intends to invest the net proceeds in
short-term, interest-bearing, investment grade securities.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "GLAS" and on the Boston Stock Exchange under the symbol "GGL."
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "GLAS." The following table sets forth
the high and low sale prices per share of Common Stock, as reported on the
Nasdaq SmallCap Market during the periods presented.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter................................................................................ $ 3.875 $ 1.250
Second Quarter............................................................................... 4.500 2.500
Third Quarter................................................................................ 10.875 3.750
Fourth Quarter............................................................................... 12.750 6.500
1997
First Quarter................................................................................ $ 11.625 $ 5.875
Second Quarter............................................................................... 8.875 4.750
Third Quarter................................................................................ 6.375 4.000
Fourth Quarter............................................................................... 6.000 2.844
1998
First Quarter................................................................................ $ 5.625 $ 2.750
Second Quarter............................................................................... 8.438 3.875
Third Quarter (through November 6, 1997)..................................................... 7.094 6.125
</TABLE>
All of the foregoing prices reflect interdealer quotations, without retail
mark-up, mark-downs or commissions and may not necessarily represent actual
transactions in the Common Stock.
On October 31, 1997, the last reported sale price of the Common Stock on the
Nasdaq SmallCap Market was $6.875. As of September 26, 1997, there were
approximately 284 holders of record of the Company's Common Stock. The Company
believes that at such date there were approximately 3,300 beneficial owners of
the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception, other than certain distributions made to stockholders in amounts
sufficient to reimburse the Company's stockholders for income tax liabilities
arising from the Company's former status as a Subchapter "S" corporation. The
Company does not intend to pay cash dividends on its Common Stock for the
foreseeable future. The payment of cash dividends in the future will be at the
discretion of the Company's Board of Directors and will depend upon such factors
as earnings levels, capital requirements, the Company's financial condition and
other factors deemed relevant by the Company's Board of Directors. In addition,
the payment of cash dividends by the Company is restricted by the Company's
current bank credit facility, and future borrowings may contain similar
restrictions.
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual total short-term debt and total
capitalization of the Company as of (i) July 31, 1997, (ii) July 31, 1997 on a
pro forma basis to give effect to the Warrant Call and the Note Conversion, and
(iii) July 31, 1997 on a pro forma as adjusted basis to give effect to the sale
by the Company of the 4,000,000 shares of Common Stock offered hereby at an
assumed public offering price of $6.875 per share, and the initial application
of the estimated net proceeds therefrom. This table should be read in
conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1997
------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Short-term debt.................................................................. $ 9,234 -- --
Current portion of long-term debt................................................ 3,545 $ 3,006 $ 977
---------- ----------- -----------
Total short-term debt............................................................ 12,779 3,006 977
---------- ----------- -----------
---------- ----------- -----------
Long-term debt less current portion.............................................. 2,000 1,200 --
Shareholders' equity
Preferred stock, $0.001 par value; 4,000,000 shares authorized, none issued and
outstanding actual, pro forma and pro forma as adjusted...................... -- -- --
Common stock, $0.001 par value; 34,000,000 shares authorized, 24,564,000 shares
issued and outstanding actual; 27,543,000 shares issued and outstanding pro
forma; 31,543,000 shares issued and outstanding, pro forma as adjusted(1).... 25 28 32
Additional paid-in capital....................................................... 13,425 23,995 48,691
Accumulated deficit.............................................................. (12,055) (12,055 ) (12,055 )
Cumulative translation adjustment................................................ (274) (274 ) (274 )
---------- ----------- -----------
Total shareholders' equity................................................... 1,121 11,694 36,394
---------- ----------- -----------
Total capitalization......................................................... $ 3,121 $12,894 $36,394
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding as of July 31, 1997. Excludes (i)
approximately 7,382,677 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants at a weighted average exercise price
of $3.71 per share, (ii) 1,640,470 additional shares of Common Stock
reserved for issuance under the Company's employee and director stock option
plans and (iii) the issuance of approximately 222,222 shares of Common Stock
issuable upon conversion of the Notes. See "Management--Stock Option Plans"
and "Description of Securities--Convertible Notes."
14
<PAGE>
DILUTION
At July 31, 1997, the Company had a pro forma net tangible book value of
approximately $9.6 million, or $0.35 per share of Common Stock. Pro forma net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities, divided by the number of shares of Common Stock
outstanding (taking into effect the Warrant Call and the Note Conversion). After
giving effect to the sale of 4,000,000 shares offered by the Company hereby at
an assumed public offering price of $6.875 per share and the application of the
net proceeds therefrom, the pro forma net tangible book value of the Company at
July 31, 1997 would have been approximately $34.3 million or $1.09 per share.
This represents an immediate increase in such net tangible book value of $0.74
per share to existing stockholders and an immediate dilution of $5.79 per share
to new investors purchasing shares at the public offering price, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price......................................... $ 6.875
Pro forma net tangible book value per share as of July 31, 1997..... $0.35
Increase per share attributable to new investors.................... 0.74
-----
Pro forma net tangible book value per share after this offering....... 1.09
------
Dilution per share to new investors................................... $ 5.79
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1997,
the number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by the existing
stockholders and the new investors (based upon, in the case of new investors, an
assumed public offering price of $6.875 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............................... 24,563,686 78% $ 13,450,000 26% $ 0.55
Warrant holders and Note holders(2).................... 2,979,806 9% 10,573,000 21% $ 3.55
New investors(3)....................................... 4,000,000 13% 27,500,000 53% $ 6.875
------------ --- ------------- ---
Total.............................................. 31,543,492 100% $ 51,523,000 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
- ------------------------
(1) The consideration paid by existing stockholders is comprised of the cash
paid to the Company for shares issued and the cash paid by investors to the
predecessor entities for their equity contributions to the predecessors.
(2) Reflects the issuance of 2,743,290 shares of Common Stock in connection with
the Warrant Call and 236,516 shares of Common Stock in connection with the
Note Conversion.
(3) Reflects the sale of the 4,000,000 shares of Common Stock offered by the
Company hereby at an assumed public offering price of $6.875 per share.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for and at the end
of each of the years in the three-year period ended April 30, 1997 after giving
effect in all three periods presented for the discontinuance of a segment of the
Company's business, are derived from the Company's audited consolidated
financial statements. See Note 4 to the Company's Consolidated Financial
Statements. The selected consolidated financial data as of and for each of the
years in the two-year period ended December 31, 1993, as of and for the four
months ended April 30, 1993 and 1994 and the three months ended July 31, 1996
and 1997 have been derived from unaudited consolidated financial statements of
the Company which, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
such information as of and for such period. The results of operations for the
three months ended July 31, 1996 and 1997 are not necessarily indicative of the
results of operations to be expected for the entire year or any subsequent
period. On May 2, 1994, the Company changed its fiscal year end from December 31
to April 30.
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 this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED FOUR MONTHS ENDED
DECEMBER 31, ENDED APRIL 30, YEAR ENDED APRIL 30, JULY 31,
-------------------- -------------------- ------------------------------- ---------
1992 1993 1993 1994 1995 1996 1997 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 42,905 $ 50,629 $ 13,795 $ 16,332 $ 55,876 $ 59,169 $ 59,481 $ 15,830
Cost of sales............................. 24,405 27,454 8,237 9,029 32,616 34,217 37,159 9,060
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.............................. 18,500 23,175 5,558 7,303 23,260 24,952 22,322 6,770
Selling, general and administrative
expenses................................ 15,566 9,931 3,259 6,112 20,057 29,200 20,784 4,549
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................... 2,934 13,244 2,299 1,191 3,203 (4,248) 1,538 2,221
Other income.............................. -- -- -- -- -- -- 430 --
Interest expense.......................... (403) (14) (166) (45) (495) (938) (1,155) (280)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision (benefit)
for income taxes........................ 2,531 13,230 2,133 1,146 2,708 (5,186) 813 1,941
Provision (benefit) for income taxes...... 130 914 93 65 112 (37) 111 44
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations.............................. 2,401 12,316 2,040 1,081 2,596 (5,149) 702 1,897
Discontinued operations:
Loss from operations.................... (1,460) (6,491) (1,700) (2,600) (4,989) (5,762) (4,709) (503)
Provision for future losses............. -- -- -- -- -- (2,284) (953) --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item... 941 5,825 340 (1,519) (2,393) (13,195) (4,960) 1,394
Extraordinary item (1).................... -- -- -- -- -- (223) -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......................... $ 941 $ 5,825 $ 340 $ (1,519) $ (2,393) $ (13,418) $ (4,960) $ 1,394
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) per share:
Income (loss) from continuing
operations............................ $ 0.14 $ (0.28) $ 0.03 $ 0.07
Discontinued operations................. (0.27) (0.44) (0.24) (0.02)
Extraordinary item...................... -- (0.01) -- --
--------- --------- --------- ---------
Net income (loss) per share............... $ (0.13) $ (0.73) $ (0.21) $ 0.05
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common
equivalent shares....................... 17,981 18,354 23,557 26,875
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 18,600
Cost of sales............................. 11,277
---------
Gross profit.............................. 7,323
Selling, general and administrative
expenses................................ 6,844
---------
Operating income (loss)................... 479
Other income.............................. --
Interest expense.......................... (454)
---------
Income (loss) before provision (benefit)
for income taxes........................ 25
Provision (benefit) for income taxes...... --
---------
Income (loss) from continuing
operations.............................. 25
Discontinued operations:
Loss from operations.................... --
Provision for future losses............. --
---------
Income (loss) before extraordinary item... 25
Extraordinary item (1).................... --
---------
Net income (loss)......................... $ 25
---------
---------
Income (loss) per share:
Income (loss) from continuing
operations............................ $ 0.00
Discontinued operations................. --
Extraordinary item...................... --
---------
Net income (loss) per share............... $ 0.00
---------
---------
Weighted average common and common
equivalent shares....................... 25,834
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
-------------------- -----------------------------------------------------
1992 1993 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 148 $ 221 $ 128 $ 597 $ 265 $ 2,219 $ 1,135
Working capital (deficiency)................... 181 5,447 1,442 (3,584) (585) (7,664) (2,957)
Total assets................................... 13,510 13,877 13,103 17,665 22,334 23,494 27,804
Long-term obligations.......................... 1,242 1,057 2,170 2,509 3,642 2,338 5,001
Total shareholders' equity (deficit)........... 1,511 6,893 1,761 4,768 1,967 (3,706) (2,000)
<CAPTION>
JULY 31,
1997
-----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 759
Working capital (deficiency)................... (2,943)
Total assets................................... 29,533
Long-term obligations.......................... 2,000
Total shareholders' equity (deficit)........... 1,121
</TABLE>
- ------------------------------
(1) Write off of unamortized deferred financing fees as a result of the early
extinguishment of debt.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT. SUCH STATEMENTS REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE
AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THOSE
DISCUSSED IN "RISK FACTORS." SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS
MAY VARY MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.
OVERVIEW
The Company provides configuration, integration and rapid deployment
services for the implementation of complex computer networking and connectivity
systems. By combining its standardized process methodology and its Integrator's
Workbench software tools with extensive project management, integration and
implementation expertise, the Company delivers high quality and cost effective
technology deployment solutions. Utilizing four regional staging and
configuration centers and its own field deployment force of approximately 285
people operating out of 19 offices, the Company conducts multiple simultaneous
large scale implementations for organizations throughout the United States and
Canada. The Company believes its consistent, rapid implementation model enables
its direct customers to accelerate the assimilation of networking technologies
into their organizations and allows its indirect customers to accelerate the
adoption of their products and services.
The Company was established in 1975 as a regional distributor of data
communications equipment. Through fiscal 1991 the Company expanded
geographically by opening 14 new offices within the United States. Beginning in
fiscal 1991 the Company began redirecting its efforts to become a systems
integrator providing complete computer networking systems and integration
services. In October 1994, the Company acquired Signatel Ltd. ("Signatel"), a
Canadian systems integrator, which expanded the Company's geographic scope to
include four offices in Canada.
Over the course of fiscal 1995 and early fiscal 1996, the Company continued
to encounter and was greatly impacted by the trend of declining profitability in
data communications equipment sales. As a result, the Company decided to
accelerate the process of transitioning from the business of distributing data
communications equipment to its current business of providing implementation
services. In April 1996, the Company acquired Computer-Aided Software
Integration, Inc. ("CASI"), which has developed the Integrator's Workbench
software tools to aid in the automation of network configurations and
deployments. In July 1996, the Company acquired HH Communications, Inc. ("HH") a
systems integrator with an expertise in routing technologies. In October 1996,
the Company acquired Datatec Industries, a systems integrator with a focus on
deployment and implementation services.
Since the acquisition of Datatec Industries in October 1996, the Company has
transitioned its business to providing implementation services. In June 1997,
the Company discontinued its data communications equipment distribution
business. The Company is currently winding down this business which is expected
to be completed by the end of fiscal 1998. The Company is no longer a
distributor of data communications equipment and will only honor its existing
customer commitments.
The Company's current business represents a substantial change from the
Company's historical line of business. Consequently, the Company's historical
results of operations do not reflect combined operations relating to its current
business for a significant period of time and such results may not be indicative
of the Company's future results of operations.
The Company's implementation services are generally provided at a fixed
contract price pursuant to purchase orders or other written agreements with its
customers. Although certain traditional customers of Datatec Industries continue
to order services through oral agreements, the Company is in the process of
17
<PAGE>
changing its procedure to assure that in the future, where possible, all
services will be provided under written agreements or purchase orders.
The Company generally invoices its customers for its services after
deployment is completed at each customer site, and recognizes revenue relating
to such site at the time invoices are issued. The Company defers certain
pre-deployment costs such as engineering, planning and project management costs
and amortizes such costs as it recognizes revenue from such projects. The
Company's cost of services consists of three main categories: labor, materials
and project expenses. Labor consists of salaries and benefits for the Company's
field deployment force as well as staging and configuration personnel. The
materials category includes all materials used in the installation process such
as connectors, wall plates, conduit, and data and electrical cable. Project
expenses include travel and living expenses for the deployment teams, equipment
rentals and other costs that are not labor related or materials. The Company is
presently upgrading its systems and procedures which will enable the Company to
use percentage of completion accounting for significant contracts in excess of
one year.
As of April 30, 1997, the Company had net operating loss carryforwards for
federal tax purposes of approximately $10.2 million. United States tax rules
limit the amount of net operating loss that companies may utilize in any one
year in the event of cumulative changes in ownership over a three year period in
excess of 50%. The Company has completed several financings since the effective
date of these rules and does not believe that its ability to utilize its net
operating loss carryforwards is limited as of April 30, 1997, although ownership
changes in future periods may pose limitations on the Company's use of net
operating loss carryforwards. These carryforwards are subject to review and
possible adjustment by the Internal Revenue Service.
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere herein. The Signatel, HH and Datatec Industries acquisitions have been
accounted for as poolings of interests and the financial information for all
periods represent the combined results of all companies. The acquisition of CASI
was accounted for as a purchase and the operations of CASI have been included
from the date of acquisition. In addition, the Company decided to discontinue
its business of distributing data communications equipment in June 1997. As a
result of the Company's discontinuance of this business, all financial
information has been restated to reflect such operations as discontinued in all
periods presented.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED JULY 31, 1997 AND 1996
NET SALES. Net sales for the three months ended July 31, 1997 were $18.6
million compared to $15.8 million for the three months ended July 31, 1996,
representing an increase of 17.5%. Included in net sales for the three months
ended July 31, 1997 was software license revenue of $1.1 million. While the
Company does not typically market its software, the Company may license such
software in the future as strategic or other business opportunities arise. A
significant portion of the remaining 10.6% increase in net sales was
attributable to an increase in sales to indirect customers.
GROSS PROFIT. Gross profit for the three months ended July 31, 1997 was
$7.3 million compared to $6.8 million for the three months ended July 31, 1996.
Gross profit as a percentage of net sales was 39.4% for the three months ended
July 31, 1997 compared to 42.8% for the three months ended July 31, 1996. The
decrease in gross profit margin was attributable to the timing difference
created by the Company's transition over the past 12 months into more complex
implementation projects. These complex projects require the Company to incur a
significant amount of expenses associated with the initial stages of an
implementation project, of which only a portion of these expenses are deferred
and amortized in conjunction with the associated revenue. The negative impact on
gross profit margin was partially offset by the recognition of licensing
revenues which have higher profit margins.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended July 31, 1997 were $6.8
million compared to $4.5 million for the three months ended July 31, 1996,
representing 36.8% and 28.7% of net sales, respectively. This increase was
partly attributable to the fact that when the Company discontinued distributing
data communications equipment, it retained those individuals who were qualified
to transition into the complex services business.
INTEREST EXPENSE. Interest expense for the three months ended July 31, 1997
was $454,000 compared to $280,000 for the three months ended July 31, 1996,
representing an increase of 62.1%. This increase was attributable to an increase
in average borrowings due to higher sales volume and average receivables over
the three month period, amortization of deferred financing fees associated with
the Company's credit facility that was entered into in March 1997 and an
increase in long-term debt.
COMPARISON OF FISCAL YEARS ENDED APRIL 30, 1997 AND 1996
NET SALES. Net sales for the year ended April 30, 1997 were $59.5 million
compared to $59.2 million for the year ended April 30, 1996, representing an
increase of approximately 0.5%. During the year, the Company acquired two
businesses, and discontinued its data communications equipment business at year
end. These changes had a negative impact on sales during the period.
GROSS PROFIT. Gross profit for the year ended April 30, 1997 was $22.3
million compared to $25.0 million for the year ended April 30, 1996. Gross
profit as a percentage of net sales was 37.5% for the year ended April 30, 1997
compared to 42.2% for the year ended April 30, 1996. The decrease in gross
profit margin was primarily attributable to a lack of working capital. During
the year, the Company experienced delays in receiving materials, incurred
additional costs in delivering materials on a rush basis and was less efficient
in delivering its services to customers as a result of delays caused by a lack
of working capital.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended April 30, 1997 were $20.8 million
compared to $29.2 million for the year ended April 30, 1996, representing 34.9%
and 49.4% of net sales, respectively. Included in the year ended April 30, 1996
was a restructuring charge of $6.8 million recorded by Datatec Industries. In
April 1995, Datatec Industries began an expansion plan which included the
addition of a marketing group, additional salespeople, equipment and several new
facilities including a new headquarters. In April 1996, Datatec Industries
realized the expansion plan was overaggressive and began taking corrective
actions. Datatec Industries relocated its headquarters facility to smaller, less
expensive offices, and sold certain furniture and fixtures associated with the
old headquarters facility.
INTEREST EXPENSE. Interest expense for the year ended April 30, 1997 was
$1.2 million compared to $938,000 for the year ended April 30, 1996,
representing an increase of 23.1%. This increase was attributed to a write off
and amortization of defined financing fees associated with the Company's credit
facility that was replaced on March 17, 1997, as well as a 0.25% increase in
interest rates.
INCOME TAXES. Income taxes for the year ended April 30, 1997 were $111,000
compared to a benefit of $37,000 for the year ended April 30, 1996. The income
taxes of $111,000 represent taxes on income of HH prior to its acquisition by
the Company on July 31, 1996. The benefit of $37,000 represents a foreign tax
benefit recorded by Signatel.
COMPARISON OF FISCAL YEARS ENDED APRIL 30, 1996 AND 1995
NET SALES. Net sales for the year ended April 30, 1996 were $59.2 million
compared to $55.9 million for the year ended April 30, 1995, representing an
increase of 5.9%.
19
<PAGE>
GROSS PROFIT. Gross profit for the year ended April 30, 1996 was $25.0
million compared to $23.3 million for the year ended April 30, 1995. Gross
profit as a percentage of net sales was 42.2% for 1996 and 41.6% for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended April 30, 1996 were $29.2 million
compared to $20.1 million for the year ended April 30, 1995, representing of
49.4% and 35.9% of net sales, respectively. The Company began an expansion
program in late 1995 and incurred a substantial portion of the additional costs
of such expansion during fiscal 1996. During April 1996, the Company realized
the expansion plan was overaggressive and took action to restructure its
business. Included in the year ended April 30, 1996 are $6.8 million of
restructuring charges. These restructuring charges included projected cash
outflows for personnel severance and facilities consolidation as well as write
downs of certain of the Company's long-lived assets.
INTEREST EXPENSE. Interest expense for the year ended April 30, 1996 was
$938,000 compared to $495,000 for the year ended April 30, 1995, representing an
increase of 89.5%. This increase was due to a significant increase in the
average borrowing outstanding to fund increases in receivables and inventory.
INCOME TAXES. The Company reported an income tax benefit of $37,000 for the
year ended April 30, 1996 compared to an income tax provision of $112,000, for
the year ended April 30, 1995. The benefit resulted from a benefit reported by
the Company's subsidiary, Signatel. The income tax provision represents a state
income tax provision for Datatec Industries. During the year ended April 30,
1995, Datatec Industries was taxed as a Subchapter "S" corporation and provided
for state income taxes in those states that did not recognize Subchapter "S"
status.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly results of
operations for each of the eight quarters ended July 31, 1997, together with
such data as percentages of net sales. In the opinion of management, this
quarterly information has been prepared on a basis consistent with the fiscal
year financial statements presented elsewhere in this Prospectus and includes
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information for the periods presented when read in
conjunction with the Consolidated Financial Statements and the Notes thereto.
The operating results for any quarter are not necessarily indicative of results
for the full fiscal year or any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1995 1996 1996 1996 1996 1997 1997
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales................................... $ 16,572 $ 13,663 $ 13,003 $ 15,830 $ 16,359 $ 12,973 $ 14,319
Cost of sales............................... 9,389 8,706 7,096 9,060 10,139 8,329 9,631
--------- --------- --------- --------- --------- --------- -----------
Gross profit................................ 7,183 4,957 5,907 6,770 6,220 4,644 4,688
Selling, general and administrative
expenses.................................. 5,543 5,671 12,815 4,549 4,670 4,613 6,952
--------- --------- --------- --------- --------- --------- -----------
Operating income (loss)..................... 1,640 (714) (6,908) 2,221 1,550 31 (2,264)
Other income................................ -- -- -- -- -- -- 430
Interest expense............................ (300) (318) (65) (280) (314) (208) (353)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) before provision (benefit) for
income taxes.............................. 1,340 (1,032) (6,973) 1,941 1,236 (177) (2,187)
Provision (benefit) for income taxes........ 57 47 (187) 44 81 (14) --
--------- --------- --------- --------- --------- --------- -----------
Income (loss) from continuing operations.... 1,283 (1,079) (6,786) 1,897 1,155 (163) (2,187)
Discontinued operations..................... (838) (1,217) (5,463) (503) (1,124) (2,106) (1,929)
Extraordinary item.......................... (223) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- -----------
Net income (loss)........................... $ 222 $ (2,296) $ (12,249) $ 1,394 $ 31 $ (2,269) $ (4,116)
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
<CAPTION>
JULY 31,
1997
---------
<S> <C>
Net sales................................... $ 18,600
Cost of sales............................... 11,277
---------
Gross profit................................ 7,323
Selling, general and administrative
expenses.................................. 6,844
---------
Operating income (loss)..................... 479
Other income................................ --
Interest expense............................ (454)
---------
Income (loss) before provision (benefit) for
income taxes.............................. 25
Provision (benefit) for income taxes........ --
---------
Income (loss) from continuing operations.... 25
Discontinued operations..................... --
Extraordinary item.......................... --
---------
Net income (loss)........................... $ 25
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 56.7 63.7 54.6 57.2 62.0 64.2 67.3 60.6
-------- -------- --------- -------- -------- -------- --------- --------
Gross profit....................... 43.3 36.3 45.4 42.8 38.0 35.8 32.7 39.4
Selling, general and administrative
expenses......................... 33.4 41.5 98.5 28.7 28.5 35.6 48.6 36.8
-------- -------- --------- -------- -------- -------- --------- --------
Operating income (loss)............ 9.9 (5.2) (53.1) 14.1 9.5 0.2 (15.9) 2.6
Other income....................... -- -- -- -- -- -- 3.0 --
Interest expense................... (1.8) (2.3) (0.5) (1.8) (1.9) (1.6) (2.4) (2.5)
-------- -------- --------- -------- -------- -------- --------- --------
Income (loss) before provision
(benefit) for income taxes....... 8.1 (7.5) (53.6) 12.3 7.6 (1.4) (15.3) 0.1
Provision (benefit) for income
taxes............................ 0.4 0.4 (1.4) 0.3 0.5 (0.1) -- --
-------- -------- --------- -------- -------- -------- --------- --------
Income (loss) from continuing
operations....................... 7.7 (7.9) (52.2) 12.0 7.1 (1.3) (15.3) 0.1
Discontinued operations............ (5.1) (8.9) (42.0) (3.2) (6.9) (16.2) (13.5) --
Extraordinary item................. (1.3) -- -- -- -- -- -- --
-------- -------- --------- -------- -------- -------- --------- --------
Net income (loss).................. 1.3% (16.8)% (94.2)% 8.8% 0.2% (17.5)% (28.8)% 0.1%
-------- -------- --------- -------- -------- -------- --------- --------
-------- -------- --------- -------- -------- -------- --------- --------
</TABLE>
The Company's quarterly operating results have varied in the past, and may
vary significantly in the future, depending on a number of factors such as
market acceptance of new or enhanced versions of the Company's services, changes
in customer mix, changes in the level of operating expenses, the gain or loss of
significant customers, personnel changes and economic conditions in general and
in the Company's
21
<PAGE>
industry in particular. Any unfavorable change in these or other factors could
have a material adverse effect on the Company's operating results for a
particular quarter and makes the prediction of revenue and results of operations
on a quarterly basis difficult, and performance forecasts derived from such
predictions unreliable.
The Company has experienced large fluctuations in sales from
quarter-to-quarter due to substantial sales to customers in the retailing
industry. Typically, these customers delay improvements and enhancements during
the fourth quarter of the calendar year to avoid costly interruptions during the
holiday sales season. In addition, a substantial portion of the Company's
operating expenses is related to personnel, facilities, inventory, equipment and
marketing programs. The level of spending for such expenses cannot be adjusted
quickly and is therefore fixed in the short term. The level of these expenses is
based, in significant part, on the Company's expectations of future revenue on a
quarterly basis. If actual revenue levels on a quarterly basis are below
management's expectations, results of operations are likely to be adversely
affected because only a small amount of the Company's expenses varies with its
revenue in the short term.
Due to the nature and size of implementation projects that the Company is
now pursuing, there is a longer lead time between the initiation of prospective
business and the consummation of a transaction, if any. As such, there are
likely to be substantial fluctuations in sales volume from month-to-month and
quarter-to-quarter. The fluctuations in the Company's operating results increase
the Company's risk of failure, especially given its present level of working
capital. As a result, if the Company experiences lower than expected sales
volume for an extended period of time, it may have a material adverse effect on
the business, financial condition and results of operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, the Company had a working capital deficiency of $2.9
million compared to a working capital deficiency of $3.0 million at April 30,
1997. The improvement in working capital is attributable to the net proceeds
from private placement equity offerings that were used to reduce short-term
borrowings.
Historically, the Company has funded its operations through cash flow from
operations and issuances of equity securities. The Company's operating
activities used cash of $1.2 million, $5.7 million and $11.2 million in the
fiscal years ended April 30, 1995, 1996 and 1997, respectively, and $370,000 for
the three months ended July 31, 1997.
In September 1996, October 1996 and November 1996, the Company issued an
aggregate of 350,000 shares of convertible preferred stock for net proceeds of
approximately $6.6 million. The proceeds were used to reduce outstanding debt
and accounts payable attributable to the Company's acquisition of Datatec
Industries. This preferred stock was subsequently converted into approximately
2,500,000 shares of Common Stock.
In February 1997, the Company issued Notes in an aggregate principal amount
of $2.0 million, which mature in February 1999. These notes bear interest at
10.0% per annum payable at conversion or maturity. The Notes are convertible at
the option of the holders at any time prior to maturity into Common Stock. The
number of shares of Common Stock into which the Notes are convertible is
determined in accordance with a conversion formula. The number of shares
issuable to the holders upon conversion shall equal the aggregate principal
amount of the Notes plus accrued and unpaid interest, divided by 80.0% of the
market price of the Common Stock at the time of conversion. In connection with
these Notes, the Company issued warrants to purchase 700,000 shares of Common
Stock at $5.25 per share, the fair market value on the date of issuance of the
Notes. In August 1997, the noteholders converted $800,000 aggregate principal
amount of such Notes, plus accrued and unpaid interest into 236,516 shares of
Common Stock.
22
<PAGE>
On March 19, 1997, the Company entered into a credit facility with a
financial institution that provides for maximum borrowing of $17.0 million. The
credit facility provides for a $15.0 million revolving credit facility, with
allowable borrowing under the facility based on a formula of receivables and
inventory. The credit facility also provides for a term loan of $2.0 million
with principal and interest due monthly. The revolving credit facility bears
interest at the prime rate plus 0.75% per annum and the term loan bears interest
at the prime rate plus 1.5% per annum. The credit facility requires the Company
to comply with certain financial and nonfinancial covenants. As of July 31,
1997, the Company was not in compliance with certain covenants and is in the
process of obtaining waivers. As there can be no assurance that such waivers
will be obtained, certain long-term debt has been classified as current in the
accompanying financial statements as of July 31, 1997. Outstanding borrowings
under the term loan and revolving loan as of July 31, 1997 were $1.9 million and
$9.2 million, respectively.
In June 1997 and July 1997, the Company issued an aggregate of 855,000
shares of Common Stock in private equity placements, and received net proceeds
of $3.1 million therefrom.
In October 1997, the Company completed the Warrant Call. The Company
received $9.8 million upon the exercise of outstanding redeemable warrants to
purchase an aggregate of 2,743,290 shares of Common Stock at an exercise price
of $3.75 per warrant, less warrant solicitation fees. The net proceeds were used
to reduce outstanding borrowings under the Company's revolving credit facility.
The Company believes that the net proceeds from this offering, its cash flow
from operations and funds anticipated to be available from the credit facility
noted above will be sufficient to satisfy its working capital and capital
expenditure requirements for at least the next twelve months.
IMPACT OF INFLATION
To date, inflation has not had a material impact on operating margins. A
large number of the Company's personnel are employed under contracts with the
IBEW. The current contracts expire on December 31, 1997. Negotiations have not
commenced with respect to the new contracts and as a result the Company cannot
determine the impact of inflation, if any, on the contracts.
23
<PAGE>
BUSINESS
OVERVIEW
The Company provides configuration, integration and rapid deployment
services for the implementation of complex computer networking and connectivity
systems. By combining its standardized process methodology and its Integrator's
Workbench software tools with extensive project management, integration and
implementation expertise, the Company delivers high quality and cost effective
technology deployment solutions. Utilizing four regional staging and
configuration centers and its own field deployment force of approximately 285
people operating out of 19 offices, the Company conducts multiple simultaneous
large scale implementations for organizations throughout the United States and
Canada.
The Company markets its services to Fortune 2,000 companies directly through
its sales force and indirectly through systems manufacturers, systems
integrators, independent software vendors and telecommunications carriers. The
Company's direct customers include Bell Atlantic Network Integration, Beneficial
Management Corporation, Blockbuster Entertainment Inc., Federated Department
Stores, Inc., Lowe's Companies, Inc., Ross Stores, Inc., Starbucks Corporation,
Toys "R" Us, Inc. and Walgreen Co. The Company's indirect customers include
Diebold Inc., Electronic Data Systems Corporation, IBM Global Services, NCR
Corporation and Unisys Corporation. In June 1997, the Company was selected by
Cisco to participate in its new Advanced Installation Services program. The AIS
program is intended to enable faster deployment of Cisco's networking technology
to Fortune 1,000 corporations.
INDUSTRY BACKGROUND
Many organizations are increasingly seeking to improve their competitive
position by broadly deploying networked systems and software in an effort to
improve business processes, reduce costs and increase organizational
effectiveness. Many of these systems are designed to take advantage of trends
toward open systems and "best of breed" solutions by incorporating hardware,
software and networking technologies from many different suppliers and
manufacturers. Although these technologies from disparate manufacturers may be
designed in accordance with open standards to interface with products of other
vendors, in practice each individual product includes differentiated features
that must be configured with unique parameters in order to function correctly in
an organization's network. This is true for implementations of new technology,
the integration of network consolidations resulting from mergers and
acquisitions, as well as for ongoing systems upgrades.
Most configuration, integration and deployment tasks are extremely detailed,
labor intensive and performed by highly-skilled personnel, resulting in time
consuming implementations with a high probability of error. As a result, the
design, integration and deployment of networked systems is often complex and
costly. This is exacerbated when an organization requires deployment to a large
number of sites that are widely dispersed geographically. Effective installation
and use of these systems is increasingly viewed by organizations as critical to
their ability to successfully compete and grow. Rapid, consistent and high
quality implementations are in many cases essential to meeting the customer's
financial objectives and enabling them to maintain operational consistencies,
standards and processes throughout their organizations. For example, in a retail
business, rapid installation of a new point-of-sale system can allow an earlier
opening of a retail outlet and an earlier commencement of sales; and consistent
implementation enables centralized systems management, training and support.
To date, the implementation of networking and connectivity systems has been
coordinated, in most instances, by companies that have a primary focus in other
business activities. Networking hardware manufacturers and software vendors
often lack the capability or expertise in implementation and depend on the
distribution channel for the deployment of their products. Product distributors
focus principally on equipment sales, providing installation to facilitate such
sales. Systems integrators and information technology ("IT") consultants focus
their efforts on areas that are more technologically and managerially complex
such as business process reengineering, application development, network design,
network
24
<PAGE>
management and help desk services. Implementation activities by these firms are
ancillary to their primary business activities and, as a result, are frequently
characterized by cost overruns due to high hourly labor rates for projects that
have been inaccurately estimated. In many instances, implementation activities
are subcontracted to local or regional firms which often result in inconsistent
deployments. The Company believes that these traditional methods are inefficient
and result in expensive systems implementation, particularly for end-users
seeking simultaneous national site deployment. Furthermore, current inefficient
methods are increasingly being viewed by networking hardware manufacturers and
software vendors as an impediment to more rapid adoption of their products,
which is becoming more important as product life cycles shorten.
THE GLASGAL SOLUTION
Glasgal provides its customers with high quality, rapid and cost-effective
implementation services for the configuration, integration and deployment of
complex networking and connectivity systems. The Company's implementation
services consist of project design and management, hardware and software
configuration, pilot testing, site preparation and on-site system deployment. By
utilizing an implementation model, which consists of its (i) standardized
process methodology, (ii) project management expertise, (iii) Integrator's
Workbench software tools, (iv) regional staging and configuration centers and
(v) field deployment force, the Company has been able to significantly reduce
the time and costs associated with providing these otherwise labor intensive
implementation services.
The Glasgal solution provides the Company's customers with the following
benefits:
HIGH QUALITY AND CONSISTENT RESULTS. The Company ensures consistent
configuration with minimal errors by automating certain processes, where
appropriate, utilizing the Integrator's Workbench software tools, and by
following the templates and documentation requirements stipulated by the
Company's standardized process methodology. The Company provides consistent
deployment by employing its own field deployment force throughout the United
States and Canada.
DIRECT AND RAPID DEPLOYMENT. The Company conducts multiple simultaneous
large scale implementations for organizations throughout the United States and
Canada. The Company achieves rapid implementation by utilizing its standardized
process methodology and its Integrator's Workbench software tools at its four
configuration and staging centers to prepare products in advance to arrive at
customer sites in a "plug and play" state. In addition, the Company's field
deployment force is trained and equipped to address most computing,
telecommunications, cabling, electrical or fixture modification tasks. As a
result, the Company typically completes installations in a single comprehensive
site visit and ensures operational consistencies of standards and processes
across customer sites.
COMPETITIVE PRICING. By leveraging the knowledge base of its systems
engineers through the use of its standardized process methodology and
Integrator's Workbench software tools, and applying its project management
expertise, the Company is able to reduce project overhead expense and direct
field labor costs, and thereby offer competitive pricing. In addition, by
analyzing performance results in the context of its standardized processes,
estimating task times and costs becomes significantly more accurate, which
enables the Company to offer a fixed pricing schedule for its services.
BUSINESS STRATEGY
The Company's objective is to be the premier provider of configuration,
integration and rapid deployment services for the implementation of complex
computer networking solutions. Key elements of the Company's strategy include:
FOCUS ON IMPLEMENTATION SERVICES. The Company believes that the
implementation services sector of the information technology industry has been
neglected and offers a significant business opportunity. The
25
<PAGE>
Company's focus on configuration, integration and deployment services allows it
to address the implementation needs of its direct customers, hardware and
software vendors and other service providers, and to differentiate itself from
its competitors by providing high quality, consistent and rapid results.
