SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended APRIL 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition period from ________ to ________
Commission File No. 0-20688
GLASGAL COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-2914253
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(State of Incorporation) (I.R.S. Employer Identification No.)
20C COMMERCE WAY, TOTOWA, NJ 07512-1154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 890-4800
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.001 par value Boston Stock Exchange
Common Stock Purchase Warrants
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at July 31, 1997 was approximately $59,903,000. For purposes of
computing such market value, the Registrant has deemed as affiliates only
executive officers, directors and their affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
July 31, 1997 was 23,708,689.
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TABLE OF CONTENTS
PART I PAGE #
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Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 26
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure 52
PART III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners
and Management 61
Item 13. Certain Relationships and Related Transactions 64
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 65
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FORWARD LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULT COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, COMPETITION, TECHNOLOGICAL ADVANCES AND AVAILABILITY OF
MANAGERIAL PERSONNEL. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE
DATE HEREOF. GLASGAL COMMUNICATIONS, INC. UNDERTAKES NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING STATEMENTS, TO REFLECT EVENTS OR CIRCUMSTANCES THAT
ARISE AFTER THE DATE HEREOF.
PART I
ITEM 1. BUSINESS
The Company is in the business of providing software-enabled technical
configuration, integration and implementation services to Fortune 2,000
customers in the United States and Canada. What this translates into is a unique
capability to provide implementation services to large organizations to enable
them to rapidly deploy new networking technologies with minimal risk of failure
at very competitive prices.
The Company's market advantages include:
o A proprietary software tool, THE INTEGRATOR'S WORKBENCH PRODUCT
SERIES(TM)(IWPS), that significantly reduces the risk and time and,
therefore, labor costs of providing what are highly labor-intensive
services.
o A nationwide deployment team capable of delivering complex technologies
to any North American organization including any manner of computing
platform, cabling or electrical issues.
o A nationwide salesforce focused exclusively on the sale of
configuration, integration and deployment services to direct end users
and the indirect channel (OEMs, VARs, systems integrators and
telecommunications suppliers).
This unique combination of software-enabled configuration services
coupled with nationwide deployment provides Glasgal with a strong proprietary
position in the market.
The Company was incorporated in California in 1983 under the name
Sellectek Incorporated. The Company changed its name to Glasgal Communications
in May 1994 after merging with Glasgal Communications, Inc., a New Jersey
corporation (the "Predecessor"). The Company reincorporated in the state of
Delaware in January 1996. Unless the context otherwise requires, the "Company"
or "Glasgal" refers to Glasgal Communications, Inc., its predecessors and its
subsidiaries which include Signatel, Ltd. ("Signatel"), HH Communications, Inc.,
Computer-Aided Software Integration, Inc. ("CASI") and Datatec Industries, Inc.
The Company maintains its executive offices at 20C Commerce Way, Totowa, New
Jersey 07512. Its telephone number is (201) 890-4800.
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BACKGROUND
Over the past five years the Company has repositioned itself from
selling network devices to providing customers with networking solutions with a
focus on Information Technology (IT) services. This shift was required to
buttress the continuing fall in gross margins from hardware sales. As the
Company moved increasingly into IT services its margins improved but so did the
need to increase the engineering staff. Despite standard gross margins from
services being some twenty-five to thirty percentage points higher than those
from hardware sales, there is still a direct linear relationship between
increased service revenues and their attendant labor costs. Unlike hardware
margins, however, service margins can be positively impacted through increased
efficiencies. As a result, the Company's thrust into services was coupled with a
move towards increased efficiencies. Through the development of THE INTEGRATOR'S
WORKBENCH PRODUCT SERIES (TM)(IWPS), the Company created the base engine to
dramatically increase efficiencies and drive up service margins well beyond
industry standards.
In June 1997, the Company decided to no longer resell hardware and
concentrate entirely on providing only integration, configuration and deployment
services. Today customers take title to their products and have them shipped to
one of the Company's five STAGING & CONFIGURATION CENTERS for implementation. In
this way, the Company's limited resources can be applied to business that
historically generates 35% to 40% margins rather than 10% or less. By being
non-aligned to any particular manufacturer or vendor the company can work
independently and in a non-threatening manner with all manufacturers, VARs,
systems integrators and software developers/vendors.
STRATEGY
The Company's objective is to be the premier provider for the
configuration, integration service and deployment of complex networking
solutions. To achieve this objective the Company is pursuing the following
strategies:
o Developing automated tools and methodologies to maintain a competitive
edge in the Company's chosen market niche.
o Creating, through the Datatec Relationship Cycle, close and long-term
relationships with its customers thereby providing a source for
repeatable business and as a result of high satisfaction ratios, a
source of business referrals.
o Focusing the Company's direct marketing efforts on seven vertical
markets comprising of Retail, Financial, Hospitality, Health Care,
Travel, Insurance and Entertainment. Each of these verticals was
selected for comprising of industries that are commonly multi-sited
with large internetworking environments.
o Leveraging the Company's indirect intra sales channel to create strong
strategic partnerships with OEMs, systems integrators, software
developers/distributors, VARs, and telecommunications carriers. Through
these relationships the Company leverages its clients sales force by
presenting joint solutions to its clients customers. Because the
Company is no longer aligned with manufacturers or reselling products,
its indirect partners are much more willing to introduce the Company's
sales professionals into their own opportunities. In return, the
indirect partners get the benefit of the Company's flexible process and
aggressive pricing that these companies can rarely compete with.
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o The Company intends to pursue strategic acquisitions to expand within
existing markets, address new markets, and acquire technical expertise
and technology to leverage its existing technology.
THE MARKET
Today the vast majority of PCs sold to businesses are attached to a
network. The proliferation of PC users and information residing on networks has
created an explosive demand for not only PCs and Servers but for networking
products like routers, hubs and switches. These products, which allow for the
orderly flow of information over networks, are constantly being improved to meet
the ever-increasing traffic and speed with which data travels along networks.
Before a workstation, server, router, hub or switch can work effectively on a
network, it needs to be properly configured and customized to be compatible with
each of the unique features and parameters of a clients network. In addition,
great care must be taken to ensure that each of these new devices works in
concert with existing or legacy equipment on that same network.
The Company knows of no independent research company that has focused
on the market size for configuration and deployment services. However, the
Yankee Group recently stated that the IT sector as a whole is growing by
approximately 17% per annum and will be worth $231 billion by the end of the
decade. Glasgal's management estimates that configuration, integration and
deployment services probably account for approximately 10% of the total IT
market.
The dynamics creating strong demand for Glasgal's new software assisted
service offerings include the following:
o Due to shorter product life cycles, hardware manufacturers and software
vendors alike must find ways to rapidly bring their products to market or
face losing market share.
o In order to maintain a competitive edge in the market, corporations are
constantly looking to become more efficient and technology has become a
major source of competitive advantage.
o Technologies are becoming increasingly complex, which makes them extremely
difficult and costly to implement, especially without tools and
methodologies. Given the downsizing of many MIS departments and their
preoccupation with their core operations, companies are increasingly
looking to outsource the deployment of new technologies.
GLASGAL'S SOLUTIONS
Glasgal is uniquely positioned to address the burgeoning demand for
configuring, integrating and deploying workstations, servers, routers, hubs and
switches onto networks through its software-enabled orientation. Through proper
utilization of its INTEGRATOR'S WORKBENCH tools developed by Glasgal's CASI
subsidiary and the Company's proprietary documented processes, many labor
intensive configuration, integration, and deployment services provided by the
Company are being automated and increasing the Company's effective yield and
profitability.
The benefits that accrue to the Company by software-enabling its
implementation processes are:
o REDUCTIONIN LABOR COSTS AND SIGNIFICANTLY HIGHER PRODUCTIVITY PER
PERSON. Typical time reductions achieved by using Glasgal's
software-enabled process range between 40% and 90%. For example, the
typical router that takes between forty-five minutes and one hour to
configure and document manually using a highly skilled engineer is
reduced to five minutes using the Company's software-enabled process.
o THE ABILITY TO LEVERAGE TECHNICAL SKILLS. Leveraging the Company's
software-enabled process, technical staffers with lower skill sets can
implement highly complex technical solutions. In addition, the market's
demand for experienced engineering resources continues to grow causing
many IT companies to face a "revolving door" syndrome in finding and
keeping their high priced, highly skilled engineers. Given the fact
that
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Glasgal has software-enabled its methodologies, its knowledge base does
not go out of the door with engineers.
o A HIGHER DEGREE OF ACCURACY IN THE CONFIGURATION AND INTEGRATION
PROCESS LEADS TO VIRTUAL "PLUG AND PLAY" INSTALLATIONS. The automated
process eliminates the risk of input mistakes which account for almost
50% of all errors. As a result, highly complex and fully customized
devices convert into "plug and play" products for Glasgal's deployment
teams. In this way the Company not only saves significant time during
the configuration and integration process but also during the
installation process. Time spent on rework, normally at the Company's
expense, is also reduced to insignificant levels.
The benefits that accrue to our clients by software-enabling the
implementation process are:
o HIGHLY COMPETITIVE PRICING. Because of the automation and increased
productivity provided by the Company's software-enabled process for
what are highly labor-intensive tasks, Glasgal can afford to be
significantly more price competitive without compromising margins.
o FAST, ACCURATE, FIXED TIME/FIXED PRICE QUOTATIONS. Clients are
understandably resentful of cost overruns when deploying new
technologies. Cost overruns occur as a result of IT companies providing
clients with an hourly rate and the estimated hours it will take to
implement new systems. Inevitably, however, the tasks are rarely
completed on time. Using the software-enabled process, projecting task
times becomes significantly more accurate as these tasks become less
dependent on human intervention and increasingly automated. As a
result, Glasgal eliminates the risk of cost overruns for its clients.
o DIRECT RAPID DEPLOYMENT. The Company's services are particularly well
suited to organizations with multiple sites across the United States
and Canada who require a high level of technical assistance. The
Company's 450 plus field engineering staff are fully equipped to
address any computing, cabling or electrical tasks associated with a
technology deployment. As a result, it usually takes only one visit to
a site to complete the installation. In addition, because of the
methodologies employed at our configuration centers, products arrive at
our customer's site in a "plug and play" state.
o ERROR ELIMINATION AND RISK REDUCTION - Most configuration and
integration tasks are extremely precise and detailed in nature as well
as manually intensive. This environment is, therefore, prone to error.
Clearly, the software-enabled process results in a significant
reduction in errors and risks of failure.
GLASGAL'S SOFTWARE-ENABLED SERVICES
One of the Company's true competitive advantages is the
software-enabled process. Glasgal's software-enabled methodology and tools
result in significant advantages in securing highly distributed and complex
customer engagements and improves the Company's yield on delivered services
while reducing overall costs and defect rates. In conjunction with our existing
infrastructures and geographically dispersed national field force, Glasgal has
leveraged its proprietary software and methodologies into creating several
branded solutions to meet the configuration and implementation concerns of our
customers.
CLIENT-SERVER DEPLOYMENT SOLUTIONS (CSD). The rise in popularity of new
high performance platforms and 32-bit applications/technologies such as
Microsoft's Windows NT Server and Novell's Network Directory Services
architecture are driving organizations to consider and install a variety of
complex solutions to meet their computing needs and increase their overall
competitiveness. While most modern development efforts are meeting the demand
for improved functionality and product usability, much of the frustration end
users have in installing these solutions is the lack of a highly defined and
easy to use means of implementing these new solutions. Companies require access
to their new systems and applications in the shortest period of time to allow
their users to reach critical information sources. These frustrations are
equally mirrored by all of the Original Equipment Manufacturers (OEMs),
Independent Software Vendors (ISVs) and Value-Added Resellers (VARs) who develop
and package these new technologies into customer solutions. In order to meet
business demands and capital market expectations, both groups are incentivized
to deliver their wares and services as quickly and profitably as possible.
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To meet these growing demands, Glasgal has introduced its Client Server
Deployment solutions, branded as APPWORKS (application and ISV deployment),
TECREFRESH (migration and technology upgrades) and NETWORKS (workstation and
server deployment) to provide the high levels of service to its corporate
customers as well as VARs, Systems Integrators and OEM accounts. These branded
service offerings combine superior design skills, process automation, "as built"
deliverables and enhanced implementation and support tools into a single
packaged solution that far exceeds that of the Company's competition. Finally,
Glasgal is able to deliver any of its software- enabled services across North
America on time and within tight budgetary constraints.
PRODUCT COMPONENTS
1. APPWORKS
The Company's APPWORKS service package for application or ISV deployments
provides for the distribution and installation of new software or software
upgrades. Deployments may be for software only, or may include system upgrades
or complete turn-key installation.
2. TECHREFRESH
System and network migration, and technology upgrade projects are supported by
the Company's TECHREFRESH service package. Once a target or "end-state" system
environment has been selected and tested, the Company will take complete
ownership for deployment from planning through turn-up and certification.
NETWORKS
NETWORKS is the Company's service package for the deployment of workstations and
servers. Service begins with understanding the target environment, and
developing a comprehensive plan for deployment. The Company then takes ownership
of the entire process from data collection and gap analysis, for environments
that are to be upgraded, through configuration, deployment, installation and
certification testing.
NETWORK DEVICE DEPLOYMENT SOLUTIONS (NDD). The proliferation of
networking technologies and the rise in popularity of such technologies as
groupware, remote access and the Internet are driving organizations to consider
and install a variety of complex solutions to meet their computing needs and
increase their overall competitiveness. While networking device manufacturers
continue to set the pace with ever-improved products and technology
enhancements, their frustrations in delivering and deploying these solutions to
an eager marketplace are much the same as their client-server counterparts.
Companies require access to their new systems and applications in the shortest
period of time to allow their users to reach critical information sources.
This sense of frustration is also shared by the Original Equipment
Manufacturers (OEMs) who create the devices and the Systems
Integrators/Value-Added Resellers (VARs) who develop and package these devices
into customer solutions. In order to meet business demands and capital market
expectations, both groups are incentivized to deliver their wares and services
as quickly and profitably as possible.
To meet these growing demands, Glasgal introduced two Network Device
Deployment solutions, branded as ROUTER CENTRAL, for the design and
implementation of routers and switches into business locations, and HOMEWORKS,
designed to deliver the remote access solutions that support the "work at home"
initiatives of major corporations. These branded service offering combines
superior design skills, process automation, "as built" deliverables and enhanced
implementation and support tools into a single packaged solution that far
exceeds that of our competition.
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PRODUCT COMPONENTS
The Company's NDD set of service packages provides for the deployment of network
devices such as routers, hubs, switches, ISDN terminal adapters, remote access
devices, etc. These deployments may be at central sites, remote branches, small
or home offices (SOHO), or private residences. Each service package is built
from the following set of components:
o Deployment Process Definition
o Data Collection with IWPS
o GAP Analysis
o Asset Management
o Hardware Procurement, Receive and Stage
o Order, Confirm and Test Circuit
o Configuration using the IWPS technologies
o As Built Documentation (includes IWPS Object Base)
o On-site Installation of Hardware and Software
o Documentation as Installed
o Test
INDUSTRY-SPECIFIC DEPLOYMENT SOLUTIONS. To ensure customer satisfaction and
increase our added value, Glasgal often develops innovative solutions that
combine many of the methods and processes from our CSD and NDD solutions into
new service offerings that meet the unique objectives of our customers. These
solutions are developed in close cooperation with our strategic customers and
truly leverage the collective experience and personnel from both organizations.
Due to enhanced levels of customer intimacy and gained institutional knowledge,
Customer-Specific Deployment solutions provide long term benefits to both
Glasgal and its customers.
PRODUCT SPECIFICS
The Company's customers span numerous industry segments, including retail, fast
food, hospitality, financial services, healthcare, and transportation. We offer
service packages specific to certain environments within and across these
vertical industry segments.
OFFICELINK
The Company's OFFICELINK service provides for the deployment and installation of
technology, from simple upgrades to comprehensive new systems and networks,
within the remote or branch office, or SOHO environment. Typical deployments may
be for property management or office management systems tied back to a central
site. The Company can provide rapid and efficient deployment with minimal
disruption to the existing environment, with off-hours installations if
required.
RAPIDRESTAURANT
For the fast food, or traditional restaurant chain, the Company's
RAPIDRESTAURANT service package delivers turn-key deployment and installation of
point-of-sale, communications and associated technologies.
PRACTICECENTRAL
The Company's PRACTICECENTRAL service package for practice management systems
for physicians, dentists, attorneys, brokers and accountants provides for the
specific needs of the professional office environment.
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SALES AND MARKETING
The Company has two sales forces comprising of approximately 50
national account managers. The direct sales division is dedicated to bringing
solutions to end users while the indirect division provides solutions to OEMs
and Software Vendors and other Systems Integrators. Both sales teams follow a
rigorous methodology called "The Datatec Relationship Cycle" (DRC) which has
been instrumental in creating long-term relationships with the Company's
customers and providing a recurring revenue stream for the Company. The DRC goes
through five stages of Initiation, Definition, Testing, Rollout, and Feedback.
This process has not only led to repeatable business (the vast majority of
Glasgal's revenues are from existing customers) but also to achieving a 97%
satisfaction rating with our customers.
There is significant interaction between the various departments in the
Company to bring optimal solutions to its customers. The Company's sales
functions work as a team with Glasgal's Professional Services division who, in
turn, work closely with the CASI development staff to provide the most cost
effective solutions to our customers. The chart below shows how the process
works within the organization of bringing optimal solutions to its customers.
[GRAPHIC OMITTED]
PROVIDING SOLUTIONS TO CUSTOMERS
The Company's marketing efforts are focused toward Glasgal's target
customers who are those organizations requiring more complex solutions from a
technical and/or geographic dispersion and/or time sensitive point of view. In
this segment the competition appears sparse and the Company's closing ratios are
comparatively high.
CUSTOMERS
The Company performs configuration and deployment services for a
variety of customers across a broad range of industries. Glasgal's customers in
fiscal 1997 included:
- American International Group, Inc. - Ross Stores, Inc.
- Bell Atlantic Network Integration - Bristol Myers-Squibb/Zimmer
- Beneficial Corporation - Starbucks Coffee Company
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- Blockbuster Entertainment Corporation - TDK Corp of America
- Coca-Cola (Canada) - Toys "R" Us, Inc.
- Federated Department Stores/FSG - Trans Canada Pipelines
- US Dept of Justice/INS - Walgreens
- Lowe's Companies, Inc.
- Merrill Lynch
The Company's customers represent a variety of industries, with one
industry, retail representing 57%. Two customers, Federated Department Stores,
Inc. and Lowes Companies, Inc., each accounted for more than 10% of net sales in
the fiscal year ended April 30, 1997, with such customers accounting for
approximately 12% and 10% of net sales, respectively.
COMPETITION
The Company believes that it has properly positioned itself to increase
its market share within the stated sections of its business focus as shown
below:
[GRAPHIC OMITTED]
While the Company has capabilities and competencies in the functions on
either side of its stated business focus, it has chosen to concentrate on
software-enabled configuration, integration and implementation services due to
both the absence of major competition and the Company's strategic advantages in
these areas of expertise.
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However, the Company does compete with other organizations whose core
competencies are in areas outside its focus. These include systems integrators,
VARs, local and regional network service firms, telecommunications providers,
network equipment vendors and computer systems vendors, many of which have
significantly greater financial, technical and marketing resources and greater
name recognition and generate greater service revenues than Glasgal.
INTELLECTUAL PROPERTY
Glasgal's proven methodology for managing the software-enabled process
relies on several automated tools that collectively comprise The Integrator's
Workbench Product Series(TM) (IWPS). The IWPS tools, developed by Glasgal's
Computer-Aided Software Integration, Inc. subsidiary, provide a systemic
foundation for the collection and use of structured design information. This
unique series of software tools combines computer-aided software engineering
(CASE) techniques and workflow technologies to streamline the configuration,
integration and management of distributed networks and connectivity devices as
well as software applications, desktop computers and distributed servers. With
IWPS, the effort and associated costs of systems development, information
exchange, platform migration, and enterprise management are more easily managed
while improving the quality of these efforts.
The IWPS tools were first developed by CASI in 1995 to address the
continued challenges faced by designers, systems managers and integrators in
implementing complex, ever-evolving information systems solutions. These tools
allow IT teams to aggregate the collective wisdom of process and technology
experts into repeatable methodologies and "best practices", creating greater
ease of customization and implementation. Today, IWPS tools act as the process
management vehicle for managing all of Glasgal's customer interactions for each
of our software-enabled solutions.
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RECENT BUSINESS DEVELOPMENTS
On April 24, 1996, the Company acquired 80% of the common stock of
CASI. CASI develops and licenses a suite of system engineering software tools
collectively known as the Integrator's Workbench Product Series(TM). This
software automates the design, implementation, migration and support of
client/server computing environments. The acquisition has been accounted for as
a purchase; operations of CASI have been included in the accompanying
consolidated financial statements from the date of the acquisition.
On July 31, 1996, the Company acquired 100% of the common stock of HH
Communications, Inc. The acquisition provided the Company with a midwest
presence it previously did not have. The acquisition has been accounted for as a
pooling of interest.
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On October 31, 1996, the Company acquired 98.5% of the common stock of
Datatec Industries, Inc. This acquisition enhanced the Company's ability to
stage, integrate and implement technology solutions for its Fortune 2,000
customer base. The acquisition has been accounted for as a pooling of interest.
In June 1997, Management of the Company with the consent of the Board,
agreed to discontinue its business as a distributor of data communications
equipment and services (see Note 4 to financial statements).
HUMAN RESOURCES
The Company has 560 full-time employees. Of these full-time employees,
235 are employed under contracts with the International Brotherhood of
Electrical Workers and the International Brotherhood of Electrical Workers Local
1430. The Company believes its relationship with its employees is satisfactory.
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ITEM 2. PROPERTIES
The Company's Corporate headquarters is located in Totowa, New Jersey.
The headquarters leased office space of 19,245 square feet, also houses the
Company's New York/New Jersey office. In addition to its headquarters building,
the Company leases throughout the United States approximately 89,269 square feet
of office space in 19 locations for its branch operations. The Company also
leases an aggregate of approximately 18,080 square feet of office space in five
locations in Canada.
ITEM 3. LEGAL PROCEEDING
The Company is not a party to any legal proceedings which individually
or in the aggregate, is believed to be material to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq Small Cap
Market ("Nasdaq") under the symbol "GLAS". The Company's Common Stock commenced
listing on Nasdaq on May 3, 1994. The following table sets forth the high and
low bid prices on Nasdaq for the periods indicated, prices without adjustment
for retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions. These prices may not necessarily be indicative of any
reliable market value.
HIGH LOW
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August 1, 1995 - October 31, 1995......... $4 $2-1/2
November 1, 1995 - January 31, 1996...... $10-1/2 $3-3/4
February 1, 1996 - April 30, 1996......... $12-3/4 $6-1/2
May 3, 1996 - July 31, 1996............... $11-5/8 $6-3/4
August 1, 1996 - October 31, 1996......... $8-7/8 $4-3/4
November 1, 1996 - January 31, 1997...... $6-3/8 $4
February 1, 1997 - April 30, 1997......... $6 $25-4/64
May 3, 1997 - July 31, 1997............... $5 $2-3/4
On July 31, 1997, the closing bid price for the Company's common Stock
as reported on Nasdaq was $4-1/8. As of July 31, 1997, there were approximately
205 holders of record of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its inception, other than distributions to shareholders in amounts sufficient to
reimburse the Predecessor's shareholders for federal (and some state) income tax
liabilities arising from the Predecessor's former status as an "S" corporation.
The Company currently intends to retain any earnings for use in the business and
does not anticipate paying any dividends to its shareholders in the foreseeable
future. The Company's loan agreement with its bank includes a restriction
prohibiting the payment of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended April 30, 1997, the following securities
were sold by the Company without registration under the Securities Act. Except
as otherwise indicated, 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.
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In July 1996, the Company acquired 100% of the Common Stock of HH in
exchange for 1,500,000 shares of the Company's Common Stock. HH was in the
business of selling computer networking equipment and providing value-added
services in connection with such equipment.
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 consideration for services rendered to the Company.
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 75,00
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 $6,562,000
was used to fund the working capital needs of the Company and Datatec. 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 price
of $5.25.
In September 1996, the Company issued warrants to Wharton Capital and
State Capital Market Group to purchase 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 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 in exchange for 4,000,000 shares of the Company's Common Stock.
Datatec is a network integrator which provides full integration and deployment
services to a wide range of customers concentrated in the retail market.
In December 1996, the Company issued an aggregate of 132,460 shares of
Common Stock to RAD Data Communications, Ltd. in exchange for the cancellation
of accounts payable of the Company in the amount of approximately $361,000.
16
<PAGE>
In January 1997, the Company issued an aggregate 26,087 shares of
Common Stock to Amtech Associates, Inc. in exchange for the cancellation of
accounts payable of the Company in the amount of approximately $150,000.
In February 1997, the Company entered into two convertible loans each
for $1,000,000. 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
accounts payable of the Company in the amount of approximately $50,000.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of the
Company for, and at the end of (i) each of the years in the two-year period
ended December 31,1993, (ii) the four months ended April 30, 1993 and 1994 and
(iii) the years ended April 30, 1995, 1996 and 1997 after giving effect in all
periods presented for the discontinuance of a segment of the Company's business
(See Note 4 to the financial statements). The Company changed its fiscal
year-end from December 31 to April 30 on May 2, 1994. The Company acquired
Signatel on October 28, 1994. On July 31, 1996 the Company acquired HH
Communications, Inc. On October 31, 1996 the Company acquired 98.5% of Datatec
Industries, Inc. All three acquisitions were accounted for using the pooling of
interests method of accounting; consequently all periods presented reflect the
combined accounts of all companies. On April 24, 1996 the Company acquired 80%
of CASI which was accounted for as a purchase and the results of CASI operations
from the date of acquisition are included below.
The financial data presented below for, and at the end of, the four
month period ended April 30, 1993, has been derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the financial data includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data.
The data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended Four Months Year Ended
December 31, Ended April 30, April 30,
(In thousands, except per share data)
Statement of Operations Data: 1992 1993 1993 1994 1995 1996 1997
-------- ----------- --------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $42,905 $50,629 $13,795 $16,332 $55,876 $59,169 $59,481
Operating Income 2,935 13,244 2,299 1,191 3,204 (4,248) 1,538
Net income (loss) from Continuing
Operations 2,402 12,316 2,040 1,081 2,596 (5,149) 702
Discontinued Operations (1,460) (6,491) (1,700) (2,600) (4,989) (8,046) (5,662)
Extraordinary item (223)(a)
Net Income (loss) 941 5,825 340 (1,519) (2,393) (13,418) (4,960)
Loss Per Share:
Income (loss) from Continuing
Operations .14 (.28) .03
Discontinued Operations (.27) (.44) (.24)
Extraordinary Item -- (.01) --
----- ---- ------
Net Loss Per Share (.13) (.73) (.21)
=========== =========== ============
Average number of shares outstanding 17,981,000 18,354,000 23,557,000
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, April 30,
-------------------------- ------------------------------------------------------------
1992 1993 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital (deficiency) $ 181 $ 5,447 $ 1,442 $444 $(585) $(7,664) $(2,957)
Total Assets 13,510 13,877 13,103 17,665 22,334 23,494 27,804
Long-term debt 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)
</TABLE>
Write off of unamortized deferred financing fees as a result of the early
extinguishment of debt.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein. On October 28, 1994, July 31, 1996 and October 31, 1996, the
Company acquired Signatel, HH and Datatec, respectively. These acquisitions have
been accounted for as a pooling of interests and the financial information for
all periods represent the combined results of all companies. On April 24, 1996
the Company acquired CASI. The acquisition has been accounted for as a purchase
and the operations of CASI have been included from the date of acquisition. See
Note 2 to Consolidated Financial Statements. The financial information below
gives effect to the discontinuance of a segment of the Company's business (See
Note 4 to the Financial Statements).
In conjunction with the Company's merger with Sellectek in May 1994,
the Company changed its fiscal year end from December 31 to April 30.
In addition, certain matters discussed herein are forward looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those presented.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED APRIL 30, 1997 AND 1996
Net sales for the year ended April 30, 1997 were $59,481,000 compared
to $59,169,000 for the year ended April 30, 1996.
The current year was a year of significant change for the Company. The
Company acquired two businesses during the year as well as discontinued a major
segment of its business, the resale of computer and network equipment. In
addition, the Company has more fully integrated the utilization of the software
tools developed by CASI. The Company believes all of these changes to be
positive long-term strategic decisions. However, during the current year these
changes required a significant refocusing of the business as well as an
assimilation process that will take several more months to fully complete.
Gross profits for the year ended April 30, 1997 were $22,322,000
compared to $24,952,000 for the year ended April 30, 1996, representing 37% of
sales for the year ended April 30, 1997 compared to 42% of sales for the year
ended April 30, 1996. The decrease in gross margin is primarily attributable to
a lack of working capital. During the year the Company experienced delays in
receiving materials, was incurring 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.
20
<PAGE>
Selling, general and administrative expenses for the year ended April
30, 1997 were $20,784,000 compared to $29,200,000 for the year ended April 30,
1996. Included in the year ended April 30, 1996 is a restructuring charge of
$6,756,000. In April, 1995 the Company began an expansion plan which included
the addition of a marketing group, additional salespeople, a new headquarters
facility, a west coast configuration center and a new facility in the southeast
and furniture to equip these offices. In April 1996, the Company realized the
expansion plan, at the time, was overaggressive and began taking corrective
actions. The Company relocated its headquarters facility to smaller, less
expensive offices, and sold certain furniture and fixtures associated with the
old headquarters facility. These actions along with the Company's continuing
efforts to improve efficiency and reduce costs have resulted in additional
savings.
During June, 1997, the Company discontinued its business as a
distributor of hardware. As a result of this decision, the operations of that
business for all years presented in the accompanying financial statements have
been included as a loss from discontinued operations. In the year ended April
30, 1997 the loss was $4,709,000. In addition to the loss from discontinued
operations the Company's has provided a reserve of $953,000 for future losses
relating to the phase out of this segment of its business (See Note 4 to the
Financial Statements).
FISCAL YEARS ENDED APRIL 30, 1996 AND 1995
Net sales for the year ended April 30, 1996 were $59,169,000 compared
to $55,876,000 for the year ended April 30, 1995. The increase of 6% is largely
attributable to a 41% increase in configuration services.
Gross profits for the year ended April 30, 1996 were $24,952,000
compared to $23,260,000 for the year ended April 30, 1995, representing 42% for
both years.
Selling, general and administrative expenses for the year ended April
30, 1996 were $29,200,000 compared to $20,057,000 for the year ended April 30,
1995. As previously mentioned, the Company began an expansion program in late
1995 and felt the full effects of the additional costs 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 $6,756,000 or restructuring changes. These restructuring changes
included projected cash outflows for personnel severance and facilities
consolidation as well as write downs of certain of the Company's long-lived
assets.
BACKLOG
The Company records revenue up on the performance of services. Many
orders are performed over several months and often exceed one year, and, as a
result, are added to the Company's backlog, which was approximately $38,000,000
and $36,000,000 as of July 31, 1996 and 1997, respectively. The Company expects
that all of the backlog as of July 31, 1997 will be shipped by July 31, 1998.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
EQUITY TRANSACTIONS
In September 1996, October, 1996, and November, 1996, the Company
issued 350,000 shares of preferred stock for net proceeds of approximately
$6,561,000. The preferred stock was subsequently converted into approximately
2,500,000 shares of common stock. The proceeds were used to reduce outstanding
debt and accounts payable of the Company's newly acquired subsidiary, Datatec.
In June 1997 and July 1997, the Company issued 859,000 shares of common
stock in private equity placements, raising approximately $3,120,000.
FINANCINGS
In March, 1997, the Company replaced existing credit facilities with a
$17,000,000 credit facility consisting of (i) a $15,000,000 three year revolving
credit facility and (ii) $2,000,000 three year term loan payable in 36 monthly
installments of principal and interest. The borrowings under the revolving line
of credit are based on a formula of 85% of eligible receivables and 50% of
eligible inventory. The revolving line of credit bears interest at prime plus
.75% and the term loan bears interest at prime plus 1.5%. As of April 30, 1997
approximately $11,675,000 was outstanding under the revolving credit facility
and $2,000,000 was outstanding under the term loan.
In February 1997, the Company issued convertible notes of $2,000,000,
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, at the Company's option. 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 700,000 shares of the Company's
common stock at $5.25 per share, the fair market value on the date of issuance.
It is anticipated that the notes will be converted into shares of the Company's
Common Stock prior to maturity.
As of April 30, 1997, the Company had a working capital deficiency of
$2,957,000 compared to a working capital deficiency of $7,664,000 at April 30,
1996. The improvement in working capital is attributable to the above mentioned
equity offering and loans.
22
<PAGE>
As of April 30, 1997, the Company had net operating loss carryforwards
for income tax purposes of $10,200,000 to offset future taxable income. Such net
operating loss carryforwards begin to expire in 2011.
The Company believes it has adequate liquidity and resources to sustain
current operations for the next twelve (12) months.
INFLATION
In the opinion of management, inflation has not had a material adverse
effect on its results of operations.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statements Schedules
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Balance Sheets as of April 30, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Operations for the years ended April 30, 1995,
1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the
years ended April 30, 1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Cash Flows for the years ended
April 30, 1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . 51
</TABLE>
Schedules other than the one listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the consolidated financial statements or related notes.
24
<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.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Roseland, New Jersey ARTHUR ANDERSEN LLP
August 9, 1997
25
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
---------
1996 1997
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Notes 1 and 4) $2,219,000 $ 1,135,000
Accounts receivable, less allowances of $538,000 and
$520,000 in 1996 and 1997, respectively, for doubtful
accounts (Note 4) 7,470,000 11,289,000
Inventory (Notes 1 and 4) 3,238,000 2,134,000
Prepaid expenses and other current
assets (Note 1) 1,045,000 1,446,000
Net assets from discontinued operations (Note 4) 3,226,000 4,816,000
--------- ---------
Total current assets 17,198,000 20,820,000
PROPERTY AND EQUIPMENT, net
(Notes 1, 3 and 6) 3,299,000 3,634,000
GOODWILL (Note 2) 1,866,000 1,680,000
OTHER ASSETS (Note 1 ) 1,131,000 1,670,000
----------- ------------
Total assets $23,494,000 $27,804,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings (Note 5) $8,337,000 $11,675,000
Current portion of long-term
obligations (Note 6) 2,555,000 850,000
Accounts payable 7,701,000 5,415,000
Accrued liabilities 6,251,000 5,331,000
Other current liabilities 18,000 506,000
---------- -----------
Total current liabilities 24,862,000 23,777,000
---------- =----------
DUE TO RELATED PARTIES (NOTE 9) -- 1,026,000
---------- ------------
LONG-TERM OBLIGATIONS (Note 6) 2,338,000 5,001,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value (4,000,000 shares
authorized, no shares issued and outstanding) -- --
Common stock, $.001 par value (authorized 34,000,000
shares; issued and outstanding 20,341,000 and
23,661,000 shares, respectively) (Notes 7 and 14) 20,000 24,000
Additional paid-in capital 11,662,000 10,341,000
Accumulated deficit (15,141,000) (12,080,000)
Cumulative translation adjustment (Note 1) (247,000) (285,000)
------------ ------------
Total shareholders' equity (deficit) (3,706,000) (2,000,000)
------------ ------------
Total liabilities and shareholders' equity
(deficit) $23,494,000 $27,804,000
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
26
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
April 30,
--------------------------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales $ 55,876,000 $ 59,169,000 $ 59,481,000
Cost of sales 32,616,000 34,217,000 37,159,000
-------------- -------------- --------------
Gross Profit 23,260,000 24,952,000 22,322,000
Selling, general and administrative expenses (Note 13) 20,057,000 29,200,000 20,784,000
-------------- -------------- --------------
Operating income 3,203,000 (4,248,000) 1,538,000
Other Income -- -- 430,000
Interest Expense (Notes 5 and 6) (495,000) (938,000) (1,155,000)
-------------- -------------- --------------
Income (loss) before provision (benefit) for income taxes 2,708,000 (5,186,000) 813,000
Provision (benefit) for income taxes (Notes 1& 8) 112,000 (37,000) 111,000
-------------- -------------- --------------
Income (loss) from Continuing Operations 2,596,000 (5,149,000) 702,000
Discontinued Operations (Note 4):
Loss from operations (4,989,000) (5,762,000) (4,709,000)
Provision for future losses -- (2,284,000) (953,000)
-------------- -------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (2,393,000) (13,195,000) (4,960,000)
Extraordinary Item - (223,000) -
-------------- -------------- --------------
NET LOSS $ (2,393,000) $ (13,418,000) $ (4,960,000)
=============== ============== ================
INCOME (LOSS) PER SHARE
Income (loss) from continuing operations $ .14 $ (.28) $ .03
Discontinued operations (.27) (.44) (.24)
Extraordinary item -- (.01) --
-------------- -------------- --------------
NET LOSS PER SHARE $ (.13) $ (.73) $ (.21)
================= =============== =================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES (Note 1) 17,981,000 18,354,000 23,557,000
---------------- -------------- --------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
27
<PAGE>
Glasgal Communications, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Note 5)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------------------------------------------------
Issued
-------------- --------------- ---------------------------------
Shares Dollars Shares Dollars
-------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994 - - $ - 15,817,000 $ -
-------------- --------------- ----------------- --------------
Distributions to S Corporation Shareholders
Sellectek merger ( Note 7)
Private Placement Offerings of
Common stock 180,000
Conversion of accounts payable
into Common stock 100,000
Exercise of warrants 125,000
Net loss
Effect of exchange rate changes
Common stock issued for options exercised 19,000
Stock exchanged for cancellation of loan (Note 9) (442,000)
-------------- --------------- ----------------- --------------
Balance at April 30, 1995 - $ - 15,799,000 $ -
============== =============== ================= ==============
Distributions to S Corporation Shareholders
Private placement offering of common stock and
warrants and bridge financing (Note 7) 443,000
Public offering of common stock
and warrants (Note 7) 3,566,000
Acquisition and cancellation of
common stock (13,000)
Common stock issued for options exercised 189,000
Change in par value of common stock (Note 14) 20,000
Private placement offering of common stock 313,000 -
Stock issued for business acquisition (Note 2) 44,000 -
Net loss
Effect of exchange rate changes -
-------------- --------------- ----------------- --------------
Balance at April 30,1996 - $ - 20,341,000 $ 20,000
-------------- --------------- ----------------- --------------
Distributions to S Corporation Shareholders
Issuance of preferred stock (Note 7) 350,000 -
Conversion of preferred stock into common stock (Note 7) (350,000) - 2,500,000 3,000
Exercise of warrants and options 649,000 1,000
Conversion of accounts payable into common stock 171,000 -
Conversion from S corporation status to C corporation
Net loss
Effect of exchange rates changes
-------------- --------------- ----------------- --------------
Balance at April 30, 1997 - $ - 23,661,000 $ 24,000
============== =============== ================= ==============
</TABLE>
<TABLE>
<CAPTION>
Additional Additional Retained
Paid-in-capital Paid-in-capital Earnings
Preferred Common (Deficit)
--------------- -------------------- -------------------
<S> <C> <C> <C>
Balance at April 30, 1994 $ - $ 2,264,000 $ 3,177,000
--------------- -------------------- -------------------
Distributions to S Corporation Shareholders (1,790,000)
Sellectek merger ( Note 7) 190,000
Private Placement Offerings of
Common stock 428,000
Conversion of accounts payable
into Common stock 237,000
Exercise of warrants 237,000
Net loss (2,393,000)
Effect of exchange rate changes
Common stock issued for options exercised 94,000
Stock exchanged for cancellation of loan (Note 9) (476,000)
--------------- -------------------- -------------------
Balance at April 30, 1995 $ - $ 2,974,000 $ (1,006,000)
=============== ==================== ===================
Distributions to S Corporation Shareholders (667,000)
Private placement offering of common stock and
warrants and bridge financing (Note 7) 579,000
Public offering of common stock
and warrants (Note 7) 6,535,000 (50,000)
Acquisition and cancellation of
common stock (27,000)
Common stock issued for options exercised 123,000
Change in par value of common stock (Note 14) (20,000)
Private placement offering of common stock (Note 2) 1,207,000
Stock issued for business acquisition (Note 2) 291,000
Net loss (13,418,000)
Effect of exchange rate changes
--------------- -------------------- -------------------
Balance at April 30,1996 $ - $ 11,662,000 $ (15,141,000)
--------------- -------------------- -------------------
Distributions to S Corporation Shareholders (837,000)
Issuance of preferred stock (Note 7) 6,562,000
Conversion of preferred stock into common stock (Note 7) (6,562,000) 6,559,000
Exercise of warrants and options 429,000
Conversion of accounts payable into common stock - 549,000
Conversion from S corporation status to C corporation (8,858,000) 8,858,000
Net loss (4,960,000)
Effect of exchange rates changes
--------------- -------------------- -------------------
Balance at April 30, 1997 $ - $ 10,341,000 $ (12,080,000)
=============== ==================== ===================
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total
Translation Shareholders'
Adjustment Equity
---------------- --------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994 $ (272,000) $ 5,169,000
---------------- --------------------
Distributions to S Corporation Shareholders (1,790,000)
Sellectek merger ( Note 7) 190,000
Private Placement Offerings of
Common stock 428,000
Conversion of accounts payable
into Common stock 237,000
Exercise of warrants 237,000
Net loss (2,393,000)
Effect of exchange rate changes 174,000 174,000
Common stock issued for options exercised 94,000
Stock exchanged for cancellation of loan (Note 9) (476,000)
---------------- --------------------
Balance at April 30, 1995 (98,000) $ 1,870,000
================ ====================
Distributions to S Corporation Shareholders (667,000)
Private placement offering of common stock and
warrants and bridge financing (Note 7) 579,000
Public offering of common stock
and warrants (Note 7) 6,485,000
Acquisition and cancellation of
common stock (27,000)
Common stock issued for options exercised 123,000
Change in par value of common stock (Note 14) -
Private placement offering of common stock (Note 2) 1,207,000
Stock issued for business acquisition (Note 2) 291,000
Net loss (13,418,000)
Effect of exchange rate changes (149,000) (149,000)
---------------- --------------------
Balance at April 30,1996 $ (247,000) $ (3,706,000)
---------------- --------------------
Distributions to S Corporation Shareholders (837,000)
Issuance of preferred stock (Note 7) 6,562,000
Conversion of preferred stock into common stock (Note 7) -
Exercise of warrants and options 430,000
Conversion of accounts payable into common stock 549,000
Conversion from S corporation status to C corporation -
Net loss (4,960,000)
Effect of exchange rates changes (38,000) (38,000)
---------------- --------------------
Balance at April 30, 1997 $ (285,000) $ (2,000,000)
================ ====================
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part
of these consolidated statements
28
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
April 30,
--------------------------------------------------------------------
1995 1996 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (2,393,000) $ (13,418,000) $ (4,960,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities--
Depreciation and amortization 862,000 1,114,000 1,200,000
Extraordinary item -- 223,000 --
Changes in operating assets and liabilities net
of effects from purchase of CASI
(Increase) decrease in accounts
receivable, net (1,641,000) 1,860,000 (3,819,000)
(Increase) decrease in inventory (39,000) (378,000) 1,104,000
(Increase) decrease in prepaid expenses and
other assets (572,000) 2,044,000 (940,000)
Increase in net assets from discontinued
operations (725,000) (777,000) (1,590,000)
Increase (decrease) in accounts payable,
accrued liabilities and other 3,262,000 3,661,000 (2,169,000)
--------------- -------------- -------------
Net cash used in
Operating activities (1,246,000) (5,671,000) (11,174,000)
---------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net 2,884,000 (725,000) (1,349,000)
Net cash used for CASI acquisition -- (705,000) --
Advances to CASI -- (1,135,000) --
------------------ -------------- -------------
Net cash provided by (used in) investing 2,884,000 (2,565,000) (1,349,000)
------------------ -------------- -------------
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- 8,337,000 3,338,000
Net Proceeds (Payments) of indebtedness 4,457,000 (5,103,000) 958,000
Net Proceeds from Common Stock/Warrant
issuances 958,000 7,772,000 6,992,000
Net proceeds from related parties -- -- 1,026,000
Distributions to Stockholders (1,790,000) (667,000) (837,000)
----------------- ------------- -----------
Net cash provided by (used in) financing
activities 3,625,000 10,339,000 11,477,000
---------------- ------------- -----------
Net effect of foreign currency translation
on cash 173,000 (149,000) (38,000)
---------------- ------------- -----------
Net (decrease) increase in cash (332,000) 1,954,000 (1,084,000)
CASH AT BEGINNING OF PERIOD 597,000 265,000 2,219,000
---------------- ------------- -----------
CASH AT END OF PERIOD $ 265,000 $ 2,219,000 $ 1,135,000
============== ============= ==============
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
<S> <C> <C> <C>
Interest paid $ 624,000 $ 1,020,000 $ 1,313,000
Income taxes paid $ 600,000 $ 14,000 $ 397,000
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
On June 6, 1994, a vendor converted $250,000 of Glasgal's accounts payable into
100,000 shares of Glasgal's Common Stock.
On April 30, 1995, Mr. Glasgal contributed 442,478 shares of Common Stock in
consideration for the cancellation of $476,000 owed to the Company.
On April 24, 1996, the Company purchased 80% of the common stock of
Computer-Aided Software Integration, Inc. (CASI) for $500,000 in cash plus
44,260 shares of common stock of the Company valued at $290,000.
Goodwill $1,866,000
Cash Paid for Common Stock (including expenses) (705,000)
Common Stock Issued (290,000)
----------
Liabilities Assumed $ 871,000
==========
During 1997, the Company converted $561,000 of accounts payable into 171,000
shares of common stock.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
30
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Business--
Glasgal Communications, Inc. (the "Company" or "Glasgal"), and its
subsidiaries are in the business of providing software-enabled
technical configuration, integration and implementation services (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.
Theaccompanying 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
$3,120,000 in private equity placements for 859,000 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.
Significant Accounting Policies-
Revenue Recognition--
Revenues from configuration, deployment and implementation services are
recognized as the services are provided.
31
<PAGE>
Contract Costs-
Precontract costs incurred in connection with defining and clarifying
technical requirements and designing technical solutions are deferred
and amortized as the services are provided. As of April 30, 1997,
approximately $980,000 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
$210,000 of restricted cash as of April 30, 1997.
Inventory--
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
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
32
<PAGE>
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 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 1997, basic earnings
(loss) per common share from continuing operations, discontinued
operations and net loss per common share would have been $.03, ($.27),
and $(.24), respectively, based on 21,151,000 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).
33
<PAGE>
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:
CASI --
On April 24, 1996, the Company acquired 80% of the outstanding common
stock of CASI, a company that develops and licenses software products,
in exchange for $500,000 and 44,260 shares of common stock of the
Company valued at $6.57 per share based on the average trading price of
the Company's common stock for several days before and after the date
of the acquisition agreement. The acquisition was accounted for as a
purchase. The excess of purchase price over fair value of net assets
acquired 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 $490,000
and $415,000 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 312,500 shares of common
stock. The net proceeds of the private placement offering, $1,207,000,
were used to acquire 80% of the issued and outstanding shares of common
stock of CASI, and to provide CASI with working capital.
HH Communications, Inc. --
On July 31, 1996, the Company acquired all of the issued and
outstanding shares of HH Communications, Inc. (HH), a value-added
reseller of computer hardware, in exchange for 1,500,000 shares of its
common stock. The transaction has been accounted for as a pooling of
interests.
34
<PAGE>
Datatec Industries, Inc. --
On October 31, 1996, the Company acquired 98.5% of the issued and
outstanding shares of Datatec Industries, Inc. (Datatec), an
implementor of information communications networks, in exchange for
4,000,000 shares of its common stock. 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
---------------- ------------------- ------------------------ --------------------
For the year ended April 30, 1995
<S> <C> <C> <C> <C>
Net Sales $ 3,252,000 $ - $ 52,624,000 $ 55,876,000
Income from Continuing Operations 673,000 - 1,923,000 2,590,000
Loss from Discontinued Operations (2,317,000) (92,000) (2,580,000) (4,989,000)
Net loss (1,644,000) (92,000) (657,000) (2,393,000)
For the year ended April 30, 1996
Net Sales $ 5,055,000 $ - $ 54,114,000 $ 59,169,000
Income (loss) from Continuing Operations 2,298,000 - (7,447,000) (5,149,000)
Loss from Discontinued Operations (3,255,000) (289,000) (4,502,000) (8,046,000)
Extraordinary loss (223,000) - - (223,000)
Net loss (1,180,000) (289,000) (11,949,000) (13,418,000)
For the year ended April 30, 1997
Net Sales $ 4,835,000 $ - $ 54,646,000 $ 59,481,000
Income (loss) from Continuing Operations (226,000) - 928,000 702,000
Loss from Discontinued Operations (5,267,000) (395,000) - (5,662,000)
Net income (loss) (5,493,000) (395,000) 928,000 (4,960,000)
</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.
35
<PAGE>
(3) PROPERTY AND EQUIPMENT:
The following is a summary of property and equipment.
April 30,
---------
1996 1997
---- ----
Equipment $1,078,000 $ 977,000
Computer Equipment 2,893,000 3,158,000
Furniture, fixtures and leasehold improvements 2,548,000 2,444,000
--------- ----------
6,519,000 6,579,000
Less--Accumulated depreciation and
amortization 3,220,000 2,945,000
--------- ---------
Property and equipment, net $3,299,000 $3,634,000
========== ==========
(4) DISCONTINUED OPERATIONS:
Prior to fiscal 1997, the Company had primarily been a distributor of
data communications equipment. Commencing with the Company's
acquisition of Signatel in October 1994, the Company revised its
business strategy to expand its implementation of information
communication network services. The acquisition of Datatec and CASI
(See Note 2) enabled the Company to transition from predominantly a
reseller of data communications network equipment to an open systems
integrator, providing software enabled configuration, deployment and
implementation services. The acquisition of HH (See Note 2), a value
added reseller of computer equipment, provided the Company the
opportunity to introduce these services to HH's premier customers.
Datatec's prior services were typically of short duration. As of April
30, 1997, the Company has entered into long term contracts of
significant value.
After several months of assimilating the Datatec acquisition and
repositioning its services, the Company, in June 1997, with the
concurrence of its Board of Directors, 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
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 $35,004,000, $43,033,000 and
$35,178,000 for the years ended April 30, 1995, 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 $977,000, with an interest rate
of 8.05% per annum. Beginning in the year 2002, the interest rate is
subject to adjustment, as defined.
36
<PAGE>
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 $2,579,000 and $2,218,000 in 1995 and
1996, respectively, and the provision for future losses was
approximately $2,284,000 as of April 30, 1996, substantially all of
which was utilized in 1997. Revenues relating to these operations were
approximately $14,000,000 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 that
provided for the borrowing of the lesser of $10,500,000 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 1997 with the proceeds obtained from the revolving loan
discussed below.
During 1997, the Company entered into a revolving loan agreement that
provides for maximum borrowings of $15,000,000. Availability under the
revolving loan is calculated at the sum of 85% of eligible accounts
receivable, as defined, and 50% of the cost or wholesale market value
of eligible inventory, as defined. The amount of available borrowings,
as defined, was $11,989,000 as of April 30, 1997. The revolving loan
accrues interest at the prime rate plus 0.75% (9.25% at April 30,
1997).
(6) LONG-TERM DEBT:
Long term debt consists of the following:
April 30,
--------------------------------------
1996 1997
----------------- -----------------
Term loan (a) $2,023,000 $ --
New Jersey EDA Note (b) 895,000 680,000
Term note (c) -- 2,000,000
Convertible notes (d) -- 2,000,000
Capital leases 1,975,000 1,171,000
----------------- -----------------
Total Debt 4,893,000 5,851,000
Less - Current maturities (2,555,000) (850,000)
----------------- ------------------
Long-term debt, net of current
maturities $2,338,000 $5,001,000
================= ===================
37
<PAGE>
(a) The $2,800,000 term loan provided for equal monthly installments
of $78,000 commencing July 1995 through June 1998. As of April
28, 1996 the interest rate was 10.25%. The borrowings were
repaid during 1997.
(b) The Company entered into a $1,320,000 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 $9,000 to
$14,000. Interest is based on a floating rate 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.
(c) In March 1997, the Company entered into a $2,000,000 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.
(d) In February 1997, the Company issued convertible notes of
$2,000,000, 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 at the Company's option. 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 700,000 shares of the
Company's common stock at $5.25 per share, the fair market value
on the date of issuance. It is the intent of the Company to
convert the notes into common shares in August 1997.
The scheduled repayments of long-term debt are as follows:
1998 $ 850,000
1999 2,725,000
2000 1,757,000
2001 371,000
2002 148,000
38
<PAGE>
(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
$2,000,000 of indebtedness into 2,723,973 shares of common stock of the
Company. Under the agreement, the Company has the right to require DCI
to purchase up to 1,337,230 additional shares ("Additional Shares") of
Common Stock of the Company for an aggregate of $8,750,000, less
current warrant solicitation fees (the "Additional DCI Investment").
The Company may require the Additional DCI Investment if, and then only
to the extent, that DCI receives proceeds from the exercise of existing
warrants. If the Company does not require the Additional DCI
Investment, DCI may still purchase, on the same terms, up to one-half
of the additional shares.
Public Offering --
During 1995, the Company consummated two bridge financings for
aggregate proceeds of $1,270,000. In connection with the financings,
442,478 shares of common stock were issued at $1.13 per share and
warrants were issued for the purchase of 950,000 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 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 $223,000 as an extraordinary loss.
On September 28, 1995, the Company completed the Offering of 1,783,000
units at $5.00 per unit (including an overallotment of 258,000 units in
October 1995) for net proceeds of approximately $6,485,000. Each unit
consisted of two shares of Common Stock and one redeemable warrant.
Each redeemable warrant entitles the holder to purchase one share of
Common Stock at an initial exercise price of $3.75 per share. In
addition, in connection with the sale of 400,000 shares of common stock
by certain selling shareholders, the Company contributed 200,000
redeemable warrants (valued at $50,000) that were included in the
200,000 units sold by such shareholders.
39
<PAGE>
Preferred Stock --
During 1997, the Company issued 350,000 shares of convertible preferred
stock. The net proceeds from these issuances were approximately
$6,562,000. The preferred stock was subsequently converted into
2,500,264 shares of common stock.
Common Stock Options --
The 1990 Stock Option Plan (the "1990 Plan") provides for grants of
1,500,000 common stock options to employees, directors, and consultants
to purchase common stock at a price at least equal to 100% of the fair
market value of such shares on the grant date. The exercise price of
any options granted to a person owning more than 10% of the combined
voting power of all classes of stock of the Company ("10%
shareholder"), shall be at least equal to 110% of the fair market value
of the share on the grant date. The options are granted for no more
than a 10-year term (5 years for 10% shareholders) and the vesting
periods range from 2 to 4 years.
The 1993 Consultant Stock Option Plan (the "1993 Plan") provides for
grants of 30,000 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
1990 STOCK OPTION PLAN OPTION PLAN
----------------------------------------------- --------------------------
SHARES PRICE SHARES PRICE
-------------- ------------------------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Options outstanding at April 30, 1995 486,849 $ 1.25 - $ 15.63 4,000 $ 5.00
Granted 353,000 $ 2.775 - $ 10.55 5,000 $ 2.50
Exercised (91,248) $ 1.25 4,000 $ 5.00
Canceled (53,320) $ 1.25 - -
-------------- ------------------------------ ------------- ------------
Options outstanding at April 30, 1996 695,281 $ 1.25 - $ 15.63 5,000 $ 2.50
Granted 63,500 $ 6.00 - $ 10.55 - -
Exercised (122,107) $ 1.25 - -
Canceled (81,243) $1.25 - $10.55 - -
-------------- ------------------------------ ------------- ------------
Options outstanding at April 30, 1997 555,431 $ 1.25 - $ 15.63 5,000 $ 2.50
============== ============================== ============= ============
Exercisable at April 30, 1997 293,396 $ 1.25 - $ 15.63 5,000 $ 2.50
============== ============================== ============= ============
</TABLE>
As of April 30, 1997, a total of 597,000 and 4,000 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 500,000 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 24,000 shares of Common Stock
on the date the Eligible Director is elected to the Board of Directors,
and will be granted another option to purchase 24,000 shares of Common
Stock annually thereafter so long as he remains an Eligible Director.
Generally, each option vests ratably over a three-year period provided
such individual continues to serve as a Director of the Company.
40
<PAGE>
<TABLE>
<CAPTION>
1995 DIRECTORS STOCK
OPTION PLAN
------------------------------------------
Shares Price
------ -----
<S> <C> <C>
Options Outstanding at April 30, 1995 48,000 $1.25
Granted during 1996 72,000 $2.552 - $2.775
Exercised -- --
Canceled -- --
----------------- --------------------
Options outstanding at April 30, 1996 120,000 $1.25 - $2.775
Granted 96,000 $6.73 - $8.33
Exercised -- --
Canceled -- --
----------------- --------------------
Options outstanding at April 30, 1997 216,000 $1.25 - $8.33
================= ====================
Shares exercisable at April 30, 1997 88,000 $1.25 - $2.775
================= ====================
</TABLE>
As of April 30, 1997, 284,000 shares were available for future issuance
under the Directors Plan.
During January 1992, the Company granted options to purchase 1,386,742
shares of its common stock, at an exercise price of $.005 per share.
The options may be exercised at any time prior to January 1, 2002.
345,000 options have been exercised as of April 30, 1997. In April
1993, the Company granted options, which expire in April 2003, to
purchase 109,755 shares of common stock to a consultant/advisor to the
Company at an exercise price of $.005 per share. As of April 30, 1997,
93,291 options have been exercised.
In March 1995, the Company granted options to purchase 165,000 shares
of Common Stock at an exercise price of $1.25 to certain executive
officers of the Company. These options vest over a three year period
beginning August 24, 1995. The options expire in March 2005. No options
have been exercised as of April 30, 1997.
On April 25, 1995 the Company granted options to purchase 350,000
shares of Common Stock at an exercise price of $1.75, to certain
officers of the Company. These options are exercisable, at any time and
from time to time, prior to April 21, 2005. During 1996, 95,455 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.
41
<PAGE>
<TABLE>
<CAPTION>
SHARES PRICE
---------------- ----------------------
<S> <C> <C>
Options Outstanding at April 30, 1995 2,011,497 $.005 - $1.75
Granted -- --
Exercised (94,000) $.005
Canceled (95,455) $1.75
--------------- ---------------------
Options Outstanding at April 30, 1996 1,822,042 $.005 - $1.75
Granted -- --
Exercised 349,293 $.005
Canceled -- --
---------------- ----------------------
Options Outstanding at April 30, 1997 1,472,749 $.005 - $1.75
================ ======================
</TABLE>
In 1996, the Company adopted the 1996 Employee and Consultant Stock
Option Plan (the "1996 Plan"), under which 2,000,000 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.
The following table represents a summary of the stock option activity
under the 1996 Plan:
<TABLE>
<CAPTION>
1996 EMPLOYEE AND CONSULTANT
STOCK OPTION PLAN
-------------------------------------
SHARES PRICE
------------------- -------------
<S> <C> <C>
Options outstanding at April 30, 1996 -- $ --
Granted 1,500,000 $5.82 - $6.928
Exercised -- --
Canceled 121,000 $5.82 - $6.928
------------------- ---------------------
Options outstanding at April 30, 1997 1,379,000 $5.82 - $6.928
=================== =====================
</TABLE>
In 1996, the Company adopted the senior executive stock option plan
(the "1996 Executive Plan") under which 560,000 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.
42
<PAGE>
Thefollowing table represents a summary of stock option activity under
the 1996 Executive Plan:
<TABLE>
<CAPTION>
SENIOR EXECUTIVE PLAN
--------------------------------------------
SHARES PRICE
------------------- ---------------------
<S> <C> <C>
Options outstanding at April 30, 1996 -- $ --
Granted 535,000 $5.25
Exercised -- --
Canceled -- --
------------------- ---------------------
Options outstanding at April 30, 1997 535,000 $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, Inc., with Glasgal 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 470,442. As of April 30, 1997 447,270 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 300,000 shares of his
common stock. The options granted by Mr. Glasgal vest 1/3 on July 17,
1996 (at an exercise price of $2.775 per share, the fair market value
at the date of grant), 1/3 on July 17, 1997 (at an exercise price of
$3.50 per share) and 1/3 on July 17, 1998 (at an exercise price of
$4.50 per share). As of April 30, 1997, 6,884 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 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 $106,000 with no per share effect in 1996 and $589,000
with a $.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
43
<PAGE>
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 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 $ 1,406,000 $ 3,462,000
Accelerated depreciation (316,000) (1,159,000)
Allowance for doubtful accounts 109,000 280,000
Inventory obsolescence 112,000 257,000
Other 19,000 480,000
-------------------- -----------------------
1,330,000 3,320,000
Valuation Allowance (1,330,000) (3,320,000)
------------------ -----------------------
$ -- $ --
=================== =======================
</TABLE>
The Company has recorded a full valuation allowance against the net
deferred tax asset due to uncertainty relating to the realization of
this asset.
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 $10,200,000 available of net
operating loss carryforwards, which may be used to offset future
taxable income. These net operating loss carryforwards expire through
2012.
44
<PAGE>
(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 442,478 shares of Common Stock
in consideration for the cancellation of $476,000 owed by him to the
Company. The 442,478 shares of Common Stock contributed to the Company
were canceled.
During the year ended April 30, 1997, the Company loaned $410,000 to
certain executive officers of the Company. These loans bear interest at
8% per annum. Two of these loans, representing $210,000, 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 $1,686,000 of excess proceeds were used by the majority
shareholder to repay Datatec debt. This amount, net of repayment of
$250,000, 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 PLAN:
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 $600 annually, per participant. The matching
contributions for the three years ended April 30, 1997 were $27,000,
$17,000 and $15,000, 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:
45
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
TWELVE MONTH PERIOD Related Sublease
ENDING APRIL Party Other Income Net
- ------------------------------- ------------ ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
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 $1,194,000, $1,785,000 and $1,713,000 for the years
ended April 30, 1995, 1996 and 1997, respectively.
The Company has one-year lease commitments for its fleet of vehicles.
Lease expense related to these vehicles was $943,000, $1,155,000 and
$1,347,000 for the years ended April 30, 1995, 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
$2,400,000, increased annually by the percentage increase in the
consumer price index. The agreements are generally three years in
duration and begin to expire 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.
46
<PAGE>
In the year ended April 30, 1995, 2 customers had sales of $9,200,000,
$6,500,000, for the year ended April 30, 1996, 2 customers had sales of
$5,000,000, $4,700,000, for the year ended April 30, 1997, 2 customers
had sales of $7,000,000, $6,000,000.
(13) RESTRUCTURING OF OPERATIONS:
In April 1996, the Company recorded restructuring charges of $6,756,000
relating to reducing costs and improving the Company's efficiency.
These charges included in selling, general and administration expense
and included $2,049,000 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 $4,707,000 of accrued liabilities,
which included $1,984,000 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 $.001 par value common stock. This change resulted
in the transfer of $20,000 from the additional paid-in capital account
to the common stock account. In conjunction with the reincorporation,
the Company increased the authorized common stock from 21,000,000
shares to 34,000,000 shares.
47
<PAGE>
GLASGAL COMMUNICATIONS, INC.
