UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-18672
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ZOOM TELEPHONICS, INC.
----------------------
(Exact Name of Registrant as Specified in its Charter)
Canada 04-2621506
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(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
207 South Street, Boston, Massachusetts 02111
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(Address of Principal Executive Offices in the U.S.) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 423-1072
----- --------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of the registrant's Common Stock,
No Par Value, as of May 14, 1999 was 7,474,871 shares.
<PAGE>
ZOOM TELEPHONICS, INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the Three
Months Ending March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Three
Months Ending March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ZOOM TELEPHONICS, INC.
Consolidated Balance Sheets
3/31/99 12/31/98
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 4,325,345 $ 5,324,579
Investment Securities 8,658,929 13,529,052
Accounts receivable, net of reserves for
doubtful accounts, returns and allowances of
$5,670,169 at 3/31/99 and $5,687,751 at 12/31/98 6,864,383 7,244,374
Inventories 14,506,483 8,893,269
Refundable income taxes 411,979 63,378
Net deferred tax assets 3,226,233 3,226,233
Prepaid expenses and other assets 820,295 230,355
------------ ----------
Total current assets 38,814,005 38,511,240
Property and equipment, net 4,037,071 3,748,303
Goodwill, net of accumulated amortization
of $449,601 at 3/31/99 and $408,728 at 12/31/98 3,760,209 1,226,184
Other non-current assets 22,084 74,668
------------ -----------
$46,633,369 $ 43,560,395
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 5,415,648 3,236,391
Accrued expenses 3,519,201 1,808,637
------------- ------------
Total current liabilities 8,934,849 5,135,028
------------- ------------
Stockholders' equity:
Common stock, no par value. 25,000,000
shares authorized;7,474,871 shares issued
and outstanding at March 31, 1999 and
December 31,1998 25,190,579 25,190,579
Retained earnings 12,490,179 13,180,234
Accumulated other comprehensive income 17,762 54,554
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Total stockholders' equity 37,698,520 38,425,367
------------- ------------
$ 46,633,369 $ 43,560,395
============= ============
<PAGE>
ZOOM TELEPHONICS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ending March 31,
------------------------------
1999 1998
---- ----
Net sales $ 11,387,407 $ 18,758,702
Costs of goods sold 7,326,255 13,557,817
------------- ------------
Gross profit 4,061,152 5,200,885
Operating expenses:
Selling 2,499,399 2,844,025
General and administrative 1,375,255 1,266,057
Research and development 1,503,550 967,496
------------- -----------
Total operating expenses 5,378,204 5,077,578
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Income (loss) from operations (1,317,052) 123,307
Other income, net 278,396 199,358
------------- -----------
Income (loss) before income taxes (1,038,656) 322,665
Income tax expense (benefit) (348,601) 123,086
------------- -----------
Net income (loss) $ (690,055) $ 199,579
============ ============
Income (loss) per common share:
Basic $ (.09) $ .03
============ ============
Diluted $ (.09) $ .03
============ ============
Weighted average number of common
shares outstanding:
Basic 7,474,871 7,472,873
============ ============
Diluted 7,474,871 7,483,799
============ ============
<PAGE>
ZOOM TELEPHONICS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ending March 31,
<S> <C> <C>
-----------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ (690,055) $ 199,579
Adjustments to reconcile net income (loss)to net cash
used in operating activities:
Depreciation and amortization 332,689 254,611
Deferred income taxes (348,959) 123,086
Changes in assets and liabilities:
Accounts receivable 1,910,580 784,290
Inventories (4,569,906) (200,851)
Prepaid expenses and other assets (136,363) 6,253
Accounts payable and accrued expenses 1,770,811 (3,351,101)
----------- -----------
Net cash used in operating activities (1,731,203) (2,184,133)
----------- -----------
Cash flows from investing activities:
Cash paid for in the aquisition of Hayes assets (5,028,479) -
Cash acquired in the aquisition of Hayes assets 1,216,221 -
Sale of investment securities 4,833,331 -
Additions to licenses (20,000)
Additions to property, plant and equipment (269,104) (93,935)
-------------- -------------
Net cash provided by (used in)investing activity 731,969 (93,935)
-------------- -------------
Cash flows from financing activity:
Proceeds from exercise of stock options - 20,312
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Net cash provided by financing activities - 20,312
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Net decrease in cash and cash equivalents (999,234) (2,257,756)
Cash and cash equivalents, beginning of period 5,324,579 11,281,337
------------- -------------
Cash and cash equivalents, end of period $ 4,325,345 $ 9,023,581
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ -
============= =============
Income taxes - -
============= =============
</TABLE>
<PAGE>
ZOOM TELEPHONICS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Zoom Telephonics, Inc., (the
"Company") presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ending
December 31, 1998 included in the Company's 1998 Annual Report on Form 10-K.
The consolidated balance sheet as of March 31, 1999, the consolidated
statements of income for the three months ending March 31, 1999 and 1998, and
the consolidated statements of cash flows for the three months ending March 31,
1999 and 1998 are unaudited, but, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods.
The results of operations for the three months ending March 31, 1999 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1999.
(2) Earnings Per Share
The reconciliation of the numerators and denominators of the basic and
diluted net income (loss) per common share computations for the Company's
reported net income (loss) is as follows:
Three months ending March 31,
1999 1998
------------------ -------------------
Basic:
Net income (loss) $ (690,055) $ 199,579
Weighted average shares
outstanding 7,474,871 7,472,873
--------- ---------
Net income (loss) per share $ (.09) $ .03
========== =========
Diluted:
Net income (loss) $ (690,055) $ 199,579
Weighted average shares
outstanding 7,474,871 7,472,873
Net effect of dilutive stock
options based on the
Treasury stock method
using average market price - 10,956
Weighted average shares
outstanding 7,474,871 7,483,799
--------- ---------
Net income (loss) per share $ (.09) $ .03
=========== =========
(3) Inventories
<TABLE>
<CAPTION>
<S> <C> <C>
Inventories consist of the following: 3/31/99 12/31/98
Raw materials $ 7,768,631 $ 5,021,373
Work in process 2,816,242 1,764,123
Finished goods 3,921,610 2,107,773
----------- ----------
$ 14,506,483 $ 8,893,269
============ ===========
</TABLE>
(4) Acquisition
In March 1999 the Company entered into a series of separate agreements to
purchase various assets, licenses, and inventory from Hayes Microcomputer
Products, Inc. ("Hayes"). Hayes engaged in the business of design, manufacture,
and support of computer communications products for business, government, and
consumers worldwide. On October 9, 1998 Hayes filed for reorganization under
Chapter 11 of the United States Bankruptcy Code, Case No. 98-2276 through
98-2281, in the United States Bankruptcy Court ("the Court") for the District of
Delaware.
In March 1999 Zoom Telephonics acquired most of the modem assets of Hayes
Corporation for $5.0 million in cash. The purchase included the Hayes, Practical
Peripherals, Accura, Optima, Century 2, and Cardinal brands and product rights
for the USA, Canada, South & Central America, Europe, and the Middle East. The
$5.0 million cash payment is reflected in the $13.0 million cash position and
investments at 3/31/99. Currently Zoom is attempting to finalize the purchase of
some of the remaining Hayes assets, including Hayes Asia Pacific. The
acquisitions were accounted for as purchases. The excess of cost over fair value
of net assets acquired is being amortised on a straight-line method over five
years.
