<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 33-10667
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OSICOM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 3672 22-2367234
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
2800 28TH STREET, SUITE 100
SANTA MONICA, CALIFORNIA 90405
(310) 828-7496
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL OFFICES)
------------------------
SHARON G. CHADHA, CHAIRMAN
OSICOM TECHNOLOGIES, INC.
2800 28TH STREET, SUITE 100
SANTA MONICA, CALIFORNIA 90405
(310) 828-7496
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
W. RAYMOND FELTON, ESQ.
GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL
METRO CORPORATE CAMPUS I
POST OFFICE BOX 5600
WOODBRIDGE, NEW JERSEY 07095
(908) 549-5600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box / /.
------------------------
CALCULATION OF REGISTRATION FEE
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- ----------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.10 per
share.............................. 3,744,243(1) $8.25(2) $30,890,005 $10,651.73
- ----------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per
share............................. 921,934(3) $11.00(4) $10,141,274 $3,496.99
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</TABLE>
(1) The shares of Common Stock to be registered consist of shares to be issued
to Builders Warehouse Association, Inc. ("BWAI") in consideration of the
sale by BWAI to the registrant of substantially all of BWAI's assets. By the
terms of the governing purchase agreement between BWAI and the Registrant
(the "Agreement"), the number of shares to be issued cannot be finally
determined until the date of such acquisition, and the number of shares to
be issued is therefore currently an estimate.
(2) The offering price of the shares of Common Stock is estimated at $8.25 per
share pursuant to Rule 457(h) based on the closing bid price of the Common
Stock on August 21, 1996 as reported on the NASDAQ SmallCap Market solely
for the purpose of computing the registration fee.
(3) The additional shares of Common Stock to be registered consist of shares
issuable upon exercise or conversion of certain outstanding options,
warrants and convertible preferred stock of BWAI, which will be converted to
similar securities of the registrant pursuant to the Agreement.
(4) The offering price of additional shares of Common Stock is estimated at
$11.00 per share pursuant to Rule 457(h) based on the closing bid price of
the Common Stock on September 3, 1996 as reported on the NASDAQ SmallCap
Market solely for the purpose of computing the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
OSICOM TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. AND CAPTION PROSPECTUS CAPTION
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<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover page of Prospectus.......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus... Inside Front Cover; Outside
Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information....................................... Risk Factors
4. Terms of the Transaction.................................. The Acquisition Agreement
5. Pro Forma Financial Information........................... Pro Forma Financial Information
6. Material Contracts With Company Being Acquired............ Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters........... Not Applicable
8. Interest of Named Experts and Counsel..................... Not Applicable
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.............................. Not Applicable
10. Information with Respect to S-3 Registrants............... Not Applicable
11. Incorporation of Certain Information by Reference......... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants........ Not Applicable
13. Incorporation of Certain Information by Reference......... Not Applicable
14. Information with Respect to Registrants Other than S-3 or
S-2 Registrants......................................... Not Applicable
15. Information with Respect to S-3 Companies................. Not Applicable
16. Information with Respect to S-2 or S-3 Companies.......... Not Applicable
17. Information with Respect to Companies Other than S-3 or
S-2 Companies........................................... Certain Information
Concerning Osicom; Certain
Information Concerning BWAI
18. Information if Proxies, Consents or Authorizations are to
be
Solicited............................................... The Meeting; Submission of
Shareholder Proposals
19. Information of Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer................. Not Applicable
20. Indemnification of Officers and Directors................. Indemnification of Officers
and Directors
21. Exhibits and Financial Statement Schedules................ Exhibits and Financial
Statement Schedules
22. Undertakings.............................................. Undertakings
</TABLE>
<PAGE> 3
BUILDERS WAREHOUSE ASSOCIATION, INC.
2800 28TH STREET
SANTA MONICA, CALIFORNIA 90405
September 9, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting (the "Meeting") of
Shareholders of Builders Warehouse Association, Inc. ("BWAI") to be held at 9:00
a.m. on September 30, 1996 at 9990 Mesa Rim Road, San Diego, California.
At the Meeting, you will be asked to consider and vote on a proposed sale
of substantially all of the assets of BWAI to Osicom Technologies, Inc. a
corporation organized under the laws of the State of New Jersey ("Osicom") and
the liquidation of BWAI. Pursuant to the terms of such sale, which is referred
to in the accompanying Proxy Statement/Prospectus as the "Acquisition," Osicom
will issue to BWAI .94 shares of Osicom Common Stock per share of outstanding
BWAI Common Stock. The Osicom shares will be issued to shareholders of BWAI in
liquidation of their BWAI stock as soon as practicable after completion of the
Acquisition pursuant to a Plan of Liquidation (the "Plan of Liquidation") to be
approved by BWAI's Shareholders at the Meeting.
The Common Stock of Osicom is traded on the Nasdaq SmallCap Market. The
last reported sale price of Osicom Common Stock on September 3, 1996 as reported
by Nasdaq was $11.00 per share.
THE BOARD OF DIRECTORS OF BWAI HAS UNANIMOUSLY APPROVED THE PROPOSED
ACQUISITION AND PLAN OF LIQUIDATION AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE TO
APPROVE THE SALE.
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock of BWAI entitled to vote is necessary for an approval of the
Acquisition and Plan of Liquidation. Directors, officers and principal
shareholders of Osicom owned as of August 5, 1996 an aggregate of 745,134 BWAI
shares, representing approximately 18.7% of the BWAI shares outstanding and
entitled to vote. Such individuals have indicated to BWAI that they will vote in
favor of the Acquisition and Plan of Liquidation. BWAI Shareholders owning in
excess of 50% of BWAI's Common Stock have granted irrevocable proxies to BWAI's
Board of Directors to vote in favor of the Acquisition.
If the sale is approved and consummated, shareholders of BWAI will have the
right to dissent from the sale and obtain payment for their shares by complying
with the provisions of Article 113 of the Colorado Business Corporation Act any
BWAI Shareholder wishing to exercise dissenter's rights must notify BWAI in
writing prior to the date of the Meeting. See "Rights of Dissenting BWAI
Shareholders" in the accompanying Proxy Statement/Prospectus.
The attached Proxy Statement/Prospectus is a proxy statement for the
Meeting and a prospectus for the shares of Osicom Common Stock (and options and
warrants to purchase Osicom Common Stock) to be issued to holders of BWAI Common
Stock (and BWAI options and warrants).
In order that your shares may be represented at the Meeting, you are urged
to sign and return the accompanying proxy card in the enclosed envelope, whether
or not you plan to attend the Meeting in person. If you attend the meeting in
person, you may vote personally in all matters brought before the Meeting.
Sincerely,
BARRY WITZ
Chief Executive Officer
<PAGE> 4
BUILDERS WAREHOUSE ASSOCIATION, INC.
2800 28TH STREET, SUITE 100
SANTA MONICA, CALIFORNIA 90405
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 1996
Notice is hereby given that a special meeting of the Shareholders (the
"Meeting") of Builders Warehouse Association, Inc. ("BWAI") will be held at 9:00
a.m., on September 30, 1996 at 9990 Mesa Rim Road, San Diego, California for the
following purposes:
1. To consider and act upon (a) the sale of substantially all of
BWAI's assets pursuant to an agreement (the "Agreement") dated as of June
1, 1996 between BWAI and Osicom Technologies, Inc. ("Osicom") in exchange
for shares of Osicom Common Stock, (the "Acquisition") and (b) the
liquidation of BWAI and distribution to the BWAI shareholders of such
shares of Osicom Common Stock (the "Plan of Liquidation"), all as described
in the attached Proxy Statement/Prospectus (to which a copy of the
Agreement is attached as Exhibit A).
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only Shareholders of record at the close of business on July 22, 1996
will be entitled to notice of and to vote at the Meeting.
Whether or not you intend to attend the Meeting, please complete, date and
sign the enclosed Proxy and return it to the Company. Your Proxy will be
revocable, either in writing or by voting in person at the Meeting, at any time
prior to its exercise.
By Order of the Board of Directors
BARRY WITZ
Chief Executive Officer
Dated: September 9, 1996
Santa Monica, California
<PAGE> 5
PROXY STATEMENT OF
BUILDERS WAREHOUSE ASSOCIATION, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 1996
PROSPECTUS OF
OSICOM TECHNOLOGIES, INC.
COMMON STOCK
PAR VALUE $.10 PER SHARE
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") relates
to the proposed sale (the "Acquisition") by Builders Warehouse Association, Inc.
("BWAI") to Osicom Technologies, Inc., a New Jersey corporation ("Osicom") of
substantially all of BWAI's assets. Following the Acquisition, BWAI will be
liquidated and BWAI's shareholders will receive shares of Osicom Common Stock in
exchange for their shares of BWAI Common Stock (the "Plan of Liquidation").
In the Acquisition, BWAI will sell substantially all of its assets to
Osicom in consideration of .94 shares of Common Stock of Osicom for each share
of BWAI Common Stock outstanding and Osicom will issue options, warrants and
preferred stock having terms substantially identical to BWAI's outstanding
options, warrants and preferred stock. In the Plan of Liquidation, such Osicom
Common Stock, options, warrants and preferred stock will be distributed to the
holders of BWAI's Common Stock, options, warrants and preferred stock,
respectively. A full share will be issued in lieu of the issuance of any
fractional share of Osicom Common Stock to the shareholders of BWAI.
This Proxy/Prospectus constitutes both the proxy statement of BWAI relating
to the solicitation of proxies by BWAI's Board of Directors for use at the
special meeting of Shareholders of BWAI (the "Meeting"), and the prospectus of
Osicom with respect to the issuance of shares of Osicom Common Stock and options
and warrants to purchase Osicom Common Stock pursuant to the Acquisition
Agreement. This Proxy Statement/Prospectus and the enclosed form of proxy are
first being sent to shareholders of BWAI on or about September 9, 1996.
SEE "RISK FACTORS" ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY BWAI SHAREHOLDERS IN DECIDING WHETHER TO VOTE IN FAVOR
OF THE ACQUISITION AGREEMENT AND PLAN OF LIQUIDATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER 9, 1996.
<PAGE> 6
Holders as of the Record Date of shares of BWAI Common Stock have the right
to dissent from the Acquisition and (in the event that the Acquisition Agreement
is adopted and the Acquisition is consummated) demand in writing payment of the
fair cash value of such shares in compliance with and by following the
procedures under Section 7-113-102 ("Section 102") of the Colorado Business
Corporation Act (the "CBCA"). ANY BWAI SHAREHOLDER WISHING TO EXERCISE
DISSENTER'S RIGHTS MUST NOTIFY BWAI IN WRITING PRIOR TO THE DATE OF THE MEETING.
See "Rights of Dissenting BWAI Shareholders." All shares that are subject to
such a written demand for payment of the fair cash value that has not been
withdrawn or waived are sometimes referred to herein as the "Dissenting Shares."
Holders of more than 50% of BWAI's outstanding Common Stock have granted to
BWAI's Board of Directors irrevocable proxies to vote for adoption of the
Acquisition Agreement and therefore will not exercise or cause to be exercised
any of their rights under Section 102.
It is estimated that approximately 3,744,243 shares of Osicom Common Stock
will be issued by Osicom in the Acquisition. Such shares will represent
approximately 51% of the issued and outstanding shares of Osicom Common Stock
immediately after the Acquisition. In addition, it is estimated that currently
outstanding options and warrants to purchase shares of BWAI Common Stock will be
converted into options and warrants to purchase approximately 921,394 shares of
Osicom Common Stock in the Acquisition. Osicom Common Stock is traded on the
Nasdaq SmallCap Market under the symbol "FIBR."
Approval of the proposal to adopt the Acquisition Agreement and Plan of
Liquidation requires the affirmative votes of the holders of (i) a majority of
the outstanding shares of BWAI Common Stock, and (ii) a majority of the BWAI
Common Stock represented in person or by proxy at the Meeting. Holders of more
than 50% of BWAI's outstanding Common Stock have granted to BWAI's Board of
Directors irrevocable proxies to vote for adoption of the Acquisition Agreement
and Plan of Liquidation thereby assuring such approval.
ii
<PAGE> 7
INTRODUCTION
This Proxy Statement/Prospectus is furnished to shareholders of BWAI in
connection with the solicitation of proxies by the Board of Directors of BWAI
(the "BWAI Board") from holders of the outstanding shares of BWAI Common Stock
for use at a special meeting of shareholders of BWAI scheduled to be held on
September 30, 1996, commencing at 9:00 a.m. at 9990 Mesa Rim Road, San Diego,
California and at any adjournment or postponement thereof (the "Meeting"). Only
holders of BWAI Common Stock (each, a "BWAI Shareholder") at the close of
business on July 22, 1996 (the "Record Date"), are entitled to notice of and to
vote at the Meeting and any adjournment or postponement thereof. On the Record
Date, there were outstanding 3,983,237 shares of BWAI Common Stock, none of
which were held beneficially by Osicom and its subsidiaries. However, two
directors of Osicom owned 745,134 shares of BWAI Common Stock. BWAI Shareholders
owning in excess of 50% of the outstanding Common Stock of BWAI have granted
irrevocable proxies to BWAI's Board of Directors to vote in favor of the
Acquisition.
This Proxy Statement/Prospectus and a form of proxy for use at the Meeting
are first being mailed on or about September , 1996 to holders of record on
the Record Date of shares of BWAI Common Stock.
At the Meeting, BWAI shareholders will be asked to consider and vote upon
the approval of the Asset Purchase Agreement dated as of June 1, 1996 (the
"Acquisition Agreement"), by and between BWAI and Osicom, and the plan of
liquidation (the "Plan of Liquidation") of BWAI. A copy of the Acquisition
Agreement is attached as Exhibit A to this Proxy Statement/Prospectus and a copy
of the Plan of Liquidation is attached as Exhibit B to this Proxy
Statement/Prospectus. The Acquisition Agreement provides that BWAI will sell
substantially all of its assets, consisting of all of the outstanding stock of
five corporations, for a purchase price equal to .94 shares of Osicom Common
Stock times the number of shares of BWAI common stock outstanding, plus the
issuance to BWAI of warrants, options and preferred stock having terms
equivalent to BWAI's outstanding warrants, options and preferred stock. BWAI
will then be liquidated and will distribute the Osicom Common Stock to the BWAI
Shareholders pursuant to the Plan of Liquidation. Therefore, BWAI Shareholders
will receive .94 shares of Osicom Common Stock in exchange for each share of
BWAI Common Stock they own.
Holders on the Record Date of shares of BWAI Common Stock have the right to
dissent from the Acquisition and (in the event that the Acquisition Agreement is
approved and the Acquisition is consummated) demand in writing payment of the
fair cash value of such shares in compliance with and by following the
procedures under Section 7-113-102 ("Section 102") of the Colorado Business
Corporation Act (the "CBCA"). All shares that are subject to such a written
demand for payment of the fair cash value that has not been withdrawn or waived
are sometimes referred to herein as the "Dissenting Shares." BWAI Shareholders
owning more than 50% of the outstanding Common Stock of BWAI have granted
irrevocable proxies to BWAI's Board of Directors to vote in favor of the
Acquisition and therefore will not exercise or cause to be exercised any of
their rights under Section 102.
It is estimated that approximately 3,744,243 shares of BWAI Common Stock
will be issued by Osicom to BWAI in the Acquisition. Such shares will represent
approximately 51% of the issued and outstanding shares of Osicom Common Stock
immediately after the Acquisition. In addition, it is estimated that currently
outstanding options and warrants to purchase shares of BWAI Common Stock will be
converted into options and warrants to purchase approximately 921,394 shares of
Osicom Common Stock in the Acquisition. Osicom Common Stock is traded on the
Nasdaq SmallCap Market under the symbol "FIBR."
Approval of the proposal to adopt the Acquisition Agreement and the Plan of
Liquidation requires the affirmative votes of the holders of a majority of the
outstanding shares of BWAI Common Stock (the foregoing votes being collectively
referred to herein as the "Required Shareholder Vote"), which votes have already
been received through irrevocable proxies granted by the holders of more than
50% of BWAI's outstanding shares of Common Stock.
iii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION.......................................................................... iii
AVAILABLE INFORMATION................................................................. 1
SUMMARY............................................................................... 2
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION......................................................................... 7
COMPARATIVE PER SHARE DATA............................................................ 9
COMPARATIVE MARKET PRICE DATA......................................................... 11
RISK FACTORS.......................................................................... 12
THE MEETING........................................................................... 16
General............................................................................. 16
Voting at the Meeting............................................................... 17
Proxies............................................................................. 17
THE ACQUISITION....................................................................... 19
Background, Recommendations of BWAI's Board of Directors and Reasons for
the Acquisition.................................................................. 19
Interests of Certain Persons in the Acquisition..................................... 19
Federal Securities Law Matters...................................................... 19
Accounting Treatment................................................................ 20
Consequences to BWAI if the Acquisition Is Not Approved............................. 20
THE ACQUISITION AGREEMENT............................................................. 21
General............................................................................. 21
Effective Time of Acquisition....................................................... 21
Payment of Purchase Price and Plan of Liquidation................................... 21
Conditions to the Acquisition....................................................... 21
Certain Covenants................................................................... 22
Termination......................................................................... 23
Certain Other Provisions of the Acquisition Agreement............................... 23
PLAN OF LIQUIDATION................................................................... 24
Reasons for the Plan of Liquidation................................................. 24
The Plan of Liquidation............................................................. 24
Distributions....................................................................... 24
Payment for BWAI Common Stock; Exchange of Certificates............................. 25
PRO FORMA FINANCIAL INFORMATION....................................................... 27
BUSINESS RELATIONSHIPS BETWEEN THE PARTIES............................................ 32
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 32
Tax Status.......................................................................... 32
Certain Consequences of Reorganization Status....................................... 32
Cash Received by Holders of BWAI Common Stock Who Dissent........................... 32
RIGHTS OF DISSENTING SHAREHOLDERS..................................................... 33
COMPARISON OF RIGHTS OF HOLDERS OF BWAI COMMON STOCK AND OSICOM COMMON STOCK.......... 35
Certain Voting Rights............................................................... 35
Special Meetings of Shareholders; Shareholder Action by Written Consent............. 35
Board-Approved Preferred Stock...................................................... 36
Liability and Indemnification of Officers and Directors............................. 36
Classification of Board of Directors................................................ 36
Removal of Directors................................................................ 37
Dissenters' Rights.................................................................. 37
Payment of Dividends................................................................ 37
Anti-Takeover Statues............................................................... 37
</TABLE>
iv
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Anti-Takeover Effect of New Jersey Law.............................................. 38
CERTAIN INFORMATION CONCERNING BWAI................................................... 38
Company Overview.................................................................... 38
History............................................................................. 38
Acquired Business................................................................... 38
Business Strategy................................................................... 40
Key Products for the Local Area Network Market...................................... 40
Key Products Using Radio Frequency Synthesis........................................ 41
Intellectual Properties............................................................. 42
Research and Development in Process................................................. 42
Manufacturing and Quality........................................................... 43
Properties.......................................................................... 43
Legal Proceedings................................................................... 43
Management.......................................................................... 44
Security Ownership of Certain Beneficial Owners and Management...................... 47
Certain Relationships and Related Transactions...................................... 48
CERTAIN INFORMATION CONCERNING OSICOM................................................. 48
History and Business................................................................ 48
Business Strategy................................................................... 49
Products and Markets................................................................ 51
Research and Development............................................................ 58
Availability of Raw Materials....................................................... 59
Patents, Trademarks and Licenses.................................................... 59
Seasonality......................................................................... 59
Working Capital Practices........................................................... 59
Backlog............................................................................. 60
Competition......................................................................... 60
Environmental Compliance............................................................ 60
Employees........................................................................... 61
Acquired Businesses................................................................. 61
Pending Acuisitions................................................................. 62
Properties.......................................................................... 63
Legal Proceedings................................................................... 63
Management.......................................................................... 63
Executive Compensation.............................................................. 65
Security Ownership of Certain Beneficial Owners and Management of Osicom............ 66
SUBMISSION OF SHAREHOLDERS PROPOSALS.................................................. 67
LEGAL OPINIONS........................................................................ 67
EXPERTS............................................................................... 67
DEFINITIONS........................................................................... 68
MISCELLANEOUS......................................................................... 72
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
EXHIBIT A -- ACQUISITION AGREEMENT.................................................... A-1
EXHIBIT B -- DISSENTERS RIGHTS STATUTE UNDER COLORADO BUSINESS CORPORATIONS ACT....... B-1
EXHIBIT C -- PLAN OF LIQUIDATION...................................................... C-1
</TABLE>
v
<PAGE> 10
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS,
IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES TO WHICH IT RELATES IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF BWAI OR OSICOM OR ANY OF THEIR AFFILIATES OR SUBSIDIARIES FROM
THE DATE HEREOF.
AVAILABLE INFORMATION
Osicom has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with any
amendments, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), of which this Proxy Statement/Prospectus is a
part, with respect to the Osicom Common Stock that may be issued pursuant to the
Acquisition. As permitted by the rules and regulations of the Commission, this
Proxy Statement/Prospectus omits certain information and exhibits contained in
the Registration Statement.
Osicom and BWAI are both subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith BWAI and Osicom both file periodic reports,
proxy statements and other information with the Commission. The Registration
Statement and the exhibits thereto, as well as such reports, proxy statements
and other information filed by BWAI or Osicom with the Commission, can be
inspected and copied upon payment of the prescribed fee at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Chicago Regional Offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and New York Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048.
The Osicom Common Stock and the BWAI Common Stock are traded on the Nasdaq
SmallCap Market. Reports and other information concerning Osicom and BWAI are
available for inspection and copying at the offices of The Nasdaq Stock Market
("Nasdaq") at 1735 K Street, N.W., Washington, D.C. 20006-1506. Application will
be made to list all shares of Osicom Stock on the Nasdaq National Market
immediately following the Acquisition.
If the Acquisition is consummated, the BWAI Common Stock will be delisted
from Nasdaq and BWAI will take steps to terminate the registration of the BWAI
Common Stock under Section 12 of the Exchange Act. See "Comparative Market Price
Data."
<PAGE> 11
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this proxy statement/prospectus. BWAI shareholders are
urged to read this proxy statement/prospectus and the exhibits hereto in their
entirety. For the definitions of certain terms used below, see "Definitions"
beginning on page 68.
TERMS OF THE ACQUISITION............ The Acquisition Agreement provides for
the sale by BWAI of substantially all
of its assets, which consist of all the
outstanding stock of five corporations,
in exchange for .94 shares of Osicom
Common Stock per share of BWAI Common
Stock outstanding. As soon as practical
following the Acquisition, BWAI will be
liquidated and the Osicom Common Stock
will be distributed to BWAI's
Shareholders in liquidation of the BWAI
Common Stock at the rate of .94 shares
of Osicom Common Stock for each share
of BWAI Common Stock.
PLAN OF LIQUIDATION; EXCHANGE OF
BWAI COMMON STOCK CERTIFICATES FOR
OSICOM COMMON STOCK............... In order to receive Osicom Common Stock
following the Closing Date, each holder
of a certificate theretofore
representing BWAI Common Stock will be
required to surrender his or her stock
certificate, together with a duly
executed card properly completed letter
of transmittal and any other required
documents to Osicom following the
procedures described under "Plan of
Liquidation -- Payment for BWAI Common
Stock; Exchange of Stock Certificates."
Each holder of BWAI Common Stock (other
than holders of Dissenting Shares) will
receive a number of whole shares of
Osicom Common Stock determined by
multiplying the number of shares of
BWAI Common Stock owned by such
shareholder on the Closing Date by .94.
Such holders will receive one share in
lieu of any fractional share of Osicom
Common Stock which they would otherwise
be entitled to receive. See "Plan of
Liquidation -- Payment for BWAI Common
Stock; Exchange of Stock Certificates."
No dividend or other distribution
declared or made on Osicom Common Stock
will be paid to a BWAI Shareholder
until such shareholder's certificate(s)
representing BWAI Common Stock is
surrendered in accordance with the Plan
of Liquidation.
BWAI SHAREHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
OSICOM TECHNOLOGIES, INC............ Osicom designs, manufactures and
markets transmission, networking,
remote access and connectivity products
for use in local area networks
("LANs"), wide area networks ("WANs")
and broadband global networks. Osicom
products include high-performance net-
2
<PAGE> 12
work adapters, concentrators, routers,
remote access products, video switches
and routers, and fiber optic and a
family of products to build broadcast
systems over copper, fiber or wireless
transmission media.
Osicom targets high growth markets in
the networking arena that leverages its
core competencies in:
- High speed LAN workgroup and Remote
Access routing product portfolio
- Growing diversified customer base
- Competency in distributed LAN
connectivity
- Modular media and access chip design
and data flow modeling
- Turnable drivers
- Communications protocols
- Operating Systems Knowledge
- Systems integration
Osicom's executive offices are located
at 2800 28th Street, Suite 100, Santa
Monica, California 90405, and its
telephone number is (310) 828-7496.
BUILDERS WAREHOUSE ASSOCIATION,
INC................................. BWAI designs and manufactures a wide
range of products for complex network
access markets, based on industry
standard protocols such as TCP/IP, IPX,
SNMP, Ethernet and Bus architectures.
BWAI markets its products through OEMs,
distributors and value added resellers.
BWAI's principal executive offices are
located at 2800 28th Street, Suite 100,
Santa Monica, California 90405 and its
telephone number is (310) 581-4030.
THE MEETING......................... The Meeting will be held on September
30, 1996 commencing at 9:00 a.m. at
9990 Mesa Rim Road, San Diego,
California. Holders of record of shares
of BWAI Common Stock at the close of
business on the Record Date are
entitled to notice if and to vote at
the Meeting.
Each outstanding share of BWAI Common
Stock entitles the holder thereof to
one vote. On the Record Date, there
were 3,983,237 shares of BWAI Common
Stock outstanding.
MATTERS TO BE CONSIDERED AND
REQUIRED VOTE....................... Approval of the Acquisition Agreement
and the Plan of Liquidation requires
the affirmative votes of the holder of
a majority of the outstanding shares of
BWAI Common Stock. BWAI Shareholders
owing in excess of 50% of BWAI's
outstanding Common Stock have granted
irrevocable proxies to Osicom to vote
in favor of the Acquisition.
RECOMMENDATION OF THE BWAI BOARD.... After considering all relevant
information, the BWAI Board voted
unanimously on June 18, 1996 to approve
the terms of the Acquisition, the
Acquisition Agree-
3
<PAGE> 13
ment and the Plan of Liquidation. The
BWAI Board also voted unanimously to
recommend that the BWAI Shareholders
approve the Acquisition Agreement and
Plan of Liquidation.
THE BWAI BOARD UNANIMOUSLY RECOMMENDS
THAT THE BWAI SHAREHOLDERS VOTE TO
APPROVE THE ACQUISITION AGREEMENT AND
PLAN OF LIQUIDATION.
For a discussion of the factors
considered by the BWAI Board in
reaching its decision, see "The
Acquisition -- Background,
Recommendations of BWAI's Board of
Directors and Reasons for Acquisition."
PURPOSE, STRUCTURE AND CERTAIN
EFFECTS OF THE ACQUISITION.......... The purpose of the Acquisition is to
combine the businesses of BWAI and
Osicom, which their respective Boards
of Directors believe complement each
other, and therefore create a single
stronger larger entity better able to
profitably exploit developing
technologies. The Acquisition is
structured to give BWAI Shareholders
the opportunity to own, in a tax-free
exchange, a stock with potentially
greater liquidity, and to share in the
prospects of the combined entity.
INTERESTS OF CERTAIN PERSONS........ In considering the recommendation of
the BWAI Board with respect to the
Acquisition Agreement and the Plan of
Liquidation, BWAI's Shareholders should
be aware that BWAI's Chairman, who is
also a significant shareholder of BWAI,
is a director and significant
shareholder of Osicom. This may be
deemed to present such individual with
potential conflicts of interest in
connection with the Acquisition. For
this reason, the decision to approve
the Acquisition and recommend it to
BWAI's Shareholders required the
approval of BWAI's Chief Executive
Officer, who is also a director of BWAI
but has no affiliation with Osicom. See
"The Acquisition -- Interests of a
Certain Person in the Acquisition."
Directors and executive officers of
Osicom beneficially owned 25.3% of the
outstanding Osicom Common Stock as of
August 5, 1996. Directors and executive
officers of BWAI, together with their
affiliates, beneficially owned 64.4% of
BWAI's Common Stock outstanding on
August 5, 1996. The Chairman of BWAI
beneficially owned 28.0% of the
outstanding BWAI Common Stock and 24.3%
of the Osicom Common Stock on August 5,
1996.
RIGHTS OF DISSENTING SHAREHOLDERS... Holders of record of shares of BWAI
stock who comply with the requirements
of Colorado law have the right to
dissent from the Acquisition and
receive the fair cash value of their
shares pursuant to Section 7-113-102 of
the CBCA. See "Rights of Dissenting
Shareholders." BWAI Shareholders owning
in excess of 51% of
4
<PAGE> 14
BWAI's outstanding Common Stock have
granted irrevocable proxies to BWAI's
Board of Directors to vote for adoption
of the Acquisition Agreement and
therefore will not exercise their
rights under Section 102.
COMPARISON OF SHAREHOLDER RIGHTS.... As a result of the Acquisition and Plan
of Liquidation, BWAI Common Stock,
which is issued by a Colorado
corporation, will be converted into
Osicom Common Stock, which is issued by
a New Jersey corporation. There are
differences between the rights of BWAI
Shareholders and the rights of Osicom
Shareholders. These differences result
from the differences between Colorado
and New Jersey law and between the
governing instruments of BWAI and
Osicom, including differences in terms
of, and rights of holders with respect
to, BWAI Common Stock and Osicom Common
Stock. For a summary of the material
differences between the rights of BWAI
shareholders and Osicom shareholders,
see "Comparison of Rights of Holders of
BWAI Common Stock and Osicom Common
Stock."
CONDITIONS TO THE ACQUISITION;
TERMINATION OF THE ACQUISITION
AGREEMENT......................... In addition to the adoption of the
Acquisition Agreement by the
Shareholders of BWAI, the consummation
of the Acquisition is subject to the
satisfaction or waiver of certain other
conditions, including, among others,
effectiveness of the Registration
Statement, the absence of any
injunction, order, statute or
regulation which prohibits consummation
of the Acquisition, and the number of
Dissenting Shares amounting to not more
than 10% of the outstanding shares of
BWAI Common Stock. In addition the
Acquisition Agreement may be terminated
in certain events. For a description of
such conditions and termination events,
see "The Acquisition
Agreement -- Conditions to the
Acquisition" and "-- Termination."
ACCOUNTING TREATMENT OF THE
ACQUISITION......................... The Acquisition will be accounted for
as a pooling of interests. Therefore,
upon consummation of the Acquisition,
Osicom's financial statements will be
restated to include BWAI's financial
statements for all periods presented.
See "The Acquisition -- Accounting
Treatment" and "Selected Historical and
Unaudited Pro Forma Financial
Information."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS...................... BWAI believes that the Acquisition and
Plan of Liquidation, with the BWAI
Shareholders receiving Osicom Common
Stock, will be treated as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
BWAI has neither requested nor received
a formal opinion from its attorneys or
the Internal Revenue Service as to its
belief.
5
<PAGE> 15
Provided the Acquisition and Plan of
Liquidation constitute a plan of
reorganization, then for federal income
tax purposes: (i) no gain or loss would
be recognized by either BWAI or Osicom
as a result of the Acquisition, and
(ii) BWAI's Shareholders would not
recognize gain or loss upon the receipt
of Osicom Common Stock in exchange for
BWAI Common Stock in the Plan of
Liquidation, except that gain or loss
would be recognized on receipt of any
cash paid the exercise of dissenters'
rights. See "Certain Federal Income Tax
Consequences of the Acquisition and
Plan of Liquidation."
Because of the complexities of the
federal income tax laws and because the
tax consequences may vary depending
upon a holder's individual
circumstances or tax status, it is
recommended that each shareholder of
BWAI consult his or her tax advisor
concerning the federal (and any
applicable state, local or other) tax
consequences of the Acquisition and
Plan of Liquidation.
PENDING ACQUISITIONS................ Osicom recently entered into separate
agreements to acquire two
privately-held companies. See "Certain
Information Concerning
Osicom -- Pending Acquisitions."
6
<PAGE> 16
SELECTED HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL INFORMATION
The following tables present selected historical financial information of
Osicom and BWAI and unaudited selected pro forma combined financial information
of Osicom after giving effect to the Acquisition. The selected historical
financial information of Osicom as of the end of and for each of its last two
fiscal years and for BWAI as of the end of and for each of its last two fiscal
years has been derived from historical consolidated financial statements and
should be read in conjunction with such statements and the related notes
contained elsewhere in this Proxy Statement/Prospectus. The selected historical
financial information for Osicom as of the end of and for the three months ended
April 30, 1995 and 1996 and for BWAI for the three months ended May 31, 1995 and
1996 has been derived from unaudited historical consolidated financial
statements and should be read in conjunction with such statements and the
related notes contained elsewhere in this Proxy Statement/Prospectus, and such
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for such periods.
The unaudited selected Pro Forma Combined Balance Sheet is based on the
historical Balance Sheets of Osicom as of April 30, 1996 and BWAI as of May 31,
1996, and gives effect to the Acquisition as if it had occurred at the beginning
of the periods presented, after giving effect to the pro forma adjustments
described in the notes thereto.
The unaudited selected Pro Forma Combined Statement of Operations for the
year ended January 31, 1996 is based on the historical Statements of Operations
for Osicom for the year ended January 31, 1996 and for BWAI for the year ended
February 29, 1996, and gives effect to the Acquisition as if it had occurred on
February 1, 1995, after giving effect to the pro forma adjustments described in
the notes thereto.
The unaudited selected Pro Forma Combined Statement of Operations for the
three months ended April 30, 1996 is based on the historical Statements of
Operations for Osicom for the three months ended April 30, 1996 and for BWAI for
the three months ended May 31, 1996, and gives effect to the Acquisition as if
it had occurred on February 1, 1996, after giving effect to the pro forma
adjustments described in the notes thereto.
The selected pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the results which would have
occurred had the Acquisition taken place on the dates indicated or which may
occur in the future and should be read in conjunction with the historical
financial statements of Osicom and BWAI contained elsewhere in this Proxy
Statement/Prospectus. See "Pro Forma Financial Information."
OSICOM TECHNOLOGIES
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
APRIL 30, JANUARY 31,
------------------ ------------------
1996 1995 1996 1995
------- ------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 6,070 $1,175 $ 7,773 $5,892
Gross margin.......................................... 2,706 475 3,112 1,841
Income from operations................................ 388 159 703 649
Net income............................................ 249 142 703 373
Earnings per common share from continuing operations:
Primary............................................. $ .07 $ .04 $ .21 $ .11
Fully diluted....................................... .06 N/A .20 N/A
Cash dividends declared............................... -- -- -- --
BALANCE SHEET DATA:
Total assets.......................................... $24,179 $5,013 $20,894 $5,152
Long term debt(a)..................................... 7,761 610 11,757 660
Total shareholders' equity............................ 11,141 2,409 4,091 2,267
</TABLE>
7
<PAGE> 17
BUILDERS WAREHOUSE ASSOCIATION
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 1, 1994
------------------- YEAR ENDED (INCEPTION) TO
MAY 31, MAY 31, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
------- ------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $11,415 $2,482 $ 7,470 $ 4,212
Gross margin.................................. 1,687 199 875 605
Loss from operations.......................... (2,272) (126 ) (222) 12
Net income (loss)............................. (2,375) (126 ) (288) 45
Loss per share from continuing operations:
Primary..................................... $ (0.73) $(0.41 ) $ (0.94) $ 0.15
Fully diluted............................... n/a n/a n/a $ 0.15
Cash dividends declared....................... $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Total assets.................................. $30,846 $1,865 $ 8,718 $ 2,044
Total debt(s)................................. 12,513 133 6,187 30
Total stockholders' equity.................... 2,988 1,087 1,822 1,149
</TABLE>
- ---------------
(a) Total long-term debt, including current portion, notes payable, loans
payable, debentures payable and short-term debt.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
JANUARY 31, APRIL 30,
1996 1996
----------- -------------
(IN THOUSANDS, EXCEPT FOR
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $15,202 $17,484
Gross margin........................................................ 3,987 4,392
Net income (loss) from operations................................... $ 389 $(2,134)
Net income.......................................................... 165 (2,376)
Earnings per share from continuing operations:
Primary........................................................... $ -- $ (0.39)
Fully diluted..................................................... -- n/a
Cash dividends declared............................................. -- --
BALANCE SHEET DATA:
Total assets........................................................ $55,025
Total debt(a)....................................................... 20,274
Total stockholders' equity.......................................... 13,880
</TABLE>
- ---------------
(a) Total long-term debt, including current portion, notes payable, loans
payable, debentures payable and short-term debt.
8
<PAGE> 18
COMPARATIVE PER SHARE DATA
Set forth below are cash dividends declared, net income (loss) and book
value per common share (after recognition of preferred stock liquidation
preferences) data of Osicom and BWAI on an historical basis, and on a pro forma
share basis for Osicom and an equivalent pro forma basis for BWAI. The Osicom
pro forma combined data was derived by combining historical financial
information of Osicom and BWAI after giving effect to the Acquisition under the
pooling method of accounting. The per share equivalent BWAI pro forma data was
calculated by multiplying the Osicom pro forma combined data by the conversion
ratio of .94 shares of Osicom common stock for each share of BWAI common stock.
The information below should be read in conjunction with the respective
audited and unaudited financial statements of Osicom and BWAI contained
elsewhere in this Prospectus.
<TABLE>
<S> <C>
OSICOM (HISTORICAL)
Book value per share:
At January 31, 1996........................................................... $ 0.39
At April 30, 1996............................................................. $ 0.92
Net income per common share:
Year ended January 31, 1996:
Primary..................................................................... $ 0.21
Fully diluted............................................................... $ 0.20
Three months ended April 30, 1996:
Primary..................................................................... $ 0.07
Fully diluted............................................................... $ 0.06
Cash dividends per share........................................................... $ 0.00
BWAI (HISTORICAL)
Book value per share:
At February 29, 1996.......................................................... $ 0.62
At May 31, 1996............................................................... $ 0.77
Loss per common share:
Year ended February 29, 1996:
Primary..................................................................... $ (0.21)
Fully diluted............................................................... $ n/a
Three months ended May 31, 1996:
Primary..................................................................... $ (0.73)
Fully diluted............................................................... $ n/a
Cash dividends per share...................................................... $ 0.00
OSICOM (PRO FORMA UNAUDITED)(A)
Book value per share at April 30, 1996........................................... $ 0.83
Net income (loss) per common share:
Year ended January 31, 1996(b):
Primary..................................................................... $ 0.00
Fully diluted............................................................... $ 0.00
Three months ended April 30, 1996(c):
Primary..................................................................... $ (0.39)
Fully diluted............................................................... $ n/a
Cash dividends per share......................................................... $ 0.00
</TABLE>
9
<PAGE> 19
<TABLE>
<S> <C>
BWAI (PRO FORMA UNAUDITED)(D)
Book value per share at May 31, 1996............................................. $ 0.82
Loss per common share:
Year ended February 29, 1996:
Primary..................................................................... $ (0.23)
Fully diluted............................................................... $ n/a
Three months ended May 31, 1996:
Primary..................................................................... $ (0.78)
Fully diluted............................................................... $ n/a
Cash dividends per share......................................................... $ 0.00
</TABLE>
- ---------------
(a) See "Pro Forma Financial Information."
(b) Includes BWAI results of operations for the year ended Feburary 29, 1996.
(c) Includes BWAI results of operations for the three months ended May 31, 1996.
(d) Represents the pro forma equivalent of one share of BWAI Common Stock
calculated using the conversion ratio of .94 shares of Osicom common stock
for each share of BWAI common stock.
10
<PAGE> 20
COMPARATIVE MARKET PRICE DATA
Osicom Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "FIBR." As of September 4, 1996, there were 874 shareholders of record of
Osicom Common Stock. BWAI's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "BWAI." As of July 22, 1996, there were 805 shareholders of
record of BWAI Common Stock.
The prices set forth below for the periods presented represent high and low
bid quotations for common stock, as reported by independent dealers making a
market in the common stock. Bid quotations represent high and low prices quoted
between dealers, without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
The prices set forth below for the Osicom Common Stock give effect to a
reverse split of one-for-two which became effective November 7, 1994 and a stock
split of two-for-one which became effective February 12, 1996, as if such splits
had occurred before the periods reported. The prices set forth below for the
BWAI Common Stock give effect to a reverse split of one-for-six which became
effective on April 10, 1995 and a reverse split of one-for-two which became
effective on June 30, 1995, as if such splits had occurred before the periods
reported.
Osicom's fiscal quarters end on the last day of April, July, October and
January of each year and BWAI's fiscal quarters end on the last day of August,
November, February and May of each year.
<TABLE>
<CAPTION>
OSICOM COMMON
STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter.................................................. $5 13/16 $4 1/2
Second Quarter................................................. 5 1/2 4
Third Quarter.................................................. 4 1 1/2
Fourth Quarter................................................. 2 3/8 1
1996
First Quarter.................................................. $7 7/8 $2 3/4
Second Quarter................................................. 6 7/8 5 1/2
Third Quarter.................................................. 10 3/8 5 1/2
Fourth Quarter................................................. 13 7/8 6 3/8
1997
First Quarter.................................................. $15 7/8 $6 7/16
Second Quarter................................................. 20 1/2 16 3/8
Third Quarter (through September 4, 1996)...................... 12 1/8 8 1/16
</TABLE>
<TABLE>
<CAPTION>
BWAI'S COMMON
STOCK
-----------------
<S> <C> <C>
1995
First Quarter.................................................. $31 1/2 $10 1/2
Second Quarter................................................. 33 11 1/4
Third Quarter.................................................. 15 4 1/2
Fourth Quarter................................................. 6 3/8 2 1/2
1996
First Quarter.................................................. $ 10 $1 3/4
Second Quarter................................................. 6 3/4 4 3/4
Third Quarter.................................................. 11 1/8 5 3/8
Fourth Quarter................................................. 19 8 5/8
1997
First Quarter.................................................. $15 7/8 $6 3/16
</TABLE>
Neither Osicom nor BWAI has paid any cash dividends on its Common Stock. It
is the policy of Osicom's Board of Directors to retain earnings, if any, for use
in the operation of its business. Osicom has no current plans to begin paying
dividends on its Common Stock.
There are no contingencies in the Acquisition Agreement related to the
current market price of either Osicom or BWAI Common Stock. On September 3,
1996, the closing bid price per share of Osicom Common Stock was $11.00 and the
closing bid price per share of BWAI Common Stock was $9.75, in each case as
reported by Nasdaq. BWAI SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR OSICOM COMMON STOCK AND BWAI COMMON STOCK.
11
<PAGE> 21
RISK FACTORS
BWAI Shareholders should carefully consider the following factors regarding
an investment in Osicom Common Stock, in addition to the other information
contained in this Proxy Statement/Prospectus in deciding whether to vote in
favor of the Acquisition Agreement and Plan of Liquidation.
BWAI and Osicom are collectively referred to in this Section of this Proxy
Statement/Prospectus as the "Company," which references are based on the
presumption that the Acquisition will have been consummated.
CONFLICT OF INTEREST
The Chairman of the Board of BWAI, Par Chadha, owns directly or indirectly
727,934 shares or 18.3%, of BWAI's Common Stock. Mr. Chadha is also a director,
and his wife, Sharon G. Chadha, is the Chairman and the Chief Executive Officer,
of Osicom. Par Chadha and Sharon Chadha directly or indirectly own 672,950
shares, or 18.7%, of Osicom's Common Stock. As a result, there are potential
conflicts of interest in the Chadhas' voting to approve the Acquisition and Plan
of Liquidation. However, Mr. Chadha abstained from voting as a director of BWAI,
the Osicom Board includes directors having no affiliation with BWAI and the BWAI
Board includes a director having no affiliation with Osicom, and both Boards
unanimously approved the Acquisition Agreement and the BWAI Board unanimously
approved the Plan of Liquidation.
VOLATILITY OF COMMON STOCK PRICES
There has been significant volatility in the market prices of securities of
companies in the networking industry, including the Osicom and BWAI Common
Stock. See "Comparative Market Price Data." Various factors and events,
including those relating specifically to Osicom, its vendors or its competitors
and those relating generally to the industry, may have a significant impact on
the trading price of the Osicom Common Stock.
COMPETITION
The markets for the products and services of the Company are intensely
competitive, highly fragmented and characterized by rapidly changing technology,
evolving industry standards, price competition and frequent new product
introductions. A number of companies offer products that compete with one or
more of the Company's products. The Company's current and prospective
competitors include original equipment manufacturers ("OEMs"), product
manufacturers of Internet access and remote LAN access equipment, and
manufacturers of LAN servers and client access and network systems products. In
the Internet access and remote LAN access equipment market, the Company competes
primarily with Cisco, 3Com, U.S. Robotics, Ascend Communications, Tektronics,
Scientific Atlanta, Gandalf, Cabletron, BAY Network, Network Peripherals,
Interphase, Microdyne, Assante, and several other companies. The Company has
experienced and expects to continue to experience increased competition from
current and potential competitors, many of who have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger customer base than the Company. Accordingly, such
competitors or future competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. In particular, established companies in the personal computer industry
may seek to expand their product offerings by designing and selling products
using competitive technology that could render the Company's products obsolete
or have a material adverse effect on the Company's sales. The markets in which
the Company competes currently are subject to intense competition and the
Company expects additional price and product competition as other established
and emerging companies enter these markets and new products and technologies are
introduced. Increased competition may result in further price reductions,
reduced gross margins and loss of market share, any of which could materially
and adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that competitive factors
faced by the Company will not have a material adverse effect on the Company's
business, operating results and financial conditions.
12
<PAGE> 22
NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON LAN AND
WAN TECHNOLOGIES
The personal computer industry is characterized by rapidly changing
technologies, evolving industry standards, frequent new product introductions,
short product life cycles and rapidly changing customer requirements. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend on its ability to enhance its existing
products and to introduce new products to meet changing customer requirements
and emerging technologies. As other communications technologies such as Gigabit
Ethernet, Fibre Channel, Frame Relay, Asynchronous Transfer Mode ("ATM"),
Asymmetric Digital Subscriber Line ("ADSL") and communication over copper, fiber
or wireless networks, are developed and gain market acceptance, the Company will
be required to enhance its connectivity products to support such technologies,
an effort which will be costly and time consuming. If the Company is unable to
modify its products to support new LANs and WANs, including Internet access
technologies, or if its current and prospective future products do not achieve
widespread customer acceptance as a result of the adoption of alternative
technologies, the Company's business, operating results and financial condition
would be materially and adversely affected. The Company has historically derived
a substantial majority of its revenues from the sale of networking products. In
the event that current LAN and WAN technology is modified or replaced and the
Company is unable to modify its products to support new technology, or
alternative technologies, the Company's business, operating results and
financial condition could be materially and adversely affected. The Company has
in the past and may in the future experience delays in new product development.
There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to technological
change, evolving industry standards and changing customer requirements; that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. Failure of the Company, for technological or other reasons,
to develop and introduce new products and product enhancements in a timely and
cost-effective manner would have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the future
introduction or even announcement of products by the Company or one of its
competitors embodying new technologies or changes in industry standards or
customer requirements could render the Company's then-existing products obsolete
or unmarketable. There can be no assurance that the introduction or announcement
of new product offerings by the Company or one or more of its competitors will
not cause customers to defer purchase of existing Company products. Such
deferment of purchases could have a material adverse effect on the Company's
business, operating results and financial condition.
Complex products such as those offered by the Company may contain
undetected or unresolved defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company,
defects will not be found in new products or new version or products following
commercial release, resulting in loss of market share, delay in or loss of
market acceptance, or product recall. Any such occurrence could have a material
adverse effect upon the Company's business, operating results or financial
condition. See "Certain Information Concerning Osicom -- Products and Markets."
DEPENDENCE ON CONTRACT MANUFACTURERS AND LIMITED SOURCE SUPPLIERS
Though the Company manufactures many of its own products, it also
materially relies upon independent contractors to manufacture to specification
certain of its other components, subassemblies, systems and products. The
Company also relies upon limited-source suppliers for a number of components
used in the Company's products, including certain key microprocessors and
integrated circuits. There can be no assurance that these independent
contractors and suppliers will be able to meet the Company's future requirements
for manufactured products, components and subassemblies in a timely fashion. The
Company generally purchases limited-source components pursuant to purchase
orders and has no guaranteed supply arrangements with these suppliers. In
addition, the availability of many of these components to the Company is
dependent in part of the Company's ability to provide its suppliers with
accurate forecasts of its future requirements. The Company believes that there
are alternative suppliers of alternative components for all of the components
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contained in this products. However, any extended interruption in the supply of
any of the key components currently obtained from a limited source would disrupt
its operations and have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON PROPRIETARY RIGHTS AND TECHNOLOGY
The Company's ability to compete is dependent in part on its proprietary
rights and technology. The Company relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures and
contract provisions to protect its proprietary rights. The Company generally
enters into confidentiality agreements with its employees, and sometimes with
its resellers, distributors, customers and potential customers and limits access
to the distribution of its software, hardware designs, documentation and other
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to prevent the misappropriation of its
technology. Furthermore, though the Company has been issued patents, there can
be no assurance that the patent application process will be beneficial to the
Company. Patents applications may be denied. Any patents, once issued, may be
circumvented by competitors of the Company. Furthermore, there can be no
assurance that others will not develop technologies that are superior to the
Company's. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competing companies will not
independently develop similar technology.
DEPENDENCE ON KEY PERSONNEL
The Company's business and prospects depend to a significant degree upon
the continuing contributions of its key management, sales, marketing, product
development, marketing and administrative personnel. The Company does not have
employment contracts with its key personnel and does not maintain any key person
life insurance policies. The loss of key management or technical personnel could
materially and adversely affect the Company's business, operating results and
financial condition. The Company believes that its prospects depend in large
part upon its ability to attract and retain highly-skilled engineering,
managerial, sales, marketing and administrative personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. Failure to attract and
retain key personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
COMPLIANCE AND REGULATIONS AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is characterized by the need to meet
a significant number of communications regulations and industry standards, some
of which are evolving as new technologies are deployed. In the United States,
the Company's products must comply with various regulations defined by the
Federal Communications Commission and standards established by Underwriters
Laboratories and Bell Communications Research for some public carrier services,
installed equipment does not fully comply with current industry standards, and
this noncompliance must be addressed in the design of the Company's products.
Standards for new services such as Frame Relay, ATM, Gigabit Ethernet and Fibre
Channel are still evolving. The Company is a member of several standards
committees including Gigabit Ethernet, ATM and FDDI, to enable the Company to
participate in the development of standards for emerging technologies. However,
as these standards evolve, the Company will be required to modify its products
or develop and support new versions of its products. The failure of the
Company's products to comply,or delays in compliance, with the various existing
and evolving industry standards could delay introduction of the Company's
products, which could materially and adversely affect the Company's business,
operating results and financial condition.