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
<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 $ 538,000 $ 163,000 $ (181,000) $ 520,000
Year ended April 30, 1996
Allowance for doubtful accounts 456,000 542,000 (460,000) 538,000
Year ended April 30, 1995
Allowance for doubtful accounts 208,000 252,000 (4,000) 456,000
</TABLE>
.
48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages and
present positions with the Company are as follows:
NAME Age POSITION WITH THE COMPANY
---- -------------------------
Ralph Glasgal 64 Chairman of the Board and President
Isaac J. Gaon 48 Director and Chief Executive Officer
Christopher J. Carey 45 Director and Chief Executive Officer of Datatec
Robert F. Gadd 35 Senior Vice President and Chief Technology Officer
James M. Caci 32 Chief Financial Officer, Secretary and Treasurer
Dr. David Milch 42 Director
Robert H. Friedman 44 Director
Joseph M. Salvani 40 Director
Maurice Kulik 58 Director
Thomas J. Berry 72 Director
The directors are elected for one year terms which expire at the next
annual meeting of shareholders. Executive officers are elected annually by the
Board of Directors to hold office until the first meeting of the Board following
the next annual meeting of shareholders and until their successors have been
elected and qualified.
The following is a brief summary of the background of each director and
executive officer of the Company.
RALPH GLASGAL, Director, Chairman of the Board and President, with
degrees in Engineering Physics and Electrical Engineering, founded the
Predecessor in 1975 as a distributor of data communications equipment and
services. Prior to 1975 he held various engineering positions with RCA, Siemens
and Timeplex. He is the author of numerous articles and three books on data
communications.
50
<PAGE>
ISAAC J. GAON, Chief Executive Officer and Director, joined the
Predecessor in April 1992. He served as Chief Financial Officer from April 1992
until October 1994. Prior to joining the Predecessor, Mr. Gaon served as a
consultant to the Predecessor, developing the strategic plan and financial model
for the Predecessor's nationwide enterprise networking strategy. From September
1987 to December 1991, Mr. Gaon, a chartered accountant, served as President and
Chief Executive Officer of Toronto-based NRG, Inc., (a subsidiary of Gestetner
International) an office equipment supplier, and in several key senior
management roles within Gestetner Canada and Gestetner USA.
CHRISTOPHER J. CAREY, Director since November 1, 1996, is Chief
Executive Officer and founder of Datatec. Mr. Carey, a graduate of Princeton
University, led a management buy- out of a data communications network
installation company and founded Datatec in 1976. In 20 years under his
leadership, Datatec grew from $480,000 in sales and 9 employees to $65,000,000
in sales and 500 employees in 1996. In October 1996, Datatec merged with Glasgal
Communications, Inc. Datatec's unique line of products and services, have been
extolled in various publications, including INC. magazine, FORBES, THE WALL
STREET JOURNAL, and BUSINESS WEEK. Mr. Carey was selected by NEW JERSEY MONTHLY
magazine as Entrepreneurial Leader of the Year.
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 November 1996. From August 1992 until November 1996 Mr.
Gadd was the Vice President of the Company's Federal and Enterprise Systems
group. Mr. Gadd served as Director of Technical Operations of the Company from
April 1992 until August 1992. Prior to joining the Predecessor, Mr. Gadd was
co-founder of Automation Partners International, Inc. ("API"), a San
Francisco-based systems integration firm which has provided open architecture
solutions to the legal industry since 1986. Prior to API, Mr. Gadd had his own
automation consulting firm and specialized in developing integrated solutions to
meeting specific objectives in a variety of business disciplines, including
political campaigns, oil and gas, real estate, and banking.
JAMES M. CACI, Chief Financial Officer, Secretary and Treasurer, joined
the Company in October 1994. Mr. Caci has been the Company's Chief Financial
Officer since October 1994 and the Company's Secretary and Treasurer since June
1995. From April 1994 to October 1994 Mr. Caci was a manager in the finance
department of Merck & Co., and from July 1986 to April 1994, Mr. Caci was
associated with the accounting firm of Arthur Andersen LLP, most recently
holding the position of Manager.
51
<PAGE>
DR. DAVID MILCH, Director since October 3, 1996 has been a principal
and officer of Bermil Industries Corporation, a closely held business owned by
the Milch family, since 1983. Bermil, with annual sales over $50,000,000, is a
diversified company involved in the manufacture, sale, financing, and
distribution of capital equipment, and in real estate development. In 1989,
after the sale of a portion of Bermil Industries Corporation to a public company
in 1988, Dr. Milch formed Davco Consultants, Inc. for the purpose of
identifying, advising, and investing in interesting emerging growth
technologies. Dr. Milch is also a registered New York State Physician.
ROBERT H. FRIEDMAN, Director since August 1994, has been a partner with
Olshan Grundman Frome & Rosenzweig, a New York City law firm, since August 1992.
Prior to that time and since September 1983 he was associated with Cahill Gordon
& Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters.
JOSEPH M. SALVANI, Director since August 1994, has been the President
of Salvani Investments, Inc., an investment and consulting firm that is a
consultant to Brookehill Equities, Inc. since 1991. Mr. Salvani was a registered
broker with Brookehill Equities, Inc. from March 1991 to July 1992. From July
1989 through 1991, he was a founder, general partner and Hedge Fund Manager of
EGS Associates, LP, a private investment limited partnership. He served as a
general partner of Steinhardt Partners from October 1986 until April 1989 and as
a general partner of Institutional Partners, LP from January 1987 to April 1989.
He began his career in 1981 as an analyst with Goldman, Sachs & Co. Mr. Salvani
is a graduate of Rutgers College with Bachelor of Science degrees in Accounting,
Economics and Finance. He also holds a Masters Degree in Business Administration
from Columbia University. Mr. Salvani is Chairman of the Board of Directors and
Chief Executive Officer of Direct Connect International Inc. ("DCI"), a Nasdaq
traded company and a director of Medicis Pharmaceutical, Inc., a pharmaceutical
company.
MAURICE KULIK, Director since October 1994, is also Chief Executive
Officer and President of Signatel which he founded in 1977. Prior to 1977 he
held various engineering, sales and marketing management positions with ATELCO,
ROR Associates, Beckman Instruments and SPERRY/UNIVAC. From 1985 to 1989 Mr.
Kulik also served as President, Chief Executive Officer and Director of Black
Box Canada Corporation, a joint venture corporation with Black Box Corporation
of Pittsburgh, PA. Mr. Kulik currently oversees Signatel's financial and
strategic planning as well as its marketing and sales management functions.
THOMAS J. BERRY, Director since July 1995, is currently retired. Mr.
Berry was an executive with the U.S. Postal Service from November 1986 to
December 1992, serving as executive assistant to the Postmaster General. Prior
to that time and until November 1986, Mr. Berry held various executive positions
at AT&T. Mr. Berry is a director of Computer Horizons Corp., a Nasdaq traded
company.
52
<PAGE>
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Each of the following persons failed to file on a timely basis one
report for a single transaction required by Section 16(a) of the Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder (the "Exchange Act"), during the fiscal year ended April 30, 1997:
James Caci and Isaac Gaon. Christopher Carey failed to file on a timely basis
two reports covering transactions required by section 16(a) of the Exchange Act
during the fiscal year ended April 30,1 997. Ralph Glasgal failed to file on a
timely basis four reports covering transactions required by Section 16(a) of the
Exchange Act during the fiscal year ended April 30, 1997. Each of the
transactions for the above named individuals were subsequently reported to the
Commission on a Form 4.
53
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years ended April
30, 1995, 1996 and 1997 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>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
Stock LONG-TERM
Options INCENTIVE
Name and position Year Salary Bonus (SHARES) PAYMENTS
----------------- ---- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C>
Ralph Glasgal(1) 1997 $250,000 -- -- --
Chairman of the Board and President 1996 250,000 $74,800 -- --
1995(1) 26,700 -- -- --
Isaac Gaon 1997 $250,000 -- 350,000
Chief Executive Officer 1996 $204,800 -- 108,821 --
1995 192,300 -- 90,000 --
Robert Gadd 1997 $155,000 -- -- --
Chief Technology Officer 1996 136,433 $22,500 103,985 --
1995 113,900 -- 60,000 --
Christopher Carey 1997 $345,000 $95,000 120,353 --
Chief Executive Officer - Datatec 1996 416,000 -- -- --
1995 416,000 -- -- --
James M. Caci 1997 $128,100 -- 175,000 --
Chief Financial Officer, Treasurer , 1996 100,000 -- 43,528 --
Secretary
1995(2) 40,000 -- 52,000 --
</TABLE>
(1) During 1995 Mr. Glasgal spent the majority of his time pursing
interests outside of the Company. Mr. Glasgal contributed to the
Company 442,478 shares of Common Stock in consideration for the
cancellation by the Company of the $476,000 owed as of April 30, 1995
by Mr. Glasgal to the Company. Mr. Glasgal is currently receiving
salary compensation of $250,000 per year. Mr. Glasgal may also receive
a bonus at the discretion of, and to be determined by, the Board of
Directors.
(2) Mr. Caci joined the Company on October 31, 1994, the salary for 1995
represents six months.
54
<PAGE>
STOCK OPTION TABLE
The following table sets forth certain information regarding stock
option grants made to each of the Named Officers during the fiscal year ended
April 30, 1997,
OPTIONS GRANTED IN FISCAL YEAR ENDED
APRIL 30, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------- AT ASSUMED RATES OF ANNUAL
Shares of % of Total Exercise RATES OF STOCK PRICE
Common Stock Options Granted or Base APPRECIATION FOR OPTION (1)
Underlying to Employees in Price ---------------------------
NAME Granted Fiscal Year ($/Sh) Expiration Date 5% 10%
---- ------- ----------- ------ --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ralph Glasgal -- -- -- -- -- --
Isaac J. Gaon 350,000 15.1 $5.25 October 31, 2006 $1,155,594 $2,928,502
Robert Gadd -- -- -- -- -- --
Christopher Carey 120,353 5.2 3.19 April 15, 2007 241,260 611,400
James M. Caci 175,000 7.5 5.25 October 31, 2006 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.
55
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information as to each of the named
officers concerning exercises of options during the fiscal year ended April 30,
1997 and unexercised stock options held as of April 30, 1997.
<TABLE>
<CAPTION>
Value Realized
(Market Price at
Shares Acquired Exercise less Number of Unexercised Options Held at Value of Unexercised In-The-Money
on Exercise Exercise Price) April 30, 1997 Options at April 30, 1997(1)
-------------- --------------- -------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ralph Glasgal -- $ -- -- -- $ -- $ --
Isaac J. Gaon -- -- 708,185 335,881 1,744,300 94,460
Robert Gadd -- -- 371,809 89,323 1,060,706 72,929
Christopher Carey -- -- -- 120,353 -- 7,221
James M. Caci -- -- 128,843 145,685 110,892 13,784
</TABLE>
(1) Assuming a price of $3.25 per share of Common Stock, which was the
closing bid price per share as of April 30, 1997.
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 10% for
any individual named above or, with respect to the group, would not in the
aggregate exceed 10% of the compensation reported above.
DIRECTORS COMPENSATION
Each director who is not an employee of the Company receives an annual
grant of options to purchase 24,000 shares of Common Stock pursuant to the
Directors Plan at an exercise price equal to fair market value on the date of
grant and a fee of $1,000 per meeting attended.
EMPLOYMENT AGREEMENTS
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
US$250,000 annually and incentive compensation based on achieving 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 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.
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
56
<PAGE>
employment agreement. Mr. Caci's agreement provides for his employment by the
Company as its Chief Financial Officer at an initial base salary of US$150,000
annually.
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. Mr. Gadd's agreement provides for his employment by
the Company as its Senior Vice President at an initial base salary of US$155,000
annually. The agreement has a term ending on December 31, 1999.
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 US$250,000 annually.
The Company entered into an Employment and Non-Competition Agreement
dated November 1, 1996 with Christopher J. Carey under which Mr. Carey serves as
the Chief Executive Officer of Datatec Industries Inc. for a term ending on
October 31, 1999. The agreement provides for an initial base salary of
US$250,000 annually and non-discretionary incentive compensation based on
achieving performance goals. The agreement contains convanents restricting Mr.
Carey's ability to engage in activities competitive with those of the Company
for a period ending three years after his termination.
Effective as of November 1, 1996, the Company entered into an
Employment Agreement with Raymond R. Koch on terms substantially similar to
those of Christopher Carey's employment agreement. Mr. Koch's agreement provides
for his employment by the Company as the Chief Operating Officer of Datatec
Industries Inc. at an initial base salary of US$250,000 annually.
The Company has entered into an Employment Agreement with Mr. Kulik
pursuant to which he is employed full-time as the Chief Executive Officer and
President of Signatel Ltd., the Company's Canadian subsidiary commencing October
28, 1994 and until terminated in accordance with the agreement. Mr. Kulik
receives an annual base salary of $115,000; provided that the base salary shall,
at a minimum, be increased after each 12 months of employment by a percentage
equal to the percentage increase in the Consumer Price Index over such 12 month
period, with the increased amount to remain in effect for the next 12- month
period.
57
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Common Stock outstanding as of July 31, 1997, by (i) each person known by the
Company to be the beneficial owner of more than five percent (5%) of the
Company's Common Stock, (ii) each director, (iii) each of the executive officers
named in the summary compensation table, and (iv) by all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF Amount of Shares
BENEFICIAL OWNER(1) Beneficially Owned (2) Percent of Class
- ----------------------------- ---------------------- -------------------
<S> <C> <C>
Ralph Glasgal 4,906,387(3) 20.7%
Isaac Gaon 714,003(4) 2.9%
Robert F. Gadd 479,566(5) 2.0%
Christopher J. Carey 3,612,036(6) 15.2%
James M. Caci 112,000(7) *
Robert H. Friedman 55,146(8) *
505 Park Avenue
New York, New York 10022
Joseph Salvani 40,000(9) *
4800 Highway A-1-A
Vero Beach, FL 32963
Maurice Kulik 457,636(10) 1.9%
Thomas Berry(11) 24,000(11) *
David Milch 344,505 1.5%
All directors and officers as a
group (10 persons) 10,608,011(12) 42.0%
</TABLE>
* Less than 1%
(1) Unless otherwise indicated, all addresses are c/o Glasgal
Communications, Inc., 20C Commerce Way, Totowa, New Jersey 07512.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares for which the beneficial owner has sole voting and
investment power. The percentage of class is calculated in accordance
with Rule 13d-3 and includes options or other rights to subscribe which
are exercisable within sixty (60) days of July 31, 1997.
(3) Mr. Glasgal's beneficial ownership includes (i) 146,752 shares of
Common Stock owned by Ralph Glasgal's wife and (ii) 917,306 shares of
Common Stock owned by Direct Connect International Inc. ("DCI") which
Ralph Glasgal has the right to vote pursuant to a voting agreement with
DCI.
58
<PAGE>
(4) Mr. Gaon's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 495,245 shares of
Common Stock at an exercise price of $.005 per share, (ii) 90,000
shares of Common Stock at an exercise price of $1.25 per share, (iii)
62,879 shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 26,605 shares of Common Stock held by
Ralph Glasgal), and (iv) 62,879 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 26,605 shares of
Common Stock held by Ralph Glasgal).
(5) Mr. Gadd's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 297,166 shares of
Common Stock at an exercise price of $.005 per share, (ii) 60,000
shares of Common Stock at an exercise price of $1.25 per share, (iii)
61,200 shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 26,538 shares of Common Stock held by
Ralph Glasgal), and (iv) 61,200 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 26,538 share of
Common Stock held by Ralph Glasgal.
(6) 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,
and (iii) 96,296 shares held by Christopher Carey GRAT, a trust formed
for the benefit of Mr. Carey's son.
(7) Mr. Caci's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 52,000 shares of
Common Stock at an exercise price of $1.25 per share, (ii) 30,000
shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 15,491 shares of Common Stock held by
Ralph Glasgal), and (iii) 30,000 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 15,491 shares of
Common Stock held by Ralph Glasgal).
(8) Mr. Friedman's beneficial ownership includes options exercise within
sixty (60) days from July 31, 1997 to purchase (i) 24,000 shares of
Common Stock at an exercise price of $1.25 per share, and (ii) 16,000
shares of Common Stock at an exercise price of $2.525 per share.
(9) Mr. Salvani's beneficial ownership includes options exercisable within
sixty (60) days of July 31, 1997 to purchase (i) 24,000 shares of
Common Stock at an exercise price of $1.25 per share and (ii) 16,000
shares of Common Stock at an exercise price of $2.525 per share. Mr.
Salvani is also the Chairman of the Board of DCI but has no power to
direct DCI's voting or disposition of its interest in the Company. Thus
the shares of the Company's Common Stock owned by DCI are not deemed to
be attributable to Mr. Salvani.
59
<PAGE>
(10) Mr. Kulik's beneficial ownership includes options exercisable within
sixty (60) days of July 31, 1997 to purchase 203,636 shares of Common
Stock at an exercise price of $1.75 per share.
(11) Mr. Berry's beneficial ownership includes options exercisable within
sixty days of July 31, 1997 to purchase 24,000 shares of Common Stock
at an exercise price of $2.775 per share.
(12) Includes (i) options exercisable within (60) days of July 31, 1997 to
purchase an aggregate of 1,556,770 shares of Common Stock held by the
directors and executive officers of the Company (excludes options to
purchase 137,268 shares of Common Stock already counted as being
beneficially owned by Ralph Glasgal) and (ii) 917,306 shares of Common
Stock owned by DCI which Ralph Glasgal has the right to vote pursuant
to a voting agreement with DCI.
60
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a common stock purchase agreement (the
"DCI Agreement") with DCI, a principal shareholder of the Company, governing
certain equity investments which DCI has made, and in the future intends to
make, in the Company's Common Stock. Pursuant to the DCI Agreement, in January
1994 DCI converted $1.9 million of outstanding indebtedness of the Company owed
to DCI into equity of the Company (the "DCI Conversion"). In addition, the DCI
Agreement gives the Company the right to require DCI to purchase an additional
number of shares of Common Stock equal to 13.5% of the outstanding shares on the
date of the agreement (the "Additional Share") for an aggregate of $8.75
million, less certain warrant solicitation fees (the "Additional DCI
Investment"). The Company may require this purchase if, and then only to the
extent, that DCI receives proceeds from the exercise of certain existing DCI
warrants. DCI has the right to retain the first $500,000 of warrant proceeds;
however, such amount must be used by DCI to purchase shares of Common Stock if
the aggregate amount of warrant proceeds applied to the purchase of Common
Stock, after the earlier of the expiration or exercise of all warrants or 24
months after the effectiveness of the registration statement covering the DCI
common stock underlying the warrants, is less than $8.4 million. If the Company
does not require the Additional DCI Investment, DCI may still purchase, on the
same terms, up to one-half of the Additional Shares.
During the year ending April 30, 1997, the company loaned $410,000 to
certain executive officers of the Company. These loans bear interest at 8% per
annum. Two of these loans, representing $210,000, are repayable with the
proceeds from the future exercise of stock options of these executives. All of
these loans mature on December 31,1999.
In January 1997, and pursuant to a prior agreement between Glasgal,
Datatec, Datatec's previous lender and an affiliated company of the majority
shareholder of Datatec, prior to the acquisition of Datatec by Glasgal, the
affiliated company loaned the Company approximately $1,660,000. 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 market value at that time.
In June 1997, the Company's Chairman purchased 160,000 shares of the
Company's common stock, in a private placement offering, for $620,000. The
proceeds from this offering are being used for working capital purposes.
RELATED PARTY TRANSACTIONS
Pursuant to a Stock Purchase Agreement dated July 10, 1997, Direct
Connect International Inc. ("DCI") purchased 130,000 shares of Common Stock for
an aggregate purchase price of $500,000. Joseph Salvani, a director of the
Company, is also Chairman of the Board of DCI. Pursuant to the agreement, 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 in the
event that the Company does not receive $8.25 million from the Purchaser
pursuant to the terms of a certain Common Stock Purchase Agreement dated as of
January 7, 1994 (the "1994 Agreement") prior to October 10, 1997.
Pursuant to a Stock Purchase Agreement dated July 25, 1997, Direct
Connect International Inc. ("DCI") purchased an additional 350,000 shares of
Common Stock for an aggregate purchase price of $1,356,250. In connection with
the transaction, the parties amended Section 3.2(b) of the 1994 Agreement to
increase DCI's conditional right to purchase shares of the Company's Common
Stock to 1,207,239 shares (the "Call Shares") at approximately $6.54 per share
on the terms and conditions set forth in the 1994 Agreement. The 1994 Agreement
provides the Company with an equivalent right to sell such shares to DCI on the
terms and conditions set forth therein. DCI has also agreed to suspend the
Company's obligation to issue the Call Shares until such time as the Company
amends its charter to increase its authorized Common Stock.
61
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(a)(1) The following financial statements are included in Part II, Item
8:
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and 1997
Consolidated Statements of Operations for the years ended April
30, 1995, 1996 and 1997.
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended April 30, 1995, 1996 and 1997.
Consolidated Statements of Cash Flows for the years ended April
30, 1995, 1997 and 1997. Notes to Consolidated Financial
Statements
(2) The following financial statement schedules are included in this
Form 10-K report:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown in the
financial statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 1997:
None
(c) Exhibits:
EXHIBIT #
3.1 Articles of Incorporation of the Company (as
amended), incorporated by reference to Exhibit 3.1 to
the Company's Form 10-K for the fiscal year ended
April 30.1996.
3.2 Bylaws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Form 10-K for the fiscal
year ended April 30, 1996.
62
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4.1 Specimen Common Stock Certificate, 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.
4.2 Specimen Warrant Certificate, 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.
*4.3 Form of Common Stock Purchase Warrant dated as of
January 27, 1997 in favor of Southbrook International
Investments.
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 Exhibit 4.8 to the
Company's Form 10-K for the fiscal year ended April
30, 1996.
*10.5 1996 Stock Option Conversion Plan
*10.6 Senior Executive Stock Option Plan
*10.7 Employment Agreement dated December 31, 1996 between
the Company and Ralph Glasgal.
*10.8 Employment Agreement dated October 31, 1996 between
the Company and Isaac Gaon.
*10.9 Employment Agreement dated October 31, 1996 between
the Company and James Caci.
*10.10 Employment Agreement dated October 31, 1996 between
the Company and Robert Gadd.
*10.11 Employment and Non-Competition Agreement dated
November 1, 1996 between the Company and Christopher
J. Carey.
63
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*10.12 Employment and Non-Competition Agreement dated
November 1, 1996 between the Company and Raymond
Koch.
*10.13 Employment Agreement dated April 24, 1996 between the
Company, Computer-Aided Software Integration, Inc.
and David Tobey.
10.14 Employment Agreement dated October 28, 1994 between
the Company, Signatel, Ltd. and Maurice Kulik,
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.
*10.15 Employment Agreement dated July 31, 1996 between the
Company and HH Communications, Inc. and Frank Frazel.
*10.16 Employment Agreement dated July 31, 1996 between the
Company, HH Communications and Steven Grubner.
*10.17 Employment Agreement dated July 31, 1996 between the
Company, HH Communications, Inc. and Mark Herzog.
*10.18 Employment Agreement dated July 31, 1996 between the
Company, HH Communications, Inc. and George Terlizzi.
10.19 Warrant Agreement between Continental Stock Transfer
& Trust Co. 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. *10.20 Loan and Security
Agreement dated March 17, 1997 between the Company
and Finova Capital Corporation.
10.21 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.
10.22 Stockholders Agreement dated April 24, 1996 by and
among the Company, David H. Tobey and Computer-Aided
Software Integration, Inc., incorporated by reference
to Exhibit 10.20 to the Company's Form 10-K for the
fiscal year ended April 30, 1996.
64
<PAGE>
10.23 Stock Purchase Agreement dated as of July 31, 1996 by
and among Glasgal Communications, Inc., Francis J.
Frazel, Stephen M. Grubner, Mark Herzog, George
Terlizzi and HH Communications, Inc., incorporated by
reference to Exhibit 2 to the Company's Form 8-K
dated July 31, 1996.
10.24 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
Exhibit 2 to the Company's Form 8-K dated October 31,
1996.
*10.25 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).
10.26 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
Exhibit 10.1 to the Company's Form 8-K dated
September 30, 1996.
10.27 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
Exhibit 10.2 to the Company's Form 8-K dated
September 30, 1996.
*10.29 Stock Purchase Agreement dated July 10, 1997 between
Direct Connect International, Inc. and the Company.
*10.30 Stock Purchase Agreement dated July 25, 1997 by and
among the Company and the Purchasers lised on the
Signature Pages thereto.
*10.31 Letter Agreement dated July 25, 1997 between Direct
Connect International, Inc., and the Company.
*10.32 Stock Purchase Agreement dated June 30, 1997 between
the Company and Ralph Glasgal.
*11.1 Statement of Computation of Per Share Earnings
*21.1 Subsidiaries of the Company.
*23.1 Consent to the incorporation by reference in the
Company's Registration Statements on Forms S-3 and
S-8 of the report of Arthur Andersen LLP included
herein.
*27.1 Financial Data Schedule
- ---------------------
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ace of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLASGAL COMMUNICATIONS, INC.
(Registrant)
Date: AUGUST 12, 1997 By:/S/ ISAAC J. GAON
--------------- -----------------
Name: ISAAC J. GAON
Title:CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ RALPH GLASGAL
- ------------------ Chairman of the Board and President August 12, 1997
Ralph Glasgal
/S/ ISAAC J. GAON
- ------------------------ Chief Executive Officer and Director August 12, 1997
Isaac J. Gaon (principal executive officer)
Director
/S/ CHRISTOPHER J. CAREY
- ------------------------ Chief Executive Officer - Datatec August 12, 1997
Christopher J. Carey and Director
/S/ David Milch
- ------------------------ Director August 12, 1997
David Milch
- -----------------------
Joseph M. Salvani Director August 12, 1997
/S/ ROBERT H. FRIEDMAN
- -----------------------
Robert H. Friedman
/S/ MAURICE KULIK Director August 12, 1997
- -----------------------
Maurice Kulik
Director August 12, 1997
- -----------------------
Thomas Berry
/S/ JAMES M. CACI
- ------------------------ Chief Financial Officer August 12, 1997
James M. Caci (principal financial
and accounting officer)
</TABLE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS.
GLASGAL COMMUNICATIONS, INC.
WARRANT (REPLACEMENT NO. 1)
Dated January 27, 1997
GLASGAL COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Southbrook International Investments,
Ltd., or its registered assigns ("Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company up to a total of 175,000 shares of
Common Stock, par value $.001 per share (the "Common Stock"), of the Company
(each such share, a "Warrant Share" and all such shares, the "Warrant Shares")
at an exercise price equal to $5.25 per share (as adjusted from time to time as
provided in Section 7, the "Exercise Price"), at any time and from time to time
from and after March 27, 1997 and until and including January 27, 2002 (the
"Expiration Date"), and subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment
<PAGE>
attached hereto duly completed and signed, to the Transfer Agent or to the
Company at the office specified in or pursuant to Section 3(b). Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
5:30 P.M., New York time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.
(b) Subject to Sections 2(b), 4 and 8, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its office at 151 Veterans Drive, Northvale, New
Jersey 07647, Attention: Chief Executive Officer, or at such other address as
the Company may specify in writing to the then registered Holder, and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days thereafter) issue or cause
to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
other than as required by applicable law. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
-2-
<PAGE>
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares so long as
at least 50,000 Warrant Shares are purchased in any one exercise. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares in a name other than that of the Holder,
and the Company shall not be required to issue or cause to be issued or deliver
or cause to be delivered the certificates for Warrant Shares unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.
5. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company may in its discretion issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
6. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders (taking into account the adjustments
and restrictions of Section 7). The Company covenants that all Warrant Shares
that shall be so issuable and deliverable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and freely tradeable.
7. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares
-3-
<PAGE>
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities (as such term is defined in the
Debenture) payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock into a larger number of shares, or (iii) combine outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any, but including warrants or
options that would be included for purposes of determining earnings per share in
accordance with generally accepted accounting principals) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any, but including warrants or options that
would be included for purposes of determining earnings per share in accordance
with generally accepted accounting principals) outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 7(b) upon any exercise following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 7(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then
-4-
<PAGE>
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Company) (an "APPRAISER") selected in good faith by the holders of a
majority in interest of the Warrants then outstanding.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 7, the following clauses
shall also be applicable:
(i) RECORD DATE. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (A)
to receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to
Section 7(c) above or Section 7(i) below, the Company, after receipt of the
determination by the Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the adjustment shall be equal to the
average of the adjustments recommended by each Appraiser. The Company shall
promptly mail or cause to be mailed to each Holder, a notice setting forth the
Exercise Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. Such adjustment shall become effective
immediately after the record date mentioned above; PROVIDED, HOWEVER, that no
such adjustment of the Exercise Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase
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<PAGE>
of the Exercise Price to more than the Exercise Price then in effect. All
determinations with respect to adjustments by the Company hereunder shall be
made by the Board of Directors in good faith.
(h) If:
(i) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii)the Company shall authorize the
granting to all holders of the Common
Stock rights or warrants to subscribe
for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation
or merger to which the Company is a
party, any sale or transfer of all or
substantially all of the assets of the
Company, or any compulsory share
exchange whereby the Common Stock is
converted into other securities, cash
or property; or
(v) the Company shall authorize the
voluntary or involuntary dissolution,
liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
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<PAGE>
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(i) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially
affect the rights of the Holders (different than or distinguished from the
effect generally on rights of holders of any class of the Company's capital
stock) or if any time such conditions are expected to arise by reason of any
action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the Holders at least 30 calendar days prior to the
effective date of such action, and an Appraiser selected by the Holders of
majority in interest of this Warrant shall give its opinion as to the
adjustment, if any (not inconsistent with the standards established in Section
7(e)), of the Exercise Price (including, if necessary, any adjustment as to the
Warrant Shares to be purchased upon exercise of this Warrant) and any
distribution which is or would be required to be preserved without diluting the
rights of the Holders.
8. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 8, be issuable
on the exercise of this Warrant, the Company shall, at its option, (a) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (b)
shall round the number of Warrant Shares issuable, up to the next whole number
of such shares.
9. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern Standard Time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 4:30 p.m. (Eastern Standard Time) on any date and earlier
than 11:59 p.m. (Eastern Standard Time) on such date, (iii) the business day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (1) if to
the Company, to Glasgal Communications, Inc., 151 Veterans Drive, Northvale, New
Jersey 07647, Attention: Chief Executive Officer, or to facsimile no. (201)
768-2947, or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
9.
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<PAGE>
10. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company and the Holder
may appoint a new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the register maintained by the warrant agent pursuant to
this Warrant.
11. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 11(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company,
the Holder and any registered holder of Warrant Shares any legal or equitable
right, remedy or cause under this Warrant; this Warrant shall be for the sole
and exclusive benefit of the Company, the Holder and any other registered holder
of Warrant Shares.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
GLASGAL COMMUNICATIONS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Glasgal Communications, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), par value $.001 per share, of Glasgal
Communications, Inc. and encloses herewith $________ in cash (or encloses
herewith evidence of payment of such sum), which sum represents the Exercise
Price (as defined in the Warrant) for the number of shares of Common Stock to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER
_______________________________________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: _______________, ___________ Name of Holder:
(Print)__________________________
(By:)____________________________
(Title:)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Glasgal
Communications, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Glasgal
Communications, Inc. with full power of substitution in the premises.
Dated:
- ---------------, ----
-------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
-------------------------------------------
Address
In the presence of:
- --------------------------
GLASGAL COMMUNICATIONS, INC.
1996 STOCK OPTION CONVERSION PLAN
Dated October 31, 1996
1. PURPOSE. This 1996 Stock Option Conversion Plan (the
"Plan") is established to replace stock options previously granted by the
Company's subsidiary, Datatec Industries Inc. ("Datatec") to selected Datatec
employees. The Plan is further intended to attract, retain and provide equity
incentives to such Datatec employees and to promote the financial success of
Glasgal Communications, Inc. (the "Company") and its Subsidiaries and
Affiliates. Capitalized terms not previously defined herein are defined in
Section 16 of the Plan.
2. SHARES. The shares of stock that may be purchased upon
exercise of Options granted under the Plan (the "Shares") are shares of the
common stock, $.001 par value (the "Common Stock") of the Company.
3. NUMBER OF SHARES. The maximum number of Shares that may be
issued pursuant to Options granted under the Plan shall not exceed 470,442 in
total, subject to adjustment as provided in the Plan. At all times during the
term of the Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
under the Plan.
4. ELIGIBILITY. Options may be granted only to past or present
employees of Datatec to replace stock options previously granted to such
employees by Datatec (the "Datatec Options"). The Company's Board of Directors
(the "Board of Directors") in its sole discretion shall select the recipients of
Options ("Optionees"). An Optionee may be granted more than one Option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS. The Board of Directors
shall determine the number of Shares subject to the Option, the exercise price
of the Option, the period during which the Option may be exercised, and all
other terms and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the
Plan shall be evidenced by a written Stock Option Grant (the "Grant") in such
form (which need not be the same for each Optionee) as the Board of Directors
shall from time to time approve.
<PAGE>
5.2 DATE OF GRANT. The date of grant of an Option shall
be the date on which the Board of Directors makes the determination to grant
such Option unless otherwise specified by the Board of Directors. The Grant
representing the Option will be delivered to the Optionee with a copy of the
Plan within a reasonable time after the date of grant.
5.3 EXERCISE PRICE. The exercise price of an Option
shall be the exercise price of the Datatec Options divided by a conversion price
of $.58 per Option.
5.4 EXERCISE PERIOD. Options shall be exercisable
within the times or upon the events determined by the Board of Directors as set
forth in the Grant.
5.5 OPTIONS TRANSFERABLE. Options granted under the
Plan may be transferred or assigned by the Optionee as determined by the Board
of Directors.
6. EXERCISE OF OPTIONS.
6.1 NOTICE. Options may be exercised only by delivery
to the Company of a written exercise agreement in a form approved by the Board
of Directors (which need not be the same for each Optionee), stating the number
of Shares being purchased, the restrictions imposed on the Shares, if any, and
such representations and agreements regarding the Optionee's investment intent
and access to information, if any, as may be required by the Company to comply
with applicable securities laws, together with payment in full of the exercise
price for the number of Shares being purchased.
6.2 PAYMENT. Payment for the Shares may be made in cash
(by check) or, where approved by the Board of Directors in its sole discretion
at the time of grant and where permitted by law: (a) by cancellation of
indebtedness of the Company to the Optionee; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such Shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market having a Fair Market Value equal to the
exercise price of the Option; (c) by instructing the Company to withhold Shares
otherwise issuable pursuant to an exercise of the Option having a Fair Market
Value equal to the exercise price of the Option (including the withheld Shares);
(d) by waiver of compensation due or accrued to Optionee for services rendered;
(e) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from the Optionee and a broker-dealer that is a
member of the National
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<PAGE>
Association of Securities Dealers (an "NASD Dealer") whereby the Optionee
irrevocably elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price directly to
the Company; (f) provided that a public market for the Company's stock exists,
through a "margin" commitment from the Optionee and an NASD Dealer whereby the
Optionee irrevocably elects to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (g) by any combination of the foregoing.
6.3 TAXES. The Company may make such provisions
as it may deem appropriate, consistent with applicable law, in connection with
any Options granted under the Plan with respect to the withholding of any taxes
or any other tax matters.
6.4 LIMITATIONS ON EXERCISE. Notwithstanding the
exercise periods set forth in the Grant, exercise of an Option shall always be
subject to the following limitations:
(a) The Board of Directors may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent the Optionee from
exercising the full number of Shares as to which the Option is then exercisable.
(b) An Option shall not be exercisable
unless such exercise is in compliance with the Securities Act of 1933, as
amended (the "1933 Act"), all applicable state securities laws and the
requirements of any stock exchange or national market system upon which the
Shares may then be listed, as they are in effect on the date of exercise. The
Company shall be under no obligation to register the Shares with the Securities
and Exchange Commission ("SEC") or to effect compliance with the registration,
qualification or listing requirements of any state securities laws or stock
exchange, and the Company shall have no liability for any inability or failure
to do so.
6.5 INFORMATION TO OPTIONEES. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company prior to such Optionee's exercise of the Option, and to each Optionee
annually during the period such Optionee has Options outstanding, at such time
after the close of each fiscal year of the Company as such statements are
released by the Company to its shareholders; PROVIDED, HOWEVER, the Company
shall not be required to provide such financial statements to Optionees whose
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<PAGE>
services in connection with the Company assure them access to equivalent
information.
7. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Board
of Directors shall have the power to modify, extend or renew outstanding Options
and to authorize the grant of new Options in substitution therefor, provided
that any such action may not, without the written consent of the Optionee,
impair any rights under any Option previously granted. The Board of Directors
shall have the power to reduce the exercise price of outstanding options.
8. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any
of the rights of a shareholder with respect to any Shares subject to an Option
until such Option is properly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
such date, except as provided in the Plan.
9. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Option
granted under the Plan shall confer on any Optionee any right to continue in the
employ of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
10. ADJUSTMENT OF OPTION SHARES. In the event that the number
of outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
without consideration, or if a substantial portion of the assets of the Company
are distributed, without consideration in a spin-off or similar transaction, to
the shareholders of the Company, the number of Shares available under the Plan
and the number of Shares subject to outstanding Options and the exercise price
per share of such Options shall be proportionately adjusted, subject to any
required action by the Board of Directors or shareholders of the Company and
compliance with applicable securities laws; provided, however, that a fractional
share shall not be issued upon exercise of any Option and any fractions of a
Share that would have resulted shall either be cashed out at Fair Market Value
or the number of shares issuable under the Option shall be rounded up to the
nearest whole number, as determined by the Board of Directors; and provided
further that the exercise price may not be decreased to below the par value, if
any, for the Shares.
11. ASSUMPTION OF OPTIONS BY SUCCESSORS.
11.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY
SUCCESSOR. In the event of (a) a merger or consolidation in which
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<PAGE>
the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company and the Options granted
under the Plan are assumed or replaced by the successor corporation, which
assumption shall be binding on all Optionees), (b) a dissolution or liquidation
of the Company, (c) the sale of substantially all of the assets of the Company,
or (d) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (EXCEPT for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company),
any or all outstanding Options may be assumed by the successor corporation,
which assumption shall be binding on all Optionees. In the alternative, the
successor corporation may substitute equivalent Options or provide substantially
similar consideration to Optionees as was provided to shareholders (after taking
into account the existing provisions of the Options). The successor corporation
may also issue, in place of outstanding Shares of the Company held by the
Optionee, substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Optionee.
11.2 EXPIRATION OF OPTIONS. In the event such
successor corporation, if any, refuses to assume or substitute the Options, as
provided above, pursuant to a transaction described in Subsection 11.1(a) above,
such Options shall expire on the consummation of such transaction at such time
and on such conditions as the Board of Directors shall determine. In the event
such successor corporation, if any, refuses to assume or substitute the Options
as provided above, pursuant to a transaction described in Subsections 11.1(a),
(b) or (c) above, or there is no successor corporation, and if the Company
ceases to exist as a separate corporate entity, then, notwithstanding any
contrary terms in the Option Grant, the Options shall expire on a date at least
twenty (20) days after the Board of Directors gives written notice to Optionees
specifying the terms and conditions of such termination.
11.3 OTHER TREATMENT OF OPTIONS. Subject to any
greater rights granted to Optionees under the foregoing provisions of this
Section 11, in the event of the occurrence of any transaction described in
Section 11.1, any outstanding Options shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
12. ADOPTION. The Plan shall become effective on the date that
it is adopted by the Board of Directors (the "Effective Date"). Upon the
Effective Date, the Board of Directors may grant Options pursuant to the Plan.
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<PAGE>
13. ADMINISTRATION. The Plan may be administered the Board of
Directors. The interpretation by the Board of Directors of any of the provisions
of the Plan or any Option granted under the Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
14. TERM OF PLAN. Options may be granted pursuant to the Plan
from time to time until such time as all stock options previously granted by
Datatec to selected Datatec employees have been replaced.
15. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors
may at any time terminate or amend the Plan in any respect including (but not
limited to) amendment of any form of Grant, exercise agreement or instrument to
be executed pursuant to the Plan.
16. CERTAIN DEFINITIONS. As used herein, the following terms
shall have the following meanings:
16.1 "PARENT" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
16.2 "SUBSIDIARY" means any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if,
at the time of granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
16.3 "AFFILIATE" means any corporation that directly,
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
16.4 "FAIR MARKET VALUE" shall mean the fair market
value of the Shares as determined by the Board of Directors from time to time in
good faith. If a public market exists for the Shares, the Fair Market Value
shall be the average of the price of the last trade on each of the six business
days immediately prior to the date of determination or, in the event the Common
Stock of
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<PAGE>
the Company is listed on a stock exchange or on the NASDAQ National Market
System, the Fair Market Value shall be the closing price on such exchange or
quotation system on the last trading day prior to the date of determination.
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GLASGAL COMMUNICATIONS, INC.
1996 SENIOR EXECUTIVE OFFICER OPTION PLAN
Dated October 31, 1996
1. PURPOSE. This 1996 Senior Executive Officer Stock Option
Plan (the "Plan") is established as a compensatory plan to attract, retain and
provide equity incentives to senior executive officers of Glasgal
Communications, Inc. (the "Company") or any Subsidiary or Affiliate of the
Company to promote the financial success of the Company. Capitalized terms not
previously defined herein are defined in Section 16 of the Plan.
The Plan is intended to provide participants with stock- based
incentive compensation which is not subject to the deduction limitation rules
prescribed under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and should be construed to the extent possible as providing for
remuneration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
2. SHARES. The shares of stock that may be purchased upon
exercise of Options granted under the Plan (the "Shares") are shares of the
common stock, $.001 par value (the "Common Stock") of the Company.
3. NUMBER OF SHARES. The maximum number of Shares that may be
issued pursuant to Options granted under the Plan shall not exceed 560,000 in
total subject to adjustment as provided in the Plan. The maximum number of
Shares which may be subject to Options granted under the Plan to any individual
in any calendar year shall not exceed 560,000, and the method of counting such
Shares shall conform to any requirements applicable to performance-based
compensation under Section 162(m) of the Code. If any Option is terminated for
any reason without being exercised in whole or in part, the Shares thereby
released from such Option shall be available for purchase under other Options
subsequently granted under the Plan. At all times during the term of the Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under the Plan.
4. ELIGIBILITY. Options may be granted to senior executive
officers of the Company or any Subsidiary or Affiliate of the Company. The
Company's Board of Directors (the "Board of Directors") or any committee thereof
designated by the Board of Directors shall administer the Plan (the "Plan
Committee") in its sole discretion and shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option
<PAGE>
under the Plan. Each member of the Plan Committee shall be a "non-employee
director" within the meaning of Rule 16b-3 (or any successor rule or regulation)
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as it may
from time to time be amended, and the rules and regulations promulgated
thereunder (the "Exchange Act") and shall also be an "outside director" under
Section 162(m) of the Code.
5. TERMS AND CONDITIONS OF OPTIONS. The Plan Committee shall
determine the number of Shares subject to the Option, the exercise price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the
Plan shall be evidenced by a written Stock Option Grant (the "Grant") in such
form (which need not be the same for each Optionee) as the Plan Committee shall
from time to time approve.
5.2 DATE OF GRANT. The date of grant of an Option shall be
the date on which the Plan Committee makes the determination to grant such
Option unless otherwise specified by the Plan Committee. The Grant representing
the Option will be delivered to the Optionee with a copy of the Plan within a
reasonable time after the date of grant.
5.3 EXERCISE PRICE. The exercise price of an Option shall
be determined by the Plan Committee at the time of grant.
5.4 EXERCISE PERIOD. Options shall be exercisable within
the times or upon the events determined by the Plan Committee as set forth in
the Grant.
5.5 OPTIONS TRANSFERABLE. Options granted under the Plan
may be freely transferred or assigned by the Optionee as determined by the Plan
Committee.
6. EXERCISE OF OPTIONS.
6.1 NOTICE. Options may be exercised only by delivery to
the Company of a written exercise agreement in a form approved by the Plan
Committee (which need not be the same for each Optionee), stating the number of
Shares being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
-2-
<PAGE>
6.2 PAYMENT. Payment for the Shares may be made in cash (by
check) or, where approved by the Plan Committee in its sole discretion at the
time of grant and where permitted by law: (a) by cancellation of indebtedness of
the Company to the Optionee; (b) by surrender of shares of Common Stock of the
Company that have been owned by the Optionee for more than six (6) months (and
which have been paid for within the meaning of SEC Rule 144 and, if such Shares
were purchased from the Company by use of a promissory note, such note has been
fully paid with respect to such shares) or were obtained by the Optionee in the
open public market, having a Fair Market Value equal to the exercise price of
the Option; (c) by instructing the Company to withhold Shares otherwise issuable
pursuant to an exercise of the Option having a Fair Market Value equal to the
exercise price of the Option (including the withheld Shares); (d) by waiver of
compensation due or accrued to Optionee for services rendered; (e) provided that
a public market for the Company's stock exists, through a "same day sale"
commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (f) provided that a public market for the Company's
stock exists, through a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (g) by any combination of the
foregoing.
6.3 TAXES. The Company may make such provisions as it may
deem appropriate, consistent with applicable law, in connection with any Options
granted under the Plan with respect to the withholding of any taxes or any other
tax matters.
6.4 LIMITATIONS ON EXERCISE. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) The Plan Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended (the "1933
Act"), all applicable state securities laws and
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<PAGE>
the requirements of any stock exchange or national market system upon which the
Shares may then be listed, as they are in effect on the date of exercise. The
Company shall be under no obligation to register the Shares with the Securities
and Exchange Commission ("SEC") or to effect compliance with the registration,
qualification or listing requirements of any state securities laws or stock
exchange, and the Company shall have no liability for any inability or failure
to do so.
6.5 INFORMATION TO OPTIONEES. The Company shall provide to
each Optionee a copy of the annual financial statements of the Company prior to
such Optionee's exercise of the Option, and to each Optionee annually during the
period such Optionee has Options outstanding, at such time after the close of
each fiscal year of the Company as such statements are released by the Company
to its shareholders; PROVIDED, HOWEVER, the Company shall not be required to
provide such financial statements to Optionees whose services in connection with
the Company assure them access to equivalent information.
7. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Plan
Committee shall have the power to modify, extend or renew outstanding Options
and to authorize the grant of new Options in substitution therefor, provided
that any such action may not, without the written consent of the Optionee,
impair any rights under any Option previously granted. The Plan Committee shall
have the power to reduce the exercise price of outstanding options.
8. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any
of the rights of a shareholder with respect to any Shares subject to an Option
until such Option is properly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
such date, except as provided in the Plan.
9. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Option
granted under the Plan shall confer on any Optionee any right to continue in the
employ of, or other relationship with, the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
10. ADJUSTMENT OF OPTION SHARES. In the event that the number
of outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
without consideration, or if a substantial portion of the assets of the Company
are distributed, without consideration in a spin-off or similar transaction, to
the shareholders of the Company, the number of
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<PAGE>
Shares available under the Plan and the number of Shares subject to outstanding
Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Plan Committee
or shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of shares issuable under the
Option shall be rounded up to the nearest whole number, as determined by the
Plan Committee; and provided further that the exercise price may not be
decreased to below the par value, if any, for the Shares.
11. ASSUMPTION OF OPTIONS BY SUCCESSORS.
11.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In
the event of (a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Options granted under the Plan are assumed or replaced by
the successor corporation, which assumption shall be binding on all Optionees),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(EXCEPT for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Options may be
assumed by the successor corporation, which assumption shall be binding on all
Optionees. In the alternative, the successor corporation may substitute
equivalent Options or provide substantially similar consideration to Optionees
as was provided to shareholders (after taking into account the existing
provisions of the Options). The successor corporation may also issue, in place
of outstanding Shares of the Company held by the Optionee, substantially similar
shares or other property subject to repurchase restrictions no less favorable to
the Optionee.
11.2 EXPIRATION OF OPTIONS. In the event such successor
corporation, if any, refuses to assume or substitute the Options, as provided
above, pursuant to a transaction described in Subsection 11.1(a) above, such
Options shall expire on the consummation of such transaction at such time and on
such conditions as the Plan Committee shall determine. In the event such
successor corporation, if any, refuses to assume or substitute the Options as
provided above, pursuant to a transaction described in Subsections 11.1(a), (b),
(c) or (d) above, or there is no successor corporation, and if the Company
ceases to exist as a
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<PAGE>
separate corporate entity, then, notwithstanding any contrary terms in the
Option Grant, the Options shall expire on a date at least twenty (20) days after
the Plan Committee gives written notice to Optionees specifying the terms and
conditions of such termination.
11.3 OTHER TREATMENT OF OPTIONS. Subject to any greater
rights granted to Optionees under the foregoing provisions of this Section 11,
in the event of the occurrence of any transaction described in Section 11.1, any
outstanding Options shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
11.4 ASSUMPTION OF OPTIONS BY THE COMPANY. The Company,
from time to time, also may substitute or assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Option under the Plan in substitution of
such other company's option, or (b) assuming such option as if it had been
granted under the Plan if the terms of such assumed option could be applied to
an Option granted under the Plan. Such substitution or assumption shall be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under the Plan if the other company had applied
the rules of the Plan to such grant. In the event the Company assumes an option
by another company, the terms and conditions of such option shall remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
12. ADOPTION. The Plan shall become effective on the date that
it is adopted by the Plan Committee (the "Effective Date"). Upon the Effective
Date, the Plan Committee may grant Options pursuant to the Plan.
13. ADMINISTRATION. The Plan may be administered by the Plan
Committee. The interpretation by the Plan Committee of any of the provisions of
the Plan or any Option granted under the Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
14. TERM OF PLAN. Options may be granted pursuant to the Plan
from time to time within a period of ten (10) years after the date on which the
Plan is adopted by the Plan Committee.
15. AMENDMENT OR TERMINATION OF PLAN. The Plan Committee may
at any time terminate or amend the Plan in any
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<PAGE>
respect including (but not limited to) amendment of any form of Grant, exercise
agreement or instrument to be executed pursuant to the Plan.
16. CERTAIN DEFINITIONS. As used herein, the following terms
shall have the following meanings:
16.1 "PARENT" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
16.2 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
16.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
16.4 "FAIR MARKET VALUE" shall mean the fair market value
of the Shares as determined by the Plan Committee from time to time in good
faith. If a public market exists for the Shares, the Fair Market Value shall be
the last sale price on the Company's principal exchange or quotation system on
the last trading day prior to the date of determination.
-7-
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of December 31, 1996, by and between Glasgal Communications, Inc., a Delaware
corporation located at 151 Veterans Drive, Northvale, New Jersey 07647 (the
"Company") and Ralph Glasgal, residing at 4 Pierpont Road, Rockleigh, New Jersey
07647 (the "Executive").
IN CONSIDERATION of the covenants set forth herein, and other
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. TERM. The Company agrees to employ the Executive and the Executive
agrees to serve, on the terms and conditions of this Agreement, for a period
commencing as of January 1, 1997 and ending on October 31, 1997, or such shorter
period as provided for herein (the "Employment Period"). It is the intention of
the Executive to retire at the end of the Employment Period.
2. DUTIES. The Executive shall serve as the Company's Chairman of the
Board and President on a full-time basis and shall have such powers and duties
as provided by the By-Laws of the Company and as may be prescribed from time to
time by the Board of Directors of the Company.
3. COMPENSATION. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive a salary of $250,000 per annum,
payable in equal, bi-weekly installments, or such other greater amount as the
Board of Directors may determine. In addition to such salary, the Executive may
be paid a bonus from time to time at the discretion of the Board of Directors of
the Company. The parties agree that the Company is authorized to deduct from the
annual salary of the Executive, and any other compensation paid to the
Executive, such sums as are required by law to be deducted or withheld.
4. EXECUTIVE BENEFITS. The Executive shall be entitled to receive the
following benefits from the Company:
(a) The Company shall provide the Executive with an
annual car allowance in the amount of $4,000.00, such
allowance to be provided to the Executive in ten (10)
equal monthly installments;
(b) The Company shall obtain a life insurance policy
naming the Executive as the insured and such other
party as may be designated as the beneficiary by the
Executive, providing for death benefits of
$50,000.00, with respect to which the Company shall
<PAGE>
pay all applicable premiums during the Employment
Period;
(c) The Company shall provide the Executive and his
family with medical insurance consistent with the
Company's current and future medical plans for its
employees;
(d) The Company shall provide the Executive with annual
dental benefits consistent with the Company's
current dental plan for all employees;
(e) The Company shall provide the Executive with
long-term disability insurance providing for
disability payments of $3,000.00 per month consistent
with the Company's current disability insurance plan
for all employees;
(f) The Executive shall be entitled to participate in the
Company's stock option plan as available to all
senior executives of the Company, subject to the
discretion of the Board of Directors; and
(g) The Executive shall be entitled to at the rate of
vacation of twenty three days per annum.
5. TERMINATION. The parties hereto agree as follows:
(a) The Executive's employment hereunder shall terminate
at the end of the Employment Period, or on any
earlier date upon six (6) months' prior written
notice provided by either party to the other party
pursuant to the requirements of Section 7 of this
Agreement;
(b) Other than as provided in Section 5(a) and Section
5(c) hereof, the Executive's employment may be
terminated by the Company, prior to the expiration
of the Employment Period, for Cause (as defined
herein), upon delivery of thirty (30) days prior
written notice thereof. For the purposes of this
Agreement, "Cause" shall mean (i) willful and
repeated refusal of the Executive to follow the
lawful directives of the Board of Directors of the
Company for the performance of material duties
which the Executive is required to perform
hereunder, other than any such failure resulting
from the Executive's incapacity due to physical or
mental illness or (ii) conviction of the Executive
for a felony involving moral turpitude.
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<PAGE>
(c) If the Executive has failed to fulfill his normal
duties for the Company because of illness or
incapacity (whether physical or mental) for a period
of more than six (6) consecutive months during the
term of this Agreement, the Board may terminate this
Agreement at any time after the expiration of such
six-month period if at such time such illness or
incapacity is continuing.
(d) If the Executive dies during the Employment Period,
the Company shall pay to the Executive's estate such
compensation as would otherwise be payable to the
Executive until the end of the month in which his
death occurs.
(e) In the event that the Executive's employment is
terminated by the Company prior to the end of the
Employment Period pursuant to Section 5(a) hereof,
the Executive shall be entitled to receive from the
Company an amount equal to six (6) months' salary,
together with any bonuses earned as of the date of
termination, such payment to be made to the Executive
within 30 days of such termination.
6. MODIFICATION. This agreement sets forth the entire understanding of
the parties with respect to the subject matter hereof, supersedes all existing
agreements between them concerning such subject matter, and may be ratified only
by a written instrument duly executed by each party.
7. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 7). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing the party's address which
shall be deemed given at the time of receipt thereof.
8. WAIVER. Any waiver by either party or a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
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<PAGE>
9. SEVERABILITY. The provisions of this Agreement are severable. If any
provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent by law.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
GLASGAL COMMUNICATIONS, INC.
/S/ RALPH GLASGAL By: /s/ ISAAC GAON
-------------------------------------------
- ------------------------- Name: Isaac Gaon
RALPH GLASGAL Title: Chief Executive
Officer
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of October 31, 1996, by and between Glasgal Communications, Inc., a Delaware
corporation located at 151 Veterans Drive, Northvale, New Jersey 07647 (the
"Company") and Isaac J. Gaon, residing at 65 Central Park West, Apt. 2D, New
York, New York 10023 (the "Executive").
IN CONSIDERATION of the covenants and agreements set forth herein, and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged) the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs the Executive as
its Chief Executive Officer on a full-time basis to perform the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of the Company (the "Board").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. The Executive hereby
accepts such employment and agrees that throughout the Employment Period (as
hereinafter defined), he will devote such full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of the Company as are necessary to perform the duties and
responsibilities assigned to him pursuant to Section 1 hereof. As Chief
Executive Officer, the Executive shall control all of the day-to-day operations
of the Company including, without limitation, the ability to hire and terminate
all employees. The Executive shall also perform such specific duties and shall
exercise such specific authority related to the management of the day-to-day
operations of the Company as may be assigned to the Executive from time to time
by the Board of Directors and which are reasonably requested to be performed by
the Executive as Chief Executive Officer. The Executive shall at all times be
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as the Company shall from time to time establish.
3. TERM. The Company agrees to employ the Executive and the Executive
agrees to serve, on the terms and conditions of this Agreement, for a period
commencing as of November 1, 1996 and ending on October 31, 1999, unless earlier
terminated in accordance with Section 12 hereof (the "Employment Period").
4. COMPENSATION. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive the following:
(a) a base salary of $250,000 per annum, payable in
equal, bi-weekly installments, or such other greater
amount as the Board may determine at its sole
discretion upon an annual review (the "Base Salary").
The Base Salary shall be increased
<PAGE>
annually, beginning January 1, 1998, by a percentage
equal to the percentage by which the Consumer Price
Index for Urban Wage Borrowers and Clerical Workers:
New York, N.Y. - Northeastern New Jersey (1982-84
equals 100), as published by the Bureau of Labor
Statistics of the United States Department of Labor,
shall have increased over the preceding year (the
"CPI Adjustment"). The CPI Adjustment shall be made
as soon as possible, but in no event later than
fifteen (15) days after the date upon which the
Bureau of Labor publishes its consumer price index
statistics for the month of December. Any portion of
the increase in the Executive's compensation
retroactively due shall be payable immediately upon
determination of the adjustment. If publication of
the Consumer Price Index is discontinued, the parties
hereto shall accept comparable statistics on the cost
of living for the New York, N.Y. - Northeastern New
Jersey area as computed and published by an agency of
the United States or by a responsible financial
periodical of recognized authority then to be
selected by the parties. Notwithstanding anything
herein to the contrary, in no event shall the CPI
Adjustment be less than the cost of living increase
in compensation granted to other senior executives of
the Company;
(b) In addition to his Base Salary hereunder, the
Executive shall be entitled to an additional cash
bonus (the "Cash Incentive Bonus") during each annual
period of the Employment Period of this Agreement
commencing with the annual period November 1, 1996 to
October 31, 1997, based upon achieving the Company's
Projected EBIT (as defined below). As used herein,
"EBIT" shall mean, with respect to any annual period
hereunder, the sum of the consolidated net income (or
loss) for the Company and each of its subsidiaries
for such period calculated in accordance with
generally accepted accounting principles, excluding
therefrom any extraordinary items of income or loss,
plus all amounts deducted therefrom on account of
income taxes and interest expense. The Cash Incentive
Bonus shall be computed as follows: (i) if the
Company's actual EBIT for the annual period ending
October 31, 1997 is $8,100,000 and the Company's
actual EBIT for the annual periods ending October 31,
1998 and 1999 are equal to EBIT projections which
shall be mutually determined in good faith by the
Company's Board of Directors and the Executive prior
to such annual period (the "Projected EBIT") the
Executive shall receive a Cash Incentive Bonus of
$100,000 for each such period in which Projected EBIT
is met; and (ii) if the Company's actual EBIT
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<PAGE>
exceeds the Projected EBIT for such annual period,
the Executive shall receive, in addition to the
amount earned pursuant to Section 4(b)(i), an amount
equal to 5% of such excess, provided, however, that
such amount earned pursuant to Section 4(b)(ii) for
each annual period shall not exceed $50,000. The Cash
Incentive Bonus shall be determined no later than
ninety (90) days after the end of each annual period
and paid promptly thereafter.
(c) In addition to the Base Salary and the Cash Incentive
Bonus payable hereunder, the Executive shall be
entitled to receive the options to purchase shares of
the Company's Common Stock (the "Option Incentive
Bonus") during each annual period of the Employment
Period of this Agreement commencing with the annual
period November 1, 1996 to October 31, 1997, based
upon achieving the Company's Projected EBIT for such
period. The Option Incentive Bonus shall be computed
as follows: (i) if the Company's actual EBIT is 85%
of Projected EBIT for such annual period, the
Executive shall receive options to purchase 100,000
shares of common stock, par value $.001 per share of
the Company (the "Common Stock"); (ii) if the actual
EBIT is 100% of Projected EBIT for such annual
period, the Executive shall receive, in addition to
the options received pursuant to clause (i) of this
sentence, options to purchase 50,000 shares of Common
Stock; and (iii) if the actual EBIT exceeds 100% of
the Projected EBIT, the Executive shall receive, in
addition to the options received pursuant to clauses
(i) and (ii) of this sentence, options to purchase
such number of shares of Common Stock as shall equal
the number derived by multiplying (.05) and the
positive difference between the actual EBIT and the
Projected EBIT for such period. The Option Incentive
Bonus shall be determined no later than ninety (90)
days after the end of each annual period and granted
immediately upon such determination. Such options
shall have an exercise price equal to the fair market
value on the date of grant (as computed using the
average of the last trade price over the five
consecutive trading days immediately preceding the
date of grant) and shall vest as follows: 1/3 on the
grant date, 1/3 on the first anniversary of the grant
date and 1/3 on the second anniversary of the grant
date.
The parties agree that the Company is authorized to deduct
from the Base Salary and Cash Incentive Bonus of the Executive, and any other
compensation paid to the Executive, such sums as are required by law to be
deducted or withheld.
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<PAGE>
5. EXECUTIVE BENEFITS. The Executive shall be entitled to receive the
following benefits from the Company:
(a) The Company shall pay or reimburse the Executive for
the cost of insurance, maintenance, repair and
gasoline for his automobile, provided, however, that
such expenses are reasonably related to the Company's
business;
(b) The Company shall obtain a life insurance policy
naming the Executive as the insured and such other
party as may be designated as the beneficiary by the
Executive, providing for death benefits of
$500,000.00, with respect to which the Company shall
pay all applicable premiums during the Employment
Period. Such policy shall include a cost of living
escalator, provided that such escalator is available
on commercially reasonable terms;
(c) The Company shall provide the Executive and his
family with medical insurance consistent with the
Company's current and future medical plans for its
senior executives;
(d) The Company shall provide the Executive with annual
dental benefits consistent with the Company's current
dental plan for its senior executives;
(e) The Company shall provide the Executive with
long-term disability insurance providing for
disability payments of $12,500.00 per month. Such
policy may provide that no payments are required
until the Executive has been disabled for a period of
six (6) months;
(f) The Executive shall be entitled to participate in the
Company's stock option plan as available to all
senior executives of the Company, subject to the
discretion of the Board; and
(g) The Executive shall be entitled to twenty three (23)
days of paid vacation for each 12 month period during
the Employment Period. Any vacation shall be taken at
the reasonable and mutual convenience of the Company
and the Executive.
6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the performance of his duties hereunder and the
business of the Company, upon the submission to the Company of appropriate
receipts or vouchers.
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<PAGE>
7. D&O INSURANCE COVERAGE. The Company shall use its best efforts to
obtain and maintain, at the Company's cost and expense, directors' and officers'
liability insurance coverage for the directors and officers of the Company,
including the Executive. Nothing herein shall be deemed to require the Company
to provide such coverage for the Executive if it is not then providing such
coverage generally to its directors and officers.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company, its subsidiaries and any of its
affiliates all information, knowledge and data relating to or concerned with the
Company, its subsidiaries and any of its affiliate's operations, sales, business
and affairs, and he shall not, at any time, either during the Employment Period
or after the termination of the Executive's employment with the Company, use,
disclose or divulge any such information, knowledge or data to any person, firm
or corporation (unless the Company no longer treats such information as
confidential) other than to the Company or its designees and employees or except
as may otherwise be required in connection with the business and affairs of the
Company; PROVIDED, HOWEVER, that the Executive may disclose or divulge such
information, knowledge or data that is or becomes generally available to the
public through no wrongful act on the Executive's part or where such disclosure
is legally compelled by judicial or administrative action, provided that the
Executive agrees to give the Company prompt notice of any such judicial or
administrative action to enable the Company to seek an appropriate protective
order.
9. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by the Executive alone or with others
relating to the businesses of the Company or any of its subsidiaries during the
Employment Period and, whether or not patentable or registrable, shall become
the sole and exclusive property of the Company. The Executive shall disclose the
same promptly and completely to the Company and shall, during the Employment
Period and at any time and from time to time hereafter (i) execute all documents
requested by the Company for vesting in the Company the entire right, title and
interest in and to the same, (ii) execute all documents requested by the Company
for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as the Company, in its sole discretion, may desire to
prosecute, and (iii) give the Company all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect the Company's right therein and thereto.
10. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, the Company shall not have an adequate remedy at law. Accordingly, in
the event of any such breach or threatened breach by the Executive, the Company
shall be entitled to such equitable and injunctive relief as may be
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available to restrain the Executive and any business, firm, partnership,
individual, corporation or entity participating in such breach or threatened
breach from the violation of the provisions hereof. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages and the immediate termination of the employment of the Executive
hereunder.
11. CHANGE OF CONTROL.
(a) If prior to the expiration of the Employment Period, there
is a Change of Control (as such term is defined herein) and thereafter any of
the following occur: (a) the Executive is placed in any position of lesser
stature than that of Chief Executive Officer of the Company; is assigned duties
inconsistent with the Chief Executive Officer or duties which, if performed,
would result in a significant change in the nature or scope of powers,
authority, functions or duties inherent in such positions on the date hereof; is
assigned performance requirements or working conditions which are at variance
with the performance requirements and working conditions in effect on the date
hereof; or is accorded treatment on a general basis that is in derogation of his
status as a Chief Executive Officer; (b) the Executive ceases to serve as a
member of the Company's Board; (c) any breach of Paragraphs 4, 5, 6, or 7,
inclusive, of this Agreement; or (d) any requirement of the Company that the
location at which the Executive performs his principal duties for the Company be
outside a radius of 50 miles from the location at which the Executive performed
such duties immediately prior to the Change of Control, then the Agreement shall
be deemed to have been terminated by the Company otherwise than by reason of
Cause and the Company shall pay to Executive within five days after notice from
Executive to such effect, as liquidated damages, a lump sum cash payment equal
to 2.99 times the "base amount" of Executive's compensation. For purposes
hereof, "base amount" shall have the meaning provided in Section 280G (b) (2)
(A) of the Internal Revenue Code of 1986, as amended, and the Proposed
Regulations thereunder.
(b) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of the Company to any person or
entity or group of persons or entities acting in concert as a partnership or
other group (a "Group of Persons"), (ii) the merger, consolidation or other
business combination of the Company with or into another corporation with the
effect that the shareholders of the Company, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (iii) the
replacement of a majority of the Company's Board in any given year as compared
to the directors who constituted the Company's Board at the beginning of such
year, and
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such replacement shall not have been approved by the Company's Board, as the
case may be, as constituted at the beginning of such year, (iv) a person or
Group of Persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of securities of the Company representing 50% or more
of the combined voting power of the then outstanding securities of such
corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
12. EARLY TERMINATION.
(a) The Employment Period shall terminate without action on
the part of the Company upon the death of the Executive. The Employment Period
shall also terminate upon 30 days written notice by the Company to the
Executive, (i) in the event that the Executive shall become "Permanently
Incapacitated" (as hereinafter defined); or (ii) for "Cause" (as hereinafter
defined). The Employment Period shall also terminate upon written notice by the
Executive to the Company for "Good Reason" (as hereinafter defined);
(b) For purposes of this Agreement, the Executive shall be
deemed Permanently Incapacitated in the event that the Executive shall, by
reason of his physical or mental disability as determined by the Executive's
physician or a physician designated by the Company, fail to substantially
perform his usual and regular duties for the Company for a period of 120
consecutive days or for an aggregate of 120 days in any consecutive six month
period.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of the Company, or willful and
repeated refusal of the Executive to follow the lawful directives of the Board
for the performance of material duties which the Executive is required to
perform hereunder (other than for reason of becoming Permanently Incapacitated),
after at least ten (10) days prior written notice by the Company providing the
Executive with an opportunity to cure such failure.
(d) For purposes of this Agreement, "Good Reason" shall mean
any diminution of the Executive's position, duties, responsibilities or
compensation as Chief Executive Officer of the Company or the geographic
relocation of the Executive's position as Chief Executive Officer of the
Company.
(e) In the event the Employment Period is terminated by reason
of the Executive's death, the Company shall, within 30 days, pay to the
Executive's estate the Base Salary, as adjusted, to and including the date of
such termination, any unpaid bonus payments previously determined by the Board
and all expense reimbursements due the Executive.
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(f) In the event the Employment Period is terminated (i) by
the Company for Cause, or (ii) by the Executive without Good Reason, the Company
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, any unpaid bonus payments previously
determined by the Board and all expense reimbursements due the Executive.
(g) In the event the Employment Period is terminated due to
the Executive becoming Permanently Incapacitated, the Company shall, within 30
days, pay to the Executive an amount equal to six months of his Base Salary, as
adjusted, to and including the date of such termination, any unpaid bonus
payments previously determined by the Board and all expense reimbursements due
the Executive.
(h) In the event the Employment Period is terminated (i) by
the Company without Cause, or (ii) by the Executive with Good Reason, the
Company shall, within 30 days, pay to the Executive an amount equal to the total
of all payments of Base Salary for the remainder of the Employment Period, but
in no event shall such payment be less than $500,000. In addition, the Executive
shall be entitled to any unpaid bonus payments previously determined by the
Board for the remainder of the Employment Period, shall be paid for accrued but
unused vacation time determined on a pro-rata basis and shall be entitled to the
benefits provided pursuant to Section 5 hereof for the remainder of the
Employment Period. Notwithstanding anything to the contrary herein, no payment
shall be made to the Executive under this Section 12(h) if the Executive is paid
liquidated damages following a Change of Control of the Company as set forth in
Section 11(a) above.
13. PURCHASE OF OPTIONS.
In the event the Executive is entitled to liquidated damages
upon a Change of Control as provided in Section 11(a) hereof or if the
Employment Period is terminated by the Company without Cause, or by the
Executive with Good Reason, the Company shall purchase from the Executive, any
and all stock options granted by the Company and held by the Executive at the
time of termination or Change of Control, whether or not vested, for a price
equal to the Option Purchase Amount. The Option Purchase Amount shall mean the
average closing bid price of the Company's Common Stock on the Nasdaq Small-Cap
market or such other market in which the Company's Common Stock is then traded
over five (5) trading days prior to the termination less the exercise price of
such options. In the event the Option Purchase Amount is not paid to the
Executive within five business days of the occurrence of any triggering event
described in the first sentence of this Section 13, the Option Purchase
Agreement shall accrue interest at an interest rate of 10% per annum, until the
Option Purchase Amount, plus such accrued interest, is paid to the Executive.
The Executive shall also continue to receive his Base Salary, and be entitled to
all benefits described in Section 5, until payment of the Option Purchase
Amount, plus interest, if any, at which time payment of the Base Salary and
entitlement to the benefits
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described in Section 5 shall terminate unless otherwise provided in this
Agreement.
14. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of New York,
State of New York, by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section. The cost of any arbitration proceeding hereunder shall be borne equally
by the Company and the Executive. In the absence of fraud, the award of the
arbitrators shall be binding upon the parties and judgment thereon may be
entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees and costs and expenses in connection with the
enforcement of his rights, including the enforcement of any arbitration award up
to $50,000 in the aggregate.
15. ENTIRE AGREEMENT; AMENDMENT. This agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all existing agreements between them concerning such subject matter,
provided, however, that the employment agreement between the Company and the
Executive which was to expire on its terms on December 31, 1996 shall remain in
full force and effect until November 1, 1996. No amendment to or modification of
this Agreement shall be valid or binding unless made in writing and signed by
the party against whom enforcement thereof is sought.
16. NOTICES. Any notice or other communication required or
permitted to be given by this Agreement shall be writing and shall
be effectively given if:
(a) delivered personally by hand;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
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in each case addressed as follows:
(i) if to the Executive:
65 Central Park West, Apt. 2D
New York, NY 10023
(ii) if to the Company:
151 Veterans Drive
Northvale, N.J. 07647
Attention: James Caci
Telecopier No. (201) 768-2947
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this Section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this Section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
17. WAIVERS. No course of dealing nor any delay on the part of any
party hereto in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
18. GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New Jersey, except that
body of law relating to choice of laws.
19. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or
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illegal, for any reason, by any court of competent jurisdiction, such provision
shall be ineffective but shall not in any way invalidate or affect any other
clause, paragraph, section or part of this Agreement.
20. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
21. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts which may be by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
GLASGAL COMMUNICATIONS, INC.
By: /S/ JAMES CACI
/S/ ISAAC GAON ---------------------------------
- -------------------------- Name: JAMES M. CACI
ISAAC J. GAON Title: Chief Financial
Officer
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of October 31, 1996, by and between Glasgal Communications, Inc., a Delaware
corporation located at 151 Veterans Drive, Northvale, New Jersey 07647 (the
"Company") and James M. Caci, residing at 17 Ackerson Avenue, Pequannock, New
Jersey 07440 (the "Executive").
IN CONSIDERATION of the covenants and agreements set forth herein, and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged) the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs the Executive as
its Vice President- Finance, Chief Financial Officer, Secretary and Treasurer on
a full-time basis to perform the duties and responsibilities incident to such
offices, subject at all times to the control and direction of the Board of
Directors of the Company (the "Board").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. The Executive hereby
accepts such employment and agrees that throughout the Employment Period (as
hereinafter defined), he will devote such full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of the Company as are necessary to perform the duties and
responsibilities assigned to him pursuant to Section 1 hereof, subject, at all
times, to the direction and control of the Board and the Chief Executive Officer
of the Company. The Executive shall at all times be subject to, observe and
carry out such rules, regulations, policies, directions and restrictions as the
Company shall from time to time establish.
3. TERM. The Company agrees to employ the Executive and the Executive
agrees to serve, on the terms and conditions of this Agreement, for a period
commencing as of November 1, 1996 and ending on October 31, 1999, unless earlier
terminated in accordance with Section 12 hereof (the "Employment Period").
4. COMPENSATION. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive the following:
(a) a base salary of $150,000 per annum, payable in
equal, bi-weekly installments, or such other greater
amount as the Board may determine at its sole
discretion upon an annual review (the "Base Salary").
The Base Salary shall be increased annually,
beginning November 1, 1997, by a percentage equal to
the percentage by which the
<PAGE>
Consumer Price Index for Urban Wage Borrowers and
Clerical Workers: New York, N.Y. - Northeastern New
Jersey (1982-84 equals 100), as published by the
Bureau of Labor Statistics of the United States
Department of Labor, shall have increased over the
preceding year (the "CPI Adjustment"). The CPI
Adjustment shall be made as soon as possible, but in
no event later than fifteen (15) days after the date
upon which the Bureau of Labor publishes its consumer
price index statistics for the month of December. Any
portion of the increase in the Executive's
compensation retroactively due shall be payable
immediately upon determination of the adjustment. If
publication of the Consumer Price Index is
discontinued, the parties hereto shall accept
comparable statistics on the cost of living for the
New York, N.Y. - Northeastern New Jersey area as
computed and published by an agency of the United
States or by a responsible financial periodical of
recognized authority then to be selected by the
parties. Notwithstanding anything herein to the
contrary, in no event shall the CPI Adjustment be
less than the cost of living increase in compensation
granted to other senior executives of the Company;
(b) In addition to his Base Salary hereunder, the
Executive shall be entitled to an additional cash
bonus (the "Cash Incentive Bonus") during each annual
period of the Employment Period of this Agreement
commencing with the annual period November 1, 1996 to
October 31, 1997, based upon achieving the Company's
Projected EBIT (as defined below). As used herein,
"EBIT" shall mean, with respect to any annual period
hereunder, the sum of the consolidated net income (or
loss) for the Company and each of its subsidiaries
for such period calculated in accordance with
generally accepted accounting principles, excluding
therefrom any extraordinary items of income or loss,
plus all amounts deducted therefrom on account of
income taxes and interest expense. The Cash Incentive
Bonus shall be computed as follows: (i) if the
Company's actual EBIT for the annual period ending
October 31, 1997 is $8,100,000 and the Company's
actual EBIT for the annual periods ending October 31,
1998 and 1999 are equal to EBIT projections which
shall be mutually determined in good faith by the
Company's Board of Directors and the Executive prior
to such annual period (the "Projected EBIT") the
Executive shall receive a Cash Incentive Bonus of
$50,000 for each such period in which Projected
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EBIT is met; and (ii) if the Company's actual EBIT
exceeds the Projected EBIT for such annual period,
the Executive shall receive, in addition to the
amount earned pursuant to Section 4(b)(i), an amount
equal to 2.5% of such excess, provided, however, that
such amount earned pursuant to Section 4(b)(ii) for
each annual period shall not exceed $50,000. The Cash
Incentive Bonus shall be determined no later than
ninety (90) days after the end of each annual period
and paid promptly thereafter.
(c) In addition to the Base Salary and the Cash Incentive
Bonus payable hereunder, the Executive shall be
entitled to receive the options to purchase shares of
the Company's Common Stock (the "Option Incentive
Bonus") during each annual period of the Employment
Period of this Agreement commencing with the annual
period November 1, 1996 to October 31, 1997, based
upon achieving the Company's Projected EBIT for such
period. The Option Incentive Bonus shall be computed
as follows: (i) if the Company's actual EBIT is 85%
of Projected EBIT for such annual period, the
Executive shall receive options to purchase 50,000
shares of common stock, par value $.001 per share of
the Company (the "Common Stock"); (ii) if the actual
EBIT is 100% of Projected EBIT for such annual
period, the Executive shall receive, in addition to
the options received pursuant to clause (i) of this
sentence, options to purchase an additional 25,000
shares of Common Stock; and (iii) if the actual EBIT
exceeds 100% of the Projected EBIT, the Executive
shall receive, in addition to the options received
pursuant to clauses (i) and (ii) of this sentence,
options to purchase such number of shares of Common
Stock as shall equal the number derived by
multiplying (.025) and the positive difference
between the actual EBIT and the Projected EBIT for
such period. The Option Incentive Bonus shall be
determined no later than ninety (90) days after the
end of each annual period and granted immediately
upon such determination. Such options shall have an
exercise price equal to the fair market value on the
date of grant (as computed using the average of the
last trade price over the five consecutive trading
days immediately preceding the date of grant) and
shall vest as follows: 1/3 on the grant date, 1/3 on
the first anniversary of the grant date and 1/3 on
the second anniversary of the grant date.
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The parties agree that the Company is authorized to deduct
from the Base Salary and Cash Incentive Bonus of the Executive, and any other
compensation paid to the Executive, such sums as are required by law to be
deducted or withheld.
5. EXECUTIVE BENEFITS. The Executive shall be entitled to receive the
following benefits from the Company:
(a) The Company shall pay or reimburse the Executive for
the cost of insurance, maintenance, repair and
gasoline for his automobile, provided, however, that
such expenses are reasonably related to the Company's
business;
(b) The Company shall obtain a life insurance policy
naming the Executive as the insured and such other
party as may be designated as the beneficiary by the
Executive, providing for death benefits of $300,000,
with respect to which the Company shall pay all
applicable premiums during the Employment Period.
Such policy shall include a cost of living escalator,
provided that such escalator is available on
commercially reasonable terms;
(c) The Company shall provide the Executive and his
family with medical insurance consistent with the
Company's current and future medical plans for its
senior executives;
(d) The Company shall provide the Executive with annual
dental benefits consistent with the Company's current
dental plan for its senior executives;
(e) The Company shall provide the Executive with
long-term disability insurance providing for
disability payments of $8,000.00 per month. Such
policy may provide that no payments are required
until the Executive has been disabled for a period of
six (6) months;
(f) The Executive shall be entitled to participate in the
Company's stock option plan as available to all
senior executives of the Company, subject to the
discretion of the Board; and
(g) The Executive shall be entitled to twenty three (23)
days of paid vacation for each 12 month period during
the Employment Period. Any vacation shall be taken at
the reasonable and mutual convenience of the Company
and the Executive.
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6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the performance of his duties hereunder and the
business of the Company, upon the submission to the Company of appropriate
receipts or vouchers.
7. D&O INSURANCE COVERAGE. The Company shall use its best efforts to
obtain and maintain, at the Company's cost and expense, directors' and officers'
liability insurance coverage for the directors and officers of the Company,
including the Executive. Nothing herein shall be deemed to require the Company
to provide such coverage for the Executive if it is not then providing such
coverage generally to its directors and officers.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company, its subsidiaries and any of its
affiliates all information, knowledge and data relating to or concerned with the
Company, its subsidiaries and any of its affiliate's operations, sales, business
and affairs, and he shall not, at any time, either during the Employment Period
or after the termination of the Executive's employment with the Company, use,
disclose or divulge any such information, knowledge or data to any person, firm
or corporation (unless the Company no longer treats such information as
confidential) other than to the Company or its designees and employees or except
as may otherwise be required in connection with the business and affairs of the
Company; PROVIDED, HOWEVER, that the Executive may disclose or divulge such
information, knowledge or data that is or becomes generally available to the
public through no wrongful act on the Executive's part or where such disclosure
is legally compelled by judicial or administrative action, provided that the
Executive agrees to give the Company prompt notice of any such judicial or
administrative action to enable the Company to seek an appropriate protective
order.
9. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by the Executive alone or with others
relating to the businesses of the Company or any of its subsidiaries during the
Employment Period and, whether or not patentable or registrable, shall become
the sole and exclusive property of the Company. The Executive shall disclose the
same promptly and completely to the Company and shall, during the Employment
Period and at any time and from time to time hereafter (i) execute all documents
requested by the Company for vesting in the Company the entire right, title and
interest in and to the same, (ii) execute all documents requested by the Company
for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as the Company, in its sole discretion, may desire to
prosecute, and (iii) give the Company all assistance it reasonably requires,
including the giving
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of testimony in any suit, action or proceeding, in order to obtain, maintain and
protect the Company's right therein and thereto.
10. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, the Company shall not have an adequate remedy at law. Accordingly, in
the event of any such breach or threatened breach by the Executive, the Company
shall be entitled to such equitable and injunctive relief as may be available to
restrain the Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened breach from the
violation of the provisions hereof. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available at law or in
equity for such breach or threatened breach, including the recovery of damages
and the immediate termination of the employment of the Executive hereunder.
11. CHANGE OF CONTROL.
(a) If prior to the expiration of the Employment Period, there
is a Change of Control (as such term is defined herein) and thereafter any of
the following occur: (a) the Executive is placed in any position of lesser
stature than that of Vice President- Finance, Chief Financial Officer, Secretary
and Treasurer of the Company; is assigned duties inconsistent with Vice
President- Finance, Chief Financial Officer, Secretary and Treasurer or duties
which, if performed, would result in a significant change in the nature or scope
of powers, authority, functions or duties inherent in such positions on the date
hereof; is assigned performance requirements or working conditions which are at
variance with the performance requirements and working conditions in effect on
the date hereof; or is accorded treatment on a general basis that is in
derogation of his status as Vice President- Finance, Chief Financial Officer,
Secretary and Treasurer; (b) any breach of Paragraphs 4, 5, 6, or 7, inclusive,
of this Agreement; or (c) any requirement of the Company that the location at
which the Executive performs his principal duties for the Company be outside a
radius of 50 miles from the location at which the Executive performed such
duties immediately prior to the Change of Control, then the Agreement shall be
deemed to have been terminated by the Company otherwise than by reason of Cause
and the Company shall pay to Executive within five days after notice from
Executive to such effect, as liquidated damages, a lump sum cash payment equal
to 2.99 times the "base amount" of Executive's compensation. For purposes
hereof, "base amount" shall have the meaning provided in Section 280G (b) (2)
(A) of the Internal Revenue Code of 1986, as amended, and the Proposed
Regulations thereunder.
(b) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the
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assets of the Company to any person or entity or group of persons or entities
acting in concert as a partnership or other group (a "Group of Persons"), (ii)
the merger, consolidation or other business combination of the Company with or
into another corporation with the effect that the shareholders of the Company,
as the case may be, immediately following the merger, consolidation or other
business combination, hold 50% or less of the combined voting power of the then
outstanding securities of the surviving corporation of such merger,
consolidation or other business combination ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors, (iii) the replacement of a majority of the Company's Board in any
given year as compared to the directors who constituted the Company's Board at
the beginning of such year, and such replacement shall not have been approved by
the Company's Board, as the case may be, as constituted at the beginning of such
year, (iv) a person or Group of Persons shall, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of securities of the
Company representing 50% or more of the combined voting power of the then
outstanding securities of such corporation ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
12. EARLY TERMINATION.
(a) The Employment Period shall terminate without action on
the part of the Company upon the death of the Executive. The Employment Period
shall also terminate upon 30 days written notice by the Company to the
Executive, (i) in the event that the Executive shall become "Permanently
Incapacitated" (as hereinafter defined); or (ii) for "Cause" (as hereinafter
defined). The Employment Period shall also terminate upon written notice by the
Executive to the Company for "Good Reason" (as hereinafter defined);
(b) For purposes of this Agreement, the Executive shall be
deemed Permanently Incapacitated in the event that the Executive shall, by
reason of his physical or mental disability as determined by the Executive's
physician or a physician designated by the Company, fail to substantially
perform his usual and regular duties for the Company for a period of 120
consecutive days or for an aggregate of 120 days in any consecutive six month
period.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of the Company, or willful and
repeated refusal of the Executive to follow the lawful directives of the Board
for the performance of material duties which the Executive is required to
perform hereunder (other than for reason of becoming Permanently Incapacitated),
after at
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least ten (10) days prior written notice by the Company providing the Executive
with an opportunity to cure such failure.
(d) For purposes of this Agreement, "Good Reason" shall mean
any diminution of the Executive's position, duties, responsibilities or
compensation as Vice President- Finance, Chief Financial Officer, Secretary and
Treasurer of the Company or the geographic relocation of the Executive's
position as Vice President- Finance, Chief Financial Officer, Secretary and
Treasurer of the Company.
(e) In the event the Employment Period is terminated by reason
of the Executive's death, the Company shall, within 30 days, pay to the
Executive's estate the Base Salary, as adjusted, to and including the date of
such termination, any unpaid bonus payments previously determined by the Board
and all expense reimbursements due the Executive.
(f) In the event the Employment Period is terminated (i) by
the Company for Cause, or (ii) by the Executive without Good Reason, the Company
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, any unpaid bonus payments previously
determined by the Board and all expense reimbursements due the Executive.
(g) In the event the Employment Period is terminated due to
the Executive becoming Permanently Incapacitated, the Company shall, within 30
days, pay to the Executive an amount equal to six months of his Base Salary, as
adjusted, to and including the date of such termination, any unpaid bonus
payments previously determined by the Board and all expense reimbursements due
the Executive.
(h) In the event the Employment Period is terminated (i) by
the Company without Cause, or (ii) by the Executive with Good Reason, the
Company shall, within 30 days, pay to the Executive an amount equal to the total
of all payments of Base Salary for the remainder of the Employment Period, but
in no event shall such payment be less than $300,000. In addition, the Executive
shall be entitled to any unpaid bonus payments previously determined by the
Board for the remainder of the Employment Period, shall be paid for accrued but
unused vacation time determined on a pro-rata basis and shall be entitled to the
benefits provided pursuant to Section 5 hereof for the remainder of the
Employment Period. Notwithstanding anything to the contrary herein, no payment
shall be made to the Executive under this Section 12(h) if the Executive is paid
liquidated damages following a Change of Control of the Company as set forth in
Section 11(a) above.
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13. PURCHASE OF OPTIONS.
In the event the Executive is entitled to liquidated damages
upon a Change of Control as provided in Section 11(a) hereof or if the
Employment Period is terminated by the Company without Cause, or by the
Executive with Good Reason, the Company shall purchase from the Executive, any
and all stock options granted by the Company and held by the Executive at the
time of termination or Change of Control, whether or not vested, for a price
equal to the Option Purchase Amount. The Option Purchase Amount shall mean the
average closing bid price of the Company's Common Stock on the Nasdaq Small-Cap
market or such other market in which the Company's Common Stock is then traded
over five (5) trading days prior to the termination less the exercise price of
such options. In the event the Option Purchase Amount is not paid to the
Executive within five business days of the occurrence of any triggering event
described in the first sentence of this Section 13, the Option Purchase
Agreement shall accrue interest at an interest rate of 10% per annum, until the
Option Purchase Amount, plus such accrued interest, is paid to the Executive.
The Executive shall also continue to receive his Base Salary, and be entitled to
all benefits described in Section 5, until payment of the Option Purchase
Amount, plus interest, if any, at which time payment of the Base Salary and
entitlement to the benefits described in Section 5 shall terminate unless
otherwise provided in this Agreement.
14. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of New York,
State of New York, by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section. The cost of any arbitration proceeding hereunder shall be borne equally
by the Company and the Executive. In the absence of fraud, the award of the
arbitrators shall be binding upon the parties and judgment thereon may be
entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable
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attorneys' fees and costs and expenses in connection with the enforcement of his
rights, including the enforcement of any arbitration award up to $50,000 in the
aggregate.
15. ENTIRE AGREEMENT; AMENDMENT. This agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter.
No amendment to or modification of this Agreement shall be valid or binding
unless made in writing and signed by the party against whom enforcement thereof
is sought.
16. NOTICES. Any notice or other communication required or permitted to
be given by this Agreement shall be writing and shall be effectively given if:
(a) delivered personally by hand;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in each case addressed as follows:
(i) if to the Executive:
17 Ackerson Avenue
Pequannock, New Jersey 07440
(ii) if to the Company:
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this Section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day
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and such transmission is completed before 5:00 p.m. on such day, failing which
such notice or other communication shall be deemed given and received on the
first business day after its transmission. Regardless of the foregoing, if there
is a mail stoppage or labor dispute or threatened labor dispute which has
affected or could affect normal mail delivery, then no notice or other
communication may be delivered by registered mail. If there has been a mail
stoppage and if a party sends a notice or other communication by telecopier,
telex or other similar means of electronic communication, such party shall be
relieved from the obligation to mail the original document in accordance with
this Section. "Business day" means any day other than a Saturday, a Sunday or a
statutory holiday observed in New York City, New York.
17. WAIVERS. No course of dealing nor any delay on the part of any
party hereto in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
18. GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New Jersey, except that
body of law relating to choice of laws.
19. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
20. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
21. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts which may be by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
GLASGAL COMMUNICATIONS, INC.
By:/S/ ISAAC J. GAON
/S/ JAMES M. CACI --------------------------------------
- -------------------------- Name: ISAAC J. GAON
JAMES M. CACI Title: Chief Executive
Officer
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of December 31, 1996, by and between Glasgal Communications, Inc., a Delaware
corporation located at 151 Veterans Drive, Northvale, New Jersey 07647 (the
"Company") and Robert F. Gadd IV, residing at Clinch Road, Herndon, Virginia
20170-2412 (the "Executive").
IN CONSIDERATION of the covenants and agreements set forth herein, and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged) the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs the Executive as
its Senior Vice President on a full-time basis to perform the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of the Company (the "Board").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. The Executive hereby
accepts such employment and agrees that throughout the Employment Period (as
hereinafter defined), he will devote such full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of the Company as are necessary to perform the duties and
responsibilities assigned to him pursuant to Section 1 hereof, subject, at all
times, to the direction and control of the Board and the Chief Executive Officer
of the Company. The Executive shall at all times be subject to, observe and
carry out such rules, regulations, policies, directions and restrictions as the
Company shall from time to time establish.
3. TERM. The Company agrees to employ the Executive and the Executive
agrees to serve, on the terms and conditions of this Agreement, for a period
commencing as of January 1, 1997 and ending on December 31, 1999, unless earlier
terminated in accordance with Section 12 hereof (the "Employment Period").
4. COMPENSATION. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive the following:
(a) a base salary of $155,000 per annum, payable in
equal, bi-weekly installments, or such other greater
amount as the Board may determine at its sole
discretion upon an annual review (the "Base Salary").
The Base Salary shall be increased annually,
beginning January 1, 1998, by a percentage equal to
the percentage by which the
<PAGE>
Consumer Price Index for Urban Wage Borrowers and
Clerical Workers: New York, N.Y. - Northeastern New
Jersey (1982-84 equals 100), as published by the
Bureau of Labor Statistics of the United States
Department of Labor, shall have increased over the
preceding year (the "CPI Adjustment"). The CPI
Adjustment shall be made as soon as possible, but in
no event later than fifteen (15) days after the date
upon which the Bureau of Labor publishes its consumer
price index statistics for the month of December. Any
portion of the increase in the Executive's
compensation retroactively due shall be payable
immediately upon determination of the adjustment. If
publication of the Consumer Price Index is
discontinued, the parties hereto shall accept
comparable statistics on the cost of living for the
New York, N.Y. - Northeastern New Jersey area as
computed and published by an agency of the United
States or by a responsible financial periodical of
recognized authority then to be selected by the
parties. Notwithstanding anything herein to the
contrary, in no event shall the CPI Adjustment be
less than the cost of living increase in compensation
granted to other senior executives of the Company;
(b) In addition to his Base Salary hereunder, the
Executive shall be entitled to an additional cash
bonus (the "Cash Incentive Bonus") during each annual
period of the Employment Period of this Agreement
commencing with the annual period January 1, 1997 to
December 31, 1997, based upon achieving the Company's
Projected EBIT (as defined below). As used herein,
"EBIT" shall mean, with respect to any annual period
hereunder, the sum of the consolidated net income (or
loss) for the Company and each of its subsidiaries
for such period calculated in accordance with
generally accepted accounting principles, excluding
therefrom any extraordinary items of income or loss,
plus all amounts deducted therefrom on account of
income taxes and interest expense. The Cash Incentive
Bonus shall be computed as follows: (i) if the
Company's actual EBIT for the annual period ending
December 31, 1997 is $8,100,000 and the Company's
actual EBIT for the annual periods ending December
31, 1998 and 1999 are equal to EBIT projections which
shall be mutually determined in good faith by the
Company's Board of Directors and the Executive prior
to such annual period (the "Projected EBIT") the
Executive shall receive a Cash Incentive Bonus of
$45,000 for each such period in which Projected
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EBIT is met; and (ii) if the Company's actual EBIT
exceeds the Projected EBIT for such annual period,
the Executive shall receive, in addition to the
amount earned pursuant to Section 4(b)(i), an amount
equal to 2.5% of such excess, provided, however, that
such amount earned pursuant to Section 4(b)(ii) for
each annual period shall not exceed $75,000. [For
each annual period in the the Employment Period,
one-half of the Cash Incentive Bonus shall be
determined no later than ninety (90) days after the
end of each six month period and paid promptly
thereafter and the other one-half of the Cash
Incentive Bonus shall be determined no later than
ninety (90) days after the end of each annual month
period and paid promptly thereafter-- How? EBIT
performance numbers are annual].
(c) In addition to the Base Salary and the Cash Incentive
Bonus payable hereunder, the Executive shall be
entitled to receive the options to purchase shares of
the Company's Common Stock (the "Option Incentive
Bonus") during each annual period of the Employment
Period of this Agreement commencing with the annual
period January 1, 1997 to December 31, 1998, based
upon achieving the Company's Projected EBIT for such
period. The Option Incentive Bonus shall be computed
as follows: (i) if the Company's actual EBIT is 85%
of Projected EBIT for such annual period, the
Executive shall receive options to purchase 40,000
shares of common stock, par value $.001 per share of
the Company (the "Common Stock"); (ii) if the actual
EBIT is 100% of Projected EBIT for such annual
period, the Executive shall receive, in addition to
the options received pursuant to clause (i) of this
sentence, options to purchase an additional 20,000
shares of Common Stock; and (iii) if the actual EBIT
exceeds 100% of the Projected EBIT, the Executive
shall receive, in addition to the options received
pursuant to clauses (i) and (ii) of this sentence,
options to purchase such number of shares of Common
Stock as shall equal the number derived by
multiplying (.025) and the positive difference
between the actual EBIT and the Projected EBIT for
such period. The Option Incentive Bonus shall be
determined no later than ninety (90) days after the
end of each annual period and granted immediately
upon such determination. Such options shall have an
exercise price equal to the fair market value on the
date of grant (as computed using the average of the
last trade price over the five consecutive trading
days
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immediately preceding the date of grant) and shall
vest as follows: 1/3 on the grant date, 1/3 on the
first anniversary of the grant date and 1/3 on the
second anniversary of the grant date.
The parties agree that the Company is authorized to deduct
from the Base Salary and Cash Incentive Bonus of the Executive, and any other
compensation paid to the Executive, such sums as are required by law to be
deducted or withheld.
5. EXECUTIVE BENEFITS. The Executive shall be entitled to receive the
following benefits from the Company:
(a) The Company shall pay or reimburse the Executive for
the cost of insurance, maintenance, repair and
gasoline for his automobile, provided, however, that
such expenses are reasonably related to the Company's
business;
(b) The Company shall provide the Executive and his
family with medical insurance consistent with the
Company's current and future medical plans for its
senior executives;
(c) The Company shall provide the Executive with annual
dental benefits consistent with the Company's current
dental plan for its senior executives;
(d) The Company shall reimburse the Executive on a
quarterly basis for payments made under his long-term
disability insurance policy in an amount not to
exceed $[ ] per quarterly period;
(e) The Executive shall be entitled to participate in
the Company's stock option plan as available to all
senior executives of the Company, subject to the
discretion of the Board; and
(f) The Executive shall be entitled to twenty three (23)
days of paid vacation for each 12 month period during
the Employment Period. Any vacation shall be taken at
the reasonable and mutual convenience of the Company
and the Executive.
6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the performance of his duties hereunder and the
business of the Company, upon the submission to the Company of appropriate
receipts or vouchers.
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7. D&O INSURANCE COVERAGE. The Company shall use its best efforts to
obtain and maintain, at the Company's cost and expense, directors' and officers'
liability insurance coverage for the directors and officers of the Company,
including the Executive. Nothing herein shall be deemed to require the Company
to provide such coverage for the Executive if it is not then providing such
coverage generally to its directors and officers.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company, its subsidiaries and any of its
affiliates all information, knowledge and data relating to or concerned with the
Company, its subsidiaries and any of its affiliate's operations, sales, business
and affairs, and he shall not, at any time, either during the Employment Period
or after the termination of the Executive's employment with the Company, use,
disclose or divulge any such information, knowledge or data to any person, firm
or corporation (unless the Company no longer treats such information as
confidential) other than to the Company or its designees and employees or except
as may otherwise be required in connection with the business and affairs of the
Company; PROVIDED, HOWEVER, that the Executive may disclose or divulge such
information, knowledge or data that is or becomes generally available to the
public through no wrongful act on the Executive's part or where such disclosure
is legally compelled by judicial or administrative action, provided that the
Executive agrees to give the Company prompt notice of any such judicial or
administrative action to enable the Company to seek an appropriate protective
order.
9. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by the Executive alone or with others
relating to the businesses of the Company or any of its subsidiaries during the
Employment Period and, whether or not patentable or registrable, shall become
the sole and exclusive property of the Company. The Executive shall disclose the
same promptly and completely to the Company and shall, during the Employment
Period and at any time and from time to time hereafter (i) execute all documents
requested by the Company for vesting in the Company the entire right, title and
interest in and to the same, (ii) execute all documents requested by the Company
for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as the Company, in its sole discretion, may desire to
prosecute, and (iii) give the Company all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect the Company's right therein and thereto.
10. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, the Company shall not have an
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adequate remedy at law. Accordingly, in the event of any such breach or
threatened breach by the Executive, the Company shall be entitled to such
equitable and injunctive relief as may be available to restrain the Executive
and any business, firm, partnership, individual, corporation or entity
participating in such breach or threatened breach from the violation of the
provisions hereof. Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies available at law or in equity for such breach
or threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
11. CHANGE OF CONTROL.
(a) If prior to the expiration of the Employment Period, there
is a Change of Control (as such term is defined herein) and thereafter any of
the following occur: (a) the Executive is placed in any position of lesser
stature than that of Senior Vice President of the Company; is assigned duties
inconsistent with Senior Vice President or duties which, if performed, would
result in a significant change in the nature or scope of powers, authority,
functions or duties inherent in such positions on the date hereof; is assigned
performance requirements or working conditions which are at variance with the
performance requirements and working conditions in effect on the date hereof; or
is accorded treatment on a general basis that is in derogation of his status as
Senior Vice President; (b) any breach of Paragraphs 4, 5, 6, or 7, inclusive, of
this Agreement; or (c) any requirement of the Company that the location at which
the Executive performs his principal duties for the Company be outside a radius
of 50 miles from the location at which the Executive performed such duties
immediately prior to the Change of Control, then the Agreement shall be deemed
to have been terminated by the Company otherwise than by reason of Cause and the
Company shall pay to Executive within five days after notice from Executive to
such effect, as liquidated damages, a lump sum cash payment equal to 2.99 times
the "base amount" of Executive's compensation. For purposes hereof, "base
amount" shall have the meaning provided in Section 280G (b) (2) (A) of the
Internal Revenue Code of 1986, as amended, and the Proposed Regulations
thereunder.
(b) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of the Company to any person or
entity or group of persons or entities acting in concert as a partnership or
other group (a "Group of Persons"), (ii) the merger, consolidation or other
business combination of the Company with or into another corporation with the
effect that the shareholders of the Company, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
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combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (iii) the
replacement of a majority of the Company's Board in any given year as compared
to the directors who constituted the Company's Board at the beginning of such
year, and such replacement shall not have been approved by the Company's Board,
as the case may be, as constituted at the beginning of such year, (iv) a person
or Group of Persons shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of securities of the Company representing 50% or more
of the combined voting power of the then outstanding securities of such
corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
12. EARLY TERMINATION.
(a) The Employment Period shall terminate without action on
the part of the Company upon the death of the Executive. The Employment Period
shall also terminate upon 30 days written notice by the Company to the
Executive, (i) in the event that the Executive shall become "Permanently
Incapacitated" (as hereinafter defined); or (ii) for "Cause" (as hereinafter
defined). The Employment Period shall also terminate upon written notice by the
Executive to the Company for "Good Reason" (as hereinafter defined);
(b) For purposes of this Agreement, the Executive shall be
deemed Permanently Incapacitated in the event that the Executive shall, by
reason of his physical or mental disability as determined by the Executive's
physician or a physician designated by the Company, fail to substantially
perform his usual and regular duties for the Company for a period of 120
consecutive days or for an aggregate of 120 days in any consecutive six month
period.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of the Company, or willful and
repeated refusal of the Executive to follow the lawful directives of the Board
for the performance of material duties which the Executive is required to
perform hereunder (other than for reason of becoming Permanently Incapacitated),
after at least ten (10) days prior written notice by the Company providing the
Executive with an opportunity to cure such failure.
(d) For purposes of this Agreement, "Good Reason" shall mean
any diminution of the Executive's position, duties, responsibilities or
compensation as Senior Vice President of the Company or the geographic
relocation of the Executive's position as Vice President- Federal and Enterprise
Systems.
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(e) In the event the Employment Period is terminated by reason
of the Executive's death, the Company shall, within 30 days, pay to the
Executive's estate the Base Salary, as adjusted, to and including the date of
such termination, any unpaid bonus payments previously determined by the Board
and all expense reimbursements due the Executive.
(f) In the event the Employment Period is terminated (i) by
the Company for Cause, or (ii) by the Executive without Good Reason, the Company
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, any unpaid bonus payments previously
determined by the Board and all expense reimbursements due the Executive.
(g) In the event the Employment Period is terminated due to
the Executive becoming Permanently Incapacitated, the Company shall, within 30
days, pay to the Executive an amount equal to six months of his Base Salary, as
adjusted, to and including the date of such termination, any unpaid bonus
payments previously determined by the Board and all expense reimbursements due
the Executive.
(h) In the event the Employment Period is terminated (i) by
the Company without Cause, or (ii) by the Executive with Good Reason, the
Company shall, within 30 days, pay to the Executive an amount equal to the total
of all payments of Base Salary for the remainder of the Employment Period, but
in no event shall such payment be less than $200,000. In addition, the Executive
shall be entitled to any unpaid bonus payments previously determined by the
Board for the remainder of the Employment Period, shall be paid for accrued but
unused vacation time determined on a pro-rata basis and shall be entitled to the
benefits provided pursuant to Section 5 hereof for the remainder of the
Employment Period. Notwithstanding anything to the contrary herein, no payment
shall be made to the Executive under this Section 12(h) if the Executive is paid
liquidated damages following a Change of Control of the Company as set forth in
Section 11(a) above.
13. PURCHASE OF OPTIONS.
In the event the Executive is entitled to liquidated damages
upon a Change of Control as provided in Section 11(a) hereof or if the
Employment Period is terminated by the Company without Cause, or by the
Executive with Good Reason, the Company shall purchase from the Executive, any
and all stock options granted by the Company and held by the Executive at the
time of termination or Change of Control, whether or not vested, for a price
equal to the Option Purchase Amount. The Option Purchase Amount shall mean the
average closing bid price of the Company's Common Stock on the Nasdaq Small-Cap
market or such other market in which the Company's Common Stock is then traded
over five (5) trading days prior to the termination less the exercise price of
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such options. In the event the Option Purchase Amount is not paid to the
Executive within five business days of the occurrence of any triggering event
described in the first sentence of this Section 13, the Option Purchase
Agreement shall accrue interest at an interest rate of 10% per annum, until the
Option Purchase Amount, plus such accrued interest, is paid to the Executive.
The Executive shall also continue to receive his Base Salary, and be entitled to
all benefits described in Section 5, until payment of the Option Purchase
Amount, plus interest, if any, at which time payment of the Base Salary and
entitlement to the benefits described in Section 5 shall terminate unless
otherwise provided in this Agreement.
14. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of New York,
State of New York, by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall be appointed
by the American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section. The cost of any arbitration proceeding hereunder shall be borne equally
by the Company and the Executive. In the absence of fraud, the award of the
arbitrators shall be binding upon the parties and judgment thereon may be
entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees and costs and expenses in connection with the
enforcement of his rights, including the enforcement of any arbitration award up
to $50,000 in the aggregate.
15. ENTIRE AGREEMENT; AMENDMENT. This agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter.
No amendment to or modification of this Agreement shall be valid or binding
unless made in writing and signed by the party against whom enforcement thereof
is sought.
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<PAGE>
16. NOTICES. Any notice or other communication required or permitted to
be given by this Agreement shall be writing and shall be effectively given if:
(a) delivered personally by hand;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day, in each case addressed
as follows:
(i) if to the Executive:
Clinch Road
Herndon, Virginia 20170-2412
(ii) if to the Company:
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this Section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this
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<PAGE>
Section. "Business day" means any day other than a Saturday, a Sunday or a
statutory holiday observed in New York City, New York.
17. WAIVERS. No course of dealing nor any delay on the part of any
party hereto in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
18. GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New Jersey, except that
body of law relating to choice of laws.
19. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
20. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
21. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts which may be by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
GLASGAL COMMUNICATIONS, INC.
/S/ ROBERT F. GADD By: /S/ ISAAC GAON
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ROBERT F. GADD IV Name: ISAAC GAON
Title: Chief Executive
Officer
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EMPLOYMENT AND NON-COMPETITION AGREEMENT
CHRISTOPHER J. CAREY
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of November 1, 1996, is between Glasgal Communications, Inc., a Delaware
corporation (the "Employer") and Christopher J. Carey (the "Employee").
WHEREAS, the Employee currently serves as Chief Executive Officer of
Datatec Industries, Inc.("Datatec"); and
WHEREAS, the Employer has acquired all of the issued and outstanding
capital stock of Datatec; and
WHEREAS, the Employer and the Employee desire to continue his
employment on the terms and conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1. EMPLOYMENT. The Employer hereby employs the Employee, and
the Employee hereby accepts employment, upon the terms and subject to the
conditions hereinafter set forth.
SECTION 2. DUTIES. The Employee shall be employed as President and
Chief Executive Officer of the Employer's Datatec Division. Promptly after
execution of this Agreement, the Employer shall combine the business operations
of the Employer and its subsidiaries, HH Communications Inc., Signatel Ltd., and
Datatec, into the Datatec Division, except that the Employer's Strategic
Business Units, for management purposes, and its Computer-Aided Software
Integration, Inc. subsidiary, for any purposes, shall not be included in the
Datatec Division. In his capacity as President of the Datatec Division, the
Employee shall be responsible for supervising the following functions of the
Datatec Division: Sales, customer service, technical support, project
management, field service, staging and integration, purchasing, accounting,
administration and financial functions. The Employee shall not be responsible
for supervising the legal matters of the Datatec Division. The Employee shall
also serve as Chief Executive Officer of Datatec and have such other
responsibilities and duties as are assigned by the Employer's Board of Directors
(the "Board") and as are consistent with the position of President of the
Datatec Division. The Employee agrees to devote his full time and best efforts
to the performance of his duties to the Employer. The Employee shall also serve
as a Director of the Employer, to the extent elected by the stockholders of
Employer Datatec during the initial and any extended term of this Agreement;
provided, however, that the Employee shall immediately be appointed as a
Director of the Employee, to serve in such initial term until the next annual
meeting of stockholders of the Employer. The Employer shall cause the Board of
Directors of each subsidiary within the Datatec Division to cause its respective
executive officers to directly report to the Employee and to accede to his
authority as
<PAGE>
President of the Datatec Division, as such authority is set forth in this
Section.
SECTION 3. TERM. The initial term of employment of the Employee
hereunder shall commence on the date hereof (the "Commencement Date") and shall
continue until October 31, 1999 (the "Initial Term") unless earlier terminated
pursuant to SECTION 6.
SECTION 4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) BASE SALARY.
(i) The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices,
a base salary (the "Base Salary"). The Base Salary
will be paid at an annual rate of $250,000.
(ii) Base Salary shall be increased annually, beginning
November 1, 1997, by a percentage equal to the
percentage by which the Consumers Price Index for
Urban Wage Borrowers and Clerical Workers: New
York, N.Y. - Northeastern New Jersey (1982-84
equals 100), as published by the Bureau of Labor
Statistics of the United States Department of
Labor, shall have increased over the preceding
year.
(iii) The adjustment provided for inss.4(a)(ii) shall be
made as soon after November 1 of each year as
possible, but in no event later than fifteen (15)
days after the date upon which the Bureau of Labor
publishes its consumer price index statistics for
the month of September. Any portion of an increase
in the Executive's compensation retroactively due
shall be payable immediately upon determination of
the adjustment. If publication of the Consumer
Price Index is discontinued, the parties hereto
shall accept comparable statistics on the cost of
living for the New York, N.Y. - Northeastern New
Jersey area as computed and published by an agency
of the United States or by a responsible financial
periodical of recognized authority then to be
selected by the parties.
(b) FIRST INCENTIVE BONUS.
(i) The Employer shall pay the Employee a non-
discretionary bonus (the "First Incentive Bonus")
of $190,000 for each year of the term of this
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<PAGE>
Agreement if Actual EBIT, as defined below, for any
one-year period during the term hereof ending
October 31 exceeds Actual EBIT for the next
preceding one year period. It will be assumed
during the term of this Agreement that the Employee
will earn the First Incentive Bonus, and,
accordingly, an amount equal to the maximum First
Incentive Bonus for each year will be paid ratably
in equal installments along with the Employee's
regular payments of Base Salary; provided, however,
that in the event in any year of the term of this
Agreement the First Incentive Bonus is not earned
in accordance with the above requirements, then the
Employee shall return the unearned portion of the
First Incentive Bonus, to the extent paid to the
Employee, within thirty (30) days of being notified
by the Employer that the First Incentive Bonus was
not earned, or at the option of the Employer, the
Employer may withhold amounts due to the Employer
hereunder in satisfaction of such claim.
Notwithstanding the foregoing, the First Incentive
Bonus shall be paid for the one year period ending
October 31, 1997 regardless of whether Actual EBIT
for such year exceeds Actual EBIT for the next
preceding year, and such payment obligation is
deemed absolute and non-contingent.
(ii) In the event Actual EBIT for any one-year period
ending October 31, except October 31, 1997, shall
be less than Actual EBIT for the next preceding
one-year period, the First Incentive Bonus for such
year shall be equal to $190,000 less 2% of such
amount for each 1% of difference between Actual
EBIT for the current one-year period and Actual
EBIT for the next preceding year. For example, if
Actual EBIT at October 31, 1997 were $10,000,000
and Actual EBIT for October 31, 1998 were
$9,000,000, the First Incentive Bonus for the year
ended October 31, 1998 would be $152,000, computed
as follows:
$10,000,000 - $9,000,000 = $1,000,000
$1,000,000 = 10% of $10,000,000
Thus, with a reduction of 2% for each 1%
difference, there would be a 20% reduction in the
First Incentive Bonus: $190,000 -(20% x $190,000) =
$190,000 - $38,000 = $152,000.
"Actual EBIT" means, with respect to any one-year
period ending October 31 during the term hereof,
the sum of (i) the unaudited consolidated net
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<PAGE>
income (or loss) of the Employer for such year,
extrapolated from the financial statements of the
Employer filed with the Securities and Exchange
Commission, excluding therefrom the financial
statement effects of the Employer's CASI subsidiary
and any other subsidiary of the Employer which may
in the future be acquired, calculated in accordance
with generally accepted accounting principles
consistently applied and further excluding
therefrom any extraordinary items of income or
loss; and (ii) all amounts deducted in the
computation thereof on account of (A) income taxes,
(B) interest expense, (C) the Supplemental Bonuses,
as defined below, (D) management or similar fees
paid by subsidiaries of the Employer within the
Datatec Division to the Employer, (E) all Employer
holding company costs, including without
limitation, costs of or relating to the Chairman
and Chief Executive Officer of the Employer and
their respective staffs and the costs of or
relating to the Chief Financial Officer of the
Employer and his staff, including without
limitation, accounting and auditing costs; legal
costs, finance and administration, and costs of
management information systems, and (F) fees paid
by the Employer to any investment banking firm,
venture capital firm or similar firm or any
affiliates of such firm during such year.
Notwithstanding the foregoing, any expenses
incurred by the Employer specifically for the
benefit of the Datatec Division at the request of
the Datatec Division, or as may reasonably be
determined by the Employer to be required, shall be
deducted from EBIT.
(c) SUPPLEMENTAL BONUSES. The Employee shall also receive from the
Employer on a non-discretionary basis the following
supplemental bonuses (the "Supplemental Bonuses"):
(i) (A) For the period November 1, 1996 through
October 31, 1997 the Employee shall be paid
an amount equal to five (5%) PERCENT OF THE
FIRST $1,000,000, or part thereof, by which
Actual EBIT exceeds $8,100,000, plus six
(6%) percent of the amount by which Actual
EBIT exceeds $9,100,000. Said amount shall
be paid in full within fifteen (15) business
days from the date the applicable financial
statements have been released by the
Employer.
(B) Prior to October 31, 1997 and October 31,
1998, respectively, Isaac Gaon, or any other
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<PAGE>
duly authorized officer of the Employer, and
the Employee shall in good faith negotiate
projected EBIT ("Projected EBIT") for the
years of the term hereof ended October 31,
1998 and October 31, 1999, respectively. In
each year that Actual EBIT exceeds the
Projected EBIT for such year, the Employee
shall be paid an amount equal to five(5%)
percent of the first $1,000,000 of such
excess EBIT, plus six (6%) percent of the
amount by which Actual EBIT exceeds
$1,000,000 in excess of Projected EBIT for
such year. Said amounts shall be paid at the
time set forth in ss.4(c)(i)(A).
(ii) (A) If Actual EBIT for the year November 1, 1996
through October 31, 1997 equals or exceeds
$8,100,000, the Employee shall receive
options to purchase 25,000 shares of Glasgal
common stock, $.001 par value (the "Stock"),
plus options to purchase such number of
additional shares of Stock equal to fifteen
(15%) percent of the Actual EBIT in excess
of $8,100,000. For example, if Actual EBIT
at October 31, 1997 were $9,100,000, the
Employee would receive 25,000 options to
purchase Stock plus 150,000 options to
purchase Stock computed as follows: 25,000 +
(15% x $9,100,000 - 8,100,000) = 25,000 +
(15% x 1,000,000) = 25,000 + 150,000 =
175,000 options.
(B) If in each of the years ending October 31,
1998 and October 31, 1999, the Employer's
Actual EBIT equals or exceeds the Projected
EBIT for such year, the Employee shall
receive options to purchase 25,000 shares of
stock plus such number of additional options
equal to fifteen (15%) percent of the
difference, if any, between Actual EBIT and
Projected EBIT.
(C) All stock options shall have an exercise
price equal to the average closing price of
the Stock as quoted in the NASDAQ Small Cap
Market or, if not quoted there, on the
principal stock exchange on which the
Employer's stock is traded, as such price is
reported in the Wall Street Journal, Eastern
Edition for the five (5) trading days next
preceding the date of grant.
(D) Options to be granted hereunder shall be
granted on the date that the applicable
financial statements are released by the
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<PAGE>
Employer, and shall be fully vested upon
grant; provided, however, that one-third -
(33-1/3%) of the options granted for any
year of the term of this Agreement shall be
exercisable immediately and one-third (33-
1/3%) shall be exercisable on and after each
of the next succeeding anniversary dates of
grant..
(E) All options granted pursuant to this
Agreement shall be exercisable for a period
of ten (10) years. The Employer shall not
later than the date of its next annual
shareholders meeting, put into effect a
stock option plan pursuant to which the
options granted hereunder will be issued,
and shall use its best efforts to register
the shares underlying the options to be
issued to the Employee
(d) VACATION. The Employee shall be entitled to four (4) weeks
vacation each calendar year. Any vacation shall be taken at
the reasonable and mutual convenience of the Employer and the
Employee.
(e) INSURANCE; OTHER BENEFITS. Accident, long-term disability
income, life and health insurance for the Employee shall be
provided by the Employer under group accident, life and health
insurance plans maintained by the Employer for its full-time
senior executive officers as such employment benefits may be
modified from time to time by the Employer for all full-time
senior executive officers. Such insurance and other benefits
shall not be less than that provided by the Employer to its
senior executive officers. The amount and extent of such
coverage shall be subject to the discretion of the Board. In
addition, all non-group policies on the life of the Employee
currently paid for by Datatec shall continue to be paid by the
Employer during the first year of the term of this Agreement,
and the Employee shall thereafter become the owner of all such
policies. The Employee represents that the approximate amount
of premiums with respect to such policies is $20,000 per year.
(f) CAR ALLOWANCE. In connection with the Employee's employment,
the Employee shall from time to time be required to travel by
automobile on the Employer's business. Accordingly, the
Employer shall provide to the Employee an automobile
equivalent to the current automobile provided by Datatec and
shall also pay for all maintenance, service and insurance
charges..
(g) MEMBERSHIPS. The Employer will pay during the term of this
Agreement all of the Employee's membership fees
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<PAGE>
for the Young President's Organization ("YPO") and all
expenses incurred by the Employee in attending Members,
Members and Spouse, and Members and Family events sponsored by
YPO. It is acknowledged by the Employer that the Employee's
attendance at such events is in the best interests of the
Employer and that time expended at such events is not to be
considered vacation or personal time.
SECTION 5. EXPENSES. In addition to the foregoing, the Employer shall
pay or reimburse the Employee for all reasonable out-of-pocket expenses incurred
by the Employee in the performance of his duties hereunder upon presentation of
appropriate vouchers therefor. The Employee shall be entitled to the class of
accommodations and transportation customarily provided to the senior executives
of the Employer when traveling on behalf of the Employer.
SECTION 6. TERMINATION. The Employee's employment hereunder shall
commence on the Commencement Date and continue until the expiration of the
Initial Term, and any extension of such term pursuant to SECTION 3, except that
the employment of the Employee hereunder shall earlier terminate:
(a) DEATH OR TOTAL DISABILITY. Upon the death of the Employee
during the term of his employment hereunder or, at the option
of the Employer, in the event of the Employee's total
disability, upon sixty (60) days' written notice from the
Employer. The Employee shall be deemed totally disabled if he
meets the criteria for disability under the Employer's
disability insurance policy for 180 days, consecutive or 270
days non- consecutive, in any twelve (12) month period. If
there is no disability policy in effect, the Employee shall be
deemed totally disabled if he shall be unable, due to physical
or mental illness, injury or incapacity, to perform his
regular full time duties as President and Chief Executive
Officer of the Datatec Division and as Chief Executive Officer
of Datatec for the periods set forth above in this SECTION
6(a).
(b) FOR CAUSE. For "Cause" immediately upon written notice by the
Employer to the Employee; provided, that the Employer may not
terminate the Employee for Cause unless (i) such termination
has been approved by the affirmative vote or consent of a
majority of the directors on the Board (excluding the
Employee) prior to the time of such termination; and (ii) not
later than 30 days prior to the effective date of such
termination, the Employee shall be given the opportunity to
appear before the Board, represented by counsel, to address
the grounds for such termination. For purposes of this
Agreement, a termination shall be for Cause if the Board shall
determine that any one or more of the following has occurred:
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<PAGE>
(i) acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court
of competent jurisdiction of, or pleaded guilty to,
any felony which the Board reasonably determines in
its discretion would materially affect or impair in
any way (A) the Employee's ability to perform his
duties hereunder or (B) the reputation or operation
of the Employer's business or (C) the relationship
between the Employer and its suppliers, customers
or employees; or
(iii) the Employee shall have committed a breach of any
of the covenants, terms and provisions of ss.9
hereof or a material breach of any of the
covenants, terms and provisions of ss.8 hereof; or
(iv) the Employee shall have breached any one or more of
the provisions of this Agreement (excluding ss.ss.8
and 9 hereof) and such breach shall have continued
for a period of thirty (30) days after written
notice to the Employee specifying such breach in
reasonable detail; or
(v) the Employee shall have refused, after explicit
written notice, to obey any lawful resolution of or
direction by the Board which is consistent with
this Agreement and his duties hereunder.
(c) TERMINATION WITHOUT CAUSE. Upon ninety (90) days written
notice by either the Employee or the Employer to the other
party hereto. For purposes of this Agreement, the Employee
shall be deemed to have been terminated WITHOUT CAUSE if the
termination is (i) initiated by the Employer and not based
substantially on any reason included in the above definition
of Cause or (ii) if the Employee terminates his employment
hereunder for Good Reason upon ninety (90) days written notice
to the Employer. The Employee shall be entitled to terminate
his employment for Good Reason if any of the following occur:
(i) the Employee is assigned duties which are
inconsistent with the position or responsibilities
associated with his position as President and Chief
Executive Officer of the Employer's Datatec
Division or as Chief Executive Officer of Datatec;
(ii) If the Datatec Division (or any part thereof) shall
merge or consolidate into or transfer substantially
all of its assets to, or become a majority owned
subsidiary of, another
-8-
<PAGE>
corporation, and the Employee is not then elected
and/or appointed to a position of responsibility in
any such surviving, new or purchasing corporation
equivalent to that provided in SECTION 2 hereof;
(iii) the Employer requires the Employee to perform his
duties hereunder principally at any location
outside a radius of fifty (50) miles from
Fairfield, New Jersey, and he notifies the Employer
within 30 days after notification of such
relocation that he is unwilling to continue his
employment hereunder at such location; and
(iv) he is removed or not nominated as a Director of the
Employer or Datatec for any reason other than for
Cause as defined in SECTION 6(b) hereof.
(d) RIGHTS AND REMEDIES ON TERMINATION.
(i) If the Employer shall terminate the Employee's
employment hereunder pursuant to SECTION 6(c)
hereof, then (A) the Employee shall be entitled to
receive, as severance pay, payment, in accordance
with the Employer's then current payroll practices,
of his Base Salary in effect at the time of his
termination, his First Incentive Bonus, and his
Supplemental Bonus for the remainder of the Initial
Term provided, further that the Employee shall not
be required to mitigate his damages during such
period and the Employer shall not be entitled to
reduce or offset the amount payable by the Employer
under this SECTION 6(d)(i) by any income received
by the Employee pursuant to any new employment so
long as the Employee is complying with ss.9 hereof.
The Employee shall also be entitled to receive the
benefits and consideration provided in
ss.ss.(4)(e)-(g) hereof.
(ii) If the Employee's employment hereunder is
terminated pursuant to ss.6(a) hereof, then the
Employee (or his estate, as applicable) shall be
entitled to receive within 30 days following the
completion of the Employer's financial statements
for the year of this Agreement during which such
termination occurs, a prorated portion of the First
Incentive Bonus and Supplemental Bonuses (if any)
for the fiscal year in which his termination occurs
determined by multiplying (1) the full amount of
the First Incentive Bonus and Supplemental Bonuses
(if any) that would have been payable to the
Employee pursuant to SECTION 4(b) and 4(c) hereof
if his employment hereunder had not been terminated
by (2) a fraction, the
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<PAGE>
numerator of which is the number of days elapsed
during such fiscal year prior to the Employee's
termination and the denominator of which is 365,
and (c) a pro rated portion of the Options to
Acquire Common Stock which would have been issued
to the Employee on the next anniversary date
specified in SECTION 4(c) hereof computed in the
manner provided in this SECTION 6(d)(ii), except
that the numerator shall be 365.
(iii) Except as otherwise set forth in this SECTION 6(d),
the Employee shall not be entitled to any severance
or other compensation after termination other than
payment of any portion of his Base Salary, First
Incentive Bonus and Supplemental Bonuses through
the date of his termination and any expense
reimbursements under SECTION 5 hereof for expenses
incurred in the performance of his duties prior to
termination. If such termination is not at the end
of a period in which measurement of EBIT takes
place for purposes of this Agreement, the
Supplemental Bonuses shall be determined by the
Board of Directors in good faith.
SECTION 7. INVENTIONS; ASSIGNMENT. All rights to discoveries,
inventions, improvements, and innovations (including all data and records
pertaining thereto) related to the Employer's business, whether or not
patentable, copyrightable, registerable as a trademark, or reduced to writing,
that the Employee may discover, invent or originate during the term of his
employment hereunder or during his previous employment by the Employer, either
alone or with others and during working hours or by the use of the facilities of
the Employer ("Inventions"), shall be the exclusive property of the Employer.
The Employee shall promptly disclose all Inventions to the Employer, shall
execute at the request of the Employer any assignments or other documents the
Employer may deem necessary to protect or perfect its right therein, and shall
assist the Employer, at the Employer's expense, in obtaining, defending and
enforcing the Employer's rights therein. The Employee hereby appoints the
Employer as his attorney-in-fact to execute on his behalf any assignments or
other documents deemed necessary by the Employer to protect or perfect its right
to any Inventions.