The following summarizes the assets acquired and liabilities assumed in the
series of transactions:
Assets acquired:
Cash $ 1,216,221
Accounts receivable 1,530,589
Inventory 1,043,307
Property and equipment 560,310
Goodwill (excess of cost over
fair value of assets) 2,574,898
Other assets 400,993
-------------
$ 7,044,487
Cash paid and liabilities assumed:
Cash paid 5,028,479
Accounts Payable 554,661
Accrued expenses 704,140
Negative Goodwill 757,590
-------------
$ 7,044,487
The negative goodwill resulted from the purchase of the Hayes U.K.
business, where the net assets acquired exceeded the cost. This transaction was
independent of other Hayes purchases. The negative goodwill is reflected on the
Consolidated Balance Sheet as a reduction to current assets, totalling $757,590.
(5) Comprehensive Income
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income" establishes rules for the reporting and display of
comprehensive income and its components; however, it has no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires all changes
in equity from nonowner sources to be included in the determination of
comprehensive income.
The components of comprehensive income, net of tax, are as follows:
Three months ending March 31,
1999 1998
------------------ -------------------
Net income (loss) $ (690,055) $ 199,579
Net unrealized holding loss
on investment securities (36,792) -
------------ ------------
Comprehensive income(loss) $ (726,847) $ 199,579
============ ============
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Zoom Telephonics, Inc. ("Zoom" or the "Company") recorded net sales of
$11,387,407 and a net loss of $690,055 for the Company's first quarter ending
March 31, 1999 compared to net sales of $18,758,702 and a net income of $199,579
for the first quarter ending March 31, 1998. Earnings per share decreased to a
loss of $0.09 for the first quarter of 1999 compared with earnings of $0.03 for
the first quarter of 1998.
Net sales for the quarter ending March 31, 1999 were 39.3% lower than the
prior year quarter, reflecting a decrease in the average selling price of
faxmodems and a decline in total units sold. Although sales of 56K modem units
rose significantly, this could not offset the dramatic drop in sales of 33.6K
modem units. The overall net sales decrease compared to the quarter ending March
31, 1998 was comprised of a sales decline of 43.9% in North America and a
decline of 12.3% in international markets outside North America.
Gross profit as a percentage of net sales increased to 35.7% in the quarter
ending March 31, 1999 from 27.7% in the quarter ending March 31, 1998. The
increase was due to the favorable impact of advantageously negotiated modem
materials purchased in the second half of 1998 and the first quarter of 1999.
The impact of these favorable purchases is realized when units are sold. The
favorable effect is expected to continue through 1999,with a reduced impact in
later quarters. The net result of this favorability in gross margin for 1999 is
unclear because of expected continued erosion of analog modem selling prices.
Partially offsetting the favorable material costs was an increase in overhead
costs per unit due to the decline in production volume in the first quarter
ending March 31, 1999 compared to the first quarter ending March 31, 1998.
Selling expenses during the first quarter of 1999 decreased in dollar
amount to $2,499,399 or 21.9% of net sales from $2,844,025 or 15.2% of net sales
in the first quarter of 1998, reflecting reductions in advertising and
promotions, sales commissions and shipping costs. These reductions were
primarily related to the Company's lower sales volume.
General and administrative expenses were $1,375,255 or 12.1% of net sales
during the first quarter of 1999 compared to $1,266,057 or 6.7% of net sales in
the first quarter of 1998. The increase was primarily due to increased legal
expenses, depreciation expense and personnel costs.
Research and development expenses increased to $1,503,550 or 13.2% of net
sales during the first quarter of 1999 from $967,496 or 5.2% of net sales in the
first quarter of 1998. The increase in expenses was primarily due to additional
personnel consistent with the broadening of the Company's non-modem product
lines.
In March 1999 the Company acquired most of the modem assets of Hayes
Microcomputer Products, Inc. ("Hayes") for $5.0 million in cash. The purchase
included the Hayes, Practical Peripherals, Accura, Optima, Century 2, and
Cardinal brands and product rights for the USA, Canada, South & Central America,
Europe, and the Middle East. The $5.0 million cash payment is reflected in the
$13.0 million cash position and investments at 3/31/99. Currently Zoom is
attempting to finalize the purchase of some of the remaining Hayes assets,
including Hayes Asia Pacific for an additional purchase price of approximately
$1.1 million.
The acquisitions of the Hayes assets did not significantly impact the
Company's sales and losses for the first quarter, since the acquisitions took
place at the end of the quarter. During its bankruptcy proceeding, Hayes had
ceased to manufacture and deliver products to customers. In addition, there were
necessary delays between the bankruptcy court approval of the sale and the
actual transfer of the assets. Zoom has recently restarted production of key
Hayes products for the U.S. and U.K. markets. Although Zoom anticipates some
revenue contribution from sales of the Hayes acquired product lines in the
second quarter, the Company does not expect the full impact of those sales to be
reflected until at least the third quarter of 1999. Increased expenses to be
incurred in connection with the acquisitions include payroll and related
expenses associated with the hiring of approximately 26 of Hayes' U.K.
employees, and increased sales and marketing expenses. The Company intends to
use its existing sales resources and channels to sell the Hayes products in the
U.S. The net impact of the Hayes business on the Company's financial results in
the second quarter of 1999 is unclear at this time.
Liquidity and Capital Resources
Zoom ended the first quarter of 1999 with a strong balance sheet, with
stockholders' equity of $37,698,520 or $5.04 book value per share, cash, cash
equivalents and investments of $12,984,274, and working capital of $29,879,156.
In addition, the Company has a $5 million secured line of credit. No amounts
were outstanding under this line of credit as of March 31, 1999.
Operating activities used $1,731,203 in cash during the first three months
of 1999. Cash was provided by the increase of accounts payable of $1,770,811,
the decline in accounts receivable of $1,910,580, and depreciation and
amortization of $332,689. Cash was used by the net loss of $690,055, the
increase in inventories of $4,569,906, the increase in prepaid expenses and
other assets of $136,363, and the increase in deferred and refundable income
taxes of $348,959. The increase in inventory is primarily attributable to the
purchases of advantageously negotiated modem materials intended for use
throughout 1999.
Zoom's capital expenditures of $269,104 during the first three months of
1999 included purchases of computer equipment and continuing renovation of the
Zoom headquarters. The Company does not have any significant capital commitments
other than the completion of the Hayes acquisition for approximately $1.1
million, and it anticipates that it will continue with modest investments in
equipment and in improvements to its facilities during the year.
During the first three months of 1999 the Company sold $4,833,331 of its
investment securities in order to finance the purchase of most of the modem
assets of Hayes Microcomputers Products, Inc. During the first three months of
1999 no employee stock options were exercised.
The Company believes that its existing cash, together with funds generated
from operations and available sources of financing, will be sufficient to meet
normal working capital requirements for the rest of 1999. Additional financing
may be needed in the event sales increase substantially or if significant losses
are incurred.
Year 2000 Readiness Statement
The year 2000 issue is the potential for system and processing failure of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. Systems that do not properly recognize
date-sensitive information when the year changes to 2000 could generate system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar ordinary business activities.
The Company is evaluating the year 2000 issue with respect to its financial
and management information systems, its products and its suppliers. At this
point in its assessment, the Company is not currently aware of any year 2000
problems that are reasonably likely to have a material effect on the Company's
business, mission critical systems, results of operations or financial
condition, without taking into account the Company's efforts to avoid such
problems.