Government regulatory policies are likely to continue to have a major
impact on the pricing of existing as well as new public network services and
therefore are expected to affect demand for such services and the
telecommunications product that support such services. Tariff rates, whether
determined by network service
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providers or in respondent regulatory directives, may affect the
cost-effectiveness of deploying communication services. Such policies also
affect demand for telecommunications equipment, including the Company's current
and planned products.
In foreign countries, the Company's products are subject to a wide variety
of governmental review and certification requirements. Any future inability to
obtain on a timely basis foreign regulatory approvals could materially and
adversely affect the Company's business, operating results and financial
condition.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS
The present directors, executive officers and principal shareholders, and
their affiliates and related persons, will beneficially own approximately 51% of
the outstanding shares of the Company's Common Stock upon completion of the
Acquisition and Plan of Liquidation. As a result, these shareholders will have a
significant influence upon all matters requiring shareholder approval, including
the election of directors, and will continue to have significant influence over
the affairs of the Company. Such concentration of ownership may have the effect
of delaying, deferring or preventing a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of Common Stock for future sales, will have on
the market price of the Common Stock prevailing from time to time. Sales of a
substantial number of shares of Common Stock in the public market could
adversely affect the market price for the Company's common stock.
FORWARD-LOOKING STATEMENTS
This Proxy Statement Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements include the
Company's plans to introduce Gigabit Ethernet, ATM switches for workgroups and
enterprise markets, scalable routers with broad practical support and
aggregation possibilities, and the Company's plans to develop new products,
expand its sales force, expand its customer base, make acquisitions and expand
within international markets. Such forward-looking statements also include the
Company's expectations concerning factors affecting the markets for its
products, such as demand for increased bandwidth, the migration from private to
public networks, growth in the corporate use of the Internet, expansion of
switches between LANs, remote access for corporate networks, deregulation and
increased competition, the introduction of a wide range of new communication
service and technologies and growth in the domestic and international market for
network access solution. Actual results could differ from those projected in any
forward-looking statements for the reasons detailed in the other sections of
this "Risk Factors" portion of this Proxy Statement/Prospectus, and the Company
assumes no obligation to update the forward-looking statements, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's backlog at the beginning of each quarter typically is not
sufficient to achieve expected sales for that quarter. To achieve its sales
objective the Company is dependent upon obtaining orders during each quarter for
shipment in that quarter. Furthermore, the Company's agreements with its
customers typically provide that they may change delivery schedules and cancel
orders within specified times frames, typically 30 days or more prior to the
scheduled shipment date, without significant penalty. The Company's customers
have in the past built, and may in the future build, significant inventory in
order to facilitate more rapid deployment of anticipated major projects or for
other reasons. Decisions by such customers to reduce their inventory levels have
led and could lead to reductions in purchases from the Company. These
reductions, in turn, have and could cause fluctuations in the Company's
operating results and have had and could have an adverse effect on the Company's
business, financial condition and results of operations in the periods in which
the inventory is reduced.
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Delays or lost sales have and can be caused by other factors beyond the
Company's control, including late deliveries by other vendors of components in a
customer's system, changes in implementation priorities, slower than anticipated
growth in demand for the services that the Company's products support and delays
in obtaining regulatory approvals for new services. Delays and lost sales have
occurred in the past and may occur in the future. Operating results in recent
periods have been adversely affected by delays in receipt of significant
purchase orders from customers. In addition, the Company has in the past
experienced delays as a result of the need to modify its products to comply with
unique customer specifications. These and similar delays or lost sales could
materially and adversely affect the Company's business, operating results and
financial condition.
The Company's industry is characterized by declining prices of existing
products, therefore continual improvements of manufacturing efficiencies and
introduction of new products and enhancements to existing products are required
to maintain gross margins. In response to customer demands or competitive
pressures, or to pursue new product or market opportunities. the Company may
take certain pricing or marketing actions, such as price reductions, volume
discounts, or provisions of services at below market rates. These actions could
materially and adversely affect the Company's business, operating results and
financial condition.
MANAGEMENT OF GROWTH
The Company has experienced growth through acquisitions as well as internal
growth. The future near-term success of the Company will depend upon achieving
harmonious relations among key employees, combining operations to realize
efficiencies in manufacturing, marketing and sales, and implementing product
strategies which allow the benefits of research and development advances in
individual subsidiaries to be utilized throughout the Company as a whole. The
Company's ability to achieve these objectives will materially affect its
business, prospects and financial condition.
THE MEETING
GENERAL
This Proxy Statement/Prospectus and the accompanying notice of the Meeting
and form of proxy are being furnished to all holders of record on the Record
Date of shares of BWAI Common Stock in connection with the solicitation of
proxies by the BWAI Board for use at the Meeting to be held on September 30,
1996, commencing at 9:00 a.m. at 9990 Mesa Rim Road, San Diego, California, and
any adjournment or postponement thereof. These proxy materials are being mailed
to the BWAI Shareholders on or about September 9, 1996.
At the Meeting, the BWAI Shareholders will be asked to consider and vote
upon a proposal to adopt the Acquisition Agreement and the Plan of Liquidation.
Pursuant to the Acquisition Agreement, BWAI will sell substantially all of its
assets to Osicom in consideration of (a) .94 shares of Osicom Stock for each
share of BWAI Common Stock outstanding and (b) warrants, options and preferred
stock having terms and conditions identical to BWAI's outstanding warrants,
options and preferred stock. Pursuant to the Plan of Liquidation, BWAI will be
liquidated and distribute such Osicom Common Stock, warrants, options and
preferred stock to the holders of such BWAI securities in liquidation thereof,
at the rate of .94 shares of Osicom Common Stock for each share of BWAI Common
Stock outstanding or issuable pursuant to such warrants, options and preferred
stock.
The Acquisition Agreement and the Plan of Liquidation are attached as
Exhibits A and C to this Proxy Statement/Prospectus and are incorporated herein
in their entirety. See "The Acquisition," "The Acquisition Agreement" and "Plan
of Liquidation."
It is not anticipated that any matter other than the proposal to adopt the
Acquisition Agreement and the Plan of Liquidation will be brought before the
Meeting. If any other matter is properly presented at the Meeting for
consideration, including, among other things, a motion to adjourn the Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed form of proxy
card and acting thereunder will have discretion to vote on such matter in
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accordance with their best judgment; provided, however, that no proxy that
directs the shares represented thereby to be voted against the proposal to adopt
the Acquisition Agreement and Plan of Liquidation will be voted in favor of any
adjournment of the Meeting for purposes other than the absence of a quorum.
VOTING AT THE MEETING
RECORD DATE. The close of business on July 22, 1996 has been fixed as the
Record Date for determining the BWAI Shareholders entitled to notice of and to
vote at the Meeting. On the Record Date, there were 3,983,237 shares of BWAI
Common Stock outstanding and entitled to vote, held by approximately 855 holders
of record. BWAI Shareholders may cast one vote per share, either in person or by
proxy, on each matter to be voted on at the Meeting.
REQUIRED SHAREHOLDER VOTE. The presence of a majority of the outstanding
shares of BWAI Common Stock, represented in person or by proxy, is required for
a quorum at the Meeting. The affirmative votes of the holders of a majority of
the outstanding shares of BWAI Common Stock are required to approve the proposal
to adopt the Acquisition Agreement and Plan of Liquidation. Abstentions and
broker non-votes will have the same effect as votes against adoption of the
Acquisition Agreement. The holders of approximately 50% of such outstanding
shares, have granted to BWAI's Board of Directors irrevocable proxies to vote
all such shares FOR adoption of the Acquisition Agreement.
PROXIES
All shares of BWAI Common Stock represented at the Meeting by properly
executed proxies received prior to or at the Meeting, unless the proxies have
previously been revoked, will be voted in accordance with the instructions on
such proxies. If no instructions are given, proxies will be voted FOR adoption
of the Acquisition Agreement and the Plan of Liquidation. If any other matters
are properly presented to the Meeting for action, the persons named in the
enclosed form of proxy as acting thereunder will have discretion to vote on such
matters in accordance with their best judgment, except in the case of
shareholders' proxies which indicate a vote against the Acquisition. BWAI does
not know of any matters other than adoption of the Acquisition Agreement and
Plan of Liquidation and procedural matters relating to the conduct of business
at the Meeting that will be presented at the Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by delivery to
the Secretary of BWAI at 2800 28th Street, Suite 100, Santa Monica, California
90405, of a written notice of revocation bearing a later date than the proxy, by
duly executing and delivering to the Secretary a subsequent proxy relating to
the same shares, or by attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy).
Proxies are being solicited by and on behalf of the BWAI Board. In addition
to solicitation by mail, proxies may be solicited by directors and authorized
officers and employees of BWAI in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of shares of BWAI Common Stock held of record by
such persons, and BWAI may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith.
All information in this Proxy Statement/Prospectus concerning Osicom and
its subsidiaries and the Osicom Common Stock (other than information provided in
"The Acquisition -- Background, Recommendations of BWAI's Board of Directors and
Reasons for the Acquisition") has been provided by Osicom and all information
concerning BWAI and its subsidiaries and the BWAI Common Stock and all of the
information contained in "The Acquisition -- Background, Recommendations of
BWAI's Board of Directors and Reasons for the Acquisition" has been provided by
BWAI.
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THE ACQUISITION AND PLAN OF LIQUIDATION CONSTITUTE MATTERS OF GREAT
IMPORTANCE TO BWAI'S SHAREHOLDERS. UPON ADOPTION OF THE ACQUISITION AGREEMENT
AND CONSUMMATION OF THE ACQUISITION AND PLAN OF LIQUIDATION, THE DIRECT EQUITY
INVESTMENT IN BWAI BY BWAI'S SHAREHOLDERS WILL CEASE, AND SUCH SHAREHOLDERS
(OTHER THAN HOLDERS OF THE DISSENTING SHARES) WILL BE ENTITLED TO RECEIVE OSICOM
COMMON STOCK. ACCORDINGLY, BWAI SHAREHOLDERS ARE URGED TO READ AND CONSIDER
CAREFULLY THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS,
INCLUDING THE INFORMATION DISCUSSED IN "RISK FACTORS."
THE BWAI BOARD UNANIMOUSLY RECOMMENDS THAT BWAI SHAREHOLDERS VOTE FOR
ADOPTION OF THE ACQUISITION AGREEMENT AND THE PLAN OF LIQUIDATION.
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THE ACQUISITION
This section of the Proxy Statement/Prospectus describes certain aspects of
the Acquisition. The following description does not purport to be complete and
is qualified in its entirety by reference to the Acquisition Agreement, which is
attached as Exhibit A to this Proxy Statement/Prospectus. All Shareholders are
urged to read the Acquisition Agreement in its entirety.
BACKGROUND, RECOMMENDATIONS OF BWAI'S BOARD OF DIRECTORS AND REASONS FOR THE
ACQUISITION
The Board of Directors has considered and determined that combining with
Osicom would be of substantial benefit to BWAI and its shareholders. The essence
of the analysis supporting this determination was the complementary, yet not
overlapping, strengths of the two companies, in particular in the areas of
product research and development; general technological expertise, manufacturing
expertise and capacity; and sales channels and customer base. Osicom has been
and is expected to remain for the foreseeable future a technology leader in the
development of products for its customer base, with planning cycles extending up
to twenty-four months in the future. On the other hand, BWAI acquires or
re-designs existing technology for a broader type of market with products
entering at significantly lower price points. Furthermore, employees with
advanced technical expertise -- in particular, product development
skills -- predominate at Osicom. On the other hand, employees whose strengths
lie in the manufacturing and product distribution areas predominate at BWAI.
Also, BWAI has a 258,000 square foot, ISO-9001 facility at which numerous
products can be manufactured for Osicom, which currently uses other OEM's for
most of its manufacturing capacity. With respect to sales channels, BWAI has
historically had as its customers, the major computer and networking industry
OEM's, hardware distributors and value added resellers. Osicom, on the other
hand, has historically had as its customers the original equipment
manufacturers, state and federal governments, and the telephone and cable
providers. It is therefore anticipated that the combined company will provided
expanded market opportunities for both companies, a better utilization or
manufacturing know-how and capacity, and hence improved margins through
increased efficiencies.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendation of the BWAI Board with respect to the
Acquisition Agreement and the Plan of Liquidation, BWAI's Shareholders should be
aware that the Chairman of BWAI, Par Chadha, is also a director and a
shareholder of Osicom, and Mr. Chadha's wife, Sharon G. Chadha is the Chairman
and the Chief Executive Officer of Osicom. Par Chadha and Sharon Chadha directly
or indirectly own 672,950 shares, or 18.7%, of Osicom's Common Stock. As a
result, there are potential conflicts of interest in the Chadhas' voting to
approve the Acquisition and Plan of Liquidation. However, the Osicom Board
includes directors having no affiliation with BWAI and the BWAI Board includes a
director having no affiliation with Osicom, and both Boards unanimously approved
the Acquisition Agreement and the BWAI Board unanimously approved the Plan of
Liquidation.
FEDERAL SECURITIES LAW MATTERS
The shares of Osicom Common Stock to be issued pursuant to the Acquisition
Agreement have been registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares issued to any person
who may be deemed to be an "Affiliate" (as such term is defined for purposes of
Rule 145 under the Securities Act) of Osicom or BWAI at the time of the Meeting.
Affiliates may not sell their shares of Osicom Common Stock acquired in
connection with the Acquisition except pursuant to (i) an effective registration
statement under the Securities Act covering the reoffer and resale such shares,
(ii) paragraph (d) of Rule 145 in the case of persons who are Affiliates of BWAI
at the time of the Meeting, or (iii) any other applicable exemption under the
Securities Act (such as Rule 144 under the Securities Act in the case of persons
who are or become Affiliates of Osicom). Persons who may be deemed Affiliates of
Osicom or BWAI generally include individuals or entities that control, are
controlled by, or are under common control with, Osicom or BWAI, respectively
and may include certain officers and directors, as well as principal
shareholders of Osicom or BWAI, respectively.
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ACCOUNTING TREATMENT
The Acquisition will be accounted for as a pooling of interests in
accordance with generally accepted accounting principles and applicable
accounting rules of the Commission. Therefore, upon consummation of the
Acquisition, Osicom's financial statements will be restated to include BWAI's
financial statements for all periods presented. See "Pro Forma Financial
Information."
CONSEQUENCES TO BWAI IF THE ACQUISITION IS NOT APPROVED
In the event the Acquisition is not approved by BWAI Shareholders, BWAI
would remain an independent company. BWAI would continue to face the competitive
environment and its own uncertain future prospects described in the "Background,
Recommendations of BWAI's Board of Directors and Reasons for the Acquisition"
section of this Proxy Statement/Prospectus. BWAI may also review with its
advisors the possibility of a business combination, merger or acquisition with
another party.
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THE ACQUISITION AGREEMENT
GENERAL
THE TERMS OF THE ACQUISITION ARE CONTAINED IN THE ACQUISITION AGREEMENT, A
COPY OF WHICH IS ATTACHED AS EXHIBIT A TO THIS PROXY STATEMENT/PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE. STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS
WITH RESPECT TO THE TERMS OF THE ACQUISITION ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE ACQUISITION AGREEMENT. BWAI SHAREHOLDERS ARE URGED TO READ THE
FULL TEXT OF THE ACQUISITION AGREEMENT. FOR A LIST OF DEFINED TERMS USED BELOW,
SEE "DEFINITIONS" COMMENCING ON PAGE 68.
Under the Acquisition Agreement, if the Acquisition is approved by BWAI
Shareholders and becomes effective, BWAI will sell substantially all of its
assets to Osicom, which will continue its corporate existence under the laws of
the State of New Jersey. As a result of the Plan of Liquidation, the separate
corporate existence of BWAI will cease.
EFFECTIVE TIME OF ACQUISITION
The Acquisition will be effective upon the completion of the Closing in
accordance with the terms of the Acquisition Agreement. It is presently
anticipated that the Closing will occur on the date of the Meeting.
PAYMENT OF PURCHASE PRICE AND PLAN OF LIQUIDATION
On the Closing Date, Osicom will pay the Purchase Price to BWAI by issuing
.94 shares of Osicom to BWAI for each share of BWAI Common Stock then
outstanding and by issuing warrants, options and preferred stock to BWAI in
equivalent amounts and with substantially identical terms as BWAI's then
outstanding warrants, options and preferred stock. In the event that prior to
the Closing Date the outstanding shares of Osicom Common Stock shall have been
increased, decreased or changed into or exchanged for a different number or kind
of shares or security by reorganization, recapitalization, reclassification,
stock dividend, stock split or other like changes in Osicom Common Stock, then
an appropriate and proportionate adjustment will be made in the number and kind
of shares to be delivered pursuant to the Acquisition Agreement.
Holders of shares of BWAI Common Stock have the right under Section
7-113-102 of the CBCA to dissent from the Acquisition and obtain an appraisal of
the fair value of such shares pursuant to Section 7-113-102 of the CBCA if the
Acquisition is consummated. See "Rights of Dissenting Shareholders."
As soon as practical following the Closing Date, BWAI will implement the
Plan of Liquidation and distribute to each of its shareholders shares of Osicom
Common Stock at the rate of .94 shares of Osicom Common Stock for each share of
BWAI Common Stock outstanding, subject to adjustment as describe above. BWAI
will also distribute the Osicom warrants, options and preferred stock to the
holders of BWAI's warrants, options and preferred stock in exchange therefor.
CONDITIONS TO THE ACQUISITION
The obligations of Osicom and BWAI to consummate the Acquisition are
subject to fulfillment of the following conditions prior to the Closing Date:
(i) the Acquisition Agreement shall have been approved by the Required
Shareholder Vote; (ii) the Registration Statement shall have become effective
under the Securities Act and no stop order suspending such effectiveness shall
have been issued and remain in effect; (iii) all filings required to be made
prior to the Closing Date shall have been made and all authorizations, consents,
orders or approvals of, and all expirations of waiting periods imposed by, any
governmental entity (collectively the "Consents") which are necessary for the
consummation of the Acquisition shall have been obtained or shall have occurred
and shall remain in effect on the Closing Date; (iv) no preliminary or permanent
injunction or other order shall have been issued by any court or governmental
entity which prohibits consummation of the Acquisition; (v) no statute, rule,
regulation, executive order, decree or order of any kind shall have been
enacted, entered, promulgated or enforced by any court or governmental authority
which prohibits consummation of the Acquisition; (vi) there shall not have been
any action taken, or any statute, rule, regulation,
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judgment, order or injunction promulgated, enacted or entered by any state,
federal or foreign government or governmental entity or by any court, domestic
or foreign, that would (x) require the divestiture by Osicom or BWAI or any of
their respective subsidiaries of all or any material portion of the business,
assets or property of any of them or impose any material limitation on the
ability of any of them to conduct their business and own such assets and
properties or (y) impose any limitations on the ability of Osicom effectively to
control in any material respect the business or operations of BWAI or any of
BWAI's subsidiaries; and (vii) Osicom shall have received all state securities
laws and "blue sky" permits and other authorizations necessary to consummate the
transactions contemplated by the Acquisition.
The obligation of BWAI to effect the Acquisition is subject to satisfaction
of the following additional conditions at or prior to the Closing Date (each of
which may be waived by BWAI): (i) Osicom shall have performed its agreements
contained in the Acquisition Agreement in all material respects; (ii) the
representations and warranties of Osicom set forth in the Acquisition Agreement
shall be true and correct in all material respects at and as of the Closing Date
as if made at and as of such date, unless stated in the Acquisition Agreement to
be true on and as of another date, in which case such representation and
warranty shall have been true in all material respects on and as of such date;
(iii) no change shall have occurred (and no condition, event or development
shall have occurred involving a prospective change) in the condition of Osicom
which is or may be materially adverse to such condition; and (iv) shall have
received the opinion of Greenbaum, Rowe, Smith, Rowe, Davis & Himmel concerning
the matters identified in the Agreement.
The obligations of Osicom to effect the Acquisition are subject to
satisfaction of the following additional conditions at or prior to the Closing
Date (each of which may be waived by Osicom): (i) BWAI shall have performed its
agreements contained in the Acquisition Agreement in all material respects; (ii)
the representations and warranties of BWAI shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of the
Closing Date, unless stated in the Acquisition Agreement to be true and as of
another date, in which event such representation and warranty shall have been
true in all material respects on and as of such date; (iii) no change shall have
occurred (and no condition, event or development shall have occurred involving a
prospective change) in the condition of BWAI or any of its subsidiaries which is
or is reasonably likely to be materially adverse to such condition; (iv) holders
of not more than ten percent (10%) of the outstanding shares of BWAI Common
Stock entitled to relief as dissenting shareholders under the CBCA shall have
properly served a written demand upon BWAI for the payment of the fair cash
value of their shares of BWAI Common Stock; and (v) BWAI shall have received the
opinion of Michael Sobel, Esquire concerning the matters identified in the
Acquisition Agreement.
CERTAIN COVENANTS
COVENANTS OF BWAI. In the Acquisition Agreement, BWAI has agreed that,
prior to the Closing Date, unless Osicom otherwise agrees, or as otherwise
contemplated by the Acquisition Agreement, BWAI and its subsidiaries will
conduct their respective operations only in the ordinary course of business
consistent with past practices and neither BWAI nor any subsidiary thereof shall
take certain actions not in the ordinary course of business, that might impact
on their respective financial conditions or businesses. In addition, BWAI has
agreed that neither it nor any of its subsidiaries nor any of the respective
officers, directors, employees, representatives, investment bankers, attorneys,
accountants and other agents and affiliates (collectively, "Representatives") of
BWAI or any of its subsidiaries shall, prior to the Closing Date, subject to
fiduciary duties of its Board of Directors under applicable law, directly or
indirectly, take any action to encourage, solicit, initiate, discuss or
negotiate with, or furnish any information to, or afford any access to the
properties, books or records of BWAI, to any person other than Osicom and its
Representatives in connection with any possible or proposed merger,
consolidation, business combination, liquidation, reorganization, sale or other
disposition of a material amount of assets, acquisition of a material amount of
assets or similar transaction involving BWAI.
COVENANTS OF BWAI AND OSICOM. In the Acquisition Agreement, each of BWAI
and Osicom agrees that except as consented to by the other, prior to the Closing
Date, it will not declare, pay or make any dividend or other distribution or
payment with respect to, or split, redeem or reclassify, any shares of capital
stock.
22
<PAGE> 32
TERMINATION
The Acquisition Agreement may be terminated notwithstanding the approval of
BWAI Shareholders: (i) at any time prior to the Closing Date, by mutual consent
of each of the respective parties to the Acquisition Agreement; (ii) by either
Osicom or BWAI if the Acquisition is not consummated on or before September 30,
1996; (iii) by Osicom or BWAI if there has been a breach of a representation,
warranty or covenant of the other party in the Acquisition Agreement or a
failure of any condition to which the obligations of such party are subject,
except as provided in the Acquisition Agreement; (iv) by BWAI, if its
shareholders do not adopt the Acquisition Agreement at the Meeting; or (v) by
Osicom or BWAI if any court of competent jurisdiction in the United States or
other United States governmental body shall issue an order, decree or ruling to
take any other action permanently restraining, enjoining or otherwise
prohibiting the Acquisition and such order, decree or ruling or other action
shall have become final and unappealable.
In the event that Osicom or BWAI terminates the Acquisition Agreement on
account of an intentional or willful breach of a representation, warranty or
covenant by the other, then the terminating party shall have the right to pursue
its legal and equitable remedies for breach of contract. In the event that
Osicom or BWAI terminates the Acquisition Agreement on account of a breach of a
representation, warranty or covenant of the other which is not intentional or
willful, then the terminating party shall have the right to recover its costs
and expenses incurred in connection with the transactions contemplated by the
Acquisition Agreement.
CERTAIN OTHER PROVISIONS OF THE ACQUISITION AGREEMENT
The Acquisition Agreement provides that any provision of the Acquisition
Agreement may be (i) waived by the party benefitted by the provision or by both
parties by a writing executed by an executive officer or (ii) amended or
modified at any time (including the structure of the transaction) by an
agreement in writing between the parties thereto approved by their respective
Boards of Directors, except that, after the vote by the BWAI Shareholders at the
Meeting, no such amendment or modification which by law requires further
approval by shareholders may be made without further shareholder approval.
Except as provided in the preceding sentence, any such waiver, amendment or
modification can be made after the mailing of this Proxy Statement/Prospectus or
approval of the Acquisition by BWAI's shareholders without resoliciting such
approval. BWAI would consider whether to resolicit shareholder approval in light
of the circumstances, but would not be required to do so.
23
<PAGE> 33
PLAN OF LIQUIDATION
A COPY OF THE PLAN OF LIQUIDATION IS ATTACHED AS EXHIBIT C TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. STATEMENTS IN THIS
PROXY STATEMENT/PROSPECTUS WITH RESPECT TO THE TERMS OF THE PLAN OF LIQUIDATION
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN OF LIQUIDATION. BWAI
SHAREHOLDERS ARE URGED TO READ THE FULL TEXT OF THE PLAN OF LIQUIDATION.
REASONS FOR THE PLAN OF LIQUIDATION
Under the present organization of BWAI and its subsidiaries, BWAI acts as a
holding company and has no business operation of its own. In the event the
Acquisition is consummated, the assets of BWAI will consist primarily of the
Osicom Common Stock which constitutes the proceeds from the Acquisition by
Osicom.
The Board of Directors has considered the uncertainties and risks inherent
in an acquisition program, or in a program to expand BWAI's business after the
Acquisition, as well as the federal income tax consequences to BWAI if BWAI were
not liquidated. See "Federal Income Tax Consequences." Based on these
considerations, the Board has determined that the liquidation and dissolution of
BWAI is in the best interests of the BWAI Shareholders. The liquidation and
dissolution of BWAI will permit the distribution to BWAI's Shareholders of the
Shares of Osicom Common Stock.
Under Colorado corporate law and BWAI's certificate of incorporation, the
affirmative vote of the holders of a majority of the votes that holders of
outstanding shares of BWAI Common Stock are entitled to cast at the meeting is
required to approve the Plan of Liquidation.
THE BOARD OF DIRECTORS OF BWAI RECOMMENDS A VOTE FOR
ADOPTION OF THE PLAN OF LIQUIDATION.
The Acquisition and the Plan of Liquidation are presented to the BWAI
Shareholders for a single, unified vote because it is not intended that the Plan
of Liquidation will be implemented if the Acquisition is not approved.
Furthermore, the Plan of Liquidation will not be implemented if the Acquisition
is not consummated for any reason, even if approved by the BWAI Shareholders.
THE PLAN OF LIQUIDATION
The Plan of Liquidation provides that all of the business and assets of
BWAI shall be sold, exchanged, disposed of and/or distributed to the BWAI
Shareholders as soon as practicable after adoption of the Plan of Liquidation by
the BWAI Shareholders. BWAI shall distribute to the BWAI Shareholders, on a pro
rata basis, all BWAI's assets and property of whatever kind and character in
such forms as the Board of Directors may determine, less assets reasonably used
or retained to pay or make provision for all debts, claims, expenses,
liabilities and other obligations of BWAI. Absent unforeseen circumstances, BWAI
anticipates that distributions will be made to shareholders within forty-five to
sixty days after the Closing Date and that final dissolution of the Company will
be complete within one year from the Closing Date. Distributions under the Plan
shall be in complete cancellation and redemption of the Common Stock of the BWAI
and in complete liquidation of BWAI.
Under applicable Colorado law, distributions, in liquidation to
stockholders are subject to prior payment of or provision for all obligations of
the dissolving corporation. IN THE EVENT A COMPLETE LIQUIDATING DISTRIBUTION IS
MADE TO SHAREHOLDERS WITHOUT PAYMENT OF ALL CORPORATE OBLIGATIONS AND CONTINGENT
OR UNKNOWN LIABILITIES (INCLUDING TAXES, LIABILITIES ESTABLISHED THROUGH
LITIGATION, LIABILITIES UNDER THE ACQUISITION AGREEMENT, ETC.), THE BWAI
SHAREHOLDERS MAY BE LIABLE THEREFOR TO THE EXTENT OF DISTRIBUTIONS RECEIVED BY
THEM.
DISTRIBUTIONS
The Board of Directors has not yet determined the amount of the
distribution to BWAI's Shareholders if the Plan of Liquidation is approved.
However, since the proceeds to be received by the Company from the Acquisition
are fixed under the Acquisition Agreement and will not vary through the date of
Closing, and since, in connection with the Acquisition Osicom will be assuming
all of the operating liabilities of BWAI, the
24
<PAGE> 34
Company estimates that the amount distributed to the stockholders under the Plan
will be approximately .94 shares of Osicom Common Stock per share of the
Company's Common Stock held by each BWAI Shareholder. However, there can be no
assurance that such amount will be distributed due to uncertainties as to
liabilities and operating costs arising during the liquidation period, and
expenses for professional services and other expenses of liquidation. These
expenses will reduce the amount of assets available for ultimate distribution to
BWAI Shareholders. In addition, BWAI may have indemnification obligations under
the Acquisition Agreement.
The Plan of Liquidation provides to the Board of Directors the power to
sell any additional assets of BWAI without further approval of the BWAI
Shareholders. No sale or agreement to sell any assets of BWAI has been made,
except for the Acquisition described herein, pursuant to which substantially all
of the assets of BWAI are being sold. BWAI does not anticipate acquiring any
significant additional assets.
BWAI anticipates that officers and directors of BWAI who are also employees
will continue to be employed by Osicom, and that therefore no significant
compensation will be paid by BWAI to the officers and directors for duties
performed in connection with the Plan of Liquidation.
PAYMENT FOR BWAI COMMON STOCK; EXCHANGE OF CERTIFICATES
In order to receive shares of Osicom Common Stock following the Closing
Date, each holder of certificates (each, a "Certificate") representing shares of
BWAI Common Stock will be required to surrender his or her Certificate or
Certificates, together with a duly executed and properly completed letter of
transmittal and any other required documents to IDATA, Inc. which has been
appointed by Osicom and BWAI as their Exchange Agent for the Acquisition and
Plan of Liquidation (the "Exchange Agent"). The Exchange Agent will provide each
holder of a Certificate with the requisite forms of the letter of transmittal
and other documents referred to above, together with instructions for their use.
Upon receipt of such Certificate or Certificates, together with a duly executed
and properly completed letter of transmittal and any other required documents
from a holder of BWAI Common Stock, the Exchange Agent will arrange for the
issuance and delivery to the person or persons entitled thereto of a certificate
or certificates representing that number of whole shares of Osicom Common Stock
equal to .94 multiplied by the number of shares of BWAI Common Stock represented
by the surrendered Certificate or Certificates.
Shares of Osicom Common Stock will be issued only in whole shares. Former
holders of shares of BWAI Common Stock will not be entitled to receive fractions
of shares Osicom Common Stock but, instead, will be entitled to receive promptly
from the Exchange Agent one full share of Osicom Common Stock per BWAI
Shareholder in lieu of any fractional share.
No dividends or other distributions that are otherwise payable on the
shares of Osicom Common Stock issued in connection with the Acquisition will be
paid to the holder of any unsurrendered Certificate until such Certificate is
properly surrendered to the Exchange Agent. However, upon the proper surrender
of such Certificate to the Exchange Agent (i) there shall be paid to the person
in whose name the stares of Osicom Common Stock are issued the amount of any
dividends that shall have become payable with respect to such shares of Osicom
Common Stock between the Closing Date and the time of such surrender and (ii) at
the appropriate payment date or as soon thereafter as practicable, there shall
be paid to such person the amount of any dividends on such shares of Osicom
Common Stock that shall have a record or due date prior to such surrender and a
payment date after such surrender, subject to any applicable escheat laws or
unclaimed property laws. On proper surrender of a certificate, no interest shall
be payable with respect to the payment of such dividends.
If the Osicom Stock is to be issued to a person other than the registered
holder of the Certificate or Certificates surrendered, it is a condition of such
issuance that the Certificate or Certificates so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment or issuance either pay to the Exchange Agent any
transfer taxes required by reason of the issuance to a person
25
<PAGE> 35
other than the registered owner of the Certificate or Certificates surrendered,
or shall establish to the satisfaction of Osicom that such tax has been paid or
is not applicable.
BWAI SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED PROXY CARD.
26
<PAGE> 36
PRO FORMA FINANCIAL INFORMATION
The unaudited Pro Forma Combined Balance Sheet is based on the historical
balance sheets of Osicom as of April 30, 1996 and BWAI as of May 31, 1996, and
gives effect to the Acquisition as if it had occurred as of the earliest date
presented, after giving effect to the pro forma adjustments described in the
notes thereto.
The unaudited Pro Forma Combined Statement of Operations for the year ended
January 31, 1996 is based on the historical Statements of Operations for Osicom
for the year ended January 31, 1996 and for BWAI for the year ended February 29,
1996, and gives effect to the Acquisition as if it had occurred on February 1,
1995, after giving effect to the pro forma adjustments described in the notes
thereto.
The unaudited Pro Forma Combined Statement of Operations for the three
months ended April 30, 1996 is based on the historical Statements of Operations
for Osicom for the year ended April 30, 1996 and for BWAI for the three months
ended May 31, 1996, and gives effect to the Acquisition as if it had occurred on
February 1, 1995, after giving effect to the pro forma adjustments described in
the notes thereto.
The pro forma financial statements are presented for illustrative purposes
only and are not necessarily indicative of the results which would have occurred
had the Acquisition taken place on the dates indicated or which may occur in the
future and should be read in conjunction with the historical financial
statements of Osicom and BWAI contained elsewhere in this registration
statement.
27
<PAGE> 37
PROFORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------
OSICOM BWAI PRO FORMA PRO FORMA
APRIL 30, 1996 MAY 31, 1996 ADJUSTMENTS COMBINED
-------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................... $ 971,000 $ 4,372,000 $ 5,343,000
Accounts receivable, net................ 4,420,000 5,321,000 9,741,000
Inventory............................... 9,749,000 6,900,000 16,649,000
Other receivables....................... 143,000 796,000 939,000
Other current assets.................... 557,000 600,000 1,157,000
----------- ----------- -----------
Total current assets............ 15,840,000 17,989,000 33,829,000
----------- ----------- -----------
Property and equipment, net............... 3,520,000 8,154,000 11,674,000
Purchased software........................ 4,556,000 0 4,556,000
Excess cost over net assets acquired,
net..................................... 0 2,869,000 2,869,000
Other investments......................... 0 1,623,000 1,623,000
Other assets.............................. 263,000 211,000 474,000
----------- ----------- -----------
Total assets.................... $ 24,179,000 $ 30,846,000 $55,025,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 3,703,000 $ 9,354,000 $13,057,000
Short-term debt......................... 3,943,000 5,834,000 9,777,000
Accrued liabilities..................... 1,486,000 2,110,000 3,596,000
Dividends payable....................... 0 1,256,000 1,256,000
Current maturities of long-term debt.... 500,000 350,000 850,000
Other current liabilities............... 0 252,000 250,000(a) 502,000
----------- ----------- -----------
Total current liabilities....... 9,632,000 19,156,000 29,038,000
----------- ----------- -----------
Long-term debt and capital lease
obligations............................. 3,318,000 3,351,000 6,669,000
Debentures payable........................ 0 2,978,000 2,978,000
Liability for common share put............ 0 1,994,000 1,994,000
Other liabilities......................... 87,000 379,000 466,000
----------- ----------- -----------
Total liabilities............... 13,037,000 27,858,000 41,145,000
----------- ----------- -----------
Stockholders' equity:
Preferred stock, Series A............... 250,000 0 250,000
Preferred stock, Series B............... 5,269,000 0 5,269,000
Common stock............................ 306,000 30,000 318,000(b) 654,000
Additional paid in capital.............. 3,381,000 5,753,000 (318,000)(b) 8,816,000
Treasury stock.......................... (178,000) (178,000)
Retained earnings (deficit)............. 1,936,000 (2,617,000) (250,000)(a) (931,000)
----------- ----------- -----------
Total stockholders' equity...... 11,142,000 2,988,000 13,880,000
----------- ----------- -----------
Total liabilities and
stockholders'
equity........................ $ 24,179,000 $ 30,846,000 $55,025,000
=========== =========== ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
28
<PAGE> 38
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
OSICOM BWAI
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
JANUARY 31, 1996 FEBRUARY 29, 1996 ADJUSTMENTS COMBINED
---------------- ----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales.............................. $7,733,000 $ 7,469,000 $15,202,000
Cost of goods sold..................... 4,621,000 6,594,000 11,215,000
---------- ---------- -----------
Gross Profit......................... 3,112,000 875,000 3,987,000
---------- ---------- -----------
Selling, general and administrative
expenses
Research and development............. 950,000 0 950,000
Amortization of negative goodwill.... (951,000) 0 (951,000)
Other................................ 2,252,000 1,040,000 3,292,000
Acquisition related costs............ 0 0 250,000(c) 250,000
Amortization of excess cost over net
book value of assets acquired..... 0 57,000 57,000
---------- ---------- -----------
Total selling, general and
administrative expenses.... 2,251,000 1,097,000 3,598,000
---------- ---------- -----------
Net Income (loss) from
operations................. 861,000 (222,000) (389,000)
---------- ---------- -----------
Other income (charges)
Investment and other income.......... 0 (64,000) (64,000)
Interest expense..................... (158,000) (2,000) (160,000)
---------- ---------- -----------
Total other charges.......... (158,000) (66,000) (224,000)
---------- ---------- -----------
Net income (loss)............ $ 703,000 $ (288,000) $ 165,000
========== ========== ===========
Accrued dividends on
preferred stock............ 150,000 150,000
---------- -----------
Net income available to
common shareholders........ $ 553,000 $ 15,000
========== ===========
Net income (loss) per common share
Primary.............................. $0.21 $0.00
Fully diluted........................ $0.20 $0.00
Weighted average shares outstanding
Primary.............................. 2,649,006 1,540,193(d) 4,189,199
Fully diluted........................ 2,798,378 1,540,193(d) 4,338,571
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
29
<PAGE> 39
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
OSICOM BWAI
QUARTER ENDED QUARTER ENDED PRO FORMA PRO FORMA
APRIL 30, 1996 MAY 31, 1996 ADJUSTMENTS COMBINED
-------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $6,070,000 $11,414,000 $17,484,000
Cost of goods sold........................ 3,364,000 9,728,000 13,092,000
---------- ----------- -----------
Gross profit............................ 2,706,000 1,686,000 4,392,000
---------- ----------- -----------
Selling, general and administrative
expenses
Research and development................ 658,000 0 658,000
Amortization of negative goodwill....... (238,000) 0 (238,000)
Other................................... 1,898,000 1,090,000 2,988,000
Purchased research and development...... 0 2,408,000 2,408,000
Acquisition related costs............... 0 427,000 250,000(c) 677,000
Amortization of excess cost over net
book value of assets acquired........ 0 33,000 33,000
---------- ----------- -----------
Total selling, general and
administrative expenses............ 2,318,000 3,958,000 6,526,000
---------- ----------- -----------
Net income (loss) from operations.... 388,000 (2,272,000) (2,134,000)
---------- ----------- -----------
Other income (charges)
Investment and other income............. 102,000 102,000
Income taxes............................ (40,000) (40,000)
Interest expense........................ (139,000) (165,000) (304,000)
---------- ----------- -----------
Total other income (charges)......... (139,000) (103,000) (242,000)
---------- ----------- -----------
Net income (loss).................... $ 249,000 $(2,375,000) $(2,376,000)
---------- ----------- -----------
Accrued dividends on preferred
stock.............................. 37,000 37,000
---------- -----------
Net income (loss) available to common
shareholders....................... $ 212,000 $(2,413,000)
========== ===========
Net income (loss) per common share
Primary.............................. $ 0.07 $ (0.39)
Fully diluted........................ $ 0.06 n/a
Weighted average shares outstanding
Primary.............................. 3,198,306 3,041,614(d) 6,175,289
(64,631)(e)
Fully diluted........................ 3,266,667 3,870,700(d) 7,137,367
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
30
<PAGE> 40
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTES TO PRO FORMA BALANCE SHEET
(a) Represents accrual of merger related expenses
(b) Represents the issuance of Osicom common shares in connection with the
merger: 0.94 shares Osicom common stock in exchange for 3,872,938
shares of BWAI common stock issued as of May 31, 1996 less 169,306
shares BWAI common stock subject to a cash put by the holders included
in other liabilities.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(c) Represents accrual of merger related expenses.
(d) Represents the issuance of Osicom common shares in connection with the
merger: 0.94 shares Osicom common stock in exchange for each share of
BWAI common stock; adjustment reflects the calculation of weighted
average shares of BWAI outstanding for the period.
(e) Reflects adjustment to primary weighted average shares outstanding of
Osicom for anti-dilutive common stock equivalents.
31
<PAGE> 41
BUSINESS RELATIONSHIPS BETWEEN THE PARTIES
As of the date of this Proxy Statement/Prospectus, there are no existing
business relationships of a contractual or other nature between Osicom and BWAI,
with the exception of the Acquisition Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is not intended to be a complete description of the
federal income tax consequences of the Acquisition and the Plan of Liquidation.
While BWAI has consulted with counsel regarding these tax consequences, it has
not requested or received a formal opinion from its attorneys nor from the
Service. The federal income tax laws are complex, and each BWAI Shareholder's
individual circumstance may affect the tax consequences to the shareholder or
may give rise to federal income tax issues that are not addressed herein.
Furthermore, no information is provided with respect to the tax consequences of
the Acquisition and Plan of Liquidation under applicable state, local and other
tax laws. Consequently, each BWAI Shareholder is urged to consult a tax advisor
regarding the tax consequences of the Acquisition and Plan of Liquidation to the
Shareholder.
TAX STATUS
BWAI believes that (i) the Acquisition will be treated as a reorganization
pursuant to a plan of reorganization within the meaning of Code Section 368(a)
and regulations thereunder, and (ii) the Plan of Liquidation pursuant to the
plan of reorganization will be treated as an exchange within the meaning of Code
Section 354 and regulations thereunder, with the material federal income tax
consequences set forth below.
This belief is based upon BWAI's review of the laws, regulations, rulings
and judicial decisions as they now exist. However, the possibility exists that
this belief will not be accepted by the Service or would not prevail in court.
No assurances can be given, therefore, as to the tax treatment of the
Acquisition and the Plan of Liquidation.
CERTAIN CONSEQUENCES OF REORGANIZATION STATUS
Provided that the Acquisition and Plan of Liquidation constitute a plan of
reorganization and qualify as a reorganization within the meaning of Code
Section 368(a) and as an exchange of stock and securities in connection with a
reorganization under Code Section 354, respectively, then for federal income tax
purposes: (i) no gain or loss would be recognized by Osicom or BWAI as a result
of the Acquisition; (ii) no gain or loss would be recognized by a holder of BWAI
Common Stock upon receipt of Osicom Common Stock in exchange for BWAI Common
Stock in the Plan of Liquidation; (iii) the aggregate adjusted tax basis of the
shares of Osicom Common Stock to be received by the holder of BWAI Common Stock
as a result of the Plan of Liquidation would be the same as the aggregate
adjusted tax basis in the shares of BWAI Common Stock surrendered in exchange
therefor; and (iv) the holding period of the shares of Osicom Common Stock to be
received by the holders of BWAI Common Stock as a result of the Plan of
Liquidation would include the holding period of the shares of BWAI Common Stock
surrendered in exchange therefor, provided that such shares are held as capital
assets on the Closing Date.
CASH RECEIVED BY HOLDERS OF BWAI COMMON STOCK WHO DISSENT
A holder of shares of BWAI Common Stock who perfects dissenters' rights
under the laws of the State of Colorado and who receives cash payment of the
fair value of his shares of BWAI Common Stock will be treated as having received
such payment in redemption of such shares. Such redemption will be subject to
the conditions and limitations of Code Section 302, including the attribution
rules of Code Section 318. In general, if the shares of BWAI Common Stock are
held by the holder as a capital asset on the Closing Date, a dissenting holder
will recognize capital gain or loss measured by the difference between the
amount of cash received by such holder and the basis for such shares. If,
however, such holder owns, either actually or constructively, any other BWAI
Common Stock or Osicom Common Stock, the payment made to such holder could be
treated as dividend income. In general, under the constructive ownership rules
of the Code, a holder
32
<PAGE> 42
may be considered to own stock that is owned, and in some cases constructively
owned, by certain related individuals or entities, as well as stock that such
holder (or related individuals or entities) has the right to acquire by
exercising an option or converting a convertible security. Each holder of BWAI
Common Stock who contemplates exercising his dissenters' rights should consult
his own tax advisor as to the possibility that the payment to him will be
treated as dividend income.
RIGHTS OF DISSENTING SHAREHOLDERS
Section 7-113-102 of the Colorado Business Corporation Act ("CBCA")
provides that any holder of BWAI Common Stock (a "BWAI Shareholder") who so
desires is entitled to relief as a dissenting shareholder ("Dissenting
Shareholder") and as such may exercise dissenters' rights with respect to the
Acquisition.
The following is a summary of the principal steps a BWAI Shareholder must
take to perfect dissenters' rights under Section 7-113-202 of the CBCA. This
summary does not purport to be complete and is qualified in its entirety by
reference to Section 7-113-201 et seq., a copy of which is contained herein as
Exhibit B. Any BWAI Shareholder contemplating the exercise of dissenters' rights
is urged to review carefully such provisions and to consult an attorney, since
dissenters' rights will be lost if the procedural requirements under Section
7-113-201 et seq. are not fully and precisely satisfied. To perfect dissenters'
rights with respect to any shares of BWAI Common Stock so that they become
Dissenting Shares as described in this Proxy Statement/Prospectus, a Dissenting
Shareholder must satisfy each of the following conditions:
1. FILING WRITTEN NOTICE OF INTENTION TO DISSENT. Prior to the taking
of the vote on the Acquisition, a Dissenting Shareholder must deliver to
BWAI a written notice ("Notice") of the BWAI shareholder's intention to
demand payment for the BWAI Shareholder's BWAI Common Stock if the
Acquisition is effectuated. The Notice should be delivered to BWAI at 2800
28th Street, Suite 100, Santa Monica, California 90405, Attention: Chief
Executive Officer. It is recommended, although not required, that the
Notice be sent by registered or certified mail, return receipt requested.
Voting against the Acquisition will not itself constitute a Notice. FAILURE
TO NOTIFY THE COMPANY PRIOR TO THE MEETING WILL RESULT IN A LOSS OF THE
RIGHT TO DISSENT.
2. NO VOTE IN FAVOR OF THE ACQUISITION AGREEMENT. BWAI Common Stock
("Dissenter's Shares") held by the Dissenting Shareholder must not be voted
at the Meeting in favor of the Acquisition Agreement. This requirement will
be satisfied if a proxy is signed and returned with instructions to vote
against the Acquisition or to abstain from such vote, if no proxy is
returned and no vote is cast at the Meeting in favor of the Acquisition
Agreement, of if the Dissenting Shareholder revokes a proxy and thereafter
abstains from voting with respect to the Acquisition or votes against the
Acquisition at the Meeting. A vote in favor of the Acquisition Agreement at
the Meeting constitutes a waiver of dissenters' rights. A proxy that is
returned signed but on which no voting preference is indicated will be
voted in favor of the Acquisition Agreement and will constitute a waiver of
dissenters' rights. A Dissenting Shareholder may revoke his proxy at any
time before its exercise by filing with BWAI an instrument revoking it or a
duly executed proxy bearing a later date, or by attending and giving notice
of the revocation of the proxy in open meeting (although attendance at the
Meeting will not in and of itself constitute revocation of a proxy).
If the Acquisition is authorized, Section 7-113-203 of the CBCA
requires BWAI to give a written dissenters' notice to all shareholders who
are entitled to demand payment for their shares, no later than ten days
after the effective date of the approval of the Acquisition which created
the dissenters' rights. The notice shall (i) state that the Acquisition was
authorized, (ii) state the effective date or the proposed effective date of
the Acquisition, (iii) state an address at which BWAI will receive payment
demands, (iv) state the address of a place where certificates for
certificated shares must be deposited, (v) inform holders of uncertificated
shares to what extent transfer of the shares will be restricted after the
payment demand is received, (vi) supply a form for demanding payment, which
form shall request a dissenter to state an address to which payment is to
be made, (vii) set the date by which BWAI must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after
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the date the notice required by Section 7-113-203 of the CBCA is given;
(viii) state the requirement of Section 7-113-103 of the CBCA, if elected
by BWAI, and (ix) be accompanied by a copy of Section 7-113-203 of the
CBCA.
3. FILING OF WRITTEN DEMAND. A Dissenting Shareholder must deliver to
BWAI a written demand (the "Demand") for payment of the fair value of the
Dissenter's Shares. The Demand may be in the form delivered by BWAI with
the notice to Dissenting Shareholders described above designed for this
purpose, or may be in another writing.
4. DEPOSIT OF SHARES. A Dissenting Shareholder must deposit the
shareholder's certificates for certificated shares as stated in the notice
to Dissenting Shareholders delivered by BWAI.
Because only BWAI Shareholders of record at the close of business on the
Record Date may exercise dissenters' rights, any person who beneficially owns
shares that are held of record by a broker, fiduciary, nominee, or other holder
and who wishes to exercise dissenters' rights must instruct the record holder of
the shares to satisfy the conditions outlined above. If a record holder does not
satisfy, in a timely manner, all of the conditions outlined in this section, the
dissenters' rights for all of the shares held by that shareholder will be lost.
A Dissenting Shareholder who demands payment in accordance with Section
7-113-204 of the CBCA retains all rights of a shareholder, except the right to
transfer the shares, until the effective date of the Acquisition and has only
the right to receive payment for the shares after the effective date of the
Acquisition.
BWAI, upon the effective date of the Acquisition or upon receipt of a
Demand, whichever is later, shall pay each Dissenting Shareholder the amount
BWAI estimates to be the fair value of the Dissenting Shares, plus accrued
interest. The payment shall be accompanied by the items set forth in detail in
Section 7-113-206 of the CBCA. If, (i) the Dissenting Shareholder believes that
the amount paid for the Dissenting Shares is less than the fair value of the
Dissenting Shares or that the interest due was incorrectly calculated, (ii) BWAI
fails to make payment for the Dissenting Shares within sixty days after the date
set by BWAI for receipt of Demands, or (iii) BWAI does not return the deposited
certificates or release transfer restrictions if the Acquisition does not close,
a Dissenting Shareholder may give written notice to BWAI of the Dissenting
Shareholder's estimate of the fair value of the Dissenting Shares and of the
amount of interest due and may demand payment of such estimate or reject the
amount offered by BWAI and demand payment of the fair value of the shares and
interest due. If, within sixty days of receiving a Demand, such Demand remains
unresolved, BWAI may commence a proceeding and petition the court to determine
the fair value of the shares and accrued interest. If BWAI does not commence
such an action within sixty days of receiving the Demand, BWAI is required to
pay to each dissenter whose demand remains unresolved, the amount demanded. The
court costs and counsel fees associated with such proceeding shall be paid by
BWAI; however, the court has the option of assessing the costs against some or
all of the dissenters in amounts the court finds equitable, if the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment.