TARGET COMPLEX NETWORKING AND CONNECTIVITY IMPLEMENTATIONS. The Company's
marketing efforts are targeted towards customers that require implementations
which are highly technical, geographically dispersed, time sensitive or
otherwise complex. More complex, multi-site deployments have significantly less
competitive pressures, and generate higher proposal close rates and gross
margins. The Company has tailored its standardized process methodology and
nationwide deployment capabilities in order to address this segment of the
market.
LEVERAGE IMPLEMENTATION MODEL. The Company utilizes its standardized
process methodology and Integrator's Workbench software tools to leverage the
knowledge of its systems engineers, and thereby reduce its job expense overhead
and direct field labor costs. The Company's project management group is able to
efficiently manage large scale, complex implementation projects. The Company's
regional staging and configuration centers enable the Company to prepare
hardware and software to arrive at a customer's site in a "plug and play" state.
The Company's field deployment force of skilled tradespeople generally performs
deployment tasks during a single comprehensive site visit that otherwise would
have required multiple site visits by both skilled tradespeople and systems
engineers. As a result, the Company can offer high quality results, rapid
deployment and competitive pricing, while cost effectively managing its
resources.
LEVERAGE EXISTING CUSTOMERS. The Company utilizes a customer relationship
cycle to monitor and improve customer satisfaction. The Company has several
large repeat customers and believes that significant opportunities exist to
expand its customer relationships and to leverage its existing customers. The
Company will continue to emphasize customer satisfaction and seek ways to
improve service in order to generate increased repeat business.
ESTABLISH STRATEGIC ALLIANCES. The Company intends to expand its selling
efforts by establishing strategic alliances with systems manufacturers, systems
integrators, independent software vendors and telecommunications carriers. In
pursuit of this strategy, the Company entered into an agreement with Cisco to
support Cisco's national installation of complex networking technology
solutions.
PURSUE STRATEGIC ACQUISITIONS. The Company views acquisitions as a means of
broadening its customer base, enhancing its technical expertise and expanding
domestically and internationally. The Company believes that the implementation
services market is highly fragmented. While there are no acquisitions currently
planned, the Company plans to continue to pursue acquisition opportunities to
accomplish its objective.
GLASGAL'S IMPLEMENTATION MODEL
The Company has developed an implementation model to manage and enhance the
delivery of its services. The components of the Company's implementation model
are a standardized process methodology, project management expertise, the
Company's Integrator's Workbench software tools, regional staging and
configuration centers, and its own field deployment force of skilled
tradespeople.
STANDARDIZED PROCESS METHODOLOGY. The Company employs a standardized
process methodology for planning and performing implementation services. The
process methodology consists of standardized procedures and templates that
incorporate the technical knowledge and service process expertise of the
Company's systems engineers. Throughout an implementation project, the Company's
employees follow documented procedures and utilize standardized templates and
tools as the basis for providing customized implementation services tailored for
a project's needs and objectives. By utilizing a process methodology
26
<PAGE>
that standardizes similar processes across projects and incorporates
technological and managerial expertise, the Company has improved the speed,
efficiency, quality and consistency of its implementation services.
PROJECT MANAGEMENT EXPERTISE. The Company provides project management
expertise throughout the implementation process. For each project, the Company
assigns a national project manager and a supporting project management team to
be responsible for scheduling and execution of implementation services. The
Company's project management group is able to efficiently manage large scale,
complex implementation projects. The lead project manager acts as the primary
point of contact for the customer and is responsible for coordinating all
project tasks, communications and execution. The project management team
prepares and delivers a project-specific structured project manual that
organizes the various field deployment resources, timetables and customer
deliverables.
INTEGRATOR'S WORKBENCH. The Company's Integrator's Workbench is an object
oriented suite of design and productivity tools that run on distributed
computing platforms using Microsoft's Windows 95 and Windows NT operating
systems. The Integrator's Workbench software tools function as a master
repository for the collection and management of all of the design and
configuration information and rules that are learned during the execution of the
Company's implementation services. The Integrator's Workbench collects and
organizes project-specific information through user-friendly prompts and
organizes it into object oriented databases that are easily manipulated for the
purposes of system configuration and documentation. As most of the results are
generated using software routines and commands, use of the Integrator's
Workbench significantly decreases the time and costs of the Company's
implementation projects.
Integrator's Workbench is based upon a symbolic architecture for system
configuration and information exchange. Under this architecture, each type of
operating system, application, device or platform is defined by an Application
Definition Library module ("ADL") which consists of a comprehensive data
dictionary, a collection of parameters and rules for defining objects, and
serves as a basic building block for configuring a networking solution. ADLs can
then be combined to create master object databases or "Master ADLs" that contain
all of the customer, project and configuration-specific information necessary
for an implementation. The Integrator's Workbench automatically assigns
attribute values amongst any objects that require shared data, and prompts for
missing, inaccurate or incomplete object data based upon programmed judgments or
established best practices.
In utilizing the Integrator's Workbench software tools, the Company
increases productivity, leverages systems engineering personnel and reduces
labor costs for deployment personnel. For example, the typical router that
generally takes a systems engineer between forty-five minutes and one hour to
configure and document manually is reduced to approximately five minutes using
the Company's software-enabled process in its staging and configuration centers.
The high degree of accuracy in the configuration and integration process leads
to virtual "plug and play" installations at the deployment site and enables the
Company's field deployment force of skilled tradespeople to implement highly
complex technical solutions. Time spent on rework, normally at the Company's
expense, is also significantly reduced.
Although the licensing of software is not part of the Company's business
strategy, the Company has licensed the Integrator's Workbench software in the
past and may license such software in the future as strategic or other business
opportunities arise.
STAGING AND CONFIGURATION CENTERS. The Company operates four staging and
configuration centers, two of which are located in Fairfield, New Jersey; one in
Statesville, North Carolina and one in Toronto, Ontario. At the staging centers,
the Company conducts numerous pre-deployment activities including receipt and
tracking of project components and assembly, testing, verification,
documentation, configuration and integration of hardware and software
components. By conducting these activities at the Company's staging centers, and
utilizing, where applicable, the Company's Integrator's Workbench software
27
<PAGE>
tools, the Company is able to prepare and roll-out project components so that
they arrive at a customer site in a "plug and play" state. This permits the
Company's field deployment force of skilled tradespeople to conduct
implementations quickly with minimal assistance from more costly systems
engineering personnel.
FIELD DEPLOYMENT FORCE. The Company's field deployment force consists of
285 people, including approximately 247 unionized skilled tradespeople and 26
technicians operating out of 19 offices throughout the United States and Canada.
The field deployment force is supplemented by the Company's systems engineering
personnel, as appropriate, depending on the nature and complexity of a project.
The Company's field deployment force utilizes the Company's standardized process
methodology and is trained and equipped to address most computing,
telecommunication, cabling, electrical or fixture modification tasks. By
utilizing its own employees to conduct field deployments, as opposed to
subcontracting to third parties, the Company is able to quickly schedule and
conduct high quality multiple implementations across the United States and
Canada in a consistent and efficient manner, and typically is able to complete
most implementations in a single comprehensive site visit. In addition, by
utilizing unionized employees affiliated with the IBEW, the Company has a
flexible, mobile workforce that is able to perform services in any jurisdiction
in the United States.
MARKETING AND SALES
The Company's marketing activities are targeted at organizations that
require implementations which are highly technical, geographically dispersed,
time sensitive or otherwise complex. In the Company's experience, more complex,
multi-site deployments have significantly less competitive pressures, and
generate higher proposal close rates and gross margins than deployments with
less complexity and/or geographic dispersion.
The Company markets its services directly to end-users and indirectly
through relationships with systems manufacturers, systems integrators,
independent software vendors and telecommunications carriers. As of October 31,
1997, the Company's sales force consisted of 39 national account managers and 8
sales management personnel focused on both direct and indirect sales. Certain of
these account managers are exclusively dedicated to servicing the Company's
larger customers as part of an account management team, while others are
responsible for developing business from existing and new customers in defined
geographic areas.
In order to facilitate the marketing of services and create brand identity,
the Company has created several branded solutions that are customizable to meet
the unique configuration and implementation needs of its customers. These
branded solutions identify requirements most frequently requested by its
customers. The current branded solutions are:
NETWORK DEVICE DEPLOYMENT. The Company's Network Device Deployment services
provide for the deployment of network devices such as industry standard routers,
hubs, switches, ISDN terminal adapters and remote access devices. These
deployments may be at central sites, remote branches, small office/home office
("SOHO") locations or in private residences.
The Company currently offers two customized Network Device Deployment
service solutions. The first, OfficeLink, was developed to address the
deployment of routers, hubs and switches into a network of branch offices or a
SOHO environment. The second, HomeLink, was developed for the deployment of
remote access devices such as ISDN terminal adapters to the home office or
private residence environment. OfficeLink and HomeLink deployments do not solely
focus on the networking devices themselves, but often also require the
installation or upgrading of workstation hardware and software.
COMPUTING DEVICE DEPLOYMENT. The Company offers a variety of services for
the deployment of computing devices including workstations, servers, laptops,
peripherals and other connectivity devices. In addition, the Company has
successfully adapted its Computing Device Deployment branded solution to
accommodate the rollout of specialty hardware and proprietary solutions
including Automatic Teller
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<PAGE>
Machines ("ATMs"), point-of-sale ("POS") systems and related back office
servers, and wireless communications systems.
The Company currently offers two Computing Device Deployment Service
solutions. The first, RapidRollout, was developed to speed the deployment and
absorption of new technologies and elements into customer locations including
workstations, servers, printers, premises wiring, physical plant equipment and
fixture modifications. The second service, RapidRefresh, extends the
functionality of RapidRollout to the process of supporting in-place systems
upgrades and migrations using pre-existing equipment and facilities.
The Company also offers industry-specific service solutions modified to
reflect targeted customer requirements. Current offerings include
RapidRestaurant, for fast food restaurant sites, and PracticeCentral for
physician and dental office sites.
BACKLOG
Backlog for the Company's services as of October 1, 1997 totaled $40.6
million. Backlog consists of purchase orders, written agreements and oral
agreements with customers for which a customer has scheduled the provision of
services within the next 12 months. Orders included in backlog may be canceled
or rescheduled by customers without penalty. A variety of conditions, both
specific to the individual customer and generally affecting the customer's
industry, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated. The Company cannot assure the timely replacement
of canceled, delayed or reduced orders. Significant or numerous cancellations,
reductions or delays in orders by a customer or group of customers could
materially adversely affect the Company's business, financial condition and
results of operations. Backlog should not be relied upon as indicative of the
Company's revenues for any future period.
CUSTOMERS
The Company provides configuration, integration and deployment services
directly to a variety of end-user customers across a broad range of industries.
The Company also delivers its services to end-users through indirect customers
that utilize the Company's implementation services on a project-by-project
basis. The Company also delivers its services through a strategic alliance with
Cisco and intends to establish additional strategic alliances. See "--Strategic
Alliances." Customers include:
<TABLE>
<CAPTION>
DIRECT CUSTOMERS INDIRECT CUSTOMERS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
American Stores Company Bell Atlantic Network Integration
Beneficial Management Corporation Diebold Inc.
Blockbuster Entertainment Inc. Electronic Data Systems Corporation
Federated Department Stores, Inc. IBM Global Services
Lowe's Companies, Inc. NCR Corporation
Ross Stores, Inc. Unisys Corporation
Starbucks Corporation
Toys "R" Us, Inc.
Walgreen Co.
</TABLE>
The Company utilizes a customer relationship cycle to monitor and improve
customer satisfaction. The Company has several large repeat customers and
believes that significant opportunities exist to expand its customer
relationships and to leverage its existing customers. The Company will continue
to emphasize customer satisfaction and seek ways to improve service in order to
generate increased repeat business.
During each of the past two fiscal years, sales of the Company's services to
a limited number of customers have accounted for a substantial percentage of the
Company's total net sales. For the years ended April 30, 1997 and 1996, the
Company's 15 largest customers accounted for approximately 61.5%
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<PAGE>
and 63.0% of the Company's total net sales, respectively. For the year ended
April 30, 1997, Federated Department Stores, Inc. and Lowe's Companies, Inc.
accounted for approximately 11.7% and 10.1%, respectively, of the Company's
total net sales. This concentration of customers can cause the Company's net
sales and earnings to fluctuate from quarter-to-quarter, based on the
requirements of its customers and the timing of delivery of services. Although
the Company believes it has good relationships with its largest customers and
has in the past received a substantial portion of its net sales from repeat
business with established customers, none of the Company's major customers has
any obligation to purchase additional services. Therefore, there can be no
assurance that any of the Company's major customers will continue to purchase
new services in amounts similar to previous years. Although the particular
customers are likely to change from period-to-period, the Company believes that
large orders from a limited number of customers will continue to account for a
substantial portion of its net sales in any fiscal period. In any period, the
unexpected loss of or decline in net sales from a major customer, or the failure
to generate significant net sales from other customers, could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
STRATEGIC ALLIANCES
In an effort to accelerate product absorption, Cisco developed a channel
delivery strategy termed Advanced Installation Services in the Spring of 1997.
The express purpose of AIS is to identify a reliable and flexible deployment
force to assist Cisco and its customers in assimilating Cisco solutions in the
shortest period of time. Cisco selected the Company as its first AIS partner and
signed a non-exclusive contract to use the Company's implementation services
across the United States and Canada for Cisco's customers.
The Company's goal is to significantly expand its selling efforts by
establishing additional strategic alliances with systems manufacturers, systems
integrators, independent software vendors and telecommunications carriers. The
Company intends to continue to establish strategic alliances that are formalized
by a written contract, based on pre-established pricing models, and involve
recurring use of the Company's implementation services on a routine basis. The
Company and its partners present joint solutions that provide reciprocal
benefits to all parties. In addition to an expanded sales channel, strategic
alliances provide introductions to new customers with which the Company can
pursue direct sales opportunities. The strategic partners receive the benefit of
the Company's implementation model, competitive pricing and deployment
capability across the United States and Canada, in addition to accelerated
adoption of their products and services. The end-user customers benefit from the
rapid deployment of their selected solutions which accelerates business
performance and enhances their return on investment in technology.
The Company has established a sales team currently comprised of two
individuals who work closely with senior management to establish strategic
alliances with new customers and existing indirect customers. Once these
relationships are established, the accounts will be serviced on an ongoing basis
by the Company's national account managers.
CUSTOMER CASE STUDY
The following illustrates a specific example of a deployment project
completed by the Company.
TOYS "R" US, INC. (Project: Computing Device Deployment). While visiting one
of their store locations, a senior Toys "R" Us executive witnessed first hand
customers' frustrations in determining pricing on mislabeled or out of place
merchandise. He further discovered that much of the wait time customers were
experiencing in checkout lines was directly related to manual price checks at
the registers. Toys "R" Us asked the Company to assist in the design and
deployment of several standalone barcode-based kiosks in every store location.
The Company responded to this request and developed suitable prototypes and
began testing the unit in actual store locations. Once accepted by Toys "R" Us,
the Company successfully built and integrated production units and mobilized a
nationwide deployment effort encompassing 618 store
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<PAGE>
locations and requiring 30,000 man-hours. Each site installation called for
project management services, site preparation, cabling up to 6 kiosk locations,
equipment placement, and integration into an existing store back office network.
The entire deployment effort was completed in less than 90 days with zero
rework. This project represents one of numerous different projects the Company
has performed for Toys "R" Us during its ongoing relationship over the past
several years.
COMPETITION
The Company competes with a number of other companies involved in the
design, installation, integration, deployment and servicing of computer
networking technologies. The market for configuration, integration and
deployment services is highly fragmented, intensely competitive and rapidly
changing and there can be no assurance that the Company will be able to compete
successfully in the future. The Company believes that its ability to compete
successfully depends upon a number of factors both within and beyond its
control, including performance, price, quality and breadth of services, and
industry and general economic trends. In addition to direct competition, the
Company faces indirect competition from its existing and potential future
customers, many of which internally design, integrate and deploy their own
technologies for their particular needs, and therefore may be reluctant to use
services offered by third-party providers such as the Company. As a result, the
Company must educate prospective customers as to the benefits of the Company's
services. There can be no assurance that the Company will be able to compete
effectively with its direct competitors or to adequately educate potential
customers to the benefits provided by the Company's services.
Many of the Company's current and potential competitors have longer
operating histories and greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, larger customer bases, and
greater market acceptance of their services, than the Company. As a result, they
may be able to respond more quickly to technological changes or market
opportunities, and to devote greater resources to the development, promotion and
sale of their services than the Company. Also, in the markets in which the
Company operates, there are relatively low barriers to entry and new competition
may arise either from expansion by established companies or from new emerging
companies. Increased competition may result in pressure for price reductions and
related reductions in gross margins and market share, any of which could have a
material adverse effect on the Company's ability to achieve its financial and
business goals. To successfully compete, the Company must continue to enhance
its existing services, introduce new service offerings, recruit and train
additional deployment and engineering staff, and recruit and train sales and
marketing professionals. There can be no assurance that the Company will be able
to successfully compete against current and future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on its business, financial condition and results of operations.
The Company has licensed on a non-exclusive basis, including the right to
sublicense, its Integrators Workbench software tools to certain third parties.
As a result of such licenses, third parties have obtained the right to use
Integrator's Workbench and may use this software to compete with the Company in
certain instances.
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, copyright and trademark
laws and contractual restrictions to establish and protect proprietary rights in
its technology. The Company has entered into confidentiality and invention
assignment agreements with its software developers, and when obtainable, enters
into non-disclosure agreements with its suppliers, distributors and others so as
to limit access to and disclosure of its proprietary information. There can be
no assurance that these statutory and contractual arrangements will prove
sufficient to deter misappropriation of the Company's technologies or that the
Company's competitors will not independently develop non-infringing technologies
that are substantially similar to or superior to the Company's technology. The
Company believes that, because of the rapid pace of technological change in the
software market, legal protection for its Integrator's Workbench software
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<PAGE>
tools will be a less significant factor in the Company's future success than the
knowledge, ability and experience of the Company's employees, the frequency of
enhancements and the ability of the Company to satisfy its customers.
EMPLOYEES
As of October 31, 1997, the Company employed approximately 587 full-time
employees, 5 of whom are executive officers. There are 35 project managers,
approximately 74 employees in the Company's four staging and configuration
centers, 26 of whom are employed under contracts with the IBEW and approximately
285 field deployment personnel which includes 247 skilled tradespeople employed
under contracts with the IBEW and 26 technicians. These IBEW contracts expire on
December 31, 1997. Negotiations have not commenced with respect to the new
contracts and there can be no assurance as to the results of the negotiations or
whether such contracts will be negotiated without any work stoppages. Any work
stoppages or other labor disturbances could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company's sales force has approximately 39 national account
managers and 8 sales management personnel. The Company believes its employee
relations are satisfactory.
FACILITIES
The Company's corporate headquarters occupies approximately 19,245 square
feet in Totowa, New Jersey pursuant to a sublease which expires in June 2001. In
addition, the Company also leases offices in numerous other locations throughout
the United States and Canada. The Company believes that its existing facilities
are adequate for its current needs and that suitable additional or alternative
space will be available in the future on commercially reasonable terms as
needed.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings. From
time to time, however, the Company may be subject to claims and lawsuits arising
in the normal course of business.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The executive officers, directors and a certain significant employee of the
Company, their ages and present positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Ralph Glasgal....................... 65 Chairman of the Board and President
Isaac J. Gaon....................... 48 Chief Executive Officer and Director
Christopher J. Carey................ 45 President and Chief Executive Officer of Datatec Industries and
Director
Robert F. Gadd...................... 36 Senior Vice President and Chief Technology Officer
James M. Caci....................... 33 Chief Financial Officer, Vice President of Finance, Secretary and
Treasurer
Thomas J. Berry..................... 72 Director
Robert H. Friedman.................. 45 Director
Dr. David Milch..................... 43 Director
Joseph M. Salvani................... 40 Director
Raymond Koch........................ 52 Executive Vice President and Chief Operating Officer of Datatec
Industries
</TABLE>
RALPH GLASGAL, Chairman of the Board and President of the Company since he
founded it in 1975 as a distributor of data communications equipment and
services. Mr. Glasgal has announced that he will retire as Chairman of the Board
and President concurrently with the Annual Stockholders' Meeting. Mr. Glasgal
will continue to serve as a director of the Company.
ISAAC J. GAON, Director since April 1992, has served as the Chief Execuitve
Officer of the Company since October 1994. Effective with Mr. Glasgal's
resignation, Mr. Gaon has been elected as Chairman of the Board of the Company.
He served as Chief Financial Officer from April 1992 until October 1994. 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 senior
management roles within Gestetner Canada and Gestetner USA.
CHRISTOPHER J. CAREY, President and Chief Executive Officer of Datatec
Industries, and Director of the Company since he joined the Company in October
1996. Mr. Carey founded Datatec Industries in 1976 and has served as its
President and Chief Executive Officer since that time. Effective with Mr.
Glasgal's resignation, Mr. Carey has been elected as President of the Company.
ROBERT F. GADD, Senior Vice President and Chief Technology Officer, joined
the Company in April 1992. Mr. Gadd has been the Company's Chief Technology
Officer since October 1996. From August 1992 until October 1996 Mr. Gadd held
various management positions with the Company.
JAMES M. CACI, Chief Financial Officer, Vice President of Finance, Secretary
and Treasurer, joined the Company in October 1994. Mr. Caci has been the
Company's Chief Financial Officer since October 1994, Vice President of Finance
since January 1997, 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 with the
accounting firm of Arthur Andersen LLP, most recently as Manager.
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 company which
provides a range
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<PAGE>
of information technology services, including professional staffing, and other
technology-based solutions to informational problems.
ROBERT H. FRIEDMAN, Director since August 1994, has been a partner with
Olshan Grundman Frome & Rosenzweig LLP, a New York City law firm, since August
1992. Prior to that time and since September 1983 he was with Cahill Gordon &
Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters.
DR. DAVID MILCH, Director since October 1996, has been a director and
principal since 1983 of Bermil Industries Corporation, a closely held
diversified company owned by the Milch family involved in the manufacture, sale,
financing, and distribution of capital equipment, and in real estate
development. Dr. Milch is also the sole stockholder of Davco Consultants, Inc.,
a corporation that he founded in 1979 for the purpose of identifying, advising,
and investing in emerging growth technologies.
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.
Mr. Salvani is Chairman of the Board of Directors and Chief Executive Officer of
Direct Connect International Inc., a distributor of toys, and a director of
Medicis Pharmaceutical, Inc., a pharmaceutical company.
RAYMOND KOCH, Executive Vice President and Chief Operating Officer of
Datatec Industries. Mr. Koch joined Datatec Industries in June 1989 as Executive
Vice President and served as President and Chief Operating Officer of Datatec
Industries until its acquisition by the Company. From March 1979 to June 1989
Mr. Koch held various sales and general management positions with Lanier
Business Systems, an office equipment supplier, which included responsibility
for sales and marketing, hardware and software support, field services and
administration.
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.
BOARD COMMITTEES
The Company's Board of Directors has established an Audit Committee that is
comprised of Thomas Berry, Robert Friedman and Joseph Salvani. The Audit
Committee recommends the Company's independent auditors, reviews the scope of
their engagement, consults with the auditors, reviews the results of their
examination, acts as liaison between the Board of Directors and the auditors and
reviews various company policies, including those relating to accounting and
internal controls.
The Company's Compensation Committee which is comprised of Thomas Berry,
Robert Friedman and Joseph Salvani reviews and approves the compensation of the
Company's executive officers and administers and interprets the Company's stock
option plans.
The Nominating Committee of the Company's Board of Directors is comprised of
Isaac Gaon, Christopher Carey and David Milch. The purpose of this Committee is
to select and nominate directors for elections at the Company's annual meetings
of stockholders.
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EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended April
30, 1997, 1996 and 1995 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, 1997 who received compensation of at least $100,000 during
fiscal year ended April 30, 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(2)
- -------------------------------------------- --------- ---------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Ralph Glasgal(3)............................ 1997 $ 250,000 -- -- --
Chairman of the Board and President 1996 250,000 $ 74,800 -- --
1995 26,700 -- -- --
Isaac J. Gaon............................... 1997 $ 250,000 -- 350,000 --
Chief Executive Officer 1996 194,800 $ 10,000 108,821 --
1995 192,300 -- 90,000 --
Christopher J. Carey........................ 1997 $ 345,000 $ 95,000 -- $ 24,070
Chief Executive Officer and President of 1996 416,000 -- -- 22,187
Datatec Industries 1995 416,000 -- -- 20,467
Robert F. Gadd.............................. 1997 $ 155,000 -- -- --
Senior Vice President and Chief Technology 1996 136,433 $ 22,500 103,985 --
Officer 1995 113,900 -- 60,000 --
James M. Caci(4)............................ 1997 $ 128,100 -- 175,000 --
Vice President of Finance, Chief Financial 1996 90,000 $ 10,000 43,528 --
Officer, Treasurer and Secretary 1995 40,000 -- 52,000 --
</TABLE>
- ------------------------
(1) The value of personal benefits for executive officers of the Company during
the fiscal year ended April 30, 1997 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
the lesser of $50,000 or 10.0% of the total annual salary and bonus reported
for any individual named above.
(2) The amounts shown in this column reflect the dollar value of life insurance
premiums paid by the Company.
(3) During fiscal 1995 Mr. Glasgal spent the majority of his time pursuing
interests outside of the Company. Mr. Glasgal has announced that he will
retire as Chairman of the Board and President of the Company concurrently
with the Annual Stockholders' Meeting.
(4) Mr. Caci joined the Company on October 31, 1994, therefore, the salary for
fiscal 1995 represents six months.
OPTION GRANTS TABLE
The following table sets forth certain information regarding stock option
grants made to each of the Named Officers during the fiscal year ended April 30,
1997.
35
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED RATES OF
-------------------------------------------------------------------- ANNUAL STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS GRANTED EXERCISE OR TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH)(2) DATE 5%($) 10%($)
- ------------------------------- ------------------- ------------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ralph Glasgal.................. -- -- -- -- -- --
Isaac J. Gaon.................. 350,000 15.9% $ 5.25 10/31/06 $ 1,155,594 $ 2,928,502
Robert F. Gadd................. -- -- -- -- -- --
James M. Caci.................. 175,000 8.0 5.25 10/31/06 577,797 1,464,251
</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.
(2) The options for Messrs. Gaon and Caci were cancelled on May 30, 1997. On
such date, the Company granted replacement options to puchase an equal
number of shares of Common Stock to such individuals, at an exercise price
of $4.00 per share.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES TABLE
No stock options were exercised by the Named Officers during the fiscal year
ended April 30, 1997. None of the Named Officers has held or exercised separate
SARs. The following table sets forth certain information regarding unexercised
options held by each of the Named Officers at April 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Ralph Glasgal............................... -- -- -- --
Isaac J. Gaon............................... 708,185 335,881 $ 4,078,139 $ 466,194
Robert F. Gadd.............................. 371,809 89,323 2,408,513 396,726
James M. Caci............................... 128,843 145,685 446,780 118,977
</TABLE>
- ------------------------
(1) Represents the total gain that would be realized if all in-the-money options
held at April 30, 1997 were exercised, determined by multiplying the number
of shares underlying the options by the difference between the per share
option exercise price and the public offering price of $6.875 per share. An
option is in-the-money if the fair market value of the underlying shares
exceeds the exercise price of the option.
STOCK OPTION PLANS
1990 STOCK OPTION PLAN
The 1990 Stock Option Plan (the "1990 Plan") provides for the grant of
incentive stock options (as defined in Section 422 of the Internal Revenue Code
of 1986, as amended) and nonstatutory stock options. The maximum number of
shares of Common Stock that may be issued pursuant to options granted under the
1990 Plan shall not exceed 1,500,000. As of September 30, 1997, the Company had
outstanding options to purchase an aggregate of 725,571 shares of Common Stock
under the 1990 Plan. As of September 30,
36
<PAGE>
1997, 552,987 shares were available for future issuance under the 1990 Plan.
Employees, officers, directors, consultants, independent contractors and
advisors of the Company are eligible to participate in the 1990 Plan. Unless
sooner terminated by the Board, the 1990 Plan terminates on May 4, 2000.
The 1990 Plan is administered by the Compensation Committee of the Board of
Directors. Grants are made based on the Compensation Committee's judgment of an
employee's contribution to the success of the Company's operations. Options
granted under the plan must have an exercise price of 100.0% of the fair market
value of the Common Stock on the date of grant (and 110.0% of such fair market
value in the case of incentive stock options granted to holders of more than
10.0% of the voting power of the Company) and are exercisable, subject to
vesting requirements determined by the Compensation Committee, for periods of up
to 10 years from the date of grant. Incentive stock options also are subject to
other requirements provided by law. The exercise price may be paid in cash, or,
when approved by the Compensation Committee at the time of grant, by
cancellation of indebtedness, waiver of compensation for services rendered, a
"same day sale" through a member of the NASD, or by surrender of Common Stock or
vested stock options at the then fair market value thereof.
The 1990 Plan also provides for acceleration of the right to exercise
options under the occurrence of certain events, including a merger, liquidation
or sale of substantially all the assets of the Company, unless the obligations
under outstanding options are assumed, or outstanding options are replaced, by a
successor entity. Stock options granted under the 1990 Plan are not transferable
except by will or the laws of descent and distribution. Unless otherwise
determined by the Board of Directors, all rights to exercise or surrender
options shall terminate immediately upon termination of employment if such
termination results from any cause other than death, or disability.
1993 CONSULTANT STOCK OPTION PLAN
The 1993 Consultant Stock Option Plan (the "1993 Plan") provides for the
grant of nonstatutory stock options. The maximum number of shares of Common
Stock that may be issued pursuant to options granted under the 1993 Plan shall
not exceed 30,000. As of September 30, 1997, the Company had 5,000 outstanding
options to purchase shares of Common Stock under the 1993 Plan. As of September
30, 1997, 4,000 shares were available for future issuance under the 1993 Plan.
The Consultant Option Plan is administered by the Compensation Committee of the
Board. Grants are made based on the Board's judgment of a consultant's
contribution to the success of the Company's operations. Consultants,
independent contractors and advisors to the Company are eligible to participate
in the 1993 Plan. Unless sooner terminated by the Board, the 1993 Plan
terminates on November 2, 2003.
1995 DIRECTORS STOCK OPTION PLAN
In March 1995, the Board adopted the 1995 Directors Stock Option Plan (the
"Directors Plan"). The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the Directors Plan shall not exceed
500,000. As of September 30, 1997, the Company had outstanding options to
purchase an aggregate of 312,000 shares of Common Stock under the Directors
Plan. As of September 30, 1997, 188,000 shares were available for future
issuance under the Directors Plan. Unless sooner terminated by the Board, the
Directors Plan terminates on March 1, 2005.
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 receives automatic, nondiscretionary grants of options based upon
specific criteria set forth in the Directors Plan. Each Eligible Director will
receive a grant of 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 unless such individual no longer serves as a
result of his death or disability in which case the option immediately vests.
37
<PAGE>
1996 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
In July 1996, the Board adopted the 1996 Employee and Consultant Stock
Option Plan in connection with the acquisition of HH (the "1996 Plan"). The 1996
Plan provides for the grant of nonstatutory stock options to all employees and
consultants to the Company and its subsidiaries. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the 1996 Plan
shall not exceed 2,000,000. As of September 30, 1997, the Company had
outstanding options to purchase an aggregate of 1,179,000 shares of Common Stock
under the 1996 Plan. An additional 821,000 options to purchase shares of Common
Stock were available for future issuance under the 1996 Plan at September 30,
1997. Unless sooner terminated by the Board, the 1996 Plan terminates on July
19, 2006.
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. Any future grants will be made based on the Compensation Committee's
judgment of an employee's contribution to the success of the Company's
operations. Stock options granted under the 1996 Plan are not transferable
except by will or the laws of descent and distribution. Unless otherwise
determined by the Board of Directors, all rights to exercise or surrender
options shall terminate immediately upon termination of employment if such
termination results from any cause other than death, or disability.
1996 STOCK OPTION CONVERSION PLAN
In October 1996, the Board adopted the 1996 Stock Option Conversion Plan in
connection with the acquisition of Datatec Industries (the "Conversion Plan").
The Conversion Plan provides for the grant of nonstatutory stock options to
replace stock options previously granted by Datatec Industries. The maximum
number of shares of Common Stock that may be issued pursuant to options granted
under the Datatec Industries Option Plan shall not exceed 470,442. As of
September 30, 1997, the Company had outstanding options to purchase an aggregate
of 447,759 shares of Common Stock under the Conversion Plan.
Stock options granted under the Datatec Industries Option Plan are not
transferable except by will or the laws of descent and distribution. Unless
otherwise determined by the Board, all rights to exercise or surrender options
shall terminate immediately upon termination of employment if such termination
results from any cause other than death, or disability.
1996 SENIOR EXECUTIVE OFFICER PLAN
In October 1996, the Board adopted the 1996 Senior Executive Officer Option
Plan (the "1996 Executive Plan"). The 1996 Executive Plan provides for the grant
of nonstatutory stock options to senior executive officers of the Company and
its subsidiaries. The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the 1996 Executive Plan shall not
exceed 560,000. As of September 30, 1997, the Company had outstanding options to
purchase an aggregate of 535,000 shares of Common Stock under the 1996 Executive
Plan. An additional 25,000 options to purchase shares of Common Stock were
available for future issuance under the 1996 Executive Plan at September 30,
1997. Unless sooner terminated by the Board, the 1996 Executive Plan terminates
on October 31, 2006.
The 1996 Executive Plan is administered by the Compensation Committee of the
Board. Any future grants will be made based on the Compensation Committee's
judgment of an officer's contribution to the success of the Company's
operations. Unless otherwise determined by the Board at the time of grant, all
rights to exercise or surrender options shall terminate immediately upon
termination of employment if such termination results from any cause other than
death, or disability and any stock options granted under the 1996 Executive Plan
are not freely transferable.
EXECUTIVE BONUSES
Bonuses to executive officers are granted at the discretion of the
Compensation Committee.
38
<PAGE>
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company receives a fee of $1,000
per meeting attended. The members of the Board are also eligible for
reimbursement of their reasonable expenses incurred in connection with
attendance of Board meetings.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement dated as of December 31,
1996 with Ralph Glasgal under which Mr. Glasgal serves as the Company's Chairman
of the Board and President for a term ending on October 31, 1997 or at such
earlier date upon 6 months written notice. The agreement provides for a base
salary of $250,000, which is reviewed annually by the Compensation Committee. In
the event of early termination by the Company without "Cause" (as defined in the
agreement), Mr. Glasgal will be entitled to an amount equal to six months
salary, together with bonuses earned as of the date of such termination. Mr.
Glasgal has announced that he will retire as Chairman of the Board and President
of the Company concurrently with the Annual Meeting.
Isaac Gaon is employed as the Chief Executive Officer of Glasgal pursuant to
an employment agreement dated as of October 31, 1996, for a term ending on
October 31, 1999. The agreement provides for an initial base salary of $250,000
which is reviewed annually by the Compensation Committee and incentive
compensation based on the Company's Projected EBIT (as defined in the
agreement). In the event of his disability, Mr. Gaon is to receive the full
amount of his base salary for six months. Upon a Change of Control of the
Company (as defined in the agreement) that results in Mr. Gaon's removal from
the Company's Board of Directors, a significant change in the conditions of his
employment or other breach of the agreement, he is to receive liquidated damages
equal to 2.99 times the "base amount," as defined in the United States Internal
Revenue Code of 1986, as amended (the "Code"), of his compensation. Upon early
termination by the Company without Cause (as defined in the agreement), or by
Mr. Gaon with "Good Reason" (as defined in the agreement), the Company is
required to pay Mr. Gaon the remainder of the salary owed him through October
31, 1999, but in no event shall such payment be less than $500,000.
Additionally, Mr. Gaon will be entitled to undistributed bonus payments, as well
as pro-rata unused vacation time payments. In addition, following a Change of
Control, termination by the Company without Cause, or termination by Mr. Gaon
for Good Reason, the Company is obligated to purchase all Mr. Gaon's stock
options, whether exercisable or not, for a price equal to the difference between
the fair market value of the Common Stock on the date of termination and the
exercise price of such options.