The Company is completing its review of its management and information
systems for year 2000 compliance and has identified application software and
hardware, which must be upgraded to become year 2000 compliant. The Company
intends to generally upgrade its management and information systems in
conjunction with its upgrade to become year 2000 compliant by September 1999.
The Company believes that the cost of this upgrade will be approximately
$100,000 to $300,000, the majority of which will be capitalized. There is a risk
that, notwithstanding its internal review, if the Company has not properly
identified all year 2000 compliance issues with respect to its management and
information systems, the Company may not be able to implement all necessary
changes to these systems on a timely basis and within budget. Such a failure
could result in a material disruption to the Company's business, including the
inability to track and timely fill orders, which could have a material adverse
effect on its business, results of operations and financial condition.
The Company has evaluated its current products and believes that they are
year 2000 compliant. The Company has also undertaken a general review of modems
previously sold by it that may continue to be under warranty to determine
whether those products are year 2000 compliant. Based upon its preliminary
assessment, the Company believes that the proper operation of its modems are not
date dependent and therefore should continue to function properly on and after
the year 2000. In order to assure that this is the case, the Company is seeking
information from its major suppliers, particularly of its modem chipsets, to
confirm that they have been year 2000 compliant. The Company has sent a year
2000 Readiness Letter/Questionnaire to its major suppliers and initial responses
from the Company's chipset manufacturers have confirmed the Company's
understanding that the chipsets used by the Company are not date sensitive and
are therefore year 2000 compliant. However, the Company cannot assure that its
chipset manufacturers will provide the Company with accurate information
regarding their year 2000 compliance. Should any critical components
incorporated in the Company's products fail to be year 2000 compliant, such
failure could result in warranty claims and have a material adverse effect on
its business, results of operations and financial condition.
The Company's products and software are often sold to be integrated into or
interface with third party equipment or software. In addition, the Company often
packages its modems for retail sale with software provided by other vendors. The
Company does not alter this software in any date sensitive way. The Company is
in the process of seeking information from its software vendors to assure that
the software packaged with its products will be year 2000 compliant, and has
sent a year 2000 Readiness Letter/Questionnaire to its major software suppliers.
While it is possible that some of this software may be adversely affected by the
year 2000, the Company is not aware of any packaged software having this
problem. Failure of third-party equipment or software to operate properly with
regard to the year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company is also exposed to the risk that it could experience material
shipment delays from its major component suppliers or contract assemblers or
material sales delays from its major customers due to year 2000 issues relating
either to their management information or production systems. The Company has
inquired of these suppliers and contract assemblers in an attempt to ascertain
their year 2000 readiness. At this time, the Company is unable to estimate the
nature or extent of any potential adverse impact resulting from the failure of
third parties, such as its suppliers, and contract assemblers and customers, to
achieve year 2000 compliance. Moreover, such third parties, even if year 2000
compliant, could experience difficulties resulting from year 2000 issues that
may affect their suppliers, service providers and customers. As a result,
although the Company does not currently anticipate that it will experience any
material shipment delays from their major product suppliers or any material
sales delays from its major customers due to year 2000 issues, these third
parties could experience year 2000 problems that could have a material adverse
effect on the Company's business, results of operations and financial condition.
Other than its activities described above, the Company does not have and
does not plan to develop a contingency plan to address year 2000 issues. Should
any unanticipated significant year 2000 issues arise, the Company's failure to
implement such a contingency plan could have a material adverse affect on its
business, financial condition and results of operation.
To the extent that the Company does not identify any material non-compliant
year 2000 issues affecting the Company or third parties, such as the Company's
suppliers, service providers and customers, the most reasonably likely worst
case year 2000 scenario is a systemic failure beyond the control of the Company,
such as a prolonged telecommunications or electrical failure, or a general
disruption in United States or global business activities that could result in a
significant economic downturn. The Company believes that the primary business
risks, in the event of such failure or other disruption, would include but not
be limited to, loss of customers or orders, increased operating costs, inability
to obtain inventory on a timely basis, disruptions in product shipments, or
other business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their existing sovereign currencies
and the Euro. As of January 1, 2002, the transition to the Euro will be
complete. The Company has significant operations within the European Union and
is currently preparing for the Euro conversion. The Euro may impact general
economic conditions such as interest and foreign exchange rates within the
participating countries or in other areas where the Company operates. The
Company is in the process of analyzing the impact of the Euro with a view to
minimizing the effects on the Company's operations. The Company does not expect
the costs of upgrading its systems to be material.
A portion of the Company's revenues are subject to the risks associated
with international sales. Although most of the Company's product prices are
denominated in the United States currency, customers in foreign countries
generally evaluate purchases of products such as those sold by the Company on
the purchase price expressed in the customer's currency. As a result, the impact
of and economic conditions relating to the Euro (including fluctuations in
foreign currency exchange rates, particularly with respect to the U.S. dollar)
may have a material adverse affect on the demand for the Company's products as
well as on the Company's business, financial condition and results of
operations.
Recently Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The adoption of
this Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
The AICPA Accounting Standards Executive Committee has issued Statement of
Position (`SOP") 98-1, Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use. This SOP requires that certain costs related to the
development and purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software, and is effective for fiscal
years beginning after December 15, 1998. The SOP also requires that costs
related to the preliminary project stage and post implementation/operations
stage in an internal-use computer software development project be expensed as
incurred. The adoption of this SOP did not have a material impact on the
Company's consolidated financial position or results of operations.
The AICPA Accounting Standards Executive Committee has issued SOP 98-5,
Reporting on the Costs of Start-up Activities. This SOP requires that costs
incurred during start-up activities, including organization costs, be expensed
as incurred, and is effective for the fiscal years beginning after December 15,
1998. The adoption of this SOP did not have a material impact on the Company's
consolidated financial position or results of operations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company owns financial instruments that are sensitive to market risks
as part of its investment portfolio. The investment portfolio is used to
preserve the Company's capital until it is required to fund operations,
including the Company's research and development activities. None of these
market-risk sensitive instruments are held for trading purposes. The Company
does not own derivative financial instruments in its investment portfolio. The
investment portfolio contains instruments that are subject to the risk of a
decline in interest rates.
Investment Rate Risk - The Company's investment portfolio includes debt
instruments that are primarily United States government bonds and high grade
corporate bonds of less than three years in maturity. These bonds are subject to
interest risk, and could decline in value if interest rates fluctuate. The
Company's investment portfolio also consists of certain commercial paper, which
is also subject to interest rate risk. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995
This report contains forward-looking information relating to Zoom's plans,
expectations and intentions, including without limitation the financial and
other contributions expected, in connection with Zoom's acquisition of the Hayes
modem assets referenced in this report, Zoom's expected favorable impact from
the sale of modems using materials purchased at favorable prices, Zoom's
anticipation to continue to make modest investments in equipment and in
improvements to its facilities during fiscal year 1999, and the sufficiency of
Zoom's cash, together with funds generated from operations and available sources
of financing, to meet normal working capital requirements for the remainder of
fiscal year 1999. Actual results may be materially different than those
expectations as a result of known and unknown risks, including those set forth
below. Acquisitions involve numerous risks, including difficulties in the
assimilation of operations and products of acquired businesses, the ability to
manage geographically remote units and the potential loss of key employees of
the acquired companies. Other risks relating to the forward-looking statements
contained in this report, include, without limitation: significant risks and
uncertainties generally applicable to modem and data communications products,
such as rapid technological change and intense competition, uncertainty of new
product development, early stage of development of certain data communications
markets, uncertainty of market growth, and overall product demand for 56K
modems; the ability to obtain additional financing, if required, at favorable
terms; Zoom's dependence upon a principal supplier for its modem chipsets and on
third-party assemblers; the concentration of Zoom's customers; risks of product
returns and price-protection, sales channel risks and risks associated with
international sales; and other risks set forth in Zoom's filings with the
Securities and Exchange Commission. Zoom cautions readers not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date made. Zoom expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such statements to reflect any change
in the Zoom's expectations or any change in events, conditions or circumstance
on which any such statement is based.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
No material developments in the quarter ended March 31, 1999.