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COMPARISON OF RIGHTS OF HOLDERS
OF BWAI COMMON STOCK AND OSICOM COMMON STOCK
Osicom is incorporated under the laws of the State of New Jersey and BWAI
is incorporated under the laws of the State of Colorado. The BWAI shareholders,
whose rights as shareholders are currently governed by Colorado law and BWAI's
Articles of Incorporation, as amended ("BWAI's Articles") and By-Laws ("BWAI's
By-Laws"), will, upon exchange of their shares of BWAI Common Stock for shares
of Osicom Common Stock in the Acquisition and Plan of Liquidation, become
shareholders of Osicom, and their rights as such will be governed by New Jersey
law, Osicom's Certificate of Incorporation, as amended ("Osicom's Certificate")
and ByLaws ("Osicom's By-Laws"). Certain differences between the rights of
holders of BWAI Common Stock and the rights of holders of Osicom Common Stock
resulting from such differences in governing law and documents are summarized
below.
The following is a summary of the material differences in the rights of
holders of BWAI Common Stock and Osicom Common Stock. The following summary does
not purport to be a complete statement of the rights of Osicom Shareholders
under applicable New Jersey law, the Osicom Certificate and the Osicom By-Laws
as compared with the rights of BWAI Shareholders under applicable Colorado law,
the BWAI Articles and the BWAI By-Laws, or a complete description of the
specific provisions referred to herein. Certain provisions contained in New
Jersey laws may discourage certain transactions involving our actual or
threatened change in control of Osicom. To the extent that any of such
provisions has such an effect, shareholders might be deprived of an opportunity
to sell their shares of Osicom Common Stock at a premium above the market price.
CERTAIN VOTING RIGHTS
New Jersey law generally requires approval of any merger, consolidation or
sale of substantially all assets of a corporation at a meeting of shareholders
by a vote of majority of the votes cast by all shareholders entitled to vote
thereon. While a certificate of incorporation of a New Jersey corporation may
provide for a greater vote, the Osicom Certificate does not so provide.
Under Colorado law, unless otherwise provided in the corporation's articles
of incorporation, mergers and other such matters require the approval of the
holders of shares entitling such holders to exercise at least two-thirds of the
voting power of the corporation. The articles of incorporation of a Colorado
corporation may provide for a greater or lesser vote or a vote by separate
classes of stock so long as the vote provided for is not less than a majority of
the voting power of the corporation. The BWAI Articles provide for the approval
of such matters by the vote of the holders of a majority of the BWAI Common
Stock.
If a proposed amendment to the articles of incorporation of a New Jersey
corporation affects adversely the rights, preferences or powers of a class of
stock or group of shareholders (including a class or group without voting
rights) in certain specified matters, such amendment must also be approved by a
majority of the votes cast by holders of that class of stock or group of
shareholders. Unless otherwise provided by a Colorado corporation's articles of
incorporation, Colorado law requires that, among certain other amendments, an
amendment that would change the express terms of a class of shares without
voting rights in any substantially prejudicial manner must be approved by the
holders of two-thirds of such class. The BWAI Articles provide for the approval
of such matters by the vote of the holders of a majority of the BWAI Common
Stock.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Under New Jersey law, a special meeting of shareholders may be called by
the Board of Directors, any shareholder, director, officer or other person as
may be provided in the by-laws. The Osicom By-Laws provide that special meetings
of shareholders may be called by the President or the Board of Directors. Under
New Jersey law, shareholders must generally be given at least 10 days prior
written notice of any shareholders meeting.
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Under BWAI's By-Laws, a special meeting of shareholders may be called by
the President, the Board of Directors or the holders of not less than one-tenth
of all outstanding shares of BWAI entitled to vote at the meeting.
Under New Jersey law, shareholders may act on all matters other than
election of directors without a meeting and without prior notice and a vote with
the written consent of holders of the minimum number of votes required for
approval at the meeting at which all shareholders are present and voting.
However, Osicom's By-Laws permit the shareholders to act without a meeting only
by unanimous written consent. Colorado law and BWAI's By-Laws permit action by
shareholders without a meeting only upon the written consent of all shareholders
entitled to vote.
BOARD-APPROVED PREFERRED STOCK
Both New Jersey law and Colorado law permit a corporation's articles of
incorporation to allow the Board of Directors to issue, without shareholder
approval, a series of preferred stock and to designate the powers, rights,
preferences and privileges thereof and restrictions thereon. Both BWAI Articles
and the Osicom Certificate authorize preferred stock and grant power to the
respective Boards with respect to the issuance and terms of one or more series
os such stock. See "Certain Information Concerning Osicom -- Description of
Capital Stock."
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
New Jersey law and Colorado law have provisions and limitations regarding
directors' liability and regarding indemnification by a corporation of its
officers, directors and employees.
New Jersey law permits a New Jersey corporation to include a provision in
its Certificate of Incorporation which eliminates or limits the personal
liability of a director or officer to the corporation or its shareholders for
monetary damages for breach of fiduciary duties as a director or officer.
However, no such provision may eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for any act or failure to act not in good faith or involving
a knowing violation of law, (iii) resulting in receipt by such person of an
improper personal benefit. The Osicom Certificate includes such a provision; the
BWAI Articles do not, although BWAI is authorized to do so under Colorado law.
The Osicom By-Laws and the BWAI By-Laws require each company to indemnify
current and former directors and officers, and permit each company to indemnify
current and former employees and agents, to the fullest extent permitted by
applicable state law.
Under New Jersey law, a director, officer, employee or agent may, in
general, be indemnified by the corporation if he has acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Under Colorado law, a director, officer, employee or agent may, in general,
be indemnified by the corporation if he has acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
CLASSIFICATION OF BOARD OF DIRECTORS
Both New Jersey law and Colorado law permit, but do not require, the
adoption of a "classified" Board of Directors with staggered terms under which a
part of the Board of Directors is elected each year. Under New Jersey law, the
maximum term of each class of directors is five years, while in Colorado, the
maximum term is three years. Neither Osicom nor BWAI has staggered terms for
directors.
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REMOVAL OF DIRECTORS
In general, under both New Jersey law and Colorado law, any or all of the
directors of a corporation may be removed by a vote of shareholders with or
without cause. Under New Jersey law, the vote of the holders of a majority of
the Osicom Common Stock is required to remove a director. Under Colorado law,
the vote of a majority of the votes cast with regard to the removal is required
to remove a director. New Jersey law permits the Certificate of Incorporation to
restrict the right of the shareholders to remove a director without cause;
however, Osicom's Certificate does not contain such a restriction.
DISSENTERS' RIGHTS
Under both New Jersey and Colorado law, shareholders may perfect
dissenters' rights with regard to corporate actions involving certain mergers,
consolidations, and the sale, lease or exchange of substantially all the assets
of the corporation. However, under New Jersey law, dissenters' rights are
generally denied when a corporation's shares are listed on a national securities
exchange or held of record by more than two thousand persons or in a transaction
where the shareholder will receive cash, shares or other securities which will
be listed on a national securities exchange or held of record by not less than
one thousand holders, or a combination of cash and such securities. Colorado law
does not provide exclusions from dissenters' rights similar to those described
above with respect to New Jersey law.
PAYMENT OF DIVIDENDS
Under both New Jersey and Colorado law, a corporation has the power,
subject to any restrictions in its by-laws, to make distributions to its
shareholders unless, after effect thereto, (i) the corporation would not be able
to pay its debts as they become due in the usual course of business or, (ii) the
corporation's assets would be less than its total liabilities. Plus, in the case
of a Colorado corporation, unless its Certificate of Incorporation permits
otherwise, the amount that would be needed, if the corporation were being
dissolved, to satisfy the preferential rights of any shareholders whose
preferential rights are superior to those shareholders receiving the
distribution. BWAI's Certificate does not contain such a provision.
ANTI-TAKEOVER STATUTE
As a New Jersey corporation, Osicom is subject to the New Jersey
Shareholders Protection Act (the "NJSPA"), which has the affect of prohibiting
Osicom from engaging in any "business combination" with an "interested
stockholder" (defined to include any person who is the beneficial owner of 10%
or more of the corporation's outstanding voting securities or is an affiliate or
associate of the Corporation who has beneficially owned 10% or more of the
voting power of the Corporation at any time during the five year period
immediately prior to the date in question) for five years after the date of the
transaction in which the person became an "interested stockholder," unless the
"business combination" was approved by the Board of Directors prior to that
date. After the 5-year waiting period has elapsed, a "business combination"
between the corporation and an "interested stockholder" will be prohibited
unless the "business combination" is approved by the holders of two-thirds of
the voting stock not beneficially owned by the "interested stockholder," or
unless the price per share to be received by stockholders in the "business
combination" exceeds a certain minimum price which is designed to ensure that
all stockholders (other than "interested stockholders") receive at least the
highest price paid by the "interested stockholder."
The NJSPA defines a "business combination" to include a merger or
consolidation between the Corporation and the interested stockholder, any sale,
lease, exchange, mortgage, pledge, transfer or other disposition to or with the
interested stockholder which exceeds 10% of the aggregate market value of the
corporation's total assets, outstanding stock or income; the issuance or
transfer to the interested stockholder of any stock of the corporation having an
aggregate market value equal to or greater than 5% of the corporation's
outstanding stock; and the receipt by the interested stockholder of any loans or
other financial assistance from the corporation.
The NJSPA does not apply to certain business combinations with persons who
acquire 10% or more of the voting power of the corporation prior to the time the
corporation was required to file periodic reports
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pursuant to the Exchange Act or prior to the time the corporation's securities
began to trade on national securities exchange.
Colorado does not have a similar statute.
ANTI-TAKEOVER EFFECT OF NEW JERSEY LAW AND THE OSICOM CERTIFICATE AND THE OSICOM
BY-LAWS
The differences between New Jersey law and Colorado law described above,
and the terms of the Osicom Certificate and the Osicom By-Laws and the terms of
the BWAI Articles and the BWAI By-Laws may make the acquisition of Osicom by a
person not approved by Osicom's Board of Directors more difficult than would be
the case in the absence of such provisions. As a result, takeover bids, which
could involve the purchase of shares at a premium over market value, may be less
likely to occur.
CERTAIN INFORMATION CONCERNING BWAI
COMPANY OVERVIEW
BWAI designs, manufactures and markets networking, connectivity and add-on
products for LAN markets. BWAI's products include network adapters, hubs,
Ethernet switches, video cards, shared printer network servers and adapters and
printer enhancement products and products utilizing Phase-Locked Loop, direct
analog, and direct digital RF synthesis. The products are sold worldwide to OEMs
and distributors.
Management intends to continue its strategy of acquiring companies that
control proprietary technologies, have significant market share in products
which fit into BWAI's product lines, give BWAI access to new sales channels, or
offer enhanced manufacturing capabilities.
HISTORY
BWAI is a Colorado corporation originally incorporated under the name of
Ceetac Corp. on June 30, 1988, which subsequently did business as Omni
Corporation. The primary purpose of BWAI was to evaluate acquisition candidates
and acquire or merge with those candidates. BWAI was therefore accounted for as
a "development stage company" and, until September 20, 1991, it conducted no
business activities. Thereafter, it operated a building supply business which
BWAI disposed of in May 1995. See "Discontinued Businesses."
ACQUIRED BUSINESSES
A primary goal of the Company in 1996 has been to expand its networking
business through the acquisition of companies both in the United States and
abroad.
Uni Precision Industrial Limited
On April 1, 1996, the Company acquired 100% of the common stock of Uni
Precision Industrial, Ltd. ("Uni"), a Hong Kong corporation, for a purchase
price of $6 million in cash and debt assumed, $500,000 paid at the closing of
the transaction, an additional $5.5 million paid upon completion of audited
financial statements in May, 1996. An additional $4.0 million payment will be
made April 1, 1997 subject to pro rata adjustment based upon Uni achieving net
income after tax of $2.5 million during the 12-month period ending March 31,
1997. The Company incurred additional costs in connection with the purchase of
Uni of $813,000, of which $809,000 was paid through the issuance of restricted
common shares.
Uni has as its corporate headquarters a 14,000 square foot facility in Hong
Kong, and it operates one of the few ISO-9001-certified manufacturing facilities
in China (ISO-9001 being the most stringent of the ISO 9000 series of
standards). UNI has a combined workforce of approximately 1,200 at its 258,000
square foot plant in China and its offices in Hong Kong. Uni derives its
revenues from the design, manufacture and sale of networking products. Uni also
designs and manufactures many other products, including joysticks and cable TV
set-top de-scramblers. Uni also has majority and minority interests in several
technology companies that
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produce such products as advanced hand-held Point of Sale systems and miniature
digital foreign language translators.
Sciteq Electronics, Inc.
On May 31, 1996, through a merger with a newly-formed corporation, Sciteq
Communications, Inc. ("Sciteq"), the Company acquired 100% of Sciteq
Electronics, Inc., for $600,000 in cash, plus stock and below-market stock
options of the Company valued at $2.4 million. A final payment in stock of the
Company valued at $2 million will be made 12 months from closing. The final
payment is subject to pro rata adjustment based upon Sciteq achieving pretax
income of $750,000 in the twelve months ending December 31, 1996. The Company
incurred additional costs in connection with this acquisition of $579,000, of
which $532,000 was paid or will be paid through the issuance of common shares.
Sciteq designs, manufactures and markets products utilizing Phase-Locked
Loop, direct analog, and direct digital RF synthesis, the principal technologies
employed in a wide array of emerging electronic systems including wireless,
fiber optic cable and satellite communications. Sciteq has 18 employees at its
San Diego, California facility.
PDP Acquisition Corp.
On May 24, 1996, the Company, through its newly-created, wholly-owned
subsidiary PDP Acquisition Corp. ("PDPA"), acquired substantially all of the
assets of Pacific Data Products, Inc. ("PDP"). The Company paid $273,000 in cash
and assumed PDP's bank indebtedness of approximately $2.4 million in return for
all of PDP's assets, including cash, accounts receivable, inventory, fixed
assets and intangibles including patents, trademarks, copyrights and certain
specified business agreements. The Company incurred additional costs in
connection with the purchase of PDP's assets of $123,000, of which $121,000 was
paid through the issuance of common shares.
PDP Acquisition Corp. entered into an agreement with Coast Business Credit
("Coast") for a $5 million credit facility secured by all of PDP Acquisition
Corp.'s newly-acquired assets. The Company provided for a $500,000 infusion of
working capital to PDP Acquisition Corp., as well as a limited guarantee of
$750,000 to effectuate the Coast credit facility.
PDP is a designer and manufacturer of shared printer network adapters,
servers and other products including font cartridges and memory modules.
Relialogic Technology Corporation
As mentioned above, on May 31, 1995, the Company acquired 100% of the
outstanding stock of Relialogic Technology Corporation. RTC is a designer and
manufacturer of add-on products for the multimedia computer marketplace, as well
as a distributor of computer products manufactured by others. RTC is also a
provider of video graphics cards in the United States. Sales by RTC are made
primarily through national and regional distributors. RTC subcontracts all of
its manufacturing. Research and development is conducted in-house, as well as by
developers engaged on a project-by-project basis.
Discontinued Businesses
As of May 31, 1995, the Company disposed of its loss-generating,
wholly-owned subsidiary, BWA, Inc., which owned two Arkansas-incorporated
operating subsidiaries, Builders Warehouse Association, Inc., and American
Plywood Sales, Inc., both of which were engaged in the building supply industry.
Such operations incurred an operating loss of approximately $2.4 million during
the year ended May 31, 1995 and had a consolidated negative book value at
disposition of $1,143,042. Under the terms of the disposition agreement the
Company transferred its shares in BWA, Inc., plus 125,000 restricted shares of
its common stock to Krypton Management, Inc., with an approximate market value
of $437,500 at May 31, 1995. In addition, the Buyer assumed future costs and
potential losses from any litigation and claims related to BWA, Inc. and its
activities prior to the disposition.
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BUSINESS STRATEGY
During the fiscal year just completed, and continuing into the immediate
future, the Company's overall strategy has been and will be to position itself
for significant growth in the burgeoning computer interconnectivity/networking
area. As a player in this market, the Company believes that its greatest
potential for growth in sales and earnings is to offer products with large
market appeal and to offer those products at prices low enough that the Company
will be able to garner significant amounts of new market share. The Company has
therefore chosen to acquire technology (through the acquisition of companies
like Sciteq, Uni Precision and PDP that have already developed promising
technologies) rather than rely solely on the expensive and uncertain process of
internal research and development. Similarly, the Company has created corporate
alliances in order to exploit very low-cost manufacturing capacity (as in the
case of Uni Precision) and to expand into new sales and distribution channels
(as in the case of RTC). The centerpiece of this strategy is the Company's broad
and growing product line of more than 100 products. The products themselves
generally fall into one of two categories: Products which serve the growing
Local Area Network market, and products for the similarly emergent wireless,
satellite and fiber optic communications markets which depend upon Radio
Frequency synthesis technology for a high level of performance.
KEY PRODUCTS FOR THE LOCAL AREA NETWORK MARKET
R-Net 800 Series Server Hub
The 800 Series Server Hubs are fully-managed 10Base-T hub cards for
small-to medium-size networks or departmental workgroups within an enterprise
network. The 800 Series hubs are easy to use and install, and are a
cost-effective solution for Ethernet 10Base-T environments. Features include 12
or 24 10Base-T ports per card, an Integrated network management chip for low
server overhead, connectivity to any 10Base-T server network adapter, Novell
HUBCON and HUBSNMP utilities, optional Client Redirector software for NetWare
client installation, and an optional SNMP agent for Windows NT Advanced Server
installation.
Each hub card supports either 12 or 24 ports per card. As many as 8 cards
can be connected to form up to a 192 node network segment. Multiple segments can
also be configured by installing individual hub cards within one host PC. Once
the hub cards are installed in the PC, the hub software automatically detects
the number of cards and the configuration of each card. It even runs diagnostics
to make sure that every port is working properly. The hub automatically
partitions a port that generates too many errors.
R-Net 8000 Series Network Adapter Cards
The 8000 Series is a complete line of 10 Mbps and 10/100 Mbps Ethernet
Network Adapter Cards. Both 32-bit PCI and 16-bit ISA products, with either BNC,
UTP or both are available on various products. The 8000 Series also includes a
PCMCIA LAN adapter card, as well as 8- and 16-port 10Base-T standalone Ethernet
hubs.
Pocket Ethernet Print Servers
Pacific DirectNet PEPS3 is a family of Pocket Ethernet Print Servers for
Novell, TCP/IP and AppleTalk networks. PEPS3 servers support any printer or
plotter with a parallel port, and enable the user to connect a printer anywhere
on a network for maximum convenience and cost efficiency.
The PEPS3 product family is designed to meet the needs of complex networks
and as such fully supports the IPX/SPX protocol for Novell networks.
PEPS3-IPX/XL includes NDS support and is upgradeable to multiprotocol
capabilities, while PEPS3-IPX can only be used as an IPX/SPX server. PEPS3-TCP
dramatically improves printer speed and performance on UNIX-TCP/IP networks.
PEPS3-TCP can only be used in TCP/IP environments. PEPS3-MPS is designed to
support a wide range of protocols (IPX/SPX, TCP/IP, AppleTalk, Windows 95/NT
with DHCP*), while offering complete NDS support. It delivers maximum
flexibility in networks with multiple operating systems.
The PEPS3 servers are the smallest pocket servers on the market, measuring
only 1" x 2.5" x 3". Each includes an SNMP agent, thereby allowing network
management software to recognize and manage printers
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like any other network device, providing real-time printer status information.
They are fully updateable via Flash memory.
Optiform
The OptiForm Flash SIMM and Management Software package transforms an
existing HP LaserJet into a high-speed, on-demand electronic forms printer for
nearly any computing environment. It replaces costly paper forms with dynamic
electronic forms instantly and at the same time prints faster, cuts network
traffic, improves forms management, and enhances data security.
OptiForm is a solution for applications demanding heavy forms printing
capabilities such as insurance, banking, healthcare, and manufacturing. It is
intended to provide cost effective, high quality, flexible solutions for all
corporate stationery needs including invoices, letterhead, fax sheets, checks
and other general business forms. It improves network performance by reducing
graphic data transmitted over the network to shared printers, increasing the
effective network bandwidth. Network access and control are provided for either
centralized or remote management of forms and fonts. OptiForm's SIMMLock feature
ensures complete control of company forms and fonts, preventing unauthorized use
of sensitive forms such as checks and signatures.
KEY PRODUCTS UTILIZING RADIO FREQUENCY SYNTHESIS
Sciteq offers products based on radio frequency synthesis ("RF")
technology. The requirement for RF derives from a growing market need for
multiple frequencies that are accurate, stable and free of noise and distortion.
A single channel radio for instance, is best tuned with a quartz crystal to
achieve these characteristics. However, when multiple channels are required, a
single generator is used to create or "synthesize" all of the desired
frequencies. Thus, a frequency synthesizer is a single generator which is
numerically locked to a reference frequency (the crystal or other source) in
order to preserve the accuracy, spectral purity and stability characteristics of
the reference.
Synthesizers are used broadly in the electronics industry as accurate
tuning devices. Synthesizers provide the world of communications, data
transmission and instrumentation with otherwise unattainable channel density,
clarity and bandwidth (speed). Among Sciteq's various products, all three
technologies, as well as combinations thereof (hybrids) are employed to deliver
performance that best fits the cost-performance criteria of the customer.
Direct Analog ("DA")
This is the most costly end of the product spectrum, but it sometimes
provides features that are mandatory. DA employs electronic circuitry to mix,
multiply and divide the signal to achieve the desired output frequency. This
technique has the advantages of fast switching and excellent phase noise
properties. However it is inherently a costly approach because of the amount of
circuitry required to generate the many references for the mix/filter/divide
process. Sciteq's use of this technology emphasizes cost-effective combinations
that pair it with other technologies to achieve a desired result.
Direct Digital Synthesis ("DDS")
This process utilizes logic and memory to construct a digital
representation of the desired wave form, which is then converted to the desired
analog signal by a data conversion device. Accuracy is achieved by clocking the
digital process with a crystal frequency reference. This technique has most of
the advantages of DA, but is much less costly for a given level of performance.
The Direct Digital Synthesizer provides fine steps, sub-microsecond switching
speed, digital wave form manipulation (modulation), all in a small package with
digital reliability. Sciteq products operate up to 300 MHz and that upper limit
has steadily increased over time. Since this technology can be easily and
reliably reproduced, many DDS products have now been brought into the mainstream
of the electronics industry as off -the-shelf components. Sciteq, however,
remains at the forefront of new technology development in this area.
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Phase Lock Loop ("PLL")
PLL or "Indirect" synthesizers employ feedback loops to continually compare
the output from an oscillator to the reference frequency and correct any errors
through the use of correction signals which restore the oscillator to the
desired output. PLL techniques can cover virtually any frequency range and have
low distortion and excellent stability, all at reasonable cost. Because of these
characteristics, this is the most broadly used synthesizer in the market.
An important Sciteq innovation within this family is the Arithmetically
Locked Loop ("ALL"). The ALL is a PLL-derivative that achieves a given phase
noise performance with fewer parts, lower power consumption, and greatly reduced
cost over PLL's.
OTHER PRODUCTS
Cable Converters, Descramblers and Converter/Descramblers
The Company's Uni subsidiary is a producer of set-top equipment necessary
for home cable television reception. Converters transpose channel signals
emanating from the cable company into a single channel (usually 3) at the user's
television. Descramblers restore the picture and sound of "premium" cable
channels and must be used in conjunction with a converter.
Converter/Descramblers combine both functions in a single unit.
INTELLECTUAL PROPERTIES
Patents
The Company holds patents but does not consider its business to be
dependent upon patent protection. Nevertheless, the Company could be subject to
the risk of adverse claims and litigation alleging infringement of the
proprietary rights of others. Although the Company has not been threatened and
is not involved in any such patent infringement litigation, and while the
Company believes that it is not infringing on the valid patents of others, there
can be no assurances that third parties will not assert infringement claims in
the future or that such claims would not have a material impact on the Company's
business. Following is a list of patents held by the Company and including those
in process:
<TABLE>
<CAPTION>
PATENT PATENT NUMBER
--------------------------------------------------------------- -------------
<S> <C>
Digital Frequency Synthesizer.................................. 4,752,902
Device for Fixing the Phase of Frequency Synthesizer Outputs... 4,868,510
Digital Frequency Synthesizer Having Multiple Processing
Paths........................................................ 4,958,310
Programming Fractional-N Frequency Synthesizer................. 5,224,132
A Source of Quantized Samples for Synthesizing Sine Waves...... 3518 PA 04
</TABLE>
RESEARCH AND DEVELOPMENT IN PROCESS
Sciteq is developing a number of proprietary techniques, which may at a
later date take form as proprietary products, for improving the "digitization"
of data for transmission, reception, analysis and manipulation by computers.
These include:
- Ultra fast signal generators for system agility and multiplexing;
- A Broad Band Digital Wave Form Generators designed to generate sound,
image, cellular information, etc., at clock speeds above 1000 Mhz;
- Next-generation Antennae Control, Downconverters and Phase Shifters for
Digital Cellular Communication;
- "Deglitchers" for use in concert with Digital to Analog Converters;
- Digital Signal Processing (DSP) noise-shaping techniques, including
All-Digital Fractional Synthesis, for use in the Phase Locked Loop
synthesizer;
- Ultra Wide Band FM Discriminators.
42
<PAGE> 52
MANUFACTURING AND QUALITY
Uni operates a registered ISO 9001 manufacturing plant. The Company's
ultimate goal is to have all its products carry the ISO 9001 Seal of Approval
for commercial markets. Since ISO 9001 is the most stringent of the ISO 9000
series, the Company perceives this to be a competitive advantage in global
markets.
Sciteq has adopted total quality management (TQM) and currently has a
program underway involving each of its employees. This program may qualify for
funding from the State of California. Its quality program is compliant with
MIL-Q-9858 and MIL-STD-2000.
PROPERTIES
The Company leases a total of approximately 322,000 square feet of office,
manufacturing and distribution space: 43,300 square feet in the United States,
and 279,000 square feet in Hong Kong and China. The lease term for a 6,000
square foot office and warehouse space in Fremont, California expired on July
31, 1996. Until relocated to an existing facility in San Diego, California the
Fremont space is being occupied on a month to month basis. The Company occupies
37,000 square feet in San Diego with a lease expiring on September 1, 1997, and
32,000 square feet leased on a month-to-month basis. The corporate offices of
the Company occupy 1,000 square feet leased on a month-to-month basis. The
Company leased 21,000 square feet of office and warehouse space in Hong Kong,
which lease expired May 31, 1996. Subsequently, the Company relocated to a
14,000 square foot facility which is owned by the Company. The Company leases
space totaling 258,000 square feet in China used primarily for manufacturing,
warehousing, distribution and administrative offices due to expire on May 31,
1999.
LEGAL PROCEEDINGS
Pending Litigation and Potential Claims
Charles H. Fargo, On behalf of himself and all others similarly situated v.
Joseph McCartney, Robert L. Ott, DeWayne Davis, David Sowell, David Spivey, Tom
Watson and Builders Warehouse Association, Inc., United States District Court,
Eastern Division of Arkansas, Western Division. This complaint was filed on May
9, 1994 by a shareholder of the Company and such shareholder also purports to
represent all persons who purchased stock of the Company between March 3, 1993
through April 17, 1994. The Plaintiff seeks a declaration that his action be
determined a class action under Federal Rules, and for compensatory damages,
costs and attorney fees.
The Plaintiff alleges that the Company violated certain securities laws as
well as committing common law fraud and deceit through the issuance of positive
public statements. The Company believes that the matter is without merit as to
it and as to the directors and officers. The matter is currently in discovery
and the Company believes it is premature to attempt to evaluate the likelihood
of an unfavorable outcome or the extent of such outcome, if any. The Company has
been indemnified against any loss which may result by the purchaser of BWA, Inc.
Columbia Forest Products Corp. d.b.a. Panel Products Division, a Virginia
Corporation v. Builders Warehouse Association., State of Oregon Circuit Court,
Multnomah County, No. 9506-04186. This action was brought by a supplier of
disposed subsidiary for payment of outstanding invoices totaling approximately
$158,000 plus interest. A default judgment was entered against the Company
without proper service. The Company has filed a notice of appeal and it has been
indemnified for any loss resulting from this litigation.
Lee Roy Jordan Redwood Lumber Co. v. Builders Warehouse Association, Inc.,
Arkansas Circuit Court, Faulkner County, No. CIV 95-365. This action was brought
by a supplier of the disposed of subsidiary for payment of invoices totaling
approximately $10,000 plus costs. No discovery has occurred and the Company has
been indemnified against any loss resulting from this litigation.
The Company has been notified that other suppliers may file suit to collect
amounts owed by the disposed subsidiary.
43
<PAGE> 53
The costs and expenses of the outstanding legal proceedings and any
corporate liabilities resulting thereof are the responsibility of the purchaser
of the disposed businesses.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF BWAI
BWAI's Directors, executive officers, and other significant employees are:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ---------------------------------------------
<S> <C> <C>
Par Chadha......................... 41 Director, Chairman of the Board, Chief
Accounting Officer, Secretary
Barry Witz......................... 55 Director, Chief Executive Officer, Chief
Financial Officer
Kelvin Y. O. Li.................... 37 President RTC, CEO UNI Precision Ltd.
John S. Hwang...................... 35 Vice President RTC, CEO PDP Acquisition Corp.
Anthony P. Mauro................... 55 General Manager, Sciteq Communications, Inc.
Bar-Giora Goldberg................. 50 Chief Technology Officer, Sciteq
Communications, Inc.
</TABLE>
All Directors serve until the next Annual Meeting of BWAI Shareholders and
thereafter until their successors have been elected and qualified.
Par Chadha was appointed director and Chairman of the Board of BWAI on
March 30, 1995. Mr. Chadha also serves as a director of Osicom. From January
1995 to July 1995, Mr. Chadha served as a director of Saratoga Brands, Inc., a
Nasdaq company. From September 1993 to November 1993, Mr. Chadha served as
Chairman of the Board and as a Director of Phoenix Laser Systems, Inc., an
American Stock Exchange company engaged in developing laser work stations for
ophthalmologic applications. Since February 1994, Mr. Chadha has served as
President, CEO and Chairman of the Board of Oxford Acquisitions Group, Inc., a
publicly held company engaged in seeking potential business acquisitions. Mr.
Chadha has served as a director of Rand Research Corporation, RII Partners,
Inc., and RT Investments, Inc., a private holding company with investments in
several publicly held companies.
Barry Witz was appointed director of BWAI on March 30, 1995. Mr. Witz also
serves as Chairman of the Board of Saratoga Brands, Inc., a Nasdaq company. Mr.
Witz is focused on turn-around situations, in which he can bring his financial
and legal expertise to assist in financial restructuring, recapitalizations,
mergers and acquisitions. Since 1994, he has been Chairman of the Board,
Director and President of Brite Lite Industries, Inc., a privately held company.
Mr. Witz has acted as an attorney for the United States Securities and Exchange
Commission, he has been an officer of the New York Stock Exchange, and was a
Senior Partner in the law firms of Arney, Hodes, Costello, Berman, and Wood,
Lucksinger and Epstein.
Kelvin Y. O. Li has been President of RTC since its formation in June 1994.
Mr. Li also serves as the Chief Executive Officer of Uni Precision Industry Ltd.
Mr. Li was a founder of Relialogic Corporation and served as its president until
its dissolution in May 1994. Mr. Li was a director of Co-Time Computer and Uni
Precision Industrial in Hong Kong since 1990 and worked as a sales engineering
manager for Hong Kong Ryosan during 1984 through 1989.
John S. Hwang has been Vice President of sales and marketing of RTC since
June 1994. Mr. Hwang also serves as the Chief Executive Officer of PDP
Acquisition Corp. Mr. Hwang served as a consultant to Relialogic Corporation
from 1991 to 1993, when he became its Vice President of sales and marketing; he
served in this position until its dissolution in May 1994. Mr. Hwang was
employed by Samsung America, Inc. from 1984 through 1991; initially as a manager
and from 1989 through 1991 as a Vice President of sales and marketing for
computer and monitor products.
44
<PAGE> 54
Anthony P. Mauro has served as General Manager of Sciteq since 1993. From
1990 to 1993, Mr. Mauro served as Executive Vice President for Hixon Metal
Finishing. Concurrent with these positions, Mr. Mauro has been Owner and
President of Two Mauro Enterprises and MFG. Service Company. Mr. Mauro received
a Bachelor of Science degree from Fordham University and Bachelor and Master of
Science degrees in Electrical Engineering from California State University,
Pomona. Mr. Mauro also has a Master of Arts degree in Vocational Education from
California State University, San Bernandino. Mr. Mauro has over 30 years
experience in multi-facility international operations, high tech electronics,
and telecommunications.
Bar-Giora Goldberg was a co-founder of Sciteq Electronics in 1984 and has
since served as its Chief Technical Officer. He received Bachelor of Science and
Master of Science degrees in electrical engineering from the Technion in Israel
where he served in the air force as a technical officer. Mr. Goldberg has a
background in radar, communications and signal analysis.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Exchange Act requires BWAI directors and executive officers and persons
who own more than ten percent of a registered class of its equity securities to
file reports of beneficial ownership and changes in beneficial ownership with
the Commission. To the knowledge of BWAI, all filing requirements under Section
16(a) with respect to BWAI were complied with in the year ended May 31, 1996.
EXECUTIVE COMPENSATION
Both the officers and directors may receive remuneration from BWAI, and
reimbursements may also be made for any expenses incurred on behalf of BWAI.
BWAI's Bylaws provide that directors may be paid their expenses, if any, and may
be paid a fixed sum for attendance of each Board of Directors meeting.
At this time BWAI does not offer any retirement benefits, company-wide
stock option plans, profit sharing or other similar remuneration plans or
programs. None of the BWAI's executive officers and directors received
compensation (including bonuses) in excess of $100,000 for the fiscal year ended
May 31, 1996.
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation awarded to, earned by, or
paid to (i) all individuals who served or functioned as BWAI's Chief Executive
Officer ("CEO") during the fiscal year ended May 31, 1996 and (ii) BWAI's four
most highly compensated executive officers who were serving at the end of the
fiscal year ended May 31, 1996 (all of the foregoing individuals being
hereinafter referred to collectively as the "Named Executive Officers"), for
services rendered in all capacities to BWAI and its subsidiary for the
Registrant's last fiscal year, ended May 31, 1996. None of BWAI's most highly
compensated executive officers who were serving as executive officers at the
close of fiscal year ended May 31, 1996 had a total annual salary and bonus
exceeding $100,000.
45
<PAGE> 55
There were two officers of Registrant's wholly owned subsidiary RTC who
were compensated at $120,000 each.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------- LONG-TERM COMPENSATION
OTHER ----------------------------------- ALL
ANNUAL RESTRICTED SECURITIES LONG- TERM OTHER
COMPEN- STOCK UNDERLYING INCENTIVE COMPEN-
SALARY BONUS SATION AWARD(S) OPTIONS PLAN SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) PAYOUTS ($)(1)
- --------------------------------- ---- ------- ----- ------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Par Chadha....................... 1996 0 0 0 0 0 0 0
Chairman, Secretary, Chief
Accounting Officer
Barry Witz....................... 1996 0 0 0 0 0 0 0
Director, Chief Executive
Officer, Chief Financial Officer
Kelvin Y. O. Li.................. 1996 120,000 0 0 0 0 0 $499,562
President of RTC, CEO, UNI
John S. Hwang.................... 1996 120,000 0 0 0 0 0 $499,562
Vice President of RTC, CEO, PDP
Acquisition Corp.
</TABLE>
- ---------------
(1) "All Other Compensation" for Mr. Li and Mr. Hwang consists of, for each
executive: personal use of Company leased vehicle, $2,562; and non-cash
compensation earned in connection with the Company's acquisition of Uni of
$497,000.
LONG-TERM INCENTIVE PLANS
The Company has no long-term incentive plans. BWAI granted stock options to
certain officers and directors during the fiscal year ended May 31, 1996, as
described in Note 9 to the financial statements.
46
<PAGE> 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 12, 1996,
regarding the ownership of the Common Stock by (i) each Director of BWAI; (ii)
each of the executive officers named in the Summary Compensation Table, above;
(iii) each person known to BWAI to beneficially own 5% or more of Common Stock;
and (iv) all Directors and executive officers of BWAI as a group. Except as
indicated, all persons named as beneficial owners of Common Stock have sole
voting and investment power with respect to the shares indicated as beneficially
owned by them.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
PERCENTAGE OF
OUTSTANDING
NAME OF BENEFICIAL OWNER (A) NUMBER OF SHARES (F)
- -------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Par Chadha.................................................... 1,399,963(B) 30.07%
15332 Antioch Street
Pacific Palisades, Ca 90272
R II Partners, Inc............................................ 1,399,963(B) 30.07%
2250 East Tropicana Ave., Suite 19-246
Las Vegas, Nevada 89119
RT Investments, Inc........................................... 1,399,963(B) 30.07%
2250 East Tropicana Ave., Suite 19-246
Las Vegas, Nevada 89119
Barry Witz.................................................... 1,399,963(C) 30.07%
505 S. Beverly Drive, Suite 1066
Beverly Hills, CA 90212
Brite Lite Industries, Inc.................................... 1,399,963(C) 30.07%
505 S. Beverly Drive, Suite 1066
Beverly Hills, CA 90212
John S. Hwang................................................. 172,291(D) 4.22%
48006 Freemont Blvd.
Freemont, CA 94538
Kelvin Li..................................................... 172,291(E) 4.22%
48006 Freemont Blvd.
Freemont, CA 94538
All Directors and Executive Officers as a Group............... 3,144,508 56.86%
</TABLE>
- ---------------
(A) All information with respect to beneficial ownership of the shares is based
upon filings made by the respective beneficial owners with the Securities
and Exchange Commission or information provided by such beneficial owners to
the Company.
(B) Includes shares held in the name of R II Partners, Inc., and RT Investments,
Inc. Mr. Chadha owns, directly and indirectly, 100% of the outstanding
capital stock of R II Partners, Inc., and RT Investments, Inc. Mr. Chadha
holds options to purchase 125,000 shares of common stock for which the
exercise price of $3.50 per share was equal to the market price on the date
granted, August 7, 1995. R II Partners, Inc., holds warrants to purchase
297,029 shares of common stock at the exercise price of $5.30.
Mr. Chadha also has options to purchase: 125,000 shares of common stock
which are to be vested and exercisable upon the last day of the Company's
1997 fiscal year; and, 125,000 shares of common stock which are to be vested
and exercisable upon the last day of the Company's 1997 fiscal year. The
exercise price of these options is $3.50 per share which was equal to the
market price as of the August 7, 1995 grant date.
(C) Includes shares held in the name of Brite Lite Industries, Inc. Mr. Witz
owns, directly and indirectly, 100% of the outstanding capital stock of
Brite Lite Industries, Inc. Mr. Witz holds options to purchase: 125,000
shares of common stock for which the exercise price of $3.50 per share was
equal to the market price on the date granted, August 7, 1995. Brite Lite
Industries, Inc., holds warrants to purchase 297,029 shares of common stock
at the exercise price of $5.30.
47
<PAGE> 57
Mr. Witz also has options to purchase: 125,000 shares of common stock which
are to be vested and exercisable upon the last day of the Company's 1997
fiscal year; and, 125,000 shares of common stock which are to be vested and
exercisable upon the last day of the Company's 1998 fiscal year. The
exercise price of these options is $3.50 per share which was equal to the
market price as of the August 7, 1995 grant date.
(D) Mr. Hwang has options to purchase 75,000 shares of common stock of which
37,500 shares are to be vested and exercisable upon the last day of the
registrant's 1997 fiscal year and 37,500 shares are to be vested and
exercisable upon the last day of the registrant's 1998 fiscal year. The
exercise price of these options is $5.00 per share which was equal to the
market price on the date granted, October 17, 1995.
Mr. Hwang options to purchase 26,291 shares of common stock. The exercise
price of such options is $3.18 per share, which was equal to the market
price on the date granted.
(E) Mr. Li has options to purchase 75,000 shares of common stock of which 37,500
shares are to be vested and exercisable upon the last day of the
registrant's 1997 fiscal year and 37,500 shares are to be vested and
exercisable upon the last day of the registrant's 1998 fiscal year. The
exercise price of these options is $5.00 per share which was equal to the
market price on the date granted, October 17, 1995.
Mr. Li has options to purchase 26,291 shares of common stock. The exercise
price of such options is $3.18 per share, which was equal to the market
price on the date granted.
(F) For each beneficial owner, the "Percentage of Outstanding" represents each
owner's actual holdings of shares plus shares represented by unexercised
options and warrants held, divided by total shares outstanding of the
Company at July 12, 1996, of 3,983,237, plus the above-referenced
unexercised options and warrants of the referenced holder only. In other
words, individual percentages of the listed holders will not add to the
group total because the calculations are made separately for each holder.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 12, 1995 BWAI sold 175,824 shares of its Common Stock to R II
Partners, Inc. and Brite Lite Industries, Inc. for marketable securities valued
at $400,000. Such marketable securities are presently held by BWAI. Par Chadha,
director and Chairman of the Board, owns directly and indirectly 100% of the
outstanding capital stock of R II Partners, Inc. Barry Witz, director, owns
directly and indirectly 100% of the outstanding capital stock of Brite Lite
Industries, Inc. R II Partners, Inc. and Brite Lite Industries, Inc. have agreed
to indemnify BWAI against any decline in value of the marketable securities.
On May 31, 1995 BWA acquired Relialogic Technology Corporation from a
company in which Mr. Chadha and Mr. Witz had an equity interest.
CERTAIN INFORMATION CONCERNING OSICOM
HISTORY AND BUSINESS
Osicom designs, manufactures and markets transmission, networking, remote
access and connectivity products for use in local area networks ("LANs"), wide
area networks ("WANs") and broadband global networks. Osicom's products include
high-performance network adapters, concentrators, routers, remote access
products, video switches and routers, and a family of products to build
broadcast systems over copper, fiber or wireless transmission media.
Osicom targets high growth markets in the networking arena that leverages
our core competencies in:
- High speed LAN workgroup and Remote Access routing product portfolio
- Growing diversified customer base
- Competency in distributed LAN connectivity
- Modular media and access chip design and data flow modeling
- Tuneable drivers
48
<PAGE> 58
- Communications protocols
- Operating Systems Knowledge
- Systems integration
Market segments targeted are the extended workgroup, featuring high speed
LAN solutions (i.e. speeds in excess of 100 Mbps) and the connection of those
groups to network backbones via public switched facilities through the use of
remote access router based technologies.
Prior to 1993, Osicom was engaged in the manufacture of personal computer
and related hardware products.
BUSINESS STRATEGY
Osicom is positioning itself to be one of the leading suppliers of
networking products to provide a seamless infrastructure to link geographically
dispersed local-area and wide-area networks (LANs and WANs). Leveraging its
already established technology in high-speed networking and broad band
transmission, Osicom's strategy is to capitalize an opportunities in the
evolving global telecommunications market by providing integrated solutions for
voice, data and video telecommunications networks.
In recent years advances in networking and communications technology have
created an environment in which people, businesses and other organizations can
almost instantaneously exchange knowledge and ideas across the globe independent
of their physical location. Distinctions between local-area and wide-area
networks (LANs and WANs) are disappearing. Users of one LAN can communicate with
other users locally or across great physical distances using telephone systems.
Internetworking routers even allow users at one LAN to communicate with other
LANs, regardless of differences in LAN "protocol" or the language in which the
locally connected computers communicate. The increasing use of the Internet
Protocol, with its graphical interfaces or browsers, has also dramatically
changed the types of information being communicated. While once only scientists
used the Internet to communicate, now a "Website" is an integral part of
business communications.
Initially a government funded network of dial-up WAN connections linking
university and federal research facilities, the first Internet supported text
file transfer and electronic mail. E-mail services made the Internet very
popular with the general public, and remains its most often used application.
One of the most important reasons for the success of the Internet is that it has
evolved with modest modifications and extensions to existing facilities, as
opposed to radical innovations. Osicom's business plan mirrors this evolution
process by its gradual fusing of its LAN and WAN skills to provide the next
generation of system-level technology targeted at the end-to-end provisioning of
Internet services.
The more recent growth of the Internet has been triggered by the
development of more graphical capabilities facilitating interactive services
never before available, and is based the Client/Server or "Groupware"
applications which have gained momentum in business computing as LANs replace
mainframes as the computer engine. This is where Osicom LAN and WAN skills
intersect with the market demand as subscribers look for fast and inexpensive
connections, and providers extend LAN services with an overlay to carrier
networks with features demanded by their operators. The greatest business
opportunity rests in controlling both sides of the link.
In today's Internet-connected world, users enjoy greater parity with
network administrators. Individual users or groups can post information they
deem important, and because of the proliferation of browsers and search engines,
this information is readily accessible to all the other users on the network
without having to learn burdensome access codes or buy additional hardware.
Users are no longer at the mercy of the network server or mainframe host or its
administrators.
Only a small fraction of the world is currently connected. However, the
number of connections to the Internet is growing exponentially. The challenge
for today's networking companies is to provide the technology and links to
enable these new users at speeds that encourage the possibilities. BWAI's goal
is to offer a wide variety of solutions and options to allow all the various and
diverse types of network users to communicate with
49
<PAGE> 59
each other. Osicom plans to play a significant role in providing access to this
new global model of information exchange.
The dramatic increases in Internet connections are forcing telephone
companies to provide a serviceable demarcation in LAN wiring closets to connect
SOHO and business users to their infrastructure. The opposing force resides with
the more savvy home subscribers who would prefer to forego the expense of an
external "box," by installing an adapter in their computer. To reach both the
subscriber and the provider market, Osicom plans to provide both types of
solutions. The savvy subscriber will focus on ease of installation, low cost
operation and acquisition price. The graphics market niche will also demand fast
throughout.
Osicom's strategy for the Telco/ISP (and companies that look like ISPs,
such as large corporate networks) moving forward is to combine its LAN protocol
expertise with its intrinsic knowledge of Telco's "last mile" issues to produce
products needed by the Telcos to address the fast growing data access market
(The Internet) and the subscriber's requirements for bandwidth-on-demand
client/server applications. Osicom has the expertise to address this market
globally.
Osicom's product plan for this segment is twofold: to reduce cost and to
add the management and resiliency required to its existing remote access-dial-up
router to provide a CPE product, which could be offered by the Telcos (and ISPs)
to businesses; and, furthermore, Osicom plans to develop a bandwidth aggregation
device for use in Central Offices (COs) and ISPs. Osicom plans to leverage its
skills at OEM sales to drive these products through Carriers, PTTs, ISPs and
specialized two-tier distribution targeted at telecommunications.
Osicom believes that no one company, irrespective of size, can internally
develop the necessary products and keep pace with technology and market
evolution. Osicom plans to grow though both internal and external expansion. The
network and converging broadband communications industries require high levels
of research and development spending. Management intends to acquire companies
which have developed technology but have lacked marketing or other resources or
expertise to penetrate or develop markets. Osicom believes that many such
companies are undervalued in the marketplace and offer advanced technology,
research talent, and industry reputation as was the case with the companies it
has previously acquired. Osicom is also committed to investing in the design and
development of network products internally as it acquires companies that have
synergistic product offerings.
Osicom will follow technology standards evolution and trends. Osicom's
future products will encompass the move toward switching topologies or LAN
networks. In the immediate future Osicom plans to add Ether switching capability
in both 10/100 and gigabit varieties to its product portfolio. In the longer
term, Osicom plans to add ATM switching as it attains popular deployment.
A key part of Osicom's strategy is to provide solutions and technologies in
the subscriber access segment of the market to provide users access network
resources. It is Osicom's intent to expand from its present base of high speed
NIC cards, print servers and remote access routing to encompass leased line
access, "X" dsl technologies and Cable Internet Access. A key element of success
in the business of the access technologies is the ability to produce products
with low overhead and high level of integration. To this end the recent merger
with BWAI and its modern plant in China together with Osicom's ASIC capabilities
give Osicom a set of competencies which position it to succeed. Osicom intends
to provide end to end connectivity for user applications. To accomplish Osicom's
internal development and external acquisition activities are oriented to
augmenting present product line with hubbing and internetwork switching products
in the remote access and LAN workgroup market segments.
Specifically, Osicom intends to complete and expand its family of products
in the following areas:
ENHANCED INTERNETWORKING ROUTING PRODUCT LINE: The difference between
LANs and WANs is rapidly eroding. Since even small companies may be
geographically dispersed, today's network user needs to communicate across
the wide area network -- to remote offices or to the Internet.
Internetworking routers allow users at one LAN to communicate with other
LANs, regardless of differences in LAN
50
<PAGE> 60
"protocol" or the language in which the locally connected computers
communicate. Osicom plans to enhance its product offerings in this area
through both internal development and acquisition. Currently Osicom has
products which address the needs of the remote user or small office. Osicom
plans to provide products that will serve the needs of the enterprise as
well as the central site, such as Internet Service Providers or regional
telephone companies.
INTERNETWORKING SWITCHES: Osicom intends to provide products that
enable networks to grow along with business needs. Companies should be able
to connect various workgroups using different networking technologies, with
varying speed requirements, which slow down overall network performance.
This can be achieved using internetworking switches which provide the
intelligence of routers that connect points on different types of networks
with the increased throughput provided by switching technology. Osicom is
currently exploring various types of internetworking switches and will most
likely acquire such technology.
CABLE MODEMS: Cable television providers, which today have the
ability to provide television broadcast service to over 90% of U.S. homes,
generally believe that their future viability depends on their ability to
provide two-way, interactive service, such as Internet access, to their
customers. In fact, they are ideally positioned to provide Internet access
given the cable modem technology is capable of providing extremely
high-speed access. For example, to transfer a 10 MB file using 28.8 Kbps
modem takes about 46 minutes; ISDN speeds of 128 Kbps decrease this time to
10 minutes; a 10 Mbps cable modem would do the job in just 8 seconds.
Osicom has been a provider of broadcast transmission equipment to
cable providers for over 10 years. Osicom is planning to use its expertise
in analog transmission, Internet Protocol, and networking in general to
develop a cable modem and corresponding digital headend equipment to enable
cable companies to provide such high-speed access to the Internet, World
Wide Web, and other on-line services.
INCREASED INTEGRATION: Osicom plans to maintain its position in the
technologies in which it participates and, when possible, surpass its
competitors. One approach it plans to take is to increase hardware
integration through the use of Application Specific Integrated Circuits or
"ASICs". Osicom continuously looks at ways to enhance its capabilities in
this domain and may acquire additional capabilities in this area.
USER-FRIENDLY GRAPHICAL NETWORK MANAGEMENT SOFTWARE: Osicom plans to
provide its customers with software tools that easily and cost-effectively
help plan, configure, manage, implement, troubleshoot and securitize their
networks. Osicom software interface will also support multivendor hardware,
underscoring Osicom's commitment to provide open, industry-standard
solutions.