The Company entered into an employment and non-competition agreement dated
as of November 1, 1996 with Christopher J. Carey under which Mr. Carey serves as
the President and Chief Executive Officer of Datatec Industries Inc. for a term
ending on October 31, 1999. The agreement provides for an initial base salary of
$250,000, which is reviewed annually by the Compensation Committee and
non-discretionary incentive compensation based on the Company's achievement of
net income goals. The agreement contains covenants restricting Mr. Carey's
ability to engage in activities competitive with those of the Company for a
period ending three years after his termination. In addition, upon termination
without "Cause" (as defined in the agreement), Mr. Carey is entitled to receive
his salary as of the time of termination, plus bonuses as provided for in the
agreement, until October 31, 1999. If he is totally disabled, Mr. Carey is
entitled to receive a pro-rated bonus.
The Company entered into an employment agreement dated as of December 31,
1996, with Robert Gadd on terms substantially similar to those of Isaac Gaon's
employment agreement for a term ending on December 31, 1999. Mr. Gadd's
agreement provides for his employment by the Company as its Senior Vice
President at an initial base salary of $155,000 which is reviewed annually by
the Compensation Committee, and in the case of early termination, his
accelerated payment is in no case to be below $200,000.
Effective as of October 31, 1996, the Company entered into an employment
agreement with James Caci on terms substantially similar to those of Isaac
Gaon's employment agreement for a term ending on
39
<PAGE>
October 31, 1999. Mr. Caci's agreement provides for his employment by the
Company as its Chief Financial Officer and Vice President of Finance and
Secretary at an initial base salary of $150,000 which is reviewed annually by
the Compensation Committee, and in case of early termination, his accelerated
salary payment is in no case to be below $300,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Salvani, a member of the Compensation Committee of the Board of
Directors, is the Chairman of the Board of DCI, a stockholder of the Company.
DCI has entered into certain arrangements with the Company regarding equity
investments by DCI in the Company. See "Certain Transactions."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of a director to the
Company for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law, or (iv) any transaction
from which the director derived an improper personal benefit.
The Company has also entered into indemnification agreements with its
directors and executive officers. The indemnification agreements provide that
the directors and executive officers will be indemnified to the full extent
permitted by applicable law against all expenses (including attorneys' fees),
judgments, fines and amounts reasonably paid or incurred by them for settlement
in any threatened, pending or completed action, suit or proceeding, including
any derivative action, on account of their services as a director or officer of
the Company or of any subsidiary of the Company or of any other company or
enterprise in which they are serving at the request of the Company. No
indemnification will be provided under the indemnification agreements, however,
to any director or executive officer in certain limited circumstances, including
on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
40
<PAGE>
CERTAIN TRANSACTIONS
Beginning July 1993, the Company and Ralph Glasgal, its Chairman and
President, orally agreed that future salary payments would be suspended and that
the Company would loan to Mr. Glasgal the same amount which he previously was
receiving as salary, on a non-interest bearing basis. As of March 31, 1995, Mr.
Glasgal owed $476,000 to the Company, pursuant to this arrangement, and
subsequently contributed 442,478 shares of Common Stock in consideration for the
Company's cancellation of the amount owed.
During the year ended April 30, 1997, the Company loaned $125,000 to Ralph
Glasgal, which bears interest at 6.0% per annum. This loan matures on December
31, 1999.
In January 1997, the Company borrowed $750,000 from Ralph Glasgal. The loan
amount available to the Company for borrowing was subject to the availability of
funds in Mr. Glasgal's stock margin account with an investment banking firm. The
promissory note representing such indebtedness accrued interest at the rate
equal to 9.5% which was payable monthly. The loan was repaid in full in February
1997.
In January 1997, pursuant to a prior agreement between the Company, Datatec
Industries's previous lender and Plan C LLC, an affiliated company of
Christopher Carey, Plan C LLC loaned the Company approximately $1.7 million
($1.4 million outstanding as of October 31, 1997). The loan bears interest at
12.5% per annum with interest payable monthly. The principal balance of the loan
is due in January 1999. In consideration for subordinating this loan to the
Company's credit facility, the affiliated company was granted options to
purchase 30,000 shares of Common Stock at an exercise price of $4.00 per share,
which was the fair market value of the Common Stock at that time. The loan to
Plan C LLC was negotiated prior to the Company's acquisition of Datatec
Industries and prior to Christopher Carey's affiliation with the Company. The
Company believes that the terms of the loan from Plan C LLC were comparable to
those that it could have obtained from other sources. The Company intends to
repay this loan with a portion of the net proceeds of this offering. See "Use of
Proceeds." The Company also pays Plan C LLC a fee of $8,500 per month for
consulting services, on a month to month basis. Christopher Carey and his wife
are the sole members of Plan C LLC. Mr. Carey is also a Director of the Company
and President and Chief Executive Officer of Datatec Industries.
During the year ended April 30, 1997, the Company loaned $160,000 to Robert
Gadd and $50,000 to James Caci. These loans bear interest at 8.0% per annum. Mr.
Caci's loan was repaid in full in October 1997. Mr. Gadd's loan matures on
December 31, 1999 and may be repaid with the proceeds from the future exercise
of stock options. In addition, the Company's sole recourse upon any default of
this loan is limited to a security interest in certain options to purchase the
Company's Common Stock held by Mr. Gadd. The Company believes that these loans,
the loan to Ralph Glasgal described above, and the loan to Isaac Gaon described
below, were made on terms that were more favorable to the borrowers than could
have been obtained in arms length bargaining with unrelated third parties. The
Company believes that these loans were an important element in retaining and
motivating these executives. The Company is not currently considering making any
additional loans to executives in the future.
In June 1997, Ralph Glasgal purchased 160,000 shares of the Company's Common
Stock from the Company, in a private placement offering, for $620,000, a per
share price of $3.875, a small discount to the market price. The proceeds from
such offering were used for working capital purposes.
In July 1997, DCI purchased 480,000 shares of the Company's Common Stock in
private placement offerings, for an aggregate purchase price of $1.9 million. In
addition, the Company terminated a prior obligation of DCI to transfer to the
Company, at a price of $3.00 per share, 200,000 shares of the Company's Common
Stock and increased a conditional right of DCI to purchase shares of Common
Stock at approximately $6.54 per share from 668,620 shares to 1,207,239 shares.
The conditional right to purchase shares of the Company's Common Stock was
originally granted to DCI pursuant to a stock purchase agreement that was
entered into in January 1994 (the "1994 Agreement"). DCI's ability to exercise
this right has been suspended until the Company amends its charter to increase
its authorized
41
<PAGE>
Common Stock, and such right is subject to the terms and conditions in the 1994
Agreement including the receipt by DCI of proceeds from the exercise of
outstanding DCI warrants. Joseph Salvani, a director of the Company, is also
Chairman of the Board of DCI.
In October 1997, the Company entered into a letter agreement with Davco
Consultants, Inc. ("Davco") pursuant to which it is obligated to pay Davco a
finders fee upon the closing of this offering. Such fee shall consist of (i) a
cash payment equal to $195,000, and (ii) options to purchase 62,000 shares of
the Company's Common Stock at a per share exercise price equal to $7.00. David
Milch, a Director of the Company, is the sole shareholder of Davco.
In October and November 1997, the Company loaned an aggregate of $200,000 to
Isaac Gaon. The loan matures on December 31, 1999 and bears interest at a rate
of 8.0% per annum. The Company's sole recourse upon any default of this loan is
limited to a security interest in certain options to purchase Common Stock held
by Mr. Gaon. Under certain circumstances, the Company may elect to receive the
transfer of options as repayment for the loan. The number of options to be
transferred shall equal the repayment amount divided by the lesser of (i) the
fair market value of the Company's Common Stock less the exercise price of such
options or (ii) $10.00 less the exercise price of such options.
Mr. Robert H. Friedman, a Director of the Company, is a member of the law
firm of Olshan Grundman Frome & Rosenzweig LLP, which law firm has been retained
by the Company during the last fiscal year. Fees received from the Company by
such firm during the last fiscal year did not exceed 5.0% of such firm's or the
Company's revenues.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 30, 1997 and as adjusted to reflect
the sale of the Common Stock offered hereby, by (i) each director (including
individuals who have agreed to serve as directors immediately following this
offering), (ii) each executive officer, (iii) all directors and executive
officers as a group and (iv) each person who beneficially owns 5.0% or more of
the Company's Common Stock. Unless otherwise indicated, all the addresses for
5.0% stockholders, executive officers and directors of the Company is 20C
Commerce Way, Totowa, New Jersey 07512. Except as specified, the named
beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Ralph Glasgal(3)................................................... 4,700,397 18.7% 4,700,397 16.1%
Isaac J. Gaon(4)................................................... 947,336 3.6 947,336 3.1
Christopher J. Carey(5)............................................ 3,553,036 14.1 3,553,036 12.2
Robert F. Gadd(6).................................................. 479,566 1.9 479,566 1.6
James M. Caci(7)................................................... 228,667 * 228,667 *
Thomas Berry(8).................................................... 32,000 * 32,000 *
Robert H. Friedman(9).............................................. 63,146 * 63,146 *
David Milch(10).................................................... 352,505 1.4 352,505 1.2
Joseph M. Salvani(11).............................................. 1,051,706 4.2 1,051,706 3.6
All directors and executive officers as a group (9 persons)
(1)(2)(12)....................................................... 10,747,385 39.7 10,747,385 34.6
</TABLE>
- ------------------------
* Less than 1% percent.
(1) 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 September 30, 1997.
(2) The number of shares beneficially owned after the offering excludes the
exercise of the Underwriters' over-allotment option. Isaac Gaon, Christopher
Carey and Robert Gadd (collectively, the "Individual Selling Stockholders")
have granted the several Underwriters an option, exercisable within 45 days
after the date of this Prospectus, to purchase up to 95,000, 250,000 and
50,000 shares of Common Stock, respectively, solely to cover
over-allotments. If the over-allotment option is exercised in full, the
number of shares beneficially owned by Messrs. Gaon, Carey and Gadd shall be
852,336, 3,303,036, and 429,566, respectively. If the over-allotment is
exercised in part, the number of shares to be offered by each of these
individuals along with the Company shall be determined on a pro-rata basis.
(3) Mr. Glasgal's beneficial ownership includes (i) 146,752 shares of Common
Stock owned by Ralph Glasgal's wife and (ii) 523,706 shares of Common Stock
owned by DCI, which Ralph Glasgal has the right to vote pursuant to a voting
agreement with DCI.
(4) Mr. Gaon's beneficial ownership includes options exercisable within sixty
(60) days from September 30, 1997 to purchase 944,336 shares of Common
Stock.
(5) Mr. Carey's beneficial ownership includes (i) 118,518 shares of Common Stock
owned by Mary Carey, Mr. Carey's wife, (ii) 96,296 shares held by Amy Carey
GRAT, a trust formed for the benefit of Mr. Carey's daughter, (iii) 96,296
shares held by Christopher Carey GRAT, a trust formed for the
43
<PAGE>
benefit of Mr. Carey's son, and (iv) 45,000 shares beneficially owned by
Plan C LLC, a limited liability company of which Mr. Carey is a member. Mr.
Carey disclaims beneficial ownership of the shares owned by his family
members and, except to the extent of his pecuniary interest therein, those
shares owned by Plan C LLC.
(6) Mr. Gadd's beneficial ownership includes options exercisable within sixty
(60) days from September 30, 1997 to purchase 479,566 shares of Common
Stock.
(7) Mr. Caci's beneficial ownership includes options exercisable within sixty
(60) days from September 30, 1997 to purchase 228,667 shares of Common
Stock.
(8) Mr. Berry's beneficial ownership includes options exercisable within sixty
days of September 30, 1997 to purchase 32,000 shares of Common Stock. Mr.
Berry's address is P.O. Box 447, Lindsley Road, New Vernon, New Jersey
07976.
(9) Mr. Friedman's beneficial ownership includes options exercisable within
sixty (60) days from September 30, 1997 to purchase 48,000 shares of Common
Stock. Mr. Friedman's address is 505 Park Avenue, New York, New York
10022-1170.
(10) Dr. Milch's beneficial ownership includes options exercisable within sixty
(60) days from September 30, 1997 to purchase 8,000 shares of Common Stock.
Dr. Milch's address is 114 East 13th Street, New York, New York 10003.
(11) Mr. Salvani's beneficial ownership includes options exercisable within
sixty (60) days of September 30, 1997 to purchase 48,000 shares of Common
Stock. Mr. Salvani is also the Chairman of the Board of DCI and his
beneficial ownership includes 1,003,706 shares owned by DCI, which may be
deemed to be beneficially owned by Mr. Salvani by virtue of his affiliation
with DCI. Except to the extent of his pecuniary interest therein, Mr.
Salvani disclaims beneficial ownership of the shares owned by DCI. Mr.
Salvani's address is 4800 Highway A-1-A, Vero Beach, Florida 32963.
(12) Includes (i) options exercisable within (60) days of September 30, 1997 to
purchase an aggregate of 1,681,300 shares of Common Stock held by the
directors and executive officers of the Company (excludes options granted by
Mr. Glasgal to certain officers of the Company to purchase 137,268 shares of
Common Stock, which shares have already been included in Mr. Glasgal's
beneficial ownership), and (ii) 1,003,706 shares held by DCI, which may be
deemed to be beneficially owned by Messrs. Glasgal and Salvani.
44
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 34,000,000 shares of
Common Stock, $0.001 par value, and 4,000,000 shares of Preferred Stock, $0.001
par value. The Company intends to seek stockholder approval at the Annual
Stockholders' Meeting to increase the number of authorized shares of Common
Stock to 75,000,000. The following summary of certain terms of the Common Stock
and Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation and By-laws, which are included as exhibits to the Registration
Statement of which this Prospectus is a part, and the provisions of applicable
law.
COMMON STOCK
As of October 31, 1997, there were 28,211,134 shares of Common Stock
outstanding held by 212 stockholders of record. Immediately following this
offering, there will be 32,211,134 shares of Common Stock outstanding, assuming
(i) no exercise of the Underwriters' over-allotment option, (ii) no exercise of
6,745,071 options and warrants outstanding as of October 31, 1997, and (iii) no
conversion of the Notes. Holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Price Range of Common Stock and Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no right to
convert their Common Stock into any other securities. The Common Stock has no
preemptive or other subscription right. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 4,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of Preferred Stock.
CONVERTIBLE NOTES
The Company has two convertible promissory notes (the "Notes") outstanding,
each in a principal amount of $600,000. The Notes were issued on February 18,
1997 and accrue interest at a rate equal to 10.0% per annum (on the basis of a
360-day year and actual number of days elapsed), payable at conversion or
maturity. The Notes are convertible at the option of the holders at any time
prior to the Maturity Date (as defined below) at the option of the holders into
the Common Stock. The number of shares of Common Stock into which the Notes are
convertible is determined in accordance with a conversion formula. The number of
shares issuable to the holders upon conversion shall equal the aggregate
principal amount of the Notes plus accrued and unpaid interest, divided by 80.0%
of the market price of the Common Stock at the time of conversion. The market
price of the Common Stock is determined by the average closing bid price per
share of Common Stock for the five trading days immediately preceding the
conversion date on Nasdaq or such other market, quotation system or exchange on
which the Common Stock is then listed.
45
<PAGE>
The principal amount plus accrued and unpaid interest on the Notes is due on
February 18, 1999 (the "Maturity Date"), if not previously converted. The Notes
may be prepaid by the Company following 30 days prior written notice to the
holders of the Notes. The holders of the Notes have no voting rights.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS AND
DELAWARE LAW
Certain provisions of the Certificate of Incorporation and Bylaws are
intended to enhance the likelihood of continuity and stability in the Board of
Directors of the Company and in its policies, but might have the effect of
delaying or preventing a change in control of the Company and may make more
difficult the removal of incumbent directors or management even if such
transactions could be beneficial to the interests of stockholders. Set forth
below is a summary description of such provisions:
AUTHORITY TO ISSUE PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the Board of Directors, without stockholder approval,
to establish and to issue shares of one or more series of preferred stock, each
such series having such dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, the number of shares constituting any
series or designation of such series, and other rights as may be fixed by the
Board.
STOCKHOLDER ACTIONS AND MEETINGS. The Company's Certificate of
Incorporation and Bylaws direct the special meetings of the stockholders may
only be called by a majority of the members of the Board of Directors, or the
Chairman of the Board of Directors or the President of the Company. This
provision might have the effect of a deterring or delaying change in control or
the management of the Company.
LIMITATION OF DIRECTOR LIABILITY. Section 102(b)(7) of the Delaware General
Corporation Law ("Section 102(b)") authorizes corporations to limit or eliminate
the personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. Although
Section 102(b) does not alter a directors' duty of care, it enables corporations
to limit available relief to equitable remedies such as injunction or
rescission. The Company's Certificate of Incorporation limits the liability of
directors to the Company or its stockholders (in their capacity as directors but
not in their capacity as officers) to the fullest extent permitted by Section
102(b). Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability: (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law (relating to
certain unlawful dividends, stock purchases or stock redemptions), or (iv) for
any transaction from which the director derived an improper personal benefit.
INDEMNIFICATION. To the maximum extent permitted by law, the Company's
Certificate of Incorporation and Bylaws provide for mandatory indemnification of
directors, and permit indemnification of officers, employees, consultants and
agents of the Company against all expense, liability and loss to which they may
become subject or which they may incur as a result of being or having been a
director, officer, employee or agent of the Company. In addition, the Company
must advance or reimburse directors, and may advance or reimburse officers,
employees and agents for expenses incurred by them in connection with
indemnifiable claims.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 generally provides that a
stockholder acquiring more than 15.0% of the outstanding voting stock of a
corporation (an "Interested Stockholder") but less than 85.0% of such stock
(excluding voting stock owned by directors who are also officers or held in
employee benefit plans in which the employees do not have a confidential right
to tender or vote stock held by the plan) may not engage in certain Business
Combinations (as defined below) with the corporation for a period of three years
after the date on which the stockholders became an Interested Stockholder unless
(i) prior to such date, the
46
<PAGE>
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder, or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized at a stockholders' meeting by a vote of at least two-thirds of the
corporation's outstanding voting stock not owned by the Interested Stockholder.
Under Section 203, these restrictions will not apply to certain Business
Combinations proposed by an Interested Stockholder following the earlier of the
announcement or notification of the Interested Stockholder, during the previous
three years or who became an Interested Stockholder with the approval of the
corporation's board of directors, if such extraordinary transaction is approved
or not opposed by a majority of the directors who were directors prior to any
person becoming an Interested Stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
Section 203 defines the term "Business Combination" to include transactions
in which the Interested Stockholder receives or could receive a benefit on other
than a pro forma basis with other stockholders, such as mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest in
the corporation directly or indirectly owned by the Interested Stockholder, or
transactions in which the Interested Stockholder receives certain other
benefits.
The provisions of Section 203, together with the ability of the Company's
Board of Directors to issue Preferred Stock without further stockholder action,
could delay or frustrate the removal of incumbent directors or a change in
control of the Company. The provisions also could discourage, impede or prevent
a merger, tender offer or proxy consent, even if such event would be favorable
to the interests of stockholders. The Company's stockholders, by adopting an
amendment to the Company's Certificate of Incorporation or Bylaws, may elect not
to be governed by Section 203 effective 12 months after such adoption. Neither
the Company's Certificate of Incorporation nor Bylaws currently exclude the
Company from the restrictions imposed by Section 203.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
32,211,134 shares of Common Stock, assuming (i) no exercise of the Underwriters'
over-allotment option, (ii) no exercise of 6,745,071 options and warrants
outstanding as of October 31, 1997, and (iii) no conversion of the Notes. As of
September 30, 1997, approximately 14,088,047 shares of Common Stock were
immediately available for sale without restriction in the public market. All
remaining outstanding shares (the "Restricted Shares") were issued and sold by
the Company in private transactions and are eligible for public sale if
registered under the Securities Act or sold in accordance with Rule 144 or Rule
144A.
In general, under Rule 144 as currently in effect, a holder of "restricted
securities" who beneficially owns shares that were not acquired from the Company
or an affiliate of the Company within the previous year would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person who is
not deemed an affiliate of the Company at any time during the 90 days preceding
a sale and who beneficially owns shares that were not acquired from the Company
or an affiliate of the Company within the past two years is entitled to sell
such shares under Rule 144(k) without regard to volume limitations, manner of
sale provisions, notice requirements or the availability of current public
information concerning the Company. Rule 144A under the Securities Act permits
the immediate sale by the current holders of Restricted Shares of all or a
portion of their shares to certain qualified institutional buyers as defined in
Rule 144A.
As of October 31, 1997, approximately 6,975,823 shares of Common Stock were
reserved for issuance upon the exercise of outstanding options, warrants, and
conversion of outstanding notes. See "Management--Stock Option Plans." and
"Description of Securities--Convertible Notes." The Company has filed
registration statements on Form S-8 and Form S-3 under the Securities Act to
register the issuance or resale of an aggregate of approximately 4,965,576
shares of Common Stock upon the exercise or conversion of these derivative
securities and to register the resale of an aggregate of approximately 1,409,918
restricted shares of Common Stock issued in connection with various acquisitions
and private placements.
The Company and its directors and executive officers, who collectively held
as of September 30, 1997 8,062,378 shares of Common Stock and options
exercisable within 60 days of September 30, 1997 to purchase an additional
1,681,300 shares of Common Stock, have agreed that they will not sell any Common
Stock owned by them without the prior consent of Volpe Brown Whelan & Company,
LLC for a period of 90 days from the date of this Prospectus (the "Lockup
Period"), except that the Company may, without such consent, issue shares upon
the exercise of outstanding options or grant certain options pursuant to certain
stock option plans of the Company. Messrs. Carey and Glasgal have pledged
750,000 and 2,579,475 shares of Common Stock, respectively, pursuant to margin
loans with brokerage firms. Volpe Brown Whelan & Company, LLC has agreed to
permit these individuals to sell these shares from time to time to the extent
necessary to satisfy the requirements of these loans. In addition, Volpe Brown
Whelan & Company, LLC has granted Mr. Glasgal the right to sell (i) up to 67,167
shares of Common Stock to certain employees of the Company upon the exercise of
certain options previously granted to such employees by Mr. Glasgal, and (ii) up
to 3,000 shares of Common Stock per week during such 90 day period, commencing
two weeks after the date of this Prospectus. Following the expiration of the
Lockup Period, the shares held by such persons and the shares issuable to such
persons upon the exercise of currently exercisable options will be eligible for
sale in the public market pursuant to Rule 144 or existing registration
statements. See "Underwriting."
The availability of shares for sale or actual sales under Rule 144, pursuant
to existing registration statements or otherwise may have an adverse effect on
the market price of the Common Stock. Sales under Rule 144, pursuant to existing
registration statements or otherwise also could impair the Company's ability to
market additional equity securities.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters names below (the
"Underwriters"), and each of the Underwriters, for whom Volpe Brown Whelan &
Company, LLC, and Tucker Anthony Incorporated (together, the "Representatives")
are acting as representatives, has agreed severally to purchase from the
Company, the respective number of shares of Common Stock set forth opposite its
name below. The Underwriters are committed to purchase and pay for all shares if
any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Volpe Brown Whelan & Company, LLC................................................
Tucker Anthony Incorporated......................................................
----------
Total.................................................................... 4,000,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share, of which $ per
share may be reallocated to other dealers. After the public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company and the Individual Selling Stockholders of the Company have
granted to the Underwriters an option for 45 days after the date of this
Prospectus to purchase, at the public offering price, less the underwriting
discounts and commissions as set forth on the cover page of this Prospectus, up
to 600,000 additional shares of Common Stock at the same price per share as the
Company receives for the 4,000,000 shares of Common Stock offered hereby, solely
to cover over-allotments, if any. If the Underwriters exercise their
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them, as shown
in the foregoing table, bears to the 4,000,000 shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover the over-
allotments in connection with the sale of the 4,000,000 shares of Common Stock
offered hereby. To the extent that the Underwriters exercise such over-allotment
option in part, such shares shall be purchased pro-rata among the Company and
the Individual Selling Stockholders.
The Company's executive officers and directors have agreed not to offer,
sell, contract to sell, make any short sale or otherwise dispose of certain of
their shares of Common Stock or securities convertible into or exchangeable for,
or any rights to purchase or acquire, Common Stock for a period of 90 days
following the date of this Prospectus, without the prior written consent of
Volpe Brown Whelan & Company, LLC. The Company also has agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock during such 90-day period without the prior written
consent of Volpe Brown Whelan & Company, LLC, except for the granting of options
or the issuance of stock pursuant to the Company's existing stock option plans.
Volpe Brown Whelan & Company, LLC, in its discretion, may waive the foregoing
restrictions in whole or in part, with or without a public announcement of such
action.
49
<PAGE>
In recent offerings in which it has served as lead manager of underwriters,
Volpe Brown Whelan & Company, LLC has consented to early releases from lock-up
agreements only in a limited number of circumstances, after considering all
circumstances that it deemed to be relevant. Volpe Brown Whelan & Company, LLC
will have, however, complete discretion in determining whether to consent to
early releases from the lock-up agreements delivered in connection with this
offering, and no assurance can be given that it will not consent to the early
release of all or a portion of the shares of Common Stock and options covered by
such lock-up agreements. Messrs. Carey and Glasgal have pledged 750,000 and
2,579,475 shares of Common Stock, respectively, pursuant to margin loans with
brokerage firms. Volpe Brown Whelan & Company, LLC has agreed to permit these
individuals to sell these shares from time to time to the extent necessary to
satisfy the requirements of these loans. In addition, Volpe Brown Whelan &
Company, LLC has granted Mr. Glasgal the right to sell (i) up to 67,167 shares
of Common Stock to certain employees of the Company upon the exercise of certain
options previously granted to such employees by Mr. Glasgal, and (ii) up to
3,000 shares of Common Stock per week during such 90 day period, commencing two
weeks after the date of this Prospectus.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase the shares of Common Stock for the purpose of stabilizing its
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more shares of Common Stock in connection with
the offering then they are committed to purchase from the Company, and in such
case may purchase shares of Common Stock in the open market following completion
of the offering to cover all or a portion of such short position. The
Underwriters also may cover all or a portion of such short position, up to
600,000 shares, by exercising the Underwriters' over-allotment option referred
to above. In addition, Volpe Brown Whelan & Company, LLC, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the offering), for the account of the other Underwriters, the selling
concession with respect to the shares of Common Stock that is distributed in the
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the shares of Common Stock at a level above that
which otherwise might prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken, they may
be discontinued at any time.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq Stock Market in
accordance with Rule 103 of Regulation M under the Securities Exchange Act of
1934 (the "Exchange Act"). Passive market making consists of displaying bids on
the Nasdaq Stock Market limited by the bid prices of independent market makers
and making purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
The Company and the Individual Selling Stockholders have agreed to indemnify
the Underwriters against certain liabilities that may be incurred in connection
with the offering, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
50
<PAGE>
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
In October 1997, the Company entered into a letter agreement with Davco
pursuant to which it is obligated to pay Davco a finders fee upon the closing of
this offering. Such fee shall consist of (i) a cash payment equal to $195,000,
and (ii) options to purchase 62,000 shares of the Company's Common Stock at a
per share exercise price equal to $7.00. David Milch, a Director of the Company,
is the sole shareholder of Davco.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New
York. Robert Friedman, Robert Frome and Jeffrey Spindler, members of Olshan
Grundman Frome & Rosenzweig LLP, own shares and options to purchase shares of
Common Stock of the Company. Mr. Friedman also serves as a director of the
Company. Certain legal matters arising in connection with this offering will be
passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The financial statements and schedule of the Company as of April 30, 1996
and 1997 and for each of the three years in the period ended April 30, 1997
appearing in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission"). For further information, reference is
made to the Registration Statement, copies of which may be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the Commission. Copies of such Registration Statement may also be requested
from the Company, attention Mr. James Caci, Chief Financial Officer, 20C
Commerce Way, Totowa, New Jersey 07512.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Any such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the following regional offices: Northeast Regional Office, Seven World Trade
Center, New York, New York 10048, and Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company is listed on Nasdaq, and such
materials concerning the Company can be inspected and copied at the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006-1506. The Commission also
maintains a home page on the World Wide Web that contains reports, proxy and
information statements and other information. The address of such site is
http://www.sec.gov.
51
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets at April 30, 1996 and 1997 and at July 31, 1997 (unaudited).................... F-3
Consolidated Statements of Operations for the years ended April 30, 1995, 1996 and 1997 and for the three
months ended July 31, 1996 and 1997 (unaudited).......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended April 30, 1995,
1996 and 1997 and for the three months ended July 31, 1997 (unaudited)................................... F-5
Consolidated Statements of Cash Flows for the years ended April 30, 1995, 1996 and 1997 and for the three
months ended July 31, 1996 and 1997 (unaudited).......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<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,
1996 and 1997 and the related consolidated statements of operations, changes in
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended April 30, 1997. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1996 and 1997 and
the results of their operations and their cash flows for each of the three years
in the period ended April 30, 1997, in conformity with generally accepted
accounting principles.
<TABLE>
<S> <C>
Roseland, New Jersey /s/ ARTHUR ANDERSEN LLP
August 9, 1997 (except with respect to the ARTHUR ANDERSEN LLP
matters discussed in Note 16, as to which the
date is September 29, 1997)
</TABLE>
F-2
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JULY 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 2,219 $ 1,135 $ 759
Accounts receivable, less allowances of $538,000, $520,000 and $503,000 in
1996 and 1997 and July 31, 1997, respectively, for doubtful accounts....... 7,470 11,289 11,545
Inventory.................................................................... 3,238 2,134 2,473
Prepaid expenses and other current assets.................................... 1,045 1,446 3,320
Net assets from discontinued operations...................................... 3,226 4,816 4,421
--------- --------- -----------
Total current assets..................................................... 17,198 20,820 22,518
--------- --------- -----------
Property and equipment, net.................................................... 3,299 3,634 3,559
Goodwill....................................................................... 1,866 1,680 1,634
Other assets................................................................... 1,131 1,670 1,822
--------- --------- -----------
Total assets............................................................. $ 23,494 $ 27,804 $ 29,533
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings........................................................ $ 8,337 $ 11,675 $ 9,234
Current portion of long-term obligations..................................... 2,555 850 3,545
Accounts payable............................................................. 7,701 5,415 7,294
Accrued liabilities.......................................................... 6,251 5,331 5,182
Other current liabilities.................................................... 18 506 206
--------- --------- -----------
Total current liabilities................................................ 24,862 23,777 25,461
--------- --------- -----------
Due to related parties......................................................... -- 1,026 951
--------- --------- -----------
Long-term obligations.......................................................... 2,338 5,001 2,000
--------- --------- -----------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $0.001 par value (4,000 shares authorized, no shares issued
and outstanding)........................................................... -- -- --
Common stock, $0.001 par value (authorized 34,000 shares; issued and
outstanding 20,341, 23,661 and 24,564 shares as of April 30, 1996 and 1997
and July 31, 1997, respectively)........................................... 20 24 25
Additional paid-in capital................................................... 11,662 10,341 13,425
Accumulated deficit.......................................................... (15,141) (12,080) (12,055 )
Cumulative translation adjustment............................................ (247) (285) (274 )
--------- --------- -----------
Total shareholders' equity (deficit)....................................... (3,706) (2,000) 1,121
--------- --------- -----------
Total liabilities and shareholders' equity (deficit)....................... $ 23,494 $ 27,804 $ 29,533
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-3
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED APRIL 30, JULY 31,
-------------------------------- --------------------
1995 1996 1997 1996 1997
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales................................................. $ 55,876 $ 59,169 $ 59,481 $ 15,830 $ 18,600
Cost of sales............................................. 32,616 34,217 37,159 9,060 11,277
--------- ---------- --------- --------- ---------
Gross profit.............................................. 23,260 24,952 22,322 6,770 7,323
Selling, general and administrative expenses.............. 20,057 29,200 20,784 4,549 6,844
--------- ---------- --------- --------- ---------
Operating income (loss)................................... 3,203 (4,248) 1,538 2,221 479
Other income.............................................. -- -- 430 -- --
Interest expense.......................................... (495) (938) (1,155) (280) (454)
--------- ---------- --------- --------- ---------
Income (loss) before provision (benefit) for income
taxes................................................... 2,708 (5,186) 813 1,941 25
Provision (benefit) for income taxes...................... 112 (37) 111 44 --
--------- ---------- --------- --------- ---------
Income (loss) from continuing operations.................. 2,596 (5,149) 702 1,897 25
Discontinued operations:
Loss from operations.................................... (4,989) (5,762) (4,709) (503) --
Provision for future losses............................. -- (2,284) (953) -- --
--------- ---------- --------- --------- ---------
Income (loss) before extraordinary item................... (2,393) (13,195) (4,960) 1,394 25
Extraordinary Item........................................ -- (223) -- -- --
--------- ---------- --------- --------- ---------
Net income (loss)......................................... $ (2,393) $ (13,418) $ (4,960) $ 1,394 $ 25
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Income (loss) per share
Income (loss) from continuing operations................ $ 0.14 $ (0.28) $ 0.03 $ 0.07 $ 0.00
Discontinued operations................................. (0.27) (0.44) (0.24) (0.02) --
Extraordinary item...................................... -- (0.01) -- -- --
--------- ---------- --------- --------- ---------
Net income (loss) per share............................... $ (0.13) $ (0.73) $ (0.21) $ 0.05 $ 0.00
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Weighted average common and common equivalent shares...... 17,981 18,354 23,557 26,875 25,834
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-4
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT )
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1997 IS UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK ISSUED ADDITIONAL ADDITIONAL
------------------------ ------------------------ PAID-IN CAPITAL PAID-IN CAPITAL
SHARES DOLLARS SHARES DOLLARS PREFERRED COMMON
----------- ----------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994............ -- $ -- 15,817 $ -- $ -- $ 2,264
--- ----------- ----------- --- ------- -------
Distributions to S Corporation
Shareholders.....................
Sellectek merger................... 190
Private Placement Offerings of
Common stock..................... 180 428
Conversion of accounts payable into
common stock..................... 100 237
Exercise of warrants............... 125 237
Net loss...........................
Effect of exchange rate changes....
Common stock issued for options
exercised........................ 19 94
Stock exchanged for cancellation of
loan............................. (442) (476)
--- ----------- ----------- --- ------- -------
Balance at April 30, 1995............ -- $ -- 15,799 $ -- $ -- $ 2,974
--- ----------- ----------- --- ------- -------
--- ----------- ----------- --- ------- -------
Distributions to S Corporation
Shareholders.....................
Private placement offering of
common stock and warrants and
bridge financing................. 443 579
Public offering of common stock and
warrants......................... 3,566 6,535
Acquisition and cancellation of
common stock..................... (13) (27)
Common stock issued for options
exercised........................ 189 123
Change in par value of common
stock............................ 20 (20)
Private placement offering of
common stock..................... 313 -- 1,207
Stock issued for business
acquisition...................... 44 -- 291
Net loss...........................
Effect of exchange rate changes....
--- ----------- ----------- --- ------- -------
Balance at April 30, 1996............ -- $ -- 20,341 $ 20 $ -- $ 11,662
--- ----------- ----------- --- ------- -------
Distribution to S Corporation
Shareholders.....................
Issuance of preferred stock........ 350 -- 6,562
Conversion of preferred stock into
common stock..................... (350) -- 2,500 3 (6,562) 6,559
Exercise of warrants and options... 649 1 429
Conversion of accounts payable into
common stock..................... 171 -- 549
Conversion from S corporation
status to C corporation.......... (8,858)
Net loss...........................
Effect of exchange rates changes...
--- ----------- ----------- --- ------- -------
Balance of April 30, 1997............ -- $ -- 23,661 $ 24 $ -- $ 10,341
--- ----------- ----------- --- ------- -------
--- ----------- ----------- --- ------- -------
Exercise of warrants and options... 48
Conversion of accounts payable into
common stock.....................
Private placement offering of
common stock..................... 855 1 3,084
Net income.........................
Effect of exchange rates changes...