SECTION 8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any part of the Confidential
Information to
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<PAGE>
any person, firm, corporation, association, or any other entity for any reason
or purpose whatsoever, directly or indirectly, except as may be required
pursuant to his employment hereunder, provided, that Confidential Information
shall in no event include (a) Confidential Information which was generally
available to the public at the time of disclosure by the Employer or (b)
Confidential Information which becomes publicly available other than as a
consequence of the breach of the Employee of his confidentiality obligations
hereunder. In the event of the termination of his employment, whether voluntary
or involuntary and whether by the Employer or the Employee, the Employee shall
deliver to the Employer all documents and data pertaining to the Confidential
information and shall not take with him any documents data of any kind or any
reproductions (in whole or in part) or extracts of any items relating to the
Confidential Information.
SECTION 9. NON-COMPETITION. During the term of the Employee's
employment hereunder, or during any period (and for a period of three (3) years
thereafter) that the Employer is compensating the Employee in accordance with
SECTION 6(d) hereof as a result of terminating the Employee's employment without
Cause, and until three (3) years after any other termination of the Employee's
employment hereunder, the Employee will not engage, directly or indirectly,
alone or as a shareholder (other than as a holder of less than five percent (5%)
of the common stock of any publicly traded corporation), partner, officer,
member, director, employee or consultant of any other business organization that
is engaged or becomes engaged in the manufacture, production, distribution or
sale of products or the provision of services which compete with the products
manufactured, produced, distributed or sold by the Employer or with the services
provided by the Employer or compete in any other business activity that the
Employer is conducting at the time of the Employee's termination, or solicit or
encourage any officer, employee or consultant of the Employer or to leave its
employ for alternative employment. The Employee will continue to be bound by the
provisions of this SECTION 9 until their expiration, and shall not be entitled
to any compensation from the Employer with respect thereto except as may be
provided in SECTION 6(d) hereof. If at any time the provisions of this SECTION 9
shall be determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this ss.9 shall be
considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Employee agrees that this SECTION 9 as so amended shall be valid and binding
as though any invalid or unenforceable provision had not been included herein.
SECTION 10. MISCELLANEOUS.
(a) INDEMNIFICATION. The By-Laws of the Employer shall indemnify
the Employee in his capacity as an officer,
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<PAGE>
director and agent of the Employer and provide for advances of
expenses, including without limitation legal fees and costs,
incurred in defense of any claim against him to the fullest
extent permitted under Delaware law and shall further provide
that such indemnification shall be a contract right.
(b) D & O INSURANCE. The Employer shall purchase directors' and
officers' liability insurance in the minimum amount of
$1,000,000.
SECTION 11. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall
be in writing or by written telecommunication, and shall be
deemed to have been duly given if delivered personally or if
mailed by certified mail, return receipt requested, postage
prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address
as the recipient of such notice or communication shall have
specified to the other party hereto in accordance with this
SECTION 11(a):
If to the Employee, to:
Christopher J. Carey
450 Claremont Road
Bernardsville,N.J. 07924
With copies to:
Mark K. Lipton, Esq.
Podvey, Sachs, Meanor, Catenacci,
Hildner & Cocoziello
One Riverfront Plaza
Newark, New Jersey 07102
If to the Employer, to:
Glasgal Communications, Inc.
151 Veterans Drive,
Northvale, New Jersey 07647
With copies to:
Robert H. Friedman, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, N.Y. 10022
(b) EQUITABLE REMEDIES. Each of the parties hereto acknowledges
and agrees that upon any breach by the Employee of his
obligations under SECTIONS 7, 8 and 9 hereof, the Employer
will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate
injunctive and equitable relief.
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<PAGE>
(c) SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any
law, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be affected
or impaired.
(d) WAIVERS. No delay or omission by either party hereto in
exercising any right, power or privilege hereunder shall
impair such right, power or privilege, nor shall any single or
partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(e) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
(f) ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties
hereto, including any entity which acquires substantially all
of the assets or equity interest of the Employer.
(g) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties, supersedes all prior agreements
and understandings relating to the subject matter hereof and
shall not be amended except by a written instrument hereafter
signed by each of the parties hereto.
(h) GOVERNING LAW. This Agreement and the performance hereof shall
be construed and governed in accordance with the laws of the
State of New Jersey without regard to its principles of
conflicts of law.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /S/ ISAAC GAON
-------------------------------------------
ISAAC GAON, Chief Executive Officer
/S/ CHRISTOPHER J. CAREY
----------------------------------------------
CHRISTOPHER J. CAREY
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EMPLOYMENT AND NON-COMPETITION AGREEMENT
RAYMOND KOCH
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of November 1, 1996, is between Glasgal Communications, Inc., a Delaware
corporation (the "Employer") and Raymond Koch (the "Employee").
WHEREAS, the Employee currently serves as President and Chief Operating
Officer of Datatec Industries, Inc.("Datatec"); and
WHEREAS, the Employer has acquired all of the issued and outstanding
capital stock of Datatec; and
WHEREAS, the Employer and the Employee desire to continue his
employment on the terms and conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1. EMPLOYMENT. The Employer hereby employs the Employee, and
the Employee hereby accepts employment, upon the terms and subject to the
conditions hereinafter set forth.
SECTION 2. DUTIES. The Employee shall be employed as Executive Vice
President and Chief Operating Officer of the Employer's Datatec Division.
Promptly after execution of this Agreement, the Employer shall combine the
business operations of the Employer and its subsidiaries, HH Communications
Inc., Signatel Ltd., and Datatec, into the Datatec Division, except that the
Employer's Strategic Business Units, for management purposes, and its
Computer-Aided Software Integration, Inc. subsidiary, for any purpose, shall not
be included in the Datatec Division. In his capacity as Executive Vice President
of the Datatec Division, the Employee shall be responsible for supervising the
following functions of the Datatec Division: Customer service, technical
support, project management, field service, and staging, integration,
purchasing, accounting, administration and financial functions. The Employee
shall not be responsible for supervising the legal matters of the Datatec
Division: The Employee shall also serve as President and Chief Operating Officer
of Datatec, and have such other responsibilities and duties as are assigned by
the President of the Datatec Division and the Board of Directors (the "Board")
and as are consistent with the position of Executive Vice President and Chief
Operating Officer of the Datatec Division. The Employee agrees to devote his
full time and best efforts to the performance of his duties to the Employer. The
Employer shall cause the Directors of each subsidiary within the Datatec
Division to cause its executive officers to accede to the authority of the
Executive, as such authority is set forth in
<PAGE>
this SECTION 2, unless otherwise directed by the Chief Executive Officer of the
Datatec Division. Within eighteen (18) months of the date hereof, if budgeted
results of the Employer for the fiscal year ending April 30, 1997, as approved
in good faith by its Board of Directors, shall have been obtained, the Employer
shall in good faith consider appointing the Employee President of the Datatec
Division and nominating the Employee as a director of the Employer.
SECTION 3. TERM. The initial term of employment of the Employee
hereunder shall commence on the date hereof (the "Commencement Date") and shall
continue until October 31, 1999 (the "Initial Term") unless earlier terminated
pursuant to Section 6.
SECTION 4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) BASE SALARY.
(i) The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices,
a base salary (the "Base Salary"). The Base Salary
will be paid at an annual rate of $250,000.
(ii) Base Salary shall be increased annually, beginning
November 1, 1997, by a percentage equal to the
percentage by which the Consumers Price Index for
Urban Wage Borrowers and Clerical Workers: New
York, N.Y. - Northeastern New Jersey (1982-84
equals 100), as published by the Bureau of Labor
Statistics of the United States Department of Labor
shall have increased over the preceding year.
(iii) The adjustment provided for in ss.4(a)(ii) shall be
made as soon after November 1 of each year as
possible, but in no event later than fifteen (15)
days after the date upon which the Bureau of Labor
publishes its consumer price index statistics for
the month of September. Any portion of an increase
in the Executive's compensation retroactively due
shall be payable immediately upon determination of
the adjustment. If publication of the Consumer
Price Index is discontinued, the parties hereto
shall accept comparable statistics on the cost of
living for the New York, N.Y. - Northeastern New
Jersey area as computed and published by an agency
of the United States or by a responsible financial
periodical of recognized authority then to be
selected by the parties.
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<PAGE>
(b) FIRST INCENTIVE BONUS.
(i) The Employer shall pay the Employee a non-
discretionary bonus (the "First Incentive Bonus")
of $75,000 for each year of the term of this
Agreement if Actual EBIT, as defined below, for any
one-year period during the term hereof ending
October 31 exceeds Actual EBIT for the next
preceding one year period. It will be assumed
during the term of this Agreement that the Employee
will earn the First Incentive Bonus, and,
accordingly, an amount equal to the maximum First
Incentive Bonus for each year will be paid ratably
in equal installments along with the Employee's
regular payments of Base Salary; provided, however,
that in the event in any year of the term of this
Agreement the First Incentive Bonus is not earned
in accordance with the above requirements, then the
Employee shall return the unearned portion of the
First Incentive Bonus, to the extent paid to the
Employee, within thirty (30) days of being notified
by the Employer that the First Incentive Bonus was
not earned, or at the option of the Employer, the
Employer may withhold amounts due to the Employer
hereunder in satisfaction of such claim.
Notwithstanding the foregoing, the First Incentive
Bonus shall be paid for the one year period ending
October 31, 1997 regardless of whether Actual EBIT
for such year exceeds Actual EBIT for the next
preceding year, and such payment obligation is
deemed absolute and non-contingent.
(ii) In the event Actual EBIT for any one-year period
ending October 31, except October 31, 1997, shall
be less than Actual EBIT for the next preceding
one-year period, the First Incentive Bonus for such
year shall be equal to $75,000 less 2% of such
amount for each 1% of difference between Actual
EBIT for the current one-year period and Actual
EBIT for the next preceding year. For example, if
Actual EBIT at October 31, 1997 were $10,000,000
and Actual EBIT for October 31, 1998 were
$9,000,000, the First Incentive Bonus for the year
ended October 31, 1998 would be $60,000, computed
as follows:
$10,000,000 - $9,000,000 = $1,000,000
$1,000,000 = 10% of $10,000,000
Thus, with a reduction of 2% for each 1%
difference, there would be a 20% reduction in the
First Incentive Bonus: $75,000 -(20% x $75,000) =
$75,000 - $15,000 = $60,000.
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<PAGE>
"Actual EBIT" means, with respect to any one-year
period ending October 31 during the term hereof,
the sum of (i) the unaudited consolidated net
income (or loss) of the Employer for such year,
extrapolated from the financial statements of the
Employer filed with the Securities and Exchange
Commission, excluding therefrom the financial
statement effects of the Employer's CASI subsidiary
and any other subsidiary of the Employer which may
in the future be acquired, calculated in accordance
with generally accepted accounting principles
consistently applied and further excluding
therefrom any extraordinary items of income or
loss; and (ii) all amounts deducted in the
computation thereof on account of (A) income taxes,
(B) interest expense, (C) the cash portion, if any,
of the Supplemental Incentive Bonus, as defined
below (except that portion of a Supplemental Bonus
earned for reaching, but not exceeding, Projected
EBIT, as defined below), (D) management or similar
fees paid by subsidiaries of the Employer within
the Datatec Division to the Employer; (E) all of
the Employer's holding company administrative
costs, including without limitation, costs of or
relating to the Chairman and Chief Executive
Officer of the Employer and their respective
staffs, and the costs of or relating to the Chief
Financial Officer of the Employer and his staff,
including without limitation, accounting and
auditing costs; legal fees and costs, finance and
administration, and costs of management information
systems and (F) fees paid by the Employer to any
investment banking firm, venture capital firm or
similar firm or any affiliates of such firm during
such year. Notwithstanding the foregoing, any
expenses incurred by the Employer specifically for
the benefit of the Datatec Division, at the request
of the Datatec Division, or as may reasonably be
determined by the Employer to be required, shall be
deducted from EBIT.
(c) SUPPLEMENTAL BONUSES. The Employee shall also receive from the
Employer on a non-discretionary basis the following
supplemental bonuses (the "Supplemental Bonuses"):
(i) (A) If the Actual EBIT of the Employer for
the year November 1, 1996 through October
31, 1997 shall equal at least $8,100,000
Employee shall be paid $50,000. If Actual
EBIT shall equal at or exceed $9,100,000,
the Employee shall be paid additional the
sum of $25,000 plus two AND ONE-HALF (2
1/2%) percent of the
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<PAGE>
amount by which Actual EBIT exceeds
$9,100,000. Said amounts shall be paid in
full within fifteen (15) business days from
the date that the applicable financial
statements have been released by the
Employer.
(B) Prior to October 31, 1997 and October 31,
1998, respectively, Isaac Gaon, or any other
duly authorized officer of the Employer, and
the Employee shall in good faith negotiate
projected EBIT ("Projected EBIT") for the
years of the term hereof ended October 31,
1998 and October 31, 1999, respectively,
said projections to include quarterly
projections for each such year. In each year
that Actual EBIT equals or exceeds Projected
EBIT, the Employee shall be paid $50,000,
and in each year that Actual EBIT exceeds
the Projected EBIT for such year by at least
$1,000,000, the Employee shall be paid the
additional sum of $25,000, plus two and
one-half (2 1/2%) percent of the amount by
which Actual EBIT exceeds $1,000,000 in
excess of Projected EBIT for such year. Said
amounts shall be paid at the time set forth
in ss.4(c)(1)(A).
(ii) (A) If Actual EBIT for the year November 1, 1996
through October 31, 1997 equals or exceeds
$8,100,000, the Employee shall receive
options to purchase 50,000 shares of Glasgal
common stock, $.001 par value (the "Stock"),
plus options to purchase such number of
additional shares of Stock equal to five
(5%) percent of the Actual EBIT in excess of
$8,100,000. For example, if Actual EBIT at
October 31, 1997 were $9,100,000, the
Employee would receive 50,000 options to
purchase Stock plus 50,000 options to
purchase Stock computed as follows: 50,000 +
(5% x $9,100,000 - $8,100,000 = 50,000 + (5%
x 1,000,000) = 50,000 + 50,000 = 100,000
options.
(B) If in each of the years ending October 31,
1998 and October 31, 1999, the Employer's
Actual EBIT equals or exceeds the Projected
EBIT for such year, the Employee shall
receive options to purchase 50,000 shares of
Stock plus such number of additional options
equal to five (5%) percent of the
difference, if any, between Actual EBIT and
Projected EBIT.
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<PAGE>
(C) All stock options shall have an exercise
price equal to the average closing price of
the Stock as quoted in the NASDAQ Small Cap
Market or, if not quoted there, on the
principal stock exchange on which the
Employer's stock is traded, as such price is
reported in the Wall Street Journal, Eastern
Edition for the five (5) trading days next
preceding the date of grant.
(D) Options to be granted hereunder shall be
granted on the date that the applicable
financial statements are released by the
Employer, and shall be fully vested upon
grant; provided, however, that one-third
(33- 1/3 %) of the options granted for any
year or six-month period of the term of this
Agreement shall be exercisable immediately,
and one-third (33-1/3%) exercisable on and
after each of the next succeeding
anniversary dates of grant.
(E) All options granted pursuant to this
Agreement shall be exercisable for a period
of ten (10) years. The Employer shall, not
later than the date of the next annual
stockholders meeting, put into effect a
stock option plan pursuant to which the
options granted hereunder will be issued,
and shall use its best efforts to register
the shares underlying the options to be
issued to the Employee not later than
December 31, 1997.
(iii) (A) Notwithstanding anything herein to the
contrary, if at the end of the first six
months of any year of the term of this
Agreement Actual EBIT equals or exceeds
Projected EBIT for the said six months, the
Employee shall receive upon the release of
the applicable financial statements for the
said six month period (50%) percent of the
entire Stock Option portion of the
Supplemental Bonuses he would be entitled to
receive if Projected EBIT for the entire
year ending October 31 had been achieved. In
the event Actual EBIT for the said year
exceeds Projected EBIT for such year, there
shall be an appropriate adjustment in the
amount of options granted to the Employee.
In the event Actual EBIT at the end of said
year is less than Estimated EBIT, the
Employee shall retain options granted for
the first half of the said year.
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<PAGE>
(B) All options granted pursuant to
ss.4(c)(3)(A) above shall be credited
against the aggregate amount, if any, of
options to be granted pursuant to ss.4(c)
for the applicable year ending October 31.
(d) VACATION. The Employee shall be entitled to four (4) weeks
vacation each calendar year. Any vacation shall be taken at
the reasonable and mutual convenience of the Employer and the
Employee.
(e) INSURANCE; OTHER BENEFITS. Accident, long-term disability
income, life and health insurance for the Employee shall be
provided by the Employer under group accident, life and health
insurance plans maintained by the Employer for its full-time
senior executive officers, as such employment benefits may be
modified from time to time by the Employer for all full-time
senior executive officers. Such insurance and other benefits
shall not be less than that provided by the Employer to its
senior executive officers. The amount and extent of such
coverage shall be subject to the discretion of the Board. In
addition, all non-group policies on the life of the Employee
currently paid for by Datatec shall continue to be paid by the
Employer during the first year of the term of this Agreement,
and the Employee shall thereafter become the owner of all such
policies.
(f) CAR ALLOWANCE. In connection with the Employee's employment,
the Employee shall from time to time be required to travel by
automobile on the Employer's business. Accordingly, the
Employer shall provide to the Employee an automobile expense
allowance of $1,200 per month, payable on the first day of
each month during the term of this Agreement, plus all
maintenance, service and insurance charges.
SECTION 5. EXPENSES. In addition to the foregoing, the Employer shall
pay or reimburse the Employee for all reasonable out-of-pocket expenses incurred
by the Employee in the performance of his duties hereunder upon presentation of
appropriate vouchers therefor. The Employee shall be entitled to the class of
accommodations and transportation customarily provided to the senior executives
of the Employer when traveling on behalf of the Employer.
SECTION 6. TERMINATION. The Employee's employment hereunder shall
commence on the Commencement Date and continue until the expiration of the
Initial Term, and any extension of such term pursuant to SECTION 3, except that
the employment of the Employee hereunder shall earlier terminate:
(a) DEATH OR TOTAL DISABILITY. Upon the death of the Employee
during the term of his employment hereunder
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<PAGE>
or, at the option of the Employer, in the event of the
Employee's total disability, upon sixty (60) days' written
notice from the Employer. The Employee shall be deemed totally
disabled if he meets the criteria for disability under the
Employer's disability insurance policy for 180 days,
consecutive or 270 days non- consecutive, in any twelve (12)
month period. If there is no disability policy in effect, the
Employee shall be deemed totally disabled if he shall be
unable, due to physical or mental illness, injury or
incapacity, to perform his regular full time duties as
Executive Vice President and Chief Operating Officer of the
Employer's Datatec Division or as President of Datatec for the
periods set forth above in this Section 6(a).
(b) FOR CAUSE. For "Cause" immediately upon written notice by the
Employer to the Employee; provided, that the Employer may not
terminate the Employee for Cause unless (i) such termination
has been approved by the affirmative vote or consent of a
majority of the directors on the Board (excluding the
Employee) prior to the time of such termination; and (ii) not
later than 30 days prior to the effective date of such
termination, the Employee shall be given the opportunity to
appear before the Board, represented by counsel, to address
the grounds for such termination. For purposes of this
Agreement, a termination shall be for Cause if the Board shall
determine that any one or more of the following has occurred:
(i) acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court
of competent jurisdiction of, or pleaded guilty to,
any felony which the Board reasonably determines in
its discretion would materially affect or impair in
any way (A) the Employee's ability to perform his
duties hereunder or (B) the reputation or operation
of the Employer's business or (C) the relationship
between the Employer and its suppliers, customers
or employees; or
(iii) the Employee shall have committed a breach of any
of the covenants, terms and provisions of ss.9
hereof or a material breach of any of the
covenants, terms and provisions of ss.8 hereof; or
(iv) the Employee shall have breached any one or more of
the provisions of this Agreement (excluding ss.ss.8
and 9 hereof) and such breach shall have continued
for a period of thirty (30) days after written
notice to the Employee specifying such breach in
reasonable detail; or
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<PAGE>
(v) the Employee shall have refused, after explicit
written notice, to obey any lawful resolution of or
direction by the Board which is consistent with
this Agreement and his duties hereunder.
(c) TERMINATION WITHOUT CAUSE. Upon ninety (90) days written
notice by either the Employee or the Employer to the other
party hereto. For purposes of this Agreement, the Employee
shall be deemed to have been terminated without Cause if the
termination is (i) initiated by the Employer and not based
substantially on any reason included in the above definition
of Cause or (ii) if the Employee terminates his employment
hereunder for Good Reason upon ninety (90) days written notice
to the Employer. The Employee shall be entitled to terminate
his employment for Good Reason if any of the following occur:
(i) the Employee is assigned duties which are
inconsistent with the position or responsibilities
associated with his position as Executive Vice
President and Chief Operating Officer of the
Datatec Division or as President and Chief
Operating Officer of Datatec;
(ii) If the Datatec Division (or any part thereof) shall
merge or consolidate into or transfer substantially
all of its assets to, or become a majority owned
subsidiary of, another corporation, and the
Employee is not then elected and/or appointed to a
position of responsibility in any such surviving,
new or purchasing corporation equivalent to that
provided in Section 2 hereof; and
(iii) the Employer requires the Employee to perform his
duties hereunder principally at any location
outside a radius of fifty (50) miles from
Fairfield, New Jersey, and he notifies the Employer
within 30 days after notification of such
relocation that he is unwilling to continue his
employment hereunder at such location.
(d) RIGHTS AND REMEDIES ON TERMINATION.
(i) If the Employer shall terminate the Employee's
employment hereunder pursuant to SECTION 6(c)
hereof, then (A) the Employee shall be entitled to
receive, as severance pay, payment, in accordance
with the Employer's then current payroll practices,
of his Base Salary in effect at the time of his
termination, his First Incentive Bonus, and his
Supplemental Bonuses for (1) the remainder of the
Initial Term or (2) if such termination occurs
subsequent to the Initial
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<PAGE>
Term, the remainder of the then current one-year
extension thereof; provided, further that the
Employee shall not be required to mitigate his
damages during such period and the Employer shall
not be entitled to reduce or offset the amount
payable by the Employer under this SECTION 6(d)(i)
by any income received by the Employee pursuant to
any new employment so long as the Employee is
complying with ss.9 hereof. The Employee shall also
be entitled to receive the benefits and
consideration provided in ss.ss.(4)(e)- (g) hereof.
(ii) If the Employee's employment hereunder is
terminated pursuant to ss.6(a) hereof, then the
Employee (or his estate, as applicable) shall be
entitled to receive within 30 days following the
completion of the Employer's financial statements
for the year of this Agreement during which such
termination occurs, a prorated portion of the First
Incentive Bonus and Supplemental Bonuses (if any)
for the fiscal year in which his termination occurs
determined by multiplying (1) the full amount of
the First Incentive Bonus and Supplemental Bonuses
(if any) that would have been payable to the
Employee pursuant to SECTION 4(b) and 4(c) hereof
if his employment hereunder had not been terminated
by (2) a fraction, the numerator of which is the
number of days elapsed during such fiscal year
prior to the Employee's termination and the
denominator of which is 365, and (c) a pro rated
portion of the Options to Acquire Common Stock
which would have been issued to the Employee on the
next anniversary date specified in SECTION 4(c)
hereof computed in the manner provided in this
SECTION 6 (d)(ii), except that the numerator shall
be 365.
(iii) Except as otherwise set forth in this SECTION 6(d),
the Employee shall not be entitled to any severance
or other compensation after termination of other
than payment of any portion of his Base Salary,
First Incentive Bonus and Supplemental Bonuses
through the date of his termination and any expense
reimbursements under SECTION 5 hereof for expenses
incurred in the performance of his duties prior to
termination. If such termination is not at the end
of a period in which measurement of EBIT takes
place for purposes of this Agreement, the
Supplemental Bonuses shall be determined by the
Board of Directors in good faith.
SECTION 7. INVENTIONS; ASSIGNMENT. All rights to discoveries,
inventions, improvements, and innovations (including
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<PAGE>
all data and records pertaining thereto) related to the Employer's business,
whether or not patentable, copyrightable, registerable as a trademark, or
reduced to writing, that the Employee may discover, invent or originate during
the term of his employment hereunder or during his previous employment by the
Employer, either alone or with others and during working hours or by the use of
the facilities of the Employer ("Inventions"), shall be the exclusive property
of the Employer. The Employee shall promptly disclose all Inventions to the
Employer, shall execute at the request of the Employer any assignments or other
documents the Employer may deem necessary to protect or perfect its right
therein, and shall assist the Employer, at the Employer's expense, in obtaining,
defending and enforcing the Employer's rights therein. The Employee hereby
appoints the Employer as his attorney-in-fact to execute on his behalf any
assignments or other documents deemed necessary by the Employer to protect or
perfect its right to any Inventions.
SECTION 8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any part of the Confidential
Information to any person, firm, corporation, association, or any other entity
for any reason or purpose whatsoever, directly or indirectly, except as may be
required pursuant to his employment hereunder, provided, that Confidential
Information shall in no event include (a) Confidential Information which was
generally available to the public at the time of disclosure by the Employer or
(b) Confidential Information which becomes publicly available other than as a
consequence of the breach of the Employee of his confidentiality obligations
hereunder. In the event of the termination of his employment, whether voluntary
or involuntary and whether by the Employer or the Employee, the Employee shall
deliver to the Employer all documents and data pertaining to the Confidential
information and shall not take with him any documents data of any kind or any
reproductions (in whole or in part) or extracts of any items relating to the
Confidential Information.
SECTION 9. NON-COMPETITION. During the term of the Employee's
employment hereunder, or during any period (and for a period of three (3) years
thereafter) that the Employer is compensating the Employee in accordance with
SECTION 6(d) hereof as a result of terminating the Employee's employment without
Cause, and until three (3) years after any other termination of the Employee's
employment hereunder, the Employee will not engage, directly or indirectly,
alone or as a shareholder (other than as a holder of less than five percent (5%)
of the common stock of any publicly traded corporation), partner, officer,
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<PAGE>
member, director, employee or consultant of any other business organization that
is engaged or becomes engaged in the provision of services which compete with
the services provided by the Employer or compete in any other service business
that the Employer is conducting at the time of the Employee's termination, or
solicit or encourage any officer, employee or consultant of the Employer to
leave its employ for alternative employment. The Employee will continue to be
bound by the provisions of this SECTION 9 until their expiration, and shall not
be entitled to any compensation from the Employer with respect thereto except as
may be provided in SECTION 6(d) hereof. If at any time the provisions of this
SECTION 9 shall be determined to be invalid or unenforceable, by reason of being
vague or unreasonable as to area, duration or scope of activity, this SECTION 9
shall be considered divisible and shall become and be immediately amended to
only such area, duration and scope of activity as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction over
the matter; and the Employee agrees that this SECTION 9 as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.
SECTION 10. MISCELLANEOUS.
(a) INDEMNIFICATION. The By-Laws of the Employer shall indemnify
the Employee in his capacity as an officer, director and agent
of the Employer and provide for advances of expenses,
including without limitation legal fees and costs, incurred in
defense of any claim against him to the fullest extent
permitted under Delaware law and shall further provide that
such indemnification shall be a contract right.
(b) D & O INSURANCE. The Employer shall purchase directors' and
officers' liability insurance in the minimum amount of
$1,000,000.
SECTION 11. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall
be in writing or by written telecommunication, and shall be
deemed to have been duly given if delivered personally or if
mailed by certified mail, return receipt requested, postage
prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address
as the recipient of such notice or communication shall have
specified to the other party hereto in accordance with this
SECTION 11(a):
If to the Employee, to:
Raymond Koch
P.O. Box 493
201 Pleasant Valley Road
Mendham, New Jersey 07945
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<PAGE>
With copies to:
Mark K. Lipton, Esq.
Podvey, Sachs, Meanor, Catenacci,
Hildner & Cocoziello
One Riverfront Plaza
Newark, New Jersey 07102
If to the Employer, to:
Glasgal Communications, Inc.
151 Veterans Drive,
Northvale, New Jersey 07647
With copies to:
Robert H. Friedman, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, N.Y. 10022
(b) EQUITABLE REMEDIES. Each of the parties hereto acknowledges
and agrees that upon any breach by the Employee of his
obligations under SECTIONS 7, 8 and 9 hereof, the Employer
will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate
injunctive and equitable relief.
(c) SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any
law, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be affected
or impaired.
(d) WAIVERS. No delay or omission by either party hereto in
exercising any right, power or privilege hereunder shall
impair such right, power or privilege, nor shall any single or
partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any
other right, power or privilege.
(e) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
(f) ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties
hereto, including any entity which acquires substantially all
of the assets or equity interest of the Employer.
(g) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties, supersedes all prior agreements
and understandings relating to the subject matter hereof and
shall not be amended except by a
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<PAGE>
written instrument hereafter signed by each of the parties
hereto.
(h) GOVERNING LAW. This Agreement and the performance hereof shall
be construed and governed in accordance with the laws of the
State of New Jersey without regard to its principles of
conflicts of law.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /s/ ISAAC GAON
--------------------------------------
ISAAC GAON, Chief Executive Officer
/s/ RAYMOND KOCH
-----------------------------------------
RAYMOND KOCH
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EMPLOYMENT AGREEMENT
AGREEMENT made as of this 24th day of April, 1996, by and
between COMPUTER-AIDED SOFTWARE INTEGRATION, INC., a Delaware corporation with
its principal office at 12477 West Cedar Drive, Suite 201, Lakewood, Colorado
80228 ("CASI"), and DAVID H. TOBEY, residing at 10 Mt. Tamalpais Port, Clayton,
California 94517 (the "Executive") and GLASGAL COMMUNICATIONS, INC., a Delaware
corporation with its principal office at 151 Veterans Drive, Northvale, New
Jersey 07647 ("Glasgal").
W I T N E S S E T H :
WHEREAS, Glasgal Communications, Inc. ("Glasgal") became the
owner of 800 shares of Common Stock of CASI representing 80% of the issued and
outstanding capital stock of CASI pursuant to a Stock Purchase Agreement
relating to such purchase dated as of February 15, 1996 (the "Stock Purchase
Agreement");
WHEREAS, simultaneously with the execution of this Agreement,
the parties hereto shall enter into a stockholders' agreement (the
"Stockholders' Agreement") and a registration rights agreement (the
"Registration Rights Agreement");
WHEREAS, prior to the acquisition by Glasgal of such shares of
Common Stock of CASI, the Executive owned 100% of the issued and outstanding
shares of the capital stock of CASI;
WHEREAS, CASI and the Executive have agreed to modify and
formally document their existing long-term employment relationship for their
mutual benefit and are desirous of setting out the terms and conditions hereof;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. CASI hereby employs Executive as
its President and Chief Executive Officer, to perform, in accordance with the
By-laws of CASI, the Initial Business Plan (as defined in the Stock Purchase
Agreement) and the Initial Business Plan as amended and approved annually by the
Board of Directors of CASI (the "Annual Business Plan"), the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of CASI (the "Board of Directors").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. Executive
hereby accepts such employment and agrees that throughout the Term (as
hereinafter defined), he will devote such full time, attention (a minimum of
1,800 hours per year), knowledge and skills, faithfully, diligently and to the
best of his ability, in
<PAGE>
furtherance of the business of CASI as are necessary to perform the duties and
responsibilities assigned to him pursuant to Section 1 hereof. As President and
Chief Executive Officer, the Executive shall control all of the day-to-day
operations of CASI including, without limitation, the ability to hire and
terminate all employees. The Executive shall also perform such specific duties
and shall exercise such specific authority related to the management of the
day-to-day operations of CASI as may be assigned to the Executive from time to
time by the Board of Directors and which are reasonably requested to be
performed by the Executive as President and Chief Executive Officer. The
Executive shall at all times be subject to, observe and carry out such rules,
regulations, policies, directions and restrictions as CASI shall from time to
time establish.
3. TERM. Except as otherwise provided herein, the Executive's
employment hereunder shall commence as of January 1, 1996 and shall terminate on
April 30, 2001 unless earlier terminated in accordance with Section 12 hereof
(the "Initial Term"), and shall automatically renew for one (1)-year periods
unless CASI or the Executive provide to the other written notice of nonrenewal
during the ninety (90) day period ended thirty (30) days immediately prior to
the expiration of the Initial Term or any renewal thereof (the Initial Term and
any such renewal thereof are hereinafter collectively referred to as the
"Term").
4. COMPENSATION. As full compensation for his services
CASI shall pay to the Executive the following:
(a) an initial base salary at the rate of one hundred fifty
thousand ($150,000) dollars ("Base Salary") commencing as of January 1, 1996,
for the first year of his employment. For each year thereafter, the Base Salary
will be increased by the percentage increase in the United States consumer price
index ("CPI") published by the United States Department of Labor, at January 1
of such year over the CPI at January 1 of the prior year; provided, further,
that the Board of Directors shall review the Base Salary annually for increases,
but shall have no obligation to increase the Base Salary. Such compensation
shall be payable in equal monthly installments. All compensation paid to
Executive shall be subject to withholding and other employment taxes imposed by
applicable law.
(b) incentive compensation in an amount in cash equal to (i)
15% of gross earnings for the period February 15, 1996 through April 30, 1996
and for each of the six month periods ended October 31, 1996 and April 30, 1997;
and (ii) 30% of gross earnings for each of the six month periods ended October
31, 1997, April 30, 1998, October 31, 1998, April 30, 1999, October 31, 1999,
April 30, 2000, October 31, 2000 and April 30, 2001 (together, the "Bonus
Payments"). For purposes of this Agreement, gross earnings is defined as the net
income of CASI for the period plus any expenses
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<PAGE>
relating to interest or income taxes or amortization of goodwill as a result of
the transactions consummated pursuant to the Stock Purchase Agreement, and plus
expenses relating to any inter-company allocation of general and administrative
expense (or other expense allocation) from Glasgal or its affiliates, except as
provided in the Initial Business Plan, the Annual Business Plan or as otherwise
approved by the Executive. The Bonus Payments may not exceed an aggregate of
$1.5 million. In addition, if in any fiscal year the Executive receives a Bonus
Payment with respect to the first six (6) months of the fiscal year and gross
earnings are less than zero (0) (the "Negative Gross Earnings") in the second
six months of the fiscal year, then gross earnings in the next six month period
shall begin at the amount of the Negative Gross Earnings (rather than zero(0)).
5. ADDITIONAL BENEFITS. In addition to the compensation set
forth in Section 4 hereof, the Executive (and his family) shall be entitled to
participate in any benefits, including, without limitation, health insurance,
life insurance, retirement plans and executive thrift and stock option plans on
terms as favorable to those benefits generally available to the senior executive
officers of Glasgal that may be in effect from time to time during the Term. In
the alternative, the Executive may (at his option) choose to receive the same
level and type of benefits provided by CASI on the date hereof. In such case,
CASI shall continue to make available to the Executive, during the Term, all
employee benefits to which the Executive was entitled prior to the date hereof.
Glasgal shall use its best efforts to obtain disability insurance for the senior
executives of Glasgal and its subsidiaries (including the Executive) on
commercially reasonable terms.
6. REIMBURSEMENT OF EXPENSES. CASI shall reimburse the
Executive in accordance with its applicable policies for all expenses reasonably
incurred by Executive in connection with the performance of his duties hereunder
and the business of CASI, upon the submission to CASI appropriate receipts or
vouchers.
7. VACATION. Executive shall be entitled to four (4) weeks'
paid vacation in respect of each twelve (12) month period during the Term, such
vacation to be taken at times mutually agreeable to the Executive and the Board
of Directors. In the event that Executive requests vacation time and such
vacation request is denied by the Board of Directors, CASI shall, at its option,
either (i) carry forward any unused vacation time into the next calendar year or
(ii) pay the Executive a pro rata portion of his Base Salary for any unused
vacation time.
8. RESTRICTIVE COVENANT. In consideration of CASI's entering
into this Agreement, the Executive agrees that while the Executive is an
employee of CASI and for a period of two (2) years thereafter, he will not:
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<PAGE>
(i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, lend money to, guarantee the debts or
obligations of or otherwise be connected with, in any manner, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in the business of designing, developing and marketing software
that functions substantially the same as software then marketed or developed by
CASI at the time of termination of the Executive's employment hereunder;
(ii) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of CASI for the purpose
of soliciting, diverting or taking away any customer from CASI;
(iii) induce, influence, or seek to induce or influence, any
person engaged as an employee, representative, agent, independent contractor or
otherwise by CASI, to terminate his or her relationship with CASI; or
(iv) at any time utilize for any commercial purpose a name
incorporating the words "Computer-Aided Software Integration", or words or
expressions likely to be confused therewith, or which shall be likely to lead to
confusion with the business conducted by CASI.
Nothing herein contained shall be deemed to prohibit the
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and the Executive's holdings therein
represent less than 5% of the total number of shares or principal amount of the
securities of such issuer outstanding.
The Executive acknowledges that the provisions of this Section
8 are reasonable and necessary for the protection of CASI, and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are, and are intended
to be, divisible. If any provision of this Section 8, including any sentence,
clause or part hereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of CASI, its parent and any of its affiliates
all information, knowledge and data relating to
-4-
<PAGE>
or concerned with CASI, its parent and any of its affiliate's operations, sales,
business and affairs, and he shall not, at any time, either during the Term or
after the termination of the Executive's employment with CASI, use, disclose or
divulge any such information, knowledge or data to any person, firm or
corporation (unless CASI no longer treats such information as confidential)
other than to CASI or its designees and employees or except as may otherwise be
required in connection with the business and affairs of CASI; PROVIDED, HOWEVER,
that the Executive may disclose or divulge such information, knowledge or data
that is or becomes generally available to the public through no wrongful act on
the Executive's part or where such disclosure is legally compelled by judicial
or administrative action, provided that the Executive agrees to give CASI prompt
notice of any such judicial or administrative action to enable CASI to seek an
appropriate protective order.
10. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by the Executive alone or with
others relating to computer integration development tools during the Term and,
whether or not patentable or registrable, shall become the sole and exclusive
property of CASI. The Executive shall disclose the same promptly and completely
to CASI and shall, during the Term and at any time and from time to time
hereafter (i) execute all documents requested by CASI for vesting in CASI the
entire right, title and interest in and to the same, (ii) execute all documents
requested by CASI for filing and prosecuting such applications for patents,
trademarks, service marks and/or copyrights as CASI, in its sole discretion, may
desire to prosecute, and (iii) give CASI all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect CASI's right therein and thereto.
11. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, CASI shall not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by the Executive, CASI shall be
entitled to such equitable and injunctive relief as may be available to restrain
the Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach from the violation of
the provisions hereof. Nothing herein shall be construed as prohibiting CASI
from pursuing any other remedies available at law or in equity for such breach
or threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
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<PAGE>
12. EARLY TERMINATION.
(a) The Term shall terminate without action on the part of
CASI upon the death of the Executive. The Term shall also terminate upon 30 days
written notice by CASI to the Executive, (i) in the event that the Executive
shall become "permanently incapacitated" (as hereinafter defined); or (ii) for
"Cause" (as hereinafter defined). The Term shall also terminate upon written
notice by the Executive to CASI for "Good Reason" (as hereinafter defined);
(b) For purposes of this Agreement, the Executive shall be
deemed permanently incapacitated in the event that the Executive shall, by
reason of his physical or mental disability, fail to substantially perform his
usual and regular duties for CASI for a period of 120 consecutive days or for an
aggregate of 120 days in any consecutive six month period.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of CASI, or failure of the
Executive to devote at least one thousand eight hundred (1,800) hours per year
to his duties as President and Chief Executive Officer of CASI (other than for
reason of becoming permanently incapacitated), after written notice by the
Company providing Executive with an opportunity to cure such failure.
(d) For purposes of this Agreement, "Good Reason" shall mean
any diminution of the Executive's position, duties, responsibilities or
compensation as President and Chief Executive Officer of CASI; or the geographic
relocation of the Executive's position as President and Chief Executive Officer
of CASI; or the failure of Glasgal to make the capital contribution to CASI set
forth in Section 5.1 of the Stockholders' Agreement.
(e) In the event the Term is terminated (i) by CASI for Cause,
or (ii) by the Executive without Good Reason, CASI shall, within 30 days, pay to
the Executive his Base Salary, as adjusted, to and including the date of such
termination, any Bonus Payments which would have been earned had the date of
Executive's termination been the last day of the calendar year, along with all
expense reimbursements due the Executive.
(f) Except as provided in the next sentence, in the event the
Term is terminated due to the Executive becoming permanently incapacitated, CASI
shall, within 30 days, pay to the Executive an amount equal to six months of his
Base Salary, as adjusted, to and including the date of such termination, any
Bonus Payments which would have been earned had the date of Executive's
termination been the last day of the calendar year, along with all expense
reimbursement due the Executive. In the event the Term is terminated due to the
Executive becoming permanently incapacitated
-6-
<PAGE>
prior to the time Glasgal has obtained disability insurance for the Executive in
accordance with Section 5 hereof, CASI shall pay to the Executive the Base
Salary for the remainder of the Term, any Bonus Payments which would have been
earned had the date of the Executive's termination been the last day of the
Term, along with all expense reimbursement due the Executive.
(g) In the event the Term is terminated (i) by CASI without
Cause, or (ii) by the Executive with Good Reason, CASI shall, within 30 days,
pay to the Executive an amount equal to the total of all payments of Base Salary
for the remainder of the Term, but in no event shall such payment be less than
the amount of one year's Base Salary (such amount in excess of the Base Salary
for the term referred to herein as the "Excess Amount"). In addition, the
Executive shall be entitled to any remaining Bonus Payments for the remainder of
the Term and shall be entitled to the benefits provided pursuant to Section 5
hereof for the remainder of the Term. Any and all stock options held by the
Executive at the time of such termination shall automatically vest and become
exercisable in full as of the termination date and shall be exercisable until
the later of (i) the end of the Term or (ii) the expiration date provided for
pursuant to the terms of such stock options, at which time all such options not
previously exercised shall expire. In the event that such termination occurs
during the last 12 months of the Term, the Excess Amount shall not be part of
the lump sum payment but shall be paid to the Executive in equal monthly
installments as if the Executive continued to be employed by CASI.
13. INSURANCE POLICIES. CASI shall have the right from time to
time to purchase, increase, modify or terminate insurance policies on the life
of the Executive for the benefit of CASI, in such amounts as CASI shall
determine in its sole discretion. In connection therewith, the Executive shall,
at such time or times and at such place or places as CASI may reasonably direct,
submit himself to such physical examinations and execute and deliver such
documents as CASI may deem necessary or desirable.
14. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Stock
Purchase Agreement, the Stockholders Agreement and the Registration Rights
Agreement constitute the entire agreement of the parties hereto, and any prior
agreement between CASI and the Executive is hereby superseded and terminated
effective immediately and shall be without further force or effect. No amendment
or modification shall be valid or binding unless made in writing and signed by
the party against whom enforcement thereof is sought.
15. NOTICES. Any notice or other communication required
or permitted to be given by this Agreement shall be writing and
shall be effectively given if:
(a) delivered personally;
(b) sent by prepaid courier service;
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<PAGE>
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in the case of notice to:
(i) the Employee, at:
10 Mt. Tamalpais Port
Clayton, CA 94517
Attention: David Tobey
Telecopier No. (510) 673-0482
(ii) CASI, at
12477 West Cedar Drive
Suite 201
Lakewood, Colorado 80228
Attention: David Tobey
Telecopier No.
(iii) Glasgal, at
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has
-8-
<PAGE>
affected or could affect normal mail delivery, then no notice or other
communication may be delivered by registered mail. If there has been a mail
stoppage and if a party sends a notice or other communication by telecopier,
telex or other similar means of electronic communication, such party shall be
relieved from the obligation to mail the original document in accordance with
this section. "Business day" means any day other than a Saturday, a Sunday or a
statutory holiday observed in New York City, New York.
16. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by the Executive.
This Agreement shall be binding upon the Executive, his heirs, executors and
administrators and upon CASI and Glasgal, their respective successors and
assigns.
17. WAIVERS. No course of dealing nor any delay on the part of
any party hereto in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
18. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
19. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
20. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
21. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts which may be by facsimile, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
22. GUARANTY OF PAYMENT. Glasgal hereby unconditionally
guarantees complete and prompt payment of all amounts due to the Executive
hereunder. The obligations of Glasgal shall be direct and primary obligations,
and the Executive shall not be required to make any demand upon CASI or to
pursue or exhaust any of the Executive's rights or remedies against CASI prior
to making any demand on or invoking any of the Executive's rights and remedies
against Glasgal.
23. INDEMNIFICATION. CASI and Glasgal, jointly and severally,
shall indemnify the Executive, to the fullest extent permitted by Delaware
General Corporation Law, from and against any loss, claim, liability and/or
expense incurred for, or by reason
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<PAGE>
of, or arising out of, acts of the Executive as an officer and/or director of
Glasgal, CASI or any affiliates of Glasgal or CASI.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the date first above written.
COMPUTER-AIDED SOFTWARE INTEGRATION,
INC.
By:/s/ DAVID H. TOBEY
----------------------------------
Name: DAVID H. TOBEY
Title: PRESIDENT & CEO
/S/ DAVID H. TOBEY
-------------------------------------
DAVID H. TOBEY
GLASGAL COMMUNICATIONS, INC.
By: /S/ JAMES M. CACI
----------------------------------
Name: JAMES M. CACI
Title: CFO
-11-
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 31st day of July, 1996, by and
between HH COMMUNICATIONS, INC., an Illinois corporation with its principal
office at 650 North Dearborn, Suite 500, Chicago, Illinois 60610 ("HH"), FRANK
FRAZEL, residing at 525 Meacham Avenue, Park Ridge, Illinois 60068 (the
"Executive") and GLASGAL COMMUNICATIONS, INC., a Delaware corporation with its
principal office at 151 Veterans Drive, Northvale, New Jersey 07647 ("Glasgal").
W I T N E S S E T H :
WHEREAS, Glasgal became the owner of 1,000 shares of Common
Stock of HH representing 100% of the issued and outstanding capital stock of HH
pursuant to a Stock Purchase Agreement relating to such purchase dated as of
July 31, 1996 (the "Stock Purchase Agreement");
WHEREAS, prior to the acquisition by Glasgal of such shares of
Common Stock of HH, the Executive, together with the other Sellers (as defined
in the Stock Purchase Agreement) owned 100% of the issued and outstanding shares
of the capital stock of HH;
WHEREAS, HH and the Executive have agreed to modify and
formally document their existing long-term employment relationship for their
mutual benefit and are desirous of setting out the terms and conditions hereof;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. HH hereby employs Executive as its
Vice President, to perform, in accordance with the By-laws of HH, the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of HH (the "Board of Directors").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. Executive
hereby accepts such employment and agrees that throughout the Term (as
hereinafter defined), he will devote his full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of HH to perform the duties and responsibilities assigned to him
pursuant to Section 1 hereof. As Vice President, the Executive shall perform
such specific duties and shall exercise such specific authority related to the
management of the day-to-day operations of HH as may be assigned to the
Executive from time to time by the Board of Directors and which are reasonably
requested to be performed by the Executive as Vice President. The Executive
shall at all times be
<PAGE>
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as HH shall from time to time establish.
3. TERM. Except as otherwise provided herein, the Executive's
employment hereunder shall commence as of the date hereof and shall terminate on
April 30, 1999 unless earlier terminated in accordance with Section 12 hereof
(the "Term").
4. COMPENSATION.
(a) As full compensation for his services HH shall pay to the
Executive a base salary at the rate of One Hundred Twenty Thousand ($120,000)
Dollars ("Base Salary") commencing as of the date hereof, for each year of his
employment. The Board of Directors shall review the Base Salary annually for
increases, but shall have no obligation to increase the Base Salary. Such
compensation shall be payable in equal monthly installments. All compensation
paid to Executive shall be subject to withholding and other employment taxes
imposed by applicable law.
(b) In addition, the Board of Directors of HH will consider
the payment of an annual bonus to Executive. Such bonus, together with bonus
payments made to other senior executive officers of HH, (i) is expected to be in
an amount not to exceed $240,000, (ii) will be made at the sole discretion of
the Board of Directors of HH, and (iii) is expected to be based on performance
criteria as reasonably determined by Executive and the Board of Directors of HH.
5. ADDITIONAL BENEFITS. (a) In addition to the compensation
set forth in Section 4 hereof, the Executive (and his family) shall be entitled
to participate in any benefits, including, without limitation, health insurance,
life insurance, retirement plans and executive thrift and stock option plans on
terms as favorable to those benefits generally available to the senior executive
officers of Glasgal that may be in effect from time to time during the Term. In
the alternative, the Executive may (at his option) choose to receive the same
level and type of benefits provided by HH on the date hereof. In such case, HH
shall continue to make available to the Executive, during the Term, all employee
benefits to which the Executive was entitled prior to the date hereof.
(b) Upon execution of this Employment Agreement, Glasgal shall
enter into an Option Agreement with Executive in the form attached hereof as
Annex A.
6. REIMBURSEMENT OF EXPENSES. HH shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the
-2-
<PAGE>
performance of his duties hereunder and the business of HH, upon the submission
to HH appropriate receipts or vouchers.
7. VACATION. Executive shall be entitled to four (4) weeks
paid vacation in respect of each twelve (12) month period during the Term, such
vacation to be taken at times mutually agreeable to the Executive and the Board
of Directors. In the event that Executive requests vacation time and such
vacation request is denied by the Board of Directors, HH shall, at its option,
either (i) carry forward any unused vacation time into the next calendar year or
(ii) pay the Executive a pro rata portion of his Base Salary for any unused
vacation time.
8. RESTRICTIVE COVENANT. In consideration of HH's entering
into this Agreement, the Executive agrees that while the Executive is an
employee of HH and for a period of three (3) years thereafter, he will not:
(i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, lend money to, guarantee the debts or
obligations of or otherwise be connected with, in any manner, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in the business of designing, developing and marketing software
that functions substantially the same as software then marketed or developed by
HH at the time of termination of the Executive's employment hereunder;
(ii) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of HH for the purpose
of soliciting, diverting or taking away any customer from HH;
(iii) induce, influence, or seek to induce or influence, any
person engaged as an employee, representative, agent, independent contractor or
otherwise by HH, to terminate his or her relationship with HH; or
(iv) at any time utilize for any commercial purpose a name
incorporating the words "HH Communications", or words or expressions likely to
be confused therewith, or which shall be likely to lead to confusion with the
business conducted by HH.
Nothing herein contained shall be deemed to prohibit the
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and the Executive's holdings therein
represent less than 5% of the total number of shares or principal amount of the
securities of such issuer outstanding.
-3-
<PAGE>
The Executive acknowledges that the provisions of this Section
8 are reasonable and necessary for the protection of HH, and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are, and are intended
to be, divisible. If any provision of this Section 8, including any sentence,
clause or part hereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of HH, its parent and any of its affiliates
all information, knowledge and data relating to or concerned with HH, its parent
and any of its affiliate's operations, sales, business and affairs, and he shall
not, at any time, either during the Term or after the termination of the
Executive's employment with HH, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation (unless HH no longer treats
such information as confidential) other than to HH or its designees and
employees or except as may otherwise be required in connection with the business
and affairs of HH; PROVIDED, HOWEVER, that the Executive may disclose or divulge
such information, knowledge or data that is or becomes generally available to
the public through no wrongful act on the Executive's part or where such
disclosure is legally compelled by judicial or administrative action, provided
that the Executive agrees to give HH prompt notice of any such judicial or
administrative action to enable HH to seek an appropriate protective order.
10. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by the Executive alone or with
others relating to computer integration development tools during the Term and,
whether or not patentable or registrable, shall become the sole and exclusive
property of HH. The Executive shall disclose the same promptly and completely to
HH and shall, during the Term and at any time and from time to time hereafter
(i) execute all documents requested by HH for vesting in HH the entire right,
title and interest in and to the same, (ii) execute all documents requested by
HH for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as HH, in its sole discretion, may desire to prosecute,
and (iii) give HH all assistance it reasonably requires, including the giving of
testimony in any suit, action or proceeding, in order to obtain, maintain and
protect HH's right therein and thereto.
-4-
<PAGE>
11. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, HH shall not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by the Executive, HH shall be
entitled to such equitable and injunctive relief as may be available to restrain
the Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach from the violation of
the provisions hereof. Nothing herein shall be construed as prohibiting HH from
pursuing any other remedies available at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
12. EARLY TERMINATION.
(a) The Term shall terminate without action on the part of HH
upon the death of the Executive. The Term shall also terminate upon 30 days
written notice by HH to the Executive, (i) in the event that the Executive shall
become "permanently incapacitated" (as hereinafter defined); or (ii) for "Cause"
(as hereinafter defined).
(b) For purposes of this Agreement, the Executive shall be
deemed permanently incapacitated in the event that the Executive shall, by
reason of his physical or mental disability, fail to substantially perform his
usual and regular duties for HH for a period of 120 consecutive days.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of HH, or failure of the
Executive to devote his full time to his duties as Vice President of HH (other
than for reason of becoming permanently incapacitated), after written notice by
the Company providing Executive with an opportunity to cure such failure.
(d) In the event the Term is terminated by HH for Cause, HH
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, along with all expense reimbursements
due the Executive.
(e) In the event the Term is terminated due to the Executive
becoming permanently incapacitated, HH shall pay to the Executive the Base
Salary for the remainder of the Term, along with all expense reimbursement due
the Executive.
(f) In the event the Term is terminated by HH without Cause,
HH shall, within 30 days, pay to the Executive an amount equal to the total of
all payments of Base Salary for the remainder of the Term. In addition, the
Executive shall be entitled to the
-5-
<PAGE>
benefits provided pursuant to Section 5 hereof for the remainder of the Term.
Any and all stock options held by the Executive at the time of such termination
which are exercisable at the time of such termination shall be exercisable for a
period of ninety (90) days following the date of such termination pursuant to
the terms of such stock options, at which time all such options not previously
exercised shall expire. Any other stock options held by the Executive at the
time of such termination shall be forfeited.
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Stock
Purchase Agreement and the Option Agreement attached hereto constitute the
entire agreement of the parties hereto, and any prior agreement between HH and
the Executive is hereby superseded and terminated effective immediately and
shall be without further force or effect. No amendment or modification shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
14. NOTICES. Any notice or other communication required or
permitted to be given by this Agreement shall be writing and shall be
effectively given if:
(a) delivered personally;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in the case of notice to:
(i) Executive, to the address written on the first page
hereof,
(ii) HH, at
650 North Dearborn
Suite 500
Chicago, Illinois 60610
Attention:
Telecopier No. (312) 751-2475
(iii) Glasgal, at
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
-6-
<PAGE>
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
15. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by the Executive.
This Agreement shall be binding upon the Executive, his heirs, executors and
administrators and upon HH and Glasgal, their respective successors and assigns.
16. WAIVERS. No course of dealing nor any delay on the part of
any party hereto in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
17. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
18. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
19. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
-7-
<PAGE>
20. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts which may be by facsimile, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. INDEMNIFICATION. HH shall indemnify the Executive, to the
fullest extent permitted by Delaware General Corporation Law, from and against
any loss, claim, liability and/or expense incurred for, or by reason of, or
arising out of, acts of the Executive as an officer and/or director of HH or any
affiliates of HH.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the date first above written.
HH COMMUNICATIONS, INC.
By:/S/ STEVEN M. GRUBNER
-------------------------------------
Name: STEVEN M. GRUBNER
Title: PRESIDENT
/S/ Frank Frazel
----------------------------------------
Frank Frazel
GLASGAL COMMUNICATIONS, INC.
By:/S/ ISAAC J. GAON
-------------------------------------
Name: ISAAC J. GAON
Title: CHIEF EXECUTIVE OFFICER
-9-
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 31st day of July, 1996, by and
between HH COMMUNICATIONS, INC., an Illinois corporation with its principal
office at 650 North Dearborn, Suite 500, Chicago, Illinois 60610 ("HH"), STEVEN
GRUBNER, residing at 108 Brinker Road, Barrington Hills, Illinois 60010 (the
"Executive") and GLASGAL COMMUNICATIONS, INC., a Delaware corporation with its
principal office at 151 Veterans Drive, Northvale, New Jersey 07647 ("Glasgal").
W I T N E S S E T H :
WHEREAS, Glasgal became the owner of 1,000 shares of Common
Stock of HH representing 100% of the issued and outstanding capital stock of HH
pursuant to a Stock Purchase Agreement relating to such purchase dated as of
July 31, 1996 (the "Stock Purchase Agreement");
WHEREAS, prior to the acquisition by Glasgal of such shares of
Common Stock of HH, the Executive, together with the other Sellers (as defined
in the Stock Purchase Agreement) owned 100% of the issued and outstanding shares
of the capital stock of HH;
WHEREAS, HH and the Executive have agreed to modify and
formally document their existing long-term employment relationship for their
mutual benefit and are desirous of setting out the terms and conditions hereof;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. HH hereby employs Executive as its
President, to perform, in accordance with the Bylaws of HH, the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of HH (the "Board of Directors").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. Executive
hereby accepts such employment and agrees that throughout the Term (as
hereinafter defined), he will devote his full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of HH to perform the duties and responsibilities assigned to him
pursuant to Section 1 hereof. As President, the Executive shall perform such
specific duties and shall exercise such specific authority related to the
management of the day-to-day operations of HH as may be assigned to the
Executive from time to time by the Board of Directors and which are reasonably
requested to be performed by the Executive as President. The Executive shall at
all times be
<PAGE>
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as HH shall from time to time establish.
3. TERM. Except as otherwise provided herein, the Executive's
employment hereunder shall commence as of the date hereof and shall terminate on
April 30, 1999 unless earlier terminated in accordance with Section 12 hereof
(the "Term").
4. COMPENSATION.
(a) As full compensation for his services HH shall pay to the
Executive a base salary at the rate of One Hundred Twenty Thousand ($120,000)
Dollars ("Base Salary") commencing as of the date hereof, for each year of his
employment. The Board of Directors shall review the Base Salary annually for
increases, but shall have no obligation to increase the Base Salary. Such
compensation shall be payable in equal monthly installments. All compensation
paid to Executive shall be subject to withholding and other employment taxes
imposed by applicable law.
(b) In addition, the Board of Directors of HH will consider
the payment of an annual bonus to Executive. Such bonus, together with bonus
payments made to other senior executive officers of HH, (i) is expected to be in
an amount not to exceed $240,000, (ii) will be made at the sole discretion of
the Board of Directors of HH, and (iii) is expected to be based on performance
criteria as reasonably determined by Executive and the Board of Directors of HH.
5. ADDITIONAL BENEFITS. (a) In addition to the compensation
set forth in Section 4 hereof, the Executive (and his family) shall be entitled
to participate in any benefits, including, without limitation, health insurance,
life insurance, retirement plans and executive thrift and stock option plans on
terms as favorable to those benefits generally available to the senior executive
officers of Glasgal that may be in effect from time to time during the Term. In
the alternative, the Executive may (at his option) choose to receive the same
level and type of benefits provided by HH on the date hereof. In such case, HH
shall continue to make available to the Executive, during the Term, all employee
benefits to which the Executive was entitled prior to the date hereof.
(b) Upon execution of this Employment Agreement, Glasgal shall
enter into an Option Agreement with Executive in the form attached hereof as
Annex A.
6. REIMBURSEMENT OF EXPENSES. HH shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the
-2-
<PAGE>
performance of his duties hereunder and the business of HH, upon the submission
to HH appropriate receipts or vouchers.
7. VACATION. Executive shall be entitled to four (4) weeks
paid vacation in respect of each twelve (12) month period during the Term, such
vacation to be taken at times mutually agreeable to the Executive and the Board
of Directors. In the event that Executive requests vacation time and such
vacation request is denied by the Board of Directors, HH shall, at its option,
either (i) carry forward any unused vacation time into the next calendar year or
(ii) pay the Executive a pro rata portion of his Base Salary for any unused
vacation time.
8. RESTRICTIVE COVENANT. In consideration of HH's entering
into this Agreement, the Executive agrees that while the Executive is an
employee of HH and for a period of three (3) years thereafter, he will not:
(i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, lend money to, guarantee the debts or
obligations of or otherwise be connected with, in any manner, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in the business of designing, developing and marketing software
that functions substantially the same as software then marketed or developed by
HH at the time of termination of the Executive's employment hereunder;
(ii) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of HH for the purpose
of soliciting, diverting or taking away any customer from HH;
(iii) induce, influence, or seek to induce or influence, any
person engaged as an employee, representative, agent, independent contractor or
otherwise by HH, to terminate his or her relationship with HH; or
(iv) at any time utilize for any commercial purpose a name
incorporating the words "HH Communications", or words or expressions likely to
be confused therewith, or which shall be likely to lead to confusion with the
business conducted by HH.
Nothing herein contained shall be deemed to prohibit the
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and the Executive's holdings therein
represent less than 5% of the total number of shares or principal amount of the
securities of such issuer outstanding.
-3-
<PAGE>
The Executive acknowledges that the provisions of this Section
8 are reasonable and necessary for the protection of HH, and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are, and are intended
to be, divisible. If any provision of this Section 8, including any sentence,
clause or part hereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of HH, its parent and any of its affiliates
all information, knowledge and data relating to or concerned with HH, its parent
and any of its affiliate's operations, sales, business and affairs, and he shall
not, at any time, either during the Term or after the termination of the
Executive's employment with HH, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation (unless HH no longer treats
such information as confidential) other than to HH or its designees and
employees or except as may otherwise be required in connection with the business
and affairs of HH; PROVIDED, HOWEVER, that the Executive may disclose or divulge
such information, knowledge or data that is or becomes generally available to
the public through no wrongful act on the Executive's part or where such
disclosure is legally compelled by judicial or administrative action, provided
that the Executive agrees to give HH prompt notice of any such judicial or
administrative action to enable HH to seek an appropriate protective order.
10. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by the Executive alone or with
others relating to computer integration development tools during the Term and,
whether or not patentable or registrable, shall become the sole and exclusive
property of HH. The Executive shall disclose the same promptly and completely to
HH and shall, during the Term and at any time and from time to time hereafter
(i) execute all documents requested by HH for vesting in HH the entire right,
title and interest in and to the same, (ii) execute all documents requested by
HH for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as HH, in its sole discretion, may desire to prosecute,
and (iii) give HH all assistance it reasonably requires, including the giving of
testimony in any suit, action or proceeding, in order to obtain, maintain and
protect HH's right therein and thereto.
-4-
<PAGE>
11. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, HH shall not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by the Executive, HH shall be
entitled to such equitable and injunctive relief as may be available to restrain
the Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach from the violation of
the provisions hereof. Nothing herein shall be construed as prohibiting HH from
pursuing any other remedies available at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
12. EARLY TERMINATION.
(a) The Term shall terminate without action on the part of HH
upon the death of the Executive. The Term shall also terminate upon 30 days
written notice by HH to the Executive, (i) in the event that the Executive shall
become "permanently incapacitated" (as hereinafter defined); or (ii) for "Cause"
(as hereinafter defined).
(b) For purposes of this Agreement, the Executive shall be
deemed permanently incapacitated in the event that the Executive shall, by
reason of his physical or mental disability, fail to substantially perform his
usual and regular duties for HH for a period of 120 consecutive days.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of HH, or failure of the
Executive to devote his full time to his duties as President of HH (other than
for reason of becoming permanently incapacitated), after written notice by the
Company providing Executive with an opportunity to cure such failure.
(d) In the event the Term is terminated by HH for Cause, HH
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, along with all expense reimbursements
due the Executive.
(e) In the event the Term is terminated due to the Executive
becoming permanently incapacitated, HH shall pay to the Executive the Base
Salary for the remainder of the Term, along with all expense reimbursement due
the Executive.