ITEM 6 - Exhibits and reports on Form 8-K
(a) Exhibit Description Page
------- ----------- ----
2.1 Asset Purchase Agreement Between
Zoom Telephonics, Inc.and Hayes
Microcomputer Products, Inc.
Dated March 8, 1999 16-22
2.2 Asset Purchase Agreement Between
Zoom Telephonics, Inc.and Hayes
Microcomputer Products, Inc.
Dated March 29, 1999 23-29
27. Financial Data Schedule 30
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the
quarter ending March 31, 1999.
<PAGE>
ZOOM TELEPHONICS, INC.
FINANCIAL INFORMATION NOT AUDITED
The preceding financial information, with the exception of the consolidated
balance sheet at December 31, 1998, has not been audited. However, in the
opinion of management, all material adjustments, consisting only of normal
recurring accruals necessary to present a fair statement of the results for
these periods, have been reflected. The results for these periods are not
necessarily indicative of the results for the full fiscal year.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZOOM TELEPHONICS, INC.
Date: May 14, 1999 By: /s/ Frank Manning
--------------------------
Frank B. Manning, President
Date: May 14, 1999 By: /s/ Robert Crist
-------------------------
Robert Crist, Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of March 8, 1999, by and
between HAYES MICROCOMPUTER PRODUCTS, INC., a Delaware corporation with its
principal executive offices located at 1300 Quince Orchard Boulevard,
Gaithersburg, Maryland 20878, and its affiliated debtors and debtors in
possession (collectively, "Seller") and Zoom Telephonics, Inc., a Delaware
corporation with its principal executive offices located at 207 South Street,
Boston, Massachusetts 02111 ("Buyer").
R E C I T A L S
A. Seller has been engaged in the business of the design, manufacture,
and support of computer communication products for business, government, small
office and individual consumers worldwide (the "Business").
B. On October 9, 1998, Seller filed for reorganization under Chapter 11
of the United States Bankruptcy Code, Case No. 98-2276 through 98-2281(MFW) (the
"Bankruptcy Case") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court").
C. Buyer desires to purchase from Seller as debtors and debtors in
possession in the Bankruptcy Case, and Seller desires to sell to Buyer, certain
assets of Seller for the consideration and in accordance with the terms and
conditions set forth herein.
A G R E E M E N T
NOW THEREFORE, in consideration of the premises and their respective
undertakings, Seller and Buyer agree as follows:
1. Purchase and Sale.
a. The Assets. Buyer shall purchase from Seller, and Seller
shall sell to Buyer, subject to the terms and conditions of this Agreement and
the Order of the Bankruptcy Court dated February 22, 1999 approving the sale of
the assets from Seller to Buyer pursuant to Section 363 of the Bankruptcy Code
and authorizing and directing the Seller to close the transaction on terms
substantially similar to this agreement (the "Sale Order") of all of Seller's
right, title and interest in and to the assets set forth on Schedule 1 hereto
(the "Assets").
b. Cure of Executory Contracts. To the extent that the Buyer
requests the Seller to assume and assign to it any executory contracts
associated with the Assets purchased by the Buyer pursuant to this Agreement
("Assigned Contracts"), Buyer shall cure (to the extent necessary) the Assigned
Contracts in the cure amount set forth in the Debtor's notice of default amount
exclusively at Buyer's cost and expense (which shall be in addition to the
Purchase Price); provided, however, and subject to the foregoing, that Seller
agrees to use reasonable efforts to achieve the assumption and assignment of
such Assigned Contracts to the Buyer. The Assigned Contracts are included in
Schedule 1.
c. Assumption of Performance Obligations. Buyer and Seller
agree that Buyer is not assuming any liabilities or obligations whatsoever
except as expressly provided in paragraph b of this Section 1 and Section 18.
Buyer and Seller further agree that Seller shall have no obligations or
liabilities with respect to the Assets from and after the date of this
Agreement; any obligations or liabilities with respect to the Assets incurred
after the date of this Agreement shall be the responsibility of Buyer.
d. Receipt of Accounts Receivable. Seller shall promptly
transfer to Buyer any accounts receivable relating to the Assets that are
paid to Seller from and after the date of this Agreement or that are
otherwise the property of Buyer under the terms of this Agreement.
e. No Liens. Subject to paragraphs b and c of this Section 1,
the Assets shall be transferred to Buyer free and clear of all liens, claims
interests, liabilities, mortgages, debts, obligations, and encumbrances or other
claims or interests of whatever nature, including without limitation, the lien
of NationsCredit.
f. Excluded Assets. Except as specifically set forth herein,
Buyer is not and shall not be obligated to purchase any assets of Seller other
than the Assets. Buyer and Seller hereby acknowledge and agree that the Assets
do not include any assets of Seller other than those assets listed on Schedule 1
and specifically do not include: any tax refunds due or which may become due to
Seller, contracts or leases of Seller other than the Assigned Contracts, other
obligations of Seller not specifically assumed by Buyer, claims and causes of
action, and dividends.
2. Purchase Price.
a. Amount. The purchase price for the Assets shall be
$2,750,000, payable in cash at Closing (the "Purchase Price"), provided that the
Buyer's previous deposits in the amount of $275,000 and $12,500 deposited with
Seller's counsel shall be credited against the Purchase Price.
b. Payment. Buyer shall pay the Purchase Price at Closing by
wire transfer or other immediately available funds.
c. Taxes; Utilities. The Sale Order approving the transaction
herein provides that 11 U.S.C. [C167] 1146(c) applies to the sale of the Assets.
Any sales, use, transfer or other taxes not addressed by 11 U.S.C. [C167]
1146(c) that are due as a result of this transaction or imposed on the transfer
of the Assets by Seller shall be paid by Buyer. All real property ad valorem
taxes or assessments and the costs of all utilities paid or payable by Seller
with respect to the real properties being sold or whose leases are being
transferred shall be paid by Buyer.
d. Risk of Non-Assignability. The Sale Order (i) includes a
finding that adequate and sufficient notice of the Motion and Sale Hearing (as
defined in the Sale Order) was given to all parties with an interest in the
assets being sold and that no further notice of the Motion or the Sale Hearing
was necessary, (ii) authorizes the Seller to assume and assign and sell to Buyer
the Assigned Contracts identified herein and (iii) overrules any objections to
the assumption and assignment and sale of the Assigned Contracts that were not
either resolved or withdrawn at the Sale Hearing. As of the date hereof, neither
the Buyer nor the Seller are aware of any party to an Assigned Contract that is
contesting the assumption and assignment of any Assigned Contract, nor are they
aware of any basis upon which such party could succeed with such a challenge.