--- ----------- ----------- --- ------- -------
Balance at July 31, 1997............. -- $ -- 24,564 $ 25 $ -- $ 13,425
--- ----------- ----------- --- ------- -------
--- ----------- ----------- --- ------- -------
<CAPTION>
RETAINED CUMULATIVE TOTAL
EARNINGS TRANSLATION SHAREHOLDERS'
(DEFICIT) ADJUSTMENT EQUITY
----------- ------------- ---------------
<S> <C> <C> <C>
Balance at April 30, 1994............ $ 3,177 $ (272) $ 5,169
----------- ----- -------
Distributions to S Corporation
Shareholders..................... (1,790) (1,790)
Sellectek merger................... 190
Private Placement Offerings of
Common stock..................... 428
Conversion of accounts payable into
common stock..................... 237
Exercise of warrants............... 237
Net loss........................... (2,393) (2,393)
Effect of exchange rate changes.... 174 174
Common stock issued for options
exercised........................ 94
Stock exchanged for cancellation of
loan............................. (476)
----------- ----- -------
Balance at April 30, 1995............ $ (1,006) $ (98) $ 1,870
----------- ----- -------
----------- ----- -------
Distributions to S Corporation
Shareholders..................... (667) (667)
Private placement offering of
common stock and warrants and
bridge financing................. 579
Public offering of common stock and
warrants......................... (50) 6,485
Acquisition and cancellation of
common stock..................... (27)
Common stock issued for options
exercised........................ 123
Change in par value of common
stock............................ --
Private placement offering of
common stock..................... 1,207
Stock issued for business
acquisition...................... 291
Net loss........................... (13,418) (13,418)
Effect of exchange rate changes.... (149) (149)
----------- ----- -------
Balance at April 30, 1996............ $ (15,141) $ (247) $ (3,706)
----------- ----- -------
Distribution to S Corporation
Shareholders..................... (837) (837)
Issuance of preferred stock........ 6,562
Conversion of preferred stock into
common stock..................... --
Exercise of warrants and options... 430
Conversion of accounts payable into
common stock..................... 549
Conversion from S corporation
status to C corporation.......... 8,858 --
Net loss........................... (4,960) (4,960)
Effect of exchange rates changes... (38) (38)
----------- ----- -------
Balance of April 30, 1997............ $ (12,080) $ (285) $ (2,000)
----------- ----- -------
----------- ----- -------
Exercise of warrants and options... --
Conversion of accounts payable into
common stock..................... --
Private placement offering of
common stock..................... 3,085
Net income......................... 25 25
Effect of exchange rates changes... 11 11
----------- ----- -------
Balance at July 31, 1997............. $ (12,055) $ (274) $ 1,121
----------- ----- -------
----------- ----- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-5
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED APRIL 30, ENDED JULY 31,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- ---------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss).......................................... $ (2,393) $ (13,418) $ (4,960) $ 1,394 $ 25
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities--
Depreciation and amortization............................ 862 1,114 1,200 377 489
Extraordinary item....................................... -- 223 -- -- --
Changes in operating assets and liabilities net of
effects from purchase of CASI
(Increase) decrease in accounts receivable, net........ (1,641) 1,860 (3,819) (3,892) (256)
(Increase) decrease in inventory....................... (39) (378) 1,104 (14) (339)
(Increase) decrease in prepaid expenses and other
assets................................................. (572) 2,044 (940) 129 (2,114)
(Increase) decrease in net assets from discontinued
operations............................................. (725) (777) (1,590) (2,660) 395
Increase (decrease) in accounts payable, accrued
liabilities and other................................ 3,262 3,661 (2,169) 1,211 1,430
--------- ---------- --------- --------- ---------
Net cash used in operating activities.................. (1,246) (5,671) (11,174) (3,455) (370)
--------- ---------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net................... (2,884) (725) (1,349) (657) (280)
Net cash used for CASI acquisition......................... -- (705) -- -- --
Advances to CASI........................................... -- (1,135) -- -- --
--------- ---------- --------- --------- ---------
Net cash used in investing activities.................. (2,884) (2,565) (1,349) (657) (280)
--------- ---------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments of) short-term borrowings...... -- 8,337 3,338 2,094 (2,441)
Net proceeds from (payments of) indebtedness............... 4,457 (5,103) 958 (143) (381)
Net Proceeds from common stock/warrant issuances........... 958 7,772 6,992 279 3,085
Net proceeds from related parties.......................... -- -- 1,026 -- --
Distributions to stockholders.............................. (1,790) (667) (837) -- --
--------- ---------- --------- --------- ---------
Net cash provided by financing activities.............. 3,625 10,339 11,477 2,230 263
--------- ---------- --------- --------- ---------
Net effect of foreign currency translation on cash..... 173 (149) (38) (51) 11
--------- ---------- --------- --------- ---------
Net (decrease) increase in cash........................ (332) 1,954 (1,084) (1,933) (376)
CASH AT BEGINNING OF PERIOD.................................. 597 265 2,219 2,219 1,135
--------- ---------- --------- --------- ---------
CASH AT END OF PERIOD........................................ $ 265 $ 2,219 $ 1,135 $ 286 $ 759
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-6
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Glasgal Communications, Inc. (the "Company" or "Glasgal"), and its
subsidiaries are in the business of providing configuration, integration and
rapid deployment services for the implementation of complex computer networking
and communicating systems. (See Note 4).
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. These consolidated financial statements include, for all
periods presented, the accounts of all companies acquired under the pooling of
interests method of accounting (See Note 2). All intercompany accounts and
transactions have been eliminated.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As reflected in the
consolidated financial statements, the Company has incurred net losses and
operating cash flow deficits. During fiscal 1997, the Company completed two
acquisitions which have substantially increased its revenues and the integration
of these operations has resulted in significant cash requirements (See Note 4).
As a consequence, the Company has had to rely primarily on private placements of
equity to fund its working capital requirements.
Subsequent to April 30, 1997, the Company raised approximately $3,085 in
private equity placements for 855 shares of its common stock. Although there can
be no assurance that additional funds will be obtained, if needed, management
believes that its fiscal 1998 operating plan is attainable and, together with
the funds received from the private placements subsequent to April 30, 1997,
will provide sufficient funds to enable the Company to meet its debt service and
working capital requirements (See Note 16).
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from configuration, integration and deployment services are
recognized as the services are provided.
CONTRACT COSTS
Predeployment costs incurred in connection with engineering, planning and
project management are deferred and amortized as it recognizes revenue for such
services. As of April 30, 1997 and July 31, 1997, approximately $980 and $960,
respectively of such costs are included in other current assets.
CASH AND CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments with
an original maturity of three months or less. The Company has $210 and $232 of
restricted cash as of April 30, 1997 and July 31, 1997, respectively.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or
market value.
F-7
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
CAPITALIZED SOFTWARE COSTS
The Company capitalized certain software costs which are amortized utilizing
the straight-line method over the economic lives of the related products, not to
exceed three years. Approximately $300,000 of capitalized software costs are
included in other assets in the accompanying consolidated financial statements
as of April 30, 1997.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" ("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, reserves
have been provided to record certain assets at net realizable value (See Notes 4
and 13).
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") requires that an entity account for
employee stock-based 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". The Company continues to account for employee stock-based
compensation using the intrinsic value based method and is 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 had been applied (See Note 7).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). Certain transactions are recorded in the accounts in a period different
from that in which these transactions are reported for income tax purposes.
These transactions, as well as other temporary differences between the basis in
assets and liabilities for financial reporting and income tax purposes, result
in deferred income taxes.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based upon the weighted average number
of common shares and common equivalent shares outstanding during each period.
Common equivalent shares have not been included, if antidilutive.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" which makes certain
changes to the manner in which earnings
F-8
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
per share is reported. The Company is required to adopt this standard for the
year ending April 30, 1998. The adoption of this standard will require
restatement of prior years' earnings per share.
If the Company had adopted the new standard in fiscal 1997, basic earnings
(loss) per common share from continuing operations, discontinued operations and
net loss per common share would have been $0.03, $(0.27), and $(0.24),
respectively, based on 21,151 basic weighted average shares. Diluted earnings
per share from continuing operations would have been the same as basic earnings
per share.
FOREIGN CURRENCY TRANSLATION
The local currency of the Company's foreign subsidiaries is its functional
currency. Assets and liabilities of the Company's foreign subsidiaries 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 (deficit).
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:
COMPUTER-AIDED SOFTWARE INTEGRATION, INC.
On April 24, 1996, the Company acquired 80% of the outstanding common stock
of Computer-Aided Software Integration, Inc. ("CASI"), a company that develops
and licenses software products, in exchange for $500 and 44 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 is included
in goodwill and is being amortized over 10 years on a straight line basis.
Revenues of CASI, which commenced operations in February 1995, were immaterial
and CASI recorded losses of $490 and $415 in the period from inception through
December 31, 1995 and the four months ended April 30, 1996, respectively.
In connection with this transaction, in March 1996 the Company completed a
private placement offering of 313 shares of common stock. The net proceeds of
the private placement offering, $1,207, were used to acquire 80% of the issued
and outstanding shares of common stock of CASI, and to provide CASI with working
capital.
F-9
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) MERGERS AND ACQUISITIONS: (CONTINUED)
HH COMMUNICATIONS, INC.
On July 31, 1996, the Company acquired all of the issued and outstanding
shares of HH Communications, Inc. ("HH"), a systems integrator, in exchange for
1,500 shares of its common stock. The transaction has been accounted for as a
pooling of interests.
DATATEC INDUSTRIES, INC.
On October 31, 1996, the Company acquired 98.5% of the issued and
outstanding shares of Datatec Industries, Inc. ("Datatec Industries"), an
implementor of information communications networks, in exchange for 4,000 shares
of its common stock. In September 1997, the Company acquired the remaining 1.5%
of Datatec Industries. The transaction has been accounted for as a pooling of
interests.
Presented below are the individual entity and combined financial
information, after giving effect to classifying certain segments of the
Company's business as discontinued operations (See Note 4).
<TABLE>
<CAPTION>
GLASGAL HH DATATEC COMBINED
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED APRIL 30, 1995
Net sales................................................................. $ 3,252 $ -- $ 52,624 $ 55,876
Income from continuing operations......................................... 673 -- 1,923 2,596
Loss from discontinued operations......................................... (2,317) (92) (2,580) (4,989)
Net loss.................................................................. (1,644) (92) (657) (2,393)
FOR THE YEAR ENDED APRIL 30, 1996
Net sales................................................................. $ 5,055 $ -- $ 54,114 $ 59,169
Income (loss) from continuing operations.................................. 2,298 -- (7,447) (5,149)
Loss from discontinued operations......................................... (3,255) (289) (4,502) (8,046)
Extraordinary loss........................................................ (223) -- -- (223)
Net loss.................................................................. (1,180) (289) (11,949) (13,418)
FOR THE YEAR ENDED APRIL 30, 1997
Net sales................................................................. $ 4,835 $ -- $ 54,646 $ 59,481
Income (loss) from continuing operations.................................. (226) -- 928 702
Loss from discontinued operations......................................... (5,267) (395) -- (5,662)
Net income (loss)......................................................... (5,493) (395) 928 (4,960)
</TABLE>
The combined results are not necessarily indicative of what actually would
have occurred if the acquisitions 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
operations.
F-10
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(3) PROPERTY AND EQUIPMENT:
The following is a summary of property and equipment.
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JULY 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Equipment........................................................................ $ 1,078 $ 977 $ 994
Computer equipment............................................................... 2,893 3,158 3,194
Furniture, fixtures and leasehold improvements................................... 2,548 2,444 2,548
--------- --------- -----------
6,519 6,579 6,736
Less--accumulated depreciation and amortization.................................. 3,220 2,945 3,177
--------- --------- -----------
Property and equipment, net...................................................... $ 3,299 $ 3,634 $ 3,559
--------- --------- -----------
--------- --------- -----------
</TABLE>
(4) DISCONTINUED OPERATIONS:
Over the course of fiscal 1995 and early fiscal 1996, the Company
encountered and was greatly impacted by the trend of declining profitability in
data communications equipment sales. As a result, the Company decided to
accelerate the process of transitioning from the business of distributing data
communications equipment to its current business of providing implementation
services. In April 1996, the Company acquired CASI, which has developed the
Integrator's Workbench software tools to aid in the automation of network
configurations and deployments. In July 1996, the Company acquired HH, a systems
integrator with an expertise in routing technologies. In October 1996, the
Company acquired Datatec Industries, a systems integrator with a focus on
deployment and implementation services.
Since the acquisition of Datatec Industries in October 1996, the Company has
transitioned its business to providing implementation services. In June 1997,
the Company discontinued its data communications equipment distribution
business. The Company is currently winding down this business which is expected
to be completed by the end of fiscal 1998. The Company is no longer a
distributor of data communications equipment and will only honor its existing
customer commitments.
The net losses of this business prior to April 30, 1997 are included in the
consolidated statements of operations as discontinued operations. Revenues from
such operations were $35,004, $43,033, $35,178 for the years ended April 30,
1995, 1996 and 1997, respectively and $11,546 and $3,386 for the three month
periods ended July 31, 1996 and 1997, respectively. Substantially all assets to
be disposed of were those of Glasgal. Included in net assets from discontinued
operations is a 10 year mortgage agreement with a bank for $977, with an
interest rate of 8.05% per annum. Beginning in the year 2002, the interest rate
is subject to adjustment, as defined.
The provision for future losses of discontinued operations included in the
consolidated statements of operations includes the write-down of assets to
estimated net realizable value.
As of April 30, 1996, Datatec had discontinued its international operations,
which was a distributor of computer hardware, and its Shoppertrak division,
which developed and sold a proprietary system that provided shopper traffic
information. The loss from current year operations was approximately $2,579 and
$2,218 in 1995 and 1996, respectively, and the provision for future losses was
approximately $2,284 as of
F-11
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) DISCONTINUED OPERATIONS: (CONTINUED)
April 30, 1996, substantially all of which was utilized in fiscal 1997. Revenues
relating to these operations were approximately $14,000 in 1995 and 1996.
(5) SHORT-TERM BORROWINGS:
In October 1996, the Company amended its credit facility with a bank which
was outstanding as of April 30, 1996. The amended agreement provided for the
borrowing of the lesser of $10,500 or a sum based on a formula of qualified
assets. As of April 30, 1996 the interest rate was 9.0%. The outstanding
borrowings under this facility were repaid during fiscal 1997 with the proceeds
obtained from the revolving loan discussed below.
During fiscal 1997, the Company entered into a revolving loan agreement that
provides for maximum borrowings of $15,000. Availability under the revolving
loan is calculated at the sum of 85.0% of eligible accounts receivable, as
defined, and 50.0% of the cost or wholesale market value of eligible inventory,
as defined. The amount of available borrowings, as defined, was $11,989 as of
April 30, 1997. The revolving loan accrues interest at the prime rate plus 0.75%
(9.25% at April 30, 1997). As of July 31, 1997 the Company was not in compliance
with certain covenants and is in the process of obtaining waivers. As there can
be no assurance that such waivers will be obtained, certain long-term debt has
been classified as current (See Note 6).
(6) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JULY 31,
1996 1997 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Term loan (a).................................................................. $ 2,023 $ -- $ --
New Jersey EDA Note (b)........................................................ 895 680 660
Term note (c).................................................................. -- 2,000 1,908
Convertible notes (d).......................................................... -- 2,000 2,000
Capital leases................................................................. 1,975 1,171 977
--------- --------- -----------
Total Debt................................................................... 4,893 5,851 5,545
Less--Current maturities....................................................... (2,555) (850) 3,545
--------- --------- -----------
Long-term debt, net of current maturities.................................... $ 2,338 $ 5,001 $ 2,000
--------- --------- -----------
--------- --------- -----------
</TABLE>
- ------------------------
(a) The $2,800 term loan provided for equal monthly installments of $78
commencing July 1995 through June 1998. As of April 28, 1996 the interest
rate was 10.25%. The borrowings were repaid during fiscal 1997.
(b) The Company entered into a $1,320 loan agreement with the New Jersey
Economic Development Authority ("NJEDA"). The note provides for monthly
payments of principal and interest through June 1, 2002. Monthly principal
payments range from $9 to $14. Interest is based on a floating rate
F-12
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) LONG-TERM DEBT: (CONTINUED)
equal to the variable rate borne by the NJEDA Economic Growth Bonds. As of
April 30, 1997 the interest rate was 4.5%. The note is secured by the assets
acquired with the loan proceeds (See Note 5).
(c) In March 1997, the Company entered into a $2,000 term note. The term note
bears interest at a variable rate equal to the prime rate plus 1.5% (10.0%
at April 30, 1997) and is payable monthly. The outstanding principal is
payable in 36 monthly installments and matures in April 2000. The term note
is collateralized by certain assets, as defined (See Note 5).
(d) In February 1997, the Company issued convertible notes of $2,000, which
mature in February 1999. These notes bear interest at 10% per annum payable
at conversion or maturity. These notes, however, are convertible into the
Company's common stock following the expiration of six months following the
closing date. Upon conversion, the aggregate amount of the notes plus
accrued interest converts into common stock at 80% of the then quoted price
of a share of the Company's common stock. In connection with these notes,
the Company issued warrants to purchase 700 shares of the Company's common
stock at $5.25 per share, the fair market value on the date of issuance.
The scheduled repayments of long-term debt are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 850
1999................................................................ 2,725
2000................................................................ 1,757
2001................................................................ 371
2002................................................................ 148
</TABLE>
(7) SHAREHOLDERS' EQUITY:
On May 2, 1994, the Company merged with and into Sellectek, Incorporated
("Sellectek"), a public company which had cash and no liabilities. For
accounting purposes, the merger has been recorded as a recapitalization of the
Company with the Company as the acquirer (reverse acquisition). Sellectek
changed its name to Glasgal.
In connection with a January 1994 common stock purchase agreement with
Direct Connect International, Inc. ("DCI"), DCI converted approximately $2,000
of indebtedness into 2,724 shares of common stock of the Company. Under the
agreement, as amended, the Company has the right to require DCI to purchase up
to 1,207 additional shares ("Additional Shares") of Common Stock of the Company
for an aggregate of $7,899, 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 and conditions, the
Additional Shares.
PUBLIC OFFERING
During 1995, the Company consummated two bridge financings for aggregate
proceeds of $1,270. In connection with the financings, 443 shares of common
stock were issued at $1.13 per share and warrants were issued for the purchase
of 950 shares of common stock. Each warrant was subsequently converted into a
warrant having terms identical to those of the redeemable warrants issued in
connection with the
F-13
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) SHAREHOLDERS' EQUITY: (CONTINUED)
public offering (the "Offering") discussed below. The bridge financings were
repaid from the proceeds of the Offering resulting in the write-off of the
unamortized original issue discount and deferred financing costs of $223 as an
extraordinary loss.
On September 28, 1995, the Company completed the Offering of 1,783 units at
$5.00 per unit (including an overallotment of 258 units in October 1995) for net
proceeds of approximately $6,485. Each unit consisted 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 (See Note 16). In addition, in connection with the sale of 400 shares of
common stock by certain selling shareholders, the Company contributed 200
redeemable warrants (valued at $50) that were included in the 200 units sold by
such shareholders.
PREFERRED STOCK
During fiscal 1997, the Company issued 350 shares of convertible preferred
stock. The net proceeds from these issuances were approximately $6,562. The
preferred stock was subsequently converted into 2,500 shares of common stock.
COMMON STOCK OPTIONS
The 1990 Stock Option Plan (the "1990 Plan") provides for grants of 1,500
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.
The 1993 Consultant Stock Option Plan (the "1993 Plan") provides for grants
of 30 shares of common stock to selected persons who provide consulting and
advisory services to the Company 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.
The following table represents a summary of stock option activity under the
1990 Plan and the 1993 Plan:
<TABLE>
<CAPTION>
1993 CONSULTANT
STOCK OPTION PLAN
1990 STOCK OPTION PLAN
--------------------------- ----------------------
<S> <C> <C> <C> <C>
SHARES PRICE SHARES PRICE
----------- -------------- ----------- ---------
Options outstanding at April 30, 1995................................. 651 $ 1.25-$15.63 4 $ 5.00
Granted............................................................... 353 $ 2.78-$10.55 5 $ 2.50
Exercised............................................................. (91) $ 1.25 4 $ 5.00
</TABLE>
F-14
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) SHAREHOLDERS' EQUITY: (CONTINUED)
<TABLE>
<CAPTION>
1993 CONSULTANT
STOCK OPTION PLAN
1990 STOCK OPTION PLAN
--------------------------- ----------------------
SHARES PRICE SHARES PRICE
----------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Canceled.............................................................. (53) $ 1.25 -- --
--
--- -------------- ---------
Options outstanding at April 30, 1996................................. 860 $ 1.25-$15.63 5 $ 2.50
Granted............................................................... 64 $ 6.00-$10.55 -- --
Exercised............................................................. (122) $ 1.25 -- --
Canceled.............................................................. (81) $ 1.25-$10.55 -- --
--
--- -------------- ---------
Options outstanding at April 30, 1997................................. 721 $ 1.25-$15.63 5 $ 2.50
--
--
--- -------------- ---------
--- -------------- ---------
Exercisable at April 30, 1997......................................... 403 $ 1.25-$15.63 5 $ 2.50
--
--
--- -------------- ---------
--- -------------- ---------
</TABLE>
As of April 30, 1997, a total of 553 and 4 shares remain reserved for future
grants under the 1990 Plan and the 1993 Plan, respectively.
The 1995 Directors Stock Option Plan (the "Directors Plan") provides for
grants of 500 shares of Common Stock. 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
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 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.
<TABLE>
<CAPTION>
1995 DIRECTORS STOCK
OPTION PLAN
--------------------------
<S> <C> <C>
SHARES PRICE
----------- -------------
Options outstanding at April 30, 1995..................................................... 48 $1.25
Granted during 1996....................................................................... 72 $2.55-$2.78
Exercised................................................................................. -- --
Canceled.................................................................................. -- --
--- -------------
Options outstanding at April 30, 1996..................................................... 120 $1.25-$2.78
Granted................................................................................... 96 $6.73-$8.33
Exercised................................................................................. -- --
Canceled.................................................................................. -- --
--- -------------
Options outstanding at April 30, 1997..................................................... 216 $1.25-$8.33
--- -------------
--- -------------
Shares exercisable at April 30, 1997...................................................... 88 $1.25-$2.78
--- -------------
--- -------------
</TABLE>
As of April 30, 1997, 284 shares were available for future issuance under
the Directors Plan.
F-15
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) SHAREHOLDERS' EQUITY: (CONTINUED)
During January 1992, the Company granted options to purchase 1,387 shares of
its common stock, at an exercise price of $0.005 per share. The options may be
exercised at any time prior to January 1, 2002. 349 options have been exercised
as of April 30, 1997. In April 1993, the Company granted options, which expire
in April 2003, to purchase 110 shares of common stock to a consultant/advisor to
the Company at an exercise price of $0.005 per share. As of April 30, 1997, 93
options have been exercised.
On April 25, 1995 the Company granted options to purchase 350 shares of
Common Stock at an exercise price of $1.75, to certain officers of the Company.
These options are exercisable, at any time and from time to time, prior to April
21, 2005. During fiscal 1996, 95 options were canceled. As of April 30, 1997, 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.
<TABLE>
<CAPTION>
SHARES PRICE
----------- --------------
<S> <C> <C>
Options outstanding at April 30, 1995.................................................... 1,846 $ 0.005-$1.75
Granted.................................................................................. -- --
Exercised................................................................................ (94) $ 0.005
Canceled................................................................................. (95) $ 1.75
----- --------------
Options outstanding at April 30, 1996.................................................... 1,657 $ 0.005-$1.75
Granted.................................................................................. -- --
Exercised................................................................................ (348) $ 0.005
Canceled................................................................................. -- --
----- --------------
Options outstanding at April 30, 1997.................................................... 1,309 $ 0.005-$1.75
----- --------------
----- --------------
</TABLE>
In fiscal 1996, the Company adopted the 1996 Employee and Consultant Stock
Option Plan (the "1996 Plan"), under which 2,000 shares of common stock are
reserved for issuance. The 1996 Plan was established to attract, retain, and
provide equity incentives to selected employees to promote the financial success
of the Company.
F-16
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) SHAREHOLDERS' EQUITY: (CONTINUED)
The following table represents a summary of the stock option activity under
the 1996 Plan:
<TABLE>
<CAPTION>
1996 EMPLOYEE AND
CONSULTANT
STOCK OPTION PLAN
--------------------------
<S> <C> <C>
SHARES PRICE
----------- -------------
Options outstanding at April 30, 1996............................................... -- $ --
Granted............................................................................. 1,500 $ 5.82-$6.93
Exercised........................................................................... -- --
Canceled............................................................................ 121 $ 5.82-$6.93
----- -------------
Options outstanding at April 30, 1997............................................... 1,379 $ 5.82-$6.93
----- -------------
----- -------------
</TABLE>
In fiscal 1996, the Company adopted the senior executive stock option plan
(the "1996 Executive Plan") under which 560 shares of common stock are reserved
for issuance to senior executive officers of the Company at an exercise price as
determined by the plan committee at the time of grant.
The following table represents a summary of stock option activity under the
1996 Executive Plan:
<TABLE>
<CAPTION>
SENIOR EXECUTIVE PLAN
---------------------
<S> <C> <C>
SHARES PRICE
--------- ----------
Options outstanding at April 30, 1996.............................. -- $ --
Granted............................................................ 535 $ 5.25
Exercised.......................................................... -- --
Canceled........................................................... -- --
--------- ----------
Options outstanding at April 30, 1997.............................. 535 $ 5.25
--------- ----------
--------- ----------
</TABLE>
The 1996 Stock Option Conversion Plan was established to primarily replace
stock options previously granted by the Company's subsidiary, Datatec
Industries, with the Company's options on the same terms as indicated in the
merger agreement. The maximum number of shares that may be issued pursuant to
options granted under the plan shall not exceed 470. As of April 30, 1997, 447
options were outstanding, with no options exercised during the year ended April
30, 1997. The options outstanding have exercise prices ranging from $.86 to
$3.14.
On July 17, 1995, Mr. Glasgal granted to five executive officers of the
Company, options to purchase an aggregate of 300 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). As of April 30, 1997, 7 shares have been
exercised.
Effective May 1, 1996, the Company adopted the provisions of SFAS 123
"Accounting for Stock-Based Compensation". As permitted by the statement, the
Company has elected to continue to account for stock-based compensation using
the intrinsic value method. Accordingly, no compensation expense has been
F-17
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) SHAREHOLDERS' EQUITY: (CONTINUED)
recognized for its stock-based compensation plans. Had the fair value method of
accounting been applied to the Company's stock option plans during 1996 and
1997, which requires recognition of compensation expense ratably over the
vesting period of the underlying equity instruments, net loss would have been
increased by $106 with no per share effect in 1996 and $589 with a $0.02 per
share effect in 1997. This pro forma impact takes into account options granted
since May 1, 1995 and is likely to increase in future years as additional
options are granted and amortized ratably over the vesting period. The weighted
average fair value of options granted during 1996 and 1997 was $2.60 and $3.58,
respectively. The fair value was estimated using the Black-Scholes option
pricing model based on the weighted average market price at grant date of $4.45
in 1996 and $5.57 in 1997 and the following weighted average assumptions; risk
free interest rate of 8.5% in 1996 and 1997 and volatility of 75% in 1996 and
1997.
(8) INCOME TAXES:
Under 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, APRIL 30,
1996 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforwards......................................... $ 1,406 $ 3,462
Accelerated depreciation................................................. (316) (1,159)
Allowance for doubtful accounts.......................................... 109 280
Inventory obsolescence................................................... 112 257
Other.................................................................... 19 480
----------- -----------
1,330 3,320
Valuation allowance...................................................... (1,330) (3,320)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</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.
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.
As of April 30, 1997, the Company has $10,200 available of net operating
loss carryforwards, which may be used to offset future taxable income. These net
operating loss carryforwards expire through 2012.
(9) RELATED PARTY TRANSACTIONS:
On April 30, 1995, and in contemplation of the closing of the First Bridge
Financing (see Note 7), Mr. Glasgal, the majority shareholder of the Company,
contributed to the Company 442 shares of
F-18
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(9) RELATED PARTY TRANSACTIONS: (CONTINUED)
Common Stock in consideration for the cancellation of $476 owed by him to the
Company. The 442 shares of Common Stock contributed to the Company were
canceled.
During the year ended April 30, 1997, the Company loaned $410 to certain
executive officers of the Company. These loans bear interest at 8% per annum.
Two of these loans, representing $210, are repayable with the proceeds from the
future exercise of stock options of these executives. All of these loans mature
on December 31, 1999.
Datatec had previously leased a facility owned by a company controlled by a
majority shareholder. Under an agreement with the lender, if the facility were
sold, the majority shareholder would be required to apply any proceeds in excess
of the mortgage to repayment of Datatec debt with that lender. In January 1997,
the facility was sold and approximately $1,686 of excess proceeds were used by
the majority shareholder to repay Datatec debt. This amount, net of repayment of
$250, is included in due to related parties. The Company continues to lease two
facilities from companies with whom a majority shareholder is affiliated. The
annual lease payments on the facilities is included in Note 11.
(10) EMPLOYEE BENEFIT PLANS:
The Company currently has two contributory 401(k) salary reduction plans
which permit employees to contribute if they are at least 21 years of age and
have been a full time employee of the Company for six months.
The Glasgal Communications, Inc. Salary Reduction Plan requires a minimum
contribution of 2% of the gross earnings and no more than 15% of the gross
earnings up to the maximum allowed by the IRS. Glasgal matches a maximum of six
hundered dollars annually, per participant. The matching contributions for the
three years ended April 30, 1995, 1996 and 1997 were $27, $17 and $15,
respectively.
The Datatec Industries, Inc. 401(k) Savings Plan requires a minimum
contribution of 1% of the gross earning and no more than 15% of the gross
earnings up to the maximum allowed by the IRS. The Datatec plan does not match
any of the employee's contributions.
(11) COMMITMENTS AND CONTINGENCIES:
The Company leases sales offices and warehouse facilities from related and
unrelated parties throughout the United States and Canada. The minimum annual
rentals for future years are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
RELATED SUBLEASE
TWELVE MONTH PERIOD ENDING APRIL PARTY OTHER INCOME NET
- --------------------------------------------------------------- ----------- --------- ----------- ---------
1998........................................................... $ 545 $ 1,059 $ (404) $ 1,200
1999........................................................... 545 984 (453) 1,076
2000........................................................... 545 801 (372) 974
2001........................................................... 545 449 (270) 724
2002........................................................... 545 333 (210) 668
Thereafter..................................................... 3,818 423 (18) 4,223
</TABLE>
Rent expense was $1,194, $1,785 and $1,713 for the years ended April 30,
1995, 1996 and 1997, respectively and $474 and $511 for the three month periods
ended July 31, 1996 and 1997, respectively.
F-19
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has one-year lease commitments for its fleet of vehicles. Lease
expense related to these vehicles was $943, $1,155 and $1,347 for the years
ended April 30, 1995, 1996 and 1997, respectively and $348 and $358 for the
three month periods ended July 31, 1996 and 1997, respectively. The leases
expire throughout the year, most with an option for renewal. Future commitments
are not reflected in the amounts above but are expected to approximate the 1997
expense.
The Company has entered into employment agreements with thirteen key
employees. These agreements provide for an aggregate annual salary of $2,400,
increased annually by the percentage increase in the consumer price index. These
agreements are generally three years in duration and expire in July 1999 through
April 2001.
The Company, from time to time, is involved in routine litigation and
various legal matters in the ordinary course of business. The Company does not
expect that the ultimate outcome of this litigation will have a material adverse
effect on the results of operations or financial position.
(12) 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 and Canada.
Customers representing approximately 57% of the Company's revenues are in the
retail industry.
In the year ended April 30, 1995, two customers had sales of $9,200, $6,500,
for the year ended April 30, 1996, two customers had sales of $5,000, $4,700,
for the year ended April 30, 1997, two customers had sales of $7,000, $6,000.
(13) RESTRUCTURING OF OPERATIONS:
In April 1996, the Company recorded restructuring charges of $6,756 relating
to reducing costs and improving the Company's efficiency. These charges are
included in selling, general and administrative expense and included $2,049 in
noncash write-downs of certain of the Company's long-lived assets based upon the
criteria described in Note 1 as well as the establishment of $4,707 of accrued
liabilities, which included $1,984 of projected cash outflows for personnel
severance and facilities consolidation plans.
(14) 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 $0.001 par
value common stock. This change resulted in the transfer of $20 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 shares to 34,000 shares.
(15) SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
<TABLE>
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
</TABLE>
F-20
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DATA WITH RESPECT TO THE THREE MONTHS ENDED JULY 31, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(15) SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Interest paid........................................ $ 624 $ 1,020 $ 1,313 $ 414 $ 380
Income taxes paid.................................... 600 14 397 -- --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On June 6, 1994, a vendor converted $250 of Glasgal's accounts payable into
100 shares of Glasgal's Common Stock.
On April 30, 1995, Mr. Glasgal contributed 442 shares of Common Stock in
consideration for the cancellation of $476 owed to the Company.
On April 24, 1996, the Company purchased 80% of the common stock of CASI for
$500 in cash plus 44 shares of common stock of the Company valued at $290.
<TABLE>
<CAPTION>
<S> <C>
Goodwill.................................................................... $ 1,866
Cash Paid for Common Stock (including expenses)............................. (705)
Common Stock Issued......................................................... (290)
---------
Liabilities Assumed......................................................... $ 871
---------
---------
</TABLE>
During 1997, the Company converted $561 of accounts payable into 171 shares
of common stock.
(16) SUBSEQUENT EVENT:
On September 22, 1997, the Company issued a notice of redemption of warrants
(See Note 7) at a redemption price of $.05 per Warrant.
On September 29, 1997, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission to register 4,000 shares of the Company's Common Stock to sell to the
public. Existing and prospective investors should consider, among other things,
the risks and difficulties faced by the Company, including working capital
deficiencies, management of growth, history of losses, recent change of business
focus and dependence on key personnel. See "Risk Factors" included elsewhere in
this Prospectus for a discussion of these and other factors.
F-21
<PAGE>
[This page contains a chart depicting typical project activities]
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION
OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 12
Use of Proceeds........................................................... 12
Price Range of Common Stock and Dividend Policy........................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 24
Management................................................................ 33
Certain Transactions...................................................... 41
Principal Stockholders.................................................... 43
Description of Securities................................................. 45
Shares Eligible For Future Sale........................................... 48
Underwriting.............................................................. 49
Legal Matters............................................................. 51
Experts................................................................... 51
Available Information..................................................... 51
Index to Consolidated Financial Statements................................ F-1
</TABLE>
4,000,000 SHARES
[LOGO]
GLASGAL COMMUNICATIONS, INC.
COMMON STOCK
--------------
PROSPECTUS
, 1997
--------------
VOLPE BROWN WHELAN & COMPANY
TUCKER ANTHONY
INCORPORATED
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the Underwriters) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the SEC registration fee and the NASD
filing fee, all amounts shown are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................................... $ 8,886.36
NASD filing fee................................................................ 3,433.00
Nasdaq NMS listing expenses.................................................... 50,000.00
Blue sky fees and expenses (including legal and filing fees)................... 10,000.00
Printing expenses (other than stock certificates).............................. 150,000.00
Printing and engraving of stock certificates................................... 3,000.00
Legal fees and expenses (other than Blue sky).................................. 200,000.00
Accounting fees and expenses................................................... 75,000.00
Transfer Agent and Registrar fees and expenses................................. 10,000.00
Finder's fee................................................................... 195,000.00
Miscellaneous expenses......................................................... 169,680.64
----------
Total.................................................................. $875,000.00
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-laws of the Registrant provides
that the Registrant shall indemnify to the extent permitted by Delaware law any
person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Registrant. Such indemnification (other than an
order by a court) shall be made by the Registrant only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. In addition, the Registrant's Certificate of
Incorporation eliminates, to the extent permitted by Delaware law, personal
liability of directors to the Registrant and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Registrant's authority to indemnify its directors and officers is
governed by the provisions of Section 145 of the Delaware General Corporation
Law, as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
II-1
<PAGE>
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition or such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses incurred by other
employees and agents may be paid upon such terms and conditions, if any, as the
board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to the "corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership,
II-2
<PAGE>
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans, references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan, and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent with respect to any employee
benefit plan, its participants or beneficiaries, and a person who acted in good
faith and in a manner reasonably believed to be in the interest of the
participants and beneficiaries of any employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation" as
referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Registrant has agreed to indemnify the Underwriters
and the Underwriters have agreed to indemnify the Registrant and its directors,
officers and controlling persons against certain civil liabilities that may be
incurred in connection with the offering, including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into Indemnification Agreements with each of its
directors and officers whereby it has agreed to indemnify each director and
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or officer for or as a result of action
taken or not taken while such director was acting in his capacity as a director,
officer, employee or agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were sold by the
Company without registration under the Securities Act. Except as otherwise
indicted, the securities were sold by the Company in reliance upon the exemption
provided by Section 4(2) of the Securities Act, among others, on the basis that
such transactions did not involve any public offering and the purchasers were
sophisticated with access to the kind of information registration would provide.