PRODUCTS AND MARKETS
Osicom produces feature-rich connections for complex and high-performance
network access needs. Meret has more than 200 data network products which
include remote access products and high-performance network adapters based on
industry standard protocols such as TCP/IP, IPX, SNMP, Ethernet, FDDI, ISDN and
industry standard buses such as PCI/PMC, ISA and VME. The Company sells its LAN
adapter and remote access hardware and software products through an established
network of Value Added Resellers (VARs), Distributors, OEMS and system
integrators. Its networking products are sold to both large and small businesses
around the globe within communications, industrial, automation, transportation,
government, scientific, medical and educational industries. Its customers have
included: AT&T, GTE, Data General, GBC/Vitek, Vision Source, Anixter,
Rockwell-Collins France, Hermstedt (Germany), Alphanet (Sweden), Aleph (Italy).
Systems Industries (South Africa), 1World (Australia), Allen-Bradley, British
Telecom, Fujitsu, General Electric, Motorola, Samsung, Silicon Graphics, US
Army, White House Communications, Boeing, C3, Goldman-Sachs, ICL, NASA-Ames,
SIEMENS, US Airforce, US Navy, and the US Postal Service.
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Additionally, Osicom participates in all of the major segments comprising
the broadband communications and fiber optics transmission market:
Video-on-Demand and Video-Dialtone; Broadcast & Cable TV; High Resolution
Imaging and Graphics; Closed Circuit TV; and Government/Military. Osicom has
over 450 switching and broadband communications products which include routing
switchers, distribution systems, control systems, digital interface equipment,
and fiber optic transmission equipment. Osicom's switching and broadband
communications products are used in a variety of applications wherever
businesses and organizations need on-line access and distribution of real-time,
high-resolution video and image information such as electronic news gathering,
sports broadcasting, electronic field production, special effects photography,
underwater and aerial photography, special events broadcasting, long-distance
learning networks, medical image network systems, security and surveillance,
teleconferencing, educational TV, CAD/CAM/CAE systems, flight simulation, air
traffic control, seismic activity monitoring, superconductor interconnects,
advanced graphics and publishing, telemetry and control systems, shipboard
communications and computer graphic links. Customers in its switching and
broadband communications sector have included: AT&T, GTE, NYNEX, NYSE,
Ameritech, C3, NASA, HBO, NHK (HDTV production), Sony, Cablevision, Johns
Hopkins University, University of California -- Los Angeles and San Francisco,
Harris, Martin Marietta, Lockheed, and various domestic and international
television networks.
Osicom markets its products to systems integrators, distributors,
value-added resellers, dealers, and original equipment manufacturers using its
direct sales force and manufacturers' representatives.
Osicom has four offices in California, nine regional sales offices in the
United States and one sales office in the United Kingdom, which serves Europe,
and sales relationships with several European companies including Rockwell
Collins -- France, Aleph in Italy, Hermstedt Communications in Germany, and
Alfanet in Sweden. Systems and design engineers play a crucial role in the sales
effort.
High-Speed Lan Market and Products
New multi-media and client-server applications are driving the demand for
higher bandwidth, hence, faster networks. Osicom's high-speed LAN products are
targeted to the high-performance network file server and concentrator market to
be used in network backbones in order to aggregate bandwidth and improve data
accessibility and reliability performance across workgroups using the network.
Osicom's intelligent high-speed LAN products are used by network servers,
graphics and engineering workstations, mid-range computers, hubs and routers,
NFS server networks, network backbones, video delivery systems and in process
control systems. In addition, the Company's FDDI products are used in mission
critical environments such as financial trading which require non-stop computing
at high speed with no tolerance for error.
Osicom's products use its proprietary FastRACC core hardware technology,
which is designed to accomplish high throughput, reliability, low power demand
and low cost. FastRACC allows higher levels of custom silicon integration and
layering using ASIC technology, which maximizes performance and reliability
while greatly reducing cost and power consumption. Osicom's Virtual Driver
Architecture software platform or "VDA" enables Osicom to quickly tune and port
the software code for performance and new hardware and software platforms. The
software technology reduces driver tunability time from months or even a year to
weeks. This feature is especially critical in the workstation, server, and UNIX
environments where operating systems need to be tuned to gain maximum
performance. Osicom's LAN adapters support drivers for all popular network
environments and have various bus platforms including PCI, VME, ISA, EISA, Sbus,
and Multibus in network access options including Fast Ethernet, FDD1, and
Ethernet. The cards range in price from $295-$1795, depending on features.
Osicom's management believes that strong growth will continue in its
existing high-speed adapter product lines as estimates of growth in the FDDI
market, which is expected to eventually be overtaken by other technology, have
been revised upward for the last several years largely due to the proven
reliability of FDDI for use in network backbones as well as the lack of
standardization in ATM. FDDI's services are required by emerging multimedia,
imaging, windowing, and database applications that demand high performance and
guaranteed bandwidth. According to International Data Corporation ("IDC")
shipments of network servers,
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Osicom's primary market for these products, are expected to grow from
approximately 4 million units in 1995 to over 9 million in 1999. Some of
Osicom's high-speed network products include:
2200 PCI BUS ADAPTER FAMILY: This product group provides FDDI
connectivity for PCI Local Bus servers on FDDI backbones. It supports both
Macintosh and PC environments without hardware modifications. No daughter
card is required.
NET EXPANDER CONCENTRATOR: This plug-and-play 8-port FDD1
concentrator provides for flexible configurations and supports a variety of
media and physical network designs.
2300 FAST ETHERNET FOR PCI BUS: The 2300 Series provides high
performance, highly reliable networking support for a wide range of
computers utilizing the PCI Local Bus. These adapters are based on the
100Base-T specification and automatically configures to a 10 Mb or 100 Mb
hub connection.
2340 PCI QUAD FAST ETHERNET ADAPTER: Computing environments have
found that their bandwidth has been drastically reduced by two significant
changes: the higher number of workstations using a network and the new
generation of operating systems which deal with more graphical information
than ASCII-based information. The result is increased file sizes and
bit-mapped fonts being sent across the network segments. Increasing
throughput to the server can be accomplished by installing multiple
Ethernet adapters that spread the connectivity across various ethemet
segments. With PCI slots being at a premium, this may not be desirable in
many instances. A multiport network adapter is an optimal solution for
boosting performance, reducing costs and simplifying the installation
process. The 2340-TX Multiport Adapter is the lowest-priced four-port Fast
Ethernet adapter on the market. Targeted to PCI servers, the 2340 combines
four auto-sensing 10 or 100 Mbps Fast Ethernet interfaces into one card
which requires only a single PCI Local Bus slot. This high-density port
allocation lowers cost, reduces installation time, and frees other PCI
slots in the server for attachments to RAID, SCSI devices, or additional
network adapters.
CMC 130, ENP SERIES: This series of Ethernet adapters are designed
for supercomputers, 3-D graphic workstations, Sun Workstations, SPARC
systems and distributed processing applications where high network data
throughput and efficient VMEbus use is required. This series of products
conforms to 10Base2, 10Base5, and 10BaseT standards. The lower-price
products in this series are well suited to systems with real-time
applications using host-based protocols which need multiple Ethemet
connections.
1250 VMEBUS ADAPTER: This FDDI product is designed for
high-performance VME workstations, including Hewlett Packard, Solaris, Data
General and Motorola.
Remote Access Products
As businesses grow, they typically expand from a single office to an
enterprise comprising several geographical locations. Computer resources which
were once readily accessible via the corporate LAN are now located hundreds or
thousands of miles away. This is the basic problem remote access products
address: how to allow workers at remote sites to access the Internet as well as
use computer resources located at the company's headquarters. Workers at remote
offices have the same information access needs as their colleagues at
headquarters. They need to send and receive electronic mail. They need to
retrieve information from corporate data bases. They need to make use of
applications located on centralized computer resources at headquarters. In fact,
workers at remote offices have perhaps a greater need for these services than
their colleagues at headquarters who have personal access to each other.
As dial-up computing over PSTN and ISDN increases, Telcos will be driven to
provide more technology closer to the end users, creating a faster growing
Customer Premises Equipment (CPE) market for dial-up routers. These routers will
require enhanced features not found in today's "Remote Office" products. The
reason is that traditional LAN networks were geographically confined and it was
not necessary to expend much design energy on resilience and redundancy normally
key aspects of WAN services, where they form the basis of Quality of Service
(QOS). Typically LANs assumed the availability of the WAN and relied on
transparent interference-free connections. In the new order, LANS are forced to
take on more of the
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characteristics and features of the WAN forcing the merging of the underlying
equipment provisioning the services.
Osicom's NetHopper remote access products enable remote users such as
branch offices, telecommuters and traveling users to connect to LANs via public
telephone lines. The NetHopper transports IP protocol and native IPX/SPX packets
to allow users of most popular Ethernet LAN operating systems from Novell,
Microsoft, Sun, or any UNIX system to connect to large corporate LANs, the
Internet, or other small offices over ISDN or analog PSTN telephone lines.
Growth in use of the Internet has fueled growth in this product line as ISDN
telephone service offers up to 10 times faster Internet access than narrowband
modems. ISDN telephone service is available in over 80 percent of the market.
Forrester Research predicts that by 1998, 20 percent of all on-line services
accounts will be using ISDN service. The NetHopper offers customers the option
of upgrading their telephone service to this faster class of ISDN digital
dial-up telephone service without having to buy new equipment. While dedicated
leased lines such as T1, T3, ATM, or SMDS (those enabling 1.5 Mbps and higher
transmission rates) are widely touted as the new generation of telephone
service, with today's cost structure, only the largest corporations can afford
these expensive, high-speed links. Even they must confine them to backbone
networks which connect only the largest offices. For most users, a dial-up
connection to an ISDN line, where subscribers pay only for the time they are
actually connected remains the most cost-effective alternative to Wide Area
Network (WAN) access.
The NetHopper is a stand-alone box which can be easily installed by
inexperienced users. Because it has a V.34 modem built-in, there are no
additional equipment costs for Internet or on-line service connections. Osicom's
products are sold to Internet Service Providers ("ISPs") and others to connect
subscribers to the Internet as well as other LANs. This feature helps ISPs
retain subscribers as they grow and require faster access to the Internet. The
NetHopper is also a versatile interface to LANs as it supports many standard
communication and routing protocols, including IP, IPX and TCP/IP. Osicom's
remote-access products are used by small businesses, remote officers,
telecommuters, and nomadic users in file transfer, client user database access,
remote management, electronic mail and Internet access. IDC estimates that the
remote access server marketplace will grow from $300 million in 1994 to $2
billion in 1999. Others estimate that the remote access market is growing at an
annual compounded rate of 60%.
In 1995, the NetHopper product won various awards including Internet
World's Product of the Year, PC Magazine's Editors' Choice and Data Comm
Magazine's Tester's Choice. Some of Osicom's remote access products include:
NETHOPPER NH-RAS SERIES: This rack-mounted or stand-alone box
connects TCP/IP and Novell IPX users or LANs to remote networks using
standard telephone lines. With the option of up to five integrated V.34
modems, networks can optimize access to WANs at speeds of up to 115 Kbps
for remote LAN-to-LAN or Client-to-LAN data communications over common
telephone connections. Featuring Worry Free Routing. Network administrators
can configure security filters based on traffic source, destination or
type. Remote users and offices need only "see" the resources they need.
Unauthorized use can be limited.
NETHOPPER NH-BRI 600 SERIES: These products provide users and LANs
with access to remote TCPIP and Novell IPX networks via ISDN lines. The
product also provides an Ethernet LAN connection via an AUI or 10BaseT
interface. The Smart Route software, which is used in all Nethopper
products, is a PPP mulitlink which aggregates ISDN channels and uses
Compression Control Protocol. This product also has complete IP and IPX
filtering which means that enterprises can control costs by tracking,
preventing or otherwise limiting connections to on-line services.
NETHOPPER NH-EURO 700 SERIES: This is similar to the 600 series
except that it is used over international ISDN lines. This product has been
homulgated by almost every industrialized country in the world, a necessity
for sales in most other countries.
NETHOPPER NH-SYNC+- SYNCHRONOUS ROUTER: This product addresses the
growing market for switched, digital line applications in building the
local outer network. It features high leased-line throughput with built-in
dial backup and the high bandwidth capabilities of either DDS, SW56 or
ISDN-
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BR1 along with fully integrated dial back via the modem. This eliminates
annoying line outages cutting off E-mail or branch office communications.
The switch over is completely automatic via the Routing Information
protocol (RIP). This fully automatic mechanism senses which line is able to
effectively carry traffic, and which link is preferred for general usage.
NETHOPPER NH-P AND NH-5 DIAL-UP ROUTERS: This second-generation
dial-up router is designed for the remote office. The NetHopper NH-P allows
work groups to transparently connect to corporate or regional networks
without complicated router setups. Using regular dial-up telephone lines,
this product routes TCP/IP and IPX traffic. It has one Ethernet LAN
connection via AUI or 10BaseT and scales up to five V.34 modems. With
integrated data compression technology, typical installation time runs
about five minutes. This product also enables LANs to efficiently utilize
WAN connections to the Internet or other on-line services.
Osicom intends to follow technology standards evolution and trends and to
have its product portfolio encompass emerging standards and technologies.
ATM Products
Asynchronous Transfer Node is a high-speed technology alternative which
promises to allow integration of voice, data, image and video over one network.
Capable of operating at speeds up to 655/Mbps, most industry pundits agree that
ATM represents the future in telecommunications. However, standards for this
technology are still in early stages of development and it is not yet capable of
delivering on its promise. As such, Osicom does not currently provide any ATM
products. However, Osicom is actively seeking to acquire or license technology
or products, such as internetworking switches, which employ aspects of ATM yet
can increase performance and bandwidth in today's existing network architectures
while facilitating migration to next generation technologies, such as ATM.
Gigabit Ethernet
Increasing networking speed is the central problem of network computing
today. Gigabit Ethernet is an upgrade technology which promises to yield a
tenfold increase in speed to today's existing networks. Currently being
developed, Gigabit Ethernet is expected to be deployed in backbone environments
as the preferred interconnection between switches which aggregate multiple lower
speed (10 and 100 Mb/s) Ethernet segments. Osicom is a member of the Gigabit
Ethernet Alliance, which is the industry organization of suppliers and consumers
joined in the objective to create formal standardization of Gigabit Ethernet.
Osicom plans on developing, acquiring or licensing such technology as the
standard evolves to a point of interoperability and economic sense.
Fibre Channel
The Fibre Channel standard is another gigabit technology that connects PCs,
workstations and high-speed hardware (such as hard drives) usually connected by
buses. Buses or channels provide high transmission speeds up to 530 Mbps or even
1 Gbps. Internetwork and intranetworking switching, for example, is accomplished
by having ports log-in directly to each other or to connecting devices known as
the fabric. The fabric can be comprised of any mix of networking devices. While
Fibre Channel has not yet been widely adapted as a way to enhance the speed of
today's networks, some of the Fibre Channel technology standard is being
enveloped in the gigabit ethernet standard. Osicom is actively looking at ways
and opportunities in which Fibre Channel technology can be deployed to enhance
network performance.
Video-On-Demand and Video Dial-Tone Products
Osicom's routing switches enable telephone companies and cable TV service
providers to offer video-on-demand and video dial-tone services to subscribers.
Applications include: pay-per-view video services, interactive video networks,
cable TV, satellite TV, and command and control applications.
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Sales of video-on-demand servers are expected to increase to $1.3 billion
by 2000 from $131 million in 1991, according to Hodge Computer Research. This
increase is fueled by the recent legislation which allows telephone companies to
deliver video programming to their subscribers over phone lines. Osicom has
begun selling its products into this marketplace, led by customers such as AT&T,
and is providing this service to the other telephone companies such as GTE.
Osicom's System 2000 switch functions in both the hybrid fiber coaxial cable
("HFC") environment, which is the new generation of telephone infrastructure, as
well as with the old twisted pair wiring, which is still capable of carrying a
single channel of compressed studio quality video. The switch can also be used
in digital data routing and DS3/T40 video. Other potential customers include
other RBOC's and local telephone and cable TV providers as well as government
users. Osicom's product line in this market includes:
SYSTEM 2000: This is an extremely compact routing switcher system
that has video crosspoint densities of up to 1728 per rack unit ("RU"). The
audio matrix incorporates a configuration in which the left and right
signals are carried in parallel paths through the switcher, resulting in
crosspoint densities of twice those of the video matrices -- up to 3456
crosspoints per RU. The crosspoint-level switch closure and status
verification from actual crosspoint feedback is another industry first for
Osicom. Optional on-board floppy disk drives and Ethernet control
capability are many of the powerful tools the System 2000 offers.
SERIES 36: The Dynair Series 36 switching equipment is available for
high-resolution computer graphics and HDTV video encoded broadcast
television video, including NTSC, PAL, SECAM and stereo or monaural audio
and time code. This physically compact router is suited for small to
medium-sized installations. Using a 120 Mhz bandwidth, it has a crosspoint
density of 432 video and 864 audio crosspoints per RU. A full 36 x 36 video
and stereo router occupies only 6 Rus.
DYNAMITE: The Dynair DynaMite series uses a 40 Mhz bandwidth, handles
HDTV, data or graphics signals and is suitable for NTSC, PAL and SECAM
signals. Suited for small applications, it switches 10, 20 or 30 inputs to
10 outputs.
Broadcast, Cable & Wireless TV Products
Osicom's products for cable television (CATV) includes headend equipment
such as AM and FM modulators and demodulators, equipment to support coaxial
transmission, and long-distance AM and FM fiber optics transmission systems.
Osicom's bisectional and unidirectional links transmit video and audio signals
for a distance of 10 Kilometers. Its products are suitable for all international
formats including NTSC, PAL, and SECAM, and for the new standards for
high-definition television and digital video. Applications include: electronic
news gathering, sports coverage, studio production, underwater and aerial
photography, and special events.
Osicom's products are used by broadcast networks such as Time Warner Cable,
ABC, CBS, HBO, Thompson of France, and Wharf Cable Ltd. of Hong Kong, among
others. Osicom's product line in this segment provides the advanced technology
that delivers the superior signal quality required by the industry.
Osicom also has products which serve the High Definition Television (HDTV)
and digital video growth areas of the industry. Osicom has supplied the
communications products enabling HDTV broadcast to Japan Broadcast Systems.
Osicom systems can transmit up to 16 video channels up to 23 kilometers in
distance.
It is estimated that telephone companies will need to spend $100-$400
billion to replace copper wire with fiber optics prior to being able to transmit
TV to homes. Osicom is attempting to position itself to take advantage of that
growth in demand for cable television and fiber optics. Osicom's cable TV
customers include General Instruments, TCI, Time Warner Cable, United Artists,
and Continental Cable Vision, among others.
MERET LIVE LINK: This single-channel fiber optic system provides superior
signal quality transmission of broadband video and audio signals.
CATEL CFM-3800 MULTICHANNEL FIBER OPTIC SYSTEM: Combined with Osicom's
Catel family of fiber optic transmitters and receivers, this series of products
provides excellent, virtually transparent signal quality
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transmission of video, audio and data over distances of 40 km or more. It is
used in many applications including broadband transmission systems, supertrunks,
surveillance, distance learning and CCTV interconnection.
CATEL MODEL FYBERMODE 80: This high performance laser transmitter capable
of launching up to 80 AM-VSB television channels into a single mode optical
fiber. Coupled with the Catel family of optical receivers, the Fibermode
provides a high quality transmission link with applications in broadband, CCTV,
distance learning and cable television systems.
CATEL HEADEND NTSC BROADCAST AM TELEVISION MODULATOR: This product accepts
baseband video and audio signals and provides VSB-AM modulation to infrared
frequencies. The output can be either composite IF or separate visual and aural
IF carriers. Used primarily as an exciter for television transmitters.
High Resolution (HR) Imaging and Graphics Products
Osicom's HR View products provide remote video imaging with maximum image
integrity for a wide variety of high resolution applications, including:
CAD/CAM/CAE, medical imaging, flight simulation, air traffic control, seismic
monitoring display, superconductor interconnects, advanced graphics &
publishing, security and surveillance, and military C41.
Osicom's high resolution video products transmit color or monochrome video
signals for monitor resolutions ranging from 512 x 512 to 4K x 4K, along with
associated signals such as keyboard and mouse data.
Medical Imaging is a $70 billion segment of the healthcare industry, and is
expected to grow by 27% per year through 1997, according to SMG Marketing Group.
Imaging technology is used in computed tomography scanning, diagnostic resonance
imaging, nuclear imaging, ultrasound, and X-rays.
Osicom has taken a lead position in high resolution medical imaging
networks. The Company's medical imaging systems are in use at the University of
California campuses at Los Angeles and San Francisco. Using baseband and
broadband fiber optic links to transmit and distribute images from computed
tomography and magnetic scanners to remote reading rooms, medical personnel have
the ability to telemonitor patients' CT and MR examinations in real-time. An
Osicom system is also in use at USC County Hospital.
Among other customers Osicom has supplied in this segment of the market are
OEMs such as Siemens, Eastman Kodak, AGFA and Picker.
Computer graphics is a major component of the "information superhighway".
Computer graphics overlap several of the industries, including animation,
advertising, in-flight simulation and air traffic control.
Osicom's products enable users to send high-resolution graphics signals
over long distances. Customers in the computer graphics sector have included
such industry giants as Mitsubishi, Harris, Digital Equipment, Lockheed,
Raytheon, Merrill Lynch, Boeing and NASA.
Air traffic control radar systems are another application in which Osicom's
computer graphics systems are widely used. Because of the large amount of
information that must be displayed with precision in the control tower, over
high resolution monitors that a video bandwidth of over 350 Mhz are used.
Because of bandwidth limitations, the maximum distance over which this type of
signal can be sent on coaxial cable is less than six feet. Osicom's products
enable signal transmission over distances of up to eight kilometers with no
visible degradation.
In addition to providing remote access to displays, Osicom's products can
be configured to support remote extension of a variety of input and output
devices including super computer, graphics workstations, laser image printers,
video storage devices, keyboards, and mouse devices. Osicom's products used in
these applications include:
MERET'S 200 MHZ FIBER OPTIC RGB TRANSMISSION SYSTEM: This product
provides the user with effective and reliable solutions for remoting RGB
images to workstations, monitors, printing, and storage devices at
distances up to 4 km.
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Closed Circuit TV Products
The Company's CC View products satisfy low, medium and high performance
signal requirements. Applications include: security, access control,
surveillance, teleconferencing and educational TV.
Osicom's CCTV traffic surveillance systems are used throughout the world in
highway, bridge and tunnel and mass transit systems. Similar surveillance and
security systems are also used in government and military applications.
Among the CCTV customers Osicom has supplied are Caltrans, Minnesota State
DOT, Interstate 90 in the United States, the M-25 motorway in London, the Rapid
Transit System in Taipai, Washington State DOT, Tampa Airport, and NASA. The
Company has supplied CATV systems integrators including Martin Marietta, TRW,
and Hong Kong Telecom.
DISTANCE LEARNING: Osicom's products enable users to have real-time,
interactive video-conferencing ability, and are used in distance learning and
teleconferencing applications which extend the class and meeting room beyond the
confines of an actual physical location.
Distance learning can be as simple as interconnecting two local schools,
allowing them to share information and valuable teaching resources. It can also
be very complex, involving large networks of schools and classrooms. Osicom's
Catel products focus is to provide the best technology for the task at hand, to
make the network transparent to the user, so that any number of classrooms are
provided a fully interactive network environment.
Some of Osicom's teleconferencing and distance learning customers are
systems integrators and service provides such as Ameritech, US West, Ohio Bell,
NNNEX, Southwest Bell and GTE, and Florida Electric and Water. Products used in
these applications include:
CATEL WFMS-3900 AND CFM-3800 SERIES OF MULTICHANNEL FIBER OPTIC
SYSTEMS: Used in conjunction with the Catel 1310nm and 1550nm optical
equipment, combined with the Catel family of fiber optic transmitters and
receivers, the CFM-3000 system provides excellent signal quality transmission of
video, audio and data over distances up to 40 kilometers or more. The system
also offers central system management through optional monitoring and control
capability.
DYNAIR DYNA-MUX MULTIPLEXER: This product combines two independent
channels of high quality audio with broadcast quality video (to 9 Mhz) while
maintaining signal quality consistent with RS250C-shorthaul. It is completely
compatible with Dynair switching systems.
DYNAIR DYNA-VIEW FIBER OPTIC VIDEO LINKS: This product provides superior
signal quality and security across varying distances (depending upon options)
without the effects front EMI, ground loops or cross talk.
MERET CC VIEW MODEL 420: This product is a laser-based high performance FM
fiber optic link for long haul video transmission up to 25 km over singlemode
fiber.
RESEARCH AND DEVELOPMENT
Osicom's product lines require substantial research and development
investment. The acquired businesses have a substantial investment in technology
which has served as the foundation for the development of Osicom's current
product offerings. To broaden and enhance Osicom's in-house research and
development efforts and product offerings, the Company actively seeks additional
acquisitions.
Some of Osicom's key capabilities include modular media access chip design
methodologies and data flow modeling, enabling the Company to reduce its
time-to-market requirements for network interface adapters; its proprietary
Virtual Design Architecture ("VDA") core software technology which makes
possible relatively easily tunable drivers for systems such as Netware Windows
NT, OS2, Mac OS, WIN95, and NDIS/ODI; its knowledge and experience with
communications protocols such as ISDN, TCP/IP, IPX, and PPP; its knowledge of
operating systems such as OSF, Windows NT, Netware, and Mac 0.5; and its system
level integration capabilities.
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Osicom uses its proprietary FastRACC hardware architecture in the design of
its network and WAN access products. This architecture provides all host system
interface, data movement, management and control functions. It eliminates the
need for on-board CPUs except in those cases where on-board protocol processing
is required. The optionized system interface minimizes host load, optimizes
system throughput and PCI utilization providing for simultaneous full-speed
transfer of network and PCI data.
Osicom's proprietary VDA software architecture enables efficient
portability across operating system and protocol environments, system bus types
and networks. Hardware and system dependencies are isolated behind well-defined
generic interfaces. Core code modules are reused across multiple product types.
All drivers are built from a single tree making for shorter development
intervals, improved product quality, maintenance and support. Osicom's products
support the following drivers: VDA-based ports: OS/2, AIX, UnixWare, Windows 95,
Windows NT, PowerMac, DOS ODI, NetWare Server, Solaris X86, SCO UNIX, HP-RT, and
HP-UT; and STRIDE-based ports: Solaris I.X, Solaris 2.X and DG-UX. Other drivers
are developed as needed.
AVAILABILITY OF RAW MATERIALS
Many of Osicom's products require certain components which may not be
readily available, for example, opto electronic components, microprocessors and
FDDI and Ethernet chip sets. Osicom's products can be reengineered to minimize
the effects of component shortages. Additionally, Osicom seeks to mitigate the
effects of this problem by using alternate suppliers.
Osicom both manufactures in-house and uses outsourced manufacturing to
produce its products. To ensure against slowdowns at such outside manufacturers,
Osicom tries to maintain alternative suppliers.
PATENTS, TRADEMARKS AND LICENSES
Osicom holds patents but does not conduct its business with reliance upon
patent protection. Osicom could be subject to the risk of adverse claims and
litigation alleging infringement of the proprietary rights of others. Although
Osicom has not been threatened and is not involved with any such patent
infringement litigation and while Osicom believes that it is not infringing on
the valid patents of others, there can be no assurance that third parties will
not assert infringement claims in the future or that such claims would not have
a material impact on Osicom's business.
Osicom protects its properties through trademark protection whenever
feasible and is currently threatening litigation against another company for
such trademark infringement. There can be no assurance that Osicom will be
successful in its efforts to protects its trademark.
Osicom's products use proprietary software and hardware technology that
facilitates the ease with which Osicom can develop new products. This software
and hardware technology is difficult to replicate even without patent or
proprietary rights. However, while it is unlikely, Osicom can give no assurances
that such proprietary technology could not be used or copied by unauthorized
persons.
SEASONALITY
Osicom's product lines and markets are still evolving and the effect of
seasons on the business cannot yet be determined. In the past, sales have
fluctuated due to the fulfillment of large orders to OEMs or governmental
agencies and management believes it will continue to be effected by large orders
and seasonality.
WORKING CAPITAL PRACTICES
Osicom has historically maintained high levels of inventories to meet the
delivery requirements of its customers and to ensure a continuous allotment of
goods from suppliers. Osicom does not provide its customers with the right to
return merchandise that performs according to specifications. Generally, Osicom
does not provide extended payment terms to customers.
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In the year ended January 31, 1996, one customer accounted for 14.7 percent
of Osicom's revenues. In the year ended January 31, 1995, no customer accounted
for more than 10 percent of Osicom's revenues.
BACKLOG
As of July 31, 1996, Osicom had a backlog of over $4,342,000. Such backlog
includes only purchase orders with little or no cancellation option.
Increasingly, a substantial portion of Osicom's business is booked within the
same 30-day period that it is shipped, therefore backlog is not necessarily
reflective of Osicom's future or even near-term prospects.
COMPETITION
Competition in the networking and telecommunications equipment industry is
intense, and Osicom believes that competition may increase substantially with
the deployment of increased network usage and potential regulatory changes. Many
of Osicom's foreign and domestic competitors have more extensive engineering,
manufacturing, marketing, financial and personnel resources than those of
Osicom. Osicom's LAN and remote access competitors include 3 Com, Cisco, Bay
Networks, Shiva, Spider, Telebit, Xyplex, Ascend, Xylan, ABC Telecommunications,
Digital Equipment, AT&T Technologies, Inc., Northern Telecom, Inc., Interphase,
Syskonnect, Fore Systems, Intel, SMC, IBM, Motorola Inc. and many more. Osicom's
enterprise networking products compete with the products of a number of other
companies, two of which (Bay Networks, Inc. and Cabletron Systems Inc.) are
dominant and face both strong price competition and pressure from alternative
distribution strategies utilized by these other companies. Osicom's broadband
connectivity products are competitive with the products offered by numerous
other companies, including AT&T Technologies, Inc., Switchcraft, Inc., a
subsidiary of Raytheon Company, Scientific Atlanta and Tektronics. In addition,
Osicom faces increasing competition from a number of other competitors.
The rapid technological developments within the telecommunications industry
have resulted in frequent changes in Osicom's competitors. Osicom believes its
success in competing with other manufacturers of telecommunications products
depends primarily on its engineering, manufacturing and marketing skills, the
price, quality and reliability of its products and its delivery and service
capabilities. While the market for Osicom's products has not historically been
characterized by significant price competition, the Company may face increasing
pricing pressures from current and future competitors, both domestic and
foreign, in certain or all of the markets for its products.
Osicom believes that technological change, the increasing convergence of
data, video and other network services, continuing regulatory change and
industry consolidation or new entrants will continue to cause rapid evolution in
the competitive environment of the networking market, the full scope and nature
of which is difficult to predict at this time. Increased competition could
result in price reductions, reduced margins and loss of market share by Osicom.
Osicom believes industry regulatory change may create new opportunities for
suppliers of telecommunications equipment. Osicom expects, however, that such
opportunities may attract increased competition from others as well. Osicom also
believes that the rapid technological changes which characterize the networking
industry will continue to make the markets in which Osicom competes attractive
to new entrants. There can be no assurance that Osicom will be able to compete
successfully with its existing or new competitors or the competitive pressures
faced by Osicom will not materially and adversely affect its business, operating
results and financial condition.
Osicom's market is characterized by a variety of competitors both larger
and smaller than Osicom, with both greater and lesser resources.
ENVIRONMENTAL COMPLIANCE
Osicom is required to file environmental compliance reports with the
Federal Food and Drug Administration regarding the emissions levels of its
laser-based products, which are used in fiber optics communications. All of
Osicom's products comply with the required safety level standards.
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EMPLOYEES
As of August 1, 1996, Osicom employed 133 persons, including 85 full-time
employees in engineering, manufacturing, testing, and quality control; 32 in
sales and marketing; 13 in administration and 3 executives. None of Osicom's
employees is represented by a collective bargaining agreement and management
believes that relations with its employees are good.
ACQUIRED BUSINESSES
Osicom, having discontinued its computer manufacturing and distribution
business, has actively sought acquisition opportunities since 1993.
In May 1993, Osicom entered the broadband communications industry, by
acquiring Meret Optical Communications, Inc. ("Meret"), a company located in
Santa Monica, California engaged in designing, manufacturing, marketing and
supporting broadband communications networking equipment. On July 2, 1993, Meret
acquired Catel Telecommunications, Inc. ("Catel"), a similar communications
equipment provider located in Fremont, California. Effective January 31, 1994,
Osicom acquired Adtech Micro Systems, Inc. ("Adtech") a company located in
Fremont, California, that designed, developed, manufactured and marketed modems
and telecommunications equipment for personal computers. During the last quarter
of Fiscal 1995, Osicom divested itself of Adtech. Osicom completed two
acquisitions in Fiscal 1996, of Dynair Electronics, a video switch and router
company, and Rockwell Network Systems ("RNS") a leading OEM supplier of
high-speed LANs and remote access products.
Meret Optical Communications. Inc.
On May 31, 1993, Osicom acquired 100% of the outstanding common stock of
Meret. As a result of that acquisition, the shareholders of Meret gained voting
control of the registrant and therefore became the acquiring entity and the
surviving entity for accounting purposes. The acquisition of Meret by Osicom was
accounted as a reverse acquisition. Osicom purchased Meret from Rand Research
Corporation ("Rand"), a related entity, owned by two directors of Osicom. Rand
acquired Meret on May 24, 1993 from Amoco Oil Company for the assumption of
certain existing liabilities.
Catel Telecommunications. Inc.
On July 2, 1993, Meret, as a wholly owned subsidiary of Osicom, acquired
100% of the outstanding common stock of Catel from Data-Design Laboratories.
Catel is engaged in a similar business as Meret although it serves a different
market segment.
Adtech Micro Systems, Inc.
On January 31, 1994, Osicom acquired 100% of the outstanding common stock
of Adtech from Stratuslink NA Inc. ("Stratuslink") The purchase price was
$1,200,000. The acquisition was accounted for as a purchase. Due to the
inability of Adtech to reach projected goals for revenues, income and new
product development by Fiscal 1995's third quarter, Osicom divested Adtech.
Osicom sold the acquired stock of Adtech to Stratuslink in exchange for
repayment to Osicom of the balance of its investment in Adtech after absorption
by Osicom, of the operating losses of Adtech, since acquisition. Osicom was
indemnified by Stratuslink for any further losses. Stratuslink issued Osicom a
$261,036 short term note, which was paid in Fiscal 1996. Osicom granted a
warrant to Stratuslink, expiring on June 1, 1998, to purchase 152,348 shares of
Osicom common stock at an exercise price of $4.125 per share, in return for
which Stratuslink surrendered 152,348 shares of Osicom stock to Osicom. Osicom
has accounted for the return of its shares and receipt of the note as a
reduction in the purchase price of Adtech under the provisions of FASB 38.
Dynair Electronics. Inc.
On June 8, 1995, Osicom acquired 100% of Dynair Electronics, Inc.
("Dynair"). Dynair is engaged in the business of designing, manufacturing,
marketing and supporting digital and analog switches and routers which
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<PAGE> 71
are being used by the telecommunications industry to build the next generation
of networks to provide video-on-demand and related services.
The purchase price paid by Osicom for Dynair was $269,807, equal to
Dynair's audited shareholders' equity as of May 31, 1995. The seller is also
entitled to receive additional cash consideration equal to a percentage of the
Net Applicable Sales for each of the five years subsequent to the acquisition
date. Such Net Applicable Sales are defined as the total net revenues in excess
of $5,000,000 within a post-closing year derived from the sale of Dynair
products. The percentage of Net Applicable Sales is determined by the following
formula: five percent (5%) plus one and one-fourth, percent (1.25%) times each
full million dollars (1,000,000) of Net Applicable Sales for such post-closing
year. For example, if the Net Applicable Sales were equal to $2,000,000 the
Applicable Percentage would be 7.50%, representing $150,000 in additional
consideration.
Rockwell Network Systems ("RNS")
On January 31, 1996, Meret acquired all of the assets and assumed certain
specified liabilities of RNS from Rockwell International Corporation, for
$11,239,000 in cash and notes. Osicom used cash on hand, a portion of its $8
million credit facility with Coast Business Credit and a note payable to Seller
to finance the transaction. RNS provides high-speed LAN solutions and
connections to the extended workgroups and servers in high growth networking
(FDDI, Fast Ethernet) markets. In addition, RNS is a leading supplier of remote
access router-based technologies for connections to network backbones via public
switch facilities (ISDN and analog modems).
PENDING ACQUISITIONS
In early September 1996, Osicom entered into agreements to acquire two
privately held companies which management believes will enhance Osicom's current
product offerings. Osicom has agreed to acquire all of the outstanding stock of
CEH Holdings, Inc. ("CEH"), the parent corporation of Cray Communications, Inc.
("Cray"), the United States division of Cray Electronics Holdings, PLC, located
in the United Kingdom, for a purchase price consisting of $14 million in cash,
some of which will be used to retire certain outstanding indebtedness of CEH,
and $3 million in preferred stock. Cray had sales of approximately $25 million
for the year ended April 30, 1996.
Cray, based in Annapolis Junction, Maryland, designs, manufactures, markets
and supports an extensive range of communications products and systems providing
connectivity for networks ranging in size from the smallest LAN to sophisticated
global networks. Its product family includes routers, bridges, gateways,
concentrators, hubs, switches, terminal servers, CSU/DSUs, T-1/E-1 access
devices, frame delay, ISDN and award winning frame relay encryptor products and
network management systems.
Separately, Osicom agreed to acquire Digital Products, Inc. ("DPI") through
a merger with a newly formed subsidiary of Osicom for a purchase price of $5
million in Osicom Common Stock. DPI, based in Waltham, Massachusetts, produces
and markets to leading printer OEMs a broad line of print server products that
provide board level and chip level integrated solutions for local area networks
(LANs) and remote access. DPI's products are compatible with a variety of
networks including Novell NetWare, Banyan VINES, DEC LAT, Apple, UNIX, Microsoft
Windows NT, and Microsoft Windows for Workgroups. DPI's products are recognized
for high quality, having twice won the annual WordPerfect Reader's Choice award,
and PC Magazine's Editor's Choice on three occasions. DPI had sales of
approximately $19 million for the year ended December 31, 1995.
Both acquisitions are subject to the satisfaction of certain conditions,
including the completion of audited financial statements, and are expected to be
consummated in September 1996. Each acquisition would be effective as of June
30, 1996. Osicom is providing certain performance based incentives to certain
key management personnel in both Cray and DPI and expects to retain most of the
management team at each acquired company. The cash portion of the Cray
acquisition will be financed out of existing resources; however, the Company is
completing a private financing to expand its cash position. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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As of the date of this Prospectus, Osicom is negotiating to acquire several
companies both small and large which would complement its existing business. No
assurances can be given that any acquisitions will be completed or that, if
completed, the acquisitions would be beneficial to Osicom.
PROPERTIES
Osicom's corporate headquarters are located in Santa Monica, California,
where it leases a 6,200 square foot facility under a lease which expires April
30, 2001.
Meret's headquarters and primary facility is located in San Diego in a
36,000 square foot leased facility. The term of the lease is for five years with
an option to buy the facility during the lease term at the landlords cost.
Osicom also leases a 18,000 facility in Fremont, California. The lease
expires on July 31, 1997. Osicom will not renew this lease but will relocate the
Fremont operation to its San Diego facilities.
The main RNS facility is 27,400 square feet located in Santa Barbara,
California under a lease which expires February 28, 1998.
The Company also has nine sales offices located around the United States
and one such office in the United Kingdom. All such sales offices are leased.
Management believes that the existing and planned facilities are and will
remain adequate for the foreseeable future.
LEGAL PROCEEDINGS
From time to time Osicom is or has been party to lawsuits related to the
ordinary course of business. Interphase, Inc. sued Rockwell International
Corporation in connection with Osicom's acquisition of RNS, and later named
Osicom as an additional defendant. Osicom believes the suit is frivolous and
without merit. The Company is also indemnified by Rockwell International
Corporation against any losses arising from this action. Management is not aware
of any litigation, pending or threatened against the Company, that would have a
material adverse affect on Osicom's business.
Osicom is a party to several lawsuits related to dispossessed business. The
majority of such claims were assumed by the buyer in conjunction with the sale
of Osicom's business, and as such the buyer has indemnified Osicom against any
loss with respect to those claims. Management believes that any loss to Osicom
as a result of these lawsuits would be immaterial.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and other significant employees of Osicom:
<TABLE>
<CAPTION>
NAME AGE TITLE
----------------------------- --- --------------------------------------------
<S> <C> <C>
Sharon G. Chadha............. 41 Chairman, Chief Executive Officer, Director
Par Chadha................... 41 Director
Xin Cheng, Ph.D. ............ 40 Director, President, Secretary
Leonard Hecht................ 59 Director
Christopher E. Sue........... 32 Chief Financial Officer
Nicholas J. Whelan........... 42 President, RNS Division of Meret, Inc.
</TABLE>
Members of the Board of Directors are elected annually by the Shareholders
of Osicom for one-year terms. Osicom does not offer cash as compensation to its
directors for their service as such. The Board of
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Directors has no committees. There are no family relationships between any
directors and officers except that Par Chadha and Sharon G. Chadha are husband
and wife.
It is expected that Barry Witz, currently a director and Chief Executive
Officer of BWAI, will become a director of Osicom shortly after the Closing
Date. See "Certain Information Concerning BWAI -- Management -- Director and
Executive Officers."
Officers serve at the discretion of the Board of Directors, and there are
no employment agreements between Osicom and any of its officers.
Sharon G. Chadha has been a director of Osicom since 1983, has been Chief
Executive Officer since May 1993 and has been Chairman since June 18, 1996. Mrs.
Chadha also served as Treasurer and Secretary of Osicom from August 1988 through
June 1993 and as Chief Financial Officer from 1983 through January 1996. Mrs.
Chadha is a director and President of Rand Research Corporation, which is
privately owned.
Par Chadha founded Osicom in 1981 and has been a director of Osicom since
that time. He served as President and Chief Executive Officer of Osicom from
July 1981 through May 1993, and as Chairman from July 1981 through June 18,
1996. Mr. Chadha has been a director and Chairman of BWAI since March 30, 1995.
Mr. Chadha was a director of Saratoga Brands, Inc. from January 1995 through
July 1995, and a director and Chairman of the Board of Phoenix Laser Systems,
Inc. from September 1993 through November 1993, and has been Chairman, President
and Chief Executive Officer of Oxford Acquisitions Group, Inc. since February
1994. Mr. Chadha is also a director of Rand Research Corporation, RII Partners,
Inc. and RT Investments, Inc. which are privately held companies.
Xin Cheng, Ph.D., has been President and a director of Osicom since
September 1995, and Secretary since June 1993. He is President of Meret Optical
Systems, Inc., a wholly-owned subsidiary of Osicom. Dr. Cheng holds a Ph.D. in
electrical engineering from the University of California, Irvine. Since 1988,
Dr. Cheng has been senior staff scientist of advanced technology for Osicom.
Leonard N. Hecht, has been a director of Osicom since June 18, 1996. He has
been President of Chrysalis Capital Group, an investment banking company
specializing in mergers and acquisitions and financings which Mr. Hecht formed
in January of 1994. From 1987 to 1993, Mr. Hecht was a Managing Director of the
Investment Banking Group and head of the Technology Assessment Group of Houlihan
Lokey Howard & Zukin, a financial advisory firm. From 1984 to 1987, Mr. Hecht
was the Vice Chairman of the Board and Chief Executive Officer of Quantech
Electronics Corp., a diversified publicly held electronics company. Prior to
joining Quantech, Mr. Hecht was a founding principal of Xerox Development
Corporation, a wholly owned subsidiary of the Xerox Corporation. Xerox
Development Corporation was active in strategic planning, mergers and
acquisitions, divestitures, licensing, joint ventures and venture investing for
the Xerox Corporation. Mr. Hecht has served on the board of directors of many
public and private companies.
Christopher E. Sue has been Chief Financial Officer of the Company since
January 1996 and Chief Financial Officer of Meret since December, 1995. From
1993 to 1995 he was Accounting Manager at Haskel International, Inc. and from
1990 to 1993 he was Assistant Controller at Sun Computers, Inc. Prior to 1990,
Mr. Sue was employed by KPMG Peat Marwick in both its audit and management
consulting practices for five years. Mr. Sue is a certified public accountant.
Nicholas J. Whelan, Executive Vice President, Meret Communications, Inc.
and General Manager of RNS, joined RNS in 1994 to lead the business transition
to a mainstream high-growth PC-based market supplier focused on workgroup
connectivity. Mr. Whelan has over 20 years of experience in design engineering,
product management, marketing and business development in the WAN industry.
Prior to his employment at RNS, Mr. Whelan was director of international
marketing for Tellabs, where he was responsible for worldwide marketing and
business development. Prior to the Tellabs, Mr. Whelan served in various
management capacities at Case Communications and Netrix Corporation. Mr. Whelan
holds a BSEE degree from the University of Limerick in Ireland.
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OTHER KEY EMPLOYEES OF OSICOM'S SUBSIDIARIES INCLUDE:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CURRENT CAPACITY
----------------------------------------- -----------------------------------------
<S> <C>
Steven P. Ricca.......................... Director of Engineering -- LAN and Remote
Access Products
Ben VanBenthem........................... Director of Engineering -- Switches and
Broadband Communications Products
Arthur Trakas............................ Director of Sales
Paul Davis............................... Manager of Operations -- LAN and Remote
Access Products
</TABLE>
Steven P. Ricca, Director of Engineering -- LAN and Remote Access Products,
Meret Communications, Inc., joined RNS in 1991 as a principal member, technical
staff. In 1991, he was appointed Director of Engineering for RNS. Mr. Ricca has
over 14 years of experience in the development of high performance systems and
networks. Prior to joining RNS, Mr. Ricca worked at AT&T Bell Laboratories as
chief architect for the Comm View Picture Archive and Communications System
(PACS). Mr. Ricca holds a BSEE degree from Rutgers University, and an MSEE
degree from Cornell University.
Ben VanBenthem, Director of Product Development -- Switches and Broadband
Communications Products, Meret Communications, Inc. joined Dynair in 1995. Since
1957, he has been in design and development of large video and data routing
systems for commercial, broadcast, and military applications. During the twenty
years he was at CBS Laboratories, he designed large broadcast facilities and was
a key play in the development of the first Microcam. He was formerly employed as
Director of Product Development and Vice President of Engineering at BTS, Inc.
and Pesa, Inc. where he was involved in the design and development of large
audio, video and data routing systems. He earned a BSEE in the Netherlands. He
is the author of several papers on video system design and automation and is a
member of the SMPTE.
Arthur Trakas, Director of Sales, Meret Communications, Inc. Mr. Trakas
joined RNS in 1991 as regional sales manager and was named Director of Sales in
August of 1995. Mr. Trakas has over 15 years of sales and management experience,
focused primarily on government customers through direct sales, government
systems integrators, resellers and distributors. Prior to joining RNS, Mr.
Trakas was a regional sales manager at Wang Federal. Mr. Trakas holds a BS
degree from Wheeling College.
Paul Davis, Director of Operations -- LAN and Remote Access Products, Meret
Communications, Inc. Mr. Davis joined RNS in 1988 and was named Manager of
Operations in 1995. Prior to RNS, Mr. Davis was a senior field engineer at
Raytheon Service Company. Mr. Davis has over 14 years experience in the
manufacturing environment.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation, including bonus, paid
or accrued during the fiscal years ended January 31, 1996, 1995 and 1994, to
each of its executive officers whose aggregate cash compensation exceeded
$100,000 and for all executive officers of the Company as a group.
<TABLE>
<CAPTION>
CAPACITIES IN CASH
NAME OF INDIVIDUAL WHICH SERVED YEAR COMPENSATION
----------------------------------------- -------------------- ---- ------------
<S> <C> <C> <C>
Sharon G. Chadha......................... CEO, CFO 1996 $ 0
CEO, President, CFO 1995 $ 0
Secretary, CFO 1994 $120,000
</TABLE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The following table sets forth, as of July 25, 1996, the number of shares
owned beneficially to the knowledge of the Company by each beneficial owner of
more than 5% of the common stock, by each director of Osicom, and by all
directors and officers of the company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------------------------------- -------------------- --------
<S> <C> <C>
Par Chadha........................................ 672,950* 18.7%
15332 Antioch Street
Pacific Palisades, CA 90272
Sharon G. Chadha.................................. 614,764* 17.1%
15332 Antioch Street
Pacific Palisades, CA 90272
Rand Research Corporation......................... 585,858 16.3%
2250 East Tropicana Avenue
Las Vegas, NV 89119
Xin Cheng......................................... 19,497 0.6%
Leonard Hecht..................................... 81,224 2.3%
Christopher E. Sue................................ -- --
All officers and directors as a group (five
persons)........................................ 773,671 19.6%
</TABLE>
- ---------------
* Includes 585,858 shares beneficially owned through Rand Research Corporation.
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SUBMISSION OF SHAREHOLDER PROPOSALS
In the event the Acquisition is not consummated for any reason BWAI will
hold an annual meeting of its shareholders. In accordance with the rules of the
Commission, certain shareholder proposals that are received by the Secretary of
BWAI at BWAI's corporate headquarters a reasonable time before proxies are
solicited by the BWAI Board for such meeting must be included in the proxy
statement and proxy relating to such meeting.
LEGAL OPINIONS
The validity of the shares of Osicom Common Stock to be issued pursuant to
the Plan of Liquidation will be passed upon for Osicom by Greenbaum, Rowe,
Smith, Ravin, Davis & Himmel, Woodbridge, New Jersey. Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel has rendered legal services to BWAI in the past, but does
not represent BWAI with respect o the Acquisition or the Plan of Liquidation.
EXPERTS
The consolidated financial statements as of January 31, 1996 and for each
of the two years in the period ended January 31, 1996 and the related
consolidated financial statement schedules of Osicom included in this Proxy
Statement/Prospectus have been so included on the report of Weinbaum &
Yalamanchi independent certified public accountants, which is included herein
(which report expresses an unqualified opinion), and have been so included in
reliance upon the report of such firm given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of BWAI as of and for the year ended
May 31, 1996, have been included in this Proxy Statement/Prospectus in reliance
upon the report, appearing elsewhere herein, of Weinbaum & Yalamanchi,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing. The financial statements of Uni Precision
Industrial Limited incorporated by reference in this registration statement have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of BWAI as of May 31, 1995 and for
the period July 1, 1994 (inception) through May 31, 1995, have been included in
this Proxy Statement/Prospectus in reliance upon the report, appearing elsewhere
herein, of Jay J. Shapiro, C.P.A., independent public accountant, and upon the
authority of said firm as experts in accounting and auditing.