3. Seller's Representations. Seller hereby represents, warrants and
covenants to Buyer the following:
a. Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business and is in good standing in the States of Georgia
and Maryland. Seller has full corporate power and authority to execute and
deliver this Agreement and all documents and instruments specified in it and to
perform its obligations under this Agreement and under such instruments and
documents.
b. Authorization. The execution, delivery and performance of
this Agreement and all other documents and instruments specified herein, have
been, or prior to the Closing shall be, duly authorized by the Sale Order.
c. Binding Obligation. As provided by the Sale Order, this
Agreement and the other instruments and documents specified herein constitute
legal, valid and binding obligations of Seller, enforceable in accordance with
their respective terms.
d. Title. At the Closing, Buyer will acquire all of Seller's
right, title and interest in and to all the Assets, subject to Section 1(b) and
Section 1(c) hereof. With respect to the trademarks identified on Schedule 1,
Seller also transfers to Buyer all of Seller's right, title and interest to
elect whether, when, where and how such trademarks will be enforced, including,
without limitation, the initiation, prosecution and settlement of any action to
enforce such rights and to the proceeds of any action to enforce and/or for
infringement of the trademarks.
e. Interim Maintenance of Assets. Since the date of the Sale
Order, Seller has used reasonable efforts to maintain and preserve the Assets in
the manner and to the extent contemplated in the Bankruptcy Case and by the
Bankruptcy Court.
f. Interim Operations. Since the date of the Sale Order,
Seller has not, without an order of the Bankruptcy Court after notice to Buyer,
except in connection with debtor-in-possession financing:
(i) Made any substantial change in any Assets;
(ii) Sold, leased, transferred or otherwise disposed of
any Assets, except in the ordinary course of business;
(iii) Mortgaged, pledged or encumbered any Assets;
(iv) Waived or agreed to waive any rights of material value
to any Assets or allowed to lapse or failed to keep in force any material
license, permit, authorization or other material right relating to any
Assets; or
(v) Except in the ordinary course of business, made or
permitted any amendment or termination of any material contract, agreement
or license included in the Assets.
4. Buyer's Representations. Buyer hereby represents, warrants and
covenants to Seller thefollowing:
a. Organization. Buyer is a corporation duly organized under
the laws of the state of Delaware. Buyer has full corporate power and authority
to execute and deliver this Agreement and all documents and instruments
specified in it and to perform its obligations under this Agreement and under
such instruments and documents.
b. Authorization. The execution, delivery and performance of
this Agreement, and all other documents and instruments specified herein have
been duly authorized by all necessary corporate action.
c. Binding Obligation. Subject to the entry of the Sale Order,
this Agreement and the other instruments and documents specified herein, when
executed and delivered by Buyer, will constitute legal, valid and binding
obligations to Buyer, enforceable in accordance with their respective terms,
except to the extent that the enforcement thereof may be limited by bankruptcy,
reorganization, insolvency or similar laws of general applicability governing
the enforcement of the rights of creditors or by general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
5. Transition Cooperation. Seller shall use reasonable efforts to
cooperate with Buyer in all respects to ensure an efficient and convenient
transition of the Assets from Seller to Buyer.
6. Limitation on Liability. BUYER ACKNOWLEDGES AND AGREES THAT BUYER
AND ITS REPRESENTATIVES HAVE THE EXPERIENCE AND KNOWLEDGE TO EVALUATE THE
ASSETS; THAT BUYER AND ITS REPRESENTATIVES HAVE HAD ACCESS TO SUCH OF THE
INFORMATION AND DOCUMENTS AND TO SUCH OF THE ASSETS AS BUYER AND ITS
REPRESENTATIVES HAVE REQUESTED TO SEE AND/OR REVIEW; THAT BUYER AND ITS
REPRESENTATIVES HAVE HAD A FULL OPPORTUNITY TO MEET WITH APPROPRIATE MANAGEMENT
AND EMPLOYEES OF SELLER TO DISCUSS THE ASSETS; AND THAT, IN DETERMINING TO
ACQUIRE THE ASSETS, BUYER HAS MADE ITS OWN INVESTIGATION INTO, AND BASED THEREON
BUYER HAS MADE ITS OWN INDEPENDENT JUDGMENT CONCERNING THE ASSETS. IT IS
THEREFORE EXPRESSLY UNDERSTOOD AND AGREED THAT THE BUYER ACCEPTS THE CONDITION
OF THE ASSETS "AS IS, WHERE IS" WITHOUT ANY REPRESENTATION, WARRANTY OR
GUARANTEES, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR TITLE OR OTHERWISE AS TO THE CONDITION, SIZE, EXTENT, QUANTITY, TYPE
OR VALUE OF SUCH PROPERTY, EXCEPT ONLY AS MAY BE OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT AND SELLER HEREBY EXPRESSLY DISCLAIMS ANY AND ALL SUCH
REPRESENTATIONS, WARRANTY OR GUARANTEES.
7. Expenses. Buyer and Seller shall each pay their own expenses
incurred in connection with this Agreement and the transactions contemplated
herein, whether or not the transactions contemplated herein are consummated.
Except as set forth in Section 9 of this Agreement, Seller and Buyer shall
indemnify each other against any claim or third parties for brokerage
commissions, finder's fees or the like in connection with the transactions
contemplated herein insofar as such claims are alleged to be based on
arrangements or agreements made by the other party.
8. Buyer as Good Faith Buyer. The Seller agrees that (i) the Buyer is a
"good faith Buyer" within the meaning of Section 363(m) of the Bankruptcy Code
and is thereby entitled to the protection afforded good faith, arm's-length
Buyers, (ii) the purchase price is fair and reasonable, (iii) this Agreement was
negotiated at arm's-length and (iv) the Buyer does not have any agreement or
understanding with a present or former officer or director of the Seller unless
specifically disclosed to the Seller in writing. The Sale Order shall contain a
finding that the Buyer is a "good faith Buyer" within the meaning of Section
363(m) of the Bankruptcy Code.
9. No Broker's Fees. Other than fees payable to Volpe Brown Whelan &
Company, LLL, the Seller has not agreed to pay any broker's or finder's fee or
commission with respect to the purchase of the Assets or the transactions
contemplated hereby. Buyer shall have no responsibility for payment of the fees
of Volpe Brown Whelan & Company with respect to sale of the Assets and the
transactions contemplated hereby.
10. Governing Law; Venue and Jurisdiction. This Agreement shall be
governed by the laws of the State of Delaware, without regard to its choice of
law provisions. In the event either party shall institute a legal action as a
result of the default in the other party's performance under this Agreement, or
for any breach of this Agreement, any such action shall be brought exclusively
in the Bankruptcy Court.
11. Binding. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns, including any trustee appointed pursuant to Title 11 of
the United States Code.
12. Entire Agreement. This Agreement and accompanying schedules contain
the full and complete understanding of the parties hereto with respect to the
acquisition of the Assets and all other transactions contemplated herein and
supersede all prior agreements or understandings among the parties hereto
relating to the subject matter hereof.
13. Amendment. This Agreement may be amended, modified or supplemented
only by written instruments signed by both Buyer and Seller.