In October 1994, 875,000 shares of Common Stock of the Company were issued
to Berthold Hoeniger in connection with the acquisition by the Company of
Signatel Ltd.
In May 1995, the Company consummated a bridge financing and in connection
therewith issued (i) $1,200,000 aggregate principal amount of Notes, (ii)
Warrants to purchase 600,000 shares of Common Stock and (iii) 442,480 shares of
Common Stock to accredited investors. The Company paid a placement fee to Joseph
Stevens & Company, L.P. in an amount equal to 10% of the gross proceeds in
connection with the transaction.
In June 1995, the Company consummated a bridge financing and in connection
therewith issued warrants to purchase 350,000 shares of Common Stock for an
aggregate of $70,000 to five accredited investors.
In March 1996, the Company sold an aggregate of 312,500 shares of Common
Stock in a private placement to accredited investors, at a purchase price of
$4.45 per share. The Company paid a placement fee to Brookehill Equities, Inc.
in an amount equal to 10% of the gross proceeds in connection with the
transaction.
II-3
<PAGE>
In April 1996, the Company acquired 80% of the Common Stock of CASI. As part
of the transaction, the Company issued David Tobey 44,260 shares of Common
Stock.
In July 1996, the Company acquired 100% of the Common Stock of HH. As part
of the transaction, the Company issued an aggregate of 1,500,000 shares of
Common Stock to the former owners of HH.
In July 1996, the Company issued warrants to Joseph Stevens to purchase an
aggregate of 100,000 shares of Common Stock at a per share exercise price of
$6.25.
In September 1996, October 1996, and November 1996, the Company consummated
three separate financings with Southbrook International Investments, Ltd. (the
"Southbrook Placements") pursuant to which it issued 250,000 shares of Series A
Preferred Stock, 25,000 shares of Series B Preferred Stock, and 75,000 shares of
Series C Preferred Stock, respectively. The Preferred Stock was subsequently
converted into approximately 2,500,000 shares of Common Stock. The net proceeds
of the Southbrook Placements aggregating approximately $6,590,000 was used to
fund the working capital needs of the Company and Datatec Industries. The
Company has also issued to Southbrook International Investments, Ltd. a warrant
to purchase an aggregate of 175,000 shares of Common Stock at a per share
exercise price of $5.25.
In September 1996, the Company issued warrants to Wharton Capital and State
Capital Market Group to purchase an 10,000 shares of Common Stock each, at a per
share exercise price of $7.15.
In October 1996, the Company issued warrants to Wharton Capital and State
Capital Market Group to purchase an 5,000 shares of Common Stock each, at a per
share exercise price of $5.78.
In October 1996, the Company acquired approximately 98.5% of the Common
Stock of Datatec Industries. As part of the transaction, the Company issued an
aggregate of 4,000,000 shares of Common Stock to the former owners of Datatec
Industries.
In December 1996, the Company issued an aggregate of 132,470 shares of
Common Stock to RAD Data Communications, Ltd. in exchange for the cancellation
of the accounts payable of the Company and Signatel in the amount of
approximately $530,000.
In February 1997, the Company entered into two convertible loans each for
$1,000,000 with Frank Brosens and Tinicum Investors. The loans are convertible
into Common Stock at 80% of the average closing bid price per share of the
Common Stock for the five trading days immediately preceding the conversion
date. The loans bear interest at 10% which is due at the time of conversion. If
not previously converted, the loans mature in February 1999. In connection with
this financing, the Company also issued warrants to purchase an aggregate of
700,000 shares of Common Stock at a per share exercise price of $5.25.
In March 1997, the Company issued an aggregate of 12,500 shares of Common
Stock to Tonar Industries, Inc. in exchange for the cancellation of the accounts
payable of the Company and Datatec Industries in the amount of approximately
$50,000.
In June 1997, Ralph Glasgal purchased 160,000 shares of Common Stock for an
aggregate purchase price of $620,000.
In July 1997, Direct Connect International Inc. purchased 130,000 shares of
Common Stock from the Company for an aggregate purchase price of $500,000.
In July 1997, the Company sold an aggregate of 565,000 shares of Common
Stock in a private placement to six accredited investors, at a purchase price of
$3.875 per share. The Company paid a placement fee to Brookehill Equities, Inc.
in an amount equal to 10% of the gross proceeds in connection with the
transaction.
In September 1997, the Company issued an aggregate of 50,000 shares of
Common Stock to Mason Carter in exchange for 100,000 shares of Common Stock of
Datatec Industries.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended (incorporated by reference to the Company's Form
10-K for the fiscal year ended April 30, 1996).
3.2 By-laws of the Registrant (incorporated by reference to the Company's Form 10-K for the fiscal year
ended April 30, 1996).
*3.3 Certificate of Amendment to the Certificate of Incorporation.
*4.1 Specimen Certificate of the Company's Common Stock.
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
10.1 1990 Stock Option Plan, as amended to date (incorporated by reference to the Company's registration
statement on Form S-8 (File No. 333-08381) filed with the Commission on June 18, 1996).
10.2 1993 Consultant Stock Option Plan (incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the Commission on June 14, 1995).
10.3 1995 Director's Stock Option Plan (incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the Commission on June 14, 1995).
10.4 1996 Employee and Consultant Stock Option Plan (incorporated by reference to the Company's Form 10-K for
the fiscal year ended April 30, 1996)
10.5 1996 Stock Option Conversion Plan (incorporated by reference to the Company's Form 10-K for the fiscal
year ended April 30, 1997).
10.6 1996 Senior Executive Stock Option Plan (incorporated by reference to the Company's Form 10-K for the
fiscal year ended April 30, 1997).
10.7 Employment Agreement dated December 31, 1996 between the Company and Ralph Glasgal (incorporated by
reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.8 Employment Agreement dated October 31, 1996 between the Company and Isaac Gaon (incorporated by
reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.9 Employment Agreement dated October 31, 1996 between the Company and James Caci (incorporated by
reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.10 Employment Agreement dated October 31, 1996 between the Company and Robert Gadd (incorporated by
reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
</TABLE>
- ------------------------
* To be filed by amendment.
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Employment and Non-Competition Agreement dated November 1, 1997 between the Company and Christopher J.
Carey (incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.12 Employment and Non-Competition Agreement dated November 1, 1997 between the Company and Raymond Koch
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.13 Employment Agreement dated April 24, 1996 between the Company, Computer-Aided Software Integration, Inc.
and David Tobey (incorporated by reference to the Company's Form 10-K for the fiscal year ended April
30, 1997).
10.14 Employment Agreement dated July 31, 1996 between the Company, HH Communications, Inc. and Frank Frazel
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.15 Employment Agreement dated July 31, 1996 between the Company, HH Communications, Inc. and Steven Grubner
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.16 Employment Agreement dated July 31, 1996 between the Company, HH Communications, Inc. and Mark Herzog
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.17 Employment Agreement dated July 31, 1996 between the Company, HH Communications, Inc. and George
Terlizzi (incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30,
1997).
10.18 Warrant Agreement between Continental Stock Transfer & Trust Company and the Company (incorporated by
reference to the Company's registration statement on Form S-1 (File No. 33-93470) filed with the
Commission on June 14, 1995).
10.19 Loan and Security Agreement dated March 17, 1997 between the Company and Finova Capital Corporation
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.20 Stock Purchase Agreement dated as of February 15, 1996 by and among the Company, David H. Tobey and
Computer-Aided Software Integration, Inc. (incorporated by reference to the Company's registration
statement on Form S-3 (File No. 333-03414) filed with the Commission on April 8, 1996).
10.21 Stockholders' Agreement dated April 24, 1996 by and among the Company, David H. Tobey and Computer-Aided
Software Integration, Inc. (incorporated by reference to the Company's Form 10-K for the fiscal year
ended April 30, 1996).
10.22 Stock Purchase Agreement dated as of July 31, 1996 by and among Glasgal Communications, Inc., Francis J.
Frazel, Steven M. Grubner, Mark Herzog, George Terlizzi and HH Communications, Inc. (incorporated by
reference to the Company's Form 8-K dated July 31, 1996).
10.23 Stock Purchase Agreement dated as of October 31, 1996 by and among Glasgal Communications, Inc., Datatec
Industries Inc. and Those Stockholders Listed on Schedule 1.1 Thereto (incorporated by reference to the
Company's Form 8-K dated October 31, 1996).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.24 Notes and Warrant Purchase Agreement dated as of February 18, 1997, by and between the Company, Tinicum
Investors and Frank Brosens (Exhibit A- Form of Convertible Note, Exhibit B- Form of Warrant, Exhibit C-
Form of Conditional Warrant) (incorporated by reference to the Company's Form 10-K for the fiscal year
ended April 30, 1997).
10.25 Convertible Preferred Stock Purchase Agreement, dated as of September 30, 1996, by and between Glasgal
Communications, Inc. and Southbrook International Investments, Ltd. (incorporated by reference to the
Company's Form 8-K dated September 30, 1996).
10.26 Convertible Preferred Stock Purchase Agreement, dated as of October 29, 1996, by and between Glasgal
Communications, Inc. and Southbrook International Investments, Ltd. (incorporated by reference to the
Company's Form 8-K dated September 30, 1996).
10.27 Common Stock Purchase Agreement dated January 7, 1994 by and among Direct Connect International, Inc.,
the Company and Ralph Glasgal (incorporated by reference to the Company's registration statement on Form
S-1 (File No. 33-93470) filed with the Commission on June 14, 1995).
10.28 Stock Purchase Agreement dated July 10, 1997 between Direct Connect International, Inc. and the Company
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.29 Stock Purchase Agreement dated July 25, 1997 by and among the Company and the Purchasers listed on the
Signature Pages thereto (incorporated by reference to the Company's Form 10-K for the fiscal year ended
April 30, 1997).
10.30 Letter Agreement dated July 25, 1997 between Direct Connect International, Inc. and the Company
(incorporated by reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.31 Stock Purchase Agreement dated June 30, 1997 between the Company and Ralph Glasgal (incorporated by
reference to the Company's Form 10-K for the fiscal year ended April 30, 1997).
10.32 Amended and Restated License Agreement dated as of July 1, 1997 by and between CASI and Datanet
International Incorporated (incorporated by reference to the Company's Form 10-Q, as amended, for the
three months ended July 31, 1997).
10.33 Reseller Agreement effective as of September 15, 1997 by and between CASI and Datanet International
Incorporated (incorporated by reference to the Company's Form 10-Q, as amended, for the three months
ended July 31, 1997).
10.34 Sublease Agreement for 20C Commerce Way, Totowa, New Jersey dated December 1996 by and between Motorola
Inc. and the Company.
11.1 Statement of Computation of Per Share Earnings.
21.1 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature page of this Registration Statement).
</TABLE>
- ------------------------
* To be filed by amendment.
II-7
<PAGE>
(b) Financial Statement Schedules:
Independent Auditors' Report
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted as not being required or the information
required therein is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registration of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted form the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
The undersigned registrant undertakes to provide to the Underwriters at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glasgal Communications, Inc.:
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic 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 financial statements taken as a whole.
<TABLE>
<S> <C>
Roseland, New Jersey /s/ Arthur Andersen LLP
August 9, 1997 (except with respect to the matters Arthur Andersen LLP
discussed
in Note 16, as to which the date
is September 29, 1997)
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Totowa, State of New Jersey on the 12th day of November, 1997.
<TABLE>
<S> <C> <C>
GLASGAL COMMUNICATIONS, INC.
By: /s/ ISAAC J. GAON
-----------------------------------------
Isaac J. Gaon
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ISAAC J. GAON and JAMES M. CACI, his true and
lawful attorney-in-fact, each acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments
to this registration statement, and any related registration statement filed
pursuant to Rule 462(b) of the Act and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting along, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RALPH GLASGAL
- ------------------------------ Chairman of the Board and November 12, 1997
Ralph Glasgal President
/s/ ISAAC J. GAON Chief Executive Officer
- ------------------------------ and Director (principal November 12, 1997
Isaac J. Gaon executive officer)
/s/ JOSEPH M. SALVANI
- ------------------------------ Director November 12, 1997
Joseph M. Salvani
/s/ ROBERT H. FRIEDMAN
- ------------------------------ Director November 12, 1997
Robert H. Friedman
/s/ THOMAS BERRY
- ------------------------------ Director November 12, 1997
Thomas Berry
/s/ DAVID MILCH
- ------------------------------ Director November 12, 1997
David Milch
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ CHRISTOPHER CAREY
- ------------------------------ Director November 12, 1997
Christopher Carey
/s/ JAMES M. CACI Chief Financial Officer
- ------------------------------ (principal financial and November 12, 1997
James M. Caci accounting officer)
</TABLE>
II-10
<PAGE>
GLASGAL COMMUNICATIONS, INC.
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE, CHARGES TO
BEGINNING COST AND BALANCE, END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Year ended April 30, 1997
Allowance for doubtful accounts.............................. $ 538 $ 163 $ (181) $ 520
Year ended April 30, 1996
Allowance for doubtful accounts.............................. 456 542 (460) 538
Year ended April 30, 1995
Allowance for doubtful accounts.............................. 208 252 (4) 456
</TABLE>
S-2
<PAGE>
EXHIBIT 1.1
4,000,000 Shares(1)
[GLASGAL COMMUNICATIONS, INC.]
Common Stock
UNDERWRITING AGREEMENT
, 1997
Volpe Brown Whelan & Company, LLC
Tucker Anthony Incorporated
As Representatives of the several Underwriters
c/o Volpe Brown Whelan & Company, LLC
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
[GLASGAL COMMUNICATIONS, INC.], a Delaware corporation (the "Company"),
proposes to issue and sell 4,000,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock, $.001 par value (the "Common Stock"). The
Company and the stockholders of the Company named in SCHEDULE II hereto
(collectively, the "Selling Securityholders") propose to grant to the
Underwriters (as defined below) an option to purchase up to 600,000 additional
shares of Common Stock (the "Optional Shares" and, with the Firm Shares,
collectively, the "Shares"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the shares by the several
underwriters, for whom you are acting, named in SCHEDULE I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Shares pursuant to Section 3(b) hereof). You represent and warrant that you have
been authorized by each of the other Underwriters to enter into this Agreement
on its behalf and to act for it in the manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The Company and each of the Selling Securityholders hereby
represent and warrant to the several Underwriters as of the date hereof and as
of each Closing Date (as defined below) that:
(A) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act") of the
Shares. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
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(1) Plus an option to purchase from the Company and the Selling Securityholders
up to 600,000 additional shares to cover over-allotments.
<PAGE>
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(B) Each of the Company and its subsidiaries have been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, business prospects, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole).
(C) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21 to the Registration Statement. Except as described in the Prospectus,
the Company owns all of the outstanding capital stock of its subsidiaries free
and clear of all claims, liens, charges and encumbrances. The Company and each
of its subsidiaries are in possession of and operating in compliance with all
material authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses as described in the
Prospectus, all of which are valid and in full force and effect.
(D) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, business prospects, properties, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
(E) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations of
the Commission thereunder; on the Effective Date, the Registration Statement did
not contain any untrue statement of a material fact and did not
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<PAGE>
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, on the Effective Date
the Prospectus did not and, on the Closing Date and any later date on which
Optional Shares are to be purchased, will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties in this subparagraph (iii) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(F) The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
any outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required by the Securities Act and the Rules and Regulations to be shown with
respect to such plans, arrangements, options and rights.
(G) The Shares are duly authorized, are (or, in the case of Shares to
be sold by the Company, will be, when issued and sold to the Underwriters as
provided herein) validly issued, fully paid and nonassessable and conform in all
material respects to the description thereof in the Prospectus. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the Shares to be sold by
the Selling Securityholders or the issuance and sale of the Shares to be sold by
the Company as contemplated herein.
(H) The Shares to be sold by the Selling Securityholders are listed
and duly admitted to trading on the Nasdaq SmallCap, and prior to the Closing
Date, the Shares to be issued and sold by the Company and the Shares to be sold
by the Selling Securityholders will be authorized for listing on the Nasdaq
National Market upon official notice of issuance.
(I) The Shares to be sold by the Company will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest, and will conform in all material respects to the description thereof
contained in the Prospectus. No preemptive right, co-sale right, registration
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company exists with respect to the issuance and sale
of the Shares by the Company pursuant to this Agreement. No stockholder of the
Company has any right which has not been waived, or complied with, to require
the Company to register the sale of any shares owned by such stockholder under
the Securities Act in the public offering contemplated by this Agreement.
(J) The Company has full corporate power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company enforceable in
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<PAGE>
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium laws
affecting creditors' rights generally and except as to those provisions relating
to indemnity or contribution for liabilities arising under federal and state
securities laws. The making and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby (i) will not violate
any provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company or any of its subsidiaries, and (ii)
will not conflict with, result in a material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (A) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound or affected, or
(B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
that has not already been obtained is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Securities Act, the Blue Sky laws
applicable to the public offering of the Common Shares by the several
Underwriters and the clearance of such offering with the NASD.
(K) The consolidated financial statements and schedules of the Company
and the related notes thereto included in the Registration Statement and the
Prospectus present fairly on a consolidated basis the financial position of the
Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in subsection 10(f). No other financial statements or schedules are
required to be included in the Registration Statement. The selected financial
data set forth in the Prospectus under the captions "Capitalization" and
"Selected Consolidated Financial Information" fairly present the information set
forth therein on the basis stated in the Registration Statement.
(L) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Section 10(g) are true and correct.
(M) Neither the Company nor any of its subsidiaries is (i) in
violation or default of any provision of its Certificate of Incorporation,
Bylaws or other organizational documents, or (ii) in a material breach of or
default with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts which, with notice or lapse
of time or both would constitute such a breach or default on the part of the
Company and its subsidiaries, taken as a whole.
(N) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and
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<PAGE>
Regulations which have not been described or filed as required. The contracts so
described in the Prospectus are in full force and effect on the date hereof.
(O) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened to which the
Company or any of its subsidiaries is or is threatened to be made a party or of
which property owned or leased by the Company or any of its subsidiaries is or
is threatened to be made the subject, which actions, suits or proceedings could,
individually or in the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change in the
business, business prospects, properties, condition (financial or otherwise), or
results of operations of the Company or its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent which are reasonably likely to materially adversely affect the
business, business prospects, properties, condition (financial or otherwise), or
results of operations of the Company and its subsidiaries, taken as a whole.
Neither the Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body. Except as
disclosed in the Prospectus, there are no material legal or governmental
actions, suits or proceedings pending or, to the Company's and the Selling
Securityholders' knowledge, threatened against any executive officers or
directors of the Company.
(P) The Company or the applicable subsidiary has good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount to the Company or its subsidiaries,
and do not adversely affect the use made and proposed to be made of such
property by the Company or its subsidiaries. The Company or the applicable
subsidiary holds its leased properties under valid and binding leases. Except as
disclosed in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(Q) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incurred any liabilities or obligations, indirect,
direct or contingent, or (B) entered into any oral or written agreement or other
transaction, which in the case of (A) or (B) is not in the ordinary course of
business; (ii) the Company and its subsidiaries have not sustained any material
loss or interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company and its subsidiaries have not paid or declared any
dividends or other distributions with respect to their respective capital stock
and the Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there has not
been any change in the capital stock of the Company or its subsidiaries (other
than upon the sale of the Shares hereunder or upon the exercise of any options
or warrants disclosed in the Prospectus); (v) there has not been any material
increase in the short- or long-term debt of the Company and its subsidiaries;
and (vi) there has not been any material adverse change or any development
involving or which may reasonably be expected to involve a prospective material
adverse change, in the business, business prospects, condition (financial or
otherwise), properties, or results of operations of the Company and its
subsidiaries, taken as a whole.
(R) The Company is and its subsidiaries are conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which they are conducting business, except where the failure to be so in
compliance would not have a material adverse effect on the business, business
prospects, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
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<PAGE>
(S) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns (or are under proper
extension with respect thereto), and all such tax returns are complete and
correct in all material respects, and the Company and its subsidiaries have not
failed to pay any taxes which were payable pursuant to said returns or any
assessments with respect thereto. The Company has no knowledge of any tax
deficiency which has been or is likely to be threatened or asserted against the
Company or its subsidiaries.
(T) The Company has not distributed, and will not distribute prior to
the later to occur of (i) completion of the distribution of the Shares, or (ii)
the expiration of any time period within which a dealer is required under the
Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
(U) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially adversely affect the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
(V) Neither the Company nor any of its subsidiaries nor, to the best
of the Company's or the Selling Securityholders' knowledge, any of their
employees or agents has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
foreign, federal or state governmental officer or official or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(W) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(X) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) each Selling Securityholder to
furnish to the Underwriters an agreement in form and substance satisfactory to
Volpe Brown Whelan & Company, LLC ("Volpe Brown Whelan & Company") pursuant to
which each such party has agreed that during the period of ninety (90) days
after the date the Registration Statement becomes effective, without the prior
written consent of Volpe Brown Whelan & Company, such party will not (i) offer,
sell, contract to sell, make any short sale (including without limitation short
against the box), pledge or otherwise dispose of, directly or indirectly, any
shares of the Company's Common Stock, options to acquire Common Stock or
securities convertible into or exchangeable for, or any other rights to purchase
or acquire, the Company's Common Stock (including, without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission), except in the case of Messrs.
Glasgal and Carey, 2,579,475 and 750,000 shares of Common Stock, respectively,
pledged prior to the date hereof, other than the exercise or conversion of
outstanding options, warrants or convertible securities; or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common
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<PAGE>
Stock, whether any such transaction described in (i) or (ii) is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise
PROVIDED, HOWEVER, that bona fide gift transactions, transfers which will not
result in any change in beneficial ownership and pledges of Common Stock will be
permitted if the transferee or pledgee enters into a lock-up agreement in
substantially the same form covering the remainder of the lock-up period.
(Y) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba.
(Z) Except as specifically disclosed in the Prospectus, the Company
and its subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; the expiration of any trademarks, trade names,
patent rights, copyrights, licenses, approvals or governmental authorizations
would not have a material adverse effect on the business, business prospects,
properties, condition (financial or otherwise) or results of operations have
been of the Company and its subsidiaries, taken as a whole; neither the Company
nor any Selling Securityholder has any knowledge of any infringement by the
Company or its subsidiaries of trademark, trade name rights, patent rights,
copyrights, licenses, trade secret or other similar rights of others; and no
claims have been made or, to the knowledge of the Company, are threatened
against the Company or its subsidiaries regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which would be reasonably
expected to could have a material adverse effect on the business, business
prospects, properties, condition (financial or otherwise) or results of
operations or prospects of the Company and its subsidiaries, taken as a whole.
(AA) Except as disclosed in the Prospectus, (i) the Company and its
subsidiaries are in compliance in all material respects with all rules, laws and
regulation relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to their business, (ii) neither the Company nor any of its
subsidiaries has received any notice from any governmental authority or third
party of an asserted claim under Environmental Laws, (iii) no facts currently
exist that will require the Company or any of its subsidiaries to make future
material capital expenditures to comply with Environmental Laws, and (iv) to the
knowledge of the Company and the Selling Securityholders, no property which is
or has been owned, leased or occupied by the Company or any of its subsidiaries
has been designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. ss. 9601, ET SEQ.), or otherwise designated as a contaminated site under
applicable state or local law.
(BB) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 2. ADDITIONAL REPRESENTATIONS AND WARRANTIES, AND COVENANTS,
OF THE SELLING SECURITYHOLDERS.
Each of the Selling Securityholders, severally and not jointly,
represents and warrants and covenants to the several Underwriters as of the date
hereof and as of each Closing Date hereinafter mentioned that:
(A) Such Selling Securityholder has good and marketable title to the
Shares to be sold by such Selling Securityholder hereunder, free and clear of
all liens, encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder, subject, in the
case of each Selling Securityholder, to the rights of Continental Stock Transfer
and Trust Company, as Custodian (the "Custodian"), and that upon the delivery of
and payment for such Shares hereunder, the several
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<PAGE>
Underwriters will receive good and marketable title thereto, free and clear of
all liens, encumbrances, equities, security interests and claims whatsoever.
(B) Certificates in negotiable form for the Shares to be sold by such
Selling Securityholder have been placed in custody under a Custody Agreement for
Selling Securityholders (the "Custody Agreement") for delivery under this
Agreement with the Custodian; such Selling Securityholder specifically agrees
that the Shares represented by the certificates so held in custody for such
Selling Securityholder are subject to the interests of the several Underwriters
and the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Selling Securityholder's Irrevocable Power of
Attorney (the "Power of Attorney"), are to that extent irrevocable, and that the
obligations of such Selling Securityholder shall not be terminated by any act of
such Selling Securityholder or by operation of law, whether by the death or
incapacity of such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of such shares of the shares hereunder, certificates for the Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death, incapacity, dissolution, liquidation or other
event.
(C) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that (i)
on the Effective Date, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, (ii) on the Effective Date the Prospectus contained and, on the Closing
Date and any later date on which Optional Shares are to be purchased contains,
any untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(D) All information in the Registration Statement or the Prospectus,
or any amendment or supplement thereto, relating to such Selling Securityholder
(including, without limitation, the information relating to the Selling
Securityholder which is set forth in the Prospectus under the caption "Principal
Stockholders"), and all representations and warranties of such Selling
Securityholder in the Custody Agreement are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
information in the light of the circumstances under which they were made not
misleading. The sale of the Shares by such Selling Securityholder pursuant
hereto is not prompted by such Selling Securityholder's knowledge of any
material information concerning the Company or any subsidiary which is not set
forth in the Prospectus.
(E) Such Selling Securityholder has full power and authority to enter
into this Agreement, the Custody Agreement and the Power of Attorney and perform
the transactions contemplated hereby and thereby. This Agreement, the Custody
Agreement and the Power of Attorney have been duly authorized, executed and
delivered by or on behalf of such Selling Securityholder and the form of such
Securityholder Agreement has been delivered to you.
(F) The making and performance of this Agreement, the Custody
Agreement and the Power of Attorney and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or violation by such
Selling Securityholder of any of the terms or provisions of, or constitute a
default by such Selling Securityholder under, any indenture, mortgage, deed of
trust, trust
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(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Securityholder is a party or by
which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(G) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(H) Each of the Selling Securityholders agrees that during the period
of ninety (90) days after the date of the Registration Statement becomes
effective, without the prior written consent of Volpe Brown Whelan & Company,
such Selling Securityholder will not (i) offer, sell, make any short sale
(including without limitation short against the box), pledge or otherwise
dispose of, directly or indirectly, any of the Company's Common Stock, options
to acquire Common Stock or securities convertible into or exchangeable for or
any other rights to purchase or acquire the Company's Common Stock (including
without limitation, Common Stock of the Company which may be deemed to be
beneficially owned in accordance with the rules and regulations of the
Commission), except in the case of Messrs. Glasgal and Carey, 2,579,475 and
750,000 shares of Common Stock, respectively, pledged prior to the date hereof,
other than the exercise or conversion of outstanding options, warrants or
convertible securities or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or ownership of
Common Stock, whether any such transaction described in (i) or (ii) is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise; PROVIDED, HOWEVER, that bona fide gift transactions, transfers which
will not result in any change in beneficial ownership and pledges of Common
Stock may be permitted if the transferee or pledgee enters into a lock-up
agreement in substantially the same form covering the remainder of the lock-up
period.
SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(A) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
4,000,000 of the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of Firm Shares set forth opposite its name in SCHEDULE I. The price at which
such Firm Shares shall be sold by the Company and purchased by the several
Underwriters shall be $___ per share. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of Firm Shares which
represents the same proportion of the total number of Firm Shares to be sold by
the Company pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in SCHEDULE I hereto represents of the
total number of shares of the Firm Shares to be purchased by all Underwriters
pursuant to this Agreement, as adjusted by you in such manner as you deem
advisable to avoid fractional shares. In making this Agreement, each Underwriter
is contracting severally and not jointly; except as provided in paragraphs (b)
and (c) of this Section 3, the agreement of each Underwriter is to purchase only
the respective number of shares of the Firm Shares specified in SCHEDULE I.
(B) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-
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defaulting Underwriters fail so to make such arrangements with respect to all
such shares and portion, the number of Shares which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
PROVIDED, HOWEVER, that the non-defaulting Underwriters shall not be obligated
to purchase the portion which the defaulting Underwriter or Underwriters agreed
to purchase if the aggregate number of such Shares exceeds 10% of the total
number of Shares which all Underwriters agreed to purchase hereunder. If the
total number of Shares which the defaulting Underwriter or Underwriters agreed
to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company and the Selling Securityholders shall have the
right, within 24 hours next succeeding the 24-hour period above referred to, to
make arrangements with other underwriters or purchasers satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company and the
Selling Securityholders shall make arrangements within the 24-hour periods
stated above for the purchase of all of the Shares which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall
be terminated without further act or deed and without any liability on the part
of the Company or the Selling Securityholders to any non-defaulting Underwriter
and without any liability on the part of any non-defaulting Underwriter to the
Company or the Selling Securityholders. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(C) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company and the Selling Securityholders grant an option to the several
Underwriters to purchase, severally and not jointly, up to 600,000 Optional
Shares from the Company and the Selling Securityholders at the same price per
share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the forty-fifth (45th) day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
Optional Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the Optional Shares, and payment therefor, shall be
made as provided in Section 5 hereof. To the extent the Underwriters exercise
such over-allotment option in part, such shares shall be purchased pro rata
based on the total number of Optional Shares to be sold by all Selling
Securityholders and the Company. The number of Optional Shares to be purchased
by each Underwriter shall be the same percentage of the total number of Optional
Shares to be purchased by the several Underwriters as such Underwriter is
purchasing of the Firm Shares, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(A) The terms of the public offering by the Underwriters of the Shares
to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(B) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished
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by the Underwriters to the Company for inclusion in the Registration Statement,
any Preliminary Prospectus, and the Prospectus, and you on behalf of the
respective Underwriters represent and warrant to the Company that the statements
made therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(A) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 3(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower, Boston,
MA 02110, at 7:00 a.m., San Francisco time, on the fourth business day after the
date of this Agreement, or at such time on such other day, not later than seven
full business days after such fourth business day, as shall be agreed upon in
writing by the Company, the Selling Securityholders and you. The date and hour
of such delivery and payment (which may be postponed as provided in Section 3(b)
hereof) are herein called the "Closing Date".
(B) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of Testa, Hurwitz & Thibeault,
LLP, 125 High Street, High Street Tower, Boston, MA 02110, at 7:00 a.m., San
Francisco time, on the third business day after the exercise of such option.
(C) Payment for the shares purchased from the Company shall be made to
the Company or its order, and payment for the shares purchased from the Selling
Securityholders shall be made, in the discretion of the Underwriters, to them or
to the Custodian, for the account of the Selling Securityholders, in each case
by (i) one or more certified or official bank check or checks in next day funds
(and the Company and the Selling Securityholders agree not to deposit any such
check in the bank on which drawn until the day following the date of its
delivery to the Company or the Custodian, as the case may be) or (ii) federal
funds wire transfer. Such payment shall be made upon delivery of certificates
for the shares to you for the respective accounts of the several Underwriters
(including without limitation by "full-fast" electronic transfer by Depository
Trust Company) against receipt therefor signed by you. Certificates for the
shares to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Firm Shares, and at least one business
day prior to the purchase thereof, in the case of the Optional Shares. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of agent of Volpe Brown Whelan & Company's clearing
agent, Bear Sterns Securities Corp., on the business day prior to the Closing
Date or, in the case of the Optional Shares, by 3:00 p.m., New York time, on the
business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders respectively covenants and
agrees as follows:
(A) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or
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supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(B) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company and
the Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be issued,
to obtain the withdrawal thereof at the earliest possible moment.
(C) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(D) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the public offering of
the shares by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company or
of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and all
dealers to whom any of the shares may be sold by the several Underwriters to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the shares in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for such
period.
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(E) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(F) The Company will cooperate, when and as requested by you, in the
qualification of the shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; PROVIDED, HOWEVER, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the shares.
(G) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(H) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(I) For a period of one year commencing with the date hereof, the
Company agrees, at the Company's expense, to cause the Company's regularly
engaged independent certified public accountants to review (but not audit) the
Company's financial statements in accordance with the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement on Auditing Standards No. 71
"Interim Financial Information" for each of the three fiscal quarters prior to
the announcement of quarterly financial information, the filing of the Company's
Quarterly Report on Form 10-Q with the Commission and the mailing of quarterly
financial information to stockholders of the Company.
(J) The Company and the Selling Securityholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration Statement,
any Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters and the persons designated by them of copies of any Preliminary
Prospectus and of the several documents required by paragraph (c) of this
Section 6 to be so furnished, (iii) the printing of this Agreement and related
documents delivered to the Underwriters, (iv) the preparation, printing and
filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (v) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the transfer
agent's fees. The Selling Securityholders will pay any transfer taxes incident
to the transfer to the Underwriters of the Shares being sold by the Selling
Securityholders.
(K) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for blue
sky fees and related disbursements (including reasonable counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by or
for the account of the Underwriters or their counsel in qualifying the shares
under state securities or blue sky laws and in the review of the offering by the
NASD.
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(L) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the sharing of any such expenses and costs.
(M) The Company and each of the Selling Securityholders hereby agrees
that, without the prior written consent of Volpe Brown Whelan & Company, the
Company or such Selling Securityholder, as the case may be, will not, for a
period of 90 days following the date the Registration Statement becomes
effective, (i) offer, sell, contract to sell, make any short sale (including
without limitation short against the box), pledge, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options to acquire
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
(including without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission), except in the case of Messrs. Glasgal and Carey, 2,579,475 and
750,000 shares of Common Stock, respectively, pledged prior to the date hereof,
other than the exercise or conversion of outstanding options, warrants or
convertible securities or in the case of the Company, securities issued upon
such exercise or conversion or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or ownership of
Common Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise; PROVIDED, HOWEVER, that bona fide gift transactions, transfers
which will not result in any change in beneficial ownership and pledges of
Common Stock may be permitted if the transferee or pledgee enters into a lock-up
agreement in substantially the same form covering the remainder of the lock-up
period. The foregoing sentence shall not apply to (A) the shares to be sold to
the Underwriters pursuant to this Agreement, (B) shares of Common Stock issued
by the Company upon the exercise of options granted under the option plans of
the Company (the "Option Plans") or upon the exercise of warrants outstanding as
of the date hereof, all as described in footnote (2) to the table under the
caption "Capitalization" in the Preliminary Prospectus, and (C) options to
purchase Common Stock granted under the Option Plans.
(P) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(N) The Company agrees to maintain directors' and officers' insurance
in amounts customary for the size and nature of the Company's business for a
period of two years from the date of this Agreement.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(A) The Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless each Underwriter and each person (including
each partner or officer thereof) who controls any Underwriter within the meaning
of Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act , or
the common law or otherwise, and the Company and the Selling Securityholders
jointly and severally agree to reimburse each such Underwriter and controlling
person for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact
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contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus or the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
inaccuracy in or any breach of any representation warranty, covenant or
agreement of the Company or the Selling Securityholders contained in this
Agreement; PROVIDED, HOWEVER, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a) and
the representations and warranties of the Company and the Selling
Securityholders contained in Section 2 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the shares.
(B) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or
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any such amendment thereof or supplement thereto. The indemnity agreement of
each Underwriter contained in this paragraph (b) shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
shares.
(C) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
PROVIDED, HOWEVER, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(D) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the shares or (ii) if the allocation
provided by clause (i) above is not
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permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each indemnifying party in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, or actions in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Securityholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the shares
received by the Company and the Selling Securityholders and the total
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus, bear to the aggregate public offering price of
the shares. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(E) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(F) The liability of each Selling Securityholder under the indemnity
and reimbursement agreements contained in the provisions of this Section 7 and
Section 8 hereof shall be limited to an amount equal to the initial public
offering price of the shares sold by such Selling Securityholder to the
Underwriters. The Company and the Selling Securityholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
-17-
<PAGE>
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 7 of this Agreement the Company and the Selling
Securityholders hereby jointly and severally agree to reimburse on a monthly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 7 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 8 and the possibility that such payments might later be held to be
improper; PROVIDED, HOWEVER, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 10, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States or the Company's industry sector would, in the Underwriters'
reasonable judgment, make the offering or delivery of the shares impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, or The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 9, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; PROVIDED, HOWEVER, that in the event of
any such termination the Company agrees to indemnify and hold harmless the
Underwriters from all costs or expenses required to be paid by the Company
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations
of the several Underwriters to purchase and pay for the shares shall be subject
to the performance by the Company and by the Selling Securityholders of all
their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Optional Shares are to be purchased, as
the case may be, and to the following further conditions:
(A) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
-18-
<PAGE>
(B) The legality and sufficiency of the sale of the shares hereunder
and the validity and form of the certificates representing the shares, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters.