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DEFINITIONS
As used in this Proxy Statement/Prospectus, the following terms shall have
the meanings indicated:
"Acquisition" means the purchase by Osicom of substantially all of
the assets of BWAI pursuant to the Acquisition Agreement.
"Acquisition Agreement" means the Stock Purchase Agreement dated as of
June 1, 1996 between Osicom and BWAI, a copy of which is attached as
Exhibit A to this Proxy Statement/Prospectus.
"ADSL" means Asymetric Digital Subscriber Line.
"Affiliate" has the meaning set forth in Rule 145 under Securities
Act.
"ATM" means Asynchronous Transfer Mode.
"Backbone" means the main spine or segment of an enterprise network.
Departmental networks are attached as ribs to the central backbone.
"Bandwidth" means the capacity to move information down a
communications channel. Bandwidth is measured by the difference between the
highest and lowest frequencies that can be transmitted by that channel.
Ethernet has a 10Mbps bandwidth and FDDI has a 100Mbps bandwidth.
"Baseband" means the LAN channel technology that provides a single
path for transmitting either text, graphics, voice or video data at one
time.
"Broadband" means the LAN channel technology that provides several
paths for transmitting text, graphics, voice or video data so that
different types of data can be transmitted simultaneously.
"Bridge" has the meaning of a bridge connects two networks of the same
access method; for example, Ethernet to Ethernet or Token Ring to Token
Ring.
"BWAI" means Builders Warehouse Association, Inc.
"BWAI Common Stock" means the common stock, par value $.008 per share,
of BWAI.
"BWAI Shareholders" means the holders of BWAI Common Stock on the
Record Date.
"BWAI's Articles" means BWAI's Articles of Incorporation, as amended.
"BWAI's By-Laws" means BWAI's By-Laws, as amended.
"CBCA" means the Colorado Business Corporation Act, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means BWAI and Osicom, subsequent to the consummation of the
Acquisition.
"Concentrator" means the connection point, more sophisticated than a
hub, incorporating different types of cable connections, back-up power
supply, data-gathering capability for management purposes and possibly even
bridge and router features as well.
"Consents" means all authorizations, consents, orders or approvals of,
and all expirations of writing periods imposed by any governmental entity
which are necessary for the consummation of the Acquisition.
"Demand" means a demand for payment of the fair cash value of the
Dissenter's Shares.
"Dissenting Shares" means shares of BWAI Common Stock held on the
Record Date whose holders dissent from the Acquisition and Plan of
Liquidation and (in the event that the Acquisition Agreement and Plan of
Liquidation are adopted and are consummated) demand in writing payment of
the fair cash value of such shares in compliance with and by following the
procedures under Section 202.
"Dissenting Shareholder" means any holder of BWAI Common Stock who
seeks relief as a dissenting shareholder under Section 202.
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"Ethernet" means a 10Mbps speed network that runs over thick coax,
thin coax, twisted-pair, and fiber-optic cable.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Idata, Inc.
"Fast Ethernet" means a 100 Mbps speed network that runs over thick
coaxial, thin coaxial, twisted pair and fiber optic cable.
"FDDI" means the Fiber Distributed Data Interface is a fiber optic
network that supports transmission speeds up to 100 Mbps.
"File Server" means a computer in a network that stores various
programs and data files for uses of the network. It determines access and
availability in the network.
"Firewall" meaning is a hardware and software combination that serves
as a gateway between an organization's internal network and the Internet.
Employees can get out onto the Net, but unauthorized individuals cannot get
into the protected network.
"FTP" means a File Transfer Protocol is the TCP/IP protocol for file
transfer between a host and a remote computer.
"Gateway" meaning is to link very different kinds of networks; e.g.
mainframe to micro.
"GUI" means a Graphical User Interface that is a means of
communicating with a computer by manipulating icons and windows rather than
using text commands.
"Hub" means a connection point that connects one type of
cabling-possibly with a single high-capacity fiber optic or coaxial link to
the network backbone.
"Internet" means a collection of more than 2000 packet-switched
networks located principally in the United States, but also in other parts
of the world, all linked using the TCP/IP protocol.
"Interoperabilty" means an ability of one manufacturer's hardware to
operate alongside, communicate with, and exchange information with another
vendor's dissimilar computer equipment.
"ISDN" means an Integrated Services Digital Network is an all-digital
communication network that provides a wide range of services on a switched
basis. Voice, data and video can be simultaneously transmitted on one line
from a source.
"ISO" means International Standards Organization.
"LAN" means a Local Area Network is an interconnection of computers
for the purpose of sharing files, programs and various devices such as
printers and high-speed modems. LANs may include dedicated computers or
file servers that provide a centralized source of shared files and
programs.
"Meeting" means the special meeting of BWAI's Shareholders to which
this Property Statement/Prospectus relates.
"Modem" means a device that connects a computer to a data transmission
line. It is used for translating digital signals into analog signals and
vice versa.
"Multimedia" means the ability to mix fore than one means of
communication (e.g., voice, video, and data) at the same time.
"Multiplexing" means a process that combines a number of lower speed
transmission lines into one high-speed line by splitting the total
available bandwidth into narrower bands (frequency division) or by
allotting a common channel to several different transmitting devices one at
a time in sequence (time division).
"Nasdaq" means The Nasdaq SmallCap Market.
69
<PAGE> 79
"NIC" means a Network Interface Card is the adapter card that plugs
into computers and enables communication over a network.
"NOS" means a Network Operating System is special software that
manages the file server in a LAN and routes and manages communications on
the network.
"OEMs" means original equipment manufacturers.
"Open Systems" means a system based on non-proprietary protocols that
enable interoperability.
"Osicom" means Osicom Technologies, Inc., a New Jersey corporation.
"Osicom's By-Laws" means Osicom's by-laws, as amended.
"Osicom's Certificate" means Osicom's certificate of incorporation, as
amended.
"Osicom's Shareholders" means the holders of Osicom's Common Stock.
"Plan of Liquidation" means the plan to liquidate BWAI and distribute
shares of Osicom Common Stock to the BWAI Shareholders promptly following
the consummation of the Acquisition.
"POPs" means Points of Presence are networks of modems, routers and
other related computer equipment, located in a particular city or
metropolitan area, that allow subscribers to access the Internet through a
local telephone call.
"Protocol" means a set of rules and procedures that govern
transmission among the components in a network.
"Proxy Statement/Prospectus" means this Proxy Statement/Prospectus
relating to the proposed Acquisition and Plan of Liquidation.
"Record Date" means July 20, 1996.
"Registration Statement" means the Registration Statement on Form S-4
together with any amendments, of which this Proxy Statement/Prospectus is a
part.
"Repeater" means it is used to extend the length of a single LAN by
regenerating and retiming signals. Its main function is to receive and
retransmit all data packets after amplifying signals that make up the data
packet. The repeater contains no logic-integrated circuits.
"Representatives" means BWAI's subsidiaries and the officers,
directors, employees, representatives, investment bankers, attorneys,
accountants and other agents and affiliates of BWAI or any of its
subsidiaries.
"Required Shareholder Vote" means the affirmative votes of the holders
of a majority of the outstanding shares of BWAI Common Stock.
"Router" means a network translator that reads network addressing
information within packets or tokens to provide greater selectivity in
directing traffic over multiple LAN segments.
"Section 102" means Section 13-7-102 of the CBCA, relating to the
rights of dissenting BWAI Shareholders, a copy of which is included as
Exhibit C to this Proxy Statement/Prospectus.
"Securities Act" means the Securities Act of 1933, as amended.
"Server" means a computer that provides shared resources to network
users. Server software enables communication between the server and the
other computers.
"Service" means the Internal Revenue Service.
"SMDS" means a Switched Multimegabit Data Service is a public
packet-switched service offered by telephone companies. It supports
transmission speeds up to 34 mbps.
70
<PAGE> 80
"Switching" means a technology that splits networks into smaller
groupings and provides fast connections between them. Advantages are an
increase in network capacity and lower cost.
"TCP/IP" means a Transmission Control Protocol/Internet Protocol. It
is a standard communications protocol that defines how computers, running
incompatible operating systems, can connect and share information.
"T1" means a data communications line capable of transmission speeds
of 1.544 Mbps. This is used primarily in North America and some Pacific Rim
countries.
"T3" means a data communications line capable of transmission speeds
of 45 Mbps.
"WAN" means a Wide Area Network. A communications network that
connects geographically dispersed users.
71
<PAGE> 81
MISCELLANEOUS
It is expected that representatives of Weinbaum & Yalmanchi, Osicom's and
BWAI's independent public accountants will be present at the Meeting to respond
to appropriate questions and to make a statement if they so desire.
BWA knows of no matters to be presented at the Meeting other than the
matters set forth in the attached Notice and this Proxy Statement/Prospectus.
However, if any other matters come before the Meeting, it is intended that the
holder of the proxies will vote thereon in their discretion.
By Order of the Board of Directors
BARRY WITZ, Chief Executive Officer
September 9, 1996
72
<PAGE> 82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUILDERS WAREHOUSE ASSOCIATION, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS -- SPECIAL MEETING OF
SHAREHOLDERS, SEPTEMBER 30, 1996
The undersigned hereby appoints Par Chadha and Barry Witz and each
of them, the proxies of the undersigned, with full power of
substitution to represent the undersigned and to vote all shares of
Common Stock of BUILDERS WAREHOUSE ASSOCIATION, INC. ("BWAI") that the
undersigned is entitled to vote at the Special Meeting of Shareholders
to be held at 9990 Mesa Rim Road, San Diego, California on September
30, 1996 at 9:00 a.m. and at any adjournment or postponements thereof,
upon the following matter, as described in the Proxy
Statement/Prospectus dated September 9, 1996, and upon such other
matters as may properly come before the meeting.
TO APPROVE OF THE SALE OF SUBSTANTIALLY ALL OF BWAI'S ASSETS
PURSUANT TO AN AGREEMENT DATED AS OF JUNE 1, 1996 BETWEEN BWAI
AND OSICOM TECHNOLOGIES, INC. ("OSICOM"), IN EXCHANGE FOR SHARES
OF OSICOM COMMON STOCK AND OF THE LIQUIDATION OF BWAI AND
DISTRIBUTION TO THE BWAI SHAREHOLDERS OF SUCH SHARES OF OSICOM
COMMON STOCK.
/ / FOR / / ABSTAIN
/ / AGAINST
The Board of Directors recommends that you vote FOR the above
proposal. This proxy, when properly executed, will be voted in the
manner directed above. WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED FOR THE ABOVE PROPOSAL. This proxy may be revoked by the
undersigned at any time, prior to the time it is voted, by any of the
means described in the proxy statement. In their discretion, the
proxies may vote upon such other matters as may properly come before
the meeting.
(Continued, and to be Signed and Dated on the Reverse Side.)
DATED: , 1996
-------------------------------
(SIGNATURE)
-------------------------------
(SIGNATURE, IF HELD JOINTLY)
PLEASE MARK, DATE AND SIGN AS
YOUR NAME APPEARS ABOVE AND
RETURN IN THE ENCLOSED
ENVELOPE. IF ACTING AS AN
EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, ETC., YOU
SHOULD SO INDICATE WHEN
SIGNING. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN THE
FULL CORPORATE NAME, BY DULY
AUTHORIZED OFFICER. IF SHARES
ARE OWNED JOINTLY, EACH
STOCKHOLDER NAMED SHOULD SIGN.
IF A PARTNERSHIP, PLEASE SIGN
IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
OSICOM TECHNOLOGIES, INC.
Report of Independent Accountants -- Weinbaum & Yalamanchi......................... F-2
Consolidated Balance Sheet at January 31, 1996..................................... F-3
Consolidated Statements of Operations for the Years Ended January 31, 1996 and
January 31, 1995................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
January 31, 1996 and January 31, 1995........................................... F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1996 and
January 31, 1995................................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended January 31, 1996 and January 31, 1995............ F-18
Consolidated Balance Sheet at April 30, 1996 (unaudited)........................... F-20
Consolidated Statements of Operations for the Three Months Ended April 30, 1996 and
April 30, 1995 (unaudited)...................................................... F-21
Consolidated Statements of Cash Flows for the Three Months Ended April 30, 1996 and
April 30, 1995 (unaudited)...................................................... F-22
Notes to Consolidated Financial Statements......................................... F-23
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended April 30, 1996 and April 30, 1995......... F-29
BUILDERS WAREHOUSE ASSOCIATION, INC.
Independent Auditors' Report -- Weinbaum & Yalamanchi.............................. F-31
Independent Auditors' Report -- Arthur Andersen & Co., L.L.P....................... F-32
Independent Auditor's Report -- Jay Shapiro, CPA................................... F-33
Consolidated Balance Sheets as of May 31, 1996 and May 31, 1995.................... F-34
Consolidated Statements of Operations for the Year ended May 31, 1996 and July 1,
1994 (inception) to May 31, 1995................................................ F-35
Consolidated Statements of Shareholders' Equity for the Year ended May 31, 1996 and
July 1, 1994 (inception) to May 31, 1995........................................ F-36
Consolidated Statements of Cash Flows for the Year ended May 31, 1996 and July 1,
1994 (inception) to May 31, 1995................................................ F-38
Notes to Consolidated Financial Statements......................................... F-39
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Year ended May 31, 1996 and for July 1, 1994 (inception) to
May 31, 1995.................................................................... F-54
</TABLE>
F-1
<PAGE> 84
WEINBAUM & YALAMANCHI
INDEPENDENT ACCOUNTANTS' REPORT
The Stockholders
Osicom Technologies, Inc.
We audited the accompanying consolidated balance sheet of Osicom
Technologies, Inc. (Osicom) and subsidiaries as of January 31, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended January 31, 1996 and 1995. These consolidated
financial statements are the responsibility of Osicom's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe our audits provide a
reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
Osicom and subsidiaries as of January 31, 1996 and the consolidated results of
their operations and their consolidated cash flows for the years ended January
31, 1996 and 1995 in conformity with generally accepted accounting principles.
Weinbaum & Yalamanchi
Canoga Park, California
April 11, 1996, except as to
Note P, as to which the
date is August 21, 1996
F-2
<PAGE> 85
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
1996
-----------
<S> <C>
Cash............................................................................ $ 451,860
Accounts Receivable............................................................. 4,541,226
Allowance for Doubtful Accounts................................................. (357,665)
Notes Receivable (Note C)....................................................... 143,190
Inventories (Note B(4))......................................................... 9,360,568
Prepaid Expenses................................................................ 452,335
-----------
Total Current Assets....................................................... 14,591,514
-----------
Net Property and Equipment (Note D)............................................. 1,425,429
-----------
Purchased Software (Note B(2)).................................................. 4,673,003
-----------
Other Assets.................................................................... 204,029
-----------
Total Assets............................................................... $20,893,975
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Loans Payable -- Bank (Note E).................................................. $ 4,004,514
Notes Payable -- Current (Note F)............................................... 495,094
Notes Payable -- Affiliate (Note G)............................................. 56,073
Accounts Payable and Accrued Expenses (Note K).................................. 4,721,090
-----------
Total Current Liabilities.................................................. 9,276,771
-----------
Negative Goodwill (Note B(2))................................................... 324,666
-----------
Commitments and Contingencies (Note I)
Long Term Debt (Note F)....................................................... 7,201,138
-----------
Stockholders' Equity (Note J)
Preferred Stock
Series A, 2500 shares issued and outstanding --
Liquidation preference $3,012,500............................................. 250,000
Common Stock
Par value $.10 per share, authorized 20,000,000 shares,
2,770,180 shares issued and outstanding(a).................................... 277,018
Additional Paid-In-Capital...................................................... 1,877,631
Retained Earnings (from June 1, 1993)........................................... 1,686,751
-----------
Total Stockholders' Equity................................................. 4,091,400
-----------
Total Liabilities and Stockholders' Equity................................. $20,893,975
===========
</TABLE>
- ---------------
(a) Adjusted for 2-for-1 stock split effected February 12, 1996.
The accompanying notes to consolidated financial statements are an integral
part hereof.
F-3
<PAGE> 86
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net Sales (Note M).................................................. $7,733,366 $5,892,356
Cost of Sales (Note B(4))........................................... 4,621,315 4,051,409
---------- ----------
Gross Margin........................................................ 3,112,051 1,840,947
---------- ----------
Selling, General & Administrative Expenses (Note N)................. 3,201,627 2,058,095
Amortization of Negative Goodwill................................... 950,868 950,868
---------- ----------
Income from Continuing Operations before Interest Expense........... 861,292 733,720
Interest Expense, Net............................................... 158,339 84,431
---------- ----------
Earnings from Continuing Operations................................. 702,953 649,289
Loss on Discontinued Operations..................................... (276,269)
---------- ----------
Net Income.......................................................... $ 702,953 $ 373,020
========== ==========
Earnings Per Common Share (Note L)
Earnings from continuing operations................................. $ 702,953 $ 649,289
Accrued dividends on preferred stock................................ (150,000) (150,000)
---------- ----------
Earnings from continuing operations available to common
shareholders...................................................... $ 552,953 $ 499,289
========== ==========
Earnings per common share from continuing operations
-- Primary........................................................ $ 0.21 $ 0.24
-- Fully diluted.................................................. $ 0.20 $ 0.24
---------- ----------
Loss from discontinued operations................................... $ 276,269
Loss per common share from discontinued operations
-- Primary........................................................ $ 0.13
-- Fully diluted.................................................. $ 0.13
---------- ----------
Net Earnings........................................................ $ 702,953 $ 373,020
Earnings per share
-- Primary..................................................... $ 0.21 $ 0.11
-- Fully Diluted............................................... $ 0.20 $ 0.11
---------- ----------
Average shares used in computation
-- Primary(a).................................................. 2,649,006 2,111,636
-- Fully Diluted............................................... 2,798,378 2,111,636
========== ==========
</TABLE>
- ---------------
(a) Adjusted for 2-for-1 stock split effected February 12, 1996.
The accompanying notes to consolidated financial statements are an integral part
hereof.
F-4
<PAGE> 87
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
-------------------- -------------------- ADDITIONAL RETAINED STOCKHOLDERS'
STOCK AMOUNT STOCK AMOUNT PAID-IN-CAPITAL EARNINGS EQUITY
--------- -------- --------- -------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1994..... 2,500 $250,000 2,044,138 $204,414 $ 956,884 $ 610,778 $ 2,022,076
Issuance of Common Stock:
Subscriptions.............. 500,000 50,000 450,000 500,000
Stock Cancellation......... (152,348) (15,235) (613,201) (628,436)
Fractional Shares.......... 6 1 1
Net Income for Fiscal 1995... 373,020 373,020
----- -------- --------- -------- ---------- ---------- ----------
Balance January 31, 1995..... 2,500 250,000 2,391,796 239,180 793,683 983,798 2,266,661
Issuance of Common Stock:
Subscriptions.............. 78,230 7,823 567,177 575,000
Stock Options.............. 321,602 32,160 300,340 332,500
Stock issued in connection
with RNS Acquisition.... 61,224 6,122 208,164 214,286
Stock Cancellation......... (82,672) (8,267) 8,267
Net Income for Fiscal 1996... 702,953 702,953
----- -------- --------- -------- ---------- ---------- ----------
Balance January 31, 1996..... 2,500 $250,000 2,770,180 $277,018 $ 1,877,631 $1,686,751 $ 4,091,400
===== ======== ========= ======== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
F-5
<PAGE> 88
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operations:
Net income:...................................................... $ 702,953 $ 373,020
Adjustments to reconcile net income to cash used in operations:
Depreciation and amortization.................................. 70,363 11,656
Amortization of negative goodwill.............................. (950,868) (950,868)
Non-cash loss of discontinued operation........................ 197,616
Changes in operating assets and liabilities:
Decrease in accounts receivable................................ 62,982 111,054
Increase in inventories........................................ (811,424) (11,270)
Decrease (increase) in prepaid expenses........................ (166,650) 29,603
Decrease in other assets....................................... 962 17,863
Decrease in accounts payable and accrued expenses.............. (1,683) (134,122)
----------- ----------
Cash used in operations.......................................... (1,093,365) (355,448)
----------- ----------
Cash flows from investing activities:
Fee paid in connection with RNS acquisition...................... (329,000)
Capital expenditures............................................. (31,958) (5,065)
----------- ----------
Cash used in investing activities................................ (360,958) (5,065)
----------- ----------
Cash flows from financing activities:
Repayments by (advances to) affiliates........................... 461,971 (529,610)
Payments on acquisition liabilities.............................. (5,269,807) (95,554)
Stock subscriptions received..................................... 578,500
Proceeds from stock subscription................................. 575,000
Proceeds from stock option excercises............................ 332,500
Proceeds from notes receivable................................... 1,009,071
Notes payable, other............................................. 1,310,552
Notes payable, affiliates........................................ 56,073
Increase (decrease) in advances/payments line of credit, net..... 3,344,305 (50,000)
----------- ----------
Cash provided by (used in) financing activities (Note O)......... 1,819,665 (96,664)
----------- ----------
Increase (decrease) in cash...................................... 365,342 (457,177)
Cash at beginning of year........................................ 86,518 543,695
----------- ----------
Cash at end of year.............................................. $ 451,860 $ 86,518
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
hereof.
F-6
<PAGE> 89
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- THE COMPANY, BASIS OF PRESENTATION AND ACQUISITIONS:
Osicom Technologies, Inc. (the "Company" or "Osicom"), on May 24, 1993
acquired 100% of the outstanding common stock of Meret Optical Communications,
Inc. ("Meret"). Since at the time of the acquisition of Meret, the Company had a
total of 408,592 shares issued and outstanding, the shareholders of Meret gained
voting control of the Company and therefore became the acquiring entity. As a
result, Meret is the accounting survivor and reporting successor. The
acquisition of Meret by the Company was recorded as a reverse acquisition. As a
result of the acquisition of Meret by the Company, Meret changed its accounting
year end to January 31 from December 31. All of the Company's operations are
conducted in its wholly owned subsidiary Meret.
ACQUISITIONS:
(1) Dynair Electronics, Inc.
On June 8, 1995, the Company acquired 100% of Dynair Electronics, Inc.
("Dynair"). Dynair is engaged in the business of designing, manufacturing,
marketing and supporting digital and analog switches and routers which are
being used by the telecommunications industry to build the next generation
of networks to provide video-on-demand and related services.
The purchase price paid in cash for Dynair was $269,807 which was
equal to the audited shareholder's equity of Dynair as of May 31, 1995. In
addition, to the above-mentioned consideration, Dynair's Seller is entitled
to receive additional cash consideration equal to a percentage of the Net
Applicable Sales for each of the five years subsequent to the acquisition
date. Such Net Applicable Sales are defined as the total net revenues in
excess of $5,000,000 within a post-closing year derived from the sale of
Dynair products. The percentage of Net Applicable Sales is determined by
the following formula: five percent (5%) plus one and one-fourth percent
(1.25%) times each full million dollars ($1,000,000) of Net Applicable
Sales for such post closing year.
(2) Rockwell Network Systems
On January 31, 1996, Meret, the Company's wholly owned subsidiary,
acquired all the assets and assumed certain specified liabilities of
Rockwell Network Systems ("RNS") from Rockwell International Corporation
("Seller") for approximately $11 million in cash and notes. In addition,
approximately $593,000 in finders fees and fees for providing collateral
for the notes issued, was paid with a combination of cash and stock (Note
O). $5 million was paid at closing and subsequent to fiscal year, an
additional $500,000 was paid. RNS provides high-speed LAN solutions and
connections to the extended workgroups and servers in high growth
networking (FDDI, Fast Ethernet) markets. In addition, RNS is a leading
supplier of remote access router-based technologies for connections to
network backbones via public switch facilities (ISDN and analog modems).
RNS operates as a division of Meret.
All assets acquired in this transaction will continue to be used in the
conduct of the normal business activities of Meret and RNS. No previous
relationship existed between RNS, Seller and the Company, Meret or their
officers or directors.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation:
The consolidated balance sheet reflects the accounts of Osicom and its
wholly-owned subsidiary Meret, including the RNS division. The consolidated
statement of operations for the year ended January 31, 1996 includes the
results of operations of Osicom and Meret. The consolidated statement of
F-7
<PAGE> 90
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations for the year ended January 31, 1995 includes the results of
operations of Osicom and its subsidiaries, and the discontinued operations
of Adtech.
(2) Amortization of Intangibles:
Excess of fair value over cost of net assets acquired (negative
goodwill) is amortized over 3 years on a straight-line basis.
Software assets acquired are amortized over 10 years on a
straight-line basis. Software development costs where technological
feasibility has not been established are expensed in the period in which
they occurred, otherwise, development costs for computer software that will
become an integral part of the Company's products are deferred. The
deferred cost is amortized on a straight-line basis over the remaining
estimated economic life of the product.
(3) Depreciation and Amortization:
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets
(generally 3 to 7 years). Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the lease.
(4) Inventories:
Inventories, comprised of raw materials, work in process and finished
goods, are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of:
<TABLE>
<CAPTION>
RAW WORK IN FINISHED RESERVE FOR
MATERIALS PROCESS GOODS SUBTOTAL OBSOLESCENCE NET
- ---------- ---------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$6,346,050 2,923,884 1,968,983 11,238,917 1,878,349 $9,360,568
</TABLE>
(5) Per Share Data:
Earnings (loss) per common share is computed based on the weighted average
number of common and dilutive common equivalent shares outstanding during each
year presented. All references in the financial statements to common shares and
per share data give effect to the 2:1 split effective February 12, 1996.
(6) Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(7) Allowance for Doubtful Accounts:
The Company provides an allowance for doubtful accounts based on its
continuing evaluation of its customers' credit risk. The Company does not
require collateral from its customers.
(8) Revenue Recognition:
Revenues are recognized upon shipment of product.
(9) Accounting 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 revenue and expenses during the reported
periods. Actual results could differ from those estimates.
F-8
<PAGE> 91
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) Fair Value of Financial Instruments:
Accounts receivable, accounts payable and accrued expenses carrying value
approximates fair value because of the short-term maturity of those instruments.
Notes payables are at reasonable interest rates and are believed to be at fair
value.
NOTE C -- NOTES RECEIVABLE
Agama, Inc., owed the Company $140,690. The amount is due on demand and
accrues interest at 1% over the prime rate.
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, consists of:
<TABLE>
<S> <C>
Automobile....................................................... $ 31,410
Plant Equipment.................................................. 2,341,510
Office Furniture and Fixtures.................................... 219,040
Leasehold Improvements........................................... 203,936
----------
Total.................................................. 2,795,896
Less accumulated depreciation.................................... (1,370,467)
----------
$1,425,429
==========
</TABLE>
NOTE E -- LOANS PAYABLE -- BANK
At January 31, 1996, the Company had outstanding indebtedness under its
revolving demand loan agreement with Banca di Roma of $510,209. The agreement
provides for interest at 1% above the bank's base lending rate, which was 9%, at
January 31, 1996. The line of credit is collateralized by accounts receivable
and personally guaranteed by a director of the Company.
The highest amount outstanding was $660,209 during Fiscal 1996 and $710,000
during Fiscal 1995. The average amount outstanding was $585,000 during Fiscal
1996 and $710,000 during Fiscal 1995. The weighted average interest rate was
9.9% and 11.0% for Fiscal 1996 and Fiscal 1995.
On April 14, 1995, Coast Business Credit ("the lender") and Meret entered
into an agreement ("the agreement") for a $5 million revolving line of credit
collateralized by inventories, receivables and property, plant and equipment.
Osicom has guaranteed the debt to the extent of $600,000. The agreement bears
interest at 2 1/2% over the prime rate, but in no event less than 8%. Meret paid
to the lender a $50,000 origination fee and will pay a $2,500 quarterly facility
fee. The Company issued to the lender warrants to purchase 10,000 shares of its
common stock exercisable at any time up to 3 years from the date of funding at a
price equal to the per share price on the funding date.
The agreement provides for advances of 80% of eligible accounts receivable
and 25% of eligible raw materials and finished goods not to exceed the lesser of
$1,000,000 or 75% of the then outstanding balance related to accounts receivable
loan. The proceeds must be used to provide working capital for expansion and for
other lawful business purposes. The agreement remains in effect until May 31,
1998 and automatically renews for successive additional terms of one year on a
continuous basis unless terminated by written notice of either party or by
default. On December 4, 1995, the agreement was amended to pay down its
inventory loan and the Lender provided a new term loan to Meret in the amount of
$915,000 payable $25,500 principal per month, plus interest at 2 1/2% over the
prime rate, but in no event less than 8%. In addition, the agreement will remain
in effect until November 30, 1998.
F-9
<PAGE> 92
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 31, 1996, the agreement was amended by increasing the revolving
line of credit to $8 million. Meret paid the lender a $30,000 origination fee
and the quarterly facility fee was increased to $3,500. The Company issued the
lender additional warrants to purchase 40,000 shares of its common stock
exercisable at any time up to 3 years from the date of funding at $5 5/16 per
share. In addition, the Lender provided an additional term loan to Meret in the
amount of $480,000, collateralized by machinery and equipment of RNS. This
additional term loan is payable $13,400 per month, plus interest at 2 1/2% over
the prime rate, but in no event less than 8%. Lastly, the term of the agreement
was extended to February 1, 1999. The Company had outstanding indebtedness under
its line of credit of $3,494,305 at January 31, 1996.
NOTE F -- NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of:
<TABLE>
<S> <C>
Promissory Note, RIC........................................... $6,269,487
Term Notes, Prime + 2.5%....................................... 1,344,000
Capital lease obligation....................................... 82,745
----------
Total..................................................... 7,696,232
Less current portion........................................... 495,094
----------
$7,201,138
==========
</TABLE>
As a result of the acquisition of RNS, a promissory note due to Rockwell
International Corporation was issued in the amount of $6,269,487 guaranteed by
the Company on behalf of Meret and fully secured by collateral provided by two
of the Company's directors. The promissory note is payable six months after the
closing date, bearing no interest. Commencing August 1, 1996, the note provides
for interest at the rate of prime plus 2% on any unpaid remaining balance.
Subsequent to fiscal year end, convertible preferred voting Class B stock was
issued to an entity owned by two of the Company's directors to refinance the
promissory note. Under FASB No. 6, the promissory note is classified as
long-term debt. The face value of the preferred stock is $6,269,487, accrues no
dividend, and redeemable by the Company at any time. If not redeemed in two
years, the preferred stock will convert into common shares at the option of the
holder at current market price.
In addition, Meret has two term notes with a lender with original amounts
of $915,000 and $480,000, on December 4, 1995 and January 31, 1996,
respectively. Both notes accrue interest at the rate of prime plus 2%, which was
10% at January 31, 1996 payable monthly. Lastly, principal payments of $25,500
and $13,400, respectively, are payable monthly, and $877,200 is reflected as
long-term debt.
The principal payments under notes payable and long-term debt for years
ended January 31, 1997 and thereafter are as follows, by year:
<TABLE>
<S> <C>
1997........................................................... $6,764,581(a)
1998........................................................... 521,251
1999........................................................... 410,400
----------
7,696,232
Less: Current installments................................ 495,094
----------
Total.......................................................... $7,201,138
==========
</TABLE>
- ---------------
(a) Includes refinanced promissory note.
F-10
<PAGE> 93
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- NOTE PAYABLE -- AFFILIATE
As of January 31, 1996, a net amount of $56,073 was due to an entity owned
by two directors of the Company. The amount is due on demand and does not accrue
interest.
NOTE H -- INCOME TAXES
The Company recorded no income tax provision for the years ended January
31, 1996 and 1995. A significant portion of the net income reported by the
Company for those years arose from the amortization of negative goodwill which
is not taxable. In addition, the Company has other temporary differences,
primarily depreciation, that can be utilized to offset any remaining taxable
income. Both the negative goodwill amortization and the depreciation differences
arose out of the Company's acquisitions of Meret and Catel. The Company also has
other tax attributes arising from the Meret and Catel acquisitions that could
give rise to the recording of deferred tax assets. Upon acquisition, management
determined that realization of such benefits was not assured thus, no deferred
asset was recorded. At January 31, 1996, management determined that realization
of any future benefits is still not assured thus, no deferred tax assets were
recorded. The Company believes that any remaining net operating losses incurred
by the Company, prior to the acquisitions, available to offset future taxable
income, may be severely limited by the provisions of Section 382 of the Internal
Revenue Code.
The following is a detail of the significant temporary differences which
may give rise to future tax benefits as of January 31, 1996:
<TABLE>
<S> <C>
Tax basis of assets acquired.............................. $ 1,650,000
Inventory obsolescence.................................... 1,281,000
Allowance for doubtful accounts........................... 358,000
Accrued vacations......................................... 369,000
-----------
Subtotal.................................................. 3,658,000
Combined Federal and State deferred tax benefit assuming
100% realization........................................ 1,463,200
Less reserve.............................................. (1,463,200)
-----------
Net deferred benefit...................................... $ 0
===========
</TABLE>
At January 31, 1995, Osicom had net operating loss carry forwards of
$4,800,000 of which $3,700,000 was subject to annual use limitations of
$200,000.
NOTE I -- COMMITMENTS AND CONTINGENCIES
(1) Osicom and its subsidiaries lease a total of 117,400 square feet. Lease
terms generally range from month to month to 5 years with options to renew at
varying terms.
(2) After the fiscal year end, Meret agreed to lease a 35,600 square foot
building in San Diego, California to consolidate several of its operations and
become Meret's headquarters. Meret later purchased the land and building for
$1,779,350 in cash. On April 1, 1996, the Company moved from its former 29,200
square foot facility to a 6,200 square foot office space in Santa Monica,
California. Subsequent to fiscal year end, net space leased has declined
approximately 63,000 square feet.
F-11
<PAGE> 94
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual rentals for the Company and its subsidiaries are as
follows, by year:
<TABLE>
<S> <C>
1997........................................................... $ 534,583
1998........................................................... 492,217
1999........................................................... 153,152
2000........................................................... 122,328
2001........................................................... 122,328
Thereafter..................................................... 30,582
----------
Total..................................................... $1,455,190
==========
</TABLE>
(3) The Company is party to several lawsuits related to trade claims made
by and against the Company. The majority of such claims have been assigned to
Agama, Inc. in conjunction with the sale of the Company's former computer
business and as such Agama, Inc. has indemnified the Company against any
unfavorable outcomes. Interphase, Inc. sued the Company and Rockwell
International Corporation in connection with Osicom's acquisition of RNS. The
Company believes the suit is frivolous and without merit. The Company is also
indemnified by Rockwell International Corporation against any losses arising
from this action. Management believes that the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's financial
position and future operations.
(4) Under the terms of the purchase agreement, the Company is obligated to
pay the Seller of Dynair additional cash consideration equal to a percentage of
net revenues in excess of $5,000,000 within a post-closing year derived from
sale of Dynair products, for each of the five years subsequent to the
acquisition date. As of January 31, 1996, no liability related to this
additional consideration has been incurred.
NOTE J -- STOCKHOLDERS' EQUITY
(1) The Company has two stock option plans in effect: The 1987 Stock Option
Plan and the 1988 Stock Option Plan. The stock options have been made available
to certain employees and consultants. All options were granted at not less than
fair market value at date of grant.
(2) Pursuant to the acquisition of RNS, the Company granted 64,000 options
at an exercise price of $3.50 per share, 227,600 options at an exercise price of
$6.32 per share and agreed to issue 167,238 shares of its common stock to the
employees of RNS, conditioned upon their continuous employment by the Company
through January 31, 1998. Furthermore, the Company granted 40,000 non-qualified
stock options at an exercise price of $3.50 per share to a key employee of RNS,
which are immediately exercisable.
F-12
<PAGE> 95
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During Fiscal 1996, the following activity occurred:
<TABLE>
<CAPTION>
EXERCISE PRICE
----------------------------------------------------------------
$1 $2 $3.75 $5 $5.56 TOTALS
-------- -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding January 31,
1995............................ 21,974 26,400 10,350 58,724
Options Registered June 15,
1995............................ 189,200 72,800 262,000
Options Registered November 22,
1995............................ 122,000 50,000 86,500 41,500 300,000
-------- -------- ------- -------- -------- ----------
Subtotal................ 333,174 149,200 10,350 86,500 41,500 620,724
Options Exercised During the
Fiscal Year Ended January 31,
1996............................ 294,600 57,200 -- -- 18,202 370,002
-------- -------- ------- -------- -------- ----------
Options not exercised at January
31, 1996........................ 38,574 92,000 10,350 86,500 23,298 250,722
======== ======== ======= ======== ======== ==========
Dollar value of options
exercised....................... $294,600 $ 85,800 $ 0 $101,249 $ 481,649
Dollar value of options not
exercised....................... 38,574 138,000 389,250 129,595 695,419
-------- -------- -------- -------- ----------
Total combined value of options... $333,174 $223,800 $389,250 $230,844 $1,177,068
======== ======== ======== ======== ==========
</TABLE>
(2) During Fiscal 1993, in conjunction with the retirement of its Bank
debt, the Company issued to its Bank options to purchase 100,000 shares of its
common stock at an exercise price of $4.00 per share. This option expires on
December 31, 2002. Under a redemption agreement, the Company can redeem the
options for $600,000 if redeemed by September 30, 1996, and $1 million
thereafter.
(3) On August 21, 1992, the Company issued 2,500 shares of Series A
Convertible Preferred stock in exchange for $2,500,000 of trade debt. The
preferred stock was ascribed a value of $250,000 based on the estimated market
value of the underlying common stock of the Company. The preferred stock accrues
cumulative dividends at 6% and is convertible into common stock (i) at the
option of the holder at the market price of the common stock provided the market
price is equal to or exceeds $67.50, and (ii) at the option of the Company after
August 21, 1994 at 110% of the market price of the common stock. In no event
shall a conversion result in the holder having more than 49% of the outstanding
common stock of the Company. The shares of preferred stock are redeemable at the
option of the Company at $1,000 per share. At January 31, 1996, there was
$512,500 of cumulative preferred stock dividends.
NOTE K -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of:
<TABLE>
<S> <C>
Accounts Payable................................................. $3,240,641
Accrued Vacations................................................ 369,207
Other............................................................ 1,111,242
----------
Total.................................................. $4,721,090
=========
</TABLE>
F-13
<PAGE> 96
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- EARNINGS PER SHARE CALCULATION
Earnings per share were calculated as follows giving effect to accrued
preferred share dividends:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net earnings.................................................. $ 702,953 $ 373,020
Accrued undeclared dividends.................................. (150,000) (150,000)
---------- ----------
Earnings used for computation................................. $ 552,953 $ 223,020
========== ==========
Weighted average number of shares outstanding................. 2,630,726 2,111,636
Primary shares issued:
Shares issuable upon exercise of dilutive warrants and
options, net of shares assumed to have been purchased, at
the average market price for the period, with assumed
exercise proceeds........................................ 18,280
---------- ----------
Weighted average shares used in computation................... 2,649,006 2,111,636
Primary earnings per share.................................... $ 0.21 $ 0.11
========== ==========
Fully diluted shares issued:
Shares issuable upon exercise of dilutive warrants and
options, net of shares assumed to have been purchased, at
the market price at the end of the period, with assumed
exercise proceeds........................................ 167,652
---------- ----------
Weighted average shares used in computation................... 2,798,378 2,111,636
Fully diluted earnings per share.............................. $ 0.20 $ 0.11
========== ==========
</TABLE>
NOTE M -- LARGEST CUSTOMER
One customer accounted for 14.7% of sales for the year ended January 31,
1996. No customer accounted for more than 10% of sales for the year ended
January 31, 1995. Two customers owed the Company $1,397,000 and $668,000 at
January 31, 1996, respectively. The largest customer subsequent to January 31,
1996 has remitted payment in full.
NOTE N -- VARIOUS EXPENSES
Research and development expenses were $950,000 and $443,000 for the years
ended January 31, 1996 and 1995, respectively.
NOTE O -- SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense approximated interest paid for all years presented.
Summary of non-cash financing and investing activities during Fiscal 1996:
(1) The Company issued 61,224 shares of common stock and accrued
$50,000, payable in cash, in favor of Chrysalis Capital, Inc. as a finder's
fee in conjunction with the acquisition of RNS. Subsequent to fiscal year
end, the finder's fee of $50,000 was paid.
(2) As a result of the acquisition of RNS, a note payable due to
Rockwell International Corporation was issued in the amount of $6,000,000
payable six months after the closing date with interest. The note payable
provided for interest at the rate of prime plus 2%. Subsequently, on March
27, 1996, the note payable was amended to the amount of $6,269,487, bearing
no interest.
F-14
<PAGE> 97
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- SUBSEQUENT EVENTS
Meret originally agreed to lease a 35,600 square foot building in San
Diego, California to consolidate several of its operations and become Meret's
headquarters. Meret later purchased the land and building for $1,779,350 in
cash. In addition, Meret entered into a mortgage agreement with a lender in the
amount of $1,331,000 amortized over 30 years with an adjustable interest rate of
5.50% over LIBOR, with a rate of 8.95% for the initial six months.
On April 1, 1996, the Company moved from its former 29,200 square foot
facility to a 6,200 square foot office space in Santa Monica, California.
Subsequent to fiscal year end, net space leased has declined approximately
63,000 square feet.
Subsequent to fiscal year end, the Company issued non-convertible preferred
stock in the amount of $6,269,487 to refinance the promissory note issued in
conjunction with the RNS acquisition to an entity owned by two of the Company's
directors. The entity was to indemnify the Company for any non-payment of the
promissory note. The preferred stock had no dividends and the Company could
redeem the preferred stock for cash at any time or convert it to common stock if
not redeemed after two years from the date of issuance at the current market
price. Subsequent to fiscal year end, the preferred stock was fully redeemed for
cash.
In April 1996, the Company issued $2,500,000 of 8% convertible debentures
due December 31, 1999. The debentures are convertible at $13.50 per share.
Should Osicom's stock price fall below $10.75 per share, the Company has the
right to buy back the debentures at 90% of their principal issued amount.
In May 1996, the Company received net proceeds of $4,738,000 of 8%
convertible debentures due December 31, 1999. The debentures are convertible at
$13.75 per share or market price. Should the Company's stock price fall below
$10.50 per share the holders cannot convert the debentures. The Company has the
right to buy back the debentures at a premium of 15%.
In July 1996, the Company issued 10,000 shares of 8% Series C preferred
stock with a $0.01 par value and a $1,000 liquidation value. The Company
received net proceeds of $7,525,000. Holders of Series C preferred stock are not
entitled to vote. The series C preferred stock bears a cumulative 8% annual
dividend payable annually on July 31 of each year. Such dividend is payable at
the Company's option in either cash or common stock at the immediately preceding
business day's closing price as reported by NASDAQ. Each share of Series C
preferred stock is convertible into common shares at a maximum price of $18.00
or at market or at conditions thereof.
Under the terms of the purchase agreement, the Company is obligated to pay
the Seller of Dynair additional cash consideration equal to a percentage of net
revenues in excess of $5,000,000 within a post-closing year derived from sale of
Dynair products, for each of the five years subsequent to the acquisition date.
As of May 31, 1996, the acquisition date, no liability related to this
additional consideration has been incurred.
The Company is completing a $10,000,000 private placement of 8% Series D
convertible preferred stock. Net proceeds will be approximately $7,500,000.
Holders of Series D preferred stock will not be entitled to vote. The Series D
preferred stock will bear a cumulative 8% annual dividend, commencing December
1, 1996 and will be payable annually. Such dividends will be payable at the
Company's option in either cash or common stock at the immediately preceding
business day's closing price as reported by NASDAQ. Each share of Series D
preferred stock will be convertible into common shares at a maximum price of
$15.00 or at market or at conditions thereof. The Series D preferred stock may
be redeemed at the Company's option between $11.00 and $15.00, subject to
certain conditions.
NOTE Q -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information presents the
effects of the acquisitions of Dynair and RNS by the registrant as if the
acquisitions had been completed as of February 1, 1994. The pro forma
adjustments reflects interest on debt not acquired and debt assumed. The pro
forma financial information is not necessarily indicative of the results of
operations and financial position which will be attained in the future.
F-15
<PAGE> 98
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OSICOM TECHNOLOGIES, INC.
PROFORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
OSICOM PRO FORMA PRO FORMA
CONSOLIDATED RNS DYNAIR REF ADJUSTMENTS CONSOLIDATED
------------ ----------- ---------- ---- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................................... $5,892,356 $ 8,471,000 $3,438,000 $17,801,356
Cost of sales.................................. 4,051,409 4,788,000 1,968,000 10,807,409
---------- ---------- --------- --- ---------- ----------
Gross profit................................... 1,840,947 3,683,000 1,470,000 6,993,947
Selling, general and administrative expenses... 2,058,095 10,941,000 2,225,000 15,224,095
Amortization of negative goodwill.............. 950,868 950,868
Interest expense............................... 84,431 148,000 (a) $ 27,000 1,280,431
(b) $ 1,021,000
---------- ---------- --------- --- ---------- ----------
Earnings (loss) from continuing operations..... 649,289 (7,258,000) (903,000) (1,048,000) (8,559,711)
Loss on discontinued operations................ 276,269 276,269
---------- ---------- --------- --- ---------- ----------
NET EARNINGS (LOSS)............................ $ 373,020 $(7,258,000) $ (903,000) $(1,048,000) $(8,835,980)
========== ========== ========= === ========== ==========
Weighted average shares used in computation of
primary and fully diluted information:....... 2,111,636
Net Earning Per Share
-- Both Primary & Fully Diluted............. $ 0.11 $ (3.44) $ (0.43) $ (4.26)
</TABLE>
- ---------------
(a) To recognize interest expense for the year on acquisition debt related to
the Dynair acquisition.
(b) To recognize interest expense for the year on acquisition debt related to
the RNS acquisition.
FOR THE YEAR ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
DYNAIR
FOUR MONTHS
OSICOM ENDED PRO FORMA PRO FORMA
CONSOLIDATED RNS 31-MAY-95 REF ADJUSTMENTS CONSOLIDATED
------------ ----------- ----------- ---- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $7,733,366 $13,805,000 $2,065,133 $23,603,499
Cost of sales................................ 4,621,315 7,953,000 1,115,381 13,689,696
---------- ---------- --------- --- ---------- ----------
Gross profit................................. 3,112,051 5,852,000 949,752 9,913,803
Selling, general and administrative
expenses................................... 3,201,627 13,637,000 1,087,320 17,925,947
Amortization of negative goodwill............ 950,868 950,868
Interest expense............................. 158,339 64,222 (a) $ (64,222) 1,179,339
(b) $ 1,021,000
---------- ---------- --------- --- ---------- ----------
NET EARNINGS (LOSS).......................... $ 702,953 $(7,785,000) $ (201,790) $ (956,778) $(8,240,615)
========== ========== ========= === ========== ==========
Weighted average shares used in computation
of per share information:
-- Primary................................. 2,649,006
-- Fully diluted........................... 2,798,378
Net Earning Per Share
-- Primary............................... $ 0.21 $ (2.94) $ (0.08) $ (3.17)
-- Fully diluted......................... $ 0.20 $ (2.78) $ (0.07) $ (3.00)
</TABLE>
- ---------------
(a) To remove interest expense on debt not acquired related to the Dynair
acquisition.
(b) To recognize interest expense for the year on acquisition debt related to
the RNS acquisition.
F-16
<PAGE> 99
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE R -- VALUATION AND QUALIFYING ACCOUNTS
Changes in the inventory obsolescence reserve were as follows:
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS NOT
BALANCE CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND COSTS AND END
YEAR OF YEAR EXPENSES EXPENSES DEDUCTIONS OF YEAR
- -------------------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
January 31, 1994.......... $ 752,866 $ 1,181,184(1) $218,304(2) $1,715,746
January 31, 1995.......... $1,715,746 $ 59,000 $336,036(2) $1,438,710
January 31, 1996.......... $1,438,710 $ 90,639 $ 833,000(1) $484,000(2) $1,878,349
</TABLE>
- ---------------
(1) Additions from acquisitions during the year
(2) Amounts used during the year charged against reserved accounts
F-17
<PAGE> 100
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Financial Statements and
related notes which are contained herein in Item 7. Fiscal 1996 refers to the
year ended January 31, 1996; Fiscal 1995 refers to the year ended January 31,
1995.
The consolidated statement of operations for Fiscal 1996 reflects the
results of Osicom and its wholly-owned subsidiary, Meret. The results of
operations of its RNS division, which was acquired as of the last day of Fiscal
1996, are not included. The consolidated statement of operations for Fiscal 1995
includes the operations of Osicom and its subsidiary Meret, as well as the
discontinued operations of Adtech, which was divested in the last quarter of
Fiscal 1995.
The consolidated balance sheet as of January 31, 1996 reflects the accounts
of Osicom and Meret, including the RNS division.
Net sales for Fiscal 1996 were $7,733,366 compared to $5,892,356 for Fiscal
1995. This represents a 31 percent increase year-to-year, attributable to the
acquisition of Dynair, which occurred May 31, 1995.
Gross profits for Fiscal 1996 were $3,112,051 compared to $1,840,947 for
Fiscal 1995. The gross margin for Fiscal 1996 was 40 percent of sales versus 31
percent of sales for Fiscal 1995. The gross margin in Fiscal 1995 was negatively
impacted by under absorbed overhead related to maintaining two manufacturing
facilities inherited from the acquisitions of Meret and Catel. These
redundancies were addressed in the latter half of Fiscal 1995 by combining the
facilities and reducing the work force.
Selling, general and administrative expenses grew to $3,201,627 from
$2,058,095 in Fiscal 1995. In Fiscal 1996, SGA expenses represented 42 percent
of sales versus 35 percent of sales in Fiscal 1995. The amortization of negative
goodwill, arising from the acquisitions of Meret and Catel, which was a $950,868
credit to SGA expense, represented only 12 percent of sales in Fiscal 1996
versus 16 percent of sales in Fiscal 1995. Engineering expense, related to the
higher development costs of the Dynair product line, also increased in Fiscal
1996 to $962,000 from $443,000 in Fiscal 1995.
Operating income for Fiscal 1996 was $861,292 or 11 percent of sales,
versus $733,720 or 12 percent of sales achieved in Fiscal 1995.
Interest expense grew to $158,339 in Fiscal 1996 from $84,431 in Fiscal
1995. As a percent of sales, interest represented 2 percent in Fiscal 1996
versus 1 percent in Fiscal 1995.
In Fiscal 1995, the Company recorded a loss on its discontinued operations
of Adtech of $276,269.
The Company reported no provision from income taxes for Fiscal 1996 or
Fiscal 1995 as the negative goodwill amortization is not taxable. In addition,
the tax depreciation on the productive fixed assets, which were equal to
$6,169,000 at cost less accumulated depreciation of $4,191,000 eliminates any
remaining taxable income. These fixed assets are not carried on the January 31,
1996 consolidated balance sheet.
The net income for Fiscal 1996 grew to $702,953 from $373,020 in Fiscal
1995. As a percent of sales, net income in Fiscal 1996 was 9 percent versus 6
percent in Fiscal 1995.