(f) In the event the Term is terminated by HH without Cause,
HH shall, within 30 days, pay to the Executive an amount equal to the total of
all payments of Base Salary for the remainder of the Term. In addition, the
Executive shall be entitled to the
-5-
<PAGE>
benefits provided pursuant to Section 5 hereof for the remainder of the Term.
Any and all stock options held by the Executive at the time of such termination
which are exercisable at the time of such termination shall be exercisable for a
period of ninety (90) days following the date of such termination pursuant to
the terms of such stock options, at which time all such options not previously
exercised shall expire. Any other stock options held by the Executive at the
time of such termination shall be forfeited.
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Stock
Purchase Agreement and the Option Agreement attached hereto constitute the
entire agreement of the parties hereto, and any prior agreement between HH and
the Executive is hereby superseded and terminated effective immediately and
shall be without further force or effect. No amendment or modification shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
14. NOTICES. Any notice or other communication required
or permitted to be given by this Agreement shall be writing and
shall be effectively given if:
(a) delivered personally;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in the case of notice to:
(i) Executive, to the address written on the first page
hereof,
(ii) HH, at
650 North Dearborn
Suite 500
Chicago, Illinois 60610
Attention:
Telecopier No. (312) 751-2475
(iii) Glasgal, at
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
-6-
<PAGE>
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
15. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by the Executive.
This Agreement shall be binding upon the Executive, his heirs, executors and
administrators and upon HH and Glasgal, their respective successors and assigns.
16. WAIVERS. No course of dealing nor any delay on the part of
any party hereto in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
17. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
18. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
19. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
-7-
<PAGE>
20. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts which may be by facsimile, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. INDEMNIFICATION. HH shall indemnify the Executive, to the
fullest extent permitted by Delaware General Corporation Law, from and against
any loss, claim, liability and/or expense incurred for, or by reason of, or
arising out of, acts of the Executive as an officer and/or director of HH or any
affiliates of HH.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the date first above written.
HH COMMUNICATIONS, INC.
By:/S/ STEVEN GRUBNER
-------------------------------------
Name: Steven Grubner
Title: PRESIDENT
/S/ MARK HERZOG
----------------------------------------
MARK HERZOG
GLASGAL COMMUNICATIONS, INC.
By: /S/ ISAAC GAON
-------------------------------------
Name: ISAAC GAON
Title: CHIEF EXECUTIVE OFFICER
-9-
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 31st day of July, 1996, by and
between HH COMMUNICATIONS, INC., an Illinois corporation with its principal
office at 650 North Dearborn, Suite 500, Chicago, Illinois 60610 ("HH"), MARK
HERZOG, residing at 1735 N. Cleveland Avenue, Chicago, Illinois 60614 (the
"Executive") and GLASGAL COMMUNICATIONS, INC., a Delaware corporation with its
principal office at 151 Veterans Drive, Northvale, New Jersey 07647 ("Glasgal").
W I T N E S S E T H :
WHEREAS, Glasgal became the owner of 1,000 shares of Common
Stock of HH representing 100% of the issued and outstanding capital stock of HH
pursuant to a Stock Purchase Agreement relating to such purchase dated as of
July 31, 1996 (the "Stock Purchase Agreement");
WHEREAS, prior to the acquisition by Glasgal of such shares of
Common Stock of HH, the Executive, together with the other Sellers (as defined
in the Stock Purchase Agreement) owned 100% of the issued and outstanding shares
of the capital stock of HH;
WHEREAS, HH and the Executive have agreed to modify and
formally document their existing long-term employment relationship for their
mutual benefit and are desirous of setting out the terms and conditions hereof;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. HH hereby employs Executive as its
Vice President, to perform, in accordance with the By-laws of HH, the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of HH (the "Board of Directors").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. Executive
hereby accepts such employment and agrees that throughout the Term (as
hereinafter defined), he will devote his full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of HH to perform the duties and responsibilities assigned to him
pursuant to Section 1 hereof. As Vice President, the Executive shall perform
such specific duties and shall exercise such specific authority related to the
management of the day-to-day operations of HH as may be assigned to the
Executive from time to time by the Board of Directors and which are reasonably
requested to be performed by the Executive as Vice President. The Executive
shall at all times be
<PAGE>
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as HH shall from time to time establish.
3. TERM. Except as otherwise provided herein, the Executive's
employment hereunder shall commence as of the date hereof and shall terminate on
April 30, 1999 unless earlier terminated in accordance with Section 12 hereof
(the "Term").
4. COMPENSATION.
(a) As full compensation for his services HH shall pay to the
Executive a base salary at the rate of One Hundred Twenty Thousand ($120,000)
Dollars ("Base Salary") commencing as of the date hereof, for each year of his
employment. The Board of Directors shall review the Base Salary annually for
increases, but shall have no obligation to increase the Base Salary. Such
compensation shall be payable in equal monthly installments. All compensation
paid to Executive shall be subject to withholding and other employment taxes
imposed by applicable law.
(b) In addition, the Board of Directors of HH will consider
the payment of an annual bonus to Executive. Such bonus, together with bonus
payments made to other senior executive officers of HH, (i) is expected to be in
an amount not to exceed $240,000, (ii) will be made at the sole discretion of
the Board of Directors of HH, and (iii) is expected to be based on performance
criteria as reasonably determined by Executive and the Board of Directors of HH.
5. ADDITIONAL BENEFITS. (a) In addition to the compensation
set forth in Section 4 hereof, the Executive (and his family) shall be entitled
to participate in any benefits, including, without limitation, health insurance,
life insurance, retirement plans and executive thrift and stock option plans on
terms as favorable to those benefits generally available to the senior executive
officers of Glasgal that may be in effect from time to time during the Term. In
the alternative, the Executive may (at his option) choose to receive the same
level and type of benefits provided by HH on the date hereof. In such case, HH
shall continue to make available to the Executive, during the Term, all employee
benefits to which the Executive was entitled prior to the date hereof.
(b) Upon execution of this Employment Agreement, Glasgal shall
enter into an Option Agreement with Executive in the form attached hereof as
Annex A.
6. REIMBURSEMENT OF EXPENSES. HH shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the
-2-
<PAGE>
performance of his duties hereunder and the business of HH, upon the submission
to HH appropriate receipts or vouchers.
7. VACATION. Executive shall be entitled to four (4) weeks
paid vacation in respect of each twelve (12) month period during the Term, such
vacation to be taken at times mutually agreeable to the Executive and the Board
of Directors. In the event that Executive requests vacation time and such
vacation request is denied by the Board of Directors, HH shall, at its option,
either (i) carry forward any unused vacation time into the next calendar year or
(ii) pay the Executive a pro rata portion of his Base Salary for any unused
vacation time.
8. RESTRICTIVE COVENANT. In consideration of HH's entering
into this Agreement, the Executive agrees that while the Executive is an
employee of HH and for a period of three (3) years thereafter, he will not:
(i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, lend money to, guarantee the debts or
obligations of or otherwise be connected with, in any manner, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in the business of designing, developing and marketing software
that functions substantially the same as software then marketed or developed by
HH at the time of termination of the Executive's employment hereunder;
(ii) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of HH for the purpose
of soliciting, diverting or taking away any customer from HH;
(iii) induce, influence, or seek to induce or influence, any
person engaged as an employee, representative, agent, independent contractor or
otherwise by HH, to terminate his or her relationship with HH; or
(iv) at any time utilize for any commercial purpose a name
incorporating the words "HH Communications", or words or expressions likely to
be confused therewith, or which shall be likely to lead to confusion with the
business conducted by HH.
Nothing herein contained shall be deemed to prohibit the
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and the Executive's holdings therein
represent less than 5% of the total number of shares or principal amount of the
securities of such issuer outstanding.
-3-
<PAGE>
The Executive acknowledges that the provisions of this Section
8 are reasonable and necessary for the protection of HH, and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are, and are intended
to be, divisible. If any provision of this Section 8, including any sentence,
clause or part hereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of HH, its parent and any of its affiliates
all information, knowledge and data relating to or concerned with HH, its parent
and any of its affiliate's operations, sales, business and affairs, and he shall
not, at any time, either during the Term or after the termination of the
Executive's employment with HH, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation (unless HH no longer treats
such information as confidential) other than to HH or its designees and
employees or except as may otherwise be required in connection with the business
and affairs of HH; PROVIDED, HOWEVER, that the Executive may disclose or divulge
such information, knowledge or data that is or becomes generally available to
the public through no wrongful act on the Executive's part or where such
disclosure is legally compelled by judicial or administrative action, provided
that the Executive agrees to give HH prompt notice of any such judicial or
administrative action to enable HH to seek an appropriate protective order.
10. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by the Executive alone or with
others relating to computer integration development tools during the Term and,
whether or not patentable or registrable, shall become the sole and exclusive
property of HH. The Executive shall disclose the same promptly and completely to
HH and shall, during the Term and at any time and from time to time hereafter
(i) execute all documents requested by HH for vesting in HH the entire right,
title and interest in and to the same, (ii) execute all documents requested by
HH for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as HH, in its sole discretion, may desire to prosecute,
and (iii) give HH all assistance it reasonably requires, including the giving of
testimony in any suit, action or proceeding, in order to obtain, maintain and
protect HH's right therein and thereto.
-4-
<PAGE>
11. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, HH shall not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by the Executive, HH shall be
entitled to such equitable and injunctive relief as may be available to restrain
the Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach from the violation of
the provisions hereof. Nothing herein shall be construed as prohibiting HH from
pursuing any other remedies available at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
12. EARLY TERMINATION.
(a) The Term shall terminate without action on the part of HH
upon the death of the Executive. The Term shall also terminate upon 30 days
written notice by HH to the Executive, (i) in the event that the Executive shall
become "permanently incapacitated" (as hereinafter defined); or (ii) for "Cause"
(as hereinafter defined).
(b) For purposes of this Agreement, the Executive shall be
deemed permanently incapacitated in the event that the Executive shall, by
reason of his physical or mental disability, fail to substantially perform his
usual and regular duties for HH for a period of 120 consecutive days.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of HH, or failure of the
Executive to devote his full time to his duties as Vice President of HH (other
than for reason of becoming permanently incapacitated), after written notice by
the Company providing Executive with an opportunity to cure such failure.
(d) In the event the Term is terminated by HH for Cause, HH
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, along with all expense reimbursements
due the Executive.
(e) In the event the Term is terminated due to the Executive
becoming permanently incapacitated, HH shall pay to the Executive the Base
Salary for the remainder of the Term, along with all expense reimbursement due
the Executive.
(f) In the event the Term is terminated by HH without Cause,
HH shall, within 30 days, pay to the Executive an amount equal to the total of
all payments of Base Salary for the remainder of the Term. In addition, the
Executive shall be entitled to the
-5-
<PAGE>
benefits provided pursuant to Section 5 hereof for the remainder of the Term.
Any and all stock options held by the Executive at the time of such termination
which are exercisable at the time of such termination shall be exercisable for a
period of ninety (90) days following the date of such termination pursuant to
the terms of such stock options, at which time all such options not previously
exercised shall expire. Any other stock options held by the Executive at the
time of such termination shall be forfeited.
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Stock
Purchase Agreement and the Option Agreement attached hereto constitute the
entire agreement of the parties hereto, and any prior agreement between HH and
the Executive is hereby superseded and terminated effective immediately and
shall be without further force or effect. No amendment or modification shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
14. NOTICES. Any notice or other communication required or
permitted to be given by this Agreement shall be writing and shall be
effectively given if:
(a) delivered personally;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in the case of notice to:
(i) Executive, to the address written on the first page
hereof,
(ii) HH, at
650 North Dearborn
Suite 500
Chicago, Illinois 60610
Attention:
Telecopier No. (312) 751-2475
(iii) Glasgal, at
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
-6-
<PAGE>
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
15. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by the Executive.
This Agreement shall be binding upon the Executive, his heirs, executors and
administrators and upon HH and Glasgal, their respective successors and assigns.
16. WAIVERS. No course of dealing nor any delay on the part of
any party hereto in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
17. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
18. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
19. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
-7-
<PAGE>
20. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts which may be by facsimile, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. INDEMNIFICATION. HH shall indemnify the Executive, to the
fullest extent permitted by Delaware General Corporation Law, from and against
any loss, claim, liability and/or expense incurred for, or by reason of, or
arising out of, acts of the Executive as an officer and/or director of HH or any
affiliates of HH.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the date first above written.
HH COMMUNICATIONS, INC.
By:/S/ MARK HERZOG
-------------------------------------
Name: MARK HERZOG
Title: SECRETARY
/S/ STEVEN GRUBNER
----------------------------------------
Steven Grubner
GLASGAL COMMUNICATIONS, INC.
By: /S/ ISAAC GAON
-------------------------------------
Name: ISAAC GAON
Title: CHIEF EXECUTIVE OFFICER
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 31st day of July, 1996, by and
between HH COMMUNICATIONS, INC., an Illinois corporation with its principal
office at 650 North Dearborn, Suite 500, Chicago, Illinois 60610 ("HH"), GEORGE
TERLIZZI, residing at 1210 N. Astor, Apartment 5B, Chicago, Illinois 60610 (the
"Executive") and GLASGAL COMMUNICATIONS, INC., a Delaware corporation with its
principal office at 151 Veterans Drive, Northvale, New Jersey 07647 ("Glasgal").
W I T N E S S E T H :
WHEREAS, Glasgal became the owner of 1,000 shares of Common
Stock of HH representing 100% of the issued and outstanding capital stock of HH
pursuant to a Stock Purchase Agreement relating to such purchase dated as of
July 31, 1996 (the "Stock Purchase Agreement");
WHEREAS, prior to the acquisition by Glasgal of such shares of
Common Stock of HH, the Executive, together with the other Sellers (as defined
in the Stock Purchase Agreement) owned 100% of the issued and outstanding shares
of the capital stock of HH;
WHEREAS, HH and the Executive have agreed to modify and
formally document their existing long-term employment relationship for their
mutual benefit and are desirous of setting out the terms and conditions hereof;
NOW, THEREFORE, in consideration of the covenants and
agreements contained in this Agreement and other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties covenant and agree as follows:
1. EMPLOYMENT OF EXECUTIVE. HH hereby employs Executive as its
Vice President, to perform, in accordance with the By-laws of HH, the duties and
responsibilities incident to such offices, subject at all times to the control
and direction of the Board of Directors of HH (the "Board of Directors").
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION. Executive
hereby accepts such employment and agrees that throughout the Term (as
hereinafter defined), he will devote his full time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of HH to perform the duties and responsibilities assigned to him
pursuant to Section 1 hereof. As Vice President, the Executive shall perform
such specific duties and shall exercise such specific authority related to the
management of the day-to-day operations of HH as may be assigned to the
Executive from time to time by the Board of Directors and which are reasonably
requested to be performed by the Executive as Vice President. The Executive
shall at all times be
<PAGE>
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as HH shall from time to time establish.
3. TERM. Except as otherwise provided herein, the Executive's
employment hereunder shall commence as of the date hereof and shall terminate on
April 30, 1999 unless earlier terminated in accordance with Section 12 hereof
(the "Term").
4. COMPENSATION.
(a) As full compensation for his services HH shall pay to the
Executive a base salary at the rate of One Hundred Twenty Thousand ($120,000)
Dollars ("Base Salary") commencing as of the date hereof, for each year of his
employment. The Board of Directors shall review the Base Salary annually for
increases, but shall have no obligation to increase the Base Salary. Such
compensation shall be payable in equal monthly installments. All compensation
paid to Executive shall be subject to withholding and other employment taxes
imposed by applicable law.
(b) In addition, the Board of Directors of HH will consider
the payment of an annual bonus to Executive. Such bonus, together with bonus
payments made to other senior executive officers of HH, (i) is expected to be in
an amount not to exceed $240,000, (ii) will be made at the sole discretion of
the Board of Directors of HH, and (iii) is expected to be based on performance
criteria as reasonably determined by Executive and the Board of Directors of HH.
5. ADDITIONAL BENEFITS. (a) In addition to the compensation
set forth in Section 4 hereof, the Executive (and his family) shall be entitled
to participate in any benefits, including, without limitation, health insurance,
life insurance, retirement plans and executive thrift and stock option plans on
terms as favorable to those benefits generally available to the senior executive
officers of Glasgal that may be in effect from time to time during the Term. In
the alternative, the Executive may (at his option) choose to receive the same
level and type of benefits provided by HH on the date hereof. In such case, HH
shall continue to make available to the Executive, during the Term, all employee
benefits to which the Executive was entitled prior to the date hereof.
(b) Upon execution of this Employment Agreement, Glasgal shall
enter into an Option Agreement with Executive in the form attached hereof as
Annex A.
6. REIMBURSEMENT OF EXPENSES. HH shall reimburse the Executive
in accordance with its applicable policies for all expenses reasonably incurred
by Executive in connection with the
-2-
<PAGE>
performance of his duties hereunder and the business of HH, upon the submission
to HH appropriate receipts or vouchers.
7. VACATION. Executive shall be entitled to four (4) weeks
paid vacation in respect of each twelve (12) month period during the Term, such
vacation to be taken at times mutually agreeable to the Executive and the Board
of Directors. In the event that Executive requests vacation time and such
vacation request is denied by the Board of Directors, HH shall, at its option,
either (i) carry forward any unused vacation time into the next calendar year or
(ii) pay the Executive a pro rata portion of his Base Salary for any unused
vacation time.
8. RESTRICTIVE COVENANT. In consideration of HH's entering
into this Agreement, the Executive agrees that while the Executive is an
employee of HH and for a period of three (3) years thereafter, he will not:
(i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, lend money to, guarantee the debts or
obligations of or otherwise be connected with, in any manner, whether as an
officer, director, employee, partner, investor or otherwise, any business entity
that is engaged in the business of designing, developing and marketing software
that functions substantially the same as software then marketed or developed by
HH at the time of termination of the Executive's employment hereunder;
(ii) for himself or on behalf of any other person,
partnership, corporation or entity, call on any customer of HH for the purpose
of soliciting, diverting or taking away any customer from HH;
(iii) induce, influence, or seek to induce or influence, any
person engaged as an employee, representative, agent, independent contractor or
otherwise by HH, to terminate his or her relationship with HH; or
(iv) at any time utilize for any commercial purpose a name
incorporating the words "HH Communications", or words or expressions likely to
be confused therewith, or which shall be likely to lead to confusion with the
business conducted by HH.
Nothing herein contained shall be deemed to prohibit the
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and the Executive's holdings therein
represent less than 5% of the total number of shares or principal amount of the
securities of such issuer outstanding.
-3-
<PAGE>
The Executive acknowledges that the provisions of this Section
8 are reasonable and necessary for the protection of HH, and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified herein are, and are intended
to be, divisible. If any provision of this Section 8, including any sentence,
clause or part hereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions shall not be affected, but shall, subject to the discretion of such
court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of HH, its parent and any of its affiliates
all information, knowledge and data relating to or concerned with HH, its parent
and any of its affiliate's operations, sales, business and affairs, and he shall
not, at any time, either during the Term or after the termination of the
Executive's employment with HH, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation (unless HH no longer treats
such information as confidential) other than to HH or its designees and
employees or except as may otherwise be required in connection with the business
and affairs of HH; PROVIDED, HOWEVER, that the Executive may disclose or divulge
such information, knowledge or data that is or becomes generally available to
the public through no wrongful act on the Executive's part or where such
disclosure is legally compelled by judicial or administrative action, provided
that the Executive agrees to give HH prompt notice of any such judicial or
administrative action to enable HH to seek an appropriate protective order.
10. INTELLECTUAL PROPERTY. Any idea, invention, design,
written material, manual, system, procedure, improvement, development or
discovery conceived, developed, created or made by the Executive alone or with
others relating to computer integration development tools during the Term and,
whether or not patentable or registrable, shall become the sole and exclusive
property of HH. The Executive shall disclose the same promptly and completely to
HH and shall, during the Term and at any time and from time to time hereafter
(i) execute all documents requested by HH for vesting in HH the entire right,
title and interest in and to the same, (ii) execute all documents requested by
HH for filing and prosecuting such applications for patents, trademarks, service
marks and/or copyrights as HH, in its sole discretion, may desire to prosecute,
and (iii) give HH all assistance it reasonably requires, including the giving of
testimony in any suit, action or proceeding, in order to obtain, maintain and
protect HH's right therein and thereto.
-4-
<PAGE>
11. EQUITABLE RELIEF. The parties hereto acknowledge that the
Executive's services are unique and that, in the event of a breach or a
threatened breach by the Executive of any of his obligations under this
Agreement, HH shall not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by the Executive, HH shall be
entitled to such equitable and injunctive relief as may be available to restrain
the Executive and any business, firm, partnership, individual, corporation or
entity participating in such breach or threatened breach from the violation of
the provisions hereof. Nothing herein shall be construed as prohibiting HH from
pursuing any other remedies available at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
12. EARLY TERMINATION.
(a) The Term shall terminate without action on the part of HH
upon the death of the Executive. The Term shall also terminate upon 30 days
written notice by HH to the Executive, (i) in the event that the Executive shall
become "permanently incapacitated" (as hereinafter defined); or (ii) for "Cause"
(as hereinafter defined).
(b) For purposes of this Agreement, the Executive shall be
deemed permanently incapacitated in the event that the Executive shall, by
reason of his physical or mental disability, fail to substantially perform his
usual and regular duties for HH for a period of 120 consecutive days.
(c) For purposes of this Agreement, "Cause" shall mean any
criminal conviction of the Executive for an offense involving the
misappropriation of funds or material property of HH, or failure of the
Executive to devote his full time to his duties as Vice President of HH (other
than for reason of becoming permanently incapacitated), after written notice by
the Company providing Executive with an opportunity to cure such failure.
(d) In the event the Term is terminated by HH for Cause, HH
shall, within 30 days, pay to the Executive his Base Salary, as adjusted, to and
including the date of such termination, along with all expense reimbursements
due the Executive.
(e) In the event the Term is terminated due to the Executive
becoming permanently incapacitated, HH shall pay to the Executive the Base
Salary for the remainder of the Term, along with all expense reimbursement due
the Executive.
(f) In the event the Term is terminated by HH without Cause,
HH shall, within 30 days, pay to the Executive an amount equal to the total of
all payments of Base Salary for the remainder of the Term. In addition, the
Executive shall be entitled to the
-5-
<PAGE>
benefits provided pursuant to Section 5 hereof for the remainder of the Term.
Any and all stock options held by the Executive at the time of such termination
which are exercisable at the time of such termination shall be exercisable for a
period of ninety (90) days following the date of such termination pursuant to
the terms of such stock options, at which time all such options not previously
exercised shall expire. Any other stock options held by the Executive at the
time of such termination shall be forfeited.
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Stock
Purchase Agreement and the Option Agreement attached hereto constitute the
entire agreement of the parties hereto, and any prior agreement between HH and
the Executive is hereby superseded and terminated effective immediately and
shall be without further force or effect. No amendment or modification shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
14. NOTICES. Any notice or other communication required
or permitted to be given by this Agreement shall be writing and
shall be effectively given if:
(a) delivered personally;
(b) sent by prepaid courier service;
(c) sent by registered mail; or
(d) sent by prepaid telecopier, telex or other similar
means of electronic communication and confirmed by
mailing the original document so sent by prepaid mail
on the same or following day,
in the case of notice to:
(i) Executive, to the address written on the first page
hereof,
(ii) HH, at
650 North Dearborn
Suite 500
Chicago, Illinois 60610
Attention:
Telecopier No. (312) 751-2475
(iii) Glasgal, at
151 Veterans Drive
Northvale, N.J. 07647
Attention: Isaac Gaon
Telecopier No. (201) 768-2947
-6-
<PAGE>
or at such other address as the party to whom such notice or other communication
is to be given shall have advised the party giving same in the manner provided
in this section. Any notice or other communication delivered personally or by
prepaid courier service shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is not a
business day such notice or other communication shall be deemed to have been
given and received on the next following business day. Any notice or other
communication sent by registered mail shall be deemed to have been given and
received on the third business day following the date of mailing. Any notice or
other communication transmitted by telecopier, telex or other similar form of
electronic communication shall be deemed given and received on the day of its
transmission provided that such day is a business day and such transmission is
completed before 5:00 p.m. on such day, failing which such notice or other
communication shall be deemed given and received on the first business day after
its transmission. Regardless of the foregoing, if there is a mail stoppage or
labor dispute or threatened labor dispute which has affected or could affect
normal mail delivery, then no notice or other communication may be delivered by
registered mail. If there has been a mail stoppage and if a party sends a notice
or other communication by telecopier, telex or other similar means of electronic
communication, such party shall be relieved from the obligation to mail the
original document in accordance with this section. "Business day" means any day
other than a Saturday, a Sunday or a statutory holiday observed in New York
City, New York.
15. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by the Executive.
This Agreement shall be binding upon the Executive, his heirs, executors and
administrators and upon HH and Glasgal, their respective successors and assigns.
16. WAIVERS. No course of dealing nor any delay on the part of
any party hereto in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
17. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York,
except that body of law relating to choice of laws.
18. INVALIDITY. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
19. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
-7-
<PAGE>
20. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts which may be by facsimile, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. INDEMNIFICATION. HH shall indemnify the Executive, to the
fullest extent permitted by Delaware General Corporation Law, from and against
any loss, claim, liability and/or expense incurred for, or by reason of, or
arising out of, acts of the Executive as an officer and/or director of HH or any
affiliates of HH.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the date first above written.
HH COMMUNICATIONS, INC.
By:/S/ MARK HERZOG
-------------------------------------
Name: MARK HERZOG
Title: SECRETARY
/S/ GEORGE TERLIZZI
----------------------------------------
George Terlizzi
GLASGAL COMMUNICATIONS, INC.
By: /S/ ISAAC GAON
-------------------------------------
Name: ISAAC GAON
-9-
FINOVA
LOAN AND SECURITY AGREEMENT
BORROWER: DATATEC INDUSTRIES INC.
ADDRESS: 23 MADISON ROAD
FAIRFIELD, NEW JERSEY 07004
DATE: MARCH 17, 1997
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the borrower named above (the "Borrower"), whose
address is set forth above and FINOVA CAPITAL CORPORATION ("Lender"), whose
address is 1850 North Central Avenue, P.O. Box 2209, Phoenix, Arizona
85002-2209, with a copy to 355 South Grand Avenue, Suite 2400, Los Angeles,
California 90071, with a further copy to 1060 First Avenue, P. O. Box 1554, King
of Prussia, Pennsylvania 19406, Attention: Portfolio Manager.
<PAGE>
1. LOANS.
1.1 TOTAL FACILITY. Upon the terms and conditions set forth herein and
provided that no Event of Default or Incipient Default shall have occurred and
be continuing, Lender shall, upon Borrower's request, make advances to Borrower
from time to time in an aggregate outstanding principal amount not to exceed the
Total Facility amount (the "Total Facility") set forth on the schedule hereto
(the "Schedule"), subject to deduction of reserves for accrued interest and such
other reserves as Lender deems proper from time to time, and less amounts Lender
may be obligated to pay in the future on behalf of Borrower. The Schedule is an
integral part of this Agreement and all references to "herein", "herewith" and
words of similar import shall for all purposes be deemed to include the
Schedule.
1.2 LOANS. Advances under the Total Facility ("Loans") shall be comprised
of the amounts shown on the Schedule.
1.3 OVERLINES; OVERADVANCES. If at any time or for any reason the
outstanding amount of advances made pursuant hereto exceeds any of the dollar
limitations (such excess, an "Overline") or percentage limitations (such excess,
an "Overadvance") contained in the Schedule, then Borrower shall, upon Lender's
demand, immediately pay to Lender, in cash, the full amount of such Overline or
Overadvance. Without limiting Borrower's obligation to repay to Lender on demand
the amount of any such Overline or Overadvance, Borrower agrees to pay Lender
interest on the outstanding principal amount of any such Overline or
Overadvance, on demand, at the rate set forth in on the Schedule.
1.4 NOTIFICATION RE CLOSING. Borrower shall provide Lender with at least
forty-eight (48) hours prior written notice of the Closing, to enable Lender to
arrange for the availability of funds. In the event the Closing does not take
place on the date specified in Borrower's notice to Lender, other than through
the fault of Lender, Borrower agrees to reimburse Lender for Lender's costs to
maintain the necessary funds available for the Closing, at the applicable Term
Interest Rate with respect to $2,000,000, and at the Revolving Interest Rate
with respect to an amount equal to the initial advance under the Revolving Loans
Facility which is to be made on the Closing Date, for the number of days which
elapse between the date specified in Borrower's notice and the date upon which
the Closing actually occurs (which number of days shall not include the date
specified in Borrower's notice, but shall include the Closing Date).
1.5 LOAN ACCOUNT. All advances made hereunder shall be added to and deemed
part of the Obligations when made. Lender may from time to time charge all
Obligations of Borrower to Borrower's loan account with Lender.
<PAGE>
2. CONDITIONS PRECEDENT.
2.1 INITIAL ADVANCE. The obligation of Lender to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule: (a) LOAN DOCUMENTS. Lender shall have received (i) each of the
Loan Documents, executed by each of the parties thereto and, if applicable, duly
acknowledged for recording or filing in the appropriate governmental offices;
(ii) such Blocked Account or Dominion Account agreements as it shall determine;
and (iii) such other documents, instruments and agreements in connection
herewith as Lender shall require, executed, certified and/or acknowledged by
such parties as Lender shall designate; (b) TERMINATIONS BY EXISTING LENDER.
Borrower's, Parent's and HHC's existing lenders shall have executed and
delivered UCC termination statements and other documentation evidencing the
termination of its liens and security interests in the assets of Borrower,
Parent, or HHC, or a subordination agreement in form and substance satisfactory
to Lender in its sole discretion; (c) CHARTER DOCUMENTS. Lender shall have
received copies of Borrower's, Parent's, HHC's, and CASI's By-laws and Articles
or Certificate of Incorporation, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of such Persons; (d) GOOD STANDING.
Lender shall have received a certificate of corporate status with respect to
Borrower, Parent, HHC, and CASI, dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of incorporation of each such Person,
which certificate shall indicate that Borrower, Parent, HHC, and CASI is each in
good standing in such state; (e) FOREIGN QUALIFICATION. Lender shall have
received certificates of corporate status with respect to Borrower and each
other Loan Party, each dated within ten (10) days of the Closing Date, issued by
the Secretary of State of each state in which its failure to be duly qualified
or licensed would have a material adverse effect on the financial condition or
assets of Borrower or any other Loan Party, indicating that Borrower and each
other Loan Party is in good standing; (f) AUTHORIZING RESOLUTIONS AND
INCUMBENCY. Lender shall have received a certificate from the Secretaries of
Borrower and Parent attesting to (i) the adoption of resolutions of Borrower's
and Parent's Board of Directors and Shareholders (if necessary) authorizing the
borrowing of money from Lender and execution and delivery of this Agreement and
the other Loan Documents to which Borrower or Parent is a party, and authorizing
specific officers of Borrower and Parent to execute same, and (ii) the
authenticity of original specimen signatures of such officers; (g) INSURANCE.
Lender shall have received the insurance certificates, certified copies of
policies, and the signed Insurance Letter, as required by Section 4.4 hereof,
all in form and substance satisfactory to Lender and its counsel; (h) TITLE
INSURANCE. [INTENTIONALLY OMITTED;] (i) SEARCHES; CERTIFICATES OF TITLE. Lender
shall have received searches reflecting the filing of its financing statements
and fixture filings in such jurisdictions as it shall determine, and shall have
received certificates of title with respect to the Collateral which shall have
been duly executed in a manner sufficient to perfect all of the security
interests granted to Lender; (j) LANDLORD AND MORTGAGEE WAIVERS. Lender shall
have received landlord and mortgagee waivers from the lessors and mortgagees of
all locations where any Collateral is located, in each case in form and
substance satisfactory to Lender and its counsel; (k) FEES. Borrower shall have
paid all fees payable by it on the Closing Date pursuant to this Agreement; (l)
OPINION OF COUNSEL. Lender shall have received an opinion of Borrower's counsel
covering such matters as Lender shall determine in its sole discretion; (m)
OFFICER CERTIFICATE. Lender shall have received a certificate of the President
and the Chief Financial Officer or similar official of Borrower, attesting to
the accuracy of each of the representations and warranties of Borrower set forth
in the Agreement and the fulfillment of all conditions precedent to the initial
advance thereunder; (n) SOLVENCY CERTIFICATE. Lender shall have received signed
certificates of the Borrower's and Parent's Chief Financial Officer concerning
the solvency and financial condition of Borrower and Parent, on Lender's
standard form; (o) LIFE INSURANCE. Borrower shall have obtained and delivered to
Lender, or shall have caused Parent to obtain and deliver to Lender, one or more
life insurance policies issued in favor of Borrower or Parent insuring the lives
of Isaac Gaon and Christopher Carey, which insurance shall be (i) at all times
in an amount not less than $1,000,000 as to each such insured; (ii) issued by an
insurer and in a form and substance acceptable to Lender; and (iii) assigned to
Lender; (p) ENVIRONMENTAL ASSESSMENT. Borrower shall provide evidence
satisfactory to Lender that the subject transaction is environmentally
acceptable. If required by Lender, Borrower shall have retained a firm
acceptable to Lender and knowledgeable in environmental matters to perform a
<PAGE>
Phase I environmental investigation of the real property owned, operated or
occupied by Borrower or any other Loan Party and the surrounding areas. Such
investigation may include, but not be limited to, soil and ground water testing
and core samplings to fully identify the scope of any environmental issues
impacting the transaction. All costs incurred in performing such investigation
shall be borne by Borrower. The scope and results of such investigation must be
satisfactory to Lender in form and substance. All costs associated with
compliance with the Applicable Laws, as indicated by such investigation, shall
be the sole responsibility of Borrower. Prior to the Closing, there shall have
been reported to the appropriate regulatory agencies such matters concerning the
condition of all real property owned, occupied, or operated by Borrower or any
other Loan Party as Lender, in its sole discretion, has determined are subject
to a reporting obligation under Applicable Laws; (q) SCHEDULE CONDITIONS.
Borrower and each other Loan Party shall have complied with all additional
conditions precedent as set forth in the Schedule attached hereto; and (r) OTHER
MATTERS. All other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Lender
and its counsel.
2.2 SUBSEQUENT ADVANCES. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a)
REPRESENTATIONS AND WARRANTIES. The representations and warranties of Borrower
and each other Loan Party set forth in the Loan Documents shall be accurate,
before and after giving effect to such advance and to the application of any
proceeds thereof; (b) NO DEFAULTS. No Event of Default and no Incipient Default
has occurred and is continuing, or would result from such advance or from the
application of any proceeds thereof; (c) NO ADVERSE EVENTS. No material adverse
change has occurred in the Borrower's or Parent's business, operations,
financial condition, or assets or in the condition of the Collateral, or in the
prospect of repayment of the Obligations; and (d) APPROVALS. Lender shall have
received such other approvals, opinions or documents as Lender shall reasonably
request.
3. INTEREST RATE AND OTHER CHARGES.
3.1 INTEREST; FEES. Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at the per annum rates set forth
on the Schedule. Borrower shall also pay Lender the fees set forth on the
Schedule.
<PAGE>
3.2 DEFAULT INTEREST RATE. Upon the occurrence and during the continuance
of an Event of Default, Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at a rate per annum which is two
percent (2%) in excess of the rates which would otherwise be applicable thereto
pursuant to the Schedule.
3.3 EXAMINATION FEES. Borrower agrees to pay to Lender an Examination Fee
in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by Lender prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to Lender
an initial Examination Fee in an amount equal to the amount set forth on the
Schedule. Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to Lender prior to the
date of this Agreement.
3.4 EXCESS INTEREST. In no event whatsoever shall the interest rate and
other charges charged hereunder exceed the highest rate permissible under any
law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that a court determines that Lender has
received interest and other charges hereunder in excess of the highest
permissible rate applicable thereto, Lender shall promptly apply such excess to
the Obligations in such order as Lender shall determine in its sole discretion
or refund the amount thereof to Borrower, and the provisions hereof shall be
deemed amended to provide for such permissible rate.
4. COLLATERAL.
4.1 SECURITY INTEREST IN THE COLLATERAL. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to Lender a
first priority (subject to Permitted Prior Encumbrances) security interest in
all of Borrower's now owned or hereafter acquired or arising Inventory,
Equipment, Receivables, the Life Insurance Policies and the proceeds thereof,
Trademarks, Licenses, and Patents, and General Intangibles, including, without
limitation, all of Borrower's Deposit Accounts, money, any and all property now
or at any time hereafter in Lender's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Lender may be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
4.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. Borrower shall, at its
expense, take all actions requested by Lender at any time to perfect, maintain,
protect and enforce Lender's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as Lender shall require, all in form and
substance satisfactory to Lender, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to Lender warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and transferring Inventory to warehouses
designated by Lender, (iv) placing notations on Borrower's books of account to
disclose Lender's security interest therein and (v) delivering to Lender all
letters of credit on which Borrower is named beneficiary. Lender may file,
without Borrower's signature, one or more financing statements disclosing
Lender's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrower shall notify such Person of Lender's
security interest in such Collateral and, upon Lender's request, instruct them
to hold all such Collateral for Lender's account subject to Lender's
instructions. From time to time, Borrower shall, upon Lender's request, execute
and deliver confirmatory written instruments pledging the Collateral to Lender,
but Borrower's failure to do so shall not affect or limit Lender's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and Lender's obligation to make further advances hereunder
has terminated, Lender's security interest in the Collateral shall continue in
full force and effect.
<PAGE>
4.3 PRESERVATION OF COLLATERAL. Lender may, in its sole discretion, at any
time discharge any lien or encumbrance on the Collateral or bond the same, pay
any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
4.4 INSURANCE. Borrower and each other Loan Party shall maintain and
deliver evidence to Lender of such insurance as is required by Lender, written
by insurers, in amounts, and with lender's loss payee and other endorsements,
satisfactory to Lender. Without limiting the generality of the foregoing, the
insurance requirements applicable as of the Closing Date shall be as set forth
in the Insurance Letter. All premiums with respect to such insurance shall be
paid by Borrower and each other Loan Party as and when due. Accurate and
complete copies of all policies of insurance shall be delivered by Borrower and
each other Loan Party to Lender. If Borrower or any other Loan Party fails to
comply with this Section, Lender may (but shall not be required to) procure such
insurance at Borrower's expense and charge the cost thereof to Borrower's loan
account as an Obligation.
4.5 LIFE INSURANCE. The Life Insurance Policies shall be assigned to
Lender (pursuant to an assignment in form satisfactory to Lender, hereinafter
referred to as the "Assignment of Life Insurance"). Borrower hereby grants, and
shall cause Parent to grant, to Lender a security interest in the Life Insurance
Policies, all replacements thereof, any supplementary contract issued in
connection therewith, and all proceeds of the foregoing (including without
limitation, the beneficiary's interest therein, collectively referred to as the
"Insurance Collateral") to secure Borrower's payment and performance of all the
Obligations. The insurer under the Life Insurance Policies and the terms and
conditions of the Life Insurance Policies are subject to the approval of Lender.
The original of the policy evidencing the Life Insurance Policies, signed by an
authorized insurance company representative, shall be delivered to Lender within
sixty (60) days following the Closing Date. The Life Insurance Policies shall
require the insurer to provide Lender with thirty (30) days advance written
notice of any cancellation and/or any material change in coverage. Borrower
warrants and represents that either it or Parent is and will be (throughout the
entire term of the Loan) the owner and beneficiary of the Life Insurance
Policies. Notwithstanding anything herein to the contrary, upon the maturity of
the Life Insurance Policies or upon the death of an individual insured, the
proceeds of the Life Insurance Policies shall be paid directly to Lender, shall
(at the option of Lender) up to the first $1,000,000 of such proceeds (for so
long as no Event of Default has occurred and is continuing, or if any proceeds
of the Life Insurance Policies shall be received by Lender at any time when an
Event of Default exists and is continuing, then up to the full amount of such
life insurance proceeds) be treated as a prepayment and, if treated as a
prepayment, shall be applied in order against (a) all of Borrower's Obligations,
other than as set forth in the remaining subsections of this paragraph, (b) all
costs and expenses of Lender in connection with such prepayment, (c) accrued
interest, and (d) the unpaid principal balance of the Loans in such manner as
Lender shall elect, or, if Lender so elects, shall be delivered to Borrower or
Parent. If proceeds of the Life Insurance Policies in excess of $1,000,000
(considered in the aggregate over the term of the Loans) are received by Lender
at any time when there does not then exist an Event of Default, then such
proceeds shall be made available to Borrower or Parent for application either
against the Loans, in such manner as Borrower or Parent shall direct, or to
Borrower or Parent for other corporate purposes. No prepayment premium or
Termination Fee shall be due and owing in connection with such prepayment. To
the extent that the proceeds of said Life Insurance Policies exceed the amount
of Borrower's Obligations, any such excess shall be paid by Lender directly to
Borrower or Parent, as applicable.
<PAGE>
5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1 EXAMINATIONS. Lender shall at all reasonable times have full access to
and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral. Borrower will deliver to Lender any instrument
necessary for Lender to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon Lender's
request, by copies of related purchase orders and invoices. Lender may, at any
time after the occurrence and during the continuance of an Event of Default,
remove from Borrower's premises Borrower's books and records (or copies thereof)
or require Borrower to deliver such books and records or copies to Lender.
Lender may, without expense to Lender, use such of Borrower's personnel,
supplies and premises as may be reasonably necessary for maintaining or
enforcing Lender's security interest. At any time when the Eligible Receivables
or Eligible Inventory of any other Loan Party is included in Borrower's
borrowing base for purposes of obtaining advances under the Revolving Loans
Facility hereunder, Borrower shall cause each other Loan Party to accord
comparable access to Lender for any examinations or other inspection of such
party's assets, books, and records as Lender would be entitled with respect to
Borrower under this Section 5.1.
5.2 REPORTING REQUIREMENTS. Borrower shall furnish Lender, upon request,
such information and statements as Lender shall request from time to time
regarding Borrower's and each other Loan Party's business affairs, financial
condition and the results of its operations. Without limiting the generality of
the foregoing, Borrower will provide Lender with: (i) copies of sales journals,
cash receipt journals, deposit slips, credit memoranda issued, and Lender's
standard form collateral and loan report, daily; (ii) upon Lender's request,
copies of sales invoices, customer statements, remittance advices and reports;
(iii) copies of shipping and delivery documents, upon request; (iv) on or prior
to the dates set forth on the Schedule, monthly agings (aged from invoice date)
and reconciliations of Receivables (with listings of concentrated accounts),
payables reports, inventory reports and unaudited financial statements, prepared
on a consolidated basis with Parent and its controlled corporations, with
respect to the prior month prepared on a basis consistent with such statements
prepared in prior months and otherwise in accordance with generally accepted
accounting principles, consistently applied; (v) audited annual financial
statements, prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the most recent Prepared Financials provided
to Lender by Borrower, prepared on a consolidated basis with Parent and its
controlled corporations, with the unqualified report thereon of independent
certified public accountants acceptable to Lender, as soon as available, and in
any event, within ninety (90) days after the end of each of Borrower's fiscal
years; (vi) an annual operating budget (including income statements, balance
sheets and cash flow statements by month) for the upcoming fiscal year, at least
thirty (30) days prior to the end of Borrower's fiscal year; and (vii) such
certificates relating to the foregoing as Lender may request, including, without
limitation, a monthly certificate from the president or the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
or any Incipient Default has occurred, and if so, the steps being taken to cure
such Event of Default or to prevent such Incipient Default from becoming an
Event of Default. In addition, each other Loan Party shall provide comparable
information to Lender, concurrently with the information provided by Borrower
hereunder, during any period when the Eligible Receivables or Eligible Inventory
of such Loan Party is included in Borrower's borrowing base for purposes of
determining the amount of advances under the Revolving Loans Facility hereunder
to which Borrower is entitled, provided, however, that the other Loan Parties
shall not be required to provide audited consolidating financial statements to
Lender. All reports or financial statements submitted by Borrower or any other
Loan Party shall be in reasonable detail and shall be certified by the president
or principal financial officer of Borrower or any other Loan Party as being
complete and correct. Borrower and Parent have advised Lender of their intent to
merge HHC with and into Borrower following the Closing Date. The provisions of
clause (iv) above to the contrary notwithstanding, in the event that HHC has not
been merged into Borrower as of June 1, 1997, then commencing as of that date,
with respect to all reports or financial statements required to be provided to
Lender by Borrower from and after June 1, 1997, Borrower shall provide the
monthly and annual financial statements described in clauses (iv) and (v) above
prepared on both a consolidated and consolidating basis with Parent and its
controlled corporations, provided, however, that the other Loan Parties shall
not be required to provide audited consolidating financial statements to Lender.
In addition to the foregoing, upon request of Lender, Borrower shall prepare
financial statements, which need not be audited, to separately present the
financial information and results of operations applicable to CASI.
<PAGE>
6. COLLATERAL REPORTING; INVENTORY.
6.1 INVOICES. Borrower will not, nor will Borrower permit any other Loan
Party to, re-date any invoice or sale from the original date thereof or make
sales on extended terms beyond those customary in Borrower's industry, or
otherwise extend or modify the term of any Receivable. If Borrower becomes aware
of any matter affecting any Receivable, including information affecting the
credit of the account debtor thereon, Borrower will promptly notify Lender in
writing.
6.2 INSTRUMENTS. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower and each other Loan Party will immediately deliver such
instrument to Lender appropriately endorsed to Lender and, regardless of the
form of any presentment, demand, notice of dishonor, protest and notice of
protest with respect thereto, Borrower and each other Loan Party will remain
liable thereon until such instrument is paid in full. Upon receipt by Lender of
payment in respect of any instrument which has been delivered to Lender, the
proceeds of such instrument or instruments shall be applied in reduction of the
outstanding Obligations.
6.3 PHYSICAL INVENTORY. Borrower shall conduct, and shall cause each other
Loan Party to conduct, a physical count of the Inventory at such intervals as
Lender reasonably requests (which, initially, shall be annually) and promptly
supply Lender with a copy of such accounts accompanied by a report of the value
(calculated on the lower of "first in, first out" cost or market basis) of the
Inventory and such additional information with respect to the Inventory as
Lender may request from time to time.
6.4 RETURNS. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 9.2, if any account debtor
returns any Inventory to Borrower or any other Loan Party in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the account debtor (sending a copy to
Lender, at Lender's request) in the appropriate amount. In the event any
attempted return of such Inventory occurs after the occurrence and during the
continuance of an Event of Default, Borrower and each other Loan Party shall (i)
hold the returned Inventory in trust for Lender, (ii) segregate all returned
Inventory from all of its other property, (iii) conspicuously label the returned
Inventory as Lender's property and (iv) immediately notify Lender of the return
of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Lender's request deliver such
returned Inventory to Lender. Borrower and each other Loan Party shall not
consign any Inventory.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
7.1 PRINCIPAL PAYMENTS. The Term Loan shall be payable in the manner set
forth in Section 1.1 on the Schedule, as such provisions are more fully set
forth in the Note. That portion of the Obligations consisting of principal
payable on account of the Revolving Loans Facility shall be payable by Borrower
to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower
of any proceeds of any of the Collateral, to the extent of said proceeds, (ii)
the occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of such loans, or (iii) any termination of
this Agreement pursuant to Section 16 hereof; PROVIDED, HOWEVER, that any
Overline or Overadvance shall be payable on demand pursuant to the provisions of
Section 1.3 hereof. Upon any acceleration of the maturity of the Loans or upon
any early termination of the Revolving Loans Facility, the full amount of the
Term Loan shall simultaneously be due and payable in full.
<PAGE>
7.2 COLLECTIONS. Until Lender notifies Borrower to the contrary, Borrower
may make collection of all Receivables for Lender and shall receive all payments
as trustee of Lender and immediately deliver all payments to Lender in their
original form as set forth below, duly endorsed in blank. Lender or its designee
may, in the circumstances described below, notify account debtors that the
Receivables have been assigned to Lender and of Lender's security interest
therein. Lender may only give the foregoing notification to account debtors at
any time when there exists an Event of Default or an Incipient Default, or,
absent the existence of an Event of Default or Incipient Default, if in Lender's
good faith judgment, based upon credible evidence, Lender believes that (A) the
Blocked Account or Dominion Account is being circumvented or other circumstances
exist which threaten Lender's ability to maintain its dominion over cash, (B)
the proceeds of Lender's Collateral are being diverted from it, or (C) the
Borrower's or any other Loan Party's properties or assets are otherwise being
misappropriated (the foregoing events being referred to herein as "Designated
Collateral Impairment Events"). After the occurrence and during the continuance
of an Event of Default, or after any Designated Collateral Impairment Event,
Lender may collect the Receivables directly (rather than through the Dominion
Account or the Blocked Account), if elected by Lender, and charge the collection
costs and expenses to Borrower's loan account. Borrower agrees that, in
computing the charges under this Agreement, all items of payment shall be deemed
applied by Lender on account of the Obligations one (1) Business Day after
receipt by Lender of good funds which have been finally credited to Lender's
account, whether such funds are received directly from Borrower or any other
Loan Party or from the Blocked Account bank or the Dominion Account bank,
pursuant to Section 7.3 hereof, and this provision shall apply regardless of the
amount of the Obligations outstanding or whether any Obligations are
outstanding. Lender is not, however, required to credit Borrower's account for
the amount of any item of payment which is unsatisfactory to Lender in its sole
discretion and Lender may charge Borrower's loan account for the amount of any
item of payment which is returned to Lender unpaid.
7.3 ESTABLISHMENT OF A LOCKBOX ACCOUNT OR DOMINION ACCOUNT. All proceeds
of Collateral shall, at the direction of Lender, be deposited by Borrower into a
lockbox account, or such other "blocked account" as Lender may require (each, a
"Blocked Account") pursuant to an arrangement with such bank as may be selected
by Borrower and be acceptable to Lender. Borrower shall issue to any such bank
an irrevocable letter of instruction directing said bank to transfer such funds
so deposited to Lender, either to any account maintained by Lender at said bank
or by wire transfer to appropriate account(s) of Lender. All funds deposited in
a Blocked Account shall immediately become the sole property of Lender and
Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. Lender assumes no responsibility for any Blocked
Account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Lender may establish depository accounts in the name
of Lender at a bank or banks for the deposit of such funds (each, a "Dominion
Account") and Borrower shall deposit all proceeds of Receivables and all cash
proceeds of any sale of Inventory or, to the extent permitted herein, Equipment
or cause same to be deposited, in kind, in such Dominion Accounts of Lender in
lieu of depositing same to Blocked Accounts. In addition to the foregoing,
during any period for which Borrower is permitted to obtain advances under the
Revolving Loans Facility which advances are made against the Eligible
Receivables of Parent, HHC, or CASI, each such entity shall establish a Blocked
Account or Dominion Account, which account shall satisfy the requirements of
this Section 7.3 as if such Person were Borrower hereunder, and into which all
proceeds of Receivables and all cash proceeds of any sale of Inventory shall be
deposited, in the same manner as Borrower is required to make deposits to the
Blocked Account or the Dominion Account as set forth herein.
<PAGE>
7.4 PAYMENTS WITHOUT DEDUCTIONS. Borrower shall pay principal, interest,
and all other amounts payable hereunder, or under any related agreement, without
any deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 COLLECTION DAYS UPON REPAYMENT. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full will be credited
(conditioned upon final collection) to Borrower's loan account one (1) Business
Day after Lender's receipt thereof.
7.6 MONTHLY ACCOUNTINGS. Lender will provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Lender), unless Borrower
notifies Lender in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
8. POWER OF ATTORNEY.
Borrower and each other Loan Party hereby appoints Lender and its
designees as Borrower's and such other Loan Party's attorney, with the power to
endorse Borrower's and each other Loan Party's name, as applicable, on any
checks, notes, acceptances, money orders or other forms of payment or security
that come into Lender's possession; to sign Borrower's and each other Loan
Party's name, as applicable, on any invoice or bill of lading relating to any
Receivable, on drafts against customers, on assignments of Receivables, on
notices of assignment, financing statements and other public records, and on
verifications of accounts sent to account debtors; to send requests for
verification of Receivables to customers or account debtors; after the
occurrence and during the continuance of any Event of Default or after any
Designated Collateral Impairment Event, to sign Borrower's and each other Loan
Party's name, as applicable, on notices to customers or account debtors, to
notify account debtors that the Receivables have been assigned to Lender and of
Lender's security interest therein, and to notify the post office authorities to
change the address for delivery of Borrower's and each other Loan Party's mail
to an address designated by Lender and to open and dispose of all mail addressed
to Borrower or any other Loan Party; and to do all other things Lender deems
necessary or desirable to carry out the terms of this Agreement. Borrower hereby
ratifies and approves all acts of such attorney. Neither Lender nor any of its
designees will be liable for any acts or omissions nor for any error of judgment
or mistake of fact or law acting as Borrower's attorney. This power, being
coupled with an interest, is irrevocable until the Obligations have been fully
satisfied and Lender's obligation to provide loans hereunder shall have
terminated.
9. RECEIVABLES.
9.1 ELIGIBILITY. Borrower and each other Loan Party represents and
warrants that each Receivable covers and will cover a bona fide sale or lease
and delivery by it of goods or the rendition by it of services in the ordinary
course of its business, and will be for a liquidated amount and Lender's
security interest will not be subject to any offset, deduction, counterclaim,
rights of return or cancellation, lien or other condition. If any representation
and warranty herein is breached as to any Receivable or any Receivable ceases to
be an Eligible Receivable for any reason other than payment thereof, then Lender
may, in addition to its other rights hereunder, designate any and all
Receivables owing by that account debtor as not Eligible Receivables; PROVIDED,
that Lender shall in any such event retain its security interest in all
Receivables, whether or not Eligible Receivables, until the Obligations have
been fully satisfied and Lender's obligation to provide loans hereunder has
terminated.
<PAGE>
9.2 DISPUTES. Borrower and each other Loan Party shall notify Lender
promptly of all disputes and claims and settle or adjust such disputes or claims
at no expense to Lender, but no discount, credit or allowance shall be granted
to any account debtor and no returns of merchandise shall be accepted by
Borrower or any other Loan Party without Lender's consent, except for discounts,
credits and allowances made or given in the ordinary course of Borrower's or
such other Loan Party's business, as the case may be. Lender may, at any time
after the occurrence and during the continuance of an Event of Default, settle
or adjust disputes and claims directly with account debtors for amounts and upon
terms which Lender considers advisable in its reasonable credit judgment and, in
all cases, Lender will credit Borrower's loan account with only the net amounts
received by Lender in payment of any Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with
Borrower's past practice, ordinary wear and tear excepted. Borrower shall not
permit any item of Equipment to become a fixture (other than a trade fixture) to
real estate or an accession to other property.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
Borrower represents, warrants and covenants, and shall cause each other
Loan Party to represent, warrant and covenant, that (a) all Collateral is and
will continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever (except for Lender's security interest, the Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by Lender in its sole discretion from time to time in writing), and (b) Borrower
and each other Loan Party will not, without Lender's prior written approval,
sell, encumber or dispose of or permit the sale, encumbrance or disposal of any
Collateral or any interest of Borrower or any other Loan Party therein, except
for the sale of Inventory in the ordinary course of Borrower's and each other
Loan Party's business. In the event Lender gives any such prior written
approval, the same may be conditioned on the sale price being equal to, or
greater than, an amount acceptable to Lender. The proceeds of any such sales
shall be remitted to Lender pursuant to this Agreement for application to the
Obligations.
<PAGE>
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants, and shall cause each other Loan Party to
represent and warrant, that:
12.1 DUE ORGANIZATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the State set forth on the
Schedule, is qualified and authorized to do business and is in good standing in
all states in which such qualification and good standing are necessary in order
for it to conduct its business and own its property, and has all requisite power
and authority to conduct its business as presently conducted, to own its
property and to execute and deliver each of the Loan Documents to which it is a
party and perform all of its Obligations thereunder, and has not taken any steps
to wind-up, dissolve or otherwise liquidate its assets;
12.2 OTHER NAMES. Borrower has not, nor has any other Loan Party, during
the preceding five (5) years, been known by or used any other corporate or
fictitious name except as set forth on the Schedule, nor has Borrower or any
other Loan Party been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any person during such time
except as set forth on the Schedule.
12.3 DUE AUTHORIZATION. The execution, delivery and performance by
Borrower and each other Loan Party of the Loan Documents to which it is a party
have been authorized by all necessary corporate action and do not and will not
constitute a violation of any applicable law or of Borrower's or any other Loan
Party's Articles or Certificate of Incorporation or By-Laws or any other
document, agreement or instrument to which Borrower or any other Loan Party is a
party or by which Borrower or any other Loan Party or their assets are bound;
12.4 BINDING OBLIGATION. Each of the Loan Documents to which Borrower or
any other Loan Party is a party is the legal, valid and binding obligation of
Borrower and each other Loan Party enforceable against them in accordance with
its terms;
12.5 INTANGIBLE PROPERTY. Borrower and each other Loan Party possesses
adequate assets, licenses, patents, patent applications, copyrights, trademarks,
trademark applications and trade names for the present and planned future
conduct of its business without any known conflict with the rights of others,
and each is valid and has been duly registered or filed with the appropriate
governmental authorities;
<PAGE>
12.6 CAPITAL. Borrower has capital sufficient to conduct its business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
12.7 MATERIAL LITIGATION. Neither Borrower nor any other Loan Party has
any pending or overtly threatened litigation, actions or proceedings which would
materially and adversely affect its business, assets, operations, prospects or
condition, financial or otherwise, or the Collateral or any of Lender's
interests therein;
12.8 TITLE; SECURITY INTERESTS OF LENDER. Borrower and each other Loan
Party has good, indefeasible and merchantable title to the Collateral which each
such Person purports to own and, upon the filing of UCC-1 Financing Statements
and the recording of any mortgages or deeds of trust with respect to real
property, in each case in the appropriate offices, this Agreement and such
documents will create valid and perfected first priority liens in the
Collateral, subject only to Permitted Prior Encumbrances;
12.9 RESTRICTIVE AGREEMENTS; LABOR CONTRACTS. Other than with respect to
those certain contracts between Borrower and the International Brotherhood of
Electrical Workers, Local Union No. 1430, and Borrower and the International
Brotherhood of Electrical Workers, each dated as of January 1, 1995, copies of
which have been provided to Lender, neither Borrower nor Parent is a party or
subject to any collective bargaining agreements (or contracts with labor
organizations of a similar nature), or to any contract or subject to any charge,
corporate restriction, judgment, decree or order materially and adversely
affecting its business, assets, operations, prospects or condition, financial or
otherwise, or which restricts its right or ability to incur Indebtedness, and it
is not party to any labor dispute. In addition, no labor contract is scheduled
to expire during the Initial Term of this Agreement, except as disclosed to
Lender in writing prior to the date hereof;
12.10 LAWS. Neither Borrower nor any other Loan Party is in violation of
any applicable statute, regulation, ordinance or any order of any court,
tribunal or governmental agency, in any respect materially and adversely
affecting the Collateral or its business, assets, operations, prospects or
condition, financial or otherwise;
12.11 CONSENTS. Borrower and each other Loan Party has obtained or caused
to be obtained or issued any required consent of a governmental agency or other
Person in connection with the financing contemplated hereby;
<PAGE>
12.12 DEFAULTS. Neither Borrower nor any other Loan Party is in default
with respect to any note, indenture, loan agreement, mortgage, lease, deed or
other agreement to which it is a party or by which it or its assets are bound,
nor has any event occurred which, with the giving of notice or the lapse of
time, or both, would cause such a default, in either case which default or event
would be reasonably likely to materially and adversely affect Borrower's or any
other Loan Party's business, assets, operations, prospects or condition,
financial or otherwise;
12.13 FINANCIAL CONDITION. The Prepared Financials fairly present Parent's
and its consolidated subsidiaries' financial condition and results of operations
and those of such other Persons described therein as of the date thereof; there
are no material omissions from the Prepared Financials or other facts or
circumstances not reflected in the Prepared Financials; and, except with respect
to anticipated financial results for the quarter ended January 31, 1997, which
anticipated financial results have been disclosed to Lender, there has been no
material and adverse change in such financial conditions or operations since the
date of the initial Prepared Financials delivered to Lender hereunder;
12.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor have Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appoint a trustee to administer, a Plan.
No lien upon the assets of Borrower or any other Loan Party has arisen with
respect to a Plan. No prohibited transaction or Reportable Event has occurred
with respect to a Plan. Neither Borrower nor any ERISA Affiliate has incurred
any withdrawal liability with respect to any Multiemployer Plan. Borrower and
each ERISA Affiliate have made all contributions required to be made by them to
any Plan or Multiemployer Plan when due. There is no accumulated funding
deficiency in any Plan, whether or not waived;
12.15 TAXES. Borrower and each other Loan Party have filed all tax returns
and such other reports as it is required by law to file and has paid or made
adequate provision for the payment on or prior to the date when due of all
taxes, assessments and similar charges that are due and payable;
12.16 LOCATIONS. Borrower's and each other Loan Party's chief executive
office and the offices and locations where it keeps the Collateral (except for
Inventory in transit) are at the locations set forth on the Schedule, except to
the extent that such locations may have been changed after notice to Lender in
accordance with Section 13.5 below;
<PAGE>
12.17 BUSINESS RELATIONSHIPS. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower or any other Loan Party and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower or any other Loan Party, or
with any material supplier, and there exists no present condition or state of
facts or circumstances which would materially and adversely affect Borrower or
any other Loan Party or prevent Borrower or any other Loan Party from conducting
such business after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted; and
12.18 REAFFIRMATIONS. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower and each other Loan Party contained in this Agreement and
the other Loan Documents.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and
this Agreement is in effect, it shall, and shall cause each other Loan Party to:
13.1 EXPENSES. Borrower shall reimburse Lender for all costs, fees and
expenses incurred by Lender in connection with the negotiation, preparation,
execution, delivery, and administration of each of the Loan Documents, and for
all costs, fees and expenses incurred by Lender in connection with the
enforcement of each of the Loan Documents, including, but not limited to, the
attorneys' and paralegals' fees of in-house and outside counsel, lien, title
search and insurance fees, appraisal fees, all charges and expenses incurred in
connection with any and all environmental reports and environmental remediation
activities, and all other costs, expenses, taxes and filing or recording fees
payable in connection with the transactions contemplated by this Agreement
including without limitation all such costs, fees and expenses as Lender shall
incur or for which Lender shall become obligated in connection with (i) any
inspection or verification of the Collateral, (ii) any proceeding relating to
the Loan Documents or the Collateral, (iii) actions taken with respect to the
Collateral and Lender's security interest therein, including, without
limitation, the defense or prosecution of any action involving Lender and
Borrower, or any other Loan Party, or any third party, (iv) enforcement of any
of Lender's rights and remedies with respect to the Obligations or Collateral
and (v) consultation with Lender's attorneys and participation in any workout,
bankruptcy or other insolvency or other proceeding involving any Loan Party or
any Affiliate, whether or not suit is filed. Borrower shall also pay all Lender
charges in connection with bank wire transfers, forwarding of loan proceeds,
deposits of checks and other items of payment, returned checks, establishment
and maintenance of lock boxes and other blocked accounts, and all other bank and
administrative matters, in accordance with Lender's schedule of bank and
administrative fees and charges in effect from time to time.