(C) You shall have received from Olshan Grundman Frome & Rosenzweig
LLP, counsel for the Company and the Selling Securityholders, an opinion,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in ANNEX A hereto, and if Optional Shares are purchased at any date
after the Closing Date, additional opinions from each such counsel, addressed to
the Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such later
date.
(D) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein; (iv) the
Commission has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) neither the Company nor
any of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus; (vi) there are not
any pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus; (vii) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required;
and (vii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Optional Shares are to be purchased, as the case may be.
(E) You shall have received on the Closing Date and on any later date
on which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (d) of this Section 10 are true and
correct.
(F) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
-19-
<PAGE>
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than five business days prior to the Closing Date
or such later date on which Optional Shares are purchased (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date, as the case may
be, and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect any
changes in the facts described in the Original Letter since the date of the
Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company or any of its subsidiaries which, in your sole
judgment, makes it impractical or inadvisable to proceed with the public
offering of the shares or the purchase of the Optional Shares as contemplated by
the Prospectus.
(G) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(H) Prior to the Closing Date, the shares to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE
SELLING SECURITYHOLDERS. The obligation of the Company and the Selling
Securityholders to deliver the shares shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall
not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
-20-
<PAGE>
Company and the Selling Securityholders under this Agreement, including all
costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders and
the several Underwriters) indemnified under the provisions of said Section 7,
and their respective personal representatives, successors and assigns. Nothing
in this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the shares from any of the several Underwriters.
SECTION 13. DEFAULT BY SELLING SECURITYHOLDER. If on the Closing Date
any Selling Securityholder fails to sell the Optional Shares which such Selling
Securityholder has agreed to sell on such date as set forth in SCHEDULE II
hereto, the Company agrees that it will sell or arrange for the sale of that
number of shares of Common Stock to the Underwriters which represents Optional
Shares which such Selling Securityholder has failed to so sell, as set forth in
SCHEDULE II hereto, or such lesser number as may be requested by the
Representatives.
SECTION 14. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe Brown Whelan &
Company, LLC, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Steven D. Piper; and if to the Company, shall be mailed, telegraphed
or delivered to it at its office, [Glasgal Communications, Inc.], 20C Commerce
Way, Totowa, NJ 07512, Attention: Isaac J. Gaon; and if to the Selling
Securityholders, shall be mailed, telegraphed or delivered to the Selling
Securityholders in care of Isaac J. Gaon at [Glasgal Communications, Inc.], 20C
Commerce Way, Totowa, NJ 07512. All notices given by telegraph shall be promptly
confirmed by letter.
SECTION 15. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the shares under this
Agreement; PROVIDED, HOWEVER, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall
be of no further force or effect.
SECTION 16. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 17. APPLICABLE LAW. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of New York.
SECTION 18. GENERAL. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
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<PAGE>
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Securityholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all of the Selling
Securityholders.
-22-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon,
when confirmed and accepted by the Underwriters as evidenced by the signature of
Volpe Brown Whelan & Company, LLC below, it will become a binding agreement
among the Company and the several Underwriters, including you, all in accordance
with its terms.
Very truly yours,
[GLASGAL COMMUNICATIONS, INC.]
By:
------------------------------
Title:
---------------------------
[THE SELLING SECURITYHOLDERS]
By:
------------------------------
Attorney-in-fact
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE BROWN WHELAN & COMPANY, LLC
TUCKER ANTHONY INCORPORATED
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule A
By:
------------------------------
Principal
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ----------------------------------------------------------------------
Volpe Brown Whelan & Company, LLC ..................
Tucker Anthony Incorporated ........................
---------------
Total ...................................... 4,000,000
=============
I-1.
<PAGE>
SCHEDULE II
OPTIONAL SHARES
NAME AND ADDRESS NUMBER OF
SHARES
TO BE SOLD
- --------------------------------------------------------------------------
[Glasgal Communications, Inc.] 205,000
20C Commerce Way
Totowa, NJ 07512
Christopher J. Carey 250,000
20C Commerce Way
Totowa, NJ 07512
Isaac J. Gaon 95,000
20C Commerce Way
Totowa, NJ 07512
Robert F. Gadd 50,000
20C Commerce Way
Totowa, NJ 07512
--------------
Total ........................................... 600,000
============
II-1.
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(I) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of America
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the Company and it subsidiaries, taken as a
whole, and has full corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; all the
issued and outstanding capital stock of each of the subsidiaries of the Company
has been duly authorized and validly issued and is fully paid and nonassessable,
and is owned by the Company free and clear of all liens, encumbrances and
security interests, and to the best of such counsel's knowledge, no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in such subsidiaries are outstanding;
(II) the authorized capital stock of the Company consists of 4,000,000
shares of Preferred Stock, $.001 par value, of which no shares are outstanding,
and _____________ shares of Common Stock, $.001 par value, of which there are
outstanding _____________ shares; all of the outstanding shares of such capital
stock (including the Firm Shares and the Optional Shares issued, if any) have
been duly authorized and validly issued and are fully paid and nonassessable;
any Optional Shares purchased after the Closing Date have been duly authorized
and, when issued and delivered to, and paid for by, the Underwriters as provided
in the Underwriting Agreement, will be validly issued and fully paid and
nonassessable; and no preemptive rights of, or rights of refusal in favor of,
stockholders exist with respect to the Shares, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company or, to the
knowledge of such counsel any other instrument and, to the knowledge of such
counsel, there are no contractual preemptive rights that have not been waived,
rights of first refusal or rights of co-sale which exist with respect to the
Shares being sold by the Selling Securityholders or the issue and sale of the
Shares by the Company;
(III) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(IV) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
which relates to the financial information of the Company contained therein, as
to which such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act, the Exchange Act and with
the rules and regulations of the Commission thereunder;
(V) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained therein, as to which such counsel need
not express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the
A-1.
<PAGE>
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
which relates to the financial information of the Company contained therein, as
to which such counsel need not express any opinion or belief) as of its date or
at the Closing Date (or any later date on which Optional Shares are purchased),
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(VI) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c), (l) and (n) of Form S-1 is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items and the description of the
Company's stock option plans and, to the best knowledge of such counsel, the
options granted and which may be granted thereunder and the options granted
otherwise than under such plans set forth in the Prospectus accurately and
fairly presents in all material respects the information required to be shown
with respect to said plans and options to the extent required by the Securities
Act and the rules and regulations of the Commission thereunder;
(VII) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(VIII) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(IX) the Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Securityholders and the Custody Agreement between
the Selling Securityholders and Continental Stock Transfer and Trust Company, as
Custodian, and the Power of Attorney have been duly executed and delivered by
the several Selling Securityholders;
(X) the Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditor's rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under federal and state securities laws (as
to which no opinion need be expressed).
(XI) the Underwriting Agreement, the Custody Agreement and the Power
of Attorney are valid and binding agreements of each of the Selling
Securityholders enforceable in accordance with their terms except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to indemnity or
contribution for liabilities under the Securities Act, as to which no opinion
need be expressed, and each Selling Securityholder has full legal right and
authority to enter into the Underwriting Agreement, the Custody Agreement and
the Power of Attorney and to sell, transfer and deliver in the manner provided
in the Underwriting Agreement the Shares sold by such Selling Securityholder
hereunder;
(XII) the issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or
<PAGE>
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(XIII) the transfer and sale by the Selling Stockholders of the Shares
to be sold by the Selling Stockholders as contemplated by the Underwriting
Agreement, the Power of Attorney and the Custody Agreement will not conflict
with, result in a breach of, or constitute a default under any agreement or
instrument known to such counsel to which any of the Selling Stockholders is a
party or by which any of the Selling Stockholders or any of their properties may
be bound, or any applicable law or regulation, or so far is known to such
counsel, order, writ, injunction or decree of any jurisdiction, court or
governmental instrumentality body.
(XIV) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities of the Company,
because of the filing of the Registration Statement by the Company have waived
such rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement;
(XV) upon the Underwriters obtaining control of the Shares to be sold
under the Underwriting Agreement, and assuming that the Underwriters acquired
such shares for value and without notice of any adverse claim to such Shares
within the meaning of Section 8-102 of the Uniform Commercial Code as in effect
in the State of New York, the Underwriters will have acquired all rights of the
Selling Securityholders in such Shares free of any adverse claim;
(XVI) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD; and
(XVII) the Shares sold by the Selling Securityholders are listed and
duly admitted to trading on the Nasdaq National Market, and the shares issued
and sold by the Company will been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, the Delaware General
Corporation Law or of the State of New York, upon opinions of local counsel
satisfactory in form and scope to counsel for the Underwriters. Copies of any
opinions so relied upon shall be delivered to the Representatives and to counsel
for the Underwriters and the foregoing opinion shall also state that counsel
knows of no reason the Underwriters are not entitled to rely upon the opinions
of such local counsel.
<PAGE>
EXHIBIT 10.34
SUBLEASE AGREEMENT
This SUBLEASE AGREEMENT ("Sublease") is made this _____ day of December,
1996, by and between Motorola Inc., a Delaware corporation, having an address of
1301 E. Algonquin Road, Schaumburg, Illinois 60196 (hereinafter "Sublandlord")
and Glasgal Communications, Inc., d/b/a Glasgal Communications of New Jersey,
Inc., a Delaware corporation, having an office at 151 Veterans Drive, Northvale,
New Jersey 07645 (hereinafter called "Subtenant").
WHEREAS, Sublandlord leases certain premises pursuant to that certain Lease
dated as of the 8th day of April, 1994, and executed by and between
CommerCenter Realty Associates, LP, as successor in interest to 20 Commerce Way
Associates, a New Jersey Partnership, with offices at Cali Realty Corporation,
11 Commerce Drive, Cranford, New Jersey 07016, as Landlord ("Landlord"), and
Sublandlord as Tenant, together with its attached and incorporated Rules and
Regulations, (hereinafter "Underlying Lease") by the terms of which Underlying
Lease, that certain portion of the property, commonly known as, 20 Commerce Way,
Totowa, New Jersey (hereinafter "Premises") was leased to the Sublandlord; and
WHEREAS, a copy of the Underlying Lease and the Commencement Date
Certificate are attached hereto as Exhibit A and made a part of this Sublease;
and
WHEREAS, Sublandlord now desires to sublease the Premises and Subtenant
desires to lease same from Sublandlord; and
WHEREAS, the Landlord has consented to such sublease between Sublandlord
and Subtenant, which written and executed Landlord's Consent to Sublease shall
be attached hereto.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the undersigned agree as follows:
1. Subletting. Sublandlord hereby agrees to sublease to Subtenant the
Premises, and Subtenant hereby agrees to lease such Premises from Sublandlord,
on the terms and conditions as set forth herein.
2. Terms of Sublease.
A. (1) Subtenant agrees to perform and fulfill all the terms, covenants,
conditions, duties, responsibilities and obligations of, and to pay all sums
required of, Sublandlord as Tenant under the Underlying Lease as if Subtenant
were the Tenant under the Underlying Lease, and agrees to accept all liabilities
thereunder arising from and after the commencement of the Term; and to make all
warranties and indemnifications to Sublandlord as those that Sublandlord makes
to the Landlord, provided, however, that Rent shall not be payable to Landlord,
but shall be payable from Subtenant directly to Sublandlord as follows:
<PAGE>
Motorola, Inc.
1500 Gateway Boulevard
Boynton Beach, Florida 33426
Attn: Janette Powell, MS-106
If payment of Rent or any part thereof shall not be made on or prior to a date
which is five (5) days after the date on which it is due and payable,
Sublandlord shall be entitled to charge as an additional rent a service fee
equal to four percent (4%) of the rent due for each and every five (5) day
period, or fraction thereof, which has elapsed between the day said rent is due
and the date the rent is received by Sublandlord.
(2) The following terms and conditions in the Underlying Lease are
expressly excluded from Subtenant's obligations: Subtenant may use the Demised
Premises for general office purposes without restrictions relating to the
storage, service and sale of electronic paging devices.
B. Any terms defined in the Underlying Lease and used herein shall have
the meanings ascribed to them in the Underlying Lease. The terms "Fixed Rental"
and "Basic Rent" shall mean the payments set forth in the Underlying Lease at
Paragraph 1(e) and Article 4; the terms "Expense Rent" and "Additional Rent"
shall mean the payments set forth in the Underlying Lease at Paragraph 1(I),
Article 5 and Article 6. As used herein, the term "Rent" shall mean all moneys
owing to Landlord under the terms of the Underlying Lease. The foregoing
notwithstanding, the amount of annual Basic Rent under this Sublease shall be
seven dollars and fifty cents ($7.50) for each square foot of Rentable Area
payable in twelve (12) equal monthly installments. The Rentable Area of the
Premises is nineteen thousand two hundred forty five square feet (19,245 sq.
ft.) Therefore, the annual Basic Rent is one hundred forty four thousand three
hundred thirty seven dollars and fifty cents ($144,337.50) payable in advance at
a rate of twelve thousand twenty eight dollars and thirteen cents ($12,028.13)
each month for the Term of this Sublease. However, Sublandlord agrees to forego
the first two (2) months Basic Rent. Sublandlord and Subtenant agree that
Subtenant shall pay Additional Rent, including without limitation common area
maintenance, as of the Commencement Date of this Sublease.
C. (1) Subtenant has inspected the Premises and agrees to accept the
Premises in its "as is" condition with no improvements, alterations or repairs
to be performed by Landlord or Sublandlord except that the electrical and HVAC
systems in the Demised Space shall be in good and working order.
(2) Subtenant acknowledges that Sublandlord makes no representation
that the Premises are in full compliance with Title III of the Americans With
Disabilities Act (42 U.S.C. Section 12101 et seq. hereinafter the "ADA") and
that any modifications that may be necessary pursuant to the ADA, if any, are
the responsibility of Subtenant.
(3) Subtenant shall obtain prior written approval from Sublandlord
and Landlord for any and all Subtenant improvements to the Premises, which
consent shall not be
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<PAGE>
unreasonably withheld, conditioned or delayed by Sublandlord, and shall be
governed by the Underlying Lease as to Landlord. Sublandlord shall respond to
Subtenant's written request for any improvements submitted with detailed
drawings and specifications within five (5) business days, and if Sublandlord
does not so respond, Subtenant may deem its request approved by Sublandlord.
Subtenant must receive Sublandlord's prior written consent, which shall not be
unreasonably withheld, concerning the contractor(s) and materials to be used and
the nature of the work to be performed. Subtenant shall provide Sublandlord with
copies of any and all architectural and construction drawings, with
specifications. Said drawings shall be attached to this Sublease as an Exhibit
prior to execution of the Sublease by both parties, if Subtenant plans any
improvements upon Sublease commencement. Sublandlord shall designate, in
writing, at the time of the approval process if any of the improvements need to
be returned to their original condition upon the termination of the Term, or if
this Sublease terminates for any other reason. Notwithstanding the foregoing
provisions, Sublandlord makes no representation to Subtenant as to whether
Landlord will approve or disapprove of any modifications, alterations or
improvements. Subtenant agrees that it shall keep the Premises free and clear of
all liens arising out of any work performed, materials furnished, or obligations
incurred by Subtenant in the performance of this Sublease Agreement or in the
course of Subtenant's business conducted in the Premises.
D. The Term of this Sublease shall be for a period commencing on December
16, 1996 ("Commencement Date"), and ending at midnight on June 30, 2001
("Termination Date").
E. Subtenant has deposited with Sublandlord forty eight thousand one
hundred twelve dollars and fifty two cents ($48,112.52) (four (4) months Basic
Rent) as a security deposit for the faithful performance of and compliance with
all the terms and conditions of this Sublease Agreement and the terms and
conditions of the Underlying Lease which apply. Should Subtenant fail to comply
with each and every term and condition of this Sublease Agreement and the
Underlying Lease, or surrender the Premises without written consent of
Sublandlord, or if Subtenant is dispossessed from the Premises or abandons them
prior to the expiration of this Sublease Agreement, then the amount deposited as
security shall be retained by Sublandlord as fixed, liquidated, and agreed
damages for payment of disbursements, costs, and expenses that Sublandlord may
incur in regaining possession of the Premises. The parties shall treat the
security deposit as liquidated damages, in payment of such costs, disbursements,
and expenses sustained, since the parties cannot ascertain the exact amount of
costs, disbursements, and expenses that Sublandlord would sustain in the event
of any breach or violation under this Sublease Agreement by Subtenant. The
retention and holding of the security deposit for the payment of such costs,
disbursements, and expenses shall not in any manner be considered as payment for
any rent due or to become due under this Sublease Agreement, or in any manner
release Subtenant from any rents to be paid, or from any of the obligations
assumed in this Sublease Agreement. If all terms and conditions are fully
complied with by Subtenant, then the security deposit shall be returned to
Subtenant on surrender of the Premises in a good state and condition, reasonable
use and wear excepted, at the termination of this Sublease Agreement. The
security deposit shall not be used as liquidated damages until the cure period
has elapsed as set forth in Paragraph 21 of the Underlying Lease.
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<PAGE>
F. Additionally, Subtenant hereby agrees to indemnify, save and hold
harmless Sublandlord from and against any and all loss, cost and expense
suffered including reasonable attorneys fees and court costs, sustained and
incurred by Sublandlord because of Subtenant's failure to comply with the
obligations of Tenant under the Underlying Lease. Providing Subtenant fulfills
all of its obligations under this Sublease, Sublandlord hereby agrees to
indemnify, save and hold harmless Subtenant from and against any and all loss,
cost and expense suffered including reasonable attorney fees and court costs,
sustained and incurred by Subtenant because of Sublandlord's failure to comply
with the obligations of Tenant under the Underlying Lease.
G. This Sublease may be terminated only under the terms and conditions
set forth in the Underlying Lease at Paragraph 48.
H. Subtenant agrees to supply Sublandlord with its annual audited
financial statement within thirty (30) days of the publication of same.
I. Subtenant and Sublandlord agree that Sublandlord shall pay the
brokerage fees associated with this Sublease to the following real estate
brokers, and no others: CV Commercial (broker for Sublandlord) and SBWE Real
Estate (broker for Subtenant). Subtenant shall pay any other brokerage fees from
brokers who dealt with subtenant.
3. Binding and Benefit. This Sublease shall be binding on and inure
to the benefit of the parties to this Sublease, their successors in interest and
permitted assigns.
4. No Right To Renew. Notwithstanding anything to the contrary
contained in this Sublease or the Underlying Lease, Subtenant shall not have the
right to renew or extend this Sublease or the Underlying Lease beyond June 30,
2001. Underlying Lease Paragraph 47 is specifically deleted from this Sublease.
In the event Subtenant desires to extend its occupancy of the Premises beyond
June 30, 2001, Subtenant must enter into its own agreement with Landlord.
5. Representations and Warranties.
A. Sublandlord represents and warrants that:
(1) the Underlying Lease attached hereto (Exhibit A) is a true
and correct copy of the Prime Lease, including any amendments to
date, of the Premises.
(2) the Underlying Lease is in full force and effect without
default on the part of Landlord or Sublandlord (as Tenant
thereunder);
(3) the Underlying Lease is not encumbered by any prior
transfer, assignment, mortgage or any other encumbrance by
Sublandlord; and
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<PAGE>
(4) Sublandlord has no knowledge of any transfer or assignment
by Landlord of the Underlying Lease except as may be set forth
below:
B. Subtenant represents and warrants that
(1) each individual executing this Sublease Agreement on behalf
of Subtenant is duly authorized to execute and deliver this
Sublease on behalf of the corporate entity named above, in
accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-Laws
of said corporation;
(2) that this Sublease Agreement is binding upon said
corporation in accordance with its terms; and
(3) that Subtenant shall deliver to Sublandlord, within thirty
(30) days following execution of this Sublease Agreement, a
certified copy of a resolution of its Board of Directors
authorizing or ratifying the execution of this Sublease.
6. Notices. Any notice or demand required to be given hereunder
shall be made by certified or registered mail return receipt requested or
reliable overnight courier to the address set forth below:
If to Sublandlord: If to Subtenant:
Motorola, Inc. Glasgal Communications, Inc.,
1500 Gateway Boulevard MS-75 151 Veterans Drive
Boynton Beach, FL 33426-8292 Northvale, New Jersey
Attn: Building Services Attn: Jim Caci
7. Environmental. Sub-Tenant agrees to indemnify and save harmless
SubLandlord, Sub-Landlord's successors and assigns and Sub-Landlord's present
and future officers, directors, employees and agents (collectively
"Indemnitees") from and against any and all liabilities, penalties, fines,
forfeitures, demands, and costs and expenses incidental thereto (including cost
of defense, settlement, reasonable attorneys' fees, reasonable consultant fees
and reasonable expert fees), which Sub-Landlord or any or all of the Indemintees
may hereafter suffer, incur, be responsible for or disburse as a result of any
Environmental Hazards existing on or about the Premises but only to the extent
that any such existence is caused by the activities of Sub-Tenant, Sub-Tenant's
past, present, and future officers, directors, employees, agents, invitees,
licensees, contractors and/or any other persons or entities reasonably within
the control of the Sub-Tenant. The term "Environmental Hazards" or
"Environmental Liabilities" are defined in the Underlying Lease. This provision
shall survive the termination of the Sub-Lease.
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<PAGE>
8. Quiet Enjoyment. If Subtenant performs the terms of this Sublease
Agreement, Sublandlord will warrant and defend Subtenant in the enjoyment and
peaceful possession of the demised Premises during the Term of this Sublease
Agreement without any interruption by Subtenant or Sublandlord or either of them
or any person rightfully claiming under either of them.
9. Miscellaneous. This Sublease Agreement, including all exhibits and
attachments hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and supersedes and replaces all prior or
contemporaneous understandings or agreements, written or oral, express or
implied, regarding such subject matter. No amendment to or modification of this
Sublease Agreement shall be binding unless in writing and signed by a duly
authorized representative of both parties. Neither party may assign any of its
rights or responsibilities under this Sublease Agreement without the express
written permission of the other party provided that Sublandlord shall not
unreasonably withhold its consent to an assignment of the Sublease by Subtenant.
Failure by either party to enforce any provision of this Sublease Agreement
shall not be deemed a waiver of future enforcement of that or any other
provision. If for any reason a court of competent jurisdiction finds any
provision of this Sublease Agreement, or portion thereof, to be unenforceable,
that provision of the Sublease Agreement shall be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of this
Sublease Agreement shall continue in full force and effect. This Sublease
Agreement shall be construed and the legal relations created herein between the
parties shall be determined in accordance with the laws of the State of New
Jersey. The parties agree that each is an independent contractor and, except as
expressly stated herein, nothing in this Sublease Agreement gives either party
the right to obligate the other party in any way. Subtenant, it's employees,
agents, officers and directors are not eligible to participate in any of
Sublandlord's employee benefit programs. Any disputes arising out of this
Sublease Agreement shall first be negotiated between the parties. Should those
negotiations fail, the parties agree to seek to resolve the dispute through
mediation, arbitration, mini-trial, or other form of alternative dispute
resolution before seeking a judicial remedy. Nothing herein shall prohibit
either party from seeking immediate judicial relief to prevent irreparable harm
to it or to third parties.
10. If Sublandlord defaults under Underlying Lease, Subtenant may cure.
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<PAGE>
IN WITNESS WHEREOF, the parties hereunto have executed this Assignment of
Lease on the day and year set forth above.
SUB LANDLORD SUBTENANT
Motorola Inc., a Delaware Corporation Glasgal Communications, Inc.
d/b/a Glasgal Communications of
New Jersey, Inc.
By: /s/ David L. Derck By: /s/ James M. Caci
------------------ -------------------------
Print Name: DAVID L. DERCK Print Name: JAMES M. CACI
Title: FACILITY MANAGER Title: CHIEF FINANCIAL OFFICER
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<PAGE>
EXHIBIT A
LANDLORD: 20 COMMERCE WAY ASSOCIATES
TENANT: MOTOROLA, INC.
PREMISES: 20 COMMERCE WAY, TOTOWA, NEW JERSEY
PARAGRAPH 1 REFERENCE DATA
PARAGRAPH 2 DESCRIPTION OF PREMISES
PARAGRAPH 3 COMPLETION
PARAGRAPH 4 FIXED RENTAL
PARAGRAPH 5 EXPENSE RENT
PARAGRAPH 6 COMMON AREA CHARGES OF COMMERCENTER/TOTOWA
PARAGRAPH 7 USE
PARAGRAPH 8 REPAIRS
PARAGRAPH 9 ASSIGNING AND SUBLETTING
PARAGRAPH 10 CONFORM TO LAW
PARAGRAPH 11 ENVIRONMENTAL COMPLIANCE
PARAGRAPH 12 ADDITIONAL COVENANTS
PARAGRAPH 13 EXPIRATION OF TERM -RETURN OF PREMISES IN GOOD CONDITION
PARAGRAPH 14 ACCESS TO PREMISES
PARAGRAPH 15 DAMAGE BY FIRE OR OTHER CASUALTY
PARAGRAPH 16 EMINENT DOMAIN
PARAGRAPH 17 INDEMNIFICATION
PARAGRAPH 18 WAIVER OF SUBROGATION
PARAGRAPH 19 OMIT
PARAGRAPH 20 BUILDING SERVICES
PARAGRAPH 21 DEFAULTS AND REMEDIES
PARAGRAPH 22 LANDLORD'S INSURANCE
PARAGRAPH 23 LATE CHARGE/SERVICE FEE
PARAGRAPH 24 EASEMENTS
PARAGRAPH 25 LANDLORD'S INABILITY TO PERFORM
PARAGRAPH 26 PARKING
PARAGRAPH 27 MECHANIC'S LIEN
PARAGRAPH 28 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
PARAGRAPH 29 SUBORDINATION
PARAGRAPH 30 LANDLORD'S RIGHT TO SHOW PREMISES
PARAGRAPH 31 QUIET ENJOYMENT
PARAGRAPH 32 TENANT'S ESTOPPEL
PARAGRAPH 33 FINANCIAL INFORMATION
<PAGE>
PARAGRAPH 34 NO ABATEMENT OF RENT
PARAGRAPH 35 NOTICES
PARAGRAPH 36 NO PERSONAL LIABILITY OF LANDLORD
PARAGRAPH 37 SUBMISSION OF LEASE
PARAGRAPH 38 NO REPRESENTATIONS
PARAGRAPH 39 CAPTIONS
PARAGRAPH 40 NO WAIVER OR CHANGES
PARAGRAPH 41 RECORDING
PARAGRAPH 42 BROKER
PARAGRAPH 43 SECURITY DEPOSIT
PARAGRAPH 44 GUARANTEES
PARAGRAPH 45 BINDING EFFECT
PARAGRAPH 46 ACCEPTANCE
PARAGRAPH 47 OPTIONS TO RENEW
PARAGRAPH 48 OPTION BY TENANT TO TERMINATE
PARAGRAPH 49 MISCELLANEOUS
EXHIBIT A RULES AND REGULATIONS
EXHIBIT B WORK LETTER
SCHEDULE DESCRIPTION OF PREMISES
<PAGE>
AGREEMENT OF LEASE
AGREEMENT made this 8th day of April 1994, by and between 20 COMMERCE WAY
ASSOCIATES, hereinafter called "Landlord", and MOTOROLA, INC., hereinafter
called "Tenant";
FOR AND IN CONSIDERATION of the mutual covenants herein contained, the
parties hereto do hereby agree as follows:
1. The following terms are incorporated by reference into this Agreement:
(A) NAME AND ADDRESS OF LANDLORD:
20 COMMERCE WAY ASSOCIATES, a New Jersey Partnership with offices at 75 Portland
Avenue,
P.O. Box 39
Bergenfield, NJ 07621
(B) NAME AND ADDRESS OF TENANT:
MOTOROLA, INC., a Delaware corporation with offices at 1301 East Algonquin Road,
Schaumburg, Illinois 60196
(C) DESCRIPTION OF PREMISES:
A portion of premises in a building located at 20 Commerce Way, Totowa, New
Jersey all as more particularly designated on the attached diagram as set forth
herein.
(D) TERM OF LEASE:
To commence on the commencement date as defined in paragraph 3B and to terminate
on March 31, 2001.
(E) FIXED RENTAL:
Tenant shall pay the Landlord as annual basic rent for the demised premises from
the commencement date to and through March 31, 2001 the annual sum of
$201,578.75, payable in equal monthly installments of $16,798.22.
(F) TENANT'S SHARE:
49.6%
(G) BROKER:
David T. Houston Co.
(H) SECURITY DEPOSIT:
None
(I) EXPENSE RENT:
Tenant shall pay the Landlord as additional rent, the Tenant's share of expense
rent as provided in Article 5.
<PAGE>
(J) TENANT'S STANDARD INDUSTRIAL CLASSIFICATION NUMBER ("SIC")
3669
2. DESCRIPTION OF PREMISES: The Landlord set forth in Para. 1(a) above
hereby leases to the Tenant set forth in Para. 1(b) above and the Tenant hereby
hires from the Landlord the space set forth in Para. 1(c) above (hereinafter
called the "Premises"). Landlord reserves the right prior to the commencement
date of the Lease to relocate the Tenant within the building in which the
Demised Premises are located provided and subject however that the area so
leased to the Tenant shall not vary by more than five (5%) per cent more or
less, and in the event of such variance the rent shall be proportionately
adjusted.
3. A. COMPLETION: The Landlord will complete the premises
substantially in accordance with the plans and specifications. Landlord shall
undertake work and shall complete the Premises and deliver the same to the
Tenant no sooner than sixty (60) days from the date Landlord obtains possession
of the Bell Atlanticom Systems Inc. premises (as more particularly described in
Section 48 H) and obtains a building permit and no later than ninety (90) days
from that date, provided however, that said time of completion shall be extended
by any delay occasioned by scarcity of materials, installation of improvements
requested by Tenant (other than the improvements required on the specifications
and plans), approval of plans by Tenant, strikes, labor disputes, weather
conditions which inhibit construction, fires or other casualties, governmental
restrictions and regulations, delays in transportation and other construction
delays beyond the reasonable control of the Landlord. The term "Extended
Completion Date" shall be the time of completion as heretofore defined as
extended by force majeure. In the event the completion date is extended by
reason of any of the foregoing events occurring, then such completion date shall
be extended only by a period of time equal to the time lost due to the
occurrence of any of the aforegoing events. For purposes of this paragraph, if
Landlord shall fail to complete Landlord's Work on the date of completion as
such date is extended by force majeure, then Tenant shall receive a credit
against future rent first accruing in the amount of $100.00 per day for each day
subsequent to the date of completion as extended by force majeure to the
Commencement Date as defined in subparagraph B below. If the Commencement Date
does not occur on a date which shall be the ninetieth day from the "Extended
Completion Date" as that term is heretofore defined, then either Tenant or
Landlord may terminate this Lease on ten (10) days written notice of either
party to the other. Failure of either Landlord or Tenant to terminate the Lease
within said ten (10) day period shall constitute a waiver of the right of
cancellation. In the event this Lease is so terminated, then, neither party
shall have any liability to the other, except the return to the Tenant of
prepaid rent and the security deposit.
B. COMMENCEMENT DATE: Tenant's occupancy and the commencement date
of this Lease shall be deemed to have begun on the "Date of Completion" which is
hereby
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<PAGE>
defined to mean the day of the month on which a temporary or final certificate
of occupancy shall be issued, or upon earlier occupancy by the Tenant.
C. TERM: The term of the Lease shall commence on the commencement
date and shall terminate as set forth in paragraph 1(d) above, unless sooner
terminated as this Lease otherwise provides.
D. TERMINATION: In the event Landlord does not obtain possession of
the Bell Atlanticom Systems, Inc. premises (as more particularly described in
Section 48(H)) or does not obtain a building permit on or before the sixtieth
(60) day from the date of this Lease, then Tenant shall have the right, upon
notification by Landlord that either one or both of the aforementioned events
has not occurred, to terminate this Lease, said right of termination to be
exercised no later than the fifth (5) day subsequent to receipt of notice by
Tenant from Landlord as aforesaid, time being of the essence. In the event
Tenant shall terminate the Lease as aforesaid, then this Lease shall end without
further liability of either party to the other, except to return to the Tenant
any prepaid rent and security deposit.
4. FIXED RENTAL: As fixed rental, the Tenant shall pay to the Landlord
at the address set forth in Par. 1 (a) above, or to such other person or at such
other place as the Landlord may from time to time designate, without previous
demand therefor and without counterclaim, deduction or set-off, the sum set
forth in Par. 1 (e) above, which sum shall be payable in equal monthly
installments as set forth in Par. 1(e) above in advance on the first day of the
month during the term of the Lease, except the first month's rent which shall be
paid upon the execution hereof. Whenever the rent as hereinabove set forth is
stated as an annual rent and if there shall be less than twelve (12) months in
any year, the rate therein referred to shall be the "annualized rate." In the
event the Commencement date shall occur on a date other than the first day of
the month, then the rent for the first month shall be pro rated, and any amount
prepaid by Tenant as to the first month shall be credited as partial payment for
the second (2) month's rent.
5. EXPENSE RENT: Tenant shall pay as additional rent during the term
Tenant's share (as per paragraph 1(f)) of the operating expenses (as hereinafter
defined) of the property for each calendar year during the term of the lease.
The term "expense rent" or "expenses" shall mean all costs incurred by Landlord
in connection with the operation and maintenance of the entire parcel of land
and improvements thereon of which the premises are a part (all of which is
hereinafter called the "property") but excluding interest or amortization
payments of any mortgage, but including but not limited to real estate taxes,
common area expenses, common area charges of Commercenter/Totowa, common utility
expenses, repair and maintenance expenses and insurance expenses. Tenant's
share of common area charges of Commercenter/Totowa, as defined in Section 6,
shall only be 3.91% of such charges, and Tenant's share of other expenses shall
be 49.6%.
All payments Tenant is required to make pursuant to this Lease shall
constitute additional rent and if Tenant defaults in any such payments so as to
create an event of default
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<PAGE>
(as hereinafter defined), Landlord shall have (in addition to any rights and
remedies granted hereby) all rights and remedies provided by law for nonpayment
of rent.
(i) REAL ESTATE TAXES shall include any tax or assessment levied,
assessed or imposed anytime by any governmental authority upon or against the
Property or any part thereof. Such terms shall also include any assessment for
public improvement imposed against the Property during the term of the Lease.
There shall not be included in the foregoing definition any franchise,
corporate, estate, inheritance or transfer tax of Landlord, or any income,
profits or revenue tax; provided, however, that if at any time during the term
of this Lease a tax on rents is assessed against Landlord or the basic rent, as
a substitution in whole or in part for taxes assessed by the State of New Jersey
or political subdivision on land or buildings, such tax shall be deemed to be
included within the amount which the Tenant is required to pay under this
Article.
(ii) COMMON AREA EXPENSES shall include all costs and expenses
incurred by Landlord for operating, maintaining, repairing, and/or replacing any
and all, or any part of the common area (or any installation therein, thereon,
thereunder or thereover) including but not limited to parking areas, sidewalks,
curbs, grounds, on site water lines, electric lines, gas lines, sanitary sewer
lines and storm water lines, and the total costs and expenses incurred by
Landlord for landscaping and the removal of snow, ice and debris.
(iii) COMMON UTILITY EXPENSES shall include all costs and
expenses incurred by Landlord for water, sewer, gas and electricity and other
utility charges for utilities servicing the common areas and also standby
sprinkler charges.
(iv) REPAIR AND MAINTENANCE EXPENSES shall include all costs and
expenses incurred by Landlord for replacement, repair and maintenance of all or
any part of the entire parcel of land and improvements of which the Premises are
a part (including the roof, roofdeck, outside walls & concrete floor) of which
the demised Premises forms a part, except, any portion of the building which is
otherwise the obligation to repair of any Tenant of the building. During the
initial term of the Lease as defined in Paragraph 1 (d), Repair and Maintenance
Expenses shall not include replacement of the roof. During the initial term of
the Lease and any option exercised hereunder, Repair and Maintenance Expenses
shall not include replacement of structural steel, outside curtain walls,
footings and foundations unless the necessity thereof is caused by Tenant or
Tenant's agents or invitees.