After giving effect to the $150,000 in dividends accrued on the preferred
stock for each year (see Note J(3) to Part II, Item 7 herein), the earnings per
share were $0.21 (all share data herein gives effect to the 2:1 stock split
which went effective February 12, 1996) on average primary shares outstanding in
Fiscal 1996 and $0.11 per average share outstanding in Fiscal 1995. This 100
percent increase in earnings per share in Fiscal 1996 was in spite of a 25
percent increase in average primary shares outstanding, comparing the two
periods. With respect to full dilution, the earnings per share in Fiscal 1996
were $0.20 per share on 2,798,378 shares outstanding. In Fiscal 1995, the
average number of shares outstanding was equal to the average number of fully
diluted shares outstanding. Thus, in terms of full dilution, the earnings per
share for Fiscal 1996 were $0.20 per share versus $0.11 in Fiscal 1995, which
represents an 82 percent increase in EPS, in spite of increased dilution of 33
percent.
F-18
<PAGE> 101
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $5,314,744 as of January 31, 1996.
The Company has a revolving $8 million line of credit with its bank, Coast
Business Credit, for working capital and acquisition purposes. (See Note E
contained in Part II, Item 7 herein.) The line bears interest at the rate of
2 1/2 percent over prime. As at January 31, 1996, the Company had outstanding
indebtedness under its line of credit of $3,494,305. In addition, Meret borrowed
$1,344,000 under a term note agreement with Coast Business Credit. Such notes
accrue interest at the rate of prime plus 2 percent and principal payments of
$38,900 are due monthly. As of the same date, the Company also had $510,209
outstanding under its revolving demand loan with Banca di Roma.
As a result of the acquisition of RNS, a $6,269,487 note payable is due
Rockwell International Corporation, the Seller. This note bears no interest, but
is payable in monthly payments of $500,000, commencing March 31, 1996, with a
final payment of $4,269,487, due July 31, 1996. (See Note F in Part II, Item 7
herein). Such note to Seller is secured by collateral provided by two of the
Company's directors. To pay down indebtedness subsequent to January 31, 1996,
the Company raised net proceeds of $2,445,300 in the form of convertible debt.
Such debt converts to common stock at $13.50 per share (with some specified
downside protection) and the Company has the option to buy back the debt at 90
percent of its face value under certain circumstances.
Management believes the Company has or can obtain sufficient working
capital to meet the needs of its current level of operations. The Company,
however, is actively seeking acquisitions and anticipates that it may require
additional capital in order to fund any acquisitions or substantial growth in
its current business. To this end, the Company plans to pursue both debt and
equity financing from both private institutions and the public markets to
finance acquisitions as needed. However, no assurance can be given that
sufficient capital will be available when needed.
F-19
<PAGE> 102
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------
<S> <C>
ASSETS
Cash............................................................................ $ 970,917
Accounts Receivable............................................................. 4,796,382
Allowance for Doubtful Accounts................................................. (376,639)
Notes Receivable (Note C)....................................................... 143,190
Inventories (Note B(4))......................................................... 9,749,207
Prepaid Expenses................................................................ 557,285
-----------
Total Current Assets.......................................................... 15,840,342
-----------
Property and Equipment, Net (Note D)............................................ 3,519,905
-----------
Purchased Software, Net (Note E)................................................ 4,556,177
-----------
Other Assets.................................................................... 262,336
-----------
Total Assets.................................................................. $ 24,178,760
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Loan Payable -- Bank (Note F)................................................... $ 2,794,245
Notes Payable -- Current (Note G)............................................... 500,047
Notes Payable -- Affiliate (Note H)............................................. 1,149,101
Accounts Payable and Accrued Expenses (Note L).................................. 5,188,864
-----------
Total Current Liabilities..................................................... 9,632,257
-----------
Negative Goodwill (Note B(2))................................................... 86,949
-----------
Commitment and Contingencies (Note J)
Long Term Debt (Note G)....................................................... 3,318,059
-----------
Stockholders' Equity (Note K)
Preferred Stock
Series A, 2500 shares issued and outstanding -- Liquidation preference
3,050,000..................................................................... 250,000
Series B, 5,269 shares issued and outstanding -- Liquidation preference
5,269,487..................................................................... 5,269,487
Common Stock
Par value $.10 per share, authorized 20,000,000 shares, 3,056,174 shares issued
and outstanding............................................................... 305,618
Additional Paid-in-Capital...................................................... 3,380,849
Retained Earnings............................................................... 1,935,541
-----------
Total Stockholders' Equity.................................................... 11,141,495
-----------
Total Liabilities and Stockholders' Equity.................................... $ 24,178,760
===========
</TABLE>
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
F-20
<PAGE> 103
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net Sales........................................................... $6,069,879 $1,174,507
Cost of Sales....................................................... 3,363,755 699,695
---------- ----------
Gross Margin........................................................ 2,706,124 474,812
Selling, General & Administrative Expenses.......................... 2,555,766 553,551
---------- ----------
Income from Operations Before Amortization of Negative Goodwill..... 150,358 (78,739)
Amortization of Negative Goodwill................................... 237,717 237,717
---------- ----------
Earnings from Operations............................................ 388,075 158,978
Interest Expense.................................................... 139,285 17,000
---------- ----------
Net Income.......................................................... $ 248,790 $ 141,978
========== ==========
Earnings Per Common Share (Note M)
Earnings per share
-- Primary(a)..................................................... $ 0.07 $ 0.04
-- Fully Diluted.................................................. $ 0.06 N/A
---------- ----------
Weighted average shares used in computation
-- Primary(a)..................................................... 3,198,306 2,391,796
-- Fully Diluted.................................................. 3,266,667 N/A
</TABLE>
- ---------------
(a) Adjusted for 2-for-1 stock split effected February 12, 1996.
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
F-21
<PAGE> 104
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-------------------------
1996 1995
----------- ---------
<S> <C> <C>
Cash Flows from Operations......................................... $ (101,759) $(204,622)
----------- ---------
Cash Flows from Investing Activities
Product enhancement costs (Notes B(2) and D)..................... (403,694)
Capital expenditures............................................. (1,781,428) (3,397)
----------- ---------
(2,185,122) (3,397)
----------- ---------
Cash Flows from Financing Activities
Repayments of bank loan, net..................................... (1,336,453) (50,000)
Increase in notes payable -- affiliates.......................... 1,093,028
Notes payable, other............................................. 1,331,000
Proceeds from note receivable-net................................ 357,053
Proceeds from issuance of convertible debentures................. 2,464,363
Redemption of preferred stock.................................... (1,000,000)
Proceeds from stock option exercises............................. 254,000
----------- ---------
Net Cash Flows from Financing Activities........................... 2,805,938 307,053
----------- ---------
Net Increase in Cash............................................... 519,057 99,034
Cash at Beginning of Period........................................ 451,860 86,518
----------- ---------
Cash at End of Period.............................................. $ 970,917 $ 185,552
=========== =========
</TABLE>
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
F-22
<PAGE> 105
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE A -- THE COMPANY, BASIS OF PRESENTATION AND ACQUISITIONS
The accompanying consolidated unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, in the opinion
of management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation. The results of operations for
the three months ended April 30, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 31, 1997. These
statements should be read in conjunction with the consolidated audited financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended January 31, 1996.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation:
The balance sheet reflects the accounts of Osicom and its wholly-owned
subsidiary Meret, including its RNS division. The consolidated unaudited
statements of operations for the three months ended April 30, 1996 include
the results of operations of Osicom and Meret, including its RNS division.
The consolidated unaudited statements of operations for the three months
ended April 30, 1995 include the results of operations of Osicom and Meret,
and does not include results of operations of Meret's RNS division or
Dynair Electronics, Inc. which were both acquired subsequent to April 30,
1995.
(2) Amortization of Intangibles:
Excess of fair value over cost of net assets acquired (negative
goodwill) is amortized over 3 years on a straight-line basis.
Software assets acquired are amortized over 10 years on a
straight-line basis. Software development costs where technological
feasibility has not been established are expensed in the period in which
they occurred, otherwise, development costs that will become an integral
part of the Company's products are deferred in accordance with FASB 2. The
deferred cost is amortized on a straight-line basis over the remaining
estimated economic life of the product.
(3) Depreciation and Amortization:
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets
(generally 3 to 5 years). Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the lease.
Depreciation of land improvements and building is computed using the
straight-line method over 39 years.
(4) Inventories:
Inventories, comprised of raw materials, work in process and finished
goods, are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of:
<TABLE>
<CAPTION>
RAW WORK IN FINISHED RESERVE FOR
MATERIALS PROCESS GOODS SUBTOTAL OBSOLESCENCE NET
- ---------- --------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$7,116,994 2,651,451 2,038,725 11,807,170 2,057,963 $9,749,207
</TABLE>
(5) Per Share Data:
Earnings per common share is computed based on the weighted average
number of common and dilutive common equivalent shares outstanding during
each period presented. All references in the financial statements to common
shares and per share data give effect to the 2:1 split effective February
12, 1996.
F-23
<PAGE> 106
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
(6) Revenue Recognition:
Revenues are recognized upon shipment of product.
(7) Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
and nine months or less to be cash equivalents.
(8) Allowance for Doubtful Accounts:
The Company provides an allowance for doubtful accounts based on its
continuing evaluation of its customers' credit risk. The Company does not
require collateral from its customers.
NOTE C -- NOTES RECEIVABLE
Agama, Inc., owed the Company $140,690. The amount is due on demand accrues
interest at 1% over the prime rate.
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, consists of:
<TABLE>
<S> <C>
Automobile....................................................... $ 31,410
Plant Equipment.................................................. 1,538,350
Office Furniture and Fixtures.................................... 1,022,129
Leasehold Improvements........................................... 206,085
Land and Building................................................ 1,779,350
Product Enhancement Costs........................................ 403,694
----------
Total............................................................ 4,981,018
Less accumulated depreciation.................................... 1,461,113
----------
$3,519,905
==========
</TABLE>
NOTE E -- PURCHASED SOFTWARE
The Company has acquired software assets in connection with the acquisition
of the RNS division of Meret. Accumulated amortization was $116,826 as of April
30, 1996.
NOTE F -- LOAN PAYABLE -- BANK
At April 30, 1996, the Company had outstanding indebtedness under its
revolving demand loan agreement with Banca di Roma of $460,209. The agreement
provides for interest at 1% above the bank's base lending rate, which was 9.25%,
at April 30, 1996. The line of credit is collateralized by accounts receivable
and personally guaranteed by a director of the Company.
In addition, the Company's wholly-owned subsidiary, Meret, had outstanding
indebtedness under its $8 million line of credit with a bank of $2,334,036 at
April 30, 1996. The line of credit is collateralized by accounts receivable,
inventory and property, plant and equipment. Osicom has guaranteed this line,
for which Meret is the borrower, to the extent of $1,000,000. This line of
credit provides for interest at prime plus 2.5% which was 10.75%, at April 30,
1996.
F-24
<PAGE> 107
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- NOTES PAYABLE AND LONG TERM DEBT
Notes payable and long term debt consisted of:
<TABLE>
<S> <C>
8.95% Notes Payable.............................................. $1,331,000
10.75% Term Notes Payable........................................ 1,227,300
8% Convertible Debentures........................................ 1,186,545
Capital Lease Obligation......................................... 73,261
----------
Total.................................................. 3,818,106
Less: Current Portion............................................ 500,047
----------
$3,318,059
==========
</TABLE>
On March 25, 1996, Meret purchased land and building in San Diego,
California for $1,779,350 paid in cash. On April 24, 1996, Meret entered into a
mortgage agreement with a lender in the amount of $1,331,000, amortized over 30
years with an adjustable interest rate of 5.50% over the LIBOR rate, with an
initial rate of 8.95% for the initial six months.
In addition, Meret has term loans outstanding of $1,227,300. The term loans
are collateralized by machinery and equipment and bears interest at prime plus
2.5%, which was 10.75% at April 30, 1996. Combined monthly principal payments of
$38,900 per month and $760,500 is reflected as long-term debt.
During the fiscal quarter ended April 30, 1996, the Company received net
proceeds of $2,464,363 from placement of convertible debentures to unaffiliated
parties. As of April 30, 1996, $1,186,545 was still outstanding. The debentures
mature on December 31, 1999 and accrue interest at 8% with various commencement
dates.
The principal payments under notes payable and long-term debt for years
ended January 31, and thereafter are as follows, by year:
<TABLE>
<S> <C>
1997............................................................. $ 373,863
1998............................................................. 527,839
1999............................................................. 417,747
2000............................................................. 8,193
2001............................................................. 8,708
Thereafter....................................................... 2,481,756
----------
Total.................................................. 3,818,106
Less: Current Portion............................................ 500,047
----------
$3,318,059
==========
</TABLE>
NOTE H -- NOTE PAYABLE -- AFFILIATE
As of April 30, 1996, a net amount of $1,149,101 was due to an entity owned
by two directors of the Company. The amount is due on demand and does not accrue
interest.
NOTE I -- INCOME TAXES
The Company recorded no income tax provision for the three months ended
April 30, 1996 and 1995. A significant portion of the net income reported by the
Company for those periods arose from the amortization of negative goodwill which
is not taxable. In addition, the Company has other temporary differences,
primarily depreciation, that can be utilized to offset any remaining taxable
income. Both the negative goodwill
F-25
<PAGE> 108
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
amortization and the depreciation differences arose out of the Company's
acquisitions of Meret and Catel. The Company also has other tax attributes
arising from the Meret and Catel acquisitions that could give rise to the
recording of deferred tax assets. Upon acquisition, management determined that
realization of such benefits was not assured thus, no deferred asset was
recorded. At April 30, 1996, management determined that realization of any
future benefits is still not assured thus, no deferred tax assets were recorded.
The Company believes that any remaining net operating losses incurred by the
Company, prior to the acquisitions, available to offset future taxable income,
may be severely limited by the provisions of Section 382 of the Internal Revenue
Code.
NOTE J -- COMMITMENTS AND CONTINGENCIES
(1) Osicom and its subsidiary lease a total of 117,400 square feet. Lease
terms generally range from month to month to 5 years with options to renew at
varying terms.
Future minimum annual rentals for the Company and its subsidiaries are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 30, NET RENT
------------- ----------
<S> <C>
1997......................................................... $ 478,583
1998......................................................... 492,217
1999......................................................... 153,152
2000......................................................... 122,328
2001......................................................... 122,328
Thereafter................................................... 30,582
----------
Total.............................................. $1,399,190
==========
</TABLE>
(2) The Company is party to several lawsuits related to trade claims made
by and against the Company. The majority of such claims have been assigned to
Agama, Inc. in conjunction with the sale of the Company's former computer
business and as such Agama, Inc. has indemnified the Company against any
unfavorable outcomes. Interphase, Inc. sued the Company and Rockwell
International Corporation in connection with Osicom's acquisition of RNS. The
Company believes the suit is frivolous and without merit. The Company is also
indemnified by Rockwell International Corporation against any losses arising
from this action. Management believes that the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company's financial
position and future operations.
(3) Under the terms of the purchase agreement, the Company is obligated to
pay the Seller of Dynair additional cash consideration equal to a percentage of
net revenues in excess of $5,000,000 within a post-closing year derived from
sale of Dynair products, for each of the five years subsequent to the
acquisition date. As of April 30, 1996, no liability related to this additional
consideration has been incurred.
(4) In February 1996, the Company issued convertible preferred stock in the
amount of $6,269,487 to refinance the promissory note issued in conjunction with
the RNS acquisition to an entity owned by two of the Company's directors. The
entity has assumed the promissory note as the primary obligor and indemnified
the Company (See Note K(5)).
NOTE K -- STOCKHOLDERS' EQUITY
(1) The Company has two stock option plans in effect: The 1987 Stock Option
Plan and the 1988 Stock Option Plan. The stock options have been made available
to certain employees and consultants. All options were granted at not less than
fair market value at date of grant.
F-26
<PAGE> 109
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
(2) Pursuant to the acquisition of RNS, the Company granted 64,000 options
at an exercise price of $3.50 per share, 227,600 options at an exercise price of
$6.32 per share and agreed to issue 167,238 shares of its common stock to the
employees of RNS, conditioned upon their continuous employment by the Company
through January 31, 1998. Furthermore, the Company granted 40,000 non-qualified
stock options at an exercise price of $3.50 per share to a key employee of RNS,
which are immediately exercisable. All the options were granted at or above the
market price of the Company's common stock.
(3) During Fiscal 1993, in conjunction with the retirement of its United
Jersey Bank debt, the Company issued United Jersey Bank options to purchase
100,000 shares of its common stock at an exercise price of $4.00 per share. This
option expires on December 31, 2002. Under a redemption agreement, the Company
can redeem the options for $600,000 if redeemed by September 30, 1996, and $1
million thereafter.
(4) On August 21, 1992, the Company issued 2,500 shares of Series A
Convertible Preferred stock in exchange for $2,500,000 of trade debt. The
preferred stock was ascribed a value of $250,000 based on the estimated market
value of the underlying common stock of the Company. The preferred stock accrues
cumulative dividends at 6% and is convertible into common stock (i) at the
option of the holder at the market price of the common stock provided the market
price is equal to or exceeds $67.50, and (ii) at the option of the Company at
110% of the market price of the common stock. In no event shall a conversion
result in the holder having more than 49% of the outstanding common stock of the
Company. The shares of preferred stock are redeemable at the option of the
Company at $1,000 per share. At April 30, 1996, there was $550,000 of cumulative
preferred stock dividends.
(5) In February 1996, the Company issued convertible preferred stock in the
amount of $6,269,487 to refinance the promissory note issued in conjunction with
the RNS acquisition to an entity owned by two of the Company's directors. The
entity also indemnified the Company for any non-performance. The preferred stock
has no dividends and the Company can redeem the preferred stock for cash at any
time or convert it to common stock if not redeemed after two years from the date
of issuance at the current market price. As of April 30, 1996, the Company has
redeemed $1,000,000 of the preferred stock.
NOTE L -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of:
<TABLE>
<S> <C>
Accounts Payable........................................... $3,702,967
Accrued Vacations.......................................... 377,325
Accrued Warranty Reserve................................... 236,947
Other...................................................... 871,625
----------
Total................................................. $5,188,864
==========
</TABLE>
F-27
<PAGE> 110
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- EARNINGS PER SHARE CALCULATION
Earnings per share were calculated as follows, giving effect to accrued
preferred share dividends:
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL
30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net earnings............................................ $ 248,790 $ 141,978
Accrued undeclared dividends............................ 37,500 37,500
---------- ----------
Earnings used for computation........................... $ 211,290 $ 104,478
========== ==========
Weighted average number of shares outstanding........... 3,133,675 2,391,796
Primary shares issued:
Shares issuable upon exercise of dilutive warrants and
options, net of shares assumed to have been
purchased, at the average market price for the
period, with assumed exercise proceeds............. 64,631
Weighted average shares used in computation............. 3,198,306 2,391,796
---------- ----------
Primary earnings per share.............................. $ 0.07 $ 0.04
========== ==========
Fully diluted shares issued:
Shares issuable upon exercise of dilutive warrants and
options, net of shares assumed to have been
purchased, at the market price at the end of the
period, with assumed exercise proceeds............. 132,992
Weighted average shares used in computation............. 3,266,667 N/A
----------
Fully diluted earnings per share........................ $ 0.06 N/A
==========
</TABLE>
For the three months ended April 30, 1995, earnings per share has been
computed on a primary basis only as the result of the fully diluted calculation
is anti-dilutive.
NOTE N -- SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense approximated interest paid of $142,000 and $17,000 for the
three-month periods ended April 30, 1996 and 1995.
Summary of non-cash financing and investing activities during the three
months ended April 30, 1996:
(1) The Company issued 35,328 shares of common stock in an exercise of
a stock options.
(2) As of April 30, 1996, $1,277,818 of the 8% convertible debentures
were retired by issuance of 166,666 shares of common stock.
There were no non-cash financing and investing activities during the three
months ended April 30, 1995.
NOTE O -- SUBSEQUENT EVENTS
In May 1996, the Company received net proceeds of $4,738,000 of 8%
convertible debentures due December 31, 1999. The debentures are convertible at
$13.75 per share or market price. Should the Company's stock price fall below
$10.50 per share the holders cannot convert the debentures. The Company has the
right to buy back the debentures back at a premium of 15%.
F-28
<PAGE> 111
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated unaudited
financial statements and related notes thereto.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
Results of operations for the three months ended April 30, 1996 include the
operations of Osicom and its wholly-owned subsidiary Meret and include the
results of Dynair and RNS. Results of operations for the three months ended
April 30, 1995 include the operations of Osicom and its wholly-owned subsidiary
Meret, but do not include the operations of Dynair or RNS, which were acquired
subsequent to the period.
Consolidated net sales increased by 417% to $6,069,900 from $1,174,500, due
to the acquisitions of Dynair and RNS.
Consolidated gross profit increased by 470% to $2,706,100 from $474,800,
due to the increase in net sales, related to the acquisitions. Gross margins
increased to 45% from 40% due to the higher gross margins achieved in the
switching, fast networking and remote access product lines provided by Dynair
and RNS as well as the consolidation of certain manufacturing expenses.
Selling, general and administrative expenses increased to $2,555,800 from
$553,600, a decrease as a percentage of sales from 47% to 42%. Amortization of
negative goodwill of $237,700 was consistent with the previous year's three
months ended April 30, however, as a percentage of sales amortization of
negative goodwill for the period was 4% versus 20% last year.
Net interest expense incurred increased to $139,300 from $17,000 due to the
borrowings against the working capital line to fund the increased level of
business and the acquisition of RNS, which was financed in part by $3.5 million
of bank debt.
Consolidated income from operations increased 144% to $388,100 as compared
to $159,000. As a percentage of sales, consolidated income from operations
decreased to 6% from 14%. Consolidated net income increased 75% to $248,800 from
$142,000. As a percentage of sales, consolidated net income decreased to 4% from
12%.
Due to the offsetting of non-current assets against negative goodwill in
the Meret and Catel acquisitions, as required by generally accepted accounting
principles, productive fixed assets which cost $6.1 million and with a net book
value of approximately $1,900,000 at acquisition, have not been recorded.
Accordingly, there is no depreciation charge to operations for these assets
which are used in the operations of Meret and Catel.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $970,900 and working capital of
$6,213,000 at the period ended April 30, 1996, which management believes is
adequate to meet its planned level of growth.
Operations of the Company consumed cash of approximately $101,800 as
compared to $204,600 for the three months ended April 30, 1995. Cash flows from
financing activities for the three months ended April 30, 1996 and 1995 provided
$2,805,900 and $307,100, respectively. During the three months ended April 30,
1996, the Company paid $50,000 against the Banca de Roma bank loan, and paid
down a net amount of $1,286,500 against the credit line. In addition, the
Company received $2,464,400 in net proceeds from the issuance of convertible
debentures.
During the three months ended April 30, 1996, the Company redeemed
$1,000,000 of the series B preferred stock. Capital expenditures were $2,185,100
and $3,400, for the three months ended April 30, 1996 and 1995, respectively. In
March 1996, The Company's wholly-owned subsidiary, Meret, purchased land and
building in San Diego, California for $1,779,350 which will be Meret's corporate
headquarters and manufacturing facility.
F-29
<PAGE> 112
Management believes that the Company has sufficient working capital to meet
the needs of the current level of operations. Management is implementing plans
which it believes will enable the Company to internally generate funds for its
current operations. There can be no assurance that these mechanisms to improve
liquidity will be effective. The Company, however, is actively seeking
acquisitions and anticipates that it will require additional capital in order to
fund any acquisitions or substantial growth in its current business and no
assurances can be given that sufficient capital will be available when needed.
F-30
<PAGE> 113
WEINBAUM & YALAMANCHI
CERTIFIED PUBLIC ACCOUNTANTS
21601 VANOWEN STREET, SUITE 109
CANOGA PARK, CA 91303
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders of
Builders Warehouse Association, Inc.
We audited the accompanying consolidated balance sheet of Builders
Warehouse Association, Inc. ("BW") as of May 31, 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of BW's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We did not audit
the financial statements of Uni Precision Industrial Limited, a wholly-owned
subsidiary, which statements reflect total assets of $21,913,000 as of May 31,
1996 and total revenues of $9,927,000 for two months then ended. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Uni Precision
Industrial Limited, is based solely on the report of the other auditors.
We conducted our audit 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 our audit and the report of the other auditors provides a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of BW and subsidiaries as
of May 31, 1996 and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ WEINBAUM & YALAMANCHI
--------------------------------------
Weinbaum & Yalamanchi
Canoga Park, California
August 5, 1996, except as to
Note 14 as to which the
date in August 21, 1996
F-31
<PAGE> 114
ARTHUR ANDERSEN
------------------------------
ARTHUR ANDERSEN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
------------------------------
25/F., WING ON CENTRE
111 CONNAUGHT ROAD CENTRAL
HONG KONG
852 2852 0222
852 2815 0548 FAX
AUDITORS' REPORT TO THE SHAREHOLDERS OF UNI PRECISION INDUSTRIAL LIMITED
(INCORPORATED IN HONG KONG WITH LIMITED LIABILITY)
We have audited the financial statements of Uni Precision Industrial
Limited as of and for the two months ended May 31, 1996 (not separately
presented herein) which have been prepared in accordance with accounting
principles generally accepted in the United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible to prepare financial statements
which give a true and fair view. In preparing financial statements which give
true and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our
audit, on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgments made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the circumstances of
the Company, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company as of May 31, 1996 and of the profit and cash
flows of the Company for the period from April 1, 1996 to May 31, 1996 and have
been properly prepared in accordance with generally accepted accounting
principles in the United States of America and the SEC Regulation S-X disclosure
requirements.
/s/ ARTHUR ANDERSEN
--------------------------------------
Arthur Andersen
Hong Kong,
July 12, 1996
F-32
<PAGE> 115
JAY J. SHAPIRO, C.P.A.
A PROFESSIONAL CORPORATION
1650 VENTURA BOULEVARD, SUITE 650
ENCINO, CA 91436
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Builders Warehouse Association, Inc.:
I have audited the accompanying consolidated balance sheet of Builders
Warehouse Association, Inc. and subsidiary (the "Company") as of May 31, 1995
and related consolidated statements of operations, changes in shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of May 31, 1995, and
the results of its operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The financial statements reflect a reverse acquisition transaction and as
of May 31, 1995 the disposition of all the Company's previous operations (Notes
1, 7 and 12).
In addition, as discussed in Note 10, the Company is a defendant in
litigation relating to alleged security law violations. The ultimate outcome of
this uncertainty can not presently be determined. Accordingly, the financial
statements do not include any adjustment that might result upon resolution of
this matter.
/s/ JAY J. SHAPIRO
--------------------------------------
Jay J. Shapiro, C.P.A.,
a Professional Corporation
Encino, California
September 16, 1995
F-33
<PAGE> 116
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, 1996 MAY 31, 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents............................................ $ 4,372,287 $ 85,608
Receivables, net of reserve for doubtful accounts $400,743 and
$33,000 at May 31, 1996 and 1995, respectively............... 5,321,195 799,932
Inventory (Notes 2 and 4)....................................... 6,900,304 230,000
Marketable securities, less allowance for unrealized losses
(Note 11).................................................... 149,091 327,274
Other receivables (Notes 11 and 18)............................. 795,503 0
Prepaid expenses and other current assets....................... 450,488 43,210
----------- ----------
TOTAL CURRENT ASSETS......................................... 17,988,868 1,486,024
----------- ----------
PROPERTY AND EQUIPMENT, NET (Note 3).............................. 8,153,823 28,509
----------- ----------
OTHER ASSETS
Excess of cost over net assets acquired, less accumulated
amortization (Notes 1 and 2)................................. 2,869,232 342,857
Other investments (Note 2)...................................... 1,623,380 0
Other assets.................................................... 211,138 7,198
----------- ----------
TOTAL OTHER ASSETS........................................... 4,703,750 350,055
----------- ----------
TOTAL ASSETS...................................................... $ 30,846,441 $1,864,588
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................ $ 9,354,241 $ 588,397
Short-term debt (Note 4)........................................ 5,834,394 133,444
Accrued liabilities (Note 11)................................... 2,109,939 55,704
Dividends payable (Note 11)..................................... 1,255,751 0
Current maturities of long term debt (Note 5)................... 350,010 0
Other current liabilities....................................... 252,274 0
----------- ----------
TOTAL CURRENT LIABILITIES.................................... 19,156,609 777,545
----------- ----------
Long-term debt and capital lease obligations (Note 5)............. 3,350,689 0
Debentures payable (Notes 6 and 13)............................... 2,978,237 0
Liability for cash put -- common shares (Note 1).................. 1,993,578 0
Deferred income taxes (Note 12)................................... 248,127 0
Other liabilities................................................. 131,250 0
----------- ----------
TOTAL LIABILITIES............................................ 27,858,490 777,545
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Preferred stock, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding Preferred stock, Series A stock
$.008 par value; 6% cumulative dividend; convertible into
285.75 shares common stock; 10,000,000 shares authorized; 0
shares and 4,000 shares issued and outstanding at May 31,
1996 and 1995, respectively.................................. 0 32
Common stock, $.008 par value; 25,000,000 shares authorized;
3,872,938 shares issued and 3,869,978 shares outstanding at
May 31, 1996; 772,045 shares issued and 769,084 shares
outstanding at
May 31, 1995................................................. 29,630 6,176
Common stock to be issued; 0 shares and 220,600 shares at May
31,1996 and 1995, respectively............................... 0 772,100
Additional paid-in capital...................................... 5,752,572 567,248
Accumulated deficit............................................. (2,616,758) (81,020)
Treasury stock, 2,961 shares at May 31, 1996 and 1995, at
cost......................................................... (177,493) (177,493)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY................................... 2,987,951 1,087,043
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $ 30,846,441 $1,864,588
=========== ==========
</TABLE>
See accompanying notes.
F-34
<PAGE> 117
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JULY 1, 1994
YEAR ENDED (INCEPTION) TO
MAY 31, 1996 MAY 31, 1995
------------ --------------
<S> <C> <C>
Revenues
Net sales....................................................... $ 16,402,276 $6,693,731
Cost of Goods Sold
Net purchases and direct costs.................................. 14,038,851 5,890,071
----------- ----------
Gross Profit................................................. 2,363,425 803,660
----------- ----------
Selling, General and Administrative Expenses
Salaries, wages, benefits and related payroll taxes............. 752,923 309,049
Management fee (Note 10)........................................ 0 334,600
Rents (Note 7).................................................. 97,221 27,090
Travel and promotion............................................ 166,068 64,181
Advertising..................................................... 182,309 39,670
Professional and consulting fees................................ 213,493 12,315
Depreciation.................................................... 35,526 2,955
Other........................................................... 371,798 40,135
Purchased research and development (Note 1)..................... 2,408,059 0
Acquisition related costs (Note 1).............................. 427,067 0
Amortization of excess cost over net book value of assets
acquired (Note 2)............................................ 76,114 57,143
----------- ----------
Total Selling, General and Administrative Expenses...... 4,730,578 887,138
----------- ----------
Loss from Operations.............................................. (2,367,153) (83,478)
----------- ----------
Other Income (Charges)
Investment income (Note 11)..................................... 21,068 3,876
Net foreign currency exchange gains............................. 14,810 0
Income taxes (Note 12).......................................... (39,898) 0
Interest expense (Note 11)...................................... (164,997) (1,418)
----------- ----------
Total Other Income (Charges)............................ (169,017) 2,458
----------- ----------
Net Loss and Loss Applicable to Common Stock...................... $ (2,536,170) $ (81,020)
=========== ==========
Loss Per Common Share (Note 2).................................... $ (1.31) $ (0.27)
=========== ==========
Weighted Average Common Shares Outstanding (Restated) (Note 10)... 1,933,764 305,285
=========== ==========
</TABLE>
See accompanying notes.
F-35
<PAGE> 118
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TREASURY STOCK STOCK TO BE ISSUED
------------------- --------------- PAID IN ACCUMULATED ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT SHARES AMOUNT
--------- ------- ------ ------ ----------- ----------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31,
1995............. 772,045 $6,176 4,000 $ 32 $ 567,248 $ (81,020 ) 2,961 $(177,493) 220,600 $ 772,100
Conversion of
preferred
shares........... 1,143,000 9,144 (4,000) (32) (9,112)
Issuance of shares
for management
fee (Note 10).... 95,600 765 333,835 (95,600) (334,600)
Whole shares issued
for fractional
shares in
one-for-two stock
split............ 222 2 (2)
Private placement
of common stock
for cash (Note
10).............. 65,000 520 259,480
Expenses attributed
to stock
issuances........ (268,750)
Expenses paid with
stock
issuances........ 2,768 23 26,978
Disposition of BWAI
(Note 1)......... 125,000 1,000 436,500 (125,000) (437,500)
Additional shares
and costs for
acquisition of
RTC.............. 800,083 6,401 (23,067)
Payment of
liabilities of
investment with
stock............ 33,944 271 70,347
Exercises of stock
options.......... 121,763 974 (974)
Conversion of
debentures (Note
6)............... 323,100 2,585 2,649,647
Issuance of shares
for acquisitions
(Note 2)......... 388,846 3,111 3,683,929
Common shares
subject to cash
put by holders
(Note 2)......... (1,354 ) (1,992,224)
Issuance of shares
for other assets
(Note 10)........ 1,567 12 18,737
Foreign currency
gain............. 432
Net loss........... (2,536,170 )
--------- ------- ------ ---- ----------- ----------- ----- --------- -------- --------
BALANCE AT MAY 31,
1996............. 3,872,938 $29,630 0 $ 0 $ 5,752,572 $(2,616,758) 2,961 $(177,493) 0 $ 0
========= ======= ====== ==== =========== =========== ===== ========= ======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE> 119
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
JULY 1, 1994 (INCEPTION) TO MAY 31, 1995
<TABLE>
<CAPTION>
STOCK TO BE ISSUED
COMMON STOCK PREFERRED STOCK ADDITIONAL ACCU- TREASURY STOCK
------------------- --------------- PAID IN MULATED ------------------- ------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT SHARES AMOUNT
--------- ------- ------ ------ ---------- -------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1994................. 1,000 $6,189 0 $ 0 $400,000 $ 0 $ 0 0 $ 0
Contribution of note
payable to additional
paid in capital (Note
10).................. 100,000
Conversion of accrued
management fee into
95,600 shares of
common stock
(Note 10)............ 95,600 334,600
Reverse acquisition of
BWA
(Notes 1 and 10)
Exchange of BWA stock
for RTC stock...... 1,544,090 12,353 4,000 32 54,882 5,921 (177,493)
Elimination of RTC
common stock....... (1,000) (6,189 ) 6,189
One-for-two stock split
(Note 10)............ (772,045) (6,177 ) 6,177 (2,960)
Disposition of BWAI
(Notes 1 and 10)..... 125,000 437,500
Net loss............... (81,020)
--------- ------- ----- --- -------- -------- ------ --------- ------- --------
BALANCE AT MAY 31,
1995................. 772,045 $6,176 4,000 $ 32 $567,248 $(81,020) 2,961 $(177,493) 220,600 $772,100
========= ======= ===== === ======== ======== ====== ========= ======= ========
</TABLE>
See accompanying notes.
F-37
<PAGE> 120
BUILDERS WAREHOUSE ASSOCIATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 1, 1994
YEAR ENDED (INCEPTION) TO
MAY 31, 1996 MAY 31, 1995
------------ --------------
<S> <C> <C>
Cash Flows from Operating Activities..............................
Net loss........................................................ $ (2,536,170) $ (81,020)
----------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Purchased research and development (Note 1)................ 1,890,194 0
Depreciation and amortization.............................. 111,640 63,143
Expenses paid through issuances of securities.............. 97,619 334,600
Unrealized losses on marketable securities (Note 11)....... 178,183 0
Equity in earnings of unconsolidated subsidiary (Note 2)... (39,708) 0
Changes in assets and liabilities net of effects of business
entity acquisitions and divestiture:
Increase in accounts receivable............................ (1,021,561) (799,932)
Increase in inventories.................................... (1,027,610) (230,000)
(Increase) decrease in other current assets................ 30,639 (50,408)
Increase (decrease) in accounts payable.................... (262,693) 588,397
Increase in accrued expenses............................... 381,324 55,704
----------- --------
Net Cash Used in Operating Activities........................ (2,198,143) (119,516)
----------- --------
Cash Flows Used in Investing Activities:
Purchase of property and equipment.............................. (1,900,276) (34,509)
Other receivables............................................... (241,256) 0
Cash outlays for acquired companies in excess of cash
acquired..................................................... (630,613) 0
Purchase of investment securities (Note 2)...................... (72,726) 0
----------- --------
Net Cash Used in Investing Activities........................ (2,844,871) (34,509)
----------- --------
Cash Flows from Financing Activities (Notes 6 and 10):
Notes payable issued net of payments............................ 2,181,967 133,444
Proceeds from capital contribution (Note 10).................... 0 100,000
Common stock issued including conversions....................... 2,546,105 6,189
Debentures issued net of conversion............................. 2,978,237 0
Long-term debt issued net of repayments......................... 1,623,384 0
----------- --------
Net Cash Provided by Financing Activities.................... 9,329,693 239,633
----------- --------
Increase in Cash and Cash Equivalents............................. 4,286,679 85,608
Cash and Cash Equivalents -- Beginning of Period.................. 85,608 0
----------- --------
Cash and Cash Equivalents -- End of Period........................ $ 4,372,287 $ 85,608
=========== ========
</TABLE>
See accompanying notes.
F-38
<PAGE> 121
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Builders Warehouse Association, Inc. (the "Company" or "BW") through its
subsidiaries designs, manufactures and markets networking, connectivity and
add-on products for Local Area Networking markets. The Company's products
include network adapters, hubs, video cards, shared printer network servers and
adapters and printer enhancement products and products using Phase-Locked Loop,
direct analog, and direct digital radio frequency ("RF") synthesis. The
Company's products are sold worldwide to original equipment manufacturers and
through distributors.
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
that affect the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
1. DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DISCONTINUED OPERATIONS
Builders Warehouse Association, Inc. is a Colorado corporation originally
incorporated under the name of Ceetac Corp. on June 30, 1988, and subsequently
doing business as Omni Corporation. The primary purpose of BW was to evaluate
acquisition candidates and complete acquisitions of, or mergers with those
candidates. The Company was therefore accounted for as a "development stage
company" and until September 20, 1991, conducted no business activities.
Effective May 31, 1995, the Company acquired 100% of the outstanding common
stock of Relialogic Technology Corporation ("RTC"), a designer and manufacturer
of add-on products for the multimedia computer marketplace as well as a
distributor of computer products manufactured by others. At the time of this
acquisition, the shareholders of RTC gained voting control of the Company and
therefore RTC became the acquiring entity. As a result, RTC is the accounting
survivor and reporting successor. The acquisition of RTC by the Company was
recorded as a reverse acquisition. The predecessor company's balance sheets were
adjusted to reflect the recapitalization of RTC pursuant to the acquisition. The
historical stockholders' equity of RTC was adjusted to reflect the cost basis of
the RTC shareholders in the net assets of RTC. As a result of the acquisition of
RTC by the Company, RTC changed its accounting year end to May 31.
The Company recorded the following summarized balances effective May 31,
1995 to reflect the reverse acquisition of BW:
<TABLE>
<S> <C>
Current assets.................................................. $ 1,788,908
Inventories..................................................... 1,743,431
Property and equipment (net).................................... 966,790
Other assets.................................................... 5,537
Current liabilities............................................. (5,220,390)
Notes payable................................................... (100,044)
-----------
Stockholders' equity (net)............................ $ (815,768)
===========
</TABLE>
Summarized below are pro forma consolidated results of operations of the
Company as though the reverse acquisition had occurred at the beginning of the
earliest period presented:
<TABLE>
<S> <C>
Revenues...................................................... $ 6,693,731
Loss from continuing operations............................... (81,020)
Loss from discontinued operations............................. (2,433,000)
Net loss...................................................... (2,514,020)
Loss per common share......................................... $ (8.23)
</TABLE>
ACQUISITION OF UNI PRECISION INDUSTRIAL LIMITED -- On April 1, 1996, the
Company acquired 100% of the common stock of Uni Precision Industrial Limited
("Uni"), a Hong Kong corporation, for a purchase price of
F-39
<PAGE> 122
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $6 million in cash and debt assumed: $500,000 was paid at the
closing of the transaction and an additional $5.5 million was paid upon the
provision to the Company of audited financial statements as of the acquisition
date. An additional $4.0 million payment will be made on April 1, 1997 subject
to pro rata adjustment based upon Uni having net income after tax of $2.5
million during the 12-month period ending March 31, 1997. The Company incurred
additional costs in connection with the purchase of Uni of $813,000, of which
$809,000 was paid through the issuance of restricted common shares.
ACQUISITION OF SCITEQ ELECTRONICS, INC. -- On May 31, 1996, through a
merger with a newly-formed corporation, Sciteq Communications, Inc. ("Sciteq"),
the Company acquired 100% of Sciteq Electronics, Inc., for $600,000 in cash,
plus stock and below-market stock options of the Company valued at $2.4 million.
An additional $2.0 million payment in stock of the Company will be made 12
months from closing subject to pro rata adjustment based upon Sciteq achieving
pre-tax net income of $750,000 during the 12 month period ending December 31,
1996. The Company incurred additional costs in connection with the purchase of
Sciteq of $579,000, of which $532,000 was paid or will be paid through the
issuance of common shares.
The former shareholders of Sciteq have the right to put their shares to the
Company for cash during the 12 days beginning May 31, 1996. The value of the
shares issued at closing of $1,993,578 has been reclassified as long term debt
in the accompanying financial statements.
As a result of the Sciteq acquisition the Company recorded a one-time
charge to earnings for purchased research and development of $1,890,194. The
Company analyzed, during and after the close of the acquisition, both the
projected net cash flows from Sciteq's existing technology base and the status
of its ongoing research and development program and concluded that the carrying
value of the assets acquired exceeded the estimated net realizable values
recorded in the purchase.
ACQUISITION OF PACIFIC DATA PRODUCTS, INC. -- On May 24, 1996, the Company,
through its newly-created, wholly owned subsidiary PDP Acquisition Corp.
("PDPA"), acquired substantially all of the assets of Pacific Data Products,
Inc. ("PDP"). The Company paid $273,000 in cash and assumed PDP's bank
indebtedness of approximately $2.4 million in return for substantially all of
PDP's assets, including cash, accounts receivable, inventory, fixed assets and
intangibles including patents, trademarks, copyrights, in-process software
development and certain specified agreements. The Company incurred additional
costs in connection with the purchase of PDP's assets of $123,000 of which
$121,000 was paid through the issuance of common shares.
PDPA entered into an agreement with Coast Business Credit ("Coast") for a
$5.0 million credit facility secured by all of PDPA's newly-acquired assets. The
Company provided a $500,000 infusion of working capital to PDPA, as well as a
limited guarantee of $750,000 to effectuate the Coast credit facility.
As a result of the asset acquisition by PDPA the Company recorded a
one-time charge to earnings for purchased in-process software development costs
of $517,865. The Company analyzed, during and after the close of the
acquisition, both the projected net cash flows from PDPA's existing technology
base and the status of its ongoing software development program and concluded
that the carrying value of the assets acquired exceeded the estimated net
realizable values recorded in the purchase.
DISCONTINUED OPERATIONS -- As of May 31, 1995, the Company disposed its
loss-generating, wholly-owned subsidiary, BWA, Inc., which owned two
Arkansas-incorporated operating subsidiaries, Builders Warehouse Association,
Inc. and American Plywood Sales, Inc., both of which were engaged in the
building supply industry. Such operations incurred an operating loss of
approximately $2.4 million during the year ended May 31, 1995 and had a
consolidated negative book value at that date of $1,143,042. Accordingly, the
Company delivered 125,000 post reverse split shares of its common stock with an
approximate market value of $437,500 at May 31, 1995 to the purchaser of BWA,
Inc. In addition the buyer assumed certain future costs and potential losses as
more fully described in Note 13.
F-40
<PAGE> 123
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements as of May 31, 1996 include the accounts of BW and RTC from July 1,
1994 (inception) through May 31, 1996, R-Net International, Inc. ("Rnet") from
November, 1995 (formation), Sciteq from May 31, 1996, Uni from April 1, 1996 and
PDPA, from May 24, 1996. (See Note 1). Immaterial subsidiaries of Uni have been
accounted for on the equity method. All significant intercompany transactions
and balances have been eliminated in consolidation. The consolidated group is
referred to individually or collectively as the "Company". For purposes of
financial reporting, RTC was treated as purchaser in a reverse acquisition of BW
and its subsidiary, BWA, Inc.
CASH AND CASH EQUIVALENTS -- All cash on hand and in banks, certificates of
deposit and other highly-liquid investments with maturities of three months or
less, when purchased.
ACCOUNTS AND NOTES RECEIVABLE -- In the normal course of business, the
Company extends unsecured credit to its customers related to the sales of
various products. Typically credit terms require payment on the tenth day of the
month following sales. The Company evaluates and monitors the creditworthiness
of each customer on a case-by-case basis.
INVENTORY -- Inventory consists of goods held for sale valued at the lower
of cost or market. Inventories at May 31, 1996 consist of:
<TABLE>
<S> <C>
Raw materials................................................. $ 4,399,778
Work in process............................................... 2,398,294
Finished goods................................................ 1,122,802
-----------
7,920,874
Less: Reserve for obsolescence................................ (1,020,570)
-----------
$ 6,900,304
===========
</TABLE>
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at historical
cost. Depreciation and amortization are provided over the estimated useful lives
of the individual assets or the terms of the leases if shorter using accelerated
and straight-line methods. Useful lives for property and equipment range from 5
to 15 years.
Capitalized leases (Uni) are initially recorded at the present value of the
minimum payments at the inception of the contracts, with an equivalent liability
categorized as appropriate under current or non-current liabilities. Such assets
are depreciated on the same basis as described above. Interest expense, which
represents the difference between the minimum payments and the present value of
the minimum payments at the inception of the lease, is allocated to accounting
periods using a constant rate of interest over the lease.
OTHER INVESTMENTS -- Other investments include insignificant subsidiaries
of Uni accounted for on the equity method, non-marketable securities held in
other companies and an investment in a joint venture net of an allowance for
permanent impairment of value.
EXCESS OF COST OVER NET ASSETS ACQUIRED -- Excess of cost over net assets
acquired is being amortized over 5 to 15 years and represents the excess of the
purchase price over the fair value of net assets acquired. Accumulated
amortization was $133,257 and $57,143 at May 31, 1996 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. Management believes that there are no
material differences between the recorded book values of its financial
instruments and their estimated fair values.
F-41
<PAGE> 124
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION -- Revenues are recognized when the products are
shipped to the customers.
INCOME TAXES -- The Company has filed consolidated Federal and State income
tax returns as of its fiscal year end since January 1, 1992. At May 31, 1995
there were no deferred taxes or income tax provisions recorded in the financial
statements. At May 31, 1996 the deferred taxes and income tax provisions
recorded in the financial statements relate to Uni's operations in China. (See
Note 9)
ADVERTISING -- The Company's expenses advertising expenditures as incurred.
Advertising expenses of the Company consist primarily of allowances given to
customers rather than direct expenditures by the Company.
LOSS PER COMMON SHARE -- Loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period which was computed based upon the equivalent shares of BW common stock
issued in the reverse acquisition of RTC adjusted retroactively for all stock
splits. Convertible securities outstanding and common stock to be issued are not
included in the computation of earnings per share as they would be
anti-dilutive.
FOREIGN CURRENCY TRANSLATION -- Foreign operations of the Company have been
translated into U.S. dollars in accordance with principles prescribed in
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation," (FAS 52). For the fiscal year ended May 31, 1996 the current rate
method was used whereby all assets and liabilities are translated at year-end
exchange rates, and the resultant translation adjustments are included as a
separate component of stockholders' equity. Revenues and expenses are translated
at the average rates of exchange prevailing throughout the year, and the
resultant gains and losses are included in net earnings.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of May 31, 1996:
<TABLE>
<S> <C>
Manufacturing, engineering and plant equipment and
software................................................ $ 7,433,364
Office furniture and fixtures............................. 3,182,281
Autos..................................................... 172,781
Leasehold improvements.................................... 2,175,270
-----------
Total property and equipment............................ 12,963,696
Less: Accumulated depreciation............................ (4,809,873)
-----------
Net book value.......................................... $ 8,153,823
===========
</TABLE>
Leasehold land and buildings of Uni with a cost of $2,173,790 are pledged
to secure Uni's banking facility. See Notes 4 and 5. Cost and accumulated
amortization of assets held under capitalized leases were $2,174,000 and
$37,000.
All the assets of PDPA including its property, plant and equipment are
pledged to secure the credit facility with Coast as more fully described in Note
4. No net book value was ascribed to these assets in the asset purchase for
financial accounting purposes.
F-42
<PAGE> 125
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SHORT TERM DEBT
Short term debt consisted of the following at May 31, 1996:
<TABLE>
<S> <C>
Floating rate interest loan; a portion of banking facility
of
Uni more fully described in Note 5; weighted average
interest rate for the two months ended May 31, 1996 was
9.7%..................................................... $3,648,590
Floating rate interest loan (2% over Coast's prime rate);
debt
assumed by PDPA in asset acquisition (see Note 1);
interest
rate for week ended May 31, 1996 was 10.25%.............. 2,175,804
Non-interest bearing demand loan........................... 10,000
----------
Total short term debt.................................... $5,834,394
==========
</TABLE>
In connection with the acquisition of PDP's assets, PDPA assumed
approximately $2.4 million in debt to Coast, an asset based lender. The debt is
collateralized by inventories, accounts receivable, property, plant and
equipment with a book value of approximately $2.3 million. The loans bear
interest at 2% over the prime rate and for the week ended May 31, 1996 the
interest rate remained constant at 10.25%. The maximum amount outstanding under
PDPA's banking facility during the period was approximately $2.4 million and the
average amount outstanding was approximately $2.3 million. At the end of the six
month period beginning with the acquisition any unpaid balance of the loans
assumed in the asset purchase will be converted into a term loan over an
estimated three years.
In addition to the debt assumed in the acquisition of PDP, PDPA and entered
into an agreement with the Lender for a $5 million credit facility secured by
all of PDPA's acquired assets. BW provided an injection of $500,000 working
capital to PDPA, as well as a limited guarantee of $750,000. After using
approximately $2.2 million outstanding as of May 31, 1996 for the purchase of
PDP, $2.8 million is available for internal growth and for acquisitions.
At May 31, 1995 short term debt consisted of a $133,444 non-interest
bearing loan from the former shareholder of RTC due on demand.
5. LONG TERM DEBT
Long term debt consisted of the following as of May 31, 1996:
<TABLE>
<S> <C>
Floating rate interest loan; a portion of banking facility of Uni
more fully described below; weighted average interest rate for
the two months ended May 31, 1996 was 9.7%..................... $1,651,649
Obligations under finance leases (Uni)........................... 811,550
5% demand loan from an officer and director; refinanced by the
placement of preferred stock shortly after year end (see Notes
8 and 14)...................................................... 1,237,500
----------
3,700,699
Less: Current portion............................................ (350,010)
----------
Total long term debt........................................... $3,350,689
==========
</TABLE>
As of May 31, 1996, Uni had aggregate loan facilities of approximately
$12.5 million from various banks for overdrafts, loans and trade financing.