<PAGE>
13.2 TAXES. File all tax returns and pay or make adequate provision for
the payment of all taxes, assessments and other charges on or prior to the date
when due;
13.3 NOTICE OF LITIGATION. Promptly notify Lender in writing of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's or any other Loan Party's business, assets,
operations, prospects or condition, financial or otherwise, whether or not the
claim is covered by insurance;
13.4 ERISA. Notify Lender in writing (i) promptly upon the occurrence of
any event described in Paragraph 4043 of ERISA, other than a termination,
partial termination or merger of a Plan or a transfer of a Plan's assets and
(ii) prior to any termination, partial termination or merger of a Plan or a
transfer of a Plan's assets;
13.5 CHANGE IN LOCATION. Notify Lender in writing forty-five (45) days
prior to any change in the location of Borrower's or any other Loan Party's
chief executive office or the location of any Collateral, or Borrower's or any
other Loan Party's opening or closing of any other place of business;
13.6 CORPORATE EXISTENCE. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
13.7 LABOR DISPUTES. Promptly notify Lender in writing of any labor
dispute to which Borrower or any other Loan Party is or may become subject and
the expiration of any labor contract to which Borrower or any other Loan Party
is a party or bound;
13.8 VIOLATIONS OF LAW. Promptly notify Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to Borrower or any other Loan Party which may
materially and adversely affect the Collateral or Borrower's or any other Loan
Party's business, assets, prospects, operations or condition, financial or
otherwise;
13.9 DEFAULTS. Notify Lender in writing within five (5) Business Days of
Borrower's or any other Loan Party's default under any note, indenture, loan
agreement, mortgage, lease or other agreement to which Borrower or any other
Loan Party is a party or bound, or of any other default under any Indebtedness
of Borrower or any other Loan Party;
<PAGE>
13.10 CAPITAL EXPENDITURES. Promptly notify Lender in writing of the
making of any Capital Expenditure materially affecting Borrower's or any other
Loan Party's business, assets, prospects, operations or condition, financial or
otherwise;
13.11 BOOKS AND RECORDS. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with generally accepted accounting principles consistently applied,
reflecting all its financial transactions;
13.12 LEASES; WAREHOUSE AGREEMENTS. Provide Lender with (i) copies of all
agreements between Borrower or any other Loan Party and any landlord or
warehouseman which owns any premises at which any Collateral may, from time to
time, be located, and (ii) in addition to all landlord and mortgagee waivers
provided pursuant to Section 2.1(j) above, additional landlord and mortgagee
waivers in form acceptable to Lender with respect to all locations where any
Collateral is hereafter located.
13.13 ADDITIONAL DOCUMENTS. At Lender's request, and upon reasonable
advance notice, promptly execute or cause to be executed and delivered to Lender
any and all documents, instruments and agreements reasonably deemed necessary by
Lender to facilitate the collection of the Collateral or otherwise to give
effect to or carry out the terms or intent of this Agreement or any of the other
Loan Documents. Without limiting the generality of the foregoing, if any of the
Receivables with a face value in excess of $1,000.00 arises out of a contract
with the United States of America or any department, agency, subdivision or
instrumentality thereof, Borrower shall promptly notify Lender of such fact in
writing and shall execute any instruments and take any other action required or
requested by Lender to comply with the provisions of the Federal Assignment of
Claims Act;
13.14 FINANCIAL COVENANTS. Comply with the financial covenants set forth
on the Schedule.
13.15 PROCEEDS FROM SALE OF REAL ESTATE. Parent has advised Lender that
the Fee Parcel is on the market and that Parent intends to sell the Fee Parcel
in the near future. Rather than encumbering the Fee Parcel directly with a
mortgage, Lender has agreed that, in order to minimize the administrative effort
which will be required to sell and transfer the Fee Parcel, Lender shall not
encumber the Fee Parcel as of the Closing Date. Borrower agrees that it shall
deposit the net proceeds realized from the sale or other disposition of the Fee
Parcel directly to the Blocked Account or Dominion Account, as applicable (after
the application of any sale proceeds necessary to obtain the release of liens
presently encumbering the Fee Parcel and to pay all reasonable costs and
expenses associated with such sale), and shall direct the title company handling
the escrow arising from the sale of the Fee Parcel to disburse such net proceeds
directly to the Blocked Account or Dominion Account. Borrower and Lender agree
that such net sale proceeds shall be applied as a prepayment against Borrower's
Obligations hereunder, in such order and manner as Lender shall determine, but
without any Termination Fee or other prepayment premium being applicable to such
prepayment. In the event that the Fee Parcel has not been sold by August 29,
1997, Borrower agrees, upon request of Lender, to take all steps necessary to
encumber the Fee Parcel in favor of Lender, subject to, and to the extent
permitted by, the Senior Real Estate Lien.
<PAGE>
13.16 NJEDA DEBT. Following the Closing, Borrower shall use its best
efforts to cause the New Jersey Economic Development Authority and the Banque
Nationale de Paris (Houston Agency) to execute and deliver an Intercreditor
Agreement, in form and substance satisfactory to Lender, which Intercreditor
Agreement shall limit the collateral in which the New Jersey Economic
Development Authority and the Banque Nationale de Paris (Houston Agency) have a
senior lien to certain equipment acceptable to Lender, and shall subordinate the
lien in favor of such Persons on all other assets or property of Borrower to the
lien in favor of Lender on such property. During the period in which such
Intercreditor Agreement is under negotiation, Lender shall establish and
maintain the NJEDA Reserve. In the event that Borrower has been unable to cause
the New Jersey Economic Development Authority and the Banque Nationale de Paris
(Houston Agency) to agree to an Intercreditor Agreement acceptable to Lender on
or before June 30, 1997 (or at any earlier time when Borrower advises Lender
that Borrower has exhausted its negotiating opportunities with such Persons),
Borrower shall cause the NJEDA Debt to be paid in full, and shall cause all
liens or other security interests in favor of the New Jersey Economic
Development Authority and the Banque Nationale de Paris (Houston Agency) to be
released, at which time Lender shall eliminate the NJEDA Reserve.
13.17 FINOVA INVENTORY FINANCE FACILITY. On or before March 31, 1997,
Borrower shall enter into the Inventory Finance Facility, which Inventory
Finance Facility shall be on terms and conditions substantially as set forth in
the Conditional Approval Letter. The initial proceeds of the Inventory Finance
Facility shall be applied to retire in full the DFS Debt, and in connection with
such repayment Borrower shall promptly obtain releases from DFS of all liens,
security interests, financing statements or other interests in favor of DFS
which may encumber the Collateral. Concurrently with the closing of the
Inventory Finance Facility, Lender shall adjust the amount of the Inventory
Finance Reserve to equal the maximum Indebtedness permitted to be outstanding to
Borrower or any other Loan Party under the Inventory Finance Facility. The
failure of Borrower to close the Inventory Finance Facility and retire the DFS
Debt in accordance with this Section 13.17 shall constitute an Event of Default
hereunder.
<PAGE>
14. NEGATIVE COVENANTS.
Without Lender's prior written consent, which consent Lender may withhold
in its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower and each other Loan Party shall not: (a)
MERGERS. Merge or consolidate with or acquire any other Person (provided,
however, that the anticipated merger of HHC with and into Borrower, and any
future merger of CASI with and into Borrower which Parent may elect to
consummate, shall not be restricted by the provisions hereof), or make any other
material change in its capital structure or in its business or operations which
might adversely affect the repayment of the Obligations; (b) LOANS. Make
advances, loans or extensions of credit to, or invest in, any Person; PROVIDED,
HOWEVER, that Borrower shall be permitted to make loans or advances to Parent,
HHC and CASI if all of the following conditions have been met and remain in full
force and effect: (1) such Person continues to be an Affiliate of Borrower, with
not less than, in the case of HHC, one hundred percent (100%), and in the case
of CASI, eighty percent (80%), of its issued and outstanding common capital
stock owned by Parent; (2) such loan is evidenced by a promissory note from
Parent, HHC or CASI, as applicable, in the form of that certain Promissory Note
to be delivered by Parent in favor of Borrower on the Closing Date, and those
certain Secured Promissory Notes to be delivered by HHC and CASI in favor of
Borrower on the Closing Date, all of which shall each be endorsed over and
delivered to Lender by Borrower pursuant to the Note Pledge Agreement of even
date herewith; (3) such intercompany loans shall be secured by a senior lien on
and security interest in all assets of Parent, HHC and CASI, as applicable, such
lien, with respect to Parent, being created by the Parent Security Agreement,
and with respect to each of HHC and CASI, shall have been created in favor of
Borrower pursuant to those certain Security Agreements entered into between HHC
and CASI, respectively, and Borrower as of the Closing Date, the rights under
which shall be collaterally assigned to Lender pursuant to the Collateral
Assignment of Material Agreements delivered by Borrower in favor of Lender as of
the Closing Date; (4) HHC and CASI shall each have delivered one or more UCC
financing statements designating Borrower as the original "Secured Party"
thereunder and Lender as "Assignee of Secured Party," and Parent shall have
delivered one or more UCC financing statements designating Lender as "Secured
Party" thereunder, all of which financing statements shall be filed in all
appropriate jurisdictions, as deemed necessary by Lender, in order to perfect
Borrower's security interest in the assets of Parent, HHC and CASI,
respectively; (5) the Guaranty of the Loan in favor of Lender from each of
Parent, HHC and CASI shall remain in full force and effect; and (6) with respect
to each of Parent and HHC, the outstanding balance of any such loans from
Borrower shall at no time exceed an amount equal to one hundred and fifty
percent (150%) of the amount which Parent and HHC, respectively, would then be
permitted to borrow based upon each such Person's Eligible Receivables and
Eligible Inventory, applying the advance rates set forth in Section 1.2 on the
Schedule (and after taking into account any reserves applicable to either such
<PAGE>
Person), and with respect to CASI, the outstanding amount of such loans from
Borrower shall at no time exceed $2,000,000 (Borrower and Lender acknowledge
that the foregoing limitations have been established in a period during which
the corporate structure of the Loan Parties' remains subject to change, and
accordingly Lender and each Loan Party agree that any such Person shall be
entitled to petition Lender to reconsider the levels at which the foregoing
thresholds have been established, and Lender shall be entitled to adjust such
levels, following Borrower's fiscal quarter ending October 31, 1997, to amounts
which are acceptable to Lender in light of Borrower's corporate structure then
in effect, and taking into account the financial performance of each Loan
Party); (c) DIVIDENDS; MANAGEMENT FEES. Declare or pay cash dividends upon any
of its stock or distribute any of its property or redeem, retire, purchase or
acquire directly or indirectly any of its stock, or for Borrower to pay any
management fees to Parent; PROVIDED, HOWEVER, that Borrower shall be permitted
to pay dividends and management fees to Parent, which dividends and management
fees shall be paid into the Blocked Account or Dominion Account established for
deposit and collection of the Parent's Receivables; and PROVIDED FURTHER, that
Parent shall be permitted to pay dividends in respect of taxes to the extent set
forth on the Schedule; (d) ADVERSE TRANSACTIONS. Enter into any transaction
which materially and adversely affects the Collateral or its ability to repay
the Obligations in full as and when due; (e) INDEBTEDNESS OF OTHERS. Become
directly or contingently liable for the Indebtedness of any Person, except by
endorsement of instruments for deposit; (f) REPURCHASE. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or any other repurchase or return basis; (g) NAME. Use any
corporate or fictitious name other than its corporate name as set forth in its
Articles or Certificate of Incorporation on the date hereof or any trade name or
fictitious name certified or registered in favor of Borrower or any other Loan
Party, all of which names shall be set forth on the Schedule or a supplement to
the Schedule which shall be delivered by Borrower or any other Loan Party to
Lender in the event any such trade names or fictitious names are adopted by
Borrower or any other Loan Party for use after the Closing Date; (h) PREPAYMENT;
PAYMENT OF SUBORDINATED DEBT. Prepay any Indebtedness other than trade payables
and other than the Obligations, make any payment with respect to the
Subordinated Indebtedness except in accordance with the terms of the
Subordination Agreement applicable to such Subordinated Indebtedness, or make
any payment in respect of the Subordinated Indebtedness if to do so would result
in an Event of Default hereunder, PROVIDED, HOWEVER, that Parent shall be
permitted to prepay the Subordinated Debt held by Subordinating Creditor Carey
to the extent and upon satisfaction of the conditions set forth on the Schedule;
(i) CAPITAL EXPENDITURE. Make or incur any Capital Expenditure if, after giving
effect thereto, the aggregate amount of all Capital Expenditures by Borrower and
all other Loan Parties in any fiscal year would exceed the amount set forth on
the Schedule; (j) COMPENSATION. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's and Parent's executives, officers and directors (or any
relative thereof) in an amount in excess of the compensation provided for in
those certain Employment Agreements described on the Schedule, and subject to
the limitations on payments of discretionary amounts under such Employment
Agreements which are set forth on the Schedule; (k) INDEBTEDNESS. Create, incur,
assume or permit to exist any Indebtedness (including Indebtedness in connection
with Capital Leases) in excess of the amount set forth on the Schedule, other
than (i) the Obligations, (ii) trade payables and other contractual obligations
to suppliers and customers incurred in the ordinary course of business, and
(iii) other Indebtedness existing on the date of this Agreement and described on
the Schedule (other than Indebtedness paid on the date of this Agreement from
proceeds of the initial advances hereunder); (l) AFFILIATE TRANSACTIONS. Except
as set forth below or as otherwise permitted herein, sell, transfer, distribute
<PAGE>
or pay any money or property to any Affiliate, or invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or Indebtedness,
or any property, of any Affiliate, or become liable on any guaranty of the
indebtedness, dividends or other obligations of any Affiliate. Notwithstanding
the foregoing, (X) each Loan Party may engage in transactions with any other
Loan Party without such transactions being subject to the restrictions of this
Section 14(l), (Y) each Loan Party may pay compensation permitted by Section
14(j) to employees who are Affiliates and, (Z) if no Event of Default has
occurred and is continuing, each Loan Party may engage in transactions with
Affiliates who are not also Loan Parties in the normal course of business, in
amounts and upon terms which are fully disclosed to Lender and which are no less
favorable to such Loan Party than would be obtainable in a comparable arm's
length transaction with a Person who is not an Affiliate; (m) NATURE OF
BUSINESS. Enter into any new business or make any material change in any of
Borrower's or any other Loan Party's business objectives, purposes and
operations; (n) LENDER'S NAME. Use the name of Lender in connection with any of
Borrower's or any other Loan Party's business or activities, except in
connection with internal business matters or as required in dealings with
governmental agencies and financial institutions or with trade creditors of
Borrower or any other Loan Party, solely for credit reference purposes; (o)
MARGIN Security. Own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect; (p) FEE PARCEL. Further encumber the Fee Parcel or assign any portion of
the proceeds to be realized from a sale of the Fee Parcel other than the
assignment of such proceeds to Lender pursuant to Section 13.15 hereof; (q)
STOCK OWNERSHIP. Permit Parent to sell or otherwise dispose of any shares of the
Borrower Stock, CASI Stock, or HHC Stock now owned or hereafter acquired by
Parent; PROVIDED, HOWEVER, that Parent shall be permitted to sell or otherwise
dispose of those shares of CASI Stock which, as of the Closing Date, were not
owned by Parent if Parent subsequently acquires such shares and the net effect
of any such disposition (considered on a proportional basis if less than all of
such shares of CASI Stock subsequently acquired by Parent are then being
disposed of), either generates positive cash flow to Parent or is cash flow
neutral to Parent; or (r) PRESTIGE CAPITAL. Borrow any amounts from Prestige
Capital Corporation ("Prestige"), which Person previously served as a lender to
Parent, or permit those certain UCC financing statements which designate
Prestige as secured party, being specifically file number 1740644, filed
December 23, 1996 with the New Jersey Secretary of State, and file number
005664, filed December 27, 1996 with the Bergen County, New Jersey, Recorder's
Office, (collectively, the "Prestige UCCs"), to remain outstanding beyond a
reasonable period for obtaining terminations thereof following the date upon
which Parent's contract with Prestige shall, by its terms, expire. The foregoing
notwithstanding, Parent and Borrower each undertake and agree to use their best
efforts to obtain terminations of the Prestige UCC's as soon as possible,
subject to the understanding that this agreement of Parent and Borrower shall
not obligate either such person to pay fees to Prestige not already provided for
in the loan documents between Parent and Prestige in order to obtain such
terminations.
<PAGE>
15. ENVIRONMENTAL MATTERS.
15.1 DEFINITIONS. The following definitions apply to the provisions of
this Section 15: (i) The term "Applicable Law" shall include, but shall not be
limited to, each statute named or referred to in this Section 15.1 and all rules
and regulations thereunder, and any other local, state and/or federal laws,
rules, regulations and ordinances, whether currently in existence or hereafter
enacted, which govern, to the extent applicable to the Property or to Borrower
or any other Loan Party, (a) the existence, cleanup and/or remedy of
contamination on real property; (b) the protection of the environment from soil,
air or water pollution, or from spilled, deposited or otherwise emplaced
contamination; (c) the emission or discharge of hazardous substances into the
environment; (d) the control of hazardous wastes; or (e) the use, generation,
transport, treatment, removal or recovery of Hazardous Substances. (ii) The term
"Hazardous Substance" shall mean (a) any oil, flammable substance, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, materials or pollutants which (i) pose a hazard
to the Property or to persons on or about the Property or (ii) cause the
Property to be in violation of any Applicable Law; (b) asbestos in any form
which is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (c) any chemical, material or
substance defined as or included in the definition of "hazardous substances,"
"waste," "hazardous wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," or "toxic substances" or words of similar import
under any Applicable Law, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 USC ss.ss.
9601 ET SEQ.; the Resource Conservation and Recovery Act ("RCRA"), 42 USC ss.ss.
6901 ET SEQ.; the Hazardous Materials Transportation Act, 49 USC ss.ss. 1801 ET
SEQ.; and the Federal Water Pollution Control Act, 33 USC ss.ss. 1251 ET SEQ.;
(d) any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority which may or could pose a
hazard to the health and safety of the occupants of the Property or the owners
and/or occupants of property adjacent to or surrounding the Property, or any
other person coming upon the Property or adjacent property; and (e) any other
chemical, materials or substance which may or could pose a hazard to the
environment. (iii) The term "Property" shall mean all real property, wherever
located, in which Borrower or any Affiliate of Borrower has any right, title or
interest, whether now existing or hereafter arising, and including, without
limitation, as owner, lessor or lessee.
<PAGE>
15.2 COVENANTS AND REPRESENTATIONS. Each Loan Party represents and
warrants that there have not been, during the period of such Loan Party's
possession of any interest in the Property owned by it, and, to the best of its
knowledge after reasonable inquiry, there have not been at any other times, any
activities on the Property involving, directly or indirectly, the use,
generation, treatment, storage or disposal of any Hazardous Substances except in
compliance with Applicable Law (a) under, on or in the land included in the
Property, whether contained in soil, tanks, sumps, ponds, lagoons, barrels, cans
or other containments, structures or equipment, (b) incorporated in the
buildings, structures or improvements included in the Property, including any
building material containing asbestos, or (c) used in connection with any
operations on or in the Property. Without limiting the generality of the
foregoing and to the extent not included within the scope of this Section 15.2,
Borrower represents and warrants that it is in full compliance with Applicable
Law and has received no notice from any person or any governmental agency or
other entity of any violation by Borrower or its Affiliates of any Applicable
Law. Borrower shall be solely responsible for and agrees to indemnify Lender,
protect and defend with counsel reasonably acceptable to Lender, and hold Lender
harmless from and against any claims actions, administrative proceedings,
judgments, damages, punitive damages, penalties, fines, costs, liabilities
(including sums paid in settlements of claims), interest or losses, attorneys'
fees (including any fees and expenses incurred in enforcing this indemnity),
consultant fees, expert fees, and other out-of-pocket costs or expenses actually
incurred by Lender (collectively, the "Environmental Costs"), that may, at any
time or from time to time, arise directly or indirectly from or in connection
with: (a) the presence, suspected presence, release or suspected release of any
Hazardous Substance whether into the air, soil, surface water or groundwater of
or at the Property, or any other violation of Applicable Law, or (b) any breach
of the foregoing representations and covenants; except to the extent any of the
foregoing result from the actions of Lender, its employees, agents and
representatives. All Environmental Costs incurred or advanced by Lender shall be
deemed to be made by Lender in good faith and shall constitute Obligations
hereunder.
16. TERM; TERMINATION.
16.1 TERM. The initial term of the Revolving Loans Facility and the
obligation of Lender to make advances with respect thereto in accordance with
this Agreement shall be as set forth on the Schedule (the "Initial Term"), and
the Revolving Loans Facility and this Agreement shall be automatically renewed
for successive periods of one (1) year (each, a "Renewal Term"), unless earlier
terminated as provided herein.
<PAGE>
16.2 PRIOR NOTICE. Each party shall have the right to terminate this
Agreement at the end of the Initial Term or at the end of any Renewal Term by
giving the other party written notice not less than sixty (60) days prior to the
effective date of such termination, by registered or certified mail.
16.3 PAYMENT IN FULL. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 EARLY TERMINATION; TERMINATION FEE. In addition to the procedure set
forth in Section 16.2, Borrower may terminate this Agreement at any time upon
sixty (60) days' prior written notice and prepay the Obligations. Upon any such
early termination by Borrower or any termination of this Agreement by Lender
upon the occurrence of an Event of Default, then, and in any such event,
Borrower shall pay to Lender upon the effective date of such termination a fee
(the "Termination Fee") in an amount equal to the amounts shown on the Schedule.
17. DEFAULT.
17.1 EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(i) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(ii) Borrower or any other Loan Party fails or neglects to perform, keep,
or observe any Obligation including, but not limited to, any term, provision,
condition, covenant or agreement contained in any Loan Document to which such
Loan Party is a party;
<PAGE>
(iii) Any material adverse change occurs in Borrower's and the other Loan
Parties' business, assets, operations, prospects or condition, financial or
otherwise, taken as a whole;
(iv) The prospect of repayment of any portion of the Obligations, in the
reasonable good faith judgment of Lender, as based upon objective evidence
available to Lender, is materially impaired, or the value or priority of
Lender's security interest in the Collateral is materially impaired;
(v) Any material portion of Borrower's and the other Loan Parties' assets,
taken as a whole, are seized, attached, subjected to a writ or distress warrant,
are levied upon, or comes into the possession of any judicial officer;
(vi) Borrower or any other Loan Party shall generally not pay its debts as
they become due or shall enter into any agreement (whether written or oral), or
offer to enter into any agreement, with all or a significant number of its
creditors regarding any moratorium or other indulgence with respect to its debts
or the participation of such creditors or their representatives in the
supervision, management or control of the business of Borrower or any other Loan
Party;
(vii) Any bankruptcy or other insolvency proceeding is commenced by
Borrower or any other Loan Party, or any such proceeding is commenced against
Borrower or any other Loan Party and remains undischarged or unstayed for
forty-five (45) days;
(viii) Any notice of lien, levy or assessment is filed of record with
respect to any of Borrower's or any other Loan Party's assets which assets,
individually or in the aggregate, have a fair market value greater than
$100,000;
(ix) Any judgments are entered against Borrower or any other Loan Party in
an aggregate amount exceeding $100,000;
(x) Any default shall occur under any material agreement between Borrower
or any other Loan Party and any third party including, without limitation, any
default which would result in a right by such third party to accelerate the
maturity of any Indebtedness of Borrower or any other Loan Party to such third
party with an outstanding principal balance in excess of $100,000;
(xi) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to Lender in connection
therewith shall prove to have been misleading in any material respect;
<PAGE>
(xii) Any executive officer of Borrower, or the chief executive officer of
Parent, ceases to be active in the day-to-day management of Borrower's (or
Parent's) operations, unless a qualified replacement reasonably acceptable to
Lender is hired to assume the job responsibilities of the departing officer
within sixty (60) days following the date of such departure;
(xiii) Any Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower or any other Loan Party; any lien upon the assets of
Borrower or any other Loan Party in connection with any Plan shall arise;
Borrower or any of its ERISA Affiliates shall fail to make full payment when due
of all amounts which Borrower or any of its ERISA Affiliates may be required to
pay to any Plan or any Multiemployer Plan as one or more contributions thereto;
Borrower or any of its ERISA Affiliates creates or permits the creation of any
accumulated funding deficiency, whether or not waived; or
(xiv) Any transfer of the issued and outstanding shares of common stock or
other evidence of ownership in Borrower shall occur which causes the Parent to
own less than ninety-eight and one-half percent (98.5%) of the Borrower Stock.
17.2 REMEDIES. Upon the occurrence and during the continuance of an Event
of Default, Lender may, at its option and in its sole discretion and in addition
to all of its other rights under the Loan Documents, terminate this Agreement
and declare all of the Obligations to be immediately payable in full. Borrower
agrees that Lender shall also have all of its rights and remedies under
applicable law, including, without limitation, the default rights and remedies
of a secured party under the Code, and upon the occurrence and during the
continuance of an Event of Default, Borrower hereby consents to the appointment
of a receiver by Lender in any action initiated by Lender pursuant to this
Agreement and to the jurisdiction and venue set forth in Section 19.7 hereof,
and Borrower waives notice and posting of a bond in connection therewith.
Further, Lender may, at any time, take possession of the Collateral and keep it
on Borrower's premises, at no cost to Lender, or remove any part of it to such
other place(s) as Lender may desire or Borrower shall, upon Lender's demand, at
Borrower's sole cost, assemble the Collateral and make it available to Lender at
a place reasonably convenient to Lender and Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as Lender deems advisable, at Lender's
discretion, and may, if Lender deems it reasonable, postpone or adjourn any sale
of the Collateral by an announcement at the time and place of sale or of such
postponed or adjourned sale without giving a new notice of sale. Borrower agrees
that Lender has no obligation to preserve rights to the Collateral or marshall
any Collateral for the benefit of any Person. Lender is hereby granted a license
or other right to use, without charge, Borrower's labels, patents, copyrights,
name, trade secrets, trade names, trademarks and advertising matter, or any
similar property, in completing production, advertising or selling any
Collateral and Borrower's rights under all licenses and all franchise agreements
shall inure to Lender's benefit. Any requirement of reasonable notice shall be
met if such notice is mailed postage prepaid to Borrower at its address set
forth in the heading to this Agreement at least five (5) days before sale or
other disposition. The proceeds of sale shall be applied, first, to all
attorneys fees and other expenses of sale, and second, to the Obligations in
such order as Lender shall elect, in its sole discretion. Lender shall return
any excess to Borrower and Borrower shall remain liable for any deficiency to
the fullest extent permitted by law. Each other Loan Party also hereby agrees
that the foregoing provisions relative to remedies shall be available to Lender
as to the assets of such other Loan Party with respect to all periods when any
Eligible Receivables or Eligible Inventory of such other Loan Party are included
in Borrower's borrowing base for purposes of determining the amount of advances
under the Revolving Loans Facility available to Borrower hereunder.
<PAGE>
17.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Lender agree that the following conduct by Lender with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by Lender, including, but not limited to, Lender's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition as to which on no later than the tenth calendar
day prior thereto written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later than the tenth
calendar day prior thereto notice thereof describing in general non-specific
terms, the Collateral to be disposed of is published once in a newspaper of
general circulation in the county where the sale is to be conducted, at any
place designated by Lender, with or without the Collateral being present, and
which commences at any time between 8:00 a.m. and 5:00 p.m. (provided that no
notice of any public or private disposition need be given to the Borrower if the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market). Without limiting the generality
of the foregoing, Borrower expressly agrees that, with respect to any
disposition of accounts, instruments and general intangibles, it shall be
commercially reasonable for Lender to direct any prospective purchaser thereof
to ascertain directly from Borrower any and all information concerning the same,
including, but not limited to, the terms of payment, aging and delinquency, if
any, the financial condition of any obligor or account debtor thereon or
guarantor thereof, and any collateral therefor.
<PAGE>
18. DEFINITIONS.
18.1 DEFINED TERMS. As used in this Agreement, the following terms have
the definitions set forth below: "ADA" means the Americans with Disabilities Act
of 1990 (42 U.S.C.ss. 12101, ET SEQ.) and all applicable rules, regulations,
codes, ordinances and guidance documents promulgated or published thereunder.
"AFFILIATE" means any Person controlling, controlled by or under common control
with Borrower. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of Borrower, whether through ownership of common or
preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder or subsidiary of Borrower, and any other Person with whom or which
Borrower has common shareholders, officers or directors.
"BASE RATE" shall mean that rate of interest announced publicly by Citibank,
N.A., New York, New York, as its base borrowing rate, as it exists from time to
time, notwithstanding the fact that some persons may borrow money at less than
the Base Rate.
"BORROWER STOCK" means, at any given time, all of the then issued and
outstanding capital stock of Borrower.
"BUSINESS DAY" means any day on which commercial banks in all of Los Angeles,
California, New York, New York, and Philadelphia, Pennsylvania are open for
business.
"CAPITAL EXPENDITURES" means all expenditures made and liabilities incurred for
the acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"CAPITAL LEASE" means any lease of property by Borrower or any other Loan Party
that, in accordance with generally accepted accounting principles, should be
capitalized for financial reporting purposes and reflected as a liability on the
balance sheet of Borrower or such other Loan Party.
"CASH AND CASH EQUIVALENTS" means Borrower's (i) cash on hand or in any bank or
trust company, and checks on hand and in transit, (ii) monies on deposit in any
money market account, and (iii) treasury bills, certificates of deposit,
commercial paper and readily marketable securities at current market value.
"CASI shall mean Computer-Aided Software Integration, Inc., a Delaware
corporation.
<PAGE>
"CASI STOCK" means, at any given time, all of the issued and outstanding capital
stock of CASI.
"CLOSING" means the initial advance made by Lender pursuant to this Agreement.
"CLOSING DATE" means the date of the Closing.
"CODE" means the Uniform Commercial Code as adopted, amended, and in effect in
the State of New York from time to time.
"COLLATERAL" has the meaning set forth in Section 4.1 above.
"COMMITMENT LETTER" shall mean that certain commitment letter of Lender to
Parent, dated as of February 11, 1997, as accepted by Parent.
"CONDITIONAL APPROVAL LETTER" shall mean that certain letter dated March 12,
1997 from Lender to Borrower, as accepted by Borrower on March __, 1997, which
sets out the material terms and conditions applicable to the Inventory Finance
Facility.
"DEPOSIT ACCOUNTS" has the meaning set forth in Section 9-105 of the Code.
"DFS" shall mean Deutsche Financial Services Corporation, which is the lender
with respect to the DFS Debt.
"DFS DEBT" shall mean that certain floorplan finance facility currently extended
to Parent by DFS, with a maximum permitted principal Indebtedness thereunder as
of the Closing Date in the amount of $300,000.
"DILUTION" shall mean, for any period, the quotient, expressed as a percentage,
derived when the sum of (i) total non-cash reductions to Receivables plus (ii)
all debit memos (i.e., invoices relating to any previously billed sale) under
ninety (90) days old are divided by Borrower's gross sales for the same period.
"EBITDA" means, for any period, Parent's consolidated net income or loss
(excluding the effect of any extraordinary gains or losses), determined in
accordance with generally accepted accounting principles, PLUS or MINUS each of
the following items, to the extent deducted from or added to the consolidated
revenues of Parent in the calculation of net income or loss: (i) depreciation;
(ii) amortization and other non-cash charges; (iii) interest expense paid or
accrued; and (iv) total federal and state income tax expense determined as the
accrued liability of Parent and its subsidiaries in respect of such period,
regardless of what portion of such expense has actually been paid by Parent and
its subsidiaries during such period.
<PAGE>
"ELIGIBLE INVENTORY" means Inventory which Lender, in its sole judgment, deems
Eligible Inventory, based on such considerations as Lender may from time to time
deem appropriate. Without limiting the generality of the foregoing, no Inventory
shall be Eligible Inventory unless, in Lender's sole judgment, such Inventory
(i) consists of raw materials or finished goods, in good, new and salable
condition which are not obsolete or unmerchantable, and are not comprised of
packaging, materials or supplies, or inventory held at outside processors, and
are not slow-moving or held on consignment; (ii) meets all standards imposed by
any governmental agency or authority; (iii) conforms in all respects to the
warranties and representations set forth herein; (iv) is at all times subject to
Lender's duly perfected, first priority security interest; and (v) is situated
at a location in compliance with Section 12.16 hereof. For purposes of
determining the amount of Inventory Loans to which Borrower shall be entitled
pursuant to Section 1.2 as set forth in the Schedule, Borrower may include an
amount for Inventory owned by Parent, HHC and/or CASI, to the extent that such
Inventory otherwise qualifies as Eligible Inventory hereunder, as to each such
Person during any period in which, with respect to Parent, the Parent Security
Agreement remains in full force and effect and Lender has a perfected security
interest in such Inventory, and as to Parent, HHC and CASI, such Person
satisfies all of the conditions applicable under Section 14(b) hereof to permit
Borrower to make loans or advances to such Person.
"ELIGIBLE RECEIVABLES" means Receivables which Lender, in its sole judgment,
shall deem eligible based on such considerations as Lender may from time to time
deem appropriate. Without limiting the foregoing, a Receivable shall not be
deemed to be an Eligible Receivable if (i) the account debtor has failed to pay
the Receivable within a period of ninety (90) days after invoice date; (ii) the
account debtor has failed to pay more than twenty-five percent (25%) of all
outstanding Receivables owed by it to Borrower within ninety (90) days after
invoice date; (iii) the account debtor is an Affiliate of Borrower; (iv) the
goods relating thereto are placed on consignment, guaranteed sale, "bill and
hold" or other terms pursuant to which payment by the account debtor may be
conditional; (v) the account debtor is not located in the United States or
Canada, unless the Receivable is supported by a letter of credit in form and
substance satisfactory to Lender; (vi) the account debtor is the United States
or any department, agency or instrumentality thereof or any State, city or
municipality of the United States, PROVIDED, however, that a Receivable shall
not be deemed ineligible by reason of this clause (vi) if Borrower has complied,
to the satisfaction of Lender, with all requirements necessary under the Federal
Assignment of Claims Act of 1940, as amended; (vii) Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower; (viii) the account debtor's total obligations to Borrower
exceed fifteen percent (15%) of all Eligible Receivables, to the extent of such
excess; (ix) notwithstanding the provisions of the immediately preceding clause
(viii), as to individual account debtors approved by Lender from time to time on
the basis of credit information acceptable to Lender in Lender's sole
discretion, such account debtor's total obligations to Borrower exceed
twenty-five percent (25%) of all Eligible Receivables, or such other percentage
specifically designated by Lender to be applicable to such account debtor, to
the extent of such excess; (x) the account debtor disputes liability or makes
any claim with respect thereto (up to the amount of such liability or claim), or
is subject to any insolvency or bankruptcy proceeding, or becomes insolvent,
fails or goes out of a material portion of its business; (xi) the amount thereof
consists of late charges or finance charges; (xii) the invoice constitutes a
progress billing on a project not yet completed, except that the final billing
at such time as the matter has been completed and delivered to the customer may
be deemed an Eligible Receivable; (xiii) credit balances over ninety (90) days
past issue date (with the result that the total amount of Receivables which
shall be considered ineligible as a result of the operation of clause (i) hereof
shall be determined without giving effect to any credit balances included in the
"over ninety day" column); (xiv) sales for cash or on other terms requiring cash
on delivery (C.O.D.); or (xv) the face amount thereof exceeds $200,000, unless
accompanied by evidence of shipment of the goods relating thereto satisfactory
to Lender in its sole discretion. For purposes of determining the amount of
Receivables Loans to which Borrower shall be entitled pursuant to Section 1.2 as
set forth in the Schedule, Borrower shall be permitted to include an amount for
Receivables owned by Parent, HHC and/or CASI, to the extent that such
Receivables otherwise qualify as Eligible Receivables hereunder, as to each such
Person during any period in which, with respect to Parent, the Parent Security
Agreement remains in full force and effect and Lender has a perfected security
interest in such Receivables, and as to HHC and CASI, such Person satisfies all
of the conditions applicable under Section 14(b) hereof to permit Borrower to
make loans or advances to such Person.
<PAGE>
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions and improvements to any of the foregoing, wherever
located. References to the Equipment herein shall include references to such
assets owned by any other Loan Party for any period during which, with respect
to Parent, the Parent Security Agreement remains in full force and effect and
Lender has a perfected lien on and security interest in such assets, and for
each of HHC and CASI, during any period when such Person has satisfied all
requirements to be entitled to obtain loans from Borrower to Section 14(b)
hereof.
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"ERISA AFFILIATE" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which Borrower is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"EVENT OF DEFAULT" means any of the events set forth in Section 17.1 of this
Agreement.
"EXAMINATION FEE" shall have the meaning set forth in Section 3.1 on the
Schedule.
"EXCESS AVAILABILITY" means, as of the date of determination thereof, the amount
by which the average daily total principal balance of the Revolving Loans
Facility which Borrower would be permitted to have outstanding over the prior 30
days, based on the formulas and reserves set forth in Section 1.2 hereof and in
the Schedule, exceeds of sum of the Receivable Loans and the Inventory Loans
then actually outstanding, such excess then being reduced by an amount necessary
to provide for the payment of all accounts payable of Borrower and each other
Loan Party which are more than thirty (30) days past due date.
"EXCESS CASH FLOW" means Operating Cash Flow/Permitted less Total Contractual
Debt Service.
"FACILITY FEE" shall have the meaning set forth in Section 3.1 on the Schedule.
"FEE PARCEL" shall mean that certain parcel of real estate owned by Parent,
located at 151 Veterans Drive, Northvale, New Jersey, and which is legally
described on EXHIBIT 18.1 attached hereto.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Lender, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit, liability,
property and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guaranties, security interests or other
security held by or granted to Borrower to secure payment of any of the
Receivables by an account debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
References to the General Intangibles herein shall include references to such
assets owned by any other Loan Party for any period during which, with respect
to Parent, the Parent Security Agreement remains in full force and effect and
Lender has a perfected lien on and security interest in such assets, and for
each of HHC and CASI, during any period when such Person has satisfied all
requirements to be entitled to obtain loans from Borrower to Section 14(b)
hereof.
<PAGE>
"GUARANTIES" shall mean those certain Guaranties given by each Guarantor in
favor of Lender, guaranteeing repayment of the Obligations by Borrower, as the
same may subsequently be amended, modified, renewed, restated, or replaced.
"GUARANTORS" shall mean each of Parent, HHC, and CASI, together with any other
persons who may subsequently execute and deliver a Guaranty in favor of Lender.
"HHC" shall mean HH Communications, Inc., an Illinois corporation.
"HHC STOCK" means, at any given time, all of the then issued and outstanding
capital stock of HHC.
"INCIPIENT DEFAULT" means any event or condition which, with the giving of
notice or the lapse of time, or both, would become an Event of Default.
"INDEBTEDNESS" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes. The foregoing notwithstanding, Indebtedness shall not include
the amount of Borrower's accounts payable and accrued expenses outstanding from
time to time, to the extent that such accounts payable or accrued expenses are
current within their stated terms or within extensions of such stated terms as
are commercially reasonable and customarily acceptable within the industry.
"INITIAL TERM" has the meaning set forth on the Schedule.
"INSURANCE LETTER" means that certain letter in the form attached hereto as
Exhibit 4.4 setting forth the requirements of Lender with respect to certain
insurance coverages to be maintained by Borrower.
<PAGE>
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise and other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise and other personal property, and all
documents of title or other documents representing them. Inventory shall not
include any goods, merchandise or other personal property which may be in the
possession of Borrower but which is not owned by Borrower. References to the
Inventory herein shall include references to such assets owned by any other Loan
Party for any period during which, with respect to Parent, the Parent Security
Agreement remains in full force and effect and Lender has a perfected lien on
and security interest in such assets, and for each of HHC and CASI, during any
period when such Person has satisfied all requirements to be entitled to obtain
loans from Borrower to Section 14(b) hereof.
"INVENTORY FINANCE FACILITY" shall mean that certain inventory finance facility
to be provided by Lender to Borrower, up to a maximum outstanding principal
Indebtedness thereunder of $500,000, which facility shall constitute a subline
of the Revolving Loans Facility. The Inventory Finance Facility shall be on
substantially the same terms and conditions as set forth in the Conditional
Approval Letter.
"INVENTORY FINANCE RESERVE" shall mean a reserve against borrowing availability
under the Revolving Loans Facility which, as of the Closing Date, shall be
established in an amount equal to the maximum permitted principal Indebtedness
under the DFS Debt ($300,000). Following the closing the Inventory Finance
Facility, the amount of the Inventory Finance Reserve shall be increased to
equal the maximum permitted principal Indebtedness under the Inventory Finance
Facility (initially, $500,000). The Inventory Finance Reserve shall remain in
effect throughout the term of the Loans for so long as the Inventory Finance
Facility is available to Borrower.
"INVENTORY LOANS" has the meaning set forth in Section 1.2 on the Schedule.
"INVENTORY SUBLIMIT" has the meaning set forth in Section 1.2 on the Schedule.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
<PAGE>
"LIFE INSURANCE POLICIES" those certain life insurance policies on the lives of
Isaac Gaon and Christopher Carey delivered to Lender pursuant to provisions of
Section 2.1(o).
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the Stock Pledge
Agreements, the Subordination Agreements, the Insurance Letter, the Validity and
Support Agreements, the Note Pledge Agreements, the Collateral Assignment of
Material Agreements, the Guaranties, the Landlord Waivers, the Parent Security
Agreement, any other note or notes executed by Borrower and payable to Lender,
and any other agreement entered into in connection with this Agreement, such
other security agreements, intellectual property assignments and mortgages as
Lender may require with respect to this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"LOAN PARTY" and "LOAN PARTIES" shall mean, respectively, any of Borrower,
Parent, HHC, or CASI, or any two or more of Borrower, Parent, HHC, and CASI.
"LOAN YEAR" means a period from the Closing Date or any annual anniversary of
the Closing Date through the day preceding the immediately succeeding annual
anniversary of the Closing Date.
"MATURITY DATE" shall mean April 1, 2000, the date upon which the final
installment under the Notes shall be due and payable, absent an acceleration of
the maturity thereof, whether such acceleration results from an Event of
Default, the termination of the Revolving Loans Facility prior to the Maturity
Date, or for any other reason permitted hereunder.
"MAXIMUM AMOUNT" shall have the meaning set forth in Section 1.2 on the
Schedule.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in ERISA Sections
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or
any ERISA Affiliate.
<PAGE>
"NJEDA DEBT" means all outstanding Indebtedness of Borrower to the New Jersey
Economic Development Authority and the Banque Nationale de Paris (Houston
Agency) pursuant to that certain Loan Agreement dated as of March 3, 1992
between Borrower and such Persons which, as of the Closing Date, was in the
unpaid principal amount of approximately $675,000.
"NJEDA RESERVE" means a reserve against borrowing availability under Section 1.2
hereof in an amount equal to the unpaid principal balance owed by Borrower on
the Closing Date to the New Jersey Economic Development Authority and the Banque
Nationale de Paris (Houston Agency) pursuant to that certain Loan Agreement
dated as of March 3, 1992 between Borrower and the New Jersey Economic
Development Authority, PLUS an amount equal to accrued interest on such
outstanding principal balance which shall be due and payable with the next
installment of principal or interest accruing thereunder, PLUS an amount equal
to any prepayment premium or penalty which Borrower would be required to pay
under the loan documents applicable to the NJEDA Debt if Borrower were to prepay
all such Indebtedness in full, MINUS an amount equal to any sinking fund or
other reserves which may exist, the funds in which are irrevocably committed to
payment of amounts owed in respect of the NJEDA Debt.
"NOTE" shall mean that certain Promissory Note of Borrower in favor of Lender,
dated as of the Closing Date, in the original principal amount of $2,000,000
evidencing the Term Loan, as the same may be amended, restated, renewed,
extended, or replaced from time to time.
"NOTE PLEDGE AGREEMENT(S)" shall mean that/those certain Note Pledge
Agreement(s) of even date herewith by and between Lender and Borrower whereby
Borrower pledges in favor of, delivers, and endorses to, Lender each of the
promissory notes delivered to Borrower by Parent, HHC and CASI, respectively, in
accordance with the provisions of clause (2) of Section 14(b) hereof, as the
same may subsequently be modified, amended, renewed, restated, or replaced.
"OBLIGATIONS" means all present and future loans, advances, debts, liabilities,
obligations, covenants, duties and indebtedness at any time owing by Borrower to
Lender (including, without limitation, the Revolving Loans Facility, the Term
Loan, and the Inventory Finance Facility), whether evidenced by this Agreement
any note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Lender in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees and any other sums chargeable to Borrower hereunder or under any other
agreement with Lender.
"OPERATING CASH FLOW/ACTUAL" means, for any period, Parent's consolidated net
income or loss (excluding the effect of any extraordinary gains or losses),
determined in accordance with generally accepted accounting principles, PLUS or
MINUS each of the following items, to the extent deducted from or added to the
consolidated revenues of Parent in the calculation of net income or loss: (i)
depreciation; (ii) amortization and other non-cash charges; (iii) interest
expense paid or accrued; and (iv) total federal and state income tax expense
determined as the accrued liability of Parent and its subsidiaries in respect of
such period, regardless of what portion of such expense has actually been paid
by Parent and its subsidiaries during such period; and after deduction for each
of (a) federal and state income taxes, to the extent actually paid during such
period; (b) any non-cash income; and (c) all actual Capital Expenditures made
during such period and not financed.
<PAGE>
"OPERATING CASH FLOW/PERMITTED" means, for any period, Parent's consolidated net
income or loss (excluding the effect of any extraordinary gains or losses),
determined in accordance with generally accepted accounting principles, PLUS or
MINUS each of the following items, to the extent deducted from or added to the
consolidated revenues of Parent in the calculation of net income or loss: (i)
depreciation; (ii) amortization and other non-cash charges; (iii) interest
expense paid or accrued; and (iv) total federal and state income tax expense
determined as the accrued liability of Parent and its subsidiaries in respect of
such period, regardless of what portion of such expense has actually been paid
by Parent and its subsidiaries during such period; and after deduction for each
of (a) federal and state income taxes, to the extent actually paid during such
period; (b) any non-cash income; and (c) all permitted Capital Expenditures
(without regard to any waiver given by Lender with respect to any limitation on
such Capital Expenditures) actually made during such period and not financed.
"OVERADVANCES" has the meaning set forth in Section 1.3.
"OVERLINES" has the meaning set forth in Section 1.3.
"PARENT" means Glasgal Communications, Inc., a Delaware corporation, and the
owner, as of the Closing Date, of ninety-eight and one-half percent (98.5%) of
the Borrower Stock.
"PARENT SECURITY AGREEMENT" means that certain Security Agreement from Parent in
favor of Lender pursuant to which Parent shall grant a senior lien on and
security interest in (subject to the Permitted Prior Encumbrances), all assets
of Parent, as security for performance of Parent's obligations under Parent's
Guaranty.
"PBGC" means the Pension Benefit Guarantee Corporation.
"PERMITTED ENCUMBRANCE" means each of the liens, mortgages and other security
interests set forth on the Schedule and incorporated herein by this reference.
"PERMITTED PRIOR ENCUMBRANCE" means the Permitted Encumbrances described in: (i)
clauses (a), (b), and (c) of such definition, to the extent such Liens are
accorded priority to the security interest in favor of Lender by law; (ii)
clause (d) of such definition, subject to the limitations set forth therein;
(iii) clauses (e) and (g) of such definition, to the extent such Liens solely
encumber the property subject to the Capital Lease or property so acquired; (iv)
clause (h) of such definition which represent an extension, renewal, or
replacement of a Lien described in clauses (a), (b), (c), (d), or (e), and which
satisfy the limitations set forth in clause (h) thereof; and (v) the Senior Real
Estate Lien.
<PAGE>
"PERMITTED SENIOR INDEBTEDNESS" means any Indebtedness of Borrower or any other
Loan Party, whether existing on the Closing Date or subsequently incurred, in
connection with the purchase of personal property or the leasing of personal
property pursuant to any Capital Leases.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"PLAN" means any plan described in ERISA Section 3(2) maintained for employees
of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"PREPARED FINANCIALS" means the balance sheets of Parent and its consolidated
subsidiaries as of October 28, 1996, and as of each subsequent date on which
audited balance sheets are delivered to Lender from time to time hereunder, and
the related statements of operations, changes in stockholder's equity and
changes in cash flow for the periods ended on such dates.
"PROHIBITED TRANSACTION" means any transaction described in Section 406 of ERISA
which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"PROPOSAL" means that certain proposal letter of Lender to Parent dated January
9, 1997.
"RECEIVABLE LOANS" has the meaning set forth on the Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), proceeds of any letters of credit naming
Borrower as beneficiary, contract rights, chattel paper, instruments, documents
and all other forms of obligations at any time owing to Borrower, all guaranties
and other security therefor, whether secured or unsecured, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
References to the Receivables herein shall include references to such assets
owned by any other Loan Party for any period during which, with respect to
Parent, the Parent Security Agreement remains in full force and effect and
Lender has a perfected lien on and security interest in such assets, and for
each of HHC and CASI, during any period when such Person has satisfied all
requirements to be entitled to obtain loans from Borrower to Section 14(b)
hereof.
"RENEWAL TERM" has the meaning set forth on the Schedule.
<PAGE>
"RENTAL RESERVES" shall mean a reserve in an amount equal to three month's rent
with respect to any facility in which any Loan Party shall have Inventory or any
other Collateral located, and with respect to which no satisfactory Landlord's
Waiver has been executed and delivered in favor of Lender by the applicable
landlord of such facility, which Lender shall be entitled to establish in
Lender's sole discretion.
"REPORTABLE EVENT" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
"REVOLVING INTEREST RATE" shall mean the rate of interest applicable to the
Revolving Loans Facility in accordance with Section 3.1 on the Schedule.
"SENIOR CONTRACTUAL DEBT SERVICE" means, for any period, the sum of payments
made or required to be made by any Loan Party during such period for (i)
interest and scheduled principal payments due on the Term Loan (excluding
voluntary prepayments and payments made from Borrower's Excess Cash Flow, as
required pursuant to Section 7.7 set forth on the Schedule), (ii) interest only
payments due on the Revolving Loans Facility plus the Collateral Monitoring Fee,
the Facility Fee, and the Unused Line Fee, and (iii) principal and interest
payments due on the Permitted Senior Indebtedness.
"SENIOR REAL ESTATE LIEN" means that certain Mortgage with respect to which
Parent is the "Mortgagor" and Greenpoint Mortgage Corp. is the "Mortageee,"
securing an Indebtedness in the original principal amount of $1,000,000, dated
as of April 4, 1996.
<PAGE>
"STOCK PLEDGE AGREEMENTS" means those certain Stock Pledge Agreements of even
date herewith by and between Lender and Parent whereby Parent pledges shares
constituting not less than ninety-eight and one-half percent (98.5%) of the
Borrower Stock, one hundred percent (100%) of the issued and outstanding stock
in HHC, and eighty percent (80%) of the issued and outstanding stock in CASI,
respectively, to Lender.
"SUBORDINATED DEBT" and "SUBORDINATED INDEBTEDNESS" (either of which may be used
interchangeably) mean liabilities of Borrower or Parent the repayment of which
is subordinated, to the payment and performance of the Obligations, pursuant to
a subordination agreement on Lender's standard form.
"SUBORDINATED LOAN DOCUMENTS" means all of the documents executed and delivered
by Borrower or Parent relating to the Subordinated Debt.
"SUBORDINATING CREDITORS" shall mean Tinicum Investors, a general partnership,
Frank Brosens, Christopher J. Carey, and Plan C LLC, each of whom shall execute
and deliver a Subordination Agreement.
"SUBORDINATION AGREEMENTS" shall mean those certain Subordination and Standstill
Agreements, in form and substance satisfactory to Lender, to be entered into
between Lender and each holder of any Subordinated Debt.
"TERM INTEREST RATE" shall mean the rate of interest applicable to the Term Loan
in accordance with Section 3.1 on the Schedule.
"TERM LOAN" shall have the meaning set forth in Section 1.2 on the Schedule.
"TOTAL CONTRACTUAL DEBT SERVICE" means, for any period, the sum of payments made
(or, as to clause (i) of this sentence, required to be made) by any Loan Party
during such period for (i) Senior Contractual Debt Service, and (ii) interest
and scheduled principal payments due on any and all other Indebtedness of any
Loan Party, including without limitation the Subordinated Indebtedness.
"TOTAL FACILITY" has the meaning set forth on the Schedule.
"TRADEMARKS, LICENSES AND PATENTS" means all of Borrower's and each other Loan
Party's right, title and interest in and to: (i) trademarks, trademark
registrations, trade names, trade name registrations, and trademark or trade
name applications, including without limitation such as are listed on the
Schedule, attached hereto and made a part hereof, as the same may be amended
from time to time, and (a) renewals thereof, (b) all income, royalties, damages
and payments now and hereafter due and/or payable with respect thereto,
including, without limitation, damages and payments for past or future
infringements thereof, (c) the right to sue for past, present and future
infringements thereof, (d) all rights corresponding thereto throughout the
world, and (e) the goodwill of the business operated by Assignor connected with
and symbolized by any trademarks or trade names; (ii) license agreements,
including without limitation such as are listed on the Schedule attached hereto
and made a part hereof, and the right to prepare for sale, sell, and advertise
for sale any Inventory now or hereafter owned by Assignor and now or hereafter
covered by such licenses; and (iii) patents and patent applications, registered
or pending, including without limitation such as are listed on the Schedule,
attached hereto, together with all income, royalties, shop rights, damages and
payments thereto, the right to sue for infringements thereof, and all rights
thereto throughout the world and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof, and the goodwill of the
business connected with the use of and symbolized by such patents.
<PAGE>
"UNUSED LINE FEE" shall have the meaning set forth in Section 3.1 on the
Schedule.
18.2 OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
19. MISCELLANEOUS.
19.1 RECOURSE TO SECURITY; CERTAIN WAIVERS. All Obligations shall be
payable by Borrower as provided for herein and, in full, at the termination of
this Agreement; recourse to security will not be required at any time. Borrower
and each other Loan Party waives presentment and protest of any instrument and
notice thereof, notice of default and, to the extent permitted by applicable
law, all other notices to which Borrower or any other Loan Party might otherwise
be entitled, except to the extent that this Agreement or the other Loan
Documents specifically obligate Lender to provide any such notice.
19.2 NO WAIVER BY LENDER. Lender's failure to exercise any right, remedy
or option under this Agreement or any supplement or other agreement between
Lender and Borrower or any other Loan Party or delay by Lender in exercising the
same will not operate as a waiver. No waiver by Lender will be effective unless
in writing and then only to the extent stated. No waiver by Lender shall affect
its right to require strict performance of this Agreement. Lender's rights and
remedies will be cumulative and not exclusive.
19.3 BINDING ON SUCCESSOR AND ASSIGNS. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
Lender's and Borrower's and each other Loan Party's respective representatives,
successors and assigns.
<PAGE>
19.4 SEVERABILITY. If any provision of this Agreement shall be prohibited
or invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
19.5 AMENDMENTS; ASSIGNMENTS. This Agreement may not be modified, altered
or amended, except by an agreement in writing signed by Borrower and Lender.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower and each other Loan Party hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement and any of the other Loan Documents, or of
any portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers and duties hereunder or thereunder. In
connection therewith, Lender may disclose all documents and information which
Lender now or hereafter may have relating to Borrower and each other Loan Party
or the business of any such Person. To the extent that Lender assigns its rights
and obligations hereunder to a third party, Lender shall thereafter be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third party.
19.6 INTEGRATION. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
19.7 GOVERNING LAW; WAIVERS. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF NEW YORK AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS OF NEW YORK AND NOT THE CONFLICT OF LAWS RULES OF THE STATE OF NEW
YORK GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY AGREES TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE BOROUGH OF MANHATTAN, STATE OF NEW YORK OR, AT THE SOLE OPTION OF LENDER, IN
ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.
BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE. BORROWER
FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN SECTION
19.13 HEREOF FOR THE GIVING OF NOTICE.
<PAGE>
19.8 SURVIVAL. All of the representations and warranties of Borrower and
each other Loan Party contained in this Agreement shall survive the execution,
delivery and acceptance thereof by the parties. No termination of this Agreement
or of any guaranty of the Obligations shall affect or impair the powers,
obligations, duties, rights, representations, warranties or liabilities of the
parties hereto and all shall survive such termination.
19.9 EVIDENCE OF OBLIGATIONS. Each Obligation may, in Lender's discretion,
be evidenced by notes or other instruments issued or made by Borrower to Lender.
If not so evidenced, such Obligation shall be evidenced solely by entries upon
Lender's books and records.
19.10 COLLATERAL SECURITY. The Obligations shall constitute one loan
secured by the Collateral. Lender may, in its sole discretion, (i) exchange,
enforce, waive or release any of the Collateral, (ii) apply Collateral and
direct the order or manner of sale thereof as it may determine and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral.
19.11 APPLICATION OF COLLATERAL. Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations in such order and manner as Lender shall determine in
its sole discretion. To the extent that Borrower or any other Loan Party makes a
payment or Lender receives any payment or proceeds of the Collateral for
Borrower's benefit which is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, common law or
equitable cause, then, to such extent, the Obligations or part thereof intended
to be satisfied shall be revived and continue as if such payment or proceeds had
not been received by Lender.
19.12 LOAN REQUESTS. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to Lender on or prior to 10:00 a.m., Philadelphia, Pennsylvania, time,
on the Business Day on which the proceeds thereof are requested to be paid to
Borrower and shall be conclusively presumed to be made by a Person authorized by
Borrower to do so and the crediting of a loan to Borrower's operating account
shall conclusively establish Borrower's obligation to repay such loan. Unless
and until Borrower otherwise directs Lender in writing, all loans shall be wired
to Borrower's operating account set forth on the Schedule.
<PAGE>
19.13 NOTICES. Any notice required hereunder shall be in writing and
addressed to the Borrower and Lender at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or three (3) days after deposit in the United States mail, postage prepaid.
19.14 BROKERAGE FEES. Borrower and each other Loan Party represents and
warrants to Lender that, with respect to the financing transaction herein
contemplated, no Person other than Brooks, Houghton, Inc. is entitled to any
brokerage fee or other commission, and Borrower and each other Loan Party agrees
to indemnify and hold Lender harmless against any and all such claims, whether
made by Brooks, Houghton, Inc., or any other Person.
19.15 DISCLOSURE. No representation or warranty made by Borrower or any
other Loan Party in this Agreement, or in any financial statement, report,
certificate or any other document furnished in connection herewith contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to Borrower or any other Loan Party or which reasonably should be
known to Borrower or any other Loan Party which Borrower or such other Loan
Party has not disclosed to Lender in writing with respect to the transactions
contemplated by this Agreement which materially and adversely affects the
business, assets, operations, prospects or condition (financial or otherwise),
of Borrower or any other Loan Party.
19.16 PUBLICITY. Lender is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
19.17 CAPTIONS. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
<PAGE>
19.18 INJUNCTIVE RELIEF. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to Lender.
Therefore, Lender, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
19.19 COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be executed in
one or more counterparts, each of which taken together shall constitute one and
the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
19.20 CONSTRUCTION. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
19.21 TIME OF ESSENCE. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
19.22 LIMITATION OF ACTIONS. Borrower agrees that any claim or cause of
action by Borrower against Lender, or any of Lender's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted or suffered to be done by Lender, or by
Lender's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based and service of a summons and complaint on an officer
of Lender or any other person authorized to accept service of process on behalf
of Lender, within 30 days thereafter. Borrower agrees that such one-year period
of time is a reasonable and sufficient time for a Borrower to investigate and
act upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by a specific written agreement
of Lender. This provision shall survive any termination of this Loan Agreement
or any other agreement.
19.23 LIABILITY. Neither Lender nor any Lender Affiliate shall be liable
for any indirect, special, incidental or consequential damages in connection
with any breach of contract, tort or other wrong relating to this Agreement or
the Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, and the like), whether such damages are foreseeable or
unforeseeable, even if Lender has been advised of the possibility of such
damages. Neither Lender, nor any Lender Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of Lender,
or any Lender Affiliate. "Lender Affiliate" shall mean Lender's directors,
officers, employees, agents, attorneys and any other person or entity affiliated
with or representing Lender.
<PAGE>
19.24 NOTICE OF BREACH BY LENDER. Borrower agrees to give Lender written
notice of (i) any action or inaction by Lender or any attorney of Lender in
connection with any Loan Documents that may be actionable against Lender or any
attorney of Lender or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
19.25 APPLICATION OF INSURANCE PROCEEDS. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at Lender's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Lender, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as Lender
may elect. In no event shall such application relieve Borrower from payment in
full of all installments of principal and interest which thereafter become due
in the order of maturity thereof.
19.26 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. LENDER AND BORROWER EACH
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN LENDER AND BORROWER; OR (III)
ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
LENDER OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
<PAGE>
BORROWER:
DATATEC INDUSTRIES INC., A NEW JERSEY CORPORATION
BY /S/ JAMES C. CACI
-------------------------------------------------
LENDER:
FINOVA CAPITAL CORPORATION, A DELAWARE CORPORATION
BY /S/ T. HORAK
-------------------------------------------------
TITLE VICE PRESIDENT
To the extent the foregoing Loan Agreement contains provisions which purport to
extend to and bind any of the other Loan Parties, the undersigned hereby adopt
and agree to be bound by the terms and provisions of this Loan Agreement, and
hereby make and deliver all representations, warranties, and covenants in favor
of Lender which by their terms extend to the Loan Parties or any of them.
GLASGAL COMMUNICATIONS, INC., A DELAWARE CORPORATION
BY /S/ JAMES C. CACI
-------------------------------------------------
HH COMMUNICATIONS, INC., AN ILLINOIS CORPORATION
BY /S/ JAMES C. CACI
-------------------------------------------------
COMPUTED-AIDED SOFTWARE INTEGRATION, INC., A DELAWARE CORPORATION
BY
-------------------------------------------------
<PAGE>
FINOVA
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: DATATEC INDUSTRIES INC.
ADDRESS: 23 MADISON ROAD
FAIRFIELD, NEW JERSEY 07004
DATE: MARCH 17, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
================================================================================
TOTAL FACILITY (SECTION 1.1):
$17,000,000.00
================================================================================
LOANS (SECTION 1.2):
REVOLVING LOANS: A revolving line of credit consisting of loans against
Borrower's Eligible Receivables ("Receivable Loans") and against Borrower's
Eligible Inventory ("Inventory Loans") (collectively, the "Revolving Loans
Facility") in an aggregate outstanding principal amount not to exceed the lesser
of:
(a) Fifteen Million Dollars ($15,000,000.00) (the "Maximum Amount")
MINUS an amount equal to the NJEDA Reserve, MINUS an amount equal to the
Inventory Finance Reserve, MINUS an amount equal to the Rental Reserve and any
other reserves established by Lender in accordance with this Agreement; or
(b) the sum of:
(i) an amount equal to eighty-five percent (85%) of the net amount of
the Eligible Receivables; plus
<PAGE>
(ii) a revolving line of credit consisting of loans against Borrower's
Eligible Inventory in an aggregate outstanding principal amount not to
exceed the lesser of:
(a) fifty percent (50%) of the value of Borrower's Eligible
Inventory, calculated at the lower of cost (determined on a
first-in, first-out basis) or market, or
(b) Two Million Five Hundred Thousand Dollars ($2,500,000.00) (the
"Inventory Sublimit"); minus
(iii) the NJEDA Reserve; minus
(iv) the Inventory Finance Reserve; minus
(v) the Rental Reserve and any other reserves established in accordance
with this Agreement.