(v) INSURANCE EXPENSE shall include all costs and expense
incurred by Landlord for Liability and Casualty Insurance as Landlord may from
time to time carry for Landlord's benefit on the property or insuring Landlord's
interest therein.
Operating expenses shall be determined on the accrual basis in
accordance with generally accepted accounting principles which shall be
consistently applied.
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<PAGE>
Tenant shall pay its Expense Rent in full no later than thirty (30)
days after notice by Landlord of the amount thereof. If requested by Landlord,
Tenant shall pay its Expense Rent in twelve (12) monthly installments on the
first day of each month on an estimated basis as determined by Landlord. Any
amount paid by Tenant which exceeds the actual amount due shall be credited to
the next succeeding payments due pursuant hereto. If Tenant has paid less than
the actual amount due, Tenant shall pay the difference to Landlord within thirty
(30) days after receipt of Landlord's request therefor. During the first and
last years of the term, the amount payable by Tenant hereunder shall be prorated
for the fraction of the calendar year included in the term. As to the expense
rent, there shall be a charge added thereto of a sum equal to fifteen (15%)
percent of the expense rent to cover Landlord's administrative overhead.
Landlord agrees that, within one hundred eighty (180) days after the end of each
year, there shall be a reconciliation binding upon Landlord and Tenant as to the
previous year's expense obligations of the Tenant.
Tenant's share of repair and maintenance expenses and common area
expenses, (ii) and (iv) above, shall not exceed in total in any calendar year
more than forty percent (40%) of the annual fixed rental payable under Paragraph
l(e) above.
6. COMMON AREA CHARGES OF COMMERCENTER/TOTOWA: The premises to be
demised and the building in which it is located are within an office/industrial
park known as Commercenter/Totowa. Landlord from time to time will incur
various expenses to maintain the park for the benefit of all tenants. The
Tenant shall pay 3.91% of the total cost and expenses incurred by Landlord
maintaining certain areas of the park for items as follows:
(a) The cost of maintaining park signs and Tenant directories;
(b) The cost of water, electricity and other utilities used in
connection with the operation and maintenance of the park which are not charges
otherwise due or payable for any individual building;
(c) Other costs reasonably incurred by Landlord to maintain the Park
or cost incurred for services benefiting all Tenants or occupants of the Park
which, in the reasonable opinion of the Landlord are services desirable to
operate the park;
(d) The cost of maintaining common facilities used by all Tenants
such as common grass areas, boulevard dividers, curbing and lighting.
Nothing herein shall obligate Landlord to incur any expense or render
any services as to the Park, the Tenant acknowledging that Landlord may sell any
part or parcels of land located within the Park and Landlord shall not be
obligated to undertake at any time any service for the Park. The foregoing
provisions are solely to enable Landlord to equitably allocate charges and
costs, if incurred, at Landlord's sole election.
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7. USE: The Tenant shall use and occupy the Demised Premises for
general offices, storage, service and sale of electronic beepers and for no
other purpose. Such permitted uses are further subject that they shall be
consistent with the Certificate of occupancy to be issued by the Borough of
Totowa. Such permitted uses shall not permit or cause any odor, sound,
vibration, effluent, pollution or other condition that is either in Landlord's
opinion or by law, noxious or offensive. It being a consideration of this Lease
that the use of the premises shall be limited to those uses as otherwise
hereinbefore specified and Tenant may not use the premises for manufacturing or
for retail sales. The Tenant shall not permit the stacking of merchandise or
materials against the walls so as to create a load or weight factor upon the
walls or to tie in Tenant's racking systems with such walls, nor shall Tenant
permit the hanging of equipment from (or otherwise loading) the roof or
structural members of the building without the express written consent of the
Landlord. The Tenant shall not use or occupy or permit the Demised Premises to
be used or occupied, nor do or permit anything to be done in or on the Demised
Property, in a manner which will in any way violate any Certificate of Occupancy
affecting the Demised Premises, or make void or voidable any insurance then in
force with respect thereto, or which will make it impossible to obtain fire,
casualty or other insurance at regular rates, or which will cause or be likely
to cause structural damage to the Building or any part thereof, or which will
constitute a public or private nuisance, or which would adversely affect the
then value thereof, and shall not use or occupy or permit the Demised Premises
to be used or occupied in any manner which will violate any present or future
laws or regulations of any governmental authority. At no time during this Lease
may Tenant store upon the premises hazardous substances as that term may be
defined from time to time by the New Jersey Department of Environmental
Protection or by the Federal Environmental Protection Agency pursuant to Section
311 of the "Federal Water Pollution Act, amendments of 1972" (33 U.S.C. Section
1321) and the list of toxic pollutants designated by Congress or the
Environmental Protection Agency pursuant to Section 307 of that Act (33 U.S.C.
Section 1317). Nothing herein contained shall be deemed or construed to
constitute a representation or guaranty by the Landlord that any specific
business may be conducted in the Demised Premises or is lawful under the
certificate of occupancy.
Landlord consents, subject to Tenant complying with applicable laws,
to Tenant's use of the premises on a 7 day a week basis, 24 hours per day.
The Lease is subject to Landlord obtaining a Certificate of Occupancy,
which Certificate of Occupancy shall not make an exception as to any federal,
state or local law, ordinance or regulation including, and not limited to, the
Americans With Disabilities Act (42 U.S.C. Section 12101 ET SEQ.)
In the event, subsequent to the Commencement date of the Lease, the
zoning ordinance of the Borough of Totowa prohibits the use of the Premises for
repairs of pagers, and by reason thereof Tenant is prohibited from continuing to
use the Premises for that use, and such revocation of such use is not due to any
fault of the Tenant, then, in such event, the Tenant may terminate this Lease by
thirty (30) days prior written notice to Landlord, the termination to be no
later than the thirtieth (30) day from the date of such notice by Tenant to
Landlord.
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8. REPAIRS: A. Tenant shall keep, replace and maintain in good
order, condition and repair the premises and each and every part thereof (except
for repairs specifically required of Landlord pursuant to subparagraphs (c) and
(d) of this Paragraph 8) including, without limitation, any air conditioning
units and systems, heating units and systems, plumbing units and systems;
sprinkler systems; electrical systems; equipment; facilities and fixtures. The
aforesaid obligation of Tenant shall also include, without limitation, all
necessary painting and decorating and the replacement of any glass which may be
damaged or broken. Notwithstanding the foregoing, all damage or injury to the
Premises or to any other part of the Property or to its fixtures or
appurtenances, whether requiring structural or non-structural repairs, caused by
the negligence or improper conduct of Tenant or its employees, invitees,
licensees or agents, shall be repaired promptly by Tenant at its sole cost and
expense. If Tenant refuses or neglects to make such repairs or fails to
diligently prosecute the same to completion within 15 days after written notice
from Landlord to Tenant of the need therefor, Landlord may make such repairs at
the expense of Tenant and such expense shall be collectible as additional rent
together with a service fee, as provided in Paragraph 23 hereof, if Tenant shall
fail to make such payment promptly.
B. Tenant shall obtain a maintenance contract for the heating,
ventilation and air conditioning systems in the building. Such contract shall
provide for semi-annual maintenance of the HVAC systems, and copies of the
maintenance agreement shall be submitted to Landlord, together with an annual
report of the maintenance company as to the condition and repairs made to the
systems. The firm or person maintaining the HVAC systems shall be a person who
is certified and licensed to service refrigerating equipment as such
certification or licenses may be required by law or any governmental agency. If
during the initial term of the Lease as described in Paragraph l(d), the HVAC
systems require a repair or replacement, and the same is not due to an act or
neglect of the Tenant or Tenant's agents or invitees, and if the cost of such
repair or replacement shall exceed $500.00, then Landlord shall reimburse Tenant
for the cost of such repair or replacement in excess of $500.00.
C. Landlord shall keep, replace and maintain in good order and
condition and repair common areas and the roof, roofdeck, outside walls and
concrete floors, subject, however, the cost of same to the extent applicable
shall be paid by the Tenant, as the Tenant's proportionate share, pursuant to
the provisions of Para. 5 hereof.
D. During the first eighteen (18) months of the term hereof Landlord
shall, at its own cost and expense, remedy and repair all defects in
construction in the premises demised (including the HVAC, plumbing and
electrical systems) evidence of which shall appear to be discovered within the
first twelve (12) months of the lease term. Landlord's obligation to make such
repair at Landlord's expense shall be limited, however, that Landlord shall not
have the obligation to make such repairs if they are necessitated or result from
Tenant's negligence or its failure to promptly notify Landlord of the existence
of any such defect. Landlord shall not be liable for any consequential damages
caused or occasioned by any such defect or repair.
9. ASSIGNING AND SUBLETTING:
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A. Tenant covenants and agrees for Tenant and its successors, assigns,
and legal representatives that neither this Lease nor the term and estate hereby
granted, nor any part hereof or thereof, will be assigned, mortgaged, pledged,
encumbered or otherwise transferred (whether voluntarily, involuntarily, by
operation of law, or otherwise), and that neither the Demised Premises, nor any
part thereof, will be encumbered in any manner by reason of any act or omission
on the part of Tenant, or will be used or occupied, or permitted to be used or
occupied, or utilized for desk space or for mailing privileges or as a
concession, by anyone other than Tenant, or for any purpose other than as
hereinbefore set forth, or will be sublet, without the prior written consent of
Landlord in every case; provided, however, that, if Tenant is a corporation, the
assignment or transfer of this Lease, and the term and estate hereby granted, to
any corporation into which Tenant is merged (such corporation being hereinafter
in this Article called "Assignee") without the prior written consent of Landlord
shall not be deemed to be prohibited hereby if, and upon the express condition
that, Assignee shall promptly execute, acknowledge, and deliver to Landlord an
agreement in form and substance satisfactory to Landlord whereby Assignee shall
assume and agree to perform and to be personally bound by and upon, all the
covenants, agreements, terms, provisions, and conditions set forth in this Lease
on the part of Tenant to be performed, and whereby Assignee shall expressly
agree that the provisions of this Article shall, notwithstanding such assignment
or transfer, continue to be binding upon it with respect to all future
assignments and transfers and provided such Assignee shall prove to the
satisfaction of Landlord that its net worth is at least equal to that of Tenant
as of the date hereof.
B. Notwithstanding anything hereinabove contained in subparagraph A
of this Paragraph 9, in the event Tenant desires Landlord's consent to an
assignment or subletting of all or any part of the Demised Premises, Tenant, by
notice in writing, (i) shall notify Landlord of the name and S.I.C number of the
proposed assignee or subtenant, such information as to the proposed assignee's
or subtenant's proposed use and financial responsibility and standing as
Landlord may require, and a copy of the proposed assignment or sublease executed
by all parties; and (ii) shall offer to vacate the space covered by the proposed
area to be subleased or the entire Demised Premises in the event of an
assignment (as the case may be) and to surrender the same to Landlord as of a
date (the "Surrender Date") specified in said offer that shall be the last day
of any calendar month during the term hereof, provided, however, that the
Surrender Date shall not be earlier than the date occurring 120 days after the
giving of such notice nor be later than the effective date of the proposed
assignment or the commencement Date of the term of the proposed sublease.
Landlord may accept such offer in writing by notice to Tenant given within sixty
(60) days after the receipt of such notice from Tenant. If, Landlord accepts
such offer, Tenant shall surrender to Landlord, effective as of the Surrender
Date, all Tenant's right, title, and interest in and to the portion of the
Demised Premises covered by the proposed sublease, or, if Tenant proposes to
sublet the entire Demised Premises, or assign this Lease, all Tenant's right,
title and interest in and to the entire Demised Premises. In the event of such
surrender by Tenant of a portion of the Demised Premises, then, effective as of
the date immediately following the Surrender Date, the Basic Rent shall be
reduced by an amount equal to that portion of the Basic Rent that is allocable
to the space so surrendered, and the Additional Rent shall be equitably
adjusted. If the entire premises be so surrendered by Tenant, this Lease shall
be cancelled and
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terminated as of the Surrender Date with the same force and effect as if the
Surrender Date were the date hereinbefore specified for the expiration of the
full term of this Lease.
In the event of any such surrender by Tenant of the Demised Premises
or a portion thereof, Landlord and Tenant shall, at the request of either party,
execute and deliver an agreement in recordable form to the effect(s)
hereinbefore stated.
C. In the event Landlord does not accept such offer of Tenant
referred to in subparagraph (B) of this Paragraph 9, Landlord covenants not to
unreasonably withhold its consent to such proposed assignment or subletting by
Tenant of such space to the proposed assignee or subtenant on said covenants,
agreements, terms, provisions, and conditions set forth in the notice to
Landlord referred to in clause (i) of the first sentence of subparagraph (B) of
this paragraph 9; provided, however, that Landlord shall not in any event be
obligated to consent to any such proposed assignment or subletting unless:
(I) The use of the proposed assignee or subtenant is (a) for
warehousing of products which are non-hazardous and are not "toxic pollutants",
(b) does not violate any of the negative covenants as to use as contained in
this Lease (c) is in keeping with the then standards of the Landlord as to use
of the Building and (d) does not violate any negative covenants as to use
contained in any other Lease made between Landlord and other Tenants of the
Building;
(II) The proposed assignee or subtenant is a reputable party;
(III) The proposed assignee or subtenant is not then a tenant
or occupant of any part of the Building or neighboring building in a three mile
radius operated by Landlord, or is any corporation which controls or is
controlled by such tenant or occupant or is under common control with such
tenant or occupant;
(IV) There shall be no default by Tenant under any of the
terms, covenants, and conditions of this Lease at the time that Landlord's
consent to any such assignment or subletting is requested and on the effective
date of the assignment or the proposed sublease;
(V) Tenant shall reimburse Landlord for any reasonable
expenses that may be incurred by Landlord in connection with the proposed
assignment or sublease, including without limitation the reasonable costs of
making investigations as to the acceptability of a proposed assignee or
subtenant and reasonable legal expenses incurred in connection with the granting
of any requested consent to the assignment or sublease;
(VI) The proposed assignment shall be for a consideration or
the proposed subletting shall be at a rental rate not less than the rental rates
then being charged under leases being entered into by Landlord for comparable
space in the Building and any other similar
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buildings owned or operated by Landlord in a radius of three miles from the
Demised Premises and for a comparable term.
(VII) Such permitted assignment shall be conditioned upon
Tenant's delivery to Landlord of an executed instrument of assignment (wherein
the assignee assumes, jointly and severally with Tenant, the performance of
Tenant's obligations hereunder).
(VIII) Such permitted sublease shall be conditioned upon
Tenant's delivery to Landlord of an executed instrument of sublease (wherein
Tenant and such sublessee agree that such sublease is subject to the Lease and
such sublessee agrees that, if the Lease is terminated because of Tenant's
default, such sublessee shall, at Landlord's option, attorn to Landlord).
(IX) Tenant shall at Tenant's own expense first comply with
ISRA and fulfill all of Tenant's environmental obligations under this Lease
which also arise upon termination of Tenant's Lease term. If this condition
shall not be satisfied, then Landlord shall have the right, to withhold consent
to a sublease or assignment.
D. Each subletting pursuant to this Paragraph 9 shall be subject to
all the covenants, agreements, terms, provisions, and conditions contained in
this Lease. Tenant covenants and agrees that, notwithstanding such assignment
or any such subletting to any subtenant and/or acceptance of Basic Rent or
Additional Rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the Basic Rent and Additional Rent due and to
become due hereunder and for the performance of all the covenants, agreements,
terms, provisions, and conditions contained in this Lease on the part of Tenant
to be performed. Tenant further covenants and agrees that, notwithstanding any
such assignment or subletting, no other and further assignment, underletting, or
subletting of the Demised Premises or any part thereof shall or will be made
except upon compliance with the subject to the provisions of this Paragraph 9.
Tenant shall promptly furnish to Landlord a copy of each such sublease.
E. If this Lease be assigned, or if the Demised Premises or any part
thereof be sublet or occupied by anybody other than Tenant, Landlord may, after
default by Tenant, collect rent from the assignee, subtenant, or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy, or collection shall be deemed a waiver by
Landlord of any of Tenant's covenants contained in this Article or the
acceptance of the assignee, subtenant, or occupant as Tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained.
F. If for any assignment or sublease, Tenant receives rent or other
consideration, either initially, or over the term of the assignment or sublease,
in excess of the rent called for hereunder, or in the case of the sublease of a
portion of the demised premises, in excess of such rent fairly allocable to such
portion, after appropriate adjustment to assure that all other payments called
for hereunder are appropriately taken into account, Tenant shall pay the
Landlord, as additional rent hereunder, one half (1/2) of the excess of each
such payment of rent or other consideration received by Tenant promptly after
its receipt.
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10. CONFORM TO LAW: Tenant shall, at its own expense, in the use and
occupancy of the Premises, observe and comply with all laws, orders, regulations
of the federal, state and municipal governments, or any of their departments,
and if any of the foregoing requires that an alteration, addition or other
change be made to the demised premises then, Tenant will make such alteration,
addition or change and bear all expense connected therewith. Except where
Tenant's actions cause the compliance with laws, orders or regulations as
aforesaid, Tenant's obligations shall be limited to an amount not to exceed, in
each instance, Five Thousand Dollars ($5,000.00).
11. ENVIRONMENTAL COMPLIANCE: Tenant agrees, that under all
circumstances, Tenant shall comply with all federal, state and local laws,
ordinances, rules and regulations which are applicable, as to the conduct of
Tenant's business as it relates, to the environment, including but not limited
to, spillage, pollution, and storage. Tenant agrees, that Tenant upon the
request of Landlord from time to time shall file such notices, declarations and
obtain such permits as may be necessary and as may be required by law, from the
appropriate government agency, that has jurisdiction over the premises, and/or
Tenant's business. Tenant shall at Tenant's own expense comply with the
Industrial Site Remediation Act ("ISRA") N.J.S.A. 13: 1R-6 et seq. and the
regulations promulgated thereunder and any successor legislation and regulations
as they relate to Tenant's use or occupancy of the Premises. Tenant shall at
Tenant's own expense make all submissions to, provide all information to and
comply with all requirements of the New Jersey Department of Environmental
Protection and Energy or its successor ("DEPE") as they relate to Tenant's use
or occupancy of the Premises. The Tenant's obligations shall arise if there is
any closing, terminating or transferring of operations of an industrial
establishment at the premises pursuant to ISRA, whether triggered by Landlord or
Tenant. Tenant shall commence its submission to the DEPE in anticipation of the
end of the Lease Term no later than six (6) months prior the expiration of the
Lease Term. Tenant agrees it will supply copies of all written or oral
communications by or between it and any governmental agency in reference to the
foregoing to Landlord. Subject to the provisions of the last paragraph of this
Section 11, should DEPE determine that a Remedial Action Work Plan be prepared
and that a clean-up be undertaken because of a spill or discharge of a hazardous
substance or waste
Premises which occurred during the term of the Lease, Tenant shall, at
Tenant's own expense promptly prepare and submit the required plan and financial
assurances and shall promptly carry out the approved plan. At no expense to
Landlord, Tenant shall promptly provide all information requested by Landlord or
DEPE for preparation of a non-applicability affidavit, de minimis quantity
exemption application, limited conveyance application or other submission and
shall promptly sign such affidavits and submissions when requested by Landlord
or DEPE. If Tenant's operations at the premises are outside of those industrial
operations covered by ISRA, Tenant shall obtain a letter of non-applicability
from the DEPE prior to termination of the Lease and shall provide copies of all
such submissions to Landlord. Landlord shall have the right in such instance to
request Tenant to undertake a sampling at the premises to determine whether or
not Tenant's operations have resulted in a spill or discharge of hazardous
waste.
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If Tenant fails to obtain either a non-applicability letter, or a
negative declaration or a No Further Action Letter from DEPE or fails to clean
up the premises as hereinbefore provided prior to the expiration of the term,
then upon the expiration of the term Landlord shall have the option to consider
and to treat Tenant as a holdover Tenant in possession of the premises until,
Tenant complies with the foregoing. In such event, Tenant shall be responsible
for the rental obligations as a Tenant from month to month as otherwise provided
in Paragraph 13 hereof.
Subject to the provisions of the last paragraph of this Section 11,
Tenant shall indemnify, defend and hold Landlord harmless from all fines, suits,
procedures, claims, liabilities, costs and actions of any kind, including
counsel fees (including those to enforce this indemnity), arising out of or in
any way connected with any spills or discharges of hazardous substances or
hazardous waste Premises, except those which occurred prior to the commencement
date or after the termination date of this Lease; and from all fines, suits,
procedures, claims, liabilities, costs and actions of any kind, including
counsel fees (including those to enforce this indemnity), arising out of
Tenant's failure to comply with the provisions of this Article 11. Tenant's
obligations and liabilities under this Article 11 shall survive the expiration
or earlier termination of this Lease and shall continue so long as Landlord
remains responsible or liable for either any spills or discharges of hazardous
substances or hazardous waste at the Premises which occurred during the Lease
Term or any violation of applicable Environmental Laws which occurred during the
Lease Term. Tenant's failure to abide by the terms of this Article 11 shall be
enforceable by injunction. If Tenant has applied to DEPE, as otherwise required
in this Section 11, six (6) months prior to the expiration of the Lease Term,
and Tenant has been diligent in such application, and, if through no fault of
Tenant, Tenant has not completed its ISRA obligations by the termination date of
the Lease, the failure to comply under such conditions shall not be deemed that
Tenant is a "holdover".
Landlord shall indemnify, defend and hold Tenant harmless from all
fines, suits, procedures, claims, liabilities, costs and actions of any kind,
including counsel fees (including those to enforce this indemnity), arising out
of or in any way connected with any spills or discharges of hazardous substances
or hazardous waste which occurred at the premises prior to the commencement date
of this Lease, or which occurred during the Lease Term due to an action of the
Landlord, subject, however, to the provisions of the last paragraph of this
Section 11. Landlord's obligations and liabilities under this Article 11 shall
survive the expiration or earlier termination of this Lease and shall continue
so long as Tenant remains responsible or liable for either any spills or
discharges of hazardous substances or hazardous wastes at the Premises which
occurred prior to the Lease term or any violations or applicable environmental
laws which occurred prior to the Lease term.
In addition to the other provisions of this Section 11, Landlord and
Tenant, subject to the terms hereof, agree to indemnify, defend and hold
harmless the other from and against all damages, costs, liabilities and expenses
incurred by, arising out of, or in connection with the handling, storage,
discharge, transportation or disposal of hazardous or toxic wastes or
substances, pollutants, asbestos, oils, materials or contaminants by or on
behalf of that party, as those terms
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are defined by federal, state or local environmental law or regulations. Such
damage, cost, liability and expenses shall include such as are determined to be
owed by any regulating and administrative agencies. The Landlord's
environmental indemnity shall relate to any action or activities occurring prior
to the Commencement date of the Lease, or other environmental liability of
Landlord as set forth in this Section 11, and Tenant's environmental indemnity
shall relate to actions or activities by Tenant occurring after the Commencement
date of this Lease until termination or expiration of the Lease.
Landlord represents that it presently has no knowledge of the
existence at the Demised Premises of any hazardous substances or wastes, as
those terms are defined by federal, state or local environmental law or
regulations.
If a spill or discharge of a hazardous substance shall occur during
the Term of the Lease within the Demised Premises, and such spill or discharge
was not due to the fault of Tenant or Tenant's agents or invitees, then Tenant
shall have the right to terminate this Lease upon written notice by Tenant to
Landlord within thirty (30) days of the event.
In the event a spill or discharge of a hazardous substance shall occur
outside of the Premises specifically demised to Tenant, then, if Landlord is the
direct cause of such spill or discharge, Landlord shall indemnify, defend and
hold Tenant harmless from all fines, suits, procedures, claims, liabilities,
costs and actions of any kind, including counsel fees (including those to
enforce this indemnity), arising out of or in any way connected with any spill
or discharge of hazardous substances or hazardous wastes which was caused by
Landlord outside of the Premises demised to the Tenant.
In the event a spill or discharge of a hazardous substance shall occur
outside of the Promises specifically demised to Tenant, then, if Tenant is the
direct cause of such spill or discharge, Tenant shall indemnify, defend and hold
Landlord harmless from all fines, suits, procedures, claims, liabilities, costs
and actions of any kind, including counsel fees (including those to enforce this
indemnity), arising out of or in any way connected with any spill or discharge
of hazardous substances or hazardous wastes which was caused by Tenant outside
of the Premises demised to the Tenant.
If the spill or discharge of a hazardous substance occurring outside
of the Premises specifically demised to Tenant is not caused by either Landlord
or Tenant, and is caused by a third party, then neither Landlord nor Tenant
shall have any contractual liability to the other by reason of the provisions of
this Article 11.
If a spill or discharge of a hazardous substance shall occur during
the Term of the Lease within the Demised Premises, there shall be a presumption
that Tenant or its agents or invitees were the cause of such spill or discharge.
However, if Tenant conclusively proves that the spill or discharge was not
caused by Tenant or Tenant's agents or invitees, then Tenant shall have no
liability as to any such spill or discharge.
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12. ADDITIONAL COVENANTS: Tenant covenants and agrees that at all times
during the term it shall not at any time without first obtaining Landlord's
prior written consent:
A. NOT MAKE ALTERATIONS. Tenant shall not make any alterations,
improvements, and/or additions to the Premises or any part thereof except,
Tenant shall have the right to install additional office space in the demised
premises necessary for the conduct of Tenant's business, subject to the
following:
(i) Tenant shall first obtain requisite permits and authorizations
from governmental authorities having jurisdiction;
(ii) Obtain Landlord's, and if required, the fee mortgagee's prior
written consent (which Landlord's consent not to be withheld if the change or
alteration would not, in the reasonable opinion of the Landlord, impair the
value or usefulness of the premises);
(iii) Any such alteration shall be made promptly (unavoidable delays
excepted) in a workmanlike manner in accordance with any alteration plans and in
compliance with applicable laws and governmental regulations;
(iv) The coat of the alteration shall be paid by Tenant so that the
demised premises remain free of any liens;
(v) If requested by Landlord, post with Landlord, adequate security to
assure restoration of the premises at the end of the term;
(vi) Maintain proper insurance as requested by Landlord;
(vii) No alteration for offices shall be undertaken until detailed
plans and specifications have first been submitted to and approved in writing by
Landlord and if required, by the fee mortgagee. At completion of the alteration
"as built" plans shall be delivered to Landlord.
(viii) Tenant shall agree in writing, if directed by Landlord to
remove such alteration and to restore the premises upon such removal.
B. NOT CHANGE EXTERIOR ARCHITECTURE. Change (whether by alteration,
replacement, rebuilding or otherwise) the exterior color and/or architectural
treatment of the Premises or of the building in which the same is located, or
any part thereof.
C. NOT MISUSE PLUMBING FACILITIES. Use the plumbing facilities for
any purpose other than that for which they were constructed, or dispose of any
garbage or other foreign substance therein, whether through the utilization of
so-called "disposal" or similar units or otherwise.
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D. NO LIENS. Subject any fixtures, furnishings or equipment in or
on the Premises which are affixed to the realty, to any mortgages, liens,
conditional sales agreements, security interests or encumbrances.
E. NOT DAMAGE THE PREMISES. Perform any act or carry on any
practice which may damage, mar or deface the Premises or any other part of the
Building.
F. NOT EXCEED FLOOR LOADS. Place a load on any floor in the
Premises, or in any area of the Building, exceeding the floor load per square
foot which such floor was designated to carry; or install, operate or maintain
therein any heavy item or equipment except in such manner as to achieve a proper
distribution of weight.
G. NOT EXCEED ELECTRICAL LOAD. Install, operate or maintain in the
Premises, any electrical equipment which does not bear underwriters' approval,
and would overload the electrical system therein, or any part thereof, beyond
its reasonable capacity for proper and safe operation.
H. NOT PERMIT ODORS, ETC. The building in which the Demised
Premises is located is a first class multi-tenant office/warehouse facility and
Tenant will conduct its operations in accordance with the standards associated
with a similar facility. In accordance with the foregoing, Tenant will not
suffer, allow or permit any offensive or obnoxious vibration, noise, odor or
other undesirable effect to emanate from the Premises, or any machine or other
installation therein, or otherwise suffer, allow or permit the same to
constitute a nuisance or otherwise unreasonably interfere with the safety,
comfort or convenience of Landlord or any other occupants of the Building; upon
notice by Landlord to Tenant that any of the aforesaid is occurring, Tenant
shall forthwith (but in all events within five (5) days) remove or control the
same.
I. NOT INTERFERE WITH INSURANCE, COMPLIANCE, IMPROPER USE. Use or
occupy the Premises or do or permit anything to be done thereon in any manner
which shall prevent Landlord and/or other Tenants from obtaining at standard
rates any insurance required or desired, or which might cause structural injury
to the building, or which would constitute a public or private nuisance or which
would violate any present or future laws, regulations, ordinances or
requirements (ordinary or extraordinary, foreseen or unforeseen) of the federal,
state or municipal governments, or of any department, subdivisions, bureaus or
offices thereof, or of any other governmental public or quasi-public authorities
now existing or hereafter created having jurisdiction in the Premises, or the
Industrial Building of which the premises forms a part. If, at any time, and
from time to time, as a result of, or in connection with, any failure by Tenant
to comply with the foregoing or any act of omission or commission by Tenant, its
employees, agents, contractors or licensees, or as a result of, or in connection
with, the use to which the Premises are put (notwithstanding that such use may
be for purposes hereinbefore permitted, or that such use may have been consented
to by Landlord), the insurance rates applicable to the Premises, or the building
in which same are located, or to any other Premises in said building and/or to
the contents in any or all of the aforesaid properties (including rent insurance
relating
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thereto) shall be higher than that which would be applicable for the least
hazardous type of occupancy legally permitted therein, Tenant agrees that it
will pay to Landlord, on demand, as additional rent, such portion of the
premiums for all fire insurance policies in force with respect to the aforesaid
properties (including rent insurance relating thereto) and the contents of any
occupant thereof as shall be attributable to such higher rates.
The foregoing provisions as to Tenant being responsible for increased
cost of insurance shall not be applicable if Tenant's sole use is the repair of
electronic pagers, and Tenant does not have in the Premises any inflammable or
explosive materials.
13. EXPIRATION OF TERM - RETURN OF PREMISES IN GOOD CONDITION: On the
last day or sooner termination of the Lease, Tenant shall quit and surrender the
Demised Premises broom-clean, in good condition and repair, together with all
alterations, additions and improvements which may have been made in, on, or to
the Demised Premises, except movable furniture or unattached movable trade
fixtures put in at the sole expense of the Tenant (provided Tenant has not been
in default under this Lease) provided, however, that Tenant shall ascertain from
Landlord at least thirty (30) days before the end of the Term whether Landlord
desires to have the Demised Premises, or any part thereof, restored to the
condition in which it was originally delivered to Tenant, and if Landlord shall
so desire then Tenant, at its own cost and expense, shall restore the same
before the end of the Term. All trade fixtures, equipment, furniture,
alterations, additions and improvements not so removed will conclusively be
deemed to have been abandoned by Tenant and may be appropriated, sold, stored,
destroyed, or otherwise disposed of by Landlord without notice to Tenant or to
any other person and without obligation to account for them. Tenant will pay
Landlord all expenses incurred in connection with Landlord's disposition of such
property, including without limitation the cost of repairing any damage to the
Building or Premises caused by removal of such property. Tenant agrees upon
termination of the lease, the air-conditioning, cooling systems, heating
equipment and plumbing and electrical systems shall be in good, operable
condition, and, all lighting fixtures shall be operable, and, in the same
location as when delivered to Tenant by Landlord and bulbs where necessary,
replaced. Tenant shall comply with the provisions of paragraph 11 prior to
termination of the Lease. Tenant's obligations under this section shall survive
the expiration or sooner termination of the Term. In the event Tenant remains
in possession of the Demised Premises after the expiration of the Term and
without the execution of a new lease, Tenant, at the option of the Landlord,
shall be deemed to be occupying the Demised Premises as a tenant from
month-to-month, at a monthly rental equal to two (2) times the sum of (i) the
Basic Rent payable for the last month of the Term under Section 1(E) and (ii)
one twelfth (l/12th) of all items of Expense Rent, such as, but not limited to,
taxes, insurance, common area charges, repair charges, utilities, payable or
paid during the last lease year.
The definition of "good condition and repair" as set forth in the
preceding paragraph shall be defined so that the Premises shall be subject to
reasonable wear and tear, provided, however, that the foregoing shall not excuse
Tenant from making necessary repairs during the Lease term as this Lease may
otherwise require, and the Premises are in rentable condition upon the
termination date of the Lease.
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14. ACCESS TO PREMISES: Landlord shall have the right to enter the
Premises at any reasonable time to examine same, to maintain the same, or to
make such repairs, replacements or improvements to the Premises or to the
Property as Landlord may deem desirable, and Tenant shall have no claim against
Landlord by reason thereof. Landlord may install, maintain, or replace and use
pipes and conduits in and through the Premises for the purpose of installing
utilities for other premises located within the building. Landlord will use its
best efforts not to unreasonably interfere with Tenant's use of the Premises in
exercising its rights under this Paragraph.
15. DAMAGE BY FIRE OR OTHER CASUALTY:
A. SUBSTANTIAL DAMAGE If the Building or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. If as a result the Building is so damaged that substantial
alterations or reconstruction of the building shall, in Landlord's sole opinion,
be required (whether or not the premises shall have been damaged) or if any
Mortgagee of the Building requires the proceeds payable be used to retire the
Mortgage debt, Landlord may, at its option, terminate this Lease by notifying
Tenant in writing of such termination within sixty (60) days after the date of
such damage. If this Lease is so terminated, rent shall be abated as of the
date of such damage.
B. RESTORATION If Landlord does not terminate this Lease pursuant
to Subsection A of this Paragraph 15, Landlord shall, within seventy-five (75)
days after receipt by Landlord of the proceeds payable in respect of such fire
or other casualty, proceed with reasonable diligence to restore the building
(subject to force majeure) to substantially the same condition in which it was
immediately prior to the occurrence of the casualty. Landlord shall not be
required to rebuild, repair or replace any part of Tenant's furniture,
furnishings, fixtures or equipment. Such work shall include the scope of the
work done by the Landlord when originally finishing the premises in accordance
with the working drawings. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant, resulting in any way
from damage or repair thereof, except that Landlord shall allow Tenant a fair
diminution of basic rent during the time and to the extent the premises are
unfit for occupancy.
C. Landlord shall advise Tenant within thirty (30) days of the
casualty whether or not the Premises, in the opinion of Landlord's architect,
can be restored within one hundred twenty (120) days from the date of said
notice. In the event Landlord's architect estimates that the Premises cannot be
restored within one hundred twenty (120) days, then Tenant shall have the right
to terminate this Lease by delivering notice to Landlord within ten (10) days of
Landlord's notice, terminating the Lease, time being of the essence.
D. In the event Tenant, through Tenant's negligence, damages the
Building by fire or other casualty and if, by reason thereof, the loss incurred
is covered under Landlord's all-risk casualty insurance policy which Landlord
may then be carrying as otherwise contemplated by subparagraph (v) of Article 5
hereof, then Tenant shall have no liability to Landlord by reason of the damage
incurred to Landlord's Building. In the event such damage is not covered under
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Landlord's all-risk casualty policy, the Tenant's liability to Landlord by
reason of the foregoing event shall be limited to an amount not to exceed One
Million and No/100 Dollars ($1,000,000.00).
16. EMINENT DOMAIN:
A. The term "Total Taking" means the taking of the Fee Title or
Landlord's Master Leasehold Estate to so much of the premises or a portion of
the building in which the Demised Premises is located, by right of Eminent
Domain or other authority of law or a voluntary transfer under the threat of the
exercise of the right of Eminent Domain or other authority. The term "Partial
Taking" means the taking of only a portion of the premises or a portion of the
building in which the premises is located which does not constitute a Total
Taking.
B. If a Total Taking occurs during the term of this Lease this Lease
will terminate as of the date of the Taking. The phrase "Date of Taking" means
the date of taking actual physical possession by the condemning authority or
such earlier date as the condemning authority gives notice that it is deemed to
have taken possession.