Unused facilities as of the same date were approximately $5.0 million including
bank overdrafts of $1.1 million and loan and trade financing of $3.9 million.
These facilities are secured by a priority lien on Uni's leasehold land and
buildings (Note 3), a pledge of Uni's bank deposits of approximately $3.5
million, liens on Uni's inventories released under trust receipt loans and
guarantees by former directors of Uni and a corporation controlled by former
directors of Uni as well as the directors themselves. The bank loans require Uni
to maintain a tangible net worth of not less than $3.75 million. The
F-43
<PAGE> 126
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum amount and average amount outstanding including current maturities
during the period ended May 31, 1996 was approximately $9.4 million and $7.6
million, respectively.
Long term debt including capitalized leases at May 31, 1996 is payable by
year as follows:
<TABLE>
<S> <C>
1997............................................................. $1,705,165
1998............................................................. 486,702
1999............................................................. 443,924
2000............................................................. 443,924
2001............................................................. 264,353
2002 and later................................................... 893,422
----------
4,237,490
Less: Interest portion........................................... (536,791)
----------
$3,700,699
==========
</TABLE>
6. DEBENTURES PAYABLE
During the year ended May 31, 1996 the Company began a private placement of
convertible debentures that was subsequently completed after year end. The
Company has the right to call the debentures prior to conversion at 90% of face
value. The debentures bear interest at 8.0% beginning after date of issue and if
converted the interest is payable in common shares. The debentures were sold at
a 27.5% discount from face value and the Company raised net proceeds of
$6,580,000 during the period and approximately $3 million after year end. Such
debentures converted or can convert into common shares at a maximum of $18.00
per share or at market or conditions thereof. $1,375,000 in face value of
debentures with conversion prices ranging from $6.00 to $9.00 were called by the
Company prior to conversion with the proceeds of a loan from an officer and
director (see Note 10). The debentures were ultimately exchanged for convertible
preferred stock (see Note 14).
Debentures with a face value of $3,680,000 plus accrued interest were
converted during the year into 323,100 shares of the Company's common stock.
After year end additional debentures with a face value of $2,085,000 plus
accrued interest were converted into 191,141 shares of the Company's common
stock. The Company has been notified by the agent for the remaining debenture
holders that all the outstanding debentures will be converted into common
shares.
7. LEASES AND OTHER COMMITMENTS
The Company occupies 322,000 square feet of office, manufacturing and
distribution space; 44,300 square feet in the United States and 279,000 square
feet in Hong Kong and China. The lease term for the 6,000 square foot office and
warehouse space for RTC, in Fremont, California expired on July 31, 1996 and RTC
is remaining at that location on a month to month basis until the business
relocates to San Diego, California to an existing facility. The Company occupies
37,000 square feet in San Diego with the lease expiring for 14,000 square feet
occupied by Sciteq, on September 1, 1997 and 23,200 square feet occupied by PDPA
on a month to month basis. The corporate offices of the Company occupy 1,000
square feet which is leased on a month to month basis. The Company's lease of a
21,000 square foot office/warehouse in Hong Kong expired May 31, 1996.
Subsequently, the Company relocated to a 14,000 square foot facility which is
owned by the Company. Finally the Company leases 258,000 square feet in China
which is used for primarily manufacturing, warehouse and distribution, and
administrative offices.
F-44
<PAGE> 127
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum operating lease payments for the Company and its
subsidiaries at May 31, 1996 are as follows, by year:
<TABLE>
<S> <C>
1997.............................................................. $ 364,062
1998.............................................................. 211,244
1999.............................................................. 64,112
--------
$ 639,418
========
</TABLE>
As of May 31, 1996, the Company's Hong Kong subsidiary, Uni, had
significant commitments and contingent liabilities for open letters of credit,
discounted bills and shipping guarantees executed in favor of various banks
totaling approximately $2,427,000.
Two officers of Sciteq have three-year employment contracts under which
Sciteq is obligated to make payments of $220,000 per year in total. The Company
has the right to terminate these contracts for cause.
8. STOCKHOLDERS' EQUITY
The Company is authorized to issue the following shares of stock:
25,000,000 shares of Common Stock ($.008 par value)
10,000,000 shares of Preferred Stock ($.01 par value)
10,000,000 shares of Preferred Stock, Series A ($.008 par value)
Series A Preferred Stock has a $.008 par value and a $1,000 liquidation
value. Holders of Series A Preferred Stock are not entitled to vote. The Series
A Preferred Stock bears a cumulative 6% annual dividend payable annually on July
31 of each year. Such dividend is payable at the Company's option in either cash
or common stock at the immediately preceding business day's closing price as
reported by NASDAQ. Each share of Series A Preferred Stock is convertible into
285.75 shares of Common Stock on a post-reverse split basis. These shares were
issued in connection with the reverse acquisition (See Note 1) and were fully
converted into common stock prior to May 31, 1996.
9. STOCK OPTIONS AND STOCK AWARD PLAN
The Company has two stock option plans, the 1994 Stock Option Plan ("94
SOP") and the 1995 Stock Option Plan ("95 SOP") and a Stock Award Plan ("SAP").
The purpose of these plans is to attract, retain, motivate and reward officers,
directors, employees and consultants of the Company to maximize their
contributions towards the Company's success.
In addition to the activity indicated below, the Company granted options
for 650,000 shares of common stock under the 95 SOP. Of such options granted
under the 95 SOP, 325,000 are not exercisable until after May 31, 1997 and
325,000 until after May 31, 1998. The Company will register the 95 SOP options
on Form S-8 with the Securities and Exchange Commission. All options were
granted at not less than fair market value at the date of the grant.
F-45
<PAGE> 128
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended May 31, 1996, the following activity occurred:
<TABLE>
<CAPTION>
EXERCISE
STOCK OPTIONS PRICE RANGE OPTIONS
---------------------------------------------------------- --------------- ----------
<S> <C> <C>
Options outstanding at May 31, 1995....................... 0
Options registered January 17, 1996 -- 94 SOP............. $3.18 to $8.58 1,000,000
Options granted under 94 SOP.............................. $3.18 to $8.58 (577,487)
---------
94 SOP options registered and available for grant.... 422,513
=========
Options granted under 94 SOP.............................. $3.18 to $8.58 577,487
Options exercised under 94 SOP............................ $3.18 to $8.58 (150,033)
---------
Options outstanding under 94 SOP..................... 427,454
=========
</TABLE>
<TABLE>
<CAPTION>
STOCK AWARD PLAN SHARES
---------------------------------------------------------- ----------
<S> <C> <C>
Grants outstanding at May 31, 1995......................................... 0
Shares registered under the SAP............................................ 500,000
Shares granted and issued under the SAP.................................... (359,444)
---------
Options outstanding under SAP......................................... 140,556
=========
</TABLE>
10. CAPITAL STOCK TRANSACTIONS AND BUSINESS ACQUISITIONS
REVERSE STOCK SPLITS -- In March 1995, approval was granted for a
one-for-six reverse stock split effective April 10, 1995. In June 1995, approval
was granted for a one-for-two reverse split effective June 30, 1995. The effect
of these changes was reflected in the financial statements retroactively as if
the reverse splits occurred at the beginning of the reported period.
PRIVATE PLACEMENT -- The Company issued 175,824 post-reverse split Common
shares to certain stockholders in exchange for marketable securities of a
company controlled by them (See Note 11).
RTC ACQUISITION -- Pursuant to an Amended and Restated Stock Purchase
Agreement dated May 31, 1995 (the "Agreement") the Company acquired all the
outstanding shares of RTC, a California corporation, which began business on
July 1, 1994 and in which certain shareholders and directors of the Company had
an ownership interest. The Agreement provided that the Company issue 1,085,798
post reverse-split Common shares and 4,000 Class A Preferred shares (convertible
into 1,143,000 common shares). Acquisition costs to the Company in this
transaction were $250,000. The acquisition was recorded as a "reverse merger"
(See Note 1).
CONTRIBUTION TO CAPITAL -- RTC had a non-interest bearing demand loan of
$100,000 from Jardine Cho, the former owner of RTC, which was contributed to the
capital of the Company as of May 31, 1995. No shares were issued in this
transaction.
MANAGEMENT FEE -- RTC had an agreement through January 1, 1996 with Jardine
Cho which provided compensation of $300,000 per annum or 5% RTC sales, whichever
is greater, for management services. Jardine Cho and its shareholders had
control of the Company immediately following the reverse merger. As of May 31,
1995 Jardine Cho terminated its agreement with RTC and accepted payment of its
$334,600 obligation in common stock issued by the Company. During the year ended
May 31, 1996 the Company issued 95,600 shares of common stock in full
satisfaction of this liability.
PRIVATE PLACEMENT -- The Company issued 65,000 post-reverse split Common
shares during the third quarter of fiscal 1996 for $260,000 cash.
F-46
<PAGE> 129
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCITEQ ACQUISITION -- As described in Note 1, the Company issued 229,646
shares of common stock to the holders of Sciteq's outstanding common stock and
in payment of costs incurred in connection with the transaction. In addition the
Company issued options to acquire an additional 60,205 shares of common stock at
$5.02 per share. The additional payment contingent upon the net income of Sciteq
for the year ended December 31, 1996 will be made in common shares at the then
market price.
COVENANT NOT TO COMPETE -- In connection with the acquisition of Sciteq, a
former shareholder and officer of Sciteq executed a covenant not to compete with
the Company and any of its subsidiaries for a period of five years. Shares with
a value at issue of $200,000 will be issued in quarterly installments over two
years. The initial payment resulted in the issuance of 1,567 shares of common
stock.
UNI ACQUISITION -- In connection with the Company's acquisition of Uni on
March 31, 1996 the Company issued 142,000 shares of its common stock valued at
$809,400 in payment of costs incurred in connection with the transaction to two
officers of RTC (See Note 1).
PDP ACQUISITION -- In connection with the Company's acquisition of the
assets of PDP on May 24, 1996 the Company issued 17,200 shares of its common
stock valued at $120,600 in payment of costs incurred in connection with the
transaction (See Note 1).
11. OTHER RELATED PARTY TRANSACTIONS
Summarized below are all material related party transactions entered into
by the Company and its subsidiaries during the year ended May 31, 1996 and the
period July 1, 1994 (inception) to May 31, 1995 not otherwise disclosed in these
notes.
In May 1995 the Company issued 175,824 post reverse split shares of common
stock to certain shareholders and directors (see Note 10) in exchange for
marketable securities in a company controlled by them. Such securities had a
market value of $149,091 as of May 31, 1996. These shareholders have agreed to
indemnify the Company against any decline in value of the marketable securities.
As of May 31, 1996 the liability to the Company for this indemnification was
$178,183 and it is included in other receivables (see Note 18).
On February 29, 1996 the Company made a 8% demand loan in the amount of
$100,000 to an officer of RTC. Accrued and unpaid interest at May 31, 1996
totaled $2,016.
On April 12, 1996 the Company made a 8% demand loan in the amount of
$100,000 to an entity controlled by one of its directors. Accrued and unpaid
interest at May 31, 1996 totaled $1,074.
On March 25, 1996 an entity controlled by an officer and director of the
Company made a 5% demand loan to the Company in the amount of $1,237,500.
Accrued and unpaid interest at May 31, 1996 totaled $12,494 (See Note 5).
Accrued dividends payable are due a former shareholder and current officer
of Uni and were declared prior to the acquisition of Uni by the Company.
Uni, as a founding shareholder, holds 35% of the outstanding shares of
Spectra Electronics Systems, Ltd. ("Spectra"), a Hong Kong private company,
which sells point of sale equipment such as credit card readers for merchants in
the Asian market. Spectra had sales (unaudited) of $445,000 and net income after
tax of $163,000 (unaudited) for the two months ended May 31, 1996.
In the ordinary course of business, Uni made sales of $263,000 and paid
marketing research service fees of $129,000 to companies controlled by a former
director and present officer of Uni.
F-47
<PAGE> 130
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
At May 31, 1996 the Company has accumulated federal net operating losses
which may be potentially available to reduce future taxable income. However,
among potential adjustments which may reduce available loss carryforwards, the
Internal Revenue Code of 1986, as amended, (IRC), reduces the extent to which
net operating loss carryforwards may be utilized in the event there has been an
"ownership change" of a company as defined by applicable IRC provisions. The
Company believes that the issuances of its equity securities and transfers of
ownership of outstanding equity securities may have resulted in one or more such
ownership changes and intends to analyze the impact of such transfers on the
continued availability, for tax purposes, of the Company's net operating losses
incurred through 1996. Further ownership changes in the future, as defined by
the IRC, may reduce the extent to which any net operating losses may be
utilized. The income tax provision for the year ended May 31, 1996 is comprised
as follows:
<TABLE>
<CAPTION>
UNITED STATES NON-U.S. TOTAL
------------- -------- -------
<S> <C> <C> <C>
Income taxes:
Current.......................................... $ 2,000 $38,000 $40,000
Deferred......................................... 0 0 0
------ ------- -------
Total income tax provision............... $ 2,000 $38,000 $40,000
====== ======= =======
</TABLE>
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the fiscal periods ended May
31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
JULY 1, 1994
YEAR ENDED (INCEPTION)
MAY 31, 1996 MAY 31, 1995
------------ --------------
<S> <C> <C>
Earnings before U.S. and non-U.S. income taxes:
United States........................................... $ (3,147,000) $(81,000)
Foreign................................................. 651,000 0
----------- --------
Total........................................... $ (2,496,000) $(81,000)
=========== ========
Theoretical benefit at 35%................................ $ 874,000 $ 28,000
U.S. loss for which no benefit was recorded as
there is no assurance of realization.................... (1,101,000) (28,000)
Adjustment for non-U.S. taxes in excess of
theoretical U.S. tax rate............................... 120,000 0
Foreign permanent differences............................. 56,000 0
Other..................................................... 11,000 0
----------- --------
Total........................................... $ (40,000) $ 0
=========== ========
</TABLE>
13. LITIGATION
The Company and certain former officers and directors are defendants in
litigation filed in May 1994 seeking unspecified damages for allegedly violating
sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and making a
series of positive public statements to the securities market place. Management
believes the claims to be without merit. Nevertheless, the ultimate outcome of
the litigation cannot presently be determined. No provisions for any loss that
may result upon resolution of this matter has been made in the financial
statements. In addition, the Company is indemnified against any loss that may
result by the buyer of BWA, Inc.
The Company and its subsidiaries are involved in various other legal
proceedings and claims incident to the normal conduct of its business. Although
it is impossible to predict the outcome of any outstanding legal
F-48
<PAGE> 131
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceedings, the Company believes that such legal proceedings and claims,
individually and in the aggregate, are not likely to have a material effect on
its financial position or results of operations.
14. SUBSEQUENT EVENTS
MERGER -- On June 18, 1996, the Company and Osicom Technologies, Inc.
("Osicom") entered into a definitive agreement whereby Osicom will acquire
substantially all of the assets of BW. Under the terms of the agreement, shares
of Osicom common stock will be issued to BW for substantially all of BW's
assets. The Osicom common stock issued to BW will then be distributed to BW's
shareholders in a complete liquidation. BW will receive 0.94 share of Osicom
common stock for each common share of BW currently outstanding, which exchange
ratio represents a 10 percent premium to the market value of BW stock based on
the June 17, 1996 closing prices of $15 and $17.50 for BW and Osicom shares,
respectively.
Osicom is a Santa Monica, California-based company engaged in design and
manufacture of digital video switches and routers for the telecommunications
industry and, with its January 31, 1996, acquisition of RNS (formerly Rockwell
Network Systems), is now an industry leader in providing high-speed Local Area
Network solutions and connections for the high-growth Fast Ethernet, FDDI, and
ISDN networking markets.
Following the close of the transaction, Barry Witz, a director and chief
executive officer of BW, will join Osicom's board of directors which will be
expanded to five members. Sharon Chadha, the current CEO and Chairman of Osicom,
Par Chadha and Dr. Xin Cheng will remain on the Board of Osicom. The remaining
director position will be filled by Leonard N. Hecht, president of Chrysalis
Capital Group, an investment banking company specializing in mergers and
acquisitions. Mr. Hecht has served on the board of directors of many public and
private companies and was a founding principal of Xerox Development Corporation,
a wholly-owned subsidiary of the Xerox Corporation.
The acquisition will qualify as a tax-free reorganization and will be
completed as soon as practical subject to regulatory clearance and approval by
the shareholders of both companies.
DEBENTURE CONVERSIONS -- Subsequent to May 31, 1996 debentures with a face
value of $3,584,000 were converted into 374,731 shares of the Company's common
stock.
DEBENTURE PLACEMENTS -- Subsequent to May 31, 1996 the Company completed
its placement of convertible debentures and received net proceeds of
approximately $3.0 million.
PRIVATE PLACEMENT OF SECURITIES -- On July 2, 1996, the Company completed a
placement of $10.7 million face value of a new class of preferred stock ("Class
B") which has a cumulative dividend of 8%, redeemable by the Company and is
convertible into shares of the Company's common stock if not previously called.
Dividend payments are scheduled to begin October 1, 1996. Holders can convert
these preferred shares at a price of $18.50 or under certain conditions at
market price. Holders of the preferred shares were also issued warrants to
purchase 145,310 shares of the Company's common stock at $18.50 per share. Net
proceeds received by the Company totaled approximately $8.1 million
15. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. As regards the former, the Company places its temporary
cash investments with high credit quality financial institutions and limits, by
policy, the amount of credit exposure to any one institution. The Company's
foreign subsidiary, Uni, has one bank account which, at May 31, 1996 exceeded
five percent of current assets: a $1,294,000 account at the Bank of China. As
the Bank of China is a large, stable bank, the Company does not perceive
significant credit exposure regarding this account.
F-49
<PAGE> 132
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to trade receivables are limited
because there is a large number of customers in the Company's customer base
spread across many industries and geographic areas. One customer accounted for
35.1% of net sales for the year ended May 31, 1996 and no customer accounted for
more than 10% of sales during the period ended May 31, 1995. The largest single
customer receivable at May 31, 1996 was $832,000. At May 31, 1995 no single
receivable exceeded 10% of net receivables.
16. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense and taxes paid approximated the related expenses for the
year ended May 31, 1996 and the period ended May 31, 1995.
The stock issued to effect, in part, the Uni, Sciteq and PDP acquisitions
during the year ended May 31, 1996 neither provided nor used cash. Accordingly,
the stock has been excluded from the statement of cash flows.
17. SEGMENT INFORMATION
Information in the table below is presented on the same basis utilized by
the Company to manage its business. Export sales and certain income and expense
items are reported in the geographic area where the final sale to customers is
made, rather than where the transaction originates.
<TABLE>
<CAPTION>
JULY 1, 1994
YEAR ENDED (INCEPTION) TO
MAY 31, 1996 MAY 31, 1995
------------ --------------
<S> <C> <C>
Net sales:
United States........................................... $ 14,144,000 $6,694,000
Asia.................................................... 2,429,000 0
Other................................................... 116,000 0
Inter-area eliminations................................. (286,000) 0
----------- ----------
Total net sales...................................... $ 16,403,000 $6,694,000
=========== ==========
Net income (loss):
United States........................................... $ (2,688,000) $ (81,000)
Asia.................................................... 146,000 0
Other................................................... 7,000 0
Inter-area eliminations................................. (1,000) 0
----------- ----------
Net income (loss).................................... $ (2,536,000) $ (81,000)
=========== ==========
Total assets:
United States........................................... $ 13,810,000 $1,865,000
Asia.................................................... 21,704,000 0
Inter-area eliminations................................. (4,668,000) 0
----------- ----------
Total assets......................................... $ 30,846,000 $1,865,000
=========== ==========
</TABLE>
F-50
<PAGE> 133
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. OTHER RECEIVABLES
Other receivables at May 31, 1996 consisted of the following:
<TABLE>
<S> <C>
8% demand loan due from entity controlled by director including
accrued interest (see Note 11).......................................... $ 101,074
8% demand loan due from an officer of RTC including accrued
interest (see Note 11).................................................. 102,016
Due to Company under indemnification against loss in value of marketable
securities received in private placement of shares due from directors
(see Note 11)........................................................... 178,183
Due to Company under indemnification of costs related to BWA, Inc.
(see Notes 1 and 13).................................................... 62,893
8% demand loan due from non-affiliate including accrued interest.......... 244,041
Other miscellaneous trade and non-trade receivables....................... 107,296
--------
Total other receivables......................................... $ 795,503
========
</TABLE>
19. VALUATION AND QUALIFYING ACCOUNTS
Changes in the inventory obsolescence reserve were as follows:
<TABLE>
<S> <C>
Balance at July 1, 1994 (inception)...................................... $ 0
Additions charged to costs and expenses.................................. 4,656
Amounts used during year................................................. 0
----------
Balance at June 1, 1995................................................ 4,656
Additions charged to costs and expenses solely from acquisitions (see
Note 1)................................................................ 1,019,542
Amounts used (recovered) during year..................................... (3,628)
----------
Balance at May 31, 1996................................................ $1,020,570
==========
</TABLE>
Changes in the accounts receivable reserve for doubtful accounts were as
follows:
<TABLE>
<S> <C>
Balance at July 1, 1994 (inception)....................................... $ 0
Additions charged to costs and expenses................................... 33,000
Amounts used during year.................................................. 0
--------
Balance at June 1, 1995................................................. 33,000
Additions charged to costs and expenses solely from acquisitions (see Note
1)...................................................................... 380,743
Amounts used (recovered) during year Balance at May 31, 1996.............. (13,000)
--------
$400,570
========
</TABLE>
20. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisitions of Uni and Sciteq had
occurred at the beginning of each period presented. This
F-51
<PAGE> 134
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pro forma presentation does not necessarily reflect the results as they would
have been had the acquisitions actually occurred at the beginning of the periods
presented.
JULY 1, 1994 (INCEPTION) TO MAY 31, 1995
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
CONSOLIDATED UNI SCITEQ ADJUSTMENTS REF CONSOLIDATED
----------- ----------- ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 6,694,000 $46,315,000 $3,420,000 $ 1,311,000 (i) $55,118,000
Cost of Sales....................... 5,890,000 41,676,000 1,994,000 (1,201,000) (i) 48,359,000
----------- ----------- ---------- ----------- ---- -----------
Gross Profit...................... 804,000 4,639,000 1,426,000 110,000 6,759,000
Operating Expenses.................. 887,000 4,328,000 2,009,000 22,000 (ii)
107,000 (iii)
164,000 (iv) 7,517,000
----------- ----------- ---------- ----------- ---- -----------
Operating Income (Loss)........... (83,000) 311,000 (583,000) (403,000) (758,000)
Other Income (Charges).............. 2,000 (605,000) (v)
(61,000) (vi) (664,000)
----------- ----------- ---------- ----------- ---- -----------
Income Before Taxation............ (81,000) 311,000 (583,000) (1,069,000) (1,422,000)
Provision for Taxation..............
----------- ----------- ---------- ----------- ---- -----------
Net Operating Income.............. $ (81,000) $ 311,000 $ (583,000) $(1,069,000) $(1,422,000)
=========== =========== ========== =========== ==== ===========
Weighted Average Shares
Outstanding....................... 305,285 369,556 (vii) 674,841
Loss Per Share, Primary and Fully
Diluted........................... $ (0.27) $ (2.11)
</TABLE>
JUNE 1, 1995 TO MAY 31, 1996
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
CONSOLIDATED UNI SCITEQ ADJUSTMENTS REF CONSOLIDATED
----------- ----------- ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $16,402,000 $47,293,000 $4,213,000 $ 515,000 (i) $67,393,000
Cost of Sales....................... 14,039,000 40,085,000 2,227,000 (526,000) (i) 55,825,000
----------- ----------- ---------- ----------- ---- -----------
Gross Profit...................... 2,363,000 7,208,000 1,986,000 (11,000) 11,568,000
Operating Expenses.................. 4,730,000 4,814,000 1,575,000 20,000 (ii)
97,000 (iii)
179,000 (iv) 11,415,000
----------- ----------- ---------- ----------- ---- -----------
Operating Income (Loss)........... (2,367,000) 2,394,000 411,000 (285,000) 153,000
Other Income (Charges).............. (129,000) (550,000) (v)
(66,000) (vi) (745,000)
----------- ----------- ---------- ----------- ---- -----------
Income Before Taxation............ (2,496,000) 2,394,000 411,000 (901,000) (592,000)
Provision for Taxation.............. (40,000) (40,000)
----------- ----------- ---------- ----------- ---- -----------
Net Operating Income.............. $(2,536,000) $ 2,394,000 $ 411,000 $ (901,000) $ (632,000)
=========== =========== ========== =========== ==== ===========
Weighted Average Shares
Outstanding....................... 1,933,764 369,556 (viii) 2,303,320
Loss Per Share, Primary and Fully
Diluted........................... $ (1.31) $ (0.27)
</TABLE>
REFERENCES FOR PRO FORMA FINANCIAL INFORMATION:
(i) To eliminate sales to RTC by Uni and purchases from Uni by RTC
in the periods presented.
(ii) To amortize the increased valuation of fixed assets of $365,000
recognized in the Uni acquisition, using an estimated 15 year
useful life.
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<PAGE> 135
BUILDERS WAREHOUSE ASSOCIATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(iii) To amortize the excess cost over net assets of $1,743,000 arising from
the Uni acquisition, using an estimated 15 year useful life.
(iv) To amortize the excess cost over net assets of $895,000 arising from the
Sciteq acquisition, using an estimated 5 year useful life.
(v) To recognize interest expense which results from the assumption that the
Company borrowed $6,000,000 at 11% per annum interest to effectuate the
Uni acquisition.
(vi) To recognize interest expense which results from the assumption that the
Company borrowed $600,000 at 11% per annum interest to effectuate the
Sciteq acquisition.
(vii) To recognize shares issued in connection with the acquisitions of Uni and
Sciteq.
(viii) To adjust weighted average shares outstanding as if shares issued in
connection with the acquisitions of Uni and Sciteq had occurred at the
beginning of the periods presented.
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<PAGE> 136
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The results of operations reflect the activities of the Company and its RTC
subsidiary from its inception on July 1, 1994; the Company's newly-formed
subsidiary, R-Net International, Inc. from its inception in November, 1995; Uni
from April 1, 1996 (61 days); PDP Acquisition Corp. from its inception on May
24, 1996 (7 days); and the activities of Sciteq from May 31, 1996 (1 day).
RESULTS OF OPERATIONS: COMPARISON OF THE YEAR ENDED MAY 31, 1996 AND JULY 1,
1994
(INCEPTION) TO MAY 31, 1995
Net sales and gross profits of the Company for the year ended May 31, 1996
were $16.4 million and $2.4 million, respectively, up from $6.7 million and
$804,000 for the period July 1, 1994 (inception) through May 31, 1995. Gross
margin improved to 14.4% for the current year, up from 12.0% for the period
ended May 31, 1995, reflecting the impact of Uni's higher gross margin as well
as an improved gross margin for RTC of 13.4%.
The 61 days of Uni's operations reflected in the consolidated results
contributed $10.2 million to net sales and $1.4 in gross profits, prior to
elimination of intercompany transactions. It is Management's opinion that the
Company's future gross margins will experience significant positive influence
from Uni, but can give no assurance that such performance will be realized in
the future.
RTC achieved an increase in units sold for the year ended May 31, 1996,
over the prior period ended May 31, 1995, while net sales dollars declined 5.7%
from the prior period. This decline was due to declining sales prices for
various of RTC's products as well as greater use by customers of early payment
discounts. RTC's gross margin increased to 13.4% for the current period from 12%
in the prior period.
This year's selling, general and administrative costs were impacted by the
Company's aggressive acquisition program and included $2.4 million of purchased
research and development costs, $427,000 of acquisition related expenses, and
$76,000 of amortization of excess cost over net book value of assets acquired
for a total of $2.9 million as compared to a total of $57,000 for the period
ended May 31, 1995.
The Company's net income from operations would have been $544,000 but for
acquisition related expenses and amortization of $2.9 million. After these
expenses the company experienced a net loss from operations of $2.4 million for
the year ended May 31, 1996.
Selling, general and administrative expenses exclusive of the acquisition
impacted items totaled $1,819,000 or 11.1% of net sales as compared to 13.3% of
net sales for the prior period. For the two months ended May 31, 1996, Uni's
selling, general and administrative expenses were 6.3% of its net sales.
Salaries, wages and related payroll costs increased 144% to $753,00; rents
increased 259% to $97,000; travel, promotion and advertising increased 235% to
$348,000; professional and consulting fees increased 1634% to $213,000;
depreciation increased 1102% to $36,000; and other expenses increased 826% to
$372,000.
These increases reflect the results of Uni's operations for the two months
ended May 31, 1996 as well as increases primarily resulting from auditing and
accounting fees, transfer agent fees, business consultants, investor relation
costs and other expenses which were not required during the period ended May 31,
1995 as such costs were partially encompassed by the management fee with the
former owners of RTC (see Note 10 to the financial statements) which was
terminated as of May 31, 1995. The increase in travel, promotion and advertising
was due to RTC's co-operative pricing program whereby customers are allowed
credits towards purchases for a portion of advertising featuring Relialogic(TM)
products as well as overall increases in promotional activities.
Other non-operating income and expenses for the year ended May 31, 1996
included investment income of $21,000 (an increase of 469%), net foreign
currency exchange gains of $15,000, income tax expense of $40,000 and interest
expense of $165,000 (an increase of 11536%) for a total net charge of $169,000.
The increase in interest income reflects the capital-raising activities of the
Company as well as increases in interest-bearing cash deposits at both RTC and
Uni. Interest expense increased as the result of Uni's operations for the two
months ended May 31, 1996.
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<PAGE> 137
Exclusive of acquisition-related items and amortization expense, the
Company would have had net income of $375,000. After these expenses, the Company
experienced a net loss for the year ended May 31, 1996 of $2.5 million or $1.31
per common share as compared to $81,000 or $.27 per common shares for the period
July 1, 1994 (inception) to May 31, 1995.
The Company has a carryforward of federal net operating losses which may be
potentially available to reduce future taxable income in the United States.
However, due to potential adjustments to the net operating loss carryforwards as
provided by the Internal Revenue Code with respect to future ownership changes,
future availability of these tax benefits is not assured.
RESULTS OF OPERATIONS: ANALYSIS OF THE PERIOD JULY 1, 1994 (INCEPTION) TO MAY
31, 1995
The results of operations reflect the activities of RTC from its inception
on July 1, 1994 through May 31, 1995.
Net sales were $6.7 million and gross profit was $804,000 or 12% of net
sales. As discussed above RTC's gross margin increased to 13.4% in the following
year.
Selling, general and administrative expenses were $887,000 or 13.3% of net
sales including salaries, wages and related costs of $309,000, management fee of
$335,000, rents of $27,000, travel, promotion and advertising of $104,000,
professional and consulting fees of $12,000, amortization and depreciation of
$60,000 and other expenses of $40,000. The management fee pursuant to an
agreement with the former shareholder of RTC was 5% of net sales and was
terminated by mutual consent of the parties on May 31, 1995. Exclusive of the
management fee selling, general and administrative expenses were $553,000 or
8.3% of net sales.
Net loss from operations was ($83,000). The results of operations before
the management fee reflected income of $251,000 or 3.8% of net sales.
Interest income and expense were not material.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had net worth of $3 million, with total assets
of $30.8 million. Of these assets, current assets totaled $18 million including
$4.4 million cash and cash equivalents, $5.3 million accounts receivable and
$6.9 million inventory.
The working capital deficit at May 31, 1996 of $1.2 million reflected the
dividends payable to the former shareholders of Uni declared prior to the
acquisition of Uni by the Company ($1.3 million) and accrued liabilities which
will be satisfied through the issuance of common shares ($175,000). Unused
credit lines available to the Company and its subsidiaries totaled $7.8 million
as of year end.
The Company completed a private placement of its 8% callable, convertible
debentures which resulted in net proceeds of $6.6 million through May 31, 1996
and additional net proceeds of $3.0 million subsequent to year end. If not
called by the Company prior to conversion by the holders, the debentures convert
into the Company's common stock at the then common stock market price or,
depending upon certain conditions, at other prices including premiums to market.
See Note 6 to the consolidated financial statements.
The Company called $1,375,000 face value of bonds prior to their conversion
by the holders on March 25, 1996 utilizing a temporary loan from a director and
officer to effectuate the call.
Additionally, the Company completed a private placement of its common stock
resulting in proceeds of $260,000 to the Company during the third quarter.
Subsequent to year end the Company completed a placement of its of its new
class of callable, convertible preferred stock with warrants attached, and
received approximately $8.1 million as net proceeds. These shares carry a
dividend rate of 8% (beginning October 1, 1996), and include call and conversion
provisions at market or various conditions thereto. Warrants to purchase 145,310
shares of common stock at $18.50 per share were also issued in this placement.
See Note 14 to the financial statements.
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<PAGE> 138
The Company's customers remit payments within the terms of sale. The
Company is able to meet its obligations as they become due. Management believes
that the Company has sufficient working capital to meet its planned level of
operations. The Company plans to grow both internally as well as through
acquisitions. The capital needed to accomplish this will have to be raised. The
Company cannot give any assurances of the continued availability of working
capital or its ability to obtain funds.
OTHER MATTERS
The Company and certain former officers and directors are defendants in
litigation filed in May 1994 seeking unspecified damages for allegedly violating
sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and making a
series of positive public statements to the securities marketplace. Management
believes the claims to be without merit and has retained legal counsel and
intends to vigorously defend itself against the claim. Management and counsel
believe the claims to be without merit. Nevertheless, the ultimate outcome of
the litigation cannot presently be determined and no provision for any loss that
may result upon resolution of this matter has been reflected in the financial
statements. The buyer of the Company's BWA, Inc., subsidiary has indemnified the
Company against any loss that may result. See Note 1 to the consolidated
financial statements.
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<PAGE> 139
EXHIBIT A
STOCK PURCHASE AGREEMENT
AGREEMENT made as of the 1st day of June, 1996, by and between Builders
Warehouse Association, Inc., a Colorado corporation ("BWAI"), having an address
at 2800 28th Street, Suite 100, Santa Monica, California 90405, and Osicom
Technologies, Inc., a New Jersey corporation ("Osicom") having an address at
2800 28th Street, Suite 100, Santa Monica, California 90405.
WHEREAS, BWAI is the owner of all of the issued and outstanding capital
stock of Sciteq Electronics, Inc., a California corporation, Uni Precision,
Ltd., a Hong Kong corporation, PDP Acquisition Corp., a California corporation,
Relialogic Technology Corporation, a California corporation and RNET Inc., a
Nevada corporation (each referred to individually as a "Subsidiary" and
collectively as the "Subsidiaries") and some of the outstanding capital stock of
XNET Technology, Inc., a California corporation ("XNET"); and
WHEREAS, BWAI wishes to sell to Osicom and Osicom wishes to purchase from
BWAI all of the capital stock of the Subsidiaries and the capital stock of XNET
owned by BWAI;
NOW, THEREFORE, in consideration of the mutual agreements recited herein,
the parties agree as follows:
ARTICLE I
ACQUISITION OF THE SUBSIDIARIES
1.01. PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties set forth
herein, on the Closing Date, as defined herein, BWAI will sell, transfer and
deliver to Osicom, and Osicom shall acquire from BWAI, all of the shares of
capital stock of the Subsidiaries and the capital stock of XNET owned by BWAI
(collectively, the "Shares"), free and clear of all liens, pledges,
encumbrances, charges and claims thereon. Certificates evidencing the Shares
shall be either duly endorsed in blank or accompanied by appropriate stock
powers endorsed in blank. Such certificates shall also be accompanied by
evidence satisfactory to Osicom of BWAI's payment of any applicable transfer
taxes.
1.02. PURCHASE PRICE. In consideration of the sale, transfer, and delivery
of the Shares by BWAI to Osicom, on the Closing Date , Osicom will pay to BWAI,
the sum of (a) 0.94 times (b) the sum of (i) the number of shares of BWAI common
stock outstanding on the Closing Date plus (ii) the number of warrants and
options to acquire BWAI stock outstanding on the Closing Date minus (c) the
exercise price for all such warrants and options, by issuing and delivering to
BWAI that number of shares of Osicom Common Stock ("Osicom Stock") having a
market value equal to such purchase price.
1.03. STOCKHOLDER APPROVAL. The parties acknowledge that BWAI must solicit
and obtain the approval of its stockholders to the transactions contemplated by
this Agreement. Simultaneously herewith, stockholders of BWAI owning more than
50% of BWAI's outstanding common stock have delivered to Osicom irrevocable
proxies to vote in favor of the transactions contemplated hereby. Upon (a) the
completion of a meeting of BWAI's stockholders at which the transactions
contemplated hereby are approved and (b) the effectiveness of the registration
statement referred to in Section 1.04 of this Agreement, the Closing will occur.
The effective date of the transactions contemplated hereby will be June 1, 1996.
1.04. REGISTRATION RIGHTS. Promptly following the date of this Agreement,
Osicom shall prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement for the purpose of registering the Osicom
Common Stock under the Securities Act of 1933 as amended (the "Act") for
distribution by BWAI to its stockholders. Osicom will use its best efforts to
cause such registration statement to become effective as soon as practicable.
BWAI will supply to Osicom all relevant information concerning BWAI necessary to
the preparation of such registration statement. The registration statement will
be prepared and filed jointly with the aforesaid proxy statement.
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<PAGE> 140
1.05. ASSUMPTION OF LIABILITIES. In connection with the transactions
contemplated hereby, Osicom agrees to assume, and indemnify BWAI against, those
liabilities listed on Schedule 1.05 to this Agreement.
1.06. LIQUIDATING TRUST. Upon liquidation of BWAI, a liquidating trust
will be created and funded to enable BWAI to satisfy any unpaid liability at the
time of liquidation.
ARTICLE II
ADDITIONAL TRANSACTIONS
2.01. ACQUISITION OF OSICOM STOCK. BWAI represents and warrants that the
Osicom Stock to be acquired pursuant to the terms of this Agreement is being
acquired for its own account, with no intention of assigning any participation
or interest therein, and without a view to the distribution of any portion
thereof, except in accordance with the Act. BWAI will not sell, assign, transfer
or encumber any of such shares unless (i) a registration statement under the Act
with respect thereto is in effect and the prospectus included therein meets the
requirements of Section 10 of the Act, or (ii) a no-action letter is obtained
from the staff of the Commission in respect of such proposed sale, assignment,
transfer or encumbering, or (iii) Osicom has received a written opinion of
counsel reasonably satisfactory to Osicom that, after an investigation of the
relevant facts, such counsel is of the opinion that such proposed sale,
assignment, transfer or encumbering does not require registration under the Act.
BWAI understands that the Osicom Stock is not being registered under the
Act and must be held indefinitely unless it is subsequently registered
thereunder or an exemption from such registration is available. BWAI understands
that, except as otherwise provided in this Agreement, the Osicom Stock is not
being registered under the Act in part on the grounds that the issuance thereof
is exempt under Section 4(2) of the Act as a transaction by an issuer not
involving any public offering; that Osicom's reliance on such exemption is
predicated in part on the foregoing representation and warranty of BWAI and that
in the view of the Commission, the statutory basis for the exemption claimed
would not be present if, notwithstanding such representation and warranty, BWAI
contemplates acquiring any of the Osicom Stock for sale upon the occurrence or
non-occurrence of some predetermined event.
2.03. RESTRICTIVE LEGEND. BWAI understands that Osicom will have an
appropriate stop order placed on its records indicating the existence of the
terms of this Agreement, and that the certificates representing the Osicom Stock
shall bear the following legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD, TRANSFERRED OR
ENCUMBERED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A NO-ACTION LETTER FROM THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION OR PURSUANT TO AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
UNNECESSARY."
2.04. RECEIPT OF INFORMATION. BWAI, by delivering the Shares at the
Closing pursuant to Section 8.02 of this Agreement, shall be deemed without
further action of any kind to have acknowledged receipt of all information
required to be delivered to him with respect to the transactions contemplated by
this Agreement pursuant to Regulation D promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended ("Regulation D").
2.05. ACCREDITED INVESTOR STATUS. BWAI represents and warrants to Osicom
that it is an accredited investor, as defined in Regulation D.
A-2
<PAGE> 141
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF OSICOM
Osicom makes the following representations and warranties to BWAI. BWAI, in
executing, delivering and consummating this Agreement, has relied and will rely
upon the correctness and completeness of each of such representations and
warranties:
3.01. VALID CORPORATE EXISTENCE; QUALIFICATION. Osicom is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey. Osicom has the corporate power to carry on
its business as now conducted and to own its assets. Osicom is duly
qualified to conduct business and is in good standing as a foreign
corporation in those jurisdictions set forth on Schedule 3.01, which are
the only jurisdictions in which Osicom is required to qualify in order to
own its assets or properties or to carry on its business as now conducted
(except for such jurisdictions where the failure to so qualify would not
have a material adverse effect on Osicom), and there has not been any claim
by any other jurisdiction to the effect that Osicom is required to qualify
or otherwise be authorized to do business as a foreign corporation therein
(except for such jurisdictions where the failure to so qualify would not
have a material adverse effect on Osicom). The copies of Osicom's
Certificate of Incorporation (certified by the Secretary of State of New
Jersey) and By-Laws (certified by Osicom's secretary), as amended to date,
which have been delivered to BWAI, are true and complete copies of those
documents as now in effect. The minute books of Osicom contain accurate
records of all material meetings of its Board of Directors, Executive
Committee of the Board, if any, and shareholders since its incorporation,
and accurately reflect all transactions authorized therein in all material
respects.
3.02. CAPITALIZATION. The authorized capital stock of Osicom consists
of 20,000,000 shares of Common Stock, par value $.10 per share, of which
3,056,174 shares were issued and outstanding, as of April 30, 1996; and
2,000,000 shares of Preferred Stock, of which 2500 Series A and 5269 Series
B shares were issued and outstanding, as of April 30, 1996. All of such
shares of Common Stock and Preferred Stock are duly authorized and validly
issued and outstanding, fully paid and nonassessable. Except as listed on
Schedule 3.02, there are no subscriptions, options, warrants, rights or
calls or other commitments or agreements to which Osicom or any of the
Shareholders is a party or by which it is bound, calling for the issuance,
transfer, sale or other disposition of any class of securities of Osicom.
Other than the Preferred Stock and those items disclosed on Schedule 3.02,
there are no outstanding securities of the Corporation convertible or
exchangeable, actually or contingently, into shares of Common Stock or any
other securities of the Corporation.
3.03. SUBSIDIARIES. Except as listed on Schedule 3.03, there are no
corporations, partnerships or other business entities controlled by Osicom.
As used herein, "controlled by" means (i) the ownership of not less than
50% of the voting securities or other interests of a corporation,
partnership or other business entity, or (ii) the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a corporation, partnership or other business entity,
whether through the ownership of voting shares, by contract or otherwise.
Osicom has not made any investments in, nor does it own, any of the capital
stock of, or any other proprietary interest in, any other corporation,
partnership or other business entity. All references herein to Osicom
includes each entity listed on Schedule 3.03.
3.04. CONSENTS. All requisite consents of governmental and other
regulatory agencies, foreign or domestic, and of other parties required to
be received by or on the part of Osicom, to enable Osicom to enter into and
carry out this Agreement in all material respects have been, or prior to
the Closing will have been, obtained.
3.05. BINDING NATURE OF AGREEMENT; TITLE TO SHARES. This Agreement
constitutes Osicom's valid and binding obligation and is enforceable in
accordance with its terms. The delivery of the Shares to BWAI at the
Closing pursuant to the provisions of this Agreement will transfer valid
title thereto, free and clear of all manner of liens, charges, encumbrances
and claims.
3.06. FINANCIAL STATEMENTS. The books of account of Osicom fairly
reflect its income, expenses, assets and liabilities in all material
respects. The audited financial statements of the Osicom for the two
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<PAGE> 142
years ended January 31, 1996 and the unaudited financial statements for the
three (3) months ended April 30, 1996 fairly present the financial position
of Osicom as of the said dates and the results of its operations for such
fiscal years and period and, except as set forth therein, were prepared in
conformity with generally accepted accounting principles consistently
applied throughout the periods covered thereby.
3.07. LIABILITIES. Except as set forth on Schedule 3.07, as at April
30, 1996, (the "Balance Sheet Date"), Osicom had no material debts,
liabilities or obligations, contingent or absolute, other than those debts,
liabilities and obligations reflected or reserved against Osicom's Balance
Sheet at the Balance Sheet Date (the "Balance Sheet") or arising after the
Balance Sheet Date in the ordinary course of Osicom's business.
3.08. ACTION SINCE BALANCE SHEET DATE. Except as otherwise expressly
provided or set forth in, or required by, this Agreement or as set forth in
Schedule 3.08, since the Balance Sheet Date, Osicom has not: (i) incurred
any material obligation or liability, absolute or contingent, except those
arising in the ordinary and usual course of its business; (iii) discharged
or satisfied any lien or encumbrance, except in he ordinary and usual
course of business, or paid or satisfied any liability, absolute or
contingent, other than liabilities as of the Balance Sheet Date and current
liabilities incurred since the Balance Sheet Date in the ordinary and usual
course of business; (iii) made any wage or salary increases or granted any
bonuses other than wage and salary increases and bonuses granted in
accordance with its normal salary increase and bonus policies; (iv)
mortgaged, pledged or subjected to any lien or other encumbrance any of its
properties or assets, or permitted any of its property or assets to be
subjected to any lien or other encumbrance, except in the ordinary and
usual course of business; (v) sold, assigned or transferred any of its
properties or assets, except in the ordinary and usual course of business;
(vi) entered into any transaction except in the ordinary course of its
business; (vii) waived any rights of substantial value, or canceled,
modified or waived any indebtedness for borrowed money held by it, except
in the ordinary and usual course of business; (viii) declared, paid or set
aside any dividends or other distributions or payments on its capital
stock, or redeemed or repurchased, or agreed to redeem or repurchase, any
shares of its capital stock; (ix) made any loans or advances to any person,
or assumed, guaranteed, endorsed or otherwise became responsible for the
obligations of any person; or (x) incurred any indebtedness for borrowed
money (except for endorsement, for collection or deposit of negotiable
instruments received in the ordinary and usual course of business).
3.09. ADVERSE DEVELOPMENTS. Except as otherwise expressly provided or
set forth in, or required by, this Agreement, since the Balance Sheet Date,
to the best knowledge of Osicom, there have been no changes in the
properties, operations or financial condition of the Corporation, and no
event has occurred other than in the ordinary and usual course of business
which could be reasonably expected to have a materially adverse effect upon
the business of the Corporation.
3.10. TAXES. Osicom delivered to BWAI true and complete copies of the
Federal income tax returns on Form 1120 of the Corporation as filed with
the Internal Revenue Service for each of the fiscal years ended January 31,
1996 and 1995, respectively. Except as set forth on Schedule 3.10, each of
such returns was prepared in conformity with information contained in the
books and records of Osicom and contains no untrue statement of a material
fact or omits to state any fact required to make any such return correct
and complete in all material respects. All taxes, including, without
limitation, income, property, sales, use, franchise, capital stock, excise,
added value, employees' income withholding, social security and
unemployment taxes imposed by the United States, any state or any foreign
country, or by any other taxing authority, which have or may have become
due or payable by Osicom and all interest and penalties thereon, whether
disputed or not, have been paid in full or adequately provided for by
reserves shown in its books of account; all deposits required by law to be
made by Osicom with respect to estimated income, franchise and employees'
withholding taxes have been duly made; and all tax returns, including
estimated tax returns, required to be filed have been duly filed. No
extension of time for the assessment of deficiencies for any year is in
effect. No deficiency is proposed or, to the knowledge of Osicom, after
reasonable inquiry, threatened against Osicom. Schedule 3.10 sets forth a
list of those
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states in which income, franchise or sales and use tax returns were filed
by Osicom for the fiscal years ended January 31, 1996 and January 31, 1995,
respectively.
3.11. OWNERSHIP OF ASSETS. Except as set forth in Schedule 3.11,
Osicom owns outright, and has good and marketable title to all of its
assets, properties and business (including all assets reflected in the
Balance Sheet, except as the same may have been disposed of in the ordinary
course of business since the Balance Sheet Date), free and clear of all
liens, mortgages, pledges, conditional sales agreements, restrictions on
transfer or other encumbrances or charges (collectively, the
"Encumbrances") except for Encumbrances arising by operation of law rather
than by grant of Osicom (for example, tax liens and mechanics liens) in the
ordinary course of Osicom's business for liabilities reflected in the
Balance Sheet and not more than $100,000 in the aggregate. Schedule 3.11
sets forth a true and complete list and brief description of all patents,
copyrights, trademarks, trade names and other similar intangible assets
which are either owned by Osicom or in which it has an interest. Except as
set forth on Schedule 3.11, no other person, firm or corporation has any
proprietary or other interest in any such intangible assets. Such assets so
owned or leased are, in the reasonable business judgment of Osicom,
sufficient to permit Osicom to conduct its business as now conducted in all
material respects. Except as set forth on Schedule 3.11, Osicom is not a
party to or bound by any license or agreement requiring the payment to any
person, firm or corporation of any royalty. Osicom, after reasonable
inquiry, does not know, or have reasonable grounds to know of any violation
by others of the trademark, trade name or patent rights of Osicom. Osicom
is not infringing upon any patent, copyright, trade name or trademark or
otherwise is violating the rights of any third party with respect thereto,
and no proceedings have been instituted or, to the knowledge of Osicom,
after reasonable inquiry, are threatened, and no claim has been received by
Osicom alleging any such violation.
3.12. INSURANCE. Schedule 3.12 sets forth a list and brief
description of all policies of fire, liability and other forms of insurance
held by Osicom as of the date hereof. Except as set forth in Schedule 3.12,
such policies are valid, outstanding and enforceable policies, as to which
premiums have been paid currently. Except as set forth on Schedule 3.12,
Osicom, after reasonable inquiry, does not know of any state of facts, or
of the occurrence of any event which might reasonably form the basis for
any claim exceeding $100,000 against Osicom not fully covered by insurance
for liability on account of any express or implied warranty or tortious
omission of commission.
3.13. LITIGATION, COMPLIANCE WITH LAW. Except as set forth on
Schedule 3.13, there are no actions, suits, proceedings or governmental
investigations relating to Osicom or to any of its properties, assets or
businesses pending or, to the knowledge of Osicom, after reasonable
inquiry, threatened, or any order, injunction, award or decree outstanding
against Osicom or against or relating to any of its properties, assets or
businesses. Except as set forth in Schedule 3.13, to the best knowledge of
Osicom, Osicom is not in violation or any law, regulation, ordinance,
order, injunction, decree, award or other requirement of any governmental
body, court or arbitrator relating to its properties, assets or business
which violation could have a material adverse effect on the Osicom.