14. Notices. All notices, requests, demands and other communications
under this Agreement to the parties shall be in writing and shall be personally
delivered or sent by commercial courier, facsimile (with the original by mail)
or certified or registered mail, postage prepaid, to the following addresses:
Seller: Hayes Microcomputer Products, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
with copies to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attn: Peter D. Wolfson
Buyer: Zoom Telephonics Inc.
207 South Street
Boston, Massachusetts 02111
with copies to: Montgomery, McCracken, Walker & Rhoads LLP
123 S. Broad Street, 24th Floor
Philadelphia, PA 19109
Attn: Natalie D. Ramsey, Esq.
- and -
Field Fisher Waterhouse
35 Vine Street
London EC3N 2AA
Attn: Andrew Blankfield
Any party may change its address for purposes of this Section 13 by
giving all the other parties notice of the new address in the manner set forth
herein. Any notice given as set forth herein shall be deemed to be received on
the earlier of actual receipt or four (4) business days after being sent.
15. Time of Essence. Time is of the essence with respect to this
Agreement and the transactions contemplated hereby.
16. Severability. In the event any one or more of the provisions herein
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement and
any application thereof shall not in any way be affected or impaired thereby.
17. Counterparts. This Agreement may be executed in one or more
counterparts by original or facsimile signature, each of which shall be deemed
to be an original and all of which together shall constitute one and the same
agreement.
18. Value Added Tax.
a. The parties intend, and shall use all reasonable endeavors
to procure that the sale of the Assets is deemed to be a transfer of a business
as a going concern for the purposes of Section 49 of and paragraph 8(1)(a) of
Schedule 4 to the Value Added Tax Act 1994 and Article 5(1) of the Value Added
Tax (Special Provisions) Order 1995 and they shall render all reasonable
assistance to each other to satisfy HM Customs and Excise that the sale of such
items is neither a supply of goods or a supply of services for Value Added Tax
("VAT") purposes.
b. At Closing the Seller will procure the delivery to the
Buyer of all the records relating to the Assets that are required under Section
49 (1)(b) of the Value Added Tax Act 1994 to be preserved by the Buyer in place
of the Seller and will not at any time make a request to HM Customs and Excise
for those records to be taken out of the custody of the Buyer. For a period of
not less than 6 years from Closing (or such longer period as may be required by
law) the Buyer will preserve the records delivered to it by the Seller under
this clause.
c. Notwithstanding the provisions of paragraphs (a) and (b)
above, in the event that VAT is chargeable on the sale of any of the Assets the
Buyer shall (against production of a tax invoice in respect thereof) pay to the
Seller in cleared funds the amount of any VAT due one day prior to such VAT
being due to HM Customs and Excise provided that at least fourteen days notice
has been given to the Buyer in writing of such date. All amounts referred to in
this Agreement are exclusive of VAT which shall be payable in addition where
chargeable.
d. The Buyer hereby agrees to pay, and save the Seller
harmless against liability for the payment of any costs and expenses incurred by
the Seller, including, without limitation, the reasonable fees and disbursements
of legal counsel engaged by the Seller, in connection with costs and expenses
incurred by Seller in connection with this Section 17 including but not limited
to the costs and expenses, including reasonable attorney's fees, incurred by the
Seller in enforcing its rights, if necessary, under this Section 17.
e. The Seller will, as far as reasonably practicable, keep the
Buyer informed of any communications it may have with HM Customs and Excise in
connection with this Agreement which may affect the Buyer's tax liabilities and
will forthwith supply to the Buyer copies of all correspondence in connection
therewith and will prior to any communication being sent to HM Customs and
Excise agree to the form thereof with the Buyer.
19. Employees. All obligations, including, without limitation, wages,
salaries, benefits and applicable taxes, relating to former employees of Seller
who become employees of Buyer pursuant to the transactions contemplated by this
Agreement shall be the sole responsibility of Buyer, to the extent that those
obligations transfer to the Buyer under the Transfer of Undertakings (Protection
of Employment) Regulations 1981 (as amended), but not otherwise.
Schedules
Schedules to this Exhibit have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company agrees to provide the Commission with a copy of any
omitted schedule to this Exhibit upon the Commission's request.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective duly authorized officers as of the date first above written.
SELLER:
HAYES MICROCOMPUTER PRODUCTS, INC.
By: /s/Stephen P. Mank
--------------------------
Stephen P. Mank, Chief Executive Officer
BUYER:
ZOOM TELEPHONICS, INC.
By: /s/ Frank Manning
--------------------------
Frank B. Manning, President
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of March 29, 1999, by and
between HAYES MICROCOMPUTER PRODUCTS, INC., a Delaware corporation with its
principal executive offices located at 1300 Quince Orchard Boulevard,
Gaithersburg, Maryland 20878, and its affiliated debtors and debtors in
possession (collectively, "Seller") and Zoom Telephonics, Inc., a Delaware
corporation with its principal executive offices located at 207 South Street,
Boston, Massachusetts 02111 ("Buyer").
R E C I T A L S
1. Seller has been engaged in the business of the design,
manufacture, and support of computer communication
products for business, government, small office and
individual consumers worldwide (the "Business").
2. On October 9, 1998, Seller filed for reorganization under
Chapter 11 of the United States Bankruptcy Code, Case No.
98-2276 through 98-2281(MFW) (the "Bankruptcy Case") in
the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court").
3. Buyer desires to purchase from Seller as debtors and debtors in possession in
the Bankruptcy Case, and Seller desires to sell to Buyer, certain assets of
Seller for the consideration and in accordance with the terms and conditions set
forth herein.
A G R E E M E N T
NOW THEREFORE, in consideration of the premises and their respective
undertakings, Seller and Buyer agree as follows:
1. Purchase and Sale.
a. The Assets. Buyer shall purchase from Seller, and Seller
shall sell to Buyer, subject to the terms and conditions of this Agreement and
the Order of the Bankruptcy Court dated February 22, 1999 approving the sale of
the assets from Seller to Buyer pursuant to Section 363 of the Bankruptcy Code
and authorizing and directing the Seller to close the transaction on terms
substantially similar to this agreement (the "Sale Order") of all of Seller's
right, title and interest in and to the assets set forth on Schedule 1 hereto
(the "Assets"). In addition, in accordance with the terms of the Confidential
Bidding Packages and Procedures (the "Bidding Packages") and the Addendum to
Bidding Packages and Procedures ("Addendum") prepared by Volpe Brown Whelan &
Company, LLC on behalf of Seller in connection with that certain auction held on
February 19, 1999 and subsequently, all patents which were referred to in both
Package 14 and Package 1 shall be available for use on a royalty free basis to
the Buyer.
b. Cure of Executory Contracts. To the extent that the Buyer
requests the Seller to assume and assign to it any executory contracts
associated with the Assets purchased by the Buyer pursuant to this Agreement
("Assigned Contracts"), Buyer shall cure (to the extent necessary) the Assigned
Contracts in the cure amount set forth in the Debtor's notice of default amount
exclusively at Buyer's cost and expense (which shall be in addition to the
Purchase Price); provided, however, and subject to the foregoing, that Seller
agrees to use reasonable efforts to achieve the assumption and assignment of
such Assigned Contracts to the Buyer. The Assigned Contracts are included in
Schedule 1.
c. Assumption of Performance Obligations. Buyer and Seller
agree that Buyer is not assuming any liabilities or obligations whatsoever
except as expressly provided in paragraph b of this Section 1. Buyer and
Seller further agree that Seller shall have no obligations or liabilities
with respect to the Assets from and after the date of this Agreement; any
obligations or liabilities with respect to the Assets incurred after the date
of this Agreement shall be the responsibility of Buyer.
d. No Liens. Subject to paragraphs b and c of this Section 1,
the Assets shall be transferred to Buyer free and clear of all liens, claims
interests, liabilities, mortgages, debts, obligations, and encumbrances or other
claims or interests of whatever nature, including without limitation, the lien
of NationsCredit.
e. Excluded Assets. Except as specifically set forth herein,
Buyer is not and shall not be obligated to purchase any assets of Seller other
than the Assets. Buyer and Seller hereby acknowledge and agree that the Assets
do not include any assets of Seller other than those assets listed on Schedule 1
and specifically do not include: any tax refunds due or which may become due to
Seller, contracts or leases of Seller other than the Assigned Contracts, other
obligations of Seller not specifically assumed by Buyer, claims and causes of
action, and dividends.