TERM LOAN: Lender shall make a term loan in the amount of $2,000,000
(the "Term Loan"), subject to the terms and conditions set forth herein. The
Term Loan shall be amortized on a modified mortgage amortization style (with
roughly equal payments of principal and interest coming due on the first
Business Day of each month, subject to adjustment to reflect the actual number
of days in the preceding month for which interest is being charged), amortized
over a five year term, with a three year maturity. The Note will provide for 36
full monthly installments of principal and interest, and a balloon payment at
the time of the 36th monthly installment thereunder (the "Maturity Date"). All
payments of principal and interest with respect to the Term Loan shall be
payable monthly in arrears. In the event the Revolving Loans Facility is
terminated prior to the Maturity Date, the entire balance owing under the Term
Loan, if any, will also be due and payable concurrently with the termination of
the Revolving Loans Facility.
================================================================================
CONDITIONS PRECEDENT (SECTION 2.1):
The obligation of Lender to make the initial advance hereunder is
subject to the fulfillment, to the satisfaction of Lender and its counsel, of
each of the following conditions, in addition to the conditions set forth in
Sections 2.1 and 2.2 above:
(A) EXCESS AVAILABILITY. Borrower shall have Excess Availability under
the Revolving Loans Facility of not less than $750,000, after (i) giving effect
to the initial advance hereunder, and (ii) having taken into account any
applicable reserves against borrowing availability under the Revolving Loans
Facility.
(B) SUBORDINATION AGREEMENTS. Lender and each Subordinating Creditor
shall have entered into a Subordination Agreement, in form and substance
satisfactory to Lender. Without limiting the generality of the foregoing, each
Subordinating Creditor shall enter into one or more Subordination Agreements
with Lender, in form and substance satisfactory to Lender, providing that such
Subordinating Creditor's right to payments in respect of the Subordinated Debt
shall be subordinated in right of payment to the Loan.
(C) STOCK PLEDGE. Parent shall have executed and delivered the Stock
Pledge Agreements, pledging in favor of Lender all issued and outstanding common
capital stock of Borrower, HHC and CASI which is owned by Parent. Lender shall
be in possession on the Closing Date of original stock certificates evidencing
the shares of Borrower Stock, HHC Stock, and CASI Stock so pledged to Lender,
and of Stock Powers and Assignments Apart from Certificate, executed in blank by
Parent, with respect to all such shares.
<PAGE>
(D) EMPLOYMENT AGREEMENTS. If required by Lender prior to the Closing,
Borrower and Parent shall enter into employment agreements, in form and
substance satisfactory to Lender, with designated key employees of Borrower or
Parent.
(E) SEARCHES AND REFERENCES. Lender shall have received and approved the
results of UCC, tax lien, litigation, judgment, and bankruptcy searches
regarding Borrower, Parent, HHC and CASI and such members of the senior
management of Borrower and Parent as shall be selected by Lender, and shall have
received satisfactory customer, vendor and credit reference checks on Borrower,
Parent, HHC and CASI. In addition, Lender shall have received satisfactory
customer, vendor, credit reference and background checks on such members of
Borrower's or Parent's senior management as deemed necessary by Lender.
(F) PRIORITY OF LIEN. Lender shall be satisfied that, upon the Closing
of the Loans, Lender shall be the senior in priority (subject only to Permitted
Prior Encumbrances) and, subject to the Permitted Encumbrances, only secured,
lender with respect to the assets of Borrower, Parent, and each of HHC and CASI
(with the lien in favor of Lender, as to the assets of each of HHC and CASI,
being by assignment of the lien granted in favor of Borrower pursuant to Section
14(b) of the Loan Agreement).
(G) NO ADVERSE CHANGES. Prior to the Closing, there shall have occurred
no material adverse change in the financial condition of Borrower and the other
Loan Parties taken as a whole from that shown on the consolidated financial
statements for Parent dated as of October 28, 1996, other than any such change
reflected in anticipated financial results for the quarter ended January 31,
1997, which anticipated results have previously been disclosed to Lender. At the
Closing, each Guarantor shall deliver to Lender an officer's certification
confirming that such Person is unaware of the existence of any such material
adverse change in its financial condition.
(H) INSURANCE. Prior to Closing, there shall be in effect such casualty
and hazard insurance, business interruption, product and public liability, and
other forms of insurance as may be required by Lender, written by insurers and
in forms and amounts satisfactory to Lender.
(I) NON-RECURRING EXPENSES. Borrower and Parent have represented that,
based upon information provided by Parent and Borrower, certain expenses
incurred by Parent and Borrower will not be relevant to the operations of
Borrower or Parent following the Closing (such expenses being referred to herein
as the "Non-recurring Expenses"). Lender shall have reviewed and approved an
analysis of the Non-recurring Expenses, to be performed prior to the Closing,
which shall provide evidence satisfactory to Lender confirming that the actual
amounts of such Non-recurring Expenses are as previously represented to Lender,
and further addressing the basis for concluding that such expenses shall not be
necessary to be incurred by Borrower or Parent in the future. Without limiting
the generality of the foregoing, the minimum level of Non-recurring Expenses
established by the report of such accounting firm must not be less than
$12,000,000.
(J) MATERIAL AGREEMENTS. Lender shall have reviewed and approved all
material agreements to which Borrower or any other Loan Party is a party.
(K) PROJECTIONS. Borrower shall submit cash flow projections and pro
forma balance sheet with adjusting entries (i) showing that the proposed
financing will provide sufficient funds for the Borrower's and each other Loan
Party's projected working capital needs, (ii) showing that Borrower will have a
tangible net worth in a minimum amount to be considered solvent immediately
following the Closing of the Loan, and (iii) showing: (1) that the Borrower will
have reasonably sufficient capital
<PAGE>
for the conduct of its business following initial funds, and (2) that the
Borrower will not incur debts beyond its ability to pay such debts as they
mature.
(L) OPINIONS. To the extent any persons other than Borrower shall be
parties to the Loan Documents, including without limitation each of the
Guarantors, Lender reserves the right to require satisfactory opinions of
counsel for each such person concerning the proper organization of such person
and the due authorization, execution, delivery, enforceability, validity and
binding effect of the Loan Documents to which such person is a party. Each such
opinion of counsel shall confirm, to the satisfaction of Lender, that the
opinion is being delivered to Lender at the instruction of the party represented
by such counsel, that Lender is entitled to rely on such opinion, and that for
purposes of such reliance Lender is deemed to be in privity with the opining
counsel.
(M) ADA COMPLIANCE. As of the Closing, Borrower and each other Loan
Party shall be in compliance with the Americans with Disabilities Act of 1990
("ADA"), or, if any renovations of Borrower's or any other Loan Party's
facilities or modifications of Borrower's or any other Loan Party's employment
practices shall be required to bring them into compliance with the ADA, review
and approval by Lender of Borrower's or such other Loan Party's proposed plan to
come into such compliance. Borrower and each other Loan Party shall deliver
representations and warranties to Lender concerning Borrower's or such other
Loan Party's compliance with the ADA, and no evidence shall have come to the
attention of Lender indicating that Borrower or any other Loan Party is not in
compliance with the ADA (except to the extent that Lender has reviewed and
approved Borrower's or such other Loan Party's plan to come into compliance).
Borrower shall cause the conditions precedent set forth in Section 2.1
of this Agreement and set forth above in this Schedule to be satisfied on or
before March 31, 1997.
================================================================================
INTEREST AND FEES (SECTION 3.1):
REVOLVING INTEREST RATE. Borrower shall pay Lender interest on the
daily outstanding balance of the Revolving Loans Facility at a per annum rate of
three-quarters of one percent (0.75%) in excess of the Base Rate. The interest
rate chargeable hereunder shall be increased or decreased, as the case may be,
without notice or demand of any kind, upon the announcement of any change in the
Base Rate. Each change in the Base Rate shall be effective hereunder on the
first day following the announcement of such change. Interest charges and all
other fees and charges herein shall be computed on the basis of a year of 360
days and actual days elapsed and will be payable to Lender in arrears on the
first day of each month.
TERM INTEREST RATE. The Term Loan shall bear interest at either a fixed
rate per annum or a variable rate per annum, to be selected by Borrower no later
than five (5) Business Days prior to the Closing. In the event Borrower elects
that the Term Interest Rate throughout the term of the Loan shall be a fixed
rate of interest, the Term Interest Rate shall be equal to the per annum rate
offered on a three-year U.S. Treasury Note in effect as of five (5) Business
Days prior to the Closing plus four and one-half percent (4.50%). The rate
offered on a three-year U.S. Treasury Note shall be defined as the rate shown
under the column heading "Ask Yld." for "Govt. Bonds & Notes" in the "Treasury
Bonds, Notes & Bills" Section of THE WALL STREET JOURNAL - Western Edition
published on the fifth Business Day prior to the Closing for the government bond
or note with a maturity date in the same month and year as
-4-
<PAGE>
the Maturity Date, or, if there are more than one government bonds or notes with
a maturity date in the same month and year as the Maturity Date, the highest of
the rates shown in the "Ask Yld." column for any such bond or note, or, if there
is no government bond or note with a maturity date in the same month and year as
the Maturity Date, the average (rounded to the next highest basis point) of the
rates shown in the "Ask Yld." column for the bonds or notes in the months
preceding and following the month in which the Maturity Date falls. In the event
the Borrower elects that the Term Interest Rate throughout the term of the Loan
shall be a variable rate of interest, the Term Interest Rate shall be equal to
the Base Rate plus one and one-half percent (1.5%). Changes in the Base Rate
shall take effect in the Term Interest Rate immediately. Interest shall be
calculated on the basis of a 360-day year and charged for the actual number of
days elapsed.
COLLATERAL MONITORING FEE. At the closing of this transaction and on
the first Business Day of each month thereafter, Borrower shall pay Lender a
Collateral Monitoring Fee of One Thousand Five Hundred Dollars ($1,500.00) per
month, which shall be deemed fully earned at the time of each payment.
CLOSING FEE. At the closing of this transaction, Borrower shall pay to
Lender a Closing Fee in an amount equal to One Hundred Thousand Dollars
($100,000), which shall be deemed fully earned at Closing.
FACILITY FEE. Borrower shall pay to Lender a Facility Fee equal to
one-quarter of one percent (0.25%) per annum of the amount of the Total
Facility. The Facility Fee shall be deemed fully earned at the time of each
payment and shall be due and payable annually, commencing upon the first
anniversary of the Closing Date and continuing on each subsequent anniversary
thereof.
UNUSED LINE FEE. Borrower shall pay to Lender an Unused Line Fee equal
to one-quarter of one percent (0.25%) per annum of the difference between the
Maximum Amount and the average daily outstanding balance of the Revolving Loans
Facility, calculated on a quarterly basis, with payment due quarterly commencing
May 1, 1997 for the partial quarter from the Closing Date through April 30,
1997, and thereafter on the first Business Day of each quarter for the
immediately preceding fiscal quarter.
EXAMINATION FEES. Borrower agrees to pay to Lender an Examination Fee
in the amount of Five Hundred Dollars ($500.00) per day, per auditor (plus all
out-of-pocket expenses incurred by Lender and/or such auditors) in connection
with each audit or examination of Borrower or of any other Loan Party performed
by Lender prior to or after the date hereof. Without limiting the generality of
the foregoing, Borrower shall pay to Lender an initial Examination Fee in an
amount equal to $500 per day, per auditor (plus all out-of-pocket expenses
incurred by Lender and/or such auditors) for examinations conducted prior to the
Closing Date. Such initial Examination Fee shall be deemed fully earned at the
time of payment and due and payable upon the closing of this transaction, and
shall be deducted from any good faith deposit paid by Borrower to Lender prior
to the date of this Agreement.
================================================================================
REPORTING REQUIREMENTS (SECTION 5.2):
Monthly agings of accounts receivable (aged by invoice date), listings
of concentrated accounts, and reconciliations of accounts receivable, and
monthly agings of accounts payable (aged by invoice date), and outstanding or
held check registers shall be submitted to Lender by the 10th day following the
end of each month; the results of perpetual inventories shall be submitted on or
before the 15th
5
<PAGE>
day following the end of each month; and monthly internally prepared financial
statements shall be submitted on or before the 30th day following the end of
each month. Annual audited financial statements, prepared by a certified public
accounting firm acceptable to Lender, and containing an unqualified opinion of
such accountants, shall be provided within 90 days following the end of each
fiscal year. In addition to the foregoing, Borrower's outside certified public
accounting firm shall deliver to Lender a letter on an annual basis,
concurrently with the delivery of Borrower's (or Parent's consolidated) annual
audited financial statements, certifying that the calculation of Excess Cash
Flow, Operating Cash Flow/Actual, Operating Cash Flow/Permitted, Senior
Contractual Debt Service, and Total Contractual Debt Service have been prepared
in accordance with the requirements of this Agreement, and that the various
calculations necessary to determine compliance with the Financial Covenants set
forth in Section 13.14 of this Agreement have been computed in accordance with
the requirements of this Agreement. Borrower shall also deliver to Lender,
within three (3) Business Days following the date any such report is filed with
the U.S. Securities and Exchange Commission, a copy of all reports filed by or
on behalf of Parent. On an annual basis, within 30 days prior to the end of each
fiscal year, Borrower shall provide annual operating budgets (including income
statements, balance sheets and cash flow statements, by month), for the upcoming
fiscal year. All reports or financial statements submitted by Borrower shall be
in reasonable detail and shall be certified by the principal financial officer
of Borrower as being complete and correct.
================================================================================
BORROWER AND LOAN PARTY INFORMATION:
BORROWER.
State of Incorporation (Section 12.1): New Jersey
Fictitious Names/Prior Corporate Names/Surviving Corporation (Section
12.2):
Prior Corporate Names: Titronix Corp., Tytronix Corporation
Fictitious Names: Datatec Systems, Inc.
Company Merged, Consolidated, or whose Assets All Acquired:
Merger of Computer Installations Inc., a Georgia
corporation with and into Tytronix Corporation, a New
Jersey corporation as of April 23, 1992 (name of
surviving entity changed to Datatec Industries Inc.)
Borrower Locations (Section 12.16):
PARENT.
State of Incorporation (Section 12.1): Delaware
Fictitious Names/Prior Corporate Names/Surviving Corporation (Section
12.2):
Prior Corporate Names: Sellectek Incorporated
Fictitious Names: Glasgal Communications of New Jersey, Inc.
Company Merged, Consolidated, or whose Assets All Acquired:
-6-
<PAGE>
Merger of Glasgal Communications, Inc., a New Jersey
corporation with and into Sellectek Incorporated, a
California corporation as of May, 1994 (name of
surviving entity changed to Glasgal Communications,
Inc.)
Merger of Glasgal Communications, Inc., a California
corporation with and into Glasgal Communications, Inc.,
a Delaware corporation as of January 25, 1996.
Parent Locations (Section 12.16):
HHC.
State of Incorporation (Section 12.1): Illinois
Fictitious Names/Prior Corporate Names/Surviving Corporation (Section
12.2):
Prior Corporate Names: Hamilton and Herzog Sales, Inc.
Fictitious Names: N/A
Company Merged, Consolidated, or whose Assets All Acquired: N/A
HHC Locations (Section 12.16):
CASI.
State of Incorporation (Section 12.1): Delaware
Fictitious Names/Prior Corporate Names/Surviving Corporation (Section
12.2):
Prior Corporate Names: N/A
Fictitious Names: N/A
Company Merged, Consolidated, or whose Assets All Acquired: N/A
CASI Locations (Section 12.16):
Permitted Encumbrances (Section 18.1): Shall mean:
(a) liens, mortgages and other security interests (collectively herein,
"Liens") incurred and pledges and deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
old-age pensions and other social security benefits;
(b) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens, incurred in good faith in the
ordinary course of business and securing obligations which are not overdue for a
period of ten (10) days or more or which are being contested in good faith by
appropriate proceedings as to which the Borrower or another Loan Party, as the
case may be, to the extent required by generally accepted accounting principles
applied on a consistent basis, shall have set aside on its books adequate
reserves therefor;
(c) Liens securing the payment of taxes, assessments and governmental
charges or levies, either (i) not delinquent or (ii) being contested in good
faith by appropriate legal or administrative proceedings and as to which the
Borrower or another Loan Party, as the case may be, to the extent required by
generally accepted accounting principles applied on a consistent basis, shall
have set aside on its books adequate reserves therefor;
-7-
<PAGE>
(d) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests, Liens
incurred, created, assumed or permitted to exist by, through or under a landlord
or owner of the leased property, with or without consent of the lessee) which do
not in the aggregate materially detract from the value of the property or assets
affected thereby or materially impair the use thereof in the operation of any
Loan Party's business;
(e) Liens consisting of Capital Leases which, together with the Liens
described in clause (g) hereof, shall be in an aggregate principal amount from
time to time outstanding not in excess of $1,200,000;
(f) any judgment lien unless, within thirty (30) days after the entry
thereof, the judgment secured thereby shall not have been discharged, vacated,
reversed or execution thereof shall not have been stayed pending appeal, or
shall not have been discharged, vacated or reversed within thirty (30) days
after expiration of any such stay;
(g) purchase money Liens upon or in any property acquired or held by
the Borrower or any Loan Party to secure the purchase price of such property or
to secure Indebtedness incurred solely for the purpose of financing the
acquisition of such property, or Liens existing on such property at the time of
its acquisition, PROVIDED that (x) such Liens are incurred, created or assumed
contemporaneously with the acquisition of such property by the Borrower or such
Loan Party, (y) such Liens do not encumber any property other than the property
so acquired, and (z) the aggregate principal amount from time to time
outstanding of all Liens described by this clause (g), together with all Liens
described in clause (e) hereof, shall not exceed $1,200,000; and
(h) extensions, renewals and replacements of Liens referred to in
paragraphs (a) through (f) above; PROVIDED that (x) any such extension, renewal
or replacement Lien shall be limited to the property or assets covered by the
Lien extended, renewed or replaced, (y) the obligations secured by any such
extension, renewal or replacement Lien shall be limited to the property or
assets covered by the Lien extended, renewed or replaced, and (z) the
obligations secured by any such extension, renewal or replacement Lien shall be
in an amount not greater than the amount of the obligations secured by the Lien
extended, renewed or replaced.
Attached hereto as EXHIBIT 18.1 is a list of UCC financing statements
of record which reflect various Permitted Encumbrances existing as of the
Closing Date as described by clauses (e) and (g) of the foregoing definition.
================================================================================
FINANCIAL COVENANTS (SECTION 13.14):
Borrower shall comply with all of the following covenants. Compliance
shall be determined as of the end of each quarter, except as otherwise
specifically provided below:
-8-
<PAGE>
Senior Debt Service COVERAGE RATIO. Operating Cash
Flow/Actual must be at least 1.40 times the amount
necessary to meet Senior Contractual Debt Service
at all times throughout the term of the Loan. The
foregoing covenant shall be tested quarterly,
simultaneously with the delivery of Borrower's
corresponding financial information required
hereunder, commencing April 30, 1997. Each of the
tests conducted at the end of April, 1997, July,
1997, October, 1997, and January, 1998 shall cover
the period from the Closing Date through the end of
the relevant quarter. Commencing with the test for
April 30, 1998, and thereafter throughout the term
of the Loan, the foregoing covenant shall be tested
quarterly, on a rolling twelve (12) month basis.
Total Debt Service
COVERAGE RATIO. Operating Cash Flow/Actual must be at least 1.28
times the amount necessary to meet Total
Contractual Debt Service at all times throughout
the term of the Loan. The foregoing covenant shall
be tested simultaneously with, and in the same
manner as, the senior debt service coverage
covenant set forth in the preceding paragraph.
EBITDA. Borrower shall maintain EBITDA, tested quarterly,
of not less than the amount set forth in the
following table:
PERIOD EBITDA
------ ------
2/1/97 - 4/30/97 $ 800,000
2/1/97 - 7/31/97 $1,850,000
2/1/97 - 10/31/97 $2,840,000
2/1/97 - 1/31/98 $2,990,000
5/1/97 - 4/30/98 $4,000,000
Every trailing
12 month period
thereafter $4,000,000
================================================================================
NEGATIVE COVENANTS (SECTION 14):
CAPITAL EXPENDITURES: Borrower and each other Loan Party shall not make or
incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital Expenditures
by Borrower and all other Loan Parties in any fiscal year
would exceed, without Lender's prior written consent, the
sum of (a) $1,200,000 and (b) the amount expended by
Borrower and all other Loan Parties from insurance
proceeds for the repair or replacement of any property
damaged or destroyed in casualty.
COMPENSATION: Borrower and Parent shall not pay total compensation,
including salaries, withdrawals, fees, bonuses,
commissions, drawing accounts and other payments
(including automobile allowances), whether directly or
indirectly, in money or otherwise, during any fiscal year
to all of Borrower's and Parent's executives, officers
and directors (or any relative thereof) in excess of the
amounts provided for in those certain Employment
Agreements described in the following table, copies of
each of which have been delivered to Lender:
<TABLE>
<CAPTION>
DATE OF
EMPLOYEE EMPLOYER OFFICE AGREEMENT
-------- -------- ------ ---------
<S> <C> <C> <C> <C>
Ralph Glasgal Parent Chairman of the December 31, 1996
Board and
President
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Isaac J. Gaon Parent Chief Executive October 31, 1996
Officer
Christopher J. Carey Parent President and Chief November 1, 1996
Executive
Officer (Datatec)
Raymond Koch Parent Executive Vice November 1, 1996
President and
Chief Operating
Officer
(Datatec)
Robert F. Gadd, IV Parent Senior Vice Pres. December 31, 1996
James M. Caci Parent Vice President October 31, 1996
- Finance,
Chief Financial
Officer,
Secretary and
Treasurer
Steven Grubner HHC President July 31, 1996
Mark Herzog HHC Vice President July 31, 1996
George Terlizzi HHC Vice President July 31, 1996
Frank Frazel HHC Vice President July 31, 1996
David H. Tobey CASI President and Chief April 24, 1996
Executive
Officer
</TABLE>
In no event shall Borrower or Parent be permitted to pay
any bonuses, incentive compensation, or other forms of
discretionary compensation or remuneration (as
distinguished from a normal base salary) to any of
Borrower's or Parent's executives, officers, or directors
(or any relative thereof), including without limitation
any forms of discretionary compensation provided for in
the above-referenced Employment Agreements, at any time
when any of the following events have occurred and are
continuing, and until such events have either been cured
or waived by Lender: (i) failure of Borrower to have paid
when due any Indebtedness or any other Obligation owing
from Borrower to Lender, regardless of whether such
indebtedness became due by lapse of time, declaration of
acceleration, or otherwise; (ii) any failure of Borrower
to satisfy the "Financial Covenants" for any period set
forth in Section 13.14 of this Agreement and the Schedule
hereto (such restrictions to apply only until the next
period that Borrower satisfies such "Financial
Covenants"); (iii) at any time when any monthly
internally prepared financial statements or annual
audited financial statements of Borrower have not been
provided by the time such statements are required to be
delivered to Lender in accordance with Section 5.2 of
this Agreement; and (iv) upon the occurrence and during
the continuance of any other Event of Default under this
Agreement as to which Lender has delivered a written
notice to Borrower declaring such occurrence to be an
Event of Default hereunder.
INDEBTEDNESS: Borrower shall not create, incur, assume or permit to
exist any Indebtedness, nor shall Borrower permit any
other Loan Party to create, incur, assume or permit to
exist any Indebtedness, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to
suppliers and customers incurred in the ordinary course
of business, (iii) Indebtedness incurred in connection
with the making of Capital Expenditures by Borrower and
all other Loan Parties, provided that the principal
amount of such Indebtedness incurred during any fiscal
year of Borrower and all other Loan Parties shall not
exceed $1,200,000, (iv) that certain existing
Indebtedness which will continue in force following the
Closing, a listing of which is attached hereto as EXHIBIT
14(K), and (v) other Indebtedness to the extent such
Indebtedness is secured by a Permitted Encumbrance
hereunder.
-10-
<PAGE>
================================================================================
TERM (SECTION 16.1):
The initial term of this Agreement shall be three (3)
years from the date hereof (the "Initial Term") and shall
be automatically renewed upon the mutual agreement of
Lender and Borrower for successive periods of one (1)
year each (each, a "Renewal Term"), unless earlier
terminated as provided in Section 16 or 17 above or
elsewhere in this Agreement.
================================================================================
TERMINATION FEE (SECTION 16.4):
(A) REVOLVING LOANS FACILITY. The Termination Fee
applicable to the Revolving Loans Facility provided for
in Section 16.4 shall be an amount equal to the following
percentage of the average daily outstanding balance of
the Obligations thereunder for the 180-day period (or
lesser period, if applicable) preceding the date of
termination:
(1) four percent (4%), if such early termination
occurs during the Loan Year beginning on the Closing
Date; and
(2) three percent (3%), if such early termination
occurs during the Loan Year beginning on the first
anniversary of the Closing Date.
(B) TERM LOAN. The prepayment premium applicable to the
Term Loan provided for in Section 16.4 shall be equal to:
(1) four percent (4%) of the amount prepaid if such
prepayment is made during the Loan Year beginning on
the Closing Date; and
(2) three percent (3%) of the amount prepaid if such
prepayment is made during the Loan Year beginning on
the first anniversary of the Closing Date.
================================================================================
TRADEMARKS, LICENSES AND PATENTS (SECTION 18.1):
Patent No. Patent Date Patent Owner Description Countries in which
of Patent Patent filed
4,245,343 1-31-81 Datatec Automatic Shunt US & Canada
Device
1,164,065 3-20-84 Datatec Automatic Shunt US & Canada
Device
4,713,811 6-15-95 Datatec Automatic US
Mode Switch
for a series
COPYRIGHTS OWNED BY CASI
Computer-Aided Software Integration, Inc.
Integrator's Workbench Series
The Configurator
-11-
<PAGE>
================================================================================
DISBURSEMENT (SECTION 19.12):
Unless and until Borrower otherwise directs Lender in
writing, all loans shall be wired to Borrower's following
operating account:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
================================================================================
ADDITIONAL PROVISIONS:
(A) Article 7 of the Agreement is hereby amended to add
the following provision as new Section 7.7 thereof:
7.7 EXCESS CASH FLOW PREPAYMENTS. Within sixty (60)
days following receipt by Lender of Borrower's
annual audited financial statements, commencing with
such financial statements for Borrower's fiscal year
ending April 30, 1998, Lender may deliver a notice
to Borrower requiring Borrower to prepay the Term
Loan in an amount up to twenty-five percent (25%) of
Borrower's Excess Cash Flow for such year. Any
prepayments required under this Section 7.7 are
strictly at the sole option of Lender, and are
payable within thirty (30) days following the date
of demand by Lender. All amounts paid pursuant to
this Section 7.7 shall be applied against the
balloon payment coming due on the Maturity Date with
respect to the Term Loan until such amount has been
paid in full, and thereafter against payments coming
due under the Note in the inverse order of the
maturity of such payments. No Termination Fee or
other form of prepayment premium shall be applied to
any payments made under this Section 7.7.
(B) Notwithstanding the provisions of Article 14, and in
particular Section 14(h) thereof, to the contrary,
Borrower/Parent shall be permitted to make prepayments
against the Subordinated Debt held by Plan C LLC, in an
amount not to exceed twenty-five percent (25%) of Excess
Cash Flow generated for the preceding fiscal year, such
payments to be made not more frequently than annually,
provided that all of the following conditions are
satisfied: (1) such payment is made within sixty (60)
days following Lender's receipt of Parent's annual
audited financial statements, commencing with such
financial statements for Parent's fiscal year ending
April 30, 1998; (2) no Event of Default or Incipient
Default exists either as of the last day in Parent's
immediately preceding fiscal year or as of the date any
such prepayment of Subordinated Indebtedness is to be
made; and (3) the payment to Plan C LLC shall not create
any Event of Default or Incipient Default hereunder; and
(4) after giving effect to such payment, Borrower shall
have remaining Excess Availability in an amount not less
than One Million Dollars ($1,000,000). In the event that
the full amount of any payment proposed to be made to
Plan C LLC hereunder is limited by the operation of
clause (4) of the immediately preceding sentence, but a
lesser payment could be made which would satisfy all
conditions of the preceding sentence, Borrower/Parent
shall be permitted to make the maximum payment to Plan C
LLC which would satisfy all of the foregoing conditions.
(C) Notwithstanding the provisions of Article 14, and in
particular Section 14(c) thereof, to the contrary, Parent
shall be permitted to pay dividends, on a one-time-only
basis, to certain of its former or current shareholders,
including without
-12-
<PAGE>
limitation persons who were shareholders of corporations
which have subsequently been merged with and into any of
the Loan Parties, to the extent that such corporations,
prior to being so merged, had in effect an election to be
taxed as an S-Corporation under the Code (all such
corporations being referred to herein collectively as the
"Prior S-Corp."), which distributions shall be in an
amount sufficient for the payment of federal and state
income taxes payable by such shareholders for the final
tax period, ending with the date the Prior S-Corp. was
merged with and into the applicable Loan Party, for which
tax period the Prior S-Corp. was taxed as a pass-through
entity under the Code (such final tax period being
referred to herein as the "Tax Year") and resulting from
the inclusion in such shareholder's taxable income of the
shareholder's share of the taxable income of the Prior
S-Corp. for the Tax Year, subject to reasonable
assumptions as to the marginal tax bracket to which the
shareholders of the Prior S-Corp. generally are subject
(the "Tax Amount"). Notwithstanding the foregoing, if for
any tax period of the Prior S-Corp. prior to the Tax
Year, the Prior S-Corp. had a loss for tax purposes
(which loss has not been previously used to offset
taxable income in accordance with this sentence), then
for purposes of determining the Tax Amount for the Tax
Year, the taxable income of the Prior S-Corp. for the
current Tax Year shall be reduced by the amount of such
loss. On or about the fifth (5th) day prior to the date
on which estimated federal income tax payments in respect
of the Tax Year are required to be paid by such
individuals, Parent may make a distribution to the
shareholders of the Prior S-Corp. which, together with
prior distributions for the Tax Year on account of the
Tax Amount, shall not exceed the lesser of (i) a
reasonable estimate of the Tax Amount or (ii) $700,000,
which will be comprised of forgiveness of distributions
previously made by Parent and characterized as loans, in
the total amount of approximately $450,000, with not more
than $250,000 of such distributions being made in the
form of disbursement after the Closing Date of additional
amounts to shareholders of the Prior S-Corp without
Lender's prior written consent.
Borrower: Lender:
DATATEC INDUSTRIES INC., FINOVA CAPITAL CORPORATION, a Delaware
a New Jersey corporation corporation
By /s/ James C. Caci By T.Horok
----------------- ---------------------------
Title Vice President
-13-
<PAGE>
To the extent the foregoing Schedule to Loan and Security Agreement contains
provisions which purport to extend to and bind any of the other Loan Parties,
the undersigned hereby adopt and agree to be bound by the terms and provisions
of this Schedule, and hereby make and deliver all representations, warranties,
and covenants in favor of Lender which by their terms extend to the Loan Parties
or any of them.
GLASGAL COMMUNICATIONS, INC., A DELAWARE CORPORATION
BY /s/ JAMES M. CACI
---------------------------------------------------
HH COMMUNICATIONS, INC., AN ILLINOIS CORPORATION
BY /s/ JAMES M. CACI
---------------------------------------------------
COMPUTED-AIDED SOFTWARE INTEGRATION, INC.,
A DELAWARE CORPORATION
BY__________________________________________________
-14-
THIS NOTES AND WARRANTS PURCHASE AGREEMENT (the "Agreement")
is made and entered into this 18th day of February, 1997, by and between Tinicum
Investors and Frank Brosens (each a "Purchaser" and collectively, the
"Purchasers") and Glasgal Communications, Inc., a Delaware corporation (the
"Company").
BACKGROUND
The Company desires to sell and each Purchaser desires to
purchase promissory notes having a principal amount of $1,000,000 (the "Notes"),
to be dated the date of issue thereof, to mature February 18, 1999, to bear
interest on the unpaid balance thereof from the date thereof until the principal
thereof shall have become due and payable at the rate of 10% per annum and on
overdue payments at the rate specified therein, to be convertible into the
Company's Common Stock following the expiration of six months following the
Closing Date (as defined hereinafter to the extent the Notes remain
outstanding), and to be substantially in the form of Exhibit A attached hereto.
In consideration for the purchase of the Notes, the Company will issue to each
Purchaser (i) a warrant (the "Original Warrants"), to be substantially in the
form of Exhibit B attached hereto, for the purchase of 250,000 shares of Common
Stock of the Company, par value $.001 per share (the "Common Stock"), at an
exercise price of $5.25 per share, and (ii) an additional warrant (the
"Conditional Warrants"), to be substantially in the form of Exhibit C attached
hereto, for the purchase of 100,000 additional shares of Common Stock at an
exercise price of $5.25 per share, which Conditional Warrants expire pursuant to
their terms if the Note is repaid within 90 days of the date hereof. The term
"Notes" as used herein shall include each such promissory notes delivered
pursuant to any provision of this Agreement and each such promissory note
delivered in substitution or exchange for any other Note pursuant to any such
provision. The term "Warrants" as used herein shall include the Original
Warrants and the Conditional Warrants.
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties and covenants hereinafter set forth, the
parties hereto hereby agree as follows:
ARTICLE I
THE PURCHASE
1.1 THE PURCHASE AND SALE. Subject to the terms and conditions
set forth herein, at the Closing described below, the Company will sell and the
Purchasers will purchase the Notes and Warrants for an aggregate purchase price
of $2,000,000 (the "Purchase Price").
1.2 THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Olshan Grundman Frome
& Rosenzweig LLP, 505 Park Avenue, New York, New York 10022 on February 18, 1997
at 10:00 A.M. or at such other place or time as the parties may agree (the
"Closing Date"). At the Closing, (i) the Purchase Price shall be payable by
delivery of immediately available funds by wire transfer to an account
<PAGE>
of the Company that shall be specified in writing by the Company not later than
one Business Day prior to the Closing Date, and (ii) the Company shall deliver
to each Purchaser one or more Notes registered in the name of such Purchaser (or
its nominee) evidencing the aggregate principal amount of Notes to be purchased
by such Purchaser and the Original Warrants registered in the name of such
Purchaser (or its nominee).
1.3 TERMINATION OF THIS AGREEMENT. Anything contained in this
Agreement to the contrary notwithstanding, in the event that the Purchasers fail
to deliver immediately available funds representing the Purchase Price by the
close of business on the Closing Date, this Agreement shall terminate and be of
no force and effect without the requirement of any notice from, or any action
by, the Company.
ARTICLE II
Representations and Warranties
CONCERNING THE COMPANY
The Company hereby represents and warrants to the Purchasers
as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized and existing under the laws of the State of Delaware and is in
good standing under such laws.
2.2 CORPORATE POWER. The Company has all requisite corporate
power and authority to enter into this Agreement and the Company will have at
the Closing Date all requisite corporate power to sell the Notes and the
Warrants and to carry out and perform its obligations under the terms of this
Agreement.
2.3 CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company consists of (i) 34,000,000 shares of Glasgal Common
Stock and (ii) 4,000,000 shares of preferred stock, par value $.001 per share.
There are 21,772,560 shares of the Company's Common Stock and 100,000 shares of
Preferred Stock currently issued and outstanding.
2.4 SUBSIDIARIES AND INVESTMENTS. Other than Signatel Ltd.,
Computer-Aided Software Integration, Inc., HH Communications, Inc. and Datatec
Industries Inc., the Company does not own, directly or indirectly, any capital
stock, or other equity ownership or proprietary interest, in any other
corporation, association, trust, partnership, joint venture.
2.5 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to the Purchasers true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it under the Securities Act and the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") (as such documents have been amended or
supplemented since the time of their filing, collectively, the "SEC Reports").
As of their respective dates, the SEC Reports have been prepared in conformity
with Generally Accepted
-2-
<PAGE>
Accounting Principles consistently applied and as of the dates indicated, and
for the periods then ended, present fairly the financial position and results of
operations of the Company as of the dates and for the periods indicated.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described in
the SEC Reports, the Company has no material debts, liabilities or obligations
of any kind, whether accrued, absolute, contingent or other, whether due or to
become due, except as incurred in the ordinary course of business, that would
have a material adverse effect on the Company.
2.7 ABSENCE OF CHANGES. Since October 31, 1996, the Company
has operated in the ordinary course of business consistent with past practice.
Since October 31, 1996, there has not occurred any change in the financial
condition, results of operations, assets, liabilities or business of the Company
which, in the aggregate, would have a material adverse effect on the Company.
2.8 FULLY PAID SHARES. The shares of Common Stock issuable
upon the exercise of the Warrants or upon conversion of the Notes, when acquired
by the Purchasers will be fully paid and non-assessable, free of preemptive
rights and encumbrances, and will have the same rights under the Company's
certificate of incorporation and by-laws as all other shares of Common Stock.
ARTICLE III
Representations and Warranties
OF PURCHASERS
Each Purchaser (as to himself only) hereby represents and
warrants to the Company as follows:
3.1 INVESTMENT INTENT, ETC. Each Purchaser is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act. Each Purchaser has received, examined and reviewed copies of
the Company's most recent reports, as amended, filed under the Exchange Act and
other publicly available documents requested by him and recognizes that the
investment in the Company's Notes and Warrants involves a high degree of risk.
Each Purchaser has been advised that it may not be possible to readily liquidate
this investment. Each Purchaser's overall commitment to the Notes and Warrants
which are not readily marketable is not disproportionate to his net worth, his
investment in the Company will not cause such overall commitment to become
excessive, and he can afford to bear the loss of his entire investment in the
Company. Each Purchaser has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in the Company. Each Purchaser confirms that the Company has made
available to him the opportunity to ask questions of, and receive answers from,
the Company concerning the Company and the activities of the Company and
otherwise to obtain any additional information, to the extent that the Company
possesses such information or could acquire it without
-3-
<PAGE>
unreasonable effort or expense, necessary to verify the accuracy of the
information conveyed to such Purchaser. Each Purchaser hereby acknowledges that
he has been advised that this offering of Notes and Warrants has not been
registered with, or reviewed by, the Securities and Exchange Commission because
this offering is intended to be a non-public offering pursuant to Section 4(2)
of the Securities Act. Each Purchaser represents that the Notes and Warrants are
being purchased for such Purchaser's own account, for investment purposes only
and not with a view towards distribution or resale to others. Each Purchaser
agrees that he will not attempt to sell, transfer, assign, pledge or otherwise
dispose such Notes and Warrants or the shares of Company Stock underlying such
Notes and Warrants unless they are registered under the Securities Act or unless
in the opinion of counsel satisfactory to the Company an exemption from such
registration is available. Each Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Notes and Warrants. The execution, delivery and performance by each Purchaser of
this Agreement are within the powers of such Purchaser, have been duly
authorized and will not constitute or result in a breach or default under, or
conflict with, any order, ruling or regulation of any court or other tribunal or
of any governmental commission or agency, or any agreement or other undertaking,
to which each Purchaser is a party or by which each Purchaser is bound. Each
Purchaser has relied solely upon the advice of its own tax and legal advisors
with respect to the tax and other legal aspects of this investment. Each
Purchaser is purchasing the Notes and Warrants for his account, and not in any
agency, fiduciary or similar capacity. The source of the funds evidencing the
Purchase Price are from legally available funds of each Purchaser.
3.2 RISK FACTORS. Each Purchaser has conducted his own due
diligence with respect to all aspects of this transaction and is familiar with
the following risk factors inherent in the purchase of the Notes and the
Warrants:
A. WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES. The
Company has a history of limited working capital and has had
working capital deficiencies of $2,679,000, $10,223,000 and
$3,910,000 for the fiscal years ended April 30, 1995 and 1996,
and the six months ended October 31, 1996, respectively. In
addition, although the Company had net income of $1,426,000
for the six months ended October 31, 1996, it incurred net
losses of $2,392,000 and $13,418,000 for the fiscal years
ended April 30, 1995 and 1996. 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
currently existing borrowing agreements.
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<PAGE>
B. REVOLVING CREDIT FACILITY. The Company's primary
revolving credit facility expired on September 30, 1996. The
Company's subsidiary, Datatec Industries Inc. ("Datatec"), is
a party to a revolving credit facility which expires on March
31, 1997. Datatec has in the past been in violation of certain
of the financial covenants contained in its credit facility.
At October 31, 1996, $9,400,000 was outstanding under such
agreement. There can be no assurance that the Company will be
able to enter into a new revolving credit agreement. If the
Company is unable to enter into a new revolving credit
agreement, the Company's business may be materially adversely
affected. On February 12, 1997, the Company received a
commitment from Finova Capital Corporation for a revolving
line of credit and term loan facility in the aggregate amount
of $17 million. There can be no assurance, however, that the
Company will consummate such loan arrangement.
C. 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, Robert Gadd, Vice
President - Federal and Enterprise Systems, David Tobey,
President of Computer Aided Software Integration, Inc.
("CASI"), of which the Company owns 80% of the issued and
outstanding shares or Christopher Carey, President and Chief
Executive Officer of Datatec, of which the Company owns
approximately 98.5% of the issued and outstanding shares,
could have a material adverse effect on the operations of the
Company. The Company has an employment agreement with Mr. Gaon
which expires on October 31, 1999, which may be terminated by
the Company for cause or by Mr. Gaon for good reason. The
Company has an employment agreement with Mr. Tobey which
expires on April 30, 2001, which may be terminated by the
Company for cause or by Mr. Tobey for good reason. The Company
has an employment agreement with Mr. Gadd which expires on
December 31, 1996 and which may be terminated by Mr. Gadd upon
six months prior written notice to the Company. The Company
has an employment agreement with Mr. Carey which expires on
October 31, 1999, which may be terminated by the Company for
cause or by Mr. Carey for good reason. 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 expertise necessary to
operate the business of the Company. There can be no assurance
that the Company will be able to attract, motivate and retain
such persons.
D. COMPETITION. The Company competes with other
companies involved in the installation and servicing of local
and wide area networks, the provision of software tools to
systems integrations and the distribution of data
communications equipment. These competitors include local and
national systems integrators, computer manufacturers, software
vendors, telephone companies and distribution companies. These
markets are highly competitive, and some companies with which
the Company competes are substantially larger and have
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<PAGE>
significantly greater resources than the Company. There can be
no assurance that the Company will be able to compete
successfully in the future.
E. CONTROL BY PRINCIPAL STOCKHOLDERS. Ralph Glasgal,
the Chairman of the Board and President of the Company,
through his beneficial ownership and through a voting
agreement with Direct Connect International Inc. ("DCI") has
the power to vote approximately 24% of the Common Stock. DCI
has pledged 1,175,000 of the shares of Common Stock it owns in
the Company as collateral for a loan. If the pledgee were to
become the owner of such shares, Mr. Glasgal would no longer
have the power to vote such shares. In addition, Mr. Carey,
President and Chief Executive Officer of Datatec has the power
to vote approximately 18% of the Common Stock.
F. EXTENDED LEAD TIMES FOR REALIZATION OF REVENUE.
Due to the nature and size of orders 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. Consequently, significantly more resources are required
to manage this process. As such, there is likely to be
substantial fluctuations in sales volume on a month-to-month
and quarter-to-quarter basis. The pursuit of this type of
business increases 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, there will be a material adverse
effect on the Company.
G. SHARES ELIGIBLE FOR FUTURE SALE. The sale, or
availability for sale, of substantial amounts of Common Stock
in the public market pursuant to Rule 144 or otherwise could
adversely affect the market price of the Common Stock and
could impair the Company's ability to raise additional capital
through the sale of its equity securities.
H. NO DIVIDENDS. The Company currently intends to
retain earnings, if any, for use in the business and does not
anticipate paying any dividends to its stockholders in the
foreseeable future.
I. RIGHTS OF COMMON STOCK SUBORDINATE TO EXISTING AND
FUTURE 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 $.001 per share. The
Company currently has outstanding 1,000,000 shares of
Preferred Stock. The holders of the Preferred Stock are
entitled to receive dividends in an amount of 6% per annum and
are entitled to a preferential distribution on liquidation of
the Company. In addition, the Company may be required to
redeem the Preferred Stock under certain circumstances. The
shares of Preferred Stock are convertible into Common Stock in
accordance with their respective Certificates of Designation.
Holders of the Preferred Stock are not entitled to vote on any
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<PAGE>
matter submitted to the stockholders, provided, however, that
the affirmative vote of the holders of a majority of the
outstanding Preferred Stock, is required as to those matters
which (i) alter or change adversely the powers, preferences or
rights given to the Preferred Stock or (ii) authorize or
create any class of stock ranking as to dividends or
distribution of assets upon a liquidation senior to, prior to
or PARI PASSU with the Preferred Stock. If additional 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.
J. CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS. The
future issuance of preferred stock by the Company could have
the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. Other
than the Preferred Stock described herein, the Company does
not have any present plans to issue any additional shares of
preferred stock.
K. ACQUISITIONS. It is currently anticipated that a
portion of the Company's future growth will result from
acquisitions of other similar or complementary businesses. In
October 1994, the Company consummated the acquisition of
Signatel, Ltd. ("Signatel"). On April 24, 1996, the Company
acquired 80% of the issued and outstanding capital stock of
CASI, a provider of software tools and services to systems
integrators and independent software vendors. On July 31,
1996, the Company acquired 100% of the issued and outstanding
capital stock of HH Communications, Inc. ("HH"), which resells
computer networking equipment and provides value-added
services in connection with such equipment. On October 31,
1996, the Company acquired approximately 98.5% of the issued
and outstanding capital stock of Datatec, a network
integrator. The Company has no other current plan or agreement
to acquire any other business. There can be no assurance that
any other transaction will be consummated or that they will
result in increased levels of profit for the Company. In
addition, there can be no assurance that the Company will be
able to integrate or manage successfully other acquired
businesses.
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<PAGE>
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 REGISTRATION RIGHTS AGREEMENT. The Company hereby agrees
to use its best efforts to cause a registration statement under the Securities
Act (the "Registration Statement") covering the resale of an aggregate of
500,000 shares of Common Stock issuable upon the exercise of the Warrants within
30 days following the Closing Date and to remain current and effective to permit
the sale of the Shares until the earlier of (a) the date that all of the Shares
have been sold pursuant to the Registration Statement, (b) the date the holders
of the Shares receive an opinion of counsel satisfactory to each Purchaser that
the Shares may be sold under the provisions of Rule 144(k) promulgated under the
Securities Act, or (c) the five year anniversary of the effective date of the
Registration Statement. If any of the Notes remain outstanding 180 days
following the Closing Date, the Company further agrees to use its best efforts
to immediately file a registration statement under the Securities Act (the
"Conditional Registration Statement") covering the resale of (i) those shares of
Common Stock issuable upon the exercise of the Conditional Warrants and (ii)
those shares of Common Stock into which the Notes are convertible on the date
prior to the filing of such Conditional Registration Statement. If the Notes are
prepaid prior to 180 days and after 90 days following the Closing Date, the
Company will use its best efforts to file a registration statement under the
Securities Act covering the resale of those shares of Common Stock issuable upon
the exercise of the Conditional Warrants within 30 days following such
prepayment of the Notes.
The rights contained in this Section 4.1 are referred to
collectively as the "Registration Rights". The Company shall bear all expenses
incurred in the preparation and filing of any Registration Statement with
respect to the Registration Rights, except that the Purchasers shall pay any
underwriting discounts or commissions and the expenses of their own legal
counsel.
4.2 SUBORDINATION. Each Purchaser agrees that he will enter
into such agreements as may be reasonably required by any prospective senior
lenders of the Company to subordinate the Notes to obligations which may become
due and owing to such senior lenders.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of Purchaser and the Company.
5.2 WAIVER. Any breach of any obligation, covenant, agreement
or condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No waiver shall be
implied from any conduct or action of the non-breaching party. No failure or
delay by any party in exercising any right, power or privilege hereunder or
under the Documents and no course of dealing by any party shall operate as a
waiver and any right, power or privilege
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<PAGE>
hereunder or under any Document nor shall any single or partial exercise thereof
or the exercise of any other right, power or privilege.
5.3 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand:
(a) if to the Company, to:
Glasgal Communications Inc.
23 Madison Road
Fairfield, New Jersey 07004
Attn: Chief Financial Officer
with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Robert H. Friedman, Esq.
(b) if to Purchasers, to:
Frank Brosens
10 Bedford Center Road
Bedford Hills, New York 10507
Tinicum Investors
990 Stewart Avenue
Garden City, New York 11530
Attention: John Keane
with a copy to:
Tinicum Incorporated
800 Third Avenue, 40th Floor
New York, New York 10022
Attention: Eric Ruttenberg
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 5.3.
5.4 BINDING NATURE AGREEMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations
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<PAGE>
hereunder shall be assigned by any of the parties hereto without prior written
consent of the other parties.
5.5 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and performed
therein.
5.6 EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
5.7 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
5.8 FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; PROVIDED HOWEVER, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of its signature by fax, a true and
correct original copy of its signature in overnight mail to the address of the
other party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /S/ JAMES CACI
-------------------------------------
Name: James Caci
Title: Chief Financial Officer
/S/ FRANK BROSENS
----------------------------------------
FRANK BROSENS
TINICUM INVESTORS
By: /S/ ERIC TUTTENBERG
-------------------------------------
Name: Eric Ruttenberg
Title: General Partner
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<PAGE>
LIST OF EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF ORIGINAL WARRANT
Exhibit C FORM OF CONDITIONAL WARRANT
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<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER SAID
ACT) EXCEPT IN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT.
FORM OF CONVERTIBLE PROMISSORY NOTE
$1,000,000 February 18, 1997
WHEREAS, [ ] (the "Lender") desires to loan to Glasgal
Communications, Inc. (the "Borrower"), and the Borrower desires to borrow from
the Lender, the principal amount of $1,000,000 pursuant to the terms and
conditions contained in this Convertible Promissory Note (the "Note"). This Note
is being issued pursuant to the provisions of a Note and Warrant Purchase
Agreement dated February 18, 1997 by and among the Lender, the Borrowers. All
capitalized terms used in this Note that are not defined herein shall have the
meaning assigned to them in the Note and Warrant Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration herein
contained, the Lender hereby agrees to loan to the Borrower, and the Borrower
hereby promises to pay to the order of the Lender or his successors or assigns
the principal amount of one million ($1,000,000) dollars on February 18, 1999
(the "Maturity Date"), unless this Note shall have been converted prior thereto
as provided herein, plus accrued and unpaid interest on such date and as
specified below.
The Borrower also promises to pay interest on the $1,000,000
principal amount of this Note on the Maturity Date at a rate equal to 10% per
annum (on the basis of a 360-day year and actual number of days elapsed) from
and including the date hereof until such principal sum shall be paid in full and
to pay interest on any overdue installment of principal or interest at a rate
equal to 12% per annum.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in immediately
available funds to the Lender, at [ ], or at such other place as shall be
designated in writing by the Lender for such purpose.
The Borrower hereby waives diligence, presentment, dishonor,
demand, notice and protest and, to the full extent permitted by law, the right
to plead any statute of limitations as a defense to any demand hereunder. The
Borrower promises to
<PAGE>
pay all costs and expenses, including reasonable attorneys' fees, incurred in
the collection and enforcement of this Note.
This Note may be converted in whole but not in part at any
time after August 18, 1997 and prior to the Maturity Date at the option of the
Lender into the common stock, $.001 par value of the Borrower (the "Common
Stock"). The number of shares of Common Stock into which the Note Shall be
convertible shall mean the Adjusted Face Amount (as defined below) on the date
of conversion divided by the 80% of the average closing bid price per share of
Common Stock for the five (5) trading days immediately preceding the conversion
date on the Nasdaq Small-Cap Market or such other market, quotation system or
exchange on which the Company's Common Stock is then listed. The Adjusted Face
amount shall mean the 1,000,000 principal amount plus any accrued interest
thereon.
On the Maturity Date, if this Note shall not have been
converted prior thereto as provided herein, the Borrower shall pay to the order
of the Lender or his successors or assigns the principal amount of $1,000,000
plus accrued and unpaid interest at the rate set forth above. If any payment on
this Note becomes due and payable on a day which is not a Business Day, the
maturity thereof shall be extended to the next Business Day and interest shall
be payable at the applicable rate during such extension period.
The terms of this Note are not subject to amendment except by
written agreement of the Lender and the Borrower and the Borrower may assign its
obligations hereunder without the prior written consent of the Lender.
Prior to August 18, 1997, this Note may be prepaid at any time
by the Borrower either in whole or in part. After August 18, 1997, this Note may
only be prepaid by the Borrower following 30 days prior written notice to the
Lender.
This Note shall be governed by and construed and enforced in
accordance with the laws of State of New York, without regard to principles of
conflicts of laws.
IN WITNESS WHEREOF, the Borrower has duly executed this Note,
the day and year first above written.
GLASGAL COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993 (THE "ACT") OR ANY STATE'S SECURITIES LAWS AND THESE
SECURITIES MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE
SUBSEQUENTLY REGISTERED PURSUANT TO AN EXEMPTION FROM APPLICABLE REGISTRATION
REQUIREMENTS. THESE SECURITIES ARE SUBJECT TO OTHER RESTRICTIONS ON EXERCISE AND
TRANSFER AS SET FORTH HEREIN.
COMMON STOCK PURCHASE WARRANT
For the Purchase of 250,000 Shares of Common Stock
of
GLASGAL COMMUNICATIONS, INC.
(A Delaware Corporation)
1. WARRANT.
THIS CERTIFIES THAT, for value received, ______________ (the
"Holder"), as registered owner of this Warrant, is entitled at any time from the
date hereof until 5:00 p.m., New York City time, on February 18, 2002, but not
thereafter, to subscribe for, purchase and receive, in whole or in part, up to
two hundred fifty thousand (250,000) shares (the "Shares") of Common Stock, par
value $.001 per share (the "Common Stock"), of Glasgal Communications, Inc., a
Delaware corporation (the "Company") in accordance with the terms hereof.
This Warrant is being issued pursuant to a Note and Warrant
Purchase Agreement dated February 18, 1997.
The exercise price (the "Exercise Price") per share of Common
Stock in respect of any exercise of this Warrant shall be $5.25.
2. EXERCISE.
In order to exercise this Warrant, the exercise form attached
hereto must be duly executed, completed and delivered to the Company, together
with this Warrant and payment of the applicable Exercise Price for the Shares of
the Common Stock being purchased. If the rights represented hereby shall not
have been exercised before 5:00 p.m., Eastern Time, on February 18, 2002 this
Warrant shall become and be void and without further force or effect and all
rights represented hereby shall cease and expire.
<PAGE>
3. TRANSFER.
3.1 GENERAL RESTRICTIONS. The registered Holder of this
Warrant, by such Holder's acceptance hereof, agrees that he shall not sell,
transfer or assign or hypothecate this Warrant except in a transaction that does
not require registration under the Securities Act of 1933, as amended (the
"Act"). This Warrant shall not be transferred unless and until (i) the Company
has received the opinion of counsel for the Holder that this Warrant may be sold
pursuant to an exemption from registration under the Act, the availability of
which is established to the reasonable satisfaction of the Company, or (ii) a
registration statement relating to this Warrant has been filed by the Company
and declared effective by the Securities and Exchange Commission (the
"Commission"). The Shares of Common Stock issuable upon exercise of this Warrant
shall be subject to the transfer restrictions set forth below.
3.2 RESTRICTIONS IMPOSED BY THE ACT. The Holder by accepting
this Warrant confirms that the Warrants were acquired by the Holder solely for
investment and with no present intention to distribute any Warrants or
securities issuable upon the exercise thereof and that the Holder will dispose
of securities issuable upon the exercise hereof only in compliance with
applicable Federal and state securities laws. The Shares of Common Stock
purchased upon exercise of this Warrant shall not be transferred unless and
until (i) the Company has received the opinion of counsel for the Holder that
such Shares may be sold pursuant to an exemption from registration under the
Act, the availability of which is established to the reasonable satisfaction of
the Company, or (ii) a registration statement relating to such Shares has been
filed by the Company and declared effective by the Commission.
Each certificate for securities purchased upon exercise of
this Warrant shall bear a legend as follows unless such securities have been
registered under the Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). The
securities may not be offered for sale, sold or otherwise
transferred except (i) pursuant to an effective registration
statement under the Act or (ii) pursuant to an exemption from
registration under the Act in respect of which the Company has
received an opinion of counsel satisfactory to the Company to
such effect."
4. NEW WARRANTS TO BE ISSUED.
4.1 PARTIAL EXERCISE OR TRANSFER. Subject to the restrictions
in Section 3 hereof, this Warrant may be exercised in whole or in part,
provided, however that the Holder must purchase
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<PAGE>
a minimum of 25,000 Shares each time he chooses to purchase Shares, except to
purchase the remaining Shares available to him. In the event of the exercise
hereof in part, upon surrender of this Warrant for cancellation, together with
the duly executed exercise form, the Company shall cause to be delivered to the
Holder without charge a new warrant or new warrants of like tenor with this
Warrant in the name of the Holder evidencing the right to purchase, in the
aggregate, the remaining number of underlying Shares of Common Stock purchasable
hereunder after giving effect to any such partial exercise.
4.2 LOST CERTIFICATE. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and of an indemnification in favor of the Company, reasonably satisfactory to
it, the Company shall execute and deliver a new warrant of like tenor and date.
Any such new warrants executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute an additional contractual obligation
on the part of the Company.
5. RESERVATION. The Company shall at all times reserve and keep available out of
its authorized shares of Common Stock, solely for the purpose of issuance upon
exercise of the Warrant, such number of authorized but unissued shares of Common
Stock, free from preemptive rights, as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrant and
payment of the applicable Exercise Price therefor, all shares of Common Stock
shall be duly and validly issued, fully paid and nonassessable and not subject
to preemptive rights of any stockholder. The Company further covenants and
agrees that upon exercise of this Warrant and payment of the applicable Exercise
Price therefor, all shares of Common Stock shall be duly and validly issued,
fully paid and nonassessable and not subject to preemptive rights of any
stockholder. If the Common Stock is then listed on a national securities
exchange, all shares of Common Stock issued upon exercise of this Warrant shall
also be duly listed thereon.
6. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from to time as follows.
6.1 MERGER, SALE OF ASSETS, ETC. If at any time while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the
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<PAGE>
Company's properties and assets as, or substantially as, an entirety to any
other person, then as a part of such reorganization, merger, consolidation, sale
or transfer lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and payment of the Exercise Price then in effect,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this Warrant
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 6. The foregoing provisions of
this Section 6 shall similarly apply to successive reorganization,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
6.2 ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. In the
event that, prior to the issuance by the Company of all the Shares issuable upon
exercise of this Warrant, there shall be any change in the outstanding Common
Stock by reason of the declaration of stock dividends, or through a
recapitalization resulting from stock splits or combinations, without the
payment to the Company of any compensation therefor in money, services or
property, the remaining Shares still subject to this Warrant and the Purchase
Price thereof shall be appropriately adjusted (but without regard to fractions)
by the Board of Directors of the Company to reflect such change.
7. CERTAIN NOTICE REQUIREMENTS.
7.1 HOLDER'S RIGHT TO RECEIVE NOTICE. Nothing herein shall be construed
as conferring upon the Holder the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights
-4-
<PAGE>
whatsoever as a stockholder of the Company prior to the exercise hereof
(including the right to receive dividends).
7.2 TRANSMITTAL OF NOTICES. All notices, requests, consents
and other communications under this Warrant shall be in writing and shall be
deemed to have been duly given or made when hand delivered, or when delivered by
responsible overnight courier:
(i) If to the registered Holder of this Warrant,
to:
[Insert address of Holder]
(ii) if to the Company, to:
Glasgal Communications, Inc.
23 Madison Road
Fairfield, New Jersey 07004
Attn: James Caci, Chief Financial Officer
Either of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.2.
8. MISCELLANEOUS.
8.1 PURCHASE FOR INVESTMENT. By his acceptance of this
Warrant, the Holder represents and warrants that the Holder has acquired this
Warrant for the Holder's own account for investment and not with the view to the
distribution thereof, except in accordance with applicable federal and state
securities laws. The Holder represents that he is an "accredited investor" as
such term is defined under Rule 501 of Regulation D promulgated under the Act.
The Holder confirms that he has been advised that the Warrants and the Shares of
Common Stock issuable upon exercise of this Warrant have not been, registered
under the Act and that he has consulted with and been advised by counsel as to
the restrictions on resale to which this Warrant and such Shares will be
subject.
8.2 AMENDMENTS. All modifications or amendments to this
Warrant shall require the written consent of each party.
8.3 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this Warrant.
8.4 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersede all prior agreements and
-5-
<PAGE>
understandings of the parties, oral and written, with respect to the subject
matter hereof.
8.5 BINDING EFFECT. This Warrant shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
permitted assignees, respective successors, legal representatives and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Warrant or
any provisions herein contained.
8.6 GOVERNING LAW. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws.
8.7 WAIVER, ETC. The failure of the Company or the Holder to
at any time enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Warrant or any provision hereof or the right of the Company or
any Holder to thereafter enforce each and every provision of this Warrant. No
waiver of any breach, noncompliance or nonfulfillment of any of the provisions
of this Warrant shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such
waiver is sought; and no waiver of any such breach, noncompliance or
nonfulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, noncompliance or nonfulfillment.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer as of the 18th day of February, 1997.
GLASGAL COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
Title:
AGREED AND ACCEPTED:
[Insert Name of Holder]
By:
----------------------
Name:
Title:
-7-
<PAGE>
Form to be used to exercise Warrant:
GLASGAL COMMUNICATIONS, INC.
23 Madison Road
Fairfield, New Jersey 07004
Date: ________________, 19__
The Undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase __________ shares of Common Stock of Glasgal
Communications, Inc. and hereby makes payment of $_____________ (at the rate of
$5.25 per share) in payment of the Exercise Price pursuant thereto. Please issue
the shares as to which this Warrant is exercised in accordance with the
instructions given below.
--------------------------------
Signature
--------------------------------
Signature Guaranteed
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
---------------------------------------------------------------------------
(Print in Block Letters)
Address
---------------------------------------------------------------------------
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
-8-
<PAGE>
EXHIBIT C
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993 (THE "ACT") OR ANY STATE'S SECURITIES LAWS AND THESE
SECURITIES MAY NOT BE RESOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE
SUBSEQUENTLY REGISTERED PURSUANT TO AN EXEMPTION FROM APPLICABLE REGISTRATION
REQUIREMENTS. THESE SECURITIES ARE SUBJECT TO OTHER RESTRICTIONS ON EXERCISE AND
TRANSFER AS SET FORTH HEREIN.
COMMON STOCK PURCHASE WARRANT
For the Purchase of 100,000 Shares of Common Stock
of
GLASGAL COMMUNICATIONS, INC.
(A Delaware Corporation)
1. WARRANT.
THIS CERTIFIES THAT, for value received, ______________ (the
"Holder"), as registered owner of this Warrant, is entitled at any time during
the period commencing May 18, 1997 and ending at 5:00 p.m., New York City time,
on February 18, 2002, but not thereafter, to subscribe for, purchase and
receive, in whole or in part, up one hundred thousand (100,000) shares (the
"Shares") of Common Stock, par value $.001 per share (the "Common Stock"), of
Glasgal Communications, Inc., a Delaware corporation (the "Company") in
accordance with the terms hereof.