3.14. REAL PROPERTY. Schedule 3.14 sets forth a brief description of
all real property which is owned by, or leased to Osicom, including all
material structures located hereon. Osicom owns outright the fee simple
title in and to the real properties shown on Schedule 3.14 as being owned
by it, free and clear of all claims, liens, mortgages, charges, or
encumbrances of any nature whatsoever, except as otherwise described on
Schedule 3.14. The real property leases described on Schedule 3.14 that
relate to the leased properties described therein are now in full force and
effect, and all material amounts payable thereunder have been paid. Except
as set forth on Schedule 3.14, none of such leases could reasonably be
expected to result in material liability for restoration of premises. All
uses of such owned or leased property by Osicom conform, in all material
respects, to all applicable building and zoning ordinances, laws, and
regulations and, in the case of leased property, to all terms of the leases
relating thereto.
3.15. INTEREST IN ASSETS. Except as set forth on Schedule 3.15, no
Shareholder of Osicom nor any member of his family nor any affiliate of a
Shareholder, owns any property or rights, tangible or
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intangible, including without limitation technology and intellectual
property rights, used in or related, directly or indirectly, to the
businesses of Osicom.
3.16. SALARY INFORMATION. Schedule 3.16 contains a list of the names
and current salary rates of and bonus commitments to all present officers
of Osicom, and the names and current annual salary rates of all other
persons employed by Osicom whose annual salaries exceed $150,000.00.
3.17 NO BREACH. Neither the execution and delivery of this Agreement
nor compliance by Osicom with any of the provisions hereof nor the
consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By-Laws of Osicom;
(b) violate or, alone or with notice of the passage of time, result
in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a material default
under, the terms of any agreement or other document or undertaking, oral
or written to which Osicom is a party or by which any of them or any of
their respective properties or assets may be bound (except for such
violations, conflicts, breaches or defaults as to which required waivers
or consents by other parties have been, or will, prior to the Closing,
be, obtained or which will not have a material adverse effect on the
Corporation);
(c) result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Osicom pursuant
to the terms of any such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award
against, or binding upon, Osicom, or its properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to
either of Osicom or any of the Subsidiaries or any of its securities,
assets or properties.
3.18. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with BWAI by
Osicom without the intervention of any broker, finder, investment banker or
other third party. Osicom has not engaged, consented to, or authorized any
broker, finder, investment banker or other third party to act on his or its
behalf, directly or indirectly, as a broker or finder in connection with
the transaction contemplated by this Agreement.
3.19. CHANGE OF NAME. Osicom has not conducted business under any
name during the past three (3) years except those set forth on Schedule
3.19.
3.20. ENVIRONMENTAL. As used in this Agreement, the term "Hazardous
Materials" shall mean any waste material which is regulated by any state or
local governmental authority in the states in which Osicom conducts
business, or the United States Government, including, but not limited to,
any material or substance which is (i) defined as "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste" under any provision of California law, (ii)
petroleum, (iii) asbestos, (iv) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et seq. (33
U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act (33
U.S.C. 1317), (v) defined as a "hazardous waste" pursuant to Section 1004
of the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.(42
U.S.C. 6901), or (vi) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). Except as set forth
on Schedule 3.27, the current operations of Osicom and its current and, to
the best knowledge of Osicom , its past use comply and then complied in all
material respects with all applicable laws and governmental regulations
including all applicable federal, state and local laws, ordinances, and
regulations pertained to air and water quality, Hazardous Materials, waste,
disposal or other environmental matters, including the Clean Water Act, the
Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste
Disposal Act, the Resource Conservation Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, and the statutes,
rules, regulations and ordinances or the state, city and country in which
Osicom's property is located.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BWAI
BWAI makes the following representations and warranties to Osicom, and, in
executing this Agreement, has relied and will rely on the correctness and
completeness of such representations and warranties. Each reference to BWAI
includes each Subsidiary, to the extent appropriate. However, BWAI makes no
representations to Osicom concerning XNET.
4.01. VALID CORPORATE EXISTENCE; QUALIFICATION. BWAI is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado. BWAI has the corporate power to carry on its business as
now conducted and to own its assets. BWAI is duly qualified to conduct
business and is in good standing as a foreign corporation in those
jurisdictions set forth on Schedule 4.01, which are the only jurisdictions
in which BWAI is required to qualify in order to own its assets or
properties or to carry on its business as now conducted (except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on BWAI), and there has not been any claim by any other
jurisdiction to the effect that BWAI is required to qualify or otherwise be
authorized to do business as a foreign corporation therein (except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on Osicom). The copies of BWAI's Certificate of
Incorporation (certified by the Secretary of State of Colorado) and By-Laws
(certified by BWAI's secretary), as amended to date, which have been
delivered to Osicom, are true and complete copies of those documents as now
in effect. The minute books of BWAI contain accurate records of all
material meetings of its Board of Directors, Executive Committee of the
Board, if any, and shareholders since its incorporation, and accurately
reflect all transactions authorized therein in all material respects.
4.02. CAPITALIZATION. The authorized capital stock of BWAI consists
of 25,000,000 shares of Common Stock, par value $.008 per Share, of which
2,946,940 shares were issued and outstanding, as of February 29, 1996; and
10,000,000 shares of Preferred Stock, of which 286 Series A and 8,605
Series B shares were issued and outstanding, as of February 29, 1996. All
of such shares of Common Stock and Preferred Stock are duly authorized and
validly issued and outstanding, fully paid and nonassessable. Except as
listed on Schedule 4.02, there are no subscriptions, options, warrants,
rights or calls or other commitments or agreements to which BWAI is a party
or by which it is bound, calling for the issuance, transfer, sale or other
disposition of any class of securities of BWAI. Other than the Preferred
Stock and those items disclosed on Schedule 4.02, there are no outstanding
securities of BWAI convertible or exchangeable, actually or contingently,
into shares of Common Stock or any other securities of BWAI.
4.03. SUBSIDIARIES. Except as listed on Schedule 4.03, there are no
corporations, partnerships or other business entities controlled by BWAI.
4.04. CONSENTS. All requisite consents of governmental and other
regulatory agencies, foreign or domestic, and of other parties required to
be received by or on the part of BWAI, to enable BWAI to enter into and
carry out this Agreement in all material respects have been, or prior to
the Closing will have been, obtained.
4.05. BINDING NATURE OF AGREEMENT; TITLE TO SHARES. This Agreement
constitutes BWAI's valid and binding obligation and is enforceable in
accordance with its terms. BWAI is and at the Closing will be, the sole
record and beneficial owners of the Shares, free and clear of all manner of
liens, charges, encumbrances, and claims. The delivery of the Shares to
Osicom at the Closing pursuant to the provisions of this Agreement will
transfer valid title thereto, free and clear of all manner of liens,
charges, encumbrances and claims.
4.06. FINANCIAL STATEMENTS. The books of account of BWAI fairly
reflect its income, expenses, assets and liabilities in all material
respects. The audited financial statements of the BWAI for the year ended
May 31, 1995 financial statements for the nine (9) months ended February
29, 1996 fairly present the financial position of BWAI as of the said dates
and the results of its operations for such fiscal years and period and,
except as set forth therein, were prepared in conformity with generally
accepted accounting principles consistently applied throughout the periods
covered thereby.
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4.07. LIABILITIES. Except as set forth on Schedule 4.07, as at
February 29, 1996, (the "Balance Sheet Date"), BWAI had no material debts,
liabilities or obligations, contingent or absolute, other than those debts,
liabilities and obligations reflected or reserved against BWAI's Balance
Sheet at the Balance Sheet Date (the "Balance Sheet") or arising after the
Balance Sheet Date in the ordinary course of BWAI's business.
4.08. ACTION SINCE BALANCE SHEET DATE. Except as otherwise expressly
provided or set forth in, or required by, this Agreement or as set forth in
Schedule 4.08, since the Balance Sheet Date, BWAI has not: (i) incurred any
material obligation or liability, absolute or contingent, except those
arising in the ordinary and usual course of its business; (ii) discharged
or satisfied any lien or encumbrance, except in the ordinary and usual
course of business, or paid or satisfied any liability, absolute or
contingent, other than liabilities as of the Balance Sheet Date and current
liabilities incurred since the Balance Sheet Date in the ordinary and usual
course of business; (iiv) made any wage or salary increases or granted any
bonuses other than wage and salary increases and bonuses granted in
accordance with its normal salary increase and bonus policies; (iv)
mortgaged, pledged or subjected to any lien or other encumbrance any of its
properties or assets, or permitted any of its property or assets to be
subjected to any lien or other encumbrance, except in the ordinary and
usual course of business; (v) sold, assigned or transferred any of its
properties or assets, except in the ordinary and usual course of business;
(vi) entered into any transaction except in the ordinary course of its
business; (vii) waived any rights of substantial value, or canceled,
modified or waived any indebtedness for borrowed money held by it, except
in the ordinary and usual course of business; (viii) declared, paid or set
aside any dividends or other distributions or payments on its capital
stock, or redeemed or repurchased, or agreed to redeem or repurchase, any
shares of its capital stock; (ix) made any loans or advances to any person,
or assumed, guaranteed, endorsed or otherwise became responsible for the
obligations of any person; or (x) incurred any indebtedness for borrowed
money (except for endorsement, for collection or deposit of negotiable
instruments received in the ordinary and usual course of business).
4.09. ADVERSE DEVELOPMENTS. Except as otherwise expressly provided or
set forth in, or required by, this Agreement, since the Balance Sheet Date,
to the best knowledge of BWAI, there have been no changes in the
properties, operations or financial condition of BWAI, and no event has
occurred other than in the ordinary and usual course of business which
could be reasonably expected to have a materially adverse effect upon the
business of BWAI.
4.10. TAXES. BWAI delivered to Osicom true and complete copies of the
Federal income tax returns on Form 1120 of the Corporation as filed with
the Internal Revenue Service for each of the fiscal years ended May 31,
1994 and 1995, respectively. Except as set forth on Schedule 4.10, each of
such returns was prepared in conformity with information contained in the
books and records of BWAI and contains no untrue statement of a material
fact or omits to state any fact required to make any such return correct
and complete in all material respects. All taxes, including, without
limitation, income, property, sales, use, franchise, capital stock, excise,
added value, employees' income withholding, social security and
unemployment taxes imposed by the United States, any state or any foreign
country, or by any other taxing authority, which have or may have become
due or payable by Osicom and all interest and penalties thereon, whether
disputed or not, have been paid in full or adequately provided for by
reserves shown in its books of account; all deposits required by law to be
made by BWAI with respect to estimated income, franchise and employees'
withholding taxes have been duly made; and all tax returns, including
estimated tax returns, required to be filed have been duly filed. No
extension of time for the assessment of deficiencies for any year is in
effect. No deficiency is proposed or, to the knowledge of BWAI, after
reasonable inquiry, threatened against BWAI. Schedule 3.10 sets forth a
list of those states in which income, franchise or sales and use tax
returns were filed by BWAI for the fiscal years ended May 31, 1994 and May
31, 1995, respectively.
4.11. OWNERSHIP OF ASSETS. Except as set forth in Schedule 4.11, BWAI
owns outright, and has good and marketable title to all of its assets,
properties and business (including all assets reflected in the Balance
Sheet, except as the same may have been disposed of in the ordinary course
of business since the Balance Sheet Date), free and clear of all liens,
mortgages, pledges, conditional sales agreements,
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restrictions on transfer or other encumbrances or charges (collectively,
the "Encumbrances") except for Encumbrances arising by operation of law
rather than by grant of BWAI (for example, tax liens and mechanics liens)
in the ordinary course of BWAI's business for liabilities reflected in the
Balance Sheet and not more than $100,000 in the aggregate. Schedule 3.11
sets forth a true and complete list and brief description of all patents,
copyrights, trademarks, trade names and other similar intangible assets
which are either owned by BWAI or in which it has an interest. Except as
set forth on Schedule 3.11, no other person, firm or corporation has any
proprietary or other interest in any such intangible assets. Such assets so
owned or leased are, in the reasonable business judgment of BWAI,
sufficient to permit BWAI to conduct its business as now conducted in all
material respects. Except as set forth on Schedule 3.11, BWAI is not a
party to or bound by any license or agreement requiring the payment to any
person, firm or corporation of any royalty. BWAI, after reasonable inquiry,
does know, or have reasonable grounds to know of any violation by others of
the trademark, trade name or patent rights of BWAI. BWAI is not infringing
upon any patent, copyright, trade name or trademark or otherwise is
violating the rights of any third party with respect thereto, and no
proceedings have been instituted or, to the knowledge of BWAI, after
reasonable inquiry, are threatened, and no claim has been received by BWAI
alleging any such violation.
4.12. INSURANCE. Schedule 4.12 sets forth a list and brief
description of all policies of fire, liability and other forms of insurance
held by BWAI as of the date hereof. Except as set forth in Schedule 4.12,
such policies are valid, outstanding and enforceable policies, as to which
premiums have been paid currently. Except as set forth on Schedule 4.12,
BWAI, after reasonable inquiry, does not know of any state of facts, or of
the occurrence of any event which might reasonably form the basis for any
claim exceeding $25,000 against BWAI not fully covered by insurance for
liability on account of any express or implied warranty or tortious
omission of commission.
4.13. LITIGATION, COMPLIANCE WITH LAW. Except as set forth on
Schedule 4.13, there are no actions, suits, proceedings or governmental
investigations relating to BWAI or to any of its properties, assets or
businesses pending or, to the knowledge of BWAI, after reasonable inquiry,
threatened, or any order, injunction, award or decree outstanding against
BWAI or against or relating to any of its properties, assets or businesses.
Except as set forth in Schedule 4.13, to the best knowledge of BWAI, BWAI
is not in violation or any law, regulation, ordinance, order, injunction,
decree, award or other requirement of any governmental body, court or
arbitrator relating to its properties, assets or business which violation
could have a material adverse effect on the Osicom.
4.14. REAL PROPERTY. Schedule 4.14 sets forth a brief description of
all real property which is owned by, or leased to BWAI, including all
material structures located hereon. BWAI owns outright the fee simple title
in and to the real properties shown on Schedule 3.14 as being owned by it,
free and clear of all claims, liens, mortgages, charges, or encumbrances of
any nature whatsoever, except as otherwise described on Schedule 4.14. The
real property leases described on Schedule 4.14 that relate to the leased
properties described therein are now in full force and effect, and all
material amounts payable thereunder have been paid. Except as set forth on
Schedule 4.14, none of such leases could reasonably be expected to result
in material liability for restoration of premises. All uses of such owned
or leased property by BWAI conform, in all material respects, to all
applicable building and zoning ordinances, laws, and regulations and, in
the case of leased property, to all terms of the leases relating thereto.
4.15. AGREEMENTS AND OBLIGATIONS; PERFORMANCE. Except as listed and
briefly described on Schedule 4.15 (the "Listed Agreements"), BWAI is not a
party to, or bound by any: (i) written or oral agreement or other
contractual commitment, understanding or obligation which involves
aggregate payments or receipts in excess of $25,000; (ii) contract,
arrangement, commitment or understanding which involves aggregate payments
or receipts in excess of $25,000 that cannot be canceled on thirty (30)
days or less notice without penalty or premium or any continuing obligation
or liability; (iii) contractual obligation or contractual liability of any
kind to its shareholders; (iv) contract, arrangement, commitment or
understanding with its customers or any officer, employee, shareholder,
director, representative or agent thereof for the repurchase of products,
sharing of fees, the rebating of charges to such customers, bribes,
kickbacks from such customers or other similar arrangements; (v) contract
for the purchase or
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sale of any materials, products or supplies which contain, or which commits
or will commit it for a fixed term; (vi) contract of employment with any
officer or employee not terminable at will without penalty or premium or
any continuing obligation of liability; (vii) deferred compensation, bonus
or incentive plan or agreement not cancelable at will without penalty or
premium or any continuing obligation or liability; (viii) management or
consulting agreement not terminable at will without penalty or premium or
any continuing obligation or liability; (ix) lease for real or personal
property (including borrowings thereon), license or royalty agreement; (x)
union or other collective bargaining agreement; (xi) agreement, commitment
or understanding relating to the indebtedness for borrowed money; (xii)
contract involving aggregate payments or receipts of $25,000 or more which,
by its terms, requires the consent of any party thereto to the consummation
of the transactions contemplated hereby; (xiii) contract containing
covenants limiting the freedom of Osicom to engage or compete in any line
or business or with any person in any geographical area; (xiv) contract or
opinion relating to the acquisition or sale of any business; (xv) voting
trust agreement or similar shareholders' agreement; (xvi) other contract,
agreement, commitment or understanding which materially affects any of its
properties, assets or business, whether directly or indirectly, or which
was entered into other than in the ordinary course of business. Except as
set forth on Schedule 4.15, BWAI has not during the last 36 months entered
into any of the types of contracts, arrangements, commitments or
understandings with any of its suppliers or customers referred to in item
(iv) of this Section 3.15. A true and correct copy of each of the written
listed Agreements, has been and delivered to Osicom. BWAI has in all
material respects performed all obligations required to be performed by it
to date under all of the Listed Agreements, is not in default in any
material respect under any of the Listed Agreements and has received no
notice of any default or alleged default thereunder which has not
heretofore been cured or which notice has not heretofore been withdrawn.
BWAI, after reasonable inquiry, knows of any material default under any of
the Listed Agreements by any other party thereto or by any other person,
firm or corporation bound thereunder.
4.16. PERMITS AND LICENSES. Schedule 4.16 sets forth all permits,
licenses, orders, franchises and approvals from all federal, state, local
and foreign governmental regulatory bodies held by BWAI. BWAI has all
permits, licenses, orders and approvals of all federal, state, local and
foreign governmental or regulatory bodies required of it to carry on its
business as presently conducted in all material respects; all such other
permits, licenses, orders, franchises and approvals are in full force and
effect, and to the knowledge of each of the Shareholders, after reasonable
inquiry, no suspension or cancellation or any of such other permits,
licenses, etc. is threatened; and BWAI and the Subsidiaries are each in
compliance in all material respects with all requirements, standards and
procedures of the federal, state, local and foreign governmental bodies
which have issued such permits, licenses, orders, franchises and approvals.
Said Schedule 4.18 also sets forth a brief description of all vans,
automobiles, trucks or other vehicles owned or leased by each of BWAI and
the Subsidiaries and the state of title thereof.
4.17. INTEREST IN ASSETS. Except as set forth on Schedule 4.17, no
shareholder of BWAI nor any member of his family nor any affiliate of a
shareholder, owns any property or rights, tangible or intangible, including
without limitation technology and intellectual property rights, used in or
related, directly or indirectly, to the business of BWAI.
4.18. SALARY INFORMATION. Schedule 4.18 contains a list of the names
and current salary rates of and bonus commitments to all present officers
of BWAI, and the names and current annual salary rates of all other persons
employed by BWAI whose annual salaries exceed $150,000.00.
4.19. NO BREACH. Neither the execution and delivery of this Agreement
nor compliance by BWAI with any of the provisions hereof nor the
consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By-Laws of BWAI;
(b) violate or, alone or with notice of the passage of time, result
in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a material default
under, the terms of any agreement or other document or undertaking, oral
or written to which BWAI is a party or by which any of them or any of
their respective properties or assets may be
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bound (except for such violations, conflicts, breaches or defaults as to
which required waivers or consents by other parties have been, or will,
prior to the Closing, be, obtained or which will not have a material
adverse effect on BWAI);
(c) result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of BWAI or any of
the Subsidiaries pursuant to the terms of any such agreement or
instrument;
(d) violate any judgment, order, injunction, decree or award
against, or binding upon, any of BWAI, the Subsidiaries or any
Shareholder or upon their respective properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to
either of BWAI or any of the Subsidiaries or any of their respective
securities, assets or properties.
4.20. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with Osicom
by BWAI without the intervention of any broker, finder, investment banker
or other third party. BWAI has not engaged, consented to, or authorized any
broker, finder, investment banker or other third party to act on his or its
behalf, directly or indirectly, as a broker or finder in connection with
the transaction contemplated by this Agreement.
4.21. CHANGE OF NAME. BWAI has not conducted business under any name
during the past three (3) years except those set forth on Schedule 4.21.
4.22. ENVIRONMENTAL. Except as set forth on Schedule 4.22, the
current operations of BWAI and its current and, to the best knowledge of
BWAI, its past use comply and then complied in all material respects with
all applicable laws and governmental regulations including all applicable
federal, state and local laws, ordinances, and regulations pertained to air
and water quality, Hazardous Materials, waste, disposal or other
environmental matters, including the Clean Water Act, the Clean Air Act,
the Federal Water Pollution Control Act, the Solid Waste Disposal Act, the
Resource Conservation Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, and the statutes, rules,
regulations and ordinances or the state, city and country in which BWAI's
property is located.
ARTICLE V
PRE-CLOSING COVENANTS
Osicom and BWAI hereby covenant that, from and after the date hereof, and
until the Closing or earlier termination of this Agreement:
5.01. ACCESS. Each shall afford to the officers, attorneys,
accountants and other authorized representatives of the other free and full
access, during regular business hours and upon reasonable notice, to the
books, records, personnel and properties of such corporation (including,
without limitation, the work papers prepared by such corporation's
auditors) so that the other may have full opportunity to make such review,
examination and investigation as it may desire of the businesses and
affairs. Each will cause its employees, accountants and attorneys to
cooperate fully with said review, examination and investigation and to make
full disclosure to Osicom of all material facts affecting their respective
financial conditions and business operations.
5.02. CONDUCT OF BUSINESS. Each corporation shall conduct its
business only in the ordinary and usual course and make no material change
in any of their policies without the prior written consent of the other.
5.03. INSURANCE. Each corporation shall maintain in force the
insurance policies listed on Schedule 3.12 or 4.12, as the case may be,
except to the extent that they may be replaced with equivalent policies at
the same or lower rates approved by BWAI.
5.04. LIABILITIES. Neither corporation shall incur any obligation or
liability, absolute or contingent, except for those incurred in the
ordinary and usual course of its business; nor shall it pay any obligation
or liability other than: (i) the foregoing obligations and liabilities,
(ii) debts, liabilities, and obligations set
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forth in its Balance Sheet; (iii) debts, liabilities and obligations
arising after the Balance Sheet Date in the ordinary course of their
respective businesses; and (iv) debts, liabilities and obligations under
the contracts, agreements, past practices, arrangements, relationships,
documents and instruments listed, described or contained in this Agreement
or in the Schedules annexed to this Agreement.
5.05. PRESERVATION OF BUSINESS. Each will use its best efforts to
preserve its business organization intact, to keep available the services
of their present officers, employees and consultants (except as the other
may otherwise approve), and to preserve its goodwill.
5.06. NO BREACH. Each will (i) use its best efforts to assure that
all of its representations and warranties contained herein are true in all
material respects of the Closing as if repeated at and occur with respect
to any of its covenants, representations or warranties contained herein
that has not been cured by the Closing; (ii) not voluntarily take any
action or do anything which will cause a material breach of or default
respecting such covenants, representations or warranties; and (iii)
promptly notify each other of any event or fact which represents or is like
to cause such a breach or default.
5.07. NO NEGOTIATIONS. Neither corporation nor any of its officers or
directors shall enter into or conduct negotiations, or enter into any
agreement or understanding, for the sale or possible sale of any securities
of such corporation or of the business or the assets of such corporation,
with anyone other than the other unless the Closing shall not have occurred
by September 30, 1996.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS TO BWAI TO CLOSE
The obligations of BWAI to enter into and complete the Closing is subject
to the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by BWAI (except when the
fulfillment of such condition is a requirement of law).
6.01. REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Osicom contained in this Agreement and in any written
statement (including financial statements), exhibit, certificate, schedule
or other document delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects as at the Closing Date, as if made at the Closing and as of the
Closing Date.
6.02. COVENANTS. Osicom shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the
Closing.
6.03. NO ACTION. No action, suit, proceeding or investigation shall
have been instituted, and be continuing before a court or before or by a
governmental body or agency, and be unresolved, to restrain or to prevent
or to obtain damages in respect of, the carrying out of the transactions
contemplated hereby, or which might materially and adversely affect the
right of BWAI to consummate the transactions contemplated hereby or to own
or control the Osicom Stock after the Closing Date, or which might have a
materially adverse effect thereon.
6.04. CONSENTS, LICENSES AND PERMITS. BWAI and Osicom shall have each
obtained all consents, licenses and permits of third parties necessary for
the performance by each of them of all of their respective obligations
under this Agreement, and such other consents, if any, to prevent (i)
agreements of the Osicom from terminating, the termination of which, in the
aggregate, would have a material adverse effect on the business, financial
condition or assets of Osicom, or (ii) any material indebtedness of any of
Osicom from becoming due or being subject to becoming due with the passage
of time or on notice as a result of the performance of this Agreement, any
other provisions of this Agreement to the contrary notwithstanding.
6.05. CERTIFICATE. BWAI shall have received a certificate dated the
Closing Date, signed by the President of Osicom as to the satisfaction of
the conditions contained in Sections 6.01 and 6.02.
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6.06. OPINION. BWAI shall have received the written opinion of
Osicom's counsel, dated the Closing Date, in form and substance
satisfactory to BWAI and its counsel to the effect set forth on Exhibit
6.06 hereto.
6.07. NO MATERIAL ADVERSE CHANGE. There shall have been no materially
adverse change at the Closing Date in the business, assets and properties
or financial status of Osicom since the Balance Sheet Date.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION OF OSICOM TO CLOSE
The obligation of Osicom to enter into and complete the Closing is subject
to the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by Osicom (except when the
fulfillment of such condition is a requirement of law).
7.01. REPRESENTATIONS AND WARRANTIES. All representations and
warranties of BWAI contained in this Agreement and in any written
statement, schedule or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true and
correct in all material respects as at the Closing Date, as if made at the
Closing and as of the Closing Date.
7.02. COVENANTS. BWAI shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing.
7.03. NO ACTIONS. No action suit, proceedings, or investigation shall
have been instituted, and be continuing, before a court or before or by a
governmental body or agency, or have been threatened, and be unresolved, by
any governmental body or agency to restrain or prevent, or obtain damages
in respect of, the carrying out of the transactions contemplated hereby.
7.04. CONSENTS, LICENSES AND PERMITS. BWAI and Osicom shall have each
obtained all consents, licenses and permits of third parties necessary for
the performance by each of them of all of their respective obligations
under this Agreement, and such other consents, if any, to prevent (i)
agreements of Osicom from terminating, the termination of which, in the
aggregate, would have a material adverse effect on the business, financial
condition or assets of Osicom, or (ii) any material indebtedness of any of
Osicom from becoming due or being subject to becoming due with the passage
of time or on notice as a result of the performance of this Agreement, any
other provisions of this Agreement to the contrary notwithstanding.
7.05. CERTIFICATES. The Shareholders shall have received a
certificate of BWAI, dated the Closing Date, signed by the Chief Executive
Officer, President or any Vice President of BWA I as to the satisfaction of
the conditions contained in Sections 7.01 and 7.02.
7.06. OPINION. Osicom shall have received the written opinion of
BWAI's counsel, dated the Closing Date, in form and substance satisfactory
to Osicom and its counsel to the effect set forth on Exhibit 7.06 to this
Agreement.
7.07. NO MATERIAL ADVERSE CHANGE. There shall have been no materially
adverse change at the Closing Date in the Business, assets and properties
or financial status of Osicom since the Balance Sheet Date.
ARTICLE VIII
CLOSING
8.01. LOCATION. The Closing provided for herein shall take place at
the office of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, 99 Wood Avenue
South, P.O. Box 5600, Woodbridge, New Jersey 07095 or at such other
location as the parties agree within two (2) business days following the
approval of
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BWAI's stockholders as referred to in Section 1.04. Such date is referred
to in this Agreement as the "Closing Date." The Closing will be effective
as of June 1, 1996.
8.02. ITEMS TO BE DELIVERED BY OSICOM. At the Closing, Osicom will deliver
or cause to be delivered to BWAI:
(a) Certificates representing the Osicom Shares in accordance with
Section 1.02 hereof, accompanied by all instruments and documents as in the
opinion of BWAI's counsel shall be necessary to effect the issue of the
Shares, free and clear of all manner of liens, pledges, encumbrances,
charges and claims thereon;
(b) The certificate required by Section 6.05;
(c) The opinion of Osicom's counsel as required by Section 6.06; and
(d) Such other certified resolutions, documents and certificates as
are required to be delivered by Osicom pursuant to the provisions of this
Agreement.
8.03. ITEMS TO BE DELIVERED BY BWAI. At the Closing, BWAI will deliver or
cause to be delivered to the Shareholders:
(a) The certificates representing the Shares to be conveyed pursuant
to Section 1.01;
(b) The certificate required by Section 7.05;
(c) The opinion of BWAI's counsel as required by Section 7.06; and
(d) Such other certified resolutions, documents and certificates as
are required to be delivered by BWAI pursuant to the provisions of this
Agreement.
ARTICLE IX
TERMINATION AND WAIVER
9.01. TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions provided
for herein abandoned at any time prior to the Closing Date:
(a) By mutual consent of BWAI and Osicom;
(b) By either party if any material legal action or proceeding shall
have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions
contemplated by this Agreement which makes it inadvisable, in the judgment
of such party, to consummate same.
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto except for any liability
which may arise pursuant to Section 10.02.
9.02. WAIVER. Any condition to the performance of Osicom or BWAI which
legally may be waived on or prior to the Closing Date may be waived at any time
by the party entitled to the benefit thereof by action taken or authorized by an
instrument in writing executed by the relevant party or parties. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right of such party as a later time to enforce the
same. No waiver by any party of the breach of any term, covenant, representation
or warranty contained in this Agreement as a condition to such party's
obligations hereunder shall release or affect any liability resulting from such
breach, and no waiver of any nature, whether by conduct or otherwise, in any one
or more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or of any breach of any other term, covenant,
representation or warranty of this Agreement.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.01. EXPENSES. Each of the parties hereto shall bear its own expenses in
connection herewith.
10.02. CONFIDENTIAL INFORMATION. Each party agrees that such party and its
representatives will hold in strict confidence all information and documents
received from the other parties and, if the transactions herein contemplated
shall not be consummated, each party will continue to hold such information and
documents in strict confidence and will return to such other party all such
documents (including the documents annexed to this Agreement) then in such
receiving party's possession without retaining copies thereof; provided,
however, that each party's obligations under this Section 10.02 to maintain such
confidentiality shall not apply to any information or documents that are in the
public domain at the time furnished by the others or that become in the public
domain thereafter through any means other than as a result of any act of the
receiving party or of its agents, officers, directors or shareholders which
constitutes a breach of this Agreement, or that are required by applicable law
to be disclosed.
10.03. MODIFICATION, TERMINATION OR WAIVER. This Agreement may be amended,
modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the same.
10.04. PUBLICITY. The parties agree that no publicity release or other
public announcement concerning the transactions contemplated by this Agreement
shall be issued by either party without the advance approval of both the form
and substance of the same by the other party and its counsel, which approval, in
the case of any publicity, release or other public announcement required by
applicable law, shall not be unreasonably withheld or delayed.
10.05. NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and either be delivered personally or by
reputable overnight delivery service, or be mailed, certified or registered
mail, postage prepaid, as follows:
If to Osicom, to:
2800 28th Street, Suite 100
Santa Monica, CA 90405
With a copy to:
Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel
99 Wood Avenue South
P.O. Box 5600
Woodbridge, New Jersey 07095
Attention: W. Raymond Felton
and if to BWAI, to:
2800 28th Street, Suite 100
Santa Monica, CA 90405
With a copy to:
Michael Sobel, Esq.
1322 Benedict Canyon Drive
Beverly Hills, California 90210-2020
The parties may change the persons and addresses to which the notices or
other communications are to be sent to it by giving written notice of any such
change in the manner provided herein for giving notice.
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10.06. BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the parties hereto;
provided, however, that no assignment of any rights or delegation of any
obligations provided for herein may be made by any party without the express
consent of the other parties, and except that BWAI may assign this Agreement to
our affiliate of BWAI.
10.07. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof.
10.08. SCHEDULES. All Schedules annexed hereto and the documents and
instruments referred to herein or required to be delivered simultaneously
herewith or at the Closing are expressly made a part of this Agreement as fully
as though completely set forth herein, and all references to this Agreement
herein or in any of such Schedules, documents or instruments shall be deemed to
refer to and include all such Schedules, documents and instruments.
10.09. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey applicable to agreements
made and to be performed entirely within that state, excluding the choice of law
rules thereof.
10.10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but which together shall constitute
one and the same instrument.
10.11. SECTION HEADINGS. The section headings contained in this Agreement
are inserted for conveniences of reference only and shall not affect the meaning
or interpretation of this Agreement.
10.12. LEGAL REPRESENTATION. Osicom is represented in the transactions
contemplated by this Agreement by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel.
Although Greenbaum, Rowe, Smith, Ravin, Davis & Himmel has from time to time
rendered legal services to BWAI, such firm is not representing BWAI in this
transaction, and BWAI acknowledges that it has retained separate counsel with
respect hereto.
WITNESS the execution of this Agreement as of the date first above written.
BUILDERS WAREHOUSE ASSOCIATION, INC.
By: /s/ BARRY WITZ
--------------------------------------
Name: Barry Witz
Title: CEO
OSICOM TECHNOLOGIES, INC.
By: /s/ SHARON GILL CHADHA
--------------------------------------
Name: Sharon Gill Chadha
Title: CEO
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EXHIBIT B
COLORADO REVISED STATUTES ANNOTATED
TITLE 7. CORPORATIONS AND ASSOCIATIONS
COLORADO BUSINESS CORPORATION ACT
ARTICLE 113. DISSENTERS' RIGHTS
PART 1. RIGHT OF DISSENT -- PAYMENT FOR SHARES
SECTION 7-113-101. DEFINITIONS
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or
foreign corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at
the time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action except to the extent
that exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares that are registered in the name of a nominee to the extent such
owner is recognized by the corporation as the shareholder as provided in
section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
SECTION 7-113-102. RIGHT TO DISSENT
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of his or her shares in the event of any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation, or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102(2).
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(2) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of:
(a) An amendment to the articles of incorporation that materially and
adversely affects rights in respect of the shares because it:
(I) Alters or abolishes a preferential right of the shares; or
(II) Creates, alters, or abolishes a right in respect of redemption
of the shares, including a provision respecting a sinking fund for their
redemption or repurchase; or
(b) An amendment to the articles of incorporation that affects rights
in respect of the shares because it:
(I) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(II) Reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so
created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
SECTION 7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
SECTION 7-113-201. NOTICE OF DISSENTERS' RIGHTS
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not
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entitled to vote. The notice shall state that shareholders are or may be
entitled to assert dissenters' rights under this article and shall be
accompanied by a copy of this article and the materials, if any, that, under
articles 101 to 117 of this title, are required to be given to shareholders
entitled to vote on the proposed action at the meeting. Failure to give notice
as provided by this subsection (1) to shareholders not entitled to vote shall
not affect any action taken at the shareholders' meeting for which the notice
was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
to shareholders not entitled to vote shall not affect any action taken pursuant
to section 7-107-104 for which the notice was to have been given.
SECTION 7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, a shareholder who wishes to assert dissenters' rights shall
not execute a writing consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
SECTION 7-113-203. DISSENTERS' NOTICE
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
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(f) State the requirement contemplated in section 7-113-103(3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
SECTION 7-113-204. PROCEDURE TO DEMAND PAYMENT
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203(2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
SECTION 7-113-205. UNCERTIFICATED SHARES
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
SECTION 7-113-206. PAYMENT
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
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(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
SECTION 7-113-206. PAYMENT
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
SECTION 7-113-207. FAILURE TO TAKE ACTION
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
SECTION 7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION
(1) The corporation may, in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
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(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
SECTION 7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
SECTION 7-113-301. COURT ACTION
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if it has no principal office in
this state, in the district court of the county in which its registered office
is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged into, or
whose shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
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SECTION 7-113-302. COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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EXHIBIT C
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF BUILDERS WAREHOUSE ASSOCIATION, INC.
1. This Plan of Complete Liquidation and Dissolution (this "Plan") is
designed to be and shall constitute a plan of complete liquidation and voluntary
dissolution of Builders Warehouse Association, Inc., a Colorado corporation (the
"Company"), in accordance with the Colorado Business Corporation Law.
2. The Board of Directors of the Company has determined that the complete
liquidation and voluntary dissolution of the Company is advisable and in the
best interests of the Company and its stockholders, and has directed that this
Plan be submitted to the stockholders of the Company for approval and adoption.
This plan shall be adopted and become effective upon its approval by the vote or
written consent of the holders of a majority of the Common Stock, par value
$.008 per share (the "Common Stock"), of the Company entitled to vote at the
meeting of stockholders of the Company called for that purpose, subject to the
consummation of the sale by the Company to Osicom Technologies, Inc. ("Osicom")
of substantially all of the Company's assets, pursuant to the Asset Purchase
Agreement dated as of June 1, 1996 by and between Osicom and the Company.
3. As soon as practicable after the effective date of this Plan, all of
the assets of the Company of every kind and character shall be sold, exchanged,
disposed of and/or distributed to the stockholders of the Company in complete
liquidation of the Company, after paying or making provision for the debts,
expenses, taxes, liabilities (known, unascertained or contingent) and all other
obligations of the Company.
4. In furtherance of this Plan, the Company may sell, exchange or
otherwise dispose of its assets to the extent such can be accomplished for such
consideration (which may include securities) and upon such terms and conditions
as the Board of Directors of the Company deems reasonable and expedient.
5. The Board of Directors shall pay or adequately provide for all debts,
expenses, taxes, liabilities (known, unascertained or contingent) and all other
obligations of the Company and thereafter shall distribute the remainder of any
assets to the stockholders of the Company. All determinations as to the amount,
time and type of distributions to stockholders shall be made in the absolute
discretion of the Board of Directors. Distributions to stockholders may be made
either in cash, in kind or in other property and either in installments from
time to time or as a whole. All distributions to stockholders pursuant to this
Plan shall be pro rata, except as otherwise authorized by the Certificate of
Incorporation of the Company.
6. The distributions described in this Plan shall be in complete
liquidation and cancellation of the outstanding shares of Common Stock of the
Company.
7. After the date of dissolution of the Company, the Board of Directors
shall continue to act as a Board of Directors and shall have full power to wind
up and settle the Company's affairs, and the Company shall cease to carry on
business except to the extent necessary for the beneficial winding up thereof.
The powers and duties of the directors and officers of the Company shall
include, but are not limited to, the following acts in the name and on behalf of
the Company:
(a) to elect officers and to employ agents, accountants, trustees,
attorneys, and other professionals to liquidate or wind up its affairs;
(b) to continue the conduct of the business only insofar as necessary
for the disposal or winding up thereof;
(c) to carry out contracts and collect, pay, compromise and settle
debts and claims for or against the Company;
(d) to defend suits brought against the Company;
(e) to sue in the name of the Company for all sums due or owing to the
Company or to recover any of its property; and
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(f) in general, to make contracts and to do any and all things in the
name of the Company which may be proper or convenient for the purposes of
winding up, settling and liquidating the affairs of the Company.
8. Approval and adoption of this Plan by the stockholders of the Company
shall constitute full and complete authority to the directors and officers of
the Company (subject to any limitations expressly provided in this Plan or by
applicable law), to do and perform any and all acts and to make, execute, and
deliver any and all agreements, conveyances, assignments, transfers,
certificates and other documents of every kind and character which such
directors or officers may deem necessary or appropriate to carry out the
provisions of this Plan and to complete the liquidation and dissolution of the
Company.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act (the "NJBCA")
gives a corporation power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal. administrative or arbitrative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of another
corporation, sole proprietorship, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The same Section also
gives a corporation power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit or proceeding by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
sole proprietorship, partnership, joint venture, trust or other enterprise for
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Superior Court or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Superior Court or such other
court shall deem proper. Also, the Section states that, to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Article 6(b) of Osicom's Certificate of Incorporation provides: The
corporation shall indemnify each person who has been or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, investigative or
appellate (other than an action by or in the right of the corporation) by reason
of the fact that such person is or was an officer or director of the corporation
or is or was serving at the corporation's request as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise ("Other Enterprise") against
all liabilities and expenses, including, without limitation, judgments, amounts
paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines and
other litigation expenses actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful;
provided, however, that the corporation shall not be required to indemnify or
advance expenses to any such person or persons seeking indemnification or
advancement of expenses in connection with an action, suit or proceeding
initiated by such person unless the initiation of such action, suit or
proceeding was approved in advance by the board of directors of the corporation.
The termination of any such action, suit or proceeding by judgment, order,
settlement, conviction or under a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding that he had reasonable cause to believe that such person's conduct
was unlawful.
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Section 14A:2-7(3) of the NJBCA, which became effective in 1987, enables
corporations to adopt amendments to their certificates of incorporation
eliminating or limiting liability of directors and officers to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or officer except for liability for breach of duty based upon an action
or omission (i) in breach of such person's duty of loyalty to the corporation or
its shareholders, (ii) not in good faith or involving a knowing violation of
law, and (iii) resulting in receipt by such person of an improper personal
benefit. Section 14A:2-7(3) has no effect on the availability of equitable
remedies, such as injunctions or rescission, for breach of fiduciary duty.
Osicom's Certificate of Incorporation provides that no director or officer of
the registrant shall be personally liable to the registrant or its shareholders
for the breach of any duty owed to the registrant or to its shareholders, except
that a director shall not be relieved from personal liability for any breach of
duty owed to the registrant or its shareholders which is based upon an act or
omission (a) in breach of such director's or officer's duty of loyalty to the
registrant or its shareholders, (b) not in good faith or involving a knowing
violation of law, or (c) resulting in the receipt by such director or officer of
an improper personal benefit.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director or officers of the
registrant in successful defense of any action, suit, or proceeding) is asserted
by such director or officer in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2. Stock Purchase Agreement dated as of June 1, 1996 between Osicom
and BWAI included in Part I of this Registration Statement as
Exhibit A (**).
3.1 Restated Certificate of Incorporation dated June 14, 1988 (A).
3.2 Amended and Restated By-Laws of the Registrant, dated April 13, 1988
(B).
3.3 Series A Preferred Stock Certificate of Designation (C).
3.4 Series B Preferred Stock Certificate of Designation (**).
3.5 Series C Preferred Stock Certificate of Designation (**).
5. Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel page II-6.
10.1 Acquisition Agreement of Adtech Micro Systems, Inc, dated June 16,
1994 (D).
10.2 Acquisition Agreement of Stratuslink NA, Inc. dated November 19,
1994 (E).
10.3 Line of Credit Agreement with Coast Business Credit dated May 28,
1995 and Modification dated January 1996 (F).
10.4 Acquisition Agreement of Dynair Electronics, Inc. dated June 8, 1995
(F).
10.5 Acquisition Agreement of Rockwell Network Systems, Inc. dated
January 31, 1996 (F).
21 Subsidiaries of the Registrant -- (**).
23.1 Consent of Weinbaum & Yalamanchi -- page II-10.
23.2 Consent of Arthur Andersen & Co., L.L.P. -- page II-12.
23.3 Consent of Jay J. Shapiro, CPA -- page II-13.
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<PAGE> 166
23.4 Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel (included
in opinion filed as Exhibit 5).
24 Power of Attorney -- (**).
- ---------------
(**) Previously filed
The foregoing are incorporated by reference from the registrant's filings
indicated
(A) Form 10QSB for quarter ended April 30, 1996
(B) Form 10K for year ended January 31, 1993
(C) Form 10K/A for year ended January 31, 1994
(D) Form 8K dated June 16, 1994
(E) Form 10-KSB for year ended January 31, 1995
(F) Form 10-KSB for year ended January 31, 1996
(b) Financial Statement Schedules
-- Not applicable.
(c) Report, Opinon or Appraisal
-- Not applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act. and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall he deemed to he part of this
registration statement as of the time it was declared effective.
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(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall he deemed to be a new registration statement relating to
the securities offered therein, and the officer of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
ITEM 26. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
OSICOM TECHNOLOGIES, INC.
Report of Independent Accountants -- Weinbaum & Yalamanchi.......................... F-2
Consolidated Balance Sheet at January 31, 1996...................................... F-3
Consolidated Statements of Operations for the Years Ended January 31, 1996 and
January 31, 1995................................................................. F-4
Consolidated Statements of Changes in Stockholders Equity for the Years Ended
January 31, 1996 and January 31, 1995............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1996 and
January 31, 1995................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended January 31, 1996 and January 31, 1995............. F-19
Consolidated Balance Sheet at April 30, 1996 (unaudited)............................ F-21
Consolidated Statements of Operations for the Three Months Ended April 30, 1996 and
April 30, 1995 (unaudited)....................................................... F-22
Consolidated Statements of Cash Flows for the Three Months Ended April 30, 1996 and
April 30, 1995 (unaudited)....................................................... F-23
Notes to Consolidated Financial Statements.......................................... F-24
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended April 30, 1996 and April 30, 1995.......... F-32
BUILDERS WAREHOUSE ASSOCIATION, INC.
Independent Auditors' Report -- Weinbaum & Yalamanchi............................... F-34
Independent Auditors' Report -- Arthur Andersen & Co., L.L.P........................ F-35
Independent Auditors' Report -- Jay Shapiro, CPA.................................... F-37
Consolidated Balance Sheets as of May 31, 1996 and May 31, 1995..................... F-38
Consolidated Statements of Operations for the Year ended May 31, 1996 and July 1,
1994 (inception) to May 31, 1995................................................. F-40
Consolidated Statements of Shareholders' Equity for the Year ended May 31, 1996 and
July 1, 1994 (inception) to May 31, 1995......................................... F-41
Consolidated Statements of Cash Flows for the Year ended May 31, 1996 and July 1,
1994 (inception) to May 31, 1995................................................. F-43
Notes to Consolidated Financial Statements.......................................... F-44
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Year ended May 31, 1996 and for July 1, 1994 (inception) to
May 31, 1995..................................................................... F-60
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Santa Monica,
California, on the 6th day of September, 1996.
OSICOM TECHNOLOGIES, INC.
By: /s/ *
--------------------------------
Sharon G. Chadha
Chairman of the Board and
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<S> <C> <C>
/s/ * Chairman of the Board, Chief September 6, 1996
- ------------------------------------------ Executive Officer, and
Sharon G. Chadha Director (Principal Executive
Officer)
/s/ * President, Secretary and September 6, 1996
- ------------------------------------------ Director
Xin Cheng
/s/ * Chief Financial Officer, September 6, 1996
- ------------------------------------------ (Principal Financial and
Christopher E. Sue Accounting Officer)
/s/ PAR CHADHA Director September 6, 1996
- ------------------------------------------
Par Chadha
/s/ * Director September 6, 1996
- ------------------------------------------
Leonard Hecht
* By: /s/ PAR CHADHA
- ------------------------------------------
Par Chadha, attorney-in-fact
</TABLE>
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EXHIBIT 5
September 6, 1996
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: OSICOM TECHNOLOGIES, INC.
Gentlemen:
Osicom Technologies, Inc. (the "Company") is filing a Registration
Statement on Form S-4, covering the registration of 4,666,177 shares of the
common stock of the Company, par value $.10 per share. We have been asked to
issue an opinion as to whether the securities being registered will, when sold,
be legally issued, fully paid and non-assessable.
We have examined the Certificate of Incorporation and By-Laws, as amended
to date, and other corporate records of the Company and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. We have relied, to the extent we deem such reliance
proper, upon certain factual representations given in certificates of officers
of the Company, and, although we have not independently verified certain of the
facts contained therein, nothing has come to our attention which would cause us
to believe that any of the statements contained therein are true or are
misleading.
In making the aforesaid examinations, we have assumed: (i) the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us; (ii) that the corporate records of the Company furnished to us
constitute all of the existing corporate records of the Company and include all
corporate proceedings taken by it; (iii) that the securities being registered
will, when sold, be sold for an amount not less than the sale price authorized
by action of the Board of Directors of the Company or its designated
representatives, and in no event for less than the price required by the Plan
and by applicable state law.
Based solely upon and subject to the foregoing, we are of the opinion that
the securities being registered by the Company will, when sold, be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
aforesaid Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
Very truly yours,
Greenbauer, Rowe, Smith, Ravin, Davis &
Himmel
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EXHIBIT 23.1
WEINBAUM & YALAMANCHI
CERTIFIED PUBLIC ACCOUNTANTS
21601 VANOWEN STREET, SUITE 109
CANOGA PARK, CA 91303
(818) 702-9019
CONSENT OF INDEPENDENT ACCOUNTANTS
Osicom Technologies, Inc.
We consent to the use in this registration statement of our report dated
April 11, 1996 (except as to note P, as to which the date is August 21, 1996),
relating to the consolidated financial statements of Osicom Technologies, Inc.
and subsidiaries, and to the references to us under the caption "Experts" in the
Prospectus.
WEINBAUM & YALAMANCHI
Canoga Park, California
August 21, 1996
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<PAGE> 171
WEINBAUM & YALAMANCHI
CERTIFIED PUBLIC ACCOUNTANTS
21601 VANOWEN STREET, SUITE 109
CANOGA PARK, CA 91303
(818) 702-9019
CONSENT OF INDEPENDENT ACCOUNTANTS
Builders Warehouse Association, Inc.
We consent to the use in this registration statement of our report dated
August 5, 1996 (except as to note 14, as to which the date is August 21, 1996),
relating to the consolidated financial statements of Builders Warehouse
Association, Inc. and subsidiaries, and to the references to us under the
caption "Experts" in the Prospectus.
WEINBAUM & YALAMANCHI
Canoga Park, California
August 21, 1996
<PAGE> 172
EXHIBIT 23.2
ARTHUR ANDERSEN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
25/F., WING ON CENTRE
111 CONNAUGHT ROAD CENTRAL
HONG KONG
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use in this registration statement of our report dated
July 12, 1996 relating to the financial statements of Uni Precision Industrial
Limited, a wholly owned subsidiary of Builders Warehouse Association, Inc., and
to the references to us under the caption "Experts" in the Prospectus.
ARTHUR ANDERSEN & CO.
Independent Public Accountants
August 21, 1996
<PAGE> 173
EXHIBIT 23.3
JAY J. SHAPIRO, C.P.A.
A PROFESSIONAL CORPORATION
1650 VENTURA BOULEVARD
SUITE 650
ENCINO, CALIFORNIA 91436
TEL: (818) 990-4878
FAX: (810) 990-4944
August 19, 1996
I consent to the inclusion in the Registration Statement on Form S-4 for
OSICOM TECHNOLOGIES, INC. (which shall be filed on or about August 19, 1996) of
my report, dated September 16, 1995 appearing in Form 10-KSB for the year ended
May 31, 1996 on the 1995 financial statements of BUILDERS WAREHOUSE ASSOCIATION,
INC.
/S/ JAY J. SHAPIRO
--------------------------------------
Jay J. Shapiro, C.P.A.
a professional corporation