C. If a Partial Taking occurs during the term of this Lease,
Landlord may cancel this Lease by written notice given within sixty (60) days
after the date of the Taking and this Lease will terminate on the date of the
Taking. If the Lease is not so terminated, this Lease will continue in full
force and effect as to the remainder of the premises. The fixed rental payable
by Tenant under Paragraph 1(e) for the balance of the Term will be abated in the
proportion that the leasable area of the premise taken bears to the leasable
area of the premises immediately prior to such taking, and Landlord will make
all necessary repairs or alterations to make the remaining premises a complete
architectural unit.
D. If, this Lease has not otherwise been cancelled as hereinabove
provided, and, if a Partial Taking occurs of more than ten (10%) of the Demised
Premises during the term of this Lease, then, in such event, Tenant may cancel
this Lease by written notice given within sixty (60) days after the date of the
Taking and this Lease will terminate as of the date of the Taking.
E. Award and Proceeds. All compensation awarded for any such taking
or conveyance, whether for the whole or in part of the Demised Premises or
otherwise, shall be the property of the Landlord, whether such damages shall be
awarded as compensation for the diminution or total loss in value of the
leasehold or of the fee of the Demised Premises, and Tenant hereby assigns to
Landlord all of Tenant's right, title and interest in and to any such
compensation. Tenant shall be entitled to separately petition the condemning
authority for a separate award for its moving expenses and trade fixtures, but
only if such separate award will not diminish the amount of proceeds payable to
Landlord.
F. If this Lease is terminated pursuant to the provisions of this
Paragraph, then all rentals and all other charges payable by Tenant to Landlord
under this Lease will be paid up
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to the date of the Taking and any rentals and other charges paid in advance and
allocable to the period after the date of the Taking will be repaid to Tenant by
Landlord. Landlord and Tenant will then be released from all further liability
under this Lease.
17. INDEMNIFICATION: Tenant shall indemnify and hold Landlord harmless
from all loss, damage, cost, expense or liability (including reasonable
attorney's fees, expenses and disbursements) suffered or incurred by Landlord
arising out of or in connection with any injury to, or death of, any person, or
damage to, or destruction of, property occurring in, on or about the Demised
Premises, the building in which the Demised Premises are located and/or the
property, and which injury, death, damage or destruction is caused by the
negligent acts or omissions or willful misconduct of Tenant or Tenant's
employees, agents, contractors, subcontractors, invitees, licensees or other
authorized representatives; except that Landlord shall be liable to Tenant for
all loss, damage, cost, expense or liability (including reasonable attorney's
fees, expenses and disbursements) suffered or incurred by Tenant arising out of
or in connection with any injury to, or death of, any person, or damage to, or
destruction of, property occurring in, on or about the Demised Premises, the
building in which the Demised Premises are located, and the property, and which
injury, death, damage or destruction is caused by the negligent acts or
omissions or willful misconduct of Landlord or Landlord's employees, agents,
contractors, subcontractors, invitees, licensees or other authorized
representatives, and shall indemnify and hold Tenant harmless therefor. A
party's obligation under this Paragraph to indemnify and hold the other party
harmless shall be limited to the sum that exceeds the amount of insurance
proceeds, if any, received by the party being indemnified and in no event shall
the amount of such obligation in total during the Term of this Lease exceed
Fifty Thousand and No/100 Dollars ($50,000.00).
18. WAIVER OF SUBROGATION: Notwithstanding anything contained herein to
the contrary, Landlord and Tenant release and waive all right to recover against
each other or against any other tenant or occupant of the building, against the
officers, directors, shareholders, partners, joint venturers, employees, agents,
customers, invitees, or business visitors of each other or of any other tenant
or occupant of the building and any person claiming by or through either of them
for any loss or damage arising from any cause covered by any insurance required
to be carried by each of them pursuant to this Lease or any other insurance
actually carried by each of them. Landlord and Tenant will cause the respective
insurers to issue appropriate Waiver of Subrogation Rights endorsements to all
policies of insurance carried in connection with the building or the Premises or
the contents of either of them. Tenant will cause all other occupants of the
premises claiming by, under or through Tenant to execute and deliver to Landlord
a Waiver of Claim similar to the Waiver in this paragraph and to obtain such
Waiver of Subrogation Rights endorsements.
19. OMIT.
20. BUILDING SERVICES: Landlord shall not be required to provide any
services to Tenant and Tenant agrees to pay for all charges for gas,
electricity, light, heat and power. Landlord shall not be liable in damages or
otherwise for any delay or failure in Tenant's
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receiving any such utilities and in no event shall such delay or failure,
regardless of cost, constitute an eviction of Tenant or terminate this Lease.
21. DEFAULTS AND REMEDIES:
A. If any one or more of the following events (hereinafter called
"events of default") occurs:
(i) Tenant shall default in payment of any installments of rent or
other sums required to be paid by Tenant under this Lease, which default shall
continue for ten (10) days after written notice thereof by Landlord to Tenant;
or in the observance or performance of any other covenant or provision of this
Lease and such default continues for thirty (30) days after notice of such
default from Landlord (unless such default cannot be cured within (30) days and
Tenant commences to cure such default within such 30 days and diligently
proceeds to cure such default); or
(ii) If the Demised Premises shall be left vacant or unoccupied or
be deserted for a period of thirty (30) days; or
(iii) Tenant shall make an assignment for the benefit of creditors
or shall assign or sublet, except as permitted hereunder; or
(iv) A voluntary petition is filed by Tenant under any laws for the
purpose of adjudication of Tenant as a bankrupt or the extension of the time of
payment, composition, arrangement, adjustment, modification, settlement or
satisfaction of the liabilities of Tenant, or the reorganization of Tenant under
the Bankruptcy Act of the United States or any future laws of the United States
having the same general purpose, or receivers appointed for Tenant by reason of
insolvency or alleged insolvency of Tenant; an involuntary petition shall be
filed against Tenant for such relief and shall not be dismissed within thirty
(30) days;
Landlord, notwithstanding any other right or remedy it may have under
the Lease, at law or in equity, may terminate the Lease, by notice to Tenant
setting forth the basis therefor and effective not less than five (5) days
thereafter, whereupon, upon such effective date, the Lease shall terminate (with
the name effect as if such date were the date fixed herein for the natural
expiration of the Term), Tenant shall surrender the demised premises to Landlord
and Tenant shall have no further rights hereunder, but Tenant shall remain
liable as hereinafter provided. In such event, Landlord may, without further
notice, enter the demised premises, repossess the same and dispossess Tenant and
all other persons and property therefrom.
B. LANDLORD'S DAMAGES If Landlord so terminates the Lease, Tenant
shall pay Landlord, as damages:
(i) A sum which represents any excess of (i) the aggregate of the
rent, impositions and additional rent for the balance of the term if the Lease
were not so terminated,
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over (ii) the net rental value of the demised premises at the effective date of
such termination, both discounted at the rate of four (4) percent per annum; or,
at Landlord's option;
(ii) Sums equal to the rent, impositions and additional rent, when the
same would have been payable if not for such termination, less any net rents
received by Landlord from any reletting, after deducting all costs incurred in
connection with such termination and reletting (but Tenant shall not receive any
excess of such net rents over such sums).
Landlord may commence actions or proceedings to recover such damages
or installments thereof at any lawful time. No provision hereof shall be
construed to preclude Landlord's recovery from Tenant of any other damages to
which landlord is lawfully entitled.
C. NONEXCLUSIVITY No right or remedy herein conferred upon Landlord is
intended to be exclusive of any other right or remedy herein or by law provided,
but each shall be cumulative and subject to the grace and notice provisions of
subparagraph (A) of this Paragraph 21, in addition to every other right or
remedy given herein or now or hereafter existing at law or in equity or by
statute.
D. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS If Tenant shall fail
to pay any tax, pay for or maintain or deliver any of the insurance policies or
shall fail to make any other payment or perform any other act which Tenant is
obligated to make or perform under this Lease, then, Landlord after notice to
Tenant may perform for the account of Tenant any covenant in the performance of
which Tenant is in default. Tenant shall pay to the Landlord as additional
rent, upon demand, any amount paid by Landlord in the performance of such
covenant in any amount which Landlord shall have paid by reason of failure of
Tenant to comply with any covenant or provision of this Lease.
E. NO WAIVER No waiver by Landlord of any breach by Tenant of any of
Tenant's obligations hereunder shall be a waiver of any subsequent breach or of
any obligation, agreement or covenant, nor shall any forbearance by Landlord to
seek a remedy for any breach by Tenant be a waiver by Landlord of Landlord's
rights and remedies with respect to such or by subsequent breach.
F. RIGHT OF RE-ENTRY In the event that the termination of this Lease is
the result of any election exercised by Landlord pursuant to the terms of this
Article, the Landlord shall be entitled to the rights, remedies and damages set
forth in this Article and elsewhere in this Lease. Tenant waives the service of
notice of intention to re-enter as provided for in any statute and also waives
any and all right of redemption in case Landlord obtains possession by reason of
Tenant's default. Tenant waives any and all right to a trial by a jury in the
event that summary proceedings shall be instituted by Landlord. The terms
"enter", "re-enter", "entry" or "reentry", as used in this Lease are not
restricted to their technical legal meaning.
G. PAYMENT OF LANDLORD'S COUNSEL FEES AND OTHER COSTS, INTEREST Tenant
shall pay the Landlord as additional rent upon demand Landlord's reasonable
counsel fees incurred by
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Landlord in connection with the prosecution or defense of any proceedings
instituted by reason of default of Tenant, together with interest at the rate of
2% percent per month from the date of payment by Landlord until paid by Tenant,
this covenant to survive the expiration or sooner termination of this Lease.
22. LANDLORD 'S LIENS: LANDLORD'S INSURANCE: Landlord, for Landlord's
benefit only, agrees that included in the insurance Landlord may carry shall be
insurance insuring against damage to the Premises and the building by fire and
other risks now or hereafter embrace an extended coverage, in amounts sufficient
to prevent Landlord from a co-insured, but in no event less than eighty percent
(80%) of the Premises' then-replacement value (exclusive of the cost of
excavation, foundation and footings). The foregoing requirement shall be deemed
a minimum requirement to be carried by Landlord for Landlord's benefit. The
insurance carried by Landlord, as determined in Landlord's sole judgment, in
addition to the foregoing, may be such insurance against such other hazards as,
from time to time, are then commonly insured against for premises similarly
situated (due regard being given to the Premises height, type, construction and
use) in such amounts as Landlord may determine in Landlord's sole discretion.
All insurance carried by Landlord shall be included as a "insurance expense"
pursuant to subparagraph (v) of Paragraph 5 hereof entitled "Expense Rent".
23. LATE CHARGE/SERVICE FEE: If payment of Basic Rent or Additional Rent
or any part thereof shall not be made on or prior to a date which is five (5)
days after the date on which it is due and payable, Landlord shall be entitled
to charge as an additional rent the service fee equal to 4% of the rent due for
each and every five (5) day period which has elapsed between the day said rent
is due and the date the rent is received by Landlord. Such service fee that
accrues during any month shall be payable on the first day of the following
month. No failure by Landlord to insist upon the strict performance by Tenant
of Tenant's obligations to pay service fee shall constitute a waiver by Landlord
of its right to enforce the provisions of this section and any instance
thereafter occurring, nor shall acceptance of a late fee be deemed to extend the
time of payment of fixed rent or expense rent or any part thereof. Landlord
agrees not to assert a late charge on the first two (2) instances during any
calendar year, without first giving Tenant written notice of Tenant's failure to
pay such Rent or Additional Rent, and if Tenant pays such Rent or Additional
Rent charge within ten (10) days following Landlord's notice, then no late
charge shall be asserted. If Tenant does not pay such Rent or Additional Rent
within said ten (10) day period, then the late charge shall accrue from the date
such Rent or Additional Rent was otherwise due and payable. Landlord need not
send notice to Tenant in any calendar year when Landlord has previously given
such notice on two (2) occasions within said calendar year.
24. EASEMENTS: Tenant shall permit Landlord or its designees to erect,
use, maintain and repair pipes, cables, conduits, plumbing, vents and wires, in,
to and through the Premises, as and to the extent that Landlord may now or
hereafter deem to be necessary or appropriate for the proper operation and
maintenance of the building in which the Premises are located or any other
portion of the Building. All such work shall be done in such manner as to avoid
unreasonable interference with Tenant's use of the Premises.
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25. LANDLORD'S INABILITY TO PERFORM: This Lease and the obligation to pay
rent hereunder and perform all of the other terms to be performed by Tenant
hereunder shall not be affected, impaired or excused because Landlord is unable
to fulfill any of its obligations under this Lease. The foregoing, however,
shall not waive any defense or claim Tenant may rightfully assert in a
litigation between Landlord and Tenant.
26. PARKING: Tenant shall be assigned fifteen (15) parking spaces to be
reserved by designation notation thereon, for the benefit of Tenant, its
employees and invitees. In addition, Tenant shall have the right to use
fifty-five (55) parking spaces in common with Landlord and other tenants of the
property and their employees and invitees in the parking area provided by
Landlord for the parking of passenger automobiles other than parking spaces
allocated to others by Landlord. Tenant agrees that it and its employees and
invitees shall not parking their automobiles in parking spaces allocated to
others by Landlord and shall comply with such rules and regulations for use of
the parking area as Landlord may from time to time prescribe. Landlord reserves
the right to require Tenant, as to the parking of automobiles, to park the same,
off premises, but within the Park known as Commercenter/Totowa. Landlord shall
not be responsible for any damage or theft of any vehicle in the parking area
and shall not be required to keep parking spaces clear of unauthorized vehicles
or to otherwise supervise the use of the parking area.
27. MECHANIC'S LIEN: Tenant shall discharge any mechanic's lien filed
against the Property for work done or claimed to have been done for Tenant, or
materials furnished or claimed to have been furnished to Tenant within ten (10)
days after notice from Landlord thereof. Notice is hereby given that Landlord
is not liable for any work performed at the premises by or for Tenant and that
no mechanic's lien arising therefrom shall attach to, or affect the estate of,
or interest of Landlord.
28. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT: If Tenant defaults in the
observance or performance of any term to be observed or performed by Tenant
under this Lease, Landlord may immediately or at any time thereafter and without
notice to Tenant, perform the same for the account of Tenant and the expenses
incurred with respect to such performance together with attorneys' fees and
interest thereon shall be deemed additional rent hereunder and shall be paid by
Tenant to Landlord on demand therefor.
29. SUBORDINATION: This Lease and Tenant's rights are subject and
subordinate to all present and future: (a) Leases for the Building or the Land
on which it stands, (b) mortgages on the Leases or the Building or Land, (c)
agreements securing money paid or to be paid by a lender, and (d) terms,
conditions, renewals, changes of any kind and extensions of the Mortgages or
Leases or Lender Agreements. Tenant must promptly execute any certificates that
Landlord requests to show that the Lease is so subject and subordinate.
30. LANDLORD'S RIGHT TO SHOW PREMISES: Throughout the term of this Lease,
Landlord shall have the right to enter the Premises at reasonable hours for the
purpose of
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showing the same to prospective purchasers or mortgagees of the Property, and
during the last six (6) months of the term for the purpose of showing the same
to prospective tenants.
31. QUIET ENJOYMENT: Landlord covenants that if and so long as Tenant
pays the rent and additional rent and performs the covenants hereof, Tenant
shall peaceably and quietly have hold and enjoy the Premises for the term herein
mentioned, subject to the provisions of this Lease and to any mortgage
underlying lease or other agreements to which this Lease is subordinate.
32. TENANT'S ESTOPPEL: Tenant shall from time to time, upon not less than
ten (10) days prior written request by Landlord, execute, acknowledge and
deliver to Landlord a written statement, in form satisfactory to Landlord,
certifying that this Lease is unmodified and in full force and effect (or that
same is in full force and effect as modified, listing the instruments of
modification) the dates to which the rent and additional rent have been paid and
whether or not, to the best of Tenant's knowledge, Landlord is in default
hereunder (and if so, specifying the nature of the default), existence of any
offsets, counterclaims or defenses thereto on the Tenant's part against
Landlord, a statement as to the term commencement date and stated expiration
date, and as to any other matters as may reasonably be so requested. It being
intended that any such statement delivered pursuant to this Paragraph may be
relied upon by a prospective purchaser of Landlord's interest, or mortgagee of
Landlord's interest, or assignee of any mortgage upon Landlord's interest in any
underlying lease or in the Property.
33. FINANCIAL INFORMATION: Tenant has furnished the Landlord with Profit
and Loss Statements and Balance Sheets for the fiscal years beginning 1993,
prepared by a Certified Public Accountant. Tenant further agrees that it will
furnish to the Landlord a Certified Profit and Loss Statement and Certified
Balance Sheet prepared by a Certified Public Accountant for the preceding fiscal
year but Landlord shall not request such statement more than once in each
calendar year.
34. NO ABATEMENT OF RENT: There shall be no abatement, diminution or
reduction of Fixed Rent, Expense Rent or Additional Rent or other charges or
other compensation due to the Landlord by Tenant or any person claiming under it
under any circumstances, including, but not limited to, any inconvenience,
discomfort, interruption of business or otherwise.
35. NOTICES: Any notice hereunder shall be sufficient if sent by
certified mail, return receipt requested, addressed given by the Landlord to the
Tenant to the Premises, or if given by the Tenant to the Landlord, at the
address set forth in Par. l(a) above, or at such other place as the Landlord may
notify Tenant in writing from time to time.
36. NO PERSONAL LIABILITY OF LANDLORD: There shall be no personal
liability of the Landlord or any principal of the Landlord in connection with
this Lease. Tenant agrees to look solely to the equity of Landlord in the
Property for the collection of any judgment or other judicial process requiring
the payment of money by Landlord in the event of any default or breach by
Landlord with respect to this Lease or in any way relating to the Premises or
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Property, and no other assets of Landlord or any principal of Landlord shall be
subject to levy, execution or other procedures for the satisfaction of Tenant's
remedies.
37. SUBMISSION OF LEASE: Submission of this Instrument for examination or
signature by Tenant does not constitute a reservation of, or option to lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
38. NO REPRESENTATIONS: Landlord has made no representations or promises
with respect to the Premises or the Property except as expressly contained
herein. Tenant has inspected the Premises and agrees to take the same in an "as
is" condition, except as otherwise expressly set forth. Landlord shall have no
obligation, except as herein set forth, to do any work in and to the Premises to
render them ready for occupancy and use by Tenant.
39. CAPTIONS: The captions in this Lease are included for convenience
only and shall not be taken into consideration in any construction or
interpretation of this Lease or any of its provisions.
40. NO WAIVER OR CHANGES: The failure of either party to insist on strict
performance of any covenant or condition hereof, or to exercise any option
herein contained, shall not be construed as a waiver of such covenant, condition
or option in any other instance. This Lease cannot be changed or terminated
orally.
41. RECORDING: The Tenant shall not record this Lease or a memorandum
hereof.
42. BROKER: Tenant represents that it did not deal with or negotiate with
any broker in connection with this Lease other than the Broker listed in
Paragraph l(g) and indemnifies and holds Landlord harmless from and against any
claim for a commission or other fee made by any broker with whom it has dealt or
negotiated except as to the Broker listed in Paragraph l(g).
43. OMIT.
44. GUARANTEES: The Landlord agrees to assign to the Tenant all
guarantees which Landlord has otherwise received from its materialmen and
suppliers as to the plumbing, heating, air conditioning and electrical systems
which are the Tenant's responsibility to maintain under the terms of this Lease.
45. BINDING EFFECT: The provisions of this Lease shall apply to, bind and
inure to the benefit of Landlord and Tenant and their respective successors,
legal representative and permitted assigns, it being understood that the term
"Landlord" as used in this Lease means only the owner, or the mortgagee in
possession, or the lessee for the time being of the property so that in the
event of any sale or sales of the property or of any lease thereof, or if the
mortgagee shall take possession of the property, the Landlord named herein shall
be and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder accruing thereafter.
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46. ACCEPTANCE: Neither the Landlord nor its agents have made any
representation with respect to the building, the land upon which it is erected,
or the demised premises, except as expressly set forth herein and no rights,
easements or licenses are acquired by the Tenant by implication or otherwise
except as expressly set forth in the provisions of this Lease. The taking of
possession of the demised premises by the Tenant shall be conclusive evidence
that the Tenant shall have accepted the same in an "as is" condition, except as
otherwise expressly set forth, and that the demised premises and the building
were in good condition at the time of the commencement of the term. In no event
shall the Landlord be liable for any defect in such property or for any
limitation on its use.
47. EXTENSION OF TERM:
A. FIRST RENEWAL TERM Upon the expiration of the term herein
demised, if immediately prior thereto this Lease shall be in full force and
effect and Tenant shall not be in default, then, subject to the provisions of
this section, the Tenant shall have and is hereby given the option to renew and
extend this Lease for an additional term of five (5) years to commence on April
1, 2001 and to expire on March 31, 2006. The first renewal term shall be upon
the same terms, covenants and conditions as those herein contained insofar as
then in force and applicable to such first renewal term (including all
provisions as to the items of payment of additional rent) except as to the
amount of fixed rental. The said renewal shall be exercised by Tenant in the
following manner:
(i) Not later than nine (9) months prior to the end of the initial
term, the Tenant shall notify Landlord in writing that the Tenant desires to
extend said Lease by exercising this option.
(ii) In the event the Tenant exercises its option to extend the term
of this Lease as hereinabove set forth, the fixed rental as set forth in
sub-paragraph (e) of paragraph 1 of this Lease, during such first renewal term
shall be the lesser of $246,612.05 per annum, payable in equal monthly
installments of $20,551.00, due and payable the first day of each and every
month in advance or a sum equal to the fair market rent to be determined as
follows:
The Landlord and the Tenant shall each select an appraiser, such
appraiser shall be a licensed real estate broker, specializing in the renting of
office and/or industrial premises in Passaic County, New Jersey and each such
appraiser shall be a member of the Society of Industrial Realtors. Such
appraisers shall be engaged to determine the fair market rental on a net basis
in accordance with the terms of this Lease of the premises demised. In the
event the two such appraisers cannot agree upon such net rental, then they shall
appoint a third appraiser with like credentials, and the opinion of the majority
as to the fair market rental, shall be controlling. If a sum equal to the fair
market rental of the premises pursuant to the appraisal is less than $246,612.05
per annum, then the fixed rental shall be adjusted to a sum equal to the fair
market rental of the Premises determined pursuant to the appraisal. The
determination of the appraisers shall be in accordance with the provisions of
the terms of this lease for a five (5) year term. Such rental shall be
determined as of the first day of the first renewal term. Pending the
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determination of the fixed rent for the first renewal term, the Tenant shall
continue to pay the rent at the rate of $246,612.05 per annum and when the
appraisals have been determined, and if the fair market rent so determined is
less than $246,612.05, Landlord shall immediately refund to Tenant any amount
greater than that which would otherwise be payable pursuant to the appraised
fair market rental.
B. SECOND RENEWAL TERM Upon the expiration of the first renewal
term, if immediately prior thereto this Lease shall be in full force and effect
and Tenant shall not be in default, then, subject to the provisions of this
section, the Tenant shall have and is hereby given the option to renew and
extend this Lease for an additional term of five (5) years to commence on April
1, 2006 and to expire on March 31, 2011. The second renewal term shall be upon
the same terms, covenants and conditions as those herein contained insofar as
then in force and applicable to such second renewal term (including all
provisions as to the items of payment of additional rent) except as to the
amount of fixed rental, and further excepting that such renewal shall not
contain a provision for a further renewal. The said renewal shall be exercised
by Tenant in the following manner:
(i) Not later than nine (9) months prior to the end of the initial
term, the Tenant shall notify Landlord in writing that the Tenant desires to
extend acid Lease by exercising this option.
(ii) In the event the Tenant exercises its option to extend the term
of this Lease as hereinabove set forth, the fixed rental as set forth in
sub-paragraph (e) of paragraph 1 of this Lease, during such second renewal term
shall be the higher of the fixed rental payable during the last year of the
first renewal term or a sum equal to the fair market rent to be determined as
follows:
The Landlord and the Tenant shall each select an appraiser, such
appraiser shall be a licensed real estate broker, specializing in the renting of
office and/or industrial premises in Passaic County, New Jersey and each such
appraiser shall be a member of the Society of Industrial Realtors. Such
appraisers! shall be engaged to determine the fair market rental on a net basis
in accordance with the terms of this Lease of the premises demised. In the
event, the two such appraisers cannot agree upon such net rental then, they
shall appoint a third appraiser, with like credentials, and the opinion of the
majority as to the fair market rental, shall be controlling. If a sum equal to
the fair market rental of the premises pursuant to the appraisal is greater than
the fixed rental payable during the last year of the first renewal term, then
the fixed rental shall be adjusted to a sum equal to the fair market rental of
the Premises pursuant to the appraisal. The determination of the appraisers
shall be, in accordance with the provisions of the terms of this lease, for a
five (5) year term. Such rental shall be determined as of the first day of the
second renewal term. Pending the determination of the fixed rent for the second
renewal term, the Tenant shall continue to pay the rent at the rate payable
during the last year of the first renewal term and when the adjusted rent has
been determined, the Tenant on the first day immediately following the
furnishing by the appraisers to the Landlord and the Tenant of the computation
thereof, shall pay the Landlord the monthly deficiency for the number of
installments
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that shall have elapsed from the commencement of the second renewal term
beginning on the first day of the second renewal term to and including the first
day of such month. During the second renewal term, the fixed rental shall be
the higher of the rent payable during the last year of the first renewal term or
a sum equal to the fair market rent as determined by the appraisers.
48. OPTION BY TENANT TO TERMINATE:
A. FIRST TERMINATION OPTION. Tenant shall have the right, subject to
the following conditions, to terminate this Lease effective as of the last day
of the thirty-sixth (36) month of the Lease Term, provided and subject, however,
that Tenant shall:
(i) exercise such right by written notice to Landlord delivered and
received by Landlord on a date no later than the last day of the twenty-seventh
(27) month of the Lease Term, TIME BEING OF THE ESSENCE; and
(ii) simultaneously with the delivery of the Notice of Termination,
deliver to Landlord good funds in the amount of Six Hundred Sixty-Five Thousand
Eight Hundred Nine and 51/100 Dollars ($665,809.51) payable to Landlord, such
amount to be deemed an additional payment to Landlord in consideration of
Tenant's exercise of its right of termination.
The Notice of Termination shall be executed in a manner consistent
with the execution of this Lease. The Lease shall terminate as of the last day
of the thirty-sixth (36) month, as though such date was the original Termination
Date as otherwise set forth in the Lease, and all of Tenant's obligations upon
termination shall be applicable as of such date.
B. SECOND TERMINATION OPTION. Tenant shall have the right, subject to
the following conditions, to terminate this Lease effective as of the last day
of the sixtieth (60) month of the Lease Term, provided and subject, however,
that Tenant shall:
(i) exercise such right by written notice to Landlord delivered and
received by Landlord on a date no later than the last day of the fifty-first
(51) month of the Lease Term, TIME BEING OF THE ESSENCE; and
(ii) simultaneously with the delivery of the Notice of Termination,
deliver to Landlord good funds in the amount of Two Hundred Thousand and No/100
Dollars ($200,000.00) payable to Landlord, such payment to be deemed an
additional payment to Landlord in consideration of Tenant's exercise of its
right of termination.
The Notice of Termination shall be executed in a manner consistent
with the execution of this Lease. The Lease shall terminate as of the last day
of the sixtieth (60) month, as though such date was the original Termination
Date as otherwise set forth in the Lease, and all of Tenant's obligations upon
termination shall be applicable as of such date.
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49. MISCELLANEOUS:
A. Tenant shall comply with the Rules and Regulations attached
hereto and as same may be amended or promulgated by Landlord from time to time.
B. Tenant warrants and represents that it will, at no time, install
any underground storage tanks on the Demised Premises. A breach of this
covenant shall be deemed a default under the Lease, and Landlord shall have the
right to terminate the Lease upon the happening of such event.
C. Tenant shall, not without Landlord's prior consent, install any
window coverings, blinds, curtains, shades, except, as may be otherwise
consented to by Landlord. Tenant acknowledging that Landlord intends to have
all Tenants in the building in which the Demised Premise are located use a
uniform window treatment.
D. Tenant shall be responsible for removal of its own trash. Tenant
shall engage the services of a refuse hauler, as may be designated by Landlord.
Tenant acknowledging that for economics of scale, all Tenants in the building in
which the Demised Premises are located are to use the same refuse hauler.
E. If Tenant believes that the Landlord has unreasonably withheld
its consent and/or delayed its consent, then Tenant's sole remedy shall be to
seek a declaratory judgment. The Tenant shall have no right to seek money
damages.
F. CORPORATE AUTHORITY If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-Laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant shall, within thirty (30)
days after execution of this Lease, deliver to Landlord a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
G. Tenant in cooperation with Landlord will apply to the Planning
Board of the Borough of Totowa for a use permit. Tenant recognizes that the
procurement of the use permit is a condition precedent to Landlord obtaining a
building permit to undertake the construction contemplated to effectuate the
purposes of this Lease. This Lease is subject and contingent upon Landlord
obtaining either a temporary or permanent certificate of occupancy as otherwise
provided in paragraph 3B hereof. In the event Landlord does not obtain a use
permit, or having obtained a use permit, does not obtain a Certificate of
Occupancy, then Landlord shall notify Tenant of such fact, and thereafter this
Lease shall be void, without further liability of either party to the other
except to return to Tenant the prepaid rent, if any, and the security deposit.
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H. A portion of the premises to be demised to Tenant under the Lease
are presently occupied by Bell Atlanticom Systems Inc., pursuant to a lease
dated March 19, 1992 between Landlord and Bell Atlanticom Systems Inc. Bell
Atlanticom Systems Inc. has requested Landlord to terminate the aforementioned
Lease. This Lease is subject to Landlord receiving an executed Termination
Agreement upon those terms as otherwise set forth in a certain Agreement of
Termination to be entered into between Landlord and Bell Atlanticom Systems Inc.
I. Landlord agrees that if any space contiguous to the area demised
to the Tenant under this Lease becomes available during the lease term, and if
no other Tenant has a right or option to lease said space, then in such event,
Landlord agrees to notify Tenant of the availability of such area for lease.
Landlord's notice shall specify the terms and conditions and rental under which
Landlord will lease such space to the Tenant. Tenant shall have five (5) days
in which to respond in writing to Landlord as to whether or not Tenant is
willing to enter into a lease on the terms so specified by Landlord. Failure of
Tenant to respond in the time period as aforesaid affirmatively agreeing to
enter into a lease on Landlord's terms as specified shall be deemed a waiver of
Tenant's rights as specified in this Section 27.22. Except for Landlord's
obligation to notify Tenant as aforesaid, Landlord shall have no other
obligation to Tenant hereunder as to the provisions of this Section.
J. ALTERNATIVE DISPUTE RESOLUTION. Landlord and Tenant shall
attempt to settle any claim or controversy arising out of it through
consultation and negotiation in the spirit of mutual friendship and cooperation.
If such attempts fail, then the dispute shall first be submitted to a mutually
acceptable neutral advisor for mediation, fact-finding or other form of
alternate dispute resolution. Neither of the parties may unreasonably withhold
acceptance of such an advisor, and his or her selection will be made within
thirty (30) days after notice by the other party demanding such mediation. The
cost of such mediation or any other alternate dispute resolution agreed upon by
both parties shall be shared equally by Landlord and Tenant. Any dispute which
cannot be so resolved between the parties within sixty (60) days of the date of
the initial demand by either party for such mediation shall be finally
determined by the courts. The use of such a procedure shall not be construed to
affect adversely the rights of either party under the doctrines of laches,
waiver or estoppel. And nothing in this paragraph shall prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve a
dispute under these procedures have been unsuccessful or (b) interim resort to a
court is necessary to prevent serious and irreparable injury to a party or to
others.
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IN WITNESS WHEREOF, the parties hereto have set their hands and seals
or caused these presents to be signed by their proper corporate officers, and
their proper corporate seal to be hereto affixed, in the day and year first
above written.
WITNESS: 20 COMMERCE WAY ASSOCIATES, LANDLORD
/s/ Steve Kessel BY: /s/ Jeffrey Kessel
- ------------------- ----------------------
ATTEST: MOTOROLA, INC., TENANT
/s/ Thomas G. Berry BY: /s/ Fernando Gomez
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EXHIBIT A
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF LEASE
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors and public parts of the Property shall not be obstructed or
encumbered by Tenant or used by Tenant for any purpose other than ingress and
egress to and from the Premises. The Tenant will not use or permit to be used
the sidewalk area by motor vehicles, and will limit such vehicles to the
driveway and parking areas.
2. No awnings, air conditioning units or other projections shall be
attached to the outside walls or windowsills of the building on the Property or
otherwise project from the building.
3. The Tenant shall not erect, make or maintain on or attach or affix to
any part of the Premises including the windows and doors, any sign, picture or
other representation or advertisement or notice of any kind, without the express
written consent of the Landlord obtained in advance. Tenant shall have the
right to apply on the main entrance door to the Premises lettering of approved
type, size and style as well as company logo where applicable.
4. The windows in the Premises shall not be covered or obstructed by
Tenant, nor shall articles be placed on the windowsills or in the halls or in
any other part of the building, nor shall any articles be thrown out of the
doors or windows of the Premises.
5. Tenant shall not lay linoleum or other similar floor covering so that
the same shall come in direct contact with the floor of the Premises, and if
linoleum or other similar floor covering is desired to be used, an interlining
of builder's deadening felt shall first be fixed to the floor by a paste or
other material that may easily be removed with water, the use of cement or other
similar adhesive material being expressly prohibited.
6. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises nor interfere with other tenants or those having business with
them. Tenant shall not place office machines or other equipment against walls
which divide the Premises from space leased to other Tenants.
7. No additional locks or bolts or any kind shall be placed upon any of
the doors or windows by Tenant, and Tenant shall upon the termination of this
tenancy, deliver to Landlord all keys to the Premises either furnished to, or
otherwise procured by, Tenant and in the event of the loss of any keys so
furnished, Tenant shall pay to Landlord the cost thereof.
8. Tenant shall not keep in the Premises and explosives, cleaning fluid
or any inflammable material. Tenant shall not bring or place any bed or bedding
in the Premises and shall not use the Premises and shall not use the Premises as
a lodging place.
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9. Landlord shall not be responsible to Tenant for the non-observance or
violation of any of these Rules and Regulations by any other tenants.
10. Tenant shall have the right, provided same is done in accordance with
the zoning ordinance of the municipality, to park trucks on the property along
the area wherein are located the loading docks. The Tenant shall not park
trucks in any other portion of the premises demised.
11. The Tenant shall advise Landlord, if Tenant's S.I.C. number is changed
from that otherwise indicated in paragraph 1(j).
12. Tenant agrees that Tenant will supply the names, address and telephone
numbers of at least two representatives of the Tenant who can be contacted in
the event of an emergency. Tenant will keep such "emergency list" current.
Upon notice by the Landlord to the Tenant of a breach of any of the rules and
regulations Tenant shall, within five (5) days thereafter, comply with such rule
and regulation and in the event Tenant shall not comply, then the Landlord may
at its discretion either: (1) cure such condition and add any cost and expense
incurred by the Landlord therefor to the next installment of rental due under
this Lease and the Tenant shall then pay such amount as additional rent
hereunder; or (2) treat such failure on the part of the Tenant to remedy such
condition as a material default of this Lease on the part of the Tenant
hereunder.
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Exhibit 11.1
GLASGAL COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the Three Months Ended
(in thousands, except per share data)
July 31, 1997 July 31, 1996
--------------- ---------------
Earnings (loss) per share
Income (loss) from continuing operations $ 25 $ 1,897
Discontinued operations -- (503)
------- -------
Net income $ -- $ 1,394
------- -------
Weighted average number of shares
outstanding 23,709 20,306
Assumed issuances under exercise of stock
options and warrants 2,125 6,569
------- -------
Weighted average and common stock
equivalents 25,834 26,875
------- -------
Income (loss) from continuing operations $ 0.00 $ 0.07
Discontinued operations per share 0.00 (0.02)
------- -------
Net loss per share $ 0.00 $ 0.05
------- -------
<PAGE>
Exhibit 21.1
JURISDICTION OF PERCENTAGE
INCORPORATION OWNED
Datatec Industries Inc. New Jersey 100%
HH Communications, Inc. Illinois 100%
Computer-Aided Software Integration Delaware 80%
Signatel, Ltd. Canada 100%
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
<TABLE>
<S> <C>
Roseland, New Jersey /s/ Arthur Andersen LLP
November 7, 1997 Arthur Andersen LLP
</TABLE>