This Warrant is being issued pursuant to a Note and Warrant
Purchase Agreement dated February 18, 1997 and notwithstanding anything to the
contrary herein, if the Notes (as such term is defined in the Note and Warrant
Purchase Agreement) are paid by the Company on or prior to May 18, 1997, this
Warrant
shall not vest and shall immediately terminate.
The exercise price (the "Exercise Price") per share of Common
Stock in respect of any exercise of this Warrant shall be $5.25.
2. EXERCISE.
In order to exercise this Warrant, the exercise form attached
hereto must be duly executed, completed and delivered to the Company, together
with this Warrant and payment of the applicable Exercise Price for the Shares of
the Common Stock being purchased. If the rights represented hereby shall not
have been exercised before 5:00 p.m., Eastern Time, on February 18, 2002 this
<PAGE>
Warrant shall become and be void and without further force or effect and all
rights represented hereby shall cease and expire.
3. TRANSFER.
3.1 GENERAL RESTRICTIONS. The registered Holder of this
Warrant, by such Holder's acceptance hereof, agrees that he shall not sell,
transfer or assign or hypothecate this Warrant except in a transaction that does
not require registration under the Securities Act of 1933, as amended (the
"Act"). This Warrant shall not be transferred unless and until (i) the Company
has received the opinion of counsel for the Holder that this Warrant may be sold
pursuant to an exemption from registration under the Act, the availability of
which is established to the reasonable satisfaction of the Company, or (ii) a
registration statement relating to this Warrant has been filed by the Company
and declared effective by the Securities and Exchange Commission (the
"Commission"). The Shares of Common Stock issuable upon exercise of this Warrant
shall be subject to the transfer restrictions set forth below.
3.2 RESTRICTIONS IMPOSED BY THE ACT. The Holder by accepting
this Warrant confirms that the Warrants were acquired by the Holder solely for
investment and with no present intention to distribute any Warrants or
securities issuable upon the exercise thereof and that the Holder will dispose
of securities issuable upon the exercise hereof only in compliance with
applicable Federal and state securities laws. The Shares of Common Stock
purchased upon exercise of this Warrant shall not be transferred unless and
until (i) the Company has received the opinion of counsel for the Holder that
such Shares may be sold pursuant to an exemption from registration under the
Act, the availability of which is established to the reasonable satisfaction of
the Company, or (ii) a registration statement relating to such Shares has been
filed by the Company and declared effective by the Commission.
Each certificate for securities purchased upon exercise of
this Warrant shall bear a legend as follows unless such securities have been
registered under the Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). The
securities may not be offered for sale, sold or otherwise
transferred except (i) pursuant to an effective registration
statement under the Act or (ii) pursuant to an exemption from
registration under the Act in respect of which the Company has
received an opinion of counsel satisfactory to the Company to
such effect."
-2-
<PAGE>
4. NEW WARRANTS TO BE ISSUED.
4.1 PARTIAL EXERCISE OR TRANSFER. Subject to the restrictions
in Section 3 hereof, this Warrant may be exercised in whole or in part,
provided, however that the Holder must purchase a minimum of 25,000 Shares each
time he chooses to purchase Shares, except to purchase the remaining Shares
available to him. In the event of the exercise hereof in part, upon surrender of
this Warrant for cancellation, together with the duly executed exercise form,
the Company shall cause to be delivered to the Holder without charge a new
warrant or new warrants of like tenor with this Warrant in the name of the
Holder evidencing the right to purchase, in the aggregate, the remaining number
of underlying Shares of Common Stock purchasable hereunder after giving effect
to any such partial exercise.
4.2 LOST CERTIFICATE. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and of an indemnification in favor of the Company, reasonably satisfactory to
it, the Company shall execute and deliver a new warrant of like tenor and date.
Any such new warrants executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute an additional contractual obligation
on the part of the Company.
5. RESERVATION. The Company shall at all times reserve and keep available out of
its authorized shares of Common Stock, solely for the purpose of issuance upon
exercise of the Warrant, such number of authorized but unissued shares of Common
Stock, free from preemptive rights, as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrant and
payment of the applicable Exercise Price therefor, all shares of Common Stock
shall be duly and validly issued, fully paid and nonassessable and not subject
to preemptive rights of any stockholder. The Company further covenants and
agrees that upon exercise of this Warrant and payment of the applicable Exercise
Price therefor, all shares of Common Stock shall be duly and validly issued,
fully paid and nonassessable and not subject to preemptive rights of any
stockholder. If the Common Stock is then listed on a national securities
exchange, all shares of Common Stock issued upon exercise of this Warrant shall
also be duly listed thereon.
6. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from to time as follows.
6.1 MERGER, SALE OF ASSETS, ETC. If at any time while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company
-3-
<PAGE>
with or into another corporation in which the Company is the surviving entity
but the shares of the Company's capital stock outstanding immediately prior to
the merger are converted by virtue of the merger into other property, whether in
the form of securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then as a part of such reorganization, merger, consolidation, sale
or transfer lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and payment of the Exercise Price then in effect,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this Warrant
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 6. The foregoing provisions of
this Section 6 shall similarly apply to successive reorganization,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
6.2 ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. In the
event that, prior to the issuance by the Company of all the Shares issuable upon
exercise of this Warrant, there shall be any change in the outstanding Common
Stock by reason of the declaration of stock dividends, or through a
recapitalization resulting from stock splits or combinations, without the
payment to the Company of any compensation therefor in money, services or
property, the remaining Shares still subject to this Warrant and the Purchase
Price thereof shall be appropriately adjusted (but without regard to fractions)
by the Board of Directors of the Company to reflect such change.
-4-
<PAGE>
7. CERTAIN NOTICE REQUIREMENTS.
7.1 HOLDER'S RIGHT TO RECEIVE NOTICE. Nothing herein shall be
construed as conferring upon the Holder the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company prior
to the exercise hereof (including the right to receive dividends).
7.2 TRANSMITTAL OF NOTICES. All notices, requests, consents
and other communications under this Warrant shall be in writing and shall be
deemed to have been duly given or made when hand delivered, or when delivered by
responsible overnight courier:
(i) If to the registered Holder of this Warrant,
to:
[Insert address of Holder]
(ii) if to the Company, to:
Glasgal Communications, Inc.
23 Madison Road
Fairfield, New Jersey 07004
Attn: James Caci, Chief Financial Officer
Either of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.2.
8. MISCELLANEOUS.
8.1 PURCHASE FOR INVESTMENT. By his acceptance of this
Warrant, the Holder represents and warrants that the Holder has acquired this
Warrant for the Holder's own account for investment and not with the view to the
distribution thereof, except in accordance with applicable federal and state
securities laws. The Holder represents that he is an "accredited investor" as
such term is defined under Rule 501 of Regulation D promulgated under the Act.
The Holder confirms that he has been advised that the Warrants and the Shares of
Common Stock issuable upon exercise of this Warrant have not been, registered
under the Act and that he has consulted with and been advised by counsel as to
the restrictions on resale to which this Warrant and such Shares will be
subject.
8.2 AMENDMENTS. All modifications or amendments to this
Warrant shall require the written consent of each party.
8.3 HEADINGS. The headings contained herein are for the
sole purpose of convenience of reference, and shall not in any way
-5-
<PAGE>
limit or affect the meaning or interpretation of any of the terms or provisions
of this Warrant.
8.4 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersede all prior agreements and understandings of the parties, oral and
written, with respect to the subject matter hereof.
8.5 BINDING EFFECT. This Warrant shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
permitted assignees, respective successors, legal representatives and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Warrant or
any provisions herein contained.
8.6 GOVERNING LAW. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws.
8.7 WAIVER, ETC. The failure of the Company or the Holder to
at any time enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Warrant or any provision hereof or the right of the Company or
any Holder to thereafter enforce each and every provision of this Warrant. No
waiver of any breach, noncompliance or nonfulfillment of any of the provisions
of this Warrant shall be effective unless set forth in a written instrument
executed by the party or parties against whom or which enforcement of such
waiver is sought; and no waiver of any such breach, noncompliance or
nonfulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, noncompliance or nonfulfillment.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer as of the 18th day of February, 1997.
GLASGAL COMMUNICATIONS, INC.
By:
---------------------------------------
Name:
Title:
AGREED AND ACCEPTED:
[Insert Name of Holder]
By:
----------------------------
Name:
Title:
-7-
<PAGE>
Form to be used to exercise Warrant:
GLASGAL COMMUNICATIONS, INC.
23 Madison Road
Fairfield, New Jersey 07004
Date: ________________, 19__
The Undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase __________ shares of Common Stock of Glasgal
Communications, Inc. and hereby makes payment of $_____________ (at the rate of
$5.25 per share) in payment of the Exercise Price pursuant thereto. Please issue
the shares as to which this Warrant is exercised in accordance with the
instructions given below.
--------------------------------
Signature
--------------------------------
Signature Guaranteed
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
---------------------------------------------------------------------------
(Print in Block Letters)
Address
---------------------------------------------------------------------------
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
-8-
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into this 10th day of July, 1997, by and between Glasgal Communications,
Inc., a Delaware corporation (the "Company") and Direct Connect International
Inc., a Delaware corporation having its principal place of business located at
266 Harristown Road, Suite 108, Glen Rock, New Jersey 07452 (the "Purchaser").
In consideration of the premises and of the mutual
representations, warranties and covenants hereinafter set forth, the Company and
the Purchaser hereby agree as follows:
ARTICLE I
THE PURCHASE AND SALE
1.1 THE PURCHASE AND SALE. Subject to the terms and conditions
set forth herein, at the Closing described below, the Company will sell and the
Purchaser will purchase an aggregate of 130,000 shares (the "Shares") of the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") for
an aggregate purchase price of $500,000 (the "Purchase Price"). The Purchase
Price shall be paid as provided in Section 1.3.
1.2 EFFECT ON PRIOR AGREEMENTS. Glasgal Communications, Inc.,
a New Jersey corporation, Ralph Glasgal and the Purchaser have entered into a
certain Common Stock Purchase Agreement dated as of January 7, 1994 (the "1994
Agreement"). Pursuant to the 1994 Agreement, the Company has a right to sell to
the Purchaser up to 1,337,239 shares of its Common Stock at approximately $6.54
per share upon the receipt by the Purchaser of Warrant Proceeds (as defined in
the 1994 Agreement), subject to certain conditions set forth therein. The
parties hereby acknowledge that the Purchase of the Shares pursuant to this
Agreement shall reduce the Company's right to sell shares of its Common Stock to
the Purchaser under Section 3.2(b) of the 1994 Agreement by 130,000 shares.
The Company and the Purchaser have also entered into a letter
agreement dated as of October 13, 1995 pursuant to which the Purchaser has
agreed to transfer to the Company, at a price of $3.00 per share, 200,000 shares
of the Company's Common Stock in the event that the Company does not receive
$8.25 million from the Purchaser pursuant to the terms of the 1994 Agreement
prior to October 10, 1997. Following the Closing of this Agreement, the letter
agreement by and between the Company and the Purchaser dated as of October 13,
1995 shall immediately terminate with no further action of the parties.
1.3 THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the principal offices of the Company
at 20 C Commerce Way, Totowa, New
<PAGE>
Jersey 07512 on July 14, 1997 at 10:00 A.M. or at such other place or time as
the parties may agree (the "Closing Date"). At the Closing, the Purchase Price
shall be payable by delivery of immediately available funds by wire transfer to
an account of the Company that shall be specified in writing by the Company
prior to the Closing. Within five business days following the Closing, the
Company shall deliver to the Purchaser a certificate representing the Shares.
1.4 TERMINATION OF THIS AGREEMENT. Anything contained in this
Agreement to the contrary notwithstanding, in the event that the Purchaser fails
to deliver immediately available funds representing the Purchase Price by the
close of business on the Closing Date, this Agreement shall terminate and be of
no force and effect without the requirement of any notice from, or any action
by, the Company.
ARTICLE II
Representations and Warranties
Concerning the Company
----------------------
The Company hereby represents and warrants to the Purchaser as
follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized and existing under the laws of the State of Delaware and is in
good standing under such laws.
2.2 CORPORATE POWER. The Company has all requisite corporate
power and authority to enter into this Agreement and the Company will have at
the Closing Date all requisite corporate power to sell the Shares and to carry
out and perform its obligations under the terms of this Agreement.
2.3 CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 34,000,000 shares of Common Stock and (ii) 4,000,000
shares of preferred stock, par value $.001 per share. There are approximately
23,708,690 shares of the Company's Common Stock and no shares of Preferred Stock
currently issued and outstanding.
2.4 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to the Purchaser true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it under the Securities Act of 1933, as amended (the "Securities Act") and
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") (as
such documents have been amended or supplemented since the time of their filing,
collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
have been prepared in conformity with
-2-
<PAGE>
Generally Accepted Accounting Principles consistently applied and as of the
dates indicated, and for the periods then ended, present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated.
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described in
the SEC Reports, the Company has no material debts, liabilities or obligations
of any kind, whether accrued, absolute, contingent or other, whether due or to
become due, except as incurred in the ordinary course of business, that would
have a material adverse effect on the Company.
2.6 FULLY PAID SHARES. The Shares, when acquired by the
Purchaser will be fully paid and non-assessable, free of preemptive rights and
encumbrances, and will have the same rights under the Company's certificate of
incorporation and by-laws as all other shares of Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company as
follows:
3.1 INVESTMENT INTENT, ETC. The Purchaser has received,
examined and reviewed copies of the Company's most recent reports, as amended,
filed under the Exchange Act and other publicly available documents requested by
it and recognizes that the investment in the Shares involves a high degree of
risk. The Purchaser has been advised that it may not be possible to readily
liquidate this investment. The Purchaser's overall commitment to the Shares,
which are not readily marketable, is not disproportionate to its net worth, its
investment in the Company will not cause such overall commitment to become
excessive, and it can afford to bear the loss of its entire investment in the
Company. The Purchaser has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Common Stock of the Company. The Purchaser confirms that the
Company has made available to its representatives the opportunity to ask
questions of, and receive answers from, the Company concerning the Company and
the activities of the Company and otherwise to obtain any additional
information, to the extent that the Company possesses such information or could
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information conveyed to him. The Purchaser hereby acknowledges
that it has been advised that this offering of Shares has not been registered
with, or reviewed by, the Securities and Exchange Commission because this
offering is intended to be a non-public offering pursuant to Section 4(2) of the
Securities Act. The Purchaser
-3-
<PAGE>
represents that the Shares are being purchased for its own account, for
investment purposes only and not with a view towards distribution or resale to
others. The Purchaser agrees that it will not attempt to sell, transfer, assign,
pledge or otherwise dispose the Shares unless they are registered under the
Securities Act or unless in the opinion of counsel satisfactory to the Company
an exemption from such registration is available. The Purchaser understands that
no securities administrator of any state has made any finding or determination
relating to the fairness of this investment and that no securities administrator
of any state has recommended or endorsed, or will recommend or endorse, the
offering of the Shares. The execution, delivery and performance by the Purchaser
of this Agreement will not constitute or result in a breach or default under, or
conflict with, any order, ruling or regulation of any court or other tribunal or
of any governmental commission or agency, or any agreement or other undertaking,
to which the Purchaser is a party or by which it is bound. The Purchaser has
relied solely upon the advice of its own tax and legal advisors with respect to
the tax and other legal aspects of this investment. The Purchaser is purchasing
the Shares for its account, and not in any agency, fiduciary or similar
capacity. The source of the funds evidencing the Purchase Price are from legally
available funds of the Purchaser.
3.2 LEGENDS. The Purchaser understands that the
certificates evidencing the Shares will bear a legend substantially
as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO AND THEY
SHALL HAVE BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
APPROPRIATE STATE SECURITIES LAWS OR (II) IN THE OPINION OF
COUNSEL TO THE CORPORATION, REGISTRATION AND QUALIFICATION
UNDER THE ACT AND THE SECURITIES LAWS OF THE APPROPRIATE STATE
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
The legend referred to above shall be removed by the Company
from any certificate at such time as the holder of the shares represented by the
certificate delivers an opinion of counsel reasonably satisfactory to the
Company to the effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act, or at such time as the
holder of such shares satisfies the requirements of Rule 144(k) under the
Securities Act, as then in effect with respect to such shares.
3.3 RISK FACTORS. The Purchaser has conducted its own due
diligence with respect to all aspects of this transaction and is familiar with
the risk factors inherent in the purchase of the
-4-
<PAGE>
Shares, and has been fully apprised that all or a portion of the proceeds from
this investment will be used for working capital purposes which may include the
repayment of indebtedness.
ARTICLE IV
REGISTRATION OF SHARES
4.1 "PIGGYBACK REGISTRATION". (a) If the Company at any time
or from time to time during the three (3) year period commencing on the Closing
Date proposes to register any Common Stock under the Securities Act (other than
pursuant to a registration statement (including pre-effective amendments
thereto) (i) on Form S-8 or any successor form to such form, (ii) on Form S-4 or
any successor form to such form, (iii) filed in connection with an exchange
offer or an offering of Common Stock or of securities convertible or
exchangeable into Common Stock made solely to its existing shareholders in
connection with a rights offering or solely to employees of the Buyer, or a
post-effective amendment to any then effective registration statement), it will
give written notice to the Purchaser of its intention at least ten (10) days in
advance of the filing of any Registration Statement with respect thereto. Upon
the written request of the Purchaser given within five (5) days after receipt of
such notice, the Company, subject to Section 4.1(b) below, will cause the Shares
and/or the resale of the Shares requested by the Purchaser to be registered, to
be so registered.
(b) (i) In the case of an underwritten offering by the Company
of Common Stock, the Company shall, with respect to Shares that the Purchaser
then desires to sell, enter into an underwriting agreement with the same
underwriters engaged by the Company with respect to securities being offered by
the Company and cause such underwriters to include in any such underwriting all
of the Common Shares that the Purchaser then desires to sell; PROVIDED, HOWEVER,
that such underwriting agreement is in substantially the same form as the
underwriting agreement that the Buyer enters into in connection with the primary
offering it is making.
(ii) If the managing underwriter with respect to an
offering pursuant to this Section 4.1 requests in writing that the number of
Shares of the Purchaser that are entitled to be registered pursuant to this
Section 4.1 be reduced because in the judgment of the managing underwriter the
offering would be materially and adversely affected, then the Shares that the
Purchaser wishes to register pursuant to this Section 4.1 shall be reduced by
such amount as the managing underwriter may determine in writing so as to not
materially and adversely affect the proposed offering, which reduced number of
Shares shall be included in such offering.
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Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 4.1 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
4.2 REGISTRATION PROCEDURES. Each Registration Statement filed
pursuant to this Article IV shall be pursuant to the procedures set forth below:
(a) The Company shall notify the Purchaser promptly after it
shall receive notice thereof, of the date and time when such Registration
Statement and each post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such Registration Statement has
been filed;
(b) The Company shall furnish to the Purchaser such reasonable
number of copies of the Registration Statement and prospectus and such other
documents as Purchaser may reasonably request in order to facilitate the public
offering of the Shares;
(c) The Company shall use its best efforts to register or
qualify the Shares covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, 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 or to subject
itself to taxation in connection with any such registration or qualification of
such securities;
(d) The Company shall notify the Purchaser participating in
such registration promptly of any request by the SEC for the amending or
supplementing of such Registration Statement or prospectus or for additional
information. The Purchaser agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in this subsection
(d), the Purchaser will forthwith discontinue the offer and sale of Shares
pursuant to the Registration Statement covering such Shares until receipt by the
Purchaser and underwriters of the copies of such supplemented or amended
prospectus and, if so directed by the Company, the Purchaser will deliver to the
Company all copies, other than permanent file copies then in the Purchaser'
possession, of the most recent prospectus covering such Shares at the time of
receipt of such notice; and
(e) The Company shall advise the Purchaser participating in
such registration, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such Registration Statement or
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the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
4.3 EXPENSES OF REGISTRATION. All expenses of the Company
incident to the Company's performance of or compliance with the provisions of
this Article IV shall be borne by the Company including without limitation:
(a) All registration and filing fees;
(b) Fees and expenses of compliance with all securities or
blue sky laws (including fees and disbursements of counsel for the Company in
connection with blue sky qualifications of the Shares; PROVIDED, HOWEVER, that
the Company shall not be required to consent to general service of process in
any such state); and
(c) Fees and disbursements of the Company and its independent
auditors.
Nothing in this Section 4.3 shall be deemed to require the
Company to pay or bear any expenses of the Purchaser's attorneys or accountants
or any other personal expenses or any underwriting discounts relating to the
Shares, selling commissions or similar fees attributable pro rata to the Shares
if such registration results in an Underwritten Offering of all or any portion
of the Shares.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of Purchaser and the Company.
5.2 WAIVER. Any breach of any obligation, covenant, agreement
or condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No waiver shall be
implied from any conduct or action of the non-breaching party. No failure or
delay by any party in exercising any right, power or privilege hereunder or
under the Documents and no course of dealing by any party shall operate as a
waiver and any right, power or privilege hereunder or under any Document nor
shall any single or partial exercise thereof or the exercise of any other right,
power or privilege.
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5.3 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand:
(a) if to the Company, to:
Glasgal Communications, Inc.
20 C Commerce Way
Totowa, New Jersey 07512
Attn: Isaac J. Gaon
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Robert Friedman, Esq.
(b) if to Purchaser, to:
Direct Connect International, Inc.
266 Harristown Road, Suite 108
Glen Rock, New Jersey 07452
Attention: Joseph Salvani
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 5.3.
5.4 BINDING NATURE AGREEMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without prior written consent of the other parties.
5.5 ACKNOWLEDGEMENT BY THE PURCHASER. The Purchaser has been
informed that the Company's Common Stock is publicly-traded on the Nasdaq
Small-Cap Market and that the Purchase Price for the Shares may bear no relation
to the future market value or book value of the Common Stock. The Purchaser
further acknowledges that it has reviewed such information as it deems
appropriate to evaluate whether to enter into this Agreement. The Purchaser
further acknowledges that he is not relying on any oral information or
representations from the Company or any other person, including representatives
of the Company in connection with its decision to enter into this Agreement,
including the Company's financial condition, prospects, present or future
results of operations, business plans or the potential for future appreciation
in the Company's Common Stock.
5.6 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and
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construed in accordance with the laws of the State of New Jersey applicable to
contracts made and performed therein.
5.7 EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
5.8 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
5.9 FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; PROVIDED HOWEVER, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of its signature by fax, a true and
correct original copy of its signature in overnight mail to the address of the
other party.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /S/ ISAAC J. GAON
--------------------------------------
Name: Isaac J. Gaon
Title: Chief Executive Officer
DIRECT CONNECT INTERNATIONAL INC.
By: /S/ JOSEPH SALVANI
-----------------------------------------
Name: Joseph M. Salvani
Title: Chairman of the Board
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THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into this 25th day of July, 1997, by and between Glasgal Communications,
Inc., a Delaware corporation (the "Company"), and each of the purchasers named
on the execution pages hereof (the "Purchasers").
WHEREAS, the Seller desires to sell to each Purchaser, and
each such Purchaser desires, severally, but not jointly, to purchase, all upon
the terms and subject to the conditions set forth in this Agreement, the number
of shares of the common stock, par value $.001 per share (the "Shares"), of the
Company set forth below such Purchaser's name on the execution pages hereof.
In consideration of the premises and of the mutual
representations, warranties and covenants hereinafter set forth, the Company and
each Purchaser hereby agree as follows:
ARTICLE I
THE PURCHASE AND SALE
1.1 THE PURCHASE AND SALE. (a) Subject to the terms and
conditions set forth herein, at the Closing described below, the Seller will
sell, and each Purchaser will purchase, the number of Shares set forth on each
such Purchaser's execution page.
(b) The purchase price for the Shares is $3.875 per share, or
an aggregate amount as set forth below each Purchaser's name on the execution
pages hereof. The Purchase Price shall be paid as provided in Section 1.2.
1.2 THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the principal offices of the Company
at 20 C Commerce Way, Totowa, New Jersey 07512 on July 25, 1997 at 10:00 A.M. or
at such other place or time as the parties may agree (the "Closing Date"). At
the Closing, the Purchase Price shall be payable by delivery of immediately
available funds by wire transfer to an account of the Company that shall be
specified in writing by the Company prior to the Closing. Within five calendar
days following the Closing, the Company shall deliver to each Purchaser a
certificate representing the Shares.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
The Company hereby represents and warrants to the Purchasers
as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized and existing under the laws of the State of Delaware and is in
good standing under such laws.
2.2 CORPORATE POWER. The Company has all requisite corporate
power and authority to enter into this Agreement and the Company will have at
the Closing Date all requisite corporate power to sell the Shares and to carry
out and perform its obligations under the terms of this Agreement.
2.3 CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company consists of (i) 34,000,000 shares of Common Stock
and (ii) 4,000,000 shares of preferred stock, par value $.001 per share. There
are approximately 23,708,690 shares of the Company's Common Stock and no shares
of Preferred Stock currently issued and outstanding.
2.4 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to each Purchaser true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it under the Securities Act of 1933, as amended (the "Securities Act") and
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") (as
such documents have been amended or supplemented since the time of their filing,
collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
have been prepared in conformity with Generally Accepted Accounting Principles
consistently applied and as of the dates indicated, and for the periods then
ended, present fairly the financial position and results of operations of the
Company as of the dates and for the periods indicated.
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described in
the SEC Reports, the Company has no material debts, liabilities or obligations
of any kind, whether accrued, absolute, contingent or other, whether due or to
become due, except as incurred in the ordinary course of business, that would
have a material adverse effect on the Company.
2.6 FULLY PAID SHARES. The Shares, when acquired by the
Purchasers will be fully paid and non-assessable, free of preemptive rights and
encumbrances, and will have the same rights
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under the Company's certificate of incorporation and by-laws as all other shares
of Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each Purchaser, as to himself or herself only, represents and
warrants to the Company as follows:
3.1 INVESTMENT INTENT, ETC. Each Purchaser is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act. Each Purchaser or his investment advisor has received,
examined and reviewed copies of the Company's most recent reports, as amended,
filed under the Exchange Act and other publicly available documents and
recognizes that the investment in the Shares involves a high degree of risk.
Each Purchaser has been advised that it may not be possible to readily liquidate
this investment. Each Purchaser's overall commitment to the Shares, which are
not readily marketable, is not disproportionate to his net worth, his investment
in the Company will not cause such overall commitment to become excessive, and
he can afford to bear the loss of his entire investment in the Company. Each
Purchaser has such knowledge and experience in financial and business matters
that such Purchaser is capable of evaluating the merits and risks of an
investment in the Common Stock of the Company. Each Purchaser confirms that the
Company has made available to such Purchaser the opportunity to ask questions
of, and receive answers from, the Company concerning the Company and the
activities of the Company and otherwise to obtain any additional information, to
the extent that the Company possesses such information or could acquire it
without unreasonable effort or expense, necessary to verify the accuracy of the
information conveyed to him. Each Purchaser hereby acknowledges that such
Purchaser has been advised that this offering of Shares has not been registered
with, or reviewed by, the Securities and Exchange Commission because this
offering is intended to be a non-public offering pursuant to Section 4(2) of the
Securities Act. Each Purchaser represents that the Shares are being purchased
for such Purchaser's own account, for investment purposes only and not with a
view towards distribution or resale to others. Each Purchaser agrees that he
will not attempt to sell, transfer, assign, pledge or otherwise dispose the
Shares unless they are registered under the Securities Act or unless in the
opinion of counsel satisfactory to the Company an exemption from such
registration is available. Each Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Shares. Each Purchaser has relied solely upon the advice of its own tax and
legal advisors with
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respect to the tax and other legal aspects of this investment. Each Purchaser is
purchasing the Shares for such Purchaser's own account, and not in any agency,
fiduciary or similar capacity.
3.2 APPROVALS AND CONSENTS. The execution, delivery and
performance by each Purchaser of this Agreement will not constitute or result in
a breach or default under, or conflict with, any order, ruling or regulation of
any court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which such Purchaser is a party or by which
he is bound. No action, approval, consent or authorization, including, but not
limited to, any action, approval, consent or authorization by any governmental
or quasi-governmental agency, commission, board, bureau, or instrumentality is
necessary or required as to each Purchaser in order to constitute this Agreement
as a valid, binding and enforceable obligation of such Purchaser in accordance
with its terms. The source of the funds evidencing the Purchase Price are from
legally available funds of each Purchaser.
3.3 LEGENDS. Each Purchaser understands that the certificates
evidencing the Shares will bear a legend substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO AND THEY
SHALL HAVE BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
APPROPRIATE STATE SECURITIES LAWS OR (II) IN THE OPINION OF
COUNSEL TO THE CORPORATION, REGISTRATION AND QUALIFICATION
UNDER THE ACT AND THE SECURITIES LAWS OF THE APPROPRIATE STATE
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
The legend referred to above shall be removed by the Company
from any certificate at such time as the holder of the shares represented by the
certificate delivers an opinion of counsel reasonably satisfactory to the
Company to the effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act, or at such time as the
holder of such shares satisfies the requirements of Rule 144(k) under the
Securities Act, as then in effect with respect to such shares.
3.4 RISK FACTORS. Each Purchaser has conducted his own due
diligence with respect to all aspects of this transaction and is familiar with
the risk factors inherent in the purchase of the Shares, which include the
following:
WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES. The Company
has a history of limited working capital and has had working capital
deficiencies of $2,679,000, $10,223,000 and $4,103,000 for
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the fiscal years ended April 30, 1995 and 1996, and the nine months ended
January 31, 1997, respectively. In addition, the Company has incurred net losses
of $2,392,000, $13,418,000 and $844,417 for the fiscal years ended April 30,
1995 and 1996, and the nine months ended January 31, 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 currently existing borrowing agreements.
POSSIBLE NEED FOR ADDITIONAL FINANCING. As of January 31, 1997, the
Company had cash and cash equivalents of $556,000. The Company may be required
to seek additional financing to finance its working capital requirements. There
can be no assurance that any additional financing, if required, will be
available to the Company on acceptable terms, if at all. The Company currently
has limited availability under its line of credit. Any inability by the Company
to obtain additional financing, if required, will have a material adverse effect
on the operations of the Company.
SUBSTANTIAL INDEBTEDNESS. As of January 31, 1997, the Company had
outstanding on a consolidated basis approximately $12,133,000 million of
indebtedness. The level of the Company's indebtedness could have important
consequences to its future prospects, including the following: (i) limiting the
ability of the Company to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes; (ii) requiring that a substantial portion of the Company's cash flow
from operations, if any, be dedicated to the payment of principal of and
interest on its indebtedness and other obligations; (iii) limiting its
flexibility in planning for, or reacting to changes in, its business; (iv) the
Company will be more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) increasing its vulnerability in
the event of a downturn in its business.
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, Robert Gadd, Vice
President, or Christopher Carey, President and Chief Executive Officer of
Datatec, of which the Company owns approximately 98.5% of the issued and
outstanding shares, could have a material adverse effect on the operations of
the Company. The Company has employment agreements with Messrs. Gaon, Gadd and
Carey which each expire on
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October 31, 1999. Each of these employment agreements may be terminated by the
Company for cause or by the employee for good reason. 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
expertise necessary to operate the business of the Company. There can be no
assurance that the Company will be able to attract, motivate and retain such
persons.
COMPETITION. The Company competes with other companies involved in the
design, installation, integration, deployment and servicing of local and wide
area networks, the provision of software tools to systems integrations and the
distribution of data communications equipment. These competitors include local
and national systems integrators, computer manufacturers, software vendors,
telephone companies and distribution companies. These markets are highly
competitive, and some companies with which the Company competes are
substantially larger and have significantly greater resources than the Company.
There can be no assurance that the Company will be able to compete successfully
in the future.
CONTROL BY PRINCIPAL STOCKHOLDERS. Ralph Glasgal, the Chairman of the
Board and President of the Company, through his beneficial ownership and through
a voting agreement with Direct Connect International Inc. ("DCI") has the power
to vote approximately 24% of the Common Stock. DCI has pledged approximately
300,000 of the shares of Common Stock it owns in the Company as collateral for
various obligations. If the pledgees were to become the owner of such shares,
Mr. Glasgal would no longer have the power to vote such shares. In addition, Mr.
Carey, President and Chief Executive Officer of Datatec has the power to vote
approximately 17% of the Common Stock.
EXTENDED LEAD TIMES FOR REALIZATION OF REVENUE. Due to the nature and
size of orders 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. Consequently, significantly more resources are required to
manage this process. As such, there is likely to be substantial fluctuations in
sales volume on a month-to-month and quarter-to-quarter basis. The pursuit of
this type of business increases 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, there will be a
material adverse effect on the Company.
VOLATILITY OF THE COMPANY'S COMMON STOCK PRICES. The market price of
the Company's Common Stock has experienced significant volatility, with per
share closing bid prices ranging from a low of $4.50 to a high of $10.75 over
the nine month period from May 1, 1996 to January 31, 1997. Announcements of
technological innovations for new commercial products of the Company or its
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competitors, developments concerning propriety rights or governmental regulation
or general conditions in the market for the Company's services 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.
SHARES ELIGIBLE FOR FUTURE SALE. The sale, or availability for sale, of
substantial amounts of Common Stock in the public market pursuant to Rule 144 or
otherwise could adversely affect the market price of the Common Stock and could
impair the Company's ability to raise additional capital through the sale of its
equity securities.
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 an "S"
corporation. The Company currently intends to retain earnings, if any, for use
in the business and does not anticipate paying any dividends to its stockholders
in the foreseeable future.
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 $.001 per share. 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 future issuance of
preferred stock by the Company could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. Other than the
Preferred Stock described herein, the Company does not have any present plans to
issue any additional shares of preferred stock.
ACQUISITIONS. It is currently anticipated that a portion of the
Company's future growth will result from acquisitions of other similar or
complementary businesses. In October 1994, the Company consummated the
acquisition of Signatel, Ltd. ("Signatel"). On April 24, 1996, the Company
acquired 80% of the issued and outstanding capital stock of Computer-Aided
Software Integration, Inc. ("CASI"), a provider of software tools and services
to systems
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integrators and independent software vendors. On July 31, 1996, the Company
acquired 100% of the issued and outstanding capital stock of HH Communications,
Inc. ("HH"), which resells computer networking equipment and provides
value-added services in connection with such equipment. On October 31, 1996, the
Company acquired approximately 98.5% of the issued and outstanding capital stock
of Datatec, a network integrator. The Company has no other current plan or
agreement to acquire any other business. There can be no assurance that any
other transaction will be consummated or that they will result in increased
levels of profit for the Company. In addition, there can be no assurance that
the Company will be able to integrate or manage successfully other acquired
businesses.
3.5 ENTIRE AGREEMENT. No representations or warranties have
been made to each Purchaser by the Seller, and in subscribing for the Shares
such Purchaser is not relying upon any representations other than those
contained herein.
3.6 PURCHASER INFORMATION. Any information that each Purchaser
has heretofore furnished or is simultaneously herewith furnishing to the Seller
with respect to such Purchaser's financial position and business experience is
correct and complete as of the date of this Agreement and, if there should be
any material change in such information, each Purchaser will immediately furnish
revised or corrected information to the Company.
3.7 FINDERS. Each Purchaser represents and warrants that such
Purchaser has not retained any finder, broker, agent, financial advisor or other
intermediary in connection with the transactions contemplated by this Agreement
and agrees to indemnify and hold harmless the Company, its officers, directors,
affiliates, subsidiaries, employees and agents from liability for any
compensation to any such intermediary retained by such Purchaser and the fees
and expenses of defending against such liability or alleged liability.
ARTICLE IV
REGISTRATION OF SHARES
4.1 "PIGGYBACK REGISTRATION". (a) If the Company at any time
or from time to time during the three (3) year period commencing on the Closing
Date proposes to register any Common Stock under the Securities Act (other than
pursuant to a registration statement (including pre-effective amendments
thereto) (i) on Form S-8 or any successor form to such form, (ii) on Form S-4 or
any successor form to such form, (iii) filed in connection with an exchange
offer or an offering of Common Stock or of securities convertible or
exchangeable into Common Stock made solely to its existing shareholders in
connection with a rights offering or solely to employees of the Buyer, or a
post-effective
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amendment to any then effective registration statement), it will give written
notice to each Purchaser of its intention at least ten (10) days in advance of
the filing of any Registration Statement with respect thereto. Upon the written
request of any Purchaser given within five (5) days after receipt of such
notice, the Company, subject to Section 4.1(b) below, will cause the Shares
and/or the resale of the Shares requested by such Purchaser to be registered, to
be so registered.
(b) (i) In the case of an underwritten offering by the Company
of Common Stock, the Company shall, with respect to Shares that each Purchaser
then desires to sell, enter into an underwriting agreement with the same
underwriters engaged by the Company with respect to securities being offered by
the Company and cause such underwriters to include in any such underwriting all
of the Common Shares that each Purchaser then desires to sell; PROVIDED,
HOWEVER, that such underwriting agreement is in substantially the same form as
the underwriting agreement that the Buyer enters into in connection with the
primary offering it is making.
(ii) If the managing underwriter with respect to an
offering pursuant to this Section 4.1 requests in writing that the number of
Shares of each Purchaser that are entitled to be registered pursuant to this
Section 4.1 be reduced because in the judgment of the managing underwriter the
offering would be materially and adversely affected, then the Shares that such
Purchaser wishes to register pursuant to this Section 4.1 shall be reduced by
such amount as the managing underwriter may determine in writing so as to not
materially and adversely affect the proposed offering, which reduced number of
Shares shall be included in such offering.
Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 4.1 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
4.2 "S-3 REGISTRATION". In the event that a Registration
Statement relating to the resale of the Shares by the Purchasers has not been
filed on or before August 1, 1997, the Company shall use its best efforts to
file a Registration Statement on Form S-3 covering the resale of the Shares of
Common Stock by each of the Purchasers within 30 days following such date. The
Company shall use its best efforts to cause any such Registration Statement to
remain current and effective to permit the sale of the Shares until the earlier
of (a) the date that all of the Shares have been sold pursuant to the
Registration Statement, (b) the date the holders of the Shares receive an
opinion of counsel
-9-
<PAGE>
satisfactory to each Purchaser that the Shares may be sold under the provisions
of Rule 144(k) promulgated under the Securities Act, or (c) the two year
anniversary of the effective date of the Registration Statement.
4.3 REGISTRATION PROCEDURES. Each Registration Statement filed
pursuant to this Article IV shall be pursuant to the procedures set forth below:
(a) The Company shall notify each Purchaser promptly after it
shall receive notice thereof, of the date and time when such Registration
Statement and each post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such Registration Statement has
been filed;
(b) The Company shall furnish to each Purchaser such
reasonable number of copies of the Registration Statement and prospectus and
such other documents as Purchaser may reasonably request in order to facilitate
the public offering of the Shares;
(c) The Company shall use its best efforts to register or
qualify the Shares covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as each Purchaser may
reasonably request, 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 or to subject
itself to taxation in connection with any such registration or qualification of
such securities;
(d) The Company shall notify each Purchaser participating in
such registration promptly of any request by the SEC for the amending or
supplementing of such Registration Statement or prospectus or for additional
information. Each Purchaser agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in this subsection
(d), such Purchaser will forthwith discontinue the offer and sale of Shares
pursuant to the Registration Statement covering such Shares until receipt by the
Purchaser and underwriters of the copies of such supplemented or amended
prospectus and, if so directed by the Company, the Purchaser will deliver to the
Company all copies, other than permanent file copies then in such Purchaser's
possession, of the most recent prospectus covering such Shares at the time of
receipt of such notice; and
(e) The Company shall advise each Purchaser participating in
such registration, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
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<PAGE>
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
4.4 EXPENSES OF REGISTRATION. All expenses of the Company
incident to the Company's performance of or compliance with the provisions of
this Article IV shall be borne by the Company including without limitation:
(a) All registration and filing fees;
(b) Fees and expenses of compliance with all securities or
blue sky laws (including fees and disbursements of counsel for the Company in
connection with blue sky qualifications of the Shares; PROVIDED, HOWEVER, that
the Company shall not be required to consent to general service of process in
any such state); and
(c) Fees and disbursements of the Company and its independent
auditors.
Nothing in this Section 4.3 shall be deemed to require the
Company to pay or bear any expenses of the Purchasers' attorneys or accountants
or any other personal expenses or any underwriting discounts relating to the
Common Shares, selling commissions or similar fees attributable pro rata to the
Common Shares if such registration results in an Underwritten Offering of all or
any portion of the Common Shares.
4.5 LOCK-UP. Each of the Purchasers hereby agree that for a
period of 90 days from the Closing Date, they will not offer, sell, transfer or
otherwise dispose of any of the Shares which are owned (beneficially or of
record) by them, irrespective of whether there is an effective Registration
Statement covering the resale of the Shares, without the prior written consent
of the Company.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of Purchaser and the Company.
5.2 WAIVER. Any breach of any obligation, covenant, agreement
or condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No waiver shall be
implied from any conduct or action of the non-breaching party. No failure or
delay by any party in exercising any right, power or privilege hereunder or
under the Documents and no course of dealing by any party shall operate as a
waiver and any right, power or
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<PAGE>
privilege hereunder or under any Document nor shall any single or partial
exercise thereof or the exercise of any other right, power or privilege.
5.3 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand:
(a) if to the Company, to:
Glasgal Communications, Inc.
20 C Commerce Way
Totowa, New Jersey 07512
Attn: Isaac J. Gaon
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Robert Friedman, Esq.
(b) if to the Purchasers, at each such address
set forth on the execution pages hereof.
and, in each case, to such other address as any party shall have given to the
other parties by notice in writing to the other in compliance with this Section
5.3.
5.4 BINDING NATURE AGREEMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without prior written consent of the other parties.
5.5 ACKNOWLEDGEMENT BY THE PURCHASERS. Each Purchaser has been
informed that the Company's Common Stock is publicly-traded on the Nasdaq
Small-Cap Market and that the Purchase Price for the Shares may bear no relation
to the future market value or book value of the Common Stock. Each Purchaser
further acknowledges that he has reviewed such information as he deems
appropriate to evaluate whether to enter into this Agreement. Each Purchaser
further acknowledges that he is not relying on any oral information or
representations from the Company or any other person, including representatives
of the Company in connection with his decision to enter into this Agreement,
including the Company's financial condition, prospects, present or future
results of
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<PAGE>
operations, business plans or the potential for future appreciation in the
Company's Common Stock.
5.6 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of New Jersey applicable to contracts made and performed
therein.
5.7 EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
5.8 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
5.9 FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; PROVIDED HOWEVER, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of its signature by fax, a true and
correct original copy of its signature in overnight mail to the address of the
other party.
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<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /s/ James Caci
-------------------------------------
Name: James Caci
Title: Vice President
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<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
/S/ J.M. SALVANI
------------------------------------------
Name: DIRECT CONNECT INTERNATIONAL, INC.
Address:
266 Harristown Road #108
Glen Rock, NJ 07452
Number of Shares Purchased:
350,000
Aggregate Purchase Price:
$1,356,250
-15-
<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
/S/ PETER SIMONE
------------------------------------------
Name:
Address:
105 Stillwell Avenue
Laurel Hollow, NY 11791
Number of Shares Purchased:
25,000
Aggregate Purchase Price:
$96,875
-15-
<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
/S/ ERIC CHAUVET
------------------------------------------
Name: ERIC CHAUVET
Address:
15, ch de L'Ermitage
CH-1222 VESENAZ-GENEVE
Number of Shares Purchased:
50,000
Aggregate Purchase Price:
$193,750
-15-
<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
/S/ KENNETH Q. YIP
------------------------------------------
Name: KENNETH Q. YIP
VICE PRESIDENT
Address:
39 E. 31st - Suite 400
New York, New York 10016
Number of Shares Purchased:
10,000
Aggregate Purchase Price:
$38,750
-15-
<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
/S/ GEOREGE KOO
------------------------------------------
Name: GEORGE KOO
Address:
82-15 16TH PLACE
HILLCREST, NY 11432
Number of Shares Purchased:
5,000
Aggregate Purchase Price:
$19,375
-15-
<PAGE>
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
PURCHASER:
ORACLE MANAGEMENT LIMITED
/S/ ROBERT K. DICKINSON
------------------------------------------
Name: ROBERT K. DICKINSON
Address:
Warner Building
85 Reid Street, Hamilton HM12
Bermuda
Number of Shares Purchased:
125,000
Aggregate Purchase Price:
$484,375
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<PAGE>
GLASGAL COMMUNICATIONS, INC.
20C Commerce Way
Totowa, New Jersey 07512
July 25, 1997
Direct Connect International, Inc.
266 Harristown Road, Suite 108
Glen Rock, New Jersey 07452
Attention: Joseph Salvani
Re: Glasgal Communications, Inc.,
(THE "Company")
Gentlemen:
Reference is hereby made to that certain Common Stock Purchase
Agreement dated as of January 7, 1994 by and among Glasgal Communications, Inc.,
a New Jersey corporation, Ralph Glasgal and Direct Connect International, Inc.
("DCI"), as amended by Section 1.2 of that certain Stock Purchase Agreement
dated July 10, 1997, by and between the Company and DCI (the "1994 Agreement").
Pursuant to the 1994 Agreement, the Company has a right to
sell to the Purchaser up to 1,207,239 shares (the "Put Shares") of its Common
Stock at approximately $6.54 per share upon the receipt by the Purchaser of
Warrant Proceeds (as defined in the 1994 Agreement), subject to certain other
conditions set forth therein. In consideration for the agreement of DCI to
purchase additional shares of the Company's Common Stock pursuant to a Stock
Purchase Agreement to be entered into simultaneously herewith (the "Current
Agreement"), the parties hereby amend Section 3.2(b) of the 1994 Agreement to
increase DCI's conditional right to purchase shares of the Company's Common
Stock to 1,207,239 shares (the "Call Shares"), subject to certain other
conditions set forth therein.
In connection with the execution of the Current Agreement, DCI
hereby authorizes and directs the Company to release all reserved shares of
Common Stock issuable upon DCI's exercise of the Call Shares. DCI acknowledges
and agrees that the Company's obligation to issue the Call Shares shall be
immediately suspended until such time as the Company amends its charter to
increase its authorized Common Stock. The Company hereby covenants and agrees to
use its best efforts to cause its Stockholders to approve the amendment to
increase its authorized Common Stock at its next Annual Meeting of Stockholders.
<PAGE>
If the foregoing correctly sets forth our agreement, please so
indicate by signing below in the space provided.
Very truly,
GLASGAL COMMUNICATIONS, INC.
By:/s/ James M. Caci
----------------------------------
Name: James M. Caci
Title: Chief Financial Officer
AGREED TO AND ACCEPTED:
DIRECT CONNECT INTERNATIONAL, INC.
By: /s/ Joseph Salvani
--------------------------------
Name: JOSEPH SALVANI
Title: Chairman of the Board
-2-
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into this 30th day of June, 1997, by and between Glasgal Communications,
Inc., a Delaware corporation (the "Company") and Ralph Glasgal an individual
residing at 4A Pierpont Road, Rockleigh, N.J. 07647 (the "Purchaser").
In consideration of the premises and of the mutual
representations, warranties and covenants hereinafter set forth, the Company and
the Purchaser hereby agree as follows:
ARTICLE I
THE PURCHASE AND SALE
1.1 THE PURCHASE AND SALE. Subject to the terms and conditions
set forth herein, at the Closing described below, the Company will sell and the
Purchaser will purchase an aggregate of 160,000 shares (the "Shares") of the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") for
an aggregate purchase price of $620,000 (the "Purchase Price"). The Purchase
Price shall be paid as provided in Section 1.2.
1.2 THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the principal offices of the Company
at 20 C Commerce Way, Totowa, New Jersey 07512 on June 27, 1997 at 10:00 A.M. or
at such other place or time as the parties may agree (the "Closing Date"). At
the Closing, the Purchase Price shall be payable by delivery of immediately
available funds by wire transfer to an account of the Company that shall be
specified in writing by the Company prior to the Closing. Within ten calendar
days following the Closing, the Company shall deliver to the Purchaser a
certificate representing the Shares.
1.3 TERMINATION OF THIS AGREEMENT. Anything contained in this
Agreement to the contrary notwithstanding, in the event that the Purchaser fails
to deliver immediately available funds representing the Purchase Price by the
close of business on the Closing Date, this Agreement shall terminate and be of
no force and effect without the requirement of any notice from, or any action
by, the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
<PAGE>
2.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized and existing under the laws of the State of Delaware and is in
good standing under such laws.
2.2 CORPORATE POWER. The Company has all requisite corporate
power and authority to enter into this Agreement and the Company will have at
the Closing Date all requisite corporate power to sell the Shares and to carry
out and perform its obligations under the terms of this Agreement.
2.3 CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company consists of (i) 34,000,000 shares of Common Stock
and (ii) 4,000,000 shares of preferred stock, par value $.001 per share. There
are approximately 23,708,690 shares of the Company's Common Stock and [no]
shares of Preferred Stock currently issued and outstanding.
2.4 SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to the Purchaser true and complete copies of all
forms, reports, schedules, statements and other documents required to be filed
by it under the Securities Act of 1933, as amended (the "Securities Act") and
the Securities and Exchange Act of 1934, as amended (the "Exchange Act") (as
such documents have been amended or supplemented since the time of their filing,
collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
have been prepared in conformity with Generally Accepted Accounting Principles
consistently applied and as of the dates indicated, and for the periods then
ended, present fairly the financial position and results of operations of the
Company as of the dates and for the periods indicated.
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described in
the SEC Reports, the Company has no material debts, liabilities or obligations
of any kind, whether accrued, absolute, contingent or other, whether due or to
become due, except as incurred in the ordinary course of business, that would
have a material adverse effect on the Company.
2.6 FULLY PAID SHARES. The Shares, when acquired by the
Purchaser will be fully paid and non-assessable, free of preemptive rights and
encumbrances, and will have the same rights under the Company's certificate of
incorporation and by-laws as all other shares of Common Stock.
-2-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company as
follows:
3.1 INVESTMENT INTENT, ETC. The Purchaser is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act. The Purchaser has received, examined and reviewed copies of
the Company's most recent reports, as amended, filed under the Exchange Act and
other publicly available documents requested by him and recognizes that the
investment in the Shares involves a high degree of risk. The Purchaser has been
advised that it may not be possible to readily liquidate this investment. The
Purchaser's overall commitment to the Shares, which are not readily marketable,
is not disproportionate to his net worth, his investment in the Company will not
cause such overall commitment to become excessive, and he can afford to bear the
loss of his entire investment in the Company. The Purchaser has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Common Stock of the
Company. The Purchaser confirms that the Company has made available to him the
opportunity to ask questions of, and receive answers from, the Company
concerning the Company and the activities of the Company and otherwise to obtain
any additional information, to the extent that the Company possesses such
information or could acquire it without unreasonable effort or expense,
necessary to verify the accuracy of the information conveyed to him. The
Purchaser hereby acknowledges that he has been advised that this offering of
Shares has not been registered with, or reviewed by, the Securities and Exchange
Commission because this offering is intended to be a non-public offering
pursuant to Section 4(2) of the Securities Act. The Purchaser represents that
the Shares are being purchased for his own account, for investment purposes only
and not with a view towards distribution or resale to others. The Purchaser
agrees that he will not attempt to sell, transfer, assign, pledge or otherwise
dispose the Shares unless they are registered under the Securities Act or unless
in the opinion of counsel satisfactory to the Company an exemption from such
registration is available. The Purchaser understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Shares. The execution, delivery and performance by the Purchaser of this
Agreement will not constitute or result in a breach or default under, or
conflict with, any order, ruling or regulation of any court or other tribunal or
of any governmental commission or
-3-
<PAGE>
agency, or any agreement or other undertaking, to which the Purchaser is a party
or by which he is bound. The Purchaser has relied solely upon the advice of its
own tax and legal advisors with respect to the tax and other legal aspects of
this investment. The Purchaser is purchasing the Shares for his account, and not
in any agency, fiduciary or similar capacity. The source of the funds evidencing
the Purchase Price are from legally available funds of the Purchaser.
3.2 LEGENDS. The Purchaser understands that the certificates
evidencing the Shares will bear a legend substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE
ACT SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO AND THEY
SHALL HAVE BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE
APPROPRIATE STATE SECURITIES LAWS OR (II) IN THE OPINION OF
COUNSEL TO THE CORPORATION, REGISTRATION AND QUALIFICATION
UNDER THE ACT AND THE SECURITIES LAWS OF THE APPROPRIATE STATE
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
The legend referred to above shall be removed by the Company
from any certificate at such time as the holder of the shares represented by the
certificate delivers an opinion of counsel reasonably satisfactory to the
Company to the effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act, or at such time as the
holder of such shares satisfies the requirements of Rule 144(k) under the
Securities Act, as then in effect with respect to such shares.
3.3 RISK FACTORS. The Purchaser has conducted his own due
diligence with respect to all aspects of this transaction and is familiar with
the risk factors inherent in the purchase of the Shares, and has been fully
apprised that all or a portion of the proceeds from this investment will be used
to repay indebtedness owed to FINOVA Capital Corporation.
3.4 APPLICABILITY OF "SHORT SWING PROFIT RULE". The Purchaser
is aware of Section 16(b) of the Securities Exchange Act of 1934, as amended and
the rules promulgated thereunder which provides that any director, officer, or
owner of ten percent or more of any class of an issuer's securities who reaps a
"profit" on the "purchase" or "sale" of equity securities within a six-month
period, must return the profit to the issuer. Specifically, the Purchaser
recognizes that his investment in the Shares is a "purchase" under such statute
which will be matched with any "sale" occurring within six months prior to or
within six months after the Closing Date. The Purchaser hereby acknowledges that
he may be
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<PAGE>
required to return any "profits realized" from any such short term "purchase"
and "sale" to the Company.
ARTICLE IV
REGISTRATION OF SHARES
4.1 "PIGGYBACK REGISTRATION". (a) If the Company at any time
or from time to time during the three (3) year period commencing on the Closing
Date proposes to register any Common Stock under the Securities Act (other than
pursuant to a registration statement (including pre-effective amendments
thereto) (i) on Form S-8 or any successor form to such form, (ii) on Form S-4 or
any successor form to such form, (iii) filed in connection with an exchange
offer or an offering of Common Stock or of securities convertible or
exchangeable into Common Stock made solely to its existing shareholders in
connection with a rights offering or solely to employees of the Buyer, or a
post-effective amendment to any then effective registration statement), it will
give written notice to the Purchaser of its intention at least ten (10) days in
advance of the filing of any Registration Statement with respect thereto. Upon
the written request of the Purchaser given within five (5) days after receipt of
such notice, the Company, subject to Section 4.1(b) below, will cause the Shares
and/or the resale of the Shares requested by the Purchaser to be registered, to
be so registered.
(b) (i) In the case of an underwritten offering by the Company
of Common Stock, the Company shall, with respect to Shares that the Purchaser
then desires to sell, enter into an underwriting agreement with the same
underwriters engaged by the Company with respect to securities being offered by
the Company and cause such underwriters to include in any such underwriting all
of the Common Shares that the Purchaser then desires to sell; PROVIDED, HOWEVER,
that such underwriting agreement is in substantially the same form as the
underwriting agreement that the Buyer enters into in connection with the primary
offering it is making.
(ii) If the managing underwriter with respect to an
offering pursuant to this Section 4.1 requests in writing that the number of
Shares of the Purchaser that are entitled to be registered pursuant to this
Section 4.1 be reduced because in the judgment of the managing underwriter the
offering would be materially and adversely affected, then the Shares that the
Purchaser wishes to register pursuant to this Section 4.1 shall be reduced by
such amount as the managing underwriter may determine in writing so as to not
materially and adversely affect the proposed offering, which reduced number of
Shares shall be included in such offering.
Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after it shall have given
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<PAGE>
written notice pursuant to this Section 4.1 (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
4.2 REGISTRATION PROCEDURES. Each Registration Statement filed
pursuant to this Article IV shall be pursuant to the procedures set forth below:
(a) The Company shall notify the Purchaser promptly after it
shall receive notice thereof, of the date and time when such Registration
Statement and each post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such Registration Statement has
been filed;
(b) The Company shall furnish to the Purchaser such reasonable
number of copies of the Registration Statement and prospectus and such other
documents as Purchaser may reasonably request in order to facilitate the public
offering of the Shares;
(c) The Company shall use its best efforts to register or
qualify the Shares covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, 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 or to subject
itself to taxation in connection with any such registration or qualification of
such securities;
(d) The Company shall notify the Purchaser participating in
such registration promptly of any request by the SEC for the amending or
supplementing of such Registration Statement or prospectus or for additional
information. The Purchaser agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in this subsection
(d), the Purchaser will forthwith discontinue the offer and sale of Shares
pursuant to the Registration Statement covering such Shares until receipt by the
Purchaser and underwriters of the copies of such supplemented or amended
prospectus and, if so directed by the Company, the Purchaser will deliver to the
Company all copies, other than permanent file copies then in the Purchaser'
possession, of the most recent prospectus covering such Shares at the time of
receipt of such notice; and
(e) The Company shall advise the Purchaser participating in
such registration, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC suspending the
effectiveness of such Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any
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<PAGE>
stop order or to obtain its withdrawal if such stop order should be issued.
4.3 EXPENSES OF REGISTRATION. All expenses of the Company
incident to the Company's performance of or compliance with the provisions of
this Article IV shall be borne by the Company including without limitation:
(a) All registration and filing fees;
(b) Fees and expenses of compliance with all securities or
blue sky laws (including fees and disbursements of counsel for the Company in
connection with blue sky qualifications of the Shares; PROVIDED, HOWEVER, that
the Company shall not be required to consent to general service of process in
any such state); and
(c) Fees and disbursements of the Company and its independent
auditors.
Nothing in this Section 4.3 shall be deemed to require the
Company to pay or bear any expenses of the Purchaser's attorneys or accountants
or any other personal expenses or any underwriting discounts relating to the
Common Shares, selling commissions or similar fees attributable pro rata to the
Common Shares if such registration results in an Underwritten Offering of all or
any portion of the Common Shares.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of Purchaser and the Company.
5.2 WAIVER. Any breach of any obligation, covenant, agreement
or condition contained herein shall be deemed waived by the non-breaching party,
only by a writing, setting forth with particularity the breach being waived and
the scope of the waiver, but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other breach. No waiver shall be
implied from any conduct or action of the non-breaching party. No failure or
delay by any party in exercising any right, power or privilege hereunder or
under the Documents and no course of dealing by any party shall operate as a
waiver and any right, power or privilege hereunder or under any Document nor
shall any single or partial exercise thereof or the exercise of any other right,
power or privilege.
-7-
<PAGE>
5.3 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand: (a) if to the Company,
to:
Glasgal Communications, Inc.
20 C Commerce Way
Totowa, New Jersey 07512
Attn: Isaac J. Gaon
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Robert Friedman, Esq.
(b) if to Purchaser, to:
Ralph Glasgal
4A Pierpont Road,
Rockleigh, N.J. 07647
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 5.3.
5.4 BINDING NATURE AGREEMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without prior written consent of the other parties.
5.5 ACKNOWLEDGEMENT BY THE PURCHASER. The Purchaser has been
informed that the Company's Common Stock is publicly-traded on the Nasdaq
Small-Cap Market and that the Purchase Price for the Shares may bear no relation
to the future market value or book value of the Common Stock. The Purchaser
further acknowledges that he has reviewed such information as he deems
appropriate to evaluate whether to enter into this Agreement. The Purchaser
further acknowledges that he is not relying on any oral information or
representations from the Company or any other person, including representatives
of the Company in connection with his decision to enter into this Agreement,
including the Company's financial condition, prospects, present or future
results of operations, business plans or the potential for future appreciation
in the Company's Common Stock.
5.6 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and
-8-
<PAGE>
construed in accordance with the laws of the State of New Jersey applicable to
contracts made and performed therein.
5.7 EXPENSES. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
5.8 COUNTERPARTS. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
5.9 FORM OF SIGNATURE. The parties hereto agree to accept a
facsimile transmission copy of their respective signatures as evidence of their
respective actual signatures to this Agreement; PROVIDED HOWEVER, that each
party who produces a facsimile signature agrees, by the express terms hereof, to
place, immediately after transmission of its signature by fax, a true and
correct original copy of its signature in overnight mail to the address of the
other party.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
GLASGAL COMMUNICATIONS, INC.
By: /S/ JAMES CACI
------------------------------------
Name: James Caci
Title: Vice-President
/S/ RALPH GLASGAL
----------------------------------------
RALPH GLASGAL
-10-
EXHIBIT 11.1
GLASGAL COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
Net loss per common share is computed by dividing net loss by
the weighted average number of shares of common stock and common stock
equivalents outstanding during each year.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Income (loss) from
<S> <C> <C> <C>
continuing operations $702,000 $(5,149,000) $2,596,000
Discontinued operations (5,662,000) (8,046,000) (4,989,000)
Extraordinary item - (223,000) -
---------- ------------ ----------
Net loss $(4,960,000) $(13,418,000) $(2,393,000)
=========== ============ ===========
Weighted average number
of shares outstanding 21,151,000 18,354,000 16,181,000
Assumed issuances under
exercise of stock options
and warrants 2,406,000 -(1) 1,800,000
---------- ---------- ----------
Weighted average and
common stock equivalents 23,557,000 18,354,000 17,981,000
========== ========== ==========
Income (loss) per share
from continuing operations $.03 $(.28) $.14
Discontinued operations
per share (.24) (.44) (.27)
Extraordinary item per
share - (.01) -
----- ------ -----
Net loss per share ($.21) ($.73) ($.13)
====== ====== ======
</TABLE>
(1) Common stock equivalents outstanding for 1996 were antidilutive and
therefore not included.
Exhibit 21.1
Jurisdiction of Percentage
Incorporation Owned
------------- -----
Datatec Industries, Inc. New Jersey 98.5%
HH Communications, Inc. Illinois 100%
Computer-Aided Software Integration Delaware 80%
Signatel, Ltd. Canada 100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
To Glasgal Communications, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report dated August 9, 1997, included in this Form 10-K into the Company's
previously filed Registration Statements, File Numbers 33-87122, 33-94802,
33-93470, 333-08381, 333-03414, 333-09509, 333-15541, 333-16579, and 333-22257.
/s/ Arthur Anderson LLP
-----------------------
Arthur Anderson LLP
Roseland, New Jersey
August 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GLASGAL
COMMUNICATIONS INC.'S FINANCIAL STATEMENTS AS OF APRIL 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 1,135,000
<SECURITIES> 0
<RECEIVABLES> 11,809,000
<ALLOWANCES> 520,000
<INVENTORY> 2,134,000
<CURRENT-ASSETS> 20,820,000
<PP&E> 6,579,000
<DEPRECIATION> 2,945,000
<TOTAL-ASSETS> 27,804,000
<CURRENT-LIABILITIES> 23,777,000
<BONDS> 0
<COMMON> 24,000
0
0
<OTHER-SE> (2,024,000)
<TOTAL-LIABILITY-AND-EQUITY> 27,804,000
<SALES> 59,481,000
<TOTAL-REVENUES> 59,481,000
<CGS> 37,159,000
<TOTAL-COSTS> 37,159,000
<OTHER-EXPENSES> 20,784,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,155,000)
<INCOME-PRETAX> 813,000
<INCOME-TAX> 111,000
<INCOME-CONTINUING> 702,000
<DISCONTINUED> (5,662,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,960,000)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