2. Purchase Price.
a. Amount. The purchase price for the Assets shall be
$2,000,000, payable in cash at Closing (the "Purchase Price"), provided that the
Buyer's previous deposits in the amount of $200,000 deposited with Seller's
counsel shall be credited against the Purchase Price.
b. Payment. Buyer shall pay the Purchase Price at Closing by
wire transfer or other immediately available funds.
c. Taxes; Utilities. The Sale Order approving the transaction
herein provides that 11 U.S.C. [C167] 1146(c) applies to the sale of the Assets.
Any sales, use, transfer or other taxes not addressed by 11 U.S.C. [C167]
1146(c) that are due as a result of this transaction or imposed on the transfer
of the Assets by Seller shall be paid by Buyer.
d. Risk of Non-Assignability. The Sale Order (i) includes a
finding that adequate and sufficient notice of the Motion and Sale Hearing (as
defined in the Sale Order) was given to all parties with an interest in the
assets being sold and that no further notice of the Motion or the Sale Hearing
was necessary, (ii) authorizes the Seller to assume and assign and sell to Buyer
the Assigned Contracts identified herein and (iii) overrules any objections to
the assumption and assignment and sale of the Assigned Contracts that were not
either resolved or withdrawn at the Sale Hearing. As of the date hereof, neither
the Buyer nor the Seller are aware of any party to an Assigned Contract that is
contesting the assumption and assignment of any Assigned Contract, nor are they
aware of any basis upon which such party could succeed with such a challenge,
except that Refac Corporation has disputed the amount necessary to cure pre- and
post-petition breaches of its agreement with the Seller.
3. Seller's Representations. Seller hereby represents, warrants and
covenants to Buyer the following:
a. Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business and is in good standing in the States of Georgia
and Maryland. Seller has full corporate power and authority to execute and
deliver this Agreement and all documents and instruments specified in it and to
perform its obligations under this Agreement and under such instruments and
documents.
b. Authorization. The execution, delivery and performance of
this Agreement and all other documents and instruments specified herein, have
been, or prior to the Closing shall be, duly authorized by the Sale Order.
c. Binding Obligation. As provided by the Sale Order, this
Agreement and the other instruments and documents specified herein constitute
legal, valid and binding obligations of Seller, enforceable in accordance with
their respective terms.
d. Title. At the Closing, Buyer will acquire all of Seller's
right, title and interest in and to all the Assets, subject to Section 1(b) and
Section 1(c) hereof. With respect to the trademarks identified on Schedule 1,
Seller also transfers to Buyer all of Seller's right, title and interest to
elect whether, when, where and how such trademarks will be enforced, including,
without limitation, the initiation, prosecution and settlement of any action to
enforce such rights and to the proceeds of any action to enforce and/or for
infringement of the trademarks. With respect to the patents identified on
Schedule 2, Seller also transfers to Buyer all of Seller's right, title and
interest to elect whether, when, where and how such patents will be enforced,
including, without limitation, the initiation, prosecution and settlement of any
action to enforce such rights and to the proceeds of any action to enforce
and/or for infringement of the patents.
e. Interim Maintenance of Assets. Since the date of the Sale
Order, Seller has used reasonable efforts to maintain and preserve the Assets in
the manner and to the extent contemplated in the Bankruptcy Case and by the
Bankruptcy Court.
f. Interim Operations. Since the date of the Sale Order,
Seller has not, without an order of the Bankruptcy Court after notice to Buyer,
except in connection with debtor-in-possession financing:
(i) Made any substantial change in any Assets;
(ii) Sold, leased, transferred or otherwise
disposed of any Assets, except in the ordinary course of business;
(iii) Mortgaged, pledged or encumbered any Assets;
(iv) Waived or agreed to waive any rights of
material value to any Assets or allowed to lapse or failed to
keep in force any material license, permit,authorization or other
material right relating to any Assets; or
(v) Except in the ordinary course of business,
made or permitted any amendment or termination of any material
contract, agreement or license included in the Assets.
g. Confidential, Proprietary Information. Seller agrees to
maintain any and all information concerning and/or relating to the assets
purchased by Zoom and the business of Seller related to the assets purchased by
Zoom (the "Information") in strict confidence, except as specifically set forth
herein. Seller may make the Information available to NationsCredit Commercial
Corporation ("NationsCredit"), a bankruptcy trustee appointed by the Bankruptcy
Court and to such other person or entity as required by final order of a court
of competent jurisdiction after notice to and opportunity to participate by the
Buyer (collectively, the "Authorized Persons"), provided that Seller shall
require such Authorized Persons to hold the Information in strict confidence and
shall not duplicate, use or disclose the Information except to the limited
extent specifically permitted herein. NationsCredit may use the Information to
the extent necessary to determine, confirm or enforce its rights as a secured
creditor of the Seller but may not disclose, publish or make known the
Information without the prior written consent of Buyer or an order of a court of
competent jurisdiction after notice to and an opportunity to participate by
Buyer. A bankruptcy trustee may use the Information in the course of his or her
statutory duties, provided that such bankruptcy trustee does not disclose,
publish or make known the Information without the prior written consent of Buyer
or an order of the Bankruptcy Court after notice to and an opportunity to
participate by Buyer. If and to the extent that Seller sells, transfers, sells
or otherwise makes available or accessible to any person or entity other than
the Authorized Persons that certain computer system known as the Oracle System,
Seller shall do so only after erasing or otherwise eliminating from the Oracle
System the Information.
4. Buyer's Representations. Buyer hereby represents, warrants
and covenants to Seller the following:
a. Organization. Buyer is a corporation duly organized under
the laws of the state of Delaware. Buyer has full corporate power and authority
to execute and deliver this Agreement and all documents and instruments
specified in it and to perform its obligations under this Agreement and under
such instruments and documents.
b. Authorization. The execution, delivery and performance of
this Agreement, and all other documents and instruments specified herein have
been duly authorized by all necessary corporate action.
c. Binding Obligation. Subject to the entry of the Sale Order,
this Agreement and the other instruments and documents specified herein, when
executed and delivered by Buyer, will constitute legal, valid and binding
obligations to Buyer, enforceable in accordance with their respective terms,
except to the extent that the enforcement thereof may be limited by bankruptcy,
reorganization, insolvency or similar laws of general applicability governing
the enforcement of the rights of creditors or by general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
5. Transition Cooperation. Seller shall use reasonable efforts to
cooperate with Buyer in all respects to ensure an efficient and convenient
transition of the Assets from Seller to Buyer.
6. Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties shall use all reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws, regulations, and contracts
to consummate and make effective the transactions contemplated by this
Agreement. Seller represents that it has back up tapes containing information
that Seller maintained on computer concerning and/or relating to the Assets (the
"Back Up Tapes"). Seller agrees, on its own behalf and for and on behalf of its
successors and assigns, to provide Buyer with access to the Information as Buyer
reasonably requires to maximize the full use and value of the Assets. To the
extent Buyer requires Information contained on the Back Up Tapes, Seller agrees
to provide access to the Back Up Tapes within 10 calendar days following Buyer's
request. Buyer's request shall be directed to the following individuals under
the following circumstances: (a) while the Seller remains a debtor in
possession, Buyer shall contact Steven Mank and/or counsel for Buyer; (b) to the
extent that a bankruptcy trustee is appointed by the Bankruptcy Court, Buyer
shall contact the bankruptcy trustee and/or his or her counsel; (c) to the
extent that a third party has physical possession of the Back Up Tapes in
connection with efforts to collect the accounts receivable of the Seller, Buyer
shall contact such third party for access; and (d) to the extent that
NationsCredit has physical possession of the Back Up Tapes, Buyer shall contact
Steven Blumberg and/or counsel for NationsCredit. Seller will take and will
require that reasonable care be exercised to maintain and preserve the Back Up
Tapes. Seller makes no representation concerning computer technology or
personnel to assist Buyer in obtaining the information it requests from the Back
Up Tapes.
7. Assignment. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors,
legal representatives and assigns.
8. Limitation on Liability. BUYER ACKNOWLEDGES AND AGREES THAT BUYER
AND ITS REPRESENTATIVES HAVE THE EXPERIENCE AND KNOWLEDGE TO EVALUATE THE
ASSETS; THAT BUYER AND ITS REPRESENTATIVES HAVE HAD ACCESS TO SUCH OF THE
INFORMATION AND DOCUMENTS AND TO SUCH OF THE ASSETS AS BUYER AND ITS
REPRESENTATIVES HAVE REQUESTED TO SEE AND/OR REVIEW; THAT BUYER AND ITS
REPRESENTATIVES HAVE HAD A FULL OPPORTUNITY TO MEET WITH APPROPRIATE MANAGEMENT
AND EMPLOYEES OF SELLER TO DISCUSS THE ASSETS; AND THAT, IN DETERMINING TO
ACQUIRE THE ASSETS, BUYER HAS MADE ITS OWN INVESTIGATION INTO, AND BASED THEREON
BUYER HAS MADE ITS OWN INDEPENDENT JUDGMENT CONCERNING THE ASSETS. IT IS
THEREFORE EXPRESSLY UNDERSTOOD AND AGREED THAT THE BUYER ACCEPTS THE CONDITION
OF THE ASSETS "AS IS, WHERE IS" WITHOUT ANY REPRESENTATION, WARRANTY OR
GUARANTEES, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR TITLE OR OTHERWISE AS TO THE CONDITION, SIZE, EXTENT, QUANTITY, TYPE
OR VALUE OF SUCH PROPERTY, EXCEPT ONLY AS MAY BE OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT AND SELLER HEREBY EXPRESSLY DISCLAIMS ANY AND ALL SUCH
REPRESENTATIONS, WARRANTY OR GUARANTEES.
9. Expenses. Buyer and Seller shall each pay their own expenses
incurred in connection with this Agreement and the transactions contemplated
herein, whether or not the transactions contemplated herein are consummated.
Except as set forth in Section 9 of this Agreement, Seller and Buyer shall
indemnify each other against any claim or third parties for brokerage
commissions, finder's fees or the like in connection with the transactions
contemplated herein insofar as such claims are alleged to be based on
arrangements or agreements made by the other party.
10. Buyer as Good Faith Buyer. The Seller agrees that (i) the Buyer is
a "good faith Buyer" within the meaning of Section 363(m) of the Bankruptcy Code
and is thereby entitled to the protection afforded good faith, arm's-length
Buyers, (ii) the purchase price is fair and reasonable, (iii) this Agreement was
negotiated at arm's-length and (iv) the Buyer does not have any agreement or
understanding with a present or former officer or director of the Seller unless
specifically disclosed to the Seller in writing. The Sale Order shall contain a
finding that the Buyer is a "good faith Buyer" within the meaning of Section
363(m) of the Bankruptcy Code.
11. No Broker's Fees. Other than fees payable to Volpe Brown Whelan &
Company, LLL, the Seller has not agreed to pay any broker's or finder's fee or
commission with respect to the purchase of the Assets or the transactions
contemplated hereby. Buyer shall have no responsibility for payment of the fees
of Volpe Brown Whelan & Company with respect to sale of the Assets and the
transactions contemplated hereby.
12. Governing Law; Venue and Jurisdiction. This Agreement shall be
governed by the laws of the State of Delaware, without regard to its choice of
law provisions. In the event either party shall institute a legal action as a
result of the default in the other party's performance under this Agreement, or
for any breach of this Agreement, any such action shall be brought exclusively
in the Bankruptcy Court.
13. Binding. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective representatives,
successors and assigns, including any trustee appointed pursuant to Title 11 of
the United States Code.
14. Entire Agreement. This Agreement and accompanying schedules contain
the full and complete understanding of the parties hereto with respect to the
acquisition of the Assets and all other transactions contemplated herein and
supersede all prior agreements or understandings among the parties hereto
relating to the subject matter hereof.
15. Amendment. This Agreement may be amended, modified or
supplemented only by written instruments signed by both Buyer and Seller.
16. Notices. All notices, requests, demands and other communications
under this Agreement to the parties shall be in writing and shall be personally
delivered or sent by commercial courier, facsimile (with the original by mail)
or certified or registered mail, postage prepaid, to the following addresses:
Seller: Hayes Microcomputer Products, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
with copies to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attn: Peter D. Wolfson
Buyer: Zoom Telephonics Inc.
207 South Street
Boston, Massachusetts 02111
with copies to: Montgomery, McCracken, Walker & Rhoads LLP
123 S. Broad Street, 24th Floor
Philadelphia, PA 19109
Attn: Natalie D. Ramsey, Esq.
Any party may change its address for purposes of this Section 13 by
giving all the other parties notice of the new address in the manner set forth
herein. Any notice given as set forth herein shall be deemed to be received on
the earlier of actual receipt or four (4) business days after being sent.
17. Time of Essence. Time is of the essence with respect to this
Agreement and the transactionscontemplated hereby.
18. Severability. In the event any one or more of the provisions herein
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement and
any application thereof shall not in any way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in one or more
counterparts by original or facsimile signature, each of which shall be deemed
to be an original and all of which together shall constitute one and the same
agreement.
Schedules
Schedules to this Exhibit have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company agrees to provide the Commission with a copy of any
omitted schedule to this Exhibit upon the Commission's request.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective duly authorized officers as of the date first above written.
SELLER:
HAYES MICROCOMPUTER PRODUCTS, INC.
By: /s/Stephen P. Mank
--------------------------
Stephen P. Mank, Chief Executive Officer
BUYER:
ZOOM TELEPHONICS, INC.
By: /s/ Frank Manning
--------------------------
Frank B. Manning, President
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